Sistema Annual Report 2011

FY2011 Annual Report · Sistema

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Pre-approved by the
Board of Directors of
Sistema JSFC
on 25 May 2012
Minutes No 04-12
Dated 30 May 2012

Approved by the Annual General
Meeting of
Sistema JSFC
on 30 June 2012
Minutes No 2-12
Dated 02 July 2012

ANNUAL REPORT
of Open Joint-Stock Company
Sistema Joint-Stock Financial Corporation
for 2011

This report has been compiled pursuant to the requirements of the
Federal Law "On the stock market". Financial information set out in
this Annual report is based on the accounting data compiled pursuant
to the Russian laws, and contains elements of consolidated financial
reports compiled under international standards.

Moscow 2012

CONTENTS

1. Company's position in the sector

1.1. Profile of Sistema JSFC
1.2. Equity capital structure of Sistema JSFC

2. Priority business areas and development strategy

2.1. Mission and strategy of Sistema JSFC
2.2. Portfolio of Sistema JSFC

3. Report from the Board of Directors on the results of the

Company's development in the priority areas

3.1. Key Events in 2011

3.2. Events after the reporting period

3.3. Russian Accounting Standards (RAS) financial results of Sistema JSFC

3.4. US GAAP consolidated financial results of Sistema JSFC

3.5. Credit ratings of Sistema JSFC

3.6. Report on payment of announced (paid out) dividends on the shares of Sistema

JSFC

4. Outlook and development strategy of the Sistema Group

4.1. Core Assets

MTS

Bashneft

Bashkirenergo

4.2. Developing Assets

Sistema Mass-media

MTS-Bank

Detsky Mir

Intourist

Medsi

RTI

Binnopharm

RussNeft

SSTL

NIS

5. Description of core risk factors

5.1. External risks

5.2. Risks related to the core activities of Sistema JSFC

6. Corporate governance system

7
8

19
19

20
20

6.1. General Meeting of shareholders

6.2. Board of Directors

6.3. President

6.4. Management Board

6.5. Specifics of the risk management, internal control and audit system
6.6. Specifics of corporate governance system development in 2011

7. Social responsibility

8. Criteria for and amounts of remuneration of the members of the

Board of Directors and top executives of the Company

9. Annex

9.1. Summary biographies of the members of the Board of Directors and their

shareholdings in Sistema JSFC

9.2. Information on transactions performed by members of the Board of Directors of
Sistema JSFC with the shares they hold in the Company over the period from 1
January till 31 December 2010

9.3. Summary biographies of the President of Sistema JSFC and the members of the

Management Board

9.4. Information on the number of shares of Sistema JSFC held by the President and

the Management Board members

9.5. List of transactions performed by the Company in the reporting year that are
recognized as major transactions under the Federal Law "On joint-stock
companies", and other transactions covered by the major transactions approval
procedure pursuant to the Company's Charter

9.6 List of transactions performed by the Company in the reporting year that are
recognized as related party transactions under the Federal Law "On joint-stock
companies"

9.7 Information on the Company's compliance with the requirements of the Corporate

Conduct Code from the Federal Service for Financial Markets

9.8. Information on the Company's compliance with the requirements of the UK

Combined Corporate Governance Code

60
61

67
67

1. COMPANY'S POSITION IN THE SECTOR

1.1. Profile of Sistema JSFC

Sistema JSFC is Russia's largest publicly listed investment company. Incorporated in 1993, Sistema JSFC is now
one of Russia's top-10 companies by revenues and is one of the largest investment companies in the world. It
focuses on achieving long-term growth for its shareholders through high returns and diversification of its portfolio
of investments. The company’s portfolio comprises stakes in predominantly Russian businesses in a range of
sectors, including telecommunications, oil, utilities, consumer, high tech and others. Sistema is the controlling
shareholder in most of its portfolio companies. The companies of the Sistema Group service more than 100 million
customers in their sectors.

Sistema is unique among Russian public investment companies, and provides investors with unique investment
opportunities. The Corporation's investment activities support the growth of its shareholder value and provide for
the maximum possible returns on its portfolio of assets. Sistema is managed by a highly professional management
team, in line with the generally recognized corporate governance standards. The experience of the Board members
and the management, as well as the opportunities they have, make it possible for them to gain access to unique
objects for investment and funding, to create businesses that take leading positions in their sectors and rely on their
long-term success and on a high level of profits for the shareholders.

The portfolio assets of the Sistema Group are grouped into two Business Units: Core Assets and Developing
Assets.

The Core Assets business unit includes companies being leaders in their industries which generate a stable high
cash flow for the Group. The businesses have well-developed operations and service their liabilities independently.
The Core Assets portfolio includes such mature businesses as Bashneft, one of Russia's largest oil companies;
MTS, the first telecom company in Russia and the CIS; and Bashkirenergo, the leading energy sector company in
the Republic of Bashkortostan.

The Developing Assets business unit includes investments in companies at an earlier stage of their development,
typically in high growth sectors. The Developing Assets portfolio includes Detsky Mir-Center, MTS Bank, Medsi
Group, RTI, Intourist, Russneft, Sistema Mass Media, Sistema Shyam TeleService Ltd. (SSTL), Binnopharm and
NIS.

Sistema continuously monitors opportunities to create value through regular management of its portfolio,
investments in new projects, restructuring of current assets and building strategic partnerships. While assessing new
investment opportunities, Sistema considers sufficiently large projects*1or transactions in the industries of its
current operation. The Corporation seeks to establish partnerships with leading local and international companies to
help maximize the growth of its investments.

1.2. Equity structure of Sistema JSFC **

Sistema JSFC has 9,650,000,000 ordinary shares outstanding with the par value of RUR0.9 each. Its shareholder
capital amounts to RUR 868,500,000.

In February 2005, Sistema JSFC held the initial public offering and listing of its shares on the London Stock
Exchange under the SSA ticker. The Company's shares are traded at the London Stock Exchange (LSE) in the form
of global depositary receipts (GDRs). One GDR represents 20 ordinary shares. The company’s ordinary shares are
also traded under the AFKC ticker on the MICEX-RTS Stock Exchange, and under the SIST ticker - on the
Moscow Stock Exchange. About 19% of shares are traded as GDRs on the London Stock Exchange, and 7.75% of
shares are in circulation at MICEX-RTS.

*1 at least USD 300m of value
** as of 31.12.2011

As of 31.12.2012, the Sistema Group included four public subsidiaries: the shares of MTS are traded as ADRs on
the New York Stock Exchange and as ordinary shares at MISEX-RTS; the shares of the Bashneft Group and
Bashkirenergo are also listed at MICEX-RTS. The shares of Sitronics in the form of GDRs are listed at the London
Stock Exchange.

Comparative performance of the RTS Index and the GDRs of Sistema JSFC at the London Stock Exchange

30%

20%

10%

-10%

-20%

-30%

-40%

-50%

-60%

GDR Sistema JSFC

RTSI

1
1
0
2
1
0
1
0

1
1
0
2
1
0
2
2

1
1
0
2
2
0
2
1

1
1
0
2
3
0
5
0

1
1
0
2
3
0
6
2

1
1
0
2
4
0
6
1

1
1
0
2
5
0
7
0

1
1
0
2
5
0
8
2

1
1
0
2
6
0
8
1

1
1
0
2
7
0
9
0

1
1
0
2
7
0
0
3

1
1
0
2
8
0
0
2

1
1
0
2
9
0
0
1

1
1
0
2
0
1
1
0

1
1
0
2
0
1
2
2

1
1
0
2
1
1
2
1

1
1
0
2
2
1
3
0

1
1
0
2
2
1
4
2

* according to Bloomberg

The closing price of Sistema’s GDR on the London Stock Exchange on the first day of trading of 2011 was $24.93,
on the last day of trading it was $16.81. The price of the Corporation's GDRs reached its peak of $30.4 on 4 April
2011, and its lowest level of $13.02 on 4 October 2011.

Comparative performance of the RTS index and the Sistema JSFC share price at MICEX

40%

30%

20%

10%

-10%

-20%

-30%

-40%

AFKS

RTSI

1
1
0
2
1
0
2
0

1
1
0
2
1
0
3
2

1
1
0
2
2
0
3
1

1
1
0
2
3
0
6
0

1
1
0
2
3
0
7
2

1
1
0
2
4
0
7
1

1
1
0
2
5
0
8
0

1
1
0
2
5
0
9
2

1
1
0
2
6
0
9
1

1
1
0
2
7
0
0
1

1
1
0
2
7
0
1
3

1
1
0
2
8
0
1
2

1
1
0
2
9
0
1
1

1
1
0
2
0
1
2
0

1
1
0
2
0
1
3
2

1
1
0
2
1
1
3
1

1
1
0
2
2
1
4
0

1
1
0
2
2
1
5
2

The closing price of the shares of Sistema on the first day of trading of 2011 at MICEX was RUR27.24, and on the
last day of trading of 2011 it was RUR23.41. The Corporation's ordinary shares reached their peak of RUR35.58 on
04 April 2011. The Corporation's ordinary shares reached their lowest price of RUR20.30 on 04 October 2011.

Sistema JSFC shareholder equity structure*

1,96% 5,45%

5,79%

3,61%

19,01%

Vladimir Evtushenkov

DEUTSCHE BANK TRUST COMPANY AMERICAS

Sistema Finance Investments

Depository Clearing Company

National Settlement Depository

64,18%

Other shareholders

* as of 31.12.2011

As of 31 December 2011, Sistema’s shareholder register had 19 individuals and 9 legal entities, including 7
nominal holders, registered as shareholders.

The Chairman of the Board of Directors of Sistema JSFC Vladimir Evtushenkov, with 64.18% of shares, is the
principal shareholder of Sistema JSFC.

Structure of Sistema JSFC GDR holders**

SKAGEN Fondene

J.P. Morgan Asset Management

13,99%

GIC Asset Management Pte.

49,63%

10,08%

4,48%

4,45%

3,93%

3,48%

2,35%

2,49%

2,76%

2,36%

** of the total number of GDRs of Sistema as of October 2011.

BNP Paribas Asset Investment Partners Belgium S.A.

DWS Investment GmbH

The Vanguard Group Inc.

ING Investment Management Advisors BV

AllianceBernstein L.P.

HSBC Global Asset Management

State Street Global Advisors

Other

2. PRIORITY BUSINESS AREAS AND DEVELOPMENT STRATEGY

2.1. Mission and strategy of Sistema JSFC

Mission

Sistema is focused on achieving long-term growth of shareholder value by deriving high returns on capital through
diversified investments. The Group’s investment portfolio is composed of unique businesses, including mature
companies which generate stable cash flows and developing companies at a more dynamic development stage.

Strategy

Sistema intends to increase its shareholder value by means of proactive portfolio management and reinvestment of
free and third party cash into new projects, and by means of increasing the level of return on invested capital on the
existing assets by improving the quality of corporate governance and effective restructuring of the assets.

Sistema is guided by the following principles in taking investment decisions:

Diversified portfolio of assets

- Sistema aims to maintain a balanced portfolio that includes large cash-
generating Core Assets, and Developing Assets that are at the active
business development stage.

- The Core Assets constitute the major part of the portfolio of Sistema,
which ensures material resources to maintain the financial stability of
the Corporation and to implement a balanced investment strategy,
including that in high-yield projects.

- Sistema aims towards industrial diversification into protective and
cyclical industries in order to reduce the risks and the volatility of the
portfolio.

Investment focus on industries and
geographies where Sistema has
competitive advantages

- Sistema is focused on industries and geographies of the current
portfolio companies, which makes it possible to realize potential
synergies.

- Sistema has determined the following attractive sectors for investment:
agriculture, mineral fertilizers, infrastructure, transport and logistics, as
well as chemicals and petrochemicals.
In all cases investment decisions are only taken provided that the
investment criteria for return on the capital of Sistema are met.

Proactive approach to investment
management

- Sistema proactively manages

its portfolio and aims

to effect

transactions that create the maximum value.

leading

Engaging
and Russian
partners

international
as

companies

- The following rule is applicable to all investments: IRR>WACC over

the investment horizon of 5-7 years.

- The Corporation takes advantage of the opportunities to restructure

assets to create additional value.

- Sistema continues to search for international and Russian partners for
its portfolio companies with the purpose to improve the level of their
industry expertise and use the best management practices.

- Engagement of partners also facilitates the diversification of financial

risks and freeing up capital for new investments.

2.2. Portfolio of Sistema JSFC

The portfolio companies of Sistema are organizationally structured into two business units:

- Core Assets;
- Developing Assets.

The assets are grouped based on the principle of their maturity so as to ensure the target portfolio structure, where
80% of NAV 2 belongs to the mature assets (the Core Assets) generating a stable dividend flow, and 20% is
contributed by the developing businesses (the Developing Assets).

2 NAV – Net Asset Value

3. REPORT FROM THE BOARD OF DIRECTORS ON THE RESULTS OF THE
COMPANY'S DEVELOPMENT IN THE PRIORITY AREAS

3.1 Key Events in 2011

1
1
0
2

In February 2011 Sistema JSFC and the Bank of Moscow established OJSC RTI. The Bank of Moscow,
y
acting as an investor of RTI, contributed RUR 3bn to the authorized capital of the new company. Sistema
r
a
JSFC contributed 97% of shares of the RTI Systems Concern and RUR2.88bn in cash in the authorized
u
r
capital of the new company. As a result the stake of the Bank of Moscow amounted to 15.4% of the
b
e
authorized capital of RTI, and that of Sistema – 84.6%.
F

In March 2011 Mikhail Shamolin was appointed the new President of the Corporation.

In March 2011 the transaction of the RF government acquiring a stake in Sistema Shyam TeleServices
Ltd. (SSTL) was completed. During the additional placement of shares in favor of the RF government
and the Indian shareholders, SSTL raised INR28, 894.5m (more than $647m as of the date of the
transaction) to its authorized capital. Rosimuschestvo, that represents the RF government, bought out
17.14% of SSTL shares to the total amount of INR26, 988m (about $600m). Following the additional
issue of shares, the stake of the Corporation in the authorized capital of SSTL amounted to 56.88%, and
the stake of the Indian partners – 26.05%.

h
c
r
a
M

In March 2011 the Board of Directors of Sistema JSFC approved the sale of the Corporation's stake in
Sitronics to RTI. Sistema's Vice President and head of High-Tech and Industry Business Unit, Sergey
Boyev, was appointed as the CEO of RTI. The transaction was completed in July.

In April 2011 the Sistema Board of Directors approved a new organizational structure of the
Corporation. The approval of the new structure was related to the implementation of the revised
development strategy of Sistema JSFC adopted by the Board of Directors in October 2010, built around
the migration from the operating holding model towards an investment company model.

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In May 2011 a subsidiary of Sistema JSFC, Sistema Invest, was reorganized by means of merging
Bashkir United Energy Systems, UNH-EnergoInvest, UNPZ-EnergoInvest and Novoil-Energoinvest into
it. Resulting from the reorganization, energy assets were separated from the oil ones.

In May 2011 the Board of Directors recommended it to the General Meeting of the shareholders of
Sistema to determine the amount of dividends on its shares for 2010 as RUR 2.509bn, which equals
RUR0.26 per each ordinary share. The dividends were paid out in August 2011.

In July 2011 the Forbes magazine called Sistema the fastest growing Russian company. The consolidated
revenue indicator was used as the rating selection criterion. In 2010 Sistema was Number 342 on the
rating with its consolidated revenues of $28.099bn, having moved 118 positions up as compared to the
previous list.

In July 2011 Intourist and Thomas Cook Group completed the establishment of a joint venture. Thomas
Cook acquired a 50.1% stake in the authorized capital of JV.

In August 2011 Sistema Finance acquired 0.18% of ordinary shares of Sistema JSFC to be used for
corporate purposes.

r
e
In September 2011 Raphael Nagapetyants was appointed Senior Vice President of Sistema JSFC and
b
m
Head of the Developing Assets Business Unit.
e

y
a
M

y
l
u
J

t
s
u
g
u
A

t
p
e
S

In September 2011 Sistema JSFC received an indicative proposal from MTS regarding the acquisition of
Sistema-Inventure for RUR10.56bn. At the moment of closing the transaction the core asset of Sistema
Inventure was the block of 29.05% of ordinary shares of MGTS (24.4% of the authorized capital of
MGTS). The transaction was completed in December 2011.

In November 2011 the Board of Directors approved the new dividend policy of Sistema JSFC. The
recommended amount of dividend payments is determined by the Board of Directors and equals at least
10% of net income of the Corporation according to US GAAP (net of the paid-out special dividends).
Following the recommendations of the Board of Directors the Company may also pay special dividends
in the minimum amount of 10% of net income of transactions with an incoming cash flow, such as sale
of assets, which is determined by the Board of Directors.

In November 2011 Sistema JSFC completed the buyback of its shares and GDRs and the buyout of the
ADRs of MTS. In the course of the buyback, a subsidiary of Sistema acquired 375,972 GDRs of Sistema
at the average price of $16.61, and 8,745,100 local shares of Sistema at the average price of RUR20.97,
and 4,311,019 ADRs of MTS at the average price of $13.92.

In November 2011 Sistema JSFC gained the right to acquire 100% in state-owned OJSC Donskoye for
RUR476.5m. Donskoye is located in the Rostov Region; the total area of land it uses is 25.4K ha. The
transaction was closed in December 2011.

In December 2011 Sistema JSFC gained the right to acquire 100% in the state-owned OJSC Horse Farm
n.a. the 1st Cavalry Army for RUR 303m. Horse Farm n.a. the 1st Cavalry Army is located in the Rostov
Region; the total area of land used for agricultural purposes is 21.5K ha, including 17.5K ha of arable
land.

1
1
0
2

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N

r
e
b
m
e
c
e
D

3.2. Events after the reporting period

2
1
0
2

y
r
a
u
n
a
J

In January 2012 Sistema JSFC, OJSC RTI and LLC NVision Group Management Company signed a
framework agreement that regulates the principles of future relations of the parties and defines the terms
of the transaction of strategic integration the RTI and NVision Group assets. In accordance with the
agreements reached, RTI shall acquire 50% of NVision Group from its shareholders. Moreover, the
shareholders of NVision Group shall swap the remaining 50% of the company's shares into the newly
issued shares of RTI. Resulting from the transaction the shareholders of NVision Group will get up to
$200m in cash and will become holders of a material share in the equity of RTI, having received a
notable representation on the Board of RTI and an opportunity to influence its key decisions.

In February 2012 MBRD announced a change of its company name with the new name being OJSC
MTS Bank, having taken the brand of MTS as the basis for further development.

y
r
a
u
r
b
e
F

In February 2012 the High Court of India canceled 122 licenses of eight telecom operators in India,
including 21 licenses of Sistema Shyam TeleServices Ltd. (SSTL). The court ruled that the licenses had
been granted to the operators within procedures that were not consistent with the procedures and
requirements of the Indian Department of Telecommunications. The High Court of India ordered the
supreme regulator of the Indian telecom market, TRAI (Telecom Regulatory Authority of India), to
develop, within four months, new recommendations as to the issuance of 2G licenses and the
redistribution of the frequency spectrum via an auction to be organized by the Indian Department of
Telecommunications. In March 2012 SSTL filed a request with the High Court of India to have this
ruling reviewed. SSTL also filed a petition to have the cancellation of licenses suspended as long as the
request on the review of the court ruling is under consideration.

In February 2012 Sistema sent to the address of the Republic of India an official notice on a dispute
under the Agreement between the Government of the Russian Federation and the Government of the
Republic of India for the Promotion and Mutual Protection of Investments. The notice was related to the
ruling of the High Court of India dated 2 February 2012 on the cancellation of 122 telecom licenses,
including 21 licenses held by SSTL.

In February 2012 Sistema JSFC increased its stake in the authorized capital of NIS from 51% to 70% by
purchasing the newly issued shares of the company. Sistema JSFC paid for the shares by contributing its
51% stake in M2M Telematics to the authorized capital of NIS.

2
1
0
2

In March 2012 Bashneft announced the launch of the program for reorganizing, by means of a merger, of
its subsidiaries - UNPZ, Novoil, Ufaneftekhim, Bashkirnefteprodukt and Orenburgnefteprodukt.

In March 2012 SITRONICS announced its intention to sell 3% in INTRACOM TELECOM. If the
transaction is completed, the share of SITRONICS in INTRACOM TELECOM will shrink from 51% to
48%.

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In March 2012 RTI announced its intention to make a voluntary offer to the minority shareholders of
SITRONICS regarding the acquisition of 36.926% of ordinary shares from them at the price of RUR0.55
per share. The offer is applicable to all shares of SITRONICS (including the shares the rights to which
are certified with global depositary receipts or GDRs) that are currently not held by RTI directly. The
price of the offer represents a 37.5% premium to the closing price of SITRONICS’ common shares on
MICEX-RTS as of 22 February 2012 (the last trading day on MICEX-RTS before the day of filing the
offer with the FSFM) and a 66.7% premium to the three-month volume weighted average price as of 22
February 2012. GDR holders are entitled to participate in the offer.

In April 2012 a decision was made to merge the assets of the Medsi Group with the assets of State
Unitary Enterprise (GUP) Medical Center of the Moscow Mayor and Government Administration. The
GUP will own 25% of the united company, and it is planned to sell another 25% to a strategic partner.

In April 2012 Sistema announced the establishment of RZ Agro Holding Ltd., a joint venture with RZ
Agro Ltd. that was founded in 2009 and is affiliated to the Sierentz Group. RZ Agro Ltd. and the
Sierentz Group are controlled by members of the Louis-Dreyfus family.

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3.3. Russian Accounting Standards (RAS) financial results of Sistema JSFC

Revenue, RUR K
Income (loss) from sales, RUR K
Net income (loss) in the reporting period RUR K

Revenue structure:

Shareholdings: dividends receivable
Other income (rental, agent services, guarantees)
TOTAL:

2011
29,208,979
20,345,902
-13,605,646

2011
28,658,070
550,909
29,208,979

The issuer's core business is managing stakes and shares in commercial organizations.

Structure of other earnings and expenses:

Interest receivable
Interest payable
Other income
Other expenses
TOTAL:

2011
2,799,878
- 5,698,818
116,447,056
- 149,036,660
- 35,488,544

2010
42,188,113
32,511,395
111,694,947

RUR K

2010

41,390,818
797,295
42,188,113

RUR K
2010
2,615,670
- 9,912,875
184,967,477
- 97,152,643
80,517,629

Negative re-valuation of investment in the publicly listed shares of MTS acted as the key driver of the reduction in
the yield received by Sistema JSFC from non-core activities.

Efficiency indicators

Productivity of labor, RUR K per employee
Debt to equity ratio
Long-term debt to the sum of long-term debt and equity
Coverage of debt with current income (profit) ratio
Level of past-due debt, %

2011
129,817
0.131
0.086
0.65
0%

2010
126,312
0.160
0.101
-0.23
0%

Analysis of the financial solvency and the level of the credit risk of the issuer suggest that in general the issuer has
both material own resources and opportunities to raise additional credit resources without the risk of repayment of
such funds becoming doubtful.
Long-term liabilities account for a major part in the structure of borrowings (ca 72%). Accounts receivable and
payable are recurring.

Financial stability indicators

Net working capital, RUR K
Current ratio
Quick ratio

2011
68,720,564
5.33
5.32

2010

3.45
3.45

The issuer's liquidity and solvency indicators are satisfactory.
The amount of the issuer's own capital is sufficient to discharge its short-term liabilities and to cover its operating
costs. As of 31.12.2011, the company's working capital amounted to RUR 84,587,482K, the volume of its short-
term liabilities as of the mentioned date amounted to RUR 15,866,918K, production costs in 2011 amounted to
RUR 115,373K

Liabilities and shareholder equity Structure of borrowings

28%

Shareholder
equity

Liabilities

72%

Долгосрочная
Long-term
liabilities
задолженность

Short-term
Краткосрочная
liabilities
задолженность

The share of own capital in the structure of the
company's liabilities amounts to 87%.

Long-term debts account for 70% of the total volume of
the company's liabilities.

Data on fuel and energy resources and water expenditure

Type of resource

Boiler fuel

Heat energy

Electric energy

Water

UoM
tons of fuel
equivalent

G cal

thousand kW*h

cubic meters

Spent in 2011

For reference: Spent in 2010
0

2136,325

6953,139

26582

2567,724

7055,029

28020

3.4. US GAAP consolidated financial results of Sistema JSFC

- Consolidated revenues grew by 23% up to $33bn.
- OIBDA net of one-off adjustments increased by 16.2% year-on-year to $8.3bn, OIBDA margin amounted

to 25.1%.

- Net income of Sistema amounted to $218.0m, net income net of one-off adjustments increased by 58.9%

up to $996.8m.

Key financial indicators3

( $ m, except for amounts calculated per one share)

Revenue
OIBDA4
Operating income
Net income (loss), stake of Sistema
Base and diluted earnings per share (in US cents)

2011

32,981.2

7,223.1

3,941.5
218.0
2.4

2010

26,811.3

7,165.4

4,302.6
918.7
9.9

Change

23.0%

0.8%

(8.4%)
(76.3%)
(76.3%)

3 Q4 2010 and full year 2010 indicators were re-calculated to reflect the effect of terminated activities.
4 See Annex A to financial statements: definition of OIBDA and its correlation with US GAAP financial indicators.

Summary operating results of the Group
In 2011 consolidated revenue of Sistema increased by 23% year-on-year resulting from the substantial growth of
the Core Assets and the Developing Assets business units' indicators.

Selling, general and administrative expenses in 2011 went 5.0% up year-on-year and reached $3,936.6m, mostly
due to the growth of commercial and marketing costs of the Developing Assets portfolio.

In 2011 the depreciation and amortization expenses increased by 14.6% vs. 2010 and amounted to $3,281.6m due
to the growth of the RUR/USD rate and the material volume of capital expenses in 2010.

Group 2011 OIBDA remained at the 2010 level as the growth of operating income resulting from the recovery of
the margins of MTS and the operational success at Bashneft was offset with the write-offs following the
cancellation of the SSTL licenses and the operating losses of companies of the Developing Assets business unit.

In 2011 the consolidated net income in the stake of Sistema went 76.3% down to $218.0m as compared to $918.7m
in 2010 due to the concerns related to the cancellation of the SSTL licenses.

3.4.1. Review of operating results by the Business Unit5

Core Assets Business Unit6
$ m

Revenue
OIBDA
Operating income
Net income, stake of Sistema
Debt 7

$ m

MTS

Revenue
OIBDA
Operating income
Net income, stake of Sistema

Bashneft

Revenue
OIBDA
Operating income
Net income, stake of Sistema

Bashkirenergo8

Revenue
OIBDA
Operating (loss)/ income
Net (loss)/ income, stake of Sistema

2011

29,242.3
8,617.0
5,670.5
1,983.5
12,093.7

2010

23,358.2
7,598.0
5,027.5
1,745.7
11,088.0

2011

2010

12,318.7
5,187.0
2,851.8
769.5

16,549.1
3,390.7
2,778.8
1,220.7

387.7
99.3
57.7
99.3

11,293.2
4,738.8
2,738.3
756.4

11,706.4
2,892.9
2,301.4
1,184.6

371.2
94.7
55.9
23.9

Change

25.2%
13.4%
12.8%
13.6%
9.1%

Change

9.1%
9.5%
4.1%
1.7%

41.4%
17.2%
20.7%
3.1%

4.4%
4.9%
3.3%
316.0%

The Core Assets business unit includes MTS, Bashneft and Bashkirenergo.

5 Hereinafter the period-on-period comparison of revenues is shown on an aggregated basis, net of revenues from transactions within a segment (between
companies in one segment) but before elimination of turnovers between the segments (companies in different segments) unless the word "consolidated" is
present. Amounts attributable to specific companies are shown as necessary though before elimination of turnover within and between segments, and they may
differ from respective stand-alone indicators of companies as some adjustments may be made.
6 The results of the BU are shown in view of the consolidation of the Sistema Invest holding company.
7 Hereinafter internal debt within the group has been eliminated.
8 Due to the plans of Sistema regarding the sale of the generating assets of Bashkirenergo and pursuant to the US GAAP standards, all operations of this
segment were excluded from the consolidation and reflected in the 'Income from terminated activities' line. The results of Bashkirenergo include operations of
the distribution and transmission grids segments.

The revenue of the Core Assets portfolio increased by 25.2% in 2011 due to the substantial operating results of
Bashneft against a background of favorable macroeconomic environment and the high oil prices, as well as the
organic growth at MTS despite the high level of competition in the telecom industry in 2011.

The OIBDA of the portfolio increased by 13.4% over the year 2011 resulting from the growth of the portfolio's
revenues and the optimization of its operating costs. A slight decline in the OIBDA margin from 32.5% in 2010 to
29.5% in 2011 resulted from the recognition of income from the revaluation of Belkamneft in the 2010 results of
Bashneft which was virtually fully eliminated with the growth of MTS profitability.

Net income of the Core Assets portfolio in Sistema's stake grew by 13.6% year-on-year in 2011.

The 2011 revenue of MTS increased by 9.1% to $12.3bn resulting from the growth of voice and data services
consumption. The total subscriber base of MTS (including subscribers in the Republic of Belarus) reached 106.1
million subscribers as of 31 December 2011, with the growth amounting to -.4 million subscribers.

The OIBDA of MTS increased by 9.5% in 2011 year-on-year resulting from the optimization of operating and
marketing expenses and the growth of data consumption. The OIBDA margin stood at 42.1% in 2011 vs. 42.0% in
2010.

The revenue of Bashneft increased by 41.4% in 2011 vs. 2010 due to the growth of production volumes and oil
prices against a background of a favorable macro-economic situation and consolidation of new acquisitions -
Orenburgnefteprodukt and ASPEK. The share of Bashneft in the aggregated revenue of the portfolio increased to
57.0% in 2011.

The OIBDA of Bashneft went 17.2% up in 2011 as the company's revenues grew. The negative effects from the
introduction of the 60-66 tax regime were leveled down with effective sales management actions and control over
operating expenses.

In 2011 oil production volumes went 6.8% up as compared to the previous year and reached 15.1 million tons. In
2011 Bashneft achieved the optimum oil production level before the scheduled term. The volume of the company's
export amounted to 3.6 million tons of crude oil and 9.2 million tons of oil products in 2011 vs. 3.2 million tons
and 7.8 million tons respectively in 2010.

Due to the plans of Sistema to sell the generating assets of Bashkirenergo and in line with US GAAP, the results of
Bashkirenergo only include operations of the distribution and transmission grids. All operations of the Generation
segment were excluded from the consolidation and reflected in the "Income from terminated activities" line. The
final decision on the sale will be announced within due procedures after the negotiations are completed, the binding
documents are signed, and the shareholders have voted.

The revenue of Bashkirenergo went 4.4% up over the full year 2011 due to the growth of productive supply in
distribution grids and the electricity transmission service tariffs.

The 2011 OIBDA of Bashkirenergo increased by 4.9% year-on-year due to the growth of the RUR/USD rate, with
the OIBDA margin going up to 25.6% vs. 25.5% in 2010.

Electric power dissipation went 0.33 p.p. up in 2011 year-on-year due to the growth of supply to the grids and the
changes in the methodology for dissipation calculation by the consumers, with dissipation in transmission grids
increasing by 0.04 p.p. due to the factors involved in the re-distribution of electric energy from distribution to
transmission grids.

