Sistema Annual Report 2020

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FY2020 Annual Report · Sistema

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2020

ANNUAL
REPORT

PUBLIC JOINT
STOCK FINANCIAL
CORPORATION

//sistema.com

134

168

ABOUT THIS REPORT
This annual report was approved by the General Annual Meeting of Sistema PJSFC on
26 June 2021 (Minutes No.1-21, dated 30 June 2021).

This annual report presents information on business operations of Sistema Public Joint
Stock Financial Corporation and its portfolio companies in 2020.

The annual report of Sistema PJSFC for the year 2020 has been prepared in compliance
with Federal Law on Joint Stock Companies, Federal Law on Securities Market, Bank
of Russia Regulation on Disclosure by Issuers as amended.

Unless specifically noted otherwise, all financial performance indicators in this annual
report are based on consolidated financial statements under IFRS.

Certain immaterial discrepancies in percentage calculations and in arithmetic
operations of addition in tables and charts in this annual report are attributable to
rounding.

You may access other annual reports of the Corporation at its official website,
www.sistema.com, in Information Disclosure and Investors & Shareholders.

DISCLAIMER
Certain statements in this annual report may contain assumptions or projections
regarding forthcoming or expected events related to Sistema PJSFC or its portfolio
companies. Statements of this nature may be expressed by using the words “expect,”
“estimate,” “intend,” “will,” “could,” negations of such words, as well as similar
expressions. These statements are only predictions, and actual events or results may
differ materially.

ПSistema PJSFC does not commit to reviewing these statements in order to correlate
them with actual events and circumstances that may occur after the above-mentioned
date or to highlight the events that were not expected to occur when this annual
report was prepared. Many factors could cause the actual results of Sistema PJSFC
or its portfolio companies to differ materially from those set forth in our projections
or forward-looking statements, including, among others, macroeconomic conditions,
our competitive environment, country-specific risks of operating in Russia, rapid
technological and market changes in the industries where Sistema PJSFC and
its portfolio companies operate, the impact of the COVID-19 pandemic on the
macroeconomic situation in the markets where Sistema PJSFC and its portfolio
companies operate and on their financial performance, as well as many other risks
specifically related to Sistema and its operations.

СONTENT

SISTEMA

SISTEMA PROFILE
Sistema overview – 4 / Investment portfolio – 6 / CEO’s statement – 8 / Strategic overview – 10

RESULTS

PERFOMANCE
Key events at the corporation in 2020 and after reporting period – 16 / Financial overview for 2020 – 21 /
Shareholders’ equity – 25 / Report on dividends declared (accrued) on Sistema shares – 26

ASSETS

KEY ASSETS' PERFOMANCE
МТС – 30 / Ozon – 38 / Segezha Group – 44 / Etalon Group – 56 / MEDSI – 64 / Steppe Agroholding – 76 /
Binnopharm Group – 84 / JSC BPGC – 90 / Business Nedvizhimost – 98 / Cosmos Hotel Group – 104 /
Other assets – 110 / Funds – 122

GOVERNANCE

CORPORATE GOVERNANCE
Corporate governance system – 136 / Remuneration policy applied to board members and senior management – 156 /
Risk management – 159

SUSTAINABILITY

SUSTAINABILITY MANAGEMENT
Management system – 170 / Key ESG areas – 174 / Social investing and operations of Sistema Charitable Foundation – 180

ANNEXES

182//sistema.com

01SISTEMA PROFILE

SUSTAINABILITY
MANAGEMENT

CORPORATE
GOVERNANCE

KEY ASSETS'
PERFOMANCE

PERFOMANCE

ANNEXES

01.

4
6
7
2

Sistema overview

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E
V
R
E
V
O

A
M
E
T
S
I
S

2
.
7
7

8
1

0
.
7
4
1

9
1

0
2

Market Capitalization,
RUB bln

Sistema is the largest publicly traded investment company
in Russia. Founded in 1993, Sistema is today represented
across over 15 high-potential sectors of the Russian economy
through its portfolio companies that serve over 150 million
consumers. Sistema’s investment portfolio includes mostly
Russian companies in such sectors as telecommunications,
forestry, agriculture, healthcare, real estate and electronic
commerce, and others

The Corporation’s shares trade on Moscow Exchange (ticker:
AFKS) and on London Stock Exchange in the form of global
depositary receipts (ticker: SSA). One GDR represents
20 ordinary shares.

Strategy

Sistema’s strategic goal is to create long-term growth of
shareholder value by boosting returns on investments
in existing assets and reinvesting available cash in new
investment projects to diversify its portfolio and increase
overall returns on investment.

2020 Results1

RUB

691.6 bln

Revenue

RUB

236.3 bln

Adjusted OIBDA

RUB

16.0 bln

Adjusted net income

RUB

1.421 bln

Total assets

FITCH

BB–

stable

S&P

stable

RAEX

ruAA–

stable

“THE FIRST
WELL-KNOWN
INVESTMENT
BRAND IN RUSSIA”

S
D
R
A
W
A

“THE BEST PRIMARY
OFFERING IN THE
COMMUNICATIONS
SEGMENT”
Sistema’s series 001P-15 bond
issue for RUB 10 bn.

Cbonds Awards 2020

NO 11 OUT OF
725 GLOBAL
DIVERSIFIED
FINANCIAL
COMPANIES
Sustainalytics ESG rating

S
T
L
U
S
E
R
0
2
0
2

Market
position

Top-

25Largest Russian

companies by
revenue (RBC)

Тop-

20Public Russian

companies in
Forbes Global 2000
rating

>150 mln

Consumers

МOEX:

AFKS

LSE:

SSA

O
L
O
F
T
R
O
P
T
N
E
M
T
S
E
V
N

Assets

> 15

Sectors

МТS
NYSE: MBT, MOEX: MTSS

50.02%

Ozon
NASDAQ and MOEX: OZON

33.1%

Segezha Group
MOEX: SGZH

73.7%

Etalon Group
LSE and MOEX3: ETLN

25.6%

RUB

39.5 bln

Investments in 2020

Here and hereinafter results for 2020 are presented to reflect the divestiture of AGK Yuzhny. The results for 2019 have been restated to reflect the effect of the divestiture.
Etalon’s GDRs started trading on Moscow Exchange from 03.03.2020.

ANNUAL REPORT / 2020

//sistema.com

S
T
E
S
S
A
OUR

МТS

Telecommunications

MOEX: MTSS / NYSE: MBT

50.02%

OZON

Online retailer

33.1%

ETALON
GROUP

Real estate development

LSE / MOEX: ETLN

25.6%

OTHER
ASSETS

FUNDS

49.53%
ELEMENT
High tech

90%
SISTEMA VENTURE
CAPITAL

43%
CONCEPT GROUP
Retail

83%
SISTEMA ASIA FUND

100%
EAST-WEST UNITED
BANK S.A.
Banking

49%
SISTEMA CAPITAL
PARTNERS GROUP

MEDSI

Private healthcare
chain

95.5%

BPGC

Power grids company

BINNOPHARM
GROUP

Pharmaceuticals
business

79%

91%

BUSINESS
NEDVIZHIMOST

Real estate

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFOMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

SEGEZHA
GROUP

Forestry holding

73.7%

STEPPE

Agroholding

92.8%

COSMOS
HOTEL
GROUP

Hospitality

70%
SISTEMA
CAPITAL MC

100%

ANNUAL REPORT / 2020SISTEMA PJSFC

//sistema.com

CEO’s
Statement

Vladimir Chirakhov

Sistema President

Ozon is another example of a business that became essential amid
the new COVID reality. The company delivered exceptional growth,
increasing its GMV1 by over 140% during 2020 and significantly
expanding the number of active customers to 5.4 mln. Ozon did a great
job in addressing the sharp rise in online consumer demand thanks to
the expanded product mix, timely investments in last mile and fulfilment
infrastructure, and fast development of the marketplace.

2020 was a year of transformation for our business. We completed our
exit from Detsky Mir, held a successful IPO of Ozon on the NASDAQ and
obtained a listing of its ADSs on Moscow Exchange that crystalised the
value of this asset and established a foundation for further expansion of
the business. Total proceeds of the company from the IPO and a parallel
private placement amounted to USD 1.25 bln.

These transactions also testified to our capabilities to not only grow
high quality businesses, but also to take them to public markets. This has
allowed thousands of retail investors – alongside some of the world’s
largest and most sophisticated funds – to share in the success of our
market-leading portfolio companies.

We also expanded our presence in the pharmaceuticals sector,
combining our assets into Binnopharm Group, which is already one of
Russia’s largest pharma producers and has the potential to become
a focus of consolidation in the industry. In 2020, Binnopharm Group
entities demonstrated an impressive performance. Their combined
revenue grew by 30.1% to RUB 21.4 bln, with an OIBDA margin of
25.5%. This opens the way towards transforming the holding into a fast-
growing innovative operation, with a diversified product portfolio and
significant production and research potential.

The Corporation continues to seek out new sources of growth, using the
significant dividend income received from our portfolio companies as an
investment resource. As part of this strategy, our joint venture with Sber
has acquired a stake in Elektrozavod Group, which includes transformer
equipment production facilities in Moscow and Ufa, maintenance
divisions, research and design institutes, an engineering centre and land
plots totalling 19 hectares in the centre of Moscow. Our ambition is to
create a leading Russian producer of transformer equipment using the
acquired production facilities.

As a result of our long-term and systematic approach to local capital
markets and strong relations with banks we have significantly reduced
our weighted average cost of debt and shaped comfortable debt
repayment schedule.

As a major investor in the Russian economy, we see our role in
supporting the evolution of responsible, competitive, and self-sustaining
businesses. In 2020, our approach to sustainable development
management was included in the updated strategy of the Corporation.
For the first time, we adopted a sustainable development policy, while
principles of responsible investment were integrated in the investment
criteria and the business model. Amid continuing market uncertainty and
ever-changing business needs, we aim to build up the robustness of our
investment portfolio through the management of non-financial risks and
the implementation of best global ESG practices.

Our diversified portfolio of high-quality assets, stable financial position
and commitment to ESG principles create a solid foundation for new
investments and a long-term growth of shareholder value.

Gross Merchandise Value (GMV) is the value of goods sold on Ozon and revenue from services
rendered to buyers and sellers, inclusive of VAT, less discounts, cost of returns and canceled orders.

For Sistema, 2020 was a year of both trials
and inspiring achievements. In the face of
challenges created by the pandemic, our assets
delivered robust performance, confirming the
strength of our diversified portfolio and our
disciplined investment strategy.

In 2020, the Corporation increased revenue
by 5.7% and adjusted OIBDA by 5.5%, thanks
to contributions from MTS, Segezha Group,
Steppe and Medsi.

Drastic changes in consumer demand and
behavior amid the pandemic affected many
sectors where we have a presence, requiring
quick and decisive action. I am pleased that our
portfolio companies overcame the challenges
resulting from the COVID-19 pandemic, and
were able to quickly adjust their business
models and adapt their products and services
to the new reality, which is reflected in their
strong annual financial performance.

MTS delivered robust growth due
to both revenue growth in the core
telecommunications segment and strong
performance in other segments. Segezha
Group reported record revenue for the year
and maintained a high level of profitability.
Steppe delivered significant growth across
its financial metrics as global grain prices
increased and the company’s operational
efficiency improved. Medsi grew revenue and
OIBDA even despite the impact of restrictions
on patient footfall in the first half of the year.

While our hospitality and power grid
businesses suffered more severely from
COVID-related restrictions and turmoil, many
of our other assets were able to leverage new
opportunities that emerged as a result of the
pandemic. This also highlighted the increasing
role that our portfolio companies play in their
markets and in the Russian economy overall.
At Medsi, for example, we saw a tenfold year-
on-year growth in the number of telemedical
consultations. Our pharmaceuticals business,
Binnopharm Group, established itself as a
leading manufacturer of COVID drugs and
vaccines and saw rapid growth of demand
across many key product groups.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFOMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

ANNUAL REPORT / 2020SISTEMA PJSFC//sistema.com

Strategy and
governance
model

Mission

Sistema’s mission is to build Russia’s leading investment
company with diverse expertise and a strong track record,
which will become an investment platform for managing both
its own and third-party capital, while also providing access
to unique investment opportunities in the most attractive
industries and high-potential technologies and fuelling long-
term growth in shareholder value.

Governance model

The Corporation has adopted a partnership
management model that allows the Managing
Partners to share the risks and returns from
investment activities with the shareholders.
Managing Partners are responsible for
implementation of investment strategies of
portfolio companies. In most cases, Managing
Partners chair the boards of directors and are
in charge of forming the board and organising
its work. They also bear responsibility
for recruitment and appointment of top
management.

Strategic goals
of Sistema

› Steady growth of the Corporation’s shareholder

value;

› Building profitable and growing companies that are

leaders in their industries;
› Maximising net asset value;

Strategic focus

› Building and continuously developing businesses

worth over USD 1 bln;

› Embracing unique investment opportunities in

traditional and new sectors;

› Creating value in assets through team

strengthening, strategic repositioning, business
transformation, operational improvements, equity
structure optimisation, digitalisation, etc;

› Continuous enhancement of corporate governance

and increased focus on ESG.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFOMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

Asset management principles

Investing in the development of existing
portfolio assets to grow their value is one of
the key stages of Sistema’s value creation
model.

VALUE CREATION IN ASSETS:

Forming boards of directors at portfolio
companies, which must include
independent directors with recognised
industry and functional expertise. The
boards of directors support management of
portfolio companies in making key decisions
on the areas of development and control
the quality of execution and the results of
decisions made.

Forming a best-in-class, efficient
management team, establishing strategic
goals, and incentive system for it, and
determining a strategic development plan,
efficient operating management model and
required resources.

Introducing processes of strategic, financial
and operational planning and control and
best international practices of investment
and project management.

Identifying new technologies and advanced
work tools to increase profitability and
accelerate growth at the company.
Developing innovative products and
services, improving their quality, entering
new markets and attracting new customers.

Continuously and comprehensively
assessing the company’s performance and
contributions of its board of directors and
management team. This process ensures
that the asset is managed in accordance
with the Corporation’s strategic goals and
principles.

ANNUAL REPORT / 2020SISTEMA PJSFC
//sistema.com

Investment principles

Current investments

FOCUS: Investments in portfolio com-
panies with potential to become busi-
nesses worth over USD 1 bln.

Geography:
in accordance with the approved strategy for portfolio companies.

Investment strategy:
investments in portfolio companies to increase
their competitiveness and market share, enter
adjacent segments and launch new products
with a synergistic effect.

Industries and business segments:
companies’ industries and adjacent sectors/segments with
a synergistic effect.

Discounted payback period (DPBP):
3-10 years.

New investments

FOCUS: Unique investment opportuni-
ties in traditional industries in Russia

FOCUS: Investments in tech sector and
technologies of the future

› MATURE UNDERVALUED ASSETS

› TECHNOLOGY ASSETS

Investment strategy:
acquisition of substantial or controlling stakes
in large assets in attractive markets with a
possibility of increasing shareholder value,
getting a premium in valuation and selling
within 2-3 years.

Investment strategy:
direct investments by Sistema’s Corporate Centre in large stakes in
technology companies that do not meet the requirements of investment
theses of Sistema’s own funds, with an opportunity of creating new fast-
growing businesses, make a breakthrough in the development of key
technologies of the future and monetise them in 5-7 years.

› GROWING ASSETS

› VC FUNDS

Investment strategy:
acquiring and consolidating players in certain
industries or market segments, enhancing the
asset’s competitive advantages, leveraging
economies of scale and entering new market
segments; exit in 4-5 years through a sale to a
strategic investor or IPO.

Geography:
mainly Russia.

INDUSTRIES AND BUSINESS SEGMENTS:
sectors with large markets, high growth or
transformation rates, and significant potential
for growing efficiency, digitalisation, import
substitution or exports.

Investment strategy:
investments by Sistema’s existing and new VC funds; investment
monetisation. Mandatory engagement of external investors as financial
partners (the share of outside partners in new funds is at least 50%).

Geography:
no restrictions.

Industries and business segments:
e-commerce, internet of things, artificial intelligence, cloud and edge
computing, machine learning and neural networks, autonomous
vehicles, robotics, AR/VR, blockchain and others.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFOMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

Responsible investment and ESG1 principles

For Sistema, responsible investment is an integral element of its
investment strategy and long-term success. It means that at all stages
of its investment activities and asset ownership the Corporation takes
into account not only financial and operating aspects but also significant
environmental, social and governance (ESG) factors to create long-term
value for shareholders and other stakeholders.

In 2020, the Board of Directors approved updated investment criteria as
part of the Corporation’s investment strategy. Among other things, the
investment process for the first time involved the consideration of ESG
factors reflecting the Corporation’s guiding principles on responsible
business conduct and international ESG standards, which solidified
Sistema’s strategic approach to responsible investment.

At the portfolio building stage, Sistema excludes “sin stocks”, which is
consistent with the Corporation’s established investment culture, and
also considers ESG profiles of acquisition targets in other industries
when making investment decisions.

Sistema’s indirect ESG impact through its portfolio assets is more
significant than the direct one. Therefore, at the stage of asset
management the Corporation makes efforts to promote the following
principles in Sistema Group companies through their governance bodies
using established corporate procedures:

› Compliance with high standards of corporate governance and

›

principles of responsible business conduct;
Improvement of their sustainability management approaches and
performance indicators;

› Minimisation of negative and maximisation of positive impact through
innovation, services, products and investments in local communities.

To learn more about responsible investment and sustainability
management, please refer to the section “Sustainability management”.

Environmental, Social and Governance.

ANNUAL REPORT / 2020SISTEMA PJSFC//sistema.com

PERFOMANCE

02 SISTEMA PROFILE

SUSTAINABILITY
MANAGEMENT

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

ANNEXES

02//sistema.com

Key events at the
corporation in 2020

and after reporting period

Corporation

Corporate governance

In April 2020, Sistema’s Board of Directors appointed Vladimir
Chirakhov, Chairman of the Board of Directors of Detsky Mir, as
President and Chairman of the Executive Board of Sistema.

In 2020, a new law was passed in Russia allowing joint-stock companies
to conduct their annual general meetings of shareholders in the year
2020 in the form of absentee voting. In addition to absentee voting,
Sistema’s Board of Directors decided to organise live streaming for
shareholders on the final date of voting. In the course of the live stream
the Corporation’s management reported on the results of 2019 and took
questions from shareholders.

Monetisations

Placements of Detsky Mir shares

In June 2020 and September 2020, Sistema and the Russia-China
Investment Fund (RCIF) held two successful offerings of Detsky Mir
shares, resulting in an increase of Detsky Mir free float up to almost
100%1 and full exit of Sistema and RCIF from Detsky Mir. Proceeds to
Sistema amounted to RUB 8.9 bln in June 2020 and RUB 16.9 bln in
September 2020.

Investments and transactions

Agreement on construction of an R&D laboratory

In January 2020, Sistema and its subsidiary LLC Sistema BioTech signed
an investment agreement with the International Medical Cluster Fund
on establishment of a multi-specialty biotech R&D lab and a centre for
non-clinical testing of latest international products and technologies at
the International Medical Cluster in Skolkovo. The agreement envisages
construction of a lab building with a total area of 15,000 sq m. The lab
will be made operational in late 2022 – early 2023 and will become one
of Russia’s largest private R&D centres.

Focus on investments via funds

In 2020, Sistema continued investing in
attractive projects in the Russian and global
markets through its funds, Sistema_VC and
SAF. In February 2020, the Corporation
established a new fund, Sistema SmartTech,
which will invest in companies at early
development stages (from seed investment
to round A). The fund’s life is 8 years, and its
target size is RUB 5 bln. Sistema’s investment in
the fund will not exceed RUB 1.5 bln. Sistema
SmartTech is expected to support about 20
early-stage VC projects, with investments in
each individual project ranging from RUB 50
mln to RUB 300 mln.

In April 2021, Sistema SmartTech invested
RUB 200 mln in LLC Urentbike.ru (Urent),
which develops one of the largest kicksharing
services in Russia.

IPO of Ozon

In November 2020, Ozon held an IPO of
American Depositary Shares (ADSs) on
NASDAQ and obtained a listing of its ADSs
on the Moscow Exchange. Gross proceeds
to Ozon amounted to approximately USD
1.25 bln, including from the underwriters’
overallotment option and the concurrent
private placement through which Sistema
invested USD 67.5 mln. Following completion
of the IPO, fulfilment of the private placement
agreement and conversion of convertible loans
previously provided to Ozon, Sistema’s total
stake in Ozon stood at 33.1%.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

Development of the pharmaceuticals
business

In August 2019, Sistema, together with VTB
Group, acquired a 46.5% equity stake in OJSC
Sintez. In May 2020, Sistema and VTB Group
increased their stake in OJSC Sintez to 56.2%.

In February 2021, Sistema and VTB Group
contributed their 56.2% stake in OJSC Sintez
to the equity of Binnopharm Group to create a
pharmaceutical holding company. At the same
time, Sistema, VTB Group and a consortium
of investors consisting of the Russia-China
Investment Fund and major Middle East funds
contributed an 85.6% stake in JSC Alium to the
equity of Binnopharm Group. As a result, the
effective stake of Sistema together with VTB
Group in Binnopharm Group is 79%.

In March 2021, Group acquired a 32.4%
stake in OJSC Sintez from JSC National
Immunobiological Company controlled by
State Corporation Rostec.

As a result of the operational integration of
OJSC Sintez (includes CJSC Biocom) and JSC
Alium (includes JSC Binnopharm), Binnopharm
Group has become a major pharmaceutical
player, ranking 5th by sales in monetary terms
among Russian companies in the commercial
segment in 2020.

IPO of Segezha Group

In April 2021, Segezha Group conducted an
IPO on the Moscow Exchange. Through its IPO
Segezha placed 3,750,000,000 new shares
and raised gross proceeds of RUB 30 bln, with
be used to finance further business expansion
and reduce debt leverage. Upon completion
of the IPO, Segezha Group will have a free float
of 23.9%, while Sistema will retain a 73.7%
ownership stake2.

Creation of leading manufacturer of
transformer equipment in Russia

In December 2020, the Group and Sberbank
Investments LLC (“SberInvest”) through
their joint venture Megapolis-Invest LLC
(“Megapolis-Invest”) acquired 64.37% in
Elektrozavod JSC and 100% in Elektrokombinat
LLC (“Elektrozavod Group”) from certain
private investors for RUB 24.7 bln.

In February 2021, Megapolis-Invest acquired
an additional 29.64% stake in Elektrozavod
JSC from a private investor for RUB 5.8 bln.
Following completion of the transaction,
Megapolis-Invest held a 94.01% stake in
Elektrozavod JSC. The goal of the transaction
is to create Russia’s leading manufacturer of
transformer equipment and implement a real
estate development project on land plots in
Moscow owned by Elektrozavod Group.

Elektrozavod Group includes transformer
equipment production facilities in Moscow
and Ufa, maintenance divisions, research
and design institutes, an engineering centre
and land plots totalling 19 ha near the
Elektrozavodskaya metro station in Moscow.

Strengthening of financial profile

Debt level

As of 31 December 2020, the financial liabilities
of Sistema’s Corporate Centre remained at the
level of 2019 and amounted to RUB 190.4 bln.

Active participation in capital markets

Sistema was active in capital markets on the
back of a strong demand for its debt securities
in 2020. Sistema PJSFC issued five series of
local bonds for an aggregate amount of RUB 54
bln (001P-13, coupon rate of 6.60%; 001P-14,
coupon rate of 6.35%; 001P-15, coupon rate of
6.70%; 001P16, coupon rate of 6.10%; 001P-17,
coupon rate of 6.75%), and also organised a
secondary offering of two issues repurchased
earlier in a tender offer for RUB 7.8 bln
(001P-04, coupon rate of 6.35%; 001P05,
coupon rate of 6.85%).

In February 2021, Sistema issued two series of
local bonds for a total amount of RUB 17.5 bln
(001P-18, coupon rate of 6.90%; 001P-19,
coupon rate of 7.35%), and organized a
secondary offering of one issue purchased
earlier in a tender offer for RUB 2.8 bln
(001P-07, coupon rate of 6.90%). Also, in April
2021, Sistema completed the book-building
process for RUB 10 bln series 001Р-20 bonds
with an 8.20% coupon rate.

Excluding quasi-treasury shares and shares held by management and directors of Detsky Mir.
Assuming no exercise of the over-allotment option to purchase shares in the amount equivalent to up to 15% of the total
number of new shares granted by Sistema to Renaissance Capital as Stabilization Manager and exercisable for a period of up
to 30 days from 28 April 2021.

ANNUAL REPORT / 2020SISTEMA PJSFC//sistema.com

Upgrade in credit ratings

In September 2020, S&P upgraded Sistema’s rating from BB- to BB with
a stable outlook, and Expert RA upgraded Sistema’s rating by two
notches from ruA to ruAA- with a stable outlook.

Events at portfolio companies
in 2020 and after reporting
period

Dividends and shareholder returns

Dividends

In June 2020, the Annual General Meeting of shareholders of Sistema
decided to pay dividends for 2019 in the amount of RUB 1.25 bln or RUB
0.13 per ordinary share.

Extension of share repurchase programme

In December 2020, Sistema PJSFC announced the extension of the share
buyback programme until 31 December 2021. The Programme, launched
on 17 September 2019, initially stipulated that Sistema’s ordinary shares
were to be repurchased by a wholly-owned subsidiary of Sistema for up
to a maximum pecuniary amount of RUB 3.0 bln. The maximum number
of shares to be repurchased under the Programme were not to exceed
300 mln. As of 31 December 2020, Sistema’s wholly-owned subsidiary
repurchased 120.6 mln shares for an aggregate amount of RUB 1.6 bln.

Enhancing sustainable development

In 2020, the Board of Directors of the Corporation approved two
internal regulatory documents reflecting Sistema’s commitment to the
ESG agenda: Sustainability Policy and a new version of the Corporate
Governance Code. These documents were made in accordance
with international standards and reflect best practices in the area
of sustainable development. Sistema has made a commitment to
implement these practices in its portfolio companies acting through
representatives on the boards of directors.

In November 2020, in confirmation of its commitment to the principles of
sustainable development, Sistema signed an agreement with Sberbank
for a RUB 10 bln credit facility where specific interest rates may be linked
to the company’s sustainability performance.

In December, the Board of Directors approved updated investment
criteria as part of the Corporation’s strategy, for the first time including
ESG factors in the investment process and solidifying Sistema’s strategic
approach to responsible investment.

MTS

Dividend payouts

In August 2020, MTS completed the payment
of dividends for 2019 in the amount of RUB 41.1
bln, or RUB 20.57 per share (RUB 41.14 per
ADR). In November, the company completed
the payment of interim dividends for the first
half of 2020 in the amount of RUB 17.84 bln, or
RUB 8.93 per share (RUB 17.86 per ADR).

Share buyback

In December 2020, PJSC MTS completed the
share repurchase plan in the amount up to
RUB 15.0 bln announced on 31 March 2020.
Since the launch of the repurchase plan,
MTS’s wholly-owned subsidiary LLC Bastion
has acquired 45,501,316 shares of common
stock (including shares of common stock
represented by ADSs) representing 2.28% of
the share capital issued by MTS.

In March 2021, the board of directors of MTS
approved a share repurchase plan in the
amount of up to RUB 15 bln. The programme
will run till 31 December 2021.

Upgrade in credit ratings

In September 2020, the rating agency Expert
RA upgraded MTS’s rating from ruAA+ to
ruAAA with a stable outlook.

Appointment of MTS President

In March 2021, the Board of Directors of MTS
appointed Vyacheslav Nikolayev, First Vice
President of MTS for Customer Experience,
Marketing and Ecosystem Development,
as new President of MTS (effective
13 March 2021).

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

Increasing equity capital

In April 2021, the Board of Directors of Etalon
Group approved an additional offering of up
to 88,487,391 ordinary shares in the company
representing 30% of Etalon Group’s total
issued ordinary shares. The subscription
price will be USD 1.7 per share. The net
proceeds from the offering will be used for
the acceleration of the company’s investment
programme and business expansion.

Etalon Group

Dividend payouts

In January 2020, Etalon Group’s Board of
Directors adopted a revised dividend policy
and approved minimal guaranteed dividend
payments in the amount of RUB 12 per share/
GDR unless the ratio of EBITDA to interest
payments made by the company in the
reporting period falls below 1.5.

Listing on the Moscow Exchange

In February 2002, the global depositary
receipts of Etalon Group, previously trading
only on the LSE, were also listed on the
Moscow Exchange and included in the Level 1
Quotation list.

Segezha Group

Debut in debt capital markets

ESG progress

In January 2020, Segezha Group issued RUB 10
bln bonds with a 7.1% coupon rate.

Expansion of production facilities

In November 2020, Segezha installed a new
paper packaging production line in the city
of Segezha (Karelia), with the capacity to
manufacture 87 mln paper sacks per year.
The line uses a unique technology to digitally
apply glue to packaging, which improves both
the quality and speed of gluing as well as the
environmental impact of the finished product.
Moreover, in December 2020, preparations
began to install four new consumer packaging
production lines in the Moscow region with a
combined manufacturing capacity of over 96
mln bags per year.

After the reporting period, in February 2021,
Russia’s first cross-laminated timber (CLT) plant
was launched in the Vologda region. Segezha
Group’s investments exceed RUB 3 bln. The
plant’s capacity is 50,000 cu m of finished
products per year.

In December 2020, Segezha Group’s Board of
Directors approved a new health and safety
strategy, as well as a new environmental
strategy. Both strategies aim to implement
global best practices and standards in the
Company’s business processes.

In March 2021, Segezha Group became
a member of the UN Global Compact.
The initiative brings together over 16,000
organisations from more than 160 different
countries who have strategies that meet
certain ESG criteria.

In April 2021, the Board of Directors approved
the group’s Sustainability Strategy as well as
an ESG Policy for the period through 2025.
Segezha’s new Sustainability Strategy is based
on four pillars: innovative forest business;
making Russia’s forest regions a better place
to live; climate-smart forest management and
production; and responsible forest supply
chain.

ANNUAL REPORT / 2020SISTEMA PJSFC//sistema.com

Dividend payouts

In April 2021, the Board of Directors of Segezha Group approved
the Group’s updated Dividend Policy. Segezha Group aims to pay
dividends of between RUB 3 bln and RUB 5.5 bln each year from 2021
to 2023. Starting from 2024, dividend distributions are expected to be
based on adjusted free cash flow, with a 75%-100% payout stipulated
in the Dividend Policy and potentially higher payouts in case of stronger
markets and/or leverage headroom.

Construction of a new multi-specialty centre at
Michurinsky Prospekt, with more than 34,000
sq m of floorspace, is nearing completion,
with the opening planned for 2022. The
medical centre will include a CDC for children
and adults, a daytime in-patient clinic, and a
24-hour in-patient clinic with a centre for high-
tech surgery.

IPO of Segezha Group

Ozon

In April 2021, Segezha Group conducted an IPO on the Moscow
Exchange. Through its IPO Segezha placed raised gross proceeds of
RUB 30 bln, with be used to finance further business expansion and
reduce debt leverage. The shares are included in MOEX’s Level 1 List
under SGZH ticker.

Steppe AgroHolding

Expansion of land assets

In 2020, the land assets of JSC Steppe AgroHolding (Steppe) totalled
565,000 ha, up from 416,000 ha at the end of 2019, mostly due to the
acquisition of an 116,000 ha asset in the Rostov region in the first half of
the year. On top of that, in May 2020, Steppe acquired three agricultural
enterprises in the Stavropol region, including a dairy farm which,
following renovation, will have the capacity to accommodate 9,000 head
of lactating cows and will become the largest dairy farm in Russia, with
milk production volume exceeding 100,000 tonnes per year. The deal
also increased Steppe’s land assets by 28,000 ha.

In May 2020, Steppe sold 100% of shares in the Yuzhny agricultural
enterprise, which specialises in tomato and cucumber production, to
focus on the key business segments: crop production, grain trading and
dairy farming.

Medsi

Business expansion

As a step to expand its regional chain, in March 2020, Medsi acquired
ASPEC clinic chain in Izhevsk, which includes a CDC with a daytime
in-patient clinic, an adult clinic, a children’s clinic and a women’s health
clinic with a total area of 4,344 sq m.

In 2020, the first three clinics of the Smart 500 format were opened in
Moscow. This new format of “convenience” clinics, with an area of 500
sq m, includes 12-15 rooms for out-patient medical care for children and
adults, laboratory and functional diagnostics facilities, and ultrasound.
Medsi plans to open a family clinic with advanced diagnostics in Maryino
in the summer of 2020, with a total area of 4,400 sq m.

Investments in the logistics infrastructure

In 2020, Ozon increased the area of its
fulfilment centres (to almost 220,000 sq m),
mostly due to the opening of a fulfilment centre
in Rostov-on-Don with total floorspace of more
than 22,000 sq m in October 2020.

Raising funds for development

In November 2020 Ozon had an IPO on
NASDAQ and obtained listing of its American
Depositary Shares on the Moscow Exchange.
Gross proceeds to Ozon amounted to
approximately USD 1.25 bln, including from the
underwriters’ overallotment option and the
concurrent private placement through which
Sistema invested USD 67.5 mln.

In February 2021 Ozon placed a USD 750
mln convertible bond. The company plans to
deploy the funds to support organic growth,
expand into new business verticals and for
general corporate purposes.

Ecosystem development

In 2020, Ozon began to actively develop
the ecosystem of financial services. As of
31 December 2020, the company issued
approximately 450,000 active debit cards
dubbed OZON.Card. The card’s key
advantage is cashback in the form of points for
goods purchased on Ozon, which can be used
to pay for subsequent purchases. In December
2020, Ozon began issuing these cards in digital
form.

Financial
overview for
2020

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

2020

2019

CHANGE,%

CONSOLIDATED FINANCIAL RESULTS1, RUB mln

INDICATOR

Revenue

OIBDA

Adj. OIBDA

Operating income

Adj. operating income

Net Profit

Adj. net profit

691,626

229,897

236,340

109,404

115,848

10,216

15,998

654,303

201,788

224,016

86,828

109,057

28,597

53,379

REVENUE, RUB bln

OPERATING INCOME, RUB bln

+5.7%

‘20

‘19

+26.0%

691.6

654.3

‘20

‘19

ADJ. OIBDA, RUB bln

+5.5%

‘20

‘19

236.3

224.0

5.7

13.9

5.5

26.0

6.2

(64.3)

(70.0)

109.4

86.8

Hereinafter, adjusted OIBDA, adjusted operating income and adjusted profit are used to evaluate the financial performance
of the Corporation and Sistema Group companies and represent underlying financial measures adjusted for a number of one-
off gains and losses that are not related to business operations.

ANNUAL REPORT / 2020SISTEMA PJSFC
Debt portfolio overview

Credit ratings

In 2020 the Corporate Centre’s debt remained
on par with 2019, at RUB 190.4 bln. Steady
NAV growth driven by the solid performance
of Ozon and other portfolio companies and
significantly decreased debt servicing costs
allow Sistema to maintain the current level of
debt burden. Besides, in 2020 Sistema and
Sberbank signed an agreement fully releasing
from pledge 16% of shares in MTS (previously
used as collateral under a loan issued to
Sistema in February of 2018).

In order to optimise and diversify its debt
portfolio, Sistema was active in the capital
markets in 2020, having issued five series
of bonds1 for a total of RUB 54 bln and also
having improved the terms of a number of loan
agreements. As of the end of the year, Sistema
had significantly optimised the structure of its
financial liabilities, with the share of rouble-
denominated bonds up from 44% in 2019 to
66% in 2020. The Corporation also managed
to extend the duration of its loan portfolio,
achieve a record-low coupon rate (6.10%)
on the bonds issued in December of 2020,
and shape a comfortable debt retirement
schedule.

SCHEDULE FOR REPAYMENT OF FINANCIAL
OBLIGATIONS OF THE CORPORATE CENTRE2,
RUB bln

–49.1%

‘25

14.0

20.0

‘24

44.1

‘23

29.8

‘22

28.3

‘21

10.0

18.2

22.7

3.3

Local bonds with put options
Loans and other debt

34.0

66.8

33.1

28.3

28.2

Sistema’s achievements in growing the value of its diversified loan
portfolio and in deleveraging caused several rating agencies to upgrade
the company’s credit ratings throughout 2020. In September 2020, S&P
upgraded Sistema’s rating to “BB”, with a “stable” outlook. In the same
month, Expert RA moved Sistema’s rating up two notches, to ruAA-,
with the outlook similarly described as “stable”.

LONG-TERM CREDIT
RATING

OUTLOOK

DATE OF MOST RECENT
RATING UPDATE

Standard & Poor’s

Fitch

Expert RA

BB-

ruAA-

Stable

17/12/2020

13/05/2020

23/09/2020

Changes in Sistema’s GDR and ordinary
share prices

In 2020, the price of Sistema’s shares and GDRs grew by 88.0% and
53.9% respectively, significantly outperforming the market: the MOEX
Russia Index grew by 8.0%, while the RTS declined by 10.4%. Market
capitalisation at the end of 2020 was USD 3.6 bln, up from USD 2.4 bln
at the end of 2019. The growth in share prices was largely driven by the
diversification of Sistema’s asset portfolio, which proved resilient amid the
pandemic, deleveraging efforts, successful monetisations of Detsky Mir,
and Ozon’s swift growth and ground-breaking IPO. Stock liquidity also
improved year-on-year: the average daily trading volume in monetary
terms increased from USD 3.8 mln in 2019 to USD 15.2 mln in 2020 on
Moscow Exchange and from USD 0.5 mln to USD 1.1 mln on London Stock
Exchange.

In September 2019, the Corporation launched a share buyback programme
in the amount of RUB 3 bln. As of 31 December 2020, the programme
was implemented in the amount of RUB 1.6 bln. In December 2020, it was
decided to extend the programme until the end of 2021.

//sistema.com

In 2020 Sistema’s consolidated revenue increased by 5.7% year-on-
year, to RUB 691.6 bln, driven by revenue growth at key assets: at MTS
thanks to higher mobile services revenue and strong growth in new
business segments (Fintech, Media and B2B Digital & Cloud); at Segezha
Group as a result of revenue growth due to increased sales volumes of
paper packaging and sawn timber, as well as higher prices for plywood
and sawn timber; at Steppe AgroHolding thanks to increased revenue
in all key segments; and at Medsi as a result of a higher average cheque
largely driven by the launch of COVID-19 diagnostics and treatment
services, as well as an expansion of the clinic chain in Moscow and the
acquisition of new clinics in Izhevsk. The Group’s Adjusted OIBDA1 in
2020 grew by 5.5% year-on-year, to RUB 236.3 bln, primarily due to
increases in adjusted OIBDA at portfolio companies: at MTS following
revenue growth, despite a significant decrease in revenues from
international roaming charges and new provisions being accrued at MTS
and MTS Bank; at Segezha Group following revenue growth and despite
higher logistics costs and a downward pressure on the prices of most
products throughout the year; at Steppe due to increased operational
efficiency at new land assets, an effective trading strategy, growth
in sales prices for agricultural produce, increased profitability in the
grain trading segment and performance enhancements in international
trading, as well as a growth of production volumes in the dairy farming
segment and a successful time arbitrage strategy in the sugar and
grocery trading segment; and at Medsi following revenue and thanks
to participation in a JV with Capital Group to build the Nebo residential
complex.

The Group’s selling, general and administrative (SG&A) expenses in
2020 increased by 4.5%, to RUB 134.2 bln. The SG&A/revenue ratio
declined across most assets in 2020 year-on-year thanks to strict cost
control. In 2020, the Corporate Centre SG&A/Group revenue ratio
remained almost unchanged year-on-year, standing at 2.0%.

The 2020 adjusted net profit amounted to RUB 16.0 bln, down from
RUB 53.4 bln in 2019. The decline in net profit is in part a result of the
sale of 100% shares in LeaderInvest and its deconsolidation, the public
offering of 18.3% of shares in Detsky Mir, and the deconsolidation
and reclassification of the remaining stake in Detsky Mir (33.4%) as
investment in associates in 2019.

The Group’s 2020 Capex increased by 8.6% year-on-year, to RUB
127.8 bln, as a result of an increased investment at MTS in network
development, and also impacted by the FX-denominated component
of Capex in the context of rouble depreciation, as well as expansion and
modernisation of production capacities at Segezha Group.

Series 001P-13, 001P-14, 001P-15, 001P-16, 001P-17.
Based on management accounts.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

ANNUAL REPORT / 2020SISTEMA PJSFC//sistema.com

SISTEMA’S GDR AND ORDINARY SHARE PRICES1
150

Sistema ordinary shares
Sistema GDRs

MOEX index
RTS index

120

-30

Shareholders’
equity

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

88.0%

53.9%

8.0%

-10.4%

01.01 ‘20

01.03 ‘20

01.05‘20

01.07 ‘20

01.09 ‘20

01.11 ‘20

Structure of shareholders’ equity

On the first trading day of 2020, the closing price of one GDR on London
Stock Exchange was USD 4.92. Strong performance was observed
during the year, with the price of one GDR peaking at USD 8.69 on
24 November. On the last trading day of the year, the closing price was
USD 7.50.

On the first trading day of 2020, the closing price of one ordinary
share on Moscow Exchange was RUB 15.13. Strong performance was
observed during the year, with the price of one ordinary share peaking
at RUB 33.622 on 23 November. On the last trading day of the year, the
closing price was RUB 28.64.

Sistema’s principal shareholder is its Board
Chairman Vladimir Evtushenkov, who owns
59.2% of the Corporation’s equity.

SISTEMA’S SHAREHOLDING STRUCTURE1, %

V. Evtushenkov
GDRs in free float
Ordinary shares in free float
Other2

59.2
6.9
25.0
8.9

Sistema has 9,650,000,000 ordinary
shares outstanding with a nominal value
of RUB 0.09 each. Its authorised capital is
RUB 868,500,000.

Sistema conducted an initial public offering
in 2005. Its shares are traded on the London
Stock Exchange in the form of global
depositary receipts (GDRs) under the ticker
symbol SSA. One GDR represents 20 ordinary
shares. The Corporation’s ordinary shares are
also listed on the Moscow Exchange in the first
listing level under the ticker symbol AFKS. The
GDRs traded on the London Stock Exchange
represent about 6.9 % of Sistema’s equity, and
the shares traded on the Moscow Exchange,
25.0%. Shares in free float constitute
approximately 31.9% of the company’s equity.

The Moscow Exchange includes Sistema’s
share prices in the calculation base of its key
indices (MOEX and RTS), as well as its Broad
Market Index and the Small and Medium
Capitalisation Index. Moreover, in March 2021
the ordinary shares of Sistema PJSFC were
included in the calculation base of the MOEX
10 index.

Sistema is also the largest shareholder in three
other public companies: MTS (MTSS ticker
symbol on the Moscow Exchange and MBT on
the New York Stock Exchange), Etalon Group
(ETLN ticker symbol on the Moscow Exchange
and the London Stock Exchange),Ozon (OZON
ticker symbol on the Moscow Exchange and
NASDAQ) and Segezha Group (SGZH ticker
symbol on the Moscow Exchange).

Source: Bloomberg The indicator is calculated as share price/index appreciation in relation to the value as of 31 December 2019.
The volume-weighted average price of one ordinary share of Sistema on Moscow Exchange was RUB 14.717 for the last 60 trading days of 2019 and
RUB 28.987 for the last 60 trading days of 2020.

As of 31 December 2020.
Ordinary shares and GDRs owned by Sistema Group companies, members of the Board of
Directors and the management of Sistema

ANNUAL REPORT / 2020SISTEMA PJSFC

//sistema.com

Report on
dividends
declared (accrued)

on Sistema shares

Dividend policy

Dividends distributed for the full year 2019

Dividends are a key tool for increasing
shareholder value. When determining the
amount of payouts, the Corporation’s Board
of Directors takes into account several factors,
including:
› cash flows generated by Sistema’s biggest

public assets, which mostly support
the Corporate Centre and are aimed at
financing future investments;

› growth and development prospects

of non-public assets whose cash flows
and monetisations may be intended for
the distribution of dividends and other
mechanisms of delivering shareholder
returns;

› debt and other liabilities of the Corporate

Centre.

When assessing any payouts, the Board of
Directors also factors in the overall situation
in financial markets and the macroeconomic
environment in Russia and other main markets
where Group companies operate.

On 27 June 2020, the Annual General Meeting of shareholders of
Sistema resolved (Minutes No 1-20) to pay dividends in the amount of
RUB 1,254,500,000.00, or RUB 0.13 per ordinary share.

As of 31 December 2020, the total amount of distributed dividends
equalled RUB 1,254,456,799.18. Withholding tax on dividends
distributed to foreign shareholders totalled RUB 564,222.00.

Unpaid dividends

As of 31 December 2020, the total amount of unpaid dividends equalled
RUB 3,213,719,518.44, including:
› RUB 3,213,003,658.88 not paid on the basis of a written request from

a shareholder;

› RUB 715,859.56 not paid due to the lack of the necessary information

about the recipients of dividends to transfer the corresponding
amounts.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

AMOUNT OF DECLARED DIVIDENDS AND PAYMENT DATE

TOTAL AMOUNT
OF DECLARED
DIVIDENDS, RUB

DIVIDEND
PER SHARE,
RUB

DECLARATION
DATE

PAYMENT DATE

19,879,000,000

2.06

28/06/2014

31/07/2014

4,535,500,000

0.47

27/06/2015

29/07/2015

6,465,500,000

0.67

25/06/2016

27/07/2016

3,667,000,000

0.38

23/09/2016

20/10/2016

7,816,500,000

0.81

24/06/2017

28/07/2017

6,562,000,000

0.68

28/11/2017

22/12/20171 –
19/01/20182

1,061,500,000

0.11

30/06/2018

31/07/2018

1,061,500,000

0.11

29/06/2019

31/07/2019

1,254,500,000

0.13

27/06/2020

29/07/2020

2014
(for the full year 2013)

2015
(for the full year 2014)

2016
(for the full year 2015)

2016
(for H1 2016)

2017
(for the full year 2016)

2017
(for 9M 2017)

2018
(for the full year 2017)

2019
(for 2018)

2020
(for 2019)

Date of payment of dividends to the nominee shareholders and custodians being professional participants of the securities
market, who are included in the shareholders register.
Date of payment of dividends to other persons included in the shareholders register.

ANNUAL REPORT / 2020SISTEMA PJSFC
//sistema.com

SISTEMA PROFILE

PERFOMANCE

TS'

PERFORMANCE

03 CORPORATE

ANNEXES

GOVERNANCE

SUSTAINABILITY
MANAGEMENT

03
//sistema.com

MTS

50.02%

SISTEMA’S
EFFECTIVE
STAKE

MTS is a leading Russian telecom operator
offering mobile and fixed-line services, Internet
access, cable and satellite TV, digital services
and mobile apps, financial and e-commerce
services, and convergent IT solutions
in the fields of system integration, the Internet
of things, monitoring, data processing,
and cloud computing.

>86 mln

subscribers in Russia,
Belarus, and Armenia

10data centres
>200cities across Russia,

providing fixed
telephony, broadband
communication, and
digital TV services

no. 5

in Russia’s
ESG ranking1
RAEX-Europe

BBB–

S&P rating

ruAA+

Expert RA rating

Annual independent ranking by Rating-Agentur Expert RA GmbH (RAEX-Europe)

E
K
A
T
S
E
V
T
C
E
F
F
E

S
T
M

u
r
.
s
t
m
/
/

Vyacheslav Nikolayev
CEO1

Felix Evtushenkov
Chairman of the
Board of Directors

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS
MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

As of 31 December 2020,
Alexey Kornya.

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

136%

online sales up

78.1%

smartphone
penetration across
MTS network

17%

active users of the
My MTS app up

30%

MTS Bank's retail loan
portfolio up

30%

IoT devices within MTS
network up

25%

cloud-based & digital
revenue up

85.4

RUB bln
distributed in
dividends in 20201

Business model

BUSINESS LINES

TELECOM

FINTECH

CLOUD &
DIGITAL B2B

PARTNERSHIPS

MEDIA

NEW DIGITAL
SERVICES

RETAIL CHAIN

TOOLS

› Customer experience
› One customer ID
› Loyalty programme

› Bid Data
› Artificial Intelligence
›

Industry overview for 2020

The Russian market of telecommunications in 2020 reached
RUB 1.73 trn,2 down 0.7% year-on-year. The market shrinking results
from a general slowdown in the sectors of mobile services (from 2.8%
in 2019 to 0.3% in 2020), broadband internet access (from 3.9% in 2019
to 1.1% in 2020), and pay TV (from 8.6% in 2019 to 1.5% in 2020).
Though positive, the growth in these sectors was too modest to offset
the revenue slump in fixed telephony (-11.6%), wholesale (inter-
operator) services (-5.8%), and some other segments.

RUSSIAN TELECOMS MARKET STRUCTURE,
20201, %

TELECOMS MARKET IN RUSSIA,
RUB bln

Overall telecoms

–3.3 p.p.

Mobile services

–2.5 p.p.

Broadband internet access

–2.8 p.p.

Pay TV

–7.1 p.p.

Fixed telephony

–2.4 p.p.

Inter-operator services

–0.0 p.p.

‘20

‘19

‘20

‘19

‘20

‘19

‘20

‘19

‘20

‘19

‘20

‘19

–0.7

2.6

0.3

2.8

1.1

3.9

1.5

8.6

–11.6

–9.2

–5.8

–0.6%

2020/2019

1.6

1.7

1.8

2.0

2.4

–0.7

2.6

3.3

2.7

0.6

0.8

Revenue, RUB bln
Growth rate, %

Mobile revenue in 2020 grew 0.3% year-
on-year. The main reasons behind the slow
growth are the shrinking subscriber base
and a nosedive in international roaming
revenue. In 2020, the company’s active
subscriber base (the number of active users
of SIM cards) went down 1.3%, to 257 mln,
with mobile phone penetration at 175%.
In absolute terms, the company lost an all-
time high of 3.5 mln subscribers. Such was
the result of a nationwide lockdown aimed
to contain the spread of COVID-19, which
understandably kept people away from retail
outlets and unable to buy new SIM cards.
Pervasive travel restrictions were another
factor throttling down growth, with Russia
losing a lot of immigrant workforce, previously
heavy users of telecom services.

Including special dividends from VF Ukraine sale proceeds
Source: TMT Consulting.

Source: TMT Consulting.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS
MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

‘25 E‘24 E‘23 E‘22 E‘21 E‘20‘19‘18‘17‘16‘151,8971,8681,8371,8051,7701,7281,7391,6941,6411,5971,587SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

In November of 2020, the Russian government approved
a 2021–2024 5G network development roadmap, a brainchild
of RosTec an RosTeleCom. Among other things, the roadmap requires
that operators build their 5G networks in the 24.25–27.4 GHz range
from Russian-made equipment only. The roadmap’s total budget
through the end of 2024 is RUB 208.1 bln, including RUB 21.5 bln
in subsidies provided to RosTec specifically to produce 5G equipment.
Market analysts1 estimate that local manufacturers of 5G technology will
need at least three years to design the required solutions and launch
mass production, putting Russia further behind advanced economies
in 5G rollout and digitalisation.

