2021
SISTEMA PUBLIC
JOINT STOCK
FINANCIAL
CORPORATION
Annual Report
u
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About
the report
Disclaimer
3
This annual report contains information about the activities of Sistema
Public Joint Stock Financial Corporation and its portfolio companies
(hereinafter, "Sistema", "Sistema PJSFC" "the Corporation" or, together with
its subsidiaries and affiliates, "the Group"or "Sistema Group") in 2021.
The annual report of Sistema PJSFC for the year 2021 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 otherwise stated, the financial results presented in this annual
report are based on IFRS consolidated financial statements. The audit
of Sistema's 2021 consolidated financial statements in accordance with
IFRS was performed by CJSC Deloitte and Touche CIS. The report also
provides information about the Corporation's environmental, social and
governance effectiveness.
The annual report may contain minor inaccuracies in the estimation
of shares, percentages and amounts due to the rounding of numbers.
There may be insignificant discrepancies between the data contained
in this annual report and the data disclosed earlier due to the rounding
differences.
For other annual reports of the Corporation please go to Investors and
Shareholders sections on the company's website (www.sistema.ru).
Some of the statements in this annual report may contain assumptions
or forecasts concerning the forthcoming or expected events at Sistema
or its portfolio companies. Such forward-looking statements contain
phrases like "expected", "estimated", "intended", "will", "could", negatives
of such statements and other similar expressions. Such statements are
assumptions only and the actual course of events and their results may
differ significantly from those implied in the forward-looking statements.
Sistema expressly disclaims any obligation to revise any forward-looking
statements whether as a result of new events and circumstances that
may arise in the future or to reflect any events that are not expected
at the time of compiling this report. The actual results of Sistema and
its portfolio companies could differ materially from those expressed in
the assumptions and forecasts of this annual report due to a number
of factors.
Such factors may include general economic conditions, competitive
environment, risks associated with the deterioration of the geopolitical
situation and business operations in Russia, fast technological and market
changes in the segments where Sistema and its portfolio companies
operate, the impact of various unforeseen events on the macroeconomic
situation in the markets where Sistema and its portfolio companies
operate and on their financial results, as well as many other risks that are
directly related to Sistema or its activities.
4
CONTENT
SISTEMA.RU
5
CONTENT
1
7
COMPANY OVERVIEW
Sistema today
Investment portfolio
8
10
12 Key highlights
14 Awards & recognition
3
53 RESULTS OF KEY ASSETS
54 MTS
66 Ozon
72 Segezha Group
90 Etalon Group
98 Medsi
110 Steppe AgroHolding
120 Binnopharm Group
128 Other consolidated assets
156 Venture capital funds
2
17
PERFORMANCE
OF THE CORPORATION
18 Strategy and governance
model
30 Key events of 2021 and after
the reporting date
40 Financial overview
44 Securities and share capital
4
165 CORPORATE
GOVERNANCE
166 Corporate governance
system
186 Remuneration policy
188 Risk management
5
199 SUSTAINABILITY
MANAGEMENT
200 Management system
202 Responsible investment
206 Key ESG areas
212 Social investments
6
215 ANNEXES
SISTEMA PJSFC / ANNUAL REPORT 2021
6
SISTEMA.RU
7
COMPANY
OVERVIEW
SISTEMA TODAY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
INVESTMENT PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
KEY HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
AWARDS & RECOGNITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SISTEMA PJSFC / ANNUAL REPORT 2021 8
COMPANY OVERVIEW
SISTEMA TODAY
SISTEMA.RU
9
SISTEMA TODAY
Sistema Public Joint Stock Financial Corporation
is Russia's largest public investment company
and one of the country's systemically important
companies. Founded in 1993, Sistema is today
represented across over 20 high-potential
sectors of the Russian economy, including
telecommunications, forestry, agriculture,
pharmaceuticals, healthcare, real estate and
e-commerce. The Corporation's investment
portfolio is made up mostly of Russian companies
operating across Russia and in more than
25 other countries.
SISTEMA'S STRATEGIC GOAL
Is to ensure long-term growth of shareholder value
by boosting return on investments in the existing assets
and reinvesting available cash in new investment
projects to diversify its portfolio and increase return
on investments.
SISTEMA'S SUSTAINABILITY GOAL
Is to build competitive businesses with high added
value that meet the principles of social and
environmental responsibility and contribute to the
sustainable development of industries and regions of
operations and to the steady growth of socioeconomic
and technological potential, human capital, quality of
life and social well-being.
AFKS
MOEX
SSA
LSE
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.
+16.0 %
802.4
BN
RUB
REVENUE
2020
2021
251.9
BN
RUB
ADJUSTED OIBDA
TN
RUB
1.8
ASSETS
1.4
BN
RUB
SOCIAL INVESTMENTS
134.1
HEADCOUNT
THSD
PEOPLE
BB
BB
RUAA-
FITCH CREDIT
RATING 1
S&P CREDIT
RATING 1
RAEX CREDIT
RATING 1
TOP
TOP
25
LARGEST RUSSIAN COMPANIES
BY REVENUE (RBC)
20
PUBLIC RUSSIAN COMPANIES
IN FORBES GLOBAL 2000 RATING
12.1
LOW ESG RISK
Sustainalytics
50
%
INDEPENDENT
DIRECTORS
INVESTMENT
PORTFOLIO
Public assets
MTS
NYSE: MBT, MOEX: MTSS
OZON
NASDAQ and MOEX: OZON
SEGEZHA GROUP
MOEX: SGZH
ETALON GROUP
LSE and MOEX: ETLN
› 25 COUNTRIES
› 20 SECTORS
› 25 COMPANIES
1 As of the end of 2021.
1 As of the end of 2021.
0.6
%
CONTRIBUTION TO RUSSIA'S
GROSS DOMESTIC PRODUCT
BB
MSCI ESG
TOP
5
INTERNATIONAL
INVESTMENT
COMPANIES
ESG Reporting
Award
Sustainability managementSISTEMA PJSFC / ANNUAL REPORT 2021 10
COMPANY OVERVIEW
INVESTMENT PORTFOLIO
SISTEMA.RU
11
29.8 %
REAL ESTATE DEVELOPMENT
Etalon Group
One of the Russia’s largest
public development and
construction companies
100 %
COMMERCIAL PROPERTIES
Business
Nedvizhimost
Оne of the largest real estate
owners in Moscow
100 %
HOSPITALITY
Cosmos
Hotel Group
One of the largest hotel
management companies
in the Russian market
INVESTMENT
PORTFOLIO
Venture capital funds
Sistema Venture Capital — 80 %
Sistema Asia Fund — 66 %
62.2 %
FORESTRY INDUSTRY
Segezha Group
Largest vertically integrated
forestry holding in Russia
100 %
INFORMATION TECHNOLOGY
Sitronics Group
Leading vertically integrated
ICT holding in Russia
91 %
UTILITIES
BPGC
One of Russia’s
largest power grid
companies
95.5 %
HEALTHCARE
Medsi
Russia’s
largest national
healthcare chain
31.8 %
E-COMMERCE
Ozon 2
Leading multi-category
online sales platform
in Russia
49.9 %
TELECOMMUNICATIONS
MTS 1
Leading public
telecommunications
operator in Russia
PUBLIC ASSETS
KEY NON-PUBLIC ASSETS
OTHER CONSOLIDATED ASSETS
1
2
In March 2022, as part of the long-term incentive programme, Vyacheslav Nikolaev
acquired 19,983,816 ordinary shares of MTS owned by Bastion LLC, a wholly owned
subsidiary of MTS. With the transfer of shares to Mr Nikolaev, his stake in MTS increased
to above 1 %. Sistema’s effective ownership stake in MTS decreased to 49.9 %.
12.2 m shares were issued to be used in the Ozon’s management inventive
programme, considering exercise of all options under the programme, the
effective share of Sistema, including Sistema VC, would amount to 31.8 %.
91.3 %
AGRICULTURE
Steppe
AgroHolding
Major agriculture holding
and one of Russia’s largest
land owners
75.3 %
PHARMA
Binnopharm
Group
Leading Russian
pharmaceutical producer
SISTEMA PJSFC / ANNUAL REPORT 2021 12
COMPANY OVERVIEW
KEY HIGHLIGHTS
SISTEMA.RU
13
KEY HIGHLIGHTS
Group's performance
Corporate Centre's performance 3
Revenue, RUB bn
+
10.7 %
CAGR 2019–2021
Selling, general and administrative
expenses (SG&A), RUB bn
+
9.6 %
CAGR 2019–2021
654.3
691.6
802.4
128.4
134.2
154.3
Dividends from assets, RUB bn
Monetisations, RUB bn
35.1
AVERAGE 2017-2021
28.2
39.3
AVERAGE 2017-2021
43.1
52.4
35.2
34.9
34.3
43.3
41.1
34.2
25.4
2019
2020
2021
2019
2020
2021
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
Adjusted OIBDA 1, RUB bn
Net debt 2, RUB bn
+
6.0 %
CAGR 2019–2021
+
16.5 %
CAGR 2019–2021
224.0
236.3
251.9
627.0
788.5
580.9
Investments, RUB bn
32.8
AVERAGE 2017-2021
33.7
29.6
16.0
Net debt, RUB bn
–
0.4 %
CAGR 2017-2021
45.1
39.5
213.4
213.4
210.4
183.8
183.7
2019
2020
2021
2019
2020
2021
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
1
In this Annual Report, adjusted OIBDA is used to assess the operational success of the Corporation and Sistema Group companies and as such do not include
one-off incomes or losses that are not related to business operations. The reconciliation of these indicators is provided in “Financial overview” section.
2 Consolidated net debt is defined as consolidated total debt less cash, cash equivalents and deposits in banks. Consolidated total debt is defined as total
borrowings plus finance lease. The total borrowings are defined as long-term and short-term borrowings.
3 According to management accounts.
SISTEMA PJSFC / ANNUAL REPORT 2021 14
COMPANY OVERVIEW
AWARDS & RECOGNITION
SISTEMA.RU
15
AWARDS & RECOGNITION
TOP 1000
GLOBALLY AND TOP 15 IN RUSSIA
BY TOTAL SHAREHOLDER RETURNS (TSR)
in Value Creators Ranking 2021
by Boston Consulting Group (BCG)
MTS IS THE WORLD'S SECOND
STRONGEST TELECOM BRAND
and the only Russian telecom
brand in Brand Finance
Telecoms 150
TOP 10
OF RUSSIA'S MOST
VALUABLE BRANDS
TOP 10
IN THE ESG RANKING
OF RUSSIAN COMPANIES
in Brand Finance Russia 50
RAEX Europe
TOP 15
PRIVATE COMPANIES &
TOP 10 RUSSIAN EMPLOYERS
in the Forbes ranking
TOP 10
BEST MOBILE BANKS
FOR DAILY BANKING
in mobile banking rank 2021
(Markswebb)
TOP 3
MOST VALUABLE INTERNET
COMPANIES IN RUSSIA
Forbes
TOP 5
FASTEST GROWING
PRIVATE RUSSIAN COMPANIES
Forbes
TOP 200
RUSSIAN EMPLOYERS AND
#1 IN THE IT AND INTERNET CATEGORY
HeadHunter's ranking
TOP 200
PRIVATE RUSSIAN
COMPANIES
Forbes
TOP 200
PRIVATE RUSSIAN
COMPANIES
Forbes
TOP 5
RUSSIAN
LAND OWNERS
Forbes
TOP 10
VENOTONICS IN THE RUSSIAN
PHARMA MARKET
No. 1
IN THE TIMBER INDUSTRY
IN THE ESG RANKING OF RUSSIAN
COMPANIES
RAEX Europe
TOP 30
ENVIRONMENTALLY FRIENDLY
COMPANIES IN RUSSIA
Forbes
TOP 3
IN THE RANKING OF RUSSIA'S
TIMBER COMPANIES
Sbo-paper
SEGEZHA GROUP'S EUROPEAN PAPER
PACKAGING ASSETS WERE AWARDED
RUSSIA M&A AWARDS
BEST DEAL OF 2021
GOLD LEVEL
from the international
platform EcoVadis
TOP 10
DEVELOPERS IN THE MASS
HOUSING CATEGORY
Forbes
No. 1
ESG RANKING OF RUSSIAN
COMPANIES RAEX EUROPE
Agricultural sector
TOP 10
PRODUCERS OF GENERICS
IN THE RUSSIAN MARKET
IQVIA
TOP 10
RUSSIAN DEVELOPERS
BY REVENUE
RBC 500
URBAN
AWARDS 2021
Developer of the year
and digital developer
EUROPEAN
PROPERTY AWARDS
nominations for residential development
and residential renovation
TOP 50
AGRICULTURAL COMPANIES
OF RUSSIA
Expert
No. 1
RUSSIA'S MOST EFFICIENT
DAIRY FARMS
Soyuzmoloko
AGRICULTURAL INVESTOR 2021
Innovation of the year, Top manager of
the year, Socially responsible initiative
(during pandemic) and Reliable grain
supplier
TOP 10
PRODUCERS OF NUTRITIONAL
SUPPLEMENTS IN RUSSIA BY
SALES VALUE
DSM Group
PHARMA COMPANY
OF THE YEAR 2021
Award from the Green cross
pharmacies association
SI
MEDICINE OF COMPETENCY
No. 1
RUSSIA'S TOP 20 PRIVATE CLINICS
AND #1 RUSSIA'S TOP 200 PRIVATE
MULTI-SPECIALTY CLINICS
Forbes and Vademec
TOP 3
IN THE RANKING OF MULTI-SPECIALTY
CLINICS BY NUMBER OF DOCTORS
BusinesStat / RBC
TOP 5
IN THE 2021 RANKING OF
ST. PETERSBURG FASTEST
GROWING MEDICAL CENTRES
PATIENTS'
CHOICE 2021
BEST CLINICS OF MOSCOW
SISTEMA PUBLIC
JOINT STOCK
FINANCIAL
CORPORATION
TOP 25
RUSSIAN COMPANIES
BY REVENUE
RBC 500
TOP 20
PUBLIC RUSSIAN
COMPANIES
in Forbes Global 2000
TOP 20
RUSSIAN COMPANIES
BY REVENUE
in RAEX 600
TOP 20
COMMERCIAL REAL
ESTATE OWNERS
Forbes
CBONDS
AWARDS 2021
Issuer of the Year
RUSSIA IPO
AWARDS
Segezha Group –
The Best placement
in 2021
1
2
0
2
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R
O
P
E
R
L
A
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N
N
A
/
C
F
S
J
P
A
M
E
T
S
I
S
SISTEMA PJSFC / ANNUAL REPORT 2021
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SISTEMA.RU
17
PERFORMANCE
OF THE
CORPORATION
STRATEGY AND GOVERNANCE MODEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
KEY EVENTS OF 2021 AND AFTER THE REPORTING DATE . . . . . . . . . . . . . . . . . 30
FINANCIAL OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECURITIES AND SHARE CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SISTEMA PJSFC / ANNUAL REPORT 2021 18
PERFORMANCE OF THE CORPORATION
STRATEGY AND GOVERNANCE MODEL
SISTEMA.RU
19
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 sectors and high-potential
technologies and fueling long-term growth in shareholder value.
Strategy
The Corporation's goals are matched
with the elements of business model,
which are inter-related
Our goals can be achieved
by answering 3 key questions
underpinning the Corporation's
strategy
PORTFOLIO
STRATEGY
How do we manage
our portfolio?
How do we invest
in new projects?
Strategic goals and development areas
1
2
LONG-TERM GOALS
FOCUS AREAS
Steady growth of the Corporation's
shareholder value
Maximising net asset value
Building profitable and growing
companies that are leaders in their
sectors
Paying dividends to the Corporation's
shareholders
01
02
Building and continuously developing
businesses worth over USD 1 billion
Embracing unique investment
opportunities in traditional
and new sectors
03
Creating value in assets through team
strengthening, strategic development,
business transformation, operational
improvements, equity structure
optimisation, digitalisation, etc
04
Continuous enhancement
of corporate governance
GOVERNANCE
MODEL
INVESTMENT
PROCESS
3
How do we create
value in our Assets?
SISTEMA PJSFC / ANNUAL REPORT 2021
20
PERFORMANCE OF THE CORPORATION
STRATEGY AND GOVERNANCE MODEL
SISTEMA.RU
21
Portfolio strategy:
current assets and new opportunities
Investments in existing assets: investments
in own portfolio companies with potential to become
businesses worth over USD 1 bn:
Investment
geography:
in accordance with the
approved strategy for
portfolio companies
Industries and business
segments:
companies' industries and
adjacent sectors/segments
with a synergistic effect
Discounted payback
period (DPBP):
from 3 to 10 years
Investment
strategy:
investments in portfolio
companies to increase their
competitiveness and market
share, entering adjacent
segments and launching
new products with
a synergistic effect
The portfolio strategy is based on classification of assets
depending on market appeal, the competitiveness of the team
and the company as a whole.
MARKET
ATTRACTIVENESS
ASSET
COMPETITIVENESS
Depending on the final score,
there are four basic development
options for assets in Sistema's
portfolio.
The asset's position in the matrix determines shareholder decisions
for the asset: active investment, testing of hypotheses with selected
financing of projects, relaunching the asset's business model.
s
s
e
n
e
v
i
t
c
a
r
t
t
a
t
e
k
r
a
M
INVEST
SELECTIVELY
DEVELOP
Areas
of development
OPTIMISE
MONETISE
Market size
TEAM
COMPANY
Asset competitiveness
Industry sustainability
in conditions of economic decline
Asset's position in relation
to the top 3 players and opportunity
for consolidation
Assessment of the team's
competences compared
to industry leaders
Risks, barriers and challenges
of doing business
Existing competitive
advantages
Confidence in business plan:
the target and actual returns
coinside
Idea and
implementation
Sistema's strategy is based on the idea
of gradual movement of assets from
the left to the right side of the matrix
as assets become more mature and
grow in size.
As part of its strategy Sistema aims
to look for new points of growth that
may become the core of the company's
portfolio in 5 years.
Asset's financial stability
and a proven business model
SISTEMA PJSFC / ANNUAL REPORT 2021
22
PERFORMANCE OF THE CORPORATION
STRATEGY AND GOVERNANCE MODEL
SISTEMA.RU
23
NEW INVESTMENTS: UNIQUE OPPORTUNITIES IN TRADITIONAL INDUSTRIES
MATURE
UNDERVALUED
ASSETS
Investment strategy:
acquisition of substantial or controlling stakes in large assets in attractive
markets with a possibility of increasing equity value, getting a premium in
valuation and selling within 2-3 years.
GROWING
ASSETS
Investment
geography:
mostly in Russia.
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.
Industries and business
segments:
sectors with large markets,
high growth or transformation
rates, and significant
potential for growing
efficiency, digitalisation,
import substitution or exports.
NEW INVESTMENTS IN TECH SECTOR AND TECHNOLOGIES OF THE FUTURE
TECHNOLOGY ASSETS
Investment strategy:
Direct investments in large stakes in technology companies that do not meet the
requirements of investment theses of Sistema's own funds, with an opportunity
to create new fast-growing businesses, make a breakthrough in the development
of key technologies of the future and monetise them in 5-7 years.
VC FUNDS
Investment
geography:
no restrictions.
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 %).
Industries and business
segments:
e-commerce, internet of
things, artificial intelligence,
cloud and edge computing,
machine learning and neural
networks, autonomous
vehicles, robotics, augmented
and virtual reality (AR/VR),
blockchain, etc.
FAST-GROWING
SEGMENTS
MINERAL RESOURCES
used in electronics,
batteries, conductors
TECHNOLOGIES
INVESTMENTS IN ASSETS
IN SPECIAL SITUATIONS
(distressed assets)
Pharmaceuticals
5G
Quantum Computing
AR/VR
Autonomous Vehicles
Lithium
Rare earth metals
CleanTech
Graphite
Blockchain
IoT
Hydrogen Power
FoodTech
CyberTech
Online Games
HealthTech
Robotics
Cloud computing
AI
Nickel
Silicon
Biotechnology
Investment process:
taking investment decisions
Sistema relies on its practical experience and
Our investment thesis: key criteria
focuses on the following types of transactions
for selecting new investment projects
when entering new assets:
and assets.
GR deals
monopoly,
goverment
contracts
Buy & build
strategic investments
in creating leaders
TYPE OF
TRANSACTION
Smart deals
non-cash deals with
retained control
VC funds
high-risk investments
Special situations
turning around distressed
companies
TRANSACTION AMOUNT
STAKE IN THE BUSINESS
›
1 BN RUB
TARGET RETURNS
IRR
›
30 %
ESG CRITERIA
25 %›
over 4–5 years
›
2× CASH-ON-CASH
1
2
Rubbing out toxic investments
(alcohol, tobacco, casinos, etc)
Priority investments for companies
with ESG rating
SISTEMA PJSFC / ANNUAL REPORT 2021 24
PERFORMANCE OF THE CORPORATION
STRATEGY AND GOVERNANCE MODEL
SISTEMA.RU
25
Management model:
how the Corporation manages assets and creates value
Investing in the development of existing
portfolio assets in order to increase their
value is one of the key stages of Sistema's
value creation model.
Sistema has adopted a partnership
management model that allows the
Managing Partners to share the risks
and returns from investment activities
with the shareholders.
Sistema 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 implementing the investment strategies of portfolio companies.
In most cases, Managing Partners chair the boards of directors
of portfolio companies and are in charge of forming the board and
organising its work. They also bear responsibility for the recruitment
and appointment of top management.
The Corporation's functions and departments actively advise respective
departments of portfolio companies as part of forming development
strategies, preparing key investment projects for assets, raising debt
and equity financing, developing long-term incentive plans, forming
optimum legal and tax structures, implementing corporate governance
standards and improving security systems, thereby contributing
to long-term value creation.
Corporate centre
The governance model is based
on the elements that are the same
for all the Group members:
1.
Strategic planning
2. Finance: budget, monitoring, control
3. Approval of important projects
4. Corporate governance standards
5. HR management
BOARD
OF DIRECTORS
+ committees
PRESIDENT
MANAGEMENT BOARD
ASSET MANAGEMENT PRINCIPLES
The key element of Sistema's
management model is the idea
of transformation and creation
of industry champions.
At the transaction stage, the investment idea has a planning horizon
of more than 5 years. The Corporation has an efficient process that makes
it possible to implement the original investment idea by developing the
asset's strategy for 3-5 years, making a road map with an action plan
for 2 years and setting budget and financial targets for the calendar year.
In the course
of transaction
As part of the Budgeting and Strategic Planning Cycles of the Corporation
INVESMENT IDEA /
PROJECT
STRATEGY
OF THE ASSET
ROAD
MAP
BUDGET, MONITORING
AND CONTROL
Goal-settong horizon
TEAM PORTFOLIO
MANAGEMENT
FUNCTIONS
Assets
BOARD OF DIRECTORS
+ committees
PRESIDENT
MANAGEMENT BOARD
SUBDIVISIONS
SISTEMA PJSFC / ANNUAL REPORT 2021 26
PERFORMANCE OF THE CORPORATION
STRATEGY AND GOVERNANCE MODEL
SISTEMA.RU
27
Value creation
in assets
Performance assessment
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.
Мanagement
Forming a best-in-class, efficient
management team, establishing
strategic goals and an incentive system
for it, and determining a strategic
development plan, efficient operating
management model and required
resources.
Innovations
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.
Planning and control
Introducing processes of strategic,
financial and operational planning
and control and best international
practices of investment and project
management.
Сompetencies
A Board of Directors is formed at portfolio
companies, which must include independent
directors with recognised industry and
functional expertise. The boards of directors
support the management of portfolio
companies in making key decisions on
the areas of development and oversee
the quality of execution and the results
of decisions made.
Implemented by assets
must have
Assistants provided to assets
if necessary
HR
Management Incentive
System
Organisational structure +
standard agreements
Personnel recruitment
FINANCE
Budgeting cycle
STRATEGY
Financial planning
and control
Debt portfolio, taxes, reporting
Strategic cycle
Investment process
Investmen analysis
CORPORATE GOVERNANCE
Corporate governamce
Board of Directors
system
IT
Support on legal matters,
support for M&A deals
Management dashboard
IT audit, development of IT strategy,
icreasing digitilisation, etc.
GR
If neccessary
SUSTAINABILITY
Contracts, organisation of meetings
with federal and local goverments
Management system, including governence and policies
Risk management
Dislclosure
Self-assessment
Sustainability strategy development
SISTEMA PJSFC / ANNUAL REPORT 2021
28
PERFORMANCE OF THE CORPORATION
STRATEGY AND GOVERNANCE MODEL
SISTEMA.RU
29
Responsible investment and ESG principles
12.1
LOW ESG RISK
Sustainalytics
1.4 BN
RUB
DIRECT SOCIAL INVESTMENTS
OF THE GROUP
B
MANAGEMENT LEVEL
CDP
To learn more about responsible
investment and sustainability
management, please refer
to the section “Sustainability
management”.
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
Responsible investment is an integral
element of Sistema's 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
the ESG profiles of acquisition targets in
other industries when making investment
decisions.
ENVIRONMENTAL
SOCIAL
GOVERNANCE
E
S G
SISTEMA PJSFC / ANNUAL REPORT 2021 30
PERFORMANCE OF THE CORPORATION
KEY EVENTS OF 2021 AND AFTER THE REPORTING DATE
SISTEMA.RU
31
KEY EVENTS OF 2021
AND AFTER THE
REPORTING DATE
MONETISATIONS
AND INVESTMENTS
Corporation
CORPORATE GOVERNANCE
In May 2021, the Board of Directors approved a new dividend policy, which
stipulates that the Corporation will aim to pay annual dividends in the amount
of at least RUB 0.31 per share in 2021, RUB 0.41 per share in 2022 and RUB 0.52
per share in 2023. Starting from 2022, in addition to the basic dividend amount,
the Board of Directors recommends distributing in dividends to shareholders
10 % of absolute increase of adjusted OIBDA for the previous year, if it grew
by more than 5 % and Net Debt/OIBDA at the end of the previous year
did not exceed 3.0×.
DIVIDENDS
AND SHAREHOLDER RETURN
Dividend payout for 2020
In August 2021, in accordance with the approved dividend policy, Sistema paid
dividends for 2020 in the amount of RUB 2,991.5 m, or RUB 0.31 per ordinary share.
Buyback programme
In June 2021, Sistema announced an increase in the volume of its share
buyback programme launched on 17 September 2019 to RUB 7.0 bn, with the
programme extended until 17 September 2022. In January 2022, the Corporation
completed the programme, having bought a total of 315,195,371 ordinary shares.
IPO Segezha Group
In April 2021, Segezha Group held an initial public offering on the Moscow
Exchange. The company raised RUB 30 bn to finance its investment activities
and optimise debt. After the IPO, Segezha Group's capitalisation amounted
to RUB 125.5 bn; Sistema's share in Segezha Group decreased to 72.0 % 1,
with the share of free float being 23.9 %.
Sale of a minority stake in Segezha Group
In December 2021, Sistema sold an 8.7 % stake in Segezha Group
to Bonum Capital for USD 150 m. After the deal, the Corporation's shareholding
in Segezha Group decreased to 62.2 %.
MONETISATIONS
AND INVESTMENTS
1 Taking into account the partial exercise of the
over-allotment option as part of the stabilisation
procedure post-IPO and exercise of the option
of Segezha Group's president M. Shamolin.
Development of the pharma business
In February 2021, Sistema and its financial partner VTB contributed 56.2 %
of shares in OJSC Sintez to Binnopharm Group as part of the project to create
a combined pharmaceutical holding company. Sistema, VTB, and a consortium
of investors comprising the Russian Direct Investment Fund (RDIF), the Russia-
China Investment Fund (RCIF) established by the RDIF and China Investment
Corporation, and leading Middle Eastern funds contributed an 85.6 % stake
in JSC Alium to the equity of Binnopharm Group.
In March 2021, Sistema acquired 32.4 % of Sintez from JSC National
Immunobiological Company controlled by Rostec and in May 2021, it contributed
this stake to the equity of Binnopharm Group.
In June 2021, Sistema sold 11.2 % in Ristango Holding Limited, the owner of 100 %
of Binnopharm Group, to Nevsky Property Investments Limited, controlled by VTB
Capital, for RUB 7 bn. As a result, the effective stake of Sistema and VTB Group
in Binnopharm Group amounted to 75.3 %.
In July and December 2021, Sistema exercised its right and bought the stakes
in Sinocom Investments Limited and Ristango Holding Limited held by VTB
for a total of RUB 15.76 bn. After the deal, Sistema's effective equity holding in
Binnopharm Group increased to 75.3 %.
The share of the consortium of investors including the Russian Direct Investment
Fund (RDIF), the Russia-China Investment Fund (established by the RDIF and
China Investment Corporation), and major Middle Eastern funds equaled 12.5 %,
and VTB Capital held 11.2 % through Nevsky Property Investments Limited. The
remaining 1 % of shares in Ristango Holding Limited is owned by a minority
shareholder (an individual).
Acquisition of Nearmedic Group
In September 2021, New Investment Holding JSC, jointly controlled by Sistema
and Sberbank, acquired Nearmedic Group for RUB 1. The net debt of the group,
which operates in the pharma and healthcare sectors, on the closing date
was RUB 5.9 bn.
Sistema SmartTech
In April 2021, Sistema SmartTech invested RUB 200 m in Urent, which develops
one of the largest scooter-sharing services in Russia.
In May 2021, Sistema SmartTech invested USD 300,000 in The Mashina, which
develops a car subscription platform.
In July 2021, Sistema SmartTech closed two deals: (1) it invested RUB 200 m
in Checkbox, a last-mile delivery platform; and (2) invested RUB 130 m in LLC
Profilum, a career guidance service for school-aged children.
In December 2021, Sistema SmartTech invested in LLC Directual, a developer
of an eponymous low-code platform. The money will go towards platform
enhancements and expansion into new markets.
SISTEMA PJSFC / ANNUAL REPORT 2021
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PERFORMANCE OF THE CORPORATION
KEY EVENTS OF 2021 AND AFTER THE REPORTING DATE
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33
MONETISATIONS
AND INVESTMENTS
Sistema SmartTech
In January 2022 Sistema, Sistema SmartTech invested RUB 50 m in MyGig Invest
Ltd, a developer of a platform for finding one-time or regular side jobs. Sistema
SmartTech led the funding round for a total of RUB 120 m, which also included
Altus Capital and shareholders of the Brayne family office.
Sistema Asia Fund
In March 2021, Sistema Asia Fund took part in the series D investment round
of Uniphore, a global leader in automation of speech interaction. As a result,
Uniphore raised USD 140 m from Sistema Asia Fund and other investors from
Europe and the Middle East.
In May 2021, Sistema Asia Fund and other investors participated in the series
B investment round of ANSR, which offers leading international companies
services of accelerating their digital transformation on the basis of global
service centres. The round size totaled USD 15 m.
In July 2021, Sistema Asia Fund and other investors participated in the series
C investment round of the startup HealthifyMe, the developer of India's most
popular wellness and fitness application, to a total amount of USD 75 m.
In September 2021, Sistema Asia Fund and other investors participated in the
series C investment round of Exotel, the developer of India's most popular CPaaS
platform, to a total amount of USD 35 m.
In February 2022, Sistema Asia Fund participated in the series B investment
round of Airmeet, a comprehensive new generation platform for virtual
interactions between companies and their customers or other audiences. As a
result, Airmeet raised USD 35 m from Sistema Asia Fund and other investors.
Sistema Venture Capital
In February 2021, Sistema Venture Capital sold its stake in the agricultural startup
Observe Technologies, in which it had invested in 2017. The returns on investment
exceeded 300 %.
In August 2021, Sistema Venture Capital exited Datasine, a Russian-British service
for personalisation of marketing campaigns.
In February 2022, Sistema Venture Capital exited VisionLabs, one of the global
leaders in computer vision and machine learning.
STRENGTHENING
OF FINANCIAL POSITION
Comfortable debt levels
As of 31 December 2021, the Corporate Centre's net financial liabilities equaled
RUB 210.4 bn (+14.5 % YoY). The Corporate Centre's entire debt is denominated
in Russian roubles.
Active participation in debt capital markets
Sistema was active in the debt capital markets on the back of a significant
demand for its debt securities in 2021.
In the reporting year, the Corporation issued six bond series to a total amount
of RUB 62.5 bn (001P-18, coupon rate 6.90 %; 001P-19, coupon rate 7.35 %; 001P-20,
coupon rate 8.20 %; 001P-21, coupon rate 8.40 %, 001P-22, coupon rate 8.20 %,
001P-23, coupon rate 9.95 %) and also completed a secondary placement of
series 001P-07 registration-exempt bonds in the amount of RUB 2.8 bn at 99.55 %
of the nominal price.
Upgrade in credit ratings
In May 2021, S&P confirmed Sistema's credit rating at BB, with outlook
upgraded to "positive."
In June 2021, Fitch upgraded Sistema's credit rating from BB- to BB,
with a "stable" outlook.
In September 2021, Expert RA upgraded the outlook for the Corporation's credit
rating from "stable" to "positive", with the rating confirmed at ruAA-.
ENHANCING SUSTAINABILITY
In May 2021, Sistema's Board of Directors approved the Environmental Policy
and the Human Rights Policy of Sistema. These documents complement the ESG
management system and elaborate the provisions of Sistema's Sustainability
Policy. They set an example for portfolio companies in part related to enhancing
the efficiency of environmental protection management and human rights
protection, thus reducing the investment portfolio's exposure to environmental
and social risks.
In October 2021, Sistema was named among the three leaders of the ESG ranking
of public financial companies compiled by the National Rating Agency (NRA).
The ranking includes 30 leading banks, financial and infrastructure institutions
and insurance companies; Sistema was put in the first group, which means an
advanced level of introduction of sustainability principles in the core business.
In December 2021, Sistema joined the National ESG Alliance. The Alliance
was designed as a permanent platform for dialogue and engagement of all
stakeholders, exchange of knowledge and experience between various business
segments, the government and society, and development and promotion of new
ESG norms and standards.
SISTEMA PJSFC / ANNUAL REPORT 2021
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PERFORMANCE OF THE CORPORATION
KEY EVENTS OF 2021 AND AFTER THE REPORTING DATE
SISTEMA.RU
35
Portfolio assets
Dividend payouts
In August 2021, MTS completed payment of dividends for 2020 in the amount
of RUB 26.51 per ordinary MTS share (RUB 53.02 per ADR). In November 2021, MTS
completed payment of dividends for 1H 2021 in the amount of RUB 10.55 per
ordinary share (RUB 21.1 per ADR).
Buyback programme
In July 2021, MTS completed its share buyback programme announced in
March, having bought 45,401,921 ordinary shares (including American depositary
receipts) to a total amount of about RUB 15 bn, which equals 2.27 %
of outstanding MTS shares.
Spin-off of infrastructure and tower assets
In September 2021, the extraordinary general meeting of shareholders approved
the company's reorganisation through spin-off of tower infrastructure in a 100 %
subsidiary, LLC BIK, and a part of active and digital infrastructure in another
100 % subsidiary, JSC MVS.
Consolidation of 100 % of Sistema Capital
In September 2021, MTS completed acquisition of 70 % in LLC Sistema Capital
MC, thus increasing its stake in the management company to 100 %. The deal will
enable MTS to accelerate the launch of new products for retail investors and
HNWI and will expand the range of financial services offered by the company.
Acquisition of VisionLabs
In February 2022, MTS acquired VisionLabs B.V., a global leader in computer
vision and machine learning products, for RUB 6.5 bn. VisionLabs software
is used in more than 1.7 m cameras worldwide. VisionLabs’ revenue in 2020
exceeded RUB 1.1 bn.
Upgrade in credit ratings
In February 2021, NCR set MTS's credit rating at AAA.ru (the highest score on the
agency's scale) with a "stable" outlook.
In March 2021, Expert RA upgraded MTS Bank's credit rating to ruA- with a "stable"
outlook, considering the bank's growing role in the MTS digital ecosystem.
In June 2021, Fitch confirmed MTS's ratings, changing the outlook from "stable"
to "positive."
Enhancing sustainability
In March 2021, MTS announced it was establishing an ESG Committee
(Committee for Corporate Governance, Environmental and Social Responsibility)
of the Board of Directors.
In March 2021, MTS placed social registration-exempt bonds of series 001P-18
to a total amount of RUB 4.5 bn on the Moscow Exchange. The funds raised will
be used to finance the operator's project to provide communication services
(internet access) to about 5,000 socially important facilities in eight regions
of Russia.
Infrastructure development and foreign expansion
In 1Q 2021, fulfilment centres were opened in Novosibirsk and Khabarovsk. The
fulfilment centre in Khabarovsk will help Ozon with pursuing its strategic goal of
expansion in the Far East.
In May 2021, Ozon announced start of foreign expansion of its logistical
infrastructure and operations. The company is upscaling business in Belarus,
where it opened a logistics centre in October 2021. In addition, as part of its
expansion into the CIS countries, the company signed partner agreements with
national postal operators of Belarus and Kazakhstan, ensuring countrywide
coverage by last mile deliveries.
Development of ecosystem of financial services
In May 2021, Ozon acquired 100 % of Oney Bank from Sovcombank for the
purpose of integrating it into its fintech vertical. The bank licence will give Ozon
additional flexibility in supporting existing and launching new financial products
for customers and sellers, and will also help it to optimise acquiring expenses.
In May 2021, the Russian Central Bank included Ozon Credit in the register
of microfinancial organisations. Ozon Credit is expected to become a full
participant of Ozon.Invest, a lending platform for sellers, which entrepreneurs
use to finance their business on the marketplace. As of 31 December 2021, about
2 m Ozon Cards were issued.
Development of express deliveries
As the popularity of express deliveries grew, Ozon Express continued its regional
expansion in 2021. Dark stores emerged in 10 Russian regions. In October, the
service launched its own deli production, expanding the range of its private
labels with ready-to-eat food.
Raising funds for development
In February 2021, Ozon placed convertible bonds for USD 750m. The funds will
be used for organic growth, expansion into new business verticals and general
corporate purposes.
SISTEMA PJSFC / ANNUAL REPORT 2021 36
PERFORMANCE OF THE CORPORATION
KEY EVENTS OF 2021 AND AFTER THE REPORTING DATE
SISTEMA.RU
37
Dividend payouts
Dividend payouts
In April 2021, the company approved a dividend policy, which envisages payout
of up to RUB 5.5 bn per year in 2021-2023 and up to 100 % of free cash flow starting
from 2024. It also envisages a possible increase of the payout subject to market
stability and a safety margin in terms of debt.
In January 2022, Segezha Group completed payment of interim dividends
for 9M 2021 in the amount of RUB 6.6 bn or RUB 0.42 per share.
Consolidation and development of production facilities
In February 2021, Russia's first CLT plant with an annual capacity of 50,000 cu m
was commissioned in Sokol, the Vologda region.
In September 2021, Segezha Group completed consolidation of JSC
Novoyeniseisky TCC (NTCC). Following the acquisition of NTCC, Segezha Group's
allowable cut grew by 2.2 m cu m, while sawn timber production capacity
increased by 30 % per annum.
In December 2021, Segezha Group completed acquisition of LLC Inter Forest
Rus (IFR) for USD 515 m. IFR comprises 24 timber assets in the Krasnoyarsk
and Irkutsk regions and significant forest resources. The transaction doubled
Segezha Group's allowable cut to 23.6 m cu m, making it one of the world's
biggest forest users.
ESG progress
In March 2021, Segezha Group joined the UN Global Compact, which unites
over 16,000 organisations from more than 160 countries whose strategies meet
ESG criteria.
In April 2021, the company's Board of Directors approved its sustainability
strategy and policy till 2025. The strategy is focused on four key areas: innovative
forest business, comfortable living environment in the forest regions of Russia,
climate-oriented forest management and production and a responsible supply
chain in the forest industry.
In August 2021, Segezha Group received its first international ESG rating
from Sustainalytics, a leading rating agency in the sphere. The agency
assessed the company's risk level as average (21.4, where 0 is the best result),
which corresponds to the first quartile for companies in the Paper and Forest
Industry sector.
In December 2021 a new dividend policy was approved. Etalon Group intends
to pay dividends in the amount of 40 %-70 % of net income under IFRS before
purchase price allocation (PPA). Payments will be made once a year after
release of the financial statements according to IFRS. In order to improve
transparency, the Board of Directors will issue its recommendation on dividends
on or before 31 May, and payments will be made on or before 31 December
of the year following the reporting period.
In December 2021, Etalon Group completed payment of final dividends for 2020
in the amount of RUB 3.6 bn or RUB 9.39 per share (global depositary receipt),
which corresponds to 61 % of net income before purchase price allocation.
Regional expansion and portfolio growth
In 2021, Etalon Group grew its portfolio by acquiring new projects in St Petersburg,
Moscow and other regions: Novosibirsk, Omsk, Tyumen and Yekaterinburg. The
total sellable area of the acquired projects is 3.6 m sq m.
Raising capita
In May 2021, Etalon Group raised over USD 150 m in a secondary public offering
(SPO). The company placed almost 88.5 m ordinary shares, including shares in
form of GDRs, which represent 30 % of its authorised capital, at a price of USD
1.7 per share.
Credit rating awarded
In September 2021, Expert RA awarded Binnopharm Group a credit rating
at ruA with a "stable" outlook.
First-time bond issue
In November 2021, the company placed its first issue of registration-exempt
bonds to the amount of RUB 3 bn with a coupon rate of 9.90 % and a put option
in 2 years. The funds will be used to carry out investment projects and refinance
the existing debt portfolio.
Start of international expansion
In December 2021, Binnopharm Group registered its official representative
office in Kazakhstan and opened offices in five other CIS countries – Belarus,
Azerbaijan, Moldova, Armenia and Uzbekistan. This will enable the company
to double its export revenue in 2024 and will be the first step in building
its international infrastructure.
Extension of product portfolio
In January 2022, Binnopharm Group and Dr. Reddy's signed an agreement
on acquisition by Binnopharm Group of two antibacterial drugs from Dr. Reddy's
in Russia and the CIS.
SISTEMA PJSFC / ANNUAL REPORT 2021 38
PERFORMANCE OF THE CORPORATION
KEY EVENTS OF 2021 AND AFTER THE REPORTING DATE
SISTEMA.RU
39
SI
MEDICINE OF COMPETENCY
Expansion of the healthcare chain
In 2021, Medsi continued developing its chain in the Moscow region, opening
a clinicodiagnostic centre in Shchyolkovo and 5 clinics of the local format.
Two family clinics were opened in Moscow under a franchise model. As part
of its regional development strategy, Medsi opened the first clinic in the South
federal district (in Rostov-on-Don) and a third clinic in St Petersburg.
In November 2021, Medsi opened its own lab chain, SmartLab, with an area
of over 2,000 sq m and an annual capacity of over 20m tests on the basis
of the clinical hospital in Otradnoye. Total investments in the project exceeded
RUB 400m.
In November 2021, Medsi inaugurated a children's hospital (with an area of over
4,000 sq m) on the basis of the clinical hospital in Otradnoye. Total investments
in the project exceeded RUB 1 bn. The children's department is based on the
concept of 360 degrees medicine, which means that outpatient and in-patient
care, rehabilitation and home care are offered at one medical establishment.
In December 2021, Medsi opened a multi-specialty medical centre
in the Michurinsky avenue with a total area of 33,475 sq m. It comprises
a clinicodiagnostic centre for adults and children, a day hospital, an in-patient
facility and a centre of high-tech surgery. Total investment in the project
exceeded RUB 8 bn.
In January 2022, Medsi closed the transaction for acquisition of 100 %
in the ProMedicina chain in Ufa and the Dialine chain in Volgograd from
the owners of the National Healthcare Chain. Medsi acquired 31 clinics
(with an aggregate area of 22,585 sq m), becoming a leading healthcare
operator in the economically attractive Volgograd and Ufa.
Development of the telemedicine app SmartMed
The number of installations of the mobile app SmartMed grew by 53,600
year-on-year to 376,000; the number of active users grew by 72.3 % year-on-year
to 528,000; the number of appointments, including for instrumental and lab
diagnostics, grew 3.1-fold to 2.5 m.
Expansion of land assets
As of the end of 2021, Steppe AgroHolding's land assets totaled 578,000 ha,
making it one of Russia's top 6 land owners. The company gradually increases its
land holdings by consolidating neighbouring assets.
Record-high harvest and exports
In August 2021, Steppe AgroHolding completed harvesting of early grains and
grain legumes (wheat, barley and peas). Gross wheat harvest surged by 50 %
year-on-year to unprecedented 970,000 t.
In the first half of the 2021/2022 farming season (July-December), Steppe
AgroHolding exported 200,000 t of niche crops, which was an absolute record
among Russian exporters of niche produce. Steppe is the absolute market
leader in pea, mustard, and chickpea exports.
Acquisition of assets
In July 2021, Steppe AgroHolding acquired 100 % of the PIR Group holding
company, Russia's leading producer of pre-packaged cheese and a major
distributor of cheese, dairy products and plant-based alternatives.
ESG progress
Steppe AgroHolding was included in the ESG ranking RAEX Europe. The ranking
has been published since 2018 and is updated monthly. Steppe AgroHolding
was the second agricultural company to be added to the list and was ranked
54th. Before that, the only agricultural company in the ranking was Rusagro,
ranked 58th.
SISTEMA PJSFC / ANNUAL REPORT 2021 40
PERFORMANCE OF THE CORPORATION
FINANCIAL OVERVIEW 2021
SISTEMA.RU
41
FINANCIAL
OVERVIEW 2021
Group capex increased by 30.8 % to RUB 167.2 bn in 2021 as a result of investments
by key assets in promising new business lines and in improving efficiency:
at MTS, in network development with a focus on expanding 4G capacity,
as well as in new business areas in its digital ecosystem; at Segezha Group,
in the modernisation of the Segezha and Sokol PPMs, the expansion of the
Vyatka Plywood Mill, the construction of a boiler and pellet plant in Sokol as well
as the modernisation of the Onega woodworking plant; at Steppe AgroHolding,
in the construction and modernisation of dairy farms and processing facilities,
acquisitions of agricultural machinery and the development of logistics
Structural analysis of debt
portfolio, RUB bn
18 %
2021
2020
CHANGE, %
infrastructure.
Revenue, RUB bn
802.4
2021
+16 %
RUB m 1
Revenue
OIBDA
802,398
691,626
278,128
229,896
Adjusted OIBDA
251,927
236,340
Operating income
143,968
109,405
691.6
2020
Net profit attributable to Sistema
2020 2021
Adjusted net profit /(loss)
attributable to Sistema
17,344
(8,895)
10,217
15,998
16.0 %
21.0 %
6.6 %
31.6 %
69.8 %
−
Adjusted OIBDA, RUB bn
+6.6 %
236.3
2020
Net profit, RUB bn
+69.8 %
10.3
2020
251.9
2021
2020 2021
17.3
2021
2020 2021
In 2021, Sistema’s consolidated revenue increased by 16.0 % year-on-year to
RUB 802.4 bn, driven by revenue growth at key assets: at MTS, thanks to higher
consumption of telecoms services and internet traffic, increased consumption
of ecosystem services and higher sales of handsets and accessories; at Segezha
Group, on the back of an increase in production volumes and positive dynamics
in prices for key products; at Steppe AgroHolding, thanks to an increased
gross harvest in the Field Crops segment and increased milk production in the
Dairy segment, as well as the successful development of agrotrading and the
development of new business lines. The consolidation of Binnopharm Group’s
results in Sistema’s financial statements from 25 June 2021 also had an impact
on the Corporation’s revenue.
The Group’s adjusted OIBDA increased by 6.6 % year-on-year to RUB 251.9 bn
in 2021 mainly as a result of higher adjusted OIBDA at subsidiaries: at MTS,
partly as a result of higher demand for financial services, the recovery in the
entertainment industry and changes to the product portfolio; at Segezha Group,
due to an increase in prices across all of the Group’s product types, and also
due to increases in the efficiency of Segezha Group’s own logging operations
and overall productivity; at Steppe AgroHolding, on the back of improved
operational efficiency and higher crop yields, upward price trends for the sale
of agricultural products, an increase in the number of high-yield dairy cattle and
an increase in gross milk yield, as well as the development of new business lines.
Group SG&A costs increased by 15.0 % year-on-year in 2021, mainly on the back
of an increase in SG&A at MTS and Segezha Group, as well as the consolidation
of Binnopharm Group’s results. SG&A at MTS increased as a result of accruals
under the updated options programme for management and increased
advertising expenses to promote ecosystem products. SG&A at Segezha Group
increased primarily driven by bonus payments to management triggered by the
company’s IPO and the costs associated with conducting M&A transactions.
