2022
Sistema
Public Joint
Stock Financial
Corporation
Annual report
CONTENTS
1.
2.
COMPANY OVERVIEW
PERFORMANCE
OF THE CORPORATION
Sistema today
4.
CORPORATE GOVERNANCE
Corporate governance system
Remuneration policy applied to board
members and senior management
Integrated risk management system
and the group’s risk appetite
3.
RESULTS OF KEY ASSETS
MTS
OZON
Segezha Group
Etalon Group
MEDSI
Steppe AgroHolding
Binnopharm Group
Other consolidated assets
Strategy and governance model
Investment Portfolio
Financial overview
Securities and share capital
SUSTAINABILITY
MANAGEMENT
Management system
Responsible investment
Key ESG areas
Social investments and activities
190
6.
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
12
14
26
30
6
8
10
172
174
176
180
188
142
144
160
162
36
38
48
54
76
84
98
108
116
02
03
About the report
SISTEMA PJSFC Annual report 2022
sistema.com
Responsibility statement
About the report
To the best of my knowledge (a) the consolidated financial
statements, prepared in accordance with IFRS, give a true
and fair view of the assets, liabilities, financial position
and profit or loss of Sistema PJSFC and the undertakings
included in the consolidation taken as a whole; and (b) the
management report includes a fair review of the development
and performance of the business and the position of Sistema
PJSFC and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
Yours sincerely,
Disclaimer
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,
“Sistema Group”, “the Group” or “the Group companies”)
in 2022.
Unless otherwise stated, the financial results presented in
this annual report are based on IFRS consolidated financial
statements. The audit of Sistema’s 2022 consolidated financial
statements in accordance with IFRS was performed
by AO “Business Solutions and Technologies”. 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 the
Investors and Shareholders section on the company’s website
(www.sistema.com).
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.
President
Sistema PJSFC
05
About the report
04
SISTEMA PJSFC Annual report 2022
sistema.com
COMPANY OVERVIEW
08
Sistema
today
10
Investment
portfolio
06
07
SISTEMA PJSFC Annual report 2022
Company overview
sistema.com
out of 160 in RAEX
Europe list (ESG)
№14
Sistema today
SUSTAINABLE
DEVELOPMENT
Overview of Sistema
Group
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.
The Corporation’s shares trade on the Moscow Exchange
(ticker: AFKS) and on the London Stock Exchange in the form
of global depositary receipts (ticker: SSA). One GDR represents
20 ordinary shares.
Publicly-traded assets
Sistema's strategic goal
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
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.
0.6%
Contribution to Russia's gross
domestic product
20
Largest Russian companies by revenue
(RBC)
TOP
20
Public Russian companies in Forbes
Global 2000 rating
TOP
MOEX: MTSS
MOEX: SGZH
LSE
MOEX: ETLN
NASDAQ
MOEX: OZON
ESG
Environmental — Social — Governance
ruAA–
RAEX
credit rating
Sistema Group at a glance1
Сredit rating
countries
> 25
industries
> 20
companies
> 25
AFKS
MOEX
SSA
LSE
11.5
CDP Climate
Change Score
B
Independent
directors
55%
Low ESG risk
Sustainalytics rating
1
As of the end of 2022.
2
Headcount as of the end of 2022.
158.6
Group
investments
177.4
Headcount²
2.1
Assets
19.4
Net profit
310.4
Adjusted OIBDA
912.7
Revenue
billion
billion
trillion
thousand
billion
billion
RUB
RUB
RUB
RUB
RUB
Рeople
RUB 1.8 billion
Social
investments
08
09
SISTEMA PJSFC Annual report 2022
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Company overview
Other consolidated assets
Publicly-traded assets
Key non-public assets
Largest vertically integrated forestry
holding in Russia
62.2%
Segezha Group
Forest industry
One of Russia’s largest
public development
and construction companies
48.8%
Etalon Group
Construction and property development
Leading provider of digital,
media and telecom services
in Russia and the CIS
49.7%
MTS2
Telecommunications
Leading Russian pharmaceutical producer
72.2%
Binnopharm Group
Pharma
Russia’s largest healthcare chain
95.5%
Medsi
Healthcare
Major agriculture holding and one
of Russia’s largest land owners
89.7%
Steppe AgroHolding
Agriculture
Leading vertically integrated
ICT holding in Russia
100%
Sitronics Group
Information technology
One of Russia’s largest
power grid companies
91%
BPGC
Utilities
Оne of the largest real estate
owners in Moscow
100%
Business
Nedvizhimost
Commercial properties
One of the largest hotel management
companies in the Russian market
100%
Cosmos Hotel Group
Hospitality
Leading multi-category
online sales platform in Russia
31.8%
Ozon1
E-commerce
Investment portfolio
1
A total of 12.2m shares were issued
for the incentive programme of Ozon's
management; after exercise of all options
under the programme, the effective stake of
Sistema, incl. Sistema VC, will be 31.8%.
2
Effective ownership as of 10 April 2023.
10
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Company overview
PERFORMANCE
OF THE CORPORATION
14
Strategy
and governance
model
26
Financial overview
30
Securities
and share capital
12
13
SISTEMA PJSFC Annual report 2022
Performance of the Corporation
sistema.com
Strategy and governance model
▪
Steadily growing the Corporation’s shareholder value
and income
▪
Building profitable and growing companies that are leaders
in their industries
▪
Maximising net asset value
▪
Paying dividends to the Corporation’s shareholders
▪
Raising and managing outside capital and assets
The Corporation’s goals are matched
with the elements of business model,
which are inter-related.
Sistema’s mission is to build Russia’s leading investment company
with diverse expertise and a strong track record, which will become
an investment platform for managing both its own and third-party
capital, while also providing access to unique investment opportunities
in the most attractive industries and high-potential technologies
and fuelling long-term growth in shareholder value.
How do we manage our
portfolio?
Sistema`s strategy
How do we
create value
in our Assets?
How do we
invest in new
projects?
Governance
model
Strategic goals
and development areas
Creating value in assets through team
strengthening, strategic development,
business transformation, operational
improvements, equity structure
optimisation, digitalisation, etc.
Continuously enhancing the quality
and effectiveness of corporate
governance
Focus areas:
01
04
02
05
03
Building and continuously developing
businesses worth over RUB 100bn
Embracing unique investment
opportunities in traditional and new
sectors
Seizing organic and inorganic (M&A, JV)
asset growth opportunities
Mission
Our goals can be achieved by answering 3
key questions underpinning the Corporation’s
strategy:
Portfolio
strategy
Investment
process
1
2
3
Long-term goals:
15
Performance of the Corporation
14
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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 company: monetise, actively
develop and invest, invest in selected projects, optimise, and initiate
transformation and relaunch of the asset’s business.
Sistema’s strategy is based on the idea of gradual movement
of assets from the left side to the right side of the matrix
as assets become more mature and grow in size,
as well as on balancing the asset portfolio and investment
projects to ensure stable growth of shareholder returns.
As part of its strategy Sistema also aims to look for new points
of growth that may become the core of the company’s portfolio
in 5 years or more.
Portfolio strategy:
current assets and new opportunities
Investments in existing assets: investments in own portfolio
companies that have potential to become businesses worth
over RUB 100bn and ensure steady growth of shareholder value
The portfolio strategy is based on classification
of assets depending on market appeal,
the company’s competitiveness and the team’s
competences.
▪
Investment strategy: investing in the Corporation’s portfolio
companies to increase their competitiveness and market
share, entering adjacent segments, launching new products
with a synergistic effect, enhancing operating efficiency,
and increasing transparency and corporate governance
quality
▪
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
▪
Shareholder returns above average for comparable
companies and local/global benchmarks
▪
Discounted payback period (DPBP): from 3 to 7 years.
Market size
Sector’s stability amid
economic downturn
and sanctions
Asset`s position vs
the top 2 players
and opportunity
to become a leader
Assessment
of the team`s
competences compared
to industry leaders
Strong competitive
advantages
Confidence in business
plan: the target
and actual returns
coincide
Financial stability and
proven business model
Risks and barriers for
doing business
Appeal of the market
Asset`s competitiveness
Company
Team
–
1
2
3
4
+
+
Asset competitiveness
Market attractiveness
Monetise (through
dividends and
divestment)
Develop and invest
aggressively
Optimise, transform
and relaunch
Invest selectively
Areas of development
16
17
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Performance of the Corporation
▪
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%).
▪
Investment geography: Russia, the CIS, Asia and the Middle East.
▪
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
Technologies
▪
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
▪
Investment criteria: stable financial position and positive operating cash flow,
low debt burden, attractiveness for other strategic and financial investors. Assets
generate positive EBITDA, which can be increased by scaling the company’s
operations
▪
Geography of investments: mainly in Russia, with possible selected investments
in assets and projects in the CIS and friendly or neutral foreign countries
▪
Industries and business segments: growing and stable sectors with large
markets, high growth or transformation rates, significant potential for efficiency
growth, digitalisation, ability to create technological advantages, import
substitution or steady levels of exports to friendly and neutral countries.
New investments: unique opportunities
in traditional industries
Investment strategy: acquisition
of substantial and controlling stakes
in large profitable assets in markets
that are attractive in the long term
with a possibility of increasing equity
value and getting a premium in valuation.
It also includes special situations
involving the sale of stable and profitable
assets in Russia by foreign investors.
01
01
02
02
Profitable
undervalued assets
Technology
assets
Growing
assets
VC
funds
New investments in tech sector
and technologies of the future
Investment strategy: direct investments
in large stakes in technology companies,
with an opportunity to create new
modern digital fast-growing businesses,
introduce new business models, make
a breakthrough in the development
of key technologies of the future
and monetise them in 3 to 7 years.
5G
6G
Pharmaceuticals
Quantum
communication
AR/VR
Autonomous
navigation
Big Data
Satellites
Energy
accumulation
technologies
MedTech
BlockChain
Hydrogen
power
IoT
FinTech
Electric vehicles
Cloud Gaming
Industrial gases
HealthTech
New materials
Cloud
computing
Robotics
Bots
AI
Cybersecurity
Biotech
UAVs
19
Performance of the Corporation
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Sistema’s investment thesis: key criteria for selecting new investment
projects and assets:
Adapting to the new macro environment
The macro environment changed significantly in 2022.
As a result, many new investment opportunities for major
M&A deals and partnerships emerged in the Russian
market. We also see more attractive terms for the purchase
of new assets, higher volume of state support measures
and preferential financing, and improved protection
of the domestic market and its participants. Over a strategic
horizon, the Corporation expects new opportunities
for growth and consolidation of its current portfolio assets
and emergence of new areas for investment.
For the Corporation’s assets, there is increased importance
of retaining and further increasing operational efficiency,
resilience to new constraints of the micro environment
and the long-term profitability of the chosen business models.
Management model: how the Corporation
manages assets and creates value
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 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, and for the establishment of an effective system
of corporate governance.
The Corporation’s functions and departments advise, when
necessary, 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 the long-term sustainable value creation and business growth
of the Corporation’s portfolio assets.
Due to the high diversification of its investment portfolio,
the updating of strategic plans and investment projects,
the reallocation of investment resources, and the timely
adjustments and optimisations to operational and financial
plans, the Corporation continued profitable growth of its
business.
In the long term, many of the Corporation’s assets have
a window of opportunity for import substitution, localisation
of technologies and manufactured products, strengthening
of market leadership, and growth of cooperation and integration
with major Russian corporate and governmental customers.
The Corporation and its assets actively initiate the development
and implementation of new investment projects that consider
new market and macro conditions.
Investment process:
taking investment decisions
Sistema relies on its practical experience and focuses
on the following types of transactions when entering new assets:
Strategic investments
in creating leaders
Turning around distressed
companies
Non-cash
deals with retained control
High-risk
investments
Monopoly, government
contracts
TYPE
OF
TRANSACTION
Buy & build
Special
situations
Smart deals
VC funds
GR deals
transaction amount:
target returns
+ESG criteria
stake in the business
RUB
25%
1,000,000,000
IRR
30%
over 3–6 years
Cash-on-cash
2✘
Ruling out toxic
industries
Taking into account ESG profiles when making
investment decisions
20
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Performance of the Corporation
Asset management principles
Investing in the development of existing portfolio assets in order to increase
their value and receive dividends is one of the key stages of Sistema’s value
creation model
The key element of Sistema’s management model is the idea
of transformation and creation of industry champions.
The Corporation has an efficient process that allows the initial
investment idea to be implemented as part of an asset
development strategy for up to 5 years, followed by a strategic
plan with key development projects for 3 years and a roadmap
with a detailed action plan (for 12–24 months), KPIs (key
performance indicators), budget and financial targets
for a calendar year.
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.
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
Corporate Centre
Assets
Board
of Directors
+Committees
Board of Directors
+Committees
President
Management Board
Portfolio
Management
Teams
Functions
President
Management Board
Subdivisions
Value creation in assets:
Forming the boards of directors of portfolio
companies that 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.
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.
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.
Introducing the processes
of strategic, financial and operational
planning and control and best
international practices of investment
and project management.
1
2
3
4
5
23
Performance of the Corporation
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Responsible investment and ESG principles
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.
Since 2020, the investment criteria approved
by the Corporation’s Board of Directors included 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.
Information disclosure, self-
assessment and development
of a sustainability strategy
HR
Corporate governance
Finance
IT
Sustainable development
Implemented by assets
Assistance provided to assets
▪
Management Incentive System
▪
Organisational structure + standard agreements
▪
Corporate governance system
▪
Board of Directors
▪
Budgeting cycle
▪
Financial planning and control
▪
Management dashboard
▪
Risk management
▪
Information disclosure
(if necessary)
+
+
+
+
+
+
Personnel recruitment
Debt portfolio, taxes, reporting
Strategy
▪
Strategic cycle
▪
Investment process
Investments analysis
Support on legal matters,
support for M&A deals
IT Audit, development of IT strategy,
increasing digitalisation, etc
Governance model, including persons in charge and internal
regulations
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.
24
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Performance of the Corporation
Net profit atributable to Sistema, RUB bn
16.8
19.4
2021
2022
+15.8%
1
Hereinafter, adjusted OIBDA is are used to evaluate the financial performance of the Corporation and Sistema Group companies and represent underlying financial measures
adjusted for a number of one-off gains and losses that are not related to business operations.
1
The Group’s financial performance adjusted for accruals related to the LTI
programme at portfolio companies and the impairment of assets,
as well as for other one-off expenses.
2
Includes the economic effect of the consolidation of Etalon Group and YIT Russia.
3
The Corporate Centre’s financial liabilities net of cash and cash equivalents
are presented based on management accounts.
4
RUB bond series 001Р-1/4/6/11/14/16/18, in 2023; series 001Р-5/8/12/13/15, in
2024; series 001P-7/10/17/19/24, in 2025; series 001P-9/20/21/22/23, in 2026.