2021 will see a continued negative impact of pandemic-related factors
on the telecom market. That said, most segments will start climbing
back to normal, with the mobile-telephony subscriber base back
on an upward trend and people starting to travel and hence generate
roaming revenue. Unless the negative trends that hit in 2020 are
repeated, revenues from broadband connections and pay TV will also

be on the rise. It is broadly expected that many
businesses, having tried and seen the benefits
of remote working, will stick to the mixed
office/home format even when the pandemic
is over.

Market trends in 2021 will in large part
depend on the pricing policies of telcos,
which are highly likely to keep updating their
rates and prices from time to time. As traffic
consumption grows and society needs more
network capacity, mobile operators will likely
bank on the more expensive high-speed
rates as far as wireline service is concerned
while at the same time promoting large-traffic
and unlimited solutions in the mobile segment.
Based on the data of the past few years,
analysts forecast a steady CAGR of 2%.

Business development in 2020

COVID-19 impact

The COVID-19 pandemic emerged as a significant risk factor for MTS
and the telecom industry as a whole. A massive switch to remote
working & learning along with a surge in the consumption of digital
entertainment, such as video streaming and online games, ushered in a
redistribution of traffic structure:
› a dramatic drop in international roaming revenue;
› a growth in voice traffic and data services;
› more calls on landline phones in residential neighbourhoods;
› a more uniform distribution of data consumption throughout the day.

Later in the year, MTS landed contracts
to deploy dedicated 5G networks
for the petrochemical giant Sibur-KhimProm
and a major gold & silver producer PolyMetall.
The company also signed a contract
with GazPromNeft to deploy a dedicated
geographically distributed LTE network
with centralised control functions, a solution
specifically tailored for the oil industry.

As the pandemic hit, MTS moved fast to come up with a raft of new
products and services to address the emergency needs of subscribers.
This involved the delivery and online registration of SIM cards; fast-
track advancement of digital financial products (such as virtual credit
cards); free doctor consultations through the SmartMed app (a tie-up
with Medsi); and a product bundle titled #BudDoma comprising TV
services, access to electronic book and music libraries, a fitness app,
and a telemedicine app.

Ecosystem development

In January of 2020, having enrolled the support of Tatarstan’s
administration, MTS and Ericsson deployed Russia’s first 5G LTE network
at the KAMAZ automotive factory (the nation’s biggest producer
of trucks) in Naberezhnye Chelny.

In July of 2020, MTS started building a
convergent backhaul network in the Moscow
region to consolidate fixed-line and mobile
backhaul networks of MTS and MGTS into a
uniquely wide combined grid.

Also in July of 2020, MTS became the first
company in Russia to receive a licence
to provide 5G mobile communication
services within the 24.25–24.65 GHz range
in 83 regions across Russia. The license was
issued by RosKomNadzor until 16 July 2025.
5G technology is an important tool with which
to enhance and develop an extensive
ecosystem of products, especially as regards
automation solutions for corporate customers.

Analysis by ComNews, based on stats from RosTeleCom/RosTec.

In September of 2020, MTS and Huawei
announced the launch of a large-scale
programme of upgrades for the mobile
network (involving a capacity enhancement
and a raft of innovative services) to make it
5G-ready.

Keen to advance its cloud business
(#CloudMTS), in 2020 the telco still
further upgraded the performance
of its “supercomputer” for instantaneous data
crunching and launched a cloud-based data
protection feature for B2G applications.

Also in 2020, the company unveiled Russia’s
first cloud-gaming marketplace as a “one-
stop-shop” for all of the domestic platforms:
GFN.RU, Loudplay, Playkey and DROVA,
and started NUUM, a neobank specifically
catering to gamers providing virtual bonuses
for actual financial transactions, later to be
spent on special game features.

2020 also saw the launch of a new connected-
cars business arm, MTS Automotive, in a tie-up
with Stopol Avto and Koagent Rus, developers
of multimedia technology for car applications.

Also in 2020, MTS started a retail grocery
delivery marketplace (in conjunction
with Rate&Goods) and a delivery service
catering to SME (in a tie-up with Briskly).

Key M&A deals

In November of 2020, the company sold 100%
of equity shares in the IT business NVision
Group to Sistema PJSFC for RUB 369 mln, a
final valuation achieved upon an adjustment
of financial performance figures as
of the closing date.

In November of 2020, MTS combined
the mobile apps MTS Money and MTS Bank
into a single storefront.

New technologies

MTS continues evolving digital products
for both private and corporate customers,
along with numerous strategic initiatives
to develop digital business lines and enhance
the potential for innovations.

2020 saw the launch of a cashback offer
to apply to cash transfers to the CIS
(specifically tailored for non-Russian residents),
payments through push notifications,
and an option to take out and refinance
consumer loans through the MTS Money app.
On top of that, MTS Investments came up
with a new retail offer for those wishing to try
their hand at stock trading.

Also in 2020, MTS unveiled an eSIM solution
for IoT and M2M applications in accordance
with the international GSMA standard.
The technology enables loading virtual SIM
cards on embedded microchips and changing
subscriber profile.

MTS teamed up with Ericsson to install
Russia’s first “Smart City Pole” in the Republic
of Tatarstan. The innovation is designed
to perform ecological monitoring
and service a “smart car park”.

In November of 2020, in addressing a federal
waste management digitalisation programme,
MTS came up with a solution that allows
local authorities to control the collection
and disposal of municipal solid waste (MSW)
in that it tracks waste-bin fill-level, schedules
pick-up routes, controls cleaning activities
for timing and quality, and automates a full
cycle of paperwork procedures, from billing
to executing contracts to releasing payments
to contractors.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS
MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020//sistema.com

Partnerships

Early in 2021, MTS struck a partnership with Yandex, with users
of the MTS Premium plan automatically becoming the subscribers
of Yandex Plus enjoying a raft of benefits (such as 3-month access for free
and reduced renewal rates). The offer is reciprocated for Yandex Plus
users, who likewise get subscribed to the MTS Premium package.

Also in early 2021, the company extended a partnership agreement
with Vodafone, this time through 2023. The tie-up involves a number
of collective projects enabling the operator to branch out beyond
current business boundaries, advance innovations, and keep getting
stronger in B2C and B2B segments.

In March of 2020, MTS struck a joint venture with Russia’s TV giant
Channel One to create a conceptually new media format.

In August of 2020, MTS announced a partnership with a leading audio
streaming provider Spotify, with MTS subscribers getting 6-month free
subscription to Spotify Premium.

Other events

In December of 2020, MTS completed a share buyback programme
launched on 31 March 2020. All in all, the company repurchased a
RUB 15 bln worth of shares, representing 2.28% of outstanding equity.

Awards

In Q4 2020, MTS ranked fourth in the annual ESG Ranking of Russian
companies released by the independent rating agency Rating-
Agentur Expert RA GmbH (RAEX-Europe). The company emerged
as an absolute leader among national IT and telecom businesses, its
counterparts that were never ESG-ranked before.

In December of 2020, the international Carbon Disclosure Project
(CDP) placed MTS among the top 7 Russian businesses in terms
of environmental-impact disclosure, with score upgraded
from the previous year’s C (Awareness) to B (Management).

In August of 2020, the international consultancy Brand Finance named
MTS among Russia’s three most valuable brands (with an estimated
brand value of RUB 148 bln) and the nation’s only three businesses
with an elite AAA+ brand strength rating (based on a consumer survey).

Investment programme

Financial performance in 2020

The company’s CAPEX in 2020 reached
RUB 96.9 bln, of which RUB 95.0 bln was spent
in Russia, with the enhancement of capacity,
coverage and quality remaining the major
investment focus. Over the course of 2020,
MTS built some 16.3 thsd base stations across
Russia, of which 14.5 thsd are 4G towers.
Smartphone data usage was up 38.6% year-
on-year, with the smartphone penetration
rate within the MTS network up from 74.5%
to 78.1%.

FINANCIAL RESULTS, RUB mln1

INDICATOR

Revenue

Adjusted OIBDA

Operating income

Adjusted net income attributable
to Sistema

2020

2019

CHANGE, %

494,926

214,895

112,893

470,605

212,818

115,577

31,756

25,403

5.2

1.0

-2.3

25.0

Despite an overall downturn in the telecoms market, MTS looks
upon 2020 as a year of growth and leadership strengthening. The annual
revenue is up 5.2% year-on-year, to RUB 494.9 bln, primarily driven
by strong performance in core business segments and the development
of new business lines, such as media, fintech, and B2B cloud solutions,
which collectively delivered about a third of the revenue.

Adjusted OIBDA is up 1.0%, to RUB 214.9 bln. Though supported
by an increase in revenue, OIBDA growth has been constrained
by adverse factors such as a drop in high-margin international roaming
proceeds amid global travel restrictions.

Adjusted net income is up 25.0% year-on-year, to RUB 31.8 bln, as a
result of steady performance in core business segments, a reduction
in net interest expenditure (a trend that reflects the company’s
consistent steps in optimising the loan portfolio), and the effects
of movements in currency rates and transactions in derivatives that
the company uses for hedging purposes.

Over the course of the year, the company distributed a total
of RUB 58.9 bln in dividends, in addition to RUB 26.5 bln in “special”
dividends distributed in Q1 2020.

2019 & 2020 figures are adjusted for the effects of the NVision deconsolidation

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS
MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

OZON

33.1%1

SISTEMA’S
EFFECTIVE
STAKE

Ozon is a leading multi-category e-commerce
platform and one of the largest internet
companies in Russia. Ozon’s fulfillment
infrastructure and delivery network have some
of the widest coverage among e-commerce
players in the country, enabling Ozon
to provide more than 85 mln people in Russia
with fast and convenient courier delivery
and pick-up locations within walking distance.

144.3%

GMV Growth in 2020

>11 mln

unique SKUs

197.4

RUB bln
GMV (incl. VAT)
in 2020

73.9 mln

orders delivered
in 2020

13.8 mln

number of active
buyers in 2020

40%

population in Russia
have access to next-
day delivery

Assuming 4,472,969 ordinary shares issuable upon exercise of
outstanding vested share-based awards under the employee incentive
program of Ozon.

E
K
A
T
S
E
V
T
C
E
F
F
E

N
O
Z
O

u
r
.
n
o
z
o
/
/

Alexander Shulgin
CEO

Elena Ivashentseva
Chairman of the
Board of Directors

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON
OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

no.1

brand by awareness
in e-commerce1

Business model

no.2

online retailer
in Russia by
GMV Volume

no.3

in the most valuable
Russian internet
companies according
to Forbes Russia

MARKETPLACE

LOGISTICS

› 47.8% of the company’s

total turnover is attributable
to marketplace

› Unique SKUs – >11 mln
› Unaided brand awareness >70%
› Orders delivered
in 2020 – 73.9 mln

› More than 10,000 branded
pick-up locations and parcel
lockers

› Over 80% of Ozon’s branded
pick-up points are franchised,
allowing faster, asset-light
roll-out

› 98 of 100 parcels arrive on-time

in 2021

FULFILLMENT
INFRASTRUCTURE

› 7 fulfillment centers with more
than 220 thsd square meters
of footprint space in major
Russian cities such as Moscow,
Saint-Petersburg, Kazan,
Rostov-on-Don, Yekaterinburg
and Novosibirsk

OZON EXPRESS

FINANCIAL SERVICES

› Targeted dark store concept, based on an assortment

› B2C Lending: Short-term financing to buyers

mix that caters to specific preferences and consumption
patterns of any given micro-region

› 22 thsd SKU available across 20 food and non-food

categories

and payment in installments option

› B2B Lending: Lending facilitates financing of sellers’
working capital needs and increases sales on OZON
platform

› OZON Card 450 thsd – OZON branded debit cards

issued. Ozon card offers cashbacks in the form of OZON
Points. 60% higher order frequency on average
exhibited by OZON Card holders

Industry overview for 2020

In 2020, the Russian e-commerce market grew by 58% year on year,
reaching RUB 2.7 bln.1 The overall Russian retail market fell by 4%
in 2020 year on year to RUB 35,6 trn.2 E-commerce penetration in Russia
was close to 8% in 2020.

Russian e-commerce market is highly fragmented compared to other
countries which creates substantial opportunity for market consolidation
and market share gains for leading multi-category players. The three
largest e-commerce players’ combined market share was 25% in 2020.
It is expected that by 20253 as a result of the growth of e-commerce
penetration in Russia some of the strongest e-commerce players
will become larger than some of the current TOP-5 brick-and-mortar
retailers in the country.

Russian retail market is one of the largest and fast-growing markets
in Europe. According to analysts, e-commerce market in Russia could
exceed RUB 10 trn by 2025. Main drivers of future e-commerce growth
are generational shift, investment in fulfillment and logistics infrastructure
by e-commerce businesses, growing popularity of online payments
and increasing level of consumer trust to domestic e-commerce
business.

On the top of that, development of e-commerce in the Russian regions
and in small and medium-sized cities, in particular, will be one of the key
growth drivers of the e-commerce market in Russia.

In 2020 COVID-19 related restrictions accelerated e-commerce adoption
by Russian consumers. As a result of the COVID-19 pandemic, online
platforms such as Ozon experienced a significant increase in the number
of new active buyers. The pandemic contributed to an increase
in the number of active online consumers by approximately 4 mln3
in 2020, and will contribute to an increase in the number of online
shoppers by approximately 3 mln in 2021. These numbers account
for 12% and 9%, respectively, of the total number of online shoppers
in 2019, and will account for more than 50% of the total increase
in the number of online shoppers in 2020 and 2021, respectively. It is
expected that the impact from COVID-19 to contribute approximately
RUB 3.3 trn to overall e-commerce sales in Russia cumulatively over
the six-year period from 2020 to 2025.

58%

the Russian
e-commerce
market grew in
2020

~ 4mln3 people

the pandemic
contributed to
an increase in the
number of active
online consumers
in 2020

According to BBDO Brand Science.

Data Insight estimations.
Rosstat.
INFOLine.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON
OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

>10USD bln

market
capitalization

>220thsd

sq m Ozon's
footprint included

~ 10thsd

offline branded
pick-up locations

>450thsd

OZON card users

750USD mln

convertible bond
Ozon placed

Business development in 2020

Financial performance in 2020

In November 2020, Ozon carried out an initial public offering
simultaneously on two exchanges – NASDAQ and Moscow Exchange
(MOEX), raising USD 1.2 bln. The company was valued at USD 7 bln,
and two months later Ozon’s market capitalization exceeded
USD 10 bln.

In 2020, Ozon continued large-scale expansion of its logistics
infrastructure in order to provide faster delivery to buyers in the regions
and provide more logistics options to local sellers. In October, Ozon
opened a new fulfilment centre in Rostov-on-Don with footprint space
of more than 22,000 sq m. By the end of 2020 Ozon’s footprint included
over 220,000 sq m of fulfillment center space in Moscow and Moscow
region, Tver, Saint-Petersburg, Kazan, Rostov-on-Don, Yekaterinburg
and Novosibirsk.

To provide maximum convenience to its customers, Ozon operates a
variety of last mile delivery channels, including pick-up points, couriers
and parcel lockers. During 2020 Ozon continued to actively expand
its last-mile network. As of December 31, 2020 Ozon, operated over
10,000 offline branded pick-up locations.

Ozon actively invested in the development of its e-grocery segment
and its own rapid delivery service Ozon Express. In 2020, the service
opened a network of dark stores in Moscow and provided express
courier delivery within an hour to the entire capital inside the Moscow
Ring Road as well as a significant portion of the Moscow region. Ozon
plans to expand this service into the regions in 2021.

Number of Ozon card holders increased significantly throughout 2020.
In December 2020 number of OZON cards users exceeded 450,000,
compared to 57,000 as of December 31, 2019. In Q4 2020 Ozon
launched a virtual Ozon card which allows for faster and wider adoption
of the Ozon card.

In February 2021 Ozon placed a USD 750 mln convertible bond.
The company plans to deploy the funds to support organic growth,
expand into new business verticals and for general corporate purposes.

FINANCIAL RESULTS, RUB mln

GMV incl services

+144.3%

‘20

‘19

‘20

‘19

‘20

‘19

‘20

‘19

Revenue

+73.6%

Adj. EBITDA

Operating cash flow

197,414

80,815

104,350

60,104

(11,716)

(15,832)

6.570

(14.312)

GMV incl. services came in at RUB 197.4 bln
in FY 2020, with growth of 140% year-on-year.
Key growth drivers were
› an increase in the Marketplace’s share

of GMV and a 4x increase in the number
of marketplace sellers compared to 2019,
which resulted in expansion of the product
range and buyers’ access to products;
› expansion of Ozon’s fulfilment, logistics

and IT infrastructure, particularly in Russia’s
regions, which made it possible to process
the increasing number of orders and reduce
delivery times.

For the full year 2020, adjusted EBITDA as a
percentage of GMV incl. services improved
to (5.9)% from (19.6)% in 2019. The improved
margin was due to infrastructure utilisation
growth as a result of economies of scale, as
well as the effect of operating leverage on IT
and administrative costs.

Operating cash flow turned positive
in 2020 and reached RUB 10.6 bln, following
RUB 2.7 bln in negative operating cash flow
in 2019 due to a negative working capital
cycle and business scale-up, and also due
to currency revaluation and a positive effect
from derivatives.

197.4

RUB mln
GMV incl services

6.6RUB mln

operating
cashflow

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON
OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020//sistema.com

SEGEZHA
GROUP

73.7%

SISTEMA’S
EFFECTIVE
STAKE1

Segezha Group is a large vertically
integrated Russian forestry holding with a
full cycle of logging and advanced wood
processing. Segezha Group comprises
forest, wood processing and pulp
and paper assets in Russia and Europe.

7regions

of operations
in Russia

~ 13

thsd
employees

7plants in Europe

>100

countries -
geography
of sales

11countries with

representative
offices

>70%

FX-denominated
revenue of
Segezha Group

In April 2021, Segezha Group conducted had an IPO on the Moscow Exchange. Upon
completion of the IPO, Segezha Group will have a free float of 23.9%, while Sistema will
retain a 73.7% ownership stake.

P
U
O
R
G
A
H
Z
E
G
E
S

m
o
c
.
p
u
o
r
g
-
a
h
z
e
g
e
s
/
/

E
K
A
T
S
E
V
T
C
E
F
F
E

Mikhail Shamolin
CEO

Ali Uzdenov
Chairman of the Board
of Directors

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP
SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

Business model

FOREST RESOURCES

SEGEZHA GROUP'S
ASSETS

SIDE
PRODUCT

PULPWOOD

PULP AND
PAPER MILLS

х9

CONVERTING
PLANTS

lignin

Chips

Non-market
pulp for
papermaking

FOREST
CHEMICALS

PAPER

PAPER
PACKAGING

SOFTWOOD
SAWLOGS

TECHNICAL
RAW MATERIALS

SAWMILLS

Sawn timber

GLULAM

HOME KITS

х5

Sawdust, dust

Pellets

Fibreboard

BIRCH PLYLOGS

PLYWOOD
MILL

Sawdust, dust

Briquettes

х1

Chips

Fibreboard

PLYWOOD

Products made
of recycled raw
materials

Segezha Group’s business model is based on the principle of vertical
integration with the aim of creating added value and ensuring business
sustainability by diversifying risks amid a changing macro environment.
High levels of operational efficiency and a presence in all key segments
of value creation – from in-house logging at leased forest plots to sale
of high-margin products to end consumers – allow Segezha Group
to maintain market leadership in terms of cost of finished products in all
business segments.

Market position

no.1

in Russia

by output of sack
paper

no.3

by output of sack
paper

globally

no.2

by output of paper
sacks

in Europe

no.1

in Russia

by gross output
of softwood sawn timber

no.5

globally

by output of large-size
birch plywood

no.1

in Russia
by output of prefab
glulam houses

no.1

in Russia
by output of paper
sacks

Industry overview for 2020 1

Sack paper

Global market

The global pulp and paper industry did not suffer from the pandemic
as much as other sectors. Despite the pandemic and the accelerated
decline in demand for writing and printing paper, there was a surge
in demand for packaging paper and cardboard for the consumer
segment.

At the beginning of 2020, the market saw a surplus of supply and high
competition between major players, which pushed the prices down.
Starting from Q3 2020, the global market witnessed positive dynamics
and stabilisation of supply and demand. It the future, demand is
expected to exceed supply thanks to the recovery in the construction
industry and food production.

In Segezha Group’s target segment (paper for industrial sacks),
consumption grew by 1% vs 2019 to 4.1 mln tonnes, due
to the recovery of markets in China, Europe, Latin and North America.
In 2021, consumption is projected to reach 4.3 mln tonnes (+2.7%
year-on-year).2

Segezha Pulp&Paper Mill is Russia’s only manufacturer of high-porosity
and high-strength unbleached sack paper.

is Segezha Group’s
share in the global output
of paper for industrial
multilayer sacks

72%

is the share of Segezha
Group in the Russian
output of sack paper

89%

of sack paper is
exported

Sources: Fisher, Poyry, CEPI, EUROSAC, Rosstat, Indufor, FAOSTAT, GWMI, EUWID, FEA.
Source: Fisher.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP
SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

Segezha Group’s
ranking by output
of paper sacks:

no.1 in Russia
no.2
11.4%

is Segezha Group’s
share in the European
paper sack market3

in Europe

63%

is Segezha Group’s
share in the Russian
paper sack market

Paper sacks

European market

In the European market, Germany, Turkey, Italy, France, Poland
and Spain accounted for about 62% of demand for paper sacks in 2020.
63% of demand came from the construction industry (cement and dry
construction mixes).1

Paper sack consumption in Europe totalled 6.05 bln items in 2020,
an increase of 3.5% compared to the previous year1. Growth of the
demand in the reporting period was hindered by restrictions related
to the spread of COVID-19. Following the market trends, Segezha
Group reduced the share of sacks produced for the construction sector
in 2020 and increased the share of products for high-margin segments.
In 2021, consumption in Europe is projected to continue growing and will
reach 6.1 bln sacks. CAGR of paper sack consumption in 2020–2025 will
be 0.8%, growing mostly due to the food and animal food segments.2

Russian market

In Russia, the construction industry also accounts for the bulk (90%)
of paper sack consumption. At the same time, demand exceeds
domestic production, and the deficit is compensated with imports,
the share of which in 2020 was 21%.

In 2020, paper sack consumption in Russia was 761 mln3, down 0.5%
from the previous year. The main factors contributing to the decline
were restrictions in the construction industry related to COVID-19.

In 2021, paper sack consumption in Russia is expected to reach 775 mln2
items (+2% year-on-year), supported mainly by growing volumes
of infrastructure and housing construction, as well as the food industry,
which has a huge potential for increasing the share of paper packaging
to replace plastic.

no.5

globally
output of large-size
birch plywood4

Birch plywood

Global market

Russia is
the world's

no. 1

birch plywood
producer
accounting
for 83% of the
market4

The global plywood market had been demonstrating a steady growth
in previous years, but its size fell by 4% in 2020 year-on-year to 4.6
mln cu m due to the COVID-19 pandemic. Europe and Russia remained
the biggest global consumers of plywood in 2020, accounting for 74%
of total consumption. At the same time, the global market saw excessive
supply of birch plywood in the reporting year due to the launch of new
production facilities in Russia, which in turn created additional pressure
on market prices.

In Q1 2020, prices in foreign markets were rising due to a slump
in hardwood plywood output and supply in China and Asian
countries caused by the lockdown. In Q2 2020, the negative effects
of the pandemic led to a decline in demand in the key regions
and sectors, but the markets gradually stabilised in the second half
of the year. In 2021, global consumption is projected to reach 4.7 mln cu
m (+2% year-on-year).1

>60countries –

geography of sales
of Segezha Group’s
birch plywood

Analysts believe that CAGR of global birch plywood consumption will
be 2% in 2020–2025. The demand for birch plywood will be driven
by the construction, transport, furniture and shipbuilding industries.

Russia remains the world’s indisputable leader in birch plywood
production: its share of the global market was 83% in 2020.1 At the same
time, Russia’s plywood output fell by 3% in the reporting year vs. 2019
to 3.8 mln cu m. Segezha Group accounted for 4% of Russia’s total birch
plywood output in 2020.

Sawn timber

Global market

The global market of softwood sawn timber was estimated at 336 mln
cu m in 2020. The United States and China were the biggest consumers
of sawn timber, mostly in the construction sector and furniture
production. Sawn timber consumption is estimated to have dropped
by 1% in 2020 year-on-year.2

At the beginning of 2020, consumption and prices moved down due
to the lockdown measures, which resulted in a slowdown of buying
activity, temporary shutdown of processing facilities, growth
of warehouse stock, closing of seaports, shipment delays and higher
competition.

Russia is
the world's

no. 4

producer of
softwood sawn
timber

Segezha Group
holds

no.1 in Russia

for sawn timber
output1

In H2 2020, demand recovered and prices in the key sawn timber
markets went up. The reasons were the pick-up in the US construction
sector, redirection of imports from Europe to North America due to a
production decline in Canada (which is the main exporter of sawn
timber to the US), and stabilisation of stock at Chinese ports. In 2021,
the softwood sawn timber market is expected to see steady demand
and prices.

~ 100%

of Segezha Group’s
sawn timber is
exported

Russian exports

The output of softwood sawn timber in Russia is estimated at 41 mln cu m
in 2020, a decrease of 1%2 vs 2019. Russia is the world’s No 4 producer
of softwood sawn timber after Europe, the US and Canada with a market
share of 12%3. Russia’s exports of softwood sawn timber fell by 3%
to 30.4 mln cu m3, mainly due to China, which remains the biggest
consumer of Russian softwood sawn timber.

12%

is Russia’s share
in the global
softwood sawn
timber market1

EUROSAC for 12M 2020.
According to Segezha Group’s internal research in 2020.
According to Segezha Group’s internal research in 2020 and EUROSAC data.
Estimate by Vision Hunters.

Estimate by Vision Hunters.
Source: Vision Hunters.
Woodstat.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP
SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

Segezha Group
is Russia's

no. 1

producer of
laminated beams
and prefab glulam
houses3

98%

of laminated beams
produced by Segezha
Group is exported

15%

is Segezha Group’s
share in the Russian
prefab houses market3

Laminated beams

Business development in 2020

Segezha Group’s laminated wood structures are mostly exported
to Europe, where the demand for the products of this kind is high. Italy,
Germany and Austria were the main markets in 2020, accounting for 84%
of all sales in the segment.

Europe and Japan remained the leading global consumers of laminated
beams that are used in the construction industry. In 2020, the European
output of laminated beams was 3.5 mln cu m (+1.4%1 year-on-
year), mostly thanks to production growth in Germany and Austria.
France remains a promising market for laminated wood structures,
since the share of rented wood housing is high there.

In H2 2020, the European market of laminated beams witnessed
an active demand, which led to maximum capacity utilisation
at production facilities and caused many companies to stop taking
new orders. Producers noted an increase in the number of incomplete
orders due to a shortage of raw materials. It became a problem for many
companies as there was a deficit of raw wood supplies from Central
Europe and Scandinavia, which led to higher purchasing prices.

The forecast of laminated beams consumption in Europe is optimistic.
In Italy, which is one of the key markets for Segezha Group, the segment
will be driven by housing construction (the industry is projected to grow
by 14%2 in 2021) and tax benefits for investments in construction.

Prefabricated houses

Segezha Group supplies laminated-beam prefab houses mainly
to the Russian market, being the indisputable market leader with a 15%3
market share in 2020.

The capacity of the Russian market of prefabricated houses using
laminated beams was estimated at 131,000 cu m in 2020 (+5% year-
on-year). The share of housing built using timber is believed to have
doubled in Russia in the last 15 years4. The key regions consuming prefab
houses are still the Central, Northwest and Volga federal districts.

In the first half of 2020, there was a decline in sales due
to the COVID-19 pandemic and lockdown. However, the demand rose
by 30% year-on-year already in H2 2020. Experts also noted buyers’
growing interest in country houses due to the pandemic.

Paper

PRODUCTION, SALES AND REVENUE IN THE PAPER SEGMENT

INDICATOR

Revenue, RUB bln

Output, thsd tonnes

Sales, thsd tonnes

2020

15.9

402

289

2019

CHANGE, %

15.2

388

254

4.5

3.6

13.8

Segezha Group produces 70% of Russia’s
sack paper output. Over 30% of the paper
output is supplied to the Group’s facilities
in Russia and Europe to manufacture paper
sacks and bags, and the remaining 70% is sold
in Russia or exported. The share of exports
in sales to external customers exceeds
90%, and geography of supply is more than
75 countries. The main export markets for Segezha
Group are China, Latin America, Southeast Asia,
North Africa, the Middle East, and also Europe.

Revenue from paper sales in 2020 totalled
RUB 15.9 bln, an increase of 4.5% from 2019.
The growth came from the higher output
and sales.

In 2020, Segezha Group’s paper output grew
by 3.6% year-on-year to 402,000 tonnes,
mostly thanks to the measures taken to enhance
the efficiency of production facilities. Paper
sales in the reporting period were up 13.8%
to 289,100 tonnes following the growth of output
and also due to sale of warehouse inventories.
Additional volumes were sold to both existing
and new customers in China, India, Chile,
Argentina and other countries.

no.1

by paper output

in Russia

no.3

by output of high-
quality unbleached
sack paper

globally

STRUCTURE OF PAPER SALES IN 2020
BY COUNTRY, %

China
Saudi Arabia
Russia
Mexico
Turkey
Egypt
Other

20
10
11
6
5
5
43

Source: Vision Hunters.
Based on https://www.timber-online.net/blog/biggest-glulam-producers.html
https://www.holzkurier.com/holzbau/2020/12/italien-bau.html
According to Segezha Group’s internal research in 2020.
Source: analytical article by Okna Media posted on the website of the Association of Wooden
Housing Construction.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP
SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

Paper packaging

OUTPUT, SALES AND REVENUE IN THE PAPER PACKAGING SEGMENT

INDICATOR

Revenue, RUB bln

Output, thsd tonnes

Sales, thsd tonnes

2020

19.7

1,291

1,300

2019

CHANGE, %

18.1

1,262

1,238

8.9

2.3

5.1

Packaging products of Segezha Group’s enterprises in Europe are
sold mostly in the European, Middle Eastern and African markets,
while the needs of the Russian and CIS market are met by its Russian
facilities located in the Republic of Karelia and the Rostov region.
About 29% of Segezha Group’s sack paper is converted into paper
packaging. The Group is actively increasing the production capacity
in the segment of consumer packaging, investing into acquisition of new
production lines.

Revenue from sales of paper packaging grew by 8.9% in 2020 vs. 2019
to RUB 19.7 bln. The growth came from increased sales and a greater
share of high-margin products.

In 2020, Segezha Group sold 1,300.8 mln paper sacks, up 5.1%
from the previous year, due to sales growth at its European and Russian
conversion facilities. In Russia, the growth was mostly caused
by the deficit of imported products, which also made it possible to raise
selling prices. In Europe, the growth was brought about by higher
demand, mainly in the construction industry.

The output in 2020 grew by 2.3% year-on-year to 1,290.8 mln items
following growth of sales. The Group continued to increase the share
of high-margin products in its portfolio, including by construction of new
production facilities in the Moscow region.

Plywood

OUTPUT, SALES AND REVENUE IN THE PLYWOOD SEGMENT

INDICATOR

Revenue, RUB bln

Output, thsd tonnes

Sales, thsd tonnes

2020

6.7

192

186

2019

CHANGE, %

5.5

192

182

20.6

1.9

Most of the plywood produced by Segezha Group is made for exports
(79% of the output in 2020). Plywood is supplied to more than
60 countries, the key export markets being Europe, the United States,
Canada and Asia Pacific, including China, South Korea and India.

According to Segezha Group’s internal research as of 31 December 2020.

no.1

in Russia
by output of paper
sacks

no.2

by output of paper
sacks1

in Europe

STRUCTURE OF PAPER SACK SALES IN 2020
BY COUNTRY, %

Russia
Germany
Romania
Netherlands
Denmark
Kazakhstan
Other

33
12
6
6
5
5
33

Revenue from plywood sales in 2020 totalled
RUB 6.7 bln, an increase of 20.6% from 2019.
The growth came primarily from the price
increase, which became possible thanks
to the timely response of the sales force
to the market trends in early 2020, and also
from a greater share of high-margin products.
The financial result was also supported
by the growth of foreign currencies against
the Russian rouble.

In 2020, Segezha Group’s plywood output
remained the same as in 2019, 192,000 cu m,
due to full utilisation of production capacity.
Plywood sales grew by 1.9% to 185,600 cu
m following the increase in output and also
due to sale of warehouse inventories.
The Group also saw a positive effect
from the development of special products
and promotion of its brand in North America,
South Korea and China.

STRUCTURE OF SEGEZHA GROUP’S
PLYWOOD SALES IN 2020 BY COUNTRY, %

Russia
US
Germany
Netherlands
South Korea
Canada
Other

21
14
14
9
7
6
29

Sawn timber

OUTPUT, SALES AND REVENUE IN THE SAWN TIMBER SEGMENT

INDICATOR1

Revenue, RUB bln

Output, thsd tonnes

Sales, thsd tonnes

2020

18.2

1,192

1,217

2019

13.8

1,014

1,005

CHANGE, %

31.6

17.5

21.1

>20

countries
Segezha Group
exports sawn
timber

no.5

globally by output
of large-size birch
plywood1

globally

79%

is the share
of Segezha Group’s
export revenue
from plywood sales

no.1

in Russia

by gross output
of softwood sawn
timber3

Segezha Group exports almost 100% of its
sawn timber to dozens of countries, with most
volumes consumed by construction companies
and producers of furniture and packaging.
The main markets for the company’s sawn
timber are China, Europe and MENA.1

Revenue from sawn timber sales
in 2020 totalled RUB 15.2 bln, an increase
of 29.4% from 2019. The growth came
from increased production and sales volumes
and a rise in prices.

The indicators take into account sawn timber produced by Sokol WP and are included in
the results of the «Other» segment.
MENA (Middle East and North Africa) is a geographic region with an aggregate population
of 335 mln people.
According to Segezha Group’s internal research as of 31 December 2019.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP
SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

The output of sawn timber grew by 17.5% in 2020 year-on-year
to 1,191,500 cu m thanks to the acquisition of LLC Karelian Wood
Company, a logging and timber processing enterprise, at the beginning
of 2020 and the increased output at existing facilities. Another
contributing factor was redistribution of capacity utilisation at Sokol
Woodworking Plant from laminated beams in favour of sawn timber. This
was due to the replacement of an old press line with a new one, which
will increase the plant’s output of laminated beams by 20%.

Sawn timber sales grew by 21.1% in 2020 to 1,217,300 cu m following
the increase in the output.

New products

STRUCTURE OF SEGEZHA GROUP’S SAWN
TIMBER SALES IN 2020 BY COUNTRY, %

Operating & investment development strategy

China
Egypt
UK
Finland
France
Germany
Belgium
Other

48
19
8
5
5
4
3
7

Segezha Group’s strategy is aimed at creating
an industry leader in production efficiency
on the basis of a vertically integrated
and diversified business model.

Sustainable development
› Health and safety of employees
› Reduction of the environmental impact
and use of state-of-the-art production
technologies

› The forest seed centre in the Kostroma

Wood resources
›

Increase of the share of own wood resources
by expansion of allowable cut and increase
of its utilisation rate

region will grow the first 4 mln seedlings as
part of the company’s policy of sustainable
forest management by 2023
› Umbrella charity projects: City

› Quality forest reproduction
› Construction of haulage roads

Infrastructure, Sports, Education,
Environment

Manufacturing assets
› Construction of a plywood mill in Galich
› Upgrade of the Segezha PPM to increase
capacity and reduce production costs
Increasing paper packaging production
capacity in Russia and Europe
Increase of sack paper output at Sokol PPM

›
› Construction of a pellet facility at Sokol

›

Innovation
› Full implementation of SAP S/4HANA at all

divisions by 2021

› Creating and developing R&D centres

at the company

› Automation and introduction of state-of-

the-art IT solutions

CLT panels

Lignosulphonates

Woodworking Plant is in progress

In August 2020, the Sokol PPM launched a new production facility for dry
lignosulphonates with an annual capacity of 21,000 t.

Dry lignosulphonates are a high-tech product with a high added value.
Their production will enable the company to bring a new product
to the market that is used in many industries: from construction
to cement production and the oil sector.

›

In April 2020, Segezha Group inaugurated the second fuel pellet
facility at the Lesosibirsk Woodworking Plant No 1, which increased
the Group’s aggregate pellet production capacity to 110,500 t p.a.
The entire output of pellets is exported to Denmark, the Netherlands,
the United Kingdom and other countries.

›

› One of the key investment projects in 2020 was implementation
of SAP S/4HANA, which will unite all of the Group’s enterprises,
unlock synergies between services and enhance operational
efficiency.
In February 2021, the company inaugurated Sokol CLT, Russia’s
first large-scale industrial facility manufacturing advanced material
for housing construction, in Sokol, the Vologda region.
In April 2021, Segezha Group conducted an IPO on the Moscow
Exchange. Through its IPO Segezha placed raised gross proceeds of
RUB 30 bln, with be used to finance further business expansion and
reduce debt leverage. The shares are included in MOEX’s Level 1 List
under SGZH ticker.

›

In 2020, Segezha Group completed
the construction of Russia’s first CLT plant
with a capacity of 50,000 cu m and began
producing CLT panels. CLT panels are cross-
laminated layers of softwood timber, which
have the same strength as such traditional
construction materials as concrete, steel
and brick, but are superior in terms
of production costs, eco friendliness and ease
of maintenance.

Key achievements

› At the beginning of 2020, Segezha Group
acquired a logging and timber processing
enterprise, LLC Karelian Wood Company,
in the Republic of Karelia with an annual
capacity of up to 250,000 cu m of sawn
timber and allowable cut exceeding
200,000 cu m.
In the reporting period, the Group
continued building the plywood
mill in Galich, the Kostroma region,
with an annual capacity of 125,000 cu m
of birch plywood. It will be commissioned
in 2021.

›

Financial performance in 2020

FINANCIAL RESULTS, RUB mln

INDICATOR

Revenue
OIBDA
Operating income
Adj. net income / (loss) attributable
to Sistema

2020

68,987
17,457
11,185

-1,324

2019

CHANGE, %

58,495
13,993
8,333

5,040

17.9
24.8
34.2

n/a

In 2020, Segezha Group increased its revenue
by 17.9% to RUB 69.0 bln thanks to increased
sales of paper packaging and sawn timber
and higher prices of plywood and sawn
timber. Revenue growth was also supported
by increase of the average exchange rate
of foreign currencies against the rouble year-
on-year. The exchange rate of the Euro grew
by 14% and of the US dollar by 11% in 2020.
The share of foreign currency revenue was
72.0% in 2020.

Segezha Group’s OIBDA grew by 24.8%
to RUB 17.5 bln due to growing prices
of plywood and sawn timber, despite
the higher logistic costs and the pressure
on the prices of the majority of the company’s
products throughout the year.

The company generated a net loss in 2020 due
to the negative effect of the revaluation
of its foreign currency debt. Net of FX
differences, its net income grew by 170%
in 2020 year-on-year.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP
SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020//sistema.com

ETALON
GROUP

25.6%

SISTEMA’S
EFFECTIVE
STAKE

Etalon Group is one of the largest
and oldest real estate development
companies in Russia specialising
in mid-market construction projects
and one of the leaders in St Petersburg
and Moscow.

20projects at design

and construction
stage1

2.8M SQ mln

the net saleable area
(NSA2) of projects
in the company’s
portfolio1

204RUB bln

the market value
of assets1

>21%

growth in average real
estate price in 2020

90%

in average down
payment

81.9RUB bln

in cash income in 2020

As of 31.12.2020 according to Colliers International.
Net Saleable Area.

E
K
A
T
S
E
V
T
C
E
F
F
E

P
U
O
R
G
N
O
L
A
T
E

u
r
.
p
u
o
r
g
n
o
a
t
e
/
/

Gennadiy Shcherbina
CEO

Sergey Egorov
Chairman of the Board
of Directors

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP
ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

The company is among the top
10 Russian developers according
to Forbes and ranks first
in the list of Russian developers
with the highest reliability score.

540

thsd sq m
of properties
commissioned as part
of 12 projects in 2020

538

thsd sq m
of properties sold
in 2020

79.9

RUB mln
of revenue
received in 2020

HOUSING PER CAPITA, sq m

30 Target by

2025

Moscow

St. Petersburg

Warsaw

Stockholm

Paris

Berlin

Rome

Industry overview for 2020

2020 saw major structural shifts in market competition following several
years of gradual changes. Although the number of planning permissions
and projects available in Moscow and St Petersburg is decreasing,
investments in development sites across Russia are growing despite
the current financial instability. The trend towards market consolidation
has continued. Demand for real estate is expected to grow further
in the long term due to people’s need to improve their housing
conditions and have a more comfortable living environment.

NEW HOUSING CONSTRUCTION, mln sq m

The population’s demand for housing rose significantly in 2020 amid
low interest rates and taxation of deposits, and due to the subsidised
mortgage programme introduced by the government. In 2020, Russia
was among the top 3 countries in terms of reduction of mortgage rates
(by 170 b. p.), which enhanced the attraction of investments in real
estate assets and helped maintain record housing affordability figures.

AVERAGE MORTGAGE RATES IN 1H 20202

Moscow

–21.2%

Russian Federation

–23.2%

–3.4%

‘20

3.4

‘19

3.5

‘18

4.0

‘17

3.5

‘16

3.1

‘15

3.0

5.0

5.2

3.5

3.4

3.9

St. Petersburg
Moscow

Source: UISIS

8.4

8.7

7,5

6.9

6.5

6.9

The strong resilience of the Russian economy to the consequences
of the coronavirus pandemic compared to European countries will
determine Russia’s leadership in forecast recovery rates. By 2022,
Russia’s GDP is projected to grow by 1.1%, while the Eurozone will
remain in the red territory with a negative growth of around 0.6%.1

One of the key priorities of the Russian government is to improve
the quality and affordability of housing. Russia is lagging behind Eastern
Europe in terms of housing per capita. At the same time, more than 60%
of the available housing, in particular, 57% in St Petersburg and 61%
in Moscow, was built before 1990 and does not meet the standards
of modern house buyers.

The main target set in the Strategy for Housing Development in Russia
until 2025 is 30 sq m of residential space per capita. The programme
for implementation of the government’s priority tasks in housing
construction envisages improvement of housing conditions for at least
5 mln families every year and increasing development volumes to
at least 120 mln sq m a year.

‘20

‘19

‘18

‘17

‘16

‘15

‘10

St. Petersburg

–22.2%

‘20

‘19

‘18

‘17

‘16

‘15

‘10

7.8

9.9

9.6

10.7

12.4

13.3

13.0

7.7

9.9

9.6

10.7

12.1

13.2

13.1

‘20

‘19

‘18

‘17

‘16

‘15

‘10

7.6

9.9

9.6

10.6

12.5

13.4

13.1

Another contributor to the greater appeal
of investments in real estate for individuals is
migration to new project financing rules, which
guarantees a full return of investments made
in properties at development stage.

The government is also providing considerable
support to first-time home buyers among
young families by offering tax benefits
and support programmes for families
with children. The effect of these measures
is up to RUB 2.3 mln per family. Mortgage
subsidies for young families coupled
with record levels of housing affordability
in Moscow and St Petersburg are going
to drive sustainable demand even after
the government’s mortgage programme
expires in July 2021.

Source: Rosstat, Central Bank of Russia

Source: Colliers International.

As of 31 December 2020.
Source: Central Bank of Russia; The Global Economy, IMF.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP
ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020
//sistema.com

Changes in industry regulations and the greater role of banks are
having a negative impact on the total number of issued development
permits. In 2020, the number of permits issued in St. Petersburg
decreased by 44%. In Moscow the number of issued development
permits increased by 8% compared to 2019, while the area of accessible
development sites fell by 48%.

NUMBER OF ISSUED RESIDENTIAL PLANNING PERMITS

–13.9%

‘20

130

‘19

120

‘18

474

‘17

237

220

‘16

315

239

‘15

213

181

Moscow
St. Petersburg

271

179

208

745

457

554

394

Source: Federal Service for State Registration, the St. Petersburg Service for Construction
Supervision, the Moscow Committee for Construction Supervision

As part of a new initiative the cost of changing the type of permitted use
was increased, creating an additional barrier for small market players.

After a period of decline in investments in 2016–2017 caused
by the introduction of new regulations, developers are seeing a rise
of investments in their project portfolios,1 which is a sign of growing
investor optimism in relation to the development sector.

The trend towards industry consolidation is accelerating due to the high
interest rates charged on project financing for small market players
and the difficulties related to the need to accumulate sufficient reserves
on escrow accounts to get funding at reduced rates. By 2023 the share
of top 20 developers in the supply structure is projected to reach a
record 57% in Moscow and St. Petersburg and further reduce
the number of small and medium players.

Demand for residential real estate in Moscow and St. Petersburg has
grown by 99 M sq m as mortgage rates plummeted in 2020. This trend is
expected to continue in future.2 Demand in the lower price segment may
be partially met by the government’s renovation programme, however,
a significant share of affluent buyers will still be looking for properties
of higher quality.

In the long run, the terms of entering new
projects and the role of developers are
expected to change. Regional development is
becoming an important performance indicator
of real estate projects: a fall in unemployment,
improved health of the population, flourishing
economies of cities and towns. The business
models of property development companies
will be determined by their ability to structure
highly profitable projects with a significant
social and economic impact on the relevant
regions.

New strategy

In view of the accelerating changes and taking
into consideration the availability of resources
Etalon Group has formulated a new
business development strategy until 2024.
The main goal of the strategy is to increase
business efficiency in the new economic
conditions through improvement of business
processes and use of modern home-building
technologies and digital architecture.

Strategic goals

› Developing an easily scalable business

model on the basis of digital infrastructure
to ensure end-to-end data transfer at all
stages of value creation.

› Attaining leadership through partnerships,
creating a best-in-class platform for joint
implementation of construction projects
with small capital investments.

› A long-term approach to expansion

of land holdings providing for the purchase
of unzoned land plots and based
on successful experience of own zoning
activities and opportunities for expanding
geographical footprint.

› Attaining leadership in cost efficiency

and construction speed due
to standardisation of product range
and leadership in construction technologies.

› Best customer experience in the industry
due to development of B2C services,
further improvement of communications
and customer service at all stages
of customer journey.

› Strategy until 2024 envisages a new

approach to each value creation stage

Source: Knight Frank.
Source: internal estimates of the Company.

STRATEGY UNTIL 2024 ENVISAGES A NEW APPROACH TO EACH VALUE CREATION STAGE

REINVESTMENT

DEVELOPMENT

CONSTRUCTION

› Effective profit
reinvestment

› General

contracting and
subcontracting

› Land plot

analysis and
acquisition

› Design and
permitting

› Marketing and
ongoing sales

› Project

management

ONGOING
SERVICES

› Fitting-out and

furnishing

› Ongoing

maintenance

Analysis and acquisition of land plots

A long-term focus on land expansion
supported by the purchasing of unzoned
land plots, extending the geographic span
of projects through inorganic development

Design

Design works in keeping with modern
construction principles and standards, supply
of popular formats of housing and living
environments

Key expected results:

increase in the size of the portfolio up
to 6+ mln sq m,a balanced structure
of land assets and long-term growth
of sales

Key expected results:

improving product
quality,
implementing highly transparent
processes,
minimising the lead time from finding a
land plot to the start of construction
to 6 months,
creating a uniform system of standard
design works and launching R&D

Construction

Leadership in speed and cost efficiency
ensured by product standardisation across
entire product range and leadership
in new construction technologies: modular
technology, construction using CLT panels1
and modern prefabrication

Key expected results:

gross profit margin
at 35%,
increasing construction volumes more
than two-fold without a rise in fixed costs

CLT (cross-laminated timber).

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP
ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

Marketing and sales

Operating and financial performance in 2020

Despite a difficult start of the year, Etalon Group’s operating results
surpassed the management’s optimistic forecasts, and the main
monetary indicators reached a historic high. Etalon Group fully met
its plans for new housing commissioning and sales, having completed
the development of 12 properties with a total area of 540,000 sq m
and sold more than 538,000 sq m of residential space in finished
and unfinished residential estates. The record value of contracts
signed by the company and the cash income amounting to RUB 80 bln
and RUB 82 bln respectively have proven the effectiveness of the sales
strategy approved by the company and boosted its financial results.

OPERATIONAL RESULTS

INDICATOR

Sales, RUB mln

Sales, thsd sq m

Average price,
RUB thsd / sq m

Average price (housing),
RUB thsd / sq m

2020

2019

CHANGE1, %

79,922

77,627

538

149

179

630

123

149

3.00

-14.60

20.60

20.10

5.50

Cash inflows, RUB mln

81,985

77,713

Increasing customer lifetime value based
on understanding the customer’s expectations
at the time of purchasing a new property and
at the start of living in it and using available
services.

Customising a product and optimising its
promotion based on big data and artificial
intelligence technologies

Key expected results:

stable double-digit growth of sales
with the highest NPS1 and CLV2
in the industry,
cutting marketing expenses by 20%

Project management

End-to-end data transfer at all stages of value
creation through implementation of shared
digital infrastructure

Key expected results of implementation:
a drop in selling and administrative
expenses to revenue down to 4.5%
and 5.5% respectively

Partnership and supply chain

Leadership through partnership and creation
of a best-in-class platform for residential
development projects

As a result of cost reduction, EBITDA before
Purchase Price Allocation (PPA) increased
by 47.5% up to RUB 16.5 bln.

Net income adjusted for one-off acquisition
and integration expenses grew by 88.9%,
from RUB 3.1 bln in 2019 to RUB 5.9 bln in 2020.

Etalon Group generated cash flows
at an accelerated pace due to strong sales.
The Group generated a positive cash flow
from operations before interest, which totalled

RUB 3.9 bln net of cash on escrow accounts.
At the same time, cash flow from operations
before interest adjusted for cash on escrow
accounts almost doubled and reached
RUB 26.8 bln. Net cash flow adjusted
for cash contributed to escrow accounts
returned to positive values and amounted
to RUB 22.3 bln.

Etalon Group paid RUB 3.5 bln in dividends
(12 roubles per GDR) for 2020.

Implementation of projects

The Architectural Council of Moscow
approved the development plans for ZIL-
Yug project, and a public media platform
and urban development lab Generation
Zil was launched to promote discussions
on the development of the new district. Sales
of properties completed as part of the first
stage of the project are expected to start
in the first half of 2021.