Developing Assets Business Unit

$ m

Revenue
OIBDA
Operating loss

2011

4,578.4
-1,029.9
-1,355.6

2010

3,918.3
-42.8
-327.6-

Change

16.9%
-
-

Net loss, stake of Sistema JSFC
Debt

$ m

SSTL

Revenue
OIBDA
Operating loss
Net loss, stake of Sistema JSFC

Sistema Mass-media

Revenue
OIBDA
Operating (loss)/ income
Net loss, stake of Sistema JSFC

RTI

Revenue
OIBDA
Operating income
Net (loss)/ income, stake of Sistema

Binnopharm

Revenue
OIBDA
Operating income (loss)
Net income (loss), stake of Sistema

NIS9

Revenue
OIBDA

MTS-Bank

Revenue
OIBDA
Operating income (loss)
Net income (loss), stake of Sistema

Detsky Mir

Revenue
OIBDA
Operating income
Net income (loss), stake of Sistema

Intourist

Revenue
OIBDA
Operating (loss)/ income
Net (loss)/ income, stake of Sistema

Medsi

Revenue
OIBDA
Operating income
Net income (loss), stake of Sistema

-1,286.4
3,069.9

2011

262.3
-730.0
-828.1
-636.1

101.9
-32.0
-73.7
-63.9

2,093.0
154.4
50.4
-18.3

38.5
1.3
-3.6
-4.4

151.7
8.4

560.8
-6.2
-23.5
-19.9

782.9
27.4
9.8
-5.6

276.6
43.8
34.5
8.9

199.0
31.1
19.6
6.7

-222.6
2,541.1

2010

114.6
-329.0
-410.8
-349.7

94.5
40.5
2.2
-11.5

1,631.8
180.6
82.6
-16.6

32.1
-27.9
-34.1
-33.9

67.3
4.6

613.7
39.9
21.3
10.1

659.9
40.9
24.4
-3.1

518.2
6.9
-4.0
-15.5

156.5
17.1
8.1
-2.5

-
20.8%

Change

128.8%
-
-
-

7.9%
-
-
-

28.3%
-14.5%
-39.0%
-

19.9%
104.8%
-
-

125.6%
82.7%

-8.6%
-
-
-

18.6%
-32.9%
-60.0%
-78.2%

-46.6%
538.4%
-
-

27.2%
81.4%
143.0%
-

The Developing Assets business unit manages Sistema Shyam TeleServices Ltd. (SSTL), Sistema Mass-media
(SMM), RTI, Binnopharm, MTS-Bank, Detsky Mir Group, Intourist, the Medsi Group (Medsi), Navigation and
Information Systems (NIS) etc.

The revenue of the Developing Assets portfolio increased by 16.9% year-on-year in 2011, mostly due to the
organic growth of virtually all of the companies of the portfolio. The 2011 OIBDA of the business unit was
negative. The OIBDA of the portfolio was mostly affected by the recognition of the impairment of SSTL licenses

9 The results of NIS are shown with the consolidation of the M2M Telematics results taken into account for presentation purposes.

following the ruling of the High Court of India on the cancellation of 122 telecom licenses, including 21 licenses of
SSTL.

The revenue of SSTL increased by 128.8% in 2011 due to the 78% growth of the mobile services and data
subscriber base in 2011 which reached the level of 15 million users. The year-on-year increase of the OIBDA loss
is predominantly related to the recognition of the impairment of licenses, and the increase of the scale of business
in all circles of the country.

Combined ARPU in 2011 reached the level of $1.78.

In 2011 the revenue of Sistema Mass-media went 7.9% up year-on-year due to the growth of revenue from the
distribution and aggregation of content resulting from the organic growth of the Stream TV Company, and the
doubled revenue in the advertising segment. The OIBDA of SMM was substantially affected by the decline in the
revenue of Russian World Studios (RWS) and the recognition of the impairment of the library of RWS following
the revised forecast on secondary sales.

The subscriber base of STREAM-TV grew by 15.8% vs. 2010 and amounted to 6.2 million subscribers. The library
of content of RWS grew by 21.6% year-on-year and reached 1,471 hours. The number of hours of proprietary
content and the number of content sold by RWS in 2011 was 261 and 295 hours respectively.

RTI consolidates SITRONICS and RTI Systems Concern and includes 5 major business units: Defense Solutions
BU, Comprehensive Security Systems BU, Telecom Solutions BU, Microelectronics Solutions BU and System
Integration BU.

In 2011, the revenue of RTI increased by 28.3% as a result of successful implementation of the 1st stage of the
project for establishment of the Intellectual Transport System of Moscow (Comprehensive Security Systems),
additional projects of the System Integration business unit and growth of contract volumes as part of the government
defense program (Defense Solutions).

The OIBDA of RTI went down in 2011 as compared to the previous year due to the proactive market expansion of
the System Integration BU, the increase of the current expenses of the Microelectronics Solutions BU resulting from
the planned growth of expenses related to the 90nm project, and due to the sale of the RTI stake in Watt Drive.

The revenue of Binnopharm increased by 19.9% year-on-year in 2011 thanks to the successful fulfillment of two
governmental contracts for the supply of vaccines and the growth in the volumes of distribution in 2H 2011. The
OIBDA of Binnopharm demonstrated growth throughout the reporting period as the gross income increased and as
selling, general and administrative costs went down. This resulted in Binnopharm breaking even by net income in
Q4 2011.

NIS (Navigation and Information Systems) is the federal network operator whose activities are focused on
commercializing the GLONASS system (global navigation satellite system). The revenue of NIS in 2011 increased
by 125.6% up to $151.7 due to the implementation of major projects. This also affected the OIBDA indicator
which demonstrated an 82.7% growth for the full year 2011 and reached the level of $8.4m.

In 2011, NIS completed the creation of the prototype for the ERA-GLONASS system, which is its key and major
project, and started its testing. Other major projects include creation of the intellectual transport system of Moscow
(2,200 vehicles), a logistics and transport center in Sochi (more than 2,500 vehicles), the transport monitoring
system for Transneft (6,500 vehicles) etc. In 2011, NIS and its regional partners equipped 150 thousand vehicles in
52 regions of Russia.

After the end of the reporting period in February 2012 MBRD announced a change of its company name with the
new name being OJSC MTS Bank, having taken the brand of MTS as the basis for further development.

The revenue of MTS Bank went 8.6% down in 2011 due to the reduction in interest rates on loans and the
depreciation of RUR vs. USD. The OIBDA of MTS Bank reduced following the recognition of losses from the
revaluation of securities and the increase of provisions for loans due to the growth of the credit portfolio and the

review of the policy for provisions in 2011. The credit portfolio of MTS Bank increased, net of leasing, by 3.6%
since 2010 up to $5,004m as of 31 December 2011.

The revenue of the Detsky Mir Group grew by 18.6% in 2011 due to the implementation of the regional
development program and the increase in the number of visitors. The OIBDA of the Detsky Mir Group shrank by
32.9% in 2011 as the operating costs related to opening shops in the regions increased, changes in the pricing
policy occurred, the product range was optimized, and the loyalty program was launched. As of 31 December
2011, the network of retail outlets included 150 stores whilst the aggregate retail space was 236 thousand square
meters. In 2011 Detsky Mir opened 21 new stores, including its first shop in Astana (Kazakhstan).

The revenue of Intourist fell by 46.6% year-on-year in 2011 due to changes in the method for accounting the tour
operator and the retail business after the completion of the deal with Thomas Cook and the sale of the Pekin Hotel
and Office Complex. The OIBDA of Intourist increased multi-fold year-on-year in 2011 as the profit from the
Thomas Cook transaction was recognized in Q3. In 2011 the tour operation and retail segments serviced 725
thousand clients. The total number of hotel rooms in property, under management and rented was 2,866 as of the
end of 2011 vs. 3,054 rooms in 2010. The decline in the room pool resulted from the sale of the Pekin Hotel and
Office Complex in March 2011.

The revenue of the Medsi Group increased by 27.2% in 2011 vs. 2010 due to the expansion of the volume and the
spectrum of services rendered and the growth in the number of visits. In 2011, Medsi successfully increased its
client base thanks to the proactive marketing campaign, the offering of new services and the development of its
product line. The OIBDA of Medsi grew by 81.4% in 2011, mostly thanks to the optimization of operating
expenses and the reduction of selling, general and administrative costs.

In 2011 the number of patient visits and provided services increased by 19.9% and 24.6% respectively, and the
average check went 6.1% up. One of the reasons behind the improvement of performance indicators was an
increase in brand recognition from 41% in 2010 to 56% in 2011 (according to the Medsi Brand Health Assessment
Report by LLC Indepth). In 2011 the largest family clinic was opened in Moscow and 40 medical stations were
launched in various regions of Russia. The floor space of the clinics was expanded by 7.5% vs. 2010 - up to 50,424
square meters. As of 31 December 2011, Medsi was managing 30 clinics and 89 medical stations.

Corporate & Other

$ m
OIBDA10
Net loss
Debt

2011

-219.0
-380.6
1,246.8

2010

-281.2
-538.6
1,749.5

Change

-
-
-28.7%

The Corporate Center and Other segment include companies that control the stakes of the Group in its subsidiaries
and affiliates and manage them. The sum of dividends paid by the subsidiaries to the Corporate Center and Other
segment in 2021 amounted to $1,399.0m.

3.4.2. Financial overview

Net cash flow from operations in 2011 grew by 37.3% up to $5,571.4m due to the changes in the structure of the
working capital.

Net cash flow from investment activities increased to $5,186.9m in 2011 vs. $4,839.3m in 2010. In 2011 the Group
spent $4,132.1m on capital investments vs. $4,179.6m in 2010.

In 2011 the Group spent $375.3m on acquiring new assets, net of cash received, including the acquisition of TVT
and the Altair Group, the largest cable TV and BB operators in the Republic of Tatarstan and Tula, by MTS for
$162.9m and RUR680.0m respectively; acquisition of 94% of shares of Orenburgnefteprodukt by Bashneft for

10 Hereinafter OIBDA and net income (loss) of the Corporate Center and Other segment are shown net of internal group dividends.

$119.0m; acquisition of regional fixed communication operators by MTS, along with the acquisition of an
alternative operator in Kurgan and the Altai Krai; the acquisition of the Moskovia TV channel by SMM. The
Group also used $341.1m to expand its bank assets.

Net cash-out from financial activities amounted to $481.9m in 2011 as compared to $6.9m in 2010. In 2011, the
Group received $6,241.0m of cash from loans and credits, whereas payments towards the repayment of its principal
debt amounted to $4,608.4m.

Cash balance of the Group as of 31 December 2011 amounted to $2,924.0m (net of $1,315.1m related to banking
activities and cash from terminated activities amounting to $83.7m) as compared to $2,245.9m as of 31 December
2010 (net of $2,308.5m related to banking activities and cash from terminated activities amounting to $19.2m). Net
debt of the Group calculated as the sum of short-term and long-term debt, net of cash and their equivalents and high
liquidity deposits, amounted to $12,478.1m as of 31 December 2011 vs. $13,138.1m as of the end of 2010.

3.5. Credit ratings of Sistema JSFC

Sistema JSFC

Rating agency

Date of most recent update
of the rating

Long-term credit rating

Forecast

Standard & Poor’s
Fitch
Moody’s

03.02.2012
28.11.2011
12.04.2012

BB
BB-
Ba3

Stable
Stable
Stable

3.6. Report on payment of announced (paid out) dividends on the shares of Sistema
JSFC

The resolution on the dividends payment was passed by the Annual General Meeting of the shareholders of Sistema
JSFC on 25 June 2011 (Minutes # 2-11). Pursuant to the resolution of the General Meeting of shareholders, the
amount of RUR2, 509,000,000.00 was allocated to the payment of the dividends, which corresponds to RUR0.26
per one ordinary registered share of Sistema JSFC.

As of 31 December 2011, the total amount of paid out dividends was RUR2, 508,999,980.64. Tax on dividend
income paid to foreign legal entities was subtracted in the amount of RUR89, 539,479.

As of now, the amount of non-paid dividends for 2011 equals RUR19.36. As of 31 December 2011, the total
amount of unpaid dividends was RUR276, 776.62. Reasons for non-payment of the announced dividends: lack of
information required to remit the respective amounts to the recipients of the dividends.

4. OUTLOOK AND DEVELOPMENT STRATEGY OF THE SISTEMA GROUP

4.1. Core Assets

Investment approach

The Core Assets business unit is represented by companies being leaders of their industries which generate stable
high cash yield in the form of dividends for the Group. The businesses have well-developed operations and service
their liabilities independently. Sistema is the majority shareholder in the Core Assets.

Management

Felix Evtushenkov, First Vice President.

Portfolio

The business unit includes OJSC Mobile TeleSystems (MTS), OJSC Joint-Stock Oil Company Bashneft and OJSC
Bashkirenergo.

Company

Effective
shareholding

Share in voting
shares

Description

53%

69%

39%

53%

86%

50%+1

The leading telecom operator in Russia and the CIS servicing
over 106 million subscribers.
A vertically integrated oil company bringing together upstream
and downstream facilities predominantly in the Republic of
Bashkortostan.
One of the largest regional energy companies in Russia.

MTS

Bashneft

Bashkirenergo

2011 results

$ m

Revenue
OIBDA
Net income
Debt

Assets

$ m

Business Unit

MTS

Revenue
OIBDA
Net income, stake of Sistema
Debt

Bashneft

Revenue
OIBDA
Net income, stake of Sistema
Debt

Bashkirenergo*

Revenue
OIBDA
Net income, stake of Sistema

2011

2010

Change

29,242.3
8,617.0
1,983.5
12,093.7

23,358.2
7,598.0
1,745.7
11,088.0

25.2%
13.4%
13.6%
9.1%

2011

2010

Change

12,318.7
5,187.0
769.5
8,700.4

16,549.1
3,390.7
1,220.7
3,393.3

387.7
99.3
99.3

11,293.2
4,738.8
756.4
7,160.6

11,706.4
2,892.9
1,184.6
3,927.2

371.2
94.7
23.9

9.1%
9.5%
1.7%
21.5%

41.4%
17.2%
3.1%
-13.6%

4.4%
4.9%
316.0%

Strategy

The strategy of Sistema JSFC in Core Assets is focused on increasing the capitalization of investment and gaining a
stable cash flow by means of keeping the leadership positions in the market and implementing a number of
initiatives which will bring substantial strategic and financial benefits and create a foothold for long-term growth.
Such initiatives include optimization and reorganization of the companies' structure, expanding the scale of
business and achieving higher synergies, working on globalization scenarios, and application of best corporate
standards and practices in governance. Businesses in the Core Assets portfolio are fully independent and all
operations and business development is driven by their best-in-class management teams.

4.1.1. MTS

Mobile TeleSystems (MTS) is the largest telecommunications operator in Russia, Eastern Europe and Middle Asia.
MTS offers mobile and fixed telephony, broadband Internet access and pay TV, as well as information and
entertainment services in one of the most dynamically developing regions globally.

MTS

Effective stake of Sistema JSFC
53%

Share of voting shares of Sistema JSFC

53%

The President of Mobile TeleSystems is Andrey Dubovskov, and the Chairman of the Board of Directors is Ron
Sommer.

Industry

The Russian mobile telecommunications market is one of the most developed in the world, with the service
penetration rate of 157%. The high saturation has led to a gradual shift in marketing efforts of mobile operators
towards retaining existing subscribers by enhancing service quality and offering attractive products.

In 2011 the broadband market in Russia gained 10.9% and comprised 18.6m households. MTS ranks second in the
Russian BB market by the subscriber base.

As of the end of 2011 the TV market in Russia included 21.7m households, and year-on-year growth reached 8.3%.
MTS has a 14% share of the market by the volume of the subscriber base.

Outlook

Average annual growth on the Russian markets where MTS operates is projected at ~6% up to 2014, the mobile
communications market remains the key contributor to revenue growth in absolute numbers (3-5% CAGR), while
the highest growth rates are demonstrated by the broadband and the TV segments. One of the development trends is
quite a high level of competition. The voice market is expected to demonstrate a slowdown of the aggressive
growth of the customer acquisition numbers.

Steady growth in 2011

Given the strong competition, MTS shifts its sales strategy focus from enhancing sales towards a balanced
customer retention strategy.

MTS has covered 14 thousand settlements with its 3G network. Total coverage of 2G and 3G networks of MTS has
increased to 97% of the populated territory of Russia. The number of 3G base stations constructed in 2011
increased threefold as compared to 2010. At present, the 3G network of MTS numbers more than 23 thousand base
stations.

In Moscow the large-scale GPON project was launched to replace copper cables with fiber-optic ones, which will
provide for a multi-fold increase of the data transfer speed.

Operational strategy

MTS aims to strengthen its position as a leading national mobile operator in Russia and the wider CIS, in terms of
both subscriber numbers and revenues.

The company plans to increase its revenues and improve customer loyalty by stimulating the use of MTS services
with tariffs like Super 0 and Super MTS and with convergence services offerings within the GPON project of MTS
in Moscow.

MTS pays priority attention to the development of the data segment and to launching new products with the
purpose of effective monetization of mobile traffic, development of VAS services and improving the margins of
content sales. MTS continues the program of 'MTS-Money' banking cards distribution, POS-credits, and other
financial services via the federal retail network of MTS.

Investment strategy

Sistema JSFC views MTS as a core asset with prospects, capable of good growth tempos and increasing the
shareholder value by means of successful implementation of its operating strategy. Aiming to get the maximum
possible return on investment in the telecom segment, Sistema continuously monitors and analyzes the key trends
and opportunities in the global telecom market.

2011 results

Financial indicators

$ m
Revenue
OIBDA
Net income, stake of Sistema
Debt

Operating indicators

Mobile subscribers (million)
ARPU (RUR)
MOU (minutes)

Key events in 2011

2011
12,318.7
5,187.0
769.5
8,700.4

2011
106.1
273
269

2010
11,293.2
4,738.8
756.4
7,160.6

2010
105.7
253
234

Change
9.1%
9.5%
1.7%
21.5%

Change
0.3%
7.9%
15.0%

In February 2011 Sistema Inventure bought out 1% of MGTS shares within the mandatory tender offer at the price
of RUR436.20 per one share. Thus Sistema Inventure spent ca RUR370m (ca USD12.3m) on the buyout. The
buyout was performed within the framework of the mandatory tender offer to the minority shareholders of MGTS
announced on 13 November 2010.

In March 2011 the MTS Board of Directors appointed Andrey Dubovskov as the President of MTS.

In March 2011 a voluntary buyout of shares was conducted as part of reorganizing MTS and merging it with
Comstar-UTS, Dagtelecom and Eurotel.

In April 2011 the MTS brand was ranked as the most expensive Russian brand in the annual BRANDZ™ rating of
the top-100 world brands for the fourth time in a row. This year the MTS brand ranked 80th with the brand value of
$10.9bn.

In October 2011 MTS acquired 100% in the authorized capital of OJSC TV and Radio Company TVT from a
group of investors. The company renders cable TV, broadband access to the Internet and fixed telephony services
in 15 cities of Tatarstan. The amount of the transaction was $162.87m, excluding net debt of $17.13m.

In December 2011, MTS completed the transaction for acquiring from Sistema JSFC a 100% stake in Sistema
Inventure, which is the direct owner of 29% of ordinary shares of MGTS, for RUR10.56bn (the value of the
transaction does not include the net debt of RUR10.41bn).

4.1.2. Bashneft

OJSC Joint-Stock Oil Company Bashneft is a vertically integrated oil company comprising upstream and
downstream facilities predominantly in the Republic of Bashkortostan.

Bashneft

Effective shareholding
69%

Share in voting shares
86%

Alexander Korsik is the President of Bashneft, and Alexander Goncharuk is the Chairman of the Board of
Directors.

Industry

Oil production in Russia increased by 1.3% in 2011 up to 511.4 million tons. Refining volumes grew by 1.8% vs.
2010 to 254.2 million tons.

Hydrocarbons production in Russia demonstrated the following three key trends in 2011. In the first place, a new
record in oil production was set for the first time after the collapse of the Soviet Union, moreover, in H2 production
outputs continued to grow and reached the current level of more than 10.3 million barrel per day. Secondly, many
companies exceeded their own forecasts both for green-field and brown-field oil projects. Thirdly, positive results
were achieved at the brown fields where production level demonstrated virtually no decline in 2011.

Because of the shortage of petrol in the petroleum products market, starting from 1 May 2011 the duty rate on high-
grade petrol(s) was raised by the Russian Government up to 90% of the oil duty rate.

From 1 October 2011 the new tax plan for the oil industry called '60-66' came into force. The maximum rate of
export oil duty went down from 65% to 60%, while the export duty on dark oil products was increased from 47% to
66%. The government provided compensation for the losses incurred by Bashneft and Tatneft as a result of
introducing the '60-66' tax regime. The compensation payable to Bashneft for 4 years will amount to RUR10bn.

Outlook

According to oil companies' forecast, growth of daily production will speed up resulting from the increase in
production at the East Siberian oil fields. The key challenge for the industry in the coming years is the need to
abide by the requirements of the new tax regime and, consequently, to upgrade oil refining facilities, which will
cause a material increase in the investment programs of Russian oil and gas companies.

Steady growth in 2011

Oil production output at the fields of Bashneft in 2011 amounted to 15.1m tons which represents a 6.8% year-on-
year growth. Consequently, in 2011 Bashneft managed to achieve optimum oil production levels of the fields under
development ahead of schedule. The company intends to maintain these oil production results in the medium term.

The average daily production of Bashneft in Q4 2011 was 41.8 thousand tons per day which is more than 30%
above the level of Q1 2009; at the end of 2009 Sistema took over control in Bashneft. The primary drivers of the
growth in oil production were the application of state-of-the-art technologies and the increased efficiency of
geological and technical measures.

The Ufa Oil Refining Complex refined more than 21,062 thousand tons of crude oil in 2011, with the average
refining depth indicator at 85.9%. The reduction of the light product yield down to 60% was due to the scheduled
repair works performed on a number of secondary process units. As part of expanding its product range, Bashneft
launched production of RT-grade aircraft fuel in April 2011.

Operational strategy

The strategy of Bashneft is aimed at increasing its value by boosting production of hydrocarbons and growing the
oil and gas reserves, diversifying its asset portfolio, implementing a modernization program for refineries,
developing own retail chain across Russia and enhancing efficiency along the whole of the value chain.

The company's upstream strategy provides for stabilization of oil production levels at the operating fields at
approximately 15m tons per year, and launch of production as part of the Trebs & Titov field development. At the
same time the company expects to obtain licenses for development of fields in some other regions.

The strategy also envisages development of the export logistics and expansion of the Company's retail chain from
440 to almost 1,200 fuel stations thus boosting the profit margins and making it possible to sell up to 80% of motor
petrol through retail outlets.

Investment strategy

Sistema JSFC views Bashneft as having a material potential of growth via the implementation of the operating
strategy, the development of the key assets and the improvement of the corporate structure. Sistema JSFC is also
looking into new opportunities in the oil and energy sector that would increase the value of its investments in the
oil and gas industry, including that via potential strategic partnerships and M&A transactions.

2011 results

Financial indicators

$ m
Revenue
OIBDA
Net income, stake of Sistema
Debt

Operating indicators

Crude production (m tons)
Export (m tons)
Refining (m tons)
Yield of light oil products, %

Key events in 2011

2011
16,549.1
3,390.7
1,220.7
3,393.3

2011
15.1
3.6
21.1
60%

2010
11,706.4
2,892.9
1,184.6
3,927.2

2010
14.1
3.2
21.2
62%

Change
41.4%
17.2%
3.1%
-13.6%

Change
6.8%
12.2%
-0.6%
-2 p.p.

In February 2011, the Government of the Russian Federation took the decision to grant Bashneft the license for
development of the R. Trebs and A. Titov oilfields. The license shall be valid for 25 years. The license field is
located in the Nenets Autonomous District and its area is 2,151 km 2.

In April 2011 Bashneft and LUKOIL signed an agreement on setting up a new joint venture for development of the
R. Trebs and A. Titov oilfields. According to the agreement, LUKOIL acquires a 25.1% stake in the authorized
capital of the subsidiary of Bashneft for RUR4.768bn, and the latter will receive a license for the use of subsoil
deposits that include the R. Trebs and A. Titov oil fields in order to perform geological research, to explore and
produce hydro-carbon materials. The JV in its turn will buy from LUKOIL 29 exploration wells located in these
fields.

In April 2011, the Bashneft Board of Directors approved the new structure and appointed the new President -
Alexander Korsik, who until recently was Senior Vice President of Sistema and Head of its Oil and Energy
Business Unit.

In April 2011, Bashneft acquired 94.041% of the authorized capital of Orenburgnefteprodukt from RussNeft. As a
result of the transaction Bashneft became the owner of 100% of ordinary registered shares and 76.16% of
preference registered shares of Orenburgnefteprodukt.

In May 2011, Bashneft increased its stake in the authorized capital of Sistema-Invest up to 49.5%. The stake was
increased by converting the shares of the Bashkir United Energy Systerms, UNH-Energo-Invest, UNPZ-
EnergoInvest, Novoil-EnergoInvest, owned by Bashneft and its subsidiaries, to the shares of Sistema-Invest.
Resulting from the reorganization, the energy and the oil assets in the portfolio of the Corporation were separated.

In July 2011 Bashneft gained control over a company of the ASPEK group that operated in retail sales of oil
products in the Udmurt Republic.

In October 2011 Bashneft gained rights to develop three subsoil blocks via an auction in the Nenets Autonomous
District.
In December 2011 Bashneft gained rights to develop two subsoil blocks via auctions in the Republic of
Bashkortostan.

4.1.3. Bashkirenergo

OJSC Bashkirenergo is one of the largest regional energy companies in Russia.

Bashkirenergo

Effective shareholding
39%

Share in voting shares
50%+1

Andrey Makarov is the General Director of Bashkirenergo, and Felix Evtushenkov if the Chairman of the Board of
Directors.

Industry

The key event in 2011 was the decision of the government to freeze tariffs for generation till the middle of 2012
with their slight readjustment in the second half year. If rapid growth of gas prices continues, this decision of the
regulator will significantly deteriorate financials of companies in the industry for 2012. Moreover, after the
capacity tender for 2012 the price of energy in the Center and Urals free power transfer zones reduced by 3.9% vs.
the previous year.

Outlook

It is expected that after the presidential elections of 2012 the pressure of the government on the energy industry will
be reduced and the financial situation of electric energy companies will be slightly improved.

Engagement in energy saving programs by consumers of energy may reduce the demand for electric energy and
heat, and in the end this may deteriorate the position of heat generating companies with the least efficient
production assets. After success in pilot projects is demonstrated, broader implementation of RAB regulation in the
heat sector is expected.

In the sector of electric grids it is possible to carry out some actions as a preparation for mass privatization of
distribution grid companies and implement pilot projects of privatizing some IDGCs.

Steady growth in 2011

In 2011 Bashneft implemented a range of projects within its organic growth program and in terms of organizational
development and optimization. All the projects were aimed at ensuring the company's competitiveness.

The key achievement of 2011 is a full launch of generation assets on the wholesale electricity and capacity market,
and in particular selling the major portion of electricity at free prices.

In December electricity substation Akberdino with 2x40 MVA transformers in the village of Akberdino was
finished and commissioned (LLC BashRES). Also, the second line of the 220/110/10kV Zaton substation (LLC
BSK) was commissioned in December.

Preparations were carried out for transferring distribution grids to the new method of long-term regulation (RAB
regulation) starting from 2012.

2011 results

Financial indicators*

$ m
Revenue
OIBDA
Net income, stake of Sistema

2011
387.7
99.3
99.3

2010
371.2
94.7
23.9

Change
4.4%
4.9%
316.0%

Operating indicators

Transmission grids
(LLC BSK), effective output (m kW)
Transmission grids
(LLC BSK), loss (m kW)
Distribution grids
(LLC BashRES), effective output (m kW)
Distribution grids
(LLC BashRES), loss (m kW)

Operational strategy

2011

21,296

315

17,980

1,807

2010

21,425

310

17,198

1,664

Change

-0.6%

1.6%

4.5%

8.6%

The organic growth strategy of Bashkirenergo for 2012-2016 provides for the improvement of operating efficiency
in all segments. The next strategic goals of Bashkirenergo are: transferring electric grids to RAB, entering new
service markets in the spheres of energy service and energy saving, and introducing automation systems.

The company's strategy is implemented in close cooperation with the authorities of the republic, the region and the
city. Activities aimed at increasing operating efficiency will improve the competitiveness of the company amidst
restrictions for the growth of tariffs, and will significantly raise its attractiveness for investors.

Investment strategy

The strategy of Sistema in electric energy is focused on increasing the capitalization of Sistema's investments in
electric energy assets and is focused on several areas. The main one is the creation of a large interregional
distribution grid company on the basis of one or several IDGCs and distribution grid assets of Bashkirenergo.

Currently grid assets have significant value growth potential due to the expected reduction of the pressure on the
industry from the government (in particular - on grid infrastructure companies) after the RF presidential elections,
the completion of energy grid companies' migration to long-term pricing under the RAB method, and the
optimization of the regulatory framework as a result. Activities aimed at improving the operating efficiency of
assets and achieving synergy effects should also contribute to the growth of the value of Bashkirenergo.

Selling generating assets (the sales segment was disposed of in 2011) with subsequent redistribution of funds to the
more attractive segment of electric grids is one of the elements of the strategy. We also consider the opportunity of
selling distribution grids and expanding to the electric energy markets abroad.

Key events in 2011

In April 2011 the Board of Directors of Bashkirenergo resolved to recommend the payment of RUR1,084.9m, or
39% of net income, as dividends for 2010, and the allocation of RUR472.3m to financing investment programs.

In May 2011 Sistema JSFC announces reorganization of its subsidiary Sistema-Invest through a merger with the
Bashkir United Energy Systems, UNH-EnergoInvest, UNPZ-Energo-Invest and Novoil-EnergoInvest. After the
reorganization Sistema-Invest gained ownership of 50.17% of ordinary shares of Bashkirenergo (47.87% of the
authorized capital). Resulting from the reorganization, the energy and the oil assets in the portfolio of the
Corporation were separated.

In May 2011 the new General Director of Bashkirenergo, Andrey Makarov, was appointed.

In September 2011 the transaction of selling the electricity distribution company LLC ESKB, part of the
Bashkirenergo Group, to ESK RusHydro (a subsidiary to OJSC RysHydro) was signed.

4.2. Developing Assets

Investment approach

The Developing Assets business unit comprises investments that have high potential of creating and growing
shareholder value and can later be either transferred to the Core Assets business unit, or taken to IPO or sold to a
strategic partner to have their value monetized. In some cases developing companies need financing from Sistema
JSFC or its guarantees on their debt liabilities.

Management

Raphael Nagapetiants, Senior Vice President.

Portfolio

The Developing Assets portfolio includes companies that represent the interest of the Group in smaller growing
businesses.

RussNeft

Sistema Mass-media

Sistema Shyam TeleServices Ltd.

RTI

Binnopharm

Detskiy Mir Group

MTS-Bank

VAO Intourist

Medsi Group

NIS*

49%

75%-1

56.7%

84.6%

100%

75%-1

99%

66%

100%

70%

Description

One of the largest regional oil companies in Russia

A leading Russian media holding

A telecom company in India

The largest company globally engaged in the defense industry and
high tech
Russia's largest bio-pharmaceutical facility

Russia's largest distributor of toys for children

A universal commercial bank

Russia's largest tourism holding

A leading national network company operating in medical services

Federal operator of the GLONASS system

*The stake is shown in view of the transaction of increasing the stake of Sistema in NIS in February 2012.

2011 results

$ m

Revenue
OIBDA
Net loss
Debt

Assets contribution

RussNeft*

$ m

Revenue
OIBDA
Net income**
Debt

SSTL

Revenue
OIBDA
Net loss, stake of Sistema JSFC
Debt

Sistema Mass-media

Revenue
OIBDA

2011

4,578.4
-1,029.9
-1,286.4
3,069.9

2011

5,590
1,662
771
5,403

262.3
-730.0
-636.1
1,573.5

101.9
-32.0

2010

3,918.3
-42.8
-222.6
2,541.1

2010

4,496
1,359
574
6,364

114.6
-329.0
-349.7
1,245.9

94.5
40.5

Change

16.9%
-
-
20.8%

Change

24%
22%
34%
-15%

128.8%
-
-
26.3%

7.9%
-

Net loss, stake of Sistema JSFC
Debt

RTI

Revenue
OIBDA
Net loss, stake of Sistema JSFC
Debt

MTS-Bank

Revenue
OIBDA
Net (loss)/ income, stake of Sistema

Binnopharm

Revenue
OIBDA
Net loss attributable to Sistema JSFC
Debt

Detsky Mir

Revenue
OIBDA
Net loss, stake of Sistema JSFC
Debt

Intourist

Revenue
OIBDA
Net (loss)/ income, stake of Sistema
Debt

Medsi

Revenue
OIBDA
Net (loss)/ income, stake of Sistema
Debt

NIS***

Revenue
OIBDA
Debt

-63.9
46.1

2,093.0
154.4
-18.3
1,126.5

560.8
-6.2
-19.9

38.5
1.3
-4.4
6.8

782.9
27.4
-5.6
125.5

276.6
43.8
8.9
102.4

199.0
31.1
6.7
69.3

151.7
8.4
16.1

-11.5
16.3

1,631.8
180.6
-16.6
917.4

613.7
39.9
10.1

32.1
-27.9
-33.9
2.7

659.9
40.9
-3.1
121.3

518.2
6.9
-15.5
166.0

156.5
17.1
-2.5
71.9

67.3
4.6
15.4

-
181.8%

28.3%
-14.5%
-
22.8%

-8.6%
-
-

19.9%
-
-
150.9%

18.6%
-32.9%
-
3.4%

-46.6%
538.4%
-
-38.3%

27.2%
81.4%
-
-3.7%

125.6%
82.7%
3.9%

* For RussNeft, Net Income is shown in full (not the stake of Sistema JSFC only)
** In line with the IFRS standards
** The results of NIS are shown with the consolidation of the M2M Telematics results taken into account for presentation purposes.