Financial overview
Consolidated financial results1
RUB m
2022
2021
Change, %
Revenue
912,656
773,218
18.0
OIBDA
309,151
288,888
7.0
Adjusted OIBDA
310,447
264,668
17.3
Operating income
161,247
155,819
3.5
Net profit atributable to Sistema
19,405
16,757
15.8
In 2022, Sistema’s consolidated
revenue increased by 18.0% year-
on-year to RUB 912.7bn due
to the consolidation of Etalon
Group’s results since May 2022
as well as higher revenue at a number
of key assets:
The Corporate Centre’s net financial liabilities3 increased
by 16.2% year-on-year to RUB 245.2bn. The change
in the amount of outstanding financial liabilities was due
to the borrowing of RUB 95.6bn in bank loans and bonds
as well as the repayment of loans and bonds in the amount
of RUB 72.0bn. The Corporate Centre’s cash balance
was RUB 9.8bn.
As of 31 December 2022, RUB-denominated liabilities
accounted for 99% of the Corporate Centre’s financial liabilities.
Bonds accounted for 70% of the Corporate Centre’s debt
as of the end of 2022, down from 82% at the end of 2021.
The weighted average rate on bonds in the debt portfolio
was 8.02% at the end of 2022.
Revenue, RUB bn
773.2
912.7
2021
2022
+18.0%
Adjusted OIBDA, RUB bn
264.7
310.4
2021
2022
+17.3%
30
70
The Group’s adjusted OIBDA1 rose by 17.3% year-on-year
to RUB 310.4bn in 2022 following the growth in revenue
of the Corporation’s key assets, as well as on the back
of the consolidation of the results of Etalon Group2.
In 2022, Sistema’s net profit increased by 15.8% year-on-
year to RUB 19.4bn, mainly due to the growth in OIBDA
and the economic effect of the consolidation of Etalon Group
and YIT Russia.
Sistema Group’s capex decreased by 5.2% to RUB 158.6bn
in 2022 due to forward investments on the part of key
portfolio companies in prior periods. The total investment
of the Corporate Centre in 2022 amounted to RUB 51.9bn.
The Group’s net debt at the end of 2022 totalled
RUB 946.7bn.
Structural analysis of total financial
liabilities,%
Corporate centre’s debt portfolio overview
Bank loans
and other
Local bonds
with a put option4
RUB bonds
Loans
and other debt
RUB bn
255
Schedule for repayment of financial
liabilities of the Corporate Centre, RUB bn
2023
2024
2025
2026
64.6
66.8
62.0
61.6
42.3
22.3
44.1
22.7
47.7
14.3
45.1
16.5
Revenue growth leaders in 2022, % YoY
15
20
46
+2.6%
+15.5%
+11.5%
+19.6%
+46.4%
due to continued growth
in the telecom, fintech and media
business verticals.
thanks to a record harvest
and a substantial increase in milk
production.
due to the growth in production
and sales of sawn timber.
as a result of a significant increase
in sales in the retail and export
segments.
thanks to the active expansion
of the medical chain as well as an overall
increase in patient flows.
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Performance of the Corporation
1
In April 2021, Sistema Finance Holding S.A. issued Capgrowth, a Sistema subsidiary, a foreign-currency loan in the amount of EUR 44.4 million, with maturity in December 2025.
In 1H 2022, Sistema completely divested from Sistema Finance Holding S.A. and stopped consolidating it, thus making the loan an external borrowing for the Group. The loan
balance as of the end December 2022 amounted to EUR 29 million.
2
Including the total volume of borrowings with the exception of cash and cash equivalents at the Corporate Centre level.
The Corporate Centre’s financial liabilities, RUB bn
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 amortisation 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:
Alternative performance measures
Operating income before depreciation and amortisation
(OIBDA) and OIBDA margin
The Company uses adjusted OIBDA and adjusted operating
income to evaluate the 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.
2022
2021
Operating income
161,247
155,819
Accruals related to LTI programme at portfolio
companies
806
2,536
Revaluation of equity investment in the
consolidation of pharmaceutical assets
–
(25,327)
Impairment of non-current assets and other
non-recurring loss /(profit), net
489
(1,430)
Adjusted operating income
162,542
131,599
Depreciation and amortisation
147,905
133,069
Adjusted OIBDA
310,447
264,668
We define consolidated net debt 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. We believe that the presentation
31 December
2022
31 December
2021
Long-term borrowings
762,219
641,511
Short-term borrowings
298,846
209,306
Total borrowings
1,061,065
850,817
Consolidated finance lease1
20,2502
21,1713
Consolidated total debt
1,081,315
871,988
Cash and cash equivalents
(134,402)
(81,883)
Deposits in banks
(200)
(1,569)
Consolidated net debt
946,713
788,536
RUB m
2022
2021
Operating income
161,247
155,819
Depreciation
and amortisation
147,905
133,069
OIBDA
309,152
288,888
Adjusted operating
income and adjusted
OIBDA can be reconciled
to our consolidated
statements of profit
and loss as follows:
Adjusted OIBDA and operating income
Consolidated net debt
Consolidated net debt
can be reconciled
to the borrowings
as follows:
31 Dec 21
229.4
30 Sep 22
31 Dec 22
+42.8
(33.7)
(38.3)
245.9
255.0
+54.8
Corporate Centre
debt
Net financial
liabilities2
New debt
raised1
Repayment
of liabilities
1
In accordance with the standard IAS 17.
2
Including RUB 1,737 m of short-term finance lease.
3
Including RUB 1,847 m of short-term finance lease.
211.1
230.3
245.2
of consolidated net debt provides useful information
to investors because we use this measure in our management
of consolidated liquidity, financial flexibility, capital structure
and leverage.
28
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SISTEMA PJSFC Annual report 2022
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Performance of the Corporation
Securities
Type of securities
Shares (ordinary)
GDRs
Registration number
1-05-01669-A
-
ISIN
RU000A0DQZE3
US48122U2042
Ticker
AFKS
SSA
Primary trading platforms
Moscow Exchange
London Stock Exchange
Securities and share capital
Shareholders’ equity
Shareholding structure at the end of the calendar year, %
Name
2020
2021
2022
V. Evtushenkov
59.2
59.2
49.2
Ordinary shares, free float
25.0
26.1
29.6
GDRs, free float
6.9
5.6
2.7
Shares held by Sistema Group companies
1.4
2.6
2.4
Shares held by members of the Board of Directors
and the Management Board of Sistema
7.5
6.5
16.1
Number of individual shareholders,
thsd people
2020
2021
2022
133
224
265
265,113
legal entities, including trust
managers.
The list of shareholders with non-zero balances
on personal accounts as of 31 December 2022
included:
individuals;
1,046
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.”
As of the end of 2022, free float totalled 32.3% of equity: about
2.7% of shares were traded as GDRs on the London Stock
Exchange and 29.6% on the Moscow Exchange.
At the beginning of 2022, following an escalation
of the geopolitical situation, the LSE, as well as the NYSE
and NASDAQ, suspended trading in most Russian stocks,
including the depositary receipts of the Corporation and its
portfolio companies.
In May 2022, the Government Commission on Monitoring
Foreign Investment in the Russian Federation approved
Sistema’s application and allowed trading in its depositary
receipts outside Russia till 13 May 2023. Earlier, Federal
Law No 114-FZ dated 16 April 2022, which came into force
on 27 April 2022, had prohibited placement of and trading
in Russian issuers’ depositary receipts on foreign stock
exchanges.
On 13 April 2023, Sistema announced its intention to terminate
the Regulation S Deposit Agreement and Rule 144A Deposit
Agreement (“the Deposit Agreements”), under which its
Regulation S Global Depositary Receipts and Rule 144A Global
Depositary Receipts (“GDRs”), respectively, had been issued.
The Corporation has instructed the GDR Depositary, Citibank,
N.A., to terminate the Deposit Agreements with an anticipated
termination date of 14 May 2023.
Sistema has applied to the UK Financial Conduct Authority
(“FCA”) to cancel the listing of the Corporation’s Regulation
S GDRs (ISIN US48122U2042) and Rule 144A GDRs (ISIN
US48122U1051) on the FCA’s Official List, and to the London
Stock Exchange to cancel the admission of the GDRs to trading
on the London Stock Exchange’s Main Market for listed
securities (together, “the Delisting from LSE”). Following
the Delisting from LSE, trading in Sistema’s ordinary shares
will continue on the Moscow Exchange and the SPB Exchange
under the ticker AFKS.
Sistema is the largest shareholder in four 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).
Due to the above mentioned Federal Law No 114-
FZ and the resolution of the Government Commission
on preservation of MTS’s American depositary receipts (ADR)
programme till 12 July 2022, the procedure of ADRs delisting
from the New York Stock Exchange was set in motion. Under
the terms of the depositary agreement, conversion of MTS’s
ADRs into ordinary shares was to be completed within six
months from 12 July 2022, i.e. on 12 January 2023.
The Moscow Exchange includes Sistema’s share prices
in the calculation base of its key indices (MOEX and RTS),
as well as its Broad Market Index and the Small and Medium
Capitalisation Index.
The Moscow Exchange includes
Sistema’s share prices in the calculation
base of its key indices (MOEX and RTS),
as well as its Broad Market Index
and the Small and Medium Capitalisation
Index.
MOEX Index
IMOEX
MOEX Broad Market Index
MOEXBMI
MOEX SMID Index
MCXSM
RTS Index
RTSI
Sistema’s share capital is divided into 9,650,000,000 ordinary
shares with a nominal value of RUB 0.09 each. Its authorised
capital is RUB 868,500,000.
30
31
SISTEMA PJSFC Annual report 2022
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Performance of the Corporation
Sistema’s average daily trading volume on the Moscow
Exchange, RUB m
Source: Moscow Exchange
Dividend policy
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 ~RUB 3bn in 2021, ~RUB 4bn in 2022
and ~RUB 5bn in 2023.
Dividend payout for 2021
Taking into account the remaining market volatility
and the need to prioritise the Corporation’s financial stability
and sufficient liquidity, the Annual General Meeting of Sistema’s
shareholders held on 15 August 2022 decided not to pay
dividends for 2021.
Unpaid dividends
As of 31 December 2022, the total amount of unpaid
dividends equalled RUB 856,289.6: not paid due to the lack
of the necessary information about the recipients of dividends
to transfer the corresponding amounts.
1
Price on Sistema GDRs’ suspension date (2 March 2022)
Results of trading in shares and GDRs on stock exchanges
2018
2019
2020
2021
2022
Sistema shares on the Moscow Exchange
Year low, RUB
7.7
8.0
10.8
21.8
10.1
Year high, RUB
12.8
16.2
33.6
38.0
24.6
Year-end price, RUB
8.0
15.2
28.6
23.4
11.9
Year-end market cap, RUB bn
77.2
147.0
276.4
226.2
115.1
Sistema GDRs on the London Stock Exchange
Year low, USD
2.2
2.3
2.7
5.9
2.0
Year high, USD
4.5
5.0
8.7
10.0
6.0
Year-end price, USD1
2.3
4.9
7.7
6.2
4.5
Year-end market cap, USD bn
1.1
2.4
3.7
3.0
2.2
Source: Bloomberg, PJSC Moscow Exchange
As the geopolitical situation aggravated and new sanctions
were introduced against Russia, the price of Sistema’s ordinary
shares fell by 49.1% in 2022. The main indicator of the Russian
stock market, the MOEX Index, lost 43.1% in the reporting year.
Sistema’s market cap as of the end of 2022 was RUB 115.1bn.
Share prices of Sistema and its publicly traded assets, %
-80%
Jan
Feb
Mar
Apr
Jun
Jul
Aug
Sep
Oct
Nov
Dec
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
Segezha shares
OZON shares
Etalon shares
IMOEX
MTS shares
Sistema shares
-21.1%
-38.4%
-43.1%
-45.8%
-49.1%
-58.7%
2018
158
243
1,123
1,164
2019
2020
2021
239
2022
Source: Moscow Exchange
The geopolitical risks, sanctions, price volatility, inflation
and other factors had a significant influence on all players
of the Russian stock market in 2022. On the first trading
day of 2022, the closing price of Sistema’s ordinary shares
was RUB 23.4 per share, but at the end of Q1 it plunged
to RUB 13.9, hitting a low of RUB 10.1 on 7 October. On the last
trading day of 2022, the closing price was RUB 11.9.
The full text of the new Dividend Policy is available
on the Corporation’s website.
As a result of restrictions on sale
of Russian companies’ shares by non-
residents that were introduced
by the Russian Central Bank, liquidity
of Sistema’s shares shrank significantly:
the average daily trading on the Moscow
Exchange in monetary terms decreased
from RUB 1.164m in 2021 to RUB 239m
in 2022.
Dividends and share buyback programme
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.
Additionally, starting from 2022, the Policy also recommends
increasing dividend payments by an amount equal to 10%
of the absolute increase in adjusted OIBDA1 for the last
completed financial year, provided that adjusted OIBDA
grew by more than 5% in the last completed financial year
and the net debt2/adjusted OIBDA ratio does not exceed 3x.
32
33
SISTEMA PJSFC Annual report 2022
sistema.com
Performance of the Corporation
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.
Bond issues placed in 2021-2022:
Date
of placement
ISIN
Security
Volume,
RUB bn
Coupon, %
Coupon
frequency
Interest
rate type
01.03.2021
RU000A102SV8
Sistema PJSFC, 1P 18
5
6.90%
Quarterly
Fixed
01.03.2021
RU000A102SX4
Sistema PJSFC, 1P 19
13
7.35%
Quarterly
Fixed
12.05.2021
RU000A103372
Sistema PJSFC, 1P 20
10
8.20%
Semi-annual
Fixed
05.07.2021
RU000A103C95
Sistema PJSFC, 1P 21
15
8.40%
Semi-annual
Fixed
13.09.2021
RU000A103P33
Sistema PJSFC, 1Р 22
15
8.20%
Quarterly
Fixed
03.12.2021
RU000A104693
Sistema PJSFC, 1Р 23
5
9.95%
Quarterly
Fixed
07.12.2022
RU000A105L27
Sistema PJSFC, 1Р 24
10
10.00%
Quarterly
Fixed
Detailed information on debt instruments
is available on the Corporation’s website.
For more information on credit
ratings of the portfolio companies,
see the Corporation’s website.
Bonds
Total amount
of declared
dividends
Dividend
per share
Declaration
date
Payment
date
2021 (for FY 2020)
2,991,500,000
0.31
26.06.2021
28.07.2021
2020 (for FY 2019)
1,254,500,000
0.13
27.06.2020
29.07.2020
2019 (for FY 2018)
1,061,500,000
0.11
29.06.2019
31.07.2019
2018 (for FY 2017)
1,061,500,000
0.11
30.06.2018
31.07.2018
2017 (for 9M 2017)
6,562,000,000
0.68
28.11.2017
22.12.20171
19.01.20182
2017 (for FY 2016)
7,816,500,000
0.81
24.06.2017
28.07.2017
2016 (for H1 2016)
3,667,000,000
0.38
23.09.2016
20.10.2016
2016 (for FY 2015)
6,465,500,000
0.67
25.06.2016
27.07.2016
Share buyback programme
In September 2019, the Corporation launched a RUB 3bn
share buyback programme. In June 2021, Sistema increased
the volume of its share buyback programme to RUB 7.0bn
and extended it until 17 September 2022. The buyback under
the programme was carried out by Sistema’s subsidiary
Sistema Finance JSC.