In 2021, the company expanded its product
offer in St. Petersburg by launching
the new Domino development project
at Beloostrovskaya St. and starting to develop
new properties on the premises of the Galaxy
quarter.

FINANCIAL RESULTS, RUB mln

LARGEST COMPLETED PROJECTS

INDICATOR

Revenue

Pre-PPA4 EBITDA

EBITDA

Adj. Net income

2020

2019

CHANGE, %

PROPERTY

LOCATION

AREA, thsd sq mln

78,655

84,330

16,482

12,601

5,875

11,175

8,497

3,110

-6.70

47.50

48.30

88.90

-8.90

Galaxy residential estate, 2nd phase properties,
and Galaxy Premium quarter

Okhta House residential estate

Normandy residential estate, 1st phase

Silver Fountain residential estate, bldg 2

St. Petersburg

Moscow

139

134

Key expected results:

Net corporate debt

19,580

21,484

a seamless architecture of a new business
model, which is open to partners
and suppliers and makes it possible
to quickly develop innovative businesses
and cut costs

The implemented strategic initiatives, including
the introduction of dynamic pricing, pushed
the average real estate prices up by 21%
and boosted sales up to RUB 80 bln by the end
of 2020.

In 2020, the Company set a new record in terms of gross income:
RUB 22 bln, up by 9.3% from 2019 despite a minor reduction in revenue
caused by restrictions on construction works in the Moscow region
during the coronavirus lockdown.

One of the Company’s key priorities is to continue cutting SG&A
expenses, which dropped by 19.1% at the end of the year in absolute
terms and accounted for 12.5% of revenue vs 14.4% in 2019.

NPS – Net Promoter Score.
CLV – Customer Lifetime Value.
Excluding rounding
EBITDA before purchase price allocation (pre-PPA).

Listing on Moscow Exchange

In addition to developing its business, Etalon
Group also took some major steps aimed
at expanding its investor base in 2020.
In January, the company successfully
arranged a listing of its global depositary
receipts on the Moscow exchange.
Etalon Group’s securities were included

Secondary public offering

in Level 1 List of the Moscow Exchange and
since February the 3rd they have been trading
on the Moscow Exchange under the ETLN
ticker; while in March 2020 they were included
in the calculation base for the Moscow
Exchange Broad Market Indices.

price will be USD 1.7 per share. The net
proceeds from the offering will be used for
the acceleration of the company’s investment
programme and business expansion.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP
ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

MEDSI

95.5%

SISTEMA’S
EFFECTIVE
STAKE

Medsi is Russia’s largest private
healthcare platform that offers a full range
of preventive, diagnostic and treatment
services, as well as a variety of services
to improve the quality of life.

position

no.1 Market
7.6 mln

Visits

105.6

thsd sq m
Medical floorspace

Regions of operations

3.2

RUB thsd
ATV

E
K
A
T
S
E
V
T
C
E
F
F
E

I
S
D
E
M

u
r
.
i
s
d
e
m
/
/

49Clinics
274

thsd
Bed-days

18%

Profit margin

75%

Brand awareness
in Moscow

2.6%

Medsi share
in the commercial
healthcare market in Russia

Elena Brusilova
CEO

Artyom Sirazutdinov
Chairman of the Board
of Directors

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI
MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

REGIONAL
PATIENTS FOR
HIGH-TECH
MEDICAL CARE
UNDER THE OMI

PPP WITH
REGIONS
(OMI STREAM)

Business model

Medsi is a three-tier medical platform that unites all levels of medical
care: from preventive health improvement programmes to complex
high-tech surgeries and rehabilitation. Thanks to an effective routing
system within the chain and the development of vertically integrated
centres of excellence, Medsi provides patients with the continuity
of the treatment process within the chain under uniform standards
and with high effectiveness. One of the priority areas for improving
the model is a digital platform that is used not only as a convenient tool
for storing medical records and communicating with patients, but also
as a foundation for developing ecosystem products intended to take
care of patients’ health and quality of life.

INPATIENT FACILITIES

HOSPITAL 1
OTRADNOYE

HOSPITAL 2
BOTKINSKAYA

HOSPITAL 31
MICHURINSKY

HOSPITAL 42
CHILDREN'S

REGIONAL HUBS OFFERING
ADVANCED DIAGNOSTICS AND
DAY CARE SERVICES (CDC)

ADULT AND CHILDREN'S
CLINICS IN MOSCOW

CLINICS IN
REGIONS

HOME CARE

DIGITAL PLATFORM/
ECOSYSTEM

OUTPATIENT CLINICS

SELF-PAY
PATIENTS

VMI
(INDIVIDUALS)

OMI

OCCUPATIONAL
HEALTHCARE
(CORPORATIONS)

Most of the work will be completed by the end of 2021; the hospital is expected to be officially launched in 2022.
Hospital 4 ("Children's") on the basis of Clinical Hospital No 1 is expected to be launched in 2021.

ASSETS OVERVIEW

CDCs, total

CDC Krasnaya Prersnya

CDC Belorusskaya

CDC Grokholsky

CDC Maryino

CDC Solyanka

Children's clinics

Primary care clinics

Clinical hospitals

Sanatoriums and wellness centres

Regional clinics, total

Perm

Nizhnevartovsk

Nyagan

Volgograd

Bryansk

Barnaul

Izhevsk

St. Petersburg

TOTAL number of facilities

2020

2019

2018

2017

Industry overview for 2020

In 2020, Russia’s market for commercial
medical services grew by 6.1% to RUB 727 bln.
The share of Moscow and the Moscow region
is 35%.

The retail segment (self-pay patients) is
still the biggest segment in the structure
of commercial healthcare. It grew by 7.7%
in 2020 to RUB 543.1 bln. The segment’s share
is 58.3% in Moscow and the Moscow region
and 74.7% in Russia as a whole.

In the reporting period, the segment
of voluntary medical insurance (VMI)
amounted to RUB 183.6 bln, up 1.6% YoY,
even though the number of visits decreased
by 3.4%.

In the reporting period, the ATV
in the channels of self-pay patients and VMI
grew by 5.0% and 5.2%, respectively,
which was driven mainly by increased prices
for medical services and also by limited
access to free medical care and deferred
demand for routine treatment amid
the COVID-19 epidemic.

The COVID-19 epidemic has changed the way
healthcare is delivered. Forced restrictions
have boosted the popularity of telemedicine
technologies and home care services. Demand
for coronavirus testing and diagnostics (PCR,
antibodies and CT) has increased significantly.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI
MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

In 2021, the growth rate of the commercial healthcare market is
expected to slow down due to the deterioration of the economic
situation in Russia.

SIZE OF RUSSIA'S COMMERCIAL
HEALTHCARE MARKET, RUB bln

Getting “back to normal” will increase the availability of public
healthcare, which, given falling real incomes, will lead to a decrease
of the legal commercial sector by 3.9% to 194.5 mln visits or by 0.5%
in value terms to RUB 540.4 bln.

The VMI segment will be shrinking amid cost optimisation
in the corporate sector. The market size will decrease by 4.4% to 45.7
mln visits or by 2.7% in value terms to RUB 178.7 bln.

COVID-19 mass vaccination will contribute to a gradual reduction
in the number of COVID19 cases and the return of routine
medical care to pre-crisis levels in the second half of 2021. Given
the significant increase in public funding to fight the epidemic in 2020,
in 2021 the turnover of the OMI sector is expected to fall back
to the level of 2019, RUB 2.1 trn.

261

255

256

244

232

218

207

190

477

464

471

441

395

358

326

303

New areas that received an impetus during the epidemic (telemedicine,
genetic research and home care) will continue to show significant
growth due to the low base effect, but they will still have an insignificant
share of 1% to 2% in the total market size.

Moscow and Moscow region
Other regions

Medsi in the commercial healthcare market

In 2020, the COVID-19 epidemic proved to be a challenge for both
Medsi and the entire industry. Medsi was the first company
in the market to join the fight against the coronavirus by repurposing its
flagship hospital in a very short time. In addition, Medsi introduced a
line of COVID-related products, including diagnostic, treatment
and rehabilitation services. The company implemented special medical
protocols at all its clinics and also launched telemedicine and home care
services.

The measures taken made it possible to compensate for the spring
drop in sales, and deferred demand for medical services allowed Medsi
to show growth in 2020.

In the reporting period, revenue grew by 12.2% to RUB 25.0 bln,
despite a decrease in the total number of visits by 18.1% to 7.9 mln.

The ATV increased by 37.2% to RUB 3,188.

STRUCTURE OF RUSSIA'S COMMERCIAL
HEALTHCARE MARKET, %

Russia

Market

74.7

25.3

MEDSI

46.4

53.6

Moscow and Moscow region

Market

58.3

41.7

MEDSI

45.3

54.7

Self-pay
VMI

Market

MEDSI

Market

MEDSI

Retail segment

In 2020, Medsi’s 36.5% revenue growth in the retail segment
significantly outpaced the overall market growth in this segment (+7.7%
year-on-year). At the end of the reporting period, Medsi’s market
share in the retail segment was estimated at 1.6% in Russia as a whole
and 5.2% in Moscow and the Moscow region.

MEDSI'S MARKET SHARE,
RUSSIA, %

MEDSI'S MARKET SHARE,
MOSCOW AND MOSCOW REGION, %

Revenue

+0.3 p.p.

Visits

+0.1 p.p.

‘20

‘19

‘20

‘19

Revenue

+1.2 p.p.

Visits

+0.8 p.p.

‘20

‘19

‘20

‘19

1.6%

1.3%

1.2%

1.1%

VMI segment

In 2020, revenue in the VMI segment increased by 6.1%, although
the number of visits fell by 26% year-on-year. At the end of the year,
Medsi’s market share in the VMI segment was estimated at 5.5%
in Russia as a whole and 8.7% in Moscow and the Moscow region.

MEDSI'S MARKET SHARE,
RUSSIA, %

MEDSI'S MARKET SHARE,
MOSCOW AND MOSCOW REGION, %

Revenue

+0.3 p.p.

Visits

–3.5 p.p.

‘20

‘19

‘20

‘19

Revenue

+0.4 p.p.

Visits

–2.6 p.p.

‘20

‘19

‘20

‘19

5.5%

5.2%

11.2%

14.7%

5.2%

4.0%

6.3%

5.5%

8.7%

8.3%

19.8%

22.4%

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI
MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

‘22 E‘21 E‘20‘19‘18‘17‘16‘15738719727685627576533493+6.1%SISTEMA PJSFCANNUAL REPORT / 2020//sistema.com

OMI segment

In 2020, revenue in the OMI segment fell by 1.6%, with the number
of visits decreasing by 9.3% year-on-year At the end of the year,
Medsi’s market share in the OMI segment was estimated at 0.3%
in Russia as a whole and 1.3% in Moscow and the Moscow region.

MEDSI'S MARKET SHARE, RUSSIA, %

MEDSI'S MARKET SHARE, MOSCOW AND MOSCOW REGION, %

Revenue

–0.042 p.p.

‘20

‘19

Revenue

–0.4 p.p.

0.255%

0.297%

‘20

‘19

1.3%

1.7%

Business development in 2020

Operational performance

HOSPITALS

Bed-days, thsd

ATV, RUB thsd

Capacity utilisation, %

OUTPATIENT CLINICS

Patient visits, mln

ATV, RUB thsd

Capacity utilisation, %

MEDICAL FLOORSPACE, thsd sq m

CLINICS

2020

274

31.0

2020

7.6

2.2

2019

239

30.5

2019

9.4

1.6

Moscow
Other regions

In 2020, there was a negative trend in the number of visits and capacity
utilisation in the outpatient segment amid the COVID-19 pandemic.
At the same time, capacity utilisation in hospitals increased due
to the provision of services for the treatment of COVID-19.

The ATV increased in 2020 due to the growth in the share of expensive
services for COVID19 diagnostics, such as computed tomography,
in the outpatient segment and the high average cost of treatment
for COVID-19 patients in the Otradnoye hospital.

STRUCTURE BY CHANNEL, RUB mln

Total revenue

– Insurance companies

– OMI

– Self-pay patients

– Legal entities

– Other

2020

25,040

8,827

5,885

8,710

1,265

352

2019

CHANGE, %

22,322

8,666

6,098

6,369

782

407

12.2

1.9

–3.5

36.8

61.8

–13.5

REVENUE STRUCTURE BY CHANNEL, %

Individuals

34.7%

Insurance companies

59.2%

STRUCTURE BY ASSET TYPE, %

34.3%

CDC

27.6%

PCC

29%

Corporate client 4.7%

Other 1.4%

Other

9.1%

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI
MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

‘21 E‘20‘19‘18‘17127.4105.6101.396.394.6+20.6%‘21 E‘20‘19‘18‘177649484245+2.1%48323030321312181728SISTEMA PJSFCANNUAL REPORT / 2020
Key events in 2020

Cardiovascular diseases

An open-heart surgery with the installation of a heart–lung machine was
performed at Medsi’s Clinical Hospital 1, which was the first such case
for the Russian private healthcare sector.

Oncology

Medsi is a strategic partner of the Moscow region in the treatment
of cancer patients: in 2020, Russia’s first outpatient cancer care
centre in a private clinic was established at a Medsi facility. More than
11,000 patients from 80 Russian regions received treatment at Medsi
clinics, with 29,000 cycles of chemotherapy/immunotherapy.

Children

Medsi is the only private healthcare provider in Russia specialising
in hand and spinal reconstruction in children. In 2020 more than
100 surgeries were carried out.

In the 4th quarter of 2020, 45 children successfully completed a full
course of rehabilitation at the Otradnoye sanatorium. The programme
is implemented within the framework of strategic cooperation
with the state for the rehabilitation of children with cerebral palsy.

Other unique centres of excellence

Medsi clinics also provide reconstructive plastic surgery services after
complex oncological and orthopedic surgeries, as well as treatment
of connective tissue diseases, chronic viral hepatitis, chronic lung
disease and enteropathy with genetically engineered biological drugs.
In addition, one of Russia’s most advanced neurosurgery centres was
launched at the clinical hospital in Otradnoye.

Operational efficiency

In 2020, as part of the strategy to improve operational efficiency,
Medsi launched a project to create a reference centre for radiology,
which optimised and improved the quality of radiology services
in all Medsi clinics. The company also started the construction of its
own full-cycle clinical lab, which can satisfy the needs of Medsi’s
customers in diagnostics and provide additional opportunities for its
partners. Despite the pandemic, Medsi successfully launched four new
clinics, which reached positive OIBDA after 2–5 months of operation.
In December 2020, Medsi’s flagship asset CDC Krasnaya Presnya was
successfully accredited by Joint Commission International (JCI).

Ecosystem development

In 2020, Medsi continued to develop its SmartMed platform with an aim
to expand the range of digital services for patients.

In 2020, a digital personalised health monitoring system was launched
on the basis of Bioniq.

During 2020, Medsi expanded its cooperation with Third Opinion, a
company specialising in the use of artificial intelligence in medicine.
During the pandemic, Medsi’s doctors and the project’s development
team jointly developed software to determine the degree
and localisation of lung lesions based on CT scans and a video-based
system for monitoring the condition of patients in wards and intensive
care units.

In September 2020, Medsi acquired an equity stake in Sistema BioTech,
a biotechnology company that specialises in genetic diagnostics,
predictive medicine and development of new drugs.

In December 2020, Medsi and MTS Startup Hub launched an accelerator
for promising health tech projects.

Chain expansion

Other results

In 2020, Medsi continued to expand its medical floorspace by launching
4 new clinics in Moscow – 1 CDC in Maryino and 3 clinics in the Smart
500 format (small local outpatient clinics) – and by completing a deal
to acquire 4 new clinics in Izhevsk in the 1st quarter. In total, the medical
floorspace grew by 4.2% year-on-year, or by 4,300 sq m. In addition,
Medsi’s first franchise clinic was opened in Moscow in the reporting
period.

In 2020, Medsi continued the construction of the Michurinsky multi-
specialty medical centre in Moscow with a total area of 28,000 sq m.

In December 2020, Capital Group commissioned the residential complex
Nebo (“Sky”), a project in central Moscow which the developer
implements jointly with Medsi. Medsi will have a 50% share
in the project’s proceeds in 2020–2022, which will give the company
an additional source of financing for its investment programme.

//sistema.com

> 11thsd

cancer patients

thsd
cycles of
chemotherapy/
immunotherapy

> 100surgeries for the

reconstruction of the
hand and spine in
children

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI
MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020
//sistema.com

Strategic goals

Medsi’s strategy is aimed at creating Russia’s first nationwide multi-
specialty healthcare provider offering a full range of medical services.
This includes:

INCREASING
THE MARKET
SHARE IN MOSCOW
AND OTHER REGIONS

VERTICAL
INTEGRATION

IMPROVING
OPERATING
EFFICIENCY

DEVELOPMENT OF A
MEDICAL ECOSYSTEM
AND R&D2

› Opening a new

› Creating a single

›

Improvement
of the system
of referrals
of outpatients
to inpatient facilities

› Further standardisation
of business processes
and increased business
manageability

› Business analysis
of medical data

› Standardisation
of algorithms
for the launch
of new assets
and the integration
of acquired assets

› Further refinement

of the digital
platform SmartMed
and expansion
of the range
of telemedicine
services

›

Introduction of biotech
and genetic products
into clinical practice

› Development

of a new segment
of occupational
healthcare

›

Implementation of a
patient-centred
model (P5 medicine)
and expansion
of the product offering
in the segments
of biohacking
and predictive
medicine

centralised clinical
diagnostic lab and a
nationwide chain
of medical offices

› Developing reference
centres for radiology,
ultrasound
and instrumental
diagnostics

› Creating referral

centres of excellence
based on flagship
assets in all major
medical areas:
cardiovascular
diseases, oncology,
traumatology
and orthopaedics,
neurology, children
and other

› Developing medical

tourism

28,000 sq m multi-
specialty medical
centre Michurinsky

› Launching a children’s
hospital as part CH1
in 2021

› Establishing a

radiation therapy
centre for cancer
treatment

› Building an infectious
diseases hospital

› Opening at least

50 outpatient clinics
and CDCs, including
up to 25 new assets
during 2021

›

Implementing regional
projects through
organic development,
M&A1 and/or
partnership projects
with the state

› Scaling up home care,
a chain of pharmacies
at Medsi clinics
and an online
pharmacy

Mergers and Acquisitions.
Research and Development.

Financial performance in 2020

FINANCIAL RESULTS, RUB mln

Revenue

Adj. OIBDA

Operating income

Adj. net income attributable to Sistema

2020

25,041

6,888

3,704

3,464

2019

CHANGE, %

22,322

5,916

2,848

2,920

12.2

16.4

18.6

Revenue increased by 12.2% in 2020 to RUB 25.0 bln, which was
driven by a significant growth of the ATV due to COVID-19 diagnostics
and treatment services, expansion of the chain of outpatient facilities
in Moscow and acquisition of clinics in Izhevsk.

Adjusted OIBDA surged by 16.4% in 2020 to RUB 6.9 bln following
revenue growth and due to participation in a JV with Capital Group
for the construction of the Nebo residential complex at Michurinsky
Prospekt. The property development project’s effect on OIBDA was
RUB 1.6 bln in 2020 compared to RUB 1.1 bln a year earlier.

Adjusted net income grew by 18.6% in 2020 to RUB 3.5 bln as a result
of increased adjusted OIBDA.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI
MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020//sistema.com

STEPPE
AGROHOLDING

92.8%

SISTEMA’S
EFFECTIVE
STAKE

Steppe AgroHolding is one of Russia’s
largest agricultural players possessing a
diversified asset portfolio and operating
over 565 thsd ha of land.

1.3mln tonnes

collected in gross
harvest across crop
types3

71.4thsd tonnes

of milk produced
in 2020

no. 62

in Russia

in terms of farmland
area

G
N
D
L
O
H
O
R
G
A
E
P
P
E
T
S

u
r
.
p
e
t
s
h
a
/
/

6,687

milk cows

Further also AgroHolding.
BEFL
Steppe AgroHolding plus RZ Agro.

E
K
A
T
S
E
V
T
C
E
F
F
E

Andrey Neduzhko
CEO

Ali Uzdenov
Chairman of the Board
of Directors

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
STEPPE
AGROHOLDING
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

Between 2015 and 2020, the company evolved
into an industrial leader and the nation’s 6th largest
owner of farmland, with land assets conveniently located
in export-oriented geographies in the Russian south.

Steppe AgroHolding leads the market in operating
efficiency and the quality of assets in crop and dairy
farming. The company’s competitive edge on the grain
trading market is a combined effect of company-
owned production, transhipment and logistical facilities,
and an advantageous geographical location in direct
proximity to major export channels.

Business model

Steppe AgroHolding is a vertically integrated business where crop
farming as the core activity is complemented by logistical facilities
and capabilities in grain, sugar and groceries trading. The company is
also active in dairy farming and fruit growing.

JSC STEPPE AGROHOLDING

100%
GRAIN TRADING
& LOGISTICS

TOP10

100%
FRUIT GROWING

no.3 in Russia

100% (Steppe assets)
50% (RZ Agro)

CROP FARMING

no.6 in Russia

100%

DAIRY FARMING

no.6 in Russia

100%
SUGAR & GROCERY TRADING

no.1 in Russia

Industry overview for 2020

Grain trading

Crop farming

Russia’s gross harvest of grain and grain
legumes in 2020 reached 133.0 mln tonnes,
up 9.7% (11.8 mln tonnes) year-on-year,
with cultivated land area up just 2.6% (from
46.7 mln ha to 47.9 mln ha).

An important development of the second half
of the 2020–2021 crop year is the introduction
of export quotas for wheat, barley,
and corn. Designed to drive down domestic
grocery prices, the restrictions are in effect
from 15 February to 30 June 2021.

2020 witnessed a surge in investor appetite
for M&A targets in crop farming. Strategic
investors also continued buying farmland
to augment and consolidate their land
holdings, which, alongside other factors,
fueled a further growth in land prices.

The agriculture segment proved more resilient
to the COVID-19 related dislocations than
many other industries.

GROSS HARVEST OF GRAIN AND GRAIN
LEGUMES IN RUSSIA, mln tonnes1

+9.7%

‘20

‘19

‘18

‘17

‘16

‘15

‘14

‘13

‘12

133.0

121.2

113.3

135.5

120.7

104.7

105.2

92.4

70.9

Exports of grain in the 2019–2020 agricultural
season reached 41.1 mln tonnes, down
2.8% year-on-year. Russia remains world’s
largest grain exporter, with national exports
in the 2019–2020 crop year totalling 34.8 mln
tonnes (Eurasian Economic Union included).

In the first half of the 2020–2021 crop year,
Russia exported 33.4 mln tonnes of grain,
including 28.3 mln of wheat, up 25%
year-on-year.

Traditional export destinations for Russian
grains are Turkey, Egypt, Iran, Bangladesh,
Saudi Arabia, and other states in the Middle
East and Southeast Asia.

Dairy farming

Russia’s raw milk output in 2020 reached
32,215 thsd tonnes, up 2.7% (or 855 thsd
tonnes) year-on-year.

Raw milk output in commercial dairy farms
in 2020 went up 5.3%, to 17.9 mln tonnes.
Primarily driven by the arrival of new players,
the increase is only partly due to efficiency
enhancements, with the average yield per farm
cow remaining fairly low. 55% of Russia’s raw
milk is produced at commercial farms, and 45%
at private households.

Russia’s total output of marketable milk
in 2020 is estimated at 23.5 mln tonnes, or 73%
of all produced milk, which creates great
potential for boosting the production of high-
quality milk as a raw material for the food
industry.

6,872

6,492

6,091

5,871

GRAIN EXPORTS, mln tonnes

–2.6%

‘20

‘19

‘18

‘17

TOTAL MILK YIELD, thsd tonnes2

+3.6%

‘20

17,870

32,215

‘19

16,967

31,360

‘18

16,245

30,612

‘17

15,674

30,185

‘16

15,061

29,787

‘15

14,718

29,997

‘14

14,365

29,995

‘13

14,046

29,865

‘12

14,752

31,197

Agribusiness
Other

41.1

42.2

52.7

39.8

50,085

48,327

46,857

45,859

44,848

44,715

44,360

43,911

45,949

Source: RosStat

Preliminary data
RosStat

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
STEPPE
AGROHOLDING
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020//sistema.com

MILK YIELD PER COW
IN THE CORPORATE SECTOR1, kg per year

LACTATING COWS IN FARMS OF ALL
CATEGORIES2, thsd

Business development in 2020

In 2020, Steppe increased its land holdings to 565 ha, becoming
Russia’s leader in the rate of farmland area growth. The company grew
business and solidified its market position in dairy farming, grain trading,
and sugar & grocery trading through a slew of initiatives including
organic growth, M&A, trading intensification, and high-efficiency
trading strategies.

In 2020, Steppe sold its vegetable growing assets, zeroing in on crop
and dairy farming as core lines of business.

Crop farming

In 2020, Steppe increased the area of owned farmland to 565 thsd ha (up
from 416 thsd ha a year earlier), having formed a new production cluster
in the north of the Rostov region and acquired more land in the Stavropol
region.

Despite the unseasonably harsh agro-climatic conditions of 2020,
the company leveraged innovations so as to avoid harvest losses.

The main areas of developmental focus in 2020 included efficiency
enhancements, innovative technology to minimise adverse weather
effects, latest technical solutions (such as drones), and AI-powered data
projects.

Dairy farming

Dairy farming is Steppe’s second largest line of business that greatly
contributes to both diversification and vertical integration.

As of the end of 2020, the company had 6,587 lactating cows,
up 14% (or 837 head) year-on-year. The total milk yield in 2020 was
up 25% year-on-year, to 71.4 thsd tonnes, with a per-cow milk yield
of 11.3 thsd kg a year.

The company further increased focus on productivity and technology
advancements at dairy farms. This included the construction of a
megafarm in the Krasnodar region, the future home of some 3 thsd cows
scheduled for launch in the first half of 2021, and the upgrades of another
megafarm in the Krasnodar region (with some 9 thsd cows) purchased
in 2020.

+5.9%

‘20

‘19

‘18

‘17

6,872

6,492

6,091

5,871

–0.6%

‘20

3,278

7,895

‘19

3,274

7,964

‘18

3,283

7,942

‘17

3,316

7,951

‘16

3,359

7,996

‘15

3,387

8,115

‘14

3,439

8,263

‘13

3,533

8,431

‘12

3,640

8,657

Agribusiness
Other

11,173

11,238

11,225

11,267

11,355

11,502

11,702

11,964

12,297

Fruit growing

Russia’s gross harvest of pomaceous fruit in 2020 is up 7.4%, to 2.3 mln
tonnes, mostly due to the planting of new intensive orchards and first
apple harvests being collected at orchards planted a few years
earlier. The area under perennial pomaceous fruit crops is up 2,100 ha,
to 231,800 ha.

Although an increase in apple production
should ideally be accompanied by a
proportional growth in warehousing
capacities, producers of industrial refrigerators
currently fail to keep up with the rates of new
orchard planting. Besides, the Russian apple
market remains heavily dependent on imports.

GROSS POMACEOUS FRUIT HARVEST, thsd tonnes

IMPORT OF APPLES IN RUSSIA, thsd tonnes

+7.5%

–7.9%

2,342

2,179

1,997

1,521

1,726

1,495

1,597

1,527

1,388

‘20

‘19

‘18

‘17

‘16

‘15

‘14

‘13

‘12

641

696

845

710

678

892

1 050

1 352

1 278

‘20

‘19

‘18

‘17

‘16

‘15

‘14

‘13

‘12

Source: UISIS.
Source: RosStat.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
STEPPE
AGROHOLDING
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020
//sistema.com

Sugar & grocery trading

STEPPE’S SALES OF SUGAR AND
GROCERIES, thsd tonnes

Sugar & grocery trading allows Steppe to unlock considerable synergies
with the crop farming business while also ramping up the output of pre-
packaged branded produce.

+7.5%

‘20

‘19

‘18

330

307

176

In 2020, sales in the segment totalled 330 thsd tonnes, up 7% (or 23 thsd
tonnes) year-on-year. The aptly chosen “time arbitrage” strategy
delivered a significant growth across financial performance parameters.

Grain trading & logistics

STEPPE AGROHOLDING’S GRAIN EXPORTS,
thsd tonnes

Steppe AgroHolding is among Russia’s top 10 grain exporters.
The company’s total exports in the 2019–2020 crop year exceeded
1.1 mln tonnes, and total sales in calendar year 2020 reached 1.2 tonnes.

+0.2%

‘20

‘19

‘18

‘17

The company’s main focus within the segment has been on enhancing
operations and rolling out a high-efficiency trading strategy. Strong
performance in the international trading segment combined with a
GAFTA accreditation as a first-rate grain trader and partnerships
with leading global traders pave the way for the evolution into a global
grain trader with extended presence in the international markets.

1,200

1,198

1,115

269

Development strategy

Financial and operational performance in 2020

Steppe’s development strategy involves a
continued growth of land holdings, a further
enhancement of land asset efficiency,
the launch and development of new dairy
farms to boost milk output, growth in sales
in the grain trading segment with a view
to evolving into a full-fledged international
trader, and strengthening the market position
in the sugar & grocery trading segment
through enhanced sales (of both branded
and unbranded produce).

FINANCIAL RESULTS, RUB mln

2020

2019 CHANGE, %

Revenue

OIBDA

Operating income

Net profit (loss) attributable
to Sistema

OIBDA including AGK Yuzhny1

32,824

28,487

9,321

7,368

3,909

9,697

4,190

2,694

-584

4,103

15.2

122.5

173.5

n/a

136.3

Management accounts.

RZ Agro included

32.8

RUB bln
Steppe AgroHolding'
revenue in 2020
+15,2% 2019/2020

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

In 2020, revenue went up 15.2%, to RUB 32.8 bln, primarily driven
by crop farming and grain trading. The growth is a combined
product of an efficient selling strategy and rising grain prices, along
with performance enhancements in dairy farming (which in turn stem
from an increase in the number of lactating cows and a growth in per-
cow yield) and growing revenue from sugar & grocery trading.

The 2020 OIBDA was up 122.5% year-on-year, primarily on the back
of operational enhancements at new land assets, a high-efficiency
trading strategy, and a growth in selling prices, along with stepped-up
performance in the international trading segment and a supply chains
optimisation.

In 2020, Steppe’s Capex totalled RUB 2.5 bln, mostly applied towards
new machinery and vehicles, logistics infrastructure, the construction
and refurbishment of dairy farms, and the acquisition of land plots
for expansion purposes.

Operational performance in 2020

PRODUCTION PERFORMANCE, thsd tonnes

PARAMETER

Milk production

Grain trading sales

Sugar & grocery trading sales

2020

71.4

1,200.0

330.0

STEPPE AGROHOLDING’S GROSS HARVEST, thsd tonnes1

CROP

Wheat

Barley

Sunflower

Peas

Corn

Beetroot

Other

TOTAL

2020

647.8

56.8

68.7

59.1

22.0

206.8

192.0

1,253.4

2019

56.9

1,198.0

306.7

2019

707.7

34.1

57.5

24.5

46.9

368.5

80.9

1,320.0

CHANGE, %

25.5

0.2

7.6

CHANGE, %

-8.5

66.5

19.6

140.9

-53.0

-43.9

137.5

-5.1

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
STEPPE
AGROHOLDING
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020
//sistema.com

BINNOPHARM
GROUP
79%1

Binnopharm Group is a pharmaceutical
company that includes 5 production sites.
The company is engaged in development
and production of drugs, sales
of products and active promotion of drugs
in the markets of Russia and the CIS.

SISTEMA’S
EFFECTIVE
STAKE

>450market authorisations

for drugs

>35drugs registered

in 2020

P
U
O
R
G
M
R
A
H
P
O
N
N
B

u
r
.

m
r
a
h
p
o
n
n
b
/
/

~25 %

of products made
from own ingredients

5production

sites

Effective stake in Binnopharm Group, together with VTB.

E
K
A
T
S
E
V
T
C
E
F
F
E

Rustem Muratov
CEO

Dmitry Zubov
Chairman of the Board
of Directors

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
BINNOPHARM
GROUP
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

Binnopharm Group’s business model

Industry overview for 2020

MARKET IN MONETARY TERMS AND IN UNIT TERMS

RESEARCH AND
DEVELOPMENT

Binnopharm Group has a modern research and development (R&D)
division, which includes five centres of competence: a centre
for the development of bio products, centres for the development
of solid, soft and liquid dosage forms, and a centre
for the development of active pharmaceutical ingredients.

The aggregate area of the centres exceeds 1,500 sq m. They
employ more than 90 highly qualified specialists with previous
experience at large pharmaceutical, R&D and test labs.
The Group’s R&D is able to provide more than 40 new drugs
in more than 45 dosage forms annually for the company’s portfolio.

MANUFACTURING

Binnopharm Group consists of five production sites, which employ
more than 4,300 people.

The Group’s production facilities can manufacture most
of the existing dosage forms with a total output of more than 450
mln units of drugs per year.

One of the Group’s key advantages is in-house production
of ingredients with a capacity of more than 200 t per year.

Binnopharm Group’s plant in Zelenograd was the first site to start
producing the Sputnik V COVID-19 vaccine.

PROMOTION

Binnopharm Group’s key advantage is the combination
of a diversified portfolio of drugs and an effective promotion
system through media tools, contracts with pharmacy chains
and pharmaceutical representatives.

PRODUCT
PORTFOLIO

The Group’s diversified portfolio comprises more than
450 marketing authorisations for drugs in the major medical areas:
gastroenterology, cardiovascular diseases, respiratory diseases,
infectious diseases, neurology, musculoskeletal disorders
and dermatology. More than 100 drugs from Binnopharm Group’s
portfolio are included in the list of vital and essential drugs.

The Russian drug market grew 13.8% year-on-
year in monetary terms in 2020. Relatively high
growth was in the public segment: healthcare
facilities (42.2%) and subsidised drug coverage
(15.6%). The commercial segment grew 7.3%
in 2020.

The COVID-19 pandemic had a significant
impact on the growth of sales in monetary
terms: consumers started panic-buying
drugs, expecting an increase in prices amid
the rouble’s depreciation and a shortage
of necessary drugs due to lockdown measures.
On the other hand, rising drug prices,
deteriorating financial situation and declining
purchasing power of the population had a
negative impact on the volume of sales in unit
terms (-0.6% year-on-year).

The pharmaceutical market is expected
to grow 10.0% in 2021,1 mainly due
to inflationary growth in the commercial
segment and additional funding for cost-
intensive diseases in the public segment.

DEVELOPMENT OF THE RUSSIAN
PHARMACEUTICAL MARKET, RUB bln

+10.0%

‘21

690

1,032

‘20

595

970

‘19

471

905

‘18

366

831

Public segment
Commercial segment

1,722

1,565

1,376

1,197

Source: AlPharm, audit of retail and state pharmaceutical
market, 2019–2020

RUB BLN

Public segment

Commercial segment

Total

MLN UNITS

Public segment

Commercial segment

Total

2020

595

970

1,565

2020

615

5,152

5,767

2019

CHANGE, %

471

905

1,376

2019

CHANGE, %

650

5,153

5,803

-5

-1

Impact of COVID-19 on the industry
and the company’s business:

In 2020, due to the changing macroeconomic situation and the rouble’s
devaluation, there was an increase in the cost of drugs with a high
share of imported components. Binnopharm Group’s work with its key
suppliers of raw materials and optimisation of promotion and marketing
costs made it possible to compensate for the growing prime cost caused
by the exchange rate differences.

> 4.3

thsd
Binnopharm
Group's employees

There was also a trend towards decreasing sales of life-improving
drugs and growing demand for essential drugs in the reporting period.
To meet changing demand, Binnopharm Group regularly adjusted
its sales forecasts and production plans during 2020. The Group
launched the production of Hydroxychloroquine, significantly
increased the output of Levofloxacin and started the manufacturing
of the Sputnik V vaccine.

The structure of public sector procurement also changed: demand
for drugs used in routine treatment decrease in favour of drugs
for COVID-19 patients.

From 1 July 2020, mandatory labelling was introduced for all medicinal
products manufactured after 1 July 2020. This led to a disruption
in the supply chain, as most of the market players were not ready
for the practical implementation of the project, which led to a
shortage of medicines in pharmacies, especially outside Moscow
and St. Petersburg.

Source: AlPharm.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
BINNOPHARM
GROUP
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

Development of the Group’s business in 2020

Output

In August 2019, Sistema, together with VTB Group, acquired a 46.5%
equity stake in OJSC Sintez. In May 2020, Sistema and VTB Group
increased their stake in OJSC Sintez to 56.2%.

In February 2021, Sistema and VTB Group contributed their 56.2%
stake in OJSC Sintez to the equity of Binnopharm Group to create a
pharmaceutical holding company. At the same time, Sistema, VTB
Group and a consortium of investors consisting of the Russia-China
Investment Fund and major Middle East funds contributed an 85.6%
stake in JSC Alium to the equity of Binnopharm Group. As a result,
the effective stake of Sistema together with VTB Group in Binnopharm
Group is 79%.

In March 2021 Group acquired a 32.4% stake
in Sintez from JSC National Immunobiological
Company, controlled by State Corporation
Rostec.

As a result of the operational integration
of OJSC Sintez (includes CJSC Biocom) and JSC
Alium (includes JSC Binnopharm), Binnopharm
Group has become a major pharmaceutical
player, ranking 5th in terms of sales
in monetary terms among Russian companies
in the commercial segment in 2020.

The total output in units increased in line with the annual plan by 3.8%,
but there was reallocation towards drugs aimed at combating
COVID-19, namely injection and infusion solutions.

PRODUCTION STRUCTURE BY DOSAGE FORM, thsd units

DOSAGE FORM

2020

2019

CHANGE, %

Injection and infusion solutions

Tablets and capsules

Other

Total

206,248

113,253

70,743

390,244

166,447

116,275

93,236

375,958

-3

-24

TOP DRUGS IN 2020

DRUG NAME

Leflobact/Leflox
Ceftriaxone
Maxilac
Hydroxychloroquine1
Cefazolin
Ibuprofen
Neobutine
Rinorus

DESCRIPTION

Antibiotic
Antibiotic
Probiotics
Antimalarial drug
Antibiotic
Anti-inflammatory drug
Antispasmodic
Vasoconstrictor

Financial and operational performance in 2020

The Group’s revenue increased by 30.1% in 2020, while the market grew
by 13.8% over the same period.

Thanks to the control of purchase prices, including prices for imported
substances, and administrative costs, as well as optimisation
of sales plans in connection with changed consumer demand amid
the pandemic, the Group’s OIBDA grew by 38.6% year-on-year
.

FINANCIAL RESULTS2,3, RUB mln

INDICATOR

2020

2019

CHANGE, %

Revenue

OIBDA

Operating income

Net income

21,372

16,432

5,456

4,357

1,803

3,937

2,703

1,421

30.1

38.6

61.2

28.8

GROWTH VS 2019

Key focus areas and business goals for 2021–2022

The goal of Binnopharm Group is to become one of the leaders
in the Russian pharmaceutical market and continue to expand its
presence in foreign markets:

SALES
DEVELOPMENT

ENHANCEMENT
OF OPERATIONAL
EFFICIENCY

IMPROVEMENT
OF THE COMPANY’S
INVESTMENT APPEAL

› Reaching revenue

› Optimising business

› Work with the main dosage forms

and EBITDA
targets

› Entering new sales

markets

processes

and sales channels

›

Increasing
the efficiency
of structural units

› Growing labour
productivity

› Revenue growth with high margins

› Creation of a business with
an investor appeal and high
shareholder value

1074.0%
68.6%
10.6%
n/a
17.3%
33.0%
10.5%
11.2%

21.4

RUB bln
Binnopharm Group's
revenue in 2020
+30,1% 2019/2020

Manufacturing of this drug started in 2020.
Financial results of Binnopharm Group are presented
to reflect the combination of the financial results of JSC
Alium and JSC Sintez based on management accounts.
Financial results of Binnopharm Group are not
consolidated in the financial statement of Sistema PJSFC.
The data shows 100% net profit

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
BINNOPHARM
GROUP
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020
//sistema.com

BASHKIR
POWER GRID
COMPANY
91%

Bashkir Power Grid Company (BPGC)
is a major regional power grid company
and a leader on the Bashkortostan power
transmission market.

SISTEMA’S
EFFECTIVE
STAKE

C
G
P
B
C
S
J

u
r
.
s
e
h
s
a
b
/
/

13.7

thsd pcs
New connections

86.8

thsd km
Length of grids

78% 1

Share on power
transmission market
in the Republic
of Bashkortostan

7.9

thsd
Employees

In terms of revenue.

E
K
A
T
S
E
V
T
C
E
F
F
E

S. Gurin
CEO

D. Sharovatov
Chairman of the Board
of Directors

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC
JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

BUSINESS MODEL

TRANSMISSION GRIDS
BGC
Limited Liability Company Bashkir Grid
Company provides for electric power
transmission between the central part of
Russia and the Urals

LLC BPGC
ENGINEERING
Limited Liability Company
BPGC Engineering carries
out design, construction and
overhaul of power facilities

ELECTRICITY
TRANSMISSION
AND DISTRIBUTION

DISTRIBUTION GRIDS
BASHXIRENERGO
Limited Liability Company
Bashkirenegro ensures distribution of
electric power to individual costumers
in the Republic of Bashkortostan.

1.06

trn kWh
electricity
generation in
Russia in 2020

1.05

trn kWh
electricity
consumption
in Russia in 2020

Industry overview for 2020

In 2020, electricity generation in Russia dropped 3% year-on-year,
to 1.064 trn kWh, with consumption down 2.3%, to 1.05 trn kWh.1
The downward trend in large part resulted from lockdown measures
amid the pandemic of COVID-19 as well as the OPEC+ agreement
to reduce oil production.

Regulatory measures as regards electricity pricing in 2020 are strongly
indicative of the government’s commitment to containing tariff
growth. Regulatory decisions passed in 2020 are consistent with this
course, especially when it comes to retail rates for households.
The average “common pot” tariff for electric power transmission went
up 3.2% year-on-year.

Specifically in Bashkortostan, the average “common pot” tariff
in 2020 was RUB 1.15 per kWh, with zero average indexation of one-part
rates from July of 2020.

The user segment where electricity consumption in Bashkortostan is
highest is industrial companies that usually either produce or transport
hydrocarbons. The OPEC+ agreement of 2020 led to a significant
reduction in oil supply figures, with Bashkortostan no exception
to the trend. This caused a decline in demand for electric power
from the republic’s major oil companies versus 2019 numbers.

The pandemic caused a reduction in electric power consumption,
including a 0.6% decrease in electricity purchased by LLC Energy Retail
Company of Bashkortostan, the region’s largest consumer of energy.
The same trend was observed for many industrial, retail, service,
and public catering businesses, as well as various SME operations,
with the overall productive supply down 5.4%.

Based on data from main consumers in the oil industry, “common-pot”
energy consumption in 2021 will shrink by another 3.5%, primarily due
to OPEC+ oil production cuts.

Business development in 2020

BPGC leads the Russian electricity-grids market by operating efficiency,
maintaining high quality and reliability of services despite lower average
prices and unit operating costs than those of peers.

Bashkortostan’s largest grid company, BPGC is also the biggest investor
in local market infrastructure. In 2020, the company’s infrastructure
investment totalled RUB 3.63 bln (net of VAT), including RUB 1.64 bln
applied toward new connections.

The overall supply of electricity to consumers and territorial grid
operators (TGOs) in 2020 went down 7.9%, primarily driven
by the OPEC+ production cuts. That said, electricity consumption
in the retail (household) segment reached 2,995.5 mln kWh, up 4.6%
year-on-year, due to lockdown measures and widespread remote
working.

Source: Russian Ministry of Energy.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC
JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

HPPLLC BGC (Inter RAO Group)LLC BGC (Inter RAO Group)TTPRENEWABLESELECTRICITY GENERATION INDUSTRY OFFICES HOUSINGCONSUMPTIONLLC BPSCSUPPLYNATUR GASCOALFUEL OILFUEL SUPPLYSISTEMA PJSFCANNUAL REPORT / 2020

As Bashkortostan exceeded its designated cross-subsidisation volume
ceiling in 2020, the federal government decided to impose a freeze
on certain categories of local transmission rates. This resulted in zero (0%)
annual indexation of the grid maintenance component of two-part rates
and of one-part rates for all voltages, while the power loss component
of two-part rates was adjusted by 5.6%, effective July of 2020.

The company recorded 13,727 connections to power grids in 2020,
down 16.7% year-on-year, primarily due to the overall economic
slowdown that happened that year.

2020 marked the completion of the company’s comprehensive project
to upgrade the distribution grid infrastructure of Bashkortostan’s capital
Ufa with the new Smart Grid technology, an initiative first launched
in 2014. The project cost the company a total of RUB 5.07 bln, of which
RUB 901.18 mln was invested specifically in 2020. The project translated
into a stronger quality of Ufa’s grid infrastructure, an enhanced reliability
of power supply, and improved energy efficiency. The extensive project
involved reconstructions and automations of distribution and transformer
substations, an optimisation of the entire grid structure, and installations
of smart meters for better measurement accuracy. Specifically in 2020,
the company refurbished 108 distribution and transformer substations
and laid 27.5 km of cables. All in all, the project encompassed
513 substations, 96.5 km of cables, and 75 thsd smart meters.

Two other major projects pursued in 2020 were the construction
of the 110 kV Uzyan-Baynazarovo overhead power transmission
line and the 50 MVA Romanovka substation, to be commissioned
in 2022 and 2021, respectively. The total investment in the two projects
is budgeted at RUB 708 mln, of which RUB 156.7 mln was used in 2020.

BPGC spent 2020 working on the enhancement of operating efficiency,
which involved:
› a launch of upgrades to a 1C-powered software system for better

metering and billing;

› automation of business processes employing IT and ERP systems;
› automation of the planning and control of capital expenditures

relating to user hook-ups

In 2020, BPGC installed 22 thsd smart meters, with the total number
of smart meters commissioned since the start of the programme
(as of the end of 2020) reaching 307.7 thsd. This means a 39%
overperformance on top of the targets determined as per
the governmental programme Energy Efficiency and Development.
Another 29.7 thsd meters are scheduled for installation in 2021.

In 2020, BPGC was ranked #6 among Russian grid companies providing
best quality of power grid connection services. The ranking involves
60 major regional grid companies across Russia.

//sistema.com

100 %

Implementation of
Smart Grid technology
in Ufa

39 %

Share of smart meters
with automated data
collection

307.7

thsd pcs
Smart meters with
automated data
collection

LOSSES IN GRIDS, %

+0.01%

‘20

7.69

‘19

7.63

Distribution grids
Transmission grids

1.26

8.95

1.31

8.94

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC
JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020//sistema.com

Operations & investment development
strategy on a 2–3 years’ horizon

BPGC’s mid-term strategic plans address operating efficiency and aim to hit
the following targets:

IMPROVED
OPERATING
EFFICIENCY

›

Installation of smart
electricity meters

› Reduction of technical
losses through newer
and more efficient
technology

DIGITALISATION

UPSCALING
THE BUSINESS

› Extensive programme

› Consolidation of grid assets

to upgrade grid
infrastructure through
advanced digital solutions

› Production of power grid

equipment for digitalisation
projects

› Comprehensive

digitalisation in technical
and managerial processes

in Bashkortostan, including ones
managed by territorial grid operators

› Signing up as manager for infrastructure

projects to monetise managerial
expertise and evolve into a centralised
operator of heating, water supply,
and water disposal assets

› Development of non-regulated

business lines, in large part relying
on the expertise gained in grid assets:
IT services, power facility designing,
outdoor lighting, etc.

Financial and operational performance in 2020

FINANCIAL RESULTS, RUB mln

Revenue

OIBDA

Operating income

Net income attributable to Sistema

2020

19,733

4,381

1,574

1,174

2019

20,931

6,205

3,537

2,698

CHANGE, %

-5.7

-29.4

-55.5

-56.5

Revenue is down 5.7% year-on-year, to RUB 19.7 bln, primarily driven
by slumping energy consumption by Bashkortostan’s oil producers due
to the OPEC+ deal as well as pandemic effects

OIBDA is down 29.4% year-on-year, to RUB 4.4 bln. Apart
from shrinking revenue, the decrease in OIBDA results from a growth
in operating costs through one-off dispute settlement transactions.

Net income in 2020 is RUB 1.2 bln, down 56.5% year-on-year, a direct
result of the OIBDA reduction.

Capital expenditures declined by 4.9% year-on-year and stood
at RUB 3.4 bln. The cost reduction is due to optimisation move aimed
at the enhancement of financial performance metrics.

19.7RUB bln

revenue in 2020

POWER LOSSES

INDICATOR

UOM

Power losses %

Power losses

mln kWh

BASHKIR-
ENERGO

7.63

1,576

2020

BGC

1.31

308

Power in

mln kWh

20,662 23,441

22,453 27,094

Power out

mln kWh

19,086 23,133

20,726 26,754

CHANGE YEAR-ON-YEAR
2020/2019 (p.p.,%)

2019

BASHKIR-
ENERGO

7.69

1,726

BGC

1.26

340

BASHKIR-
ENERGO

BGC

-0.06%

0.05%

91.31

92.02

92.09

90.59

86.52

86.47

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC
JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

BUSINESS
NEDVIZHIMOST

100%

SISTEMA’S
EFFECTIVE
STAKE

Business Nedvizhimost is one of the key
players in Moscow’s commercial real
estate market, with a portfolio of more than
80 properties. The Group also operates
in the market of low-rise and suburban
residential properties in and around
Moscow, owns a significant number of land
plots and provides additional services.

305.1

thsd sq m
Total area of leased out
properties at the end
of 2020

2.147

thsd sq m
Area of land plots
at the end of 2020

E
K
A
T
S
E
V
T
C
E
F
F
E

T
S
O
M
H
Z
V
D
E
N
S
S
E
N
I
S
U
B

u
r
.
n
b
-
a
m
e
t
s
s
/
/

Artemy Marinin
CEO

Sergey Egorov
Chairman of the Board
of Directors

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
BUSINESS
NEDVIZHIMOST
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

Main focus areas:

Industry overview for 2020

ASSET
MANAGEMENT

Asset management to increase
capitalisation and liquidity of assets
and to optimise the entire portfolio
of owned and managed commercial
real estate.

PROPERTY
MANAGEMENT

Management of the Group’s real
estate to improve the efficiency
of its use and maximise net operating
income.

FACILITY
MANAGEMENT

Operation and maintenance
of commercial and residential real
estate to ensure good condition
and avoid accidents.