Strategy

Sistema JSFC views its developing assets as investments having good prospects of substantial value growth.
Monetization of developing assets is intended via an IPO or sale of assets (parts of assets) to a strategic investor.

One of the ways of increasing value is M&A transactions, primarily in related industries. Attention will be
primarily paid to the scale of projects and to returns on invested capital.

With the aim of developing the assets included in the Developing Assets business unit, Sistema will invest both its
own funds and the funds of potential strategic partners. Partners will be expected not only to hold an equity stake
but also to contribute operational and financial expertise in the respective industries.

In the medium term, the key areas for strategic development of these assets are as follows: (i) focusing on
sustainable organic development of the companies, (ii) control of their debt and (iii) proactive engagement of
partners.

4.2.1. Sistema Mass-media

Sistema Mass-media (SMM) is a leading media holding of Russia that manages media assets in the area of pay TV,
premium cinema and TV content production and advertising.

Sistema Mass-Media

Sistema's stake
75%-1

Peter Gerwe is the President of Sistema Mass-media, and Andrey Smirnov is its Chairman of the Board of
Directors.

Industry

In 2011 Russian media industry demonstrated material growth - the market volume increased 13% year-on-year
having exceeded RUR700bn (according to PWC Global Outlook 2011-2015). The pay TV and the advertising
segments were the key market growth drivers.

The key trend in the pay TV market is the growth of the viewers' interest to cable and satellite channels. In 2011
Russia's broadcasting network included more than 300 pay TV channels. The premium content segment saw
stronger competition between the players and market consolidation.

Outlook

In 2012 the penetration of pay TV will reach 50% of all households in Russia. Growth will remain at the level of
12-15% (mostly due to the digital and satellite TV and IPTV segments). Growth in the number of premium TV
channels, including channels in the HD format, as well as clear segmentation and emergence of narrower thematic
niches will also be observed.

One of the key trends on the premium TV content market in 2012 will be greater competition from Internet portals,
as well as tougher competition among market players and, consequently, higher quality of TV series products.

Steady growth in 2011

In 2011, the volume of the library of content of Russian World Studios grew by 21.6% and reached 1,471 hours.
More than 500 hours of TV serials produced by RWS were broadcast by the largest TV channels of Russia.

Following the latest trends in movie and TV production, RWS entered into an agreement with the on-line movie
theater NOW.RU for broadcasting the latest releases of the movie industry on the Internet.

In the TV channels segment, the total subscriber base of the nine channels produced by STREAM rose by 15.8%
and reached 6.2 million subscribers by the end of 2011.

In 2011, the process of restructuring the Maxima Advertising Agency (RA Maxima) was completed which resulted
in revenues doubling in this business segment. During the year Maxima participated in tenders and was awarded
contracts for the media budgets of such clients as VTB 24, MTS, Sun InBev, Lifan Motors, Technosila, Supra.

2011 results

Financial indicators

$ m
Revenue
OIBDA
Net loss, stake of Sistema JSFC
Debt

Operating indicators

Stream TV subscriber base
Russian World Studios production load ratio, Moscow, %

2011
101.9
-32.0
-63.9
46.1

2011
6.2
59.82%

2010
94.5
40.5
-11.5
16.3

2010
5.3
66.00%

Change
7.9%
-
-
181.8%

Change
15.8%
- 6.2 p.p.

Russian World Studios production utilization ratio, Saint-
Petersburg, %
Library, hours

44.27%

1,471

66.00%

1,210

- 21.7 p.p.

21.6%

Operational strategy

Plans of SMM till the end of 2012 include development in all the segments, both with proactive organic growth of
the business and M&A transactions. The key objective for SMM in 2012 is to form a content and distribution
platform, as well as integration with the net content businesses of the Sistema Group.

Investment strategy

The investment strategy of Sistema JSFC in relation to SMM is focused on turning the company into the leading
media holding in Russia. Russia's media sector is growing at accelerated tempos, and the development of SMM
will facilitate growing the shareholder value. In the medium term, Sistema may consider IPO or engaging a
strategic partner to SMM.

Key events in 2011

In May 2011, within the special events program of the 64th International Cannes Film Festival, SMM and Huawei
announced the establishment of the Russian-Chinese Film Fund. The key area of the Fund's activities is developing
cooperation between the two countries in the area of the most mass industry of culture, i.e. the media content
production sphere.

In July 2011 the RWS Cinema Company raised a credit from ING Bank N.V. and Sberbank of Russia against a
pledge of its video content library. The amount of the three-year credit was RUR1.2bn. This transaction is unique
in the Russian corporate crediting market.

In November 2011 the appointment of Peter Gerwe as the CEO of SMM was approved. Andrey Smirnov, the
predecessor to Mr. Gerwe in this capacity, will continue with the Sistema Group as the Chairman of the Board of
Directors of SMM.

4.2.2. MTS Bank

OJSC MTS Bank is a universal commercial bank, a Top 30 bank of Russia. The service network covers 49 cities of
Russia. MTS Bank holds a stake in Dalcombank in Khabarovsk and East-West United Bank in Luxembourg.

MTS Bank
Andrey Shlyakhovoy is the Chairman of the Management Board of MTS Bank, Alexey Buyanov is the Chairman
of the Board of Directors.

99%

Sistema's stake

Industry

The RF banking system is showing signs of recovery from the crisis but its development wholly depends on the
current trends in the world economy.

In 2011, the growth rates of corporate lending stood at ca 25%. We can observe a stable decline in the margins,
which is the strongest in the corporate sector.

Competition is growing in virtually all segments of the market, besides, in recent years there has been a stable trend
towards the reduction in the number of banks and their enlargement (the number of banks is expected to go down to
800 by 2016).

The role of state banks continued getting stronger in 2011, and the presence of foreign capital in the Russian
banking sector remained at virtually the same level in financial terms. Still, a range on international players

preferred to leave the market: these include subsidiaries of HSBC, Swedbank, Barсlays, KBC (Absolut Bank) and
others.

Outlook

Recovery of the corporate lending market started in the large business sector and is gradually shifting towards the
middle corporate segment and the small business segment.

The trend of credit cards squeezing out consumer credits in the retail segment continues. VIP crediting (affluent
retail) remains the segment with the highest potential.

Steady growth in 2011

In 2011 MTS-Bank continued implementing the approved strategy of building a universal bank of a federal scale.
Retail business and services for small and medium businesses were defined as priorities within its strategy.

Joint projects with MTS were launched in terms of targeted express credits to buy user terminals and other goods at
2,400 POS of CJSC RTK. Sales of banking cards with special terms of crediting the account - MTS Money - were
launched.

2011 results

Financial indicators

$ m
Revenue
OIBDA
Net income (loss), stake of Sistema

Operating indicators

Assets, $m
Credit portfolio, $m

Operational strategy

2011
560.8
-6.2
-19.9

2011
6,958
5,097

2010
613.7
39.9
10.1

2010
7,880
4,675

Change
-8.6%
-
-

Change
-11.7%
9.0%

The Banking Group's development strategy is aimed at achieving leading positions among RF retail banks. The key
development driver is cooperation with MTS, within which it is planned to intensify cross-selling of banking and
the partners' products and services, which will help increase returns on the credit portfolio and the share of non-
interest expenses.

Significant attention in terms of implementing strategic objectives is being paid to optimizing internal business
processes of the bank, which will make it possible to materially cut costs and improve the quality of client service.

Investment strategy

The strategic development model of the bank provides for complete integration of MTS-Bank and Dalcombank, as
well as further expansion of cooperation with MTS. Investment in the re-branding of the Banking Group is an
important part of the strategy and is designed to create a uniform concept for promotion of financial products and
services under the MTS Bank brand.

Key events in 2011

In November 2011 the Moscow MGTU of the Bank of Russia granted a petition from MTS Bank approving a
subordinated loan agreement between MTS Bank and Sistema JSFC and including it as an additional source of
capital. The capital was increased by RUR1bn.

In December 2011 Dalcombank started issuing UnionPay banking cards.

In February 2012 MBRD announced a change of its company name with the new name being OJSC MTS Bank,
having taken the brand of MTS as the basis for further development.

4.2.3. Detsky Mir

The Detsky Mir Group is Russia's largest retail operator in the goods for children segment, whose structure
includes the national retail network of Detsky Mir stores and the Yakimanka Children's Goods Gallery luxury
center.

Detsky Mir - Center
Gennady Levkin is the General Director of the Detsky Mir Group, and Georgiy Kravchenko is the Chairman of the
Board of Directors.

Sistema's stake
75%-1

Industry

In 2011 the children's goods market in Russia gained 13% vs. 2010 and is currently valued at $13bn. The high birth
rate observed over the recent years is the main positive factor influencing the market growth and driving the
increase in customer spending on children's goods. The toys for the children segment demonstrated robust growth
of 22.5%.

The Government of the Russian Federation has taken a firm stand in terms of reducing the share on non-organized
retail, infringing merchandise and cheap low quality products, and forms a respective regulatory framework. It
should be noted that the development of modern retail formats, including retail networks and large format stores on
both national and local level in the children’s goods market leads to heightened competition.

Outlook

Over the next four years the market for children’s goods is projected to double to $23bn with the highest growth
expected in the segment of newborn baby goods and toys. In Russia, consumer spending on toys still accounts for
only a half of such spending in developed countries.

In the future, specialized stores, hyper- and supermarkets will serve as the key distribution channels for children's
goods. The company estimates that by 2015 the share of on-line stores in total children goods sales in Russia will
increase from 11% to 13%.

Steady growth in 2011

In 2011, Detsky Mir was actively enhancing its competitiveness by developing its retail chain and promoting its
private labels, upgrading its stores by introducing new merchandising technology, loyalty programs and unique
product offers.

In 2011 the Company successfully implemented its development program: 21 new stores were opened.

Also, in 2011, in cooperation with SGC London, a new concept of stores was developed which included improved
visual representation, optimized product matrix and merchandising elements, and replacement of shop equipment.
When implemented, this concept is expected to improve revenue per square meter and make the shopping
experience more comfortable for the clients. Major roll-out of the new concept of stores will start in 2012.

2011 results

Financial indicators

$ m
Revenue
OIBDA
Net loss, stake of Sistema JSFC
Debt

Operating indicators

Retail floor space, K sq. m.
Number of outlets

2011
782.9
27.4
-5.6
125.5

2011
236
150

2010
659.9
40.9
-3.1
121.3

2010
215
131

Change
18.6%
-32.9%
-
3.4%

Change
10.3%
14.5%

Operational strategy

Significant potential for business efficiency improvement lies in further improvement of category management.
The developed action plan in this area is expected to improve the revenue, the stock turnover, and to maintain the
current trend of gross margin growth by increasing the share of private labels in the total turnover. The company
also aims to expand the permanent customer base of the network by means of optimizing the product offering, the
pricing model and the layout of the stores, as well as introducing a uniform loyalty program.

Further development of expertise in logistics, store management and head office work organization, as well as the
development of proprietary operating platform, are also important tasks for the company in the medium term.

Investment strategy

In the mid-term the children's goods market will maintain its status of one of the most attractive segments of the
Russian retail market. The investment strategy of Sistema JSFC is about strengthening the leading position of
Detsky Mir in the market and its further development via organic growth and M&A. In the medium term, provided
that market situation is favorable, it is possible for the company to go for an IPO.

Key events in 2011

In June 2011 Gennady Levkin was appointed the new General Director of Detsky Mir. He took over from Georgiy
Kravchenko, Executive Vice President of Sistema JSFC who had been heading Detsky Mir since October last year,
in this position.

In June 2011 Detsky Mir approved the regional development program up to 2013. In the next two years Detsky Mir
will open more than 50 new stores in dozens of Russian regions. The total floor space of the chain will increase by
more than 70 thousand sq. m. by 2013. The floor space of most shops will be from 1,500 to 3,000 sq.m. depending
on the concept of the outlet, its location and the expected flow of visitors. It is expected that new stores will be
opened under a new concept using modern selling technologies.

4.2.4. Intourist

OJSC VAO Intourist is Russia's largest tourism holding.

Intourist
Alexander Arutyunov is the President of Intourist, and Sergey Drozdov is its Chairman of the Board of Directors.

Sistema's stake
66%

Industry

The situation in the tourism market in 2011 was determined by the force-majeure events that took place in Q1
(revolutions in some countries of North Africa and the Middle East, the earthquake and the man-made disaster in
Japan). In the outbound tourism segment the demand was redistributed to Thailand, Turkey, India and Europe. The
prices of tourism products increased with the exception of tours to Greece and Spain where price competition was
extremely strong.

The reorientation of tourist flows and the increase in the average price partially offset the revenue losses incurred
by the operators in Q1.

The hotel services market in 2011 demonstrated a trend towards increased capacity utilization which is due to the
positive dynamics in inbound tourist flows and intensified domestic business tourism. Hotel operators resumed the
implementation of their regional expansion plans.

Outlook

It is forecast that in 2012 the existing demand structure in the tourism market will remain as regards distribution of
price segments and concentration in the lower price segments. It is projected that average prices will grow except
for the segments with acute fight for the market, that the influence of global European players will get stronger and

further structuring of the market will continue. The tendency of demand shifting toward independent tourism will
remain strong.

In the hotel market foreign players will continue to expand in the regions while the prices are expected to rise
insignificantly. In Moscow 3-star and 4-star hotels will continue to compete for customers.

The Internet will continue to serve as the communications and sales channel and its role will be increasing both in
the tourist and in the hotel industries.

Steady growth in 2011

The main objective for Intourist in 2011 was to maintain its positions in the hotel market, keep its capacity
utilization rates and ensure profitability of the hotels.

In July 2011, Intourist and Thomas Cook Group Plc, one of the leading tourist companies in the world, established
a joint venture (JV), which comprises the tour-operating and the retail business of Intourist. Thomas Cook Group
Plc. acquired 50.1% in the JV. Resulting from the transaction, Intourist now holds a stake in the JV and owns its
hotel business.

Investment strategy

In the short-term, Intourist is considering an opportunity to engage a strategic partner to strengthen positions in the
hotel services market and to then finance the development of the hotel network if the decision is made to expand.
The engagement of a partner is also to help to apply best international practices in hotel business management.

2011 results

Financial indicators

$ m
Revenue
OIBDA
Net (loss)/ income, stake of Sistema
Debt

*The 2011 results reflect the retirement of the tour operation and the retail businesses.

Operating indicators

Rooms (owned and rented), K
Number of tourists, K

Key events in 2011

2011*
276.6
43.8
8.9
102.4

2011
2.9
725

2010
518.2
6.9
-15.5
166.0

2010
3.1
782

Change
-46.6%
538.4%
-
-38.3%

Change
-6.2%
-7.3%

In March 2011 Intourist announced a sale of 100% of shares in the Pekin Hotel and Office Complex, proceeds from
sales were partially used to cover debt liabilities.

In April 2011 Intourist conducted reorganization through the merger of the two managing companies, Intourist and
Intourist Hotel Group. The merger of the two managing companies helped optimize the management structure,
eliminate duplication of functions, which resulted in cost reduction of about 30%.

In July 2011 Intourist and Thomas Cook Group Plc completed the establishment of a joint venture (JV). Thomas
Cook acquired a 50.1% stake in the authorized capital of the JV. The joint venture will focus its efforts on
expanding the market share in tourism services in Russia and other CIS countries, uniting the advantages of two
leading tourist brands with a long history.

4.2.5. Medsi

CJSC Medsi Group (Medsi) together with its subsidiaries is the leading national network rendering healthcare
services in Moscow and other Russian regions.

Medsi Group
Tatiana Sergeyeva is the President of the Medsi Group, and Mikhail Shamolin is the Chairman of the Board.

100%

Sistema's stake

Industry

The Russian market of paid healthcare services continued to expand in 2011, having grown by 14% to RUR535bn
year-on-year (according to BusinesStat). The key market growth driver is the growth of healthcare service prices. It
is necessary to note that the industry demonstrated stability during the financial crisis of 2008-2010. In 2005-2011
the average annual growth of the market was 16%.

Contraction of the 'grey' market of healthcare services due to the strengthened governmental control and changes in
the regulatory framework is seen as an important trend.

On 1 January 2011 the law “On compulsory medical insurance in the Russian Federation” came to force. This law
allows private clinics to become a part of the mandatory medical insurance system. The influence of this law on the
potential market volume is however still very low as mandatory medical insurance tariffs differ from real service
costs.

The market is still very fragmented. But at the same time the trend of consolidation around the largest and most
successful independent market players is present, and the economic crisis accelerated the withdrawal of small
players from the market. Insurance companies continue to raise requirements for clinics entering into service
provision agreements, and this also strengthens the position of the larger players.

Outlook

According to analysts' forecasts, the growth rate of the paid healthcare services sector will be ca 12% per annum till
2015. An increase in the cost of services will still be the main growth driver.

It is expected that in 2012 state-owned medical facilities will become more active in providing paid medical
services, and this may strengthen competition in some segments of the market. Starting from 2012 medical
institutions are able to enjoy zero rate income tax if they meet certain business parameters.

Steady growth in 2011

In 2011, Medsi continued to expand and remained the number one provider of paid healthcare in Russia. The share
of Medsi on the RF market is 1.3% and on the Moscow market - almost 4%.

In 2011 the growth of revenues amounted to 27% year-on-year thanks to the expansion of the service range. The
net income results were achieved due to the increase in the total number of patients, the growth of the average
check indicators and the increased patient traffic.

In 2011 the company paid a lot of attention to optimizing the organizational structure and business processes. It
started the process of standardizing the IT infrastructure and creating a shared information space.

At the end of 2011 a new Medsi clinic was opened at Prechistenka. The launch of this clinic was the first step in the
program of standardizing clinics on the basis of a model format designed by the company which would provide for
comprehensive healthcare services rendered to the patients using cutting-edge medical technologies.

A lot of new modern medical technologies were introduced at the clinic and diagnostics center at Belorusskaya. In
the autumn of 2011 the Neurology Center was opened, the range of surgeries performed at the in-patient clinic of
the medical center was expanded; new early diagnostics programs were introduced.

Operational strategy

The key strategic goal of Medsi is to increase the value of the company by strengthening its leadership positions on
the commercial healthcare market in Russia and developing high standards of medical services. The increase in the
scale of the business, its efficiency and profitability will be achieved by operating on all target markets,
36

strengthening positions in promising nosologies, developing high-tech areas of medicine, managing quality,
developing the system of direct sales to employers and individuals, continuing active cooperation with insurance
companies and increasing brand awareness.

The company also plans to continue developing its regional network in Russia and the CIS and to open up to 30
new clinics for adults and children, including by means of potential acquisition of existing regional clinics with a
good market position.

Investment strategy

The Russian market of paid medical services has a large growth potential and is one of the priority areas for
Sistema JSFC. The Medsi Group plans to enter new market segments via effective M&As aimed at creating a
player with full cycle of medical services.

The planned merger of Medsi with the assets GUP Medical Center, the leading complex of medical centers in
Moscow, will allow the company to substantially strengthen its positions in the clinic and diagnostics segment of
the Moscow market, enter the segment of high-tech hospital care and develop a new field - aftercare. As a result of
the merger of medical assets on the basis of Medsi a new industry leader and the largest player with significant
growth potential will be formed.

2011 results

Financial indicators

$ m
Revenue
OIBDA
Net (loss)/ income, stake of Sistema
Debt

Operating results

Visits, K
Services provided, K

Key events in 2011

2011
199.0
31.1
6.7
69.3

2011
4.1
7.5

2010
156.5
17.1
-2.5
71.9

2010
3.4
6.0

Change
27.2%
81.4%
-
-3.7%

Change
19.9%
24.6%

In September 2011 the neurology center led by V. Shakhnovich, M.D., was opened on the basis of the clinical and
diagnostic center at Belorusskaya.

In January 2012 Tatiana Sergeyeva was appointed the new President of the Medsi Group.

4.2.6. RTI

OJSC RTI is the largest holding operating in the segment of defense, comprehensive communication and security
systems, system integration and microelectronics, the leading integrator of high-tech scientific and production
companies. The production facilities of RTI have their own R&D infrastructure and implement projects in the area
of radio and space technologies, navigation and microelectronic products that are unique in terms of their scale and
complexity. OJSC RTI includes RTI Systems Concern (97%) and OJSC Sitronics (63.074%).

Sistema's stake
84.6%
RTI*
OJSC RTI includes RTI Systems Concern (97%) and OJSC Sitronics (63.074%).

Sergey Boyev is the CEO of OJSC RTI, and Mikhail Shamolin is its Chairman of the Board of Directors.

Industry

Defense: The spending of the Russian government in the defense sector in 2011 exceeded $50bn. Exports of
Russian military products totaled more than $11bn. The main segment of the defense market, where RTI is
represented, is aerospace defense informational systems ($1bn).

Security systems: In 2011 the Russian market of security systems was estimated at approximately $7bn. The
narrower segment of comprehensive security and management systems of the Russian regions is on the threshold of
exceptional growth and is under strict control of the Russian Government.

Information technologies: In 2011 the Russian market of information technologies was worth $22bn according to
the analysts' estimations. At present, Russia is lagging behind the developed countries by the IT share in GDP; its
market structure is also significantly different: supplies of equipment account for more than 50% of the IT market,
the share of IT services and software is lower than in the USA and Europe.

Microelectronics: In 2011 the Russian market of microelectronics was worth $1.7bn according to the analysts'
estimations. The development of the Russian microelectronics market is at the top of the government's agenda,
which ensures high growth rates of the industry.

Outlook

Defense: In accordance with the arms program adopted by the Government, the total public defense spending will
reach approximately $650bn by 2020. In 2012 government defense spending may reach $60bn.

Security systems: At present, the security systems segment is one of the most fast-growing and promising.
Projected market growth rate: 15-20%.

Information technologies: Due to the currently small market share in the segment of IT services and software
compared to the developed countries, the growth of the IT market, especially the IT services market, will be
exceptional and will reach 15%.

Microelectronics: In 2012-2015 the market for microchips used in RFID cards and tags is expected to grow, as well
as the chips for documents with e-carriers of information. In 2012 the market growth rate is expected to reach 12%.

Steady growth in 2011

In 2011 the revenues of RTI rose by 28% and reached $2, 093bn. The key drivers of successful development of the
United Concern's business in 2011 are: growth in the area of defense solutions, participation in major government
security programs and expansion of the company's presence in the systems integration market.

Operational strategy

The strategy of RTI is aimed at building a large Russian high-tech industrial concern.

The company will strengthen its positions in the government defense market by offering the state more cost-
effective, high-tech and innovative solutions in defense and security and by breaking into new promising markets
abroad. In the segment of civil security systems RTI will achieve its goals through the use of the best technologies,
their localization and gradual replacement with own developments. One of the most important goals is to boost
profitability by increasing the share of intellectual property in the value of the end product.

Investment strategy

Sistema plans to continue the integration and development of its high-tech assets in order to create the biggest
player on the Russian high-tech market. With the purpose of implementing this strategy Sistema intends to simplify
its asset ownership structure and improve the efficiency of asset management. RTI was chosen as a platform for
uniting such assets, as it has the required management, operational and financial capabilities.

2011 results

$ m
Revenue
OIBDA
Net loss, stake of Sistema
Debt

2011
2,093.0
154.4
-18.3
1,126.5

2010
1,631.8
180.6
-16.6
917.4

Change
28.3%
-14.5%
-
22.8%

Key events in 2011

In February 2011, Sistema JSFC and the Bank of Moscow acted as the co-founders of OJSC RTI. The
Bank of Moscow, acting as an investor of OJSC RTI, contributed RUR 3bn to the authorized capital of the new
company. Sistema JSFC contributed its 97% stake in OJSC RTI-Systems Concern and RUR 2.88bn in cash to the
authorized capital of the new company. Consequently, the stake of the Bank of Moscow amounted to 15.4% of the
authorized capital of OJSC RTI, while the stake of Sistema JSFC amounted to 84.6%.

In March 2011, the Board of Directors of Sistema JSFC approved the sale of the Corporation's stake in Sitronics to
OJSC RTI. Sistema's Vice President and Head of High-Tech and Industry Business Unit, Sergey Boyev, was
appointed as CEO of RTI. The transaction of selling 63.074% of Sitronics shares to OJSC RTI was completed in
July 2011.

In April 2011, SITRONICS signed a contract with the Moscow government for conducting works as part of the
creation of the Intellectual Transport System of Moscow worth approximately RUR 6.2bn.

In June 2011, SITRONICS signed a partnership agreement with Rostelecom within the framework of the E-
Government project.

In August 2011, RTI Systems Concern was again included in the 2010 ranking of 100 largest defense companies of
the world.

In October 2011, SITRONICS together with MTS and LUKOIL launched the Express Filling Station project: the
first in Russia touch-free payment system that uses the NFC technology at LUKOIL petrol stations.

In November 2011, RTI Systems Concern signed an agreement with the Brazilian corporation WEG on selling the
stake equal to 74.9% of the authorized capital of the Austrian Group Watt Drive.

In December 2011, RTI and the Bank of Moscow signed a long-term financing agreement according to which the
Bank of Moscow, a shareholder of RTI holding 15.4% of its authorized capital, provides RTI with long-term
funding of $115m and RUR 3.6bn for seven years for the purposes of RTI business development.

In January 2012, Sistema, RTI and NVision Group Management Company signed a framework agreement that
regulates the principles of future relationship of the parties and defines the terms of the transaction of strategic
integration of the RTI and NVision Group assets. In accordance with the agreements reached, RTI shall acquire
50% of NVision Group from its shareholders. Moreover, the shareholders of NVision Group shall exchange the
remaining 50% of the company's shares into the newly issued shares of RTI. As a result of the transaction the
shareholders of NVision Group shall receive up to US $200m in cash and will become the owners of a substantial
portion of the authorized capital of RTI thus obtaining broad representation on the Board of Directors and major
decision-making powers.

In February 2012, RUSNANO and SITRONICS launched the production of microchips on the basis of 90nm
technology. Launching the new line will double the production capacity of the plant and make it possible to reach
the figure of 36K plates with the diameter of 200mm per year. The total budget of the project is RUR 16.5bn
including co-financing from RUSNANO in the amount of RUR 6.5bn.

4.2.7. Binnopharm

Binnopharm is a pharmaceutical company operating the largest in Russia full-cycle manufacturing of bio-
technology drugs in line with the international quality standards GMP (Good Manufacturing Practice). The priority
production areas of the company are the development and manufacturing of drugs for treatment of socially
important diseases (oncology, hematology, infectious and respiratory diseases), as well as genetically engineered
drugs, vaccines and cellular and tissue technology products for regenerative medicine.

Binnopharm
Aleksey Chupin is the CEO of Binnopharm, and Dmitry Zubov is the Chairman of the Board of Directors.

Sistema's stake
100%

Industry

The stable economic situation helped the Russian pharmaceutical market to develop steadily in 2011. Numerous
legislative initiatives stimulated significant changes both in the structure of the market and in its quality.

The Government continues to pursue an import-substitution policy in the pharmaceutical industry by allocating
grants to the Russian producers so that they could develop innovative products, and also stimulates domestic
manufacturing of those pharmaceutical products which account for the main share of consumer spending.

The state is the key consumer of pharmaceutical products and it allocates substantial funding for government
procurement of drugs (the government procurement segment demonstrated 11% growth compared to 2010).

However, in the past year the commercial retail sector became the key driver of the development of the Russian
pharmaceutical market; it grew by 16% and reached the level of $15.4bn. Significant growth was also demonstrated
by the key market for Binnopharm – the inpatient care sector ($4.57bn) – 14% growth vs. 2010 in cash terms.

Outlook

The Russian pharmaceutical market continues to grow at a high rate and it is possible to forecast 10-12% growth
for 2012. The healthcare modernization program launched in 2011 was designed for 2 years. Consequently, its
implementation will determine the trends in the inpatient care sector of the pharmaceutical market in 2012 as well.
Provided that the revenues of the Russian budget remain stable the segment may be expected to exhibit growth of
up to 16%.

The commercial retail market will be growing at a slower rate: the population’s incomes grow relatively slowly; the
epidemiologic situation is also stable.

Steady growth in 2011

In the second half of 2011 the company successfully restructured the business. Organizational changes were made
and commercial and administrative expenses reduced. The drugs portfolio was optimized with the focus on high-
margin biotechnological products. The team of Binnopharm’s scientists prepared three new drugs for registration
and launch on the market. Binnopharm started actively participating in government auctions for drug supplies. In
2011 more than 150 government tenders for supplies of pharmaceutical products were won. In 2011 two
government contracts for supply of 10m Regevac B vaccines worth more than RUR 600m were fulfilled.

The Company's revenue growth in 2011 amounted to 20%; in Q4 2011 the company reached break-even. This was
achieved, among other things, due to the government contracts for supply of Hepatitis B vaccines. New bronchial
asthma drugs also significantly influenced revenue growth. In addition, the company significantly strengthened its
positions in the drugs distribution segment which covers not only the sales of own products, but also distribution of
products from external manufacturers.

Operational strategy

Binnopharm has a goal of becoming one of the largest Russian developers and manufactures of pharmaceuticals
and of conquering 50% of the Russian biotech drugs market. At the first stage of biotech production
development the company expands the range of manufactured vaccines and launches its own production
of erythropoietin β and interferon α.

A proprietary distribution network in the Russian regions will make it possible to significantly increase sales
volumes and capture up to 20% of the state procurement market of Russian medicines.

Investment strategy

The investment strategy of the company provides for entering related segments by establishing the production of
new promising medicines (erythropoietin, interferon, vaccines etc.) and expanding the geography of the business.

Creation of strategic alliances and joint ventures with large foreign producers of pharmaceuticals is an important
part of the growth strategy. The goal is localization of the production of innovative medicines, transfer of
technologies and their promotion on the Russian market. The company is also considering the options for acquiring
local producers with a promising portfolio of medicines.

2011 results

Financial indicators

$ m
Revenue
OIBDA
Net loss, stake of Sistema
Debt

Operating results

Capacity utilization, ampules
Capacity utilization, tablets
Capacity utilization, aerosols

Key events in 2011

2011
38.5
1.3
-4.4
6.8

2011
16%
0.1%
3.5%

2010
32.1
-27.9
-33.9
2.7

2010
11%
0.3%
1.8%

Change
19.9%
-
-
150.9%

Change
5 p.p.
-0.2 p.p.
1.7 p.p.

In March 2011, Binnopharm and Rosgosstrakh became partners of the Biocity cluster. The goal of the project is to
build national innovative infrastructure for the development of drugs and commercialization of scientific
developments in the spheres of pharmacology and biotechnology; development of existing and establishment of
new research and educational organizations, participation in government programs.

In April 2011, UCB Pharma and Binnopharm signed a memorandum of strategic partnership designed to promote
production localization and import substitution in Russia according to the government's 'Pharma-2020' strategy.

In November 2011, Binnopharm and Pharmimex signed a cooperation agreement. The companies will combine
their efforts to study the pharmaceutical market, determine promising products in order to launch their joint
development, manufacturing and distribution in the markets of Russia and the CIS. At the first stage of cooperation
Pharmimex will organize the distribution of Binnopharm's products.

4.2.8. RussNeft

RussNeft is an oil company, one of the top 10 largest oil holdings in Russia. Its proven and probable oil reserves
exceed 2.2bn barrels, production output in 2011 was more than 13.6m tons.