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.
Dividend amounts and payment dates, RUB
In September 2022, the Expert RA rating agency confirmed
Sistema’s credit rating at ruAA-. The outlook was changed from
“positive“ to “stable”.
As Expert RA pointed out, Sistema’s investment strategy, which
is based on systemic development and upscaling of assets
and prompt adaptation to current market conditions, ensures
consistent and organic growth of the Corporation’s investment
assets.
Expert RA does not see any significant risks related
to refinancing of forthcoming mandatory debt payments
due to the sufficient amount of credit facilities available that
were increased in the reporting period and are several times
larger than the debt payments due. The agency continues
to estimate the Corporation’s foreign currency risks as low.
All of Sistema’s liabilities are in roubles and are also highly
diversified in terms of lenders. Expert RA also acknowledged
the high quality of Sistema’s corporate governance, risk
management and great transparency regarding the disclosure
of financial information.
The change of the outlook from “positive“ to “stable“ was due
to the decrease of the market capitalisation of listed
assets, which was caused by deterioration of the general
macroeconomic situation and negative trends of the entire
Russian financial market, the agency said.
In Q1 2022, the international rating agencies Standard &
Poor’s and Fitch revoked the ratings of Russia and Russian
companies, including Sistema.
Credit rating in 2022
By the end of January 2022, the Programme was implemented
in full. Since the announcement of the programme, Sistema
Finance JSC acquired 315,195,371 ordinary shares
of the Corporation, which represents 3.27% of outstanding
Sistema shares, for an aggregate amount of approximately
RUB 7bn.
34
35
SISTEMA PJSFC Annual report 2022
sistema.com
Performance of the Corporation
36
37
SISTEMA PJSFC Annual report 2022
sistema. com
Results of key assets
RESULTS
OF KEY ASSETS
38
MTS
48
Ozon
54
Segezha Group
76
Etalon Group
84
MEDSI
98
Steppe
AgroHolding
108
Binnofarm Group
116
Other consolidated
assets
mts.ru
of Russia's
population
is covered by LTE
%
%
growth in the number
of MTS Premium
subscribers
71
80
+
>
monthly active
users of My
MTS app
among mobile
operators
by M2M/IoT
connections2
m
m
No
thsd
thsd
pay TV
subscribers
retail outlets
5.3
26
1
>
>
>
>11
corporate / SME customers
of MTS cloud business
4
mobile subscribers
in Russia, the Republic
of Belarus
and the Republic
of Armenia
88 m
Business model
Ecosystem core
Satellites
7 growth points
B2C & B2B Telecom-light
Cloud Business
New products still developing within the Core due to their small size and uncertainty,
can potentially increase their business size in future, carve out from the core and become satellites
(or become deeply integrated into the core and, thus, inseparable from it)
Media
Retail
Marketer
Auto
Live
Travel
Smart Home
Cybersecurity
AI
%
Sistema's
effective stake1
Fintech
MTS is a digital ecosystem and Russia's leading
provider of mobile and fixed-line communication
services, data transfer and Internet access,
cable and satellite TV broadcasting, digital
services, including fintech and media,
and IT solutions in the area of communication
platforms, the Internet of Things, automation,
monitoring, data processing, cloud computing
and information security.
Constitute stand-alone value for external investors,
and the Group is ready (in theory) to transition from
a controlling to a minority shareholder
Mutual reinforcement with the Core: services and
resources of the core – services and competences
of a satellite
Inseparable part, fully and indefinitely
to be controlled by the Group
Value is subject to success of the ecosystem
operating as a single mechanism (particularly
in regard to revenue streams generated by
services provided to satellites and partners)
1
Effective ownership as of 10 April 2023.
2
ONSIDE study “Competitive analysis: IoT, Q3 & Q4 2022”
MTS
39
Results of key assets
38
SISTEMA PJSFC Annual report 2022
sistema.com
1
Source: TMT Consulting
Industry overview for 2022
Source: TMT Consulting
In 2022, the telecom market exceeded RUB 1.8tn. The market
grew by 1.5% (one of the lowest growth rates in recent years,
with the exception of 2020). The mobile market has historically
been the key growth driver, accounting for 59% of industry
revenues (+3.5% in 2022 vs +5.0% in 2021).
At the same time, a slowdown continued in such important
segments as broadband Internet (+0.5% in 2022 vs +4.5%
in 2021) and pay TV (+0.7% in 2022 vs +2.3% in 2021):
subscriber base growth rates in both markets were modest
and price increases were substantially offset by the further
spread of bundled offers.
In 2022, the company's mobile subscriber base (active
SIM cards) went down 0.9%, to 256m, with mobile phone
penetration at 175%. In absolute terms, the company lost
2m subscribers. This is not the first time that there has
been a decline as it happened previously in 2018 and 2020.
Operators have shifted their priorities from acquiring new
customers to increasing the loyalty and the average cheque
of existing customers; the decrease was also due to the write-
off of some subscribers for the implementation of the Federal
Law No 533-FZ.
Mobile revenue in 2022 grew by 3.5% compared to 5.0%
in the previous year. The key growth drivers were higher
prices and growing consumption of ancillary services, which
increased revenues in both B2C and B2B.
Growth in 2023 is expected to be close to that of 2022. Non-
telecom products in the IT and media markets will be the key
growth driver for telecom operators. However, communication
services will continue to be the backbone of their business
for the foreseeable future.
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 took steps aimed at retaining software
developers and creating favourable conditions for IT
companies.
In 2022, MTS continued to implement its long-term
business strategy of developing an ecosystem of digital
products based on a robust telecom platform, but adapting
to the new economic environment amid geopolitical tensions
became the main factor affecting the company's business.
The high level of external uncertainty continues to affect
both the economic situation in Russia (including household
incomes) and the issue of supplies of foreign equipment.
Key trends on the Russian
telecom market
RUB 1.8
the telecom market's
value in 2022
Telecoms market in Russia
Russian telecoms market structure, %
Overall telecoms
Mobile services
Broadband internet access
Pay TV
Fixed telephony
Inter-operator services
Legal framework &
regulatory change
Macroeconomic factors that
influenced the company's
business in 2022
3.5
5.0
4.5
2.3
–8.3
–0.7
3.5
0.5
0.7
–8.5
–7.5
1.5
2022
Growth rate, %
2021
Revenue, RUB bn
2017
2018
2019
2020
2021
2022
1,641
2.7
3.3
2.6
0.5
3.5
1.5
1,694
1,739
1,747
1,808
1,835
tn
40
41
SISTEMA PJSFC Annual report 2022
sistema.com
Results of key assets
Sustainable development
Business development in 2022
Communications
In 2022, MTS's revenue from communication services
in Russia increased by 4.6% to RUB 435.6bn, which was driven
by growing consumption of services in both mobile
and fixed-line segments. Significant growth was achieved
by the advertising business (bulk SMS messages, targeted
ads), where revenues increased by 22% year-on-year.
In 2022, despite challenging macroeconomic conditions,
MTS saw stable demand for communication services from
both retail and corporate customers and growing popularity
of MTS Premium and MTS Cashback; the company continued
to launch new products and invest in new segments,
some of which showed double-digit revenue growth rates.
Network development
In January 2022, MTS launched the world's first uplink
aggregation tests on a pilot 5G network based on virtualisation
of network functions in vRAN. vRAN solutions can be broadly
used in 5G networks and Open RAN architecture.
In May, MTS announced that it had leveraged artificial
intelligence (AI) for mobile network planning in all regions
of Russia. The use of AI in big data analytics will make
it possible to predict the potential return on investment
in regional telecom infrastructure development
with an accuracy of over 75% and improve the quality of signal.
In June 2022, MTS launched MTS Remote Play, a service
for remote use of computational capabilities via wired
and mobile networks based on edge computing technologies.
In November 2022, MTS announced its transition
to The Platform, an IT platform that unites all end-to-end IT
solutions within the MTS ecosystem.
Private LTE network projects
In December 2022, MTS announced the deployment
of a dedicated industrial LTE network for one of the world's
largest nickel and palladium producers. The LTE network
will optimise ore loading and movement of quarry vehicles
and machinery, reduce haul time and downtime, and improve
industrial safety.
In January 2023, MTS deployed Russia's largest dedicated
industrial LTE network for a Russian coal-mining holding
company. The use of LTE mobile communication technology
made it possible to expand coverage considerably, improve
the quality of voice services, increase the speed of data
transmission, ensure the security of communication channels
and enable the exchange of multimedia messages.
In April 2022, MTS launched the MONTE (Monitoring Events)
service on the company's NB-IoT network, the first offering of its
kind in Russia for enabling remote monitoring of subscriber
devices over narrow-band Internet of Things connectivity.
In June 2022, MTS launched a cloud CCTV service
in the form of a flexible out-of-the-box solution that allows
corporate customers to quickly set up 24/7 video monitoring
at any facility with minimum equipment and costs.
In August 2022, MTS announced the launch of Smart Lock,
Russia's first domestic IoT solution to manage keyless access
to secured facilities.
In December 2022, MTS migrated its MTS IoT Hub to in-house
software, which will fully replace foreign solutions used
in the development of NB-IoT products.
In January 2023, MTS announced the launch of MTS Exolve,
a cloud platform to create communication services quickly
and flexibly.
Cloud solutions and the Internet of Things
Other areas for development
In July 2022, MTS acquired a controlling stake in Webinar
Group (Webinar Meetings, Webinar.ru, We.Study and COMDI),
Russia's largest developer of solutions for video meetings,
webinars and online events.
In August 2022, MTS Corporate Venture Fund invested
in Belarusian startup LogicLike, an online educational platform
for developing logic and thinking in children.
In May 2022, the Government Commission on Monitoring Foreign Investment in the Russian
Federation approved MTS’s request to maintain its American Depositary Receipt (ADR)
programme and allowed MTS to continue the trading of the company's ADRs outside
of Russia until 12 July 2022 (inclusive).
In June, MTS sent an application to JPMorgan Chase Bank, N.A., the depositary bank under
the existing ADR programme, to terminate the deposit agreement effective 13 July 2022.
In August, MTS received a notice from the New York Stock Exchange that its ADRs
were delisted on 8 August 2022. Under the terms of the deposit agreement, the guarantee
period for converting MTS ADRs into ordinary MTS shares was to be completed within six
months after 12 July 2022, i.e., by 12 January 2023.
In August 2022, MTS submitted a notice to LLC CB J.P. Morgan Bank International to start
automatic conversion of ADRs into MTS ordinary shares as required by Russian law.
Delisting
from the New
York Stock
Exchange
(NYSE)
In March 2022, MTS announced the establishment of an ESG
Centre to implement the corporate ESG strategy, replicate best
ESG practices, and manage a portfolio of commercial projects
addressing social and environmental problems.
In October 2022, MTS joined the group of leading companies
of the first ESG index of Russian business prepared by RBC
and National Credit Ratings. As a result of the assessment,
MTS became the only digital company with the highest
environmental, social and governance score.
In December 2022, the AK&M rating agency assigned MTS
the highest sustainability rating of A++ with a stable outlook.
This is MTS’s first local ESG rating in Russia.
In January 2023, MTS was ranked among the leaders
of the “Responsibility and Openness” ESG Index published
by the Russian Union of Industrialists and Entrepreneurs
(RSPP).
+22%
growth of the advertising
business (bulk SMS
messages, targeted ads)
42
43
SISTEMA PJSFC Annual report 2022
sistema.com
Results of key assets
MTS Media's revenue in 2022 increased by 15.6% year-
on-year to RUB 15.9bn, driven by the active development
of the streaming service KION, regular releases
of original content (KION Originals) and growing
customer base.
In May 2022, MTS Media launched a new TV
channel, KION HIT. The TV channel, which is available
only through the MTS ecosystem, broadcasts
the first episodes of projects from KION Originals,
as well as other Russian and foreign films and TV
shows.
In November 2022, MTS Media announced the launch
of two new TV channels of its own production, FamilyJam
and DetectiveJam. Both channels are available in HD
for users of all MTS services: KION, home TV and satellite
TV.
MTS retail chain's revenue in 2022 decreased by 34%
year-on-year to RUB 57bn amid restrictions imposed
on equipment imports. However, lower sales of handsets
and accessories did not put pressure on the retail chain's
OIBDA, which increased by 20.5% year-on-year due
to higher-margin goods and services.
In February 2023, MTS became the first Russian retailer
to launch sales of the Samsung Galaxy S23 in Russia.
The smartphones are available for purchase in Moscow
stores and at shop.mts.ru.
Satellite
Growth points
In July 2022, MTS announced the acquisition of 100%
in Bronevik Group, one of Russia's leaders in the online
hotel booking market, to develop a new business
segment, MTS Travel. The service currently offers
tens of thousands accommodation options in Russia
and hundreds more in the CIS and other countries.
In November 2022, MTS Travel launched a hotel booking
service at travel.mts.ru. In the future, the platform will
combine several technological products from MTS
and its partners, and will help organise independent
travel: from transport tickets to tours and entertainment
options.
In February 2023, MTS Travel was integrated
into the MTS Cashback programme, allowing customers
to get up to 10% cashback on hotel reservations.
Ретейл
Медиа
МТS Travel
In April 2022, MTS announced a deal to acquire JSC
Gulfstream Security Systems, one of the leaders
in the Russian security market, for the development of MTS
Smart Home, a new business segment. MTS acquired
a 58.38% stake in the company for RUB 2bn.
Smart Home
AI
In October 2022, MTS AI developed SuperResolution,
a solution for converting videos to 4K, and an algorithm
for skipping title sequences and end credits in TV shows
for KION.
In January 2023, MTS AI and Stroki, a platform
offering e-books, audiobooks and podcasts, launched
a project for creating up to 10,000 audiobooks narrated
by artificial intelligence.
In October 2022, MTS PJSC and MTS Auto LLC, a wholly-
owned subsidiary of MTS, announced an investment
in Navitel Group, a Russian provider of navigation
and mapping solutions. The deal will allow MTS
to develop its own geo-platform for ecosystem services
and transport solutions.
МТS Auto
In April 2022, MTS Corporate Venture Fund invested
RUB 72m in Bartello, an online food and beverage
ordering service. The company plans to enable online
orders in the MTS Live app at concert venues, music
festivals and open-air events.
In September 2022, MTS Entertainment signed
management agreements for Music Media Dome,
a multimedia space in Moscow, and M-1 Arena, a live
music and sports complex in St Petersburg. The venues
will become part of the MTS Live federal chain and will
be renamed MTS Live Hall in Moscow and MTS Live
Arena in St Petersburg. Under the signed agreements,
MTS Entertainment will be responsible for all operational
management of the venues: organisation of concerts,
use of venues for events and shows, ticket sales, bar
and restaurant operations, sponsorships, and advertising
integrations.
МТS Live
Fintech’s 2022 revenues grew 40% year-on-year
to RUB 68bn. Fintech’s OIBDA was RUB 5.0bn in 2022.
The bank’s retail loan portfolio increased by 24.4% from
the end of 2021 to RUB 255.8bn, with the cost of risk
(CoR) at 10% in 2022.