FLEXIBLE SPACE CHAIN
TERRITORY

Ready-made serviced offices that
meet today’s business requirements:
the ability to quickly accommodate
employees without capital
expenditures for repairs and furniture,
flexible terms of rent and a full range
of services.

UNIQUE POOL
OF PROPERTIES MANAGED
BY BUSINESS NEDVIZHIMOST

Mansions in central Moscow,
office and commercial space,
a gym, buildings located in almost
every district of the city, industrial
warehouse facilities, luxury villas
and land plots.

In 2020, 224,400 sq m of office space were commissioned in Moscow,
which is 42.2% less than in 2019 (388,100 sq m) but almost 70% more
than in 2018 (132,700 sq m). During 2020, the commissioning of more
than 300,000 sq m was postponed to 2021 due to a slowdown
in business activity amid the coronavirus pandemic.

The volume of office space leased and acquired by end users
in 2020 decreased by 30% year-on-yearto 1.2 mln sq m, which is
comparable to the drop in 2014. Despite the COVID-19 restrictions
and the unstable epidemiological situation in Moscow until the end
of the year, the volume of new transactions in the fourth quarter
increased to the level of the first quarter: about 350,000 sq m of leased
and acquired office space.

The volume of new transactions decreased in 2020 in both class A
and class B, but the drop was more dramatic in class B (-36%) than
in class A (-15%). As a result, the share of class A in the structure of new
transactions increased from 26% in 2019 to 32% in 2020.

Due to the size of Moscow’s office property market, commercial terms
may differ significantly depending on the submarket and the class of a
particular property. The weighted average asking rental rate in class
A Prime at the end of 2020 was RUB 46,500 / sq m a year, up 11% YoY
and 8% since the beginning of the pandemic.

The weighted average asking rental rates for class A premises
(excluding class A Prime) in Moscow grew both within the Third Ring
Road (TRR) (RUB 37,600 per sq m a year, up 7% since the beginning
of the pandemic) and outside it (RUB 20,900 per sq m a year, up
14% since the beginning of the pandemic). The weighted average
asking rental rates for class B premises slightly decreased both within
the TRR (RUB 20,000 per sq m a year, down 4% since the beginning
of the pandemic) and outside it (RUB 12,400 per sq m a year, down 2%
since the beginning of the pandemic).

VACANCY RATE AT THE END
OF 2020, %

TOTAL SUPPLY,
mln sq m

Class A

Class B+

Class B-

Total

12,6

16,7

11,9

5.103
27%

4.536
24%

9.45
49%

A
B+
B-

Source: CBRE, Colliers

100

During the period of lockdown from March
to June 2020, Business Nedvizhimost provided
lease payment deferrals and temporary
lease discounts. Individually negotiated
discounts were temporary and were provided
to tenants in the affected industries – sports,
tourism, catering, entertainment and small
businesses in the service sector – until the end
of the temporary suspension of operations.
As of the end of 2020, such discounts were
cancelled.

In August 2020, Federal Law No 269-FZ
entered into force, introducing substantial
changes to Federal Law No 237-FZ “On State
Cadastral Valuation”, including the procedure
for challenging the cadastral value of real
estate.

The law introduces compulsory pre-trial
appeal to a state budgetary institution (“SBU”)
authorised to determine cadastral value in a
given region of Russia, and those who disagree
with its ruling can no longer ask the court
to establish the cadastral value at the market
level without challenging the ruling to dismiss a
motion. The applicant will be required to prove
that the SBU’s ruling was unjustified and only
then ask the court to establish the cadastral
value at the market level or oblige the SBU
to uphold the motion.

It is expected that more than 300,000 sq
m of office space will be commissioned
in 2021. Rental rates are expected to remain
broadly the same, while the sublease
market is expected to grow.1 Operators
of flexible spaces will be more focused
on small and medium-sized businesses.1
Large companies will be offered built-to-suit2
serviced office spaces.

Business development in 2020Business highlights in 2020
in the key segments

At the end of 2019, Business Nedvizhimost
launched Territory, an umbrella brand for a
chain of flexible coworking spaces. Territory
will be the only chain of coworking spaces
with properties located not only in central
Moscow, but also in densely populated
residential neighbourhoods, which allows
companies to choose the best location.

The first coworking space of the Territory chain
was opened in November 2020 and includes
over 200 workspaces, a conference hall,
and eight meeting rooms.

At the end of 2020, the Group comprised
over 16 legal entities with a broad
pool of properties: land plots, offices,
warehouses, mansions, office and retail
premises, a chain of class B- and C office
buildings, industrial warehouse facilities,
and villa communities mainly within
Moscow. The Group has properties not only
in Moscow and the Moscow region, but also
in St. Petersburg and Samara.

In July 2020, Expert RA rating agency
assigned a credit rating of “ruA-” to Business
Nedvizhimost. The outlook is stable.

In August 2020, Business Nedvizhimost
placed a debut bond issue worth RUB 4 bln
with duration of 4 years and a coupon rate
of 7.9%.

Source: Knight Frank.
The built-to-suit format means that the work is carried out in accordance with the needs of the tenant under a contract, who
signs with the owner of the property a lease agreement or an SPA for the building that suits its needs.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
BUSINESS
NEDVIZHIMOST
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

101

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

4RUB bln

Volume of public
bond offering in
August 2020

149pcs

Villas in and around
Moscow at the
end of 2020

85 %

of leased properties
are commercial

ruA–

Credit rating
(Expert RA)

102

In 2021, it is planned to open 19 flexible office spaces within
the framework of the Territory project on the basis of telephone
exchange buildings acquired from MGTS, with a total portfolio of about
8,000 workspaces.

Key objectives for 2021

› Renovation of telephone exchange buildings to create high-quality

В/В- rental properties

Financial and operational performance in 2020

FINANCIAL RESULTS, RUB mln

INDICATOR

Revenue

Adj. OIBDA

Operating profit

2020

6,296

2,423

1,904

1,378

2019

CHANGE, %

7,106

4,495

4,015

3,333

-11.4

-46.1

-52.6

-58.7

› Restructuring of the loan portfolio (replacing the secured line of credit

Adj. Net income attributable to Sistema

with debt securities)

› Development of the Territory brand
› Development of the Olympic Star gym

Strategic goals

Business Nedvizhimost Group’s development strategy adopted
in 2020 includes two focus areas:
› Become a key player in the market of flexible spaces using

the telephone exchange buildings. The chain of flexible spaces will
include not only offices but also spaces for sporting and other events.
› Remodel a number of assets in the real estate portfolio into business
centres in order to upgrade their class and significantly increase
rental rates.

STRUCTURE OF REAL ESTATE FOR RENT BY CATEGORIES, %

‘20

85%

‘19

86%

15%

14%

Commercial properties
Countryside properties

Source: CBRE, Colliers

The 11.4% decline in revenue in 2020 was due to the completion
of the programme of sales of commercial real estate in 2019.

Adjusted OIBDA decreased by 46.1% YoY in the reporting period mainly
due to the changed revenue structure with a bigger share of rental
revenue, which has lower OIBDA margin. The sale of a non-core asset
in the second quarter of 2019 also had an impact on OIBDA.

The Group’s net profit was affected by decreasing OIBDA and growing
loan portfolio.

Operational performance

ASSET BREAKDOWN BY REGION, thsd sq m

INDICATOR 1

Area of commercial real estate in Moscow, thsd sq m

Area of commercial real estate in St. Petersburg,
thsd sq m

Land area (in Serebryany Bor)

Land area (in the Moscow region)

Land area (in Samara)

Land area (in St. Petersburg)

Villas for rent (Serebryany Bor, Barvikha
and Trudovaya communities), thsd sq m

2020

392.8

26.0

179.8

728.9

1,193.60

44.3

43.9

2019

CHANGE, %

430.8

26.0

191.7

803

44.3

-8.8

-6.2

-9.2

-8.5

LEASED OUT AREA2, thsd sq m

–9.2%

‘20

259.4

‘19

289.4

Commercial properties
Countryside properties

45.7

305.1

46.5

335.9

The table shows gross building area of the facilities (GBA), in accordance with legal documents.
Without common area factor

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
BUSINESS
NEDVIZHIMOST
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

103

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

COSMOS
HOTEL GROUP

100%

SISTEMA’S
EFFECTIVE
STAKE

Cosmos Hotel Group is one of Russia’s
leading hotel management companies
providing a full range of hotel development
services from project consulting
and preparing hotels for opening to cost
cutting and increasing asset capitalisation.

850thsd

Visitors at hotels
managed by Cosmos
Hotel Group in 2020

18Hotels

under management

4.162

Rooms
under management

3.639

RUB
ADR1 of hotels
managed by Cosmos
Hotel Group

Average Daily Rate

E
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F
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P
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/

104

Alexander Shvein
CEO

Leonid Monosov
Chairman of the Board
of Directors

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
COSMOS
HOTEL GROUP
HOTEL GROUP

OTHER ASSETS

FUNDS

105

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

36.6%

Average occupancy
rate at the hotels of
Cosmos Hotel Group

77 %

of Cosmos Hotel
Group's revenue is
generated in Russia

Business model

The business model of Cosmos Hotel Group envisages provision of a
broad range of hospitality services.

Cosmos Hotel Group specialises in professional hotel management,
including implementation of service standards, introduction of quality
assurance systems, recruitment, training and regular assessment
of personnel, performing administrative and business operations,
providing security services, setting up systems for active sales, income
management and centralised procurement, as well as providing other
highly skilled services in the hospitality segment.

Cosmos Hotel Group also offers a full range of value creation
and management services for hotel assets, from project consulting
and preparation of hotels for opening to cost-cutting and capitalisation
enhancement.

HOTELS

RETAIL

WEAR

KID'S WEAR

ECO MARKET

RENTING

SERVICES

TECHNOLOGIES

E-COMMERCE

TRAVEL

LAB

Industry overview for 20201

The hotel sector declined sharply
in 2020 amid a steep fall in occupancy
rates due to the lockdown measures
and travel restrictions caused by the spread
of COVID-19 pandemic.

All business segments without any
exception were hit hard by the coronavirus
crisis: average RevPAR2 did not exceed
40% of the 2019 levels. Moscow
and St. Petersburg were among the hardest
hit markets, since they are more dependent
on international tourism.

At the same time, the closure of borders and government support
measures stimulated development of domestic recreational tourism
in Russia. As a result, hotels in the midscale segment switched their focus
to domestic customers amid a considerable fall in prices (by about 30%).

The 2020 crisis was characterised by contraction of booking windows3
(to less than one week), making it necessary to quickly respond
and adapt to the fast-changing environment.

The average daily room rate of hotels in Moscow dropped by 10%
in 2020 compared to 2019, stabilising at about RUB 6,600. The occupancy
rate of Moscow hotels in 2020 was 37% compared to 77% a year
earlier. As a result, the average weighted RevPAR fell by a record 63%
to RUB 2,075. RevPar hit an all-time low during the period of the most
severe lockdown measures in April and May 2020, and starting
from Q3 2020 the occupancy rates began to recover.

Moreover, the share of direct bookings
through “live” channels (Instagram, etc)
is projected to increase, as such channels
offer daily information updates and direct
communication with hotel management.

In 2021, a few more hotels in the upper price
segment are expected to open in Moscow:
Crowne Plaza Moscow – Park Huaming,
Marriott Imperial Plaza, Vertical Boutique
BW Signature Collection, with a total number
of rooms standing at approximately 700.
Hilton Garden Inn Paveletskaya with 245 rooms
will be launched in the midscale segment,
and Hampton by Hilton Rogozhsky
Val with 148 rooms will start operating
in the economy segment.

Business development in 2020

In 2020, Cosmos Hotel Group actively
developed the business segments required
for making a comprehensive value proposition
at all stages of interaction with the customer,
with the main emphasis placed on expanding
the borders of a traditional hospitality
business. In the reporting period the company
launched Cosmos Travel, an incoming tour
operator, and Cosmos Food, a foodtech
project managed in cooperation with Yandex.
Food and Delivery Club.

In 2020, Cosmos Hotel Group launched a
project aimed at further development of its
chain of 4-star city hotels: the construction
of hotels in Omsk and Segezha was started,
a land plot was acquired for building a
hotel at the International Sheremetyevo
Airport. At the eco hotel Izumrudny Les a
new 40-room hotel building was completed
and commissioned, and an 8,000 sq m
equestrian centre was opened.

In 2020, two new hotels were commissioned
in Moscow: a 154-room Movenpick Moscow
Taganskaya 5* and a 116-room Holiday
Inn Express Moscow – Khimki Go Park 3*.
As of the end of 2020, the total number
of available quality hotel rooms in Moscow
reached approximately 20,500.

CHANGES IN HOTEL CAPACITY
IN MOSCOW

+1.3%

‘20

20,212

‘19

20,084

‘18

19,306

‘17

17,645

‘16

17,174

‘15

15,937

‘14

14,794

‘13

13,791

270

20,482

128

20,212

778

20,084

1,661

19,306

471

1,237

1,143

1,003

17,645

17,174

15,937

14,794

Rooms available at the start of the year
Rooms added during the year

The hospitality industry is not expected
to return to the 2019 levels before 2022–2023.1
The hotel sector of Russia is expected
to continue operating with an average
occupancy rate of 59% or less and with room
rates at approximately the same level as
in 2020.

The strongest recovery of demand is
projected in the upper midscale segment,
where the average occupancy rate may go
up to 46%, while more upscale hotels will be
lagging behind. Although RevPAR is expected
to grow in 2021, it is not likely to reach the level
of 2019.

International tourists are expected to return
to Russia in Q4 2021 at the earliest and most
of them will opt for mid-market hotels, as
opposed to luxury accommodation. Demand
is expected to increase in the segment of one-
or two-day tours to destinations nearest
to people’s permanent place of residence
and work, and in the “workation” segment
(combining remote working with travel).

Sources: CBRE, С&W, JLL.
Revenue Per Available Room per day.
Booking window is the period between the time the reservation is created by the guests and the arrival date at the hotel.

Source: CBRE, С&W, JLL.

106

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
COSMOS
HOTEL GROUP
HOTEL GROUP

OTHER ASSETS

FUNDS

107

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

Business development strategy

The development strategy of Cosmos Hotel Group is aimed at attaining
leadership in the Russian hotel sector in terms of capacity, brand
strength and awareness, building a strong umbrella brand Cosmos
Hotels & More that would extend beyond the traditional hospitality
industry, and launching a high-tech platform for developing, managing,
promoting and selling accommodation and services. Moreover, at least
12 new hotels will be launched by 2023 as part of the company’s
development plan.

In 2021, Cosmos Hotel Group expects its
revenue and operating income to recover
to the 2019 levels and its operating indicators
in the Travel and Food segments to improve.
Plans for 2021 include launching construction
of 6 new hotels and commissioning a new hotel
in Segezha.

Financial and operational performance in 2020

FINANCIAL RESULTS, RUB mln

Revenue

Adj. OIBDA

Operating income

Adjusted net loss attributable to Sistema

Net debt

2020

2,516

-85

-1,893

-1,167

4,112

2019

CHANGE, %

5,034

1,251

-481

-238

3,592

-50

n/a

14.5

In 2020, revenue significantly decreased year-on-year due to a sharp fall
in occupancy rates amid the COVID-19 pandemic. Following a decline
in revenue, the company’s adjusted OIBDA fell despite the fact
the hotels continued to drastically cut their costs in order to minimise
losses caused by the coronavirus crisis.

Operating results

ROOMS, e

+40

‘20

‘19

108

OCCUPANCY RATE, %

4,162

4,122

59%
57%
57%
50%

70%
64%
59%
60%

73%
67%
64%
61%

29%
37%
44%
21%

2017

2018

2019

2020

Average occupancy rate
Cosmos Group

Holels in Russia (excl. Cosmos)
Hotels abroad

ADR DYNAMICS, RUB

REVPAR DYNAMICS, RUB

Hotels abroad

+40.0%

Hotels abroad

–54.6%

‘20

‘19

‘20

‘19

‘20

‘19

‘20

‘19

Holels in Russia (excl. Cosmos)

–1.0%

Cosmos Group

–16.3%

Average indicator

–1.5%

27,979

19,955

3,871

3,909

1,707

2,040

3,639

3,586

‘20

‘19

‘20

‘19

‘20

‘19

‘20

‘19

Holels in Russia (excl. Cosmos)

–28.3%

Cosmos Group

–67.3%

Average indicator

–44.3%

5,783

12,749

1,721

2,399

487

1,488

1,331

2,389

Average occupancy rate of Cosmos Hotel Group in 2020 stood
at 36.6%, a 30 p.p. decline versus 2019.

The hotel chain’s average ADR in 2020 remained at the level
of 2019 and amounted to RUB 3,639, mostly due to the growth of prices
at hotels abroad and the euro appreciating by 29%.

RevPAR across the chain totalled RUB 1,331 in the reporting period,
which is 25.6% lower compared to 2019. This negative trend is mostly
due to the deterioration of annual results of Cosmos Moscow Hotel
and hotels abroad caused by the lockdown measures introduced
in spring-summer 2020.

Cosmos Hotel Group’s total number of available rooms was increased
due to the launch of a new 40-room building at the Izumrudny Les eco
hotel (in the Moscow region).

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
COSMOS
HOTEL GROUP
HOTEL GROUP

OTHER ASSETS

FUNDS

109

SISTEMA PJSFCANNUAL REPORT / 2020
//sistema.com

ELEMENT

49.5%

SISTEMA’S
EFFECTIVE
STAKE

Element is a leading national
microelectronics developer and producer
that creates technologies for digital
development of business and society.

Element is comprised of the most advanced Russian enterprises
operating in the field of microelectronics and hardware development,
production and design. The products made by the company are
supplied as input material for the manufacturing, telecom, financial
and energy sectors, thus facilitating the implementation of projects
aimed at development of the digital economy.

>7,000

employees

>1,000

developers

23.1

RUB bln
revenue 2020

13%

share of export
in revenue

E
K
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S
E
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C
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F
F
E

lya Ivantsov
CEO

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS
OTHER ASSETS

FUNDS

111

T
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110

SISTEMA PJSFCANNUAL REPORT / 2020
//sistema.com

Business model

The Group has seven design centres and seven large production sites,
including Russia’s flagship enterprise in the segment, PJSC Mikron.
The Group’s companies represent the full production cycle in the area
of microelectronic component base, from fundamental research to sales
of finished devices.

VALUE CHAIN OF THE INTEGRATED COMPANY
Revenue structure in 2020 by segment

7 %

CASES

41 %

MICROELECTRONIC
COMPONENT BASE

20 %

DEVELOPMENT
(DESIGN CENTRES)

4 %

OTHER

28 %

HARDWARE

Industry overview for 2020

In 2020, the global microelectronics market saw a minor decline caused
mostly by the impact of the COVID-19 pandemic on logistic chains and a
lower demand for consumer electronics. The market shrank by 0.9%
in 2020 to USD 415.4 bln.1

The share of Russian manufacturers is very small, with the Russian
microelectronics market accounting for just about 0.7% of the global
one (RUB 149.7 bln in 2019),2 and the bulk of it coming from the defence
industry.

RUSSIAN MICROELECTRONICS MARKET BY SECTOR

32 %

INDUSTRIAL, POWER
AND MEDICAL ELECTRONICS

44 %

DEFENCE AND AIRSPACE
INDUSTRIES

2 %
IOT5

13 %

CONSUMER
ELECTRONICS, LED3

5 %
RFID4 AND
SMART CARDS

2 %

CAR INDUSTRY

1 %

TELECOM

112

REVENUE OF MICROELECTRONICS MARKET
PARTICIPANTS IN RUSSIA, RUB bln

283

246

216

189

167

148

131

117

104

‘30 E

215

‘29 E

187

‘28 E

164

‘27 E

144

‘26 E

127

‘25 E

113

‘24 E

100

‘23 E

‘22 E

‘21 E

‘20

Revenue of Russian microelectronics
developers
Revenue of Russian microelectronics
manufacturers

The Russian microelectronics market is
dominated by foreign producers. In recent
years, the share of Russian and Belarusian
manufacturers remained about 15%, reaching
up to 40% in the defence segment.

Domestically manufactured components
for navigation, automated city management
systems, monitoring systems, energy
and transportation sectors are expected
to appear in 2021–2025. Growth in the industry
is projected to pick up in 2021–2023 following
implementation of comprehensive projects1
with government support.

In 2020, the Russian Industry and Trade
Ministry approved the Development
Strategy of the Russian Electronics Industry
till 2030, addressing the sector’s problems.
The document envisages a more than 2.5-
fold increase of domestic production.
The civilian electronics segment is projected
to grow by RUB 940 mln to RUB 4.6 bln.
According to the Ministry’s plans, the share
of the domestic component base will
grow from 20% to 80%. The Strategy
envisages investments in the development
of microelectronics in the amount
of RUB 142 mln in the next two years and about
RUB 266 bln till 2024.

The industry will also benefit
from the government’s policy towards
electronics development in Russia
and digitalisation of the country’s industries
and economy, including as part of the federal
programme “Russia’s Digital Economy”.
Constraints on the segment’s development
include a reduction in the volume of state
defence order.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS
OTHER ASSETS

FUNDS

113

Source: Gartner
Source: ComNews
LED (Light-Emitting Diode)
RFID (Radio Frequency Identification)
IoT (Internet of Things)

A comprehensive project is a set of measures aimed at introduction of hardware
and software systems or intelligent control systems, which includes organisation of
manufacturing, R&D, software development and launch of products in the market.

SISTEMA PJSFCANNUAL REPORT / 2020
//sistema.com

Business development in 2020

Operating performance, mln items

SALES

Total microchips produced, incl.

Chip modules
(passports, visas, IDs, medical insurance policies, bank cards)

Chips for export
(integrated circuits, Schottky diodes, TVS diodes)

Chips for domestic market
(transport tickets, tags, defence industry, R&D, foundry)

2020

2,674.1

2019

CHANGE, %

2,201.8

10.2

13.7

2,449.0

2,016.3

215.0

171.8

-26

Main exporter of
microelectronics in
Russia with revenue

USD bln

PRODUCTION DYNAMICS OF
MICROCHIPS, mln items

+21%

‘20

‘19

2,674.1

2,201.8

In 2020, the Group’s business was affected by the COVID-19 pandemic,
which resulted in a lower demand from consumers. In addition, the rise
in prices of precious metals used in chip production and growing FX
rates led to a decrease in profit margins.

Element monitors the impact of macroeconomic factors on a continuous
basis, using the following tools to reduce risks:
›
long-term contracts with a price formula;
› effective procurement procedures;
› direct contracts with manufacturers of products / suppliers of raw

materials.

In 2020, Element together with the state-owned company Rostec
and PJSC Rostelecom, supported by the Russian Industry and Trade
Ministry, established the Telecommunication Technologies
consortium, the goal of which is to create conditions for implementing
the government’s strategy of imports substitution and development
of domestic manufacturing or electronics, localisation of telecom
equipment production and creating demand for Russian-made
electronic component base.

PJSC Mikron, which is part of the Group, presented a number of new
products oriented towards the market of transport and financial services
in the reporting year:
› RFID tags for city landscaping and labelling of street furniture

›

and landscape structures
the Electronic Entrance system for remote management of access
to municipal facilities with high visitor traffic amidst epidemiological
risks

› new generations of chips for electronic documents and labelling

of technological objects

114

In December 2020, Element signed a cooperation agreement
with the National Research University of Electronic Technology, MIET,
with view to develop the scientific, technological and production
potential of the Russian microelectronics industry. The parties seek
to join efforts in implementing digital projects in the fields whose
digitalisation is dependent on microelectronics, such as artificial
intelligence, machine-building, healthcare, transport, and power
generation.

At present, Element:

›

is the leading producer of microelectronic component base in Russia
by output (over 2,674 mln microchips);
is the main exporter of microelectronics from Russia (No 1, with a
revenue of RUB 3 bln);
is present in all key centres of Russian microelectronics with a high HR
potential;

› has the production capacity of up to 11,000 plates (200 mm).

Strategic goals

The key strategic goals of Element Group are:
› Growing business scale;
› R&D development;
› Product development at design centres;
› Building a leading developer and producer of smart and computing

devices using domestic component base and breakthrough
technologies;

› Entering the market of promising civilian products, including

the Internet of Things, hardware and software systems, data storage
systems, etc.;

› Participation in such comprehensive projects as digital identification

and labelling, telecom equipment, digitalisation of the energy sector
and equipment for automated process control systems, etc.;

› Becoming a leading actor in the Development Strategy of the Russian

Electronics Market.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS
OTHER ASSETS

FUNDS

115

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

CONCEPT
GROUP
43%

Concept Group is one of the leading
fashion retailers in Russia.

SISTEMA’S
EFFECTIVE
STAKE

263 1

outlets

37 %

of revenue made
online

52.2thsd sq m

total floorspace

> 100cities

present in

As of 31 December 2020.

P
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116

E
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F
F
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Anna Grigorenko1
CEO

Leonid Petukhov2
Chairman of the Board of
Directors

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS
OTHER ASSETS

FUNDS

As of 31 December 2020,
Natalia Privalova.
As of 31 December 2020,
Artyom Sirazutdinov.

117

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

Business model

Concept Group’s portfolio comprises the brands Acoola (children’s
clothes and accessories), Concept Club (women’s clothes
and accessories), and Infinity Lingerie (lingerie). The business is
based on a multi-brand and multi-channel model that provides for a
wide diversification of revenue. A significant part of the revenue
comes from the company’s nationwide retail and franchise chain that
comprises over 260 stores. Concept Group is growing increasingly
strong in e-commerce, which involves an extensive programme
of upgrades of the webstore pages aimed to boost traffic and attract
new customers. The share of e-commerce (webstores + marketplaces)

in the total 2020 revenue is up 20 p.p. year-
on-year, to 37%. Production is distributed
among major garment factories of China
and Bangladesh.

As of the end of 2020, the chain comprised
263 outlets across 100 cities, including
209 owned stores and 54 franchise outlets
(of which 6 were outside of Russia: in Belarus,
Latvia, and Armenia).

FORMAT

Acoola

Concept Club

C&A (Concept Club + Acoola)

Total

TOTAL

OWNED STORES

FRANCHISING

229

263

178

209

Industry overview for 2020

›

In 2020, the Russian market of clothing, footwear and accessories
dropped 25.3%, to RUB 1.7 trn, primarily due to a negative effect
of the pandemic and a downturn in household income1.
In 2020, e-commerce in Russia went up 11%, to RUB 245.2 bln,
and experts are predicting even faster growth rates in 2021 (37%,
to RUB 335.2 bln). 2 By 2020, the market will likely exceed RUB 1 trn.
› The childrenswear market in 2020 went up some 1%, to RUB 212 bln.2
›

245.2

RUB bln
e-commerce turnover
in Russia in 2020

RUSSIAN FASHION MARKET, RUB trn

RUSSIAN CHILDRENSWEAR MARKET, RUB bln

–35%

+0.6%

225

223

‘24 п

220

‘23 п

218

‘22 п

212

‘21 п

208

‘20

‘19

330

326

324

315

318

319

Clothing & footwear
Other segments

Source: Fashion Consulting Group

Source: Fashion Consulting Group
Source: Russia Target Groups Index by Ipsos Comcon.

118

Business development in 2020

Despite a broad market crisis and a significant drop in revenue,
the company’s management moved quickly to cut costs and earn a
positive EBITDA in 2020 with no additional shareholder funding involved,
while also negotiating procurement terms so as to free up enough cash
to meet current liabilities.

Operating &
investment development strategy

Among the strategy’s main KPIs is the establishment of a strong
and recognisable brand of affordable fashionable clothing, which,
among other things, specifically requires evolving as an e-commerce
player. The investment programme targets growth at pre-crises rates,
predicated on a demand recovery in 2021.

Targets for 2021

Gain a stronger
position in the womens-
and childrenswear markets
through an enhanced
recognition of all brands
(Acoola, Concept Group,
and Infinity Lingerie) among
the target audience;

Achieve a revival in demand
at Concept Group/franchise
outlets through intensified
marketing activity;

Increase the share of revenue
coming from e-commerce
channels and attract customers
to the Concept Club webstore;

Improve operating efficiency
through better lease &
procurement terms, a more
effective product mix, and further
automation of business processes.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS
OTHER ASSETS

FUNDS

119

‘24 п‘23 п‘22 п‘21 п‘20‘19‘182.302.232.031.661.482.262.35‘24 п‘23 п‘22 п‘21 п‘20‘19554549544533530527SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

EAST-WEST
UNITED BANK S.A.

European bank providing asset management services
for individuals and transactional banking services for businesses
with a focus on Russian clients.

East-West United Bank (EWUB)is a bank in Luxembourg
that serves both private and corporate clients. In private
banking, it helps HNWI save and grow wealth by sound
capital management. Services for corporate clients range
from transactional banking to treasure and credit products
that help clients in managing their day-to-day operations.

EWUB is also represented on the German market of bank
deposits. The platform East-West Direkt serves some
5,000 owners of deposit accounts across Germany
and has the highest customer service rating on Test.de,
an independent consumer-rights platform.

The Bank spent 2020 enhancing customer service in both
private and corporate segments as per the strategy
approved in 2018, which prioritises investing in digital
infrastructure to upgrade customer experience and broaden
operating capacity.

2020 saw the launch of EWUB’s trade finance business
line, where raw-materials traders are offered service
bundles comprising loans, payment & cash management,
and currency transactions.

The Bank’s pipeline of products now under development
comprises a raft of consultancy and loan products for private
banking.

Also launched in 2020, a far-reaching programme
of infrastructure upgrades will deliver a still further
enhancement of customer experience and productivity.

100%

SISTEMA’S
EFFECTIVE
STAKE

155

EUR mln
Capital

697

EUR mln
Total assets

965

EUR mln
Assets under
management

5.1

EUR mln
Fee revenue

E
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V
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C
E
F
F
E

A
.
S
K
N
A
B
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/

120

Key market trends

Luxembourg is the European centre for private banking that has recently
been demonstrating a significant growth in assets under management.
Despite a temporary pandemic-driven downturn in 2020, the upward
AuM trend is expected to continue on the back of a global economic
recovery and inflows of foreign capital.

Business development strategy

Being domiciled in Luxembourg, a European “capital” for finance
and private banking, along with offering a broad product portfolio
and a superior customer experience, EWUB is clearly well-positioned
to further grow clientele in the years to come. By increasingly extending
services to Russian clients (both private and corporate), the Bank aims
to grow assets under management and boost transactional banking
volumes.

Sergey Pchelintsev
CEO

Jeannot Krecké
Chairman of the Board
of Directors

101 mln

Employees
(annual average)

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS
OTHER ASSETS

FUNDS

121

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

SISTEMA
VENTURE CAPITAL

Sistema_VC is a venture capital fund investing in growth-stage
high-tech companies capable of transforming conservative
industries with tech solutions or creating new market niches.

Investment focus

DEEP TECH PROJECTS

› Projects using AI-based computer vision
solutions for face and object recognition
tasks in cybersecurity, agriculture,
construction, real estate and other
industries

› Projects using machine learning to process
data and improve the efficiency of data use

› Projects with data transmission

and processing technologies (SDN, NFV
and SQL GPU Database)

PROJECTS IN THE SEGMENTS OF EDUCATION,
E-COMMERCE AND C2C SERVICES
PRIORITY INVESTMENT STAGES:
LATE SEED, SERIES A, B

90%

SISTEMA’S
EFFECTIVE
STAKE

RUB bln
Target fund
size

95%

Invested

2016

Year
established

25-
30%

Target IRR

E
K
A
T
S
E
V
T
C
E
F
F
E

Industry overview for 2020

Europe

VC funding to European startups in 2020 totalled USD 40 bln,1 down
4% from 2019. The slight decrease was in response to the pandemic
in the first half of the year. However, the funding pace picked up
in the third quarter and the fourth quarter of 2020 became the strongest
quarter over the past two years with VC funding totalling USD 11.8 bln.
Venture capital raised by European startups represented 13% of global
funding in 2020.

Dmitry Filatov
CEO

Russia

In 2020, VC investments in the Russian market amounted
to USD 702.9 mln,2 down 19% year-on-year. However, the number
of transactions increased by 14.2% year-on-year, to 281. Due
to the high risks and difficult-to-predict consequences of the pandemic,
many investors decided to minimise the risks in the first half
of 2020 and postponed transactions until the second half of the year.

The market was characterised by consolidation in 2020: as part
of the reform of development institutions announced by the Russian
Government, six development institutions, including the Skolkovo
Innovation Centre, were transferred to VEB.RF, and the Russian Venture
Company was transferred to RDIF. This consolidation may result
in decreased competition and pace of development. Today, the Russian
market has a limited number of private funds and corporations interested
in buying startups.

Business development in 2020

During the year, Sistema_VC was focused on supporting its current
portfolio, with several companies (TraceAir, NFWare, MEL Science,
KisanHub, SQream and Connecterra) successfully raising additional
funding totalling USD 75 mln. New partners in these rounds included
XTX Ventures, Softline Venture Partners, Russia-China Venture
Fund, Mubadala Investment Company, Low Carbon Investment
Fund 2, Mangrove Capital Partners, Schusterman Family Investments,
Pymwymic, etc.

In 2020, one of the portfolio companies, Ozon Holdings PLC, had a
successful IPO. Ozon’s proceeds totalled approximately USD 1.25 bln.

Source: Crunchbase.
Source: Dsight.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS
FUNDS

123

L
A
T
P
A
C
E
R
U
T
N
E
V
A
M
E
T
S
I
S

m
o
c
.
l
a
t
i
p
a
c
-
a
m
e
t
s
s
/
/

122

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

Exit from Observe Technologies

In February 2021, one of the assets was
monetised: Sistema_VC sold its stake
in the British startup Observe Technologies
(a developer of computer vision solutions
for fish farms) to a strategic investor, AKVA
Group (Norway). The deal was successfully
closed with an IRR of 51%. Observe
Technologies uses AI to give insights
to optimise costs on fish farms: from feeding
to health. The company’s clients already
include farms in Canada, the UK and Chile.

Overview of the fund’s assets

VISIONLABS

Face and object recognition solutions
for the commercial sector
› Leader of the international industry

competition NIST FRVT (Face
Recognition Vendor Test)

› Organiser of the annual international

conference on computer vision
and machine learning Machines
Can See with the participation
of researchers from the labs
of Google, Facebook, Yandex, INRIA,
Intel, etc

Partners:
Sberbank, Yandex.Taxi, Tinkoff Bank,
Pochta Bank, Moscow Traffic Control
Centre, Huawei

124

SEGMENTO

SQREAM

SENSAT

A platform that uses machine learning technologies to target
digital advertising
› The most accurate targeting because of combination of online

and offline data

› One of the largest programmatic advertising platforms in Russia

– Coverage of 200 mln user profiles
– Audience of 71 mln mobile devices

› Unique position in the market due to access to data of MTS

and Sberbank

› Since 2019, the company has been profitable in terms of net

income

Partners:
Sberbank, MTS, Lukoil, Toyota, Huawei, Acer, IVI, HP, Kaspersky

YOUDO

Marketplace of domestic and business services
› YouDo actively participates in the formation of a culture

of the self-employed in Russia

› Operating indicators:

– over 1.5 mln contractors
– over 1 mln reviews on the quality of services

Partners:
Ozon, IKEA, HH.ru

MEL SCIENCE

Science experiments and VR lessons for kids
› MEL Science kits are used by families and schools

in 40 countries

› The bulk of the company’s sales come from the US
› The EdTech Cool Tool Award for the best VR/AR solution

of 2020

Partners:
Yandex, TMT Investments, Channel 4 Ventures, Mubadala
Investment Company, Russia-China Venture Fund

Ultra-fast processing of large data sets
for business insights
› The company’s solutions are used
in telecommunications, finance,
healthcare, etc

› The Big Data Excellence Award

for achievements in cancer research

Partners:
Alibaba Group, Nvidia, Lenovo, Amazon
Web Services

FIVE AI

A platform for the development
and testing of tech solutions for self-
driving cars
› The company participated in the UK

government-backed project
StreetWise with one of the most
complex testing environments
for self-driving vehicles on Europe’s
public roads

Partners:
Lakestar, Notion, Trustbridge, Kindred,
Amadeus Capital Partners

CONNECTERRA

AI assistant for farmers and analytics
for the dairy industry
›

Increasing productivity and product
quality by reducing the use
of antibiotics

› Growth in annual farm profits
by an average of EUR 30,000

Partners:
Danone, Monsanto-Bayer, Rabobank

Digital twins of infrastructure facilities
› Precise solutions based on data

from multiple sources, not
assumptions or personal experience

› The company’s core product is
Mapp, a cloud-based platform.
Sensat operates on a SaaS model,
with customers paying to interact
with digital copies using Mapp
In 2020, Sensat founder James Dean
made it to the Telegraph’s prestigious
Tech Hot 100 list of successful
founders of British tech companies

›

Partners:
Tencent, Heathrow, Murphy, National
Grid, Highways England

NFWARE

Solutions that help companies
build networks with the flexibility
and scalability that they need to be
ready for 5G, the IoT and the future
of the digital world.
› Winner of the Network

Transformation Award, the main
award in network technologies

Partners:
Intel, Mail.ru Group, Telefonica, Lenovo,
Hewlett Packard

TRACEAIR

Construction automation powered
by drone data
› TraceAir technology helped Sibur

save more than RUB 1.3 bln in three
years at four sites

Partners:
Engeo, Independent construction,
Fivepoint, Lennar, Sibur, Morton,
Norilsk Nickel

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS
FUNDS

125

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

SISTEMA CAPITAL
PARTNERS GROUP

The SCP Group (SCP) is a leading niche investment firm
targeting scalable, asset-heavy opportunities in Europe.

49%

SISTEMA’S
EFFECTIVE
STAKE

Industrial focus:
Asset-heavy
opportunities

Geography:
Europe

3–5

years
Investment cycle

>15%

Target IRR

EUR bln
Assets under
management

E
K
A
T
S
E
V
T
C
E
F
F
E

P
U
O
R
G
P
C
S

m
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p
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g
p
c
s
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t
/
/

126

Current portfolio

Company overview

SCP focuses on building market-leading operating platforms, which
own and manage asset portfolios. SCP has an established presence
in London, Frankfurt and Luxembourg with a team of 20 highly
experienced professionals and deep network of origination.

Since 2015, SCP has successfully developed three investment platforms
focussed on the retail and real estate sectors; divestments thus far have
achieved average returns of 20%+. As of the end 2020 GAV of assets
under administration was around EUR 2 bln.

Key current projects

x+bricks

Development of real estate operating
company aggregating food-anchored assets
in Germany. Grew from EUR 100 mln seed
equity to EUR 1 bln platform since launch
in 2018.

Business development in 2020

In 2020, SCP raised EUR 476 mln in partnership capital from institutional
and large private investors to complete acquisition of retail company
Real and develop portfolio of x+bricks.

The gross value of assets involved in completed transactions amounted
to EUR 1.7 bln as of 31 December 2020.

1.7

EUR bln
Gross value of
assets involved
in completed
transactions at the
end of 2020

Real

Restructuring of a large, distressed food
retailer in Germany. Value optimisation
through strategic property and store sales.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS
FUNDS

127

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

SISTEMA
ASIA FUND

Sistema Asia Fund (SAF) is Sistema's venture fund which invests in
high-tech companies in India and Southeast Asia.

Overview of venture capital market in India

VC ecosystem was vibrant in India in 2020, with a lot of young
companies, especially in the digital space supported by tailwinds
of consumer behaviour in the new normal. Spaces like education tech,
online delivery, SaaS and remote medicine burgeoned because of needs
of home-bound consumers across the country. The year witnessed over
USD 10 bln of VC investments across 800+ deals in the start-up space.
VC/PE space in India continues to get deeper and more attractive
with over 40 new funds raising USD 8.4 bln as dry powder for the next
few years.

PE/VCs in India have seen increased IPOs as a way of exit in 2020 and we
expect the trend to continue with more companies going for IPO.
The year saw an increased addition of companies joining the unicorn
club (11 new in 2020 vs 9 in 2019).

>800venture deals in

India in 2020

>10USD bln

volume of venture
investments in India
in 2020

83%

SISTEMA’S
EFFECTIVE
STAKE

2015

Year Founded

Geography:
India, South
East Asia

Life

mandatory,

8 years
2 years

optional

Cash on Cash
Target returns

Target funding
rounds:
A-C.

INDUSTRY
FOCUS

CONSUMER TECH
(E-commerce, healthcare, transport,
media, finance and education)
› ENTERPRISE TECH
› SaaS

INVESTMENT
CRITERIA

1. A proven business model and/or

loyal audience;

2. Solutions specific to the Indian

market;

3. Startup founders heavily involved

in business management;

4. Co-investors.

E
K
A
T
S
E
V
T
C
E
F
F
E

D
N
U
F
A
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A
A
M
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T
S
I
S

m
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.
l
a
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p
a
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a
s
a
a
m
e
t
s
s
/
/

128

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS
FUNDS

129

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

Business model

Sistema Asia Fund Portfolio

Strategic Direction

SAF invests in companies
at various growth stages
in the markets of India
and Southeast Asia. SAF
is focused on investments
in high-tech companies
that operate in the sector
of technology products
and services and also invests
in other types of businesses
and consumer brands that
use technologies as their
key competitive advantage
and operate in India and/
or have significant presence
in the Indian market.

828

USD mln
Rebel Foods valuation

6 times

valuation of Infra.
Market increased
since the moment
of investment

SAF’s sector-diversified approach balanced the portfolio performance
in the face of Covid-19, bringing Fund out as net-beneficiary
in the pandemic year. Companies like Licious saw an unprecedented
lift in business as online grocery ordering became an essential need
of consumers. SaaS businesses like Uniphore witnessed a significant
growth due to process automation and AI being adopted by businesses
worldwide. Indian government’s push towards infrastructure investment
in India is proving to be extremely beneficial for SAF’s B2B construction
marketplace portfolio company Infra.Market. Portfolio companies
in the lending space like Lendingkart and Kissht experienced headwinds
caused by repayment moratorium, borrower hardships and illiquidity
of funds from the various capital sources they draw on. From Q4 2020,
fin-tech space has started getting back to pre-pandemic levels
with some tweaks to the business model and credit framework. As we
enter 2021, SAF expects Deep-Tech & B2B platforms to be dominant
themes, while on the consumer front, D2C1 brands are garnering
increased investor attention and activity.

Key milestones in 2020 and H1 2021

In June 2020, SAF realized its second monetization event by selling a
stake in Netmeds, one of the major e-pharmacy players in the Indian
market. The exit was part of an M&A deal where Reliance Retail
Ventures (part of Reliance Industries Limited, India’s largest company
by market cap) marked its entry into the Indian e-pharmacy space
by acquiring Netmeds.

In July 2020, SAF portfolio company Rebel Foods completed an E2 round
of funding with Coatue Management LLC at a USD 828 Million valuation
in June 2020. In November 2020, SAF completed a primary investment
in Infra.Market, India’s leading infrastructure and construction materials
marketplace. SAF coinvested with leading global investors including
tiger Global and Accel.

In February 2021, Infra. Market completed a Series D round of funding
from Tiger Global and others at a Unicorn valuation. The valuation
of the company has already grown 6X since SAF’s investment
in November 2020.

SAF targets completion of primary deployment
of Fund 1 2021 and launch of Fund 2 .
With a targeted first close of the next fund
in 2–3 quarters of fund-raising effort, the team
plans to re-initiate fresh deployment with a
medium term target of a 3-year primary
deployment cycle. The focus of fund 2 raise

would be building a scalable and high quality
LP base to become long-term partners
of the SAF franchise. In the meantime, the team
is also building a harvesting strategy for fund 1
to systematically monetize the portfolio
balancing risk and upside, towards a full exit
within the fund timelines.

Key portfolio companies

UNIPHORE

REBEL FOODS

Uniphore was founded in 2008 and aims
to bridge the communication gap
between man and machine using
voice and speech. The company
develops and sells software
solutions for conversational
analytics, conversational assistance
and conversational security. With over
80% of it’s revenues from North America
and another 18% from Asia Pacific,
the company is one of very few Indian
SaaS companies that have achieved
global scale.

Rebel foods is India’s largest full stack
food on demand company operating
300 cloud kitchens and 9 food brands
therefore creating over 2700 virtual
restaurants. The company adopts its
unique food preparation technology
in their kitchens that allows them
to offer a highly standardized experience
across locations. This process has helped
the company create perhaps the largest
cloud kitchen operation in the world.

LICIOUS

INFRA.MARKET

Licious is a brand operating in the meat
and meat products-selling business
in a market where over 90% of players
represent disorganized retail with poor
quality and low sanitary standards.
The company manages the entire
value creation chain, from sourcing
to processing and delivery to customers,
using uninterrupted cold chain.

Infra.Market is a construction
marketplace which provides a one stop
procurement solution to construction
companies. The company is solving
various issues like lack of price
transparency, quality, fragmented
vendor base, inefficient logistics
and delivery in a highly unorganized
market.

Direct to consumer marketing.

130

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS
FUNDS

131

SISTEMA PJSFCANNUAL REPORT / 2020

//sistema.com

SISTEMA
CAPITAL

Sistema Capital is a professional securities market participant
that has been providing asset management services
since 2001.

70%

SISTEMA’S
EFFECTIVE
STAKE

175.5

RUB bln
Assets under
management

122

RUB bln
Net income

30%

MTS’s effective
stake

A++

Rating
(Expert RA)

> 70%

Share of customers
from the market
in AUM

E
K
A
T
S
E
V
T
C
E
F
F
E

Market overview

The most significant event for stock markets in 2020 was
the coronavirus pandemic. It seriously changed
the behaviour of some market segments: a sharp fall
of the securities market was followed by a strong growth
amidst monetary incentives created by the world’s
leading economies and the growing number of private
investors. The bond markets were influenced by easing
of the fiscal policy of central banks, which brought yields
to all-time lows.

Business development in 2020

Thanks to the management's efficient work to attract
new customers from the market, assets under Sistema
Capital's management grew by 84% in 2020, from RUB
95.4 bln at the end of 2019 to RUB 175.5 bln at the end of
2020.

The mutual investment fund Sistema Capital – High
Technology managed by Sistema Capital was ranked
among leading funds investing in high-tech by returns
in 2020, according to the list compiled by Investfunds
website. Its dollar-denominated returns totalled 63.2%.

Sistema Capital’s bond funds held high positions by yield
among open bond mutual investment funds with net
asset value exceeding RUB 50 mln.

In 2020, the Expert RA rating agency confirmed its rating of Sistema
Capital at A++ (the highest level of reliability and service quality of a
management company). The outlook is stable.

In the reporting period, Sistema Capital began offering a new financial
tool for its customers – closed mutual investment funds, which
represent a quality alternative to open funds in terms of investment
in non-traded instruments, such as real estate.

Strategic goals

Sistema Capital’s strategic goal is to develop as a leading asset
management company oriented towards private and institutional
investors (retail customers, HNWI and non-government pension
funds) while continuing as a manager of Sistema Group’s liquidity
and the vehicle for investment of Sistema’s funds in marketable securities
with varied risk levels.

Igor Busarov
CEO

no.12for AUM as of

31 December 2020
(Expert RA)

RETURNS OF MUTUAL INVESTMENT FUNDS MANAGED BY SISTEMA CAPITAL, % p.a.

2020

8.0

7.4

4.5

9.1

63.2

25.5

68.0

2019

15.3

10.0

12.6

9.4

28.4

19.8

–

~ 25

thsd
Number of retail
applications

Savings

FX Savings

Reserve

Reserve. Foreign currency

Russian stocks

High technology

Biotechnology

IT+, exchange-traded mutual fund

ASSETS UNDER MANAGEMENT, RUB bln

+84%

‘20

‘19

‘18

‘17

‘16

‘15

‘14

AuM

% рост

175.5

95.4

68.3

51.6

23.7

22.3

10.7

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

MTS

OZON

SEGEZHA GROUP

ETALON GROUP

MEDSI

STEPPE
AGROHOLDING

BINNOPHARM
GROUP

JSC BPGC

BUSINESS
NEDVIZHIMOST

COSMOS
HOTEL GROUP

OTHER ASSETS

FUNDS

133

L
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A
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A
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S
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S

m
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a
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t
s
s
/
/

132

SISTEMA PJSFCANNUAL REPORT / 2020

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SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

GOVERNANCE

04 SUSTAINABILITY

MANAGEMENT

ANNEXES

04//sistema.com

Corporate
governance
system

Corporate governance principles

As an investment company, Sistema believes that high-quality
corporate governance and information transparency are important
elements of its strategy. Sistema aims to meet the best international
standards of corporate governance and transparency and improves
its corporate governance practices on an ongoing basis through
timely implementation of required changes and high effectiveness
of managerial decision-making.

Sistema’s corporate governance principles

clear and effective procedures for taking
investment decisions;

reasonable transparency of management
processes for investors and partners;

a dividend policy that takes due account of both
the reasonable expectations of investors
and Sistema’s financial resources;

professionalism of the Board of Directors
and its active involvement in strategic planning
and the management and oversight of business
processes;

special focus of the Board of Directors on related-
party transactions and potential conflicts
of interest.

Guided by these principles in all of its activities,
including strategic and financial management,
HR and social policy, preparation of financial
statements, control and audit, and risk
management, the Corporation builds a
stronger foundation for its investment case.

In its corporate governance practices
Sistema abides by applicable legislation,
the Listing Rules of Moscow Exchange,
the recommendations of the Russian Corporate
Governance Code1 and the guidelines
set out in the UK Corporate Governance
Code.2 In accordance with Russian
legislation and best international practices,
the Corporation’s Charter and internal
regulations define its corporate governance
principles and procedures, as well as
the composition, procedures and powers
of its governance and control bodies.
The Corporate Governance and Ethics Code
of Sistema sets out the additional commitments
of the Corporation, its top management
and employees in terms of social responsibility,
transparency and ethical business principles.

In accordance with its Charter, Sistema’s
corporate governance bodies are:
›
›
›
›

the General Meeting of shareholders;
the Board of Directors;
the President;
the Management Board.

1. The text of the Corporate Governance Code recommended by the letter of the Bank of Russia No 06-52/2463 dated 10 April 2014 is available at:

https://www.cbr.ru/publ/Vestnik/ves140418040.pdf
The conformity of Sistema’s corporate governance practices with the standards set out in the Corporate Governance Code of Russia is analysed in Annex 6
to this report. If Sistema’s corporate governance practices diverge from the standards recommended in the above documents, the Corporation provides an
explanation of how it ensures that the balance of interests envisaged in applicable corporate governance standards is observed.