RussNeft

Effective shareholding
49%

Mikhail Gutseriev is the President of RussNeft, and Leonid Melamed is its Chairman of the Board of Directors.

Industry

Oil production output in Russia reached 511.4m tons in 2011, which is 1.3% above the 2010 level.

Production of hydrocarbons in Russia in 2011 was characterized by three aspects. In the first place, a new record in
oil production was set for the first time after the collapse of the Soviet Union, moreover, in H2 production outputs
continued to grow and reached the current level of more than 10.3m barrel per day. Secondly, many companies
41

exceeded their own forecasts both for green-field and brown-field oil projects. Thirdly, positive results were
achieved at the brown fields where a decline in production outputs was prevented in 2011.

Because of the shortage of petrol in the petroleum products market, starting from May 1st the duty rate on high-
grade petrol was raised by the Russian Government to up to 90% of the oil duty rate.

From 1 October 2011, the new tax plan for the oil industry called '60-66' came into force. The maximum rate of
export oil duty went down from 65% to 60%, while the export duty on dark oil products was increased from 47% to
66%.

Outlook

According to the forecasts of oil companies the growth of daily production outputs at new Russian oil fields will be
accelerated mainly due to the increase in production at the fields in East Siberia. Consequently, the production of
liquid hydrocarbons in Russia will continue to grow in the next several years.

Compliance with the requirements of the new tax legislation and the consequent necessity to modernize oil refining
capacities will pose the greatest challenges to the industry in the nearest future. Accordingly, we can expect a
significant growth of the investment budgets of Russian oil and gas companies.

Steady growth in 2011

In 2011 RussNeft increased its production of oil by 5% up to 13.6 m tons. The company became one of the leaders
of the oil industry by production growth, exceeding the industrial average market rate of 2-3%. Revenue in 2011
went up by 24%, OIBDA – by 22%.

In 2011 the company completed the restructuring of its debt to Sberbank of Russia and Glencore and fulfilled all its
accelerated payment obligations. The operating and management achievements made it possible to reduce the debt
burden by $ 0.96bn down to $5.4bn as of the end of 2011.

Operational strategy

In 2012 the company intends to maintain a steady and dynamic growth of production volumes. In 2012 RussNeft
plans to reach oil production level of 14m tons with $610m in capex. In the mid-term RussNeft expects its annual
production output to reach 16m tons. The company also intends to speed up the process of debt repayment and
reduce its interest payments.

Investment strategy

Sistema JSFC believes that RussNeft has significant value growth potential. The key to realizing this value lies in
the implementation of its operational and financial strategy which provides for an increase in production volumes,
reduction of debt and expansion of reserves.

2011 results

Financial indicators*

$ m
Revenue
OIBDA
Net income**
Debt

* In accordance with IFRS standards
**Net income is shown in full and not as attributable to Sistema

Operating results

Oil production (m tons)
Oil reserves (2P), bbl m
Gas reserves, m cu ft

2011
5,590
1,662
771
5,403

2010
4,496
1,359
574
6,364

2011
13.6
2,273
1, 313, 212

2010
12.9
2,250
1, 217, 509

Change
24%
22%
34%
-15%

Change
5%
1%
8%

Key events in 2011

In December 2011, RussNeft refinanced some of its debt at LIBOR+ 4.5% per annum. The signing of the loan
agreement demonstrates the improved financial situation of RussNeft and sets the interest rate benchmark for
potential creditors of the holding.

In July 2011, RussNeft sold its subsidiary refinery, Orsknefteorgsintez. The revenues from the sale of the refinery
were allocated to the settlement of some of RussNeft's debt.

In January 2011, RussNeft signed a loan restructuring agreement with its main creditors – Sberbank and Glencore
International AG. Prior to signing the agreement the total amount of debt stood at $6.2bn. The maturity of the debt
was extended to 2020. The interest rates became equal for both lenders and were reduced to 9% per annum.

4.2.9. SSTL

Sistema Shyam TeleServices Ltd. (SSTL) is an Indian mobile operator providing services in 22 license circles,
which include 28 administrative states and 7 union territories in India with the total population of approximately
1.16bn people.

SSTL

Sistema's stake
56.7%

Vsevolod Rozanov is the President of SSTL, and Ron Sommer is its Chairman of the Board of Directors.

Industry

In 2011, the mobile subscriber base in India gained 19% and reached 894m subscribers. The level of mobile
penetration in India in 2011 increased from 62% to 74%; the revenue of the telecom industry in India also grew by
15%.

The number of broadband customers (fixed and mobile) in 2011 grew by 21%, but the penetration of the BB
services is still low - 1.1%.

In 2011, the number of mobile subscribers continued to increase, but growth slowed down significantly. At the end
of 2011, for the first time over the recent years GSM operators increased their mobile tariffs thus stimulating the
growth of the mobile market’s revenue.

The operators who had received 3G frequencies rolled out their networks and launched services with the focus
mainly on users of phones with the Internet access. The market of smartphones, tablets and mobile applications
started expanding rapidly.

Outlook

The number of voice mobile customers continues to increase actively, but in the second half year of 2011 the
growth rates began to decline. Further reduction of the growth rates of the number of voice customers is possible.

The broadband market is at the initial stage of development, in the nearest years significant growth of the mobile
data market is probable due to the roll-out of 3G and EVDO networks and entry of the 4G (LTE) operators into the
market in 2012.

At the beginning of 2012 the Supreme Court of India passed a ruling revoking 122 licenses, which created great
uncertainty in the sector. SSTL took legal steps to protect its investments and waits for the Indian Government to
issue guidelines on the new auction procedure.

Steady growth in 2011

In 2011 the mobile network of the company was rolled-out in all of the 22 circles of India and a high-speed data
network was made available in more than 300 Indian cities, 83% of the potential data market was covered.

In 2011 the SSTL business was developed in three main focus areas: development of data services, partnership and
searching for consolidation opportunities.

The focus on the priority segment of data services included:

1) development of mobile data network covering more than 300 Indian cities and towns,
2) full coverage of the largest highways in the country: Delhi-Jaipur and Mumbai-Bangalore,
3) launching high-speed mobile data services under the Rev.B technology in Rajastan,
4) development of distribution channels,
5) expansion of branded retail and engagement of new partners: Reebok, Levi’s, HP, Kingfisher for
stimulating the growth of the base of subscribers with high ARPU and improving the brand awareness.

The company started developing mobile data services together with Vodafon on the basis of the SSTL network.

Operational strategy

The market strategy of SSTL is focused on the development of mobile data services and high-margin voice services
in priority circles. The operating targets of SSTL include searching for partnership opportunities with GSM
operators following the example of the partnership with Vodafone. As part of the consolidation strategy the
company is negotiating with a number of operators and their shareholders, but the process is impeded by the
uncertainty regarding the ruling of the Supreme Court of India on the revocation of licenses and by the delay in the
issue of the new telecom policy that would facilitate the consolidation of the market.

Investment strategy

The recent events related to the revocation of licenses created uncertainty in the Indian telecom market. Sistema
JSFC continues to regard India as a promising growing market but it needs certainty and expects a fair ruling from
the Indian regulator which will make it possible to continue this growth. Sistema JSFC fully supports SSTL and
hopes to see the license dispute speedily resolved. After this issue is settled and other regulatory changes take place
Sistema plans to expand the scale of SSTL's business through consolidation with a major telecom operator.

2011 results

Financial indicators

$ m
Revenue
OIBDA*
Net loss, stake of Sistema *
Debt

2011
262.3
-730.0
-636.1
1,573.5

2010
114.6
-329.0
-349.7
1,245.9

Change
128.8%
-
-
26.3%

*Taking into account the write-off of 21 licenses and the goodwill of SSTL following the decision of the Supreme Court to revoke 122 licenses including the 21
licenses of SSTL.

Operating results

Mobile subscribers (m)
Data subscribers (m)

Key events in 2011

2011
13.7
1.3

2010
8.0
0.4

Change
70.6%
-

In March 2011, the transaction of the RF government becoming a shareholder of Sistema Shyam TeleServices Ltd.
was completed. In the course of the additional issue of shares for the RF Government and the Indian shareholders,
SSTL raised INR 28,894.5m (more than $647m). On behalf of the RF Government Rosimushchestvo acquired
17.14% of the SSTL shares for the total sum of INR 26,988m (about $600m). After the additional issue the stake of
Sistema JSFC in the SSTL equity equals 56.68% and the stake of the Indian shareholders of SSTL – 26.05%.

In July 2011, Sistema Shyam TeleServices Ltd. started providing uninterrupted mobile broadband services along
the Delhi-Jaipur highway.

In July 2011, Sistema Shyam TeleServices Ltd. expanded its cooperation with Ericsson in the Indian market. In
September 2010 the companies signed a contract according to which Ericsson took over the management and
servicing of multi-vendor wireless CDMA network of SSTL in two telecom circles of India: Delhi and Harayana.
The new agreement prolongs the previous agreement for three more years and allows Ericsson to provide its
services in four new telecom circles: Gujarat, Rajastan, Eastern and Western Uttar Pradesh.

In August 2011, Sistema Shyam TeleServices Ltd. launched the most affordable smartphones on the Indian market
on the basis of the Android operating system.

In September 2011, MTS India became the first CDMA operator in the world that uses the new-generation
technological platform – EV-DO Rev. B Phase II.

In September 2011, Sistema Shyam TeleServices Ltd. took out a $200m loan, $100m of which was provided to the
company by the ICICI Bank and $100m by Barclays Bank. The three-year loan was secured proportionately by the
letter of credit and the guarantee of Gazprombank.

4.2.10. NIS

NIS is a federal operator of the GLONASS navigation system which in its purposes may be compared to GPS.
GLONASS provides positioning services to an unlimited number of land, sea, air, and space-based users in real
time.

NIS

Sistema's stake*

70%

*The data takes into account the acquisition of additional shares of NIS in February 2012.

Aleksander Gurko is the CEO of OJSC NIS, and Evgeny Primakov is the Chairman of the Board of Directors.

Industry

At its present stage the navigation and information market is characterized by the following trends: the emergence
of alternatives to GPS, the implementation of large-scale state projects in transport security on the basis of satellite
navigation technologies, the use of navigation technologies for modernization of transport infrastructure, reduction
of prices and improvement of the technical characteristics of products and services. Nowadays the domestic
navigation market (motor vehicles) is already formed to a large extent and at the same time has significant growth
potential for the following years. The key drivers of development (from 2013) are such major government
initiatives as ERA-GLONASS and introduction of toll road systems for heavy transport.

Outlook

Today, the world navigation and information market is formed on the junction of a number of high-tech industries:
microelectronics, car industry, IT and telecom sector, thus predetermining a fast growth of this segment of the
global market. According to the report of the European Commission, the volume of the global market of navigation
and information services will increase three-fold from EUR 41bn to EUR 125bn for the period 2008-2016. The
largest segment is motor transport, which accounts for more than 56% of the market.

Steady growth in 2011

In 2011 NIS achieved significant progress in stepping up the introduction of GLONASS technologies in Russia and
abroad, capitalizing on opportunities of the growing domestic market, creating the foundation of the future
operating business and strengthening its leadership position. The revenue of the company increased more than
twofold in 2011 vs 2010 and the headcount of NIS in 2010 doubled.
Operational strategy

NIS is an economically efficient public-private partnership, the leader of the Russian market, a large player of the
global navigation and information market and a reliable technical operator of ERA-GLONASS.

One of the strategic development goals of the Company for the period until 2016 is to become an undisputed leader
of the navigation and information market in Russia and the CIS and gain a firm foothold in the global market of
navigation and information services. In order to achieve its strategic development goals, NIS actively stimulates
competitive development and scaling of the navigation industry in Russia, and expands its competencies in the
sphere of navigation (including by means of potential M&A deals).

The strategy of NIS is focused on four key business areas:

1) ERA-GLONASS is a governmental project that envisages the creation of an automated hardware and

software complex and infrastructure for the emergency agencies' response to road traffic accidents.

2) Creating and introducing navigation and information systems.
3) Operator business for provision of navigation and information services on the basis of positioning for

different categories of users: drivers, pedestrians and businesses.

4) Individual major projects related to the use of GLONASS technologies in Russia and abroad, such as: (i)
the road toll collection system for heavy transport based on GLONASS, (ii) the system of tachographic
control of truck drivers in terms of compliance with the work-rest regime on the basis of GLONASS (iii)
other.

Investment strategy

We expect to achieve exponential growth of the shareholder value of OJSC NIS through organic growth and M&A
partnerships.

With the view to fulfill this potential NIS plans to engage an international strategic partner, attract key players of
the security and tracking systems market, capture leading positions in the international navigation and
geoinformatics market.

2011 results

Financial indicators

$ m
Revenue
OIBDA
Debt

Operating results

Equipped transport (thousand vehicles)*

*Jointly with regional partners

Key events in 2011

2011
151.7
8.4
16.1

2011
150

2010
67.3
4.6
15.4

2010
60

Change
125.6%
82.7%
3.9%

Change
150%

In March 2011, the Ministry of Economic Development of the Russian Federation and NIS GLONASS entered into
an agreement for cooperation in developing new technologies to be applied in external economic activities.

In August 2011, as per the directive of the Russian Government, NIS GLONASS was awarded the government
contract for conducting works related to equipping transport vehicles used for public purposes.

In September 2011, the federal network operator NIS GLONASS announced that starting from 16 September 2011
it was installing GLONASS devices in all of the transport vehicles to be used during the Olympic Games in Sochi.

In December 2011, NIS GLONASS registered a subsidiary, NIS GLONASS Pvt Ltd in the Maharashtra state of
India, Mumbai. The aim of the subsidiary is to conduct the localization of equipment production and create
software products, as well as ensure the roll-out and maintenance of a pan-Indian partner network of NIS Glonass.

In February 2012, Sistema JSFC increased its stake in OJSC NIS from 51% to 70% by purchasing the newly issued
shares of the company. Sistema JSFC paid for the shares by contributing its 51% stake in M2M Telematics to the
authorized capital of NIS. Consequently, NIS became the controlling shareholder of M2M Telematics.

5. DESCRIPTION OF CORE RISK FACTORS

The risks that may be faced by the business of the Corporation are diverse. Sistema JSFC has no or limited
influence on many of the potential risk factors, therefore, efficient risk assessment and management remains an
important element of Sistema's strategy.

The Corporation has introduced an integrated enterprise risk management system (ERM) that is designed to keep
the level of risk within the limits that are acceptable for the shareholders and the management of the Corporation.
The ERM system at Sistema JSFC was built in compliance with international standards, recommendations and best
practices in risk management.

5.1. External risks

The external risks of Sistema JSFC include: risk related to the political situation and legislative changes in Russia
and the countries of the Corporation's presence; risks related to the economic situation in Russia and the countries
of the Corporation's presence; risks related to the situation on the financial markets.

Political climate in Russia and the CIS

The risks related to the political situation in Russia and the CIS are material for Sistema JSFC because most of the
Corporation's business is conducted on the territory of the Russian Federation and the CIS countries. The Russian
Government acts as a partner in several projects important for the Corporation.

Sistema JSFC estimates the political situation in Russia as stable and believes that at the moment there are no risks
of any negative changes.

At the same time, there is instability in a number of neighboring CIS countries. Potential alterations in the laws of
the countries where the Corporation operates, following some changes in the political situation, pose certain risks to
Sistema JSFC; especially so, because private companies in these countries remain vulnerable to the influence of
various political forces.

Political climate in other countries

Since the companies of the Corporation conduct their businesses and have partnerships with companies in India,
South-East Asia, Africa and Central and Eastern Europe, in case of any major political turmoil in these regions the
operations of the Corporation in the regions may be put on hold, which may lead to material losses. Besides, the
operations of the Tourism business segment are also vulnerable to any major political risks.

Economic situation

The following factors can impact negatively on the economy of Russia and the countries of the Corporation's
presence, and, accordingly, on the performance results of Sistema JSFC:

1) Considerable reduction in GDP.
2) Inflation rate
3) FX rate volatility
4) State budget deficit and high level of sovereign debt compared to GDP.
5) Insufficiently developed banking system which cannot ensure sufficient liquidity of national economy.
6) High level of capital outflow.
7) High level of corruption in the economy.
8) Quite high unemployment

Financial risks

The financial risks of Sistema JSFC include the following elements:

1) Forex risk:

Changes in the rate of the ruble, hryvna, euro and US dollar may have a considerable impact on the
financial results of SIstema JSFC.

2) Interest rate risk:

In the current conditions the alteration of interest rates in the capital market will not lead to any
considerable increase of our expenses because the predominant part of Sistema's borrowings has a fixed
interest rate.

However, when raising funds for investments in the future we may encounter the situation when borrowing
becomes more expensive. This prospect depends, in the first place, on the level of the future credit rating of
the Russian Federation, the interest rates in the capital markets and the level of liquidity both in the Russian
Federation and the world financial system.

3) Liquidity risk:

In order to service and refinance the current and future liabilities it may become necessary to permit
considerable cash outflows. The ability to repay the debt may depend on many factors which are not
always in our control. There is a risk of deepening world financial crisis (the risk of the so called "double
dip" recession) which may lead to more severe borrowing rules and restricted access to liquidity. Another
factor may be an undermined financial stability in a number of countries of the European Union.

4) Inflation risks:

Inflation may be another driver of the rise in expenses of Sistema JSFC. For quite a while the Russian
economy has been showing high inflation rates.

In 2011, consumer market inflation amounted to 6.1%. The decline in inflation was ensured by a relatively
low growth of food prices after significant growth in the previous year. The measures which were timely
taken by the Russian government to overcome the imbalances of the grain market and stimulate import in
the problem markets (fruits and vegetables) in conditions of stable ruble rate contributed to the reduction of
price growth rates and inflation.

5) Stock markets:

There is a risk that the shares of Russian companies will be growing slower than those of their counterparts
in other emerging markets. The key reason of that may be a substantial outflow of capital from the Russian
market caused both by the political and economic factors inside the country and the situation on the world
stock exchanges.

Legal risks

The main material legal risks of Sistema JSFC include:

1) Risk related to forex regulations, customs control rules and duties, in particular, increase in the amount of
cash that should be reserved when conducing operations with foreign currencies, increase in duties on
goods, tightened customs control rules.

2) Risks of changes in tax legislation, in particular, increased tax burden, more complicated procedure for

filing tax documents and new interpretation of the existing tax legislation.

3) Risk of changes in the legislation regulating the activities of the companies which have a significant stake

in Sistema's revenues (telecom and oil sector companies).

4) Risk of changes in the legislation on stock exchanges and protection of investor rights, in particular,
changes that can have a negative effect on the number of opportunities accessible to Sistema JSFC for
conducting stock operations.

5) The unstable and insufficiently developed judicial and legal system of the Russian Federation, which may
result in limited opportunities for protecting the rights of companies controlled by Sistema JSFC in court.

5.2. Risks related to the core activities of Sistema JSFC

Implementation of the adopted strategy

There are risks related to the inconsistency of the actual timeframes and parameters of M&A deals with the adopted
portfolio strategy of the Corporation. The quality of the acquired assets may turn out to be significantly lower than
expected. There are also risks related to volatility in the markets of the Corporation's presence, which can make the
implementation of the current strategy inefficient.

Investment risks

The investment risks of the Corporation arise from a combination of unfavorable economic and market conditions
and factors that hinder the development of certain assets of the Corporation. This risk includes the following
factors:

1) Stronger competition in the market and lack of opportunity to acquire assets meeting the strategic goals of

the Corporation.

2) Potentially insufficient level of new investment and, as a consequence, inability of companies to meet

targets.

3) The risk of inaccurate valuation of assets, incorrect price formation and timing of M&A deals.
4) Potential shortage of funding required for taking up attractive investment opportunities. Potential deficit of
financial resources for conducting specific M&A transactions including the potential need to borrow cash
on conditions that are not attractive for the Corporation.

5) Excessive dependence on a specific sector, economy and/or geography of presence.

Operational risks

Operational risks include:

1) The risk of incomplete or untimely integration of newly acquired companies which makes it impossible to
achieve planned synergies and retain the value of the acquired assets. The risk that the top management of
Sistema will have to spend a lot of time to integrate the acquired companies.

2) Reputational risks related to implementing the Corporation's strategy and conducting operations of the
portfolio companies. Risks related to recruiting and retaining qualified managers in the Corporate Center
and portfolio companies.

3) Risk of inefficient cross-functional interaction, breach of the approved business processes or weakened

control over the implementation of business processes.

4) Risk of fraud at the level of Corporate Center and the companies of the Corporation.

6. CORPORATE GOVERNANCE SYSTEM

Corporate Governance Principles

Maintaining the corporate governance and the information transparency system at the highest international level is
one of the elements of the strategy of Sistema JSFC as an investment company. The structure of the Corporation's
corporate governance is based on the following core principles:
1) transparency of all processes for investors and partners,
2) a proactive and professional Board of Directors,
3) a consistent and collective approach to decision-making.

Sistema JSFC is guided by these principles in all of its activities, including strategic and financial management,
corporate governance throughout the group, reporting, control and audit, risk management, HR and social policy.

The principles and procedures of Sistema’s corporate governance are set out in its Charter and in a number of
publicly available bylaws that, all together, determine the structure and the remit of the Corporation's governance
and control bodies. The Corporate Conduct Code and the Ethics Code contain additional commitments of Sistema
JSFC in the area of transparency, social responsibility, and ethical business principles.

Sistema JSFC takes every effort to bring its corporate governance practices in line with the guidelines set out in the
Corporate Conduct Code recommended in Executive Order from the Federal Commission for the Securities
Market of Russia No. 421/r dated 4 April 2002,11 and in the UK Combined Code on Corporate Governance.12 The
consistency of the corporate governance practice of Sistema JSFC with the standards set out in the Corporate
Conduct Code and the UK Combined Code on Corporate Governance is analyzed in the annex to this report.
Should the corporate governance practice of Sistema JSFC diverge from the standards recommended in the above
documents, the Corporation provides an explanation as to how else it makes sure that the balance of interests fixed
in the applicable corporate governance standards is observed.

Corporate governance structure of Sistema JSFC

General Meeting of
shareholders

Corporate
Secretary
BoD Office

Chairman of the Board of
Directors

BoD Committees

Board of Directors

Strategy Committee

Audit and Finance
Committee

Nomination,
Remuneration and
Corporate Governance

President

Ethics and Internal
Control Committee

Investor Relations and
Dividend Policy
Committee

FUNCTIONS

Management Board

BUSINESS UNITS

Strategy and
Development
Function

Finance and
Investment
Function

Corporate
Governance
Function

Legal
Function

Administrative
Function

Corporate
Communications
Function

Internal Control
and Audit
Function

Core Assets

Developing
Assets

11 The text of the Corporate Conduct Code is available at the following address:
http://www.fcsm.ru/ru/legislation/corp_management_study/corp_codex/
12 The text of the UK Combined Code on Corporate Governance is available at the following address:
http://www.fsa.gov.uk/pubs/ukla/lr_comcode2003.pdf

The Corporation's core governance bodies are: the General Meeting of shareholders, the Board of Directors, the
President and the Management Board. The Board of Directors and the President have committees that work out
recommendations for forming Sistema’s policy in the respective areas. The organizational structure of Sistema
JSFC includes seven functions and two business units that manage the Core Assets and the Developing Assets
portfolios.

The current organizational structure was adopted in April 2011 and reflects the migration of Sistema JSFC towards
the Investment Company model. As of the beginning of 2011 the organizational structure of Sistema JSFC
comprised nine functions and four industrial business units.

6.1. General Meeting of Shareholders

Principles of operation

The General Meeting of shareholders is the supreme governance body of Sistema JSFC. Its operation is regulated
by the laws of the Russian Federation on joint-stock companies, the provisions of its Charter, and the Corporation's
bylaws. The procedure of conducting the General Meeting of shareholders aims to make sure that the rights of the
shareholders are respected and all the legal requirements, as well as best practices in corporate governance, are
observed.

Information and materials for the meeting are made available to the shareholders in Russian and in English, and are
published on the official web site of Sistema JSFC. Along with the notice of the forthcoming meeting,
shareholders acquire voting ballots. Venues of all meetings of Sistema’s shareholders are conveniently located not
far from the Corporation's head office. Holders of the company's depositary receipts have the opportunity to vote
on the agenda items by means of proxy voting via Deutsche Bank Trust Company Americas, the depositary of
Sistema JSFC GDR program.

Global Equity Services,
Trust and Securities Services,
Email: gm.communications@db.com

Observance of shareholders' rights to participate in running the company

Sistema JSFC aims to ensure maximum protection of the shareholders' rights to participate in running the
Company. The fundamental right of a shareholder in this respect is the right to participate in the work of the
General Meeting of shareholders and the right to vote on items on the agenda. For this right to be secured a notice
of the conduct of the General Meetings of Sistema JSFC is circulated to all the shareholders at least 30 days before
the meeting, all materials are published on the website of the company in Russian and in English (www.sistema.ru).
Besides the notice on the General Meeting, Sistema JSFC also sends a voting ballot to each shareholder. The ballot
can be filled out by the shareholder in advance and mailed to the Company to the address specified in the ballot. In
this case the vote of the shareholder will be taken into account when counting the voting results.

Holders of depositary receipts for the Corporation's shares have the opportunity to vote by means of proxy voting
via Deutsche Bank Trust Company Americas, the depositary of Sistema JSFC GDR program. The votes are
collected by the depositary, Deutsche Bank Trust Company Americas, via clearing systems and are included in the
general voting ballot of the depositary, with all votes cast for the proposed draft resolution, against it, and
abstentions specified.

Each shareholder can also attend General Meetings of shareholders in person13 and vote on the agenda items
directly at the meeting.

One of the important rights of the shareholder in relation to participating in running the Company is the right to
access documents that the Company is obliged to keep in line with the provisions of the Federal Law "On Joint-
Stock Companies". To exercise this right, a shareholder should send a written request to the Corporate Secretary of

13 Or via a representative.

the Company asking for access to the documents that the shareholder is interested to see. After the time for
providing the documents is agreed upon, the requested documents will be provided to the shareholder.

Holders of material blocks of shares are entitled to make proposals on the agenda of the General Meeting of
shareholders, and to nominate candidates to the Corporation's governance and control bodies.14 Proposals on the
agenda of the Annual General Meeting of shareholders of Sistema JSFC are accepted in a written form, within 100
days after the end of the financial year.15 Proposals received from shareholders are considered by the Board of
Directors and, if the proposals meet the legal requirements to the work of the General Meeting of shareholders, the
proposed items are included in its agenda.

General Meetings held in 2011 and their results

In 2011 two General Meetings of the Company's shareholders were held.

The Annual General Meeting of the shareholders of Sistema JSFC took place on 25 June 2011.
The Annual General Meeting of shareholders approved the annual report, the annual accounts including the profit
and loss report of Sistema JSFC for 2010, approved the amount, the procedure, the forms and the timelines for
paying dividends on the shares of the Company, elected members of the Board of Directors and the Revision
Commission, and approved the auditors of the Corporation.

Proceeding from the amount of the consolidated net income of Sistema JSFC for 2010 (RUR 27,900m ($
918.7m )), the Board of Directors of Sistema JSFC recommended that RUR 2,509m be allocated to pay out the
2010 dividends on the shares, which accounted for 8.99% of the consolidated 2010 net income of the Corporation
according to US GAAP and is in line with the principles of the Corporation's dividend policy.
As resolved by the Annual General Meeting of shareholders following the recommendation made by the Board of
Directors, RUR2,509,000,000.00 were allotted to pay out the dividends, which equaled RUR 0.26 per each
ordinary share of Sistema JSFC. The amount of the dividend was more than 4.5 times as much as in 2010.16

The following auditors of Sistema JSFC were elected for 2011:

- CJSC BDO – to conduct the Russian accounting standards audit;
- CJSC Deloitte and Touche CIS – to conduct the US GAAP audit.

The auditors were suggested following an open tender organized by the Audit Committee of the Board of Directors
of Sistema JSFC.

In 2010, one Extraordinary General Meeting of shareholders was also held in the form of a letter ballot:

18 March 2011

The following agenda item was considered: Approval of a related party
transaction: acquisition of the OJSC RTI shares issued upon incorporation
of the company.

The establishment of OJSC RTI has the goal of laying the foundation for a new
Russian high-tech industrial Concern being a supplier of comprehensive
innovative engineering, IT and microelectronics solutions for control and
monitoring systems, systems for identifying and responding to threats to the
state, business and individuals.

At the stage of incorporating OJSC RTI it is planned to place its shares with two
founders with the following target ownership structure:

- Sistema JSFC: 84.6% of the shares placed;

14 Holders of 10 and more % of the Company's voting shares also have the right to request an Extraordinary General Meeting
of shareholders to be conducted.
15 In the event an Extraordinary General Meeting of shareholders is conducted with its agenda containing an item on the
election of the Board of Directors, holders of sufficient blocks of shares have the right to nominate candidates to the Board of
Directors. Proposals to this effect must be received by the Company no later than 30 days before the date of such a meeting.
16 In 2010, RUR 530,750,000.00 were allotted to pay out dividends.

- Bank of Moscow: maximum 15.4 % of the shares placed.

It is proposed that Sistema JSFC shall contribute 97% of ordinary shares of
OJSC RTI-Systems Concern at the valuation of RUR 13,600,000 and cash in the
amount equivalent to $96 million in rubles at the exchange rate of the Bank of
Russia as of the date of the transaction – as payment for the shares of RTI that
are being acquired. The value of the controlling stake in OJSC RTI-Systems
Concern for the valuation purposes was defined based on the independent
valuation by Ernst&Young.

Consolidation of the controlling stake in OJSC RTI-Systems Concern at the new
company is the first step towards creating the new Concern.

The General Meeting of shareholders approved the proposed transaction

6.2. Board of Directors

The Board of Directors of Sistema JSFC is responsible for strategic management of Sistema JSFC. It determines
the strategy of the Corporation's development, works out strategic and financial development plans, sets the
principles for investing, appraises executive performance and assesses risks, approves principles for corporate
governance procedures, approves transactions and controls the work of the Corporation in general. The scope of
powers of the Board of Directors is set out in the Charter of Sistema JSFC.

Board of Directors membership

The Board of Directors in place as of 31.12.2011 was elected by the General Meeting of shareholders on 25 June
2011. The Board of Directors has 12 members:

BoD membership as elected on 25 June 2011*

Vladimir Evtushenkov
Alexander Goncharuk
Ron Sommer
Dmitry Zubov
Vyacheslav Kopiev
Robert Kocharyan
Roger Munnings
Leonid Melamed
Evgeny Novitsky
Serge Tchuruk

1
2
3
4
5
6
7
8
9
10
11 Mikhail Shamolin
David Iakobachvili
12

Chairman

Deputy Chairman

Overall membership of the Board of Directors includes:

Executive director

1 (8.3%)

M. Shamolin

* See Annex for brief biographical notes and information on the stakes of the Board members in the authorized capital of
Sistema JSFC

Non-executive directors

6 (50.0%)

Independent directors

5 (41.7%)

V. Evtushenkov, A. Goncharuk, R. Sommer, D. Zubov, V.
Kopiev, L. Melamed**

R. Kocharyan, R. Munnings, E. Novitsky, S. Tchuruk, D.
Iakobachvili

** The powers of L. Melamed as the President and the Chairman of the Management Board of Sistema JSFC were
terminated on 09 March 2011. R. Sommer was relieved of his duties as First Vice President of Sistema JSFC on
May 13, 2011.

Changes in the membership of the Board of Directors

The new Board of Directors does not include former members R. Mehrotra and S. Cheremin. At the same time,
new independent directors have been elected to the Board: S. Tchuruk, D. Iakobachvili, who have extensive
practical experience in managing large companies, as well as M. Shamolin as the President of Sistema JSFC.

Meetings of the Board of Directors

Meetings of the Board of Directors are pre-scheduled. The Corporation has an Annual Calendar Planning Cycle
(from January 1 through December 31). This practice makes it possible for the newly elected Board of Directors to
maintain continuity and act on the basis of the previously approved plan. The agendas of the Board meetings are set
proceeding from the logics of the strategic planning and reporting cycle of Sistema JSFC. Extraordinary meetings
are called when it becomes necessary to review any urgent issues. The unplanned issues which may arise in the
course of the Corporation's operations and which had not been included in the work plan of the Board of Directors
are put on the agendas of the Board meetings as necessary upon the decision of the Board Chairman.