229.4
RUB BN
82 %
RUB bonds
Bank loans and other
DEBT PORTFOLIO OVERVIEW
The Corporate Centre’s financial liabilities increased by 20.5 % year-on-year
due to the issue of RUB-denominated bonds. Cash position amounted
to RUB 19 bn. As of 31 December 2021, RUB-denominated liabilities accounted
for 100 % of the Corporate Centre’s financial liabilities. Bonds accounted
for 82 % of the Corporate Centre’s debt as of the end of 4Q 2021, up from 66 %
at the end of 4Q 2020. The weighted average rate on bonds in the debt
portfolio was 7.8 % at the end of 2021.
The Corporate Centre’s financial liabilities 2, RUB bn
Total debt
Net financial liabilities 3
New debt raised
Repayment of liabilities
65.5
–32.7
190.4
183.7
31 Dec
2020
223.2
208.6
30 Sep
2021
17.0
–10.8
229.4
210.4
31 Dec
2021
Schedule for repayment of financial obligations of the Corporate Centre 2, RUB bn
As of December 31, 2021
Local bonds with put option 4
Loans and other debt
38.0
9.1
28.9
38.2
3.4
34.8
66.8
22.7
44.1
42.4
44.1
6.4
36.0
2022
2023
2024
2025
2026
1 Hereinafter, adjusted OIBDA and adjusted net profit are non IFRS indicators used
to evaluate 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. The reconciliation of these
indicators is provided in “Alternative performance measures” section below.
2 Based on management accounts.
3
Including the total volume of borrowings
with the exception of cash and cash
equivalents at the Corporate Centre level.
4 RUB bond series 001Р-01/06/09/10 with a put option in 2022; series 001Р-04/11/14/16/18 with
a put option in 2023; series 001Р-05/08/12/13/15 with a put option in 2024; series 001P-07/17/19
with a put option in 2025; series 001P-20/21/22/23 with put option in 2026.
SISTEMA PJSFC / ANNUAL REPORT 2021 42
PERFORMANCE OF THE CORPORATION
FINANCIAL OVERVIEW 2021
SISTEMA.RU
43
Operating Income Before
Depreciation and Amortisation
(OIBDA) and OIBDA margin.
ALTERNATIVE PERFORMANCE MEASURES
Operating Income Before
Depreciation and Amortisation
(OIBDA) and OIBDA margin.
Adjusted OIBDA, operating income
and profit attributable to Sistema
shareholders.
OIBDA represents operating income before depreciation and amortisation.
OIBDA margin is defined as OIBDA as a percentage of our net revenues.
Our OIBDA may not be similar to the OIBDA measures of other companies;
is not a measurement under accounting principles generally accepted
under IFRS and should be considered in addition to, but not as a substitute
for, the information contained in our consolidated statement of profit
and loss.
We believe that OIBDA provides useful information to investors because
it is an indicator of the strength and performance of our ongoing business
operations, including our ability to fund discretionary spending such
as capital expenditures, acquisitions of businesses and other investments
and our ability to incur and service debt.
While depreciation and amortization are considered operating costs
under IFRS, these expenses primarily represent the non-cash current
period allocation of costs associated with long-lived assets acquired
or constructed in prior periods. OIBDA is commonly used as one of the
bases for investors, analysts and credit rating agencies to evaluate
and compare the periodic and future operating performance and value
of companies.
The following table presents a reconciliation of OIBDA to operating income
for the periods indicated:
RUB m
2021
2020
Operating income
143,967
109,404
Depreciation and amortisation
(134,160)
(120,492)
OIBDA
278,128
229,896
The Company uses adjusted OIBDA, adjusted operating income and
adjusted profit/(loss) attributable to Sistema shareholders to evaluate
financial performance of the Group. These represent underlying
financial measures adjusted for a number of one-off gains and losses.
We believe that adjusted measures provide investors with additional
useful information to measure our underlying financial performance,
particularly from period to period, because these measures are exclusive
of certain one-off gains and losses.
Adjusted operating income and
adjusted OIBDA can be reconciled to our
consolidated statements of profit and
loss as follows:
RUB m
2021
2020
Operating income
143,967
109,405
Accruals related to LTI program at portfolio
companies (except for Segezha and MTS LTI)
Impairment of non-current assets (MTS)
Revaluation of equity investment in the
consolidation of pharmaceutical assets
534
−
(25,327)
Impairment of investment and other property
−
Other non-recurring loss /(profit), net
Adjusted operating income
Depreciation and amortisation
Adjusted OIBDA
Adjusted net profit attributable to
Sistema shareholders can be reconciled
to our consolidated statements of profit
and loss as follows:
RUB m
Net profit attributable to Sistema
Accruals related to LTI program at portfolio
companies
(1,409)
117,767
134,160
251,927
2021
17,343
496
577
2,023
−
2,789
1,054
115,848
120,492
236,340
2020
10,217
551
Impairment of non-current assets (MTS)
−
1,011
Revaluation of equity investment in the
consolidation of pharmaceutical assets
Impairment of investment and other property
Other non-recurring loss /(profit), net
(25,327)
−
(1,409)
Adjusted net profit /(loss) attributable to Sistema
(8,895)
3,446
773
15,998
SISTEMA PJSFC / ANNUAL REPORT 2021
44
PERFORMANCE OF THE CORPORATION
SECURITIES AND SHARE CAPITAL
SISTEMA.RU
45
SECURITIES
AND SHARE CAPITAL
Shareholders’ equity
868.5 BN
RUB
AUTHORISED CAPITAL
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’s principal shareholder is its Board Chairman Vladimir
Evtushenkov, who owns 49.2 % 1 of the Corporation’s equity.
in 2021
Shareholding structure as of 2021, %
Shareholding structure at the end of the calendar year, %
6.5 %
2.6 %
5.6 %
2021
26.1 %
59.2 %
V. Evtushenkov
Ordinary shares in free float
GDRs in free float
Ordinary shares and GDRs held
by Sistema Group companies
Ordinary shares and GDRs held
by members of the Board of Directors
and the Management Board of Sistema
Up-to-date information on Sistema’s
shareholding structure can be found
on the Company’s website.
SHAREHOLDERS
V. Evtushenkov
Ordinary shares in free float
GDRs in free float
Ordinary shares and GDRs held
by Sistema Group companies
Ordinary shares and GDRs held
by members of the Board
of Directors and the Management
Board of Sistema
2021
2019
2020
59.2 %
26.1 %
5.6 %
2.6 %
59.2 %
21.2 %
10.3 %
2.8 %
59.2 %
25.0 %
6.9 %
1.4 %
6.5 %
6.5 %
7.5 %
The list of shareholders with non-zero balances on personal accounts
as of 31 December 2021 included:
224,174 individuals and 1,963 legal entities
Number of shareholders who are individuals, thousand people
2021
2020
2019
224
133
39
1
In April 2022, Vladimir Evtushenkov has transferred a 10 % stake in the share capital of Corporation to Sistema’s member of the Board
of Directors and Senior managing partner, Felix Evtushenkov. As a result of this transaction, Felix Evtushenkov’s stake in the share capital
of Sistema has increased to 15.2 %, whereas Vladimir Evtushenkov’s shareholding in Sistema has decreased to 49.2 %.
Securities
Quote Information
and transaction prices
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 5.6 % of Sistema’s
equity, and the shares traded on the Moscow Exchange, 26.1 %. Shares
in free float constitute approximately 31.7 % of the company’s equity.
MOEX.COM
LONDONSTOCKEXCHANGE.COM
NYSE.COM
NASDAQ.COM
TYPE OF SECURITIES
SHARES (ORDINARY)
GDR (1 GDR = 20 SHARES)
Free float breakdown, RUB bn
Registration number
1-05-01669-A
−
ISIN
Ticker
RU000A0DQZE3
US48122U2042
AFKS
SSA
Primary trading platforms
Moscow Exchange
London Stock Exchange
5.6 %
Sistema is also the largest shareholder in four other public companies:
MTS PJSC (MTSS ticker symbol on the Moscow Exchange and MBT on the
New York Stock Exchange), Segezha Group PJSC (SGZH ticker symbol
on the Moscow Exchange), ETALON GROUP PLC (ETLN ticker symbol on the
Moscow Exchange and the London Stock Exchange) and Ozon Holdings
PLC (OZON ticker symbol on the Moscow Exchange and the NASDAQ).
31.7 %
26.1 %
Moscow Exchange (ordinary shares)
London Stock Exchange (GDRs)
The Moscow Exchange includes
Sistema’s share prices in the calculation
base of its key indices (MOEX Russia
and RTS), as well as its Broad Market
Index and the Small and Medium
Capitalisation Index.
MOEX BROAD
MARKET INDEX
THE MOEX
RUSSIA INDEX
IMOEX
MOEX SMID
INDEX
THE RTS INDEX
RTSI
MSCI RUSSIA
SMALL CAP
MOEXBMI
MCXSM
MSCI RUSSIA
SISTEMA PJSFC / ANNUAL REPORT 2021
46
PERFORMANCE OF THE CORPORATION
SECURITIES AND SHARE CAPITAL
SISTEMA.RU
47
Results of trading in shares and GDRs on stock exchanges 1, %
Share prices of Sistema (GDR) and its publicly traded assets 4, %
Sistema shares
MTS shares
IMOEX
Etalon shares
OZON shares
INDICATOR
2021
2020
2019
2018
2017
Sistema shares on the Moscow Exchange
Year low, RUB
Year high, RUB
Year-end price, RUB
21.8
38.0
23.4
10.8
33.6
28.6
8.0
16.2
15.2
Year-end market cap, RUB bn
226.2
276.4
147.0
Sistema GDRs on the London Stock Exchange
Year low, USD
Year high, USD
Year-end price, USD
Year-end market cap, USD bn
5.9
10.0
6.2
3.0
2.7
8.7
7.7
3.7
2.3
5.0
4.9
2.4
7.7
12.8
8.0
77.2
2.2
4.5
2.3
1.1
9.0
25.1
12.1
116.7
3.0
10.0
4.2
2.0
In 2021, the price of Sistema ordinary shares and GDRs
decreased, respectively, by 18.1 % and by 19.0 %. The market
cap at the end of 2021 was USD 3.0 bn, down from
USD 3.7 bn at the end of 2020.
Despite the Group’s strong operating and financial
performance, Sistema share price was under pressure
due to declining share prices of the key public portfolio
companies (Ozon, MTS and Etalon Group).
Share prices of Sistema and its publicly traded assets 2, %
Sistema shares
MTS shares
IMOEX
Etalon shares
OZON shares
Segezha shares
60 %
50 %
40 %
30 %
20 %
10 %
0 %
-10 %
-20 %
-30 %
-40 %
-50 %
JAN
2021
APR
2021
JUL
2021
OCT
2021
DEC
2021
60 %
50 %
40 %
30 %
20 %
10 %
0 %
-10 %
-20 %
-30 %
-40 %
-50 %
DEC
2020
MAR
2021
JUL
2021
SEP
2021
DEC
2021
On the first trading day of 2021, the closing price of one
ordinary share on the Moscow Exchange was RUB 29.3.
Although the share price was growing in the first half
of the year, it ended the year in the red, mainly under the
influence of increased geopolitical risks. The highest share
price in 2021 was on 14 April at RUB 38.0; the lowest price
was recorded on 14 December at RUB 21.8. On the last
trading day of 2021, the closing price was RUB 23.4.
On the first trading day of 2021, the closing price of one
GDR on the LSE was USD 7.5. Although the price was
growing in the first half of the year, it ended the year
in the red, mainly under the influence of increased
geopolitical risks. The highest price in 2021 was on 14 April
at USD 10.0; the lowest price was recorded on 14 December
at USD 5.9. On the last trading day of 2021, the closing
price was USD 6.2 5.
Sistema’s average daily trading volume on the Moscow Exchange 6, RUB m
The liquidity of Sistema’s shares increased
year-on-year: the average daily trading volume
on the Moscow Exchange in monetary terms increased
from RUB 1,123 m in 2020 to RUB 1,164 m in 2021.
1,123
1,146
+40.7%
ADTV CAGR 2O17–2O21
297
158
245
2017
2018
2019
2020
2021
1 Source: Bloomberg
2 Source: Bloomberg. The indicator is calculated as appreciation/deprecation of a share/index in relation to the value as of 31 December 2020.
3 Since 28 April 2021
4 Source: Bloomberg. The indicator is calculated as appreciation/deprecation of a share/index in relation to the value as of 31 December 2020.
5 VWAP of shares traded on Moscow Exchange for the last 60 trading days of 2020 was RUB 28,987, while their VWAP for the last 60 trading days of 2021 was RUB 25,556.
6 Source: Moscow Exchange
SISTEMA PJSFC / ANNUAL REPORT 2021 48
PERFORMANCE OF THE CORPORATION
SECURITIES AND SHARE CAPITAL
SISTEMA.RU
49
Dividends and share buyback programme
ANALYST RECOMMENDATIONS 1
01.01.2021 3
78 %
22 %
Buy
Hold
31.12.2021 4
22.8
AVERAGE TARGET
PRICE 2, RUB
13.5–30.5
TARGET PRICE
RANGE, RUB
9
NUMBER
OF ANALYSTS
DIVIDEND POLICY
The full text of the new dividend policy
is available on the Company‘s website.
82 %
18 %
Buy
Hold
46.5
AVERAGE TARGET
PRICE 2, RUB
30.9–61.2
TARGET PRICE
RANGE, RUB
11
NUMBER
OF ANALYSTS
In May 2021, the Board of Directors approved a new Dividend Policy
that established the recommended dividend amount for 2021-2023.
In accordance with the Policy, the recommended dividend amount
is at least RUB 0.31 per ordinary share in 2021, at least RUB 0.41 per share
in 2022 and at least RUB 0.52 per share in 2023. Thus, based on the current
number of the Corporation’s ordinary shares, the recommended total
dividend payout is at least ~RUB 3 bn in 2021, ~RUB 4 bn in 2022 and
~RUB 5 bn in 2023.
Additionally, starting from 2022, the Policy also recommends increasing
dividend payments by an amount equal to 10 % of the absolute increase
in adjusted OIBDA 5 for the last completed financial year, provided that
adjusted OIBDA grew by more than 5 % in the last completed financial year
and the net debt 6/adjusted OIBDA ratio does not exceed ×3.
BANK
JPMorgan Chase & Co
Goldman Sachs
Raiffeisen Bank
Gazprombank
Sber CIB
Sova Capital
VTB Capital
Aton
Renaissance Capital
Wood & Company
BCS
BEGINNING OF 2021
END OF 2021
DIVIDENDS DISTRIBUTED FOR THE FULL YEAR 2020
—
Buy
Buy
Hold
Buy
Buy
Buy
Hold
Buy
—
—
Hold
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
0.31 RUB
DIVIDEND PER SHARE
in 2021
UNPAID DIVIDENDS
On 26 June 2021, the Annual General Meeting of shareholders of
Sistema resolved (minutes No 1-21) to pay dividends in the amount of
RUB 2,991,500,000.00, or RUB 0.31 per ordinary share.
As of 31 December 2021, the total amount of dividends distributed
equaled RUB 2,990,719,017.93. Withholding tax on dividends distributed
to shareholders totaled RUB 40,203,566.00.
As of 31 December 2021, the total amount of unpaid dividends equaled
RUB 2,214,075,392.23, including:
RUB 2,213,003,658.88 not paid on the basis of a written request from
a shareholder
RUB 1,071,733.35 not paid due to the lack of the necessary information
about the recipients of dividends to transfer the corresponding amounts
1 Source: Bloomberg
2 Where analysts only give price targets for global depositary receipts (GDRs), the corresponding price of one GDR is multiplied by the USD/
RUB exchange rate on the relevant date and divided by 20 (the number of Sistema ordinary shares per one GDR).
3 USD/RUB exchange rate: 74.41
4 USD/RUB exchange rate: 74.68
5 Operating income before depreciation and amortisation.
6 All financial indicators used to determine the amount
of dividends are determined in accordance with the
Corporation's consolidated financial statements prepared in
accordance with International Financial Reporting Standards.
SISTEMA PJSFC / ANNUAL REPORT 2021 50
PERFORMANCE OF THE CORPORATION
SECURITIES AND SHARE CAPITAL
SISTEMA.RU
51
DIVIDEND AMOUNTS AND PAYMENT DATES
BONDS
INDICATOR
2021
(for the full year 2020)
2020
(for the full year 2019)
2019
(for the full year 2018)
2018
(for the full year 2017)
2017
(for 9M 2017)
2017
(for the full year 2016)
2016
(for 1H 2016)
2016
(for the full year 2015)
TOTAL AMOUNT
OF DECLARED DIVIDENDS, RUB
DIVIDEND PER SHARE, RUB
DECLARATION DATE
PAYMENT DATE
Detailed information on debt instruments
is available on the Company‘s website.
Sistema is one of the largest issuers of corporate bonds in Russia.
The Company uses bond proceeds to refinance its debt portfolio
and implement its investment programme.
2,991,500,000
1,254,500,000
1,061,500,000
1,061,500,000
6,562,000,000
7,816,500,000
3,667,000,000
6,465,500,000
0.31
0.13
0.11
0.11
0.68
0.81
0.38
0.67
26/06/2021
28/07/2021
27/06/2020
29/07/2020
29/06/2019
31/07/2019
30/06/2018
31/07/2018
DATE
OF LISTING
ISIN
BOND ISSUE
VOLUME,
RUB BN
COUPON
INTEREST
RATE TYPE
MATURITY
PUT
OPTION
01/03/2021
RU000A102SV8
Sistema, 1P-18
01/03/2021
RU000A102SX4
Sistema, 1P-19
28/11/2017
22/12/2017 1–19/01/2018 2
12/05/2021
RU000A103372
Sistema, 1P-20
24/06/2017
28/07/2017
05/07/2021
RU000A103C95
Sistema, 1P-21
13/09/2021
RU000A103P33
Sistema, 1Р-22
23/09/2016
20/10/2016
03/12/2021
RU000A104693
Sistema, 1Р-23
25/06/2016
27/07/2016
5
13
10
15
15
5
6.90 %
7.35 %
8.20 %
8.40 %
8.20 %
9.95 %
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
17/02/2031
30/11/2023
17/02/2031
27/02/2025
30/04/2031
12/05/2026
23/06/2031
02/07/2026
01/09/2031
10/12/2026
21/11/2031
04/03/2026
2 991 500 000
DIVIDEND AMOUNT
IN 2021, RUB
SHARE BUYBACK PROGRAMME
In September 2019, the Corporation launched a share buyback programme
for RUB 3 bn. In June 2021, Sistema increased the volume of its share
buyback programme to RUB 7.0 bn and extended it until 17 September
2022. The buyback under the programme was carried out by Sistema’s
subsidiary JSC Sistema Finance. In 2021, Sistema bought back 180.9 m
ordinary shares representing 1.87 % of its authorised capital for RUB 5,063 m.
At the end of January 2022, the Programme was implemented in full.
Since the announcement of the programme, JSC Sistema Finance
acquired 315,195,371 ordinary shares of the Corporation for an aggregate
amount of approximately RUB 7 bn, which represents 3.27 % of outstanding
Sistema shares.
1 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.
2 Date of payment of dividends to other persons
included in the shareholders register.
Credit ratings
Sistema’s financial stability is reflected in its
ratings from leading rating agencies. They conduct
independent assessment of the Corporation’s
strategy and competitive position.
Sistema’s achievements in growing the value of its
diversified portfolio and optimising the debt burden
caused several rating agencies to upgrade the
company’s credit ratings throughout 2021. In May
2021, S&P affirmed Sistema’s credit rating at “BB”,
with outlook upgraded to “positive.” In June 2021,
Fitch upgraded Sistema’s credit rating to “BB,” with
a “stable” outlook. In September 2021, the Expert
RA rating agency upgraded the outlook on the
Corporation’s credit rating from “stable” to “positive”
(the rating was affirmed at “ruAA-”).
Sistema’s credit ratings 3
LONG-TERM
CREDIT RATING
OUTLOOK
RATING
UPDATES IN 2021
Standard & Poor’s
Fitch
BB
BB
Positive
11/05/2021
Stable
25/06/2021
Expert RA
ruAА-
Positive
22/09/2021
3 Standard & Poor’s and Fitch ratings were
withdrawn by agencies in 1Q 2022.
Detailed information on credit ratings
is available on the Company‘s website.
SISTEMA PJSFC / ANNUAL REPORT 2021 52
SISTEMA.RU
53
RESULTS
OF KEY ASSETS
MTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
OZON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
SEGEZHA GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
ETALON GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
MEDSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
STEPPE AGROHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
BINNOPHARM GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
OTHER CONSOLIDATED ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
VENTURE CAPITAL FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
SISTEMA PJSFC / ANNUAL REPORT 2021 54
RESULTS OF KEY ASSETS
MTS
SISTEMA.RU
55
MTS.RU
MTS is a leading telecom operator in Russia and the
CIS offering mobile and fixed-line communication
services, data transfer and Internet access, cable
and satellite TV broadcasting; a provider of digital
services, including fintech and media as part of
ecosystems and mobile applications; a provider of IT
solutions in the area of unified communications, the
Internet of Things, monitoring, data processing and
cloud computing.
SISTEMA'S
EFFECTIVE STAKE 1
49.9%
1.3
M
ANNUAL INCREASE IN THE
NUMBER OF ACTIVE USERS
OF MY MTS APP
DIGITAL SOLUTIONS AND CLOUDS
ECOSYSTEM DEVELOPMENT
8.8 M
ECOSYSTEM CLIENTS 2
+40 % annual growth
+ 72 %
GROWTH IN THE NUMBER OF
REGISTERED USERS OF THE
ECOSYSTEM SERVICE MTS
CASHBACK
+ 95 %
GROWTH IN REVENUE FROM
CLOUD TECHNOLOGIES AND
DATA CENTRES
› 15
PROJECTS TO LAUNCH
CORPORATE LTE/5G
NETWORKS FOR MAJOR
RUSSIAN COMPANIES
14
DATA CENTRES
› 50 %
CONTRIBUTION OF NON-TELECOM
SEGMENTS TO THE GROUP'S
REVENUE GROWTH
TEAM
KEY HIGHLIGHTS
Vyacheslav Nikolayev
CEO
› 88 M
MOBILE SUBSCRIBERS
in Russia, Belarus
and Armenia
› 25 M
USERS OF MTS MOBILE
APPLICATION
MEDIA
8.4 M
PAY TV SUBSCRIBERS
4 M
OTT PLATFORM
SUBSCRIBERS
89.0 BN
RUB
DISTRIBUTED IN DIVIDENDS
IN 2021 4
Felix Evtushenkov
CHAIRMAN OF THE BOARD
OF DIRECTORS
No. 1
AMONG THE STRONGEST
TELECOM BRANDS
IN RUSSIA
1
In March 2022, as part of the long-term incentive programme,
Vyacheslav Nikolaev acquired 19,983,816 ordinary shares
of MTS owned by Bastion LLC, a wholly owned subsidiary
of MTS. With the transfer of shares to Mr Nikolaev, his
stake in MTS increased to above 1 %. Sistema’s effective
ownership stake in MTS decreased to 49.9 %.
› 26.4 THSD
4G BASE STATIONS LAUNCHED
5.6 THSD
RETAIL OUTLETS
3,000,000
CUSTOMERS OF MTS BANK
No.1
RANK OF MTS BANK BY POS
LENDING VOLUMES 3
No.3
MTS BANK RANKS BY POS
LOAN PORTFOLIO 3
+ 38 %
GROWTH OF MTS BANK'S
REVENUE IN 2021
+ 75 %
GROWTH OF MTS BANK'S
RETAIL LOAN PORTFOLIO
1.8 M
ACTIVE USERS OF MTS BANK'S
MOBILE APPLICATION
+ 47 %
GROWTH OF MTS BANK'S
OPERATING INCOME
before provisions
2 Ecosystem customers are the customers who are actively and consciously using two and more products or services provided by MTS.
3 According to data from MTS Bank based on Frank Research reports.
4
Including MTS's share buyback programme.
MTSSISTEMA PJSFC / ANNUAL REPORT 2021 56
RESULTS OF KEY ASSETS
MTS
SISTEMA.RU
57
Business model
Industry overview for 2021
BUSINESS LINES
TELECOM
FINTECH
MEDIA
CLOUD AND
INFRASTRUCTURE
Telecoms market in Russia 1
Revenue, RUB bn
Growth rate, %
2.7 %
3.3 %
2.6 %
3.2 %
2.11 %
2.19 %
2.1 %
1.9 %
1.8 %
0.6 %
0.5 %
1597
1641
1694
1739
1747
1804
1842
1882
1921
1957
1992
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Fact
Forecast
NEW DIGITAL
SERVICES
PARTNERSHIPS
RETAIL CHAIN
Annual growth of Russian telecoms segments 1
2021
2020
TOOLS
CUSTOMER EXPERIENCE
ONE CUSTOMER ID
LOYALTY PROGRAMME
BIG DATA
ARTIFICIAL INTELLIGENCE
IT
Overall telecoms
Mobile services
Broadband internet access
Pay TV
0.5 %
0.9 %
3.2 %
4.4 %
3.0 %
3.5 %
1.5 %
2.1 %
Fixed telephony
-11.7 %
-8.1 %
Inter-operator services
-1.2 %
-4.0 %
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
1 Source: TMT Consulting
MTSSISTEMA PJSFC / ANNUAL REPORT 2021
58
RESULTS OF KEY ASSETS
MTS
SISTEMA.RU
59
KEY TRENDS ON THE RUSSIAN TELECOMS MARKET
LEGAL FRAMEWORK & REGULATORY CHANGE
In the mobile segment
+8 M
THE SUBSCRIBER BASE INCREASED
IN ABSOLUTE NUMBERS IN 2021
The highest result over
the last 5 years
This growth was driven by the easing
of lockdown restrictions and the resulting
increase in customer traffic in retail outlets,
as well as partial recovery in the numbers
of migrant workers, who traditionally
make up a big share of mobile operators'
customer base in Russia.
In 2021, the Russian telecommunications market was valued
at RUB 1.8 tn 1, up by 3.2 %, which is the highest level over the recent
years. This growth was mainly driven by a recovery in mobile
communications (+4.4 % in 2021 compared to +0.9 % in 2020).
At the same time, a slowdown was recorded in such important
segments as fixed-line broadband Internet (+3 % in 2021 vs +3.5 % in
2020) and pay TV (+1.5 % in 2021 vs +2.1 % in 2020): subscriber base growth
rates fell after a rise in new connections during the lockdown period of
2020, which could not be offset by one-off increases in tariffs.
The number of subscribers (active SIM cards) in the mobile segment
in Russia rose by 3.3 % in 2021, up to 259 m, approaching the level
of 2019 (260 m), with mobile penetration at 178 %.
Mobile revenue in 2021 grew by 4.4 % compared to 0.9 % in the previous
year. This growth was prompted by subscriber base expansion and
higher roaming revenues due to a rise in outbound tourism. Another
factor was a considerable increase in revenue from additional
services in the B2B segment.
259M
THE NUMBER OF SUBSCRIBERS
IN THE MOBILE SEGMENT
+3.3 % growth YoY in 2021
1 Source: TMT Consulting
In 2021, the company continued its
efforts to address the issue of 5G
frequencies. Mobile operators are
actively implementing pilot projects
in the available frequency bands and
developing mechanisms for freeing up
more radio frequencies.
Measures included in the road map
20
62
42
Sector-wide actions
Stimulating actions
In November 2021, the Ministry of Digital Development and the
representatives of the telecom industry developed 10 initiatives, which
will be included in the first package of measures for supporting the
industry. The main objective of the support measures is to decrease
the operators' investment burden related to growing data traffic in
conditions of stable subscriber numbers.
The Russian government has approved an action plan to create
additional incentives for the development of the information
technology industry. The road map includes 62 measures, of which 20
will be sector-wide. The remaining 42 actions are aimed at stimulating
the development and adoption of Russian technologies in specific
segments.
In March 2022, the government's measures aimed at addressing
sanctions and supporting the telecom and IT industries took effect.
On 2 March 2022, the Russian President issued an order exempting
IT companies from income tax until 31 December 2024. At the end
of March 2022, the Russian government also approved measures
aimed at supporting the telecom sector, including a moratorium
on implementation of the "Yarovaya" law by telecom operators,
introduction of a mechanism for phased indexation of tariffs by
operators to match inflation rates, shared use of communication
infrastructure by operators as part of inter-network roaming, one-
year suspension of regulations requiring operators to ensure LTE
coverage on federal highways and in small residential communities.
Moreover, the Ministry of Digital Development has taken steps aimed
at retaining software developers and creating favourable conditions
for IT companies.
MACROECONOMIC FACTORS THAT INFLUENCED
THE COMPANY'S BUSINESS IN 2021
Inflationary pressures in Russia are negatively affecting capital
spending on acquisition of telecom equipment. Acceleration of
inflation is also having a negative impact on labour costs; however,
this situation is easier to control. In particular, MTS continues
implementing its cost-cutting initiatives, making it possible to partially
mitigate inflation risks.
MTSSISTEMA PJSFC / ANNUAL REPORT 2021 60
RESULTS OF KEY ASSETS
MTS
SISTEMA.RU
61
Business development in 2021
TELECOM
DEVELOPMENT OF THE 5G NETWORK
FINTECH
RETAIL
In 2021, MTS revenue from communication services in Russia
increased by 5.1 % up to RUB 416.5 bn, which was driven by
high consumption of services, both in mobile and fixed-
line segments. In particular, positive trends in the mobile
segment reflect growth in the number of subscribers (+2.5 %)
and consumption of Internet traffic, as well as partial
recovery in roaming revenues amid revival of international
travel in the second half of 2021 as opposed to the same
period of 2020, when more rigid Covid restrictions were
in place. Growth in the fixed-line communications segment
in Russia was prompted by the consolidation of new assets
acquired by the company.
MEDIA
In 2021, revenue in the Media segment rose by 30 %, up to
RUB 13.7 bn, due to an increase in the number of users of
convergent services that combine TV and communication
services, as well as a rise in the number of users of
streaming platform KION. OIBDA in the Media segment
went up by 34 %, up to RUB 5.7 bn, on the back of revenue
growth. The total number of pay TV subscribers grew by
27 % year-on-year, up to 8.4 m users. The subscriber base of
the OTT platform gained 58 %, growing up to 4 million users.
In April 2021, MTS launched a new streaming platform
called KION, with a catalogue that offers more than
200 TV channels, thousands of films, series, cartoons and
documentaries. Own production of original films and a new
type of content – cinema stories – constitute an important
part of the streaming service. KION's library has been
supplemented with content from MTS's partner, Channel 1.
In February 2021, MTS announced the construction
of three private LTE networks:
1.
commercial 5G-ready network for the steel
manufacturing and mining company EVRAZ
2. pilot underground LTE network to support the mining
operations of Uralkali, one of the world's leading
potash producers
3. networks on the premises of the Kochubeevskaya
wind farm (JSC NovaWind) combining Rosatom's wind
energy assets
In September 2021, MTS completed the construction and
launched the pilot operations of Russia's first commercial
dedicated LTE/5G-ready network for Polymetal, one of the
world's leading gold and silver producers.
In October 2021, MTS signed an agreement for building
a dedicated LTE/5G-ready network for Karelsky Okatysh,
an iron ore producing and processing plant that is part of
Severstal, the world's largest steel and mining company.
MTS has more than 15 projects to launch corporate LTE/5G
networks for major Russian companies.
In June 2021, MTS and its partners rolled out a pilot 5G
network in the Innopolis special economic zone in the
Republic of Tatarstan.
In November 2021, MTS successfully tested Russia's first
OpenRAN-based 5G telecom solution using Russian-made
software developed by the Skolkovo Institute of Science
and Technology (Skoltech).
In 2021, MTS launched Russia's first 5G user pilot network
in the 4.9 GHz range in fourteen popular locations of
Moscow and sixteen popular places of St. Petersburg and
Kronstadt.
In January 2022, MTS launched the world's first uplink
aggregation tests in a pilot 5G network built on the basis
of network functions virtualisation in a vRAN network.
MTS Bank's revenue for 2021 rose by 37.9 % year-on-year,
up to RUB 48.3 bn, which reflects the ongoing fast growth
of consumer banking and lending services. MTS Bank's
operating income (before provisions) increased by
47 %. Net income reached RUB 5 bn, which significantly
exceeds RUB 1.1 bn in 2020, when the results were hit by
the Covid-19 pandemic. MTS Bank's retail loan portfolio
before provisions grew by 75 % in 2021, up to RUB 206 bn.
The number of users of MTS Bank mobile app totaled 1.8 m
by the end of the year.
In July 2021, MTS acquired a 51 % stake in LLC Factorin for
RUB 867 m, including a RUB 350 m investment to support
the company's development. Factorin is the developer
and owner of an innovative blockchain-based platform
for trade financing. The purpose of the transaction is
to expand the financial services ecosystem of MTS Group
for the corporate market.
In September, MTS completed the acquisition of 70 %
of shares in LLC Sistema Capital for RUB 3.5 bn as part
of an agreement with JSC Sistema Finance and LLC
Sistema Telecom Assets, the wholly-owned subsidiaries
of Sistema. As a result of the transaction, MTS increased
its shareholding in JSC Sistema Capital up to 100 %. The
transaction aims to strengthen MTS Group's positions
in the fast-growing market of investment services.
INTERNET OF THINGS (IOT)
In June 2021, MTS launched an IoT Hub. The service allows
developers, startups and large companies to create their
own products and IoT solutions based on a ready-made
set of tools.
In January 2022, MTS launched "Digital Water Service",
an IoT solution for collecting and analysing data from
pressure sensors and meters in water supply systems.
Revenue in MTS's retail chain in 2021 rose by 8.7 % year-on-
year, up to RUB 86.4 bn, while OIBDA increased by 24.6 %,
up to RUB 6.2 bn, amid growing sales of mobile phones and
accessories and increased efficiency of MTS's retail chain.
DIGITAL SOLUTIONS AND CLOUDS
In January 2021, the cloud provider #CloudMTS launched
a service of cloud project solutions for businesses.
In June 2021, MTS launched MTS GROM, the third most
powerful supercomputer in Russia able to perform
computing operations at a speed of up to 2.26 petaflops.
In January 2022, MTS launched Cloud CDN, a fast content
delivery service for the corporate customers of #CloudMTS.
The service can be used for live streaming, game
streaming and video-on-demand services.
In February 2022, MTS's Board of Directors established
a dedicated committee for development of cloud
technologies and infrastructure under the chairmanship of
independent director Nadia Shouraboura.
ARTIFICIAL INTELLIGENCE (AI)
In March 2021, MTS's subsidiary LLC Artificial Intelligence
Centre of MTS (MTS AI) invested about USD 10m in Kneron,
a producer of AI chips. The investment will allow MTS AI
to become the exclusive distributor of Kneron chips and
technologies in Russia and create its own line of AI-ready
products using Kneron technologies.
In February 2022, Intema, a subsidiary of MTS AI, bought
VisionLabs B.V. for RUB 6.5 bn. VisionLabs is one of the
world's leaders in computer vision and machine learning.
VisionLabs has become the biggest portfolio company
of Intema, which was established by MTS AI as a new
brand aimed at developing marketable AI products and
operating on international markets.
MTSSISTEMA PJSFC / ANNUAL REPORT 2021 62
RESULTS OF KEY ASSETS
MTS
PARTNERSHIPS
SISTEMA.RU
63
AWARDS
SUSTAINABLE DEVELOPMENT
Award in the area of customer experience
CX WORLD AWARDS 2021
April 2021
MTS won in the category “Best corporate
customer experience B2B. Telecom services”
by submitting a case on improvement of CJM
and EJM during the pandemic in 2020.
IOT AWARDS 2021
November 2021
MTS became the winner in the category
“IoT Company of the Year in Russia”.
National award
RUNET AWARD 2021
December 2021
MTS won in the category “SME Development
in Russian Internet Domain” for its project
"Know in Person."
Professional award
"DIGITAL HEIGHTS 2021"
January 2022
MTS won in the category “Best IT
Solution for the Energy Industry”.
In March 2021, MTS announced it was establishing an ESG Committee
(Committee for Corporate Governance, Environmental and Social
Responsibility) of the Board of Directors to ensure more focus on the
implementation of sustainability principles and develop a general
strategy on corporate governance, environmental and social
responsibility. The ESG Committee of MTS's Board of Directors is
chaired by independent director Regina von Flemming.
In October 2021, Russian agency AK&M granted MTS the highest score
in the rating of ESG reporting (RESG1) based on its assessment of the
fullness of disclosed information on corporate sustainability and ESG
reporting.
In June 2021, Generation M, MTS's charitable project promoting
creativity, was included in the UN's official list of SDG Good Practices.
In December 2021, MTS obtained a "B" score (management level) in the
CDP rating, the world's leading platform for disclosing information
about the impact of companies on the environment.
In December 2021, MTS was assigned the highest A+ category
in the annual Leaders of Corporate Charity rating that is sponsored
by the Donors Forum (an association of Russia's largest charity
organisations) with the aim of identifying best practices in the area
of corporate social investments and charity and promoting them
in the business community and among the general public.
January 2021
MTS and Vodafone Group announced their decision to
continue their strategic partnership until 2023.
January 2021
MTS Premium and Yandex Plus agreed to set up a partnership, that
involves MTS Premium users of the MTS Premium plan automatically
becoming the subscribers of Yandex Plus, which offers access to
Kinopoisk HD platform, music and podcasts, enables them to get
cashback in points and spend it on Yandex.Taxi, Yandex.Drive and
other Yandex services.
May 2021
MTS and LUKoil agreed on a strategic partnership to launch Russia's
first subscription that combines payment for fuel at filling stations
and access to the digital products of the MTS ecosystem.
November 2021
MTS became the first Russian company to join 5G Future Forum (5GFF),
an international association of telecom operators whose goal is to
develop specifications and implement advanced solutions based on
5G technologies and multi-access edge computing (MEC).
February 2022
MTS signed a strategic cooperation memorandum with the Korean
telecom leader KT Corporation, aiming to develop new business lines,
including data centres, AI solutions, and media content.
MTSSISTEMA PJSFC / ANNUAL REPORT 2021 64
RESULTS OF KEY ASSETS
MTS
SISTEMA.RU
65
Development strategy and results of CLV 2.0 strategy
Financial performance in 2021
CUSTOMER
LIFETIME
VALUE 2.0
The main goal of the Customer Lifetime Value 2.0 (CLV 2.0)
strategy is to maximise Value that MTS gets from the Customer
throughout entire Lifetime (a period during which the customer
uses MTS's services). The key marketing tool that is used for
achieving this goal is an integrated and deeply customised
ecosystem including a range of proprietary and partner digital
services with the highest value for the customer that meets
the customer's needs in various areas of life.
Development of services is the responsibility of business segments that may
be significantly different in scale, development trends and nature of activities.
They work independently in close mutually beneficial cooperation with
partners within the ecosystem (joint use of technologies, customer data, shared
marketing and branding, etc).
After achieving considerable scale, the business segments will be spun off as
stand-alone companies with prospects for an IPO at multiples exceeding those
of the core communications business, making it possible to maximise MTS's
value based on the sum-of-the-parts valuation approach.
MTS's CAPEX in 2021 reached RUB 111 bn, of which RUB 109 bn was spent in Russia,
with the enhancement of network capacity, coverage and quality remaining the
main investment focus. Over the course of 2021, MTS built 27,300 base stations
across Russia, of which 26,400 are 4G towers. Smartphone data usage was up
22 % year-on-year, with the smartphone penetration rate within the MTS network
up from 78.1 % in 4Q 2020 to 80.2 % at the end of 2021.
Revenue, RUB m
RUB m
Revenue
2021
2020
CHANGE, %
534,403
494,926
534.4
2021
+8.0 %
Adjusted OIBDA
229,780
214,895
Operating income
118,692
112,638
Adjusted net income
attributable to Sistema
31,840
31,753
0.3 %
8.0 %
6.9 %
5.4 %
494.9
2020
2020 2021
In 2021, MTS's revenue increased by 8 % year-on-year, up to RUB 534.4 bn due to
growing consumption of communication services, data traffic and ecosystem
services (including fintech and media) and a surge in sales of mobile phones
and accessories.
Adjusted OIBDA, RUB m
+6.9 %
214.9
2020
229.8
2021
2020 2021
By the end of 2021, adjusted OIBDA rose by 6.9 % reaching RUB 229.8 bn on the
back of increased demand for financial services, revival of the entertainment
industry and renewal of the product portfolio.
Adjusted net income for 2021 remained at the level of 2020 due to higher
amortisation charges caused by an increase in capital spending and M&A
deals, growth of interest expenses on the back of the rise in the key rate and
greater foreign exchange differences and derivative transactions.
In the calendar year 2021, the total amount of dividends stood at RUB 74 bn.
In July 2021, MTS completed a share buyback programme totally worth RUB 15 bn
(2.27 % of the total number of listed MTS shares).
74.0 BN
RUB
THE TOTAL AMOUNT
OF DIVIDENDS PAID
In the calendar year 2021
15.0 BN
RUB
A SHARE BUYBACK
PROGRAMME TOTALLY
WORTH
Completed in July 2021
MTCMTSSISTEMA PJSFC / ANNUAL REPORT 2021 66
RESULTS OF KEY ASSETS
OZON
SISTEMA.RU
67
OZON.RU
its customers.
Ozon is a leading multi-category online marketplace
in Russia's e-commerce market with a broad product
mix and extensive logistical infrastructure enabling
the company to make one of the best offers to
SISTEMA'S
EFFECTIVE STAKE 1
31.8
%
TEAM
KEY HIGHLIGHTS
Management Board
› 445 BN
RUB
GMV IN 2021
including services
+ 125 %
GMV GROWTH IN 2021
›3×INCREASE IN NUMBER
OF ORDERS
compared to 2020
+ 200 %
GROWTH IN THE NUMBER
OF ORDERS (2021)
› 200 M
ORDERS DELIVERED IN 2021
› 25 M
ACTIVE CUSTOMERS
› 80 M
UNIQUE SKUs
Elena Ivashentseva
CHAIRMAN OF THE BOARD
OF DIRECTORS
No. 2 RETAILER IN RUSSIA
BY GMV
gross merchandise value
178.2 BN
RUB
REVENUE
› 90 THSD
ACTIVE SELLERS
As of 31 December 2021, Ozon was a leading
logistical operator in Russia
1,000,000
SQ M OF TOTAL
WAREHOUSE SPACE
1
12.2 m shares were issued to be used in the
Ozon’s management inventive programme,
considering exercise of all options under the
programme, the effective share of Sistema,
including Sistema VC, would amount to 31.8 %
OZONSISTEMA PJSFC / ANNUAL REPORT 2021 68
RESULTS OF KEY ASSETS
OZON
SISTEMA.RU
69
Business model
Key e-commerce trends in Russia in 2021
In 2021, the Russian e-commerce
market grew by 41 % year-on-year,
reaching a total value of RUB 4.1 tn,
with the overall retail market gaining
15 %, up to RUB 39 tn, according
to INFOLine. Despite the growing
penetration of e-commerce, the
Russian market is at an initial stage
of development. E-commerce
penetration in 2021 stood at 10.5 %,
which is significantly lower than in
other countries (21.0 % in the USA, 25.5 %
in the UK and 27.4 in China).
The key factors hindering the development of e-commerce in Russia
included limitations of logistical infrastructure due to the lack of
investments and perception of online shopping as complicated and unsafe
by the customers.
Covid-19 restrictions in 2020 and 2021 had a significant impact on the
development of the e-commerce sector in Russia. The limited mobility of
customers resulted in a considerable growth in the number of Internet
users and active buyers, boosting the frequency of orders and improving
customers' trust in online shopping in general and in Ozon in particular.
The Russian e-commerce market has strong potential for fast growth
on the back of investments in logistical and fulfilment infrastructure by
online players, considerable improvement in the accessibility of financial
technologies and active development of online trade in Russia’s regions
and small towns.
The Russian retail market is the 4th largest in Europe, and its total value may
reach RUB 54.3 tn by 2026. According to analysts' estimates, the penetration
of e-commerce may reach 24.5 % by 2026, creating vast potential for the
company's growth.
Multi-category retailers, such as Ozon, are the leading players in the
Russian e-commerce market. Through a perfect combination of product
mix, prices and services, multi-category players continue actively
expanding their market share. According to analysts' findings, the share of
multi-category marketplaces may go up from 35 % in 2021 to 72 % in 2026.
Developed e-commerce markets have been mostly consolidated by major
players, while the Russian market remains very fragmented. Consolidation
trends in the e-commerce market open up significant opportunities for
major players in the fragmented Russian market
MARKETPLACE
64,8 %
OF THE COMPANY'S
GMV
80 M
›
25 M
›
UNIQUE SKUS
CUSTOMERS
90 THSD
›
MERCHANTS
One of the largest networks of pick-up
Development of a branded network of
LOGISTICS
points and parcel lockers
in the Russian retail market
pick-up points and parcel lockers based
on a franchise model to ensure fast growth
at low capital intensity
FULFILMENT
INFRASTRUCTURE
~
1 M SQ M
~
3 ×
OF TOTAL
WAREHOUSE SPACE
YOY GROWTH OF TOTAL
WAREHOUSE SPACE IN 2021
OZON FRESH
(formerly Ozon Express)
Dark store concept with a wide range
Own brands and deli production
of food, FMCG, best-selling electronic
devices and other items
FINANCIAL
SERVICES
Banking licence to launch
B2B lending: a flexible payment
B2C lending: 2 m debit
full-fledged banking
schedule enables vendors
cards and accounts as
products
to finance their working
of the end of 2021
capital and speeds up growth
of turnover both for the vendors
and the marketplace
OZONSISTEMA PJSFC / ANNUAL REPORT 2021 70
RESULTS OF KEY ASSETS
OZON
SISTEMA.RU
71
Business development in 2021
Financial performance in 2021
Ozon marketplace's share in GMV, %
In 2021, Ozon significantly expanded its logistical and fulfilment infrastructure,
GMV, including services, RUB bn
Financial results, RUB bn 1
2021
2020
2019
65 %
48 %
17 %
Ozon.Card remains one of the most
popular payment tools on Ozon’s
marketplace. In 4Q 2021, the company
launched Ozon.Account based on
the acquired banking licence.
Strategic goals
›80 %
EXPECTED GMV
GROWTH IN 2022
compared to 2021
including warehouses, distribution centres and a network of dark stores.
As a result, the storage capacity of the company almost tripled compared
to 2020. As of 31 December 2021, the company was a leading logistical operator
in Russia: it operated about 1 m sq m of warehousing and logistical capacity.
Accelerated growth of the marketplace in 2021: Ozon marketplace's
share in GMV reached 65 % compared to 48 % in 2020 and 17 % in 2019.
The marketplace's product range has grown more than 7-fold year-on-year,
exceeding 80 million SKUs as of 31 December 2021.
In 2021, Ozon successfully launched a number of fintech products, including
the acquisition of a banking licence, as well as development of such products
as Ozon.Card (a debit card), Ozon.Account (an e-wallet) and lending products.
These products improve customer experience, increase the flexibility
of payments and enhance customer loyalty, resulting in a greater frequency
of purchases on the marketplace.
In 2021, the e-grocery service Ozon fresh successfully launched regional
development, expanding beyond the Moscow region. To enhance its
perception as a service of quick delivery of fresh products the business unit
was rebranded as Ozon Fresh in March 2022.
Ozon fresh product range includes both food and non-food items. The service
also offers its customers an express 1-hour delivery and a super express
15-minute delivery in Moscow.
Ozon fresh continues developing its private label goods including coffee, milk,
snacks and other products, as well as in-house production of ready meals
under the Ozon brand.
In 4Q 2021, Ozon fresh started scaling up its operations outside Moscow and
St. Petersburg and launched dark stores in Tver, Krasnodar, Rostov-on-Don,
Kazan, Sochi and Volgograd, offering its customers across regions the benefits
of fast delivery.
The key priorities of the company include further improvement of customer
loyalty by expanding the product range and offering quality customer
service; attraction of vendors by enhancing existing and creating new
vendor solutions; development in other regions, including further expansion
of operations in Belarus and Kazakhstan; development of promising business
streams and enhancement of efficiency.
The company expects its GMV to grow by 80 % or more in 2022 compared to
2021 and aims to improve unit economics.
448.3
2021
+127 %
197.4
2020
Revenue, RUB bn
+71 %
104.4
2020
2020 2021
178.2
2021
2020 2021
RUB bn
2021
2020
CHANGE, %
GMV, including services 2
Revenue
Adjusted EBITDA 3
Cash flow from operations
448.3
178.2
(41.2)
(13.6)
197.4
104.4
(11.7)
6.6
127 %
71 %
−
−
In 2021, GMV including services grew by 127 % year-on-year to RUB 448.3 bn.
Key growth drivers:
the number of orders increased by more than 3.0 times year-on-year,
exceeding 220 m in 2021 on the back of increased customer loyalty and
engagement
the frequency of orders per customer rose by about 60 % year-on-year,
up to 8.7x
In 2021, the company conducted a successful seasonal sales campaign,
Megasales, which included Bachelor's Day and Back Friday and achieved
record day turnovers of RUB 6 bn and RUB 5 bn respectively.