2. The text of the UK Corporate Governance Code is available at:

https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f48069a2/2018-UK-Corporate-Governance-Code-FINAL.pdf

136

Sistema’s corporate governance structure

as of 31 December 2020

COMPANY
SECRETARY

MANAGING
PARTNERS

Functional oversight
Administrative oversight

BOARD OF
DIRECTORS

INTERNAL
AUDIT SERVICE
Chief Auditor

PRESIDENT,

MANAGMENT BOARD CHAIRMAN

STRATEGY AND
DEVELOPMENT FUCTION
Vice President for stategy
and development

FINANCE FUNCTION
Vice President for finance

CORPORATE
GOVERNANCE AND
LEGAL FUNCTION
Vice President for
corporate governance
and legal affairs

CORPORATE
COMMUNICATIONS
FUNCTION
Vice President
for Corporate
Communications

SECURITY DEPARTMENT
Vice President for security

ADMINISTRATIVE
DEPARTAMENT
Head of Administrative
Departament

IT DEPARTMENT
Vice Prsident for IT

PROTOCOL SERVICE
Managing Director for
protocol

HR DEPARTMENT
Vice President for HR

General Meeting of shareholders

The General Meeting of shareholders is the supreme governing body
of the Corporation. The activities and powers of the Annual General
Meeting of shareholders (hereinafter, “AGM”) are governed by the laws
of the Russian Federation, the provisions of Sistema’s Charter
and the Terms of Reference of the General Meeting of shareholders.
The Corporation seeks to create the most favourable conditions for its
shareholders enabling them to participate in the General Meeting.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

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ANNUAL REPORT / 2020SISTEMA PJSFC

//sistema.com

Observance of shareholders’ rights

Proposing agenda items for the General Meeting
of shareholders and nominating candidates
to the Corporation’s governance bodies

Shareholders who own at least 2% of the Corporation’s voting shares
are entitled to propose items for the agenda of the General Meeting
of shareholders and nominate candidates to the Corporation’s
governance and control bodies. Such proposals should be submitted
to the Corporation no later than 100 days after the end of the reporting
year, in accordance with the Terms of Reference of the General Meeting
of shareholders and other internal regulations of the Corporation.1
Candidates nominated by shareholders to the governance and control
bodies of the Corporation are provisionally reviewed by the Nomination,
Remuneration and Corporate Governance Committee of the Board
of Directors.

Participation in General Meetings of shareholders
and voting on agenda items

Sistema aims to ensure maximum protection of the right of shareholders
to take part in the governance of the Corporation by participating
in the General Meetings of shareholders, voting on agenda items
and receiving income in the form of dividends.

To ensure that shareholders can exercise their right to take part
in the General Meeting, the Corporation is actively using electronic
means of communication. All materials relating to the General Meeting’s
agenda items are published on the Corporation’s website in Russian and
in English (www.sistema.ru/www.sistema.com) at least 30 days before
the date of the meeting and are then sent to nominee shareholders
in electronic form2.

Sistema’s shareholders may use the e-voting system available
on the website of the Corporation’s registrar, JSC Reyestr. To use this
service, shareholders should contact the office of JSC Reyestr for access
to their personal shareholder accounts on the registrar’s website. If a
shareholder has a personal account on the e-government portal, they
may get access to the service without applying to the registrar.

More detailed information on the procedure for connecting to the e-voting
service is available on the website of the Corporation’s registrar
http://www.aoreestr.ru/shareholders/e-voting.

Each shareholder is also entitled to vote on agenda items either
in person or through a representative (if the General Meeting is held as
an in-person meeting of shareholders). The shareholders whose title
to the shares is recorded in the shareholder register may complete
ballot papers and send them to Sistema by mail ahead of the General
Meeting.

The holders of Sistema’s global depositary
receipts (GDRs) may vote on General
Meeting agenda items by a proxy vote
in line with the established procedure via a
depositary bank servicing Sistema’s GDR
programme. In 2020, Sistema’s depositary
bank was Citibank, N.A.

For more information on the depositary bank
and voting procedures please go the bank’s
website https://depositaryreceipts.citi.com/.

The votes of the GDR holders registered
with the depositary are collected
by the depositary bank via clearing systems
and are included in the general ballot along
with information about the number of votes
cast for and against the proposed draft
resolutions, as well as abstentions.

The results of voting on the agenda items
of General Meetings of shareholders held
as in-person meetings are announced
before the meeting is closed. After
the minutes of the meeting are drafted,
shareholders may also view the voting results
on the Corporation’s website.

Dividends

The Corporation announces the amount
of dividends recommended by the Board
of Directors and the record date in advance.
Shareholders are thus able to take informed
decisions with respect to disposing of their
shares.

The Board of Directors of Sistema PJSFC
recommended that the General Meeting
of shareholders approve the total amount
of dividends payable for 2019 as equal
to RUB 1,254,500,000.00, i.e. RUB 0.13 per
share.

1,254.5

mln RUB
dividends payable
(RUB 0.13 per share)

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

Information about
General Meetings of shareholders in 2020

ANNUAL GENERAL MEETING OF SHAREHOLDERS

Date

27 June 2020

Form of the meeting

Absentee voting

Items reviewed
and decisions taken

› Annual report and financial statements for FY 2019 were approved;
› Dividends for 2019 were distributed in the amount

of RUB 1,254,500,000, or RUB 0.13 per ordinary share
(RUB 2.60 per GDR);

› The Board of Directors was elected;
› Auditors were appointed for RAS and IFRS audits for 2020.

Attended

Shareholders that together hold 75.8% of votes

Date and reference
number of the minutes

2 July 2020, No 1–20

In 2020, a new law was passed in Russia allowing joint-stock companies
to conduct their annual general meetings of shareholders in the form
of absentee voting. In addition to absentee voting, the Corporation
organised a live stream of the meeting, in the course of which
the management presented the company’s results for 2019 and took
questions from the shareholders.

Composition of the Board

The Board of Directors effective as
of 31 December 2020 was elected at the AGM
held on 27 June 2020. Independent directors
account for 50% of the Board of Directors.

Board of Directors

The Board of Directors is a collective
governance body in charge of the oversight
and strategic management of the Corporation.

Under Sistema’s Charter, the responsibilities
of the Board of Directors include:
› Supervising the operations

of the Corporation in general;
› Formulating strategic and financial

development plans;

› Determining investment principles

and criteria;

› Assessing management’s performance;
› Defining corporate governance principles;
› Approving transactions and strategic

projects in accordance with applicable
legislation and the Corporation’s internal
regulations.

If an extraordinary General Meeting of shareholders is conducted and its agenda contains
an item on the election of the Board of Directors, shareholders who own a sufficient number
of shares are also entitled to nominate candidates to the Board of Directors. Such proposals
should be submitted to the Corporation no later than 30 days prior to such General
Meeting.

2. The notice of the General Meeting of shareholders and ballots are also sent by

mail to shareholders whose rights to the shares of the Corporation are recorded
in the shareholder register.

138

139

ANNUAL REPORT / 2020SISTEMA PJSFC
//sistema.com

MEMBERSHIP OF SISTEMA’S BOARD OF DIRECTORS
AS OF 31 DECEMBER 2020 1

Vladimir Evtushenkov

BOARD CHAIRMAN2

Anna Belova3

Andrey Dubovskov4

Felix Evtushenkov

Ron Sommer

DEPUTY CHAIR OF THE BOARD
IN 2020

DEPUTY CHAIR OF THE BOARD
FROM 18 APRIL 2020

Robert Kocharyan3, 5

Roger Munnings3, 6

Vladimir Chirakhov

Anatoly Chubais3

Mikhail Shamolin

The Board of Directors has 12 members.

Independent Directors
Anna Belova
Robert Kocharyan
Roger Munnings
Anatoly Chubais
Etienne Schneider
David Iakobachvili

Non-executive directors
Vladimir Evtushenkov
Felix Evtushenkov
Mikhail Shamolin
Ron Sommer
Andrey Dubovskov

Executive Director
Vladimir Chirakhov

50%

42%

Changes in the membership of the Board of Directors

Compared to the corporate year 2019–2020, the number of Board
members was increased from 11 to 12, and S. Boev and J. Krecké
quitted the Board. Among the new members elected to the Board
of Directors at the General Meeting of shareholders on 27 June 2020
were the President of the Corporation V. Chirakhov and independent
directors A. Chubais and E. Schneider.

Meetings of the Board of Directors

Sistema’s Board meetings are held on a regular basis in accordance
with the approved annual work plan of the Board of Directors, which is
made based on Sistema’s strategic planning and reporting cycle.

In 2020, the Board of Directors held 12 meetings: 7 scheduled in-person
meetings and 5 unscheduled meetings held in the form of absentee
voting. The Board of Directors reviewed a total of 68 agenda items
in 2020.

Etienne Schneider3

David Iakobachvili3 ,7

12 members

of the Board of
Directors

12 meetings

of the Board held in
2020

68 agenda

items
reviewed by the Board
in 2020

140

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

Number of in-person meetings

Number of absentee votes

Number of items in accordance with the Board’s work plan

Actual number of items reviewed by the Board

2020

2019

Over the reporting period the Board
of Directors considered the following key
items:
› Sistema’s development strategy.
› Sistema’s action plan for tackling

the coronavirus pandemic.

› Sistema Group’s strategic planning cycle.
›
Investment policy, strategy of Sistema’s
investment funds and priority areas
for investment in 2020–2021.

› New investment projects.

– Managing and creating value

› Sistema’s results and performance against

budget.

› Budget planning, approval

of the consolidated budget of Sistema
PJSFC and management’s KPIs
for 2020–2021.

› Management of the Corporation’s risks.
› Activities of the internal audit department.
› HR matters and employee incentive

systems.

› Assessment of the quality of corporate

governance.

for Sistema’s investments in the following
areas:

› Corporate Social Responsibility.
› Mandatory corporate procedures,

– Telecommunication and digital assets;
– E-commerce and retail assets;
– Agricultural assets;
– Timber processing and pulp and paper

assets;

– Banking assets;
– High-tech assets;
– Development and construction assets;
– Healthcare assets;
– Hotel assets.

including calling the General Meeting
and developing the work plan of the Board
of Directors.

› Composition of Board Committees

and determining the status of Board
members.

› Approval of transactions, including
the acquisition of equity stakes.

ITEMS REVIEWED BY THE BOARD OF DIRECTORS IN 2020,%

Business strategies, investments,
new activities
Financial reports, planning and audit
Approval of transactions
Shareholdings in portfolio companies,
groups and accociations; branches
Appointments and HR policy
Corporate governance and stocks
Approval of internal regulations
Functional strategies

13
12
10

9
9
6
1

1. Short biographies of the members and information about their shareholdings in Sistema PJSFC are available in Annex 1.
2. The Chairman and Deputy Chairs of the Board of Directors were elected at the first Board meeting on 27 June 2020

(which was held after the AGM).
Independent Director.

4. After the reporting period, on 18 April 2020, A. Dubovskov was also elected Deputy Chair of the Board of Directors.

In line with Moscow Exchange listing rules, R. Kocharyan was deemed independent by Sistema. Information pertaining to
the decision is available on Sistema's website.
In line with Moscow Exchange listing rules, R. Munnings was deemed independent by Sistema. Information pertaining to the
decision is available on Sistema's website.
In line with Moscow Exchange listing rules, D. Iakobachvili was deemed independent by Sistema. Information pertaining to
the decision is available on Sistema's website.

8. After the end of the reporting period, from 19 April 2020, A. Dubovskov became non-executive director due to termination

of his powers as the President of the Corporation.

141

ANNUAL REPORT / 2020SISTEMA PJSFC

//sistema.com

DISTRIBUTION OF ISSUES CONSIDERED BY
THE BOARD OF DIRECTORS IN 2019 AND
2020, by topics

Business strategies, investments,
new activities

‘20

‘19

‘20

‘19

‘20

‘19

‘20

‘19

‘20

‘19

‘20

‘19

‘20

‘19

‘20

‘19

Appointments and HR policy

Corporate governance and stocks

Approval of transactions

Approval of internal regulations

Shareholdings in portfolio companies,
groups and associations; branches

Financial reports, planning and audit

Functional strategies

Most of the items reviewed by the Board of Directors in 2020 were
related to the Corporation’s business strategy and management
of its portfolio of investments in various industries, financial planning
and approval of transactions (including shareholdings in companies).
The number of items concerning corporate governance and functional
strategies decreased after these aspects were integrated into reports
on business strategies.

Preparation for meetings and quorum of the Board
of Directors

The existing procedures of preparation for Board meetings are designed
to ensure the best use of the experience and expertise of Board
members. Materials on the agenda items are published on the Board’s
electronic portal at least 10 days before the meeting, which gives
members sufficient time to form an informed opinion on all agenda items.
Most agenda items (including the approval of transactions) undergo a
mandatory preliminary review at meetings of the Board’s Committees.

The Corporation practices in-depth analysis and preliminary review
of materials relating to key items of the agenda involving thorough
discussions between Board members and management. This makes
it possible to increase the involvement of the Board members
in the development of the Corporation’s strategy.

Meetings of Sistema’s Board of Directors usually have a high attendance
rate: the average quorum of meetings in 2020 was 96.5%.

PARTICIPATION OF SISTEMA BOARD MEMBERS IN MEETINGS
OF THE BOARD OF DIRECTORS AND ITS COMMITTEES IN 2020

s
r
o
t
c
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r
i
D

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c
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t
E

s
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n

Attendance1

e
e
t
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o
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y
c

i
l

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P

d
n
e
d
v
D
d
n
a

V. Evtushenkov

12/12

A. Belova

S. Boev2

A. Dubovskov

F. Evtushenkov

R. Sommer

R. Kocharyan

J. Krecké2

12/12

5/5

12/12

8/12

5/5

R. Munnings

12/12

V. Chirakhov3

A. Chubais3

M. Shamolin

E. Schneider3

7/7

11/12

7/7

4/4

3/4

4/4

3/4

D. Iakobachvili

12/12

4/4

17/17

2/9

9/9

17/17

8/8

6/6

3/3

2/3

3/3

1/3

9/9

4/5

9/9

6/9

9/9

8/8

4/4

8/8

4/4

96.5%

the average quorum of meetings

1. The first number shows the number of meetings attended by the Board member, the

second number is the total number of meetings.

2. Member of Sistema’s Board of Directors until 27 June 2020.
3. Member of Sistema’s Board of Directors from 27 June 2020.

142

Assessment of the work of the Board of Directors and its committees

The assessment of the Board of Directors’
performance is an important mechanism
for maintaining and improving Board
effectiveness. It aims to identify strengths
and areas of improvement in Sistema’s
Board governance, and suggests changes
and adjustments. Holding externally facilitated
assessments from time to time is a global
best practice that is also recommended
by the Russian Corporate Governance
Code. Sistema has endorsed this practice
since 2017, when the first external evaluation
of its Board was conducted. In keeping
with recommendations of the Corporate
Governance Code, the second external
evaluation was scheduled for spring 2020 but
was postponed to spring 2021 due
to the coronavirus pandemic. The assessment
was carried out by a consortium of two highly-
reputed global firms: Nestor Advisors Ltd., a
London-based advisory firm that specialises
exclusively in corporate governance, and EY,
one of the world’s leading professional
services organizations with significant
presence in the Russian market.

The assessment covered the following areas
of the Board’s work:

› Key responsibilities, including strategic

direction, oversight of company’s
performance, strategic HR issues, internal
control and risk management;

› Board relationship with management

and quality of information flows;

› Board profile, composition and director

nomination practices;

› Board functioning and dynamics;
› Role of the Chairman;
› Board Committee structure and functioning;
› Board processes and support; and
› Board Committee effectiveness.

The goal of the assessment was to:

› Enhance the effectiveness of the Board
by identifying possible improvements
in its structure, processes, functioning,
dynamics, and capacity to constructively
challenge management;

› Develop shared views among Board

members on how the Board can better
contribute to Sistema’s performance;

› Strengthen confidence in Sistema’s

approach to corporate governance among
shareholders and key stakeholders;
› Assist Sistema in maintaining “best

in class corporate governance”, including
compliance with the Russian Corporate
Governance Code and alignment
with international best practices in the area
of board effectiveness; and

› Track progress vis-à-vis the previous 2017

Sistema Board evaluation.

The assessment was conducted on the basis
of an extensive questionnaire and follow up
interviews with board members and several
members of senior managment reporting
to the Board. Its main findngs can be summed
up as follows:
1. Sistema has a hard-working Board

with developed governance processes
and practices at Board and Committee
level;

2. Board members are very

senior with significant decision-
making and strategic experience
and commensurate reputational weigh.
They are capable of complementing
the Chairman’s long-standing leadership;

3. Going forward, the Board might want
to focus more on long-term portfolio
strategies. It should also consider a more
independent composition profile in line
with comparable investment companies
worldwide and continue focusing its
attention on the quality of the board
leadership of its significant investees; and
4. To this effect, succession planning at every
level and its oversight by the Board could
become more systematic.

The external assessment provided a set
of recommendations for specific improvement
in these and other areas whose implementation
Sistema is currently exploring.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

143

ANNUAL REPORT / 2020SISTEMA PJSFC

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFORMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

//sistema.com

Committees of the Board of Directors

THE STRUCTURE OF SISTEMA’S BOARD COMMITTEES AS OF 31 DECEMBER 2020

Sistema has five committees of the Board of Directors:
› Strategy Committee;
› Audit, Finance and Risk Committee;
› Nomination, Remuneration and Corporate Governance Committee;
› Ethics and Control Committee;
›

Investor Relations and Dividend Policy Committee.

The main role of the Committees is to assist the Board in the preparation
and adoption of decisions in specific functional areas, as well as
to ensure prior in-depth scrutiny of matters put forward for the Board’s
consideration.

The status, procedures for nominating
members, responsibilities and decision-
making procedures of the Board’s Committees
are regulated by the Terms of Reference
of the relevant committees as approved
by the Board of Directors and published
on the Corporation’s website in the Corporate
Documents section http://www.sistema.ru/
o-kompanii/korporativnoe-upravlenie/
korporativnye-dokumenty/.

FUNCTIONS OF THE BOARD COMMITTEES

NAME
OF THE COMMITTEE

STRATEGY COMMITTEE

AUDIT, FINANCE
AND RISK COMMITTEE

NOMINATION,
REMUNERATION
AND CORPORATE
GOVERNANCE
COMMITTEE

FUNCTIONS OF THE COMMITTEE

› Analysing the strategic management issues of Sistema Group;
› Reviewing the strategy planning methodology;
› Reviewing M&A transactions with a value exceeding USD 100 M;
› Reviewing Sistema Group’s investment projects requiring an entry into new geographies

or industries and projects with significant state ownership.

› Facilitating and supervising the processes of preparing and auditing the Company’s

financial statements;

› Assessing the quality of audit services based on the audit of Sistema’s financial statements

and making preliminary recommendations to the Board of Directors with respect
to the selection of RAS and IFRS auditors;

› Assessing the risk management system and ensuring compliance with applicable legal

requirements in financial reporting, audit and planning;

› Performing a provisional appraisal of transactions submitted to the Board of Directors;
› Budgeting and financial modelling.

› Facilitating the development of an effective corporate governance system meeting

international standards at the Corporation and its portfolio companies;

› Conducting a preliminary review of candidates:
– for the Board of Directors of Sistema PJSFC;
– for the boards of directors of portfolio companies;
– for senior management positions across Sistema Group;
– for the position of the Corporation’s Company Secretary;

› Developing the Corporation’s incentive and remuneration policies;
› Organising the assessment of the performance of the Board of Directors.

ETHICS AND CONTROL
COMMITTEE

› Ensuring an effective system of economic and corporate security;
› Monitoring compliance with the requirements of the Code of Ethics of the Corporation;
›
Introducing a system for preventing corruption and fraud and other misconduct related
to violations of applicable legislation at Sistema Group companies.

INVESTOR RELATIONS
AND DIVIDEND POLICY
COMMITTEE

› Strengthening the Corporation’s investment case;
› Supporting effective relations with the financial community;
› Developing Sistema’s dividend policy, including recommendations for the Corporation’s

Board of Directors with respect to the amount of payable dividends;

› Protecting the rights and interests of Sistema’s shareholders.

Strategy
Committee

Audit, Finance
and Risk
Committee

Nomination,
Remuneration
and Corporate
Governance
Committee 1

Ethics
and Control
Committee

Investor Relations
and Dividend
Policy Committee

V. Evtushenkov

CHAIR

A. Belova

A. Dubovskov

F. Evtushenkov

R. Sommer

R. Kocharyan

R. Munnings

V. Chirakhov

A. Chubais

M. Shamolin

E. Schneider

D. Iakobachvili

Composition of the Committee

37.5

Independent
director
Non-executive
director
Executive director

12.5

R. Munnings, a member of the Audit, Finance and Risk Committee
is an expert in finance and audit with many years of experience
in the sector.

144

1. The President of Sistema PJSFC attends Committee meetings in the capacity of a permanent invitee and does not vote

on the matters submitted for consideration of the Committee.

145

ANNUAL REPORT / 2020SISTEMA PJSFC//sistema.com

MATTERS CONSIDERED BY THE COMMITTEES OF THE BOARD
OF DIRECTORS OF THE CORPORATION

NAME OF THE
COMMITTEE

NUMBER OF
MEETINGS IN 2020

TOPICS DISCUSSED

Strategy Committee

Audit, Finance
and Risk Committee

Nomination,
Remuneration
and Corporate
Governance
Committee

Ethics and Control
Committee

Investor Relations
and Dividend Policy
Committee

› Value creation by the Corporation’s investments in various industries;
› Strategic planning cycle;
› Strategy of digital transformation;
› Corporate culture development.

› Appraisal of the auditor’s services, development of recommendations

for the Board of Directors on appointing an external auditor;

› Review and approval of the Corporation’s financial reports, the annual
report and report on performance against the Corporation’s budget;
› Review of management’s reports on risk management at Sistema, risk

maps and mitigation plans;

› Preliminary review and evaluation of transactions and investment

projects to be submitted to the Board of Directors;

› Review of performance and work plans of internal audit units;
› Review of the principles of investment project prioritisation.

› Development of corporate governance across Sistema Group;
› Organising the work of the Corporation during the coronavirus

›

pandemic;
Incentive system and key parameters, performance assessment
and bonuses for the key managers and employees of Sistema;
› HR process and preview of candidates for senior management

positions at Sistema and nominees to the boards of directors of the key
portfolio companies.

› Performance of the Internal Audit Department in 2019 and its work plan

for 2021;

› The system for preventing fraud and corruption at Sistema;
› Functional strategy in the area of corporate (including information)

security.

› Amount of dividends and dividend policy of the Corporation;
› The Corporation’s ESG strategy;
› Analysis and monitoring of Sistema’s market and investment base;
› Functional strategy in the area of external communications;
› Sistema’s equity story and perception of Sistema by the investment

community.

President

The President of Sistema PJSFC is a
permanent chief executive officer whose
main tasks include managing the current
operations of the Corporation and dealing
with matters outside the remit of the General
Meeting of Shareholders, the Board
of Directors and the Management Board,
with the aim of achieving the strategic
goals set by the Board of Directors,
ensuring the Corporation’s profitability
and safeguarding the rights and legitimate

interests of its shareholders. The President
reports to the Board of Directors
and the General Meeting of shareholders
of Sistema PJSFC. The President chairs
the Management Board of Sistema PJSFC.

On 20 April 2020, the Board of Directors
of Sistema PJSFC approved the appointment
of Vladimir Chirakhov as the President
and Chairman of the Management Board
of Sistema PJSFC.

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Vladimir
CHIRAKHOV

Born in Tbilisi
(Georgia) in 1974.

In 1996, graduated with honours from the Russian Federal Security
Service Academy with a degree in applied mathematics. In 2000,
studied system analysis and business management at Moscow
International Higher Business School MIRBIS. In 2001, graduated
from the Russian Presidential Academy of National Economy with a
degree in management. In 2013, completed Executive MBA at Moscow
Skolkovo School of Management.

2005–2009 – category manager, project manager at LLC M.Video.
Management.

2009 – Sales Director at LLC Lindex.

2009–2012 – Sales Director, Executive Director, CEO at LLC Korablik-R.

Appointed Deputy CEO for Sales at OJSC Detsky Mir in March 2012.
CEO of PJSC Detsky Mir from September 2012 to March 2020.

Appointed President of Sistema PJSFC on 20 April 2020.

Awarded a national Order of Friendship in March 2020.

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Management Board

The Management Board of Sistema PJSFC determines methods
for the implementation of the Corporation’s development strategy,
formulates development plans, determines and monitors investment
processes and previews most matters to be subsequently submitted
to the Corporation’s Board of Directors.

In 2020, the Management Board held 8 meetings and reviewed
34 agenda items in the following key areas:
› Sistema’s development strategy.
› Management of Sistema’s investment funds
› Sistema Group’s strategic planning cycle.
› Development strategy, value creation and monetisation of Sistema’s

investments in various industries.

› Corporate governance practices

at the Corporation

› Budget execution, budget planning and key

performance indicators.

› Debt and liquidity management.
› Sistema’s ESG strategy.

In May 2020, the powers of the previously
elected Management Board were terminated,
and the Board of Directors approved a new
Management Board for a three-year term.
As of 31 December 2020, the Corporation’s
Management Board consisted of 15 members.

MEMBERS OF THE MANAGEMENT BOARD OF SISTEMA PJSFC AS
OF 31 DECEMBER 20201

1 Vladimir Chirakhov

President, Chairman of the Management Board

Igor Alyoshin

Sergey Egorov

4 Artyom Zasursky

5 Alexey Katkov

Igor Kozlov

Svetlana Matveyeva

Leonid Monosov

9 Oleg Mubarakshin

10 Leonid Petukhov

11 Vsevolod Rozanov

12 Artyom Sirazutdinov

13 Vladimir Travkov

14 Ali Uzdenov

15 Sergey Shishkin

Vice President for Security

Managing Partner

Vice President for Strategy

Managing Partner

Vice President for IT

Vice President for HR

Managing Partner

Vice President for Finance

Managing Partner

Vice President for Corporate Governance and Legal Matters

CHANGES IN SISTEMA’S MANAGEMENT BOARD IN 2020

V. Chirakhov

A. Pilipenko
J. Tulgan
M. Yanpolsky

L. Monosov

I. Kozlov

L. Petukhov

DATE OF CHANGE

GROUND OF A CHANGE

20 April 2020

appointed President, Chairman of the Management Board

16 May 2020

appointment was terminated

17 May 2020

13 July 2020

18 December 2020

appointed

1. Short biographies of the members and information about their shareholdings in Sistema PJSFC are available in Annex 1.

148

Governance bodies reporting to the President
and the Management Board

To improve its managerial decision-making processes Sistema has
established a number of governance bodies that report to the President
and the Management Board, namely the Finance and Investment
Committee, the Risk Committee, the Tender Committee and the IT
Committee.

These committees are permanent consultative collective bodies tasked
with a detailed analysis of current affairs and processes within their
remit and with assisting the President and the Management Board
in decision-making.

Finance and Investment Committee

The responsibilities of the Finance and Investment Committee include:
› Review of the Corporation’s investment projects at different stages

from conception to completion;

› Approval of financial models, business plans and key performance

indicators of investment projects;

› Recommendations regarding the feasibility of projects, exit scenarios

and sources of financing;

› Review of external financing terms.

The Committee considers the Corporation’s investment projects
once they are approved by the Expert Council. An approval
by the Committee is required for further review of the project
by the Management Board and/or Board of Directors.

The Committee consists of 7 members and is chaired by the President
of the Corporation Vladimir Chirakhov.

The Finance and Investment Committee oversees the work
of the Expert Council, the Budget Subcommittee and the Remuneration
Subcommittee.

The Expert Council consists of 12 members and considers all
of the Corporation’s new investment ideas and projects for acquisition
of assets in new and related industries, as well as in industries where
Sistema already has a presence. The Expert Council is charged
with verification of the conformity of the projects with a series of formal
requirements set out in the Corporation’s regulatory documents,
the scoring of projects, and the preparation of written opinions thereon.
Once approved by the Expert Council, projects are further reported
to the Finance and Investment Committee.

The Budget Subcommittee consists of 5 members and aims to improve
budgeting policies, principles and procedures and to develop
guidelines in this area for the governance bodies of the Corporation.

The Remuneration Subcommittee consists of 8 members and aims
to improve budgeting policies, principles and procedures and
to develop guidelines in this area for the governance bodies
of the Corporation.

members
of the Finance
and Investment
Committee

meetings
of the Committee
held in 2020

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13 members

of the Risk Committee

4 meetings

of the Risk Committee
held in 2020

7 members

of the Tender Committee

25 meetings

of the Tender Committee
held in 2020

12 members

of the Information
Technologies Committee

1 meeting

of the IT Committee
held in 2020

150

Risk Committee

The Risk Committee’s responsibilities include:
› Assessment of the most material risks facing the Corporation and its

portfolio companies;

› Ensuring the preparation of a risk register and a generalised risk map

of Sistema;

› Preparation and approval of risk assessment reviews;
› Development of proposals regarding acceptable risk levels (risk

appetite) for Sistema;

› Coordination of risk management strategies and plans and monitoring

of their implementation.

The Committee consists of 13 members and is chaired by the Vice
President for Finance Vladimir Travkov.

The Risk Committee includes an Expert Group consisting of 8 members
that reviews matters pertaining to the approval of counterparty
limits (applying to banks, insurers and management companies)
and guarantees (including bank guarantees) securing counterparty
obligations, the pre-approval of WACC1 estimates for the evaluation
of investment projects of portfolio companies to be further reported
to the Finance and Investment Committee, and other operational
matters pertaining to risk management across Sistema Group.

Tender Committee

The responsibilities of the Tender Committee include:
› Ensuring the acquisition of goods, works and services on the best

terms available;

› Minimising the costs of purchase (ownership, operation) of goods,

works and services without compromising their quality;

› Ensuring the sale of Sistema’s property and rights as they become

irrelevant to the company’s operations on the best economic terms
available;

› Ensuring the transparency of purchasing procedures and impartial

decision-making;

› Facilitating the prevention of corruption, fraud and other wrongdoing

in purchasing.

The Committee consists of 7 members and is chaired by the Vice
President for Finance Vladimir Travkov.

Information Technologies Committee

The IT Committee’s responsibilities include:
› Coordinating the work of subdivisions and employees

of the Corporation on matters related to information technologies;

› Creating conditions conducive to effective implementation

of Sistema’s IT projects and initiatives;

› Building and maintaining the integrated IT architecture

of the Corporation based on advanced digital technologies;

› Ensuring the uniformity of corporate IT standards and tools

at Sistema.

The Committee consists of 12 members and is chaired by the Vice
President for IT Igor Kozlov.

Specific characteristics of risk management, internal control
and internal audit systems

Risk management

Internal control system

Sistema’s risk management system employs a
two-level approach, under which the risks
identified at Sistema and its portfolio
companies are consolidated to assess their
impact on Sistema Group as a whole.

The enterprise risk management system
(ERM) used in the Corporation addresses
the following tasks:
›

Identification of risks at all levels
of management (from the top to line
management), which includes identifying risk
owners and making risk passports;
› Primary assessment of the materiality

of identified risks and their analysis (VaR
methodology);

› Ranging risks by management levels;
› Assessment of the aggregate influence

of material risks on the Corporation’s key
financial indicators (Monte Carlo modelling);
› Development of plans to mitigate identified

risks at all management levels;

› Regular monitoring of performance against
mitigation plans and assessment of their
effectiveness;

› Risk monitoring, quarterly reports on risks

facing the Corporation.

Sistema’s risk management procedures are
carried out by a dedicated risk management
unit with the support of risk management
professionals from the Finance Function.

The reassessment of identified and/or new
risks, the effects of mitigation and response
measures and the approval of limits applying
to counterparties (banks, management
companies and insurers) are monitored
at least on a quarterly basis by a special Expert
Group of the Risk Committee, which includes
representatives of all of the Corporation’s key
departments. The risk management system
is monitored by Sistema’s Risk Committee
and Management Board.

Sistema’s senior executives make regular
reports on risk management at the Corporation
to the Audit, Finance and Risk Committee,
which translate into further reports
to the Board of Directors.

Sistema’s internal control system is based
on advanced international and Russian
internal control practices and methodologies,
covers all the main material decision-
making levels and serves the best interests
of the Corporation’s shareholders, investors
and management.

The internal control system
and the responsibility for implementation
of control procedures are formalised in codes,
policies, procedures and other internal
regulations of the Corporation.

The Internal Control Policy was approved
by the Corporation’s Board of Directors and is
an internal top-level document describing
the key principles of internal control as a
continuous and integrated process that
involves all units and governance bodies
of the Corporation.

The Corporation methodically works
on the development of a regulatory framework
designed to govern all matters relating
to internal control by means of cascading
them from the level of the Board of Directors
to the level of employees.

The key objectives of the internal control
system are:
› Creating new and improving existing

control mechanisms that will ensure efficient
business processes and the implementation
of the Corporation’s investment projects;
› Ensuring the safety of the Corporation’s
assets and efficient use of its resources;

› Protecting the interests of the Corporation’s
shareholders and preventing and resolving
conflicts of interest;

› Creating conditions for the timely

preparation and submission of reliable
reports and other information that is legally
required to be publicly disclosed;

› Ensuring the Corporation’s compliance
with applicable laws and requirements
of regulators.

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In accordance with advanced practices
and approaches in internal control and audit,
the effectiveness of the Corporation’s
internal control system is ensured at three
levels (in addition to the Board of Directors
and the Corporation’s senior management):
› Level 1: Heads of subdivisions

and employees of the Corporation are
responsible for building an effective internal
control system and assessing and managing
risks within their remit.

› Level 2: Sistema’s controlling bodies

and Committees perform control functions,
e.g.:
– The Risk Committee and the Risk

Management Function are responsible
for developing and monitoring
the implementation of an effective risk
management practice;

– The Finance and Investment Committee

of the Corporation approves
and monitors the implementation
of investment projects;
– The Security Department is

responsible, inter alia, for economic
security, the prevention of corruption
and information security.

› Level 3: The Internal Audit Department,

which conducts independent assessments
of the effectiveness of the internal control
system, the risk management procedures,
and the corporate governance system.

The internal control system of the Corporation
includes, but is not limited to:
› Regulation of processes and procedures;
› Division of roles and responsibilities

in decision making;

› Prevention and identification mechanisms

of control;

› Notification about irregularities, abuse

of office, conflicts of interest;

› Ethical standards of business conduct;
› Awareness of the Corporation’s employees

about the internal control system.

All of the Corporation’s employees
in charge of various control procedures bear
responsibility for the effectiveness of such
controls and risk management activities as
prescribed in their job descriptions, internal
regulations and legislation of the Russian
Federation and other applicable jurisdictions.

Internal audit

The Internal Audit Department reports to the Board of Directors
(functionally) and Sistema’s President (administratively). The Audit
Department is headed by a Chief Auditor who is appointed
and dismissed by the President based on the resolutions passed
by the Corporation’s Board of Directors following a preliminary approval
by the Board’s Ethics and Control Committee.

The key objectives of the Internal Audit Department are:
› Helping shareholders and management improve the internal

control system by performing regular audits of the effectiveness
of the Corporation’s internal control, risk management and corporate
governance systems;

› Supplying management and shareholders with objective information
on existing internal and external risks, as well as their probability
and consequences;

› Enhancing awareness among the Corporation’s management team

about the performance of Sistema Group companies;
› Monitoring the achievement of the goals of shareholders

of the Corporation.

To meet these objectives, the Internal Audit Department carries out
the following functions:
› Performing independent audits of individual operations, processes

and units;

› Assessing the effectiveness of the internal control system;
› Assessing the effectiveness of the risk management system;
› Assessing the effectiveness of the corporate governance system,

preventing violations of legislation and the Corporation’s regulations,
ensuring the observance of professional and ethical standards
and preparing recommendations for improving them;

› Developing recommendations to remedy deficiencies identified

and monitoring the execution of remedial actions;

› Administering and conducting (where appropriate) internal

investigations;

› Monitoring compliance with the Corporation’s internal regulations;
› Administering the Whistleblower Hotline.

The Internal Audit Department has all the resources and powers
required to perform the above functions and is an independent
structural unit. The Department’s activities are performed in compliance
with the existing laws of the Russian Federation, the Charter
of Sistema PJSFC, the Code of Ethics and other internal regulations
of the Corporation, as well as the recommendations of international
professional organisations and standards in the area of internal
control and audit (e.g., the Committee of Sponsoring Organisations
of the Treadway Commission (COSO) and International Internal Audit
Standards).

Aiming to improve the quality, widen the scope and increase the depth
of audits, the Department continuously works on a single methodology
base to standardise audit and control procedures in specific fields
and risk areas.

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The Internal Audit Department closely
interacts with Sistema’s independent auditors,
helping them better coordinate their work
and providing consultations to ensure
better annual audit planning with respect
to evaluation of the effectiveness of the internal
control system in the area of financial
reporting, and assessing the identified risks.

Regular reports on the performance
of the Internal Audit Department are reviewed
by the Audit, Finance and Risk Committee
and the Ethics and Control Committee
of the Board of Directors of Sistema PJSFC
and are also submitted for consideration
by the Board of Directors at the end
of the year.

In 2020, the Internal Audit Department
conducted 23 audits to assess
the effectiveness of the Corporation’s internal
control, risk management and corporate
governance systems. The audits performed
by the Internal Audit Department did not
uncover any weaknesses or risks that could
affect the sustainability of the Corporation’s
business as a whole. Specific comments
pertaining to various aspects audited were
communicated to stakeholders in a timely
manner and followed up by recommendations
on how to eliminate them.

Sistema’s Internal Audit Department actively
develops automation technologies in an effort
to improve the effectiveness of audit
procedures, specifically at planning, risk
analysis and testing stages.

Resolution of conflicts of interest

Matters related to conflicts of interest
are governed by the Corporation’s Code
of Ethics as well as the laws of applicable
jurisdictions. The Corporation has
an ethics assessment procedure: all top
managers of the Corporation complete
Ethics and Conflict of Interest Declarations
annually or as conflicts of interests
arise. Moreover, all new employees are
introduced to the requirements of the Code
of Ethics and the procedure for completion
of Declarations and are required to report
relevant conflicts of interest (if any) before
starting to perform their responsibilities.

External audit

In compliance with the decision of the Audit,
Finance and Risk Committee, the Corporation
uses the following procedures to appoint
the independent auditors of Sistema’s
financial statements. The Committee
performs an annual assessment of the quality
of audit services received. If the quality
of services provided by the current auditor
is deemed unsatisfactory, the Audit, Finance
and Risk Committee organises a tender

In 2020, the results of the ethics declaration
campaign were reviewed by the Ethics
and Control Committee of Sistema’s Board
of Directors. In most cases, the declared
conflicts of interest did not require any
resolution measures, as they posed no risks
to the Corporation’s interests. However,
action plans on conflict resolution were
implemented with respect to several
declarants in accordance with best corporate
governance practice.

for engaging a new auditor. If the quality is
deemed satisfactory, Sistema negotiates
the price of the services with the current
auditor for the following period. According
to the decision of the Audit, Finance and Risk
Committee, a tender for external audit
services should be held at least every five
years to ensure the auditor’s impartiality
and objectivity.

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Corporate governance across Sistema Group

Approval of internal regulations in the area of ESG

The quality of strategic planning and the investment appeal of Sistema’s
portfolio companies depend, inter alia, on the quality of the corporate
governance procedures. To increase the value of its investments,
Sistema is giving particular attention to improving the quality
of corporate governance at its portfolio companies.

of portfolio companies and is deeply involved
in the process, from formulating the skills
and expertise requirements for each key asset
to making recommendations with regard
to specific lists of candidates.

The Corporation carries out strategic management of its key portfolio
companies through the efficient work of boards of directors by including
professional independent members with expertise in the relevant
industries, as well as in strategy, finance, audit and corporate
governance. Independent directors account for about one-third
of members of the boards of key portfolio companies (depending
on the level of the company’s organisational maturity).

The Corporation continuously improves its corporate governance
system in order to increase efficiency and remain in line with best
practices. Improving the quality of corporate governance processes
at portfolio companies and attracting competent professionals to their
boards of directors is designed to increase the quality of decision-
making and the shareholder value of Sistema’s portfolio assets.
With that in mind, the Nomination, Remuneration and Corporate
Governance Committee of Sistema’s Board of Directors gives priority
to the selection of candidates to be nominated to the boards of directors

The boards of directors of portfolio
companies and their committees ensure
control and coordination and support
the management of portfolio companies
in decision-making in the following main
functional areas, seeking to further enhance
the quality of management of portfolio
companies:
› Strategy and key transactions;
› Budget planning;
› HR policy and incentive system;
›

Internal audit.

The committees of the boards of directors
of portfolio companies play a pivotal role
in the collective review of relevant matters
to be reported to the Board of Directors.

Development of the corporate governance system in 2020

Independent directors on the Corporation’s Board of Directors

In 2020, 12 members were elected to the Corporation’s Board
of Directors, 6 of which qualify as independent directors or are
recognised as independent according to Moscow Exchange’s Listing
Rules and the Russian Corporate Governance Code.

The current Board comprises the following independent directors:
› Anna Belova;
› Robert Kocharyan;
› Roger Munnings;
› Anatoly Chubais;
› Etienne Schneider;
› David Iakobachvili.

All of the Corporation’s independent directors have strong reputations
in the professional community and vast experience in managing large
organisations, which ensures the objectivity of their judgements
and independence from the influence of the Corporation’s management
and shareholders when making decisions.

At the first meeting of Sistema’s Board
of Directors held after the Annual General
Meeting of shareholders, independent
director Anna Belova was elected Deputy
Chair of the Corporation’s Board of Directors.
In this capacity, she, inter alia, coordinates
the activities of independent members
of the Board of Directors and interacts
with the Chairman of the Board of Directors,
acting as a senior independent director. Anna
Belova has extensive experience as a board
member of large Russian companies and has
been a member of Sistema’s Board of Directors
since 2017.

standards and reflect best practices in the area
of sustainable development. Sistema has
made a commitment to implement these
practices in its portfolio companies acting
through representatives on the boards
of directors.

Live streaming of the Annual General Meeting of shareholders

live stream of the meeting on the final date
of voting. In the course of the live stream
the Corporation’s management made a report
on the results of 2019 and took questions
from the shareholders.

Plans for the development of corporate governance

› development of a plan for preparing

and holding an online meeting
of shareholders in 2022 in the event
of adoption of the corresponding
amendments in Russian laws on joint-stock
companies (the second half of 2021);
search for new independent candidates
to be nominated by Sistema to the boards
of Group companies.

›

The Nomination, Remuneration and Corporate
Governance Committee of Sistema’s Board
of Directors annually develops and approves
the Corporation’s action plan for improving
corporate governance in the next year.
The plan includes the following actions
for 2021:
› development of succession plans

for the management and the Board
of Directors with potential formalisation
of this process in a special internal
regulation of Sistema PJSFC (the first half
of 2021);

› development and approval of internal

regulations of Sistema PJSFC in the area
of environment and human rights as part
of the ESG agenda (the first half of 2021);

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Remuneration
policy

applied to board members and
senior management

Remuneration policy applied to the Board members of Sistema PJSFC

Remuneration for the work of members of the Board of Directors is
calculated and paid in accordance with the Policy on Remuneration
and Compensations Payable to Members of the Board of Directors
of Sistema PJSFC (hereinafter, “the Policy”) approved by the General
Meeting of shareholders.

Basic remuneration of members of the Board
of Directors

In 2020, basic remuneration of members of the Board of Directors
amounted to RUB 13.7 M or RUB 17.8 M per year depending
on whether a director is a tax resident of Russia. Basic remuneration was
paid to Board members in cash in equal quarterly instalments.

Supplementary remuneration of members of the Board
of Directors

In accordance with the amended Policy being in effect during
the reporting period, additional remuneration in the form of ordinary
shares is paid to the members of the Board of Directors subject
to capitalisation growth in the reporting year.1 The size of additional
remuneration is set as a variable amount equal to a share2 of the increase
in capitalisation achieved in the relevant financial year.

The amount of additional remuneration is at any rate limited
by the amount of basic remuneration (not more than RUB 17.8 m a year).

Remuneration for performance
of additional duties

Members of the Board of Directors performing
additional duties, i.e., the Chairman
of the Board, Deputy Chair of the Board
and Chairs of the Board Committees,
receive remuneration on a quarterly basis
in the amount stipulated by the Policy.

Reimbursement of expenses
and other conditions

Members of the Board of Directors are
reimbursed for their expenses associated
with performance of their duties, including
participation in the meetings of the Board
of Directors and Board Committees.

Sistema PJSFC insures the liability
of the members of the Corporation’s Board
of Directors.

Sistema PJSFC does not provide loans
to the members of the Corporation’s Board
of Directors.

1. For an increase in capitalisation to be recorded for the purposes of the Policy, the weighted average price of one ordinary share of Sistema on the Moscow

Exchange at the end of the reporting year (for 60 preceding trading days) should exceed the weighted average price of one share at the beginning
of the reporting year (for 60 preceding trading days).

2. 0.1% or 0.125% (depending on tax residency) of the increase in capitalisation for the financial year.

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Remuneration policy applied to the senior management
of Sistema PJSFC

Share incentive schemes at Sistema
PJSFC

At the beginning of 2020, the Board
of Directors approved the main principles
of an employee share incentive plan
aimed at building a long-term relationship
with the key managers and motivating
them to achieve a shared goal: growing
the capitalisation of the Corporation
(hereinafter, “Share Incentive Plan”).

The participants of the Share Incentive Plans
are selected on the basis of their performance
and personal contribution to the development
of the Corporation and/or portfolio
companies. The final list of participants is
approved by the Board of Directors. Each
participant shall be granted a substantial
number of ordinary shares in Sistema PJSFC
(more than 0.1% of the authorised capital).

The short-term incentive scheme for the top
managers of Sistema PJSFC in 2020 consisted of:
› A fixed monthly salary determined in line
with the internal system of job categories
(grades);

› Bonuses paid for implementation

of projects, generation of cash income,
achievement of KPIs and set objectives.
Remuneration is paid based on employees’
individual performance and positive
cashflow generated by projects
implemented by the teams of Managing
Partners and Departments of Sistema.
Payments may amount to
a) up to 20% of cash income

from implemented projects,

b) fixed % of annual income for achievement

of KPIs.

For the purpose of calculating bonuses, cash
income means:
› an increase in the value of an asset (in

the event of an asset sale or an IPO) net
of (i) hurdle rate determined by the Finance
and Investment Committee chaired
by the President of the Corporation prior
to the start of a project or the acquisition
of an asset, (ii) investments made in such
an asset and project costs;

› % of the project team’s annual income.

Other terms and conditions

No extra compensation above the level
stipulated by Russian labour legislation is paid
to the President or other senior executives
in case of termination of employment.

Sistema does not pay remuneration
to executive management for serving
on the Management Board.

The Corporation does not provide loans
to senior executives.

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Remuneration paid to Sistema’s Board members and senior management
in 20201

MEMBERS OF SISTEMA’S BOARD OF DIRECTORS RECEIVED THE FOLLOWING REMUNERATION
IN 2020:

Remuneration for work as member of the Board of Directors

Salaries2

Bonuses2

Remuneration for work as member of the Board’s committees

Reimbursement of expenses incurred by Board members
in connection with their duties3

2020

2019

RUB 365,497,500

RUB 122,499,000

RUB 393,456,200

RUB 5,820,000

RUB 824,200

RUB 191,720,000

RUB 106,523,000

RUB 631,513,400

RUB 6,750,000

RUB 4,917,600

MEMBERS OF SISTEMA’S MANAGEMENT BOARD4 RECEIVED THE FOLLOWING
REMUNERATION IN 2020:

Salaries

Bonuses

Other types of remuneration

2020

2019

RUB 584,901,900

RUB 507,160,500

RUB 4,889,969,300

RUB 2,933,809,000 5, 6

RUB 861,000

RUB 946,700

1. All figures in this section are given before the applicable income tax.
2. Remuneration in the form of salaries and bonuses is the compensation allocated in the reporting period to the non-executive directors sitting on

the Board of Directors.
Including reimbursement of travel and accommodation expenses related to participation of members in the meetings of the Board of Directors
in the reporting period.
Including the President of Sistema PJSFC.

5. Bonuses for 2019 were paid to the employees of Sistema PJSFC in Q1 2020.

In Q1 2020, some members of the Management Board used a part of their cash bonuses for 2019 for acquiring about 12 million ordinary shares
of the Corporation, which is consistent with Sistema’s strategy for increasing the participation of its employees in the company’s equity.

Risk
management

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Integrated risk management system and the Group’s risk
appetite

The main risks that the business
of the Corporation may encounter are
the consequences of the processes and factors
that Sistema has little or no influence on. That
said, the Corporation can take measures
to reduce the negative consequences of such
factors if a certain risk materialises. This makes
efficient assessment of the existing risks
and the probability of their occurrence, as well
as effective risk management, an important
part of Sistema’s strategy.

Risk management is an integral part of all
processes at Sistema: it extends to strategy
planning and implementation, investing,
budgeting, procurement, and everyday
operations. The integrated risk management
system (ERM) operating at Sistema was built
in compliance with international standards,
recommendations and best practices in risk
management. The ERM system is designed
to keep risks at the level that is acceptable
for Sistema’s shareholders and management.

As part of quarterly ERM procedures the risk
managers of Sistema Group compile risk
registers for portfolio companies and a
consolidated risk register for the Group,
prioritise risks and aggregate them
into portfolios, evaluate the probability
and materiality of all risks and analyse
the impact of material risks on the financial
results of specific companies and Sistema
Group as a whole, using simulation
and financial modelling methods.

In order to address the risks listed in the risk
register of Sistema Group, the risk owners
develop risk management (mitigation)
and response plans, conduct risk monitoring
and make necessary adjustments.

One of the key principles of risk
management at Sistema Group is the use
of the risk appetite concept. This approach
implies the identification and monitoring
of the Corporation’s target risk profile
in accordance with the current strategic goals
and in the context of their integration into risk
management procedures.

Sistema Group’s risk appetite
determines the level of risks
acceptable for the shareholders,
and includes the following basic
provisions:

› The amount of potential losses under
the risks accepted by Sistema Group
should not reach the level leading
to the termination of the Group’s
operations, including under stressful
conditions;

› The structure of cash flows of Sistema Group

›

companies should guarantee a timely
fulfilment of obligations to counterparties
in the short and long term;
In its operations, the Group aims
to avoid concentration of risks in specific
counterparties, industries, and countries/
regions with high risk levels;

› Sustainable development and economic

efficiency in the long term;

› Compliance with the requirements

of national regulators in the countries
of operation and the standards
and recommendations of international
regulatory bodies;

› Maintaining an impeccable business

reputation, avoiding actions that could
damage the company’s public image;
› Maintaining the external individual credit
rating from international rating agencies.

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Risk management reports are submitted for review to the relevant
collective governance bodies of the Corporation at least once a
quarter. Each such report contains a revaluation of risks and their
impact on the Corporation’s financial performance, an assessment
of the effectiveness of risk mitigation and response plans, and potential
risk areas (areas requiring attention) identified for future periods.