In 2011 the Board of Directors had ten sessions: eight scheduled meetings and two extraordinary sessions in the
form of a letter ballot on urgent matters. In 2010 the Board of Directors considered 108 items in total.

Number of meetings held
Number of letter ballots
Number of items on the BoD work plan
Number of items considered by the BoD

In 2011 the Board of Directors considered the following key items:

1) Strategy of Sistema JSFC.
2) Development strategies of the Business Units of Sistema JSFC.
3) Development strategy of the main portfolio assets:

2011

8
2
44
108

2010

8
8
46
115

-
-
-
-
-
-
-
-

banking industry;
telecom assets;
oil assets;
electric power and grid assets;
development of the pan-Indian project on the basis of Sistema Shyam TeleServices Limited;
healthcare assets;
pharmaceutical assets;
implementation status of the RTI-Sitronics merger project.

4) Entering the agricultural industry.
5) The results of the analysis of the world regions and/or countries from the viewpoint of opportunities for
entering new markets and selling and acquiring undervalued assets or assets that have synergies with the
current assets of the Sistema Group.

6) Development of innovations and R&D activities of Sistema JSFC companies.
7) Implementation status of the strategy for managing the subsidiaries and affiliates of Sistema JSFC.
8) Financial performance results.
9) Approval of the consolidated budget of Sistema and Key Performance Indicators of the management for

2012.

10) Long-term financial and economic model of the Corporation's development.
11) The dividend policy of the Corporation.
12) Approval of a new organizational structure and new Management Board membership of Sistema JSFC.
13) Improving the performance of the Sistema Board of Directors and its Committees.
14) Implementation of the Corporation's strategy in HR, approval of the long-term incentive program and
improvement of the existing incentive systems for the personnel of Sistema JSFC and the Sistema Group of
companies.

15) Report on risk management in the Corporation.
16) Program of preparations for compliance with the UK Bribery Act.
17) Functional strategy in internal control and audit.
18) Sistema's strategy in the sphere of GR and participation in the national projects and federal target programs

of the government.

19) Sistema's strategy in the sphere of public relations and investor relations.
20) Corporate social responsibility.
21) Convening the Annual General Meeting of shareholders, reports from the Committees of the Board of

Directors, report on the quality of corporate governance.

22) Approval of transactions.

In addition to transactions approval, most of the items reviewed by the Board in 2011 are related to strategy,
corporate governance, shareholdings in subsidiaries and review of functional strategies aimed at supporting and
improving the efficiency of efforts taken by the business subdivisions of the Corporation.

The high proportion of the items related to corporate governance and functional strategies reviewed by the Board in
2011 shows that the Board members devote particular attention to the process of the company's transformation to
the new 'investment company' governance model, which makes it necessary to change some elements of corporate
governance and refocus some of the functional units.
The high proportion of the items related to equity holdings in subsidiaries reviewed by the Board shows that the
Board members closely followed the investment activities of the Corporation, which represent one of the key
characteristics of the new governance model.

19%9%3%9%33%1%8%18%Issues reviewed by the Board of Directors in 2011 Business strategies, investments, new activitiesFunctional strategiesApppointments and HR policiesShareholding in S/As, groups, alliances, branchesApproval of dealsApproval of internal documentsFinancial statements, planning and auditCorporate governance1811414430141119912932181801020304050Business strategies,investments, newactivitiesFunctional strategiesAppointments andHR policiesShareholding inS/As, groups andalliancesApproval of dealsApproval of internaldocuments, policiesFinancialstatements, planningand auditCorporategovernance20102011

Preparation for the meetings and quorum of the Board of Directors

In 2011 the process of preparation for the Board meetings underwent significant transformation. As before, the
materials on the agenda items are provided to the Board members 10 days before the meeting, allowing them to
form their voting positions. However, from 2011 all the items of the main agenda are subject to mandatory review
at the Board Committee meetings, while the Board of Directors determines in advance the Committees which
should be responsible for considering certain items.

Members of the Board of Directors meet with the key speakers and the management at a business dinner the
evening before the meeting, so that they can get explanations on the materials of the Board of Directors and clarify
the voting positions of the parties in an informal environment.

The meetings of the Board of Directors usually have quite high attendance rates. No cases when a Board meeting
had to be rescheduled due to the lack of quorum have been registered over the past few years.

Participation of the members of the Board of Directors in meetings of the Board of Directors and its committees in
2011

Board of Directors

Strategy Committee

Audit and
Finance
Committee

Nomination,
Remuneration and
Corporate
Governance
Committee

Ethics and Internal
Control Committee

Investor Relations
and Dividend Policy
Committee

Participation in meetings

1/1

0/1

2/5

4/5

2/3

3/3

10/10

9/10

10/10

V. Evtushenkov
A. Goncharuk
R. Sommer
D. Zubov
V. Kopiev
R. Kocharyan
R. Munnings
L. Melamed
E. Novitsky
S. Tchuruk
M. Shamolin
D. Iakobachvili
R. Mehrotra
S. Cheremin
Note. The first number denotes the number of meetings attended by the Board member, the second number stands for the total number of meetings the member
could participate in.

10/10

9/10

6/10

7/10

8/10

6/6

4/4

6/6

4/4

2/3

6/6

6/7

3/4

2/2

4/4

0/4

2/2

1/1

4/5

2/2

1/1

7/7

0/1

0/2

1/1

2/3

3/4

1/1

3/3

1/1

Committees of the Board of Directors17

In 2011, after the new Board members were elected, the Board took the decision to renew the profiles of the Board
Committees. The Corporation needs to complete its transition to the Investment Company model. For successful
transition to this new model it was also necessary to increase the engagement of the Board of Directors in the
important aspects of the Corporation's work according to the new model. To achieve this, the procedural powers of
the Committees were specified and the remit of the existing Committees of the Board of Directors updated.

Sistema JSFC has five committees of the Board of Directors:

Strategy Committee.
Audit and Finance Committee.
Nomination, Remuneration and Corporate Governance Committee.
Ethics and Internal Control Committee

Investor Relations and Dividend Policy Committee

17 All the information provided regarding the work of the committees is as of 31.12.2011.

Starting from 2011, as a rule, only members of the Board of Directors are elected to Committees. The main role of
the Committees is to provide assistance in preparation and adoption of concepts and solutions in the respective
functional areas, as well as in ensuring detailed scrutiny of the issues submitted for consideration of the Board of
Directors. The Board Committees have considerable procedural powers, have a right to bring in external experts
and use other resources of the Corporation.

Strategy Committee

The Strategy Committee includes seven Board members: Chairman of the Committee: V. Evtushenkov, Committee
members: A. Goncharuk, R. Sommer, E, Novitsky, L. Melamed, M. Shamolin, S. Tchuruk

The Committee conducts analysis of strategic management issues of Sistema and also monitors the strategic
planning cycle, including:

-
-
-
-

strategic planning methodology;
preliminary approval of the strategy;
preliminary approval of Sistema's strategic goals;
reviewing M&A transactions and large investment projects of Sistema JSFC

The Committee also reviews important investment projects, conducts assessment of risks, sets priorities and takes
decisions on project development. The Committee recommends projects to be submitted to the Board, performs
assessment and makes adjustments in projects' implementation.

In 2011, five meetings of the Committee were held where eight items were considered including: five items related
to the strategy of the Corporation, three– non-organic growth deals and projects.

Audit and Finance Committee

The Audit and Finance Committee includes five Board members: Chairman of the Committee: R. Munnings,
Committee members: R.Sommer, D. Zubov, E.Novitsky and D. Iakobachvili

The Audit Committee supervises preparation of financial reports and the internal audit of Sistema JSFC and its
subsidiaries. Moreover, the Committee oversees the work of external auditors, makes recommendations for their
appointment and the amount of remuneration, and also performs appraisal for the risk management system and
monitors its operation. The Committee monitors compliance with the legislation and regulations in the sphere of
finance and reporting. The new function of the Committee is to assist in the budgeting process: preliminary review
of the materials at the budget development stage, preliminary review of the financial model of Sistema and also
approval of the valuation of related-party and large-scale transactions.

In 2011 the Audit and Finance Committee held nine meetings where 55 items were considered, including 16 items
related to financial accounting and reporting, five items – to internal control and audit, 14 items– consideration of
related-party and major transactions, five items dealt with financial planning and risk management, 15 items – with
housekeeping matters.

Nomination, Remuneration and Corporate Governance Committee

The Nomination, Remuneration and Corporate Governance Committee includes six Board members: Committee
Chairman – L. Melamed, Committee members – A. Goncharuk, D. Zubov, R. Kocharyan, R. Munnings, M.
Shamolin

The Nomination, Remuneration and Corporate Governance Committee is in charge of preliminary consideration of
the nominees to the top management positions in Sistema JSFC and the candidates to the boards of directors of the
main subsidiaries, participation in development and preliminary consideration of draft policies in HR and incentive
and remuneration programs for the company's personnel; it also provides the results of the appraisal of the top
management's performance to the Board of Directors. The Committee also facilitates development of corporate
governance practices in Sistema and its subsidiaries and affiliates.

In 2011 the Nomination, Remuneration and Corporate Governance Committee held ten meetings. The Committee
considered 17 items, including seven items related to improving the incentive system, four – HR policy and
approval of the key nominees to the top management positions in Sistema JSFC, two items touched upon changes
in the organizational structure of Sistema JSFC, two items dealt with the key performance indicators (KPIs) and
two items – with development of corporate governance.

Ethics and Internal Control Committee

The Ethics and Internal Control Committee includes five Board members: Chairman of the Committee: R.
Kocharyan, Committee members: V. Kopiev, R. Munnings; L. Melamed, M. Shamolin

The Ethics and Internal Control Committee serves the purpose of forming an efficient system of economic security,
internal control and prevention of fraud and other misconduct which involves violations of the current legislation.
Moreover, the Committee monitors compliance with the requirements of the Code of Ethics of Sistema JSFC.

In 2011the Ethics and Internal Control Committee held two meetings where seven items were considered, of which
four items were related to functional strategies in internal control and security, two items – to compliance with the
requirements of legislation and corporate governance and one item dealt with housekeeping matters.

Investor Relations and Dividend Policy Committee

The Investor Relations and Dividend Policy Committee includes six Board members: Chairman of the Committee:
D. Iakobachvili; Committee members: A. Goncharuk, R. Sommer, V. Kopiev, R. Munnings, S. Tchuruk.

The main task of the Committee is to facilitate the formation of a system aimed at maintaining effective relations
with the financial community, the public and government agencies, as well as increasing the appeal of Sistema's
shares to investors. At the same time, the Committee provides assistance in forming and maintaining a transparent
and stable dividend policy of Sistema JSFC. The activities of the Committee should contribute to the growth of the
Company's capitalization and promotion of the shareholders' interests.

In 2011 the Committee held six meetings where 14 items were reviewed, including 11 items related to investor
relations and dividend policy, one item related to public relations and two housekeeping matters.

6.3. President

The President of Sistema JSFC is a permanent sole executive body with the core objective of managing the day-to-
day activities aimed at ensuring profitability of the Corporation and securing the rights and legitimate interests of
its shareholders. The President acts within his remit and reports to the Board of Directors and the General Meeting
of the Company's shareholders.

The President of Sistema JSFC is Mikhail Shamolin appointed by the Board of Directors on 10 March 2011. As of
the beginning of the year the post of the President of Sistema JSFC was held by Leonid Melamed*.

Mikhail Shamolin
President of Sistema JSFC.
Chairman of the Sistema
JSFC Management Board.

Mikhail Shamolin was born in 1970.

In 1992 he graduated from the Moscow Automobile and Road Technical
Institute.

In 1993 Mikhail received his second diploma from the Russian Academy of
Public Administration under the President of the Russian Federation.

In 1996-97 he completed the finance and management course for top managers

at the Wharton Business School.

In 1998-2004 he worked at
McKinsey&Co.

the

international consulting company

In 2004-05 Mikhail held the position of the Managing Director for the
Ferroalloys Division at Interpipe Corp (Ukraine).

From 2005 Mr. Shamolin was Vice President for Sales and Customer Service
and Head of the MTS Russia business unit. From 2008 to March 2011 he
worked as President of MTS.

On 10 March 2011 Mikhail Shamolin was appointed President of Sistema
JSFC.

6.4. Management Board

The Management Board of Sistema JSFC is responsible for the day-to-day management of Sistema JSFC. It
determines the methods of implementing the development strategy of the Corporation, works out development
plans, sets investment procedures and controls their observance, appraises the performance of the personnel, and
pre-considers items submitted to the Board of Directors. Meetings of the Management Board are normally held
once a week.

Members of the Management Board:

Chairman of the Management Board,
President of Sistema JSFC

2
3
4
5
6
7
8

M. Shamolin

A. Abugov
A. Buyanov
A. Goldin
S. Drozdov
F. Evtushenkov
R. Nagapetyants
A. Terebenin

In 2011, the Management Board of the Company held 39 meetings and considered 124 agenda items dealing with
all the areas of business activity of the Corporation. In 2011 the Management Board considered the agenda items in
the following key areas:

6) preliminary consideration of items put forward to the Board of Directors; the strategies of the Corporate

Center and the Business Units were reviewed in the first place.

7) financial activities, forecasts and performance on the quarterly, half-year and annual budgets of Sistema
JSFC Group; risk management and a risk map; internal control; financial and economic model of the
Corporation's development;

8) procedures for the investment projects management;
9) analysis of the organizational maturity of subsidiaries and affiliates;
10) HR and social policies; training and development of the employees of Sistema JSFC Group; charity work;
11) consideration and preliminary approval of transactions;
12) analytical reviews of the media's and investment community's perception of the performance results of the

Corporation.

Changes in top management in 2010

There were a number of changes in the top management of the Company in 2011:
L. Melamed was relieved of his duties as President of Sistema JSFC on March 9, 2011.
M. Shamolin, was appointed President of Sistema JSFC on March 10, 2011.
S. Boyev, on February 17, 2011, was relieved of his duties as Vice President, Head of the High Technology and
Industry Business Unit and was appointed Vice President and Head of the High Technologies and Industry
Business Unit on March 1, 2011.
A. Korsik was relieved of his duties as Vice President and Head of the Oil and Energy Business Unit on April 6,
2011 and was appointed President of Bashneft.
F. Evtushenkov, on April 21, 2011, was transferred from his position of Vice President, Head of the Consumer
Assets Business Unit to the position of First Vice President, Head of the Core Assets Business Unit.
R. Sommer was relieved of his duties as First Vice President, Head of the Telecom Assets Business Unit on May
13, 2011.
R. Almakayev was relieved of his duties as Vice President, Head of Administrative Function on May 31, 2011.
A. Krupkin was appointed Executive Vice President, Head of Internal Control and Audit Function of Sistema JSFC
on May 23, 2011.
R. Nagapetyants was appointed Senior Vice President, Head of the Developing Assets Business Unit on August 22,
2011.

6.5. The specifics of the risk management, internal control and audit system

The risk management system of Sistema JSFC is based on the ERM (COSO) principles that include the following
key functional elements:
-

identification of risks at all levels of the management (from the top to the line management), which includes
finding the risk owner and making a risk passport;
assessment and analysis of the identified risks (based on VaR methodology), ranging the risks by management
level;
development of risk mitigation plans and further monitoring of their implementation;
risk monitoring, quarterly reports on the risks of the company.

-
-

The risk management procedures of Sistema JSFC are carried out by a dedicated unit - the Risk Management
Division of Sistema JSFC.

Regular monitoring of the Corporation's risks is performed at the level of the Management Board and the Risk
Management Sub-Committee of Sistema JSFC by reviewing the effects of the mitigation and response measures
taken and by reassessing the already identified and/or new risks.

The President of Sistema JSFC presents a regular report on risk management in the Corporation to the Audit
Committee of the Board of Directors of Sistema JSFC. A similar report and a risk map are presented to the
members of the Board of Directors.

In 2011 the Board of Directors took the decision to separate the functions of internal control and internal audit of
the Corporation.

Targeted actions for control of business processes and financial and administrative activities;

The Internal Control Service reports to the President and the Ethics and Internal Control Committee of the Sistema
JSFC Board of Directors. The Internal Control Service is responsible for:
-
- Control of elimination of the systemic deficiencies of business processes;
- Control of compliance with internal procedures and legal requirements;
- Control of reports on the results of the operational activity and fulfillment of functional KPIs;
-
The main tools of the Internal Control Service are checks and analysis of the data received as a result of such
checks. The results obtained by the Internal Control Service are reported to the President of Sistema JSFC and the
Ethics and Internal Control Committee to ensure that decisions are taken to eliminate the identified deficiencies.

Functioning of the Hot Line as a tool for timely detection and efficient prevention of different types of fraud.

The Internal Audit Service reports to the Audit and Finance Committee of the Sistema JSFC Board of Directors.

The Internal Audit Service is responsible for:
-
-
-

assessing the efficiency of the risk management system and preparing recommendations on improving it;
auditing the quality of the management business processes;
assessing the efficiency of the internal control system.

The main tools of the Internal Audit Service include obtaining information on the above processes, analyzing the
received information and preparing recommendations and assessments for the Sistema JSFC management. The
results obtained by the Internal Audit Service are reported to the Audit and Finance Committee and the Board of
Directors for taking decisions on building the internal control system and for increasing the quality of risk
management and corporate governance.

The Internal Audit Service submits to the Audit and Finance Committee of the Sistema JSFC Board of Directors a
quarterly report on the work carried out.

Pursuant to the decision of the Audit and Finance Committee the following procedures have been developed at
Sistema JSFC for purchasing external audit services for the purposes of audit of the financial/ accounting reports of
Sistema JSFC. The Audit and Finance Committee performs annual assessment of the quality of audit services. If
the quality of services provided by the current auditor is recognized to be unsatisfactory, the Audit and Finance
Committee arranges a tender for selection of a new auditor. If the quality of services of the current auditor is
recognized as satisfactory, negotiations are conducted on the price of audit services for the next period. In the
meantime, to ensure impartiality and objectivity of the auditor, the Audit Committee of Sistema JSFC took the
decision that a tender for the audit of the RAS and US GAAP financial statements shall be conducted at least once
every five years.

6.6. Specifics of corporate governance system development in 2011

In 2011 the Corporation took a number of measures to further develop its corporate governance system.

After electing its new members the Board of Directors took the decision to update the profile of the Board of
Directors’ committees. The Corporation needs to complete its transition to the Investment Company model. For
successful transition to this new model it was also necessary to increase the engagement of the Board of Directors
in the important aspects of the Corporation's work according to the new model. To achieve this, the procedural
powers of the Committees were specified and the remit of the existing Committees of the Board of Directors
updated.

Starting from 2011, as a rule, only members of the Board of Directors are elected to Committees. The Committees
of the Board of Directors have extended procedural powers, the right to use external expertise and other resources
of the Corporation. Every Committee is responsible for a specific field of the Corporation's activity, which is
constantly monitored by every member of a Committee. These developments have helped to increase involvement
of the Board of Directors in the process of the strategic management of the Corporation.

In June 2011 a number of new individuals became members of the Board of Directors. Independent directors Serge
Tchuruk and David Iakobachvili were for the first time elected to the Board. Mikhail Shamolin was also elected a
member of the Board of Directors as the President of Sistema JSFC. With their vast practical experience in
organizing and managing large companies the new members of the Board of Directors will significantly strengthen
business competencies of the Sistema JSFC Board of Directors.

In 2011, in accordance with best practices in corporate governance, the Board of Directors made the decision to
separate the internal control and internal audit services. The Internal Control Service retained the functions of
carrying out regular audits of the business activity. The Internal Audit Service kept the functions of assessing the

efficiency of the risk management system, the quality of the management business processes and assessment of the
efficiency of internal control.

A new dividend policy was adopted by the Board of Directors in September 2011. It sets out a new principle of
calculating the recommended dividends on the shares of Sistema JSFC. The recommended amount of dividends
shall be determined by the Board of Directors based on the annual financial results of the Corporation and shall
amount to 10% of the Company's net income under US GAAP (net of the special dividends paid). Following the
recommendations of the Board of Directors the Company may pay special dividends in the minimum amount of
10% of net income of the transactions with incoming cash flow such as sale of assets determined by the Board of
Directors. Meanwhile, according to the Russian legislation the aggregate amount of the paid dividends is limited by
the amount of the non-consolidated net income under the Russian accounting standards (RAS).18

18 According to the requirements of the Russian legislation the dividends are payable to the Company shareholders from the
Company income after tax (net income) which is calculated on the basis of financial statements compiled in accordance with
the Russian legislation. When recommending the amount of dividends to the shareholders' meeting the Company’s Board of
Directors is also guided by the net income indicators determined on the basis of the consolidated financial statements of
Sistema JSFC and subsidiaries and compiled according to the US generally accepted accounting principles (GAAP) under the
guidance of the requirements of the Russian law.

7. SOCIAL RESPONSIBILITY

The philosophy of corporate social responsibility (CSR) of Sistema JSFC is based on the aspiration to the long-
term and sustainable development of the Corporation that would allow for a harmonious combination of successful
business practices with basic human values and national development priorities.

Corporate social responsibility of Sistema JSFC is a comprehensive system that comprises all of its activities.
While adhering to the fundamental documents and standards in CSR, like the GRI, the UN Global Compact and the
Social Charter of the Russian Business, the Corporation also focuses on the following four key areas:

1) Responsibility of a corporate citizen as contribution to the development of society and the state in

general.

2) Responsibility of an employer towards employees and their families, ensuring good working conditions

necessary for building a high quality of life.

3) Responsibility of a business partner implying adherence to business ethics, application of best practices
in corporate governance and information disclosure, which makes it possible to provide sufficient
protection and respect for the rights of partners and shareholders, including minority shareholders.

4) Responsibility of a party to social relations which allocates funding for science and education, culture

and sports, as well as for support of social initiatives and projects.

The corporate social responsibility matters are annually reviewed by the Board of Directors of the Corporation.
Importantly, the core CSR principles approved at the Corporation's level are being implemented and applied at all
of its subsidiaries and affiliates. The Corporation has designed a system for cascading the CSR functions that
includes forming standards, building the management structure, training personnel, and controlling implementation
via a system of indicators.

Below there is a brief description of the last year's CSR performance results and achievements of Sistema JSFC:

Responsibility of a corporate citizen

Sistema JSFC is one of the largest national taxpayers, and its portfolio companies are often notable contributors to
the budgets in the regions of their presence.

The companies of Sistema JSFC produce material influence on the development of the national intellectual
potential and growth in areas related to innovations and state-of-the-art technologies. For instance, in 2011
SITRONICS alone invested ca $55m in advanced research and development and almost $69m more in the
development of knowledge-intensive manufacturing facilities.

Being a participant to the GLONASS federal program, the E-Government and the Multi-Service Information
Educational Environment projects and other large-scale federal programs, the Corporation plays a key role in
developing the high-tech industry, as it creates high- quality jobs, develops the entrepreneurial environment, and
participates in forming the national intellectual elite.

The Corporation rigorously abides by the ecology principles, and its participation in environmental programs is set
out in the Ethics Code of Sistema JSFC. Being participants of the hydrocarbon market, the Corporation's
companies invest substantial funds in environmental protection. For instance, in 2011 Bashneft alone spent
RUR2.1bn on these purposes. In the reporting period the company adopted a strategy in the area of health, safety
and environment (HSE). Besides other matters, it provides for the construction of a unit for oil sludge processing,
upgrade of waste treatment facilities and other actions aimed at minimizing the man-made environmental impact.

Responsibility of an employer

Sistema JSFC, together with its subsidiaries and affiliates, is also one of the largest employers in Russia. In 2011,
the headcount of the subsidiaries and affiliates of the Corporation exceeded 143 thousand people. With the family
members of the employees taken into account, the Corporation is responsible for the welfare of about half a million
citizens of the Russian Federation. Provision of good working conditions necessary for building a high quality of
life is an unquestionable priority and the cornerstone of the Company's CSR policy.

We believe that the quality of a workplace comprises a number of components, such as the compensation level, the
motivation system, working conditions, social guarantees, professional development and growth opportunities.

For instance, employees’ salaries are differentiated according to a grade system designed by the Hay Group, a
leading international consultancy, on the basis of monitoring salaries across various reference groups in the labor
market. Total annual compensation of the employees is aligned with the advanced motivation system adopted in the
Corporation.

Besides the social guarantees stipulated in the Labor Code of the Russian Federation, each of the Corporation’s
companies offers additional guarantees and benefits to its employees in line with its Social Policy fixed in the
bylaws. In particular, the employees of Sistema JSFC and its subsidiaries can use the services of one of the best
private healthcare networks, Medsi, at a discount or free of charge.

The Corporation is the founder of the Sistema private pension fund that offers a range of pension programs to
portfolio companies. Such programs make it possible for their participants to accumulate pensions on much better
terms than those offered by the governmental pension system.

The Corporation pays special attention to the development of each employee’s intellectual potential. The Group
cooperates with major national higher educational establishments and finances its own Corporate University. About
90 thousand employees of Sistema JSFC companies are trained annually. The Corporation also creates all the
necessary conditions for professional and career development. Managers of Sistema JSFC and its portfolio
companies are regularly included in the Russia's Top-1000 Best Managers annual rating of the Association of
Managers of Russia and the Kommersant newspaper.

Responsibility of a business partner

In its Corporate Ethics Code the Corporation has set a number of principles that reflect responsibility in business
relations, and follows them rigorously.

These principles include: sound business practice, adherence to professional, legal and ethical standards of doing
business, adherence to corporate governance standards, and respect for the rights of minority shareholders,
transparency and high quality of disclosure.

Sistema JSFC was one of the first companies in Russia to join the UN Global Compact, and it has recently
confirmed its membership as it submitted a report that was approved by a special UN commission. Today Sistema
JSFC is a member of the Steering Committee of the Global Compact Network Russia. The Corporation and its
subsidiaries have adopted an Ethics Code and a Corporate Conduct Code.

Sistema JSFC plays an active role in fighting corruption, which is reflected in its procedures and bylaws. In 2011
the Board of Directors of Sistema JSFC adopted the Anti-corruption Policy which sets out rules and restrictions in
the following areas: business gifts and entertainment expenses, participation in charitable and sponsorship
activities, participation in political activities, interaction with civil servants.

Sistema JSFC and its subsidiaries use transparent mechanisms and procedures for purchasing and tenders. In 2011
the company designed and enacted the Tender Procedures and Purchasing Code in order to improve the efficiency
of procurement procedures. Besides, in the reporting period Sistema JSFC aggressively increased the share of
purchasing from electronic trading floors.

The business practices of Sistema JSFC are positively assessed by the market. In 2011 the Expert Rating Agency
rated the corporate governance of Sistema JSFC as 7+ ("Developed corporate governance practice") on a national
scale. Besides, the Corporation was the 2011 winner in the nomination "Best level of disclosure on the corporate
governance practice (RID nomination)" among non-financial sector companies. In 2011 MTS was granted the
GAMMA-7 rating in "Analysis and assessment of efficiency in corporate governance, accountability and
management". This is the highest rating among the companies of Russia and the CIS.

Responsibility of a party to social relations

The Corporation is one of the major philanthropists and investors in the Russian social sphere. Such investments
totaled RUR2,000m in 2011. Social investments were mostly made in the following areas:

- Science and education;
- Culture;
- Sport;
- Direct support to social initiatives and projects.

Sistema JSFC considers it important to render substantial and consistent support to talented, intellectually gifted
and active young people. In 2011 the Corporation started the all-Russian program for forming and developing the
national talent pool entitled "Lift to the Future". The project will be implemented as an organized Russian national
social network for the young whose purpose is to search for, support and develop talented young people.

Being aware of the importance of supporting education and science, the Corporation is a patron of the Higher
School of Management of the Saint-Petersburg State University, the European University, the Russian
Geographical Society, and many other educational and scientific institutions and projects. The most gifted students
of a number of technical higher educational establishments are covered by a scholarship program.

Sistema JSFC is a major sponsor of numerous Russian cultural events. Since 2003 the Corporation has been the
main sponsor of the State Russian Museum, the sponsor of the Mariinsky Theatre festivals, the annual Musical
Kremlin concerts, and the international ballet contest Benois de la Danse. Sistema JSFC also sponsors the
Sovremennik Theater.

The Corporation traditionally provides support to Russian sports: the Russian Olympians Foundation, the Russian
Rugby Union, the Federation of Cycling Sport of Russia, the Sports Federation of the Russian Ministry of the
Interior, and a number of junior sport schools.

Projects in the social sphere are an important component of our charitable activities: Sistema JSFC finances a
number of orphanages and shelters, and is in close cooperation with several charitable foundations that support the
disabled and veterans.

Social projects are implemented via the Sistema Charitable Foundation that was established in 2003 to ensure
effective management of the Corporation’s and its subsidiaries’ social investments.

In 2011 the Corporation became a laureate of the Corporate Social Responsibility Leaders contest run by
PricewaterhouseCoopers and (the) Vedomosti.

8. CRITERIA FOR AND AMOUNTS OF REMUNERATION OF THE MEMBERS
OF THE BOARD OF DIRECTORS AND TOP EXECUTIVES OF THE
COMPANY

The remuneration of the members of Sistema JSFC Board of Directors is calculated on the basis of the Policy on
remuneration and compensations payable to the members of the Board of Directors of the Company, approved with
a resolution of the General Meeting of shareholders of Sistema JSFC on 30 June 2006 (Minutes No1-06) as
amended with the resolution of the General Meeting of the shareholders of Sistema JSFC on 16 February 2009
(Minutes No1-09). The Policy provides for the payment of the following to the Board of Directors members:

- fixed amounts for participation in the meetings of the Board of Directors and its committees;
- fixed amounts for acting in the capacity of Chairman or Deputy Chairman of the Board of Directors, and for

chairmanship of the committees under the Board;

- based on the annual performance members of the Board of Directors get additional performance-related
remuneration in the form of a fixed amount, half of which is payable in shares (US$ 250,000 - 325,000);
- also, given the capitalization of the Corporation has grown over the year, members of the Board of Directors

get additional remuneration amounting to 0.1% of the incremental capitalization.

The short-term (up to one year) incentive scheme for the top managers of Sistema JSFC in 2011 consisted of the
following elements:

- monthly fixed salary determined in line with the internal system of job categories (grades);
-

four quarterly bonuses payable for meeting functional key performance indicators set individually for each
top executive of Sistema JSFC for the respective reporting period;
an annual bonus paid for the achievement of investment key performance indicators set for the Corporation
as a whole and its Business Units for a respective reporting period (Investment KPIs of Sistema JSFC in
2011 include: iTSR, TSR, Revenue of Sistema (dividends and funds from the sale of businesses), SG&A /
NAV, Net Income of Sistema JSFC, Debt of Sistema JSFC).
additional remuneration paid for generation of cash income of the Corporation based on annual
performance results and paid only in the event that the key performance indicators for the year are met;
additional bonus which may only be paid following a decision of the Board of Directors.

Following the three-year Long-term Incentive Program (2009-2011), about 1% of ordinary shares of Sistema JSFC
were distributed to the top and middle managers of Sistema JSFC. The new holders of the shares may dispose of
them at their own discretion in line with the regulatory restrictions, rules and requirements set out in the laws of
Russia and the UK, and the policy of Sistema JSFC on insider information.

In 2011, the Board of Directors of Sistema JSFC approved two new long-term incentive programs for the
management:

- a new three-year Long-term Incentive Program (2012-2014) aimed at building the shareholder value of
Sistema JSFC and at creating preconditions for maintaining long-term employment and corporate relations
between the Company and its management;

- an option program for initiating and developing M&A projects aimed at strengthening the interest of the
management towards searching for, acquiring and developing new assets that increase the shareholder
value and the market capitalization of Sistema JSFC.

No remuneration is paid for the executive work of the managers sitting on the Management Board of Sistema
JSFC.

The top executives of the Corporation were paid the total of RUR 3,450,065,590 in remuneration for the calendar
year 2011. The remuneration paid to the Board of Directors’ members of Sistema JSFC in 2011 totaled RUR
118, 580, 297.