The ratio of adjusted EBITDA to GMV (including services) was (9.2 %) compared to
(5.9 %) in 2020 due to investments in infrastructure and the low base effect related
to the 2020 Covid-19 pandemic. The Company demonstrated an improvement in
profit margins in 4Q vs. 3Q that was driven by greater utilisation of infrastructure
due to economies of scale, as well as by operating leverage effect and
optimization in marketing expenses. In 2021, the Company's cash flow from
operations totaled RUB (13.6 bn) compared to RUB 6.6 bn in 2020.
1 Ozon’s financial results are not consolidated within Sistema’s financial statements.
Investments in Ozon are reflected in Sistema’s financial reporting using the equity
method. The share of Ozon’s profit/loss attributable to Sistema is included in
Sistema’s operating results. Investments are reflected at book value adjusted for
attributable share of profit/loss for the period and are not marked to market.
2 GMV incl. services is the value of goods sold on Ozon together with revenue from other
services provided to buyers and sellers, inclusive of VAT minus discounts, cost of returns
and cancelled orders. This figure does not take into account sales from Ozon.Travel.
3 Adjusted EBITDA is not an IFRS metric. Adj. EBITDA is treated as a pre-tax loss, prior to the
deduction of non-operating income (expenses), depreciation and option programme expenses.
OZONSISTEMA PJSFC / ANNUAL REPORT 2021 72
RESULTS OF KEY ASSETS
SEGEZHA GROUP
SISTEMA.RU
73
SEGEZHA-GROUP.COM
Segezha Group is one of Russia’s largest vertically
integrated holding companies 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.
FOREST RESOURCES
PRODUCTION
MAIN PRODUCTS
BY-PRODUCTS
Pulp wood
30-40 %
Pulp and
paper mills
Paper
Forest chemicals
SEGEZHA GROUP
SISTEMA'S
EFFECTIVE STAKE
62.2
%
TEAM
KEY HIGHLIGHTS
Mikhail Shamolin
CEO
Ali Uzdenov
CHAIRMAN OF THE BOARD
OF DIRECTORS
12
REGIONS
OF OPERATIONS
in Russia
› 100
COUNTRIES OF SALES
15 THSD
EMPLOYEES
5
26
PRODUCTION
SITES
74 %
COUNTRIES WITH
REPRESENTATIVE OFFICES
OF REVENUE IS IN
FOREIGN CURRENCY
Business model
Segezha Group operates a vertically
integrated business model with presence in
all the key value segments – from in-house
logging at leased forest plots to sale of
high-margin products in the most attractive
markets, both in Russia and abroad.
The business model’s vertical integration is
meant to create added value and ensure high
business stability. 84 % of Segezha Group’s
demand for raw wood is met by its own forest
resources. It allows Segezha Group to have
leading positions in terms of production costs
in all its business segments.
Converting
plants
Paper
packaging
Sawmills
Sawn timber
CLT panels
Glulam
Pre-fabricated
house kits
Pellets
Chips
Fiberboard
Plywood mills
Plywood
Fiberboard
Briquettes
Multyfuel boiler
Heat
Softwood
saw logs
40-60 %
Birch veneer
logs
Firewood,
bark and
low-quality
pulwood
Stumps
Remain in the ground to ensure preservation of the roots
and futher regeneration
SISTEMA PJSFC / ANNUAL REPORT 2021 74
RESULTS OF KEY ASSETS
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75
Segezha Pulp
and Paper Mill
is Russia’s only
manufacturer of
high-porosity
and high-strength
unbleached sack
paper.
1
8 %
IS SEGEZHA GROUP’S
SHARE IN THE GLOBAL
OUTPUT OF PAPER FOR
INDUSTRIAL MULTILAYER
SACKS
77%
IS THE SHARE OF
SEGEZHA GROUP IN THE
RUSSIAN OUTPUT OF
SACK PAPER
2
60 %
OF SEGEZHA GROUP’S
SACK PAPER IS
EXPORTED
1 Fisher International estimate.
2 The share of paper sold for
export to a third party, excluding
the Company's in-house
converting facilities.
Industry overview for 2021
Sack paper
GLOBAL MARKET
Paper sacks
EUROPEAN MARKET
RUSSIAN MARKET
In 2021, there was a strong price increase in the sack paper market due
In the European market, Germany, Turkey, Italy,
The construction industry accounts for the largest
to a shortage of supply. This market environment was caused by the
France, Poland and Spain accounted for about
share (87 %) of paper sacks consumption in Russia,
energy crisis in Europe and by decreased output of a number of global
62 % of demand for paper sacks in 2021.
just as in the European market. At the same time,
players due to scheduled repairs, adverse weather conditions and a
reorientation to the production of cardboard due to increased demand
for packaging.
Against this backdrop, European manufacturers
announced an increase in prices for their products,
introducing the so-called “energy surcharges.” In
the fourth quarter of 2021, unbleached sack paper
prices in the European market increased by more
than 30 % year-on-year. As a result of shortages and
government restrictions on electricity consumption in
China, massive production cuts in the pulp and paper
sector were announced at the end of the third quarter
of 2021, which negatively affected the supply volume
and aided the rising price trend. Product inventories
throughout the supply chain were kept low.
In Segezha Group’s target segment (paper for
industrial multilayer sacks), paper consumption grew
by 1.9 % vs 2020 to 4.2 m tonnes, due to the recovery of
markets in China, Europe and the Americas.
4.2 M
TONNES
PAPER CONSUMPTION 3
in 2021
1.9%
PAPER CONSUMPTION
GROWTH
2021 vs 2020
3 Source: Fisher International,
Segezha Group estimate.
63 % of demand came from the construction industry
(cement and dry construction mixes)4. The share of paper
sack manufacturers integrated into the production of sack
paper was 66 %. The largest suppliers include Segezha
Group, Mondi and Gascogne Papier.
The key factor in the growth of prices for paper sacks in
the European market was the increase in the cost of raw
materials (kraft paper). The growth of demand in Europe
was driven by the construction industry and the chemical
industry.
Paper sack consumption in Europe totaled 6.03 bn items
in 2021, an increase of 4.5 % compared to the previous
year. The highest growth in demand was in Italy, Czechia,
Germany, Spain and Turkey.
In the reporting year, along with the growth in demand in
traditional segments, Segezha Group increased its share in
the construction segment (dry construction mixes)5, as well
as in the production of packaging for chemical products.
demand exceeds domestic production, and the
deficit is compensated with imports, the share of
which in 2021 was 20 %.
In 2021, consumption of paper sacks in Russia totaled
826 m6 items, up 8.6 % from the previous year. The growth of
consumption was mainly driven by business activity in the
construction sector (extension of the subsidised mortgage
programme, commissioning of new housing and lifting of
restrictions related to COVID-19). Segezha Group’s output of
industrial paper sacks increased by 11 % compared to 2020
due to the launch of two new industrial lines in the town of
Segezha.
8 %
IS SEGEZHA GROUP’S SHARE
in the European
paper sack market
65 %
IS SEGEZHA GROUP'S SHARE
in the Russian
paper sack market
6.03 BN
ITEMS
TOTEL PAPER SACK
CONSUMPTION
in Europe in 2021
4.5 %
INCREASING DEMAND OF
CONSUMPTION
OF PAPER SACKS
2021 vs 2020
4 EUROSAC, Fisher International.
5 EUROSAC, Fisher International.
6 Segezha Group internal
research, EUROSAC data.
SISTEMA PJSFC / ANNUAL REPORT 2021 76
RESULTS OF KEY ASSETS
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77
Plywood
GLOBAL MARKET
In 2021, the birch plywood market was characterised
by roaring demand due to the recovery of a number of
sectors after the pandemic. The total market volume
increased by 4 % year-on-year to 4.8 m cu m1. Demand
exceeded supply, leading to unprecedented growth in
birch plywood prices. Segezha Group’s price for plywood
rose to peak values in 2021 reaching 678 euro per cu m (+67 %
year on year)
Europe and Russia remained the biggest global
consumers of plywood in 2021, accounting for 69 % of
total consumption. Moreover, anti-dumping duties on
birch plywood were introduced by the European Union
for Russian producers in the reporting year, which was an
additional growth driver for prices in the EU market.
1 Estimate by Vision Hunters.
2 Estimate by Vision Hunters.
3 Estimate by Vision Hunters.
4 According to Segezha Group's internal research in 2021, Whatwood.
RUSSIAN MARKET
Russia continues to be the undisputed global leader in the
production of birch plywood, with a 76 % share of the global
market in 20212. In the reporting year, Russia’s plywood
output increased by 8 % compared to 2020, to 4.1 m cu m.
No. 5 GLOBALLY IS SEGEZHA
GROUP’S RANKING
in terms of large-size birch plywood output3
4.4 %
SEGEZHA GROUP’S SHARE
in the Russian birch
plywood market
79%
RUSSIA’S SHARE
in the global output
of birch plywood
Sawn timber
GLOBAL MARKET
The global market of softwood sawn timber was
estimated at 350 m cu m in 2021.
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 increased in 2021 by 6 % year-on-year5.
Growth in demand and prices in 2021 was mainly driven by
government support measures, lower mortgage rates, high
demand growth in DIY channels and deferred demand for
new housing from 2019 to 2020. In 2021, all markets where
Segezha Group operates were characterised by low
inventories of sawn timber and a shortage of supply.
Sawn timber prices peaked in 2021 reaching 239 euro per
cu m or +73 % year on year. The development of trade was
significantly impeded by growing transport costs, shortage
of containers and port restrictions.
5 Source: ISC 2021 (industry conference), estimate by Segezha Group
6 Source: Rosstat, FAOSTAT, estimate by Segezha Group
7 Source: FAOSTAT, ISC 2021 (industry conference), estimate by Segezha Group
8 Source: Woodstat, estimate by Segezha Group
RUSSIAN MARKET
The output of softwood sawn timber in Russia
is estimated at 41 m cu m in 2021, an increase of
4 %6 vs 2020. Russia is the world’s No 5 producer of
softwood sawn timber after Europe, the US, China
and Canada with a market share of 11 %7. Russian
products compete with European products in
Europe, China and MENA countries.
Russia’s exports of softwood sawn timber fell by 5 % to
29 m cu8, mainly due to China, which remains the biggest
consumer of Russian softwood sawn timber.
No. 5 RUSSIA IS THE WORLD’S
No. 5 PRODUCER
of softwood sawn timber
98 %
SEGEZHA GROUP’S SHARE
of exported sawn timber
11 %
RUSSIA’S SHARE
in the global sawn
timber market9
SISTEMA PJSFC / ANNUAL REPORT 2021 78
RESULTS OF KEY ASSETS
SEGEZHA GROUP
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79
Glulam
In 2021, the size of Russia’s housing construction
market using laminated beams amounted to
157,000 cu m (+20 % year-on-year) 1.
According to expert estimates, the wooden housing
construction grew by 15 %-17 % in 2021 year-on-year. The
market for wooden housing construction in Russia is
relatively small. However, the share of housing built using
timber has more than doubled in the last 15 years2. The
key regions consuming prefab houses are still the Central,
Northwest and Volga federal districts.
Business development in 2021
13 %
SEGEZHA GROUP’S SHARE
in the Russian prefab
houses market3
157 THSD
CU M
SIZE OF RUSSIA’S HOUSING
CONSTRUCTION MARKET
+20 % y-o-y
Paper & Packaging
No. 1
BY PAPER OUTPUT
in Russia 1
1 Source: Estimate by Segezha Group
2 Source: analytical article by Okna Media posted on the website
of the Association of Wooden Housing Construction.
3 Source: analytical article by Okna Media posted on the website
of the Association of Wooden Housing Construction.
No. 3 BY OUTPUT OF HIGH-QUALITY
UNBLEACHED SACK PAPER
globally 1
Laminated beams
CLT panels
PAPER
Revenue, RUB bn
39.7
35.7
+11.5 %
2020
2021
European countries and Japan remain the biggest
In 2021, the CLT market in Europe continued its
consumers of laminated beams.
rapid growth, with the key demand driver being the
The key markets in Europe are Italy, Germany and Austria.
The largest producers of laminated beams in Europe
are located in Austria and Germany (about 90 % of
production). European manufacturers are usually local
players supplying products to regional markets. In 2021, the
European output of laminated beams totaled 3.7 m cu m4,
growing 5 % year-on-year, mostly thanks to production
growth in Germany and Austria.
4 Source: Forecast: https://www.timber-online.net/
wood_products/2021/05/over-3-million-m--for-the-first-time---record-
years-for-glulam.html, estimate by Segezha Group
trend towards the construction of environmentally
friendly and safe housing, including multi-storey
buildings.
In the first half of 2021, there was a rapid increase in
consumption and market prices; output was estimated at
1.2 m cu m (+20 % year-on-year) with capacities of 1.6 m cu m.
Segezha Group produces over 77 %
of sack paper in Russia. About 40 % of
paper produced is supplied to Segezha
Group’s own facilities in Russia and
Europe for the production of paper
sacks and bags. The remaining 30 %
of paper is sold in export markets and
in Russia. The share of exports in sales
to external customers nears 90 %, and
geography of supply is more than
78 countries. The main export markets
for Segezha Group are China, Latin
America, Southeast Asia, North Africa,
the Middle East, and also Europe.
In 2021, Segezha Group’s paper output
decreased by 8.1 % year-on-year to
369,400 t, primarily due to shutdowns for
the planned modernisation of Segezha
Pulp and Paper Mill (continuation of
the approved programme). Paper sales
decreased by 22.6 % in the reporting
period, to 223,700 t, as a larger volume
of paper was used by Segezha Group’s
own converting facilities.
Paper output, thsd t
Paper sales, thsd t
402
369
289
-8.1 %
224
-22.6 %
2020
2021
2020
2021
Structure of paper sales in 2021 by country , %
RUSSIA
EGYPT
GHANA
CHINA
SAUDI ARABIA
TURKEY
ITALY
MEXICO
PAKISTAN
OTHER
15
9
7
6
6
5
5
4
4
39
1 According to Segezha Group's internal research as of 31 December 2021.
SISTEMA PJSFC / ANNUAL REPORT 2021 80
RESULTS OF KEY ASSETS
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SISTEMA.RU
81
PAPER SACKS
Plywood Boards
No. 1 BY OUTPUT
OF PAPER SACKS
in Russia1
No. 2 BY OUTPUT
OF PAPER SACKS
in Europe1
No. 5 BY OUTPUT OF LARGE-SIZE
BIRCH PLYWOOD
globally
80%
THE SHARE OF EXPORTS IN SEGEZHA
GROUP’S PLYWOOD SALES IN 2021
in 2021
Paper sacks output, m t
1,291
1,428
+10.6 %
2020
2021
Paper sacks sales, m t
1,302
1,446
+11.1 %
2020
2021
40 %
OF SEGEZHA GROUP’S SACK
PAPER IS CONVERTED INTO
PAPER PACKAGING AT ITS OWN
FACILITIES
Packaging products of Segezha Group’s enterprises in Europe and Turkey
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, the Moscow region and the Rostov
region. About 40 % of Segezha Group’s sack paper is converted into paper
packaging at its own plants. Segezha Group is actively increasing the
production capacity in the segment of consumer packaging, investing into
acquisition of new production lines.
In 2021, Segezha Group sold 1,445.6 m paper sacks, up 11.0 % from the
previous year, due to the development of the consumer packaging
segment.
In 2021, output increased by 10.6 % year-on-year to 1,428.0m units thanks to
the implementation of the investment programme to expand capacities.
Structure of paper sack sales in 2021 by country, %
RUSSIA
GERMANY
ROMANIA
THE NETHERLANDS
DENMARK
TURKEY
KAZAKHSTAN
SWITZERLAND
FRANCE
OTHER
36
11
5
5
5
5
4
3
3
23
Revenue, RUB bn
12.5
+63.6 %
7.7
2020
2021
Plywood output, thsd cu m
192
196
+2.2 %
2020
2021
Plywood sales, thsd cu m
186
178
-4.0 %
2020
2021
Revenue of the Plywood & Wood Boards segment totaled RUB
12.5 bn in 2021, an increase of 63.6 % from 2020. This growth was
driven mainly by rising prices, which hit record highs in the third
quarter of 2021, as well as an increasing share of high-margin
products.
Most of the plywood produced by Segezha Group is made for exports
(80 % of the output in 2021). Plywood is supplied to more than 50 countries.
The key export markets are Europe, the United States, Canada and Asia
Pacific, including China, South Korea and India.
In 2021, Segezha Group’s plywood output increased by 2.2 %, to 196,300 cu
m. Sales of plywood decreased slightly by 4.0 %, to 178,200 cu m, due to
continued high demand. 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 2021 by country, %
USA
RUSSIA
GERMANY
CANADA
NETHERLANDS
SOUTH KOREA
UK
ISRAEL
SPAIN
OTHER
23
17
11
8
7
5
5
3
2
19
1 According to Segezha Group's internal research as of 31 December 2021.
1 According to Segezha Group's internal research as of 31 December 2021.
SISTEMA PJSFC / ANNUAL REPORT 2021 82
RESULTS OF KEY ASSETS
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83
Forestry management and woodworking
Prefabricated Houses
No. 3 BY CAPACITY OF
SOFTWOOD SAWN TIMBER
in Europe1
› 20
NUMBER OF COUNTRIES THAT
PURCHASE SAWN TIMBER
FROM SEGEZHA GROUP
Revenue of the Prefabricated Houses segment totaled RUB 6.2 bn in
Revenue, RUB bn
2021, an increase of 54.4 % from 2020. This growth was driven by higher
output and sales, in particular due to the start of production and
sales of CLT panels, as well as higher product prices on the back of a
6.2
4.0
+54.4 %
Revenue of the Forestry management and woodworking segment totaled RUB 29.0 bn in 2021, an increase of
30.4 % from 2020. This growth was driven by higher sawn timber prices compared to 2020 (on the back of strong
demand due to the post-Covid-19 global economic recovery), low inventory levels across the entire sales chain
and challenges in supply chains.
Revenue 2, RUB bn
Sawn timber production 2, thsd t
Sawn timber sales 2, thsd t
29.0
1,192
1,170
19.2
+51.2 %
1,217
1,056
-1.8 %
-13.3 %
recovery in construction.
6.2 BN
RUB
TOTAL REVENUE OF THE
LAMINATED WOOD PRODUCTS
SEGMENT
in 2021
CLT PANELS
54.4 %
REVENUE OF THE LAMINATED
WOOD PRODUCTS SEGMENT
GREW BY 54.4 %
2021 vs 2020
2020
2021
No. 1 SEGEZHA GROUP IS THE LARGEST
MANUFACTURER OF CLT PANELS
in Russia
In 2021, Segezha Group started
the production of CLT panels;
~9,000 cu m were produced in the
reporting period. Sales totaled
~7,000 cu m.
2020
2021
2020
2021
2020
2021
CLT output, thsd cu m
CLT sales, thsd cu m
SAWN TIMBER
Segezha Group exports ~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 MENA3.
In 2021, sawn timber output decreased
slightly by 1.8 % year-on-year, to
1,2 m cu m, as a result of increased
output of laminated beams at Sokol
Woodworking Plant (SDOK) due to the
installation of a new press line. Sawn
timber sales decreased by 13.3 % in 2021,
to 1,1 m cu m, against the backdrop
of a seasonal price decline in winter,
as a result of which Segezha Group
ended the year with high inventories,
predicting a recovery in prices in 2022.
Structure of Segezha Group’s sawn timber sales in 2021 by country, %
CHINA
EGYPT
UK
FRANCE
FINLAND
GERMANY
ESTONIA
BELGIUM
RUSSIA
OTHER
9.0
+100 %
7.0
+100 %
0.0
2020
2021
0.0
2020
2021
Structure of Segezha Group’s CLT sales in 2021 by country, %
LATVIA
ITALY
GERMANY
RUSSIA
BELGIUM
OTHER
37
35
16
4
3
6
41
20
10
7
6
3
3
2
2
6
1 According to Segezha Group's internal research as of 31 December 2021.
2 The indicators take into account sawn timber produced by Sokol WP and are included in the results of the Laminated wood products segment.
3 MENA (Middle East and North Africa) is a geographic region with an aggregate population of 335 m people.
SISTEMA PJSFC / ANNUAL REPORT 2021 84
RESULTS OF KEY ASSETS
SEGEZHA GROUP
SISTEMA.RU
85
LAMINATED BEAMS
No. 1
SEGEZHA GROUP IS NO 1 PRODUCER
OF LAMINATED BEAMS1
in Russia
Laminated beam output, thsd cu m
Laminated beam sales, thsd cu m
In 2021, output of prefab houses
Structure of Segezha Group’s prefab house sales in 2021 by country, %
65.1
+69.4 %
63.4
+67.5 %
38.4
37.9
2020
2021
2020
2021
increased by 7.8 % year-on-year, to
20,100 cu m, as a result of increased
output due to the installation of
RUSSIA
a new press line. Sales of prefab
KAZAKHSTAN
houses slightly increased by 2.7 %
in 2021, to 19,200 cu m.
USA
ITALY
SWEDEN
OTHER
95
2
1
1
1
1
In 2021, output of laminated
Structure of Segezha Group’s laminated beam sales in 2021 by country, %
NEW TECHNOLOGIES
KEY ACHIEVEMENTS
beams increased by 67.5 % year-
on-year, to 63,400 cu m, as a result
of increased output of laminated
ITALY
beams at Sokol Woodworking Plant
GERMANY
(SDOK) due to the installation of a
new press line. Sales of laminated
beams increased by 75.2 % in 2021,
to 66,300 cu m.
JAPAN
AUSTRIA
HUNGARY
GREECE
POLAND
SPAIN
ISRAEL
OTHER
48
18
8
7
4
3
3
2
1
6
PREFABRICATED HOUSES
80%
IS SEGEZHA GROUP’S SHARE
IN PREFAB HOUSES MARKET 1
in Russia
Output of prefab houses, thsd cu m
Sales of prefab houses, thsd cu m
18.7
20.1
+7.8 %
18.7
19.2
+2.7 %
2020
2021
2020
2021
1 According to Segezha Group's internal research as of 31 December 2021.
The first plant in Russia for the large-
scale industrial production of CLT
panels with a capacity of 50,000 cu m
per year was put into operation.
Segezha Forest, an automated system
for timber shipment accounting
and control, was put into full-scale
operation.
In April 2021, Segezha Group had an
initial public offering on the Moscow
Exchange. The company raised RUB 30
bn, which will be used to finance the
investment programme and optimise
the debt portfolio. The shares are
included in the Level 1 Quotation List of
the Moscow Exchange under the ticker
SGZH.
The Expert RA rating agency upgraded
the credit rating of Segezha Group
to “ruA+” and changed the outlook to
“positive.”
Segezha Group was named one of
the top 30 environmentally friendly
companies in Russia by Forbes.
Segezha Group joined the UN Global
An R&D Centre was opened in the
Segezha Group acquired a 100 %
Compact.
Republic of Karelia, the first of its kind in
the Russian pulp and paper industry.
Segezha Packaging’s paper sack
plant in Denmark (Aalborg) completely
transitioned to wind power.
stake in LLC Inter Forest Rus, which
combines a number of timber assets
in the Krasnoyarsk region and the
Irkutsk region with substantial volumes
of wood resources, for USD 528 m
(estimate). As a result of the transaction,
Segezha Group strengthened its
leading position in Russia and Europe
in terms of sawn timber output
and became a top 3 European
manufacturer in this segment.
Segezha Group received an ESG rating
from Sustainalytics and was included
among the top 25 companies in the
Paper and Timber industry and among
the top 20 companies in the Paper and
Pulp subindustry.
Segezha Group Packaging assets in
Europe were awarded a Gold level from
the international platform EcoVadis.
Segezha Group acquired the assets of
CJSC Novoyeniseysky Timber Chemical
Complex. Production capacities: up to
500,000 cu m of sawn timber, 60,000 t
of pellets and 20 m reference sq m of
fibreboard. The company also has
2.2 m cu m of annual allowable cut.
The assets are located in the town of
Lesosibirsk, the Krasnoyarsk region.
SISTEMA PJSFC / ANNUAL REPORT 2021 86
RESULTS OF KEY ASSETS
SEGEZHA GROUP
SISTEMA.RU
87
Operations & investment development strategy
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.
WOOD RESOURCES
HEALTH AND SAFETY OF EMPLOYEES.
UMBRELLA CHARITY PROJECTS: CITY INFRAST-
RUCTURE, SPORTS, EDUCATION AND ENVIRONMENT.
INCREASE OF THE SHARE OF OWN WOOD
RESOURCES BY EXPANSION OF ALLOWABLE
CUT AND INCREASE OF ITS UTILISATION RATE.
HIGH-QUALITY REFORESTATION
CONSTRUCTION OF HAULAGE ROADS
REDUCTION OF THE ENVIRONMENTAL IMPACT
AND USE OF STATE-OF-THE-ART PRODUCTION
TECHNOLOGIES.
THE FOREST SEED CENTRE IN THE KOSTROMA REGION
WILL GROW THE FIRST 4 M SEEDLINGS AS PART OF
THE COMPANY’S POLICY OF SUSTAINABLE FOREST
MANAGEMENT BY 2023.
SUSTAINABLE DEVELOPMENT
MANUFACTURING ASSETS
INNOVATION
CONSTRUCTION OF A PLYWOOD MILL IN GALICH.
INCREASE OF SACK PAPER OUTPUT AT SOKOL PPM.
UPGRADE OF THE SEGEZHA GROUP PPM TO INCREASE
EXPANSION OF PLYWOOD PRODUCTION
CAPACITY AND REDUCE PRODUCTION COSTS.
AT VYATKA PLYWOOD MILL BY 64,000 CU M.
MODERNISATION OF ONEGA WOODWORKING
MODERNISATION OF LESOSIBIRSK WOODWORKING
PLANT WITH EXPANSION OF PRODUCTION
PLANT WITH EXPANSION OF PRODUCTION CAPACITY
CAPACITY BY 48,000 CU M OF SAWN TIMBER
BY 50,000 CU M OF SAWN TIMBER AND BY 100,000 T
AND BY 30,000 T OF PELLETS.
OF PELLETS.
FULL IMPLEMENTATION OF SAP S/4HANA
TRANSITION TO CREATIO CRM SYSTEM AT RUSSIAN
AT ALL DIVISIONS.
AND FOREIGN ASSETS OF SEGEZHA GROUP.
INCREASED NUMBER OF AUTOMATED DATA
SOURCES AND DEPLOYMENT OF A SINGLE DATA
LAKE TO STORE AND PROCESS PRODUCTION DATA.
CREATING AND DEVELOPING R&D CENTRES
AT SEGEZHA GROUP.
AUTOMATION AND INTRODUCTION
OF STATE-OF-THE-ART IT SOLUTIONS.
SISTEMA PJSFC / ANNUAL REPORT 2021 88
RESULTS OF KEY ASSETS
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89
Financial performance in 2021
Financial results, RUB m
In 2021, revenue increased by 34.0 % year-on-year to
RUB 92.4 bn due to increased production volumes and
2021
2020
CHANGE, %
favourable prices for key products.
Revenue
OIBDA
92,442
68,987
29,253
17,457
34.0 %
67.6 %
Operating income
22,351
11,185
99.8 %
Net income
attributable to Sistema
12,041
(1,324)
n/a
92.4 BN
RUB
REVENUE IN 2021
34.0 % y-o-y
29.3 BN
RUB
OIBDA
67.6 % y-o-y
Revenue growth was also supported by the increased average
exchange rates of foreign currencies against the rouble year-
on-year. The rouble's exchange rate decreased by 6 % against
the euro and by 2 % against the US dollar in 2021. The share
of foreign currency revenue grew by 2.5 p.p. year-on-year, to
74.5 %.
In 2021, adjusted OIBDA increased by 67.6 % year-on-year, to
RUB 29.3 bn, mainly due to higher prices for all types of the
company's products and improved productivity and efficiency
of its own logging.
In 2021, adjusted net profit attributable to Sistema amounted to
RUB 12.0 bn compared to a net loss of RUB 1.3 bn in 2020.
Segezha Group's shareholders decided to pay dividends for the
nine months of 2021 in the amount of RUB 6.6 bn. The payment
was completed in January 2022.
SISTEMA PJSFC / ANNUAL REPORT 2021 90
RESULTS OF KEY ASSETS
ETALON
SISTEMA.RU
91
ETALONGROUP.COM
Etalon Group is one of the largest and oldest real
estate development companies in Russia specialising
in mid-market housing construction projects.
A leading player in St. Petersburg and Moscow, it is
now actively expanding into other regions of Russia.
The company is on Forbes's Top-10 list of major Russian
property developers 1, enjoys the highest reliability rating 2
in the industry and belongs to the nation's top 3 construction
companies present in 6+ Russian regions 3.
SISTEMA'S
EFFECTIVE STAKE
29.8
%
TEAM
KEY HIGHLIGHTS
Gennady Shcherbina
CEO
6 M
IN NSA 4
SQ M
270 BN
IN ASSET MARKET
VALUE
RUB
Sergey Egorov
CHAIRMAN OF THE BOARD
OF DIRECTORS
27 PROJECTS IN DESIGN
AND CONSTRUCTION
PHASES 5
1 Position in the 2021 Russian mass housing developers ranking.
2 Developer timing discipline rating by ERZRF.RU.
3 Ranking of developers present in 6+ regions of
Russia as of 01.01.2022 (in terms of sq m under
construction) according to data collected from
nash.dom.rf and official company websites
4 Net Saleable Area
5 As of 31.12.2021, according to Colliers International.
446 THSD
SQ M
SOLD
84.4 BN
RUB
SALES
in 2021
in 2021
421 THSD SQ M
COMMISSIONED IN 2021
ACROSS 9 PROJECTS
84.1 BN
CASH COLLECTIONS
RUB
+ 34 %
IN AVERAGE HOME PRICES
in 2021
in 2021
ETALONSISTEMA PJSFC / ANNUAL REPORT 2021 92
RESULTS OF KEY ASSETS
ETALON
SISTEMA.RU
Industry overview for 2021
The national real estate market
performed strongly throughout
2021 despite the persisting
pandemic-related threats, with
developers increasingly competing
for attractive urban land.
The top 20 players further solidified their market standing by virtue
of strong demand, governmental programmes to subsidise mortgage
loans, and geographic expansion.
Strong demand for urban housing throughout 2021 was fueled both
by people needing new homes and by a rising appeal of real estate
as an investment vehicle.
Although per-capita housing area in Russia is just 27 sq m (far behind
European figures), the numbers grew in 2021 in Russia's most affluent
cities of Moscow and St. Petersburg.
Top-20 developers continue building up portfolios 6
While Moscow and St Petersburg remain Russia's key regions
for real estate development, the top 20 national players
are looking to enter new geographies, which influences
housing construction and commissioning trends.
New housing supply in Russia's biggest metropolitan
areas reached an all-time high of 25 m sq m in 2021.
39 %
45 %
16.4
17.1
46 %
14.0
48 %
18.4
93
60 %
38.6
Delivered in total, m sq m
Aggregate market share of Top-20 players
2018
2019
2020
2021
2022-2025
Housing area per capita 1, sq m
2025 TARGET 2
20
27
33
33
34
39
40
Home floorspace delivered in cities
with 1m+ populations 7, m sq m
Home floorspace delivered
in Saint Petersburg 7, m sq m
Moscow
Saint Petersburg
Warsaw
London
Stockholm
Rome
Berlin
3.5 TN
RUB
REVENUE OF RESIDENTIAL DEVELOPERS
FROM UNITS BEING SOLD
while construction is still in progress
1 Source: Rosstat, national statistics
agencies, Statistik Berlin-Brandenburg,
Centre for cities, ISTAT, SOW
2 The target used here is 30 sq m per capita,
as specified in the national Housing
Development Strategy Through 2025.
3 Source: the Central Bank of Russia.
4 According to CBRE's Recovery of the
Russian real estate investment market due
to the country’s GDP growth in 2021.
5 Source: Knight Frank.
High inflation led to negative effective returns on bank deposits, pushing
people to look for alternative vehicles to invest in. While retail bank
deposits in Russia are up just 6 % (RUB 1.9 tn) year-on-year, with the growth
rate 1 p.p. lower than in 2020 3, funds on the escrow accounts of off-plan
homebuyers (i.e. revenue of residential developers from units being sold
while construction is still in progress) tripled year-on-year, reaching a
staggering RUB 3.1 tn. The trend is especially pronounced in St. Petersburg,
where escrow-account figures quadrupled, while Moscow statistics
dovetail with the national average.
The persistent threat of Covid-19 puts the squeeze on demand for office
space, driving the category's share in the overall real estate investment
structure from 32 % in 2020 to 19 % in 2021 4, while investment in land plots
for development projects went up from 50 % to 64 % 5. According to
Knight Frank, developers continue vying for land in Saint Petersburg
where housing demand is strongest. That said, as Moscow runs out
of commercially sound empty space and competition among top
market players intensifies, demand for land will increasingly follow a
decentralisation trajectory.
By 2025, the national top 20 developers are projected to generate a record
high 60 % of supply in Moscow and St Petersburg, while the number of
small and medium-sized players will continue shrinking as the Central
Bank's interest rate grows.
2021
2020
2019
2018
2017
2016
2015
24.6
22.1
22.6
20.5
20.6
22.0
23.6
Home floorspace delivered in Moscow 7, m sq m
The governmental programme Housing is progressing with
strong momentum. While deliveries in 2021 reached 93 m sq m
(up 13 % year-on-year), the programme targets a much more
ambitious 120 m sq m a year, which, though feasible, requires
a highly favourable construction environment and a sound
national economy overall.
2021
2020
2019
2018
2017
2016
2015
2021
2020
2019
2018
2017
2016
2015
6 Sources: Etalon Group's analysis of data
available at nash.dom.rf and from ERZ
7 Source: UISIS, nash.dom.rf
3.5
3.4
3.5
4.0
3.5
3.1
3.0
7.8
5.0
5.2
3.5
3.4
3.4
3.9
SISTEMA PJSFC / ANNUAL REPORT 2021 94
RESULTS OF KEY ASSETS
ETALON
SISTEMA.RU
95
Business development in 2021
Etalon Group's development efforts in 2021 centred on the
main goals and targets declared in its recently adopted
development strategy through 2024.
Development strategy
Etalon Group's strategic goal
for 2022-2024 is to become the national
No.1 by square metres under construction,
the area of land owned, and business
PROJECT PORTFOLIO EXPANSION
ADVANCING NEW TECHNOLOGIES
efficiency.
The industry's highest return rates coupled with ongoing effort to cut costs,
speed up construction and develop complementary businesses enable
a higher efficiency of land development in Moscow, Saint Petersburg
and elsewhere, whether in the highly lucrative central locations (where
efficiency excellence is driven by superior cost control, standardisation
and prefabrication) or in urban fringe areas.
In a bid to upscale business, in May of 2021 Etalon Group
launched a sweeping land acquisition programme
targeting both current and new regions across Russia.
By February 2022, Etalon Group had more than doubled
its land assets, having acquired 3.7 m sq m, including
parcels in four new regions: Omsk, Novosibirsk, Tyumen and
Yekaterinburg. The acquisitions were partially funded with
proceeds from a secondary public offering organised in
May of 2021, an initiative that brought the company over
150 m US dollars.
STEADY SALES GROWTH
AND STRONGER FINANCIAL POSITION
In 2021, the company set a new record in rouble-
denominated sales and cash collections. The growth
was driven by sales launches for a number of "upmarket"
housing projects, such as Zil-Yug, Nagatino i-Land and
Voxhall, and an overall strong price growth across the
portfolio. With new land parcels under the belt, the
company plans to at least triple sales launches in 2022,
which in turn will support its operating performance
in the next few years.
Growing revenue and efficient cost management made
Etalon one of the leading Russian public developers in
terms of pre-PPA gross profit margin, which reached 36 %.
With net debt reduced to RUB 2.6 bn and Net Debt/pre-
PPA LTM EBITDA 1 to 0.12×, the company is prepared to go
forward with its ambitious strategic programme.
Etalon's key R&D areas are the development of seamless
digital architecture for the entire value chain, product
standardisation and the introduction of new housing
construction technologies. The company's technological
transformation aims to increase its operating efficiency
and profit margins. At the time of the report 2, Etalon Group
is working on:
a pilot "digital districts" project in partnership with MTS
first construction projects using prefabricated elements
rolling out a dynamic pricing system and an automated
land plot analysis system that's now being tested
implementing a set of standard designing solutions for
Phase 1 of Project Green River in Omsk
launching of pilot production of modules, a recently
acquired housing construction technology (to be
completed by the end of 2022)
INCREASING FOCUS ON SUSTAINABLE
DEVELOPMENT (ESG)
Among corporate policies and standards adopted and
updated by Etalon Group in 2022 (such as the Policy on
Insider Information, the Policy on Information Disclosure
and the Code of Transactions in Securities) is a new ESG
Policy designed to systematise the company's approach
to sustainable development. Among other things, the
company sets out specific steps to be taken across the
Group for more profound ESG practices.
1 EBITDA for the past twelve months before purchase price allocation (PPA).
2 February 2022.
Strategy implementation
DEVELOPMENT
ACROSS VALUE
CREATION
CHAIN
the entire design function
is going through a sweeping
conceptual overhaul, which
involves the establishment
of a whole "product office"
the company is launching
a production site of its own
to manufacture modular
building components
it is also developing and
launching a raft of tenant
services, while also collecting
feedback for further product
enhancements
BUSINESS
UPSCALING
LEADERSHIP
IN EFFICIENCY
in the first few weeks of 2022
alone (as of February 2022),
the company has acquired
some 1.5 m sq m of new land
in Moscow and Saint
Petersburg
once the intensive phase of
land acquisitions (2021–2022)
is completed, the company
plans to continue going with
up to 1.0 m sq m of added
land per year
the 2021–2022 expansion
programme targets 5+ new
regions across Russia
the company is increasingly
integrating prefabrication
technologies in traditional
cast-in-place processes
in a bid to cut costs and
speed up construction
a standardised "product
2.0" that's scheduled to
be launched in 2022 will
apply to both mass-market
and upmarket projects,
to be followed by an
overhaul of the entire value
proposition and the launch
of a fundamentally revised
product by 2024
a digital tech platform
that's now being developed
will serve to speed up
upscaling and reduce
accompanying costs
ETALONSISTEMA PJSFC / ANNUAL REPORT 2021 96
RESULTS OF KEY ASSETS
ETALON
SISTEMA.RU
97
Progress made so far towards 2024 strategic targets
Operating performance in 2021
PARAMETER
2024 TARGET
CURRENT STATUS 1
2021
2020
CHANGE, % 4
Portfolio growth
Increase portfolio by 6 m+ sq m
3.7 m sq m acquired since programme launch, including 3.3 m sq m
in regions other than Moscow and St Petersburg. Currently considering
M&A deals in St Petersburg
Start projects in 5+ new regions
in Russia
Projects started in 4 new geographies (Omsk, Novosibirsk,
Yekaterinburg and Tyumen)
Increase new sales
in rouble terms
Double-digit growth
With sales up 5.6 % in 2021, the company expects a further increase
in new contract sales throughout 2022–2024 as the portfolio grows
and more properties are launched for sale
Gross profit margin before
purchase price allocation (PPA)
35 %
36 % in 2021
Net debt/pre-PPA LTM EBITDA
2×-3×
0.12× as of 31/12/2021
Customer experience
Best in class
CJM 2 enhancement project completed in 2021.
Sales, RUB m
84,388
79,922
5.6 %
Sales, thsd sq m
446
538
(17.0 %)
Average price,
RUB thsd / sq m
Average home price,
RUB thsd / sq m
189
239
149
179
Cash collections, RUB m
84,094
81,985
27.3 %
33.6 %
2.6 %
In 2021, Etalon Group demonstrated a strong operational
performance, coming very close to the previously projected
figures. The company reached record highs in new contract
sales (RUB 84.4 bn) and cash collections (RUB 84.1 bn), with
the portfolio-average selling price up 27 % and the average
home price up 34 %. To drive further growth of the business, the
company more than doubled its land holdings in 2021, from
2.8 m sq m at the end of 2020 to 6.0 m sq m as of 31 December
2021. With sales to start from 2022 on, the new land parcels will
translate into yet higher financial performance figures, also
buoyed by strategic initiatives, cost control, and technological
advancement.
Currently piloting a raft of standard solutions in Omsk
(targeting a finalised product proposition by the end of 2022)
and preparing to launch the production of prefab construction
elements (also being piloted in several projects) later this year
Progress on specific projects
For Etalon, 2021 became a year of a record-high revenue
of RUB 87 bn, up 11 % year-on-year. An efficient system
of selling drove gross profit up 27 % year-on-year, to RUB 28 bn.
The Company also maintains focus on trimming SG&A costs,
which are down from 12.5 % in 2020 to 12 % in 2021.
As a result of efficiency enhancements, pre-PPA EBITDA
increased by 28 %, to RUB 21 bn. Pre-PPA net income is up 11 %,
from RUB 5.9 bn in 2020 to RUB 6.5 bn in 2021.
Despite a record-high increase in land acquisitions,
the company generated a positive operating cash flow
adjusted for receipts on escrow accounts, standing
at RUB 19 bn and free cash flow (adjusted for cash receipts
on escrow accounts) at RUB 15 bln. Etalon's shareholders
received RUB 3.6 bn distributed in 2021 dividends
(or RUB 9.4 per ADR).
Among the important
events that took place
in 2021 is the launch
of a large-scale Zil-Yug
project in Moscow
in May of 2021.
By the end of the year, the company had sold nearly
30 thsd sq m here, with the average price up from
RUB 282 thsd to RUB 337 thsd per sq m. The company also
started sales on Project Voxhall in central Moscow and on
new properties n the previously launched Nagatino i-Land.
In a move to expand geographically, the company
acquired land in the Siberian cities of Omsk and
Novosibirsk in 2021 and in Yekaterinburg and Tyumen
in 2022. With first construction permits in Omsk received
in late 2021, the company is launched sales at the project
in April 2022.
Largest completed projects
PROJECT
LOCATION
AREA,
THSD SQ M
Summer Garden, Phase 3
Moscow
Galaktika, buildings 4.13 and 4.15
St Petersburg
Etalon on the Neva
St Petersburg
Petrovskiy Landmark
St Petersburg
Silver Fountain, building 4
Moscow
Normandy, Phase 2
Moscow
87
78
76
74
38
36
Financial performance in 2021
Financial results 3, RUB m
2021
2020
CHANGE 4, %
Revenue
87,138
78,655
Pre PPA EBITDA 5
21,139
16,482
EBITDA
Pre-PPA net income
Net corporate debt
17,880
6,536
2,581
12,601
5,875
10.8 %
28.3 %
41.9 %
11.3 %
19,580
(86.8 %)
1 As of February 2022, if not stated otherwise
2 Customer Journey Map, or a history of a customer's
interactions with the company from first becoming aware
of a need for its product to repeat communications.
3 The results are presented in line with Etalon’s financial statements.
Alternative performance measures reconciliation is provided
in Etalon’s disclosure materials. The results of Etalon Group are
not consolidated in the financial statements of Sistema PJSFC.
4 W/o regard to rounding.
5 EBITDA before purchase price allocation (PPA).
ETALONSISTEMA PJSFC / ANNUAL REPORT 2021 98
RESULTS OF KEY ASSETS
MEDSI
SISTEMA.RU
99
SI
MEDICINE OF COMPETENCY
MEDSI.RU
Medsi is Russia's biggest national private healthcare
platform offering a full range of medical services,
from primary and ambulance care to high-tech
diagnostics, complex surgeries and rehabilitation
programmes, as well as a broad range of services
aimed at improving the quality of life.
SISTEMA'S
EFFECTIVE STAKE
95.5 %
TEAM
KEY HIGHLIGHTS
Elena Brusilova
CEO
12
REGIONS IN RUSSIA
› 90
FACILITIES
Tagir Sitdekov
CHAIRMAN OF THE BOARD
OF DIRECTORS
No. 1 AMONG RUSSIA'S TOP 20 PRIVATE
CLINICS IN 2021 ACCORDING
TO FORBES
3.3 %
SHARE ON RUSSIAN PRIVATE
HEALTHCARE MARKET
279 THSD
SQ M
OF FLOORSPACE
24 %
OIBDA
MARGIN
71 %
BRAND RECOGNITION
IN MOSCOW
› 10,000,000
VISITS
269 THSD
BED-DAYS
3 THSD
RUB
AVERAGE CHEQUE
MEDSISISTEMA PJSFC / ANNUAL REPORT 2021 100
RESULTS OF KEY ASSETS
MEDSI
SISTEMA.RU
101
2020
2021
Business model
Medsi is a three-tier medical platform
that provides an array of care services,
from preventive health improvement
programmes to complex high-tech
surgeries and rehabilitation.
An effective patient routing system and vertically integrated centres
of excellence enable a continuous care cycle relying on uniform corporate
standards and superior efficiency.
2021 marked the establishment of Medsi's very own laboratory business,
a major step towards yet higher quality of clinical and diagnostic service.
Increasing focus has been placed on developing the digital platform
that is both a means of communication and a backbone on which
to add ecosystem products both for patient and doctor use.
REGIONAL PATIENTS
for high-tech medical care under the OMI
HOSPITAL 1
(Otradnoye)
HOSPITAL 2
(Botkinskaya)
HOSPITAL 3
(Michurinsky)
HOSPITAL 4
(Children's)
PPP WITH REGIONS
(OMI stream)
REGIONAL HUBS
Offering advanced diagnostics and day care services (CDC)
ADULTS AND CHILDREN CLINICS IN MOSCOW AND MOSCOW REGION
HOME
CARE
LABORATORIES
DIGITAL PLATFORM/
ECOSYSTEM
CLINICS
IN REGIONS
ASSETS OVERVIEW
CLINICAL DIAGNOSTIC
CENTRES (CDCS), TOTAL
PAEDIATRIC CLINICS
PRIMARY CARE
CLINICS
HOSPITALS
WELLNESS CENTRES
AND RETREATS
HOME CARE
CLINICS OUTSIDE
MOSCOW, TOTAL
CDC Krasnaya Presnya
CDC Belorusskaya
CDC Grokholsky
CDC Maryino
CDC Solyanka
5
2
20
2
3
1
16
5 Perm
1 Nizhnevartovsk
1 Nyagan
1 Volgograd
1 Bryansk
1 Barnaul
4 Izhevsk
3 St Petersburg
SELF-PAY
PATIENTS
VMI
(Individuals)
OMI
OCCUPATIONAL
HEALTHCARE
(Corporations)
TOTAL FACILITIES
49
+2
+7
+33
+42
7
+CDC Michurinsky
+CDC Shchelkovo
2
27
2
3
1
49
+1 St Petersburg
+1 Rostov-on-Don
+8 Ufa
+23 Volgograd
91
SISTEMA PJSFC / ANNUAL REPORT 2021 102
RESULTS OF KEY ASSETS
MEDSI
SISTEMA.RU
103
Industry overview for 2021
MEDSI'S MARKET POSITION
In 2021, Russia's market of commercial
medical services grew by 15.8 %, to RUB
753 bn, out of which RUB 263 bn (34.9 %)
was recorded in and around Moscow.
The retail segment (self-pay patients) remains the main source of
commercial revenue, up 19.8 % year-on-year, to RUB 567.5 bn. Self-pay
patients generate 58.9 % of proceeds in Moscow and 75.3 % in other
regions of Russia. Revenue from voluntary medical insurance (VMI)
is up 5 % year-on-year, to RUB 185.9 bn, despite a 2.2 % decrease in visits.
The increase in VMI revenue results from (1) growing prices of medical
services; (2) pandemic effects; (3) limited access to free medical services
(obligatory medical insurance, or OMI).
Covid-19 continued influencing the healthcare industry throughout
2021, with new pandemic waves and shelter-in-place restrictions driving
demand for telemedicine, home care services, PCR testing, and paid
vaccination.
30.1 BN
RUB
MEDSI'S REVENUE IS UP 20.2 %
driven by higher occupancy rates
Commercial healthcare market by geography 1, bn RUB
533
576
627
691
650
753
783
813
326
207
358
218
395
232
441
250
404
246
490
263
511
272
533
280
2016
2017
2018
2019
2020
2021
2022
2023
Fact
Forecast
SELF-PAY PATIENTS
The self-pay business segment
demonstrated strong performance in 2021
in terms of both revenue and visits. Medsi's
self-pay revenue is up 32.0 %, well ahead
of the market average 19.8 %. As of the
year-end, Medsi's share on the retail
healthcare market was estimated at 2.0 %
nationally and 6.6 % in and around Moscow.