The number of the bank's active customers increased
to 3.5m, while the penetration of remote banking services
in the Bank's customer base reached 80% by the end
of 2022.
44
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Development strategy and results
of CLV 2.0 strategy
Financial results, RUB m
2022
2021
Change, %
Revenue
541,749
527,921
2.6
Adjusted OIBDA1
224,207
229,381
(2.3)
Operating income
109,437
118,005
(7.3)
Adjusted net income attributable to Sistema
16,540
32,003
(48.3)
In 2022, MTS’s revenue increased by 2.6% year-on-year
to RUB 541.7bn, driven by positive contributions from telecom,
fintech and media services. Revenue growth was constrained
by lower sales of handsets and accessories due to import
restrictions.
MTS’s OIBDA declined by 2.3% year-on-year in 2022, mainly
due to higher employee incentive expenses, recognition
of non-recurring expenses and investments in new
businesses, and an increase in the bank's provisions amid
a volatile macroeconomic environment.
In 2022, MTS’s adjusted net income attributable to Sistema
decreased to RUB 16.5bn following a decline in OIBDA,
as well as due to the impact of higher interest expenses,
loss from discontinued operations and higher depreciation
reflecting investments in the network and digital businesses.
Financial performance in 2022
541.7
MTS’s revenue
in 2022
RUB
bn
bn
RUB
RUB
66.3
total declared
dividends for 2021
33.85
per ordinary share
The Customer Lifetime Value 2.0 business strategy aims to create value
by building a comprehensive ecosystem offering high-quality proprietary
and partner digital products that meet the needs of the customer in different
areas of life. The key tools here are deep personalisation, a seamless customer
experience, long-term customer relationships and a focus on high-quality
products.
Customer
Lifetime
Value 2.0
The latest changes in the company's strategy are related
to the prospect of spinning off its business segments
as independent companies that will be valued by investors
at their own multiples (higher than those of telcos). These
companies will be able to raise investment independently
and potentially have an IPO.
The key areas of transformation: (1) completing the formation
of the ecosystem core, which will also become the basis for (2)
new “points of growth”; (3) spinning off business segments
with their own value as “satellites”; (4) exiting non-core assets.
The key achievements in the strategy
implementation:
MTS is one of the top 3 brands in terms of perception
as an ecosystem1 (along with Sber and Yandex)
the number of ecosystem customers increased by 53%,
to 13.5m
ecosystem customers account for more than 43%
of the company's revenues
the number of MTS Premium subscribers increased
by 71% in 2022
the key non-core segments (fintech, media
and cashback) have gained scale and are demonstrating
strong positive momentum
1
MTS’s internal study “Public image and loyalty: ecosystem
brands”.
1
Adjusted OIBDA for FY 2022 does not include an impairment loss
on non-current assets in the amount RUB 489 million
The investment programme takes into account the following
factors:
▪
continued development of the LTE network
▪
continued investments in digital products
▪
expenditures for the implementation of the “Yarovaya Law”
▪
fulfilment of the licensing requirements for the extension
of rights to use LTE frequency bands
▪
potential introduction of commercial 5G solutions
in the Russian market
▪
potential investment in the development of domestic 4G
and 5G equipment
The previous three-year dividend policy ended in 2021.
The adoption of a new dividend policy has been postponed
due to the high uncertainty of external conditions.
At the annual general meeting in June 2022, MTS
shareholders approved an annual dividend based
on the company's financial results for 2021. The dividend
amounted to RUB 33.85 per ordinary share, for a total
of RUB 66.3bn, including payments on quasi-treasury shares.
Dividend payments of RUB 48.2bn were completed
by 16 August 2022. Dividend payments of RUB 0.36bn
on ADRs converted after the dividend record date were made
in January-February 2023. The holders of ADRs were entitled
to receive dividends upon conversion of their depositary
receipts into ordinary shares of MTS PJSC in accordance
with the current Russian legislation, taking into account
the legal and regulatory restrictions that exist and/or may
appear in the future.
46
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Sistema's
effective stake
31.8%
ozon.ru
Ozon is the operator of 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 provide the best
services to its customers.
online retailer
in Russia by GMV¹
in Russia’s overall
retail market
growth
of advertising
revenue
year-on-year
2
5
3
No
TOP
x
growth in the number
of orders
GMV growth
in 2022 year-on-year
+108
+86
%
%
~
of total warehouse
space
1,4
m sq m
>
in high-margin
advertising revenue
26
RUB
>
orders delivered
in 2022
active customers
sellers
465 35.2
230
m
m
thsd
GMV (including services)
in 2022
832 bn
RUB
Logistics
Marketplace
>
76 %
of the company’s GMV
>35 m
customers
>
thsd
230
sellers
Fulfilment
infrastructure
~1.4 m sq m
of total warehouse space
>
%
30
growth of total warehouse
space in 2022 year-on-year
Ozon fresh
A dark store concept
with fast-moving products
for fast delivery
Private labels
and deli production
Financial
services
Payment and credit
instruments (B2C):
Payment and credit
instruments (B2B):
Advertising
services
RUB 26
bn
in advertising revenue
in 2022
Advertising revenue
grew 3x in 2022 thanks
to further improvements
in advertising tools
and growing scale
of the marketplace
Business model
Increasing the number
of pick-up points
based on a franchise
model and parcel lockers
Ozon.Card debit cards
Ozon Instalment
for payment
by instalments
Flexible payment schedule
enables sellers to finance their
working capital and speeds up
growth of turnover for both
sellers and Ozon
>
bn
1
Gross merchandise volume.
OZON
49
Results of key assets
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SISTEMA PJSFC Annual report 2022
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Business development in 2022
The marketplace continued to grow strongly in 2022, with its
share of total GMV reaching 78% in the fourth quarter of 2022,
up from 68% in the fourth quarter of 2021. These results
were due to the intensive growth in the number of buyers
and sellers, increased assortment and loyalty, and a higher
frequency of orders. The number of active buyers increased
by 37%; the number of orders grew by 108% and reached 465m
in 2022.
An important step for the company was the development
of Ozon Global. The company has significantly expanded
the logistics infrastructure and delivery channels from China,
Turkey and other countries, enabling its customers to receive
goods from foreign sellers at pick-up points. Ozon Global
is actively promoting the brand among foreign sellers through
local offices in China and Turkey and continues to increase
its appeal thanks to numerous efforts to internationalise
Ozon’s product, including localisation of interfaces, the ability
for sellers to set prices in a selected currency, and logistics
solutions. The company is also expanding the use of fintech
services for foreign sellers.
Ozon continued to actively expand its fulfilment and logistics
infrastructure in Russia in 2022. The total warehouse area
grew by over 30% and reached approximately 1.4m sq
m. The chain of branded pick-up points also significantly
expanded, exceeding 24,500 at the end of 2022.
Ozon’s fintech business continues its rapid development.
In 2022, the company obtained a universal banking licence,
which enabled it to expand its payment and credit instruments
for buyers and sellers. Ozon Card continues to increase
the number of customers and their loyalty. Ozon enables
customers to pay for purchases in instalments, and also
provides payment and credit instruments for sellers.
The company also continues to develop its advertising
platform. Due to the growing number of buyers and sellers,
and the expansion of assortment, advertising revenue
increased by almost 3x in 2022, to over RUB 26bn.
Key e-commerce trends in Russia in 2022
In 2022, the Russian e-commerce market grew by 39% year-
on-year, reaching a total size of RUB 5.7tn, with the overall
retail market gaining 8%, up to RUB 42.5tn, according
to INFOLine. The Russian e-commerce market will continue
to grow rapidly, as e-commerce penetration potential remains
significant.
The e-commerce market growth in Russia was driven
by a decline in shopping mall traffic, a reduction in product
variety at offline shops as a result of suspension of operations
by a number of international companies, changes in consumer
behaviour in the form of a focus on searching and comparing
offers on the Internet, and the effect of expanded online
product offerings, primarily from the major multi-category
marketplaces.
The Russian e-commerce market has significant potential
for rapid growth due to increasing demand in large cities –
because of transition from shopping malls – and in smaller
communities with limited offline retail presence – because
of expanded logistics infrastructure (pick-up points,
parcel lockers, fulfilment centres and sorting warehouses)
and improved availability of fintech solutions.
Rates of growth, %
GMV
2019
2020
2021
2022
93
144
127
86
81
197
448
832
2019
2020
2021
2022
4.0
5.4
8.7
13.2
2019
2020
2021
2022
7.9
13.8
25.6
35.2
78%
share of total GMV
in the fourth quarter
of 2022
+65%
CAGR (19–22)
+49%
CAGR (19–22)
Operating performance
Active customers, m
Order frequency
The Russian retail market’s total value may reach RUB 57.1tn
by 2027. According to analysts’ estimates, the penetration
of e-commerce may reach 32% by 2027, 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. The share of multi-category marketplaces grew from
34% in 2021 to 44%. Analysts expect their share to continue
growing significantly in 2023.
Developed e-commerce markets have been mostly
consolidated by major players, while the Russian market
remains fragmented. Consolidation trends create significant
opportunities for major players in the fragmented Russian
e-commerce market.
50
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SISTEMA PJSFC Annual report 2022
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Results of key assets
+86%
increase in GMV
in 2022
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 include sales of Ozon.Travel.
3
Adjusted EBITDA is not an IFRS measure. Adjusted EBITDA is calculated as a pre-tax loss prior to the deduction of non-operating income (expenses), depreciation
and amortisation, and share option expenses.
Financial results, RUB m
2022
2021
Change, %
GMV, including
services2
832.2
448.3
86
Revenue
277.1
178.2
55
Adjusted EBITDA3
(3.2)
(41.2)
(92)
Cash balance
90.5
108.0
(16)
In 2022, GMV including services was more than RUB 832bn,
86% growth year-on-year. The main growth drivers were:
▪
Increase in the number of orders by 108% year-on-
year, including due to growth in customer loyalty
and engagement (Ozon delivered more than 170m orders
in the fourth quarter of 2022);
▪
Increase in order frequency per customer by 52% year-on-
year, to 13.2.
In 2022, Ozon achieved positive adjusted EBITDA and
maintained it over the last three quarters despite emerging
challenges. Adjusted EBITDA increased to RUB 3.9bn in the
fourth quarter of 2022, compared to adjusted EBITDA loss of
RUB 15.9bn in the fourth quarter of 2021. Adjusted EBITDA
as a percentage of GMV improved from (9.0%) in the fourth
quarter of 2021 to 1.3% in the fourth quarter of 2022, driven by
the company's focus on efficiency improvements throughout
the reporting period. In 2022, adjusted EBITDA improved to
RUB (3.2)bn from RUB (41.2)bn in 2021.
The company was also able to maintain a strong financial
position at the end of 2022, with year-end cash of RUB 90.5bn.
Financial performance in 20221
The company’s key priorities for 2023 are to maintain
high GMV growth rates and improve efficiency, further
enhance customer loyalty by expanding the product range
and increasing service level, attract sellers by enhancing
existing tools and creating new ones, expand geographically,
and develop adjacent verticals such as fintech.
On 28 February 2022, the NASDAQ suspended trading
in Ozon’s ADSs and has not resumed it since. The suspension
of trading led to a delisting event in respect of the company’s
bonds on 8 March 2022, as, under the terms of the Company’s
senior unsecured convertible bonds due 2026, a delisting
event occurs if, among other things, trading of the ADSs
on the NASDAQ is suspended for a period of seven
dealing days or more. The company and an ad hoc group
of bondholders reached an agreement on the terms
of the bond restructuring. In September 2022, Ozon entered
into a debt financing agreement for up to RUB 60bn
with ultimate maturity of four years from the signing date,
which will help the company have a sufficient cash balance.
In August 2022, a fire broke out at one of the units of Ozon’s
fulfilment centre in the Istra district of the Moscow region.
The fire spread to an area of 55,000 sq m and affected
the second and third units of the warehouse complex.
The company accelerated the commissioning of new
fulfilment centres, increasing the total area of its fulfilment
and logistics infrastructure by almost 400,000 sq m in 2022.
On 15 March 2023, the NASDAQ notified Ozon that Ozon ADSs
would be delisted from the exchange. On 21 March, Ozon filed
an appeal against the NASDAQ’s decision on the compulsory
delisting of the ADSs. Under the rules of the stock exchange,
Ozon had the right to request a hearing by a special panel
to appeal the exchange’s decision, and the company used
this right. The hearing is required to be held within 45
days of the company’s request. The request suspends
the delisting action pending the issuance of a written decision
of the hearings panel.
Strategic goals
52
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SISTEMA PJSFC Annual report 2022
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Results of key assets
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.
segezha-group.com
production sites
employees
21
thsd
pcs
export
revenue
72
%
geography
of sales
80
countries
>
of operation
in Russia
10
regions
18
Business model
Segezha Group operates a vertically integrated business
model based on its 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. As much
as 94% of Segezha Group's demand for raw wood is met
by its own harvesting. All this allows Segezha Group
to hold leading positions in terms of production costs
in all its business segments.
23.3
m cu m
total allowable cut
Sistema's
effective stake
62.2%
Wood resources
Enterprises
Key products
Other products
Stubs
Remain in the ground to preserve the root system
CLT panels
Prefab houses
Sawmill
and woodworking
plant
Sawn timber
Laminated beams
Pellets
Chips
Fibreboard
Birch
veneer logs
Plywood mill
Plywood
Fibreboard
Brickets
Firewood, bark
and technological
resources
Multi-fuel boiler
Heat
Pulp and paper mill
Paper
Wood
chemical
products
Converting
facilities
Paper
sacks
(40-60%)
Softwood
sawlogs
Pulp wood
(30-40%)
SEGEZHA GROUP
54
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Industry overview for 2022
№ 2
globally by output of paper
for multiwall sacks4
Segezha Pulp and Paper Mill
is Russia's only manufacturer
of micro-crepe high-strength
unbleached sack paper.
77%
3
—
share of Segezha Group
in the Russian output
of sack paper
Global market
Sack paper
71%
of sack paper is exported
Global consumption of craft paper
in 2020-20222, m t
Russian market
The Russian sack paper market is export-oriented
and its capacity is limited. In the reporting year, Russian
manufacturers encountered problems with sale of its products
to European countries and redirected supply to the domestic
market and alternative markets - Asia, the Middle East,
Africa, Latin America and even Turkey. Unbleached paper
consumption in Russia was estimated at 120,000 t5 in 2022,
with Segezha Packaging accounting for 70,000 of it.
1
Estimate by Fastmarkets.
2
Estimate by Segezha Group.
3
Estimate by Fisher International.
4
Estimate by Fisher International.
5
Estimate by Segezha Group.
In 2022, the pulp and paper and timber processing sectors
encountered serious global challenges that resulted
in reformatting of global trade. As the European Union banned
imports of timber products, pellets, sack paper and plywood
from Russia and the United Kingdom, Japan and the US
introduced duties on these products, Russian exports
were redirected to Asia, the Middle East and other regions.
Q2 and the beginning of Q3 2022 saw an unprecedented
increase in the cost of logistical services, caused mainly
by international container sea shipping lines leaving Russia.