The Corporation has built a unified compliance system with a programme
of measures to minimise risks in the areas of anti-corruption and stock
exchange compliance, personal data and confidentiality protection,
anti-money laundering and counter-terrorism practices.

Global and country risks

Risks related to changes in the political and economic situation in Russia
are material for Sistema because most of the Group’s business is
conducted in Russia. The companies and investment funds of Sistema
Group also operate in the CIS, the EU, South and Southeast Asia.
A significant portion of products produced by the Group’s companies
is sold in the CIS, Southeast Asia, Eastern Europe and North Africa.
In the event of any major political turmoil in these regions, the Group’s
business in these regions may be disrupted or discontinued, which may
lead to material losses.

Political and economic instability, as well as any potential downturn
or slowdown in Russia’s economic growth may lead to a decrease
in household incomes and consumer demand, which could have
significant negative consequences for the results of operations
and the financial position of all of Sistema Group companies.

The business of the Group may be adversely influenced by a toughening
of sanctions, a complete economic blockade and change in the political
situation in the country, as well as potential involvement of the Russian
Federation in military conflicts.

Due to the situation in Ukraine, western countries imposed sanctions
on a number of Russian citizens and companies. There is a probability
of extension of existing sanctions or introduction of additional
categories of sanctions that may influence the companies of the Group
or the executives employed by the Group of companies. Any
potential breach of sanctions may prevent the companies of the Group
from cooperating with the government authorities of the USA/EU, result
in civil or criminal penalties being applied to the sanctioned persons
or their personnel in accordance with the laws of the USA/EU, or lead
to significant fines being imposed on the companies of the Group
with potential damage to their reputation.

Any further tensions in the relationship between Russia and other
countries and any escalation of existing conflicts, introduction
of additional sanctions or continued uncertainty as to their scope may
have an adverse impact on the Russian economy, the financial status
of the Group’s partners and suppliers, the capability of the Group’s
companies to conduct trading and financial operations and to raise
funding on commercially beneficial terms, and may increase the volatility
of Sistema’s share price.

Industry risks

Sistema is faced with diverse risks associated
with the presence of Sistema’s portfolio
companies in various sectors of the economy.
The most material risks are related
to the Group’s operations in the telecom,
electric power, retail (including e-commerce),
banking, high tech, hospitality, healthcare,
pharmaceuticals, timber, agricultural and real
estate industries.

Any significant changes in these industries may
have a material negative impact on the financial
position of the portfolio companies of Sistema
and on the Group as a whole.

Sistema’s external risks

Financial risks

The business of Sistema is inextricably
connected to the state of the global economy
and financial markets. In particular, it is
sensitive to movements in the prices of oil, gas
and other commodities exported by Russia.
A weakening or strengthening of the rouble
against the US dollar and the euro amid
fluctuating oil prices and imposed sanctions
may result in a rise in costs and/or a drop
in revenues or impede the achievement
of financial targets and repayment of debt
by Sistema Group companies.

An exodus of foreign investors from Russia
amid the restrictions introduced for foreign
companies as a result of sanctions may have
a negative impact on the joint ventures
(partnerships) and new investment projects
of Sistema Group.

Growing inflation may result in higher expenses
and, therefore, put pressure on profit
margins and also affect the domestic demand
for the products and services of Sistema Group
companies.

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Social and environmental risks

Due to the variety of industries where
the companies of Sistema Group operate,
the social and environmental risks faced
by the assets differ materially across
the Group. However, it is possible
to highlight a number of major trends that
may be seen both as risks and opportunities
for the companies of the Group:
› change in consumer preferences, a trend
towards responsible consumption and a
healthy lifestyle, higher expectations
from brands in terms of their mission,
responsibility and sustainable development;

› change in the age structure of customers,

›

the need to adapt and update
products and services in accordance
with the demands of the ageing population;
increased competition for talents due
to demographic gaps and changing
expectations of the young workforce
in relation to working conditions;
› climate change and extreme weather
conditions that may impact crop
yields, the health of the population
and the operation of infrastructure;

› emergence of new technological

solutions and economic transformation,
including digitalisation and automation
in the manufacturing and service sectors
and potential redundancy of a big number
of employees;

› a growing threat to cyber security and a
tightening of regulations in the area
of confidentiality and personal data
protection;

› deteriorating living standards and potential

rise in social tensions in the regions
where the Group operates, which may
reduce the income of the Corporation
and the portfolio companies of the Group;

› a tightening of regulations in the area
of sustainable development, carbon
regulations and information disclosure.

The servicing and refinancing of the existing
and future liabilities of the Corporation
may lead to a significant cash outflow. If
in the medium term sanctions are maintained
and the access of Russian banks and businesses
to foreign debt remains restricted, this may
significantly increase the current liquidity
deficit in the market and result in further
interest rate rises, making it difficult for Sistema
Group to raise funding for its operations and
to refinance the debt of the Corporation
and its portfolio companies. Should
the Corporation be unable to raise necessary
funding on the terms and within the timeframes
required, it may create significant restrictions
on business development and the Group’s
operating and investment activity.

An unfavourable macroeconomic environment
in many countries where Sistema’s assets
operate may make it necessary to re-evaluate
goodwill at some of the assets.

Foreign currency control and restrictions
on capital repatriation may adversely affect
capital flows and reduce the value of Sistema’s
investments in Russia, which may have a
significant negative impact on the business
of Sistema Group.

Potential bankruptcy of one of the Russian
banks acting as the Group’s counterparty
may result in a reduction in the sources
of borrowing for the Corporation and its
portfolio companies and may lead to direct
losses of funds deposited in the accounts
of such banks.

Political risks

The influence of geopolitical risks
on the activities of the Corporation and its
portfolio companies remains high, as
protectionism and economic sanctions are
increasingly being used as a tool for achieving
geopolitical goals with unpredictable results.

Introduction of sanctions against Russia
or Russian companies and individuals may
cause disruptions in international payment
systems, which in turn may prevent
the Corporation and its portfolio companies
from making settlements and reduce Sistema’s
investment appeal.

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Among the material risks faced by the Group’s industrial companies
are environmental, occupational health and safety and waste
disposal risks, as well as risks related to the state of the infrastructure,
the threat of accidents and electromagnetic safety, which are critical
for telecommunications and power grid companies.

In the agricultural sector the most material risks include climate risks
and challenges related to the need to adapt to changing weather
conditions, greenhouse gases, water consumption and animal farming.

Emergencies and accidents at the production facilities of Sistema Group
may have a significant impact on the environment: pollution of land
and water, emissions above the allowable limit, discharge of waste
waters or leaks of hazardous substances. Occurrence of these risks may
damage the local communities, ecosystems and biodiversity. Irrational
use of natural resources (land, forest) may deplete the raw materials/
production base and lower the economic results of agricultural
and forest assets.

To manage these risks the companies of the Group are implementing
advanced technological solutions, improving management systems
in the area of environmental protection, energy efficiency, occupational
health and safety, and developing measures aimed at prevention
and mitigation of accidents and emergencies.

The risks related to failure to comply with the principles of sustainable
development in supply chains may result in disruption of supplies
and have an adverse effect on the reputation of Sistema Group. As
part of their efforts to minimise such risks the companies of the Group
set strict requirements to suppliers, contractors and partners in terms
of compliance with existing laws and internal regulations.

In view of the increased threat of global and regional terrorist attacks,
any potential accidents at the enterprises and infrastructure facilities
of the Group may cause significant economic damage, negatively affect
people’s health and provoke a tightening of regulatory requirements
in the area of data access.

Legal risks

There is a risk of unpredictable court rulings and administrative decisions
being passed with respect to the business of Sistema Group and its
portfolio companies, which may have an adverse effect on the Group’s
operations. This risk is caused by numerous factors, including:
› possible discrepancies and ambiguities in: (i) federal and other
laws; (ii) bylaws issued by the executive authorities of the states
where Sistema Group operates; (iii) regional and local laws, rules
and requirements;

› gaps in legislation and lack of court and administrative guidelines
on the interpretation of some laws, as well as conflicts between
certain court guidelines and rulings.
influence of political, social and commercial factors on the judicial
system;

›

› potential selective or arbitrary actions of government authorities.

Gaps in Russia’s existing corporate
and securities legislation may create barriers
to raising capital in the future.

Lack of clarity about the applicability
of the Federal Law “On the Procedure
for Foreign Investment in Companies
of Strategic Importance to National Defence
and State Security” and the regulations
of the Customs Union of the Eurasian Economic
Union to Sistema Group may have a negative
impact on the business of Sistema Group due
to its having foreign shareholders.

There is a risk of amendments to the laws
of the countries where Sistema Group
companies operate, due to potential changes
in the laws and regulations governing
international trade and investments that may
be introduced by foreign states or international
organisations.

Since Russian corporate law provides
for the liability of shareholders
for the obligations of their controlled
companies, Sistema may incur financial
losses related to the liabilities of its portfolio
companies.

The minority shareholders of Sistema’s
subsidiaries may contest or vote against
related-party or other transactions, which
may limit Sistema’s capabilities of closing
investment deals and restructuring businesses.

If the Russian Federal Anti-Monopoly
Service concludes that Sistema or one
of its material subsidiaries has violated any
of the existing anti-monopoly laws, this may
result in serious administrative sanctions
involving losses for the Corporation.
The Federal Anti-Monopoly Service may also
prevent the Corporation and its portfolio
companies from closing and/or performing
certain transactions, which may also limit
Sistema’s capacity to do investment deals
and restructure businesses.

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Tax risks

Risks related to stock markets

The tax laws, regulations and practices
of the jurisdictions where Sistema’s
assets operate are intricate, opaque
and prone to frequent modifications
and ambiguous interpretations. If the actions
of the Corporation and its portfolio companies
are interpreted as breach of tax laws, this may
produce an adverse effect on the business
of Sistema Group.

Russian law on transfer pricing may make
it necessary to introduce adjustments
to the price-setting practices used at Sistema
Group’s companies and result in additional tax
liabilities related to some transactions.

In 2015, new rules were introduced relating
to the taxation of undistributed profits
of controlled foreign companies and profits
from indirect sale of properties in Russia,
the concept of a beneficiary owner,
and new criteria to be used to establish tax
residency of foreign legal entities in Russia.
Since coming into force these rules have been
revised several times, with the introduced
amendments having retroactive effect. As a
result of the need to apply the new taxation
rules, the Group’s companies may face new
tax liabilities arising from the uncertainty
around the interpretation of tax law and lack
of relevant legal precedents.

Deterioration of the geopolitical situation,
sanctions imposed on some Russian
companies, worsening of the macroeconomic
environment and capital and investor
flight from the Russian market led to a
reduction in values of Russian companies
in 2014–2019. In view of these circumstances
Sistema Group’s access to investor funding
through stock markets may be restricted
further as a result of introduction of sectoral
sanctions in the business segments where
the companies of Sistema Group operate and/
or due to the cautious approach of investors
to Russian companies in general. In particular,
Sistema’s ability to raise funding via debt
instruments may be limited, which is liable
to lead to a lack of working capital and cash
available for investment and significantly
undermine the Corporation’s financial
performance.

Risks related to the coronavirus
pandemic

In March 2020, the World Health Organisation
(WHO) declared the rapid spread of the novel
coronavirus disease (COVID-19) a pandemic.
The steps taken by many countries, including
Russia, to contain the spread of COVID-19
have created serious operational difficulties
for many businesses and had a serious
impact on financial markets. COVID-19 has
had a significant impact on the operations
of many companies in various sectors
of the economy, including, but not limited
to, temporary or permanent shutdown
of production, breakup of supply chains,
quarantine of personnel and decreased
demand. The significance of COVID-19 impact
on Sistema Group’s operations will largely
depend on the duration and extent of its
impact on the global and Russian economies.

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Risks related to Sistema Group’s operations

Implementation of the business strategy

The Corporation’s strategy aims to develop a balanced and diversified
asset portfolio in the sectors and regions where Sistema has expertise
and competitive advantages, while attracting leading international
and Russian partners. Despite having a well-formulated strategy,
Sistema cannot guarantee achievement of the established goals,
efficient management of the portfolio companies or benefits from new
investment opportunities due to its high debt and limited investment
resources. Sistema’s failure to achieve the goals set in the strategy may
undermine its financial results.

The development of Sistema Group companies depends on numerous
factors, including the receipt of necessary permits from state
authorities, sufficient demand from consumers, successful development
of technologies, efficient risk and cost management, timely completion
of R&D and introduction of new products and services. Difficulties arising
in any of these areas may have a detrimental effect on the development
of Sistema Group companies and the Corporation’s financial figures.

Acquisition, integration, disposal or restructuring
of assets

Sistema implements its strategy via acquisitions, disposals
and restructuring of assets. New investment opportunities come
with various risks, including failure to find relevant targets or their
not being available for acquisition, insufficient or inadequate due
diligence of the target company’s operations and/or financial situation,
and potential overvaluation of assets. These risks can also affect
Sistema’s financial performance.

Acquisition of assets may increase pressure on the cash position
and create a need for raising external funding.

Delays in the implementation of investment deals or failure to close
investment deals may have an adverse effect on the achievement
of Sistema’s strategic goals and negatively influence the results, financial
position and investment appeal of the Corporation.

Sistema may struggle with building an efficient
system for managing and controlling new
assets. The top risks in this area include:
›

inability to efficiently integrate
the operating assets and personnel
of the acquired company;
inability to establish and integrate
necessary control mechanisms, including
those related to logistics and distribution;

›

› conflicts between shareholders;
› hostility and/or unwillingness to cooperate

on the part of the management
and personnel of the acquired asset;
loss of customers by the acquired asset.

›

If any of the above risks materialise,
the relevant asset may lose part of its
value and/or worsen Sistema’s financial
performance.

When disposing of its assets the Corporation
may face the following risks:
› delays in closing or failure to close the deal
due to inability to obtain corporate or state
approvals;

› mistakes in asset valuation;
› assuming excessive obligations towards

›

the buyer;
loss of synergies with other assets staying
in the portfolio.

If one or several of the specified risks
materialise, the Corporation may lose
potential profit and thus see poorer financial
performance.

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Management and key personnel

The implementation of Sistema’s strategy
in many respects depends on the efforts
and professionalism of the management
team. Failure to hire a sufficiently competent
and motivated management team may
jeopardise Sistema’s business, performance,
financial position and development prospects.

Cash flows from Sistema Group
companies

The Corporation’s financial performance
depends on the ability of Sistema Group
companies to generate cash flows needed
to service its financial liabilities, including
repayment of debt and interest, and to make
other investment activities in the future.
Such cash-generation capacity may be
restricted due to regulatory, tax or any
other barriers, which may have an adverse
effect on the financial position and liquidity
of the Corporation.

Uncertainty of estimates
in reporting

In compliance with the provisions
of the Company’s accounting policy
the management should make assumptions,
estimates and judgements with respect
to the book value of those assets and liabilities
that cannot be assessed on the basis of other
sources. The estimates and their underlying
assumptions are formed on the basis
of previous experience and other factors
that are considered relevant in the given
circumstances. The actual results may differ
from these estimates, which may have a
substantial adverse impact on the Group’s
financial results.

The estimates and the resulting assumptions
are revised on a regular basis. Changes
in estimates are recognised in the period
in which the estimate was revised if the change
influences only this period, or they are
recognised in the period in which the estimate
was revised and in future periods if the change
influences both the current and future periods.

Borrowings

Loan covenants

Cash flows from portfolio companies may be
insufficient to finance all of the Corporation’s
investments scheduled for a particular
period. This may create a need to raise
additional external funding and increase
the debt burden of the Corporation, which,
in turn, will put pressure on the credit ratings
of the Corporation and the companies
of Sistema Group. A downgrading
of the credit rating may increase the cost
of existing debt, make new borrowings
more expensive or inaccessible and, in some
cases, trigger acceleration of existing loans.
The risk of deterioration or withdrawal
of the Corporation’s credit rating is correlated
with reputation and liquidity risks. The current
debt level of the Corporation also restricts new
borrowings.

The loan and debt securities agreements
signed by the Corporation and the companies
of Sistema Group provide for certain restrictive
covenants. These covenants restrict further
borrowings, encumbrance of property
with pledges, sale of assets, and transactions
with affiliates. They may also restrict certain
aspects of Sistema’s operations, such as
financing of capital expenses, or limit its
capacity to repay debts and service other
liabilities. Any breach of covenants, however
inadvertent, may entitle the creditors
of the Corporation and/or its portfolio
companies to demand early repayment
of loans, which is a threat to the Corporation’s
financial performance.

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Licences and permits

Compliance with applicable laws and regulations

The operations of Sistema Group’s companies
are regulated by different government bodies
and agencies issuing and renewing licences,
approvals, and permits, and also depend
on applicable laws, regulations, and standards.
Regulatory authorities to a large extent rely
on their own judgement when interpreting
and implementing legal requirements,
issuing and extending licences, approvals
and permits, and monitoring compliance
with such licences. There is no guarantee that
the existing licences and permits, including
those issued to the Group’s companies, will
be extended, that new licences and permits
will be issued, or that the companies will
be able to comply with the terms of such
licences. There is no guarantee either that
existing or future licences or permits will not
be suspended or revoked on some grounds.
Any of these circumstances may have material
negative consequences for Sistema’s business.

The Corporation and the companies of Sistema Group should
conduct their business activities in compliance with a number
of rules and regulations in the area of market competition, corporate
governance, fraud and corruption prevention, management of conflicts
of interest, compliance with sanctions, fair treatment of customers,
prevention of money laundering and terrorism financing, adherence
to the policy on information security, prevention of illegitimate use
of insider information and market manipulation. Any failure to comply
with these requirements may create the risk of legal and regulatory
sanctions, significant financial losses and reputational damage.

Moreover, the operations of Sistema and its portfolio companies are
regulated by the anti-corruption laws of relevant jurisdictions, where
they conduct their business or where their securities are traded,
including the laws of the Russian Federation, the UK Bribery Act
and the US Foreign Corrupt Practices Act (FCPA). Any investigation
into potential violations of the FCPA, UK Bribery Act or other anti-
corruption laws of the US, the UK, or other jurisdictions, may negatively
affect the reputation, business, financial situation and performance
of Sistema and the companies of Sistema Group.

Privatised companies

The portfolio of Sistema Group contains several
privatised assets. In the future the Corporation
and the companies of the Group may
also take part in privatisation of assets.
Since Russia’s privatisation-related legislation
remains somewhat unclear and inconsistent
and contradicts some other provisions of law
(e.g., there are contradictions between federal
and regional provisions on privatisation),
privatisation of many companies can
potentially be contested, however selectively,
which may have a material negative
impact on the business, financial situation,
performance, or development prospects
of the Corporation.

Human rights

The Corporation is aware of its responsibility for observing human rights,
preventing any exertion of harmful influence on human rights, eliminating
or mitigating the potential consequences of such influence whenever it
takes place.

As part of its operations and cooperation with suppliers, contractors,
partners and other stakeholders the Corporation may exert direct
and indirect impact on the rights of employees, local communities,
customers, patients and consumers. Any instances of violations of human
rights may have an adverse effect on the Corporation’s reputation
and lead to court disputes, loss of confidence of investors, customers
and employees, cause resistance from local communities, trade unions
and NGOs.

The risks associated with human rights are taken into account in the risk
management systems of the companies of Sistema Group, and material
items are regularly reviewed by the boards of directors of relevant
portfolio companies. For more detail on the management of risks
related to human rights, please refer to the section “Sustainability
management”.

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Brand quality and reputation

Developing and maintaining brand awareness
for the Group’s companies is crucial
to shaping the public opinion about their
existing and future products and services.
Sistema believes that the importance of a
company brand is growing steadily in highly
competitive markets. Successful development
and improvement of brand awareness
depends to a great extent on the efficiency
of marketing and ability to provide quality
products and services at competitive prices.
The effort and money invested in brand
development may prove greater than
the incomes they yield, which means potential
financial losses for the Group’s companies.

The reputation of Sistema may suffer
in the event of unethical business conduct,
professional errors (including medical
errors), negligence, failure to observe
human rights or dissemination of inside
information and corruption offences committed
at the Corporation or its portfolio companies.

Digitalisation of business,
development of IT and protection
of personal data

With digitalisation of businesses
(implementation of modern IT solutions
and systems) and comprehensive penetration
of the Internet, the risks related to cyber
security and personal data protection are
becoming a major threat to the business
of the companies of Sistema Group. Sistema
Group’s inability to prevent cyber attacks
and unsanctioned access to its networks
and data bases may cause, inter alia, leaks
of personal data and confidential information,
damage to the assets of the Group’s
portfolio companies, disruption in production
processes, network security breaches,
costs related to the restoration of IT systems
and equipment, which may significantly
undermine the business of Sistema Group.

The risks associated with the protection
of personal data are most relevant for assets
in the segments of telecommunications, online
services, finance and e-commerce. Sistema’s
portfolio companies implement their own
programmes, projects and measures that
make it possible to reduce the likelihood
and possible negative consequences of their
industry-specific risks.

Competition

All business segments where Sistema operates
are exposed to competition from other
companies. Telecom, electric power, retail
(including e-commerce), hospitality, private
healthcare, pharma, banking, high tech,
real estate, timber and agricultural markets
in Russia and elsewhere are highly competitive.
Inability of Sistema Group’s companies
to compete efficiently may have a material
negative impact on the business, performance,
financial situation and development prospects
of the Corporation.

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SUSTAINABILITY

05 ANNEXES

E M E

05//sistema.com

Management
system

Sistema’s Board of Directors plays a
key role in determining the strategic
areas and overseeing the performance
of the Corporation’s sustainability activities.
Sustainability aspects that are essential
for the Corporation are managed at both
strategic and functional levels, with the key
principles and approaches transmitted
to the Group’s companies through their boards
of directors, which include key executives
of Sistema PJSFC (Managing Partners).

The company spent 2020 implementing
an action plan aiming to develop approaches
to sustainability management and responsible
investing. The Corporation’s Board of Directors
approved a new version of the Corporate
Governance Code devised in reliance
on global best ESG practices. In 2020, Sistema
adopted its first-ever Sustainability Policy
setting forth the guiding principles of Sistema
Group’s ESG activities and the key ESG
aspects in which Sistema can produce a lasting
positive effect and create long-term value
for stakeholders: Accessibility and Quality,
Well-being, and Smart Environment.

Sistema’s corporate responsibility principles

›

› Risk management. Consideration of environmental, social and
governance risks and opportunities when developing and
implementing strategy, assessing investment opportunities and
developing the Group Companies.
Integrity and transparency. The Corporation refines its
management structures, policies and procedures to ensure
compliance with applicable laws and good business practices.
The Corporation also discloses material information about itself
and its activities, including public non-financial reporting, thus
enabling stakeholders to properly oversee its activities.

› Respect for human rights. The Corporation promotes inclusivity
and diversity, ensures equal opportunities, prevention of child
and forced labour, protection of personal data, respect for
labour and other fundamental human rights.

› Ethics, loyalty and honesty in relations with partners,

counterparties, and personnel. The Corporation develops
and strictly observes its own Code of Ethics and provides
comprehensive support to the development of business ethics in
the Group Companies.

› Employee care. The Corporation seeks to provide its employees
with decent and safe working conditions and fair compensation.
It shall develop and implement programmes designed to
create conditions for enhancing qualifications and education,
expand the scope of health insurance, develop sports, culture,
volunteering, and charity opportunities, and promote other
social activities for the benefit of its employees.

› Focused allocation of financial and intellectual resources on

promoting innovation and developing businesses in industries
that can bring substantial social, economic and technological
benefits to the regions and local communities in which the
Corporation operates.

› Respect for the environment. The Corporation seeks to ensure
responsible resource management and environmental safety
of production processes, products and services in the Group
Companies.
Investment in socially impactful projects and programmes through
the Sistema Charitable Foundation and the charitable activities of
Sistema Group Companies.

›

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In implementing its investment and social
programmes, Sistema draws upon
comprehensive corporate expertise, strikes
synergistic intersectoral partnerships
with government bodies, academia, civic &
non-profit organisations, and encourages
cooperation between businesses across
the Group.

Transparency and ongoing dialogue
with stakeholders are the basic principles
of Sistema’s activities as a public company.
Sistema prepares public non-financial reports
in accordance with recognised international
standards and promotes the disclosure
of material non-financial information by its key
portfolio companies and funds.

In the autumn of 2020, consistent with its
sustainability principles, Sistema signed
an agreement with Sberbank for an up
to RUB 10 bn credit facility where specific
interest rates may be tied to the company’s
sustainability performance (i.e., as
sustainability improvement loans).
In entering into the agreement, Sistema
committed to approve an Environment
Policy and integrate responsible investment
principles in its investment process
and business model.

Participation in sustainability
initiatives

Sistema is a signatory to the UN Global
Compact promoting shared values and
responsible business practices, and
to the Social Charter of the Russian
Business, a set of fundamental principles
of responsible business practices adopted
by the Russian Union of Industrialists and
Entrepreneurs.

At the level of Sistema’s Board of Directors,
sustainability is supervised by the Investor
Relations and Dividend Policy Committee,
which preliminarily defines the Corporation’s
position on ESG factors and reviews
the strategy of Sistema Charitable Foundation.
Other Committees of the Board of Directors
consider certain ESG aspects (corporate
governance, ethical business conduct,
etc.) within their respective mandates.
The implementation of final ESG policies
at the operational level, its communication
to investors and public non-financial reporting
are the responsibilities of the IR Service, which
comprises ESG experts.

Issues of social corporate responsibility,
social communications, regional policy
and charitable activities are supervised
by the Corporate Communications Function;
corporate governance and compliance
aspects of the said issues are supervised
by the corporate secretary, the Corporate
Governance & Legal Function and the Internal
Audit Service, while the HR Department is
responsible for HR policy aspects. Wherever
necessary, cross-functional working groups are
created in the Corporate Centre to develop
common approaches to managing the key
sustainability aspects.

ESG risk management is part of the corporate
risk management system. To learn more about
ESG risks, go to Risk Management.

All risks associated with human rights are
reviewed within the risk management systems
of Sistema Group companies, and related
material matters are regularly reviewed
by their boards of directors. The Corporation
has zero tolerance for human rights violations
across its entire value chain and expects its
suppliers, contractors and partners to ensure
the same degree of commitment to legal
compliance and respect for human rights.
The Group’s companies use accessible
and properly formalised whistleblowing
mechanisms, which ensure confidentiality
and fair review, protect whistleblowers
from retaliation, and provide post-investigation
feedback.

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//sistema.com

Responsible investment

ESG ratings and rankings in 2020

The responsibility of Sistema as an investor is in the effective
management of portfolio assets and funds to build value for shareholders
and a wide range of stakeholders in the long term.

The Corporation aims to build competitive high-added-value businesses
that honour the principles of social and environmental responsibility
and contribute to the sustainable development of their respective
industries and regions of operation and to the steady growth
of socioeconomic and technological potential, human and natural
capital, standards of living, and social well-being.

Sistema’s investment process is regulated by internal documents
and procedures. Provisional investment projects and programmes
of portfolio companies receive detailed examination as part of Sistema’s
multi-stage investment process. In addition to financial and industrial
analysis that underlie decision-making for each project, such aspects

as management quality, staffing, the state
of production facilities, infrastructure
and technology, as well as related social
obligations and environmental risks, are also
factored in.

At the end of 2020, Sistema’s strategic
approach to responsible investment was
incorporated into an updatedset of investment
criteria (as specific ESG parameters) approved
by the Board of Directors and entered
into corporate governance bylaws, making
sustainability an indispensable strategic aspect
carrying weight in all investment decisions
and asset management strategies.

IMPLEMENTATION OF RESPONSIBLE INVESTMENT PRINCIPLES

IMPLEMENTATION
OF RESPONSIBLE
INVESTMENT PRINCIPLES

WHEN MANAGING
ASSETS

WHEN DIVESTING
FROM ASSETS

No “sin stocks” and activities
that are forbidden by local law
or international standards

Basic sustainability requirements
to portfolio companies and extra
requirements in preparing for IPOs

Reviewing the ESG profile of each
company when making investment
decisions

Engagement with portfolio
companies via their boards
(as per established corporate
procedures) to enhance
sustainability management
and drive ESG performance

Ensuring the independence
and reliability of sustainability
management systems within
the company

Issuing reference notes
and guidelines on sustainability
where necessary

For more details go to Responsible Investment on the corporate
website.

The Corporation’s further plans include the development
of an Environmental Policy, a Human Rights Policy, and sustainability
monitoring criteria, as well as support for sustainability practices
development across the group in accordance with the approved basic
requirements.

Last year’s Russian Business Leaders: Dynamics, Responsibility,
and Sustainability, an annual prize-giving campaign organised
by the RSPP, awarded Sistema for “High quality of sustainability
reporting” and Segezha Group, for a “Contribution to local social
development”.

Sistema is among FTSE4Good index
constituents since 2016.

2018

2019

2020

ВВ

Sistema is ranked #11 among 725 diversified
financials

12,2 '21

15,3 '20

30,4 '19

NEGL

0–10

LOW

10–20

MED

20–30

HIGH

30–40

SEVERE

40+

Sistema is among the leaders of the
Responsibility & Transparency and
Sustainability Vector rankings of the Russian
Union of Industrialists and Entrepreneurs
(RSPP) since 2016 and constituents of related
MOEX-RSPP ESG indices since 2019.

In 2020, Sistema received score B
(Management) and made it to the top 7 of 29
Russian businesses making voluntary climate
data disclosures.

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Key ESG
areas

Sistema identified three key ESG areas to cultivate through investing,
with a view to achieving a meaningful positive impact:
› Accessibility and quality of products and services
› Well-being of employees, customers and local communities
›

Smart, efficient and safe environment.

Innovation and digital transformation are the focus of the Corporation’s
strategy. Sistema consistently invests in building intellectual potential
through science and education, advanced research, tech startups,
new developments and digitalisation. The Corporation cooperates

with innovation support institutes, creates
its own R&D centres, and facilitates
the adoption of advanced technologies
and organisational innovations in its portfolio
companies. Most of the projects implemented
by the Corporation, its assets and Sistema
Charitable Foundation contribute to solving
socially important issues at the intersection
of the key ESG areas.

Investment
strategy

Accessibility and quality
› Access to products, services

and information

› Customer experience
› Responsibility for products

Well-being
› Human capital
› Health and safety
› Data privacy and security

Smart environment
› Smart homes, cities and industries
› Operational eco-efficiency
› Energy management and climate

change

Corporate
governance
and synergies

› Business ethics
› Human rights and stakeholder engagement
› Risk management
›
Innovation management
› Sustainable supply chain

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Examples of key ESG efforts of portfolio companies

Sistema and its portfolio companies
significantly contribute to the formation
of a competitive labour and procurement
market, including the engagement
of small and medium-size businesses,
the modernisation of infrastructure,
industry and agriculture, the enhancement
of the accessibility and safety of products
and services, the development of the health
and education systems and the social
and environmental well-being of communities
where they operate.

Given the vast diversity of industry sectors
Sistema invests in, sustainability risks and value
creation potential vary across the Group.
Below we provide some of the most illustrative
examples of the efforts of portfolio companies
made in 2020. Traditional synergies between
assets enabled many cross-sectional projects.

Recognition of customer experience achievements

MTS Bank received the Best Customer Service
award at the 13th Bank of the Year ceremony
organised by Banki.ru. Along with a highly
efficient 24/7 help-desk service, the bank
gained recognition for best customer service
in social media.

The National Association of Housing
Developers recognised Etalon Group as
Moscow’s best property developer (with

the highest reliability rating). In announcing its
development strategy through 2024, Etalon
Group identified “best customer service
throughout the entire client journey” among
its core areas of focus, aiming to become
the nation’s No. 1 in customer service,
from project sourcing to delivery.

New approaches to stakeholder engagement in estate planning

In a tie-up with Citymakers, Etalon Group
launched Generation Zil, an urban-planning
media platform where Russian and international
experts will discuss the future of the ZIL-South
territory with Moscow residents.

The project offers analytical insights
into the past of the district and plans
for its development, a platform for expert
discussions, and registrations for workshops
of the urban planning lab. The final products
of the public discussions and workshops,
coupled with the territory’s new master plan,

will form the basis for the redevelopment
of the new district in Moscow’s south.

Drawing on the philosophy of participatory
design and the capabilities of the media
platform, the new district has potential
to evolve into a point of growth for urban
environment and next-level urban
infrastructure, with the best findings
and solutions to be later rolled out nationwide.

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International healthcare accreditation

Medsi’s CDC Krasnaya Presnya in Moscow received accreditation
from the international nonprofit Joint Commission International (JCI),
which evaluates healthcare providers for safety and service quality.
CDC Krasnaya Presnya is Russia’s fifth and Medsi’s first health facility
to receive a JCI certificate. The accreditation covers a set of parameters
related to patient safety, customer needs, the quality of diagnostic
and therapeutic services, professional skills, observance of the rights
of patients and their families, the safety of buildings, and information

Digital solutions for remote health monitoring

MTS developed digital solutions for remote health monitoring,
controlling safety discipline, and minimising contagion risks at major
industrial companies. The package includes three IoT features
to monitor the health of staff and visitors: a non-contact thermometer,
an automated telemedicine system for pre-travel (pre-shift) medical
examinations, and an infra-red scanner. The solution specifically
caters to large offices, major industrial, transport and logistical
facilities, shopping malls, and high-hazard production sites. Although
prompted by the COVID-19 pandemic, the solution is broad in the scale
of applications and will also come in useful during flu season.

Launched in December 2019, Medsi’s referral centre for radiology
and instrumental diagnostics makes it possible to make interpretation
reports remotely, which translates into steadily high quality and optimal
utilisation of both scanners and personnel, where patients and cases

security. The preparation for the accreditation
involved an in-depth analysis of the clinic’s
last three years of operation, a 6-month
comparative study, and the adoption of new
targets, international analytical methods,
and standardised processes.

are distributed among doctors with relevant
skill sets. The referral centre provides expert
support to doctors dealing with challenging
diagnostic cases, as well as local clinics lacking
doctors of relevant specialisations. As of the
end of 2020, the centre was networking with
18 clinics in four regions of Russia, having
issued over 200 thsd remote interpretations
of radiographic images and over a thnd
of “second opinions”. In 2021, the centre
will expand its reach to 35 Medsi clinics
nationwide, while also building relations
with third-party healthcare providers.

Development of human capital

Etalon Group signed a long-term cooperation agreement
with Moscow State Construction University, involving research &
development in the applications of new materials and technologies
and the identification of scientific and technical challenges that require
solving to drive the evolution of the construction industry and nurture
young scientists.

Although Segezha Group’s new manufacturing factory, Galich Plywood
Mill (GPM), is still in construction, its management is working to make
sure that finding professionals locally won’t be a problem. The company
has signed a cooperation agreement with Galich School of Agriculture
and Technology, whose brand-new Timber Processing Department
will serve as a talent factory for the giant-in-the-making, offering
graduates decent employment in their home town. GPM will provide
practical training, including factory tours, mentorship, and internship
programmes. With logging jobs included, the factory will need more
than a thnd workers. The new production facility will free Galich
from “one-factory town” status and generate a hefty tax revenue
for the town’s budget.

Element Group has signed a cooperation
agreement with the National Research
University of Electronic Technology
(MIET) to drive the scientific, research,
and production potential of the Russian ME
industry, create new skill sets, and promote
sophisticated technical systems and industrial
ecosystems. The agreement will serve to pool
together expertise, organisational resources,
and goodwill to cultivate new markets
and enhance the efficiency of engineering
solutions and deployments across a variety
of industries, regions, and countries,
under a raft of Russian governmental
programmes, such as the National Strategy
for Scientific and Technological Development,
the Digital Economy Programme,
and the Strategy for the Development
of Russia’s Electronic Industry.

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Cyber security to benefit customers

Ozon has launched a programme of money
rewards (a “bug bounty”) for users who
can detect any errors and vulnerabilities
in the online platform. Just a handful
of Russian companies have such programmes.
Russia’s first e-commerce player to launch
its own “bug bounty” programme, Ozon is
planning to invest over RUB 3 M in cooperation
with cybersecurity researchers. The size
of rewards to be paid for each identified “bug”
will depend on the degree of its impact
on the website’s operation, the potential

damage that such vulnerability may cause,
and other factors.

An e-commerce giant that services over
3.5 M people every day, Ozon launches
the bug bounty to achieve 24/7 safety
monitoring, a valuable addition to the efforts
of its IT Security Lab currently employing more
than 1,000 engineers.

Digitalisation of waste collection and disposal

With the support of the Russian Ecological
Society, MTS launched a nationwide
programme for the digitalisation of waste
management. The solution helps local
household services in tracking waste-bin fill-
level, scheduling pick-up routes, controling
cleaning activities for timing and quality,
and automating a full cycle of paperwork
procedures, from billing to executing contracts
to releasing payments to contractors.
The programme ensures the timeliness
and efficiency of waste pick-up and pricing
transparency.

The initiative also helps in preventing
unauthorised dumping (via a high sensitivity
to route deviations) and so works towards
better environment in the regions. Better route
planning and saved trips translate into lower
fuel consumption and a reduction in emissions.
Looking ahead, the company plans to enhance
the solution to predict landfill capacity
and the workloads of recycling facilities.
The solution has already been market-launched
at four regions across Russia, with another
seven currently in the pilot-testing pipeline.

Zero-waste wood processing

Segezha Group’s paper-making arm Sokol Pulp
& Paper Mill commissioned a pulp recycling
line that produces dry lignosulfonates, widely
used in construction, metallurgy, drilling fluid
production, dye production, etc.

The automated hi-tech process is continuous
and observes all applicable environmental
requirements. The new industrial process
creates more than 20 jobs.

Another site of Segezha Group,
Galich Plywood Mill (currently under
construction), launched the construction
of an environmentally friendly 36 MW “power
centre”, which will serve as a permanent
solution for waste disposal and a source of heat
energy for the entire mill. The construction
of the facility will be completed in 2021, even
before the mill is commissioned.

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#COUNTRYWITHOUTVIRUS: fighting
the COVID-19 pandemic in 2020

In the first weeks after the Russian government introduced a lockdown
due to a high number of coronavirus cases, Sistema Group spent about
RUB 1 bn to prevent the spread of the disease. The money was used
to finance healthcare-related measures, a launch of the manufacturing
of personal protective equipment (PPE), the protection of employees’
health, and support to the consumers of goods and services provided
by the Group’s companies.

In order to keep medical personnel healthy, efficient and motivated,
a support centre was established for those involved in fighting
the pandemic. The Centre accepts donations and humanitarian aid
from individuals and organisations. The programme also involved
the delivery of a more than RUB 1.7 bn worth of medical equipment,
test kits, PPE, etc. to clinics and hospitals across the nation.

The #COUNTRYWITHOUTVIRUS initiative was among the winners
of the Best Social Projects of Russia contest and also received the People
Investor award.

Medsi Group

Medsi’s flagship hospital in Otradnoye was converted
into an infectious disease hospital and provided with all
the necessary equipment, including 40 lung ventilatorsand
100-bed facility with capacity for expansion. Effective from 01
April 2020, the hospital started admitting solely confirmed
and suspected coronavirus patients.

Binnopharm Group

MTS

The pharmaceutical company set
up the trial testing and industrial
production of the world’s first registered
coronavirus vaccine (in cooperation
with the Russian Direct Investment
Fund and the Gamaleya Scientific
Research Institute of Epidemiology
and Microbiology).

Binnopharm Group doubled
its output of products from the
public “Covid-19 approval and
recommendations list” in just nine
months.

Sistema BioTech

The biotech laboratory has developed
several Covid-19 diagnostic kits allowing
to detect the coronavirus with a 95%+
accuracy. Moscow clinics received
about a million of Sistema BioTech test
kits of the type.

MTS provided its outlets and warehouses
with abundant personal protective
equipment, sanitisers, and other protection
and disinfection material.

To keep network capacity high and ensure
that digital services suffer no interruptions
despite the internet traffic surge amid
the pandemic, the company increased
network power, with a redundancy reserve
for future periods.

MTS has provided cloud resources
for computer modeling of the new
virus’s pathogenic mechanism as part
of Folding@Home, a global project aimed
to help scientists find effective treatment
for Covid-19.

In just two days, the telco deployed a wi-fi
network and amplified signal quality at
Medsi Otradnoye Hospital and Sanatorium,
which was temporarily repurposed
into a hostel for medical staff. MTS’s retail
arm provided tablets for no-contact doctor-
patient communications.

MTS also launched special options
in customer support, such as:
›

the possibility to use home internet
and TV even with negative account
balance; free traffic on popular
educational platforms and culture & arts
websites, and free access to MTS Fitness
and MTS Library apps;

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›

› online consultations with Medsi doctors
through the healthcare app SmartMed
for just RUB 1, whatever your mobile
operator;
the possibility to receive calls even when
your phone is blocked for non-payment,
and free calls to public coronavirus
helplines and to air carriers;
senior support, with volunteers helping
the elderly to learn how to get online
doctor consultations, order grocery
deliveries, and apply to the authorities
online;

›

› discounts and instalment plans for a

variety of services and special solutions
for corporate customers;
› a free psychological helpline

for those struggling with anxiety
amid the pandemic (in collaboration
with Moscow State Lomonosov
University and the Russian Presidential
Academy of National Economy
and Public Administration).

Medsi also offers testing for Covid-19 all across its chain of clinics,
while Medsi doctors provide advice on how to stay safe in a
pandemic and how to work towards a fast and full recovery if
infected.

Ozon

The company set up a specialised Covid-19 centre to diagnose
and prevent post-Covid pathologies.

Cosmos Hotel Group

Cosmos Hotel Group organised daily five-meals-a-day deliveries
for the Medsi Otradnoye patients and personnel. On top of that,
the company supplied the necessary household items such as bed
linens, tableware, and small household appliances, and provided
hotel accommodation for doctors.

Throughout the lockdown period
the marketplace was meticulously
monitoring prices for “hot products”
in heightened demand due
to the pandemic and subjected
vendors caught exceeding their
respective maximal allowed prices
to harsh penalties. Just one day
into the monitoring programme,
the company blocked over 300 offers
with surcharges ranging from 200%
to 3,000%, both detected by Ozon
and reported by customers.

Ozon has upscaled its “delivery
by the door” service launched back
in 2019 and ramped up investment
in a special information campaign
to popularise contactless delivery
methods.

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Vologda Textile

Segezha Group

To meet society’s needs
in the coronacrisis, the textile factory
specifically converted many of its
production lines to increase the output
of fabric by 5x, to 120,000 linear
metres a month (an equivalent of 2 M
face masks).

The company was put
on the governmental “priority” list
of businesses involved in the production
of materials and components essential
to the fight against the coronavirus
pandemic.

Segezha Group donated RUB 1 M
to Lesosibirsk Infections Disease Hospital
and RUB 18 M to Segezha Central
Hospital.

The money went towards medical
equipment, PPE, transport vehicles,
and other materials and machines
for fighting the coronavirus.

Sistema Group stays committed to taking
every necessary step to protect the health
of people around and prevent the spread
of the Covid-19 virus.

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Social investing

and operations of
Sistema Charitable Foundation

Sistema Charitable Foundation (SCF) is one
of the largest charitable foundations in Russia,
specifically established as an operator
for Sistema’s social investments. SCF invests
in education and professional development,
supports cultural and educational
projects, and provides social assistance
through a platform specifically designed
for the implementation and promotion
of the Corporation’s philanthropic initiatives.

The foundation spent 2020 making sure its
organisational structure and management
system are fully aligned with global best
practices, with the Board of Trustees greeting
its first-ever independent member.

SCF also streamlined funding procedures,
raising the total number of donors both
from inside and outside Sistema Group.
In June of 2020, SCF was put on the “priority
nonprofits list” of the Ministry of Economic
Development, enabling donors to record
donations in their financial reports under “non-
operating expenses” and so become
eligible for tax breaks. The total donations
in 2020 grew up by 64.7% year-on-year.

In the middle of 2020, the Foundation
adopted a new Development Strategy
until 2023. The priority social investment
initiative for Sistema is Lift to the Future, a
programme designed to develop
career opportunities across the Group
and address SDG No 4 in providing quality
education accessible for all genders, ages,
and geographies.

Leaders of Corporate Charity 2020

Sistema is in Group A (Best Practice) of the 2020 national rating
Leaders of Corporate Charity (LCC), organised by the Donors
Forum, EY Russia, and Kommersant Publishing. The rating serves
to recognise businesses that have managed to produce the most
efficient practices in, and systematic approaches to, charity
and social investing. Also among Leaders of Corporate Charity are
Sistema’s major portfolio companies, such as MTS and Segezha
Group.

The Corporation is the proud winner in the LCC’s category Best
Programme (Project) Using Information Technology to Achieve
Sustainable Development Goals, given in recognition of Project
Odyssey, Russia’s first IT initiative for searching and rescuing people
lost in natural environment. The foundation’s regular socio-cultural
Sistema Fest events also earned mentions among the nation’s best
local social investing programmes consistent with sustainability
principles and business strategies.

A novelty of 2020, the programme Sistema in Support of Good Cause
combines all charity initiatives from across the Corporation on a single
platform. SCF consolidated the data on all social projects in one
database and launched a corporate-wide programme involving 80%
of Sistema Group companies. Among the major charity endeavours
of 2020 is the corporate-wide Green Marathon, which engaged
1,254 employees from 21 assets.

Digitalisation in the Culture category involved the launch of the first
free-for-all online training course with Russian Museum, a 3D tour
of the Lenino-Snegiri Military History Museum, and a video tour titled
Fashion for All Things Russian in the Era of Alexander III, reaching a total
viewership of some 34,000 people.

› 150 employees took part in the corporate

sports day (“Games of the Heroes”) as part
of a new sports initiative.

› Two working bees (clean-up events) were

held among employees.

Although many offline activities had
to be cancelled and/or put on hold due
to the pandemic, the foundation did manage
to carry out most of what it had planned.

SCP EXPENDITURE BY PROJECT CATEGORY, %

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Education
Social Projects
Culture
Sistema in Support of Good Cause
Administrative expenses

40
30
15
1
14

Since relaunch, the platform has received
more than 80,000 new registered users
and uploaded 12 career guidance videos,
40 training courses, and more than
400 vacancy listings for 12 companies across
the Group. The digital platform will serve
to create a large educational community
with open access to training programmes,
career aptitude tests, a library of professions,
and job listings.

With support from Sistema Charitable
Foundation, the State Russian Museum
developed a sign language video guide
app for people with hearing impairments
covering the expositions of the Mikhailovsky
and Marmor Palaces in Saint Petersburg, one
of the first national initiatives of the type.
A programme of inclusivity projects for visitors
with special needs was initiated by the Russian
Museum and Sistema Charitable Foundation
in 2019 with adapted museum tours and art
therapy for people with disabilities and special
needs.

SCF’s 2020 Social Projects included
the following:
› Local Sistema Fests in the Kostroma

region, the Kurgan region (a grant contest)
and the Republic of Altay (an online
festival), reaching a total audience of some
3,500 individuals.

› Some 3,000 veterans received gifts

for Victory Day.

› Over 400 children visited a New Year party
in the Maly Theatre. Over 2,000 children
from seven regions of Russia received gifts.

Lift to the Future

10 years into the project, Lift to the Future is a
truly nationwide programme providing career
guidance, education, and career opportunities
across the Group.

Over the course of 2019–2020, the foundation
set up five engineering and 15 career guidance
classrooms in seven cities.

In 2020 Lift to the Future acquired an online
incarnation. The digital Lift to the Future
uniquely combines latest learning
digitalisation trends with advanced analytics
in addressing the projected labour-market
needs of the future. The programme is free
for all and accessible for high schoolers
and undergraduates across Russia. Among
distinctive features of Lift to the Future are its
unique expert-created practical content, direct
contacts with potential future employers,
and focus on both hard and soft skills.

180

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//sistema.com

ANNEX 1.
Brief biographies of Sistema’s Board
members, President, Management
Board members, and Corporate
Secretary. Their shareholding in
Sistema.1

MEMBERS OF THE BOARD OF DIRECTORS

NAME, POSITION

BRIEF BIOGRAPHY

Vladimir Evtushenkov

Born in 1948 in the Smolensk region.

Chairman of the Board of
Directors

Non-Executive Director

Graduated from the Mendeleev Moscow Institute of Chemical Technology in 1973 and
from the Economics Department of the Lomonosov Moscow State University in 1980.
PhD degree in Economics.

1975-1982 – workshop manager; deputy director; chief engineer, the Karacharovo
Plastics Factory.

1982-1987 – chief engineer, First Deputy CEO, the Polymerbyt Research and
Manufacturing Association.

1987-1988 – Head of the Technical Department; Head of the Main Department of
Science and Technology at the Moscow City Executive Committee.

1990 – Chairman of the Moscow Municipal Committee for Science and Technology.

1993 – co-founded Sistema Joint-Stock Financial Corporation.

Majority shareholder, Chairman of the Board of Directors and Chairman of the Strategy
Committee of the Board of Directors of Sistema PJSFC.

Actively involved in the development of solutions aimed at enhancing the
competitiveness of the Russian industry, developing high technologies and innovations,
supporting science and arts.

Chairman of the Russian side of the Russian-Arab Business Council and the Russian-Saudi
Business Council, member of the National Council on 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. Co-chairman of the Committee on Industrial Policies and Regulations of the
Russian Union of Industrialists and Entrepreneurs.

Chairman of the Board of Trustees of the development fund of the State Russian
Museum; member of boards of trustees of numerous other charitable, non-profit
and educational organisations, including the Lomonosov Moscow State University,
the Higher School of Management of Saint Petersburg State University, the Russian
Geographic Society, etc. Honorary Consul of the Grand Duchy of Luxembourg in the
Russian Federation with jurisdiction over the Yekaterinburg and Khabarovsk regions.

Share in the authorised capital of Sistema PJSFC: 59.2105%.

As of 31 December 2020.

184

NAME, POSITION

BRIEF BIOGRAPHY

Anna Belova

Independent Director

Born in 1961 in Aleksandrovsk, the Sakhalin region.

In 1984, graduated from Moscow Engineering & Physics
Institute. PhD degree in Economics, Professor of the Higher
School of Economics.

1993-1998 – CEO and area director at Booz Allen & Hamilton
Inc. Russia.

2001-2003 – Deputy Railway Minister of Russia.

2004-2005 – Deputy Chair of the Management Board,
Vice President for Corporate Governance, Reform and
Computerisation at OJSC Russian Railways.

2005-2007 – advisor to the head of the Federal Nuclear
Energy Agency.

2007-2011 – member of the Management Board, Deputy CEO,
Director for Strategy, Corporate Development and Integration
at OJSC SUEK.

2008-2016 – member of the Board of Directors (independent
director) at OJSC Sheremetyevo International Airport.