Moscow & outskirts
Other regions
Commercial healthcare market structure (2021) 1, %
Russia
25 %
Moscow & outskirts
MEDSI
54 %
46 %
41 %
MEDSI
54 %
46 %
MARKET
MARKET
75 %
59 %
Self-pay
VMI
32 %
MEDSI'S SELF-PAY
REVENUE GROWTH IN 2021
well ahead of the market
average growth (+19.8 %)
1 Source: BusinesStat
2 Source: BusinesStat, company data
For Medsi, 2021 was a year of strong growth across operational and
financial performance metrics. Medsi's revenue is up 20.2 %, to RUB 30.1 bn,
driven by higher occupancy rates, sustained demand for Covid-related
services, new openings in Moscow and other regions, the development of
telemedicine and home care services and the launch of the brand-new
SmartLab business.
Cancer care, Covid-19, surgeries and injury care dominated the company's
hospital business throughout the year, with total visits up 29 %, to 10.1 m.
The average cheque, however, is down 5.9 %, to RUB 2,954, largely due to
statutory price restrictions imposed on a range of state-subsidised (OMI)
services.
Medsi's share of the Russian market 2, %
2021
2020
Revenue
2021
2020
Visits
Medsi's market share in Moscow and its outskirts 2, %
2021
2020
Revenue
2021
2020
Visits
2.0
1.8
1.5
1.3
6.6
5.4
8.1
6.4
SISTEMA PJSFC / ANNUAL REPORT 2021
104
RESULTS OF KEY ASSETS
MEDSI
SISTEMA.RU
105
VMI SEGMENT
Medsi's VMI revenue in 2021 went up 5.0 % year-on-year,
despite a 30.5 % slump in visits. Medsi's share on the VMI
market as of year-end 2021 is pegged at 7.1 % nationwide
and 11.3 % in Moscow.
Business development in 2021
The 2021 floorspace increase primarily results
Operating performance
Medsi's share of the Russian market 1, %
2021
2020
Revenue
7.1
5.7
Medsi's market share in Moscow and its outskirts 1, %
2021
2020
Revenue
OMI SEGMENT
Medsi's share of the Russian market 1, %
2021
2020
Revenue
11.3
9.4
0.22
0.29
Medsi's market share in Moscow and its outskirts 1, %
2021
2020
Revenue
1.7
1.2
2021
2020
Visits
2021
2020
Visits
14.8
11.6
26.9
22.1
Medsi's OMI revenue in 2021 is down 9.8 %, with visits down
2.5 % year-on-year. At the end of the year, Medsi's market
share in the OMI segment was estimated at 0.2 % in Russia
and 1.2 % in Moscow.
from the inauguration of a new Michurinsky
multi-specialty medical centre and the
acquisition of National Medical Chain clinics
in Ufa and Vologda.
Although the average cheque amount decreased
under the pressure of government-imposed price
restrictions in the OMI segment, the negative effect
was offset by rising visits and brand-new laboratory
services.
Whereas the uptick in clinic occupancy is primarily
owing to a low-base effect (with patient activity
notoriously feeble throughout 2020), the decrease
in hospital occupancy is associated with a decline
in volume of services of the day hospital for
chemotherapy due to the limited volume of OMI.
Visits and services provided are also up YoY due
to the 2020 low-base effect, new openings and high
service quality. Service categories that commanded
the highest demand in 2021 are laboratory tests
and imaging studies.
Despite expectations, 2021 brought no decrease
in Covid-19 sales, with lab-test revenue at 99 % of what
it was in 2020 and PCR testing a regular routine for
many. Revenue from hospital admissions remained
on par with 2020, with a particular upswing in Covid-19
related hospitalisations observed in 4Q. Although CT
scanning revenue went down 25 % as patients gained
more access to free services in state-run clinics,
vaccination revenue offset the effect for Medsi.
2021
2020
Visits
2021
2020
Visits
0,011
0,013
0.1
0.1
99 %
COVID-19 LABORATORY
TEST REVENUE
comparing with the
previous year
MEDSI'S OPERATING PERFORMANCE
2021
2020
CHANGE, %
Total floorspace, thsd sq m
279.2
215.7
29.4 %
Medical floorspace, thsd sq m
127.7
105.6
20.9 %
Average cheque, RUB thsd
Hospital occupancy
Clinic occupancy
Services provided, m
Total visits, m
3.0
87 %
55 %
21.2
10.1
3.2
97 %
37 %
13.9
7.9
Hospital bed-days, thsd
268.8
275.9
Avg. hospital cheque, RUB thsd
32.2
30.4
Visits to clinics, m
Avg. clinic cheque, RUB thsd
9.7
2.0
7.4
2.0
-6.9 %
15.8 %
35.4 %
36.0 %
29.1 %
-2.6 %
5.9 %
31.1 %
-
Revenue by channel 2, %
Revenue
Insurance
Individuals
Corporate
Other
Revenue by asset type 2, %
Revenue
Clinics
Hospitals
CDC
Other
2021
2020
30 087
25 041
54 %
38 %
5 %
3 %
59 %
35 %
5 %
1 %
2021
2020
30 087
25 041
33 %
30 %
31 %
6 %
32 %
35 %
27 %
6 %
1 Source: BusinesStat, company data
2 Source: company data
MEDSISISTEMA PJSFC / ANNUAL REPORT 2021 106
RESULTS OF KEY ASSETS
MEDSI
SISTEMA.RU
107
OPENING OF OUTPATIENT
CANCER CENTRES
A new outpatient cancer centre in Shchyolkovo (Moscow) has capacity
to receive 180 visits per shift and incorporates a 3-bed day-care hospital.
New cancer centres in Perm and Izhevsk offer diagnostic, treatment and
supportive care services.
ECOSYSTEM
DEVELOPMENT
In 2021, like in the years before, Medsi continued developing its digital platform
SmartMed, adding new online services for patients. The app showed strong
performance over the year, with downloads reaching 376 k (up 53.6 k YoY), active
users 528 k (up 72.3 %), and appointments through the app up 3.1x, to 2.5 m.
In September 2021, Medsi launched a remote psychological counseling
programme in partnership with the online therapy startup YouTalk (available
through SmartMed). The company also joined Sber Unity, an online VC platform
bringing together startups, corporations and investors.
In December 2021, Medsi partnered up with the AI developer Third Opinion
to implement a brand-new chest imaging analysis software designed to
dramatically enhance the quality of radiography readings
Key events in 2021
CHAIN EXPANSION
NEW SERVICES
Acquisition of 100 % of shares in ProMedicina in Ufa and Dialine in Volgograd,
previously owned by National Medical Chain. Medsi received 31 clinics
(with an aggregate floorspace of 22,585 sq m), becoming a leading healthcare
provider in two economically attractive cities.
Opening of CDC Shchyolkovo, five "local clinics" and two franchise "family
clinics" in Moscow, a clinic in Rostov-on-Don, and another one in St. Petersburg
(where Medsi now has three facilities).
Opening of Michurinsky Multi-Specialty Medical Centre in Moscow. The new
33,475 sq m facility comprises a clinicodiagnostic centre for adults and children,
a hospital and a high-tech surgical centre. The company's investment in the
project exceeded RUB 8 bn.
Launch of SmartLab, a laboratory chain in Otradnoye (Moscow) with 2,000+
sq m in testing floorspace and a capacity to process 20m+ tests a year.
Medsi's total investment in the project exceeded RUB 400 m.
Opening of a children's hospital (with an area of 4,000+ sq m) in Otradnoye,
offering a full range of paediatric services. Medsi's total investment in the
project exceeded RUB 1 bn. The hospital relies on a "360-degree medicine"
principle, where outpatient, inpatient, rehabilitation and home care services
are centralised under one roof.
A fertility preservation programme for cancer patients launched at Medsi's
Centre for Assisted Reproductive Technology in Moscow makes Medsi one
of three healthcare providers in Russia possessing relevant expertise.
The new Eye Surgery Centre in Moscow offers a full range of high-tech
ophthalmological care.
A new centre of excellence in St. Petersburg specialises in the treatment
of giant melanocytic nevi in children.
A new cancer check-up programme QuickHelpClinic helps detect malignant
growth early on.
DIGITAL
TRANSFORMATION
Launch of a SAP S/4HANA Cloud Private Edition process flow harmonisation
project. The plan is to consolidate all business processes in one intelligent ERP
system to reduce human error and increase the flexibility of planning and the
quality of services provided. The company's implementation partner in the
project is the Russian IT company Novardis.
MEDSISISTEMA PJSFC / ANNUAL REPORT 2021 108
RESULTS OF KEY ASSETS
MEDSI
SISTEMA.RU
109
Financial performance in 2021
Revenue, RUB bn
Financial results 1, RUB m
+20.2 %
25.0
2020
30.1
2021
RUB M
Revenue
Adjusted OIBDA
Operating income
2021
2020
CHANGE, %
30,087
25,040
20.2 %
7,255
3,978
6,888
3,704
5.3 %
7.4 %
2020 2021
Adjusted net income
attributable to Sistema
3,721
3,464
7.4 %
Adjusted OIBDA, RUB bn
+5.3 %
6.9
2020
7.3
2021
2020 2021
Medsi's revenue growth by 20.2 % year-on-year, to RUB 30.1 bn, was primarily
driven by higher occupancy rates, sustained demand for Covid-19 related
services, new openings in Moscow and other regions, the development of
telemedicine and home care services and the launch of the brand-new
SmartLab business.
Adjusted OIBDA increased by 5.3 %, to RUB 7.3 bn, on the back of growing revenue
and proceeds from the Nebo Residence housing project (JV with Capital Group),
which alone brought the company RUB 1.4 bn in OIBDA in 2021 (and RUB 1.6 bn a
year before).
Adjusted net income is up 7.4 %, to RUB 3.7 bn, on the back of the OIBDA increase.
3.7 BN
RUB
ADJUSTED NET INCOME
4.0 BN
RUB
OPERATING INCOME
is up 7.4 % on the back of the
OIBDA increase
+7.4 % year-on-year
Strategic goals
Medsi's multi-pronged strategy is aimed at creating Russia's first nationwide
healthcare provider offering a full range of medical services.
INCREASING MARKET SHARE
IN MOSCOW AND OTHER REGIONS
IMPROVED OPERATING EFFICIENCY
Complete 11 investment projects launched, with clinics to
Streamline clinic/hospital referral procedures.
open in 2022.
Introduce additional workflow standards and enhance
Pursue M&A projects as the priority avenue of regional
business manageability.
expansion 1.
Launch a 5 thsd sq m radiology centre in Otradnoye
(Moscow).
Launch a 6 thsd sq m infectious disease hospital
in Otradnoye.
Develop laboratory facilities, add lab services and open
SmartLab offices in every region where Medsi is by now
present (all in 2022).
VERTICAL INTEGRATION
Create a centralised clinical diagnostic lab and
a nationwide chain of medical offices.
Develop reference centres for radiology, sonography
Adopt healthcare BI analytics.
Introduce standard algorithms for new openings
and integrations.
ECOSYSTEM DEVELOPMENT AND R&D 2
Continue SmartMed upgrades, add new telehealth
services.
Develop a digital interface for doctors to ergonomically
optimise workflow (with decision support and otherwise)
and enhance personalisation
Introduce biotech and genetic products
and imaging studies.
Develop industrial healthcare (in-house health services
Create referral centres of excellence specialising
in cardiovascular disease, oncology, traumatology,
orthopaedics, neurology, paediatrics and other
sought-after fields
for large industrial players)
Adopt a P5-Medicine model and add biohacking
& predictive products
1 Mergers and Acquisitions.
2 Research and Development.
MEDSISISTEMA PJSFC / ANNUAL REPORT 2021 110
RESULTS OF KEY ASSETS
STEPPE AGROHOLDING
SISTEMA.RU
111
Business model
Steppe AgroHolding is one of Russia's largest
vertically integrated agricultural players with
578 thsd ha of land and a diversified asset portfolio.
Steppe AgroHolding is among Russia's Top-6 land owners,
with assets located in the uniquely attractive Krasnodar,
Rostov and Stavropol regions in the Russian south.
A long-standing operational efficiency leader in crop
and dairy farming, Steppe AgroHolding also engages
in international trading in grain and niche crops, relying
on production sites in close proximity to major export ports
in southern Russia as a major competitive advantage.
SISTEMA'S
EFFECTIVE STAKE
91.3
%
TEAM
KEY HIGHLIGHTS
Andrey Neduzhko
CEO
Ali Uzdenov
CHAIRMAN OF THE BOARD
OF DIRECTORS
No. 1
IN RUSSIA IN TERMS
OF MILK YIELD PER
COW
No. 1
IN TERMS OF NICHE
CROP EXPORTS
No. 61
IN RUSSIA BY
LAND AREA
87 THSD
T
OF MILK PRODUCED
IN 2021
45 THSD
T
OF PACKAGED CHEESES
AND DAIRY PRODUCTS PRODUCED
AND DISTRIBUTED IN 2021
Base
segment
100 %
STEPPE
50 %
RZ AGRO
CROP FARMING
MARKET
POSITION
No. 6
100 %
STEPPE
Steppe AgroHolding uses a vertically integrated
diversified business model, where crop farming
as the central business is closely integrated with
logistics and international and domestic trading in
grain, niche crops, sugar and groceries.
High-quality assets in dairy farming make it possible
to process raw milk and produce pre-packaged
cheeses, ingredients and dairy products. Steppe
also processes its crops to produce plant-based
confectionery, eco products, plant proteins and
dairy alternatives.
23.2 THSD
COWS
10.4 THSD
LACTATING COWS
as of the end of 2021
as of the end of 2021
1.8 M T
OF CROPS
HARVESTED
IN 2021 2
1
BEFL.
2 Steppe AgroHolding plus RZ Agro.
GRAIN TRADING &
SUGAR & GROCERY
LOGISTICS
TRADING
DAIRY
FARMING
PACKAGED CHEESE,
DAIRY AND PLANT-BASED
PRODUCTS
TOP-10
MARKET
POSITION
No. 1
No. 1
BY PER-COW
YIELD
No. 1
STEPPE AGROHOLDINGSISTEMA PJSFC / ANNUAL REPORT 2021 112
RESULTS OF KEY ASSETS
STEPPE AGROHOLDING
SISTEMA.RU
113
Industry overview for 2021
CROP FARMING
Russia's gross harvest of grain and grain legumes in 2021
is pegged at 121.4 m t, down 9 % from 2020. The decrease
was due to lower harvest numbers in central Russia
and the Volga region, while the southern-Russia figures
continued to rise. Total grain and grain legume field areas
went down 1.9 %, from 47.9 m ha in 2020 to 47.0 m ha in 2021.
An important landmark of the 2021/2022 crop season
was the introduction of floating export duties on wheat,
barley and corn, a governmental move aiming to establish
a "grain buffer", with export duty proceeds
to be redistributed back to farmers in subsidies.
GRAIN TRADING
Russian grain exports in the 2020/2021 crop season
(including exports to the Eurasian Economic Union, or EAEU)
reached 51.5 m t, up 12.8 % year-on-year.
A global leader in wheat exports, Russia exported 39.2 m t
in the 2020/2021 crop season (EAEU included), which
exceeds 20 % of the global grain exports. In the first half
of the new 2021/2022 crop season, Russia exported 27.2 m t
of grain, including 21.8 m t of wheat, down 17 % year-on-
year. The key importers of Russian grain are Egypt, Turkey,
Bangladesh, Iran, Saudi Arabia and other countries in the
Middle East and Southeast Asia1.
Gross grain and grain legume
harvest in Russia 2, m t
Land prices in Russia are generally on the rise, with investors
increasingly looking to acquire farmland. The trend will likely
continue in the long term due to the ongoing implementation
of advanced agricultural technologies, growing food
consumption, land shortages and an overall high investment
appeal of land assets, with local farmland prices potentially
on track to reach a par with other countries.
DAIRY FARMING
Russia's raw milk output in 2021 reached 32.3 m t, up
0.2 % year-on-year. The raw milk output of agricultural
companies increased by 1.5 %, to 18.1 m t.
The increase is primarily due to the inauguration of new
dairy farms and gradual productivity advancements.
However, the rate of such output growth decreased
year-on-year due to the shutdowns of multiple
inefficient farms, resulting in an accelerated reduction
in the number of lactating cows used in the industry.
Agricultural companies produce 56 % of all Russian milk,
the rest coming from private households.
The 2021 output of market-grade milk in Russia is
estimated at 23.7 m t, or 73 % of all milk produced
nationally. The figure will likely grow further going
forward as more dairy farms appear and embrace
high standards of raw milk production.
Per-cow milk yield in the corporate
sector 4, kg per year
2021
2020
2019
2018
2017
7,162
6,872
6,492
6,091
5,871
Grain exports (EAEU included) 3, m t
Milk output 5, m t
Total lactating cows across farm categories 6, thsd
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2020/2021
2019/2020
2018/2019
2017/2018
2016/2017
2015/2016
2014/2015
SEASONS
121.4
133.5
121.2
113.3
135.5
120.7
104.7
105.2
92.4
70.9
51.5
45.6
45.4
56.0
37.0
35.4
32.0
30.2
14.5
30.6
14.4
15.7
16.2
31.4
14.4
17.0
32.2
14.3
32.3
14.1
17.9
18.1
7,951
7,942
7,964
7,898
7,784
3,316
3,283
3,274
3,271
3,227
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
Corporate farms
Other
Corporate farms
Other
1 Preliminary estimate.
2 Source: RosStat, UISIS.
3 Source: RusAgroTrans.
4 Source: UISIS.
5 Source: RosStat.
6 Source: UISIS, SoyuzMoloko.
SISTEMA PJSFC / ANNUAL REPORT 2021 114
RESULTS OF KEY ASSETS
STEPPE AGROHOLDING
SISTEMA.RU
115
CHEESE MARKET
FRUIT GROWING
The Russian cheese market continues growing, with output
in 2021 going up 5.4 %, to 602 thsd t. The industry remains
highly dependent on imports, which account for up to
30 % of the market. That said, the potential for import
substitution and further enhancement of domestic output
is strong. Cheese consumption in 2021 totaled 860 thsd t,
up 5.3 % from the previous year.
The development of the Russian cheese market is helped
along by imports substitution, an increased production of
pre-packaged cheeses and a consumption structure shift
towards greater prevalence of pre-packaged products,
on track to reach a par with other national markets.
Another source of market growth is the rising per-capita
consumption of cheese. Between 2014 and 2021, this
parameter went from 5.9 to 6.9 kg, in stark contrast to
20.4 kg in Europe, 17.9 kg in the US and 11.8 kg in Australia.
Further enhancement to a par with global values, the
cultivation of a consumer culture and the growing
prevalence of food services where cheese is an essential
ingredient will drive future cheese market evolution.
Cheese consumption in Russia 1, thsd t
761
221
540
817
245
572
860
258
602
641
177
464
670
203
467
2017
2018
2019
2020
2021
Output
Net imports
Russia’s gross pomaceous fruit harvest in 2021 went up
11 %, to 2.6 m t, the result of recently planted orchards
edging towards design capacity and new intensive-type
facilities bringing their first fruit. That said, the area of
perennial pomaceous fruit plantings is down 5.6 thsd ha, to
226.2 thsd ha. The national pomaceous fruit market is still
heavily dependent on imports, with 19 % of fruit consumed
coming from outside Russia.
2.6 M T
GROSS POMACEOUS
FRUIT HARVEST
in 2021
Russia’s gross pomaceous fruit harvest
and apple imports 2, thsd t
845
696
646
616
2,179
2,342
1,997
2,607
710
1,521
2017
2018
2019
2020
2021
Gross pomaceous fruit harvest
Apple imports
32.3 M
T
RUSSIA'S RAW
MILK OUTPUT
in 2021
1 Source: Rosstat, SoyuzMoloko.
2 Source: RosStat, UISIS.
SISTEMA PJSFC / ANNUAL REPORT 2021 116
RESULTS OF KEY ASSETS
STEPPE AGROHOLDING
SISTEMA.RU
117
Business development in 2021
STEPPE AGROHOLDING'S MARKET POSITIONS
DAIRY FARMING
TRADING IN NICHE CROPS
IN KEY SEGMENTS
For Steppe AgroHolding, 2021 was a year of improvements
across the entire spectrum of business lines. In addition
to a gross harvest of 1.8 m t+, the company yet again
established itself as the national No.1 dairy farm by
efficiency, while also taking steps on its ambitious plan to
launch and develop new dairy production facilities.
Steppe also established itself as a stronger grain trader
with a vibrant business, growing sales, and a brand-
new niche crop trading business, a market the company
ventured into in 2021, swiftly rising to the national No.1 status.
As one of the leaders in dairy farming, Steppe operates
seven state-of-the-art farms with smart online control
systems. Out of a total of 23,240 cows, 10,405 are lactating,
up 56 % (or 3,718 head) year-on-year. The total milk output
in 2021 went up 22 % year-on-year, to 87.1 thsd t.
Among initiatives implemented in 2021 is a new dairy farm
in the Krasnodar region designed for 3,000 lactating cows,
scheduled to reach design capacity in 2022. A mega-farm
in the Stavropol region designed to accommodate as
many as 9 thsd lactating cows is now in the works, with new
animals arriving as we speak.
CROP FARMING
GRAIN TRADING AND LOGISTICS
Steppe AgroHolding's land assets as of YE 2021 stood
at 578 thsd ha. The national No.6 by land area, the
company owns farmland in the Russian regions that
are most attractive in terms of climate, crop yield, and
logistical accessibility. A significant share of Steppe
AgroHolding's assets are owned or leased for a long term.
In 2021, the company harvested a record-high 1.8 m t
of agricultural crops (including ~1 m t of wheat), up 45 %
from 2020. The achievement is in large part due to efficient
management and the adoption of the latest agricultural
technologies, IT solutions (AI-driven and otherwise) and
machinery (including autonomous vehicles).
Steppe's grain trading sales in 2021 totaled 1.7 6 m t, up 47 %
from a year before.
The main efforts here went towards developing international
trading capabilities, which involves a partnership closed
with the Black Sea's leading broker Actava Trading and first
landmark import/export transactions. Progress made in 2021
alone increased the company's international grain trading
revenue by a factor of 3.
In 2021, Steppe AgroHolding instituted a brand-new niche
crop trading business. In the first year of operation, the
business sold 208 thsd t of niche crops, an absolute record
high among Russian peers. In the first half of the new crop
season 2021/2022, Steppe AgroHolding re-established itself
as Russia's biggest exporter of peas and one of the top
exporters of mustard and chickpeas.
Niche crop trading is part of the company's strategy to
diversify its product and shipment portfolio amid swiftly
changing market conditions.
TRADING IN SUGAR AND GROCERIES
Sugar and grocery trading is a logical extension of the crop
farming business, where Steppe AgroHolding -grown beets
are processed into Steppe AgroHolding -traded sugar
and staple ingredients for Steppe AgroHolding -made
processed products.
In 2021 alone, the company sold 306 thsd t of sugar and
groceries. A priority business line here is pre-packaged
groceries, branded and otherwise, a category that went
up 27 % year-on-year, reaching 23.2 thsd t.
PRODUCTION OF PRE-PACKAGED CHEESE
AND DISTRIBUTION OF DAIRY PRODUCTS
AND DAIRY ALTERNATIVES
Consistent with its strategy's thrust towards enhancing
processing capacities, in 2021 Steppe AgroHolding
acquired the industrial assets of PiR Group, a major Russian
producer of pre-packaged cheeses and slice-on-slice
cheese for the HoReCa sector and a leading distributor
of dairy products and plant-based alternatives, selling
up to 45,000 t of products a year.
The business acquired comes with quality production
facilities and profound industrial expertise, becoming
a harmonious link in the process chain from raw milk
to processing to distribution. The dairy processing plant
in Vologda region is also among Russia's seven
businesses certified to produce the uniquely delicious
"Vologda Butter".
PiR's yet another business line is the production and
distribution of plant-based dairy alternatives, a food
category coming on strong both nationally and worldwide.
PiR Group has been a distributor of plant-based since the
national market first came into being in 2009.
Steppe AgroHolding's grain sales, thsd t
Steppe AgroHolding's sales
of sugar and groceries, thsd t
Steppe AgroHolding's sales
of packaged groceries, thsd t
1,761
307
306
330
23.2
18.3
1,115
1,198
1,200
176
12.7
269
2017
2018
2019
2020
2021
2018
2019
2020
2021
2019
2020
2021
SISTEMA PJSFC / ANNUAL REPORT 2021 118
RESULTS OF KEY ASSETS
STEPPE AGROHOLDING
SISTEMA.RU
119
Development strategy
Financial and operational performance in 2021
Steppe AgroHolding's
development strategy aims
to further the evolution of the
company's key business lines,
which involves:
Developing the
international grain trading
business, aiming at 50 %+
of revenue to come from
abroad
Acquiring more high-quality land
in southern and central Russia,
increasing operating efficiency and
adopting new technologies, including
AI and autonomous vehicles
Increasing the output of pre-
packaged and slice-on-slice
cheese for the HoReCa sector
and the sales of both dairy
products and plant-based
alternatives
Building and
commissioning new dairy
farms and increasing
livestock numbers and
high-quality milk output
Further enhancing the company's
standing as a sugar and grocery
trader by boosting sales (including
branded pre-packaged products)
and broadening product portfolio
Driving projects to process
milk and produce plant-based
proteins and alternatives from
Steppe AgroHolding -grown
raw materials
Revenue, RUB bn
57.2
2021
+74.1 %
32.8
2020
RUB M
Revenue
Adjusted OIBDA
Operating income
Adjusted net income
attributable to Sistema
2021
57,150
14,368
11,234
2020
CHANGE, %
32,824
9,321
7,368
74.1 %
54.1 %
52.5 %
7,505
3,909
92.0 %
2020 2021
In 2021, revenue grew by 74.1 % year-on-year, to RUB 57.2 bn, mainly due to higher
Adjusted OIBDA, RUB bn
14.4
2021
+54.1 %
9.3
2020
crop-farming and grain-trading revenues, which in turn resulted from a higher
gross harvest, rising prices for agricultural produce, an efficient sales strategy,
strong effort being invested in international trading in grain and niche crops,
the launch of new business segments (such as the production of pre-packaged
cheese and the distribution of dairy products and plant-based alternatives)
and growth in dairy farming performance.
Adjusted OIBDA went up 54.1 % year-on-year as a result of higher operational
efficiency, increased crop yields, rising prices for agricultural produce, better
performance in the international trading business, a successful development
of trading in niche crops as a brand-new business line, the production
of pre-packaged cheese and the distribution of dairy products and plant-based
alternatives.
2020 2021
CAPEX totaled RUB 4.2 bn, primarily spent on the construction and upgrades
of dairy farms, the acquisition of agricultural equipment and the development
of logistics infrastructure.
Steppe AgroHolding's gross harvest
(RZ Agro included), thsd t
Steppe AgroHolding: Production
THSD T
Wheat
2021
2020 CHANGE, %
THSD T
965.1
647.8
49.0 %
Milk production
Sunflower
96.3
68.7
40.2 %
Peas
Corn
88.1
51.4
59.1
49.0 %
22.0
133.7 %
Sugar beet
338.7
206.8
63.8 %
Grain trading sales
Sugar and grocery
trading sales
Pre-packaged product sales
(sugar & groceries)
Barley
Other
Total
45.3
56.8
−20.2 %
Niche crop trading sales
236.0
192.0
22.9 %
1,820.8
1,253.4
45.3 %
2021
87.1
1,761.4
306.1
23.2
207.8
2020
CHANGE, %
71.4
1,200.0
330.0
18.3
47.0
22.0 %
46.8 %
−7.2 %
26.6 %
341.8 %
SISTEMA PJSFC / ANNUAL REPORT 2021 120
RESULTS OF KEY ASSETS
BINNOPHARM GROUP
SISTEMA.RU
121
Binnopharm Group is Russia's leading
pharmaceutical company specialising in the
development, manufacturing, promotion and sales of
drugs and medical products in the markets of Russia
and the CIS.
Business model
PRODUCTION
SISTEMA'S
EFFECTIVE STAKE
75.3
%
TEAM
KEY HIGHLIGHTS
Rustem Muratov
CEO
› 450
MARKETING
AUTHORISATIONS FOR
DRUGS IN RUSSIA
370 MN
NEW MARKETING
AUTHORISATIONS
PER YEAR IN 2021
Dmitry Zubov
CHAIRMAN OF THE BOARD
OF DIRECTORS
13
EXPORT
SEGMENTS
6
REPRESENTATIVE
OFFICES IN THE CIS
5
PRODUCTION
FACILITIES
20 %
PRODUCTS ARE
MANUFACTURED FROM
IN-HOUSE PRODUCED APIs
57
UNITS PRODUCED
IN 2021
Binnopharm Group comprises production facilities across
Russia: JSC ALIUM (formerly OBL Pharm in the Serpukhov
district of the Moscow region), Binnopharm JSC (with its
two sites in Zelenograd and Krasnogorsk near Moscow),
SINTEZ PJSC (in the Urals city of Kurgan) and "Biocom"
JSC (in Stavropol in Russia's south). In aggregate, these
production facilities manufacture products in more than
200 pharmaceutical groups in various dosage forms
(tablets, capsules, gels, suppositories, infusion solutions, etc).
PRODUCT PORTFOLIO
The Group's diversified portfolio comprises more than
450 marketing authorisations for drugs in the following
major medical areas: gastroenterology, cardiovascular
diseases, respiratory diseases, infectious diseases,
neurology, musculoskeletal disorders and dermatology.
Each of the 450 drugs accounts for 7 % of revenue or less.
More than 100 drugs from Binnopharm Group's portfolio are
included in the list of vital and essential drugs.
PROMOTION
Binnopharm Group's key advantage is the combination of
a diversified portfolio of drugs and an effective system of
promotion through media tools, contracts with pharmacy
chains and medical and pharmaceutical representatives.
RESEARCH AND DEVELOPMENT
Binnopharm Group is doing continuous research aimed at
developing new drugs and expanding its product portfolio.
The company has started construction of a modern R&D
centre in the Krasnogorsk district of the Moscow region
with a total floor area of 12,000 sq m.
The R&D centre will comprise two research units:
centre for development of synthetic drugs
centre for development of biotech drugs
The new R&D centre will employ 450 people. By 2025,
Binnopharm Group expects to launch more than
100 new products (dermatology, neurology, gynaecology,
pediatrics, etc).
KEY FIGURES
Revenue breakdown by distribution, 2021
Retail segment
Public procurement
Export
24 %
7 %
25.5
RUB BN
69 %
Revenue breakdown by product type, 2021
Antibiotics
Gastroenterology
Phlebology
Musculoskeletal
Cardiovascular
Anti cold
Other
27 %
7 %
7 %
25.5
RUB BN
9 %
11 %
24 %
14 %
Retail portfolio breakdown, 2021
Branded Gx
INN Gx
Original drugs
7 %
47 %
25.5
RUB BN
48 %
Full range of dosage forms, 2021
Tablets
Powder
Solutions
Capsules
Gels
Creams
Other
8 %
3 %
4 %
12 %
12 %
25.5
RUB BN
44 %
17 %
BINNOPHARM GROUPSISTEMA PJSFC / ANNUAL REPORT 2021 122
RESULTS OF KEY ASSETS
BINNOPHARM GROUP
SISTEMA.RU
123
Industry overview for 2021
› 1.5 TN
RUB
EXPECTED OUTPUT
OF DOMESTICALLY
MANUFACTURED DRUGS AND
MEDICAL PRODUCTS
By the end of 2030
311 BN
RUB
EXPECTED EXPORT OF
DRUGS AND MEDICAL
PRODUCTS
By the end of 2030
The main goal of the government's Pharma-2030 programme
is to increase the output of domestically manufactured drugs
and medical products twofold in monetary terms by 2030
vs 2021: up to RUB 1.5 tn. This goal can be achieved by means
of building scientific, technological and manufacturing
capabilities in the pharmaceutical and medical industries.
The government is also planning to stimulate the exports of
drugs and medical products, which are expected to reach
RUB 311 bn by 2030.
Another focus area of the government's programme is
organising the production of pharmaceutical ingredients. By
the end of 2030, the government expects to increase the share
of strategically important drugs that are fully manufactured in
Russia up to 90 %.
In 2021, the pharma market in Russia, including drugs
sold by pharmacy chains to the government sector,
grew by 12 % year-on-year in monetary terms, up to
RUB 1,994 bn, and decreased by 9 % in volume terms,
down to 5.9 bn packages. At the same time, drug sales
in the retail segment increased by 6 % year-on-year in
monetary terms, reaching RUB 1,218 bn, and dropped
by 8 % in volume terms, down to 5.1 bn packages.
Drug supplies in the public segment in 2021 totaled
828 m packages worth RUB 777 bn. The public pharma
segment grew by 24 % in monetary terms and went
down by 11 % in volume terms.
The rouble weakened amid changes in the macroeconomic
environment, driving growth in the production cost of
drugs with a high share of imported ingredients. In 2021, the
pharmaceutical market slowed down, as real household
incomes decreased.
At the beginning of 2021, sales of life-improving drugs (mostly
over-the-counter) were on the decrease, while the demand
for essential drugs rose. In 1Q 2021, the situation stabilised, and
the second half of the year saw a rise in consumer demand for
life-improving drugs. A new wave of Covid-19 in the autumn of
2021 prompted a rise in demand for antiviral drugs, while the
consumption of antibiotics didn't grow as fast as during the
initial waves of the Covid-19 pandemic in 2020.
The priorities of the government's policy in the pharmaceutical
industry until 2030 include:
import substitution (including substances; drugs from the
list of strategically important products; low-margin drugs
and medications that are in high demand in the domestic
healthcare segment, etc) to ensure sustainability of drug
supplies in Russia
ensuring the required growth of production capacity in the
pharmaceutical and medical segments to achieve the goals
of the government's policy, including with the help of targeted
financing of major construction projects from the federal
budget
developing a mechanism for securing the high quality of drugs
and medical products for the national healthcare system
Development of the Russian
pharmaceutical market 1, RUB bn
1,994
1,218
1,775
1,151
1,376
905
1,473
984
471
489
777
624
2018
2019
2020
2021
Commercial segment
Public segment
1 Source: AlPharm, audit of retail and public
pharmaceutical market, 2018-2021
creating and improving conditions for developing innovative
drugs and medical products
SISTEMA PJSFC / ANNUAL REPORT 2021 124
RESULTS OF KEY ASSETS
BINNOPHARM GROUP
SISTEMA.RU
125
Business development in 2021
FORMATION OF BINNOPHARM GROUP AND
CHANGES IN SHAREHOLDING STRUCTURE
In February 2021, Sistema and VTB Bank (Europe) SE via
Sinocom Investments Limited contributed their 56.2 %
stake in PJSC Sintez (formerly known as OJSC Sintez) to the
equity of Binnopharm Group. At the same time Sistema,
VTB, and a consortium of investors comprising the Russia-
China Investment Fund (established by the Russian Direct
Investment Fund and China Investment Corporation)
and leading Middle Eastern funds (RCIF consortium)
contributed an 85.6 % stake in JSC Alium to the equity of
Binnopharm Group. Following the transaction, Sistema's
effective interest collectively owned with VTB Group stood
at 79.0 %, with another 15.8 % held by RCIF consortium
and remaining 5.2 % held by the minority shareholders-
individuals (minority shareholdings were partially acquired
by Sistema in April 2021).
In March 2021, Sistema Group acquired 32.4 % stake in PJSC
Sintez from JSC National Immunobiological Company. In
May 2021, Sistema contributed this stake to the equity of
Binnopharm Group, increasing Binnopharm Group's interest
in Sintez to 88.6 %. Following the transaction, Sistema's
effective interest collectively owned with VTB Group in
Binnopharm Group increased to 86.5 %, with another 12.5 %
held by RCIF consortium and remaining 1.0 % held by the
minority shareholder-individual.
In June 2021, Sistema's wholly-owned subsidiary LLC
Sistema Telecom Assets sold an 11.2 % stake in Ristango
Holding Limited, which owns 100 % of the authorised capital
of Binnopharm Group to Nevsky Property Investments
Limited (controlled by VTB Capital). The total price tag of the
transaction was RUB 7 bn.
In July 2021, Sistema exercised its right and bought the
stakes in Ristango Holding Limited (which owns 100 % of
the equity of Binnopharm Group) held by VTB for a total of
RUB 6.7 bn. In December 2021, Sistema exercised its right to
acquire RUB 9.06 bn worth of shares of Sinocom Investments
Limited from VTB Bank (Europe) SE through its subsidiary
LLC Sistema Telecom Assets. Sinocom held a 28.4 % stake
in Ristango Holding Limited. Following the transaction,
Sistema's effective interest in Ristango Holding Limited
stood at 75.3 %, with another 12.5 % held by the consortium,
11.2 % held by Nevsky Property Investments and remaining
1.0 % held by the minority shareholder-individual.
PRODUCT PORTFOLIO EXPANSION
In 2021, Binnopharm obtained 27 marketing authorisations
in Russia and registered more than 30 drugs abroad. At
the beginning of 2021, Binnopharm Group and Glenmark
Pharmaceuticals Limited agreed to localise the production
of the antiviral drug favipiravir (which is used for the
treatment of Covid-19, among other deceases) at Alium
plant in Obolensk, the Moscow region, and at Biocom plant
in Stavropol.
In February 2022, Binnopharm Group signed an agreement
to purchase a manufacturer licence for antibacterial
drugs under the brands of Ciprolet and Levolet in
Russia, Uzbekistan and Belarus from the international
pharmaceutical company Dr. Reddy's.
Acquisition of these drugs will strengthen Binnopharm
Group's leadership in the antibiotics market, which is
a prirotity market for the company.
MODERNISATION PROJECTS AND CONSTRUCTION
R&D DEVELOPMENT
OF NEW PRODUCTION FACILITIES
In September 2021, the company announced its plans for
creating a modern R&D centre in the Krasnogorsk district
of the Moscow region that will combine the research units
of all enterprises. The centre will develop synthetic and
biotech drugs.
INTERNATIONAL EXPANSION
In December 2021, the company announced its plans for
international expansion and opening of offices in the CIS:
Kazakhstan, Belarus, Azerbaijan, Moldova, Armenia and
Uzbekistan. The company has long been operating in the
CIS markets through partners, being a leader in the sales
of medical products among Russian companies. Opening
of representative offices abroad will make it possible
to create an in-house promotion service to speed up
development in these markets. The company expects its
export revenue to double by 2024.
In February 2021, Binnopharm Group tripled its capsule
production capacity at Alium plant located in Obolensk,
the Moscow region, up to 15 m packages a year.
In August 2021, Binnopharm Group completed an
investment project for upgrading Biocom plant in
Stavropol. The total amount of investment in the
development of the production facility reached
approximately RUB 1 bn.
In December 2021, the company completed modernisation
of a sachet production line at Alium (in Obolensk, the
Moscow region), increasing its capacity to 50 m sachets
per annum. The company plans to gradually relocate
production of all medications in sachet form to Alium. Total
investments in the project amounted to RUB 100 m.
In February 2022, the company completed renovation of
Sintez plant in Kurgan that produces drugs in the form
of syrups and suspensions, driving overall production
capacity to RUB 6 m bottles a year, or three times the pre-
upgrade output.
In February 2022, Binnopharm Group launched design
works at the Sintez plant in Kurgan to build a modern
GMP/GDP pharmaceutical warehouse facility that will store
raw materials and finished products. The facility will be
divided into five areas with different temperature regimes,
it will also have a temporary warehouse for customs
clearance that will significantly optimise the logistics for
delivering imported materials to the plant.
SISTEMA PJSFC / ANNUAL REPORT 2021 126
RESULTS OF KEY ASSETS
BINNOPHARM GROUP
SISTEMA.RU
127
Operations & investment development strategy
Financial performance in 2021
Binnopharm ambition is to build a
leading pharma company in the Eastern
Europe and CIS markets
Continue to organically
gain market share in fast
growing Russian Gx and
OTC markets
CLEAR STRATEGY WITH
MULTIPLE LEVERS
SUPPORTING FUTURE
GROWTH
Actively enhance
product portfolio: different
mixes, new launches,
category brands,
biopharma investments
Successful promotion
strategy increasing
salesforce effectiveness
via pharma and
medical representatives
Maintain focus on cost
competitiveness and
operational efficiency (new
launches of in house API,
R&D efficiencies)
Expansion in foreign
markets, to increase
presence in the CIS
countries
Inorganic growth
via value accretive
M&As
Revenue, RUB bn
+19.3 %
21.4
2020
OIBDA, RUB bn
+48.7 %
5.5
2020
25.5
2021
2020 2021
8.1
2021
RUB M
Revenue
OIBDA
Operating income
Net income
2021
25,496
8,113
5,691
3,354
2020
CHANGE, %
21,372
5,456
4,081
1,939
19.3 %
48.7 %
39.5 %
73.0 %
In 2021, revenue rose by 19.3 % year-on-year due to increased penetration of
Binnopharm Group's products in various segments of the pharmaceuticals
market. Sales increased across all segments: retail, export and inpatient. The
inpatient segment was up 27 % year-on-year, with export sales rising by 15 %.
Sales in the retail segment increased by 20 % year-on-year, the main growth
drivers being the products aimed at improving the quality of life of consumers:
vein tonic Angiorus, synbiotic Maxilac, antimicrobial and anti-inflammatory
agent Oflomelid and antispasmodic Neobutin.
In 2021, OIBDA jumped by 48.7 % year-on-year amid growing revenue, tighter
control over administrative and selling expenses and optimisation of product
portfolio. OIBDA margin grew by 6.3 p.p. year-on-year, up to 31.8 %. Net income
soared by 73.0 % year-on-year on the back of OIBDA growth.
2020 2021
By the end of 2021, net debt decreased by 16.9 % year-on-year, down to RUB 7.6 bn.
Net debt /OIBDA went down from 1.7× in 2020 to 0.9× in 2021.
73.0 %
NET INCOME GROWTH
FY 2021
7.6 BN
RUB
NET DEBT
By the end of 2021
SISTEMA PJSFC / ANNUAL REPORT 2021 128
RESULTS OF KEY ASSETS
OTHER CONSOLIDATED ASSETS
SISTEMA.RU
129
BASHES.RU
SISTEMA'S
EFFECTIVE STAKE
Bashkir Power Grid Company (BPGC) is a dominant
power grid company in the Republic of Bashkortostan,
transiting of electricity energy between the center
of the country and the Urals and a provider of power
facility engineering and construction services.
91
%
TEAM
KEY HIGHLIGHTS
Sergey Gurin
CEO
Dmitry Sharovatov
CHAIRMAN OF THE BOARD
OF DIRECTORS
360.8 THS
C.U.
AMOUNT OF MAINTENANCE
89.4 THSD
KM
LENGTH OF GRIDS
Business model
14,706 PCS
NEW CONNECTIONS
FUEL SUPPLY
POWER
GENERATION
TRANSMISSION & DISTRIBUTION
SELLING
CONSUMPTION
41 %
SHARE OF SAEM
GAS
RENEWABLES
7.8 THSD
FTEs
HEADCOUNT
COAL
LLC BGK
(INTER RAO)
THERMAL
AND OTHER
BPGC
TRANSMISSION
GRIDS
BASHKIRENERGO
DISTRIBUTION
GRIDS
LLC BASHKIR
ENERGY SELLING
COMPANY
AND OTHER
FUEL OIL
LLC BGK
(INTER RAO)
HYDROELECTRIC
LLC BASHKIR ENERGY SELLING COMPANY
HOMES
OFFICES
INDUSTRIAL
100 %
IMPLEMENTATION
OF SMART GRID
TECHNOLOGY IN UFA
78 1 %
SHARE ON
BASHKORTOSTAN'S
POWER TRANSMISSION
MARKET
1
In terms of revenue.
OTHER CONSOLIDATED ASSETSSISTEMA PJSFC / ANNUAL REPORT 2021 130
RESULTS OF KEY ASSETS
OTHER CONSOLIDATED ASSETS
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131
Industry overview for 2021
In 2021, electricity consumption in Russia
grew 5.4 % year-on-year, to 1,107 tn kWh,
with electricity generation up 6.3 %,
to a new all-time high of 1,131 tn kWH,
primarily due to significant rises in both
domestic and international demand.
Although electricity consumption by
oil producers and refineries had been
decreasing throughout 1H 2021 under
pressure from the OPEC+ agreement
to reduce oil production, the trend
reversed in 2H, with net supply and power
consumption back on the rise.
Domestic demand for electricity climbed up as economy started emerging
from a lockdown, a trend further buoyed by the cold weather of 1Q and
heat waves of the summer of 2021. All types of power generation facilities
ramped up their output, with renewable energy generation growing
fastest and nuclear and hydropower plants hitting fresh highs in electricity
output.
Russia's electricity exports in 2021 increased YoY by a factor of 2.2, to 25
bn kWh. The Russian government approved a one-off 5 % increase in retail
electricity tariffs for households and an annual 3.0 % increase in those for
industrial users throughout 2021–2023 (effective from 01 July 2021).
In Bashkortostan, net electricity supply is projected to grow by 0.95 bn kWh,
or 6.3 % year-on-year, including: (1) an additional 1.1 bn kWh for oil producers
(up 47 %); and (2) an additional 0.15 bn kWh for oil refineries (up 8.2 %).
NEW CONNECTIONS
The company recorded
14,706
CONNECTIONS TO POWER GRIDS IN 2021
up 7.1 % year-on-year
as economic activity picked up
Business development in 2021
KEY PROJECTS
BPGC leads the Russian electricity
GROWTH IN OUTPUT & EFFECT OF PRICE INCREASES
Distribution grid upgrades
grids market by operating efficiency,
maintaining high quality and reliability
of services despite lower average prices
and unit operating costs.
Bashkortostan's largest grid company, BPGC
is also the biggest investor in local market
infrastructure. In 2021, BPGC's investment in the
republic's infrastructure totaled RUB 3.68 bn
(net of VAT), out of which RUB 2.1 bn was applied
toward new connections.
The overall supply of electricity to consumers and territorial grid
operators (TGOs) in 2021 went up 3.5 %. While the increase was primarily
driven by the tapering of the OPEC+ production cuts, consumption in the
retail (household) segment also went up 4.1 % year-on-year, to 3,117.8 m
kWh.
As Bashkortostan exceeded its designated cross-subsidisation volume
ceiling in 2021, 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 high and medium-1 voltage levels, while the
power loss component of two-part rates was adjusted by +5.6 %, effective
from July of 2021.
In 2021, the company spent RUB 917 m on
grid overhauls and upgrades aimed to
modernise the partly worn infrastructure
and eliminate failure threats:
replacements of outdated switchgear with latest low-maintenance
remote-controlled solutions (3 sets in the 35-110 kV grid and 24 sets
in the 0.4-10 kV grid)
microchip installations in the relay protection and automation
systems of 14 substations
overhauls of DC control power systems at 5 substations for greater
survivability and a better functioning of protection, automation and
remote-control systems
upgrades of telecontrol systems at 26 substations and installations
of fibre optic communication lines
To enhance the reliability of power supply to consumers in the
republic's Beloretsky district, BPGC continued the construction
of the Uzyan-Bainazarovo 110 kV overhead power transmission
line, a project that will cost the company a total of RUB 325 m,
including RUB 60.4 m invested in 2021 in transmission towers.
SISTEMA PJSFC / ANNUAL REPORT 2021 132
RESULTS OF KEY ASSETS
OTHER CONSOLIDATED ASSETS
SISTEMA.RU
133
Strategic goals
Financial performance in 2021
BPGC's mid-term strategic plans are
aimed at greater operating efficiency and
the following specific goals:
Improved operating efficiency
Installation of smart electricity meters
Reduction of technical losses through newer
and more efficient technology and equipment
Digital transformation
Extensive programme to upgrade grid
infrastructure with advanced technology
Production of power grid equipment for
digitalisation projects
Comprehensive digitalisation in technological
and managerial workflows
Business upscaling
Consolidation of grid assets in Bashkortostan,
including ones managed by territorial grid
operators
Development of non-regulated business lines
leveraging expertise gained in grid assets (IT
services, power facility designing, outdoor
lighting, etc.)
Revenue, RUB bn
+5.1 %
19.7
2020
20.7
2021
2020 2021
OIBDA, RUB bn
5.3
2021
+24.2 %
4.4
2020
2020 2021
Financial results, RUB m
RUB M
Revenue
OIBDA
Operating income
Net income attributable
to Sistema
2021
2020
CHANGE, %
20,740
19,733
5,443
2,581
4,382
1,575
5.1 %
24.2 %
63.9 %
1,804
1,174
53.7 %
Revenue is up 5.1 % year-on-year, mainly due to electricity consumption
rising as business activity started picking up in the wake of the pandemic
and specifically as oil companies resumed active oil production in 2H 2021.
Part of the growth was also supplied by grid connection and engineering
revenue streams.
OIBDA is up 24.2 % on the back of growing revenue along with a reduction
in provisions for receivables to RUB 5.4 bn. Net income is up 53.6 %, to
RUB 1.8 bn. RUB 0.3 bn was distributed in dividends in 2021.