Notably, transportation costs of deliveries to Latin America,
India and some Southeast Asian and African countries grew
more than threefold, significantly reducing the appeal of these
markets.
For some time, these challenges affected the availability
of Russian products on the global market, but soon solutions
were found. The situation on the transportation services
market stabilised already in Q3-Q4 as new logistics operators
emerged and alternative delivery routes were developed.
In 2022, the sack paper market saw a slump in consumption.
At the same time, there was a high deficit of supply
at the beginning of the year, with prices in the European
market soaring by over 40% compared to the end
of 20211. In H2 2022, the global demand for paper sacks
and sack paper began returning to normal. The situation
in the logistical services market also stabilised.
4.2
4.1
4.1
2022
2021
2020
56
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Russian market
In 2022, paper sack consumption in Russia was 946m5 items ,
up 4% from the previous year. Demand for industrial packaging
remained high throughout 2022, and the market was in need
of import substitutes due to lower imports of paper sacks from
other countries. According to estimates, imports fell by 10%6
due to a drop in the segment of dry construction mixes.
Paper sacks
1
Estimate by Fisher International.
2
Estimate by Fisher International.
3
Source: Segezha Group's internal survey.
4
Estimate by Segezha Group.
5
Estimate by Segezha Group (revised data).
6
Sources: FAOSTAT, estimate by Segezha Group.
European market
Demand for paper sacks decreased in the European market
in 2022. The trend emerged in summer following a drop
in construction activities. Demand from the cement industry
and producers of dry construction mixes, which account
for over 60% of paper sack consumption in Europe, remained
relatively low till the end of the year.
Consumption of paper sacks in Russia
in 2020-20224, m items
1
Source: Timber-online.
2
Sources: FAOSTAT, estimate by Segezha Group.
3
Sources: FAOSTAT, estimate by Segezha Group, industry mass media.
4
Sources: materials of the industry conference CGTC 2022, FAOSTAT, estimate
by Segezha Group.
5
Sources: FAOSTAT, production decline rates in 2022 (according to Rosstat),
estimate by Segezha Group.
6
Sources: Rosstat, WhatWood (Russian Timber Journal, 12-2022).
7
Sources: FAOSTAT, estimate by Segezha Group.
Sawn timber
9
in Europe by output
of softwood sawn
timber1
1
in Russia by output
of paper sacks1
Global market
The global market of softwood sawn timber was estimated
at 325m cu m in 20223. The United States and China
remained the biggest consumers of sawn timber, used mostly
in the construction sector and furniture production. Global
sawn timber consumption is estimated to have dropped by 7%
in 2022 year-on-year4.
Russian market
Russia's output of softwood sawn timber in 2022 is estimated
at 36m cu m5, a decrease of 10%6 from 2021. 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.
In 2022, Russia exported more than 60%8 of its sawn timber
output.
Exports of softwood sawn timber fell by 22% in 2022,
to 23m cu m9 (60% of the output), due to the ban on its sale
to the EU and a decline in construction activities in China. Due
to the transformation of global supply chains and Russian
producers' turn eastwards10, China's share in Russian sawn
timber exports grew by 8 p.p. to 61%. The second biggest
buyer of sawn timber was the CIS with 18%. The share
of MENA11 countries grew by 2 p.p. to 8%12.
Consumption of sawn timber in Russia
in 2020-202213, m cu m
8
Sources: WhatWood (Russian Timber Journal, 01-2023).
9
Sources: FAOSTAT, estimate by Segezha Group.
10
Sources: Sawn Timber Market in Russia, No 22, WhatWood.
11
MENA - Middle East and North Africa.
12
Source: WhatWood (Sawn Softwood Market in Russia, 01-2023).
13
Sources: estimate by Segezha Group on the basis of industry estimates
by WhatWood, Woodstat, FAOSTAT, Timber-online.
№
№
№
%
%
%
97
of Segezha Group's sawn
timber is exported
65
is Segezha Group's share
in the Russian paper sack
market3
11
is Russia's share
in the global softwood
sawn timber market2
2
globally by output of paper
for multiwall sacks2
910
800
946
2022
2021
2020
12.1
9.1
13
2022
2021
2020
58
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SISTEMA PJSFC Annual report 2022
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Results of key assets
1
Source: Segezha Group's internal survey, WhatWood, incl. Galich plywood mill,
not consolidated by Segezha Group as a subsidiary of Segezha Group
in accordance with the terms and conditions of the loan agreement.
2
Sources: Vision Hunters, WhatWood, Segezha Group's internal survey.
3
Source: WhatWood.
4
Source: Segezha Group's internal survey, WhatWood.
5
Sources: WhatWood, Segezha Group's financial statements.
6
Source: WhatWood.
Plywood
№ 3
globally by birch
plywood production
capacity1
52 countries —
geography of sales
of Segezha Group's birch
plywood
Global market
In 2022, the birch plywood market witnessed serious
structural changes as the access of Russian producers
to their traditional European market was restricted.
Moreover, import duties on Russian plywood introduced
by the United States and Canada and a sharp increase
in transportation costs in this direction resulted
in a drop in supply to North America, which had been
the second biggest importer of Russian plywood in 2021.
On alternative markets, supply exceeded demand
in H2 2022, which brought the prices of birch plywood
down.
Global consumption of plywood
in 2020-20222, m cu m
Russian market
In 2022, Russian producers of birch plywood were faced
with restrictions on supply to Europe, growing costs
of logistical services, departure of their Western
partners from Russia and strengthening of the Russian
rouble. Plywood output in Russia fell by 24%4 in 2022
vs 2021, to 3.2m cu m. Nevertheless, Russia remained
an undisputed global leader in birch plywood production,
accounting for 73%4 of the global output. Segezha Group
accounted for 5.1%5 of Russia's output.
Consumption of plywood in Russia
in 2020-20226, m cu m
1
Source: Timber-online, Segezha Group's internal survey.
2
Sources: Rosstat.
3
Sources: WhatWood, Segezha Group's financial statements.
4
Source: Segezha Group's internal survey.
5
Source: Segezha Group's internal survey.
6
Source: Segezha Group's internal survey.
7
Sources Timber-online, Segezha Group's internal survey.
8
Sources Timber-online, Segezha Group's internal survey.
9
Source: estimate by Segezha Group.
10
Source: Timber-online.
11
Source: Timber-online.
Prefabricated houses
In 2022, the Russian market of prefabricated houses using
laminated beams was estimated at 146,000 cu m1, down
7% year-on-year. The share of housing built using timber
has more than doubled in the last 15 years and is estimated
at 20.3m sq m2.
European countries and Japan remain the biggest consumers
of laminated beams. The biggest producers of laminated
beams are Austria7 (1.6m cu m in 2022) and Germany8
(1.4m cu m in 2022). The European output of laminated beams
in 2022 was estimated at 3.8m cu m9, an increase of 2% vs.
2021. The growth was brought about by the commissioning
of new production capacity in Germany.
12% —
Segezha Group's share
in the Russian prefab
houses market3
Laminated wood structures
CLT panels
The European market of CLT panels continued growing
in 2022, driven by consumers' demand for eco-friendly
and safe housing, including multi-storey buildings.
Europe's CLT panels output in 2022 is estimated at
1.3m cu m10 (+17% year-on-year), the current production
capacity being 2.0m cu m.
The increase in the CLT output came from
the commissioning of new production facilities in 2020-
2021, which increased their capacity utilisation in 2022.
The CLT panels output is projected to reach 1.8m cu m11
in the next two years, with new production capacity slated
for commissioning in 2023.
№
№
№
95%
of laminated beams produced
by Segezha Group is exported
About
1
1
1
in Russia by prefab
houses production
capacity4
in Russia by output
of laminated beams
and prefab glulam
houses5
in Russia by CLT
panels output6
1.5
1.1
1.2
2022
2021
2020
4.8
4.6
4.2
2022
2021
2020
60
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SISTEMA PJSFC Annual report 2022
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Results of key assets
1
Source: Fisher International.
2
Taking into account paper used at own conversion facilities.
Business development in 2022
№ 1
in Russia by output
of paper and paper
sacks1
Paper sale price, EUR/t (FCA)
Paper output and sales fell in 2022 amid the complicated
geopolitical situation and structural transformation
of the markets. In response to external challenges, Segezha
Group increased the share of paper sold in Russia and, given
the increased competition in the domestic market of sack
paper and imitation parchment, developed and launched new
products, cable paper, paper for corrugation and treatment
with phenolic resins (for plywood production), colour
and greaseproof imitation parchment.
Paper production facilities, thsd t
Location
Paper production capacity
Two enterprises
Two regions
413
Segezha PPM
Republic of Karelia
388
Sokol PPM
Vologda region
25
Paper output, thsd t
Paper sales2, thsd t
Segezha Group's revenue from paper
sales by country, %
14
11
7
6
32
29
Russia
China
Turkey
South
Africa
Egypt
Other
The bulk of Segezha Group's sack paper output for 2022
was exported to over 60 countries. The company entered
some new markets, notably, South Africa, Saudi Arabia, South
Korea, Uzbekistan, etc. It also strengthened its presence
in China, engaging new traders and finding new buyers.
As a result, China accounted for 14% of Segezha Group's paper
revenue. The share of paper supplied to the domestic market
grew significantly in the reporting year and reached 29%.
Paper and Packaging
Paper
Paper is an important product in Segezha Group's portfolio.
The company produces the entire range of brown sack
paper with unique strength characteristics, semi-compliant
and micro-crepe white paper and imitation parchment made
of unbleached sulphate pulp.
2
globally by output
of paper sacks
2
globally by output
of paper for multiwall
sacks
413
paper production
capacity
336
paper output in 2022
№
№
thsd t
thsd t
Development plans
for 2023
Continue expansion of the geography
of sales, finding new customers
and alternative logistical routes
Complete the final stage of the long-term
environmental programme for the overhaul
of recovery boilers and the replacement
of electrostatic precipitators at Segezha
Pulp and Paper Mill.
Replace the industrial waste water collector,
construct a landfill for waste of hazard
class IV-V at Segezha PPM.
Start the biological treatment project
at Segezha PPM, which includes repairs
of drain boxes, filter press, compressors
and transformers and construction
of a sludge pond dam.
Start the upgrade of the chemical water
treatment and water preparation systems
at Segezha PPM.
Complete the construction of the new
state-of-the-art finished products
warehouse at Segezha PPM.
370
408
319
2022
2021
2020
369
402
336
2022
2021
2020
677
531
834
2022
2021
2020
62
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SISTEMA PJSFC Annual report 2022
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Results of key assets
1
Estimate by Fisher International, estimate by Segezha Group.
2
Segezha Group sold its sack and packaging production facilities in Europe on 22 March 2023.
Paper packaging
Segezha Group develops and produces a wide range
of packaging solutions for different uses. Packaging is used
for dry construction mixes, cement, chemical products,
fertilisers, pet products, charcoal and food products.
Packaging solutions are also needed for retail, e-commerce
and deliveries.
Sack and packaging production facilities, m items
Location
Paper packaging production capacity
Segezha Group in Russia
Three towns
Three regions
878
Segezha
Republic of Karelia
Salsk
Rostov region
Lobnya
Moscow region
Segezha Group2 in Europe
Seven towns
Seven countries
704
Horn
Netherlands
Aalborg
Denmark
Ahern
Germany
Varese
Italy
Uvalno
Czech Republic
Izmir
Turkey
Ploiesti
Romania
In its consumer packaging, Segezha Group strives to meet
its customers' highest requirements to colour and quality
of printing. In 2022, Segezha Packaging invested in upgrade
of its auxiliary equipment, notably, it commissioned a new
eight-colour printing machine in Lobnya, the Moscow region,
in January.
Paper sack output, m items
Paper sack sales, m items
1
Source: Segezha Group's internal survey.
Segezha Group's paper sack sales
by country,%
Paper sack sale price, EUR/thsd items (FCA)
№ 1
in Russia by paper sack output1
2
globally by output of
paper for multiwall sacks
№
bn items
bn items
1.4
Paper packaging output
in 2022
1.6
Paper packaging
production capacity
Development plans
for 2023
Given the current geopolitical tensions,
the company is updating its development
strategy with a focus on expansion
of the geography of sales.
In 2023, it plans to standardise its paper
sacks, which will increase the production
capacity and help to meet a higher consumer
demand.
Segezha Group will continue enhancing
safety of its equipment prioritising
occupational health and safety to ensure
the stability of enterprises' infrastructure.
10
5
5
5
35
41
Russia
Germany
Turkey
Romania
Netherlands
Other
Restrictions on imports of the necessary raw materials (white
paper, glue, paint, film) made Segezha Group start using
the internal resources of Segezha PPM and search for Russian
suppliers of raw materials. Notably, the company organised
tests of Russian-made raw materials at its R&D centre
in Segezha, the Republic of Karelia, which helped it to find
alternatives with minimum money and time input.
Segezha Group's share of the Russian paper sack market
was 73%1 in 2022. The company continued working
to increase the share of high-margin products, to optimise
the structure of its product portfolio and standardise it with
a view to increasing the productivity and the output in order
to meet a higher consumer demand.
1,428
1,291
1,405
2022
2021
2020
1,446
1,302
1,406
2022
2021
2020
175
176
245
2022
2021
2020
64
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Segezha Group produces high-quality dried cut softwood timber at its high-
tech plants in Siberia and Northwest Russia.
Forestry Management and Woodworking
Despite economic volatility, Segezha Group's sawmills
continued developing. The key results of the reporting year
were:
▪
Improvement of wood processing technologies, automation
of production
▪
Enhancement of the quality of products and their
competitiveness on export markets
▪
Rational and comprehensive use of raw materials,
organisation of zero-waste production
▪
Improvement of in-plant logistics
In 2022, some equipment was replaced at the Onega
Woodworking Plant, including the front loader,
and construction of side railway tracks was started.
The company also expects to acquire more new equipment.
Karelian Wood Company established an in-house repair
shop as part of the imports substitution programme. It also
launched new types of products, opening a planed products
shop.
In 2022, Segezha Group integrated the sawmills of LLC
Inter Forest Rus, which were acquired in 2021, in its
asset management system. The enterprises prepared
production data and management accounts in accordance
with the Group's standards, started using the centralised
procurement programmes, etc.
1
The gross sawn timber capacity includes all sawn timber capacity of the Group as of 31 December 2022, including sawn timber used further to produce laminated beams, CLT
panels, etc.
Sawn timber sales, thsd cu m
As the global commodities markets transformed and sales
of sawn timber to China increased, Segezha Group's
sawn timber output and sales doubled in 2022 vs. 2021.
The decrease in sale prices of Segezha Group's sawn timber
was due to the changes in the market situation and geography
of sales.
Segezha Group's revenue from sawn
timber sales by country,%
China and Egypt had always been key buyers of the Group's
sawn timber and remained such in 2022. China's share grew
significantly in 2022, by 32 p.p. to 73%. In addition, Segezha Group
redirected its shipments from Europe to other Asian countries
and MENA.