From 2017 on, academic supervisor at the Systemic
Transformation Centre of Lomonosov Moscow State
University.

Author of over 50 articles and academic papers on economics,
entrepreneurship, management strategies and business
transformation.

Holder of various public and government awards:

2010 – winner of the Russian national competition organised
by the Russian Union of Industrialists and Entrepreneurs and
the Association of Independent Directors in the category
“Independent Director of the Year”.

2014 – winner of the award “Best Corporate Director Among
Companies Partially Owned by Government” in the category
“Best Board Chairperson” established by the National
Association of Corporate Directors and Top Managers.

2014 – winner of ARISTOS, the Russian national award in the
area of management, in the category “Best Independent
Director”.

Deputy Chair of the Board of PJSC Unipro, member of the
boards of directors of PJSC Segezha Group and Tiscali S.p.A.
Over the past 10 years, has been a member of the boards of
directors of more than 25 Russian and international companies.

Member of the Board of Directors of Sistema PJSFC since
2017, Deputy Chair of the Board of Directors of Sistema PJSFC
since 2019. Chair of the Investor Relations and Dividend Policy
Committee, member of the Strategy Committee, the Audit,
Finance and Risk Committee, the Nomination, Remuneration
and Corporate Governance Committee and the Ethics and
Control Committee of Sistema’s Board of Directors.

Share in the authorised capital of Sistema PJSFC: 0.0075%.

SISTEMA PROFILE

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NAME, POSITION

BRIEF BIOGRAPHY

Andrey Dubovskov

Born in 1966 in Alma-Ata.

Non-Executive Director

In 1993, graduated from the Gerasimov University of Cinematography.

Has extensive expertise in telecommunications: since 1993, has held multiple managerial
positions at Millicom International Cellular S.A., Millicom International Cellular B.V.,
LLC Regional Cellular Telecommunications, CJSC 800 and other companies in Moscow,
Alma-Ata, Nizhny Novgorod, Yekaterinburg, Perm and Kiev.

2002-2004 – CEO, Tele2 (Nizhny Novgorod).

In 2004, joined OJSC MTS as head of the company’s Nizhny Novgorod branch.

2006-2007 – Director of the MTS Ural Macroregion.

In 2007, became first deputy CEO of CJSC UMS (MTS Ukraine) and was appointed CEO
of MTS Ukraine in 2008.

2011-2018 – President of PJSC MTS.

March 2018 to April 2020 – President of Sistema PJSFC.

Member of the Board of Directors of Sistema PJSFC since 2015, elected Deputy
Chairman of the Board in April 2020. Chairman of the Ethics and Control Committee,
member of the Strategy Committee and the Nomination, Remuneration and Corporate
Governance Committee of Sistema’s Board of Directors.

Share in the authorised capital of Sistema PJSFC: 0.0685%.

Felix Evtushenkov

Born in 1978 in Moscow.

Non-Executive Director

In 2000, graduated from the Griboyedov Institute of International Law and Economics
with a degree in law.

1999-2000 – Assistant to President of CJSC Sistema Invest, Executive Director of
Industry Department at Sistema.

2000-2006 – Deputy CEO and later CEO of CJSC Sistema Hals.

2006-2008 – President, OJSC Sistema Hals.

2008-2011 – Vice President, Head of Consumer Assets Business Unit, Sistema.

2011-2012 – First Vice President, Head of Core Assets Business Unit, Sistema.

2012-2018 – First Vice President, Sistema.

2018-2019 – Deputy Chairman of the Board of Directors of Sistema.

From 2019 – Chairman of the Board of Directors of PJSC MTS.

Member of the Board of Directors of Sistema since 2015. Member of the Strategy
Committee of the Board of Directors of Sistema. Chairman of the Board of Trustees of
Sistema Charitable Foundation.

Share in the authorised capital of Sistema PJSFC: 5.2125%.

SISTEMA PROFILE

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PERFOMANCE

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GOVERNANCE

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ANNEXES

NAME, POSITION

BRIEF BIOGRAPHY

Ron Sommer

Born in 1949.

Non-Executive Director

In 1971, received a doctoral degree in mathematics from the
University of Vienna.

1980-1986 – Managing Director, German branch of Sony
Group.

1986-1990 – Chairman of the Management Board, Sony
Deutschland.

1990-1995 – President and CEO, Sony Corporation USA, from
1993 – Sony Europe.

1995-2002 – Chairman of the Management Board, Deutsche
Telekom AG.

1998-2018 – member of the Supervisory Board of Munich
Reinsurance.

2004-2009 – member of the Board of Directors, Motorola Inc.,
USA.

2005-2011 – member of the Board of Directors of Sistema,
Chairman of the Investor Relations Committee of the Board.

2009-2011 – First Vice President, Head of the Telecom Assets
Business Unit, Sistema.

2009-2019 – Chairman of the Board of Directors of PJSC MTS.

Member of the Board of Directors of Sistema PJSFC since
2017. Member of the Strategy Committee, the Audit, Finance
and Risk Committee, the Nomination, Remuneration and
Corporate Governance Committee, the Investor Relations and
Dividend Policy Committee of Sistema’s Board of Directors.

Share in the authorised capital of Sistema PJSFC: 0.0026%.

Born in 1954 in Stepanakert, Nagorno-Karabakh Autonomous
Region.

In 1982, graduated from the Yerevan Polytechnic Institute.

1991-1994 – Deputy of the first Supreme Council of the
Nagorno-Karabakh Republic (NKR), Chairman of the State
Defence Committee of the NKR and Prime Minister of the NKR.

1994-1997 – President of the NKR.

1997-1998 – Prime Minister of the Republic of Armenia.

1998-2008 – President of the Republic of Armenia.

Member of the Board of Directors of Sistema PJSFC since 2009.
Chairman of the Nomination, Remuneration and Corporate
Governance Committee, member of the Strategy Committee
and the Ethics and Control Committee of Sistema’s Board of
Directors.

Share in the authorised capital of Sistema PJSFC: 0.0306%.

Robert Kocharyan

Independent Director

186

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NAME, POSITION

BRIEF BIOGRAPHY

Roger Munnings

Born in 1950 in the United Kingdom.

NAME, POSITION

BRIEF BIOGRAPHY

Anatoly Chubais

Born in 1955 in Borisov, Belarus.

Independent Director

Graduated from the Oxford University in 1972 with a degree of Master of Arts in Politics,
Philosophy and Economics.

Independent Director

In 1973-2008, worked for the international auditor KPMG, including in the capacity of
the President and Managing Partner of KPMG in Russia and the CIS (1996-2009), as
well as Chairman of the world energy and natural resources committee of KPMG (1993-
2008). Member of the Institute of Certified Accountants of England and Wales.

Commander of the Order of the British Empire since 2007.

Member of the Board of Directors of Sistema PJSFC since 2010. Chairman of the Audit,
Finance and Risk Committee, member of the Nomination, Remuneration and Corporate
Governance Committee and the Investor Relations and Dividend Policy Committee of
Sistema’s Board of Directors.

Share in the authorised capital of Sistema PJSFC: 0.0297%.

Vladimir Chirakhov

Born in 1974 in Tbilisi.

Executive Director

In 1996, graduated with honours from the Russian Federal Security Service Academy
with a degree in applied mathematics. In 2000, studied system analysis and business
management at Moscow International Higher Business School MIRBIS. In 2001,
graduated with honours from the Russian Presidential Academy of National Economy
with a degree in management. In 2013, completed Executive MBA at Moscow Skolkovo
School of Management.

2005-2009 – senior manager for product categories, project manager at LLC M.Video.
Management.

2009 – Sales Director at LLC Lindex.

2009-2012 – Sales Director, Executive Director, CEO of LLC Korablik-R.

2012-2020 – CEO of PJSC Detsky Mir.

From April to July 2020 was Chairman of the Board of Directors of PJSC Detsky Mir.

Appointed President of Sistema PJSFC on 20 April 2020.

Awarded a national Order of Friendship in March 2020.

Member of the Board of Directors of Sistema PJSFC since 2020. Member of the Strategy
Committee and the Ethics and Control Committee of Sistema’s Board of Directors.
Member of the Board of Trustees of Sistema Charitable Foundation.

Share in the authorised capital of Sistema PJSFC: 0.1540%.

In 1977, Graduated from Palmiro Togliatti Leningrad Institute
of Engineering and Economics (LIEE). In 2002, graduated from
Moscow Power Engineering Institute (major in Problems of the
Contemporary Energy Generation). PhD in Economics.

1990-1991 – deputy, then first deputy chair of the Executive
Committee of the Leningrad City Council of People’s
Deputies.

1991-1994 – Chairman of the Committee for the Management
of State Property, author and coordinator of privatisation in
Russia.

1992-1996 – Deputy Prime Minister, then First Deputy Prime
Minister of the Russian Federation for economic and financial
policy.

1995-1996 – Member Country Governor at the World Bank
and the International Monetary Fund.

1997-1998 – First Deputy Prime Minister and Minister of
Finance of the Russian Federation.

1996-1997 – Chief of Staff of the Presidential Executive Office
of the Russian Federation.

1998-2008 – Chair of RAO Unified Energy System of Russia.

In 2008-2020 – CEO of the Russian Corporation of
Nanotechnologies; in 2013-2020 – Chairman of the
Management Board of LLC RUSNANO Management
Company.

In 2020 was appointed special representative of the Russian
President for relations with international organisations to
achieve the Sustainable Development Goals.

Was awarded the Order “For Merit to the Fatherland”
(class IV).

Member of the Board of Directors of Sistema PJSFC
since 2020.

Share in the authorised capital of Sistema PJSFC: 0%.

SISTEMA PROFILE

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PERFOMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
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//sistema.com

NAME, POSITION

BRIEF BIOGRAPHY

Mikhail Shamolin

Born in 1970 in Moscow.

NAME, POSITION

BRIEF BIOGRAPHY

David Iakobachvili

Born in 1957 in Tbilisi.

Non-Executive Director

In 1992, graduated from the Moscow Automobile and Road Technical Institute, and in
1993 from the Russian Presidential Academy of Public Administration.

Independent Director

Graduated from Tbilisi Polytechnical Institute with a degree in
industrial and civil engineering.

In 1996-1997, completed a finance and management course for senior executives at the
Wharton School of Business.

In 1998-2004, worked for McKinsey&Co, an international consultancy firm.

2004-2005 – Managing Director for the Ferroalloys Division, Interpipe Corp (Ukraine).

2005-2011 – Vice President for Sales and Customer Service; Vice President, Head of
MTS Russia Business Unit; President at OJSC MTS.

2011-2018 – President and Management Board Chairman, Sistema PJSFC.

From 2018 – President of LLC Segezha Group MC.

Member of the Board of Directors of Sistema PJSFC since 2011. Member of the Strategy
Committee and the Ethics and Control Committee of Sistema’s Board of Directors.
Member of the Board of Trustees of Sistema Charitable Foundation.

Share in the authorised capital of Sistema PJSFC: 0.3063%.

Étienne Schneider

Born in 1971 in Luxembourg.

Independent Director

Graduated from the ICHEC Brussels Management School and the University of
Greenwich, London. In 1995, received a degree in business and finance.

1995-2005 – councilor in Kayl, Luxembourg.

1997-2004 – secretary general of the Luxembourg Socialist Workers’ Party (LSAP).

2005-2010 – first alderman of the municipality of Kayl.

In 2012, joined the Government of the Grand Duchy of Luxembourg as Minister of the
Economy and Foreign Trade. In 2013, was appointed Deputy Prime Minister, Minister of
the Economy, Minister of Internal Security and Minister of Defence of the Grand Duchy
of Luxembourg.

2018-2020 – Deputy Prime Minister, Minister of the Economy and Minister of Health of
the Grand Duchy of Luxembourg.

Member of the Board of Directors of Sistema PJSFC since 2020. Member of the Audit,
Finance and Risk Committee and the Investor Relations and Dividend Policy Committee
of Sistema’s Board of Directors.

Share in the authorised capital of Sistema PJSFC: 0%.

Private entrepreneur in 1986-2000: official dealership for
General Motors, travel and hospitality, timber processing,
retail, telecom, and banking.

In 1992, co-founded Wimm Bill Dann, sold to US PepsiCo in
2011.

1992-2011 – Member and later Chairman of the Board of
Directors of Wimm Bill Dann.

In 2011, invested in Bioenergy Corporation, becoming its
co-owner and chairman of the board of directors.

President of Orion Heritage Co, Ltd, Founder of Private
Sobraniye Museum, Chairman of the Board of Petrocas Enegy
International.

Vice President of the Russian Union of Industrialists and
Entrepreneurs (RSPP) and Chairman of its Committee for
Corporate Social Responsibility and Sustainable Development.
Chairman of the Joint Ethics Commission of the RSPP. Member
of the Consumer Market Council of the Russian Chamber of
Commerce and Industry. President of the InOil Research and
Production Group. Chairman of the Board of Directors of
RusBrand, the Association of Branded Goods Manufacturers
in Russia. President of the Russian-American Business
Council. Member of the Coordination Board of the Russian-
Arab Business Council. Member of the Public Council of the
Ministry of Construction and Utilities of the Russian Federation.
Member of the General Council of Business Russia. Member
of the World Economic Forum in Davos and B20 summits,
Co-Chairman of the Employment and Education task force.
Member of the Franco-Russian Dialogue Association. Member
of the President’s Global Council at New York University
(NYU).

Member of the boards of trustees of the Higher School of
Economics, RSPP Business School, French University College
in Russia, Mstislav Rostropovich Foundation for Scholarships,
State Hermitage Museum, Russian Museum of Decorative,
Applied and Folk Art, Russian Military History Society, Maria
Charity.

Member of the Board of Directors of Sistema PJSFC since
2011. Member of the Strategy Committee, the Audit, Finance
and Risk Committee and the Nomination, Remuneration and
Corporate Governance Committee of Sistema’s Board of
Directors.

Share in the authorised capital of Sistema PJSFC: 0.0345%.

190

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PRESIDENT AND MANAGEMENT BOARD MEMBERS

NAME, POSITION

BRIEF BIOGRAPHY

Vladimir Chirakhov

Born in 1974 in Tbilisi.

President, Chairman of the
Management Board

In 1996, graduated with honours from the Russian Federal Security Service Academy
with a degree in applied mathematics. In 2000, studied system analysis and business
management at Moscow International Higher Business School MIRBIS. In 2001,
graduated with honours from the Russian Presidential Academy of National Economy
with a degree in management. In 2013, completed Executive MBA at Moscow Skolkovo
School of Management.

2005-2009 – senior manager for product categories, project manager at LLC M.Video.
Management.

2009 – Sales Director at LLC Lindex.

2009-2012 – Sales Director, Executive Director, CEO of LLC Korablik-R.

2012-2020 – CEO of PJSC Detsky Mir.

From April to July 2020 was Chairman of the Board of Directors of PJSC Detsky Mir.

Appointed President of Sistema PJSFC on 20 April 2020.

Awarded a national Order of Friendship in March 2020.

Share in the authorised capital of Sistema PJSFC: 0.1540%.

Igor Alyoshin

Born in 1965 in Kurgan.

Vice President for Security

In 1987, graduated from the Omsk High School of Police of the USSR Ministry of Internal
Affairs with a degree in law.

1983-2012 – Service with law enforcement agencies.

2012-2013 – Management Board member, Vice President for Security and Assets
Protection of the Security and HR Department, Medsi Group.

2013-2014 – Vice President for Security, MTS Group Corporate Centre, Security Unit,
MTS.

2014-2018 – Senior Vice President, Head of Security Service, MTS Bank.

From 2018 – Vice President for Security, Sistema PJSFC.

Share in the authorised capital of Sistema PJSFC: 0.0233%.

Born in 1982 in Bishkek.

In 2004, graduated from the Kyrgyz National University with a degree in Finance and
Credit.

2007-2008 – Senior Analyst, Private Equity and Structured Financing Department, LLC
United Capital Partners Advisory.

2008-2012 – Analyst, LLC Sberbank Capital.

Started working at Sistema PJSFC in 2012, held the position of Director for Special
Projects in 2018-2019.

Managing Partner of Sistema PJSFC from 2019.

Share in the authorised capital of Sistema PJSFC: 0.0233%.

Sergey Egorov

Managing Partner

192

NAME, POSITION

BRIEF BIOGRAPHY

Artyom Zasursky

Born in 1979 in Moscow.

Vice President for Strategy

Alexey Katkov

Managing Partner

Igor Kozlov

Vice President for IT

In 2001, graduated from the Lomonosov Moscow State
University with a degree in Foreign Social and Economic
Geography. In 2005, completed postgraduate studies at
the Journalism Department of the Lomonosov Moscow State
University.

In 2001, graduated from the Lomonosov Moscow State
University with a degree in Foreign Social and Economic
Geography and Translation.

2002-2003 – Head of Department at LLC Crossmedia Solutions.

2005-2006 – Executive Director at LLC Territoriya Igr.

2007-2009 – CEO at LLC Dragonara.

2011 – Director for Development, LLC Stream.

2012-2013 – Vice President for Development at OJSC SMM.

2013-2016 – CEO at LLC Stream.

From 2017 – Vice President for Strategy, Sistema PJSFC.

Share in the authorised capital of Sistema PJSFC: 0.0432%.

Born in 1977 in Moscow.

In 1999, graduated from the Russian Presidential Academy of
National Economy with a degree in Management.

2000-2015 – Advertising Manager, Sales Director, Commercial
Director (since 2007) at LLC Mail.Ru.

2015-2017 – Member of Management Board, First Vice
President, COO at JSC SMM; then President of JSC Sistema
Venture Capital.

2017-2018 – CEO and then President of LLC SVC Fund.

Managing Partner of Sistema PJSFC from 2018.

Share in the authorised capital of Sistema PJSFC: 0.2434%.

Born in 1979 in Moscow.

In 2002, graduated from the Bauman Moscow State Technical
University (Bauman MSTU). In 2008, received an MBA degree
in Financial Management from Moscow International Higher
Business School MIRBIS.

In 2001-2009, was in charge of designing software for RESO
Garantiya.

2010-2011 – Head of Software Development & Maintenance at
VSK Insurance.

2011-2013 – Head of IT at UralSib Insurance.

2013-2020 – CIO at Kapital Life.

From July 2020 – Vice President for IT, Sistema PJSFC.

Share in the authorised capital of Sistema PJSFC: 0%.

SISTEMA PROFILE

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KEY ASSETS'
PERFOMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
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NAME, POSITION

BRIEF BIOGRAPHY

Svetlana Matveyeva

Born in 1984 in Moscow.

Vice President for HR

Leonid Monosov

Managing Partner

In 2006, graduated from the Plekhanov Russian University of Economics with a degree in
Economics. In 2007, graduated from the Department of Computational Mathematics and
Cybernetics of the Lomonosov Moscow State Lomonosov University.

Before 2012, held various positions at Sportmaster Group; in 2012, joined Sistema.

2017-2019 – Executive Director for Motivation, Training and Organisational
Development, HR Department of Sistema PJSFC.

From 2019 – Vice President for HR at Sistema PJSFC.

In 2019, made it to the short list (15 finalists) of Leaders of Russia (a national executive
ranking).

Share in the authorised capital of Sistema PJSFC: 0.0139%.

Born in 1958 in Mozyr, Belarus.

In 1980, graduated from the Moscow Institute of Railway Engineers with a degree in
industrial and civil construction.

1999 - 2007 – CEO of OJSC Moskapstroy.

2007 - 2010 – Head of the Moscow City Contract Repairs Department.

2010 - 2012 – Vice President, the state-owned corporation Olympstroy.

2012-2013 – Executive Vice President, Sistema.

2013-2018 – Vice President, Head of Investment Portfolio, Sistema PJSFC.

2018-2020 – Adviser to the Chairman of the Board of Directors of Sistema PJSFC.

From May 2020 – Managing Partner of Sistema PJSFC.

Share in the authorised capital of Sistema PJSFC: 0.1018%.

Oleg Mubarakshin

Born in 1968 in the Saratov region.

Managing Partner

In 1991, graduated from the Defence Ministry’s Military Institute. Graduated from
Moscow State Academy of Law with a degree in Law in 2000 and from the Finance
Academy of the Government of the Russian Federation with a degree in Finance in 2002.

1996-1998 – Deputy CEO for legal matters, the oil and gas company Belye Nochi
(Russia).

1998-2007 – Vice President for Corporate and Legal Affairs for Central and Eastern
Europe, InBev FMCG Group (Russia).

2008-2009 – Vice President for Legal Affairs for Western Europe, InBev FMCG Group
(Belgium).

2009-2013 – Member of the Management Board, Head of Legal, EastOne Investment
and Consulting Group (Ukraine, United Kingdom).

2013-2015 – Vice President, Head of the Legal Function, Sistema.

2015-2018 – Vice President, Head of the Legal Function, Sistema.

From 2018 – Managing Partner of Sistema PJSFC.

Share in the authorised capital of Sistema PJSFC: 0.4316%.

SISTEMA PROFILE

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GOVERNANCE

SUSTAINABILITY
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ANNEXES

NAME, POSITION

BRIEF BIOGRAPHY

Leonid Petukhov

Managing Partner

Born in 1978 in Moscow.

Graduated from the Finance Academy of the Government of
the Russian Federation with a degree in Accounting and Audit
in 2000. In 2001, graduated with honours from the Moscow
State Academy of Law. In 2003, completed McKinsey’s Mini-
MBA programme (Kellogg, INSEAD Business School). In 2007,
graduated from Harvard University (John F. Kennedy School of
Government), Public Administration.

In 2000-2007, worked for the Moscow office of McKinsey&Co,
an international consultancy firm.

From 2008 to 2013, was CEO of a number of oil and gas
companies in Eastern Europe, Russia and Ukraine.

2014–2015 – Vice President, ESN Group.

2015-2016 – Managing Director at Investment Department,
LLC Investment Company A1.

2017 - 2020 – CEO at Far East Investment and Export Agency.

From December 2020 – Managing Partner of Sistema PJSFC.

Share in the authorised capital of Sistema PJSFC: 0%.

Artyom Sirazutdinov1

Born in 1969 in Novokuznetsk.

Managing Partner

In 1993, graduated from Siberian University of Metallurgy with
a degree in Aluminium Production Engineering.

In 1996, received an MBA degree from Virginia Commonwealth
University.

1996-2005 – Vice President at Russia Partners Managing
Company.

2005-2007 – Managing Director at Sputnik Investment Group.

2007-2010 – Member of Management Board, Chief Investment
Officer at EastOne.

2010-2016 – Deputy Management Board Chairman at OJSC
International Financial Club Bank.

2016-2018 – Vice President, Sistema PJSFC.

2018-2021 – Managing Partner, Sistema PJSFC.

From February 2021 – CEO of LLC Sistema BioTech.

Share in the authorised capital of Sistema PJSFC: 0.0515%.

194

His appointment as Management Board member was terminated after the end of the reporting period.

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ANNUAL REPORT / 2020SISTEMA PJSFCCORPORATE SECRETARY

NAME, POSITION

BRIEF BIOGRAPHY

Ekaterina Kulakova

Corporate Secretary

Born in 1981 in Magdeburg, German Democratic Republic.

In 2003, graduated from the Moscow State Social University
with a degree in sociology. In 2010, graduated from the
Lomonosov Moscow State University with a degree in
management.

In 2003-2010 worked in the capacity of secretaries of Sistema’s
collective governance bodies (Management Board, Strategy
Committee).

2010-2013 – PR Manager at the Corporate Development
Department of Sistema.

In 2013-2020 – Secretary of the Board of Directors, Deputy
Corporate Secretary of Sistema.

From August 2020 – Corporate Secretary, Sistema PJSFC.

Share in the authorised capital of Sistema PJSFC: 0.0013%.

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//sistema.com

NAME, POSITION

BRIEF BIOGRAPHY

Vladimir Travkov

Born in 1979 in Tashkent.

Vice President for Finance

In 2000, graduated from the Lomonosov Moscow State University with a degree in
economics and in 2002 received a degree in management from the same university.

Ali Uzdenov

Managing Partner

2003-2004 – Specialist of the strategic analysis service at MTS.

2004-2007 – Chief economist, head of the planning and analysis department at Comstar
United TeleSystems.

2007-2010 – Head of the consolidation and planning methodology department at MTS.

2010-2011 – Head of the planning and management reporting department at Comstar
United TeleSystems.

2011-2018 – Head of the functional controlling department at MTS.

From 2018 – Vice President for Finance, Sistema PJSFC.

Share in the authorised capital of Sistema PJSFC: 0.0306%.

Born in 1962 in Kislovodsk.

In 1985, graduated from Rostov Institute of Railway Engineers with a degree in
Automation, Telemechanics and Communications.

In 1990, continued his education at the International Survival School (Italy).

1994-1997 – Head of the Rostov Commodity Exchange.

1997-1998 – CEO of LLC Ayaks.

1998-2001 – CEO of the Rostov branch of OJSC Bashneft.

2001-2007 – Chairman of the Board of Directors of OJSC Kormmash.

2007-2009 – CEO of LLC Rostovregiongaz.

2009-2012 – First Vice President for Refining and Sales, OJSC Bashneft.

2012-2018 – Vice President, Senior Vice Predient, Sistema.

From 2018 – Managing Partner of Sistema PJSFC.

Share in the authorised capital of Sistema PJSFC: 0.4290%.

Sergey Shishkin

Born in 1970 in Moscow.

Vice President for Corporate
Governance and Legal Affairs

In 1992, graduated with honours from the Lomonosov Moscow State University with a
degree in law. In 1996, he received a PhD in Law.

1998-2000 – Director at the Foundation of International Institute for Development of
Legal Economy.

2001-2003 – Member of the bar association of Moscow.

2005-2011 – Head of the Property Department, Director for Property Projects, Sistema.

2011-2015 – Executive Vice President for Corporate Projects at Sistema;
October 2014- December 2015 – Acting Senior Vice President, Head of the Corporate
Governance Function at Sistema.

2015-2018 – Vice President, Head of the Corporate Governance Function, Sistema.

From 2018 – Vice President for Corporate Governance and Legal Affairs, Sistema.

Share in the authorised capital of Sistema PJSFC: 0.0806%.

196

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ANNEX 2.
Financial results of Sistema in 2020 in
accordance with Russian Accounting
Standards (RAS)

FINANCIAL STABILITY

Net working capital, RUB thsd

18,509,526

22,076,343

2020

2019

Current ratio

Quick ratio

Debt ratio

Equity to total assets

1.5

1.6

0.6

1.6

1.9

0.5

INFORMATION ABOUT FUEL AND ENERGY
CONSUMPTION

2020

2019

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFOMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

KEY FINANCIAL INDICATORS, RUB thsd

Revenue from sale of products, goods, works and services (net of VAT)

Administrative expenses

Sales profit

Interest income

Interest expense

Other income

Other expenses

Profit / (loss) before tax

Current income tax

Net income (loss)

Retained earnings

The core business of Sistema PJSFC is management of equity stakes in
commercial organisations.

INCOME STRUCTURE, RUB thsd

Total revenue, incl.:

Income from equity holdings in other companies

Other operating income (property rent, agency services and sureties)

PERFORMANCE INDICATORS

Productivity, RUB thsd/FTE

Debt to equity ratio

Long-term debt to the sum of long-term debt and equity

Debt service coverage ratio

Overdue debt, %

2020

2019

TYPE OF RESOURCES

VOLUME

AMOUNT WITH
VAT, RUB THSD

VOLUME

AMOUNT WITH
VAT, RUB THSD

Heat, Gcal

Electric power,
thsd kWh

Water, cu m

Petrol, l

TOTAL

1,313.43

2,540.13

1,461.16

2,726.98

2,172.88

6,724.52

9,133.97

278.6

2,191.69

7,197.84

191,979.73

9,204.31

192,279.33

21,157.01

9,159.37

285.1

9,284.46

21,455.90

29,438,119

-16,245,675

13,192,444

4,874,944

-16,443,774

183,801,592

-30,373,827

155,051,379

140,837,044

333,667,598

44,947,796

-10,349,809

34,597,987

6,087,299

-19,409,648

118,021,673

-56,163,444

83,133,867

-9,544

80,016,465

194,085,054

2020

2019

29,438,119

29,411,720

26,399

44,947,796

44,931,482

16,314

2020

2019

107,047.71

164,043.05

0.64

0.35

2.75

0.93

0.43

1.01

198

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//sistema.com

ANNEX 3.
Transactions involving Sistema
shares performed by Sistema’s
Board members, President and
Management Board members during
01 January-31 December 20201

ANNEX 4. List of transactions
carried out by Sistema in
the reporting year that are
recognised as major transactions
under the Federal Law
“On Joint-Stock Companies”

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFOMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

SISTEMA SHARES RECEIVED BY MEMBERS OF SISTEMA’S BOARD OF
DIRECTORS ON 15 JULY 2020 AS REMUNERATION FOR SERVING ON
SISTEMA’S BOARD IN THE CORPORATE YEAR 2019-2020

FULL NAME

A. Belova
A. Dubovskov
V. Evtushenkov
F. Evtushenkov
R. Sommer
R. Kocharyan
R. Munnings
M. Shamolin
D. Iakobachvili

NUMBER OF
SISTEMA SHARES

721,489
480,992
721,489
721,489
754,237
754,237
754,237
721,489
754,237

SISTEMA SHARES RECEIVED BY MEMBERS OF SISTEMA’S BOARD OF
DIRECTORS, PRESIDENT AND MEMBERS OF SISTEMA’S MANAGEMENT
BOARD ON 25 DECEMBER 2020 UNDER THE INCENTIVE PROGRAMME

During 2020 Sistema PJSFC did not perform any transactions which are
recognised as major transactions in accordance with the Federal Law
“On Joint-Stock Companies”, or other transactions which are covered
by the procedure for approval of major transactions in accordance with
the Company’s Charter.

ACQUISITION OF SISTEMA SHARES BY
MEMBERS OF THE BOARD OF DIRECTORS,
PRESIDENT AND MEMBERS OF THE
MANAGEMENT BOARD OF SISTEMA PJSFC

FULL NAME

NUMBER
OF SISTEMA
SHARES

DATES OF
TRANSAC-
TIONS

A. Dubovskov

629,100 21 January

2020

O. Mubarakshin 12,038,877 14 February

2020

DIVESTMENT OF SISTEMA SHARES BY
MEMBERS OF THE BOARD OF DIRECTORS,
PRESIDENT, AND MEMBERS OF THE
MANAGEMENT BOARD OF SISTEMA PJSFC

NUMBER OF
SISTEMA SHARES

FULL NAME

R. Sommer

NUMBER
OF SISTEMA
SHARES

DATES OF
TRANSAC-
TIONS

504,237 8 September
2020

FULL NAME

I. Alyoshin
F. Evtushenkov
S. Egorov
A. Zasursky
A. Katkov
S. Matveyeva
L. Monosov
O. Mubarakshin
V. Rozanov
A. Sirazutdinov
V. Travkov
A. Uzdenov
V. Chirakhov
S. Shishkin

200

2,253,195
2,253,195
2,253,195
2,253,195
18,089,111
1,090,256
513,061
2,253,195
2,253,195
2,253,195
2,253,195
27,439,695
14,865,261
2,253,195

Information provided herein coincides with the
information included in the notices of transactions with
the Corporation’s securities sent to Sistema PJSFC by
the Board members, President and Management Board
members. All the persons whose transactions are referred
to herein were members of the Corporation’s governance
bodies as of the time of each such transaction.

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ANNEX 5.
List of transactions carried out by
Sistema in the reporting year that are
recognised as related party transactions
in accordance with the Federal Law
“On Joint-Stock Companies”

All of the transactions performed by Sistema PJSFC in 2020 that qualify
as related party transactions according to the Federal Law “On Joint-
Stock Companies” were endorsed or approved by the Corporation’s
Board of Directors.

NO OF BOD MINUTES AND DATE OF
RESOLUTION

DESCRIPTION

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFOMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

COUNTERPARTIES

TRANSACTION VALUE RELATED PARTIES

04-20, 16/05/2020

08-20, 11/09/2020

Acquisition of investment units in closed-end mutual investment
funds managed by LLC Sistema Capital MC from LLC Cosmos Hotel
Group

Modification of terms of interest-bearing loans provided to JSC
Steppe AgroHolding

LLC Cosmos Hotel Group

RUB 1,022,114,210.92

JSC Steppe AgroHolding

RUB 3,770,000,000.00

07-20, 31/08/2020

Sale to JSC RTI of an equity stake in a subsidiary of JSC RTI

12-20, 18/12/2020

09-20, 23/10/2020

Contribution to the authorised capital of LLC Sistema Telecom
Assets

Acquisition of an equity stake in JSC NVision Group from MTS
Group companies

JSC RTI

LLC Sistema Telecom
Assets

LLC MTS Capital,
LLC Telecom Projects

RUB 281,250,000.00

RUB 3,825,000,000.00

RUB 369,301,251.00 V. Evtushenkov, F. Evtushenkov

09-20, 23/10/2020

Sale of an equity stake in JSC NVision Group to JSC Sitronics

JSC Sitronics

RUB 377,500,000.00

12-20, 18/12/2020

Contribution to the property of LLC Sistema Telecom Assets

12-20, 18/12/2020

Signing of agreements providing for indemnification against legal
and other expenses or losses

12-20, 18/12/2020

Granting a loan to JSC Sistema Invest

12-20, 18/12/2020

Contribution to the property of LLC Sistema Telecom Assets

12-20, 18/12/2020

Contribution to the authorised capital of LLC Sistema Telecom
Assets

LLC Sistema Telecom
Assets

Sistema Finance S.A.,
V. Chirakhov

JSC Sistema Invest

LLC Sistema Telecom
Assets

RUB 2,400,000,000.00

USD 26,000,000.00 USA

RUB 979,000,000.00

RUB 3,425,000,000.00

RUB 3,750,000,000.00

V. Evtushenkov, F. Evtushenkov,
V. Rozanov

V. Evtushenkov, F. Evtushenkov,
S. Shishkin, V. Travkov, A. Uzdenov

V. Evtushenkov, F. Evtushenkov,
S. Shishkin, V. Travkov,
O. Mubarakshin

V. Evtushenkov, F. Evtushenkov,
S. Shishkin

V. Evtushenkov, F. Evtushenkov,
A. Katkov

V. Evtushenkov, F. Evtushenkov,
S. Shishkin

V. Evtushenkov, F. Evtushenkov,
V. Chirakhov

V. Evtushenkov, F. Evtushenkov,
S. Shishkin

202

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//sistema.com

ANNEX 6.
Report on compliance with the
Corporate Governance Code
recommended by the Bank of Russia

In the opinion of Sistema’s Board of Directors,
the Corporation complies with the principles
and the guidelines of the Corporate
Governance Code recommended by the Bank
of Russia (hereinafter, “the Code”) with the
reservations mentioned herein below.

When assessing compliance of Sistema’s corporate governance
practices with the Code’s recommendations, the Board looked at both
formal and actual adherence to the principles and recommendations of
the Code by the Corporation and its officers, including the achievement
of the general level of corporate governance standards stipulated by the
Code through both conventional and alternative mechanisms.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFOMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

CORPORATE GOVERNANCE PRINCIPLE

CRITERIA FOR ASSESSMENT

COMPLIANCE

NOTES

Shareholder rights and equality in their exercise

The company should ensure equal and fair treatment of all shareholders as regards their rights to
participate in the company’s governance.

1.1.

1.1.1.

The company should create for its shareholders
the most favourable conditions for participation
in the general meeting, for developing a
substantiated position on the general meeting’s
agenda items, coordinating their actions, and
expressing their opinions on matters under
consideration.

1.1.2.

The procedure for notifying shareholders of the
forthcoming general meeting and providing
materials for the general meeting should enable
the shareholders to prepare for the meeting in an
appropriate manner.

1. The company has made publicly available the internal
document that sets out the procedures for conducting
the general meeting of shareholders, and this document
is approved by the general meeting of shareholders.

2. The company offers an available means of communication
with the company, such as a hotline, e-mail or a web
forum, that allows shareholders to express their
opinions and submit queries about the agenda during
preparations for the general meeting. These actions were
taken by the company ahead of each general meeting
held in the reporting period.

1. A notice of the general meeting of shareholders is

published on the website at least 30 days before the date
of the meeting.

2. The notice specifies the venue and documents needed

for admission to the meeting.

3. The shareholders are provided access to information
about persons that proposed agenda items and
nominated candidates to the board of directors and the
audit review commission of the company.

OBSERVED

The procedure for convening, preparing and conducting the General
Meeting of shareholders of the Corporation is regulated by the Terms of
Reference of the General Meeting of shareholders that were approved
by the General Meeting of shareholders of Sistema PJSFC and is freely
available on the Corporation’s website.

When holding each General Meeting of shareholders, the Corporation
communicates to its shareholders an e-mail address to which they may
send their opinions or questions with regard to the General Meeting,
including its agenda.

In accordance with Sistema’s Charter, a notice of the general meeting
of shareholders, including the date, time and venue of the meeting and
documents needed for admission, is published in both Russian and English
on the Company’s website (www.sistema.ru/www.sistema.com) at least
30 days before the meeting.

The information about who proposed each item to the agenda of the
general meeting and about each candidate nominated for election to the
Corporation’s governance bodies and who nominated them is provided in
explanatory notes or other relevant materials.

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KEY ASSETS'
PERFOMANCE

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GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

//sistema.com

CORPORATE GOVERNANCE PRINCIPLE

CRITERIA FOR ASSESSMENT

COMPLIANCE

NOTES

1.1.3.

During preparation for the general meeting and
the meeting itself the shareholders should be
able to receive information about the meeting
and relevant materials in a timely manner
and without any hindrance, put questions to
executive bodies and members of the company’s
board of directors and communicate with each
other.

1.1.4.

Shareholders should be able to request the
convocation of general meetings, nominate
candidates to the company’s governance
bodies, and propose items for the AGM’s
agenda without needless difficulties.

1.1.5.

Each shareholder should be able to exercise their
voting right in the easiest and most convenient
way for the shareholder, without any hindrance.

1.1.6.

The procedure of general meetings adopted by
the company should ensure equal opportunities
for all persons present at the meeting to express
their opinions and ask their questions.

1. In the reporting period, the shareholders had an
opportunity to put questions to members of the
Company’s governance bodies and board of directors
ahead of or during the annual general meeting of
shareholders.

2. The stance of the board of directors (including dissenting
opinions entered in the minutes) on each agenda item
of shareholders’ meetings held in the reporting period
is properly reported in the materials provided for the
general meetings.

3. Prior to each general meeting held in the reporting

period, the company provided eligible shareholders with
lists of persons entitled to participate in such meeting on
the same date as it itself obtained such lists.

1. In the reporting period, shareholders had the

opportunity within at least 60 days after the end of the
relevant calendar year to propose items for the agenda
of the annual general meeting.

2. In the reporting period, the company did not refuse to
accept items proposed for the agenda or nominees to
the company’s governance bodies for reasons of typos
or other insignificant deficiencies in a shareholder’s
proposal.

1. The company’s internal regulations (internal policy)

include provisions that entitle each participant of the
general meeting to request a copy of their filled-in voting
ballot, certified by the teller committee, before the end
of the general meeting.

1. Each physical meeting of shareholders held in the

reporting period afforded ample time for reports on all
agenda items and discussions of such reports.

2. Candidates to the company’s governance and control
bodies were available for answering shareholders’
questions at the meeting at which their nominations were
to be voted on.

3. When making decisions related to the preparation for

and procedure of general meetings of shareholders in the
reporting period, the board of directors considered the
use of telecom technologies to give shareholders remote
access to general meetings.

1.2.

1.2.1.

The shareholders should be given equal and fair opportunities to share in the company’s
net income via dividends.

The company should develop and implement a
transparent and clear mechanism for determining
the amount of dividends and distributing them.

1. The company has developed a dividend policy, which
has been approved by the board of directors and
publicly disclosed.

2. If the company’s dividend policy uses the indicators in
the company’s financial statements to determine the
dividend amount, the relevant provisions of the dividend
policy are based on consolidated financial statements.

OBSERVED

During preparations for an Annual General Meeting, the shareholders
are able to receive answers to their questions sent to a special email
address (osa@sistema.ru) indicated in the notice of the general meeting.
Shareholders participating in the general meeting may put questions to
members of the governance bodies, of the board of directors and the
management board and the President who are also present at the meeting.

In 2020, a new law was passed in Russia allowing joint-stock companies
to conduct their annual general meetings of shareholders in the form of
absentee voting. However, in addition to absentee voting, a live stream of
the meeting on the final date of voting was organised for shareholders. In
the course of the live stream the Corporation’s management made a report
on the results of 2019 and took questions from the shareholders.

The stance of the Board of Directors on the agenda items of the General
Meeting is reported in the explanatory note for each such agenda item.

In accordance with the Terms of Reference of the General Meeting of
shareholders, shareholders have the right to see the list of persons entitled
to participate in the general meeting, for which purpose they should
contact Sistema’s Corporate Secretary.

The Charter of Sistema PJSFC sets a deadline for submission of
shareholders’ proposals for the general meeting’s agenda to 100 days after
the end of the financial year.

Should a shareholder’s proposal contain a material shortcoming, the
Corporation should inform such shareholder about such shortcoming well in
advance, so that such shortcoming can be properly eliminated before the
Board of Directors has approved the general meeting’s agenda and the list
of nominees to the governance and control bodies.

OBSERVED

The provision that a person filling in the voting ballot is entitled to have a
copy of their filled-in voting ballot certified by the teller committee before
the end of the general meeting is included in the Terms of Reference of the
Annual General Meeting of Shareholders.

OBSERVED

In the reporting year, the Corporation did not hold meetings of
shareholders in the format of joint presence.

All of the current nominees to the Board of Directors are present at the
relevant General Meeting.

From 2017, Sistema’s shareholders may use the e-voting system available
on the website of the Corporation’s registrar JSC Reyestr. Shareholders
are also given the opportunity to vote remotely, provided that the relevant
depository provides the technical means for such voting.

Preparing for the Annual General Meeting of shareholders, which in
the reporting year was held in the form of absentee voting due to the
epidemiological situation, the Board of Directors decided to organise a live
stream for shareholders on the final date of voting. In the course of the live
stream the Corporation’s management made a report on the results of 2019
and took questions from the shareholders.

OBSERVED

The Board of Directors of the Corporation approved the Regulation on
Dividend Policy, which is disclosed on the corporate website.

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CORPORATE GOVERNANCE PRINCIPLE

CRITERIA FOR ASSESSMENT

COMPLIANCE

NOTES

1.2.2.

The company is advised against deciding in
favour of any dividend distribution that, although
being in no breach of statutory restrictions, is
economically impractical and/or conducive
to misconceptions about the company’s
performance.

1. The company’s dividend policy clearly specifies financial/
economic circumstances under which it should not pay
dividends.

PARTIALLY
OBSERVED

According to the Dividend Policy, the Company’s shareholders shall
receive dividends only if there are sources and grounds for their payment,
as stipulated by Russian law.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFOMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

1.2.3.

The company may not allow any compromise of
the dividend rights of its existing shareholders.

1. The company took no actions that would compromise the

dividend rights of existing shareholders.

1.2.4.

Companies should strive to avoid situations
where shareholders receive from the company
any types of profit (income) other than dividends
or disposal value.

1. In order to rule out situations where shareholders receive
any type of profit (income) from the company other than
dividends or liquidating distributions, the company’s
internal regulations envisage control mechanisms that
ensure timely identification of and approval procedures
to be applied to transactions involving any persons
affiliated with material shareholders (persons entitled
to dispose of votes attaching to voting shares) in cases
where law does not formally recognise such transactions
as related party transactions.

1.3.

1.3.1.

The corporate governance system and practices should ensure an equal footing for all shareholders
that own shares of the same category (type), including minority and foreign shareholders, and
equal treatment of them by the company.

Companies should create conditions for
fair treatment of each shareholder by the
governance bodies and the controlling persons
of the company, including prevention of abuse
of power by major shareholders in respect of
minority shareholders.

1. In the reporting period, the procedures for managing
major shareholders’ potential conflicts of interest were
efficient, and the board of directors paid sufficient
attention to conflicts between shareholders, if any.

1.3.2.

Companies should not take any actions that
cause or may cause any artificial redistribution of
controlling rights.

1. Either there are no quasi-treasury shares, or such shares
are not admitted for voting throughout the reporting
period.

1.4.

Shareholders should be provided with reliable and efficient ways to register rights to the shares, and
the ability to dispose of their shares freely and easily.

Shareholders should be provided with reliable
and efficient ways to register rights to the shares,
and the ability to dispose of their shares freely
and easily.

1. The quality and reliability of services provided by the
company’s registrar to keep the shareholder register
meet the needs of the company and its shareholders.

The Corporation does not declare dividends if net income or cash flow
are insufficient (there is a liquidity shortage) or if distributing dividends is
economically unreasonable. Although such circumstances are not formally
set out in the Dividend Policy, the Corporation believes it to pose no
additional risks to shareholders.

The Corporation has issued only one type of ordinary shares. Holders of
global depositary receipts are entitled to dividends on a par with holders
of ordinary shares.

In the reporting period, the Corporation took no actions that would
compromise the dividend rights of the holders of ordinary shares and/or
global depositary receipts.

The Corporation has the Ethics Code approved by the Board of Directors,
which stipulates that officers responsible for transactions shall timely report
any conflicts of interest related to a transaction to the Board of Directors.

OBSERVED

The Corporation has taken every step necessary to prevent any
shareholders’ actions that are intended to harm other shareholders or the
Corporation as well as any other abuse of shareholder rights.

There were no recorded conflicts between the Corporation’s shareholders
in the reporting period.

OBSERVED

In the reporting period, quasi-treasures shares did not participate in voting
at the General Meeting of shareholders.

OBSERVED

The Registrar of the Corporation is one of the largest special registrars in
Russia, which has proven and reliable technologies that provide the most
efficient way to ensure registration and exercise of shareholder rights. The
Corporation cooperates with the registrar to update information about
shareholders contained in the shareholder register.

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MANAGEMENT

ANNEXES

//sistema.com

II.

2.1

2.1.1.

CORPORATE GOVERNANCE PRINCIPLE

CRITERIA FOR ASSESSMENT

COMPLIANCE

NOTES

Board of Directors

The board of directors is in charge of strategic management of the company, determines the main
principles and approaches to organising the company’s risk control and internal control systems,
controls the work of its executive bodies and performs other key functions.

The board of directors should bear responsibility
for decisions relating to the appointment and
dismissal of executives and appointment and
dissolution of executive bodies on relevant
grounds, including their poor or inappropriate
performance. The board of directors should also
ensure that the company’s executive bodies act
in compliance with the approved development
strategy and adhere to a course of action
consistent with the company’s line of activity.

1. The powers of the board of directors to appoint and

dismiss members of executive bodies and determine the
terms of their employment agreements are set out in the
charter.

2. The board of directors reviewed a report (reports) of the
CEO and members of a collective executive body on the
implementation of the company’s strategy.

OBSERVED

2.1.2.

The board of directors should set the key long-
term priorities for the company’s business, assess
and approve key performance indicators and
key business goals of the company, evaluate and
approve strategies and business plans for the
core businesses of the Company.

1. In the reporting period, the board of directors reviewed

OBSERVED

matters relating to the implementation status and
updates of the strategy, approval of the company’s
financial plan (budget) and criteria and indicators
(including interim ones) of implementation of the
company’s strategy and business plans.

2.1.3.

The board of directors should determine the
principles of and approaches to organising the
risk management and internal control systems at
the company.

1. The board of directors determined the principles of and
approaches to organising the risk management and
internal control systems at the company.

2. The board of directors assessed the risk management
and internal control systems of the company in the
reporting period.

2.1.4.

The board of directors should determine the
company’s policy with regard to remuneration
and (or) reimbursement of expenses to Board
members, executive bodies and other key
executives of the company.

1. The company developed and introduced a policy
(policies), approved by the board of directors, on
remuneration and compensation of expenses of members
of the board of directors, executive bodies of the
company and other senior executives.

2. The board of directors reviewed items pertaining to this

policy (policies) in the reporting period.

OBSERVED

The Charter of Sistema PJSFC stipulates that the authority of the Board
of Directors includes appointment and dismissal of the President of the
Corporation, election and dismissal of members of the Management Board,
and approval of the terms of employment agreements signed with the
President and members of the Management Board.

Sistema’s Nomination, Remuneration and Corporate Governance
Committee approves CEOs of subsidiaries and nominees to their boards of
directors.

The Board of Directors monitors implementation of the Corporation’s
strategy and business plans by its executive bodies on a regular basis.

The Board of Directors controls and supports the formulation and execution
of the Corporation’s strategy at each stage, evaluates its progress and
feasibility, and adjusts it as necessary.

The strategy and business plans of the Corporation approved by the Board
of Directors contain clear criteria, most of which are quantity indices, and
use interim control metrics.

The Board of Directors approves the budget of the Corporation on an
annual basis.

At least once a year, the Board of Directors reviews the Corporation’s
strategy and assesses its implementation status and need for updating.

The Charter of Sistema PJSFC includes approval of risk management
principles in the remit of the Board of Directors. The Corporation also
adopted the Risk Code.

The Board of Directors reviews a risk management report and a report on
the work of the internal control system at the Corporation at least once a
year and issues its opinion.

The General Meeting of shareholders of the Corporation approved the
Policy on remuneration and compensations payable to members of the
Corporation’s Board of Directors.

The Board of Directors of the Corporation approved the HR policy and
policies on remuneration payable to the employees of Sistema PJSFC.

The Board of Directors also approved the rules for reimbursement of
expenses to the top executives of the Corporation.

The Board of Directors reviews items related to remuneration and
compensations at least once a year.

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NOTES

2.1.5.

The board of directors should play a key role
in preventing, identifying and settling internal
conflicts between the company’s governance
bodies, shareholders and employees.

1. The board of directors plays a key role in preventing,

identifying and settling internal conflicts.

2. The company has created a system for identifying

transactions related to conflicts of interest and measures
aimed at resolving such conflicts.

OBSERVED

The Board of Directors takes all the measures necessary to prevent and
settle internal conflicts.

The Corporation regularly collects information about related and affiliated
persons of the members of its Board of Directors and executive bodies. In
accordance with the Code of Ethics, ethics assessment is performed during
which senior managers responsible for the transactions submit ethics and
conflict of interest declarations. The Internal Audit Service analyses the
information received about the signs of the management responsible for
the transactions having conflicts of interest.

Resolutions on related party transactions are made by persons that are not
involved in the relevant conflict of interest.

Employees’ compliance with the regulations for resolution of conflicts of
interests is secured with disciplinary measures.

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1. The board of directors adopted a regulation on the

OBSERVED

The Board of Directors approved the Regulation on Information Policy.

2.1.6.

2.1.7.