2.5 BN
RUB
OPERATING INCOME
1.8 BN
RUB
NET INCOME
FY 2021
By the end of 2021
RUB M
Power losses
Power losses
Power in
Power out
UOM
%
m kWh
m kWh
m kWh
2021
2020
DEVIATION
Bashkirenergo
BGC
Bashkirenergo
BGC
Bashkirenergo
BGC
7.4
1,588
1.2
313
7.7
1,582
1.3
308
0.3 p.p.
0.1 p.p.
0.4 %
1.5 %
21,327
25,926
20,662
23,441
3.2 %
10.6 %
19,739
25,613
19,080
23,133
3.5 %
10.7 %
New connections
connections
Connected capacity
MW
14,706
349
1
7.5
13,727
344
−
−
7.1 %
1.5 %
−
−
OPTIMISATION AND AUTOMATION
OF WORKFLOW AND OPERATIONS
BPGC spent 2021 working on the enhancement
of operating efficiency, which involved:
the implementation of a pilot automated workflow
management system SK11
the launch of a call centre voice assistant for customers
steps to optimise and automate connection costs
2021 marked the completion of the following automation
projects:
business intelligence data collection & reporting tools for
corporate use
compromised meter identification system (a collabora-
tion with MTS)
SMART METER DEPLOYMENT: PLANS, RESULTS, AND POTENTIAL GAINS
In the vein of technological modernisation, the company
installed 25.4 thsd meters at the consumers' end
and at main substations, reaching a total of 327 thsd
smart meters at the end of 2021. This makes 41 % of
the total number of meters (802 thsd) used by BPGC
for the commercial and technical metering of power
consumption.
327,000
TOTAL NUMBER OF SMART METERS
By the end of 2021
SISTEMA PJSFC / ANNUAL REPORT 2021 134
RESULTS OF KEY ASSETS
OTHER CONSOLIDATED ASSETS
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135
Business Nedvizhimost is one of the key players in Moscow’s
commercial real estate market, with a portfolio of 79
properties. The company owns and manages a unique real
estate portfolio in Moscow and St Petersburg, including
mansions in central Moscow and class B and C office and
retail premises located in almost every administrative district
of Moscow.
Business model
Main focus areas
SISTEMA-BN.RU
SISTEMA'S
EFFECTIVE STAKE
TEAM
KEY HIGHLIGHTS 1
Denis Beer
CEO
Sergey Egorov
CHAIRMAN OF THE BOARD
OF DIRECTORS
100
%
ruBBB+
CREDIT RATING
Expert RA
~ 400 THSD
SQ M
TOTAL AREA
OF COMMERCIAL
REAL ESTATE
79
COMMERCIAL PROPERTIES
in Moscow and
St Petersburg
100 %
OF PROPERTIES
IN OWNERSHIP
1 The areas of commercial real estate are presented for JSC
Business Nedvizhimost excluding areas Mosdachtrest.
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
PROPERTY MANAGEMENT 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 OFFICELESS
READY-MADE 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
THE COMPANY ALSO DEVELOPS THE OLYMPIC STAR FITNESS CLUB IN MOSCOW
OTHER CONSOLIDATED ASSETSSISTEMA PJSFC / ANNUAL REPORT 2021 136
RESULTS OF KEY ASSETS
OTHER CONSOLIDATED ASSETS
SISTEMA.RU
137
Industry overview for 2021
After a period of market uncertainty
and reduced activity of developers,
with only 224,400 sq m of office space
commissioned in 2020, commissioning
of office space increased 2.6x in 2021,
to 587,000 sq m. This figure exceeds the
results in 2016–2020.
Total supply 1
25 %
49 %
19.5 M
SQ M
26 %
Class A
Class B
Class B-
New supply 1
22 %
587 THSD
SQ M
78 %
Class A
Class B
1 Source: Knight Frank
Since the beginning of the year, the vacancy rate in class A decreased
by 2.3 percentage points to 9.5 %. Thus, less than 480,000 sq m of
offices remain vacant at the moment. In class B, the vacancy rate
is around 5.6 %, 0.5 percentage points lower than in 2020. The total
vacant space in class B is 704,000 sq m. At the same time, the vacancy
rate in class A within the Moscow Ring Road already reached 6.5 %
(-1.7 percentage points year-on-year).
480 THSD
SQ M
THE TOTAL SPACE
OF OFFICES REMAIN VACANT
decreased by 2.3 %
year-on-year
704 THSD
SQ M
THE TOTAL VACANT SPACE
IN CLASS B
in 2021
Office space absorption – a key indicator of demand demonstrating
for a certain period the difference between all the space that
became occupied and all the space that entered the market vacant –
increased significantly in 2021, to 701,500 sq m, vs 262,100 sq m in 2020.
Increased absorption rate is driven by both increased activity of
office users, who not only change office location but also increase the
occupied area, and new built-to-suit buildings, which are created for
a specific user and enter the market occupied.
Office rental rates increased in both classes in 2021. In class A, the
asking rental rate for offices increased by 1.2 % compared to the
beginning of the year and is now at the level of RUB 25,827 sq m a year
(excluding operating expenses and VAT). In class B, the rental rate
also increased by 2.5 % compared to the beginning of the year, to RUB
17,556 sq m a year (excluding operating expenses and VAT). There is
an interesting trend regarding class A properties within the Moscow
Ring Road: the indicator has been steadily growing over the past
years, and over the past year the weighted average rate increased
by almost RUB 2,000 (+6.3 % year-on-year), to RUB 32,988 sq m a year
(excluding operating expenses and VAT).
701.5 THSD
SQ M
OFFICE SPACE ABSORPTION IN 2021
vs 262,100 sq m in 2020
SISTEMA PJSFC / ANNUAL REPORT 2021 138
RESULTS OF KEY ASSETS
OTHER CONSOLIDATED ASSETS
SISTEMA.RU
139
Business development in 2021
Financial performance in 2021
Financial results, RUB m
2021
2020
CHANGE, %
Revenue
4,164
6,296
-33.9%
Operating income
473
1,904
-75.1%
OIBDA
Net income
1,001
2,423
-58.7%
-355
1,378
-
In 2021, the decline in financial performance is mainly due
to the absence of significant commercial real estate sales.
The reorganization of Business-Nedvizhimost in the form
of the spin-off of the suburban real estate segment
Mosdachtrest was completed in November 2021. Financial
results for 2021-2020 include consolidated data on the group
of companies Business-Nedvizhimost and Mosdachtrest
for the entire reporting period.
Structure of assets by region
INDICATOR
2021
2020
CHANGE, %
Area of commercial real estate
in Moscow, k sq m
Area of commercial real estate
in St Petersburg, k sq m
371
380
-2.4
26
26
-
TOTAL
397
406
-2.2
The area of commercial real estate in Moscow decreased as
a result of the sale of the Zarya recreation centre. Commercial
real estate area at the end of 2020-2021 is presented for
Business-Nedvizhimost without taking into account the areas
of the companies Mosdachtrest.
In 2021, Business Nedvizhimost adopted
IN 2022, JSC BUSINESS NEDVIZHIMOST
its medium-term development strategy.
PLANS TO IMPLEMENT THE FOLLOWING TASKS:
According to the strategy, the company’s
management will focus its efforts on
launch up to 3 flexible office spaces under the Officeless project in
optimising the commercial real estate
portfolio to increase its liquidity and
capitalisation. In 2021, a non-core asset
Mosdachtrest was spun off from Business
Nedvizhimost.
The company managed to lease out about
40,000 sq m in 2021. One of the key deals
was the lease of buildings at 11 Tushinskaya
Moscow with 1,800 workstations
maintain net operating income in the classic rental segment at 50 %,
given temporary downtime during renovation and transfer of the
most high-margin properties to the Officeless project
increase the efficiency of using space freed up by MGTS and
maximise operating income
sell non-core assets
St in Moscow with an area of more than
develop a project of self-storage facilities at the company’s portfolio
8,000 sq m to the Moscow Metro.
properties
3 FLEXIBLE
OFFICE SPACES
JSC BUSINESS NEDVIZHIMOST
PLANS TO LAUNCH UP
In 2022
20 OFFICELES
LOCATIONS
IS PLANNED TO OPEN UP
IN MOSCOW AND ST PETERSBURG
by the end of 2025
The development potential in the traditional rental offices segment is
limited. The most attractive segment for the company’s development
is flexible workspaces.
According to JLL, flexible office formats will take up to 30% of the office
market in Europe by 2030. The segment of flexible office spaces in
Russia is expected to grow at the rate of 22 % per year. Rental rates for
flexible spaces exceed the rates for traditional formats (RUB 35 k/sq
m a year vs RUB 25 k/sq m a year). JSC Business Nedvizhimost plans to
capture up to 30 % of the flexible office space market and become a
leader in this market.
Global trends show that decentralised locations are in demand
among companies that have switched to a hybrid format of work,
because they provide convenient access for employees close to
their homes, while the location of properties allows maintaining
communication and mobility of employees. Flexible office spaces
will be in demand among clients in the enterprise sector, while the
possibility of built-to-suit format will be relevant for companies
seeking to diversify their portfolio of leased office properties.
At the moment, there is a shortage of high-quality flexible work
spaces due to excess demand from large Russian and international
businesses, as well as a declining vacancy rate in the office space
market due to insufficient new supply in 2021.
As part of the Officeless project, JSC Business Nedvizhimost plans to
create a unique ecosystem for business and professional growth –
both an internal platform for residents and an external platform
for integration with the chain’s partners. Networking and informal
communication with the help of the Officeless team will form a
business community of a new format.
By the end of 2025, it is planned to open up to 20 Officeless locations in
Moscow and St Petersburg with 14,000 workstations.
SISTEMA PJSFC / ANNUAL REPORT 2021 140
RESULTS OF KEY ASSETS
OTHER CONSOLIDATED ASSETS
SISTEMA.RU
141
COSMOSGROUP.RU/EN
SISTEMA'S
EFFECTIVE STAKE
Cosmos Hotel Group owns and manages a portfolio
of 20 hotels in 15 cities of Russia and abroad, with a
total of approximately 4,600 rooms. Cosmos Hotel
Group is one of the largest hotel companies in Russia.
100
%
HOTELS
TEAM
KEY HIGHLIGHTS
Alexey Akindinov
CEO 1
20
HOTELS UNDER
MANAGEMENT
in Russia
4,653
ROOMS UNDER
MANAGEMENT
› 1.2
M
+ GUESTS IN COSMOS
HOTEL GROUP HOTELS
in 2021
Andrey Kolokolnikov
CHAIRMAN OF THE BOARD
OF DIRECTORS
51 %
4,302 RUB
AVERAGE OCCUPANCY
RATE OF COSMOS
HOTEL GROUP HOTELS
AVERAGE ADR 2
OF COSMOS HOTEL
GROUP HOTELS
83.1 %
OF COSMOS HOTEL
GROUP’S REVENUE
IS GENERATED
in Russia
Business model
Cosmos Hotel Group operates its own hotels and third-
party hotels. The company is developing rapidly through
the construction of new hotels under its own brand and the
execution of contracts for external management.
Cosmos Hotel Group 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.
The company has expertise in managing hotels and
creating new hotels, as well as a single centre of excellence
(marketing, sales, procurement and accounting).
1 As of 31 December 2021, Alexander Shvein.
2 Average daily rate
Cosmos Collection – unique luxury hotels and resorts.
Cosmos – modern urban hotels with developed infrastructure
and excellent service.
Cosmos Smart Hotels – bright ideas for budget urban hotels.
Cosmos Stay – modern aparthotels for extended stays and a
range of additional services.
RETAIL
CLOTHES
ECO STORES
CHILDREN'S CLOTHING
LOUNGE
SERVICES
TECHNOLOGY
E-COMMERCE
TRAVEL
TRAINING CENTRE
OTHER CONSOLIDATED ASSETSSISTEMA PJSFC / ANNUAL REPORT 2021 142
RESULTS OF KEY ASSETS
OTHER CONSOLIDATED ASSETS
SISTEMA.RU
143
Innovative solutions for hotel guests,
management and owners
SOLUTIONS
FOR GUESTS
SOLUTIONS
FOR BUSINESS
GADGETS INSTEAD
ORDERING SERVICES
OF KEYS
VIA AN APP
E-COMMERCE
VIRTUAL ASSISTANT
COMMUNICATIONS
DIGITAL
(CHATBOT)
VIA A GADGET
LOYALTY CARD
INTERNAL
Saving up to 40 % in electricity costs
Eliminating pipe bursts and small fire
outbreaks before real damage occurs
Saving on facility management costs thanks
to centralisation
Saving up to 30 % in heating costs
Increasing the level of comfort
“SMART” SYSTEM
FOR FACILITY
MANAGEMENT
TECHNOLOGIES
AIMED AT REDUCING
HEAT LOSS
SOLUTIONS
FOR HOTEL OWNERS
ONLINE MONITORING
OF BUILDINGS VIA
ONLINE MONITORING
A SPECIAL INTERFACE
OF REVENUE
Industry overview for 2021
In 2021, the hospitality industry demonstrated
its ability to adapt to the new reality caused by
the coronavirus pandemic, with key operating
indicators generally stabilising.
The hotel occupancy rate in Moscow did not fall below
50 % amid a significant increase in domestic demand. The
ADR in 2021 in Moscow was 22 % higher than in 2020 and
only 6.2 % lower than in 2019. The St Petersburg market also
performed better compared to 2020: the ADR increased by
5 %, while the occupancy rate rose by 16 p.p.
The ADR of quality hotels averaged RUB 6,483 in Moscow
and RUB 4,480 in St Petersburg. The weighted average
occupancy rate of hotels was 60.5 % in Moscow and 51 % in
St Petersburg.
The fourth wave of COVID-19 in October-November 2021 once
again postponed the recovery of the usual demand structure:
the activity of the MICE industry in large cities decreased by
an average of 40 %-60 %, while the average booking window
decreased to 2-3 weeks. As a result, the seasonality of business
changed and it became more difficult for hotels to forecast
revenues and service loans.
22 %
THE INCREASE OF ADR
IN MOSCOW
5 %
THE INCREASE OF ADR
IN ST PETERSBURG
year-on-year
year-on-year
Hotel rooms in Moscow
Rooms available at the start of the year
Rooms added during the year
2.4 %
THE INCREASE OF ROOMS
IN MOSCOWHOTEL ROOMS
2021 vs 2020
1,143
14,974
1,003
13,791
778
19,303
1,661
17,645
471
17,174
1,237
15,937
128
20,084
270
20,212
497
20,482
2013
2014
2015
2016
2017
2018
2019
2020
2021
SISTEMA PJSFC / ANNUAL REPORT 2021 144
RESULTS OF KEY ASSETS
OTHER CONSOLIDATED ASSETS
SISTEMA.RU
145
Due to the ongoing pandemic, the opening dates of new
hotels get postponed: about 40 % of projects were delayed
for a period of 6 to 12 months. Nevertheless, three new
quality hotels in Moscow (Hampton by Hilton Rogozhskiy
Val with 83 rooms, Vertical Boutique BW with 152 rooms
and Marriott Imperial Plaza with 268 rooms) and four in
St Petersburg (Wawelberg with 79 rooms, Holiday Inn St.
Petersburg with 158 rooms, Kravt Nevsky Hotel & Spa with 95
rooms and MARIA with 87 rooms) opened in 2021.
As of the end of 2021, there were 21,000 quality rooms in
Moscow and 26,000 rooms in St Petersburg. The most
attractive markets for hoteliers in 2021 were St. Petersburg,
Moscow, Sochi, Rostov-on-Don, Krasnodar, Yekaterinburg
and Kazan.
The key national players in the Russian hotel market are
Azimut (over 10,000 rooms under management), Amaks
(6,500 rooms) and Cosmos Hotel Group (4,600 rooms).
The leading international hotel chains operating in Russia
are Radisson (10,000 rooms), Accor (9,000 rooms), IHG
(7,000 rooms), Marriott International (6,500 rooms) and
Hilton (4,800 rooms).
Cosmos Hotel Group’s share in the supply of quality rooms
in Russia is more than 8 %.
Most of the factors affecting the business of Cosmos Hotel
Group in 2021 were in one way or another related to the
ongoing COVID-19 pandemic, with the key factor being the
almost complete absence of inbound tourist flow.
The revival of the industry in 2021 was mainly caused
by the redistribution of tourist flows with domestic
tourism becoming the key driver of hotel occupancy. For
instance, the Moscow Aviation Hub’s passenger traffic
from domestic commercial flights in 2021 increased by 8 %
compared to the peak year of 2019. International passenger
traffic also increased compared to 2020 but remains 65 %
below pre-pandemic levels.
In general, 2022 is expected to be similar to 2021, as inbound
tourism remains scarce, vaccination rates in Russia are
relatively low, and agreements with other countries on
mutual recognition of vaccines have not yet been reached.
The market is expected to recover to 2019 levels no earlier
than the second half of 2023, with a full recovery of
business tourism by 2025.
The growth of domestic tourism will have a positive
impact on the hospitality industry and will help restore the
performance of mid-price hotels.
Business development in 2021
In 2021, a large-scale programme was launched to create
new hotels under the company’s own brand Cosmos:
the construction of 12 urban hotels and 8 resort hotels in
different regions of Russia with a total of 4,000 rooms is in
progress at various stages with a total budget of about
RUB 50 bn. The first hotels will open as early as 2022: a
3-star hotel in Segezha (Republic of Karelia) and a 4-star
hotel in Omsk.
4 THSD
TOTAL NUMBER
OF NEW ROOMS
CONSTRACTED
in 2021
50 BN
RUB
TOTAL BUDGET
OF LARGE-SCALE
PROGRAMME
in 2021
Agreements in principle on joint implementation of new
projects were reached with strategic partners: JSC
Corporation Tourism.RF, PJSC Promsvyazbank and Baltros
Group.
Intercontinental Hotel Group and Wyndham.
The company rebranded seven regional Park Inn hotels,
which now operate under the brand of Cosmos. A Member of
Radisson Individuals.
The company entered into new contracts for 750 rooms
owned by third parties. Third-party hotels under
management operate under Cosmos Hotel Group’s
own brands, under international brands and under a
co-branding arrangement. As a result, the number of
rooms managed by the Company increased by 12 %
compared to 2020.
In 2021, Cosmos Hotel Group was accredited to operate
hotels under the international brands Radisson, Hilton,
For the construction of new hotels, Cosmos Hotel Group
raises debt financing from leading Russian banks with
participation in the interest rate subsidising programme of
the Federal Agency for Tourism.
The company is implementing high-tech solutions at the
Cosmos Collection Izumrudny Les Hotel, including unmanned
taxi and food delivery to rooms using rovers with the
technical support from Yandex.
Strategic goals
Cosmos Hotel Group’s strategy is aimed at becoming a
leader in the Russian hotel market by the number of rooms
and by brand strength/recognition.
The strategy’s priorities are to vigorously expand the
portfolio of hotel assets (owned and operated), improve
operational efficiency and develop Cosmos Hotel Group’s
umbrella brand (Cosmos Smart, Cosmos, Cosmos Collection,
Cosmos Stay, Cosmos Food, Cosmos Travel).
The company’s investment programme includes the creation
of 20 new urban and resort hotels under the Cosmos brand
with a total of more than 4,000 rooms. Cosmos Hotel Group
will continue its active expansion in the market of third-party
hotel management.
The company will continue to take measures to improve its
operational efficiency and strengthen the single centre of
excellence.
Cosmos Hotel Group implements high-tech solutions at all
stages of value creation: from planning and implementing
new projects to interacting with guests and owners of hotels
under management.
PLANS FOR 2022:
open two new own hotels in Segezha and Omsk and
two hotels owned by third parties (Hilton Garden Inn in
Moscow and PSB Patriot by Cosmos in the Moscow region)
start construction of new own hotels in Sheremetyevo,
Yekaterinburg, Sheregesh and near Lake Baikal
attract under management over 1,000 rooms owned
by third parties.
In the next three years, the company plans to create 12
urban hotels and 8 resort hotels in various regions of Russia
with a total of 4,000 rooms and a combined budget of
about RUB 50 bn.
SISTEMA PJSFC / ANNUAL REPORT 2021 146
RESULTS OF KEY ASSETS
OTHER CONSOLIDATED ASSETS
SISTEMA.RU
147
Financial performance in 2021
Financial results, RUB m
2021
2020
CHANGE, %
Revenue
Adjusted OIBDA
4,013
296
2,516
(85)
Operating loss
(369)
(1,893)
Net loss
(614)
(1,167)
+ 59.5 %
-
-
-
In 2021, Cosmos Hotel Group’s financial performance recovered
compared to 2020. The company’s revenue grew by 59.5 %
year-on-year to RUB 4.0 bn due to the fact that most of the
pandemic-related restrictions imposed on hotels were lifted,
whereas in 2020 hotel operations did not fully recover. The
growing exchange rates also had a positive effect on revenue.
Following a partial recovery in revenue, adjusted OIBDA
amounted to RUB 0.3 bn in 2021 compared to minus RUB 0.1 bn a
year earlier. Adjusted OIBDA margin was 7.4 %. Adjusted net loss
amounted to RUB 0.6 bn.
Operating results
NUMBER
OF ROOMS
Hotels in Russia
Hotels abroad
2021
4,653
4,512
141
2020
CHANGE, %
4,162
+12 %
The average occupancy rate of Cosmos Hotel Group hotels in
2021 was 51.1 %, which is 14.5 p.p. higher than in 2020 and 15.5 p.p.
lower than in the pre-pandemic year of 2019.
4,021
141
+12 %
-
The chain’s ADR in 2021 increased compared to the level of 2019-
2020 and amounted to RUB 4,302 both due to rising prices in
foreign hotels caused by the euro’s appreciation and due to
higher ADR in Russian hotels, which confirms the trend towards
growing domestic tourism.
OCCUPANCY RATE OF THE
CHAIN’S HOTELS, INCL.
51.1 %
36.6 %
+14.5 p.p.
Hotels in Russia
52.2 %
37.2 %
+15.0 p.p.
Hotels abroad
22.5 %
20.7 %
+1.8 p.p.
In the reporting period, the chain’s RevPAR amounted to RUB
2,197, which is 65 % higher than in 2020 and only 8 % lower than in
2019. The growth was driven by market recovery and increased
demand.
ADR OF THE CHAIN’S
HOTELS (RUB), INCL.
Hotels in Russia
Hotels abroad
REVPAR OF THE CHAIN’S
HOTELS (RUB), INCL.
Hotels in Russia
Hotels abroad
4,302
3,639
+18 %
Cosmos Hotel Group increased the number of rooms in 2021 by
signing contracts for 750 rooms owned by third parties.
3,667
42,119
2,197
1,913
9,458
3,136
27,979
+17 %
+51 %
1,331
+65 %
1,166
5,783
+64 %
+64 %
51.1 %
AVERAGE OCCUPANCY
RATE OF COSMOS HOTEL
GROUP HOTELS IN 2021
2,197
AMOUNT OF THE
CHAIN’S REVPAR
IN THE REPORTING PERIOD
RUB
which is 14.5 p.p. higher
than in 2020
which is 65 % higher
than in 2020
SISTEMA PJSFC / ANNUAL REPORT 2021 148
RESULTS OF KEY ASSETS
OTHER CONSOLIDATED ASSETS
SISTEMA.RU
149
SITRONICS.COM
SISTEMA'S
EFFECTIVE STAKE
Sitronics Group is a vertically integrated IT holding
company offering a broad range of digital
transformation solutions for B2B and B2G customers.
AMONG RUSSIA'S
top 25
IT COMPANIES
IN 2020 (ACCORDING
TO CNEWS)
100
%
TEAM
KEY HIGHLIGHTS
Nikolay Pozhidayev
CEO
› 400
PARTNERS
› 1,500
EMPLOYEES
Alexey Katkov
CHAIRMAN OF THE BOARD
OF DIRECTORS
No. 2 MICROSOFT PARTNER IN
CORPORATE LICENSING
(LSP) IN RUSSIA
IT SERVICES FOR B2B AND B2G
CUSTOMERS
COMPREHENSIVE SMART CITY
PROJECTS
DEVELOPMENT OF ELECTRIC VEHICLE
CHARGING INFRASTRUCTURE
DEVELOPMENT OF INTELLIGENT
MARINE SOLUTIONS AND HIGH-TECH
NAVIGATION PRODUCTS
MANUFACTURING OF INFORMATION,
COMPUTER AND TELECOM (ICT)
EQUIPMENT
MANUFACTURING OF INFORMATION,
COMPUTER AND TELECOM (ICT)
EQUIPMENT
SITRONICS GROUP'S KEY BUSINESS LINES ARE:
79 %
CAGR REVENUE
IN 2018–2021
2.5 BN
RUB
ADJUSTED OIBDA
IN 2021
29 200 000 000
REVENUE IN 2021, RUB
OTHER CONSOLIDATED ASSETSSISTEMA PJSFC / ANNUAL REPORT 2021 150
RESULTS OF KEY ASSETS
OTHER CONSOLIDATED ASSETS
SISTEMA.RU
151
Business model
Sitronics Group uses a business model that is standard
for the IT industry and employs traditional tools for communicating
its value proposition, including implementation advice, system
integration, the installation and maintenance of hard- and software
and the development and implementation of comprehensive projects.
The company also possesses unique know-how in the spheres
of marine navigation and the manufacturing of small-size spacecraft,
which can serve as independent sources of information for further
services and solutions.
INDUSTRIES
Space industry
Timber industry
State organizations and law
Oil and gas industry
Transport and logistics
Telecommunications
Banks and insurance
Retail
companies
enforcement agencies
Machine engineering
Healthcare
Construction
TECHNOLOGIES
Design and manufacture
of satellite spacecraft
weighing from 1 to 200 kg
Computer vision
Infrastructure for electric
vehicles
Big Data
Intelligent transport systems
Industrial Internet of Things
Automated production
Autonomous unmanned
air system
In-house production
of server hardware
complexes
Digital complexes
for maritime navigation
COMPETENCES
Software development
and implementation
Design and implementation
of computing complexes
Information security
Providing digital services
Design and construction
for shipping traffic
of communication networks
Development and production
Design and construction
and data storage systems
of data centers
System integration, support,
Development and production
IT outsourcing
of radioelectronics
of microsatellite and
nanosatellite systems
Providing services based on
the Earth Observation data
Industry overview for 2021
The IT research agency Gartner estimates the global ICT
market at year-end 2021 at USD 4.2 tn, up 7.7 % from 2020,
with the strongest growth observed in enterprise software
sales (up 14.4 % year-on-year).
The global IT market is characterised by a deep penetration
of IT services, with hardware generating an increasingly small share
of total revenue.
+4.4 %
+7.1 %
+7.7 %
4.7 TN
4.5 TN
237,021
+4.7 %
4.2 TN
226,475
+4.7 %
751,937
+12.0 %
216,337
+11.4 %
671,732
+11.0 %
3.9 TN
604,946
+14.4 %
813,699
+3.3 %
804,253
−1.2 %
787,417
+13.0 %
1,186,103
+10.7 %
1,279,737
+7.9 %
1,391,742
+8.8 %
194,200
517,834
696,990
1,071,281
1,396,334
1,444,324
+3.4 %
1,462,717
+1.3 %
1,494,167
+2.2 %
2020
2021
2022
2023
Fact
Forecast
Global IT market, USD m
Although Russia's share in different segments
of the global IT market varies within the modest
range of 0.6 % to 2 %, its annual growth rate
in 2021 (preliminary estimated at 10-15 %) is
almost the double of that of the global market.
According to the market intelligence firm IDC,
the Russian IT market in 2020 totaled RUB 1.8 tn,
with hardware generating 65 % of total revenue.
Data Centres
Enterprise software
Hardware
IT services 1
Telecom
1
IT services include system integration, advisory
services, software development, firmware
development and maintenance, and IT training.
SISTEMA PJSFC / ANNUAL REPORT 2021 152
RESULTS OF KEY ASSETS
OTHER CONSOLIDATED ASSETS
SISTEMA.RU
153
Russian IT market, RUB bn
1,889
268
406
1,215
281
434
1,417
2,132
2,088
2,143
296
449
1,343
320
462
1,361
2,240
2,333
351
479
1,410
384
498
1,451
Business development in 2021
A lack of visible advancements in Sitronics's operating
performance in 2021 is primarily due to a recent revision
of the group's strategy and the establishment of new business
segments whose first economic effects will only come
to fruition in 2022–2025.
KEY BUSINESS
INITIATIVES IN 2021
Three trials of a new autonomous marine navigation system
on commercial vessels.
2020
2021
2022
2023
2024
2025
Fact
Forecast
Hardware
IT services
Software
+30 %
GROWTH OF THE
RUSSIAN GOVERNMENT
DIGITALISATION MARKET
year-on-year
Industry players estimate the Russian government digitalisation market
to have grown 30 % year-on-year, with government's effort to automate
public administration effectively driving digital transformation across
multiple spheres of life, and government projects responsible for roughly
one-third of all software development contracts signed nationwide.
In the mid-term, the Russian IT-market evolution will continue to be
driven by accelerating import substitution initiatives in both software
and hardware space as well as a growing digitalisation of public
administration and strategic industries. The national programme Russia's
Digital Economy requires that the percentage of domestically developed
software being procured from 2024 on reach a least 90 % for government
agencies and 70 % for state-owned businesses.
BARRIERS AND RISKS PREDICTED
TO CONTAIN IT MARKET GROWTH
IN THE MID-TERM
global shortages of electronic components and limited access
to foreign-made electronics
limited access to foreign software, with domestic solutions
dependent on foreign open-source products
strong demand for IT talents globally and shortage of skilled
professionals
1 Source: IDC, preliminary estimates of industry players in 2021.
Three launches of CubeSat satellites to support scientific research and refine
on platform capabilities.
Establishment of a brand-new charging-stations business line and the launch
of a related user app Sitronics Electro for e-vehicle owners (currently available
in Moscow and Nizhny Novgorod).
Launch of the production of Sitronics-designed servers as part of the national
import substitution programme.
2021 was a transformative year for Sitronics Group, with corporate development
strategy taking a swing from a niche telecom integrator to a vertically
integrated ICT holding company possessing a broad array of unique expertise.
As part of the process, the company established new business lines and
conducted several M&A deals:
In February, JSC Sitronics acquired 100 % of shares in JSC Kronstadt Technologies
(Sitronics KT), enriching its product portfolio with high-tech marine navigation
and logistical management solutions.
In May, Sitronics KT presented its unmanned marine navigation technology
to the International Maritime Organisation (IMO). The technology is being tested
as we speak on three commercial vessels.
Sitronics KT also received an order from the shipbuilding industry department
of the Russian Ministry of Industry and Commerce to develop e-navigation
services (geoinformation etc.) to be integrated in shore- and ship-based
systems.
In April a rebranding carried out, gave all entities within the group a common
Sitronics name.
MTCOTHER CONSOLIDATED ASSETSSISTEMA PJSFC / ANNUAL REPORT 2021
154
RESULTS OF KEY ASSETS
OTHER CONSOLIDATED ASSETS
SISTEMA.RU
155
KEY BUSINESS
INITIATIVES IN 2021
In November, the company launched the production of computer servers
in Novosibirsk as part of the national import substitution programme. The first
product line uses x86 architecture, and the facility has capacity to produce
30K+ servers a year.
In 2021, Sitronics Group acquired a 75.0 % equity stake in the private Russian
space company Sputnix. In the future, the company plans to provide digital
services to a broad range of customers using data from low-orbit satellites.
The company also started an e-vehicle charging business, with pilot
infrastructure successfully deployed in multiple Russian regions (including
Moscow).
SITRONICS GROUP IS AN
ACTIVE MEMBER OF A
NUMBER OF PROFESSIONAL
ASSOCIATIONS
In May 2021, Sitronics Group's president Nikolay Pozhidayev joined the
supervisory board of the non-profit Telecom Technologies consortium,
established to support the national telecom hardware manufacturing industry.
In December 2021, Sitronics Group joined the AI Ethics Code prepared by the
national AI Alliance where Russia's leading tech companies make concerted
effort to develop and implement AI solutions for educational, research and
business applications.
Strategic goals
Sitronics's new development strategy
STRATEGIC FOCUS AREAS
aims to build a leading ICT holding
company possessing unique expertise
development of a portfolio of proprietary products for industrial
across an array of IT domains. That
involves a corporate transformation
from a niche telecom integrator into
a provider of a broad range
and urban digitalisation
growth acceleration via new IT products and services
active involvement in the national Northern Sea Route
of products and services (including
development project with autonomous navigation solutions
proprietary Sitronics solutions)
for attractive markets.
formulation and implementation of ESG principles across
the product portfolio
SITRONICS GROUP'S INVESTMENT
PROGRAMME PROVIDES FOR
acquiring assets complementary to the Group's existing businesses
investing in proprietary product developments
MTCOTHER CONSOLIDATED ASSETSSISTEMA PJSFC / ANNUAL REPORT 2021 156
RESULTS OF KEY ASSETS
VENTURE CAPITAL FUNDS
SISTEMA.RU
157
VENTURE CAPITAL
FUNDS
Overview of the VC market in 2021
EUROPE
RUSSIA
Sistema Venture Capital 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.
In 2021, VC funding to European startups 1 basically doubled
and amounted to EUR 100 bn vs EUR 46 bn in 2020. With this
impressive growth, the European VC ecosystem entered a
mature stage, just like the US and China. The share of late-
stage rounds in the total volume of VC investments was
70 %, which also indicates the maturity of the market. The
UK, France and Germany remain Europe’s largest venture
capital markets and systematically produce unicorns,
which have tripled in number since 2018.
SISTEMA'S
EFFECTIVE STAKE
80
%
EXITS
In 2021, the Russian venture capital market generally
followed the global trends and grew to RUB 80 bn. As
in the previous year, this growth was mainly due to
foreign investments in companies with founders from
Russia. Such deals accounted for more than 50 % of the
market. Following the reform of development institutions
announced by the Russian Government in 2020, the activity
of funds with state participation decreased considerably.
In 2021, investments representing the state segment
amounted to only RUB 2.3 bn vs RUB 3.9 bn a year earlier 2.
1 According to PitchBook.
2 Source: RBC.
TEAM
KEY HIGHLIGHTS
The first fund of Sistema Venture Capital
completed the investment phase and
began active sales of its portfolio
companies in the reporting year.
› 40,000,000 USD
PORTFOLIO COMPANIES RAISED IN 2021
TARGET FUND SIZE
YEAR ESTABLISHED
PORTFOLIO COMPANY
45 THSD T
OF PRE-PACKAGED CHEESES AND
DAIRY PRODUCTS PRODUCED AND
DISTRIBUTED IN 2021
Dmitry Filatov
CEO
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, Series B.
10 BN
RUB
INDUSTRIES
2016
GROWTH-STAGE
TECH COMPANIES
FUND LIFE
NO FIXED TERM
TARGET RETURNS
BUYER
AKVA Group (Norway)
acquired the stakes of
financial investors in
Observe Technologies,
a company specialising
in computer vision
technologies for industrial
fish farms.
Sberbank acquired a
100 % stake in GOSU Data
Lab, an AI-based training
platform for competitive
gamers.
Shutterstock (USA)
acquired UK-based
DataSine to strengthen
its artificial intelligence
(AI) division. DataSine
uses AI to build a user’s
psychological profile.
MTS signed a definitive
agreement to acquire a
100 % stake in VisionLabs,
a leading Russian
developer of facial
recognition technologies.
The transaction was
closed in February 2021.
The transaction was
closed in July 2021
The transaction was
closed in July 2021.
The transaction was
closed in February 2022.
20-25 %SISTEMA PJSFC / ANNUAL REPORT 2021 158
RESULTS OF KEY ASSETS
VENTURE CAPITAL FUNDS
SISTEMA.RU
159159
AWARDS
The annual ceremony of Russia PE&VC Awards
took place during the 13th Russian Congress
of Private Equity and the 9th Forum of Venture
Investors in Moscow.
This is one of the main events dedicated to the
PE and VC industry in Russia and the CIS. The
team of Sistema Venture Capital was awarded
as the best team in Russia’s VC market, while its
successful exit from GOSU, an AI-based training
platform for esports athletes, was named the
Exit of the Year.
KEY PARTNERSHIPS
HeadHunter Group invested USD 5 m in YouDo, a
portfolio company of Sistema Venture Capital,
to jointly develop the YouDo for Business
platform. This platform helps legal entities enter
into contractual relations with self-employed
individuals.
Overview of the fund’s assets
71 M
MOBILE DEVICES
AUDIENCE
200 M
USER PROFILE
COVERAGE
MARKETPLACE OF DOMESTIC AND
BUSINESS SERVICES
YouDo is an active
participant in the formation
of a culture of the self-
employed in Russia
One the top 20 most valuable
Internet companies in Russia
in 2019 according to Forbes
› 1.5 M
CONTRACTORS
› 1 M
REVIEWS ON THE
QUALITY OF SERVICES
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.
Unique position in the market
due to access to data of MTS
and Sberbank
PARTNERS:
Sberbank, MTS, Lukoil, Toyota, Huawei, Acer, IVI, HP, Kaspersky.
PARTNERS:
Ozon, IKEA, hh.ru
SQream
Five AI
KisanHub
TraceAir
ULTRA-FAST PROCESSING OF BIG
DATA TO IDENTIFY TRENDS IN
TELECOM, RETAIL AND FINANCE.
A PLATFORM FOR THE DEVELOPMENT
AND TESTING OF TECH SOLUTIONS
FOR SELF-DRIVING CARS.
ARTIFICIAL INTELLIGENCE TO
OPTIMISE THE SUPPLY OF GRAIN
CROPS.
PARTNERS:
Alibaba Group, Mangrove Capital,
Hanaco Ventures.
PARTNERS:
Lakestar, Notion, Trustbridge,
Kindred, Amadeus Capital Partners.
PARTNERS:
ABInBev, Notion, IQ Capital,
University of Cambridge (Judge
Business School).
CONSTRUCTION AUTOMATION
POWERED BY DRONE DATA.
PARTNERS:
Engeo, Independent Construction,
Fivepoint, Lennar, Sibur, Morton,
Norilsk Nickel.
Connecterra
SenSat
NFWare
Wimark
AI ASSISTANT FOR FARMERS AND
ANALYTICS FOR THE DAIRY INDUSTRY.
Increasing productivity and
product quality by reducing the
DIGITAL TWINS OF INFRASTRUCTURE
FACILITIES: PRECISE SOLUTIONS
BASED ON DATA FROM MULTIPLE
SOURCES, NOT ASSUMPTIONS OR
PERSONAL EXPERIENCE
use of antibiotics.
Growth in annual farm profits by
an average of EUR 30,000.
PARTNERS:
Danone, Monsanto-Bayer and
Rabobank.
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.
PARTNERS:
Tencent, Heathrow, Murphy,
National Grid, Highways England.
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.
PARTNERS:
Intel, Mail.ru Group, Telefonica,
Lenovo, Hewlett Packard.
CLOUD SOLUTIONS FOR MANAGING
MULTI-VENDOR WI-FI NETWORKS.
A solution for managing access
points from different vendors.
Customers retain the ability to
independently plan, configure
and administer multi-vendor
networks from a single centre,
save on network deployment
and make money on Wi-Fi
services.
PARTNERS:
Beeline, MegaFon, MGTS, QTech.
AN INTERNATIONAL COMPANY CREATING
SCIENTIFIC AND EDUCATIONAL
PRODUCTS FOR CHILDREN:
MEL Science kits are used
by families and schools in 40
countries
The bulk of the company’s sales
come from the US
Chemistry and physics
experiment kits are suitable for
children aged 5 to 14 years
AN INDEPENDENT DEVELOPER OF
GAMES FOR EDUCATION.
Luden.io games are played by
over 4.7 m users.
A FREE GAME-BASED COURSE FOR
AUTISTIC CHILDREN THAT PROVIDES
ACCESS TO DISTANCE LEARNING AND
DOING HOMEWORK.
Developed with and for autism
professionals.
A SIMULATOR OF A MACHINE
LEARNING SPECIALIST WHO USES
VISUAL PROGRAMMING TO MAKE HIS
AND HIS CAT’S LIVING.
The game is actively used by
schools and universities for
educational purposes. All tasks
in the game correspond to
the logic of real-life machine
learning development. WTL was
included in Apple’s list of the
best mobile games for players
stuck at home.
THE BEST HOTEL DEALS WORLDWIDE
BY SUBSCRIPTION.
FinalPrice invites users to
subscribe and book hotels at
the best prices. Customers
can save from hundreds to
thousands of dollars compared
with a regular buyer at Expedia,
Priceline, Booking.com, etc.
SISTEMA PJSFC / ANNUAL REPORT 2021 160
RESULTS OF KEY ASSETS
VENTURE CAPITAL FUNDS
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161
Sistema Asia Fund (SAF) is Sistema's venture
fund which invests in high-tech companies in
India and Southeast Asia.
SISTEMA'S
EFFECTIVE STAKE
KEY HIGHLIHTS
66
%
TARGET FUND SIZE
GEOGRAPHY
INDUSTRIES
120 M
USD
INDIA
SOUTHEAST ASIA
CONSUMER TECH
ENTERPRISE TECH
SAAS
FUND LIFE
8 + 2
YEARS AS DECIDED BY
SHAREHOLDERS
42,000,000
USD RAISED FROM PRIVATE AND INSTITUTIONAL INVESTORS IN 2021
YEAR ESTABLISHED
TARGET FUNDING ROUNDS
2015
B/С
3 ×
CASH-ON-CASH
TARGET RETURNS
UNICORNS 24
7.4 BN
AGGREGATE VALUATION
OF 4 UNICORNS IN THE PORTFOLIO
USD
3×GROSS MULTIPLE OF INVESTED
CAPITAL (MOIC) 1
Business model
Sistema Asia Fund 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.
Overview of venture
capital market in India
and China
In 2021, investors began to invest more in Indian
startups, with more than 30 IPOs of companies from
this country.
The long-running competition between the Chinese
and Indian venture capital industries for the attention
of foreign investors entered a new stage in the summer
of 2021, when investments in Chinese startups fell
from USD 17.3 bn in June to USD 4.8 bn in July, but
investments in Indian startups rose from USD 1.6 bn to
USD 8 bn over the same period.
In the third quarter of 2021, India had 10 new unicorns,
second only to the US. In 2021, the total number of
unicorns in India increased to 44.
India is also keeping up with international VC trend
for “decacorns” (privately held startups valued at USD
10 bn or more), with Byju’s (an EdTech startup) valued
at USD 18 bn and Paytm (a payment gateway and
e-commerce platform) valued at USD 16 bn.
According to Pitchbook, Indian tech startups raised
USD 23.5 bn in 2021, nearly double the amount collected
in the previous two years.
The top three invested sectors in 2021: FinTech (Pine
Labs, OfBusiness, BharatPe and CRED), EdTech (Byju’s,
Eruditus and Unacademy) and SaaS (Gupshup,
Postman and BrowserStack). India’s technology sector
that is being created now can make the country’s
economy No 2 or No 3 in the world in 20-25 years. This
sector will allow the country to repeat the success of
China in a shorter time.
1 MOIC (multiple of invested capital) allows investors to
measure how much value an investment has generated.
2 Unicorns are private companies valued at USD
1 bn or more. Data as of the end of 2021.
SISTEMA PJSFC / ANNUAL REPORT 2021 162
RESULTS OF KEY ASSETS
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163
Key portfolio companies
1.0 BN
USD
MOIC OF OVER
6.0×
1.4 BN
MOIC OF OVER
3.0×
USD
2.5 BN
USD
MOIC OF OVER
5.3×
2.5 BN
USD
MOIC OF OVER
8.4×
NO. 1 BRAND IN INDIA FOR
ONLINE SALES OF MEAT AND
MEAT PRODUCTS
NO. 1 "CLOUD KITCHEN" IN
INDIA AND GLOBALLY
SPEECH RECOGNITION, VOICE
BIOMETRICS AND VIRTUAL
ASSISTANTS
COMPREHENSIVE
MARKETPLACE FOR BUILDING
MATERIALS
The company is creating a complex
brand selling meat and seafood in
the market where over 90 % of players
represent unorganised retail with poor
quality and low sanitary standards.
The company manages the entire
value creation chain, from supply to
processing and delivery to customers,
using uninterrupted cold chain.
The company is the world’s
largest chain of internet
restaurants with a single
infrastructure for preparing and
delivering food to customers in
India and other countries under
several brands, including Faasos,
Behrouz Biryani, Oven Story and
Mandarin Oak.
Investment in March 2017
Investment in August 2018
Uniphore is the leader in the Indian
market of conversational AI.
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.
Uniphore products are used by more
than 4 m people in 80 companies
globally. The company has offices
in the US, India and Singapore. Its
headcount exceeds 150.
Investment in July 2019
The company specialises in serial
production under its own brands and solves
the local market’s issues like lack of price
transparency, quality, fragmented vendor
base, and inefficient logistics and delivery
in the unorganised market.
Investment in December 2020
Business
development in 2021
IN 2021, SAF INVESTED IN THE
FOLLOWING COMPANIES:
In February 2022, Sistema Asia Fund
participated in the series B investment
round of Airmeet, a comprehensive new
generation platform for virtual interactions
between companies and their customers
or other audiences.
In March 2021, Sistema Asia Fund took
part in the series D investment round of
Uniphore, a global leader in automation of
speech interaction.
In May 2021, Sistema Asia Fund made
a series B investment in ANSR, which
offers leading international companies
services of accelerating their digital
transformation on the basis of Global
Capability Centres (GCCs).
In July 2021, Sistema Asia Fund
participated in the Series C funding round
of HealthifyMe, a developer of a health
and fitness app that helps its users eat
healthy and track exercise with real
coaches or a smart bot.
In September 2021, Sistema Asia Fund
participated in the series C funding round
of Exotel, India’s most popular CPaaS
platform.
It is planned to launch a new
venture capital fund specialising
in investments in tech companies
in India and Southeast Asia –
Sistema Asia Fund-2 (SAF-2).
The goal of SAF-2 will be to build a
scalable and high-quality base of
investors acting as long-term partners.
SAF’s team is also preparing a “harvest”
strategy (exit strategy for SAF-1) that
ensures the portfolio value growth and
a full exit from investments within the
predetermined time frame.
SISTEMA PJSFC / ANNUAL REPORT 2021 164
SISTEMA.RU
165
CORPORATE
GOVERNANCE
CORPORATE GOVERNANCE SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
REMUNERATION POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
RISK MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
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CORPORATE GOVERNANCE
CORPORATE GOVERNANCE SYSTEM
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167
CORPORATE GOVERNANCE
SYSTEM
Sistema's corporate governance structure
as of 31 December 2021
Corporate governance principles
A crucial element of the strategy of Sistema as an investment company
is maintaining a high level of corporate governance and information
transparency. The Corporation strives to meet the best international
standards in these areas and consistently enhances its corporate
governance practices.
SISTEMA'S CORPORATE GOVERNANCE PRINCIPLES
01
02
03
Clear and effective procedures for
taking investment decisions
Reasonable transparency of
management processes for investors,
counterparties, employees and other
stakeholders
A dividend policy that takes due
account of both reasonable
expectations of investors and
Sistema's financial resources
04
05
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 interestof
corporate governance
Sistema is guided by these principles in all of its activities,
including strategic and financial management, HR policy,
reporting, control and audit, and risk management.
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 Code2. Sistema'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 Code and the Ethics
Code of Sistema set out the additional commitments of
the Corporation, its top management and employees in
terms of transparency and ethical conduct of business.
1 The Corporate Governance Code recommended by the Russian Central Bank's letter No 06-52/2463 dated 10 April 2014 is available at
https://www.cbr.ru/statichtml/file/59420/inf_apr_1014.pdf.
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
Company Secretary
Board of Directors
Internal Audit Department
Chief Audit Executive
President,
Management Board Chairman,
Management,
President's Office
Managing Partners
Senior Managing Partners
Finance Function
Vice President for Finance
HR Department
Vice President for HR
IN ACCORDANCE WITH ITS
CHARTER, SISTEMA'S GOVERNANCE
BODIES ARE:
General Meeting of shareholders
Board of Directors
President
Management Board
Corporate Governance
and Legal Function
Vice President for Corporate
Governance and Legal Affairs
Security Department
Vice President for Security
Administrative Department
Head of Administrative
Depatment
Protocol Service
Managing Director for Protocol
Strategy and Development
Function
Vice President for Strategy
and Development
Corporate Communications
Function
Vice President for Corporate
Communications
SISTEMA PJSFC / ANNUAL REPORT 2021 168
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE SYSTEM
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169
General Meeting of shareholders
The General Meeting of shareholders is the supreme
governing body of the Corporation. The activities and
powers of the General Meeting 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 to participate
in the General Meeting.
OBSERVANCE OF SHAREHOLDERS' RIGHTS
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 for election to the Corporation's Board of
Directors. Such proposals, including any attachments
thereto, 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 Corporation1. Candidates nominated by shareholders
to the Board of Directors 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 AGM, 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 actively uses
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.