When dispatching and shipping sawn timber in 2022, Segezha
Group encountered overload of eastern ports and eastbound
railways. Because of that, the company developed and introduced
alternative routes and schemes:
▪
Distribution of shipments between land-based routes
via land-based border checkpoints to China and via Far
Eastern ports by sea freight
▪
Export by ships from Onega, Arkhangelsk and St
Petersburg to Egypt
▪
Redirection of cargo flows via Georgia, Mongolia,
Kazakhstan and China
8
high-tech plants
in Siberia and
Northwest Russia
2,954
gross sawn timber production
capacity
thsd cu m
Development plans
for 2023
Continue upgrade of Lesosibirsk WP No 1 aimed
at increasing the output of finished products,
the useful output after sawing, automation
and energy efficiency and the output of pellets.
Carry out measures to substitute imported
parts, units and modules of production
equipment.
Upgrade production line management
and measurement systems. The main goal
is to increase the accuracy of obtained data,
minimise the human factor, reduce production
and operating expenses and increase the output
and economic efficiency of production facilities.
10
4
3
10
73
China
Egypt
Lebanon
Russia
Other
Sawn timber output, thsd cu m
1,170
1,192
2,239
2022
2021
2020
Sawn timber sale prices, EUR/cu m (FCA)
239
138
204
2022
2021
2020
1,056
1,217
2,263
2022
2021
2020
Sawn timber production facilities, thsd cu m
Location
Gross sawn timber production
capacity
Eight enterprises
Five regions
2,9541
Lesosibirsk Woodworking Plant No 1
Krasnoyarsk region
650
Tairiku-Igirma Group
Irkutsk region
619
Timber Trans
Irkutsk region
412
Priangarsk LPK
Krasnoyarsk region
410
Novoyeniseisky Timber and Chemical Plant
Krasnoyarsk region
350
Sokol Woodworking Plant
Vologda region
251
Onega Woodworking Plant
Arkhangelsk region
150
Karelian Wood Company
Republic of Karelia
112
66
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SISTEMA PJSFC Annual report 2022
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Results of key assets
1
Data of WhatWood, including the capacity of Galich Plywood Mill.
2
Galich Plywood Mill was put into operation on 14 December 2022. The results
of Galich Plywood Mill are not consolidated with the Group's results in accordance
with the loan agreement between JSC Alfa Bank and LLC Galich Plywood Mill
dated 20 March 2020.
Segezha Group's enterprises produce birch,
softwood and composite plywood.
Plywood production and sales fell in 2022 amid the structural
transformation of markets.
Plywood and Boards
Plywood production sites, thsd cu m
Location
Plywood production capacity
Three enterprises
Three regions
227
Vyatka Plywood Mill
Kirov region
192
Krasfan
Krasnoyarsk region
35
Galich Plywood Mill2
Kostroma region
125
Segezha Group's revenue from plywood
sales by country,%
Due to the complicated geopolitical situation in 2022,
the company increased sales to the domestic market
and to new priority markets - China, Egypt, Israel, Turkey, India,
etc. In line with the new customers' demand, it increased
supply of standard laminated plywood with brown coating.
In 2022, the company began supplying plywood for building
LNG tankers and LNG storage terminals. It signed a long-
term contract for supply of plywood for LNG tankers to China.
Also, in the reporting year, the company successfully launched
sales of the Segezha Ecofloor engineered wood boards, thus
entering a new segment of flooring.
In response to the logistical challenges of 2022, the Group
developed container routes via Novorossiisk and Far
Eastern ports, railway shipments to China and multimodal
shipments to Latin and South America via Iran and India
with transshipment in Turkey, China and South Korea.
thsd cu m
thsd cu m
35
softwood plywood
production capacity
192
birch plywood production
capacity
№ 3
globally by birch
plywood production
capacity1
Development plans
for 2023
Expand the geography of sales and customer
base.
Further expand the product portfolio: launch
the production of UF plywood, plywood
covered with UV varnish and plywood
for vibration and sound insulation at Vyatka
Plywood Mill; continue production of 7x13 ft
plywood at Galich Plywood Mill.
Continue the project to expand the production
capacity of Vyatka Plywood Mill.
Develop sales in the industrial segment:
produce and supply plywood for the car-
making, shipbuilding and machine-building
sectors.
Expand sales of tanker plywood for customers
in Russia, China and South Korea.
Set up a buffer warehouse in Turkey to ensure
quick deliveries to neighbouring regions.
Open a sales office in China.
14
6
6
5
33
35
Russia
Germany
Israel
South Korea
Netherlands
Other
Plywood sales,
thsd cu m
178
186
157
2022
2021
2020
Plywood sale prices,
EUR/cu m (FCA)
678
405
642
2022
2021
2020
Plywood output,
thsd cu m
196
192
162
2022
2021
2020
68
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SISTEMA PJSFC Annual report 2022
sistema.com
Results of key assets
Japan
17
Germany
17
Russia
5
Other
13
Italy
42
Israel
5
1
According to Segezha Group's internal research as of 31 December
2022.
Laminated wood products
Wood structures production facilities, thsd cu m
Location
Laminated wood products production capacity
Two enterprises
One region
150
Sokol Woodworking Plant
Vologda region
Glulam and prefab houses
100
Sokol CLT
Vologda region
CLT panels
50
Glulam
In the glulam segment, Segezha produces softwood
laminated beams that have high strength and resilience
to environmental impacts. Because of that, laminated beams
are used to construct not only wooden houses, but also other
types of buildings and structures in combination with other
materials.
Glulam sale prices,
EUR/cu m (FCA)
In 2022, the company managed to redirect laminated beams
to the markets of Turkey, Israel and India and to increase sales
on the domestic market.
Glulam output, thsd cu m
Glulam sales, thsd cu m
Prefab houses sale prices, EUR/cu m (FCA)
Prefab houses output, thsd cu m
Prefab houses sales, thsd cu m
In 2022, the output and sales of prefabricated houses
fell by 13% and 8%, respectively, due to a lower demand
in the housing construction market amid a decline
in purchasing power and high uncertainty. Despite economic
volatility, the company managed to expand the geography
of sales and began deliveries to the Primorye and Irkutsk
regions, Armenia and Kazakhstan.
Segezha Group's prefab houses are sold mostly
on the domestic market. In order to reach out to all potential
target audience groups the company developed new products
and entered new market segments in 2022.
Also last year, it began supplying prefab houses to a new
segment - construction of tourist facilities (hotels, duplexes,
cottages, holiday camps). This became possible thanks
to government support of the tourist industry.
+51
Growth of CLT panels output
in 2021 (year-on-year)
%
№ 1
in Russia by prefab glulam houses
production capacity1
Segezha Group's revenue from glulam sales by country,%
Prefabricated houses
Segezha Group produces prefabricated houses of laminated
beams at Sokol Woodworking Plant.
19
19
18
2022
2021
2020
20
19
17
2022
2021
2020
421
327
670
2022
2021
2020
490
318
475
2022
2021
2020
65
38
27
2022
2021
2020
63
38
35
2022
2021
2020
70
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SISTEMA PJSFC Annual report 2022
sistema.com
Results of key assets
Increase the sack paper
and greaseproof paper
output at Sokol PPM
CLT panels sale prices, EUR/cu m (FCA)
In 2022, the output of CLT panels grew by 51%, while sales
soared by 94%, partly due to Segezha Group's project
of construction of multi-storey buildings. The bulk of sales
on the Russian market was in the segment of individual
housing construction.
Continue redirection of sales to the Russian
and CIS markets and enter new export markets,
including India, Iran and Turkey. The company is also
considering such markets as China, Brazil, Algeria,
Egypt and Persian Gulf countries.
Continue construction of multi-storey CLT buildings.
Roll out the experience of building using CLT panels
to other segments of the construction market.
Continue the distribution programme for laminated
beams and CLT panels. Develop architectural
and engineering solutions for construction
of agricultural and industrial buildings impacted
by corrosive media.
Take part in the construction of housing using
prefab CLT houses, increase sales of CLT
in the segment of individual housing construction.
Continue developing methodological
recommendations for designing buildings
of CLT panels, making changes to construction
and sanitary rules and regulations.
Start a long-term project of standardisation
of glulam structures in Russia (together
with the Russian Association of Wooden Housing
Construction), study characteristics of glulam
and CLT to make adjustments to construction
and sanitary rules and regulations.
Roll out the lean production project at Sokol WP
to all shops and involve about 80% of personnel
in the project.
CLT panels
CLT panels output and sales, thsd cu m
Operating and investment development strategy
Strategic
priorities
Development
plans
Development plans for 2023
CLT panels are modern prefabricated panels made of cross
laminated timber. They are used for construction of individual
houses and high-rise buildings and are popular among
architects.
2021
2022
447
531
2021
2022
Production
Sales
2021
2022
9
7
14
11
Expansion of the wood
resources base
Manufacturing
assets
Construct haulage
roads
Upgrade Segezha PPM
to increase capacity
and reduce production
costs
Increase the share of own
wood resources by expansion
of the allowable cut
and increase its utilisation rate
Introduce the intensive forest
management model in all
logging regions, consistently
expand the allowable cut
Modernise Onega Woodworking
Plant with expansion
of the annual production
capacity by 48,000 cu m
of sawn timber and by 30,000 t
of pellets
Implement investment
programmes for replacement
of harvesters and logging
trucks
Modernise Lesosibirsk
Woodworking Plant
with expansion of the annual
production capacity by 50,000
cu m of sawn timber
and by 100,000 t of pellets
Expand the annual production
capacity at Vyatka Plywood
Mill by 64,000 cu m
of plywood
Given the turbulence on the market, the company worked
hard to quickly adapt the product segment to the new reality
and secure its leading position in the industry. Notably, it
redirected sales to the Russian domestic market and also
focused on developing markets in the CIS.
Ready-to-assemble prefab CLT houses dominated sales
on the Russian market. Most sales were made in the Moscow
and Leningrad regions. In 2022, the company began supplying
CLT panels to India.
72
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Financial performance in 2022
Financial results, RUB m
2022
2021
Change, %
Revenue
106,766
92,442
15.5
Adjusted OIBDA1
24,650
31,234
(21.1)
Operating income
10,111
22,351
(54.8)
Net income
attributable to Sistema
3,758
12,041
(68.8)
In 2022, revenue increased by 15.5% year-on-year
to RUB 106.8bn due to increased sales of sawn timber
and growing prices of some types of products. The company's
performance in H2 2022 was under pressure due
to the significant strengthening of the rouble and a decrease
in sale volumes and prices of certain products. In 2023,
Segezha Group continued work to expand its presence
in alternative sales markets.
Adjusted OIBDA 2022 fell due to the stronger rouble, ongoing
structural transformation of the sales geography, downward
correction of prices from the record-high levels of 2021
and growing logistical costs of foreign components. OIBDA
cleared of the currency factor was positive.
The company's net debt grew by 64.5% year-on-year
due to implementation of the investment programme
in the reporting year, payments under M&A deals and payout
of dividends for 2021.
In 2022, net profit attributable to Sistema totalled RUB 3.8bn
compared to RUB 12.0bn in 2021, due to the change in OIBDA
and higher interest expenses.
RUB 106.8 bn
In 2022, revenue increased
by 15.5% year-on-year
RUB 3.8 bn
Net profit attributable
to Sistema
Strategic
priorities
Strategic
priorities
Sustainable
development
Innovation
Modernise and replace
treatment equipment
at Segezha PPM
Upscale and develop
the Group's existing IT
projects, including SAP
solutions on the basis
of the in-house
centre of excellence,
the automated dispatch
system SegezhaLes, etc.
Reduce the environmental
impact and use state-of-the-
art production technologies
Increase the number
of automated data sources
and upscale the system
for production data storage
and processing
Implement the policy
of sustainable forest
management on the basis
of the forest seed centre
in the Kostroma region
Set up and develop R&D
centres to create innovative
solutions for the company's
product portfolio
Reduce number of industrial
injuries
Develop AR products
and robotisation (RPA)
Implement umbrella charity
projects "City Infrastructure",
"Sports", "Education"
and "Environment"
Design the company's
industrial facilities using
scientific competences
of CJSC Giprobum
1
Adjusted for accruals in 2021 related to the LTI programme.
74
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Sistema's effective
stake
federal
developers
developers
in terms
of new housing
delivery
most reliable
developers
3
5
10
TOP
TOP
TOP
of NSA delivered
in 2022 across
19 projects, up 74%
year-on-year
of new NSA
launched in 2022,
up 2.3x year-on-year
of new contract
sales in 20221
735
652
423
thsd sq m
thsd sq m
thsd sq m
of NSA2
of cash
collections³
in 2022
in market value
of assets4
6.4
75
288
RUB bn
RUB bn
m sq m
in design and construction
phases
на стадии строительства
38 projects
Etalon Group is one of the largest
and oldest residential property
developers in the Russian market.
The company is one of the leading
players in the markets
of St Petersburg and Moscow,
and is also actively expanding
in five other Russian regions.
etalongroup.com
Business model
ERZ
ERZ
Forbes
present in six
or more Russian
regions
in the mass
housing category
1
Including accumulated new contract sales at YIT Russia as of the date of its
acquisition.
2
Net sellable area.
3
Including accumulated cash from development operations of YIT Russia
as of the date of Etalon Group's acquisition of YIT Russia.
4
As of 31 December 2022, according to Nikoliers.
The integrated business model allows the company
to efficiently manage costs and create added value at every
stage of development. With industry consolidation by major
players and emerging market opportunities, the company
is focusing on digitalisation of the entire value chain to further
improve its business efficiency and competitiveness.
Management
Procurement
Management
of land assets
Design
Construction
Sales
Services
U
ni
fi
e
d
m
a
n
a
g
e
m
e
n
t
ETALON GROUP
76
77
SISTEMA PJSFC Annual report 2022
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Results of key assets
Total deliveries
of apartment buildings,
m sq m
Market share
of the top 20
players
1
The target used here is 33.3 sq m per capita, as specified in the Russian Housing Development Strategy Through 2025.
2
Source: The Central Bank of the Russian Federation.
Industry overview for 2022
Per capita housing area, sq m
Moscow
St Petersburg
Warsaw
London
Stockholm
Rome
Berlin
22
28
34
33
34
39
40
2025 target 1
Sources: Rosstat, national statistics agencies, Berlin-Brandenburg, Centre for Cities, ISTAT, SOW
2018
2019
2020
2021
2022
2023 –
2026
17.6
18.6
18.2
19.4
20.1
49.5
37
43
43
47
44
49
Source: Etalon Group’s analysis based on data from DOM.RF and ERZ.RF
Although in March 2022 the highest average interest rate
on retail deposits reached 14.2%, it followed the key rate cuts
and by the end of the year returned to the level of early 2022.
This is why retail bank deposits grew by only 6% (RUB 1.9tn)
in 2022, which is close to the growth rate of deposits
in 20212. At a time when real returns on deposits are negative
and inflation is high, Russians prefer to invest in real estate,
which is reflected in the growth of funds deposited in escrow
accounts of off-plan home buyers (+35%).