The board of directors should play a key role in
securing transparency of the company, timely
and full disclosure of the company’s information,
unhindered access of shareholders to the
company’s documents.

The board of directors should control the
corporate governance practices at the company
and play a key role in material corporate events
of the company.

information policy.

2. The company has designated persons responsible for

implementation of the information policy.

1. In the reporting period, the board of directors reviewed

an item on corporate governance practices at the
company.

2.2.

The board of directors should be accountable to the company’s shareholders.

2.2.1.

Information about the work of the board of
directors shall be disclosed and provided to
shareholders.

1. The company’s annual report for the reporting period

includes information about directors’ attendance of the
meetings of the board and board committees.

2. The annual report includes information about the key

results of appraisal of the board’s work conducted in the
reporting period.

2.2.2.

Chairman of the board of directors should be
available for communication with the company’s
shareholders.

1. The company has a transparent procedure that gives

shareholders a possibility to put questions to the board
chairman and to communicate their stance on such
matters.

2.3.

2.3.1.

The board of directors should be an efficient and professional governance body of the company,
capable of passing objective independent judgements and taking decisions aligned with the
interests of the company and its shareholders.

It is recommended to elect to the board of
directors persons that have an impeccable
business and personal reputation and possess
the knowledge, skills and experience necessary
for making decisions on the matters falling within
the remit of the Board of Directors and required
for efficient discharge of its functions.

1. The procedure for assessing the board’s efficiency

adopted by the company includes assessment of the
professional skills of the board members.

2. In the reporting period, the board of directors (or its
nomination committee) assessed candidates to the
board in terms of their possessing relevant experience,
knowledge, business reputation, absence of a conflict of
interest, etc.

OBSERVED

The responsibility to control compliance with the Regulation on Information
Policy lies with the Corporate Secretary reporting to the Board of Directors
of the Corporation.

Based on the results of annual appraisal of the Corporation’s corporate
governance practices, the Nomination, Remuneration and Corporate
Governance Committee of the Board of Directors formulates proposals
aimed at improving corporate governance practices for review and
approval by the Board of Directors.

The Board of Directors reviews items on corporate governance practices at
least once a year.

The Annual Report and the Corporation’s website (www.sistema.ru/
www.sistema.com) disclose information about the number of meetings of
the Board of Directors and its Committees held in the past year, specifying
the forms of meetings and Board members’ attendance.

The main results of the Board’s performance assessment and that of its
executive bodies are disclosed in the Annual Report of the Corporation.

OBSERVED

Shareholders can put questions to the Chairman of the Board of Directors
regarding issues within the remit of the Board of Directors, and inform
him about their opinions (positions) on such matters via the Corporate
Secretary.

OBSERVED

The annual assessment of the Board of Directors includes assessment of the
Board’s competences.

The Board’s Nomination, Remuneration and Corporate Governance
Committee assesses all candidates nominated to the Board of Directors
regarding their independence and potential contribution to the work of the
Board of Directors.

Sufficient professional experience, business reputation and absence
of a conflict of interest are important criteria during the assessment of
candidates to the Board of Directors.

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1. In all instances in the reporting period when the agenda

OBSERVED

included items on election of board members, the
company provided the shareholders with biographies
of all candidates to the board, results of such
candidates’ assessment by the board (or its nomination
committee), information on whether such candidates
meet the independence criteria, in accordance with
recommendations 102-107 of the Code, and the
candidates’ written consent to be elected to the board
of directors.

1. As part of the assessment of the board’s work in the
reporting period, the board of directors analysed its
needs in terms of professional and business skills and
experience.

1. As part of the assessment of the board of directors

conducted in the reporting period, the board of directors
considered whether the number of the board members
met the company’s needs and shareholders’ interests.

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The biographies of candidates to the Board of Directors, recommendations
of the Board’s Nomination, Remuneration and Corporate Governance
Committee with regard to voting on such candidates, as well as information
about their meeting the independence criteria and whether each nominee
has agreed in writing to be elected to the Board are included in materials
for General Meetings of shareholders whose agendas include an item on
election of the Board of Directors.

The status of newly elected members of the Board of Directors and
their independence are confirmed at the first meeting of the Board after
election.

OBSERVED

The annual assessment of the Board of Directors includes assessment of the
Board’s competences and how they match the Corporation’s needs.

OBSERVED

The annual assessment of the Board of Directors includes assessment of the
number of the Board members.

2.4.

The board of directors should have a sufficient number of independent directors.

1. In the reporting period, all independent board

members met all the independence criteria set out
in recommendations 102-107 of the Code or were
recognised as independent by resolution of the board of
directors.

OBSERVED

The criteria of independence of members of the Corporation’s Board of
Directors are aligned with the criteria recommended by the Corporate
Governance Code and the Listing Rules of Moscow Stock Exchange.

All Board members that the Corporation considered independent in
the reporting year met the specified criteria or were recognised as
independent by a resolution of the Board of Directors.

2.3.2. Members of the board of directors should be
elected in a transparent procedure enabling
shareholders to receive information about the
candidates that is sufficient to form an opinion of
their personal and professional qualities.

2.3.3.

2.3.4.

The composition of the board of directors should
be well balanced, in terms of qualification,
experience, expertise and business qualities, and
board members should enjoy the confidence of
shareholders.

The number of members on the company’s
board of directors should make it possible to
organise the work of the board of directors in the
most efficient manner, allowing for formation of
board committees and giving the opportunity to
material minority shareholders of the company
to elect candidates they vote for to the board of
directors.

2.4.1.

It is recommended to acknowledge as
independent directors the persons that have
sufficient expertise, competence, experience,
and independence for formulation of their own
positions; that are capable of making objective
and conscientious judgements; and that are
independent from the company’s governance
bodies, particular groups of shareholders, or
other interested parties. It should be noted
that a candidate is not normally considered to
be independent if he/she is affiliated with the
company, its material shareholder, material
counterparty or competitor or with the state.

2.4.2.

It is recommended to assess compliance of
candidates to the board of directors with the
independence criteria and to analyse compliance
of independent directors on the board with the
independence criteria on a regular basis. In such
assessment, contents should prevail over form.

1. In the reporting period, the board of directors (or its
nomination committee) formed an opinion about the
independence of each candidate to the board and
presented it to shareholders.

2. In the reporting period, the board of directors (or its

nomination committee) reviewed the independence of
incumbent board members specified as independent in
the company’s annual report at least once.

3. The company has procedures in place that provide for

actions a board member has to take if he/she stops being
an independent director, including timely notifying the
board.

OBSERVED

The Nomination, Remuneration and Corporate Governance Committee of
the Board of Directors (hereinafter, “the Committee”) issues an opinion on
the independence of candidates to the Board of Directors.

At the first meeting of the Board of Directors following the General
Meeting of shareholders where such new Board of Directors was elected,
the Board of Directors confirms the status of independent members of the
Board of Directors.

The Committee analyses compliance of the independent directors on the
Board with the independence criteria on a regular basis.

When elected to the Board, Board members undertake in writing to notify
the Corporation of any circumstances that may affect their ability to have
independent judgement on items reviewed by the Board of Directors.

In the reporting year, one half of the Board’s members (6 out of 12) were
independent.

2.4.3.

It is recommended that independent directors
constitute at least one third of elected board of
directors.

1. Independent directors constitute at least one third of the

OBSERVED

board of directors.

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NOTES

2.4.4.

Independent directors should play a key role
in preventing internal conflicts in the company
and in the performance of significant corporate
actions by the company.

1. Independent directors (not having a conflict of interest)

give preliminary assessment to material corporate
actions related to a potential conflict of interest, the
results of which are submitted to the board.

2.5.

2.5.1.

2.5.2.

2.5.3.

2.6.

2.6.1.

Chairman of the board of directors should facilitate the most efficient discharge of functions that
fall within the remit of the board of directors.

It is recommended to elect an independent
director as chair, or to select a senior
independent director among the elected
independent directors who would coordinate
the work of independent directors and interact
with the chairman of the board of directors.

1. The board chairman is an independent director or
a senior independent director is elected among
independent directors.

2. The role, rights and duties of the board chairman (and, if
applicable, of the senior independent director) are duly
set out in the company’s internal regulations.

The board chairman should ensure a constructive
atmosphere of the meetings, free discussions of
the matters on the meeting agenda, and control
over execution of resolutions passed by the
board of directors.

1. Performance of the board chairman is assessed during

assessment of the performance of the board as a whole in
the reporting period.

The board chairman should take necessary
measures to provide board members with
information required for making decisions on the
agenda items in a timely manner.

1. The duty of the board chairman to procure timely
provision of materials on agenda items for board
members is stipulated by the company’s internal
regulations.

Members of the board of directors should act in good faith and reasonably, in the best interests of
the company and its shareholders proceeding from sufficient amount of information, with due
care and diligence.

Reasonable and bona fide actions of the board
members imply that decisions are made with
due consideration of all available information,
without conflicts of interest, with equal treatment
of the company’s shareholders, within usual
entrepreneurial risks.

1. The company’s internal regulations stipulate that a board
member shall notify the board of directors if he/she is in
the situation of a conflict of interest in respect of any item
on the agenda of a board or committee meeting before
the start of discussion of the respective agenda item.

2. The company’s internal regulations stipulate that a board
member shall not vote on any agenda item where he/she
has a conflict of interest.

3. The company has a procedure in place that allows

the board of directors to receive professional advice on
matters within its remit at the expense of the company.

OBSERVED

Independent directors perform a preliminary assessment of potential
actions and resolutions of the Corporation that may lead to a conflict as
they prepare for meetings of the Board or Board Committees. Notably,
the Audit, Finance and Risk Committee pre-approves all related party
transactions.

Opinions of Board members are incorporated in the meeting materials.

OBSERVED

The role of the Board Chairman is set out in the Terms of Reference of the
Board of Directors of Sistema PJSFC that was approved by the General
Meeting of shareholders.

The Terms of Reference also define the role of the Deputy Chair of the
Board, who, together with the Corporate Secretary, ensures interaction
between independent directors and the Board Chairman.

Each independent director can communicate his or her position on any
agenda item to the Board Chairman. In view of the above, the Corporation
as a whole and the Board of Directors in particular have yet to reach a
consensus on whether the Board needs to formally establish the position
of a senior independent director. At the same time, independent director
A. Belova was Deputy Chair of the Board in the reporting year. In this
capacity, she, inter alia, coordinates the activities of independent members
of the Board of Directors and interacts with the Board Chairman, acting as a
senior independent director.

OBSERVED

The annual assessment of the Board of Directors includes assessment of the
efficiency of interaction between Board members and the Board Chairman.

OBSERVED

In accordance with the Regulation of the Board of Directors, the Board
Chairman takes necessary measures to provide Board members with
information required for making decisions on the agenda items in a timely
manner.

OBSERVED

The Terms of Reference of the Board of Directors and the Ethics Code
of the Corporation stipulate that Board members shall timely notify the
Corporation if a conflict of interest arises and shall not make decisions on
any matter where they have a conflict of interest.

The Board of Directors is entitled to engage external independent experts
for examination of draft resolutions at the Corporation’s expense.

2.6.2.

The rights and obligations of board members
should be clearly formulated and recorded in the
internal regulations of the company.

1. The company has an internal document in place that
clearly defines the rights and obligations of board
members.

OBSERVED

Rights and obligations of Board members are recorded in the Charter of
Sistema PJSFC, the Terms of Reference of the Board of Directors of Sistema
PJSFC, and the Regulation on the Board of Directors.

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NOTES

2.6.3.

Board members should have enough time to
perform their duties.

1. Individual attendance of board and committee meetings
and the time spent preparing for the meetings is taken
into account during the board’s assessment procedure in
the reporting period.

2. In accordance with the company’s internal regulations,
board members are obligated to notify the board of
their intention to join governance bodies of other entities
(except for the company’s subsidiaries and affiliates) and
of the fact of such appointment.

1. The company’s internal documents stipulate the right of
board members to get access to documents and make
inquiries related to the company and organisations
controlled by the company, and the obligation of the
company’s executive bodies to provide them with such
information and documents.

2. The company has a formal induction programme for

newly elected board members.

OBSERVED

The annual assessment of the Board of Directors includes assessment of the
organisation and attendance of the Board meetings.

When elected to the Board, Board members fill in questionnaires
envisaged by the Terms of Reference of the Board of Directors, where they
must specify companies where they are members of governance bodies
or where they intend to be elected. The Board members must notify the
Corporate Secretary of any changes in the above information in writing.

OBSERVED

Sistema’s Board members are able to promptly receive answers to
their queries and any information they may require from the executive
management directly or via the Corporate Secretary. The employees’
obligation to provide such information is recorded in the internal
regulations of the Corporation.

The Corporate Secretary familiarises newly elected Board members with
the activities of the Board in accordance with the Terms of Reference of the
Board of Directors.

All members of the board of directors should
have equal possibilities to access the company’s
documents and information. Newly elected
members of the board of directors should be
provided with sufficient information about the
company and the work of the board of directors
as soon as possible.

1. The board of directors held at least six meetings in the

reporting year.

OBSERVED

Meetings of the Board of Directors are held at least six times a year in
accordance with the approved work plan of the Board of Directors.

Meetings of the board of directors, their preparation, and participation of board members in
them should provide for efficient work of the board of directors.

It is recommended to hold meetings of the board
of directors as necessary, taking into account the
scale of business and the company’s objectives in
a certain period of time.

It is recommended to develop and include in the
company’s internal regulations the procedure for
preparing and conducting meetings of the board
of directors that would give the board members
the possibility to prepare for the meeting.

1. The company adopted an internal document that

regulates the procedure for preparing and holding board
meetings, which, among other things, stipulates that the
notice of a meeting shall, as a rule, be sent at least 5 days
before the meeting.

The form of board meetings should be
determined with consideration of the importance
of agenda items. The most important items
should be discussed at meetings in praesentia.

1. The company’s charter or internal regulations stipulate
that the most important items (according to the list
set out in recommendation 168 of the Code) shall be
reviewed at meetings in praesentia.

It is recommended that decisions on the most
essential aspects of the company’s business are
made by a qualified majority or a simple majority
of votes of all the elected Board members.

1. The company’s charter stipulates that resolutions
on the most important items, which are set out in
recommendation 170 of the Code, shall be adopted at
board meetings by a qualified majority of at least three
fourths of votes or by a simple majority of all the elected
Board members.

12 meetings of the Board of Directors were held in 2020.

OBSERVED

The Terms of Reference of the Board of Directors and the Regulation on the
Board of Directors establish the procedures and timelines for preparing and
holding Board meetings.

Board members have permanent access to the work plan of the Board of
Directors. All information for Board meetings is available in Russian and
English on the portal of the Board of Directors (to which all Board members
are connected) at least 10 days before the Board meeting.

OBSERVED

All scheduled meetings of the Board of Directors are held in praesentia.
Meetings in absentia are held when some urgent issues arise.

PARTIALLY
OBSERVED

The Regulation of the Board of Directors stipulates that the most important
items shall be reviewed at meetings in praesentia.

According to the Charter of Sistema PJSFC, decisions on items relating to
increase of authorised capital, placement of certain types of securities,
approval of material and related party transactions are made in compliance
with special voting rules.

Resolutions on other agenda items are passed by simple majority of votes.

In the reporting period, independent directors accounted for half
of Sistema’s Board and regularly attended the Board meetings (see
information on meeting attendance herein). Considering how the work is
organised, it is difficult to justify the necessity of introducing any special
voting rules for specific agenda items, and the Corporation does not intend
to establish them in the near future.

2.6.4.

2.7.

2.7.1.

2.7.2.

2.7.3.

2.7.4.

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2.8.

2.8.1.

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NOTES

The board of directors should form committees for preview of the most important matters
pertaining to the company’s business.

For provisional review of matters pertaining
to the company’s financial activities, it is
recommended to form an audit committee
consisting of independent directors.

1. The board of directors set up an audit committee

consisting only of independent directors.

2. The company’s internal regulations determine the

objectives of the audit committee, including objectives
set out in recommendation 172 of the Code.

3. At least one member of the audit committee, who is an
independent director, has experience and expertise in
preparation, analysis, evaluation and audit of statutory
(financial) accounts.

4. The audit committee met at least once per quarter

in the reporting period.

2.8.2.

For provisional review of issues relating to
development of efficient and transparent
practices in the sphere of remuneration, it
is recommended to form a remuneration
committee consisting of independent directors
and chaired by an independent director who is
not the chairman of the board of directors.

1. The board of directors set up a remuneration committee

consisting only of independent directors.

2. The remuneration committee is chaired by an

independent director who is not board chairman.

3. The company’s internal regulations determine the

objectives of the remuneration committee, including
objectives set out in recommendation 180 of the Code.

2.8.3.

2.8.4.

It is recommended to form a nomination (HR)
committee to preview issues relating to HR
(continuity) planning, professional composition
and efficiency of the board of directors. Most
of the members of such committee should be
independent directors.

Depending on the scale of business and the
level of risks the company is exposed to, it is
recommended to form other committees of
the board of directors (strategy committee,
corporate governance committee, ethics
committee, risk management committee, budget
committee, EH&S committee, etc.)

1. The board of directors set up a nomination committee (or
its objectives set out in recommendation 186 of the Code
are pursued by another committee) consisting mostly of
independent directors.

2. The company’s internal regulations determine the

objectives of the nomination committee (or another
committee that carries out its functions), including
objectives set out in recommendation 186 of the Code.

1. In the reporting period, the company’s board of directors

reviewed an item on whether the composition of the
board committees is aligned with the objectives of the
board and the company’s goals. Additional committees
either were set up or were found not needed.

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PARTIALLY
OBSERVED

OBSERVED

The Corporation has formed the Audit, Finance and Risk Committee of
the Board of Directors (hereinafter, “the Committee”) and approved the
Terms of Reference of the Committee. The objectives of the Committee as
recorded in the Terms of Reference are aligned with the recommendations
of the Corporate Governance Code.

Independent directors constitute the majority of the Committee members
(4 out of 5). The Committee is chaired by an independent director,
R. Munnings, who has a vast experience and expertise in preparation,
analysis, evaluation and audit of statutory (financial) accounts.

Sistema tries to include independent directors in all Committees to
ensure that they participate in discussing the priority focus areas of the
Corporation. An independent director of the Corporation sits on three
Board Committees on average, which is a fairly high amount of work. Based
on personal circumstances of independent Board members (first of all, their
having sufficient time to perform the duties of Committee members in good
faith) and the need to ensure a high quality of discussion taking into account
various points of view, it was impossible for the Corporation to have more/
only independent directors as Committee members and at the same time
preserve the quality of discussion.

The Corporation has formed the Nomination, Remuneration and Corporate
Governance Committee of the Board of Directors (hereinafter, “the
Committee”) and approved the Terms of Reference of the Committee. The
objectives of the Committee as recorded in the Terms of Reference are
aligned with the recommendations of the Corporate Governance Code.

Independent directors constitute the majority of the Committee members
(4 out of 6). The Committee is chaired by an independent director, R.
Kocharyan, who is not the Board Chairman.

Independent directors constitute the majority of the Committee members
(4 out of 6).

OBSERVED

The Corporation’s Board annually, at the first meeting after its election,
forms Board Committees in accordance with the Corporation’s goals and
objectives.

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NOTES

2.8.5.

It is recommended to determine the composition
of committees so as to allow for a thorough
discussion of the items under preliminary
consideration, taking into account various
opinions.

1. Board committees are chaired by independent directors.

2. The company’s internal regulations (policies) include
provisions that stipulate that persons who are not
members of the audit committee, the nomination
committee and the remuneration committee may attend
committee meetings only if invited by the chair of the
respective committee.

2.8.6.

Committee chairs should inform the board of
directors and its chair about the work of their
committees on a regular basis.

1. In the reporting period, committee chairs regularly
reported to the board about the work of their
committees.

2.9.

2.9.1.

The board of directors should ensure performance review of the board of directors, its committees
and members of the board of directors.

Performance review of the board of directors
should be aimed at determining the efficiency
of the board of directors, its committees and
members of the board of directors, adequacy of
their performance for the needs of the company’s
development, intensification of the board’s work
or identifying areas for improvement.

1. Self-appraisal or external assessment of the board of
directors conducted in the reporting period included
assessment of the committees, individual board members
and the board as a whole.

2. The results of the self-appraisal or external assessment
conducted in the reporting period were reviewed at a
board meeting in praesentia.

PARTIALLY
OBSERVED

Each Committee of the Board of Directors consists of at least 4 Board
members.

The Audit, Finance and Risk Committee, the Nomination, Remuneration
and Corporate Governance Committee and the Investor Relations and
Dividend Policy Committee are chaired by independent directors. Two of
the Board Committees, for which there are no regulatory requirements as
to their composition (the Strategy Committee and the Ethics and Control
Committee), are chaired by non-executive directors.

Sistema tries to include independent directors in all Committees to
ensure that they participate in discussing the priority focus areas of the
Corporation. An independent director of the Corporation sits on three
Board Committees on average, which is a fairly high amount of work.
Based on personal circumstances of independent Board members (first
of all, their having sufficient time to perform the duties of Committee
members and chairs in good faith) and the need to ensure a high quality
of discussion taking into account various points of view, it was impossible
for the Corporation elect only independent directors to chair all Board
Committees.

The maximum number of Committees for Board members sit on has
not been restricted, since the actual number of Committees to which a
particular Board member is elected depends on specific circumstances and
is determined for each director based on his/her capabilities. Notably, in
the reporting year, Deputy Chair of the Board A. Belova was elected to
all Board Committees. The Corporation believes that such personalised
approach enables it to organise work of the Committees more efficiently.

Persons who are not members of the Audit, Finance and Risk Committee
or the Nomination, Remuneration and Corporate Governance Committee
may attend meetings of such Committees only upon invitation from their
respective chairs.

OBSERVED

Chairs of the Committees inform the Chairman of the Corporation’s Board
of Directors about the work of their Committees on a regular basis.

The Committees present regular reports on their work to the Board of
Directors.

OBSERVED

Performance review of the Board of Directors is provided for in the Terms of
Reference of the Board of Directors of Sistema PJSFC.

The Corporation’s assessment procedure for the Board of Directors is
based on extensive experience and includes appraisal of the Board’s
performance, including organisation of its work, and the performance of its
Committees.

The criteria used to assess the performance of the Board of Directors
provide for assessment of the professional and personal qualities of
members of the Board of Directors, their independence, teamwork and
personal contribution, as well as other factors that have an impact on the
performance of the Board of Directors.

The assessment results are reviewed at the in-person meeting of the Board
of Directors preceding the Annual General Meeting of shareholders.

On the basis of these results, the Nomination, Remuneration and Corporate
Governance Committee of the Board of Directors formulates suggestions
for improvement of the performance of the Board of Directors and its
Committees.

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2.9.2.

Performance review of the board of directors,
its committees and members should be
conducted on a regular basis at least once
a year. It is recommended to engage a third
party (consultant) to perform an independent
assessment of the board’s performance on a
regular basis, not less than once every three
years.

1. The company engaged a third party (consultant) to
conduct independent assessment of the work of the
board of directors at least once in the last three reporting
periods.

OBSERVED

Performance review of the Board of Directors and its Committees is
performed annually. A consortium of E&Y and Nestor Advisors Ltd. was
engaged to perform assessment of the Board in 2020-2021.

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III.

Corporate Secretary of the company

3.1.

3.1.1.

The corporate secretary should provide efficient day-to-day interactions with the shareholders,
coordination of the company’s activities aimed at protecting the shareholders’ rights and interests,
facilitation of the work of the board of directors.

The corporate secretary should have the
expertise, experience and qualification sufficient
for execution of his/her professional duties, an
impeccable reputation, and enjoy the confidence
of shareholders.

1. The company adopted and disclosed an internal

document, terms of reference of the corporate secretary.

2. The company’s website and annual report include the
corporate secretary’s biography in as much detail as is
given for the biographies of the board members and
executive management of the company.

OBSERVED

The Board of Directors approved the Terms of Reference of the Corporate
Secretary of the Corporation. The Terms of Reference specify the
requirements to the person who may hold the position of the Corporate
Secretary, in line with the guidelines of the Corporate Governance Code.
The text of the Terms of Reference is available on the corporate website.

Information about the Corporate Secretary is disclosed in the Annual
Report.

3.1.2.

The corporate secretary should have sufficient
independence from the company’s executive
bodies and the authority and resources required
to fulfil his/her professional duties.

1. The board of directors approves appointment, dismissal
and additional remuneration of the corporate secretary.

OBSERVED

The Corporate Secretary reports directly to the Board of Directors, and is
appointed or dismissed by the Board of Directors.

The Corporation’s Board of Directors approved the Terms of Reference of
the Corporate Secretary of the Corporation setting the requirements to
the candidacies to the position of Corporate Secretary, the appointment
and dismissal procedures, reporting lines, procedure for the Corporate
Secretary’s interactions with the governance bodies and the subdivisions,
his/her functions, rights and obligations, the terms and procedure of
remuneration and the liabilities of the Corporate Secretary.

Remuneration of the Board of Directors’ members, executive bodies
and key management of the Company.

The level of remuneration paid by the company should be sufficient for engaging, motivating and
retaining employees possessing the competencies and qualifications required by the company.
The remuneration of the board members, executive bodies and key management shall be paid in
accordance with the remuneration policy adopted by the company.

1. The company adopted an internal document(s), a policy
(policies) on remuneration of members of the board,
executive bodies and other key senior executives, which
clearly defines approaches to their remuneration.

OBSERVED

It is recommended that the level of remuneration
paid by the company to the board members,
executive bodies and other key management,
should provide sufficient motivation for their
efficient work enabling the company to engage
and retain competent and highly qualified
specialists. At the same time, the company
should avoid paying excessive remuneration
or having an unjustifiably big gap between the
remuneration levels of the persons specified
above and other employees.

The approaches to remuneration of the Board members are defined in the
Policy on Remuneration and Compensations for Members of the Board
of Directors of the Corporation (approved by the General Meeting of
shareholders). The document is available on the Corporation’s website.

Remuneration of key executives is regulated by the Corporation’s internal
documents that stipulate principles and approaches to remuneration of all
the employees.

The level of remuneration paid to the Board members, executive bodies
and other key management of the Corporation corresponds to the
remuneration levels at peer companies.

IV.

4.1.

4.1.1.

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4.1.3.

4.1.4.

4.2.

4.2.1.

4.2.2.

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NOTES

The company’s remuneration policy should be
developed by the remuneration committee and
approved by the company’s board of directors.
The board of directors with the support of the
remuneration committee should ensure oversight
over the implementation of the remuneration
policy by the company and, if necessary, to
revise and amend this policy.

1. In the reporting period, the remuneration committee
reviewed the remuneration policy (policies) and the
practice of its (their) implementation and, if necessary,
provided recommendations for the board of directors.

The company’s remuneration policy should
contain transparent mechanisms for determining
the amount of remuneration payable to the
board members, executive bodies and other
key management of the company, as well as
regulate all types of payments, benefits and
compensation granted to the specified persons.

1. The company’s remuneration policy envisages

transparent mechanisms for determining the amount of
remuneration payable to the board members, executive
bodies and other key management of the company, as
well as regulates all types of payments, benefits and
compensation granted to the specified persons.

It is recommended that the company should
develop a policy for expenses compensation,
specifying the list of costs to be reimbursed
and the level of services to which the board
members, executive bodies and other key
management of the company may be entitled.
Such policy may be an integral part of the
company’s remuneration policy.

1. The remuneration policy (policies) or other internal
documents of the company stipulate the rules for
compensating the board members, executive bodies
and other key management of the company for their
expenses.

The remuneration system of board members should ensure that the financial interests of the directors
are closely correlated with the long-term financial interests of the shareholders.

OBSERVED

The Corporation’s remuneration policy is developed by the Nomination,
Remuneration and Corporate Governance Committee of the Board of
Directors and approved by the Board of Directors.

OBSERVED

The Board of Directors has approved the internal regulations on
remuneration and long-term incentives of the members of executive bodies
and other key management.

The Nomination, Remuneration and Corporate Governance Committee
reviews the results of implementation of the Corporation’s remuneration
policy at least once a year and makes recommendations for the Board of
Directors, if necessary.

The Corporation’s internal regulations provide detailed guidelines on the
procedure for determining the amount of remuneration and for making the
respective payments of all remuneration components, as well as any other
compensation.

Decisions on the amount of remuneration payable to specific employees
are taken without the participation of the respective employee and are not
discussed with him or her.

According to the Corporation’s internal regulations compensation is due
only for the expenses incurred by the members of corporate governance
bodies and other employees of the Corporation that are directly related
to activities performed in the interests of the Corporation. There are strict
regulations on the level of services to which the Board members, the
President, the Management Board members and other key executives are
entitled.

1. Fixed annual remuneration was the only form of monetary
remuneration of board members for serving on the board
of directors in the reporting period.

OBSERVED

In accordance with the Policy on remuneration and compensations payable
to members of the Board of Directors of the Corporation, the main form of
remuneration of the Board members is fixed remuneration.

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Fixed annual remuneration is a preferable form of
cash remuneration payable to board members.
It is inadvisable to pay remuneration for
participation in isolated meetings of the board or
its committees. It is not recommended applying
any forms of short-term incentives and additional
financial motivation to board members.

Long-term ownership of the company’s shares
is the best tool facilitating the proximity of the
financial interests of board members and the
long-term interests of shareholders. At the same
time, it is not recommended that the right to sell
shares be linked to the achievement of specific
operating targets of the company, nor is the
participation of board members in stock option
schemes recommended.

1. If the company’s internal document(s) – remuneration
policy (policies) – envisage payment of the company’s
shares to board members, the company shall adopt and
disclose clear rules for board members’ ownership of its
shares, aimed at encouraging long-term ownership of
such shares.

4.2.3.

It is inadvisable to allow paying any additional
remuneration or compensation to board
members in the event of early termination of
their contract due to a change of the controlling
shareholder or other circumstances.

1. The company does not envisage payment of any

additional remuneration or compensation to board
members in the event of early termination of their
contract due to a change of the controlling shareholder
or other circumstances.

PARTIALLY
OBSERVED

OBSERVED

The Corporation also pays additional remuneration to the Board members
for achievement of the Corporation’s investment goals in the form of the
Corporation’s shares. The amount of such additional remuneration is also
fixed.

A portion of the remuneration of the Board members (additional
remuneration) is paid in shares. Board members’ long-term ownership of
the shares is encouraged, and, in accordance with the existing practice,
members of the Board of Directors retain their shares at least until their
membership is terminated. The Corporation immediately discloses
information on any transactions made by any Board members and involving
Sistema’s shares or any derivatives where Sistema shares are used as
underlying assets, which also stimulates long-term ownership and contains
the use of hedging.

Having considered different scenarios for implementing this principle and
taking into account laws of different jurisdictions where Board members
reside, the Corporation currently does not see any legitimate grounds or
methods to restrict the Board members’ right to hold and dispose of the
Corporation’s shares held by them.

There are no provisions on the Board members’ entitlement to any
additional remuneration or compensation in the event of early termination
of their contract due to a change of the controlling shareholder or other
circumstances.

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4.3.

4.3.1.

4.3.2.

4.3.3.

5.1.

5.1.1.

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NOTES

The remuneration system of the executive bodies and key management of the company should
ensure correlation of their remuneration and the results of the company, as well as their personal
contribution to the achievement of this result.

Remuneration of the executive bodies and
other key management of the company should
be determined in such a way as to ensure a
reasonable and justifiable ratio of the fixed and
variable parts of the remuneration linked to the
results of the company and personal (individual)
contribution of the employee in the final result.

It is recommended that the companies whose
shares are traded on a stock exchange should
implement a long-term incentive scheme for the
executive bodies of the company and other key
managers based on the shares of the company
(stock options or other derivative financial
instruments whose underlying asset is the
company’s shares).

Severance payments (golden parachutes) paid
by the company in the event of early termination
of the powers of executive bodies or key
managers should not exceed the double amount
of their fixed annual remuneration, provided that
such early termination was prompted by the
company and that the respective employee was
not guilty of any wrongdoing.

1. In the reporting period, the annual performance

indicators approved by the board of directors were
used for determining the amount of the variable part of
remuneration of members of executive bodies and other
key managers of the company.

2. During the latest conducted assessment of the

remuneration system of members of executive bodies
and other key managers of the company, the board of
directors (the remuneration committee) was satisfied that
the company uses an efficacious ratio of the fixed and
variable parts of remuneration.

3. The company has a procedure in place that ensures

that bonuses wrongly received by members of executive
bodies and other key managers of the company are
repaid to the company.

1. The company adopted a long-term incentive programme
for members of executive bodies and other key managers
of the company using the company’s shares (financial
tools based on the company’s shares).

2. The long-term incentive programme for members

of executive bodies and other key managers of the
company stipulates that the right to sell the shares or
other financial tools provided under such programme
shall not arise until at least three years from the
award. This right shall be triggered by the company’s
achievement of certain performance targets.

1. Severance payments (golden parachutes) paid by the

company in the event of early termination of the powers
of executive bodies or key managers did not exceed the
double amount of their fixed annual remuneration in the
reporting period, provided that such early termination
was prompted by the company and that the respective
employee was not guilty of any wrongdoing.

Risk management and internal control system

The company should have an effective risk management and control system aimed at providing
reasonable assurance in the achievement of the goals set for the company.

The company’s board of directors should
determine the principles of and approaches to
organising the risk management and internal
control systems at the company.

1. The powers of different governance bodies and divisions
of the company in risk management and internal control
are clearly determined by internal regulations/a
respective policy of the company approved by the board
of directors.

OBSERVED

The Corporation has an incentive system for the members of the executive
bodies and other key managers, approved by the Board of Directors. The
Board of Directors approves key performance indicators as an element of
the incentive system.

The Nomination, Remuneration and Corporate Governance Committee
is involved in the development of key indicators used as the basis for the
incentive system and analyses the ratio of the fixed and variable parts of
remuneration.

The results of implementation of the incentive programme are assessed at
the year-end.

The assessment of the Corporation’s year-end performance as part of the
incentive system takes into account the risks carried by the Corporation.

In the event of discovering any instances of manipulation with accounting
figures or any other types of wrongdoing committed by employees that
jeopardise the interests of the shareholders, the respective employees
shall be penalised and shall have to compensate the Corporation for its
losses in compliance with the current laws.

At the beginning of 2020, the Board of Directors approved the main
principles of an employee share incentive plan aimed at building a long-
term relationship with the key managers and motivating them to achieve a
shared goal: growing the capitalisation of the Corporation.

The participants of the Share Incentive Plans are selected on the basis of
their performance and personal contribution to the development of the
Corporation and/or portfolio companies. The final list of participants is
approved by the Board of Directors. Each participant shall be granted a
substantial number of ordinary shares in Sistema PJSFC (more than 0.1% of
the authorised capital).

There are no further restrictions on the sale of shares.

The amount of severance payment made by the Corporation in the event of
an early dismissal of members of executive bodies or other key managers
prompted by the Corporation does not exceed the mandatory amount set
by law, which is less than the double amount of fixed annual remuneration.

The Board of Directors approved the Internal Audit Policy and the Internal
Control Policy of the Corporation. The Corporation also adopted the Risk
Management Code. All the regulations were developed in accordance
with the COSO integrated concept on internal control.

The risk management and internal control systems function at operational
and organisational levels.

The roles and objectives of various governance bodies of the Corporation
in this process are set out in the above-mentioned documents.

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5.1.2.

The company’s executive bodies should ensure
the establishment and maintenance of effective
risk management and internal control systems at
the company.

1. The company’s executive bodies ensured distribution of
functions and powers with regard to risk management
and internal control between heads of divisions and
departments that report to them.

5.1.3.

The risk management and internal control
systems of the company should ensure objective,
fair and clear understanding of the current status
and prospects of the company, the integrity
and transparency of the company’s financial
reporting, the reasonableness and acceptability
of the risks assumed by the company.

1. The company has adopted an anti-corruption policy.

2. The company provides for a way to inform the board of

directors or the board’s audit committee about breaches
of laws, internal procedures or the company’s code of
ethics.

OBSERVED

A dedicated risk management subdivision was set up within the Finance
Function.

Heads of the Corporation’s subdivisions, in line with their functional duties,
are responsible for developing, documenting, implementing, monitoring
and upgrading the risk management and internal control systems in their
respective functional areas.

OBSERVED

The internal control and risk management system enables the Corporation
to timely respond to the newly emerged risks.

The Board of Directors approved the Anticorruption Policy of the
Corporation.

The Corporation has a single whistleblowing hotline enabling any employee
of the Corporation to report any offences committed by the Corporation
and/or its officers. The purpose of the hotline is to counteract potential
instances of abuse during implementation of various projects and business
activities, including the procurement of products, works and services, and
to prevent potential corrupt practices or fraud. The whistleblowers are
protected from any types of pressure (including dismissal, persecution and
any forms of discrimination). The key approaches to the operation of the
Hotline are outlined in the Sistema’s Hotline Whistleblowing Programme
published on the Corporation’s website.

The Board of Directors reviews the matters of organisation, functioning
and efficiency of the risk management and internal control system and, if
necessary, gives recommendations for its improvement on a regular basis
(at least once a year). Information on the results of the review held by the
Board of Directors on the efficiency of the risk management and internal
control system is provided to the shareholders as part of the Annual
Report.

OBSERVED

It is recommended that the board of directors
should take all necessary and sufficient measures
to make sure that the existing risk management
and internal control system of the company
meets the respective principles and approaches
approved by the board of directors and is
functioning efficiently.

1. In the reporting period, the board of directors or the

board’s audit committee assessed the efficiency of the
company’s risk management and internal control system.
Information about the key results of such assessment are
included in the company’s annual report.

To ensure a regular and independent assessment of the reliability and efficiency of its risk
management and internal control systems and corporate governance practices the company should
organise internal audits.

It is recommended that internal audits should be
organised by means of establishing a dedicated
subdivision (internal audit unit) or engaging an
independent external auditor. In order to ensure
the independence of the internal audit unit its
functional and administrative reporting lines
should be divided. It is advisable that the internal
audit unit should functionally report to the board
of directors and administratively – directly to the
company’s sole executive body.

It is recommended that the internal audit function
should perform an assessment of the efficiency
of the internal control and risk management
systems, corporate governance, and conform
to the generally accepted standards in internal
audit.

1. For the purposes of internal audits, the company

established a separate internal audit unit that functionally
reports to the board of directors or the audit committee
or engaged an independent external company with
similar reporting principles.

OBSERVED

The Corporation has set up the Internal Audit Service operating on the
basis of the Terms of References of the Internal Audit Service.

The Service functionally reports to the Board of Directors and
administratively – to the Corporation’s President.

Head of the Service is appointed and dismissed by the President based on
the resolution of the Board of Directors.

1. In the reporting period, an internal audit was conducted
that gave assessment to the efficiency of the internal
control and risk management system.

2. The company uses generally accepted approaches to

internal control and risk management.

OBSERVED

The Corporation’s internal audit procedures comply with the International
Internal Audit Standards of the Institute of Internal Auditors.

The Corporation’s internal audits include assessment of the efficiency of
the internal control and risk management system and assessment of the
corporate governance.

5.1.4.

5.2.

5.2.1.

5.2.2.

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NOTES

VI. Disclosing information about the company, information policy of the

company

6.1.

6.1.1.

The company and its operations should be transparent for the shareholders, investors and
other interested parties.

The company should develop and implement an
information policy ensuring efficient interaction
between the company, shareholders, investors
and other interested parties.

1. The company’s board approved an information policy
that was developed taking into account the Code’s
recommendations.

2. The board (or a board committee) reviewed the

company’s compliance with its information policy at least
once in the reporting period.

6.1.2.

The company should disclose information on the
corporate governance system and practices,
including detailed information on compliance
with the principles and recommendations of this
Code.

1. The company discloses information about its corporate
governance system and general principles of corporate
governance used by the company, including on its
website.

2. The company discloses information about the members
of its executive bodies and the board of directors, the
independence of board members and their membership
in board committees (as defined in the Code).

3. If there is an entity controlling the company, the company

publishes a memorandum of the controlling entity
disclosing its plans with regard to corporate governance
at the company.

The company should timely disclose complete, relevant and reliable information about the company
in order to enable its shareholders and investors to take informed decisions.

The company should disclose information
regularly, consistently and promptly and ensure
the accessibility, reliability, completeness and
comparability of the disclosed data.

1. The company’s information policy determines

approaches and criteria for identifying information that
may have a material influence on the valuation of the
company and the price of its securities and procedures
providing for timely disclosure of such information.

2. If the company’s securities are traded on foreign

organised markets, disclosure of material information in
Russia and on such markets is made simultaneously and
equally during the reporting year.

3. If foreign shareholders hold a significant amount

of the company’s shares, disclosure of information in the
reporting year was made both in Russian and in one of
the most widely spoken foreign languages.

6.2.

6.2.1.

232

OBSERVED

The Corporation has developed and implemented the Information Policy
approved by the Board of Directors.

OBSERVED

The executive bodies of the Corporation and its Corporate Secretary are
responsible for the implementation of the Information Policy. The Board of
Directors oversees compliance with the Information Policy.

Members of the executive bodies hold meetings with analysts on a regular
basis to accompany the disclosure (publication) of the Corporation’s
financial statements or to comment on the key investment projects and
development plans of the Corporation.

The Corporation publishes information about its governance bodies and
their composition, including the biographies of the members of governance
bodies, on its website (www.sistema.ru/www.sistema.com).

The Corporation has adopted the Corporate Governance Code
(hereinafter, “the Code”) setting out the key principles of corporate
governance and the obligations assumed by the Board of Directors with
respect to the Corporation.

The Code has been published on the Corporation’s website.

The Corporation’s controlling shareholder is the Board Chairman and
his plans with regard to corporate governance at the Corporation are
reflected in publicly disclosed documents approved by the Board of
Directors and the General Meeting of shareholders of the Corporation.

OBSERVED

The Corporation’s information policy makes it possible to coordinate
the work of all units and subdivisions of the Corporation dealing with
information disclosures.

The Corporation discloses information in the shortest possible time.

The Corporation’s material information is disclosed for Russian and foreign
investors simultaneously and in equal volumes in the Russian and English
languages.

The Corporation promptly responds to any rumours and/or unreliable
information about its activities.

The Corporation uses its website (www.sistema.ru/www.sistema.com) and
the Interfax news feed for disclosing information.

The Corporation is aiming to make sure that the disclosed information
is unambiguous, objective and neutral and does not avoid disclosing
negative information.

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6.2.2.

It is recommended that the company should
avoid adopting a purely technical approach
when disclosing information and should disclose
all material information about its activities even if
the disclosure of such information is not required
by the law.

1. In the reporting period, the company disclosed its annual
and semi-annual financial reports prepared in accordance
with the IFRS. The company’s annual report for the
reporting period includes its annual financial statement
prepared in accordance with the IFRS, together with the
auditors’ opinion.

6.2.3.

6.3.

6.3.1.

6.3.2.

The annual report, being one of the most
important tools of informational interaction
with shareholders and other interested parties,
should contain information making it possible to
assess the company’s annual results.

2. The company discloses full information about the

structure of the company’s capital in accordance with
recommendation 290 of the Code in its annual report and
on its website.

1. The company’s annual report includes information about
the key aspects of the company’s operations and its
financial performance.

2. The company’s annual report includes information about
the environmental and social aspects of the company’s
operations.

The company should ensure that all shareholders have equal and unhindered access to information
and documents upon their request.

The shareholders should be able to exercise
their right to access documents and information
without any unjustifiable difficulties.

1. The company’s information policy stipulates an easy
procedure for providing shareholders with access to
information, including information of the company’s
controlled legal entities, upon shareholders’ request.

It is recommended that when providing
information to the shareholders the company
should ensure a reasonable balance of interests
of specific shareholders and the company itself,
which is interested in maintaining confidentiality
of crucial commercial information that may have a
significant impact on its competitiveness.

1. In the reporting period, the company did not refuse to

accommodate shareholders’ requests for information or
such refusals were justified.

2. In instances stipulated by the company’s information

policy, shareholders are notified about the confidential
nature of information and assume the obligation to
maintain its confidentiality.

OBSERVED

The Corporation discloses all material information not only about itself but
also about its controlled legal entities.

strategy and objectives of the Corporation,
financial operations and financial status of the Corporation,

The Corporation discloses the following additional information:
›
›
› equity structure of the Corporation,
›

social responsibility of the Corporation.

OBSERVED

The Corporation discloses all material information in the Annual Report
in accordance with the recommendations of the Corporate Governance
Code.

The Annual Report includes all material data from the annual statutory
and financial reports, as well as information about the Corporation’s CSR
efforts.

OBSERVED

When giving shareholders access to its documents and information, the
Corporation is guided by applicable legislation and seeks to avoid creating
unnecessary difficulties. The Corporation’s information policy sets out the
procedure for granting such access.

The Corporation does not overstate the costs related to making and
sending the copies of such documents.

The matters of providing information about controlled legal entities are not
regulated by the Information Policy, since the companies controlled by the
Corporation conduct independent operations and Sistema PJSFC does not
take any operational decisions with respect to such companies.

A shareholder may be granted access to confidential information about the
Corporation only provided that the shareholder is aware of the confidential
nature of such information and assumes the obligation to maintain its
confidentiality in accordance with applicable laws.

SISTEMA PROFILE

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KEY ASSETS'
PERFOMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

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PERFOMANCE

KEY ASSETS'
PERFOMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

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CORPORATE GOVERNANCE PRINCIPLE

CRITERIA FOR ASSESSMENT

COMPLIANCE

NOTES

VII. Material corporate actions

7.1.

7.1.1.

7.1.2.

7.1.3.

7.2.

7.2.1.

Actions that have or may have a significant impact on the structure of the shareholders’ equity or
the financial position of the company and accordingly the position of its shareholders (material
corporate actions) should be taken on fair terms providing for the protection of the rights and
interests of the shareholders and other interested parties.

Material corporate actions include the company’s
reorganisation, acquisition of 30 or more %
of the company’s voting shares (takeover),
material transactions, increase or decrease of the
company’s authorised capital, listing of delisting
of the company’s shares, and other actions that
may result in a significant change of shareholder
rights or have a detrimental effect on their
interests. It is recommended that the company’s
charter should determine the list (criteria) of
transactions or other actions constituting material
corporate actions and vest the board of directors
of the company with the exclusive powers to take
decisions on such matters.

The board of directors should play a key role in
taking decisions or developing recommendations
on material corporate actions on the basis of
the opinions of independent directors of the
company.

1. The company’s charter sets out a list of transactions and
other actions that constitute material corporate actions
and criteria for identifying them. Decisions with regard
to material corporate actions are within the remit of the
board of directors. If law expressly stipulates that such
corporate actions shall be within the remit of the general
meeting of shareholders, the board of directors gives
shareholders appropriate recommendations.

2. The company’s charter stipulates that at least the

following actions constitute material corporate actions:
the company’s reorganisation, acquisition of 30 or more
% of the company’s voting shares (takeover), material
transactions, increase or decrease of the company’s
authorised capital, listing of delisting of the company’s
shares.

1. The company has a procedure in place that allows

independent directors to state their position on material
corporate actions before their approval.

It is recommended that in the course of taking
material corporate actions influencing the
rights and lawful interests of the shareholders,
equal terms should be provided to all the
company shareholders, and when the
mechanisms provided by the law are insufficient,
additional measures should be taken to
protect the rights and lawful interests of the
company’s shareholders. At the same time,
the company should be guided not only by
formal requirements of the law, but also by the
principles of corporate governance set out in the
Code.

1. The company’s charter, taking into account the

specifics of its business, sets lower minimum criteria for
recognising transactions as material corporate actions
than those envisaged by applicable laws.

2. In the reporting period, all material corporate actions

passed the approval procedure before they were carried
out.

The company should establish such procedures for taking material corporate actions that would
enable the shareholders to timely receive information on such actions, and provide them with the
opportunity to influence such actions and guarantee an adequate level of protection of the
shareholders’ rights.

Disclosures of information on material corporate
actions should contain explanations of the
reasons, terms and consequences of such
actions.

1. In the reporting period, the company timely and

thoroughly disclosed information about its material
corporate actions, including the reasons for and the
timeframe of such actions.

OBSERVED

In accordance with the legislation, decisions on listing and delisting of
shares, as well as decisions on reorganisation and approval of major
transactions in accordance with applicable laws are within the remit of
the General Meeting of shareholders. In accordance with the Charter
of Sistema PJSFC, decision-making on all other actions specified in
the Corporate Governance Code falls within the remit of the Board of
Directors, even though the Charter does not have a formal list of material
corporate actions.

OBSERVED

Prior to being considered by the Board of Directors, related party
transactions are provisionally reviewed by the Audit, Finance and Risk
Committee (hereinafter, “the Committee”), which consists mostly of
independent directors. The Committee’s opinion is discussed when the
transactions are reviewed at a Board meeting.

Decisions on approval of related-party transactions are taken by Board
members who are not related parties.

The Board of Directors reviews all material matters of the Corporation
in accordance with procedures envisaged by the Corporation’s internal
documents. The thresholds for submission of certain transactions for review
of the Board of Directors set in the Corporation’s Charter are lower than
those stipulated by the law.

In the reporting year, all actions that are recognised as material corporate
actions in accordance with the Corporate Governance Code were
approved by the Board of Directors before they were carried out.

OBSERVED

Being a public company, the Corporation discloses the maximum possible
amount of information on any corporate actions, including those that may
influence the dividend and/or any other rights of the shareholders.

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CORPORATE GOVERNANCE PRINCIPLE

CRITERIA FOR ASSESSMENT

COMPLIANCE

NOTES

7.2.2.

It is recommended that the rules and procedures
related to the company’s taking material
corporate actions should be set out in the
internal regulations of the company.

1. The company’s internal documents stipulate a procedure
for engaging an independent appraiser for determining
the value of assets to be disposed or acquired in a major
transaction or in a related party transaction.

OBSERVED

2. The company’s internal documents stipulate a procedure
for engaging an independent appraiser for determining
the price of acquiring and buying back the company’s
shares.

3. The company’s internal documents set out an

extensive list of reasons for recognising board members
and other persons as stipulated by law as related parties
in the company’s transactions.

To the extent that the rules and procedures related to the Corporation’s
taking material corporate actions are not provided for by applicable laws,
such rules and procedures are set forth in the internal regulations of the
Corporation.

When reviewing material transactions at Board meetings, an independent
appraiser or an investment consultant is engaged to determine the price of
such transactions.

Only Board members that do not have any conflict of interest and are not
related parties vote on approval of related party transactions.

SISTEMA PROFILE

PERFOMANCE

KEY ASSETS'
PERFOMANCE

CORPORATE
GOVERNANCE

SUSTAINABILITY
MANAGEMENT

ANNEXES

238

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ANNUAL REPORT / 2020SISTEMA PJSFC2020

ANNUAL REPORT

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