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 at
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 owners of Sistema's global depositary receipts (GDR)
may vote on the agenda items of the General Meeting
by means of a proxy vote in line with the established
procedure via a depositary bank servicing the GDR
programme of Sistema. In 2021, Sistema's depositary bank
was Citibank, N.A. For information about the depositary
bank and voting, please visit the bank's website at
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.
ordinary share in 2021, at least RUB 0.41 per share in 2022
and at least RUB 0.52 per share in 2023. Thus, based on the
current number of the Corporation's ordinary shares, the
recommended total dividend payout is at least c.RUB 3 bn
in 2021, c.RUB 4 bn in 2022 and c.RUB 5 bn in 2023.
Additionally, starting from 2022, the Policy recommends
increasing dividend payments by an amount equal to 10 %
of the absolute increase in adjusted OIBDA for the latest
completed financial year, provided that adjusted OIBDA
grew by more than 5 % that year and the net debt2 /adjusted
OIBDA1 ratio does not exceed 3x.
When determining the recommended dividend amount for
2020, Sistema's Board of Directors was guided by the above
Dividend Policy and recommended that the AGM allocate
RUB 2,991.5 m for dividends, which corresponds to RUB 0.31
per ordinary share or RUB 6.20 per GDR.
Information about General Meetings
of shareholders in 2021
Annual General Meeting of shareholders
DATE
26 JUNE 2021
Form of the meeting
Absentee voting
Items reviewed and decisions taken
Annual report and financial statements for FY 2020 were approved.
Dividends for 2020 were distributed in the amount of RUB 2,991.5 m, or RUB 0.31 per ordinary share (RUB 6.20
per GDR).
The Board of Directors was elected.
Auditors were appointed for RAS and IFRS audits for 2021.
A new version of the Policy on Remuneration and Compensations for Members of the Board of Directors
of Sistema PJSFC was approved.
Attended
Shareholders that held a total of 76.4 % of votes
Date and reference number of the
minutes
26 June 2021, No 1-21
Sistema's shareholders may use the e-voting option
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
In May 2021, the Board of Directors approved a new
Dividend Policy, setting the recommended amount of
dividends for 2021-2023. In accordance with the Policy, the
recommended dividend amount is at least RUB 0.31 per
In 2021, 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 live streaming for shareholders on the
final date of voting, in the course of which the management presented the company's results for 2020 and took questions from
shareholders.
1
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.
1 Operating income before depreciation and amortisation.
2 All financial indicators used to determine the amount of dividends are determined in accordance with the Corporation's
consolidated financial statements prepared in accordance with International Financial Reporting Standards.
SISTEMA PJSFC / ANNUAL REPORT 2021 170
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE SYSTEM
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171
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
Changes in the membership of the Board of Directors
Supervising the operations of the Corporation in general
Formulating strategic and financial development plans
Determining investment principles and criteria
In 2021, A. Dubovskov and R. Kocharyan resigned from the Board
of Directors. New members elected to the Board of Directors
at the General Meeting of shareholders on 26 June 2021 were
independent directors Y. Kuzminov and A. Shokhin.
responsibilities of the Board of Directors
Assessing management's performance
include:
Meetings of the Board of Directors
Defining corporate governance principles
Approving transactions and strategic projects in accordance
with applicable legislation and the Corporation's internal
regulations
COMPOSITION OF THE BOARD OF DIRECTORS
Composition of the Board of Directors as of 31 December 2021
The Board of Directors effective as of 31 December 2021
was elected at the AGM held on 26 June 2021. Independent
directors accounted for 50 % of the Board of Directors.
Independent directors
Non-executive directors
Executive directors
Number of Board members: 12.
7. Yaroslav Kuzminov2
8. Roger Munnings2 3
9. Anatoly Chubais2
10. Etienne Schneider2
11. Alexander Shokhin2
12. David Iakobachvili2 4
2021
1. Vladimir Evtushenkov
(Chairman of the Board of Directors)1
2. Anna Belova (Deputy Chair
of the Board in 2021)1
3. Ron Sommer
4. Mikhail Shamolin
Felix Evtushenkov
5.
6. Vladimir Chirakhov
1 The Chairman and Deputy Chair of the Board of Directors were elected at the first Board meeting on 26 June 2021 (which was held after the AGM).
2
3
4
Independent director.
In line with the Moscow Exchange's Listing Rules, R. Munnings was deemed independent by Sistema. Information pertaining to the decision is available on Sistema's website.
In line with the Moscow Exchange's Listing Rules, D. Iakobachvili was deemed independent by Sistema. Information pertaining to the decision is available
on Sistema's website
Sistema's Board meetings are held on a regular basis in
accordance with the annual work plan, which is made based
on Sistema's strategic planning and reporting cycle.
Sistema's Board of Directors held 16 meetings in 2021: eight
scheduled in-person meetings and eight extraordinary letter
ballot votes. The Board of Directors reviewed a total of 73
agenda items in 2021.
2021
2020
Number of in-person meetings
Number of absentee votes
Number of items according to the
Board's work plan
Actual number of items reviewed by
the Board
8
8
36
73
7
5
40
68
The Board of Directors considered the following key items
in the reporting period:
1.
2.
Sistema's development strategy
Investment policy, strategy of Sistema's investment
funds and priority areas for investment in the short
and medium term
3. New investment projects
4. Managing and creating value for Sistema's
investments in the following industries:
timber industry assets
agricultural assets
development and construction assets
pharmaceutical assets
banking assets
high-tech assets
electrical assets
rental assets
healthcare assets
5. Sistema's quarterly and annual results and
performance against budget
6. Budget planning, approval of the consolidated budget
of Sistema and key performance indicators of the
management
7. Management of the Corporation's risks
8. Activities of the Internal Audit Department
9. HR matters and employee incentive systems
10. Assessment of the quality of corporate governance
11. ESG strategy of the Corporation
12. Mandatory corporate procedures, including
convening the General Meeting and developing the
work plan of the Board of Directors
13. Composition of Board Committees and determining
the status of Board members
14. Approval of transactions, including acquisition of
equity stakes in various companies
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CORPORATE GOVERNANCE SYSTEM
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173
Items reviewed by the Board of Directors in 2021 by subject
Participation of Sistema Board members in meetings of the Board of Directors and its committees in 2021
8
2021
18
Business strategies, investments, new types of activity
Financial reporting, planning and audit
Approval of transactions
Shareholding in portfolio companies, groups, JVs, branches
Appointments and HR policy
Corporate governance and securities
Approval of internal documents
4
Functional strategies
9
6
23
3
2
Distribution of issues considered by the board of directors in 2021 and 2020, by topics
27
23
30
25
20
15
10
5
0
18
6
6
6
9
8
4
4
2
7
8
9
Business strategies,
Appointments
Corporate
Approval
Approval
Shareholding
investments, new
and HR policy
governance and
of transactions
types of activity
securities
of internal
documents
in portfolio
companies,
groups, JVs,
branches
Financial
reporting,
planning
and audit
2020
2021
1
3
Functional
strategies
Most of the items reviewed by the Board of Directors in
2021 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).
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 organises regular meetings of
independent Board members for in-depth immersion in
materials of strategic items to be reviewed by the Board. At
these meetings, independent directors discuss such items
in detail with the Corporation's 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
2021 was 97.9 %.
BOARD OF
DIRECTORS
STRATEGY
COMMITTEE
AUDIT, FINANCE
AND RISK
COMMITTEE
NOMINATION,
REMUNERATION
AND CORPORATE
GOVERNANCE
COMMITTEE
ETHICS AND
CONTROL
COMMITTEE
SUSTAINABILITY
AND INVESTOR
RELATIONS
COMMITTEE1
16/16
16/16
7/7
16/16
16/16
6/7
9/9
16/16
16/16
15/16
16/16
16/16
8/9
15/16
5/5
4/5
5/5
5/5
3/5
2/5
4/5
4/5
4/5
20/20
10/10
7/7
6/7
7/7
6/7
5/5
20/20
12/12
18/20
9/10
20/20
5/5
5/5
11/12
8/8
4/4
3/4
4/8
3/4
4/4
9/9
9/9
8/9
3/4
2/4
5/5
4/4
4/4
Attendance2
V. Evtushenkov
A. Belova
A. Dubovskov3
F. Evtushenkov
R. Sommer
R. Kocharyan3
Y. Kuzminov4
R. Munnings
V. Chirakhov
A. Chubais
M. Shamolin
E. Schneider
A. Shokhin4
D. Iakobachvili
Assessment of the performance of the Board of Directors and its Committees
Assessment of the Board's work is an important tool for
preserving and improving its effectiveness. The assessment
procedure is designed to identify the strengths and
potential areas for improvement in the Board's work.
Regular external assessment is part of international best
practices and is recommended by the Russian Corporate
Governance Code. Sistema introduced this practice in 2017
and consistently implements it.
A regular external assessment of the Board of Directors took
place in 2021. It was performed by a consortium of two firms
with global footprint and high reputation: Nestor Advisors
Ltd., a London consultancy that specialises in corporate
governance, and EY, one of the global leaders in professional
services that has substantial presence in the Russian market.
1 Before 26 June 2021 — Investor Relations and Dividend Policy Committee.
2 The first number shows the number of meetings attended by the Board member, the second number is the total number of meetings.
3 Member of Sistema's Board of Directors until 26 June 2021.
4 Member of Sistema's Board of Directors from 26 June 2021.
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The assessment covered the following areas of of the
Board's work:
The assessment of the Board of Directors had the
following objectives:
Committees of the Board of Directors
key duties of the Board of Directors, including
determination of the strategy, oversight over
performance indicators, strategic HR issues, internal
control and risk management
to increase the effectiveness of the Board of Directors by
identifying opportunities for improvement in its structure,
procedures, practices, work dynamics and ability to
constructively challenge the Corporation's management
relationship between the Board of Directors and the
management, the quality of information flows between
them
to help Board members to develop a common vision as to
the ways in which the Board can be most instrumental in
promoting Sistema's effectiveness
composition of the Board of Directors, the member
to increase trust in Sistema's corporate governance
nomination process
the Board's practices and dynamics
the role of the Chairman of the Board
the structure and work of Board Committees
procedures of the Board and organisational support to its
activities
effectiveness of Board Committees
mechanisms among the shareholders and key
stakeholders
to assist Sistema with remaining a leader in corporate
governance practices, including compliance with
recommendations of the Russian Corporate Governance
Code, and implementing best international practices
related to the effectiveness of Board work
to assess changes in the Board's work since the previous
external assessment in 2017
The assessment of the Board of Directors was conducted using a detailed questionnaire and follow-up
interviews with Board members and several executives reporting to the Board of Directors. Key conclusions
of the assessment are as follows:
01
Sistema's Board of Directors works actively, using
advanced corporate governance procedures in its
work and the work of its Committees.
03
In future, it is advisable for the Board of Directors
to concentrate more on matters of long-term
portfolio strategy. The Board should also be guided
by approaches to determining the independence
profile of its members that are used by peer
international investment firms and continue paying
significant attention to the effectiveness of boards
of directors of Sistema's key portfolio companies.
02
Board members have a high professional level,
significant experience in management decision-
making, expertise in strategy and a relevant
professional reputation. These qualities enable
Board members to complement the Board
Chairman who traditionally plays a leading role in
the Board's work.
04
In order to achieve these goals, it is advisable to
better regulate the succession planning process at
all levels.
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
Sustainability and Investor Relations Committee1
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 at
https://sistema.ru/about/corpmanage/docs.
Functions of the Board Committees
NAME OF THE COMMITTEE
KEY FUNCTIONS OF THE COMMITTEE
Strategy Committee
Analysing strategic management issues of Sistema Group
Reviewing the strategy planning methodology
Reviewing M&A transactions with a value exceeding USD 100m
Reviewing Sistema Group's investment projects requiring an entry into new
geographies or industries and projects with significant state ownership.
Audit, Finance and Risk Committee
Assisting the process of preparation and audit of the Corporation's financial reports
and supervising them
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
Nomination, Remuneration and Corporate Governance
Committee
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:
a. for the Board of Directors of Sistema
b. for the boards of directors of portfolio companies
c. for senior management positions across Sistema Group
d. 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
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NAME OF THE COMMITTEE
KEY FUNCTIONS OF THE COMMITTEE
Composition of the Committee, %
Ethics and Control Committee
Ensuring an effective system of economic and corporate security
Monitoring compliance with the requirements of the Corporation's Code of Ethics
Assessing the functioning of the system for preventing corruption and fraud and other
misconduct related to violations of applicable legislation at Sistema Group companies
Sustainability and Investor Relations Committee
Supporting the strategy development and transformation of the Corporation's business
processes in line with the sustainability and responsible investment principles
Independent director
Non-executive director
Executive director
Independent director
Non-executive director
Independent director
Non-executive director
12.5 %
CHAIR
CHAIR
20 %
Strengthening the Corporation's investment case
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
37.5 %
STRATEGY
COMMITTEE
AUDIT, FINANCE
AND RISK
COMMITTEE
NOMINATION,
REMUNERATION
AND CORPORATE
GOVERNANCE
COMMITTEE
50.0 %
CHAIR
80 %
Composition of Sistema's Board Committees as of 31 December 2021
STRATEGY COMMITTEE
AUDIT, FINANCE
AND RISK COMMITTEE
NOMINATION,
REMUNERATION
AND CORPORATE
GOVERNANCE
COMMITTEE1
ETHICS AND CONTROL
COMMITTEE
SUSTAINABILITY AND
INVESTOR RELATIONS
COMMITTEE
CHAIR
Independent director
Non-executive director
Executive director
Independent director
Non-executive director
40 %
20 %
CHAIR
25 %
ETHICS
AND CONTROL
COMMITTEE
SUSTAINABILITY
AND INVESTOR
RELATIONS
COMMITTEE
40 %
CHAIR
75 %
CHAIR
CHAIR
Subjects of the items considered by the Board Committees in 2021
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.
NAME OF THE COMMITTEE
NUMBER
OF MEETINGS IN 2021
SUBJECTS CONSIDERED
Strategy Committee
5
Value creation by the Corporation's investments in various industries
Analysis of investment opportunities
CHAIR
Audit, Finance and Risk Committee
20
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
V. Evtushenkov CHAIR
A. Belova
F. Evtushenkov
R. Sommer
Y. Kuzminov
R. Munnings
V. Chirakhov
A. Chubais
M. Shamolin
E. Schneider
A. Shokhin
D. Iakobachvili
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NAME OF THE COMMITTEE
NUMBER
OF MEETINGS IN 2021
SUBJECTS CONSIDERED
Members of the Management Board of Sistema as of 31 December 2021
Nomination, Remuneration and
Corporate Governance Committee
7
Ethics and Control Committee
Sustainability and Investor Relations
Committee
8
9
Assessment and development of corporate governance across Sistema
Group
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
Succession planning for the Board of Directors and its Committees
Corporate culture development
Performance of the Internal Audit Department in 2020 and its work plan
for 2022
Results of the ethics declaration campaign at Sistema
Functional strategy in the area of corporate security (including
information security)
Amount of dividends and dividend policy of the Corporation
ESG strategy of the Corporation and development of ESG culture
Analysis and monitoring of Sistema's market and investment base
Risks and opportunities for the Corporation's investment strategy
Approach to non-financial reporting and potential for applying
integrated reporting principles
PRESIDENT
MANAGEMENT BOARD
The President of Sistema 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. The President chairs the Management Board of
Sistema.
In April 2020, the Board of Directors approved the
appointment of Vladimir Chirakhov as the President and
Chairman of the Management Board of Sistema.
The Management Board of Sistema determines methods
for the implementation of the Corporation's development
strategy, formulates development plans, determines and
monitors investment processes and previews strategic
matters to be subsequently submitted to the Corporation's
Board of Directors.
In 2021, the Management Board held eight meetings and
reviewed 33 agenda items in the following key areas:
1.
2. development strategy, value creation and
Sistema's development strategy
monetisation of Sistema's investments in various
industries
3. management of Sistema's investment funds
4. Sistema Group's strategic planning cycle
5. corporate governance practices at the Corporation
6.
7.
financial planning and control
ESG strategy of Sistema
In May 2020, the Board of Directors approved the
composition of the Management Board. As of 31 December
2021, the Corporation's Management Board consisted of
eight members.
1. Vladimir Chirakhov
Felix Evtushenkov
2.
3. Artyom Zasursky
4.
Igor Kozlov
5. Svetlana Matveyeva
6. Vladimir Travkov
7. Ali Uzdenov
8. Sergey Shishkin
President, Chair of Management Board
Senior Managing Partner
Vice President for Strategy
Vice President for IT
Vice President for HR
Vice President for Finance
Senior Managing Partner
Vice President for Corporate Governance and Legal Affairs
Changes in Sistema's Management Board in 2021
V. Kulubekov
A. Sirazutdinov
DATE OF CHANGE
8 February
16 February
A. Kolokolnikov
20 February
2 April
14 May
V. Rozanov
T. Sitdekov
I. Alyoshin,
S. Egorov,
A. Katkov,
A. Kolokolnikov,
V. Kulubekov,
L. Monosov,
O. Mubarakshin,
L. Petukhov,
T. Sitdekov
DESCRIPTION
Elected to the Management Board
Powers terminated
Elected to the Management Board
Powers terminated
Elected to the Management Board
20 December
Powers terminated
F. Evtushenkov
20 December
Elected to the Management Board
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.
Finance and Investment 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.
The responsibilities of the Finance and Investment
Committee include:
review of the Corporation's investment projects at
different stages from conception to completion
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 Board of Directors.
approval of the financial model, business plan and hurdle
rate for each investment project
As of 31 December 2021, the Committee consisted of six
members. The Corporation's President V. Chirakhov is the
chair of the Committee.
making recommendations regarding viability of projects,
exit scenarios, and sources of financing
In 2021, the Committee met 53 times.
review of external financing terms
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The Finance and Investment Committee oversees the work
of the Expert Council, the Budget Subcommittee and the
Remuneration Subcommittee.
The Expert Council consists of 16 members and considers
all of the Corporation's new investment ideas and projects
for acquisition of assets in new and adjacent 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 submitted to the Finance and
Investment Committee.
The Budget Subcommittee consists of four 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 seven
members and aims to improve policies, principles and
procedures related to HR management and to develop
guidelines in this area for the governance bodies of the
Corporation.
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
As of 31 December 2021, the Committee consisted of 12
members. Vice President for IT I. Kozlov is the chair of the
Committee.
In 2021, the IT Committee did not hold meetings.
SPECIFIC CHARACTERISTICS OF RISK MANAGEMENT, INTERNAL CONTROL AND INTERNAL AUDIT SYSTEMS
Risk Committee
Tender Committee
Risk management
The Risk Committee's responsibilities include:
Assessment of the most material risks facing the
The responsibilities of the Tender Committee include:
Ensuring the acquisition of goods, works and services on
Corporation and its portfolio companies
the best terms available
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
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
Coordination of risk management strategies and plans
Ensuring the transparency of procurement procedures
and monitoring of their implementation
and impartial decision-making
Facilitating the prevention of corruption, fraud and other
wrongdoing in procurement
The Committee consists of eight members and is chaired
by Vice President for Finance V. Travkov.
In 2021, the Tender Committee held 27 meetings.
As of 31 December 2021, the Committee consisted of 13
members. Vice President for Finance V. Travkov is the chair
of the Committee.
In 2021, the Risk Committee held four meetings.
The Risk Committee has an Expert Group consisting of
eight 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.
1 Weighted Average Cost of Capital
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.
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.
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
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.
Primary assessment of the materiality of identified risks
Internal control system
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 risk owners 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
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
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Ensuring the safety of the Corporation's assets and
The Security Department is in charge of comprehensive
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
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 senior
management):
security at the Corporation, including economic security,
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 Corporation's internal control system includes, among
other things, the following:
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
Level 1. Heads and employees of the Corporation's
of interest
subdivisions are responsible for building an effective
internal control system and assessing and managing risks
within their remit.
Ethical standards of business conduct
Awareness of the Corporation's employees about the
Level 2. Sistema's controlling bodies and Committees
internal control system
perform control functions, e.g.:
The Risk Committee and the risk management function
are responsible for developing and monitoring the
implementation of effective risk management practices
The Finance and Investment Committee of the
Corporation approves and monitors the implementation
of investment projects
All of the Corporation's employees as persons in charge of
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.
assesses the reliability and effectiveness of the risk
management system of the Company and gives
recommendations to the governance bodies, the relevant
committee, the divisions and employees of the Corporation
on improving it
provides consultations to the subdivisions and employees
of the Corporation. The contents, scope and format of
consultations shall be determined by the Chief Audit
Executive of the Corporation after consultations with the
divisions and/or employees of the Corporation that initiated
(requested) the consultations
The Internal Audit Department closely interacts with
Sistema's independent auditors, helping them to 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 and are also submitted for
consideration by the Board of Directors.
provides consultations to the governance bodies,
subdivisions and employees of the Corporation on ensuring
effective functioning of the Single Whistleblowing Hotline.
Performs selective audits of messages received on the
Single Hotline at the discretion of the Chief Audit Executive
and subject to availability of the required competences at
the Internal Audit Department
regularly meets with the external auditor of the Corporation
and other persons providing assurance to the Corporation
In 2021, the Internal Audit Department conducted 24 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.
The Internal Audit Department has all the resources and
powers required to perform the above functions and is an
independent structural unit. In its work, the Department
is guided by applicable laws of the Russian Federation,
International Professional Standards of Internal Audit, the
Code of Ethics of the Institute of Internal Auditors and the
Corporation's Charter and other internal regulations.
Sistema's Internal Audit Department actively develops
automation technologies in an effort to improve the
effectiveness of audit procedures.
Internal audit
External audit
Resolution of conflicts of interest
The Internal Audit Department reports to the Board
of Directors (functionally) and Sistema's President
(administratively). The Audit Department is headed by
a Chief Audit Executive 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 Audit, Finance and Risk
Committee.
The key objectives of the Internal Audit Department are:
to assist with increasing the effectiveness of the internal
control, corporate governance and risk management
systems of the Corporation and to give recommendations
on their improvement to the governance bodies, the
relevant committee, the subdivisions and employees of
the Corporation
to coordinate its activities with the external auditor of the
Corporation and other persons providing assurance to the
Corporation
to provide consultations to the subdivisions and employees
of the Corporations
To meet these objectives, the Internal Audit Department
carries out the following:
provides assurance (audits) by objectively analysing
available audit evidence aiming at independent evaluation
of the risk management, internal control and corporate
governance processes. The contents and scope of the
audit assignment for providing assurance are determined
by the customer and the Internal Audit Department
assesses the reliability and effectiveness of the internal
control system and gives recommendations to the
governance bodies, the relevant committee, the divisions
and employees of the Corporation improving it
assesses the level of corporate governance at the
Corporation and gives recommendations to the
governance bodies, the relevant committee, the divisions
and employees of the Corporation on improving it
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 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. The Audit, Finance and Risk Committee
recommends that a tender for external audit services
be held at least every five years to ensure the auditor's
impartiality and objectivity.
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 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.
In 2021, 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.
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CORPORATE GOVERNANCE ACROSS SISTEMA GROUP
Development of ESG strategy
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.
The boards of directors of portfolio companies and their
committees ensure control and coordination and support
the management of their respective companies in decision-
making in the following main functional areas, seeking to
further enhance the quality of management of portfolio
companies:
The Corporation carries out strategic management of its key
portfolio companies through the efficient work of boards
of directors. The boards of directors of the key portfolio
companies include 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).
strategy and key transactions
budget planning
HR policy and incentive system
internal audit
risk management
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 boards of directors.
The Corporation continuously improves its corporate
governance system in order to increase efficiency and
keep 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 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.
DEVELOPMENT OF THE CORPORATE GOVERNANCE SYSTEM IN 2021
Independent directors on the Corporation's Board of Directors
In 2021, 12 members were elected to the Corporation's Board
of Directors, six of whom qualify as independent directors
or were recognised as independent according to the
Moscow Exchange's Listing Rules and the Russian Corporate
Governance Code.
All of the Corporation's independent directors have broad
recognition 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.
The current Board comprises the following independent
directors:
Yaroslav Kuzminov
Etienne Schneider
Roger Munnings
Alexander Shokhin
Anatoly Chubais
David Iakobachvili
As a responsible investor, Sistema sets itself targets that go
beyond financial metrics and aspires to high efficiency of
social and environmental impact management throughout
the entire value chain. By enhancing management
approaches, the Corporation sets the vector for its portfolio
companies to go by when pursuing their sustainability
agendas and making ESG aspects an integral part of their
business strategies.
In May 2021, the Corporation's Board of Directors approved
two new internal documents detailing Sistema's approach
to sustainability management: the Environmental Policy
and the Human Rights Policy. In September 2021, the Board
of Directors approved an ESG action plan for 2022-2023 and
in November, the Corporation's ESG strategy including key
targets.
In June 2021, Sistema's Board of Directors approved the
Terms of Reference of the Sustainability and Investor
Relations Committee, which was established to replace the
Investor Relations and Dividend Policy Committee. The new
Terms of Reference provide for the Committee's leading role
in setting the Corporation's ESG agenda. The ESG activities
of the Committee are aimed at the development of the
Company's corporate culture based on the ESG principles
and the integration of ESG into the Company's strategy in
order to increase the sustainability of Sistema's investment
portfolio. A. Belova was elected chair of the Committee.
Plans for the development of corporate governance
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 and later adjusts it as necessary. The
plan for 2022, which was developed taking into account the results of the external assessment of the Board of Directors, among
other things, envisages the following steps:
01
02
development and implementation of succession
plans for the management and members of the
Board and Board Committees based on individual
competences (before the end of 2022)
implementation of ESG measures approved by the
Board of Directors, with corresponding elements of
the strategy submitted for the Board's review (for
2022-2023)
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CORPORATE GOVERNANCE
REMUNERATION POLICY
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187
REMUNERATION
POLICY
Remuneration policy applied
to Sistema’s Board members
Basic remuneration of members
of the Board of Directors
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.
In 2021, 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
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.
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
year1 . The size of additional remuneration is set as a variable
amount equal to a share of the increase in capitalisation
achieved in the relevant financial year2.
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).
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 insures the liability of the members of the Board of
Directors.
Sistema does not provide loans to the members of the Board
of Directors.
REMUNERATION POLICY APPLIED TO SISTEMA’S SENIOR MANAGEMENT
The short-term incentive scheme for the top managers of Sistema PJSFC in 2021 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 andDepartments of Sistema. Payments may amount to а) up to 20 % of cash income from implemented
projects, b) fixed percentage 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 (a) 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,
(b) investments made in such an asset and project costs
percentage of the project team’s annual income
Miscellaneous
No extra compensation above the level stipulated by labour laws of the Russian Federation 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.
REMUNERATION PAID TO SISTEMA’S BOARD MEMBERS AND SENIOR MANAGEMENT1
Remuneration and compensation paid to Sistema’s Board members, RUB
ITEM
2021
2020
Remuneration for work as member of the Board
of Directors
Salaries2 3
Bonuses
390,957,500
365,497,500
398,492,500
122,499,000
351,123,200
393,456,200
Remuneration for work as member of the Board’s
committees
9,380,000
5,820,000
Reimbursement of expenses incurred by Board
members in connection with their duties
1,069,500
824,200
Remuneration paid to Sistema’s Management Board members4, RUB
ITEM
Salaries5
Bonuses
2021
2020
988,800,200
584,901,900
3,982,281,800
4,889,969,300
Other types of remuneration
6,870,000
861,000
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.
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 members of the Board of Directors.
3 This amount includes holiday pay and severance pay. In 2021, holiday pay to the non-executive members of the Board of Directors
amounted to RUB 69,452,000, while severance pay totaled RUB 222,154,000. No such payments were made in 2020.
Including Sistema's President and other executive members of the Board of Directors.
4
5 This amount includes holiday pay. Holiday pay to the members of the Management Board amounted to RUB 557,404,000 in 2021 and RUB 148,560,000 in 2020.
SISTEMA PJSFC / ANNUAL REPORT 2021 188
CORPORATE GOVERNANCE
RISK MANAGEMENT
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RISK
MANAGEMENT
Sistema’s potential risks are the manifestations of processes
and factors that Sistema has little or no influence on. That
said, it is within the Corporation’s power to take steps to
reduce the negative consequences of such factors should
they materialise. This makes the efficient assessment of
existing risks and of their occurrence probability, as well as
effective risk management, an important part of Sistema's
strategy.
Part and parcel of Sistema’s each and every business
process, risk management is built into strategy planning
and implementation, investing, budgeting, procurement
and everyday operations. Sistema's integrated risk
management system relies on international standards,
recommendations and best practices in risk management.
Integrated Risk Management aims to reasonably guarantee
the achievement of strategic goals and contain risk within
limits that Sistema's management and shareholders deem
acceptable.
Board of Directors
Audit, Finance and
Risk Committee
Management Board
President
Managing
Partners
Functions
and Departments
Risk Management,
Internal Control, Compliance
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Risk management officers across the Group regularly
update the top risks of their respective businesses and the
Group as a whole and analyse their potential effect on
financial performance, which involves the use of financial
models and simulation methods.
To address the risks so identified, risk owners develop risk
mitigation and response plans, conduct risk monitoring and
update action plans as necessary.
Sistema has in place an Integrated Risk Management
Policy.
Integrated Risk Management aims to build and maintain an
efficient system for:
the regular and systematic identification and analysis of
risks faced by Sistema
the identification and assessment of risks associated with
every specific managerial decision
the distribution of responsibilities for risk management
the preparation of careful response/mitigation plans and
the control of their implementation
the monitoring of risks and risk management effectiveness
the preparation of risk management reports for various
collective bodies within Sistema and for other stakeholders
the accumulation of knowledge on Integrated Risk
Management
Sistema PJSFC uses the following methods of risk management
Risk avoidance means refraining from particular actions
or foregoing particular assets fraught with high risk. Risk
avoidance is used in exceptional cases where the cost of
treating a particular risk would be too high, such treatment
action would not reasonably result in its satisfactory
mitigation, and transferring such risk to a third party would
be impossible or impractical.
For Sistema, insurance is an inextricable part of risk
management. Insurance is fully integrated in the corporate
risk management system toolkit and protects the financial
interests of Sistema PJSFC and its shareholders against
unforeseen losses that may arise in the course of business
processes, whether as a result of external effects or
otherwise.
Risk mitigation means controlling and preventing a risk
while owning it and treating it in a proactive manner.
Mitigation steps aim to bring the probability of a particular
risk event and/or the potential damage it can cause
down to a level that is deemed acceptable according
to Sistema's Risk Appetite. Mitigation is the priority risk
management method at Sistema PJSFC.
Risk acceptance means assuming a risk without taking
any steps to modify it. This method is used where the
associated risk level is acceptable to Sistema PJSFC
or where modifying the risk would be impossible or
economically impractical.
Risk transference means handing a risk over to a third
party where modifying it within Sistema PJSFC would be
impossible or economically impractical and its monetary
value is greater than the limit deemed acceptable to
the company. Risk transference may take the forms of
insurance, hedging, outsourcing, etc.
Sistema PJSFC has in place a comprehensive insurance
programme that covers a wide spectrum of operational
risks and is reviewed on an annual basis. This includes
various types of compulsory and optional third-party
insurance, motor insurance, property insurance, health
insurance for employees, and accident insurance.
Such insurance contracts are closed with Russia's largest
insurers selected in open tender processes where insurer
reliability is the key criterion.
One of the key principles of risk management at Sistema
Group is the use of the risk appetite concept. This
approach involves the identification and monitoring of
the Corporation's target risk profile in light of current
strategic goals and their integration into risk management
procedures.
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Sistema Group's risk appetite determines the level of risk
acceptable to its shareholders and involves the following
fundamental principles:
the amount of potential losses arising from risks accepted
by Sistema Group may not reach a level where it would
lead to a complete termination of the Group's operations,
whether in case of any crisis or otherwise
the Group's cash flows are required to be organised in a
way assuring the timely fulfilment of obligations towards
counterparties both in the medium and long term
the Group at all times aims to avoid the concentration of
risks in specific counterparties, industries, and countries/
regions associated with high risk
sustainable development and long-term economic
efficiency
compliance with the requirements of national regulators
wherever group companies operate and with the
standards and recommendations of international
regulatory bodies
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. Many products of
the Group's companies are exported to the CIS, Southeast
Asia, Eastern Europe and North Africa. In the event of any
major political turmoil in these regions, the Group's local
business may be disrupted or discontinued, which may
lead to material loss.
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 be damaging to the performance
and financial standing of the entire group.
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.
impeccable business reputation and avoidance of any
action potentially damaging to such business reputation
INDUSTRY RISKS
maintaining credit ratings from international rating
agencies
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
relevant assessment of risks and their impact on the
Corporation's financial performance, 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 that
involves a comprehensive mitigation programme including
anti-corruption and stock exchange rules, the protection
of personal data and confidential information, and steps
against money laundering and terrorism funding.
Due to the situation in Ukraine, western countries imposed
sanctions on a number of Russian citizens and companies.
The sanctions might conceivably be extended to, or
complemented by additional sanctions categories that
would apply to, specific companies or individuals within the
Group. Any breach of sanctions so imposed may prevent
the companies of the Group from cooperating with the
government authorities of the USA/EU/UK, result in civil or
criminal penalties being applied to the sanctioned persons
or their personnel in accordance with the laws of the USA/
EU/UK, or lead to significant fines being imposed on the
companies of the Group along with potential damage to
their reputation.
Any further tension between Russia and other countries
and any escalation of existing conflicts, introduction of
additional sanctions, or continued uncertainty as to their
scope may adversely impact the national economy, the
financial status of the Group's partners and suppliers,
and the capability of the Group's companies to conduct
trading and financial operations and to secure funding on
commercially viable terms, and may increase the volatility
of stocks of Sistema and particular companies within the
Group.
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.
SISTEMA'S EXTERNAL RISKS
Financial risks
Sistema's business is inextricably bound with 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 the
repayment of debt by Sistema Group companies.
An outflow of foreign investment from Russia under the
pressure of sanctions and restrictions applying to the
business of foreign companies may adversely affect the
joint ventures (partnerships) and new investment projects
of Sistema Group.
Growing inflation may result in higher expenses and
therefore put downward pressure on profit margins and
also affect domestic demand for the products and services
of Sistema Group companies.
Servicing and refinancing the Corporation's current and
future financial liabilities might require a significant outflow
of cash. If sanctions persist in the medium term and the
Political risks
Any significant change in these industries may have a
material negative impact on the financial standing of
Sistema's Group’s companies and on the Group as a whole.
access of Russian banks and businesses to foreign debt
remains restricted, market liquidity deficit will grow along
with interest rates, inhibiting the acquisition of funding
both for the operations and for debt refinancing across the
Group. An inability to raise the required funding on such
terms and in such time as required may lead to substantial
restrictions on business development, operations and
investments.
Unfavorable macroeconomic environments in many
countries where Sistema has businesses may make
it necessary to re-evaluate goodwill for some of the
Corporation's assets.
Foreign currency controls and restrictions on capital
repatriation may adversely affect capital flows and reduce
the value of Sistema's investments in Russia, which in turn
may have a significant negative impact on the business of
Sistema Group.
A potential bankruptcy of one of the Russian banks acting
as the Group's counterparty may reduce the availability
of borrowing funds and lead to Sistema losing money
deposited with such bank.
The introduction of sanctions against Russia or Russian
companies and individuals may cause disruptions in
international payment systems, which in turn may make
it impossible for companies across the Group to settle
accounts, damaging Sistema's investment appeal as a
result.
Social and environmental risks
Due to the wide variety of industries where the companies
of Sistema Group operate, social and environmental risks
faced by the assets differ materially across the Group.
However, a number of major trends currently observed
may be seen both as risks and opportunities for such
companies:
change in consumer sentiment, with people increasingly
opting for sustainable consumption and healthy living,
and growing expectations as regards brand missions,
corporate responsibility, and business sustainability
changing population age structure making it necessary to
adjust and update products and services to best meet the
needs of the ageing national population
increased competition for talents due to a demographic
decline and changing job expectations of the young
workforce
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climate change and extreme weather conditions that may
impact crop yields, people's health, and the operation of
infrastructure
new technological solutions and economic
transformation, including digitalisation and automation
in the manufacturing and service sectors conducive to
workforce displacement
growing cyber security threats and tightening regulations
in confidentiality and personal data protection
deteriorating living standards and potential rise in social
tensions in specific regions where the Group operates
eroding profits of the Corporation and companies across
the Group
tightening regulations in sustainable development, carbon
control, and information disclosure
Among 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 infrastructure health, shutdowns 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.
Legal risks
A risk of unpredictable court rulings and administrative
decisions being passed with respect to the business of
Sistema and its portfolio companies may adversely affect
the Group's operations. This risk stems from numerous
factors, including:
potential discrepancies and ambiguities in: (i) federal and
other laws; (ii) bylaws issued by the government agencies
of countries 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
the influence of political, social and commercial factors on
the judicial system
potential selective or discretionary actions of government
authorities
Emergencies and accidents at production facilities across
Sistema Group may have significant environmental effects,
including land and water pollution, excessive atmospheric
discharges, effluent disposals and hazardous spills,
potentially harmful for local communities, ecosystems and
biodiversity. Any irrational use of natural resources (such as
land and forests) may deplete raw materials and lower the
economic performance of agricultural and forest assets.
To manage these risks the companies of the Group
implement advanced technological solutions, enhance
management systems in environmental protection,
energy efficiency, occupational health and safety, and
develop measures to prevent and mitigate accidents and
emergencies.
Risks related to non-compliance with the principles of
sustainable development in supply chains may result in
disruptions in supply chains and hurt Sistema Group's
reputation. As part of their efforts to minimise such risks,
companies across the Group impose strict requirements on
suppliers, contractors and partners as regards compliance
with law and internal regulations.
With global and local terrorism threats rising, potential
attack incidents across the Group's enterprises and
infrastructure facilities may cause material economic
damage, harm human health and lives, and provoke a
regulatory tightening on data access requirements.
Gaps in Russia's existing corporate and securities
legislation may create barriers to securing funds in the
future.
A lack of clarity on the applicability of the Federal Law
"On Procedures for Foreign Investment in Business Entities
of Strategic Importance for 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.
There is also a risk of amendments being made to the laws
of the countries where Sistema Group companies operate,
due to potential change in the laws and regulations
governing international trade and investments that may be
introduced by foreign states or international organisations.
Since Russian corporate law makes shareholders liable 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.
Should the Russian Federal Anti-Monopoly Service conclude
that Sistema or one of its material subsidiaries has violated
any of the existing anti-monopoly laws, the relevant
business will be subject to serious administrative sanctions,
entailing 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
conclude investment deals and restructure businesses.
Tax risks
Tax laws, regulations and practices of the jurisdictions
where Sistema's assets operate are often intricate, opaque
and prone to frequent modifications and ambiguous
interpretations. Should any action of the Corporation or its
portfolio company be interpreted as a breach of tax law,
the Group's business may be significantly injured.
Russian transfer pricing law may make it necessary to
introduce adjustments to pricing practices used at Sistema
Group's companies and entail additional tax liability in light
of certain transactions.
Risks related to stock markets
In 2015, Russia adopted new rules relating to the taxation of
undistributed profits of controlled foreign companies and
profits from indirect property sale in Russia, the concept
of a beneficiary owner, and new criteria to be used to
establish tax residency of foreign legal entities in Russia.
These rules have already undergone several revisions since
they were first introduced, with new amendments having
retroactive effect. The new taxation rules may result in
more tax liability for the Group due to uncertainty on legal
interpretation and a lack of relevant legal precedents.
Geopolitical tensions, sanctions imposed against certain
Russian companies, a worsening macroeconomic
environment and an outflow of capital and investors from
the Russian market affect the value of Russian businesses.
Sistema Group's access to investor funding through stock
markets may therefore be restricted further as a result of
the introduction of sectoral sanctions in industries where
the companies of Sistema Group operate and/or due to the
investors growing increasingly wary of 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. Steps taken by many countries,
including Russia, to contain the spread of COVID-19 created
serious operational difficulties for many businesses and
significantly affected financial markets. COVID-19 had a
material impact on the operations of many companies
Risks related to delisting
In April 2022, the Federal Law No. 114-FZ “On Amendments
to the Federal Law on Joint-Stock Companies and Certain
Legislative Acts of the Russian Federation” came into
effect and required the Russian issuers to terminate their
depositary receipts programs, with the exceptions provided
upon consideration of the issuers’ requests.
in various sectors, including but not limited to temporary
or permanent production stoppages, supply chain
disruptions, quarantines, and decreased demand. The
magnitude of the pandemic's impact on Sistema Group's
operations will largely depend on the duration and extent
of its effect on the global and national economies
The Corporation submitted the application and got the
permission to maintain circulation of its depositary receipts
outside the Russian Federation until 13 May 2023.
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RISKS RELATED TO SISTEMA GROUP'S OPERATIONS
Implementation of the business strategy
Cash flows from Sistema Group companies
Borrowings
The Corporation's strategy aims to develop a balanced
and diversified asset portfolio in 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 the achievement of its goals, the efficient
management of its portfolio companies or benefits from
new investment opportunities for a number of reasons,
including high leverage and limited funds available for
investment. Sistema's failure to achieve its strategic goals
may damage its financial performance.
Implementation of the business strategy
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, failure
to conduct sufficient or appropriate due diligence of the
target company's operations and/or financial situation,
and potential overvaluation of/overpayment for assets.
These risks can also affect Sistema's financial performance.
The acquisition of assets may increase pressure on the
Corporation's cash position and make it necessary to
obtain external funding.
Delays in the implementation of investment deals or failure
to close them may hamper the achievement of Sistema's
strategic goals and negatively influence the Corporation's
results, financial position and investment appeal.
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
Management and key personnel
The implementation of Sistema's strategy in large
part depends on the effort and professionalism of its
management team. Failure to hire a sufficiently competent
and motivated management team may jeopardise
Sistema's business, performance, financial position and
development prospects.
The development of Sistema Group companies depends
on numerous factors, including the receipt of necessary
permits from state authorities, sufficient demand from
consumers, the successful development of technologies,
efficient risk and cost management and the timing of R&D
completion and market launches 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.
conflicts between shareholders
hostility and/or unwillingness to cooperate on the part of
the management and personnel of the acquired asset
loss of customers after the acquisition
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 a deal due to inability to
obtain corporate or governmental approvals
valuation errors
The Corporation's financial performance depends on
the ability of Sistema Group companies to generate cash
flows needed to service its financial liabilities, including
the repayment of debt and interest, and to make other
investment activities in the future. Such cash-generation
capacity may be constrained due to regulatory, tax or any
other barriers, which may have an adverse effect on the
Corporation's financial position and liquidity.
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 obtain
additional external funding and increase the debt burden
of the Corporation, which, in turn, would put downward
pressure on credit ratings across the Group. A downgrading
of a credit rating may increase the cost of debt servicing,
make new borrowings more expensive or inaccessible
and, in some cases, trigger loan acceleration. The risk of
deterioration or withdrawal of the Corporation's credit
rating correlates with reputation and liquidity risks.
The Corporation's current debt level also constrains its
borrowing capacity.
Uncertainty of estimates in reporting
Loan covenants
In implementing the Company's accounting policy,
management is required to make assumptions, estimates
and judgements with respect to the book value of assets
and liabilities that cannot be reliably valued on the basis of
other sources. Estimates and their underlying assumptions
are formed on the basis of past experience and other
factors that are deemed relevant in specific circumstances.
The actual results may differ from these valuations,
which may have a material adverse effect on the Group's
financial performance.
Estimates and assumptions are regularly reviewed. Any
change in such estimates is recognised in such period in
which the estimate is revised if such change influences only
this period, or also applies to future periods if such change
influences both the current and future periods.
Loan and debt securities agreements signed by the
Corporation and companies across the Group contain
certain restrictive covenants that limit their capacity
to borrow further funds, collateralise or sell assets and
enter into transactions with affiliates. They may also
restrict certain aspects of Sistema's operations, such as
the financing of capital expenses, or limit its capacity to
repay debt and service other liabilities. Any breach of
covenants, however inadvertent, may entitle the creditors
of the Corporation and/or its portfolio companies to call
in on their loans, which poses a threat to the Corporation's
financial performance.
assuming excessive obligations towards the buyer
Licences and permits
Privatised companies
loss of synergies with other assets within the portfolio
If one or several of such risks materialise, the Corporation
may lose some of its potential profit and thus see poorer
financial performance.
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 whatever grounds. Any of these
circumstances may have material negative consequences
for Sistema's business.
The portfolio of Sistema Group contains several privatised
assets. In the future the Corporation and specific
companies of the Group may also take part in other
asset privatisations. Since Russia's privatisation-related
legislation remains somewhat unclear and inconsistent
and contradicts other provisions of law (e.g., federal and
local privatisation norms are in discrepancy), many of
such privatisations can potentially be contested, however
selectively, which may have a material negative effect
on the business, financial situation, performance, or
development prospects of the Corporation.
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RISK MANAGEMENT
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Compliance with applicable laws and regulations
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.
Sistema's reputation may suffer from any unethical
business practices, professional errors, negligence, failure
to comply with human rights, dissemination of inside
information and any corruption offence, should any of the
above take place anywhere within the Group.
In conducting their business, the Corporation and
companies across Sistema Group are required to
comply with a number of rules and regulations regarding
market competition, corporate governance, fraud and
corruption prevention, conflict of interest management,
compliance with sanctions, fair treatment of customers, the
prevention of money laundering and terrorism financing,
adherence to the information security policy and the
prevention of illegitimate use of insider information and
market manipulations. Any failure to comply with these
requirements may create the risk of legal and regulatory
sanctions, significant financial losses and reputational
damage.
Human rights
Moreover, the operations of Sistema and its portfolio
companies are also regulated by the anti-corruption laws
of other jurisdictions where they conduct their business or
where their securities are traded, including Russian law,
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.
The Corporation is aware of its responsibility for observing
human rights, preventing any exertion of undue influence
on human rights, and eliminating or mitigating the potential
consequences of such influence should it ever take place.
In its activities and dealings with suppliers, contractors,
partners and other stakeholders the Corporation may
directly or indirectly influence the rights of employees, local
communities, customers and consumers. Any instance
of human rights violations would adversely affect the
Corporation's reputation and lead to court disputes, loss
of investor, customers or employee trust, or backlash from
local communities, trade unions and NGOs.
Risks associated with human rights are taken into account
in the risk management systems of Sistema Group
companies, with material items regularly reviewed by the
boards of directors of relevant portfolio companies. For
more details on the management of human rights risks
please refer to Sustainability Management.
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, risks related to cyber security
and personal data protection are becoming a major
threat to businesses across Sistema Group. Any inability
to prevent cyber attacks and unsanctioned access to
Sistema's 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,
disruptions in production processes, network security
breaches and costs related to the restoration of IT systems
Competition
and equipment, which may materially and adversely affect
the business of Sistema Group.
Risks associated with the protection of personal data are
most relevant for assets in 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
potential negative consequences of their industry-specific
risks.
All industries 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. An inability of any company of the Group to
compete efficiently may have a material negative effect
on the business, performance, financial situation and
development prospects of the Corporation.
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199
SUSTAINABILITY
MANAGEMENT
MANAGEMENT SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
RESPONSIBLE INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
KEY ESG AREAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
SOCIAL INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
SISTEMA PJSFC / ANNUAL REPORT 2021 200
SUSTAINABILITY MANAGEMENT
MANAGEMENT SYSTEM
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MANAGEMENT SYSTEM
The key responsibilities of the Sustainability and Investor Relations
Committee include: facilitating the formulation, development and
implementation of the Corporation's strategy in the area of investor
relations, dividend policy and sustainability; developing recommendations
for improving the ESG strategy of the Corporation and its portfolio
companies; facilitating the transformation of the Corporation's business
processes based on the principles of sustainable development and
responsible investment; reviewing the corporate charity strategy.
Other Committees of the Board of Directors also consider certain aspects
of ESG factors (including corporate governance and ethical business
conduct) within their respective mandates.
The key principles and approaches of the ESG strategy are communicated
to the Group companies through their boards of directors, where Sistema
is represented by its key managers (managing partners).
In May 2021, Sistema's Board of Directors approved new documents: the
Human Rights Policy and the Environmental Policy that set out in detail
the provisions of Sistema's Sustainability Policy and support the ESG
management system.
The Human Rights Policy is a voluntary public document that defines
Sistema's approaches in the area of human rights, including preventing
any adverse impact on human rights or promotion of such impact,
eliminating or mitigating the consequences of such impact if it does take
place, and, if necessary, compensating for damage.
This Environmental Policy contributes to the implementation of the
guiding corporate responsibility principles set out in Sistema's Corporate
Governance Code and Sustainability Policy, including the principle of
respect for the environment.
Sistema's Board of Directors plays a key
role in determining the strategic areas of
the Corporation's sustainability activities
and overseeing their results. In the middle
of 2021, Sistema's Board of Directors
approved the Terms of Reference of the
Sustainability and Investor Relations
Committee, which was established
to replace the Investor Relations and
Dividend Policy Committee. The new
Terms of Reference provide for the
Committee's leading role in setting the
Corporation's ESG agenda.