Deliveries: million-plus cities
(other than Moscow and St Petersburg),
m sq m
2016
2017
2018
2019
2020
2021
2022
22.0
20.6
20.5
22.6
22.1
24.6
26.3
2016
2017
2018
2019
2020
2021
2022
4.0
3.4
3.5
3.5
3.5
3.1
3.5
2016
2017
2018
2019
2020
2021
2022
3.4
3.4
3.5
5.2
5.0
7.8
6.8
Need for improvement
of housing conditions
In terms of the provision of housing area, both in
large cities and in Russia, a positive trend towards an
increase in per capita housing area, while according to
the Strategy for the Development of the Construction
Industry and Housing and Communal Services of the
Russian Federation for the period up to 2030, the level of
per capita housing area should be at least 33.3 sq. m.
For the real estate market, 2022 was a challenging year. As the key
interest rate doubled in February, resulting in higher mortgage rates,
consumer confidence declined, prices for building materials and
equipment rose, and there was a temporary disruption in supply chains,
many real estate players were forced to revise their plans for deliveries
and launches. At the same time, restrictions on land availability in key
regions intensified competition.
Despite the slowdown in demand, the positions of the top
20 players continued to strengthen thanks to their sound
financial health and the subsidised mortgage programmes
which, according to Frank Media estimates, accounted
for 39% of total loans, rising by 11 p.p. over the year.
In addition, expansion of major developers into million-
plus cities, where residents need to improve housing
conditions and are increasingly interested in a quality
product from reliable federal developers, has also contributed
to the increased volume of deliveries
the growth of funds
deposited in escrow
accounts of off-plan home
buyers
+35%
Deliveries: Moscow, m sq m
Source: DOM.RF
Deliveries: St Petersburg m sq m
1
According to DOM.RF.
Deliveries of new housing in Russia totalled 103m sq m
in 20221 (+11% year-on-year). Potential further growth in annual
housing deliveries is driven by the goals of the national
project Housing and Urban Environment, which envisages
deliveries of 120m sq m per year, which can be achieved
with comfortable conditions for construction and economic
situation in general. Furthermore, the weighted average
mortgage rate in the primary market in 2022 reached a
minimum level of 3.5%. According to the forecast of the
Central Bank of the Russian Federation, in 2023, the mortgage
issuance rate is expected to increase to 12-16%.
Data on deliveries of apartment buildings in Etalon Group’s key regions: Moscow, Moscow
region, St Petersburg, Republic of Tatarstan, Omsk region, Tyumen region, Yekaterinburg
region, Novosibirsk region (data from DOM.RF). Expectations for 2023-2026 are based on data
from ERZ.RF.
The trend towards industry consolidation continues,
and by 2026 the share of the top 20 developers
in the structure of apartment buildings supply will
increase to a record 49% in the key regions where Etalon
Group operates, while the number of small and medium
players will continue to decline.
Moscow and St Petersburg remain the key Russian
regions for property development, but given the limited
land assets, the top 20 federal players are entering
new regions, mostly million-plus cities. New housing
deliveries in Russia’s biggest urban agglomerations
exceeded 26m sq m in 2022.
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Results of key assets
Business development in 2022
Project portfolio growth
and regional expansion
In May 2022, Etalon Group closed the acquisition of YIT
Corporation’s Russian business, adding 19 projects in design
and construction phases in five Russian regions: Moscow
and the Moscow region, St Petersburg, the Yekaterinburg region,
Kazan, and Tyumen. The portfolio’s NSA is over 0.6m sq m. Etalon
Group now has a presence in eight regions, 38 projects in design
and construction phases, and the total NSA of 6.4m sq m.
Improving the product while
making it more affordable
With market volatility in 2022, the company focused
on improving the product in order to maintain efficiency
and quality. This is why most of the projects were launched
at the end of the second quarter of 2022 and ensured
a recovery in sales by the end of the year.
Betting on innovation
Etalon Group is consistently pursuing a technological
transformation aimed at improving operational efficiency
and business profitability. The key R&D areas include development
of a seamless digital architecture across the entire value chain,
product standardisation, introduction of new industrial house-
building technologies, and enhancement of digital service
platforms.
Today Etalon Group:
▪
Develops robotic design to reduce documentation
preparation and construction cycle times
▪
Automates the process of creating and approving
specifications
▪
Develops CONTRUST, a system integrating existing IT
products for construction control into a single cloud
platform
▪
Develops the use of prefabricated elements in construction
▪
Continues to develop modular building technologies
▪
Works on the Digital District project in partnership with MTS
▪
Automates procurement through the creation of a single
digital platform
▪
Develops model standardisation solutions
▪
Develops proprietary platforms for customer
communications, sales and additional services
Increased focus
on sustainability (ESG)
Etalon Group continues to focus on the sustainability agenda.
The company not only builds residential properties, but also
creates a comfortable environment, participating in the socio-
economic development of its regions of operations
and improving the quality of life.
In 2022, Etalon Group opened three pre-school facilities
and one school for 1,095 students. The company participated
in and became a partner of more than 20 events for local
communities and helped more than 40 charity programmes.
An important pilot project in 2022 was the certification
of the Rauta residential complex in Yekaterinburg
in accordance with the new green government standard
(GOST R). The voluntary green housing certification system
is scheduled to be launched in 2023, but the first certificates
will be received by the pilot projects that have completed
the assessment, including Etalon Group’s project.
Etalon Group’s development in 2022 was focused on geographic expansion.
The company entered five new regions and added about 20 projects to its
portfolio, delivering 735,000 sq m and strengthening its position among
the top 5 developers in Russia. In addition to active portfolio expansion, Etalon
Group is working to improve the affordability of its projects, which, combined
with new launches, will ensure sustainable business growth and achievement
of strategic goals by 2024.
Development strategy
Etalon Group’s strategic goal for 2022-2024 is to become
the leading federal player by volumes of construction in progress
and land holdings with the highest business efficiency among
Russian developers. This goal will be achieved by adapting
the company to a changing environment and creating conditions
for the company’s sustainable development as an innovative
construction and development business.
Acquisition of new projects and further regional expansion will
contribute to the implementation of plans to increase the scale
of the business. Given the new challenges in the industry,
business efficiency growth will be achieved through
the development of affordable product and standardisation,
as well as the development of digital solutions to speed up
construction times and reduce costs.
Continued regional expansion.
Strategy implementation
Improving efficiency through product
and process management
Intensive development
of new technologies
Business scale growth
Improving business processes and implementing
product standards to optimise costs
and develop an affordable product in the regions
and on the outskirts of Moscow and St Petersburg.
Development of digital procurement tools
and sustainable partnerships with suppliers.
Development of IT departments
and further digitalisation of the business.
Development of industrial technologies
and new product offerings in the real
estate market.
Maintaining at least 6m sq m of NSA
over the strategic horizon through organic
and inorganic growth.
80
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Results of key assets
Gross profit rose from RUB 27.8bn to RUB 28.2bn thanks
to efforts to improve operational efficiency. Pre-PPA gross
profit margin increased from 36% in 2021 to 38% in 2022,
exceeding the target level of 35%.
Pre-PPA EBITDA was RUB 18.8bn compared to RUB 21.1bn
a year earlier, due to one-off payments related
to the acquisition of YIT’s Russian business. Nevertheless, pre-
PPA EBITDA margin remained almost unchanged at 23% (-0.9
p.p. year-on-year).
Due to the deal with YIT on favourable terms, Etalon Group
achieved a record net income of RUB 13.0bn, up 4.3x
year-on-year.
The ratio of net corporate debt to pre-PPA EBITDA was less
than 1x, well below the target level of 2x-3x. Comfortable
leverage and additional liquidity from released escrow
accounts allow Etalon Group to deliver on its strategic
objectives, including development of new technologies,
acquisition of new projects and implementation of projects
from the current portfolio.
1
As of February 2023, unless specified otherwise.
2
As of 31 December 2022, according to Nikoliers.
3
Purchase price allocation.
4
Without regard to rounding.
1
Without regard to rounding.
2
Including accumulated new contract sales at YIT Russia projects under construction.
3
Including cash receipts from the perfomance of YIT Russia.
Financial performance in 2022
2022
2021
Change4,%
Revenue
80,556
87,138
(7.6)
Pre-PPA EBITDA
18,795
21,139
(11.1)
EBITDA
16,484
17,880
(7.8)
Net income
13,001
3,007
332.4
Net corporate debt
14,515
2,581
462.4
Net corporate debt /
pre-PPA EBITDA
0.77×
0.12×
Despite declining consumer confidence, the company’s 2022
revenue was RUB 80.6bn, just 7.6% down year-on-year. One
of the supporting factors was record delivery, which facilitated
the release of escrow accounts and the recognition of revenue
from completed projects.
Financial results, RUB m
2022
2021
Change1,%
Sales², RUB m
71,830
84,388
(14.9)
Sales², thsd sq m
423
446
(5.1)
Average price,
RUB thsd per sq m
201
189
6.1
Average price
(residential), RUB thsd
per sq m
262
239
9.7
Cash receipts3, RUB m
74,986
84,094
(10.8)
Deliveries, thsd sq m
735
421
74.4
Sales launches, thsd
sq m
652
282
131.5
Operating performance in 2022
In 2022, thanks to the lucrative acquisition of YIT Russia,
Etalon Group entered five new regions and delivered 735,000
sq m, a record figure in the company’s history. In addition,
the company launched sales of more than 650,000 sq m,
doubling the 2021 figure.
Sales totalled 423,000 sq m, or RUB 71.8bn, and were affected
by the macroeconomic environment. However, at the end
of 2022, sales started to grow again thanks to the launch
of a more affordable product and the extension
of the government’s subsidised mortgage programme.
In the future, sales will be driven by an increased supply
of a high-margin product with optimised costs and improved
features.
Active portfolio expansion, higher product affordability, new
launches and innovative technologies will further support
the achievement of company’s business growth targets.
Progress made so far towards 2024 strategic targets
2024 target
Current status1
Portfolio growth
6m+ sq m of NSA on a continuous basis
Presence in at least eight regions
Current project portfolio has over 6.4m sq m
of NSA2
Company operates in eight regions (Moscow,
Moscow region, St Petersburg, Omsk,
Novosibirsk, Yekaterinburg, Tyumen and Kazan)
Pre-PPA3 gross margin
35% until 2024
38% in 2022
Net corporate debt / pre-PPA LTM EBITDA
2x–3x
0.77х as of 31 December 2022
Leadership in human capital, technology
and innovation development
Best in class
Etalon Group relies on innovative technologies
and develops state-of-the-art industrial house-
building technologies and advanced software
to create a quality product and have a leading
position in the market
Etalon Group demonstrates consistent execution of its
strategy, being a leading technology-driven federal player
with a large-scale portfolio of projects.
Location
Area
Wings
Moscow
169
Che Quarter, Chernigovskaya St
St Petersburg
110
Galactica, building 9.3
St Petersburg
79
Silver Fountain
Moscow
50
Nagatino i-land
Moscow
47
Moscow Gates II (Galactica)
St Petersburg
47
Emerald Hills
Moscow region
43
Novoorlovsky
St Petersburg
43
Domino
St Petersburg
29
Progress on specific projects
Regional projects, thsd sq m
Location
Area
Green
Kazan
24
Rifey (Riphean)
Yekaterinburg
19
Baltym Park
Yekaterinburg region
10
In 2022, Etalon Group delivered 735,000 sq m in 19
projects, including three projects in new regions: Kazan
and the Yekaterinburg region.
In addition, the company launched sales for new buildings
in four projects in St Petersburg, five projects in Moscow
and six projects in other regions in 2022.
Largest completed projects in Moscow,
the Moscow region and St Petersburg, thsd sq m
82
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Results of key assets
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.
medsi.ru
Sistema's
effective stake
brand recognition
in Moscow
72
%
total area of assets
298
thsd sq m
m
share of private healthcare market
in Russia
4
%
clinics
130
>
regions
of operation
12
patient visits
>12
beds
doctors
4.7
thsd
1,190
Business model
№ 1
among Russia's top 20
private healthcare
companies in 2022
according to Forbes
Regional
patients
For high-tech medical care
under the OMI
Hospital 3
(Michurinsky)
Home care
Laboratories
Clinics
in regions
Digital
platform/
ecosystem
Self-pay
patients
Occupational
healthcare
(corporations)
OMI
VMI
(Individuals)
Hospital 4
(Children's)
PPP with
regions
(OMI stream)
Adults and children clinics in Moscow and Moscow region
Hospital 1
(Otradnoye)
Hospital 2
(Botkinskaya)
Regional hubs
Offering advanced diagnostics and day care services (CDC)
Medsi is a three-tier medical platform that provides a broad
array of care services, from preventive health improvement
programmes to complex high-tech surgeries and rehabilitation.
Medsi's three-tier medical platform offers a full range
of services with a significant potential for cost-cutting
synergies.
An effective patient routing system and vertically integrated
centres of excellence enable a continuous care cycle relying
on uniform corporate standards and superior efficiency.
The key priority in improving the business model
is the development of a digital platform that is both a means
of communication and a backbone used for adding ecosystem
products for patients and doctors.
MEDSI
84
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Strategic positioning:
▪
Personalised model of P5
medicine
▪
Full cycle medical platform (from
healthy lifestyle to high-tech
healthcare)
▪
National scale
1
The lifetime value of a single patient is an estimation of the net profit that the entire future relationship with the patient can generate.
SI
MEDICINE OF COMPETENCY
SI
MEDICINE OF COMPETENCY
SI
MEDICINE OF COMPETENCY
SI
MEDICINE OF COMPETENCY
SI
MEDICINE OF COMPETENCY
Ecosystem
Medsi is on its way to transform its business
model from a conventional healthcare provider
to an ecosystem of personalised healthcare
and healthy living.
Key advantages of the ecosystem
Sports
Psychology
Check-ups
Wellness
gadgets
Education
Food
and vitamins
Clinics
and hospitals
Pharmacy
Telemedicine
Home
hospital
Genetics
Monitoring
devices
Retreats
Telerehabilitation
Continuous
medical
monitoring
Medsi`IT
P
r
e
v
e
n
ti
o
n
a
n
d
h
e
a
lt
h
y
li
f
e
s
t
yl
e
D
i
a
g
n
o
s
ti
c
a
n
d
t
r
e
a
t
m
e
n
t
D
i
a
g
n
o
s
ti
c
a
n
d
t
r
e
a
t
m
e
n
t
Customised
data-driven offers
Customer
app
zdravsiti
THIRD
OPINION
Multiplier effect
on business
capitalisation:
▪
Premium to multiples
of traditional healthcare
providers due to accelerated
growth and business scale
▪
Additional premium due
to business digitalisation
Synergistic effect
on the key business:
▪
Increase in the number of services per
patient: growing LTV1 of each patient
through additional products
▪
Expansion of custsomer base:
synergistic effect for the adjacent
business segments
▪
Improving clinical efficiency:
increasing quality through integration
and management of medical statistics
▪
Improving operational efficiency:
economy of scale through a single
platform
86
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Russia's commercial healthcare market in 2022, %1
2023
2024
2021
2022
2020
2019
2018
2017
ACTUAL
FORECAST
218
232
250
243
322
355
379
401
358
395
441
419
518
557
609
661
576
627
691
662
840
912
988
1,062
1
Source: BusinesStat research: “Analysis of the healthcare services market in Russia, Moscow, the Moscow region in 2017–2021, forecast for 2022–2026. Market prospects
in conditions of sanctions”.