9. ANNEX

9.1. SUMMARY BIOGRAPHIES OF THE MEMBERS OF THE BOARD OF DIRECTORS AND
THEIR SHAREHOLDINGS IN SISTEMA JSFC

Full name, Title

Brief Professional Background

Vladimir
Evtushenkov

Chairman of the
Board of Directors,
non-executive director

Vladimir Evtushenkov was born in 1948 in the Smolensk region.

In 1973 he graduated from the Moscow Mendeleyev Chemical-Engineering Institute,
in 1980 – Economic Faculty of the Moscow State University n.a. M. Lomonosov.
Doctor of Science in Economics.

In 1975-1982 Mr. Evtushenkov worked as a Machine Shop Manager, Deputy Director,
Chief Engineer of the Karacharovo Factory of Plastics, from 1982 to 1987 – Chief
Engineer, First Deputy Director General of Polymer Scientific and Production
Association. In 1987 he was appointed Head of Technical Department, in 1988 –
Head of the Chief Department of Science and Technology of the Moscow City
Executive Committee, in 1990 – the Chairman of the Moscow Municipal Committee
for Science and Technology.

In 1993 together with a group of associates Mr. Evtushenkov formed the Sistema
Joint-Stock Financial Corporation. At present he is the principal shareholder, the
Chairman of the Sistema JSFC Board of Directors and the Chairman of the Strategy
Committee of the Board of Directors.

Mr. Evtushenkov is an active member of a number of government commissions for
improvement of the competitiveness of the Russian industry, development of high
technologies and innovations, science and culture; a member of the National Council
for corporate governance, member of the management boards of the main associations
of entrepreneurs in Russia: the Russian Union of Industrialists and Entrepreneurs, the
Russian Chamber of Industry and Commerce, Chairman of the Russian side of the
Russian-Arab Business Council.

In 2004 Mr. Evtushenkov was elected Chairman of the Council of Trustees of the
Fund for Development of the State Russian Museum “Friends of the Russian
Museum”. He also heads the Board of Trustees of the Sistema Charitable Foundation.

Share in the authorized capital of Sistema JSFC – 64.1830%.

Alexander Goncharuk

Alexander Goncharuk was born in 1956 in Sevastopol.

Non-executive Director

In 1978 he graduated from the Sevastopol Higher Navy and Engineering School, and
in 1987 – the Grechko Navy Academy.

From 1987 to 1991 Mr. Goncharuk served in the Navy Headquarters in the position of
senior officer. Later he was the Head of Leader Joint-Stock Insurance Company.

From 1995 to 1998 – Vice-President of Sistema JSFC, from March 2006 to May 2008
– President of Sistema JSFC. While working for the Corporation he was the Chairman
of the Board of Directors of MTS (in 1998 and from 2002 to 2003), Sistema Telecom
(1998 - 2003) and Sitronics (2003 - 2006).

At present Mr. Goncharuk is a member of the Board of Directors of ANK BashNeft,
Chairman of the Board of Directors of Polief, member of the Presidential Council of

the Republic of Bashkortostan, member of the Board of Trustees of the Sistema
Charitable Foundation.

Mr. Goncharuk has been serving on the Board of Directors of Sistema JSFC since
1995. He is a member of the Strategy Committee, member of the Nomination,
Remuneration and Corporate Governance Committee, member of the Investor
Relations and Dividend Policy Committee of the Sistema Board of Directors.

Share in the authorized capital of Sistema JSFC - 1.0019%.

Ron Sommer
(Sommer)

Ron Sommer was born in 1949.

Non-executive Director

In 1971 he graduated from the Vienna University and received a Doctor’s Degree in
mathematics.

In 1980 he was appointed Managing Director of the German branch of Sony Group
(Sony Deutschland); in 1986 he became Chairman of the Management Board of Sony
Deutschland, and in 1990 he was appointed President and Chief Operating Officer of
Sony Corporation, USA. From 1993 to 1995 – Sony Europe, President and COO.
From May 1995 to July 2002 – Deutsche Telekom AG, Chairman of the Management
Board. In 2003 Mr. Sommer was elected Chairman of the International Advisory
Board of Sistema JSFC.
In 2005 Mr. Sommer became an independent director on the Board of Sistema JSFC
where he also performed the duties of the Chairman of the IR Committee.

From May 2009 to May 2011 – First Vice President of Sistema JSFC, Head of
Telecom Assets Business Unit, Chairman of the Board of Directors of MTS, Chairman
of the Board of Directors of SMM, Chairman of the Board of Directors of Sistema
Shyam Teleservices Ltd. (SSTL), member of the Strategy Committee, member of the
Investor Relations Committee of Sistema JSFC.

From May 2011 – Chairman of the MTS Board of Directors, Chairman of the Board
of Directors of Sistema Shyam Teleservices Ltd. (SSTL). Being a non-executive
director of the Board of Sistema JSFC he is also a member of the Strategy Committee,
Audit and Finance Committee, Investor relations and Dividend Policy Committee.

Ron Sommer serves on the Boards of Directors of Tata Consultancy Services and
Munich Reinsurance, and he is also a member of the International Advisory Board of
Blackstone Group.

Share in the authorized capital of Sistema JSFC – 0.0215%.

Dmitry Zubov

Dmitry Zubov was born in 1954 in the Gorkiy region.

Deputy Chairman of
the Board of Directors,
Non-executive Director

In 1977 he graduated from the Moscow Automobile and Road Technical Institute.
Doctor of Science in Economics.

In 1978-79 Mr. Zubov worked as a foreman at the Lukhovitsy Engineering Plant, in
1979-1983 – Secretary of the Young Communist League’s Committee. From 1983 to
1988 he worked in the Department of Working Youth of the Central Committee of
the Young Communist League, in 1988-1989 he was the Head of the All-Union
Centre of Housing Cooperatives for Youth. In 1989-1991 he worked in the capacity
of Deputy Director General of the All-Union Centre of Cinema and Television for
Children and Youth. In 1992-1999 Mr. Zubov was the Director General of Alon
Close-Type Joint-Stock Company, later he held senior positions in MosEximBank,
IBN Sistema and PromChemVest.

In 1999 Mr. Zubov was elected member of the Board of Directors of Sistema JSFC,
from 2000 – Deputy Chairman of the Board of Directors; member of the Nomination,
Remuneration and Corporate Governance Committee, member of the Audit and
Finance Committee. Member of the Board of Trustees of the Sistema Charitable
Foundation.
Share in the authorized capital of Sistema JSFC - 0.9751%.

Vyacheslav Kopiev

Vyacheslav Kopiev was born in 1954 in Moscow.

Non-executive
Director

He graduated from the Cybernetics Department of the Moscow Institute of
Engineering and Physics in 1977 and from the Law Department of the Russian
Academy of Management in 1993. Mr. Kopiev also graduated with honors from the
Economics Department of the International Marketing and Management Academy.
Mr. Kopiev holds PhD in Technical Sciences, PhD in Legal Sciences. Author of more
than 70 scientific works.

From 1977 to 1990 Mr. Kopiev occupied various positions in the Komsomol
organization of the USSR: Secretary of the Krasnogvardeiskiy District Committee of
the Young Communist League, First Secretary of the Moscow City Committee of the
Young Communist League, Second Secretary of the Central Committee of the Young
Communist League.

In 1989-97 Mr. Kopiev occupied leading positions at the Administrative Board of the
Union of Engineering Societies, including Director for International Relations and
Innovation from 1992 to1997. He also served as Chairman of the Board of Directors
of JSC Sputnik from 1990 to 1997. From 1995 – Deputy Chairman of the Executive
Committee of the Russian-British Chamber of Commerce and Industry.

In 1997 Mr. Kopiev was appointed Vice-President of Sistema JSFC, from 2000 to
2003 – Senior Vice-President, Head of the External Business Environment Complex.
From 2003 to 2010 – Deputy Chairman of the Sistema JSFC Board of Directors.
President of the Sistema Charitable Foundation.
Mr. Kopiev is member of the Presidential Council of the Russian Federation for
development of physical education and sports, professional sports, preparations for
the XXII Olympic Games and XI Paralympic Games in 2014 in Sochi, President of
the Russian Rugby Union.
Member of the Sistema JSFC Board of Directors since 1997. Member of the Ethics
and Internal Control Committee, member of the Investor Relations and Dividend
Policy Committee.

Share in the authorized capital of Sistema JSFC – 0.0556%.

Robert Kocharyan

Independent Director

Robert Kocharyan was born in 1954 in Stepanakert, the Nagorno-Karabakh
autonomous district.
In 1982 he graduated from the Yerevan Polytechnic Institute.

From 1971 to 1980 he served in the Soviet Army, worked at the Stepanakert
Electrotechnical Plant as an assembly fitter, and later – a mechanical engineer. In
1981-1990 held various positions in the Komsomol and communist party bodies of
Nagorny Karabakh.

From February 1988 he was one of the leaders of the movement for separation of the
Nagorny Karabakh autonomous district from the Soviet Republic of Azerbaijan and
its further annexation to Armenia. In 1989 and 1990 Mr. Kocharyan was elected
deputy of Armenia’s Supreme Council and member of the Presidium of the Supreme

Council of the Armenian SSR.

In 1991- 1994 – deputy of the first Supreme Council of the Nagorny-Karabakh
Republic (NKR), Chairman of the State Defense Committee of NKR and Prime
Minister of NKR. From 1994 to 1997 – President of NKR.

In 1997-1998 Mr. Kocharyan was the Prime Minister of the Republic of Armenia, in
1998–2008 – the President of the Republic of Armenia.

Mr. Kocharyan is a member of the Sistema JSFC Board of Directors since 2009.
He is also Chairman of the Ethics and Internal Control Committee, Chairman of the
Nomination, Remuneration and Corporate Governance Committee of the Sistema
Board of Directors.
Share in the authorized capital of Sistema JSFC – 0.0019%.

Roger Munnings

Independent Director

Roger Munnings was born in 1950 in the United Kingdom.
He graduated from the Oxford University with a degree of Master of Arts in politics,
philosophy, and economics.

At present Mr. Munnings is a member of the UK Government's working group on
trade and investments between Great Britain and Russia, as well as Chairman of the
Institute of Audit Committees in Russia.

Roger Munnings has had a long and successful career (from 1974) with an
international auditor KPMG, especially during his time in the office of the President
and Managing Partner of KPMG in Russia and the CIS (1996-2008), as well as
Chairman of the world energy and natural resources committee of KPMG (1993-
2008). Mr. Munnings is Deputy Chairman of the management board of the
Association of European Business (AEB) and member of the Institute of certified
accountants of England and Wales.

Roger Munnings is actively involved in the social activities in Russia being a member
of the Russian National Council on Corporate Governance, the Russian Union of
Industrials and Entrepreneurs, the Russian institute of directors, the management
board of the American-Russian business council, the management board of the
Russian-British chamber of commerce etc.

Mr. Munnings is a member of the Board of Directors of Sistema JSFC from 2010. He
is also Chairman of the Audit and Finance Committee, member of the Nomination,
Remuneration and Corporate Governance Committee and the Ethics and Internal
Control Committee of the Board of Directors.

Share in the authorized capital of Sistema JSFC – 0.0009%.

Leonid Melamed was born in 1967 in Moscow.
In 1992 he graduated from the Moscow Medical Academy n.a. I. Sechenov. Doctor
of Medicine.
From 1992 to 1997 Mr. Melamed worked at ROSNO and held the positions of CEO
and Chairman of the Management Board.
In 2004-2006 he headed the Expert Council on insurance legislation of the Duma
Committee of the Federal Assembly of the Russian Federation on credit organizations
and financial markets.
In 2006-2008 – President, Chairman of the Management Board, member of the Board
of Directors of MTS.
From May 2008 to March 2011 – President, Chairman of the Management Board of
Sistema JSFC. Member of the Board of Directors of Bashneft, Chairman of the Board

Leonid Melamed

Deputy Chairman of
the Board of Directors,
non-executive director.

Evgeny Novitsky

Independent Director

of Directors of RussNeft.
Mr. Melamed has been serving on the Board of Directors of Sistema JSFC since
2009. From 2011 – Deputy Chairman of the Board of Directors. He is also Chairman
of the Nomination, Remuneration and Corporate Governance Committee of Sistema
JSFC, member of the Strategy Committee, member of the Ethics and Internal Control
Committee.

Share in the authorized capital of Sistema JSFC – 0.0827%.

Evgeny Novitsky was born in 1957 in the Tomsk region.
In 1985 he graduated from the Moscow Bauman Higher Technical School. In 1989-
90 he studied management at the Moscow State University of International Relations
and the University of Manchester, UK; Candidate of Technical Sciences.
In 1985-1987 Mr. Novitsky worked as an engineer and mathematician at the Moscow
Bauman Higher Technical School, and in 1987-1990 he completed a post-graduate
course. In 1991-95 he was in charge of developing and producing a series of Russian-
made computers, as well as of organizing IBM computers assemblage at Quantum
Factory (in Zelenograd), was the Chairman of the Board of Directors of the Russian
IT company IVK (Information and Innovation Company). Author of a monograph
and a number of publications, member of the Board of Trustees of the Bauman
Moscow State Technical University.

From 1995 Mr. Novitsky worked at Sistema JSFC as the President of the Company
and from January 2005 to February 2006 he was the Chairman of the Corporation’s
Board of Directors. Since 2006 – non-executive director and since 2010 –
independent director of the Sistema JSFC Board of Directors. Currently he is also a
member of the Strategy Committee, the Audit and Finance Committee, member of
the Board of Trustees of the Sistema Charitable Foundation.

Share in the authorized capital of Sistema JSFC – 1.9912%.

Serge Tchuruk

Serge Tchuruk was born in 1937 in France.
He graduated from Ecole Polytechnique.

Independent Director

Serge Tchuruk started his career in Mobil Corporation where from 1964 to 1979 he
held various senior management positions in France and USA including the position of
Chief Executive Officer of Mobil in Benelux.

From 1980 to 1986 he worked at Rhone-Poulenc, an international chemical and
pharmaceutical company, where he had various managerial jobs, and in 1983 he was
appointed Managing Director of the company.
From 1986 to 1990 he was the Co-Chairman and the CEO of Orkem, a European
chemical company (earlier known as CDF-Chimie).

From 1990 to 1995 he was the Chairman and the CEO of Total, one of the largest oil
and gas companies globally.
In 1995 Serge Tchuruk became CEO of Alcatel.

Serge Tchuruk is member of the Board of Directors of Sistema JSFC from 2011,
member of the Strategy Committee, member of the Investor Relations and Dividend
Policy Committee.

Share in the authorized capital of Sistema JSFC – 0.0%.

Mikhail Shamolin

Mikhail Shamolin was born in 1970.

Executive Director

In 1992 he graduated from the Moscow Automobile and Road Technical Institute. In
1993 Mikhail received his second diploma from the Russian Academy of Public
Administration under the President of the Russian Federation.

In 1996-97 he completed the finance and management course for top managers at the
Wharton Business School.

In 1998-2004 he worked at the international consulting company McKinsey&Co.

In 2004-05 Mikhail held the position of the Managing Director for the Ferroalloys
Division at Interpipe Corp (Ukraine).

In 2005 Mr. Shamolin was appointed Vice President for Sales and Customer Service
and Head of the MTS Russia business unit. From 2008 to 2011 he was the President of
MTS.

On 10 March 2011 Mikhail Shamolin was appointed President and Chairman of the
Management Board of Sistema JSFC. He holds the positions of Executive Director,
Deputy Chairman of the Strategy Committee, member of the Ethics and Internal
Control Committee, Nomination, Remuneration and Corporate Governance Committee
of the Sistema Board of Directors, member of the Board of Trustees of the Sistema
Charitable Foundation.

Share in the authorized capital of Sistema JSFC – 0.0326%.

David Iakobachvili
Independent Director

David Iakobachvili was born in 1957 in Georgia.
He graduated from the Civil and Industrial Engineering Department of the Georgian
Technical University in Tbilisi.

From 1986 to 2000 – private entrepreneur involved in various projects: official
dealership of General Motors cars, tourism and hotel business, timber processing,
management of furniture supplies, retail management, communications and banking.
In 1992 David Iakobachvili became one of the founders of a famous dairy company,
Wimm-Bill-Dann.

Mr. Iakobachvili serves on the Boards of Directors of a number of companies: CJSC
Gorki-2 Agro-Complex, Airport Financial Services Limited, OJSC Melnichniy
kombinat No4 (grain mill), LLC Kolmogorovskaya-2 mine, LLC Promuglesbyt
Managing Company, OJSC Bashneft.

From 2000 – member of the Management Board of the Russian Union of Industrialists
and Entrepreneurs (employers), from June 2004 – member of the Management Board's
Bureau of the Union.

Mr. Iakobachvili serves on the Board of Directors of Sistema JSFC from 2011. He is
also a member of Investor Relations and Dividend Policy Committee, member of the
Audit and Finance Committee of the Board of Directors of Sistema JSFC.
Share in the authorized capital of Sistema JSFC – 0.006 %.

9.2. INFORMATION ON TRANSACTIONS PERFORMED BY MEMBERS OF THE BOARD OF
DIRECTORS OF SISTEMA JSFC WITH THE SHARES THEY HOLD IN THE COMPANY
OVER THE PERIOD 1 JANUARY - 31 DECEMBER 2011

Board member

V. Evtushenkov

D. Zubov

V. Kopiev

Date
of the
transaction
19.07.2011

19.07.2011

A. Goncharuk

08.02.2011

21.02.2011

19.07.2011

E. Novitsky

19.07.2011

24.11.2011

Transaction

Subject of the transaction

Crediting securities to the holder's
account

83,653 ordinary registered
shares

crediting securities to the holder's
account
crediting securities to the holder's
account

83,653
registered shares
83,653
registered shares

ordinary

debiting securities from the holder's
account
debiting securities from the holder's
account

28,950,000
registered shares
19,300,000
registered shares

ordinary

crediting securities to the holder's
account

83,653 ordinary registered
shares

crediting securities to the holder's
account
debiting securities from the holder's
account

83,653 ordinary registered
shares
337,565,000
registered shares

ordinary

R. Sommer

19.07.2011

crediting securities to the holder's
account

87,500 ordinary registered
shares

R. Kocharyan

19.07.2011

L. Melamed

19.07.2011

crediting securities to the holder's
account
crediting securities to the holder's
account

87,500 ordinary registered
shares
83,653
registered shares

ordinary

9.3. SUMMARY BIOGRAPHIES OF THE PRESIDENT OF SISTEMA JSFC AND THE

MEMBERS OF THE MANAGEMENT BOARD

Full name, Title

Brief Professional Background

Mikhail Shamolin

Was born in 1970.

President of Sistema JSFC

Chairman of the Sistema
JSFC Management Board

In 1992 he graduated from the Moscow Automobile and Road Technical
Institute. In 1993 Mikhail received his second diploma from the Russian
Academy of Public Administration under the President of the Russian
Federation.

In 1996-97 he completed the finance and management course for top managers
at the Wharton Business School.

In 1998-2004 he worked at
McKinsey&Co.

the

international consulting company

In 2004-05 Mikhail held the position of the Managing Director for the
Ferroalloys Division at Interpipe Corp (Ukraine).

Since 2005 Mr. Shamolin was Vice President for Sales and Customer Service
and Head of the MTS Russia business unit. Since 2008 to March 2011 he
worked as President of MTS.

On 10 March 2011 Mikhail Shamolin was appointed President and Chairman
of the Management Board of Sistema JSFC. Holds positions of Executive
Director, Deputy Chairman of the Strategy Committee, member of the Ethics
and Internal Control Committee, Nomination, Remuneration and Corporate
Governance Committee of the Sistema Board of Directors, member of the
Board of Trustees of the Sistema Charitable Foundation.

Members of the Management Board:

Full name, Title

Brief Professional Background

Anton Abugov

First Vice President, Head of
the Sistema JSFC Strategy
and Development Function

Member of the Sistema JSFC
Management Board

Was born in 1976 in Mytishchi, the Moscow Region.
In 1998 he graduated from the Academy of the National Economy under the
Government of the Russian Federation with a degree in management.
1995-99 – Closed-Type Joint-Stock Company United Financial Group,
Deputy Executive Officer of the Department of Transactions with Securities,
Trader.
1999-2002 – Closed Joint-Stock Company United Financial Group, Head of
the Corporate Finance Department
2003-06 – JSCB ROSBANK, Managing Director, Head of the Corporate
Finance Division.
Since August 2006 – Sistema JSFC, First Vice President, Head of the Strategy
and Development Function.

Alexei Buyanov

Senior Vice President, Head
of the Finance and

Was born in 1969 in Moscow.
In 1992 he graduated from the Moscow Physics and Technology Institute with
a degree in Applied Mathematics and Physics, Engineering Physicist.
1992-1994 – Trainee Researcher at the Institute of Problems of Mechanics, the
Russian Academy of Sciences.

Investment Function of
Sistema JSFC

Member of the Sistema JSFC
Management Board

1994-1995 – Sistema JSFC, Chief Specialist, Lead Specialist, Executive
Director.
1995-1998 – Sistema Invest, Head of Division, Vice President, First Vice
President.
1998-2002 – Mobile TeleSystems, Vice President for Investments and
Securities.
2002-2002 – Sistema JSFC, Vice President, Head of
Restructuring Department.
2002-2005 – Sistema JSFC, First Vice President.
From April 2005 – Sistema JSFC, Senior Vice President, Head of Finance and
Investment Function

the Financial

Anna Goldin

Vice President, Head of the
Sistema JSFC Legal Group

Member of the Sistema JSFC
Management Board

Was born in 1963 in Leningrad.
Graduated from the University of California in Berkeley, Boalt Hall, Doctor of
Law.
1988 – Baker & McKenzie, Lawyer/Trainee.
1989 – Gibson, Dunn & Crutcher, Lawyer/Trainee.
1989 – Morrison & Foerster, Lawyer/Trainee.
1990-1998 – Latham & Watkins, Lawyer.
1999-2007 – Latham & Watkins, Partner, Managing Partner.
Since June 2007 – Sistema JSFC, Vice President, Head of the Legal Group.

Sergey Drozdov

Senior Vice President, Head
of the Corporate Governance
Function of Sistema JSFC

Member of the Sistema JSFC
Management Board

Was born in 1970 in Arkhangelsk.
In 1993 he graduated from the Ordzhonikidze State Academy of Management
with a degree in Engineering and Economy. Candidate of Economic Sciences.
1993- 1994 – Yugorskiy Joint-Stock Bank, Economist in the Division of Trust
Operations and Funds, Deputy Head of the Division of Securities and Trust
Operations, Head of the Securities Department.
1994-1995 – Moscow Property Fund, Head of the Financial Innovations and
Marketing Department.
1995-1998 – Sistema JSFC, Executive Director, Deputy Head of the
Department of Development and Investments.
1998-2002 – Sistema Invest, Vice President, First Vice President.
2002 – Sistema JSFC, Head of the Corporate Property Department, Acting
First Vice President.
2002-2005 – Sistema JSFC, First Vice President.
2005 – Sistema JSFC, Senior Vice President, Head of the Property Function.
Since April 2011 – Sistema JSFC, Senior Vice President, Head of the
Corporate Governance Function.

Felix
Evtushenkov

First Vice President, Head of
the Core Assets Business
Unit

Sistema JSFC,

Member of the Sistema JSFC
Management Board

Was born in 1978 in Moscow.
In 2000 he graduated from the Griboyedov Institute of International Law and
Economy with a degree in law.
1999-2000 – Sistema Invest, Assistant to the President.
2000 – Sistema JSFC, Executive Director of the Industry Department.
2000-2006 – Sistema-Hals, Deputy Director General, Director General.
2006-2008 – Sistema Hals, President.
Since July 2008 – Sistema JSFC, Vice President, Head of the Consumer
Assets Business Unit.
Since April 2011 – Sistema JSFC, First Vice President, Head of the Core
Assets Business Unit.

Rafael Nagapetyants

Senior Vice President, Head
of the Developing Assets
Business Unit

Member of the Sistema JSFC
Management Board

Andrei Terebenin

Vice President, Head of the
Corporate Communications
Function of Sistema JSFC

Member of the Sistema JSFC
Management Board.

Was born in 1962 in Moscow.
Graduated from the Moscow Financial Institute - department of economic
relations (1984), legal department of the Lomonosov Moscow State University
(1995), Amsterdam Institute of Finance (1996). Doctor of Science in
Economics.
In 1984-90 he held various positions from expert to chief expert at Foreign
Currency and Economy Directorate of the USSR Ministry of Finance.
In 1991-93 was a Deputy Chairman of the Foreign Investment Committee
(later - the Russian Agency of International Cooperation and Development).
From 1994 to 2011 he worked at Inkombank as Vice President, head of the
Investment and International Business Block.
From 2001 to 2005 he was a director at SUN Capital Partners in Russia, a
private equity fund.
From 2005 to 2008 he was employed by Alfa Bank as Managing Director for
Corporate Finance and during some period of time was chairing the
Investment Committee. At the same time, in 2007-09 he was Chairman of the
Supervisory Council of Amtel-Vredestein.
Since 2009 to August 2011 he was Managing Director, head of the Investment
Banking division of Societe Generale in Russia.
Since August 2011 – Sistema JSFC, Senior Vice President, Head of
Developing Assets Business Unit.

Born in 1962 in Moscow.
In 1985 he graduated from the Moscow State Institute of International
Relations with a degree in international relations and Arabic.
Held a number of management positions at
the Publishing House
Economicheskaya Gazeta, Dun&Bradstreet CIS and AIG Russia. In 1999
became a partner at the Triangle Porter Novelli Communications Agency,
since 2003 to January 2006 was Director General and Partner at the R.I.M.
Porter Novelli Communications Holding.
January 2006 - May 2011 – Vice President for Corporate Communications of
MTS.
Since May 2011 - Vice President, Head of the Sistema JSFC Corporate
Communications Function.

9.4. INFORMATION ON THE NUMBER OF SHARES OF SISTEMA JSFC HELD BY THE

PRESIDENT AND THE MANAGEMENT BOARD MEMBERS

Management Board member

Number of owned shares

Mikhail Shamolin

Anton Abugov

Alexei Buyanov

Anna Goldin

Sergey Drozdov

Felix Evtushenkov

Rafael Nagapetyants

Andrei Terebenin

3,147,750 shares of Sistema JSFC

5,029,243 shares of Sistema JSFC

6,526,627 shares of Sistema JSFC

11,027,030 shares of Sistema JSFC

23,545,381 shares of Sistema JSFC

5,739,688 shares of Sistema JSFC

1,143,315 shares of Sistema JSFC

400,160 shares of Sistema JSFC

9.5. LIST OF TRANSACTIONS PERFORMED BY THE COMPANY IN THE REPORTING
YEAR THAT ARE RECOGNIZED AS MAJOR TRANSACTIONS UNDER THE FEDERAL
LAW "ON JOINT-STOCK COMPANIES", AND OTHER TRANSACTIONS COVERED BY
THE MAJOR TRANSACTIONS APPROVAL PROCEDURE PURSUANT TO THE
COMPANY'S CHARTER

During 2011 Sistema JSFC has not performed any transactions which, in accordance with the Federal Law “On
Joint-Stock Companies”, are recognized as major transactions, and other transactions which, in accordance with the
Company’s Charter, are covered by the procedure for approval of major transactions.

9.6. LIST OF TRANSACTIONS PERFORMED BY THE COMPANY IN THE REPORTING
YEAR THAT ARE RECOGNIZED AS RELATED PARTY TRANSACTIONS UNDER THE
FEDERAL LAW "ON JOINT-STOCK COMPANIES"

No. of the Minutes of
the body that
approved the
transaction and date
of taking the decision

Minutes of the
Board of Directors
No. 01-11
31.01.2011
Item 1.3.

Minutes of the
Board of Directors
No. 01-11
31.01.2011
Item 2.4.

Minutes of the
Board of Directors
No. 02-11
05.02.2011
Item 5.3.2

Minutes of the
Board of Directors
No. 02-11
05.02.2011
Item 5.3.4

Minutes of the
Board of Directors
No. 02-11
05.02.2011
Item 5.4.2

Subject of the transaction

Transaction
counterparties

Amount of the transaction

Persons that are
considered as
related parties to
the transaction

Making contribution to the
charter capital of the newly
established OJSC RTI

Sistema JSFC,
OJSC RTI

RUR 16,480,000,000.00

Acquiring regular registered
shares of OJSC RTI-
Systems Concern

Sistema JSFC,
CJSC Sistema-
Inventure

RUR 52,000.00

Making an additional
agreement No.2 to the
Agreement on rendering
paid information and
consultation services
between Sistema JSFC and
OJSC Region.

Making an additional
agreement No.4 to the
Agreement on paid
provision of personnel
between Sistema JSFC and
OJSC Region.

Sistema JSFC,
OJSC Region

RUR 106,531,866.24
annually

Sistema JSFC,
OJSC Region

RUR 45,952,992.00
annually

Granting a loan to CJSC
Sistema-Inventure

Sistema JSFC,
CJSC Sistema-
Inventure

Up to \RUR 710,000,000.00

OJSC Sistema
Finance
Investments

R. Almakayev
S. Drozdov
OJSC Sistema
Finance
Investments

OJSC Sistema
Finance
Investments

No. of the Minutes of
the body that
approved the
transaction and date
of taking the decision

Minutes of the
Board of Directors
No. 03-11
05.03.2011
Item 6.4.3

Minutes of the
Board of Directors
No. 03-11
05.03.2011
Item 6.5.1.2.5

Minutes of the
Board of Directors
No. 03-11
05.03.2011
Item 6.5.6.5.

Minutes of the
Board of Directors
No. 04-11
16.04.2011
Item 8.2.2.

Subject of the transaction

Transaction
counterparties

Amount of the transaction

Execution of Additional
Agreement #10 to the
Securities (Shares) Pledge
Agreement #3559/1 dtd
15.12.2005 between OJSC
Sberbank of Russia and
Sistema JSFC.

Termination of the
shareholding of Sistema
JSFC in the authorized
capital of OJSC Sitronics.

Sistema JSFC,
OJSC Sberbank of
Russia

Sistema JSFC,
OJSC RTI

Equivalent of
USD 111,135,451.00

Granting a loan to OJSC
RTI

Sistema JSFC,
OJSC RTI

Equivalent of
USD 111,135,451.00

Persons that are
considered as
related parties to
the transaction

S. Drozdov
A. Abugov

S. Boyev
OJSC Sistema
Finance
Investments

Approval of a transaction to
indemnify the President, the
Chairman of the
Management Board of
Sistema JSFC for possible
legal and other expenses or
losses associated with
potential actions or claims
brought against him for acts
committed in his official
capacity.

Sistema JSFC,
Ecu Gest,
M. Shamolin

Equivalent of up to
USD 20,000,000.00

M. Shamolin

Minutes of the
Board of Directors
No. 04-11
16.04.2011
Item 8.3.4.

Entering into an agreement
for transferring real estate
property of Sistema JSFC
under the management of
CJSC Leader-Invest.

Sistema JSFC,
CJSC Leader-Invest

1.5 % per annum of the
market value of the
transfered real estate
property.

Minutes of the
Board of Directors
No. 04-11
16.04.2011
Item 8.5.3.

Minutes of the
Board of Directors
No. 04-11
16.04.2011
Item 8.2.6.

The company's stake in the
authorized capital of OJSC
Dalcombank

Sistema JSFC,
OJSC Dalcombank

RUR 999,290,000.00

Entering into an agreement
with OJSC Region regarding
provision of skilled
employees to Sistema JSFC
to support the work of the
Administration Department.

Sistema JSFC
OJSC Region

RUR 17,816,102.06

V. Evtushenkov
F. Evtushenkov
OJSC Sistema
Finance
Investments

R. Almakayev
S. Drozdov
OJSC Sistema
Finance
Investments

No. of the Minutes of
the body that
approved the
transaction and date
of taking the decision

Minutes of the
Board of Directors
No. 06-11
21.05.2011
Item 6.2.2.

Minutes of the
Board of Directors
No. 06-11
21.05.2011
Item 6.3.3.

Minutes of the
Board of Directors
No. 06-11
21.05.2011
Item 6.2.4.

Minutes of the
Board of Directors
No. 06-11
21.05.2011
Item 6.5.2.

Minutes of the
Board of Directors
No. 07-11
25.06.2011
Item 6.3.3.