For more details please go to:
https://www.sistema.com/upload/
iblock/9f2/b4c5yd01g4d8i8514c0c4sc78vxhn9be/
ToR_ESG_IR-Committee.pdf
Human Rights Policy
https://www.sistema.com/upload/iblock/70d/
tejazhtom0mt8b3eugvucqwkcmvnx03l/
Sistema_Human-Rights-Policy.pdf
Environmental Policy
https://www.sistema.com/upload/
iblock/3a8/n6ceomgl3p88f4eyoqxr6boqm86ujbeb/
Sistema_Environmental-Policy.pdf
In 2021, Segezha Group approved its Sustainability Strategy
and Policy and set long-term goals for reducing its impact on
ecosystems. The document is focused on four key areas:
innovative forest business
comfortable living environment in the forest regions of Russia
climate-oriented forest management and production
sustainable supply chain.
For more details please go to:
https://segezha-group.com/upload/iblock/0ec/
aobxzutgrr44dz0lqqacbbmn7lcqnwrf.pdf
The implementation of defined ESG agenda at the
operational level, communication of these policies to
investors and public non-financial reporting are the
responsibilities of the Sustainability Function, which
reports directly to the Corporation's President.
The aspects of corporate social responsibility,
social communications, regional policy and
charitable activities are supervised by the Corporate
Communications Function; corporate governance and
compliance are overseen by the Company Secretary,
the Corporate Governance & Legal Matters Function
and the Internal Audit Department; while the HR
Department is responsible for HR policy. If necessary,
cross-functional working groups are created in the
Corporate Centre to develop common approaches
to managing the key aspects of sustainable
development.
ESG risk management is part of the corporate risk
management system. To learn more about ESG risks,
please go to the Risk Management section. All risks
associated with human rights are taken into account
in 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.
In implementing its investment and social programmes,
Sistema draws upon its extensive corporate expertise,
strikes synergistic intersectoral partnerships with local
authorities, academia, civic & non-profit organisations,
and encourages cooperation between businesses
across the Group.
Transparency and an 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.
Sistema's responsible
business principles
RISK MANAGEMENT
INTEGRITY AND TRANSPARENCY
OBSERVANCE OF HUMAN RIGHTS
ETHICS, LOYALTY AND HONESTY
IN RELATIONS WITH PARTNERS,
COUNTERPARTIES AND STAFF
EMPLOYEE CARE
FOCUSED ALLOCATION OF FINANCIAL
AND INTELLECTUAL RESOURCES FOR
THE DEVELOPMENT OF INNOVATION
RESPECT FOR THE ENVIRONMENT
INVESTING PART OF PROFITS IN SOCIALLY
SIGNIFICANT PROJECTS AND PROGRAMMES
For more details please go to:
https://www.sistema.com/upload/
iblock/0b6/0b6ebeabe7c86c5ccb7f3bb96b76c45c.pdf
SISTEMA PJSFC / ANNUAL REPORT 2021 202
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RESPONSIBLE INVESTMENT
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RESPONSIBLE INVESTMENT
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
geographies and to the steady growth
of socioeconomic and technological
potential, human and natural capital,
standards of living and social well-
being.
of production base, infrastructure and
technology, related social obligations
and environmental risks can also be
considered for specific projects.
Sistema's investment process is
regulated by internal documents and
procedures. Potential investment
projects and investment programmes
of portfolio companies are subject
to detailed examination as part of
Sistema's multi-stage investment
process. In addition to financial
analysis and industry analysis
that underlie decision-making for
each project, such components as
management quality, staffing, state
At the end of 2020, Sistema's strategic
approach to responsible investment
was incorporated into a new set of
investment criteria approved by the
Board of Directors (that included ESG
factors for the first time) and into
the updated corporate governance
regulations. Sustainable development
became an integral element of
Sistema's strategy, carrying weight
in all investment decisions and asset
management strategies.
Implementation of responsible investment principles
WHEN FORMING
A PORTFOLIO OF ASSETS
WHEN MANAGING ASSETS
WHEN DIVESTING ASSETS
No "sin stocks" and activities that
are forbidden by local law or
international standards
Basic sustainability standards in
portfolio companies and extra
requirements for pre-IPO ones
Ensuring the independence and
reliability of sustainability management
systems within the company
Reviewing a company's ESG profile
when making investment decisions
Engagement with portfolio
Issuing reference notes and guidelines
companies via their boards (as per
established corporate procedures)
to enhance sustainability
management and drive ESG
performance
on sustainability where necessary
Participation in sustainability initiatives
Sistema’s position in ESG ratings
CONFIRMED ITS STATUS
AS A CONSTITUENT
OF THE INDEX
constituent since 2016
BB
2021
BB
2020
BB
2019
B
2018
No. 1
BEST SCORE
AMONG RUSSIAN
COMPANIES
in the industry
group "Diversified
Financials"
No. 30
OUT OF 900+
COMPANIES
in the industry
group "Diversified
Financials"
12.1
2021
Low ESG risk
15.3
2020
30.9
2019
High ESG risk
The value of the company has low exposure to the risk
of significant financial impact caused by ESG factors.
B
Management
TOP 11
SISTEMA AND MTS MADE IT TO THE TOP 11 OF 66 RUSSIAN COMPANIES
THAT RECEIVED A REQUEST FROM INVESTORS TO DISCLOSE
INFORMATION ABOUT CLIMATE CHANGE RISKS
GROUP A
WHICH COMPRISES 30 COMPANIES
WITH POSITIVE CHANGES
in the “Responsibility and
Transparency” index
TOP 20
IN THE GENERAL RATING
OF 150+ LARGEST RUSSIAN
COMPANIES
GROUP A
WHICH COMPRISES 21 COMPANIES WITH
THE HIGHEST INDIVIDUAL SCORES
in the “Responsibility and
Transparency” index
In 2002, Sistema became a signatory to the UN Global Compact to
promote shared values and responsible business practices, and, in
2017, 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.
In 2021, RAEX-Europe included Segezha Group and Steppe AgroHolding in its ESG ranking of
Russian companies for the first time. At the end of 2021, MTS ranked 10th, Sistema 17th, Segezha
Group 49th and Steppe AgroHolding 50th in the general ESG ranking of more than 150 companies
from more than 20 industries.
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Sustainability awards
INTERNATIONAL AWARD FOR ESG REPORTING
Sistema's public sustainability report was named among the five best in the
financial and investment sector at ESG Reporting Awards 2021. The Corporation
was the only Russian finalist in its category.
SURVEY OF THE COMPANIES' CONTRIBUTION
TO THE NATIONAL PROJECTS
Sistema received a diploma for best practices in covering the company's
contribution to the National Projects from the Sustainable Business Development,
CSR and Volunteering Council of the Russian Chamber of Industry and Commerce.
CHANGE MANAGEMENT. VISIONARIES AWARD
Sistema's case of ESG transformation in approaches to investment and asset
management ranked 2nd in the category "Economy. Business" at the annual
Russian award ceremony in the area of sustainable impact in the economy,
environment and society Change Management. Visionaries.
CORPORATE GOVERNANCE INDEX
TOP 20
Sistema is among the leaders of disclosure
of corporate governance
ESG RANKING OF PUBLIC FINANCIAL COMPANIES
TOP 3
Sistema is among the top 3 out of 30 leading Russian banks,
financial organisations and insurance companies
CORPORATE CHARITY RATING
A
Sistrema is among
12 participants of the
2021 Leaders of Corporate
Charity rating
A+
MTS is a leader
in the rating
C+
Segezha Group is included
in the list of companies with
developing practices
ESG TRANSPARENCY RATING
1.98 POINTS
Sistema has the highest
level of transparency among
the companies of the
financial sector
1.95 POINTS
Information disclosure
at MTS is close to
maximum levels
1.80 POINTS
Segezha Group is the
only pulp and paper
company in the rating
ESG RATING OF SUSTAINABLE CORPORATE GOVERNANCE
A+
Sistema is one of the
leaders of corporate ESG
practices in Russia
A
MTS is demonstrating
best corporate
ESG practices
B+
Segezha Group has
well-developed corporate
ESG practices
AK&M SOCIAL PERFORMANCE RANKING
Р Е Й Т И Н Г О В О Е А Г Е Н Т С Т В О
TOP 3
MTS was ranked 2nd in the
telecommunications industry
and among the top 25 Russian
companies with RUB 100 bn+
revenues in 2020
No. 1
Segezha Group's social
responsibility ranking
in the the pulp and paper and
timber processing industry
TOP 3
Segezha Group made it
to the top 3 by social efficiency
in the industry
ESG REPORTING RATING
MTS, Segezha Group and Etalon Group were included in the first sustainability
reporting rating of 61 companies. In October 2021, MTS's ESG reporting rating was
upgraded to the highest level.
Cooperation with Russia's regions
In the past year, Sistema signed strategic
cooperation agreements with several
entities of Russia (the Vologda, Irkutsk,
Nizhny Novgorod and Tyumen regions).
These agreements are aimed at
promoting a favourable economic and
social climate in the regions, making
them attractive for businesses and
comfortable for local residents and
tourists. The key areas of cooperation
include telecommunications, healthcare,
tourism, construction of residential
properties and infrastructure, timber
processing.
A strategic cooperation agreement between Sistema and the
government of the Vologda region provides for the establishment of a
special economic area that will include textile and timber processing
clusters. Plans for the future include advanced processing of timber and
manufacturing of new types of products. Development of the textile
industry envisages expansion of production capacity, creation of a
comfortable environment for the employees of the clothes manufacturing
industry and establishment of a textile cluster that will focus on the design
and making of clothes.
The cooperation agreement with the Tyumen region also provides for
development in the timber processing sector. Sistema will share its
competences in the field of implementation of information systems for
managing security at various facilities and processing data. Sistema is
also considering investing in the healthcare sector of the region.
Under the cooperation agreement with the Irkutsk region the parties aim
to bring investment, technologies and personnel training systems to the
region to ensure competitiveness of the forest industry enterprises. In
addition to supporting the manufacturing sector, Sistema also seeks to
develop the hospitality and recreation segment in the Irkutsk region.
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SUSTAINABILITY MANAGEMENT
KEY ESG AREAS
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207
KEY ESG
AREAS
Access to products,
services and information
Responsibility for products
Customer experience
ACCESSIBILITY AND QUALITY
Sistema identified three key
ESG areas to cultivate through
investing, with a view to achieving
a meaningful positive impact
Human capital
Health and safety
Confidentiality and personal
data protection
WELL-BEING
Smart homes, cities
and industries
Operational eco-efficiency
Energy management
and climate change
SMART ENVIRONMENT
Innovation and digital transformation
are the focus of the Corporation's
strategy.
Sistema consistently invests in building intellectual potential: 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.
Key ESG areas
Accessibility
and quality
Access to products, services
and information
Customer experience
Responsibility for products
Well-being
Human capital
Health and safety
Confidentiality and personal
data protection
Smart environment
Smart homes, cities and
industries
Operational eco-efficiency
Energy management and
climate change
The Corporation's activities are underpinned by developed corporate governance practices
and effective cooperation of the Group's companies.
Corporate
governance
and synergies
Business ethics
Human rights and relations
with stakeholders
Risk management
Innovation management
Sustainable supply chain
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KEY ESG AREAS
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Examples of key ESG efforts of portfolio companies
Sistema and its portfolio companies contribute
significantly 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 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 effort’s portfolio companies made in 2021.
Traditional synergies between assets enabled many cross-
sectional projects.
Recognition of
achievements
in customer experience
Accessibility
for remote
regions
MTS won in the category "Best corporate customer experience B2B. Telecom services,"
submitting a case on improvement of CJM1 and EJM2 in 2020. MTS pays substantial
attention to customers' satisfaction with every product, especially in the corporate
segment, where innovative services and new technologies appear much earlier than
in the mass market.
Etalon Group won a record number of awards - seven - in the residential housing
segment of Urban Awards 2021, a national award that was given for the 13th time.
Etalon was also named the Developer of the Year and was awarded by the award's
partner Mitsubishi Electric "For use of cutting-edge technology in construction."
In 2021, MTS carried out over 50 projects for improvement and upgrade of mobile
communications in its regions of operations. An important task for the reporting
year was to provide communication and mobile internet to remote residential areas.
Mobile communications and internet networks were upgraded in the Central, Volga,
Ural and Siberian federal districts. Over 100 towns and villages in these districts
received access to internet and mobile communications. MTS also worked to improve
mobile communication along major transport arteries.
MTS deployed an NB-IoT network at Russia's Progress research station in Antarctica
to transmit data from devices of the Arctic and Antarctic Research Institute. The
trackers, sensors and network sensors will be used to study the movement of glaciers
and snow cover and to monitor the integrity of snow runways and microclimate in
residential and work premises. MTS also provided 2G mobile communication at the
Novolazarevskaya Antarctic research station. Now polar researchers will be able to
call their families and use messengers, thus remaining in touch with and not being
isolated from the outside world.
Ozon expanded its reach last year, expanding in the Siberian market and opening
its first fulfilment centre in the Novosibirsk region. The new centre has the capacity
to store up to 4 m SKUs3 and process over 85,000 parcels per day. In addition to its
eastward expansion, Ozon opened the first fulfilment centre in Russia's westernmost
region, the Kaliningrad special economic zone. The new centres will enable the
company to increase the serviced area and the speed of delivery and also to create
new jobs.
1 CJM (customer journey map) is a tool for studying customer experience and points of interaction with a brand, product or service provided by a company.
2 EJM (employee journey map) is a tool for studying experience of an employee or candidate and their interaction with customers or other employees.
3 SKU – stock keeping unit.
Development
of services
for business
Development
of human
capital
Development
of healthcare
services
VisionLabs and the digital construction ecosystem BIMDATA announced start of
technological partnership. The companies joined efforts to develop a system that
will enhance control over implementation of construction projects, personnel and
work progress. Their cooperation is expected to produce a new digital service for the
construction industry. It will be based on the BIMDATA platform and VisionLab's face
and object recognition technology.
The AI Centre of MTS signed a cooperation agreement with Plug and Play, a Silicon
Valley accelerator. This will give Russian startups access to Western investments
and expertise, while Plug and Play will get access to the Russian market. Under the
agreement, startups from MTS's accelerator will be able to undergo training at Plug
and Play and raise funding from its partners across the world.
MTS started an academic programme to teach students of several leading Russian
tech schools to develop NB-IoT devices. The schools participating in the project
are the ones where the operator has its NB-IoT network deployed: The Moscow
Institute of Electronics and Mathematics of the Higher School of Economics, the
Russian Technological University, the St Petersburg State University of Aerospace
Instrumentation, the Tomsk State University of Control Systems and Radioelectronics,
the Ural Federal University and the Northeastern Federal University. The students will
get access to the necessary equipment to develop energy-saving devices, while the
teachers are invited to take advice from the company's experts.
Segezha Group's Segezha Pulp and Paper Mill (PPM) and the Northern College,
a vocational school in the Republic of Karelia, launched a programme for the
development of the college and upgrade of its facilities in 2021-2025. The programme
was developed under the previously signed agreement on cooperation in training
personnel for Segezha PPM. The funds allocated by the company during the five
years of the programme will go towards upgrading the facilities and creating a
comfortable study environment. The Northern College, in turn, will train students in
occupations required by the mill. In 2021, Segezha PPM allocated about RUB 2 m for
the development of the college.
MTS and the Cardiology Research Institute of Tomsk National Research Medical
Centre of the Russian Academy of Sciences announced a strategic partnership
in digital healthcare. The parties intend to cooperate in the development and
implementation of digital solutions, IT tools and services for the medical, research
and educational activities of the cardiology centre. The agreement envisages
experimental and clinical testing of these solutions at the Cardiology Research
Institute.
MTS and representatives of the Vologda region's healthcare department and
Vologda city clinic No 3 signed an agreement on launch of a pilot project for remote
blood pressure monitoring, MTS 120/80. The system makes it easier to monitor patients
with cardiovascular diseases. It enables doctors to check on patients remotely, which
is especially relevant during lockdowns caused by the COVID-19 pandemic.
Medsi continues introducing digital solutions at its clinics. Last year, it introduced
the MUSE information system and the Onconet remote monitoring system. Both
services aim at improving the quality of telemedicine, reducing the number of errors
in diagnosing and simplifying communications between doctors and patients. They
also make it possible for doctors to exchange information within the chain of clinics.
At present, about 20 Medsi clinics are connected to MUSE, with the remaining clinics
across the country expected to join next year.
SISTEMA PJSFC / ANNUAL REPORT 2021 210
SUSTAINABILITY MANAGEMENT
KEY ESG AREAS
SISTEMA.RU
211
Development
of healthcare
services
Improving quality
of life in regions
of operations
In 2021, Medsi opened several specialised clinics for various diseases. In cooperation
with the best clinics and experts of Israel, the United States and Australia, it opened
the International Melanoma Centre in Moscow as part of Medsi's International
Oncology Centre. It brings together the best competences and expertise of the
parties and offers patients a comprehensive checkup for skin growths that takes just
one day.
On the basis of the same International Oncology Centre, Medsi opened a centre for
breast diagnostics, the Quick Help Clinic. One of its advantages is that a patient with
suspected cancer may receive a doctor's opinion and referral for treatment on the
day of appointment.
During the workshop "Breast Cancer: Patient's Journey Today. Secondary
Lymphostasis," the centre organised Russia's first ever live streaming of
transplantation of lymph nodes for treating lymphostasis during breast cancer. The
demonstration of the technique thus became available to oncologists from remote
regions of the country.
In autumn 2021, Medsi opened an Ophthalmology Centre with a surgery department
in Moscow. The centre will provide multi-specialty care for a wide range of vision
disorders. Its daily capacity is about 50 patients, and its cutting-edge equipment will
make it possible to perform some 13,000 surgeries a year.
Specialised or multi-specialty centres are being opened on the basis of Medsi's
clinicodiagnostic centres across the country. Notably, an outpatient cancer centre
opened in Shchyolkovo, the Moscow region, which offers free consultation and
treatment to any resident of the region. In Perm and Izhevsk, Medsi opened the
regions' first centres for prevention of strokes and heart attacks. The company plans
to later use them as centres for outpatient cancer treatment. In Moscow, Medsi
opened five multi-specialty local clinics last year, the capacity of each being about
80,000 patients a year.
MTS began developing a 5G network in larger cities of Russia. In mid-2021, the
operator launched 19 pilot 5G zones in the most popular areas of Moscow. In addition
to development of wireless communication in 2021, MTS focused on the development
of products aimed at improving city infrastructure. One of the key solutions was the
development of smart video surveillance, which helps to ensure security of individual
apartment blocks and the city in general. In future, video analytics using 5G networks
may be used to optimise traffic flows in the city, to ensure traffic safety and create a
safe city environment for pedestrians.
Etalon Group entered the Kuzbass real estate market. The company will develop
residential construction projects in Kemerovo and Novokuznetsk. State-of-the-
art comfortable housing will be built in the suburbs of the two cities. In addition to
Kuzbass, the company began developing projects in Novosibirsk and Omsk, thus
venturing beyond the Urals.
Sitronics Group began developing infrastructure for electric cars. After commissioning
a pilot project for placement of charging stations in Moscow, Sitronics started
development of such infrastructure in Nizhni Novgorod and Ulyanovsk. Charging
stations are mostly placed in cities' transport hubs (railway stations, airports, etc.)
Segezha Group supports the regions where it has industrial assets by investing
in the development of social and urban infrastructure. One of the key areas in
the company's sustainability efforts is ensuring comfortable living conditions for
local population. Last year, the company invested in the development of social
infrastructure, construction of roads and supply of essential products and services.
Special attention is paid to supporting local communities in the social and cultural
sphere and in the areas of healthcare, education and sports.
Restoration
of natural
ecosystems
Enhancement
of operating
eco-efficiency
Being one of the country's largest logging companies, Segezha Group takes
reproduction of forest resources very seriously. Its enterprises are working towards
ensuring that the area of clear cutting is equal to the area of reforestation.
Reforestation work is performed on all clear-cut plots within three years after the
end of logging and removal of logged timber. At the time of logging, effort is made
to preserve undergrowth on logging plots and to mineralise the soil surface. Forest
crops receive technological and silvicultural care to prevent growth of grass, bush
and tree weeds, washaway of soil by water, its blowout and squeezing out by frost.
At each stage of forest use, the company takes into account the transformation of
animal habitats and the state of water, soil and unique vulnerable landscapes that
are classified as protective forests. In 2021, the company increased the reforestation
area by almost 32 % compared to the previous year, to 38,647 ha.
In addition, Segezha Group implements an intensive forest use model which ensures
forming of sustainable forests, increase of economic effect from improvement
cutting in young forests and preservation of the forest's biological functions. New
rules of forest use intensification came into force on 1 January 2021. They were
developed by the Natural Resources and Ecology Ministry of the Republic of Karelia
and the St Petersburg Research Institute of Forest Management with Segezha
Group's involvement. Field studies were performed on the plots leased by the
company in Karelia. Segezha Group's enterprises in the republic were the first to start
implementing the new rules. The project's preparatory phase alone took roughly RUB
365 m in investment.
In 2021, Lesosibirsk Woodworking Plant No 1 and Novoyeniseisky Timber and
Chemical Plant (both subsidiaries of Segezha Group) released about 300,000 young
sturgeons and graylings in the Yenisey river as part of an ecological programme for
reproduction ofbiological water resources and habitats. Next year, Segezha Groups
plans another release in the Krasnoyarsk region so that surviving fish will produce
spawn in a few years and replenish the population of Siberian sturgeons.
Steppe AgroHolding has a large-scale project for improvement of environment and
preservation of soil fertility, which envisages planting of trees in the Rostov region. The
project provides for plantings on 55 ha of land and will cost the company some RUB
4.5 m. This is the company's another step in the implementation of the environmental
part of its ESG strategy. The new project addresses two sustainable development
goals: climate change and rational use of the ecosystem.
Steppe AgroHolding has received its first I-REC certificate6, which confirms the
consumption of 100 MWh of electricity from renewable energy sources. One
of Steppe's dairy farms has transitioned to use of power supplied by a small
hydropower plant in Bashkortostan. The new experience marks the start of a large-
scale programme that envisages increase of the share of electricity produced by
renewable energy sources.
Segezha Group has carried out an environmental programme at Segezha Pulp and
Paper Mill aimed at reducing air emissions, including from lime kilns and surrounding
machines. The company is moving away from use of fuel oil, replacing it with timber
processing waste (branches, small trees, bushes, bark, etc.), which is used as fuel in
the mills' energy cycle. The timber processing enterprises in the Krasnoyarsk and St
Petersburg regions have completed transition to use of organic fuel. In addition, the
company is replacing equipment used for timber processing and paper production.
The new equipment will consume less energy and produce less air emissions.
1
I-REC (International Renewable Energy Certificate) - international certificates for renewable energy.
SISTEMA PJSFC / ANNUAL REPORT 2021 212
SUSTAINABILITY MANAGEMENT
SOCIAL INVESTMENTS
SISTEMA.RU
213
SOCIAL INVESTMENTS
Sistema Charitable Foundation (SCF) is one of the largest charitable foundations in Russia. It was
established back in 2004 to manage the social activities and projects of Sistema and its portfolio
companies. SCF invests in education and professional development, supports cultural and
educational projects, and provides social assistance through the creation of a platform for the
implementation and promotion of the Corporation's charitable initiatives. In addition to investments
and support of charitable projects, SCF organises various charitable events and campaigns targeting
people of various ages and social categories in all regions of Russia.
In 2021, SCF was able to fully launch its educational IT
platform of the Lift to the Future. It also established a
sustainable network of partnerships with experts and
organisations required for its key projects.
The Foundation currently has several key programmes:
The following events were organised as part of the Social
Environment section:
Regional festivals Sistema Fest were held in the Republic
of Altay, Udmurtia, the Kurgan and Kostroma regions. They
were attended by about 20,000 people in total
BEST SUSTAINABILITY PRACTICES UN 2021
An array of inspiring cases is appearing around the world that can be
replicated and scaled up. Having set out to create an SDG Good Practices
database, a committee of UN experts studied submissions made over 2020-
early 2021 and picked 400 best cases from around the globe.
The Lift to the Future project was named among the SDG Good Practices.
The programme is designed to pursue four sustainable development goals:
Quality Education, Decent Work & Economic Growth, Gender Equality, and
Reduced Inequalities.
AMONG
400
BEST CASES FROM
AROUND THE GLOBE
Lift to the Future - an all-Russian career guidance and
Over 50 corporate volunteering events were held, with
training program that promotes career opportunities at
Sistema Group
500+ employees of Sistema Group involved in volunteering
Lift to the Future
Culture and Education - launch and development of
projects to develop and promote inclusive museum
environment
Social Environment - support of underprivileged groups of
population, implementation of projects supporting people
and non-profits, events targeting interaction within
various groups
Sistema Charity - development and promotion of best
practices in the area of charity and social protection
In the area of culture and education, SCF introduces
digital solutions and new approaches that are the most
efficient way to increase accessibility of culture and art.
In 2021, SCF supported the Russian Museum in opening its
first permanent tactile exposition and the first exhibition
of artists with special mental needs. The launch of this
project resulted in creation of five virtual guides on the
Russian Culture Ministry's platform Artefact, which were
used by over 1.3 m online visitors; and about 100,000 people
participated in the Cultural Weekend offline events.
SCF offers support for war veterans to strengthen
connection between generations and preserve memory
about the country's history
In support of sports and a healthy lifestyle, Sistema
organised a charitable race, #ZaLes (#ForForest in
Russian), in the Rostov region, during which participants
planted about 3,250 oaks and ash-trees
Sistema Charity is one of the key focus areas of SCF. In
2021, SCF organised a grant contest, Sistema for a Good
Cause, and received 69 initiatives with an aggregate
budget of over RUB 12 m. Employees from 11 Sistema Group
companies from 23 regions of Russia participated in the
competition, submitting projects aimed at preserving
cultural and historical heritage, child rearing, development
of comfortable city infrastructure, animal protection and
support of sports.
› 100 THSD
PEOPLE PARTICIPATED IN
THE CULTURAL WEEKEND
OFFLINE EVENTS
› 50
CORPORATE
VOLUNTEERING
EVENTS WERE HELD
› 500
EMPLOYEES OF SISTEMA
GROUP INVOLVED IN
VOLUNTEERING
23
REGIONS OF RUSSIA
PARTICIPATED IN THE
CHARITY COMPETITION
Lift to the Future is a flagship educational programme of Sistema
Charitable Foundation. It was launched in 2020 and since then has
attracted about 235,000 participants. About 70 educational materials
were issued, and hundreds of young professionals and students received
help with finding internships or first jobs.
235 THSD
PARTICIPANTS TOOK PART IN
EDUCATIONAL PROGRAMME
In 2021, an IT platform was launched to attract new users.
This made it possible to assess the demand for developed
products and determine focus areas for attracting new
users.
In 2021, the Lift to the Future programme proved to be
effective in the achievement of the set targets and was
greatly sought after by users and partners, creating
prerequisites for making it an open platform.
After a full-scale launch of the platform and based on
the feedback received from the target audience, SCF
analysed the key aspects of the project and the opinions of
stakeholders, which enabled it to formulate the key areas
of project development.
The main objective for 2022 is to transform the process and
increase the value of user engagement with the platform.
The Lift to the Future programme acts as a consolidator
of SCF's key projects, making it possible to create a
comprehensive educational and social programme across
the regions where the Corporation operates.
Development of online education oriented towards
comprehensive personal development
Expansion of the platform's focus to include
metadisciplinary skills and competences in sustainable
development, which will later help to train highly sought
professionals
Development of a programme of internships and
employment at the Corporation
SISTEMA PJSFC / ANNUAL REPORT 2021 214
SISTEMA.RU
215
ANNEXES
SISTEMA PJSFC / ANNUAL REPORT 2021 SISTEMA.RU
217
216
ANNEXES
SOCIAL INVESTMENTS
ANNEX 1.
LIST OF TRANSACTIONS CARRIED OUT BY SISTEMA PJSFC IN THE REPORTING YEAR
THAT ARE RECOGNISED AS MAJOR TRANSACTIONS UNDER THE FEDERAL LAW
During 2021, Sistema PJSFC did not carry out any transactions that are recognised as major
transactions according to the Federal Law "On Joint-Stock Companies" or other transactions
subject to the major transactions approval procedure pursuant to the Company's Charter.
ANNEX 2
LIST OF TRANSACTIONS CARRIED OUT BY SISTEMA PJSFC
IN THE REPORTING YEAR THAT ARE RECOGNISED AS RELATED PARTY TRANSACTIONS
UNDER THE FEDERAL LAW "ON JOINT-STOCK COMPANIES".
All of the transactions performed by Sistema PJSFC in 2021 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 BOARD
MINUTES, DATE OF
BOARD RESOLUTION,
DATE OF TRANSACTION
No
MATERIAL TERMS OF TRANSACTION
SUBJECT OF TRANSACTION
COUNTERPARTIES
TRANSACTION VALUE
12–20, 18/12/2020,
02/02/2021
12–20, 18/12/2020,
02/02/2021
Signing of an agreement providing
for indemnification of members of
Sistema's Board of Directors against
legal and other expenses and losses
Signing of an agreement providing
for indemnification of members of
Sistema's Board of Directors against
legal and other expenses and losses
Sistema Finance S.A.,
A. Chubais
RUB 1,963,000,000.00
Sistema Finance S.A.,
E. Schneider
RUB 1,963,000,000.00
01–21, 29/01/2021,
02/03/2021
Contribution of cash funds
to the property of LLC Sistema
Telecom Assets
LLC Sistema
Telecom Assets
RUB 4,000,000,000.00
12–20, 18/12/2020,
12/02/2021
Contribution of an equity stake in LLC
ITS to the property of LLC Aeromax
LLC Aeromax
RUB 3,012,851,000.00
01–21, 29/01/2021,
02/03/2021
Contribution of cash funds to the
property of LLC Sistema Telecom
Assets
LLC Sistema Telecom
Assets
RUB 3,800,000,000.00
12–20, 18/12/2020,
10/03/2021
Granting an interest-bearing loan
to LLC Sistema Telecom Assets
LLC Sistema Telecom
Assets
RUB 3,065,700,000.00
01–21, 29/01/2021,
02/03/2021
Contribution of cash funds
to the property of LLC Sistema
Telecom Assets
LLC Sistema
Telecom Assets
RUB 4,300,000,000.00
1
2
3
4
5
6
7
8
03–21, 19/03/2021,
30/03/2021
Signing an agreement on divestment
of up to 34,000,000 shares in PJSC
MTS in favour of LLC Bastion
LLC Sistema Telecom
Assets, Sistema
Finance S.A., LLC
Bastion
RUB 7,700,000,000.00
V. Evtushenkov
RELATED PARTY,
GROUNDS FOR
RECOGNITION
AS RELATED PARTY
V. Evtushenkov,
F. Evtushenkov,
A. Chubais
V. Evtushenkov,
F. Evtushenkov,
E. Schneider
V. Evtushenkov,
F. Evtushenkov,
S. Shishkin
V. Evtushenkov,
F. Evtushenkov
V. Evtushenkov,
F. Evtushenkov,
S. Shishkin
V. Evtushenkov,
F. Evtushenkov,
S. Shishkin
V. Evtushenkov,
F. Evtushenkov,
S. Shishkin
NO OF BOARD
MINUTES, DATE OF
BOARD RESOLUTION,
DATE OF TRANSACTION
MATERIAL TERMS OF TRANSACTION
SUBJECT OF TRANSACTION
COUNTERPARTIES
TRANSACTION VALUE
01–21, 29/01/2021,
02/03/2021
Contribution of cash funds
to the property of LLC Sistema
Telecom Assets
LLC Sistema
Telecom Assets
RUB 3,300,000,000.00
No
9
10
12–21, 02/11/2021,
15/03/2021
Divestment of 122,196 shares
in JSC Business Nedvizhimost
in favour of JSC Mosdachtrest
JSC Mosdachtrest
RUB 6,231,996,000.00
11
12
13
14
15
16
17
18
19
05–21, 09/04/2021,
20/04/2021
Contribution of cash funds
to the property of LLC Sistema
Telecom Assets
05–21, 09/04/2021,
20/04/2021
Contribution of cash funds
to the property of LLC Sistema
Telecom Assets
05–21, 09/04/2021,
20/04/2021
Contribution of cash funds
to the property of LLC Sistema
Telecom Assets
LLC Sistema
Telecom Assets
LLC Sistema
Telecom Assets
LLC Sistema
Telecom Assets
1
RUB 5,100,000,000.00
1
RUB 4,800,000,000.00
1
RUB 4,700,000,000.00
05-21, 09/04/2021,
23/06/2021
Divestment of 21,025,725,000
shares in JSC RTI in favour of LLC ITS
LLC ITS
RUB 1.00
12–21, 02/11/2021,
29/11/2021
Contribution of cash funds
to the property of LLC Cosmos
Hotel Group
LLC Cosmos
Hotel Group
RUB 201,000,000.00
13–21, 19/11/2021,
30/11/2021
Contribution of cash funds
to the property of LLC Aeromax
LLC Aeromax
RUB 1,047,032,356.00
13–21, 19/11/2021,
14/12/2021
Acquisition of an equity stake
in LLC MC Kamchatka Project
LLC Sistema
Telecom Assets
RUB 3,124,000,000.00
14–21, 08/12/2021,
10/12/2021
Contribution of cash funds
to the property of LLC Sistema
Telecom Assets
LLC Sistema
Telecom Assets
RUB 6,500,000,000.00
15–21, 17/12/2021,
23/12/2021
Acquisition of 148,533,000 shares
in PJSC Segezha Group
LLC Sistema
Telecom Assets
RUB 1,199,998,107.00
20
15–21, 17/12/2021,
31/12/2021
21
15–21, 17/12/2021,
31/12/2021
Signing of an agreement providing
for indemnification of members of
Sistema's Board of Directors against
legal and other expenses and losses
Sistema Finance
Holding S.A.,
Y. Kuzminov
Signing of an agreement providing
for indemnification of members of
Sistema's Board of Directors against
legal and other expenses and losses
Sistema Finance
Holding S.A.,
A. Shokhin
RUB 1,931,540,000.00
RUB 1,931,540,000.00
RELATED PARTY,
GROUNDS FOR
RECOGNITION
AS RELATED PARTY
V. Evtushenkov,
F. Evtushenkov,
S. Shishkin
V. Evtushenkov,
F. Evtushenkov,
S. Shishkin
V. Evtushenkov2,
F. Evtushenkov3,
4
S. Shishkin
V. Evtushenkov2,
F. Evtushenkov3,
4
S. Shishkin
V. Evtushenkov2,
F. Evtushenkov3,
4
S. Shishkin
V. Evtushenkov,
F. Evtushenkov
V. Evtushenkov,
F. Evtushenkov,
A. Kolokolnikov
V. Evtushenkov,
F. Evtushenkov,
A. Zasursky
V. Evtushenkov,
F. Evtushenkov,
S. Shishkin
V. Evtushenkov,
F. Evtushenkov,
S. Shishkin
V. Evtushenkov,
F. Evtushenkov,
S. Shishkin
V. Evtushenkov,
F. Evtushenkov,
Y. Kuzminov
V. Evtushenkov,
F. Evtushenkov,
A. Shokhin
1
Interrelated transactions the aggregate amount of which totalled 2.4 % of the book value of Sistema's assets according to its financial reports as of the last reporting date
preceding such transactions.
2 The controlling person and a member of a governance body of Sistema PJSFC and the controlling person of LLC Sistema Telecom Assets. Shareholding in Sistema PJSFC
and the stake owned in Sistema PJSFC as of the date of interrelated transactions: 59.2105 %. Shareholding in LLC Sistema Telecom Assets as of the date of interrelated
transactions: 0 %. Stake owned in LLC Sistema Telecom Assets as of the date of interrelated transactions: not applicable.
3 A member of a governance body of Sistema PJSFC and a close relative of the controlling person of LLC Sistema Telecom Assets. Shareholding in Sistema PJSFC and the
stake owned in Sistema PJSFC as of the date of interrelated transactions: 5.2125 %. Shareholding in LLC Sistema Telecom Assets as of the date of interrelated transactions:
0 %. Stake owned in LLC Sistema Telecom Assets as of the date of interrelated transactions: not applicable.
4 A member of governance bodies of Sistema PJSFC and LLC Sistema Telecom Assets. Shareholding in Sistema PJSFC and the stake owned in Sistema PJSFC as of the date of
interrelated transactions: 0.0806 %. Shareholding in LLC Sistema Telecom Assets as of the date of interrelated transactions: 0 %. Stake owned in LLC Sistema Telecom Assets
as of the date of interrelated transactions: not applicable.
SISTEMA PJSFC / ANNUAL REPORT 2021 218
ANNEXES
SOCIAL INVESTMENTS
ANNEX 3
REPORT ON COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE
RECOMMENDED BY THE BANK OF RUSSIA
SISTEMA.RU
219
In the opinion of Sistema’s Board of Directors, the Corporation complies with the principles and
guidelines of the Corporate Governance Code recommended by the Bank of Russia (hereinafter,
"the Code") with such reservations as are mentioned herein below.
When assessing Sistema’s corporate governance practices for consistency with the Code’s
recommendations, the Board looked at both formal and actual adherence to the principles
and recommendations contained in the Code by the Corporation and its officers, including the
general achievement of corporate governance standards stipulated in the Code through both
conventional and alternative mechanisms.
No
CORPORATE GOVERNANCE PRINCIPLE
CRITERIA FOR ASSESSMENT
COMPLIANCE STATUS
NOTES
I. SHAREHOLDER RIGHTS AND EQUALITY IN THEIR EXERCISE
1.1.
1.1.1.
The company must ensure an equal and fair treatment of all shareholders as regards their rights
to participate in corporate governance.
The company must create for its shareholders
the most favourable conditions for participation
in the general meeting, for making informed
decisions as regards the general meeting’s
agenda items, coordinating their actions, and
expressing their opinions on matters under
consideration.
1. The company offers a variety of means of communication with the company, such
as a hotline, e-mail, and an online forum, providing shareholders ample opportunity
to express their opinions and submit queries about the agenda in the run-up to the
general meeting.
The above communication means were organised and made available to the
shareholders before each meeting held throughout the reporting period.
Observed
The Corporation specifies an e-mail address (osa@sistema.ru) to which the shareholders are invited to send their
opinions or questions with regard to the General Meeting, including its agenda, in each meeting's convocation notice.
1.1.2. The Company must use such procedures for
notifying shareholders of the upcoming general
meeting and for furnishing them with related
materials so as to enable the shareholders to be
well prepared for the meeting.
1.1.3. During preparation for the general meeting and
during the meeting itself, the company must
enable shareholders to promptly and easily
receive information about the meeting and
related materials, put questions to executive
bodies and members of the company’s board of
directors, and communicate with each other.
1.1.4. The company must enable shareholders to
request the convocation of general meetings,
nominate candidates to the company's
governance bodies, and propose items to be put
on each meeting's agenda.
1. Throughout the reporting period, the Company published on the corporate website
notices of all upcoming shareholder meetings no later than 30 days prior to the date of
each such meeting, unless a longer notice period is provided by law.
Observed
Pursuant to Sistema's Charter, a notice of each general meeting of shareholders specifying the date, time and venue
of the meeting and documents required for admission is published on the Company's website (www.sistema.ru/www.
sistema.com) no later than 30 days prior to each such meeting.
2. Each such notice specified the documents required to be produced by shareholders
to gain access to the meeting's venue.
3. The shareholders are provided access to information about persons having
proposed agenda items and/or nominees to the board of directors and the audit
review commission (if the Company's charter provides for such a commission to be
established).
1. Throughout the reporting period, the shareholders were provided ample opportunity
to put questions to the members of the Corporation's executive bodies and board of
directors both before and during the general meetings.
2. The collective opinion of the board of directors (as well as dissenting opinions entered
in the minutes, if any) on each agenda item of shareholders' meetings held in the
reporting period was properly specified in the relevant proxy materials.
3. Prior to each general meeting held throughout 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. According to the Company's charter, shareholders are entitled to propose items to be
put on the agenda of each annual meeting of shareholders at least within 60 days after
the end of the related calendar year.
2. Throughout the reporting period, the company rejected no proposal of agenda items,
nor nominee to its governance bodies, on grounds of any misprint or other immaterial
shortcoming or error.
Each meeting notice also specifies the documents that shareholders need to produce to be granted access to meeting
materials (documents) contained in the Corporation's office, and if the meeting is convened in physical form, the
documents required for access to the meeting's venue.
Explanatory notes or other relevant materials on each particular agenda item specify the initiator of such item. Wherever
such agenda item mentions any nominee to the company's governance bodies, the related documents also specify his/
her nominator.
Observed
In the course of preparations for each 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 a physical general meeting may put questions to the members of executive bodies, the board of directors,
the management board, and the President, each of whom is also present at such meeting.
The opinion of the Board of Directors on the agenda items of the General Meeting is reported in the explanatory note for
each such agenda item.
Pursuant to the Terms of Reference of the General Meeting of Shareholders, shareholders have the right to receive the list
of persons entitled to participate in the upcoming general meeting, for which purpose they are invited to contact Sistema's
Corporate Secretary.
Observed
According to Sistema's Charter, shareholders are entitled to propose items to be put on the upcoming meeting's agenda
within 100 days after the end of each financial year.
Should a shareholder’s proposal contain a material shortcoming or error, the Corporation must inform such shareholder
about such shortcoming or error in sufficient time for it to be eliminated before the Board of Directors approves the general
meeting’s agenda and the list of nominees to the Corporation's governance and control bodies.
1.1.5. The company must enable shareholders to
exercise their voting rights in such manner as they
consider easiest and most convenient.
1. The Charter allows filling out electronic ballot forms on the Corporation's website whose
address is required to be specified in the notice of each general meeting.
Observed
Pursuant to Sistema's Charter, shareholders are also entitled to vote at the General Meeting electronically in accordance
with such procedures as are determined by the Board of Directors of the Company, including but not limited to sending
completed ballots to an e-mail address and/or by completing an electronic ballot form on a website, in each case as
approved by the Board of Directors.
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1.1.6. The general meeting of shareholders must be
conducted in a manner providing all attendees an
equal opportunity to express their opinions and
ask questions.
1. Each physical meeting of shareholders held throughout the reporting period afforded
ample time for the delivery and discussion of reports on all agenda items and provided
an opportunity for each shareholder to express their opinion and ask any questions they
might have.
2. The Company invited candidates to its governance and control bodies and took all
necessary steps to assure their attendance of the general meetings of shareholders
where their nominations were put to the vote. Such candidates to governance and
control bodies were in fact present at the general meeting of shareholders and at the
disposal of all shareholders for any questions whatsoever.
3. Sistema's President, the chief officer in charge of financial accounting, and the chair
and other members of the audit committee were also at the disposal of all shareholders
for any questions whatsoever at every general meeting throughout the reporting period.
4. Throughout the reporting period, the company used telecommunication technologies
to provide shareholders with remote access to general meetings, except where the board
of directors had passed a well-substantiated resolution that no such telecommunication
means were available or reasonably required to be provided.
1.2.
The company must provide all shareholders equal and fair opportunities to share in the company’s net income via dividends.
1.2.1. The Company must develop and implement a
transparent and clear mechanism for determining
the amount of dividends due and distributing
them.
1.2.2. The Company approves no 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 Corporation's Dividend Policy is approved by the Board of Directors and disclosed
on the Corporation's official website.
2. Where the dividend policy of the company providing a consolidated financial
statement relies on its performance figures to determine the amount of dividends to be
distributed, such consolidated metrics are required to be set out in such dividend policy.
3. The proxy materials of the meeting scheduled to review the distribution of dividends
provided rationale for the proposed net income distribution, including dividends and
business needs, and its assessment in light of consistency with the company's adopted
dividends policy, with clarifications and economic considerations as regards the partial
retention of profit for business needs.
1. Over and above statutory restrictions, the Corporation's Dividend Policy details the
specific financial and economic circumstances that are to be viewed as grounds for
suspending dividend payments.
Observed
The Corporation had no physical meetings of shareholders in the reporting period.
Sistema's shareholders are invited to use an 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 furnishes the
technical means for such voting.
In preparation for a general meeting of shareholders organised in absentee ballot form, the Board of Directors decided
to conduct a live stream for shareholders on the final date of the period afforded for voting. The live stream included
management reporting on annual performance results and answering shareholder questions.
Observed
The Company's Board of Directors adopted a Dividend Policy, which is available on the company's website.
The financial metrics used for determining the amount of dividends to be distributed are in accordance with consolidated
financial IFRS reports.
Where the General Meeting of shareholders is invited to vote on the amount of dividends to be distributed, the related proxy
materials include an explanatory note setting out in sufficient detail the Board's approach to the quantification of such
dividends.
Observed
The Dividend Policy stipulates that dividends are to be suspended if there are no retained earnings.
1.2.3. The company may not allow the deterioration
of any dividend rights of its existing shareholders.
1. No action of the Corporation taken throughout the reporting period may compromise
the dividend rights of any existing shareholder.
Observed
The Corporation is the issuer of only one type of ordinary shares. Holders of global depositary receipts are entitled to
dividends on a par with holders of ordinary shares.
1.2.4. The company must aim to avoid providing
shareholders with any other types of income
distributions other than dividends and disposal
value distributions.
1. Throughout the reporting period, the Corporation used no other means of profit
(income) distribution (e.g., transfer pricing, fictitious and/or overpriced services, or loans)
to any persons controlling the Corporation other than dividends.
1.3.
The corporate governance system and practices are required to ensure an equal footing
for all shareholders that own shares of the same category (type), including minority and foreign
shareholders, and their equal treatment by the Company.
In the reporting period, the Corporation took no action that would compromise the dividend rights of the holders of any
ordinary shares and/or global depositary receipts.
Observed
The board-approved Code of Ethics makes those in charge of transactions also responsible for the timely notification of
the Board of any and all conflicts of interest that may arise in relation to such transactions.
Throughout the reporting period, the Corporation's controlling shareholder received no income from it in the form of
transfer pricing, payments for any services, or loans.
1.3.1. The Company has created proper conditions
for the fair treatment of each shareholder by
the company's governance bodies and the
controlling persons and established proper
barriers to any abuse on the part of large
shareholders to the detriment of minorities.
1.3.2. The Company takes no action that causes or may
cause any artificial redistribution of controlling
rights.
1. Throughout the reporting period, no person controlling the Company abused the rights
of any of its shareholders. There either was no conflict of interest between the Company's
controlling persons and shareholders, or, should such conflict have arisen, the Board of
Directors properly attended to them.
Observed
The Corporation has taken every step necessary to prevent any shareholders’ actions 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.
1. Either there are no quasi-treasury shares, or such shares are not admitted to voting
throughout the reporting period.
Observed
In the reporting period, no quasi-treasures shares were used for voting at the General Meeting of shareholders.
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1.4.
1.4.
The Company must provide its shareholders with reliable and efficient ways to register their title
to the shares, and the ability to dispose of them in a free and unencumbered manner.
The Company must provide its shareholders with
reliable and efficient ways to register their title to
the shares, and the ability to dispose of them in a
free and unencumbered manner.
1. The technologies used for and the terms and conditions of services provided are
consistent with the needs of the company and its shareholders and conducive to the
recording and exercise of shareholders' rights in the most efficient way possible.
Observed
The Corporation uses the services of one of Russia's largest registrars with streamlined and reliable technology enabling
the recording and exercise of shareholders' rights in the most efficient way possible. The Corporation cooperates with the
registrar to update information about shareholders contained in the shareholder register.
II. BOARD OF DIRECTORS
2.1.
The board of directors is in charge of strategic stewardship of the company. It also determines
the main principles for 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.
2.1.1. The board of directors is accountable for decisions
relating to the appointment and dismissal of
executives and the election and dissolution of
executive bodies, including on grounds of their
poor or inappropriate performance. The board
of directors is also required to ensure that the
company’s executive bodies comply with the
adopted development strategy and adhere to a
course of action consistent with the company's
line of activity.
2.1.2. The board of directors must set the main long-
term guiding principles for the company’s
business, assess and approve the key
performance indicators and the main business
goals of the company, and evaluate and approve
strategies and business plans for the core
businesses of the Company.
2.1.3. The board of directors must determine the
principles of and approaches to organising the
risk management and internal control systems
within the company.
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.
Observed
The Charter of Sistema PJSFC stipulates that Board matters include the appointment and dismissal of the President,
the election and dismissal of members of the Management Board, and the approval of the terms of employment
agreements signed with the President and members of the Management Board.
2. In the reporting period, the Nominations Committee reviewed the members of
executive bodies for competence, skills, and experience in light of the current and
anticipated needs of the Company as determined in the Company's adopted strategy.
3. The board of directors reviewed a report (reports) from the CEO and the collective
executive body (if any) regarding performance on the Company's strategy in the
reporting period.
1. In the reporting period, the board of directors reviewed matters relating to the
implementation status and updates of the strategy, the approval of the company’s
financial plan (budget) and criteria and indicators (including interim ones) regarding the
implementation of the company’s strategy and business plans.
The Nomination, Remuneration and Corporate Governance Committee of the Board discusses management succession
matters at least once every year as part of the overall corporate HR policy report.
The Board of Directors reviews the President's report on performance on the Corporation's strategy at least once every
year.
Observed
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 Corporation's budget on an annual basis.
At least once a year, the Board of Directors reviews the Corporation’s strategy and assesses its implementation status and
whether it needs updating.
1. The principles of and approaches to the organisation of risk management and internal
control systems within the company are determined by the board of directors and set out
in the company's internal regulations governing risk management and internal control.
Observed
According to Sistema's Charter, the approval of risk management principles within the Corporation is a Board matter. The
Corporation also has specific internal regulations in place that govern corporate risk management and internal control
policies.
2. In the reporting period, the board of directors approved (revised) the Corporation's
acceptable risk level (risk appetite), or the Audit Committee and (or) the Risk Committee (if
any) discussed a proposal to have the Company's risk appetite reviewed by the board of
directors
2.1.4. The board of directors must determine the
company’s policy with regard to the remuneration
and (or) reimbursement of expenses to Board
members, executive bodies and other key
executives of the company.
1. The company has a board-approved policy (policies) in place governing the
remuneration and reimbursement of expenses (compensations) to the members of
the board of directors, the Company's executive bodies or other key employees of the
Company.
2. In the reporting period, the board of directors reviewed matters related to the said
policy.
2.1.5. The board of directors must 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 adopted a system of measures for identifying transactions that
involve conflicts of interest and resolving such conflicts.
The board of directors reviews and approves the corporate risk management report at least once every year.
Observed
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 approved a corporate HR management strategy and regulations governing the remuneration of the
employees of Sistema PJSFC.
The Board of Directors also approved rules governing the reimbursement of expenses to the Corporation's senior executives.
The Board of Directors reviews agenda items related to remuneration and compensations at least once every year.
Observed
The Board of Directors takes all necessary steps to prevent and settle internal conflicts.
The Corporation regularly collects information about the related and affiliated persons of the members of its Board of
Directors and executive bodies. Pursuant to the corporate Code of Ethics, the Corporation uses a regular practice of ethics
assessment where managers that are involved in any transactions whatsoever fill in declaration forms designed to identify
potential conflicts of interest. The declarations are then filed with the corporate Internal Audit Department that checks them
for signs of conflicts of interest.
Any person having any potential conflicting interest in any related party transaction has a duty to abstain from decision-
making (voting) on such transaction.
The Corporation has a system of disciplinary measures in place as a means to ensure employees' compliance with
corporate rules for the resolution of conflicts of interest.
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2.1.6. The board of directors must play a key role in
securing corporate transparency, timely and full
information disclosures, and unhindered access to
corporate files.
1. The company's internal regulations detail the executive roles that are in charge of the
implementation of the corporate information policy.
Observed
The Board of Directors approved a Regulation on Information Policy.
The responsibility to control compliance with said Regulation lies with the Corporate Secretary who reports to the board
of directors.
2.1.7. The board of directors must control corporate
governance practices and play a key role in the
company's major corporate actions.
1. In the reporting period, the board of directors reviewed the findings of a self-
assessment and (or) an external assessment of the company's corporate governance
practices.
Observed
The Nomination, Remuneration and Corporate Governance Committee relies on annual governance assessment findings to
formulate specific proposals on how to enhance governance practices, which proposals are then elevated to the board of
directors for final approval.
2.2.
The board of directors is responsible to the company's shareholders.
2.2.1. Any information about board actions is duly
disclosed and available to shareholders.
1. The company’s annual report for the reporting period provides board and committee
attendance statistics on each member.
2. The annual report contains information on the main findings of the assessment (self-
assessment) of board performance quality in the reporting period.
2.2.2. The board chair must be accessible to the
company’s shareholders for communications.
1. The company has a transparent procedure in place where shareholders can submit
their queries/petitions to the board chair (or senior independent director, if any) and
receive feedback.
2.3.
The board of directors must be an efficient and professional governance body capable of exercising objective
independent judgement and passing decisions that represent the interests of the company and its shareholders.
The Board of Directors reviews matters related to governance practices at least once every year.
Observed
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 such
meetings and Board members’ attendance.
The main findings of the performance assessments of the Board and of executive bodies are disclosed in the corporate
Annual Report.
Observed
Shareholders can put questions to the Chairman of the Board of Directors regarding any board matter whatsoever and
communicate their own position (opinion) on such matter through the Corporate Secretary.
2.3.1. Only those possessing impeccable business and
personal reputation as well as the expertise, skills
and experience relevant for decision-making
with regard to board matters and the efficient
fulfilment of other board functions may be elected
to the board of directors.
2.3.2. The election of board members must be a
transparent procedure where shareholders have
ample opportunity to inform themselves about
the candidates so as to form an opinion on their
personal and professional qualities.
2.3.3. The composition of the board of directors must
be well balanced in terms of qualifications,
experience, expertise and business qualities, with
all board members trusted by shareholders.
2.3.4. The board of directors must consist of as
many members as are reasonably required for
maximum efficiency of all board actions, including
establishing and running board committees, and
for affording all substantial minority shareholders
ample opportunity to have a candidate they vote
for elected to the board.
1. In the reporting period, the board of directors (or its nomination committee) assessed
candidates to the board in light of their expertise, skills, business reputation, freedom
from conflicts of interest, etc.
Observed
The Board’s Nomination, Remuneration and Corporate Governance Committee assesses all candidates nominated to the
Board of Directors in light of their independence and potential contribution to the work of the Board of Directors.
Sufficient professional experience, business reputation and freedom from conflicts of interest are important criteria of such
assessment.
1. Throughout the reporting period, before each general meeting where shareholders
were to vote on any candidates to the board, the corporation had provided
shareholders with biographies of all such candidates, the findings of any assessments
(whether performed by the board itself or its nomination committee) of their expertise,
experience and skills in light of consistency with the company's current and future
needs, and information as to their independence according to recommendations
102–107 of the Code and as to whether they have provided their written consent to be
so elected to the board.
1. In the reporting period, the board of directors duly analysed which qualifications,
experience and skills it needs and identified requisite "skill sets" for the short and
longer term.
Observed
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, and information as to whether they meet the
requisite independence criteria and whether each nominee has agreed in writing to be elected to the board are contained
in the proxy materials of all meetings where shareholders are invited to elect any board members.
The status of the newly elected members of the Board of Directors (including whether or not they are independent) is then to
be validated at the first board meeting following each such election.
Observed
The annual assessments of the Board of Directors involve the evaluation of the available expertise and its consistency with
corporate needs.
1. Within the reporting period, the board of directors looked into the number of board
members in light of the company's needs and the shareholders' interests.
Observed
The annual assessments of the Board of Directors involve the assessment whether the number of its members is consistent
with the corporate needs.
2.4.
The board of directors must 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
All board members whom the Corporation recognised to be independent throughout the reporting period met the
recommended independence criteria contained in the Corporate Governance Code and the Listing Rules of Moscow
Exchange or were recognised to be independent by resolution of the board of directors.
2.4.1.
It is recommended that independent member
status be granted to persons possessing sufficient
professionalism, experience and independence to
form independent opinions and exercise objective
and responsible judgement free from any
influence from the company's executive bodies,
groups of shareholders or other stakeholders.
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.
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2.4.2.
It is recommended that the company assess all
candidates to the board in light of consistency
with independence criteria and regularly
review incumbent board members that have
independent status for whether they continue
to meet such independence criteria on a
substance-over-form basis.
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) performed
at least one evaluation of the independence status of its incumbent board members
(post-election).
3. The company has proper regulations in place setting out the specific steps to be
taken by board members (including board notification procedures) should they cease to
be independent for any reason whatsoever.
Observed
The Nomination, Remuneration and Corporate Governance Committee of the Board of Directors (hereinafter, “the
Committee”) issues an opinion on the independence of all nominees 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 independent status granted to its members.
The Committee also performs regular evaluations of incumbent board members for whether they continue to meet
independence criteria.
When elected to the Board, Board members undertake in writing to notify the Corporation of any circumstances that may
affect their ability to exercise independent judgement on any board matters whatsoever.
2.4.3.
Independent directors must make up at least
one-third of the board at any time.
2.4.4.
Independent directors must play a key role in
preventing internal conflicts and in material
corporate actions.
1. Independent directors make up at least one-third of the board at any time.
Observed
As of the end of the reporting period, half (6 out of 12) of the Corporation's board members were independent.
1. Throughout the reporting period, independent directors (in no conflict of interest with
the Corporation) performed preliminary assessments of all material corporate actions
potentially conducive to conflicts of interest, with all findings duly reported to the board
of directors.
Observed
Independent directors routinely perform a preliminary assessment of potential actions and resolutions of the
Corporation that might lead to conflicts as they prepare for each meeting of the Board or Board Committees. This
includes the Audit, Finance and Risk Committee pre-approving all related party transactions.
Opinions of Board members are incorporated in each meeting's materials.
2.5.
The board chair must facilitate the discharge of the board's functions in the most efficient way possible.
2.5.1.
It is recommended that the board either elect
an independent director as its chair or elect
one of its independent members to be the "lead
independent director" in charge of coordinating
the activities of the independent directors and
liaising with the board chair on their behalf.
1. The board chair is an independent director, or a lead independent director is elected
from among independent directors.
Partially 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.
2. The role, rights and duties of the board chair (and, if applicable, of the lead
independent director) are duly set out in the company’s internal regulations.
The Terms of Reference also define the role of the Deputy Chair of the Board, who, together with the Corporate Secretary, is
put in charge of organising communications between independent directors and the board chair.
Each independent director is afforded ample opportunity to communicate to the board and its chair his or her personal
opinion on any agenda item. With that in mind, the Corporation as a whole and the Board of Directors in particular have
yet to reach a consensus on whether the Board needs a formal lead/senior independent director and a hierarchy of
independent board members. The Board of Directors and its Nomination, Remuneration and Corporate Governance
Committee intend to get back to this matter as soon as there occurs a significant change in the board composition and
new independent directors appear.
2.5.2. The board chair must ensure that board meetings
are constructive, invite and encourage an open
discussion of all items on the agenda, and control
the execution of previously issued resolutions.
2.5.3. The board chair must ensure that board members
receive in good time the complete information
required for decision-making on each agenda
item.
1. The performance of the board chair is assessed along with the overall board
performance over a particular reporting period.
Observed
The annual assessments of the Board of Directors involve the evaluation of the efficiency of interactions between Board
members and the Board Chairman.
1. The board chair's duty of providing full and timely information to all board members is
set out in the company's internal regulations.
Observed
Pursuant to the Board Regulations, the Board Chairman ensures that board members receive in good time the complete
information required for decision-making on each agenda item.
2.6. Members of the board must act reasonably and in good faith and protect the interests of the company
and its shareholders in reliance on sufficient information and with due care and diligence.
2.6.1. The term "act reasonably and in good faith"
means decision-making on the basis of the entire
available information, with no conflict of interest
involved, and all shareholders of the company
being treated equally, with exposure to risks no
greater than standard business risks.
2.6.2. The rights and obligations of board members must
be clearly formulated and recorded in internal
regulations.
2.6.3. Board members must be afforded sufficient time
to perform their duties.
1. The company’s internal regulations stipulate that a board member is required to notify
the board of any conflicts of interest they might have in respect of any item on the
agenda of a board or committee meeting before a discussion of such item commences.
Observed
The Terms of Reference of the Board of Directors and the corporate Code of Ethics stipulate that board members are
required to notify the Corporation of any conflicts of interest that have or may have arisen and abstain from voting on any
matters where they have such a conflict of interest.
2. The company’s internal regulations stipulate that a board member may not vote on any
agenda item where he/she has a conflict of interest.
The Board of Directors is entitled to retain external independent experts for the examination of draft resolutions at the
Corporation’s expense.
3. The company has a procedure in place that allows the board of directors to receive
professional advice on board matters at the expense of the company.
1. The company has an internal document in place that clearly defines the rights and
duties of board members.
1. The (self-)assessment of the board's performance conducted in the reporting period
must involve an analysis of personal attendance discipline and whether the time
provided for the directors' work is actually sufficient for performing their duties in due
and thorough manner.
2. Internal regulations put board members under an obligation of notifying the board of
their intention to join or having joined the governance bodies of any further organisations
(other than those controlled by the company).
Observed
Observed
The rights and duties of Board members are recorded in the Charter, the Terms of Reference of the Board of Directors, and
the Board Regulation.
The annual assessments of the board performance involve the evaluation of the organisation and attendance of board
meetings.
When nominated to the Board, candidates fill in special questionnaires as set out in the Terms of Reference of the Board
of Directors, where they are required to specify all organisations where they sit or intend to sit on governance bodies. The
board members have a duty to notify the Corporate Secretary in writing of any changes occurring since they last filled in
that questionnaire.
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2.6.4. All members of the board of directors must
be granted equal access to the company's
documents and information. New entrants to
the board must receive sufficient information
about the company and its board of directors as
promptly as is reasonably practicable.
1. The company’s internal documents stipulate that board members have the right to
get access to, and executive bodies are required to provide them with, any information
and documents they reasonably need for performing their duties with respect to the
company and its subsidiaries.
2. The company has a formal induction programme in place where new entrants to the
board receive requisite information.
2.7.
Board meetings must be organised and prepared for in a way conducive to maximum possible performance efficiency.
Observed
Sistema’s Board members are able to promptly receive answers to their queries and any information they may require either
directly from executive management or through the Corporate Secretary. The employees’ duty to provide such information is
set out in the internal regulations.
The Corporate Secretary duly informs new entrants to the Board of its work practices in accordance with Board Regulations.
2.7.1.
2.7.2.
It is recommended that the corporation determine
the appropriate frequency of board meetings, due
account being taken of the company's business
scale and specific tasks and challenges it faces in
a particular period of time.
It is recommended that the company formulate a
specific procedure to be relied on when preparing
for and conducting board meetings and make
sure it is duly set out in internal regulations.
Among other things, such procedure must ensure
that board members are given ample time to
prepare for each meeting.
2.7.3. The holding form of each meeting must be
determined based on the importance of agenda
items to be discussed, with the more important
matters to be discussed face-to-face whenever
possible.
2.7.4.
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 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 an approved work plan.
The board had 16 meetings in the reporting period.
1. The company has an internal regulation in place that sets out a specific procedure
to be relied on when preparing for and conducting board meetings. The regulation
states, inter alia, that board members must receive at least a five days' notice of each
meeting.
2. Every board member absent from the physical venue of each board meeting held
throughout the reporting period was provided with ample opportunity to take part in
the discussion of all agenda items and vote on each of them remotely (by means of a
conference call or video conferencing).
1. The company’s charter or internal regulations stipulate that the board should
attempt to discuss the more important agenda items (including those described in
recommendation 168 of the Code) at physical (face-to-face) meetings.
Observed
The Terms of Reference of the Board of Directors and the Board Regulations set out the specific 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
made available on the board data portal (to which all board members have permanent access) at least 10 days before
each board meeting.
Every member of the board is given an opportunity to participate in board meetings through video conferencing.
Observed
All scheduled board meetings are held in person. Remote meeting formats are used primarily for the discussion of urgent
matters.
The Board Regulation stipulates that the board should at all times attempt to discuss the more important agenda items in
person.
1. The company’s charter stipulates that resolutions on the most important items,
including those set out in recommendation 170 of the Code, require a qualified majority of
at least three-fourths of votes given or a simple majority of all elected Board members.
Partially observed
Pursuant to the Charter, any decisions regarding any increase in the shareholder (charter) capital, the issuance of any
specific type of securities, or the approval of any material or related party transaction require applying special voting rules.
2.8.
The board of directors must establish committees for previewing matters pertaining to essential business aspects.
2.8.1.
It is recommended that the board set up an audit
committee composed of independent directors
for previewing reports and matters related to the
control of the company's financial and business
activities.
1. The board of directors set up an audit committee consisting only of independent
directors.
2. The company's bylaws set out the audit committee's objectives, including those
contained 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 preparing, analysing, evaluating, and auditing statutory
(financial) accounts.
4. The audit committee met at least once per quarter throughout the reporting period.
Resolutions on any other agenda items require a simple majority of votes.
Independent directors who regularly attended the meetings made up half of the Board of Directors of Sistema PJSFC in
the reporting period. The Board of Directors will revisit this matter if and when there is a material modification in the board
composition.
Partially observed
The Corporation established an Audit, Finance and Risk Committee of the Board of Directors (hereinafter, “the Committee”)
and adopted its Terms of Reference. The Committee's objectives as recorded in the Terms of Reference are consistent with
the recommendations contained in the Corporate Governance Code.
Independent directors constituted the majority of the Committee members (4 out of 5) throughout the reporting period.
The committee chair possessed vast experience and expertise in preparing, analysing, evaluating, and auditing statutory
(financial) accounts.
Sistema aims to include independent directors in all Committees to ensure that they are actively involved in discussing
business aspects of most import for the Corporation. The average independent director of the Board sits on three
committees, which adds up to a relatively high workload. With independent directors having reasonable limitations as to
how much time they have available to responsibly discharge their duties to the Corporation, and it being understood that
corporate matters require careful consideration involving a diversity of viewpoints, the Corporation was not reasonably
able to put more independent directors on the Committee and make it an independent-only governance body with no loss
in discussion quality.
In 2021, the Committee met 20 times.
2.8.2. It is recommended that the board set up
a remuneration committee composed of
independent directors and chaired by an
independent director other than the board chair
for previewing remuneration-related reports
and matters aiming to create an efficient and
transparent incentive system.
1. The board of directors set up a remuneration committee consisting only of independent
directors.
Observed
The Corporation established a Nomination, Remuneration and Corporate Governance Committee of the Board of Directors
(hereinafter, “the Committee”) and adopted its Terms of Reference. The Committee's objectives as recorded in the Terms of
Reference are consistent with the recommendations contained in the Corporate Governance Code.
2. The remuneration committee is chaired by an independent director other than the
board chair.
3. The company's bylaws set out the remuneration committee's objectives, including
those contained in recommendation 180 of the Code, as well as triggers for reviewing the
company's remuneration policies with regard to board members, executive bodies, and
other key management personnel.
All members of the Committee were independent directors throughout the reporting period.
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2.8.3. It is recommended that the board set up
a nomination (HR etc.) committee where
independent directors make up the majority
for previewing reports and matters related to
workforce/succession planning as well as the
board's composition and performance.
2.8.4. It is recommended that the company also set up
other board committees (e.g., strategy, corporate
governance, ethics, risk management, budgeting,
HSE committees etc.) as it deems relevant in light of
its business scale and exposure to risk.
2.8.5. It is recommended that the composition of
each board committee allow for an all-round
consideration of each agenda item, involving a
reasonable diversity of opinion.
1. The board of directors set up a nomination committee (or a differently titled committee
overseeing such objectives as are set out in recommendation 186 of the Code) where
independent directors make up the majority.
Observed
The Corporation established a Nomination, Remuneration and Corporate Governance Committee of the Board of Directors
(hereinafter, “the Committee”) and adopted its Terms of Reference. The Committee's objectives as recorded in the Terms of
Reference are consistent with the recommendations contained in the Corporate Governance Code.
2. The company's bylaws set out the nomination committee's objectives (or objectives of
a differently titled committee overseeing nomination matters), including those contained
in recommendation 186 of the Code.
3. The nomination committee liaised with the company's shareholders (including minor
ones) encouraging nominations to the company's board throughout the reporting period
either on its own or collectively with other board committees or relevant departments
within the company, aiming to elect the next board of directors that would best meet the
company's goals and objectives.
1. The board of directors discussed the board structure in light of consistency with the
company's business scale and nature, goals, needs, and risks at least once throughout
the reporting period. Additional committees were either set up or found unnecessary.
11. The audit, remuneration, and nomination committees (or differently titled committees
with similar functions) were chaired by independent directors throughout the reporting
period.
2. The company’s internal regulations (policies) include provisions that stipulate that
persons who are not permanent members of the audit, nomination and remuneration
committees may nonetheless attend them if invited by the chair of such committee.
The Committee routinely liaises with minority shareholders seeking nominations to the next Board of Directors.
All members of the Committee were independent directors throughout the reporting period.
Observed
The Board establishes board committees in accordance with corporate goals and objectives at least once every year, at
the first meeting after each new board is elected.
Partially observed
Each board committee consisted of at least 4 board members throughout the reporting period.
The Audit, Finance and Risk Committee, the Nomination, Remuneration and Corporate Governance Committee, and the
Ethics and Control Committee were chaired by independent directors. Two of the board committees to which no strict
regulatory recommendations apply (the Strategy Committee and the Ethics and Control Committee) were chaired by non-
executive directors.
Sistema aims to include independent directors in all Committees to ensure that they are actively involved in discussing
business aspects of most import for the Corporation. The average independent director of the Board sits on three
committees, which adds up to a relatively high workload. With independent directors having reasonable limitations as to
how much time they have available to responsibly discharge their duties to the Corporation, and it being understood that
corporate matters require careful consideration involving a diversity of viewpoints, the Corporation was not reasonably
able to have every board committee chaired by an independent director.
The Corporation chose not to restrict the maximum number of committees a board member may sit on as this heavily
depends on the specific time schedules and capabilities of each individual board member. The Corporation believes that
such personalised approach is most conducive to the efficient organisation of the board's work.
Although the Terms of Reference of specific committees currently contain no indication that directors who are not
permanent members of the Audit, Finance and Risk Committee or the Nomination, Remuneration and Corporate
Governance Committee may attend their meetings if invited by their chairs, we will make sure to incorporate such clauses
the next time these regulations are revised. Although not formally documented, the principle is observed in practice.
2.8.6. Committee chairs must regularly report on their
respective committees' performance to the board
and its chair.
1. In the reporting period, committee chairs regularly reported to the board on their
respective committees' performance.
Observed
Committee chairs regularly inform the board chair of their respective committees' performance.
All of the committees make annual performance reports to the Board of Directors.
2.9.
The board of directors must arrange for regular performance reviews of the board of directors,
its committees, and its specific members.
2.9.1. Performance reviews must be aimed at evaluating
the efficiency of the board of directors, its
committees and members of the board of
directors, analysing whether their performance is
adequate for the company’s development needs,
and identifying vulnerabilities and ways to step up
performance.
1. The company's internal regulations set out specific procedures for the (self-)
assessment of board performance.
2. The (self-) assessment of board performance conducted in the reporting period
specifically looked at the performance of each committee, each board member, and the
entire board as a whole.
3. The findings of such assessment were duly reviewed at an in-person board meeting.
Observed
Performance reviews are a mandatory regular practice pursuant to the Terms of Reference of the Board of Directors.
The board assessment procedure used by the Corporation is a product of many years of practice and specifically looks at
the performance of the board (including how well it is organised) and its committees.
The criteria used to assess the performance of the Board of Directors focus on their professional and personal qualities,
independence, teamwork, personal involvement, and other factors that generally have a bearing on board performance.
Each year's assessment findings are reviewed at the last in-person board meeting preceding each general meeting of
shareholders.
The Nomination, Remuneration and Corporate Governance Committee relies on these findings to formulate suggestions as
to how to improve board and committee performance.
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2.92. Performance reviews of the board of directors, its
committees and members must be conducted
at least once every year. It is recommended that
a third party (consultant) be retained to perform
an independent assessment of the board’s
performance at least once every three years.
III. CORPORATE SECRETARY
1. The company retained a third party (consultant) to conduct an independent
assessment of the board's performance at least once in the last three reporting periods.
Observed
Performance reviews of the Board of Directors and its Committees are performed annually. This year's external assessment
was done by a consortium of EY and Nestor Advisors Ltd.
3.1.
The corporate secretary has the duty of arranging efficient day-to-day interactions with shareholders,
coordinating the company’s activities aimed at protecting shareholder rights and interests, and facilitating
the efficient work of the board of directors.
3.1.1. The corporate secretary must possess the
requisite expertise, experience and qualifications
for the execution of his/her professional duties,
have an impeccable reputation, and be generally
trusted by shareholders.
3.1.2. The corporate secretary must be sufficiently
independent from the company’s executive
bodies and have the requisite powers and
resources to exercise his/her professional duties.
1. The company's website and annual report detail the corporate secretary's biography
(including age, education, qualifications, and experience), as well as previous
employment record for at least the past five years.
Observed
The Board of Directors adopted a Terms of Reference of the Corporate Secretary of the Corporation. The Terms of Reference
specify the requirements applying to the Corporate Secretary in accordance with the Corporate Governance Code. The
Terms of Reference are available on the corporate website.
1. The company adopted a Terms of Reference of the Corporate Secretary, which is
publicly available.
2. The board of directors appoints and dismisses the corporate secretary and reviews
any matters related to his/her remuneration.
3. The company's internal regulations determine that the corporate secretary is entitled
to request and receive any documents and information about the company from its
governance bodies, departments, and employees.
The Corporate Secretary's details were disclosed in the 2020 Annual Report released in 2021.
Observed
The Corporate Secretary reports directly to the Board of Directors and is appointed and dismissed by the Board of Directors.
The Board of Directors adopted a Terms of Reference of the Corporate Secretary detailing the requirements for
being eligible for appointment as Corporate Secretary, the procedure for his/her appointment and dismissal, his/her
accountability and procedures for interacting with corporate governance bodies and departments, and his/her functions,
rights, duties, remuneration terms, and responsibilities. The Terms of Reference are available on the corporate website and
clearly state that the Corporate Secretary is entitled to request and receive any documents and information about the
company from its governance bodies, departments, and employees.
IV. REMUNERATION OF THE BOARD OF DIRECTORS, EXECUTIVE BODIES, AND KEY MANAGEMENT PERSONNEL
The amount of remuneration provided by the company should be sufficient for engaging, motivating
and retaining employees possessing the necessary competencies and qualifications. Any and all remuneration
payable to board members, the members of executive bodies, and key management personnel must
be in accordance with the corporate remuneration policy.
4.1.
4.1.1.
It is recommended that the company remunerate
board members, the members of executive
bodies, and other key management personnel in
a manner that adequately motivates them to be
efficient and enables the company to engage
and retain highly competent senior personnel,
while avoiding unjustified overexpenditure and
disproportionate pay gaps with the company's
non-executive employees.
4.1.2. The company’s remuneration policy must be
developed by the remuneration committee and
approved by the company’s board of directors.
It is the duty of the board of directors to control
compliance with, review and revise the corporate
remuneration policy with support from the
remuneration committee.
4.1.3. The company’s remuneration policy must set
out transparent mechanisms for determining
the amount of remuneration payable to the
board members, executive bodies and other key
management personnel and detail any other
payments and benefits they might be entitled to.
4.1.4.
It is recommended that the company develop
an expense reimbursement policy specifying
types of costs to be reimbursed and expense
caps applying to board members, the members
of executive bodies, and other key management
personnel. The expense reimbursement policy
may be incorporated in the general remuneration
policy.
1. The amount of the remuneration of board members, the members of executive bodies,
and other key management personnel is determined in reliance on relevant benchmarks
from among peer companies.
Observed
The Company's HR department regularly furnishes the Nomination, Remuneration and Corporate Governance Committee
with the properly obtained findings of key management pay studies conducted across a variety of Russian and
international companies comparable to the Corporation. The Committee relies on these findings to finalise the incentive
system and determine the total remuneration amounts payable to specific key employees.
1. Within the reporting period, the remuneration committee reviewed the remuneration
policy (policies) and its (their) implementation practice, evaluated it (them) for efficiency
and transparency, and issued related recommendations to the board (where necessary)
on how best to modify them.
The Committee also conducts regular benchmarking analyses of board remuneration systems operating in companies
comparable to the Corporation.
Observed
The Corporation’s remuneration policy is developed by the Nomination, Remuneration and Corporate Governance
Committee and approved by the Board of Directors.
The Board of Directors adopted a suite of regulations governing the remuneration and LTI principles that apply to the
members of executive bodies and other management personnel.
The Nomination, Remuneration and Corporate Governance Committee reviews corporate remuneration system status
reports at least once every year and issues related recommendations to the Board as necessary.
1. The company’s remuneration policy sets out transparent mechanisms for determining
the amount of remuneration payable to the board members, executive bodies and other
key management personnel and details any other payments and benefits they might be
entitled to.
Observed
The Corporation’s internal regulations detail the procedures to follow to determine the amount of relevant remuneration
and all of its specific components as well as any expense compensations.
Any decisions as regards the amount of remuneration to be paid to any person are taken independently from such
person and are not discussed with him/her.
1. The remuneration policy (policies) or other internal documents detail the rules for board
members, the members of executive bodies, and other key management personnel to
follow to have their costs and expenses reimbursed.
Observed
According to the Corporation’s internal regulations, compensation is due only for expenses incurred by the members of
corporate governance bodies and other employees in the course of the discharge of their professional duties on behalf of
the company, and only within strict pre-determined cap amounts.
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4.2.
The board remuneration system must be designed so as to align the directors' financial interests
with the longer-term interests of shareholders.
4.2.1.
It is preferable that board members receive a
fixed remuneration amount for their work on
the board. Per-meeting forms of remuneration
are undesirable, as are any short-term and
supplementary incentive mechanisms.
1. Any remuneration paid to the board members throughout the reporting period was in
accordance with the company's adopted remuneration policy.
2. Throughout the reporting period, board members received no short-term or
supplementary rewards linked to the company's performance, nor any rewards for
attending any particular board or committee meetings.
1. If the company’s remuneration policy provides for any shares to be allocated to board
members, it must also detail clear rules that apply to their owners, aiming to encourage
long-term holding behaviour.
4.2.2. Although the long-term ownership of shares in
the company is most conducive to the alignment
of director interests with those of shareholders, it
is recommended that companies avoid tying the
vesting of title to any shares to any performance
triggers or involving board members in any option
plans.
4.2.3.
It is inadvisable to allow additional remuneration
or compensation to be paid to any board member
should their contract be terminated on an early
basis on grounds of any change of control or any
other ground.
Partially observed
All types of remuneration payable to board members are in accordance with the Policy on remuneration and
compensations payable to members of the Board of Directors. The main form of remuneration payable to the Board of
Directors according to such Policy is fixed remuneration.
Board members are also entitled to supplementary share awards linked to the achievement of the Corporation's overall
investment goals. Although the amounts of such supplementary awards are also fixed, they may only be triggered by
positive corporate stock price performance throughout the reporting year. The Corporation is planning to revisit the existing
board remuneration principles in 2022.
Partially observed
A certain portion of remuneration payable to the Board members (additional remuneration) is in the form of shares. Board
members are encouraged to hold on to their shares in the long term and tend to keep them at least as long as they remain
on the board. The Corporation immediately discloses information on any transactions made by any Board members that
involve 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 risk hedging strategies.
Having considered different ways to institute this principle and taking into account the variety of jurisdictions where Board
members reside, the Corporation currently sees no legitimate grounds or methods to restrict the Board members' rights to
hold and dispose of shares in the Corporation.
1. The company practices no supplementary payments or compensations in case of an
early termination of any board member's duties on grounds of any change of control or
any other ground.
Observed
No bylaw provides for any supplementary payments or compensations due to board members in case of an early
termination of any board member's duties on grounds of any change of control or any other ground.
4.3.
The remuneration system applying to the members of executive bodies and other key management
personnel must involve a variable component tied to the company's performance results and personal
contributions made toward them.
4.3.1. The total remuneration paid to the members of
executive bodies and other key management
personnel must rely on a reasonable and justified
balance of fixed and variable (performance- and
contribution-dependent) components.
4.3.2.
It is recommended that listed companies
adopt a long-term incentive scheme where the
members of their executive bodies and other key
management personnel receive awards in the
form of shares in the company (options or other
derivatives where shares in the company are the
underlying assets).
4.3.3. Severance benefits ("golden parachutes") paid by
the company in the event of an early termination
of the powers of a member of any executive
body or any key manager should not exceed the
double amount of their fixed annual pay, provided
that such early termination is on the employer's
initiative and such employee is not found 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. In conducting its latest review of the incentive system as applies to the members
of executive bodies and other key management personnel, the board of directors
(remuneration committee) was satisfied with and found reasonable the existing ratio of
the fixed and variable remuneration components.
3. When determining the amount of remuneration to be paid to the members of executive
bodies and other key management personnel, the company takes care to factor in its risk
exposure, aiming to discourage excessive risk taking.
1. If the company has adopted a long-term incentive system where members of its
executive bodies and other key management personnel receive shares in the company
(or derivative instruments based on them), the title to such shares or instruments vests at
least three years after they are so allocated, conditional on the achievement of certain
business performance targets.
1. Severance benefits ("golden parachutes") paid by the company throughout the
reporting period in the events of the early termination of the powers of a member of any
executive body or any key manager did not exceed the double amount of their fixed
annual pay, provided that such early termination was on the employer's initiative and
such employee was not found guilty of any wrongdoing.
Observed
The Corporation uses a board-approved incentive system that applies to the members of its executive bodies and other key
managers. The Board of Directors approves key performance indicators as an element of such incentive system.
The Nomination, Remuneration and Corporate Governance Committee is involved in the development of key performance
indicators to be used in the incentive system. In particular, the committee carefully analyses the ratio of the fixed and
variable remuneration components.
The results of such incentive programmes are reviewed at the end of each year.
In assessing performance results for incentive purposes, the Corporation factors in its exposure to risks.
Should analysis reveal any signs of performance misstatement or other unethical practices on the part of employees to the
prejudice of long-term shareholder interests, such employees are held to account and made to reimburse the Corporation
for related damages in accordance with law.
Observed
The Board of Directors adopted the main principles of employee share incentive plans aimed at building long-term
relationships with the key managers and motivating them to achieve the common goal of increased capitalisation.
Such plans are made for employees whose potential personal contributions to the performance and value appreciation of
the Corporation and its subsidiaries are deemed to be significant, with the final list of participants to be approved by the
Board. Each participant receives a material (0.1 %+ of share capital) amount of shares in Sistema PJSFC, with no restrictions
imposed as to their disposal.
Observed
Severance benefits paid by the Corporation throughout the reporting period in the event of an early termination of the
powers of a member of any executive body or any other key manager on the Corporation's initiative did not exceed the
maximum amount as set out in labour law, which is less than the double annual fixed salary.
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V. RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM
5.1.
The company must have an effective risk management and internal control system aimed at providing
reasonable assurance in the achievement of the company's goals and targets.
5.1.1. The board of directors has a duty to determine the
principles of, and approaches to, organising the
company's risk management and internal control
systems.
1. The powers of specific governance bodies and departments involved in risk
management and internal control are clearly set out in the company's board-approved
bylaws/policies.
5.1.2. Organising and maintaining effective risk
management and internal control systems is the
duty of relevant executive bodies.
1. The company’s executive bodies have clearly distributed the duties, powers, and
responsibilities with regard to risk management and internal control between relevant
executives and departments subordinated to them.
Observed
The Corporation's bylaws include the board-approved Internal Audit Policy and Internal Control Policy, as well as a Risk
Management Code, each developed in accordance with the COSO internal control-integrated framework principles.
The Corporation uses risk management and internal control systems at both operating and organisational levels.
The roles and objectives of various governance bodies involved are clearly set out in the said documents.
Observed
The corporate Finance Function includes a risk management unit.
Heads of departments across the Corporation are responsible for developing, documenting, implementing, monitoring and
upgrading risk management and internal control systems within their respective functional areas.
5.1.3. Risk management and internal control systems
1. The company has an anti-corruption policy in place.
Observed
The existing internal control and risk management systems enables timely response to new risks.
must be conducive to an objective, fair and clear
understanding of the company's current status
and prospects, the integrity and transparency
of the company’s financial statements, and
responsible risk-taking.
5.1.4.
It is recommended that the board of directors take
all necessary and sufficient measures to ensure
that the existing risk management and internal
control systems of the company are effective and
consistent with board-approved organisation
principles and approaches.
2. The company has created a safe, confidential and accessible mechanism (hotline) for
any person to inform the board of directors or its audit committee about any breaches of
law, internal procedures, or the company’s code of ethics.
In addition to a board-approve Anticorruption Policy, the Corporation uses a whistleblowing hotline enabling any employee
to report any known offence on the part of any corporate officials whatsoever. The purpose of the hotline is to combat any
abuse in the course of any projects or business activities, such as the procurement of products, works and services, and
to prevent corruption and fraud. Whistleblowers are guaranteed safety from any types of pressure (such as dismissals,
harassment, or discrimination of any kind).
1. The board of directors (or its audit and/or risk committee) organised an evaluation of
the reliability and effectiveness of the corporate risk management and internal control
systems at least once throughout the reporting period.
Observed
The Board of Directors regularly (at least once every year) looks into the organisation, operation, and effectiveness of the
corporate risk management and internal control system and issues recommendations on how to improve it, with the final
findings and recommendations then reported to shareholders as part of the Annual Report.
2. The board of directors reviewed the findings of such evaluation, which are also
incorporated in this annual report.
5.2.
The company must perform internal audits for the systematic independent evaluation of the reliability
and effectiveness of its risk management, internal controls, and governance practices.
5.2.1.
It is recommended that internal audits be
performed either by an independent outside
auditor, or by a specialised internal audit
department with differentiated reporting lines,
where auditors actually report to the board
despite being formally subordinated to the CEO
and so gain the necessary independence from the
executive management they are meant to control.
5.2.2.
It is recommended that internal audits look
into the effectiveness of internal controls, risk
management, and corporate governance while
relying on generally accepted internal auditing
standards.
1. For the purposes of internal audits, the company either established an internal audit
department that reports to the board of directors or engaged an independent external
auditor that also reports to the board.
Observed
The Corporation has an Internal Audit Department whose activities are governed by a Terms of Reference of the Internal
Audit Department.
The department reports to the Board of Directors functionally and to the President administratively.
The Chief Auditor is appointed and dismissed by President on resolution of the Board.
1. Internal audits performed throughout the reporting period involve the evaluation of
the reliability and effectiveness of the corporate risk management and internal control
system.
2. Internal audits performed throughout the reporting period specifically looked into
particular corporate governance practices, including communications (inter alia, on
matters pertaining to internal control and risk management) across all governance levels
and stakeholder relations.
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 address, inter alia, the effectiveness of internal controls, risk management, and corporate
governance.
VI. CORPORATE DISCLOSURES AND INFORMATION POLICY
6.1.
The company and its operations must be transparent to shareholders, investors and other stakeholders.
6.1.1. The company must rely on an information policy
that insures efficient communications with
shareholders, investors, and other stakeholders.
1. The company uses a board-approved information policy developed on the basis on
recommendations contained in the Code.
Observed
The Corporation uses a board-approved Information Policy that is enforced by corporate executive bodies and the
Corporate Secretary. The Board of Directors controls compliance with the Information Policy and routinely reviews it for
possible updates.
2. Throughout the reporting period, the board of directors (or one of its committees)
analysed the effectiveness of corporate communications, both within the company
and with its shareholders and other stakeholders, and discussed whether the corporate
information policy required any modification.
Executive bodies regularly meet with outside analysts in relation to public disclosures (releases) of financial statements,
major investment projects, and development plans.
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6.1.2. The company must disclose relevant information
on governance mechanisms and practices,
including compliance with the Code.
1. The company discloses information about its corporate governance system
and principles on its website and otherwise.
Observed
The Corporation's website (www.sistema.ru/www.sistema.com) provides the details of its governance bodies, including their
composition and the biographies of their members.
2. The company discloses the names of the members of its executive bodies and board of
directors, their independence status, and their involvement in specific board committees
(in accordance with the Code).
3. If the company is controlled by a controlling party, it must release such party's
memorandum setting out such party's plans regarding corporate governance.
The Corporation has adopted a Corporate Governance Code (hereinafter, “the Code”) setting out the key principles of
corporate governance and Board commitments (duties).
The Code is also available on the corporate website.
The Corporation has no controlling party from 2022.
6.2.
The company must make timely, complete, relevant and reliable disclosures enabling its shareholders
and investors to take informed decisions.
6.2.1. The company must disclose information regularly,
consistently and promptly and must ensure that
the information so disclosed is easily accessible,
reliable, complete, and comparable.
1. The company has a procedure in place that serves to coordinate the disclosure efforts
of all corporate departments and employees where disclosure is required.
2. If the company is listed on a stock exchange in any foreign country, any material
information disclosure made by the company in Russia must be accompanied by a
simultaneous and equivalent disclosure in such other country.
3. Where foreign shareholders own material quantities of the company's shares,
information disclosures throughout the reporting period were made both in Russian and
in a widely spoken foreign language.
6.2.2.
It is recommended that the company make
disclosures on a "substance over form" basis
and release material information even where not
directly required by law.
1. The company's information policy sets out approaches to disclosing information on
other events (actions) that may have a material effect on its share price although are not
legally required to be disclosed.
2. The company discloses information about its capital structure in accordance with
recommendation 290 of the Code in its annual report and on its corporate website.
3. The company discloses information on its material controlled entities, including their
key lines of business, accountability mechanisms, and the board's powers as regards
making strategic decisions for, and evaluating the performance of, such controlled
entities.
4. The company discloses a non-financial report (a sustainability/environment/CSR or
other report containing non-financial information, including that about the company's
environmental impact (whether on the environment or climate change), society, and
corporate governance, other than the statutorily required stock issuer's report and joint-
stock company's annual report).
Observed
The Corporation’s information policy makes it possible to coordinate the disclosure efforts of all corporate departments.
The Corporation makes sure to disclose material information as soon as is reasonably practicable and to promptly respond
to any rumours and/or unreliable information that may appear publicly.
Corporate disclosures are released on the Sistema website (www.sistema.ru/www.sistema.com) and the Interfax news feed.
The Corporation ensures that its disclosures are unambiguous, objective, and neutral and makes no effort to withhold or
conceal any negative information.
Observed
The Corporation discloses all material information both about itself and about other companies controlled by it.
Such disclosures beyond the legally required minimum cover:
the corporate strategy and targets;
financial activities and status;
capital structure;
social responsibility.
The Corporation discloses information on its controlled entities, including disclosures in the annual report and consolidated
financial statements, to the extent it receives such information as their shareholder in accordance with corporate and other
applicable law.
The Corporation also releases annual sustainability reports.
6.2.3. The annual report is among the most important
tools of communication with shareholders and
other stakeholders and so must contain sufficient
information for evaluating the company's annual
performance results.
1. The company's annual report details the audit committee's findings as regards the
effectiveness of both external and internal audits performed.
Observed
The Corporation discloses all material information in the Annual Report in accordance with the recommendations
contained in the Corporate Governance Code.
2. The company's annual report contains information on its environmental and social
policies.
The Annual Report includes all material data from the annual statutory and financial reports, while also covering corporate
sustainability efforts.
6.3.
The company must ensure that all shareholders have equal and unhindered access to information
and documents upon their request.
6.3.1. Shareholders must be able to exercise their right
to access documents and information without
any unreasonable effort or expense.
1. The company's information policy (or related bylaws) describe(s) a non-onerous
procedure by which shareholders can gain access to the company's information and
documents.
Observed
When giving shareholders access to its documents and information, the Corporation complies with applicable law and
aims to avoid unnecessary difficulties for shareholders. The Corporation’s information policy sets out the procedure for
receiving such access.
6.3.2.
It is recommended that the company organise
shareholder communications in a way conducive
to a reasonable equilibrium of the interests of the
shareholders and those of the company itself,
notably as regards the confidentiality of important
commercial information that may have a material
effect on its competitive ability.
2. The company's information policy (or related bylaws) clearly provide(s) that, should
any shareholder request any information whatsoever on any entity controlled by the
company, the company will take the necessary steps to obtain such information from
such controlled entity.
The Corporation makes sure to avoid any overstatement of the costs of making and sending the copies of such
documents.
Pursuant to the Information Policy, in case of requests from shareholders the Corporation receives and passes on
information on its controlled entities to the extent provided by law.
1. Throughout the reporting period, the company either denied no shareholder request for
information, or provided ample rationale for such denial.
Observed
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 law.
2. The company duly notifies its shareholders of the confidential nature of any
information they are provided and has them formally assume nondisclosure obligations
as set out in the corporate information policy.
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CORPORATE GOVERNANCE PRINCIPLE
CRITERIA FOR ASSESSMENT
COMPLIANCE STATUS
NOTES
VII. MAJOR CORPORATE ACTIONS
7.1.
Any action that has or may have a significant impact on the structure of the shareholders’ equity
or the financial position of the company and consequently its shareholders (major corporate actions)
must be taken on an equitable basis and with consideration given to the rights and interests of shareholders
and other stakeholders.
7.1.1. Major corporate actions include any corporate
restructuring of the company, any acquisition
of 30 or more % of voting shares in the company
(takeover), any material transactions, any increase
or reduction in the company’s share (charter)
capital, any listing of delisting of shares in the
company, and any other actions that may result
in a material change in any shareholder rights
or materially prejudice shareholder interests. It is
recommended that the company’s charter set out
specific criteria of major corporate actions and
determine the consideration of such actions to be
a board matter.
7.1.2. The board must play a key role in deciding or
issuing recommendations on major corporate
actions, primarily relying on the collective opinion
of independent directors.
7.1.3. Where any major corporate action affects the
rights and lawful interests of any shareholders, it is
recommended that the company ensure that such
action is equitable for all shareholders, and where
law omits to provide adequate mechanisms for
the protection of such shareholders' rights, it is
recommended that the company take initiative to
institute such additional corporate mechanisms
to protect the rights and lawful interests of
its shareholders, it being understood that the
company should aim to rely on governance
principles contained in this Code beyond the
obligatory statutory minimum requirements.
1. The company's charter sets out the list (criteria) of transactions or other actions that
qualify as major corporate actions. Decisions with regard to major corporate actions
are board matters. Where any type of corporate action is specifically determined by law
to be a shareholder matter, the charter provides for the board's duty of issuing related
recommendations to the general meeting of shareholders.
Observed
The Russian law expressly determines any decisions on the listing and delisting of any shares and on the approval of any
major transactions to be shareholder matters. Although the Charter contains no formal list or criteria of material actions, it
classifies all other actions determined as such in the Corporate Governance Code as board matters.
1. The company has a procedure in place that allows independent directors to state their
position on major corporate actions before their approval.
Observed
Prior to being considered by the Board of Directors, related party transactions are previewed by the Audit, Finance and Risk
Committee (hereinafter, “the Committee”), where independent directors make up a majority. The Committee’s opinion is
discussed when the transactions are reviewed at a Board meeting.
1. The approval of other transactions material to the company, in particular due to the
specific realities of its business, although not statutorily designated as a board matter,
qualifies as such pursuant to the company's charter.
2. In the reporting period, all major corporate actions passed the approval procedure
before being carried out.
Decisions on the approval of related-party transactions are taken by Board members who are not related parties.
Observed
The Board of Directors reviews all material matters as prescribed by the corporate bylaws. In particular, in setting out board
matter criteria the Charter provides for lower materiality thresholds than legally required.
In the reporting year, all actions that qualify as major corporate actions in accordance with the Corporate Governance
Code passed approval by the Board of Directors before being carried out.
7.2.
The company must establish such procedures for taking major corporate actions that enable shareholders
to receive timely and full information about such actions, give them the opportunity to influence such actions,
and guarantee reasonable protection of their rights.
7.2.1. Disclosures of information on major corporate
actions must address their rationale,
circumstances, and consequences.
1. Where the company performed any major corporate actions within the reporting
period, the company took care to disclose in a detailed and timely manner the entire
relevant information about such actions, including their rationale, circumstances, and
consequences for shareholders.
7.2.2.
It is recommended that the rules and procedures
related to the company’s major corporate actions
be clearly set out in corporate bylaws.
1. The company’s internal documents stipulate triggers and procedures for engaging an
independent appraiser to determine the value of assets to be disposed or acquired in a
major transaction or in a related party transaction.
2. The company’s internal documents stipulate a procedure for engaging an
independent appraiser to determine the acquisition and selling prices of any shares in
the company.
3. The company's bylaws provide that, should any board member, the CEO, any member
of any collective executive body, any person controlling the company, or any person
entitled to issue binding instructions to the company have any conflict of interest or any
actual vested interest in any transaction whatsoever despite not formally qualifying as a
related party in such transaction, such persons nonetheless have a duty to abstain from
voting on such transactions.
Observed
Being a public company, the Corporation discloses the maximum possible amount of information on any corporate action,
including those that may influence the dividend and/or any other rights of the shareholders.
Observed
To the extent that the rules and procedures related to the Corporation’s major corporate actions are not clearly provided for
by applicable law, such rules and procedures are set forth in the corporate bylaws.
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 are free from any conflict of interest and are not related parties in any given transaction are
admitted to voting on its approval.
SISTEMA PJSFC / ANNUAL REPORT 2021