Minutes of the
Board of Directors
No. 07-11
25.06.2011
Item 6.4.2

Minutes of the
Board of Directors
No. 08-11
24.09.2011
Item 9.4.4.

Subject of the transaction

Transaction
counterparties

Amount of the transaction

Entering by Sistema JSFC
and OJSC Sberbank of
Russia into supplementary
agreement No.11 to the
earlier signed Securities
Pledge Agreement (the
shares of OJSC RussNeft)
No3559/1 as of 15.12.2005.

Sistema JSFC,
CJSC Milanfo
CJSC Mlada
OJSC IK
Nadezhnost
SHADDOCK
TRADING
LIMITED
OJSC Sberbank of
Russia
RussNeft

Persons that are
considered as
related parties to
the transaction

L. Melamed
S. Drozdov
A. Abugov

Agreement with OJSC
REYESTR on keeping the
register of owners of
registered shares.

Sistema JSFC,
OJSC Reyestr

RUR 250,000.00 per month
plus expenses for every
Annual General Meeting of
shareholders

S. Drozdov
OJSC Sistema
Finance
Investments

Bank Deposit Agreement
with OJSC MBRD.

Sistema JSFC,
MBRD

RUR 938,595,000.00

Issuance of a guarantee by
Sistema JSFC for Goldman
Sachs International

Sistema JSFC,
Goldman Sachs
International

USD 70,000,000.00

Entering into a guarantee
agreement between Sistema
JSFC and Gazprombank
(Open Joint-Stock
Company) to secure the
obligations of Sistema
Shyam TeleServices
Limited.

Sistema JSFC,
OJSC
Gazprombank

up to USD 230,000,000.00

Granting an interest-bearing
loan to CJSC Binnopharm.

Sistema JSFC,
Binnopharm

up to RUR 110,000,000.00

Termination of the
shareholding in CJSC
Sistema-Inventure.

Sistema JSFC,
LLC Telecom
Projects,
Mobile
TeleSystems B.V.

RUR 10,560,000,000.00

V. Evtushenkov
S. Cheremin
A. Buyanov
F. Evtushenkov
OJSC Sistema
Finance
Investments
V. Evtushenkov
F. Evtushenkov
A. Buyanov
OJSC Sistema
Finance
Investments

R. Sommer
M. Shamolin
OJSC Sistema
Finance
Investments

D. Zubov
OJSC Sistema
Finance
Investments

R. Sommer
M. Shamolin
L. Melamed
OJSC Sistema
Finance
Investments

No. of the Minutes of
the body that
approved the
transaction and date
of taking the decision

Minutes of the
Board of Directors
No. 08-11
24.09.2011
Item 9.5.2.

Minutes of the
Board of Directors
No. 08-11
24.09.2011
Item 9.6.2.

Minutes of the
Board of Directors
No. 08-11
24.09.2011
Item 9.7.2.

Minutes of the
Board of Directors
No. 08-11
24.09.2011
Item 9.7.5.

Minutes of the
Board of Directors
No. 08-11
24.09.2011
Item 9.8.2.

Minutes of the
Board of Directors
No. 09-11
29.10.2011
Item 4.7

Subject of the transaction

Transaction
counterparties

Amount of the transaction

Persons that are
considered as
related parties to
the transaction

Granting a loan to LLC
Management Company
Sistema-Venture Capital

Sistema JSFC,
LLC MC Sistema-
Venture Capital

up to RUR 985,000,000.00

OJSC Sistema
Finance
Investments

Extension of the agreement
on the letter of credit
guaranteed by Sistema JSFC
for the purposes of securing
the credit liabilities of
Sistema Shyam TeleServices
Limited under the credit
facility from ING Vysya
Bank Limited.

Sistema JSFC,
ING Vysya Bank
Limited

INR 7,000,000,000.00

Surety agreement on
liabilities of Sistema Shyam
TeleServices Limited

Sistema JSFC,
Bank of China
Limited

USD 50,000,000.00

Surety agreement between
Sistema JSFC and Sistema
Shyam TeleServices Limited

Sistema JSFC
Sistema Shyam
TeleServices Ltd.

The Guarantor's fee is
3(three) % per annum
accrued to the day-to-day
balances of the principal
debt amount

Entering into a direct
guarantee agreement with
Deutsche Bank AG
Singapore, and a guarantee
for the counter-guarantee of
Sberbank of Russia issued as
a security for credit
agreements or borrowings in
other formats, on the basis of
which Deutsche Bank AG
Mumbai or another entity of
the Deutsche Bank Group
shall issue loans to Sistema
Shyam TeleServices
Limited.

Agreement on the transfer of
debt between Sistema JSFC
and OJSC Sistema Finance
Investments.

Sistema acquires ordinary
registered uncertified shares
of CJSC Binnopharm by
conducting an additional
share issue.

Sistema JSFC,
Deutsche Bank AG
Singapore,
Sberbank of Russia

Equivalent of
USD 329,000,000.00

Sistema JSFC,
OJSC Sistema
Finance
Investments
S. Cheremin

RUR 455,000,000.00

Sistema JSFC,
Binnopharm

RUR 1,300,000,000.00

V. Evtushenkov
R. Sommer
M. Shamolin
OJSC Sistema
Finance
Investments

OJSC Sistema
Finance
Investments

D. Zubov
R. Nagapetyants
OJSC Sistema
Finance
Investments

No. of the Minutes of
the body that
approved the
transaction and date
of taking the decision

Minutes of the
Board of Directors
No. 09-11
29.10.2011
Item 4.10

Subject of the transaction

Transaction
counterparties

Amount of the transaction

Providing free-of-charge
financial aid to CJSC
Binnopharm.

Sistema JSFC,
Binnopharm

RUR 2,400,000,000.00

09-11
29.10.2011
Item 7.3.2.

Providing free-of-charge
financial aid to CJSC Medsi
Group

Sistema JSFC
CJSC Medsi Group

RUR 450,000,000.00

Minutes of the
Board of Directors
No. 09-11
29.10.2011
Item 7.4.4.

Entering into a purchase and
sales agreement between
OJSC Sistema and OJSC
NIS in the process of
additional issue of ordinary
registered shares of CJSC
NIS.

Sistema JSFC,
NIS

RUR 899,963,000.00

Minutes of the
Board of Directors
No. 09-11
29.10.2011
Item 7.5.5.

Acquiring stakes in the Rent
Real Estate Close-End
Investment Fund in the
course of their initial
placement.

Sistema JSFC,
LLC MC Trust-
Finance

RUR 2,890,000,000.00

Persons that are
considered as
related parties to
the transaction

D. Zubov
R. Nagapetyants
OJSC Sistema
Finance
Investments

M. Shamolin
OJSC Sistema
Finance
Investments

A. Abugov
OJSC Sistema
Finance
Investments

OJSC Sistema
Finance
Investments

Minutes of the
Board of Directors
No. 10-11
17.12.2011
Item 8.6

Minutes of the
Board of Directors
No. 10-11
17.12.2011
Item 10.3.2.

Minutes of the
Board of Directors
No. 10-11
17.12.2011
Item 10.3.7.

Granting a loan to OJSC
Donskoye

Sistema JSFC
OJSC Donskoye

RUR 450,000,000.00

Entering into an
indemnification agreement
regarding the legal and other
expenses or losses of the
members of the Board of
Directors of Sistema JSFC
between Sistema JSFC, Ecu
Gest and each of the Sistema
Board members mentioned
above
Entering into an
indemnification agreement
regarding the legal and other
expenses or losses of the
members of the
Management Board of
Sistema JSFC between
Sistema JSFC, Ecu Gest and
each of the Sistema Board
members mentioned above

Sistema JSFC,
Ecu Gest Holding
S.A.

Not more than
USD 26,000,000.00 for
every Agreement

M. Shamolin
S. Tchuruk
D. Iakobachvili

Sistema JSFC,
Ecu Gest Holding
S.A.

Not more than
USD 20,000,000.00 for
every Agreement

A. Terebenin
R. Nagapetyants

No. of the Minutes of
the body that
approved the
transaction and date
of taking the decision

Minutes of the
Board of Directors
No. 10-11
17.12.2011
Item 10.4.2

Minutes of the
Board of Directors
No. 10-11
17.12.2011
Item 10.6.1.2.

Subject of the transaction

Transaction
counterparties

Amount of the transaction

Granting an interest-bearing
loan to CJSC Binnopharm.

Sistema JSFC,
Binnopharm

RUR 200,000,000.00

Provision of the Corporate
Guarantee under which the
Guarantor shall be liable to
the Bank for the fulfillment
by the Borrower of its
obligations under the
Guarantee Facility
Agreement on the basis of
which the Bank will
provide/prolong, inter alia,
the FBGs in favor of the
Department of
Telecommunications (DoT)
of the Indian Ministry of
Communications to
guarantee the fulfillment by
the Borrower of its
obligation under the license
agreements

Sistema JSFC,
ICICI Bank
Limited,
Sistema Shyam
TeleServices Ltd.

Up to INR 2,464,200,000.00

Minutes of the
Board of Directors
No. 10-11
17.12.2011
Item 10.6.1.4.

Corporate Guarantee
Agreement under which the
Guarantor undertakes to
issue the Corporate
Guarantee to the Bank

Sistema JSFC,
Sistema Shyam
TeleServices Ltd.

Fee payable to the
Guarantor equals 3 (three)
% per annum

Minutes of the
Board of Directors
No. 10-11
17.12.2011
Item 10.6.2.2.

Agreement on the letter of
credit guaranteed by Sistema
JSFC signed for securing the
credit liabilities of Sistema
Shyam TeleServices Limited

Sistema JSFC,
Raiffeisen Bank
International,
CJSC
Raiffeisenbank

Up to
INR 10,300,000,000.00

Minutes of the
Board of Directors
No. 10-11
17.12.2011
Item 10.6.3.3.

Issue of a guarantee by
Sistema JSFC in favor of
GasEnergo Capital Limited
(project company of
Gazprombank (OJSC),
Gazprombank (OJSC),
Gazprombank (Switzerland)
Ltd. or another company
affiliated with Gazprombank
(OJSC) or GasEnergo
Capital Limited.

Sistema JSFC,
Gazprombank
(Switzerland) Ltd.,
Sistema Shyam
TeleServices Ltd.

USD 230,000,000.00

Persons that are
considered as
related parties to
the transaction

D. Zubov
R. Nagapetyants
OJSC Sistema
Finance
Investments

R. Sommer
V. Evtushenkov
M. Shamolin
OJSC Sistema
Finance
Investments

No. of the Minutes of
the body that
approved the
transaction and date
of taking the decision

Minutes of the
Board of Directors
No. 10-11
17.12.2011
Item 10.6.4.2.

Minutes of the
Board of Directors
No. 10-11
17.12.2011
Item 10.6.5.2.

Minutes of the
Board of Directors
No. 10-11
17.12.2011
Item 10.6.6.2.

Extraordinary
general meeting of
shareholders
Minutes No. 1-11
18.03.2011
Item 1

Subject of the transaction

Transaction
counterparties

Amount of the transaction

Extension of the agreement
on the letter of credit
guaranteed by Sistema JSFC
for the purposes of securing
the credit liabilities of
Sistema Shyam TeleServices
Limited

Entering into interrelated
agreements: agreements for
guaranteed credit facility to
be granted by Deutsche
Bank AG Singapore Branch
or any other entity of the
Deutsche Bank Group,
agreement on the parent
company liabilities related to
the borrowings of Sistema
Shyam TeleServices
Limited, and agreement for
provision of a guarantee by
OJSC Sberbank of Russia.

Sistema JSFC
ING BANK N.V.
Sistema Shyam
TeleServices Ltd.

Under the Letter of Credit
Prolongation Agreement
between Sistema JSFC and
ING Bank N.V.

Sistema JSFC,
Deutsche Bank AG
Singapore Branch
IDBI Trusteeship
Services Limited,
OJSC Sberbank of
Russia
Sistema Shyam
TeleServices Ltd.

Equivalent of
USD 292,000,000.00

Entering into an agreement
on opening a letter of credit
and securing the letter of
credit for guaranteeing the
loan liabilities of Sistema
Shyam TeleServices Limited

Sistema JSFC
The Royal Bank of
Scotland N.V.
Sistema Shyam
TeleServices Ltd.

up to
RUR 10,000,000,000.00

Making contribution to the
charter capital of the newly
established OJSC RTI from
Sistema JSFC

Sistema JSFC
OJSC RTI

RUR 16,480,000,000.00

Persons that are
considered as
related parties to
the transaction

R. Sommer
V. Evtushenkov
M. Shamolin
OJSC Sistema
Finance
Investments

OJSC Sistema
Finance
Investments

9.7. INFORMATION ABOUT THE COMPANY’S COMPLIANCE WITH REQUIREMENTS OF
THE CODE OF CORPORATE CONDUCT OF THE FEDERAL SERVICE FOR FINANCIAL
MARKETS

Provisions of the
Corporate Conduct Code

Observed / not
observed

Comment

General Meeting of Shareholders

1 A notice of the forthcoming Annual General Meeting
of shareholders shall be distributed not later than 30
days before the day of the Meeting unless a longer
term is provided for by legislation.

2 The procedure of announcement on holding the
Annual General Meeting of shareholders shall allow
shareholders to properly prepare for participation in
the meeting.

3 Shareholders may familiarize themselves with the list
of persons who have the right to attend the Annual
General Meeting of shareholders, starting from the
date of announcement of holding the General Meeting
of Shareholders and till the closure of the Annual
General Meeting of shareholders, and in case of
holding the meeting in the form of a letter ballot – till
the deadline for acceptance of ballot papers.

4 Shareholders can familiarize themselves with the
subject
to
(materials) which
information
is
presentation during preparation for
the Annual
General Meeting of shareholders, through electronic
means of communication

5 Shareholders may introduce an agenda item for the
Annual General Meeting of shareholders or demand
convocation of the Annual General Meeting of
shareholders without presenting an extract from the
register of shareholders if his/her rights for shares are
accounted for in the system of keeping the register of
shareholders, and in the event when his/her rights for
shares are registered in the depo account - an extract
the depo account shall be sufficient for
from
exercising the above-said rights.

Observed

This provision was added to the Charter of
Sistema JSFC (hereinafter - the Company).

Observed

Announcement about the meeting is sent to
shareholders by mail and is published on
the Company’s website.

Shareholders have the right to familiarize
themselves with the list of persons who
may attend the Annual General Meeting of
shareholders by addressing the Company’s
Corporate Secretary. Such possibility is
provided for by the Terms of Reference of
the Annual General Meeting
of
shareholders.
The Company publishes such information
on the Company’s website (in) on the
Internet.

There is no requirement that shareholders
their right with specific
should prove
documents, with
the
the exception of
extract from the depo account. Provided for
by the Terms of Reference of the Annual
JSFC
General Meeting
the Annual
shareholders (approved by
General Meeting
JSFC
shareholders, Minutes No. 2-10 dtd
30.06.2010).

of Sistema

6 Joint-Stock Company’s internal documents should set
out procedures for registering participants of the
Annual General Meeting of shareholders.

Observed

Regulated by the Terms of Reference of the
Annual General Meeting of shareholders.

Work of the Board of Directors

1 The Joint-Stock Company’s Charter should define the
authority of the Board of Directors regarding annual
approval of the Joint-Stock Company’s financial and
business plan.

Observed

In accordance with the Company’s Charter,
the competence of the Board of Directors
includes: “determining the priority areas of
the Company’s activity, determining the
strategy of the Company’s development,
approving the Company’s annual budgets
(financial plans), considering the main areas
of activities and development strategy of
subsidiaries.”

2 The risk management procedure should be approved
the Joint-Stock

the Board of Directors of

by
Company.

3 The Board of Directors shall have the right to
and
determine
remuneration of the General Director and heads of the
Joint-Stock Company’s main structural divisions.

requirements

qualification

Observed

4 The Joint-Stock Company’s Charter of the Board of
Directors shall provide for the right of the Board to
approve
the General
terms of agreements with
Director and members of the Management Board.

Observed

5 The Joint-Stock Company’s Board of Directors shall
consist of not less than three independent directors
who meet requirements of the Code of Corporate
Conduct.

Observed

6 No members of the Joint-Stock Company’s Board of
Directors shall have criminal record for economic
crimes or crimes against the state, interests of the state
and local governments or on whom administrative
penalties were imposed for offenses in the areas of
entrepreneurial activity, finances, taxes and duties or
equity markets.

Observed

7 In the Board of Directors there are no persons who are
shareholders, general directors (managers), members
of governing bodies or employees of legal entities
which compete with the Company.

Observed

8 Joint-Stock Company’s internal documents set out the
requirement on holding the Board of Directors
meetings at least once in six weeks.

Observed

9 Meetings of the Joint-Stock Company’s Board of
Directors shall be held at least once in six weeks
during the year for which the Joint-Stock Company’ s
Annual Report is compiled.

10 Joint-Stock Company’s internal documents set out the
procedure for holding meetings of the Board of
Directors.

Observed

Appendix 3 to the Minutes of the Board of
Directors No. 03-09
22.04.2009.
Resolution of the Board of Directors dtd 5
March 2011, Minutes No.03-11.

approving

The competence of the Board of Directors
includes: appointment of the President of
the Company; determining the number of
members of
the Management Board,
election of its members; approving the
terms of the agreement with the President
the Company’s
and with members of
Management Board; early termination of
authority of the President of the Company
the Company’s
and members
of
the
Management Board,
principles of performance assessment and
the
remuneration system, as well as
controlling activity of the Company’s top
officials who are directly reporting to the
Company’s President.
In accordance with the Company’s Charter,
terms of agreements with the President and
members of the Company’s Management
Board shall be approved by the Board of
Directors.
As of the end of 2011, the Board of
Directors includes five members of the
Board of Directors who meet criteria of the
Code of Corporate Conduct for independent
directors.

The Company has reviewed this issue and
does not have any information on such
offenses committed by members of its
Board of Directors.

information available to
According the
Sistema JSFC,
the Sistema Board of
Directors does not include persons being
shareholders, general directors (managers),
members of a governing body or employees
of a legal entity which competes with
Sistema JSFC.
the Company's Charter,
to
According
meetings of the Board of Directors are held
as necessary but at least two times per
quarter. Ten meetings of the Board of
Directors were held in 2011.
In 2011 ten meetings of the Board of
Directors were held.

The procedure to hold meetings of the
Board of Directors is determined by the
Terms
and Working
Procedures of the Sistema JSFC Board of

of Reference

Directors.

11 Joint-Stock Company’s internal documents provide
for the right of the Board members to get information
functions
necessary
from
their
the Joint-Stock
executive bodies and heads of
Company’s main structural divisions.

for performing

Observed

The right of members of the Board of
Directors to get any information on activity
of Sistema JSFC is stipulated by the Terms
of Reference of the Board of Directors.

12 The company shall establish a committee of the Board

Observed

of Directors responsible for strategic planning.

The Company has established the Strategy
Committee of the Board of Directors.

13 The company shall establish a committee of the Board
of Directors which recommends the auditor to the
Board of Directors and interacts with the latter, as
well as with the Joint-Stock Company’s Revision
Commission.

14 The company shall establish a committee of the Board
of Directors responsible for determining the criteria
for selecting candidates to be appointed to the Board
of Directors and for developing the Joint-Stock
Company’s remuneration policy.

Observed

15 The Nomination and Remuneration Committee shall

Not observed

be chaired by an independent director.

The Company has established the Audit and
the Board of
Finance Committee of
Directors.

established

the
has
The Company
Nomination, Remuneration and Corporate
Governance Committee of the Board of
Directors. The Committee’s functions are
determined in the Terms of Reference of
the Committee.
The Committee is chaired by non-executive
director L. Melamed.

16 The Joint-Stock Company shall have approved by the
Board internal documents which set out a procedure
for forming committees of the Board of Directors and
their working procedures.

Observed

17 The Joint-Stock Company’s Charter sets out a
procedure to determine the quorum of the Board of
Directors that ensures participation of independent
directors in meetings of the Board of Directors.

Not observed

18 The issuer’s internal documents shall provide for
obligations of members of the Board of Directors,
members of a collective executive governing body,
person who carries out functions of
the sole
executive body, including the governing organization
and its officials, to disclose information on the
possession of the issuer's securities as well as sale
and (or) purchase of the issuer’s securities.

Observed

Executive bodies

1 The Joint-Stock Company shall have a collective

Observed

executive body (Management Board).

2 Joint-Stock Company’s internal documents set out
procedures for approval of transactions outside of the
Joint-Stock Company’s financial and business plan.

Observed

and

their

The Company has approved the Terms of
Reference that set out the competence of
the Board Committees, procedure of their
establishment
working
procedures.
The quorum of the Board of Directors is
determined according to the number of
members of
the Board of Directors
attending the sitting regardless of their
status of an independent, non-executive or
executive director.
This
the
is
requirement
Corporate Conduct Code of Sistema JSFC,
the Terms of Reference of the Board of
Directors and the Management Board of
Sistema
internal
JSFC, as well as
documents that set out liabilities of the
Company in implementing requirements of
the legislation on preventing illegal use of
insider information.

included

The Company has formed a collective
executive body – the Management Board
(provided for by the Charter)
Procedures for approval of transactions
outside of the budget are set out in the
Corporation’s budget policy, the Regulation
on contracts approval and the Regulation on
such
mergers

acquisitions. All

and

3 Executive bodies shall not include persons who are
shareholders, general directors (managers), members
of a governing body or employees of a legal entity
which competes with the Joint-Stock Company.

Observed

4 The Joint-Stock Company’s executive bodies do not
include persons with criminal record for economic
crimes or crimes against the state, interests of the state
and local governments or on whom administrative
penalties were imposed for offenses in the area of
entrepreneurial activity or finances, taxes and receipts
or equity market.

5 The Joint-Stock Company’s Charter or

internal
documents prohibit the management company (the
manager) from performing similar functions in a
competing company as well as from having any other
property relations with the Joint-Stock Company apart
from the provision of services to the management
company (the manager).

6 Joint-Stock Company’s internal documents shall set
out obligations of executive bodies to refrain from
actions which lead or may lead to a conflict between
their
the Joint-Stock
Company, and in case of such conflict of an
obligation to inform the Board of Directors of that.

interests and

interests of

7 The Joint-Stock Company’s charger or

documents shall set out criteria
management company (manager).

internal
the

to select

available

transactions are preliminary reviewed by
the Finance and Investment Committee.
When necessary, resolution of the Board of
Directors introduces amendments to the
budget.
According
information,
executive bodies of Sistema JSFC do not
include
shareholders,
directors general (manager), members of a
governing body or employees of a legal
entity which competes with the Company.
According to the information available to
Sistema JSFC, executive bodies of Sistema
JSFC do not include such persons.

persons

being

Observed

Provided for by the Company’s Charter.

Observed

Not observed

Such requirements are contained in the
the Board of
Terms of Reference of
Directors, Terms of Reference of
the
Management Board, Terms of Reference of
the President and in the agreement with the
President and members of the Company’s
Management Board.
It is not necessary because there is no
managing company and there are no plans
to engage the same to perform functions of
the Company’s sole executive body.

8 Joint-Stock Company’s executive bodies

shall
monthly present reports on their work to the Board of
Directors.

Observed

9 Agreements concluded by the Joint-Stock Company
with the General Director (management organization,
manager) set out his/her liability for failure to comply
with regulations on the use of confidential and insider
information.

Observed

The Board of Directors quarterly reviews
financial results of the Company's activity.
The Company’s management weekly
compiles a report on the most important
events and provides it to members of the
Board of Directors.

confidential

There is a requirement regarding protection
of
the
and
Agreements with
members of the Company’s Management
Board.

in
the President

information

Corporate Secretary

secretary)

1. The Joint-Stock Company shall have an official
(company
duty
is to ensure compliance of the Joint-Stock Company’s
bodies and officials with procedural requirements
which guarantee implementation of rights and legal
interests of the Company’s shareholders.

whose

Observed

The Company has appointed the Corporate
Secretary.

2 Joint-Stock Company’s Charter or internal documents
shall set out a procedure to appoint (elect) the
secretary of the Company and his/her responsibilities.

Observed

The Board of Directors has approved the
the Corporate
Terms of Reference of
Secretary which sets out responsibilities of
the Corporate Secretary and procedure of
his/her appointment.

3 The Joint-Stock Company’s Charter shall set out the
requirements for the candidate for the position of a
Company’s secretary.
Material corporate actions

Partially observed These requirements are included in the
the Corporate

Terms of Reference of
Secretary.

Partially observed Regardless of absence of this norm in the
always
this

requirement

Charter,
observed in practice.
In the above cases the Sistema Board of
Directors engages an independent appraiser.

Observed

Not observed

Such actions are hardly probable because
there is a controlling shareholder.

1 The Joint-Stock Company’s charter or

internal
documents shall include a requirement to approve
large transactions prior to performing them.

2 Mandatory engagement of an independent appraiser
for assessing the market value of the property which
is a subject of a large transaction.

and

3 The Joint-Stock Company’s charter shall prohibit
from undertaking any actions during acquisition of
large stakes of the Joint-Stock Company’s shares
(takeover) which are directed at protection of rights of
executive bodies (members of such bodies) and
members of the Board of Directors of the Joint-Stock
the
actions which
Company
shareholders’ position (in particular, prohibiting the
Board of Directors from adopting, before the end of
the period allocated for shares acquisition, resolutions
on issuing additional shares, securities convertible
shares or securities granting the right to acquire the
Company’s shares, even if the right to adopt such
resolutions is given to the Board of Directors by the
Charter).

aggravate

4 The Joint-Stock Company’s charter or

internal
documents shall include a requirement regarding
mandatory engagement of an independent appraiser to
determine the ratio for converting shares during
reorganization.

Not observed

There is no such provision in the Charter,
but in case of reorganization, in accordance
with the Terms of Reference of the Board
of Directors, the Board of Sistema JSFC
will be taking the decision on defining the
ratio for converting shares only if there are
substantial grounds for this, for example,
the opinion of an independent appraiser.

Disclosure of information

1 The Joint-Stock Company shall have an approved by
the Board internal document which sets out its rules
and approach
(the
to
Regulations on the Information Policy).

information disclosure

2 The Joint-Stock Company’s internal documents shall
contain a list of information, documents and materials
which should be provided to shareholders for taking
decisions on agenda items presented to the Annual
General Meeting of shareholders.

Observed

The Board of Directors has approved the
Regulations on the Information Policy.

Observed

list

additionally

The
provided
information is contained in the Code of
Corporate Conduct, the Regulations on the
Information Policy and
the Terms of
Reference of the Annual General Meeting
of shareholders of Sistema JSFC.

3 Disclosure of financial information on the Joint-Stock

Observed

Company’s activities.

RAS financial statements are disclosed
annually. GAAP financial statements are
disclosed quarterly.

4 The use of additional forms and methods of

Observed

information disclosure.

The Company has established
the IR
Department. It regularly holds meetings
with investors and organizes road shows.
The Department maintains the corporate
website
the Internet with extensive
information about the Company’s activities.
The said information is disclosed in the
issuer’s annual report, quarterly reports and
the prospectus. The Company has adopted
and published the Policy on remuneration
and compensations paid to members of the
Company’s Board of Directors.
The address of the Sistema JSFC website
on
www.sistema.ru/
www.sistema.com .

Internet:

the

Observed

Partially observed Observed

according

the

legal

requirement on related party transactions.

Observed

Observed according to requirements of the
Russian legislation on security markets and
requirements of the UK security market
regulator. Disclosure principles are set out
in the Regulations on
the Information
Policy of Sistema JSFC.

Observed

There is a corresponding section in the
Regulations on the Information Policy of
Sistema JSFC.

5 The issuer shall disclose information about the
remuneration received by members of the Board of
Directors, members of the collective executive body
and by the person who performs functions of the sole
executive body, including the management company
and the manager.

6 The Joint-Stock Company shall have a website in the
Internet and regularly disclose information on its
activity.

7 The Joint-Stock Company’s internal documents shall
contain a requirement for disclosure of information on
the Company’s transactions with persons who, in
accordance with the Charter, are considered the Joint-
Stock Company’s top officials as well as on the Joint-
Stock Company’s transactions with companies where
Joint-Stock Company’s
top officials directly or
indirectly own 20 and more percent of the Joint-Stock
Company’s authorized capital or on which such
persons may otherwise exert substantial influence.
8 The Joint-Stock Company’s internal documents shall
include a requirement for disclosure of information on
all transactions which may affect the market value of
the Joint-Stock Company’s shares.

9. The company shall have an

internal document
approved by the Board of Directors for the use of
material information on the Joint-Stock Company’s
activities, shares and other securities of the Company
and transactions with them when such information is
not commonly available and when its disclosure may
exert substantial influence on the market value of the
Joint-Stock Company’s shares and other securities.

Control of financial and business activities

1 The company shall have procedures approved by the
board of directors for internal control over the Joint-
Stock Company’s financial and business activities.

Observed

The Company has approved the Functional
Strategy in internal control.

2. The Joint-Stock Company shall have a special
division which ensures compliance with procedures of
internal control (control and audit service).

Observed

The Company has established the Internal
Control Function and the Internal Audit
Service.

3 The Joint-Stock Company’s internal documents shall
contain a requirement for the Board of Directors to
determine the structure and composition of the Joint-
Stock Company’s control and audit service.

Observed

In accordance with the Company’s Charter,
the Head of the Internal Control division
and the Internal Audit division is to be
approved by the Company’s Board of
Directors.

4 The Joint-Stock Company’s control and revision
services do not include persons with criminal record
for economic crimes or crimes against the state,
interests of the state and local governments or on
whom administrative penalties were imposed for
offenses in the area of entrepreneurial activity,
finances, taxes and duties or equity market.

Observed

The Company reviewed this issue and does
not dispose of information about such
offenses committed by employees of its
control and audit services.

5 Control and revision services do not include persons
being shareholders, general directors (managers),
members of a governing body or employees of a legal
entity which competes with the Joint-Stock Company.

Observed

The above persons are not members of the
Revision Commission of Sistema JSFC.

6 The Joint-Stock Company’s internal documents shall
set out a deadline for presentation to the control and
audit service of documents and materials for assessing
financial and business transactions, as well as a
liability of the Joint-Stock Company’s officials and
employees for their failure to present the same by the
deadline.

7 The Joint-Stock Company’s internal documents shall
set out an obligation of the control and audit service
to inform the audit committee, and if the latter is not
available – the Joint-Stock Company’s board of
directors, about identified irregularities.

8 Internal documents shall contain a requirement for the
control and audit service to perform preliminary
assessment of the reasonability of operations which
are not included in the Joint-Stock Company’s
financial and business plans.
9 The company shall have an

internal document
approved by the Board of Directors which determines
the procedure for the revision commission to carry out
audits of the Joint-Stock Company’s financial and
business activities

10 The Audit Committee shall assess the audit report
prior to its presentation to shareholders at the Annual
General Meeting of shareholders.

Observed

Dividends

the

The Internal Control and Audit Function
and
Internal Audit Service have
constant access to the current information
on the financial and business transactions
and have
independently
right
determine the deadline for presenting such
information.
In accordance with the Terms of Reference
of the Audit and Finance Committee, the
Internal Audit Department on a regular
the
audit
basis
Committee.
The Internal Audit Service reviews all
operations of the Company before they are
performed.

submits

results

The Company has approved the Regulation
on the Revision Commission of Sistema
JSFC.

In accordance with the Terms of Reference
of the Audit and Finance Committee, on 20
April 2012 the Committee assessed the
audit opinion on results of 2011.

1 The company shall have an

internal document
approved by the board of directors which is used as a
when making
guideline
recommendations on the amount of dividends (The
Regulations on the Dividend Policy).

board

the

2 Publishing

the

the Joint-Stock
information on
Company’s dividend policy and amendments therein
in a periodical provided for by the Joint-Stock
Company’s Charter for publishing notices of holding
Annual General Meetings of shareholders, as well as
placement of the said information on the Joint-Stock
Company’s website on the Internet.

Observed

The Company
approved
Regulations for the Dividend Policy.

has

the

Observed

The Regulations on the Dividend Policy is
published on the Company’s website in the
Internet.

9.8. INFORMATION ON THE COMPANY'S COMPLIANCE WITH THE REQUIREMENTS OF

THE UK COMBINED CORPORATE GOVERNANCE CODE

Provisions of the Code

A. DIRECTORS
A.1 Board of Directors
A.1.1. The work of the Board of Directors shall
be organized efficiently. The board shall meet
its duties
regularly enough
effectively.

to discharge

There should be a formal schedule of matters
specifically reserved for decisions of the Board of
Directors.
The annual report should include a statement of
how the board operates, including a statement of
which types of decisions and on which issues
were taken by the board of directors and the
management board.

A.1.2 The annual report should identify the
the chief
the deputy chairman,
chairman,
executive, the senior independent director and the
chairmen and members of the board committees.

The annual report should set out the number of
meetings of the board and its committees and
individual attendance by directors.

A.1.3. From time to time the chairman should
hold meetings with the non-executive directors
without the executives present.

Led by the senior independent director, the non-
executive directors should meet without the
chairman present at least once a year to appraise
the chairman’s performance and on such other
occasions as are deemed appropriate.

Observed / not
observed

Comment

Observed

information

The Board of Directors of Sistema JSFC
(hereinafter - the "Company") meets at least eight
times per year, and this allows reviewing and
taking decisions on issues within the sphere of its
competence.
The competence of the Board of Directors is set
out in the Charter of Sistema JSFC (p.32 of the
Charter).
The Annual Report of the Company for 2011
includes statement on how the Board operates,
including the report on key issues, issues on
which decisions were taken by the Board of
Directors and the Management Board (pp. 6.2,
6.4 of the Annual Report).
The Annual Report of the Company for 2011
of
on
includes
election
V. Evtushenkov Chairman of
the Board of
Directors of the Company and on election of
Deputy Chairmen of the Board of Directors (p.
6.2 of the Annual Report).
The 2011 Annual Report of the Company also
includes information on the President of the
Company, Chairmen and members of all Board
Committees,
the Nomination,
including
and Corporate Governance
Remuneration
Committee and the Audit and Finance Committee
(p.6.2 of the Annual Report).
Company's statutory documents does not provide
for the position of a senior independent director.
The Annual Report of the Company for 2011
includes information on the number of meetings
of the Board of Directors and Board Committees,
as well as their attendance by members. (p. 6.2.)
Formal meetings of the Board of Directors
without the executives present are not held, but
there are regular informal meetings of
the
Chairman of the Company's Board of Directors
with independent directors.
Partially observed Company's statutory documents do not provide

Partially observed

Observed

for the position of a senior independent director.
Prior to every meeting of the Board of Directors,
independent members of the Board hold an
informal meeting in the form of a business
dinner, which is also attended by the management
of the Company, for discussing urgent matters of
governing the Company and organizing the work
of the Board of Directors.
The whole course of the meeting of the Board of
Directors is recorded in writing in the form of
statements from participants and is subsequently
analyzed to ensure that all elements of decisions
that were made are reflected in the minutes.
According to the Working Procedures of the
Board of Directors of the Company (approved by

A.1.4. Where directors have special opinions
about decisions taken by the board; they should
ensure that their opinions are recorded in the
minutes of the meeting.

Observed

If Board members have comments or specific
proposals regarding efficiency of running the
company, they should send a letter with such
comments and proposals to the Chairman of the
Board of Directors. Other Board members should
have access to the information contained in such
letter.

Observed

due
А.1.5 The Company
indemnification coverage for members of the
Board of Directors.

ensure

shall

Observed

A.2. Chairman of the Board of Directors and President
А.2.1 The same person cannot at the same time
hold the position of the Chairman of the Board of
Directors and the President. The division of
responsibilities between the board chairman and
the president should be clearly established and set
out in internal documents of the Company.

Observed

the Board 27.10.2007), directors have an
opportunity to express their special opinion
within 24 hours after the meeting.
All Board members are provided with a copy of
minutes of every Board meeting.
Members of the Company's Board of Directors
regularly send to the Board Chairman letters with
their comments and proposals on different
aspects of running the Company and organization
of the work of the Company's Board of Directors.

According to p. 2.4.5. of the Terms of Reference
of the Board of Directors, the Company insures
liability of the Board members from legal actions
or claims in relation to business decisions or
the
other actions taken in connection with
performance of his/her functions as a member of
the Board of Director of the Company or its
affiliates (D&O Policy).
Additionally members of the Board of Directors
signed Indemnification Agreements.

According to the Russian legislation and the
Company's Charter, the person carrying out
functions of the Company's sole executive body
cannot at the same time serve as the Chairman of
the Board of Directors. The division of
responsibilities between the Board Chairman,
Board members and the President are clearly set
out in the Charter of the Company.

А.2.2 The chairman should on appointment meet
the independence criteria. A chief executive
should not be chairman of the same company. If
exceptionally a board decides
that a chief
executive should become chairman, the board
should consult major shareholders in advance and
should set out sufficient reasons to shareholders
and include this information in the next annual
report.

the Company's Charter,

Partially observed According to the legislation of the Russian
Federation and
the
person carrying out functions of the Company's
sole executive body cannot at the same time serve
as a Chairman of the Board of Directors.
Chairman of the Board of Directors of the
Company is a non-executive member of the
Board, but does not meet the independence
criteria. At the same time he does not holds
positions in executive governance bodies of the
Company.

А.3 Board balance. Independence of directors.
А.3.1 The board should identify in the annual
report each non-executive director it considers to
be independent.

Observed

The board should determine regarding all the
directors whether the director is independent.

Observed

Information on every non-executive director that
meets independence criteria is included in the
2011 Annual Report (p.6.2.).
There are five directors among members of the
Board of Directors
independence
criteria: R. Kocharyan, R. Munnings, E.
Novitsky, S. Tchuruk, D. Iakobachvili.

that meet

According to p. 2.5.7. of the Terms of Reference
of the Board of Directors on the first meeting of
the Board after the Annual General Meeting of
shareholders, during which the members were
selected, the Board identifies the status of every
director (independent, non-executive, executive).

А.3.2 In large companies (according to FTSE 350
list) at least half the board, excluding the
chairman,
non-executive
directors determined by the board as independent.

comprise

should

independent

director. The

A.3.3. The board should appoint one of the
independent non-executive directors to be the
senior
senior
independent director should be available
to
shareholders if they have concerns which contact
through the normal channels of chairman, chief
executive or finance director has failed to resolve.
А.4 Appointments to the Board
А.4.1 There should be a nomination committee
which should
for board
appointments and make recommendations to the
board.

the process

lead

A majority of members of
the nomination
committee should be independent non-executive
directors.

The chairman or an independent non-executive
director should chair the committee, but the
the nomination
chairman should not chair
committee when
the
appointment of a successor to the chairmanship.

is dealing with

Status of every member of the Board of Directors
was defined by the Board's decision (Minutes of
25.06.2011).

Partially observed

Partially observed Half of the Board members are non-executive
directors. Five members of the Company's Board
of Directors out of 12 meet the independence
criteria, and this constitutes more than 40% of the
total number of Board members.
Statutory documents of the Company do not
provide for the position of a senior independent
director, but the information about members of
the Board of Directors that meet independence
criteria
the
Company's website. If shareholders have relevant
questions they may address any of them.

is available to shareholders on

Not observed

the Board of Directors

Partially observed The Nomination, Remuneration and Corporate
Governance Committee has been established and
is active.
The terms of Reference of the Committee defines
the sphere of competence of the Nomination,
Remuneration
and Corporate Governance
Committee. One of the key functions of the
Committee is provisional review of candidates
presented
for
appointment to top positions in the Company. But
the Committee does not review appointments to
the Board of Directors, as it is in the sphere of
competence of shareholders.
A majority of the members of the Nomination,
Remuneration
and Corporate Governance
Committee are non-executive directors, and only
the Committee meet
two member
independence criteria
- R. Munnings and
R. Kocharyan.
L. Melamed, non-executive member of
Board,
Remuneration
Committee.
The Nomination, Remuneration and Corporate
Governance Committee is not responsible for
selecting candidates to the Board of Directors.
This
the sphere of competence of
in
is
shareholders.

the
the Nomination,
and Corporate Governance

is a chairman of

Not applicable

committee

should make
The nomination
available its terms of reference, explaining its
role and the authority delegated to it by the board.
(The requirement
information
to make
available should be met by satisfying requests of
any interested person and by including the
information on a website of the company).

the

Observed

The Terms of Reference of the Nomination,
Remuneration
and Corporate Governance
Committee is posted on the Company's website
(www.sistema.ru / www.sistema.com) and is
available on demand from shareholders.

committee

А.4.2. The nomination
should
evaluate the balance of skills, knowledge and
experience on the board and, in the light of this
evaluation, prepare a description of the role and
capabilities required for a particular appointment.

the Board of
Partially observed Candidates for members of
Directors are proposed by
the Company's
shareholders according to pp. 23, 28 of the
Charter.
Requirements to the Company's Board members
are set out in the Terms of Reference of the
Company's Board of Directors. Among other
things, a candidate should have sufficient

the companies

professional experience, should not be previously
convicted of economic crimes, not be under a ban
on taking managerial positions. The candidate
should not be a member of governance and
control bodies of
that are
competitors of the Company or be an affiliated
person of such companies.
The Nomination, Remuneration and Corporate
Governance Committee does not develop formal
requirements to candidates to the Board of
Directors, as a candidate proposed to the Board
Membership by shareholders must be included in
the voting list according the legislation of the
Russian Federation.

Type of work and tasks of the Board Chairman
are set out in the Terms of Reference of the
Board of Directors of the Company.
A Chairman of the Board of Directors is selected
by the decision of all member of the Board at the
first meeting after the Annual General Meeting of
shareholders.

Information on all positions held by
the
Chairman of the Company's Board of Directors is
disclosed and included into the 2010 Annual
Report. (p. 9.1) Chairman of the Company's
Board of Directors V. Evtushenkov does not hold
a position of a chairman of other significant
companies except Sistema JSFC.

the

Terms and conditions of appointment of non-
executive directors of the Board of Directors is
available
Company's website
(www.sistema.ru / www.sistema.com), at the
Company's office and during the Annual General
Meeting of shareholders to its participants.
According to the Russian legislation all Board
members are elected for one year and could be
re-elected unlimited number of times.

А.4.3 For the appointment of a chairman, the
nomination committee should prepare a job
specification, including an assessment of the time
commitment expected.

Observed

A chairman’s other significant commitments
should be disclosed
the board before
appointment and included in the annual report.
Changes to such commitments should be reported
to the board as they arise, and their impact
explained in the next annual report.
A full time executive director should not take on
more than one chairmanship in a FTSE 100
company.
A.4.4. The terms and conditions of appointment
of non-executive directors should be made
available for inspection to any interested parties
at the company's office and during the Annual
General Meeting of shareholders.

Observed

The letter of appointment should set out the
expected
time commitment. Elected board
members should undertake that they will have
sufficient time to meet what is expected of them.

Partially observed Before candidates are proposed for appointment
to the Board they familiarize themselves with the
working plan of the Board of Directors for the
coming year, rights and obligations of the Board
members and provisional membership in the
Board committees.
During the induction, a Corporate Secretary of
the Company explains to every new member of
the Board its procedures and preliminary time
commitments for their fulfillment. Before the
election, all candidates
sign a document
confirming their agreement with the proposal that
includes, among other issues, an agreement to
follow all norms of internal documents of the
Company applicable to the Board members.
Attendance of meetings and involvement of the
Board members in discussion of agenda items is
recorded and analyzed for subsequently including
this information into the report on the quality of
corporate governance.

Information on all other positions held by Board
members in other companies should be disclosed
to the Board of Directors and included in the
Annual Report. Information on changes to such
data should be available when they arise.

Observed

А.4.5 An executive director should not take on
more than one directorship in a FTSE 100
company.

Observed

shareholders,

Biographies of candidates to the Company's
Board, including information on positions held in
other organizations, are presented at the Annual
General Meeting
and
of
information on acting Board members is included
in the Annual Report.
All candidates to the Board of Directors fill in the
questionnaire for candidates for providing the
Company with the necessary information.
The obligation to disclose any changes to the
information provided by members of the Board
of Directors is set out in the Terms of Reference
of the Company's Board of Directors (p. 2.3).
As of 31.12.2011 the Board of Directors include
12 members, one of them is an executive director
(M. Shamolin).
M.Shamolin is President of the Company and
Board member of Bashneft and MTS.
Membership in the Board of the companies of the
Sistema group is one of the main duties of
executive directors, that is why this does not
create conflict of interest for work at
the
Company.

A.4.6. A separate section of the annual report
should describe the work, sphere of competence,
procedures and key issues of the nomination
committee, including the process it has used in
relation to board appointments.
An explanation should be given if neither an
external search consultancy nor open advertising
has been used in the appointment of a chairman
or a non-executive director.

Partially observed The 2011 Annual Report of the Company (p.6.2)
includes information on powers and competence
of the Nomination, Remuneration and Corporate
Governance Committee of the Company's Board
of Directors and key issues reviewed by the
Committee.
At the same time, the Nomination, Remuneration
and Corporate Governance Committee does not
have powers to directly propose candidates to the
Company's Board of Directors, as this is in the
sphere of competence of shareholders.

А.5 Information and professional development
A.5.1. The chairman should ensure that new
directors receive full induction on joining the
board.

Observed

As part of this, the company should offer to
major shareholders the opportunity to meet a new
non-executive director.

Observed

А.5.2 The Board of Directors should ensure
directors have access to independent professional
consultation at the expense of the company when
fulfilling their professional duties.

Observed

Every candidate to the Board of Directors before
the election meets the Board Chairman, Board
members and the management and receives
information on work of the Board of Directors,
his/her role in the Board of Directors and the
Company's business.
The Corporate Secretary gives consultation to
new members of the Board on procedures and
organization of work of the Board and its
committees and gives out necessary statutory
documents, documents describing the company's
strategy, business, markets of presence and
financial reports.
The above induction procedure for new Board
members is not formalized.
The main shareholder of the Company always
meets a candidate to the Board of Directors
before
is not
the election. This procedure
formalized.
The Terms of Reference of
the Board of
Directors (p.2.2.1) gives Board members the right
to engage external
independent experts for
assessing materials and decisions on any agenda
items. When needed, independent expertise is
organized by the secretariat of the Board of
Directors.

Board committees should be provided with
sufficient resources to undertake their duties,
including organizational, human and financial
resources.

A.5.3 If needed, all board members should have
access to the advice and services of the company
secretary, who is responsible to the board for
ensuring that board procedures are complied
with.

Observed

Both
the
the appointment and removal of
company secretary should be a matter for the
board as a whole.

Observed

A.6 Performance evaluation
A.6.1. The Annual Report shall contain the
information on procedures for assessing the
performance of the Board of Directors, its
Committees and every director.

Observed

Board Committees have access to necessary
human, financial and organizational resources of
the Company.

the Corporate Secretary

According to the Terms of Reference of the
Corporate Secretary of the Company, the last
version of which was approved by the Board of
Directors (Minutes dtd 14.02.2004), one of the
functions of
is
facilitating the work of the Board of Directors,
including: providing Board members with
requested information and documents regarding
Company's work, distribution among Board
members of materials for meetings of the Board,
facilitation of the work of the Board Committees.

The appointment and removal of the Corporate
Secretary is in the sphere of competence of the
Board of Directors according to the Charter of the
Company (p.32).

their

giving

fill
opinion

The process of performance evaluation of the
Board of Directors is set out in p.6.5 of the 2009
Annual Report of the Company. Since 2009 there
is a process of self-evaluation of the Board of
in
Directors work. Board members
on
questionnaires
organization of work of the Board of Directors:
membership, structure, process and organization
of work of the Board of Directors, work of
committees of the Board of Directors, quality of
decisions of the Board of Directors in relevant
areas. The Board Secretariat annually surveys all
members of the Board, analyses results and
provides the final analysis to the Corporate
Governance and Ethics Committee, the Board
Chairman and the members of the Board of
Directors.

led by

the senior
Non-executive directors
independent director shall assess the performance
of the Chairman of the Board of Directors. In
addition, they shall take into account the views of
other members of the Board of Directors.

А.7 Re-election
A.7.1 All nominees to the Board of Directors
shall be approved at the regular Annual General
Meetings of shareholders. Thereafter members of
the Board of Directors shall be re-elected at
intervals of no more than three years.

Information about nominees to the Board of
Directors shall include biographic data about
nominees and/or any other information to enable
shareholders to take an informed decision about
electing or re-electing members of the Board of
Directors.

Not applicable

Performance evaluation of the Board of Directors
Chairman is carried out during evaluation of
performance of the Board of Directors in general.

Observed

According
to the Russian legislation Board
members are elected at the Annual General
Meeting of shareholders for 1 year (for the period
till
the next Annual General Meeting of
shareholders) and could be re-elected unlimited
number of times.

Information on candidates to the Board of
Directors including their biographical details is
provided among other materials for the Annual
General Meeting of shareholders which elects
members of the Board of Directors of the
Company.

A.7.2. Non-executive directors shall be elected
for specified terms and thereafter may be re-
elected or dismissed from office in accordance
with applicable corporate legislation.

Observed

to
The board of directors should explain
shareholders why they believe an individual
should be elected as a non-executive member of
the Board of Directors.

Partially observed

According to the Russian legislation, Board
members are elected at the Annual General
Meeting of shareholders for one year (for the
period till the next Annual General Meeting of
shareholders) and could be re-elected unlimited
number of times.
Shareholders are provided with biographical
details and professional skills of candidates and
shareholders make independent conclusions on
their competence and advisability to elect them to
the Board.

The chairman should confirm to shareholders
when proposing re-election that, following formal
performance
individual’s
performance continues to be effective.

evaluation,

the

Any term beyond six years for a non-executive
director should be subject to particularly rigorous
review, and the need for progressive refreshing of
the board should be taken into account.

Not applicable

Partially observed Every year when new membership of the Board
is appointed, information on the work of the
Board of Directors in the previous year is
disclosed, including attendance of meetings by
the Board members and the work of Committees
where Board members participated. Shareholders
take independent decisions on the quality of work
of the Board of Directors and their members.
According to the Russian legislation, Board
members are elected at the Annual General
Meeting of shareholders for one year (for the
period till the next Annual General Meeting of
shareholders) and could be re-elected unlimited
number of times.
Every year when new membership of the Board
is appointed information on the work of the
Board of Directors in the previous year is
disclosed, including attendance of meetings by
the Board members and the work of Committees
where Board members
and
shareholders take independent decisions on the
quality of work of the Board of Directors and
their members.

participated

A non-executive director may hold his/her
position for not longer than nine years if he/she is
re-elected every year. If an executive director
serves more than nine years, his/her status should
not be defined by the Board of Directors as
independent.

Observed

According
to the Russian legislation Board
members are elected at the Annual General
Meeting of shareholders for one year (for the
period till the next Annual General Meeting of
shareholders) and could be re-elected unlimited
number of times.
the Board of
The Terms of Reference of
Directors (p.2.5.5) defines independence criteria
for members of the Board of Directors, according
to which a person who is a Board member for
longer than nine years cannot be considered
independent.

B. REMUNERATION
В.1 Level and make-up of remuneration
B.1.1. The performance-related elements of
significant
remuneration
proportion of the total remuneration package of
executive directors to give the keen incentives to
perform at the highest levels.

should

form

Observed

If the Company generates income, members are
paid remuneration according to performance
results in the year of USD 250-325K. 50% of this
remuneration consists of cash and 50% - of the
Company's
Company's
capitalization grows, Board members are paid
additional remuneration equaling 0.1% from the
amount of the capitalization growth which was
achieved between two Annual General Meetings
of shareholders.

shares.

the

they

remuneration

are paid
in meetings of

for
Besides
participating
the Board of
Directors and meetings of the Board Committees.
These incentive mechanisms allow aligning the
size of remuneration of the Board members with
fulfillment of shareholder goals of the Company.

The Nomination and Remuneration Committee
should participate in developing the system of
remuneration for the Board members.

Observed

B.1.2 If share options are provided for by the
existing remuneration system, they should not be
offered at a discount rate.

Observed

B.1.3 The size of remuneration of non-executive
directors shall depend, among other things, on
their duties and the level of responsibility.
Non-executive directors shall not receive stock
options. If, exceptionally, options are granted,
shareholder approval should be sought
in
advance. A member of the Board who acquired
shares by exercising an option shall hold them
until at least one year after he/she leaves the
Board.
If a non-executive director receives a stock
option, it may mean that he/she does not meet
independence criteria any longer.

The Policy on remuneration and compensations
for the Company's Board members sets out a
clear formula for calculating their remuneration.
Currently there are no amendments to the above
mentioned Policy under consideration. If it is
necessary to make changes to the above Policy,
the Nomination, Remuneration and Corporate
Governance Committee of the Board of Directors
plays a key role in developing such changes.

Executive share options are not provided for
work in the Board of Directors.

Board members receive additional remuneration
for serving as Chairman of
the Board of
Directors, Deputy Chairman and Chairman of the
Board Committee. Special remuneration is paid
for participation in the Board meetings and
meetings of the Board Committees.
Executive share options are not provided for
work in the Board of Directors.

В.1.4 Where a company releases an executive
director to serve as a non-executive director
elsewhere,
should
remuneration
include a statement on his earnings in such
company.

report

the

Partially observed Members of the Management Board who are
members of Boards of Directors of subsidiaries
do not receive additional remuneration for work
in such Boards of Directors. Members of the
Management Board (executive directors) who are
members of Boards of Directors
in other
companies receive remuneration for work in
Boards of Directors of such companies according
to their regulations.
The information on the size of remuneration
received by employees of the Company for acting
as a Board member at other companies is not
disclosed.

remuneration committee should
В.1.5 The
consider what compensation commitments their
directors’ terms of appointment would entail in
the event of early termination. The remuneration
should be paid on a pro rata basis.

В.1.6 Notice or contract periods should be set at
one year or less. If it is necessary to offer
directors longer notice or contract periods, such
periods should reduce to one year or less after the
initial period.

Observed

According to p.1.6 of the Policy on remuneration
and compensations for the Board members of the
Company, in the event of early termination of the
director's appointment, remuneration is calculated
on a pro rata basis.

According to the Russian legislation, Board
members are elected at the Annual General
Meeting of shareholders for 1 year (for the period
the next Annual General Meeting of
till
shareholders) and could be re-elected unlimited
number of times.

В.2 Procedure
B.2.1 The Board of Directors should establish a
Remuneration Committee consisting of at least
three independent non-executive directors (for
large companies).

Partially observed The Nomination, Remuneration and Corporate
Governance Committee has been established and
is active. The Committee includes six directors,
most of whom - A. Goncharuk, D. Zubov,
R. Kocharyan, R. Munnings, L. Melamed - are
non-executive directors and two of whom meet
independence
criteria: R. Kocharyan, R.
Munnings

remuneration committee should make
The
available its terms of reference, explaining its
role and the authority delegated to it by the board.
(The requirement
information
to make
available should be met by satisfying requests of
any interested person and by including the
information on a website of the company).

the

Observed

the

The sphere of competence of the committee is set
out in the Terms of Reference of the Nomination,
and Corporate Governance
Remuneration
Committee,
last version of which was
approved by the decision of the Board of
Directors (Meeting on 24.09.2011). The Terms of
Reference of the Nomination, Remuneration and
Corporate Governance Committee is posted on
the Company's website
/
www.sistema.com) and is available on demand
from shareholders.

(www.sistema.ru

Where remuneration consultants are appointed, a
statement should be made available of whether
they have any other connection with
the
company.
В.2.2 The remuneration committee should have
delegated responsibility for setting remuneration
for all executive directors and the chairman.

The committee should also recommend and
monitor the level and structure of remuneration
for senior management.
The definition of ‘senior management’ for this
purpose should be determined by the board but
should normally
layer of
management below board level.

the first

include

В.2.3 The board itself or, where required by the
Charter, the shareholders should determine the
the non-executive directors
remuneration of
within
the Articles of
Association. Where permitted by the Ch, the
board may however delegate this responsibility to
the remuneration committee.

limits set

the

Not applicable

In 2011 no external remuneration consultants
were engaged in the work of the Company's
Board of Directors.

Observed

compensation

and procedure
and

for paying out
Amount
the
remuneration
Company's Board member are set out in the
Policy on remuneration and compensations, the
last version of which was approved by the
Annual General Meeting of
shareholders
(Minutes of 30.06.2006).
If changes should be made to the above Policy,
the Nomination, Remuneration and Corporate
Governance Committee develops necessary
changes.

One of the key functions of the Nomination,
Remuneration
and Corporate Governance
Committee according to the respective Terms of
Reference is preliminary review of terms of labor
contracts of the President and Board members
presented for consideration of the Company's
Board of Directors, evaluation of performance of
the Company's top management and defining the
size of their remuneration.

The Policy on remuneration and compensations
for the Company's Board members, the last
version of which was approved by decision of the
general meeting of shareholders (Minutes of
30.06.2006), sets out a clear formula
for
calculating remuneration of the Board members.
A
the Nomination,
Remuneration
and Corporate Governance
Committee for such payments is not required.

special decision of

В.2.4 Shareholders should be invited specifically
to approve all new long-term incentive schemes
and significant changes to existing schemes.

Observed

Long-term incentive schemes are approved by the
Board of Directors and, when needed, by the
Annual General Meeting of shareholders, and

100

С. ACCOUNTABILITY AND AUDIT
C.1 Financial reporting
С.1.1 The annual report should include financial
reports and the auditor's opinion.

С.1.2 Board members should prepare a report on
results of the development of the company over
the year.

С.2 Internal control
С.2.1 The board should, at
least annually,
conduct a review of the effectiveness of the
group’s system of internal controls and should
report to shareholders that they have done so. The
review should cover all material controls,
including financial, operational and compliance
controls and risk management systems.

C.3 The Audit Committee and Auditors
С.3.1 The board should establish an audit
committee of at least three independent non-
executive directors (for large companies). At
least one member of the audit committee shall
have relevant financial experience.

Observed

shareholders discuss such matters both at the
level of the Board of Directors and the level of
the Annual General Meeting of shareholders.

Financial reports of the Company are disclosed
annually and include the auditor's opinion.

Report of the Board of Directors on development
of the Company is included in the text of the
Company's Annual Report.

The Board of Directors annually reviews the
report from the department of Internal Control of
the Company on results of the year with analysis
systems and detected
of existing control
deficiencies.
A report from the Revision Commission is
attached to materials of every Annual General
Meeting.

Partially observed The Nomination, Remuneration and Corporate
Governance Committee of Sistema JSFC has
been established and is active. The Committee
includes five members of the Board of Directors,
three of whom meet independence criteria -
R. Munnings, E. Novitsky and D. Iakobachvili,
and two of whom are non-executive directors -
R. Sommer and D. Zubov.
R. Munnings
the Audit
is Chairman of
Committee of the Board of Directors. He meets
independence criteria and has vast experience in
financial audit.

С.3.2 The main role of the audit committee
should be set out in the terms of reference.

Observed

The sphere of competence of the Audit and
Finance committee is set out in the Terms of
Reference of the Committee, the last version of
which was approved by the Board of Directors
(Meeting on 24.09.2011).

С.3.3 The terms of reference of the audit
committee, including the authority delegated to it
by the board, should be made available.
information
to make
(The requirement
available should be met by satisfying requests of
any interested person and by including the
information on a website of the company).

the

Observed

The terms of reference of the Audit and Finance
Committee is posted on the Company's website
(www.sistema.ru / www.sistema.com) and is
available on demand from shareholders.

A separate section of the annual report should
describe the work of the committee.

Observed

The report on the work of the Audit and Finance
Committee is included in the Company's 2011
Annual Report (p. 6.2).

С.3.4 The audit committee should make sure that
staff of the company may, in confidence, raise
concerns about possible improprieties in matters
of financial reporting or other matters.

Observed

The Audit and Finance Committee reviews issues
of the functioning of the hot line used by the
Company's employees and other
interested
parties for raising concerns about possible

101

С.3.5 The audit committee should monitor and
review the effectiveness of the internal audit
process. Where there is no internal audit function,
the audit committee should consider annually
whether there is a need for an internal audit
function and make a recommendation to the
board.

Observed

С.3.6 The audit committee should have primary
responsibility for making a recommendation on
the appointment of the external auditors.

Observed

report

should

С.3.7 The annual
include
information on independence criteria for auditors
and explain to shareholders how, if the auditor
provides
auditor
independence is safeguarded.

non-audit

services,

D. RELATIONS WITH SHAREHOLDERS
D.1 Dialogue with main shareholders
D.1.1 The chairman should ensure that the views
of shareholders on the development of the
company are communicated to the board.
The chairman should regularly discuss strategy
with major shareholders.
Non-executive directors should be offered the
to attend meetings with major
opportunity
shareholders and should expect to attend them if
requested by major shareholders.

The senior independent director should hold
sufficient meetings with shareholders to discuss
development of the company.

Not applicable

D.1.2 The annual report should state how the
members of the board develop an understanding
the views of major shareholders about
of
development of the company.

Observed

improprieties
in
confidential basis.

the financial sphere on a

the

is monitoring

According to the Terms of Reference of the Audit
and Finance Committee of the Company's Board
of Directors, one of the key functions of the
internal audit
Committee
system of the Company. The Internal Audit
Service carries out internal audit functions. The
Audit and Finance Committee together with the
head of the above mentioned Service and the
Company's management analyzes implemented
activities aimed at removing deficiencies of
internal business processes.

According to the Terms of Reference of the Audit
and Finance Committee of the Company's Board
of Directors, the Committee analyzes the work of
external auditors and makes recommendations for
the Board of Directors on appointment, re-
appointment and removal of external auditors.

The 2011 Annual Report of the Company
includes statement on the policy of safeguarding
objectivity and independence of the Company's
auditor.

the majority of

Representatives of
large
shareholders are members of the Board of
Directors of the Company. The IR department of
the Company works with the largest institutional
investors. Results of its work, including views of
main institutional investors of the Company on
the
strategy and development outcomes of
Company, are regularly reviewed by the Board of
Directors within the IR strategy of the Company.
It is mandatory for all members of the Board of
Directors, including non-executive directors, to
attend
the Annual General Meeting of
shareholders.
Company's statutory documents does not provide
for the position of a senior independent director.
Prior to every meeting of the Board of Directors
independent members of the Board hold an
informal meeting in the form of a business
dinner, which is also attended by the management
of the Company.
Information on independent members of the
Board of Directors is available to shareholders
via the Company's website. If shareholders have
relevant questions they may address any of them.

the majority of

Representatives of
large
shareholders are members of the Company's
Board of Directors. The IR department of the
Company works with
institutional
investors. Results of its work, including views of
main institutional investors of the Company on

largest

102

D.2 Constructive use of the AGM
D.2.1 The company should ensure that votes of
all persons
the general
that participated
meeting are properly recorded.
The minutes of the meeting should include the
number of persons that participated in the voting
on every agenda item and the number of votes
"for", "against" and "abstained".

Observed

D.2. At any general meeting, the company should
propose a separate draft resolution on each
separate issue.

Observed

D.2.3 All members of the Board of Directors are
to attend
the general meeting. Committee
chairmen should be available for answering
questions of shareholders.

Observed

D.2.4 The company should arrange for the Notice
of the AGM and related papers to be sent to
shareholders at least 20 working days before the
meeting.

Observed

development of the Company, are regularly
reviewed by the Board of Directors within the IR
strategy of the Company. It is mandatory for all
members of the Board of Directors, including
non-executive directors, to attend the Annual
General Meeting.

this

information

All votes of shareholders are registered by the
Teller Committee and
is
included in the Minutes of the Company's Annual
General Meeting of shareholders. All "for",
"against" and "abstained" votes on every agenda
item are recorded separately, voting results for
every item are disclosed.

According to the Russian legislation and the
Company's Charter, every agenda item at the
general meeting is accompanied by a separate
draft
resolution with voting options "for",
"against" and "abstained".
According to p. 2.3. of the Terms of Reference of
the Board of Directors, all members of the Board
of Directors are to attend the General Meeting
and be able to answer questions from the
participants of the meeting.
Shareholders
the Annual
General Meeting may put questions to any
member of the Board of Directors attending the
meeting.
According to its Charter, the Company circulates
the Notice of the AGM and publishes related
materials not later than 30 days before the
meeting.

that participate

President

M.Shamolin

Chief Accountant

V. Platoshin

103