Industry overview for 2022
Assets overview
Clinicodiagnostic
centres (CDCs)
2021
7
2
27
2
3
1
49
91
7
2
44
2
2
1
75
133
2022
Children's clinics
Primary care clinics
in Moscow
Hospitals
Wellness centres
and retreats
Home care
Regional clinics
Total
+17
-1
+26
+42
5 Perm
1 Nizhnevartovsk
1 Nyagan
24 Volgograd
1 Bryansk
1 Barnaul
4 Izhevsk
3 Saint Petersburg
1 Rostov-on-Don
8 Ufa
+20 Perm
+1 Nizhnevartovsk
+1 Nyagan
+1 Barnaul
+1 Izhevsk
+1 Saint Petersburg
+1 Tuapse
In 2022, Russia's market of commercial medical services (legal
commercial healthcare + VMI) grew by 8.6% in value terms,
to RUB 912bn, with Moscow and the Moscow region accounting
for RUB 355bn (39%).
The self-pay segment (legal commercial healthcare) is still
the biggest segment in the structure of commercial healthcare.
It grew by 8.9% in 2022, from RUB 642.4bn to RUB 699.5bn.
The segment's share was 65% in Moscow and the Moscow region
and 77% in Russia.
The value of the voluntary medical insurance (VMI) market was up
7.6% year-on-year, to RUB 212.4bn, despite a 3% decrease in patient
visits.
The average transaction value (ATV) has risen mostly due
to the growth in general and healthcare inflation. According
to BusinesStat, the ATV increased by 13% in the self-pay segment
and by 11% in the VMI segment in 2022.
The events of February 2022 and the following introduction
of sanctions put significant pressure on the healthcare and adjacent
markets. Growing uncertainty created risks both on the demand
and the supply side.
Restrictions on import and export transactions, cross-border
payments, and the decision of foreign counterparties to stop
cooperation and go back on agreements created the risks
of shortage of drugs, medical equipment and consumables.
Exit of foreign businesses from Russia and emigration of population
with purchasing power posed a threat of growing unemployment,
falling consumer spending and, as a consequence, shrinking
demand for medical services in the self-pay and voluntary insurance
segments.
Despite the forecasts, structural changes in the economy were not
of critical importance. Consumer price index in the healthcare
segment was below traditional inflation and averaged at 10.2%.
23
55
77
45
35
57
65
43
Market
Russia
Moscow and Moscow region
MEDSI
MEDSI
Market
Self-pay
VMI
Commercial healthcare market by region, RUB bn1
Moscow and Moscow region
Russia’s regions
88
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SISTEMA PJSFC Annual report 2022
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Results of key assets
1
Source: BusinesStat research: “Analysis of the healthcare services market in Russia, Moscow, the Moscow region in 2017–2021, forecast for 2022–2026. Market prospects
in conditions of sanctions”.
1
Source: BusinesStat research: “Analysis of the healthcare services market in Russia, Moscow, the Moscow region in 2017–2021, forecast for 2022–2026. Market prospects
in conditions of sanctions”.
Medsi's position
in commercial healthcare
market
The Russian healthcare market is highly fragmented.
The share of TOP-5 private medical networks in the Russian
healthcare market in 2022 was 13.0%.
For Medsi, 2022 was a successful year. Despite
the unfavourable macroeconomic environment and high
uncertainty, Medsi achieved growth in most of its financial
and operational indicators by increasing the utilisation rate
of its current medical assets in Moscow and the Moscow
region and delivered a considerable improvement
in the performance of its regional clinics launched in 2021
and 2022.
The total number of patient visits increased to 12.8m people
(+26.5%). The main growth drivers were the self-pay and VMI
segments, whose revenue rose by 15% and 24% respectively
and patient visits increased by 35% and 22% respectively.
The average transaction value decreased by 4.6%, from
RUB 2,954 to RUB 2,817 due to negative performance
in the OMI (–14.5%) and self-pay (–14.6%) segments.
Medsi's market share in Moscow
and Moscow region,%1
2021
2021
2022
2022
4.5
5.0
6.3
6.6
Revenue
Patient visits
Medsi's market share in Russia,%1
2021
2021
2022
2022
1.9
1.8
1.8
1.3
Revenue
Patient visits
VMI segment
The company reported growth in revenue and patient traffic.
Medsi's revenue in the VMI segment increased by 24.3% amid
an overall growth of 7.6% in Russia.
At the end of the year, Medsi's market share in the VMI
segment was estimated at 7.7% in Russia as a whole
and 10.9% in Moscow and the Moscow region.
Medsi's market share in Russia,%1
2021
2021
2022
2022
7.7
6.7
17.5
13.9
Revenue
Patient visits
Medsi's market share in Moscow
and Moscow region,%1
2021
2021
2022
2022
7.7
6.7
31.0
26.6
Revenue
Patient visits
OMI segment
Medsi reported robust growth in the OMI segment. Medsi's
revenue in the segment rose by 23% year-on-year, while
the overall growth in the Russian market was 16.2%.
At the end of the year, Medsi's share (of total market value)
in the OMI segment increased slightly and was estimated
at 0.2% in Russia as a whole and 1.2% in Moscow
and the Moscow region.
Medsi's market share in Russia,%1
2021
2021
2022
2022
0.21
0.20
0.015
0.011
Revenue
Patient visits
Medsi's market share in Moscow
and Moscow region,%1
2021
2021
2022
2022
1.2
1.1
0.1
0.1
Revenue
Patient visits
Retail segment
Self-pay patients (legal commercial
healthcare)
The company reported strong results in the self-pay
segment, both for revenue and patient traffic. Medsi's
revenue in the segment was up 15.3%, well ahead
of the market average of 8.9%.
By the end of the year, Medsi's share in the self-pay segment
was estimated at 1.9% in Russia and 4.5% in Moscow
and the Moscow region (of total market value).
+15.3%
Medsi's revenue,
well ahead of the market
average growth of 8.9%
+23
Medsi's revenue growth
in the OMI segment
%
+24.3
Medsi's revenue growth
in the VMI segment
%
90
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Business development in 2022
Key events in 2022
Medsi's operating performance
2022
2021
Change,%
Total floorspace, thsd sq m
298.2
279.0
6.9
Medical floorspace, thsd sq m
136.9
127.2
7.6
Average transaction value, RUB thsd
2.8
3.0
(6.0)
Hospital occupancy, %
78
87
(9.2)
Clinic occupancy, %
57
53
4.4
Services, m
26.6
21.0
26.3
Patient visits, m
12.9
10.1
27.3
Hospital bed days, thsd
238.2
268.8
(11.4)
Avg. hospital cheque, RUB thsd
39.7
32.2
23.5
Visits to clinics, m
12.3
9.7
27.2
Avg. clinic cheque, RUB thsd
2.0
2.0
(1.1)
Revenue by channel
56
37
55
38
5
4
3
3
Insurance
companies, %
Individuals, %
Corporate, %
Other, %
28
37
30
34
30
30
5
6
Hospitals, %
Primary care clinics %
CDC, %
Other, %
Revenue by asset type
In 2022, floorspace expansion was mostly driven
by the opening of new clinics and the acquisition
of the LabDiagnostika chain in Perm.
A drop in the average transaction value was due to reduction
of the average cheque in the outpatient segment amid
the growing share of regional and outpatient clinics
in the structure of medical services.
The occupancy rates of clinics improved primarily due to more
effective occupancy management at the existing clinics
and gradual commissioning of new clinics. A lower occupancy
of hospitals is due to a reduction in the number of patients
receiving chemotherapy in day care facilities as limits were set
for OMI volumes.
The number of patient visits and medical services increased
due to the expansion of the chain of clinics and the high
quality of healthcare provided, as well as due to the efforts
aimed at increasing the number of returning patients
and the frequency of extra payments made by insurance
patients. The highest demand was demonstrated in the lab
and instrumental diagnostics segments, as well as dentistry
and gynaecology.
In 2022, revenue related to COVID-19 treatment amounted
to 34% of the previous year's indicator. At the same time,
the 360-degree medicine concept proved a success, COVID-
19 cases were fully replaced with routine care, while revenue
increased significantly for all types of assets and sales
channels. Revenue from lab diagnostics amounted to 101%
of the 2021 level due to paying greater attention to medical
examination standards.
Chain
expansion
Centres
of excellence
In May 2022, Medsi bought 18 clinics of the LabDiagnostika chain in Perm with a total
area of 2,524 sq m. The transaction allowed Medsi to bolster its presence in the private
healthcare market in the Perm region by increasing its outpatient capacity.
Medsi continued developing its chain in the Moscow region: 16 primary care, Smart
and SmartLab clinics were opened.
As part of its regional development strategy Medsi opened eight clinics of different
formats in Barnaul, Bryansk, Izhevsk, Nizhnevartovsk, Nyagan, Perm and Saint
Petersburg.
Medsi opened two clinics in Moscow and Tuapse under a franchise agreement.
Medsi launched the operations of its multi-specialty medical centre (MMC)
in the Michurinsky avenue with a total area of 33,475 sq m. The company's total
investments in the project exceeded RUB 8bn.
Medsi commissioned a new block in its hospital in Otradnoye consisting of a 100-bed
24-hour hospital and a 60-bed day care hospital.
Medsi launched two occupational healthcare projects as part of its contracts
for managing medical centres.
Medsi and the government of the Nizhny Novgorod region announced their plans to open
Russia's first large medical centre built under a public private partnership contract.
Medsi opened its second personalised medicine centre Medsi Premium in its multi-
purpose medical centre (MMC) in Michurinsky avenue in Moscow.
Medsi launched its second children's hospital on the basis of MMC in Michurinsky avenue
in Moscow with a total area of more than 4,000 sq m. The children's hospital can admit
about 300 patients a month and 3,600 patients a year.
Provision of high-tech medical care in the area of x-ray-endovascular surgery
by using state-of-the-art equipment subsidised by the government.
Application of new medical technologies in neurosurgery, otolaryngology,
ophthalmology, bariatric surgery and oncology.
Application of new digital technologies (artificial intelligence, augmented reality,
remote monitoring) in dentistry, surgery, urology and cardiology.
More than 100 new genetic research projects in the Centralised Lab.
New services
and technologies
2022
2022
2021
2021
35,978
35,978
30,087
30,087
RUB m
RUB m
RUB m
RUB m
92
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Digital
transformation
Ecosystem
development
LLC Medsi Digital, which owns SmartMed platform, was accredited as an IT company
and became a resident in the Skolkovo innovation centre. LLC Medsi Digital is used
as a platform for active development of digital solutions to speed up the expansion
of Medsi's business.
Transformation and harmonisation of Medsi's business processes on the basis
of a single digital intelligence system.
Transition to fully electronic document flow: Medsi joined forces with TerraLink to transfer
80% of operations into a digital format.
An automated quality assurance system was launched in a hospital. The system
is unparalleled in the market and performs the amount of work usually done by 20 quality
assurance specialists.
A system of automated monitoring of prescriptions in the outpatient segment
was commissioned.
In 2022, Medsi continued developing its online platform SmartMed. The number
of unique active users grew by 22.8% year-on-year to 648,000; the number of online
appointments, excluding lab diagnostics, grew by 25.5% year-on-year, to 3.1m.
Expanding the range of SmartMed services: appointments for instrumental
diagnostics, a lab supermarket, a partner marketplace, a chat with users, an online
pharmacy (in partnership with Zdravcity).
Medsi assesses its full-time and outsourced staff under 72 training programmes,
with 80% of doctor specialties and 100% of nurse specialties covered
by the assessments. More than 75% of Medsi's employees are taking part in training
and development programmes.
Medsi completed the programme for development of its succession pool.
The percentage of candidates that received corporate training from the Russian
Presidential Academy of National Economy and the Russian Medical Academy
of Continuing Professional Education and were promoted to higher positions from
the internal succession pool exceeds 90%.
Medsi's Medical Academy provided training to 100% of its senior medical executives.
Medsi launched "Be Healthy with MEDSI" – a well-being programme for corporate
customers and partners.
Medsi continued offering career guidance tours for children as part of its Medsi
Friends Club activities.
Medsi was for the first time included in the ESG ranking of the National Rating
Agency, showing the best result among private healthcare companies.
Sustainability &
ESG
Strategic goals
Increasing
market share
in Moscow
and Russia’s
regions
Vertical
integration
Ensuring the utilisation of new clinics opened in 2021-2022.
Opening at least three clinics in Russia's regions and about 10 franchise clinics
in Moscow and other regions.
Launching a radiology centre on the premises of Medsi's hospital in Otradnoye
with a total floorspace of 5,000 sq m.
Expansion of a lab chain, creation of hub laboratories in the cities where Medsi operates:
Moscow, Saint Petersburg, Volgograd, Ufa, Nizhnevartovsk, Perm.
Development of strategic interaction with the banking sector and local authorities across
Russia's regions as part of PPP and concession projects
Expanding the scale of reference centres for radiology, ultrasound and instrumental
diagnostics.
Organising catering services for patients on an in-house basis.
Opening new centres of excellence: scaling up a one-day hospital under the Cancer
Awareness programme, extending the list of high-tech surgeries in hospitals,
opening diagnostic centres specialising in positron emission tomography, surdology,
phoniatrics, children's ophthalmology.
Medsi's multi-pronged strategy is aimed at creating Russia's first
nationwide healthcare provider offering a full range of medical services.
94
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Financial performance
Medsi's revenue growth by 19.6% year-on-year,
to RUB 36bn, was driven by the greater workload
of medical centres, opening of new clinics in Moscow,
the Moscow region and other regions of Russia,
development of telemedicine, lab services and home care
services.
Adjusted OIBDA amounted to RUB 6.5bn in 2022
vs RUB 6bn in 2021. Contribution to OIBDA from
the company's participation in a JV with Capital Group
for the construction of the Nebo residential complex
in the Michurinsky avenue was RUB 0.2bn in 2022
compared to RUB 1.4bn a year earlier.
Net income amounted to RUB 1.2bn in 2022 vs RUB 3.7bn
in 2021.
Improvement
of operational
efficiency
Development
of medical
ecosystem
and R&D1
Streamlining procedures for referring patients from clinics to hospitals.
Increasing the number of returning patients in key sales channels.
Further standardisation of business processes and increased business
manageability.
Business analysis of medical data.
Introduction of standard algorithms for commissioning new assets and integrating
acquired companies.
Effective management of inventories and working capital, optimisation of capital
expenses through continuous oversight over investment returns.
Further development of the SmartMed digital platform including medical services
and specialised products related to the treatment of chronic diseases and a line
of preventive healthcare products.
Development of a digital interface for doctors with a focus on creating an ergonomic
workplace, supporting doctors' decision-making and providing patients
with personalised care.
Continued introduction of biotech and genetic products into medical practices.
Continued development of occupational healthcare.
Implementation of a patient-centred model (5P medicine) and expansion
of the product offering in the segments of biohacking and predictive medicine.
Financial results, RUB m
+19.6
Medsi's revenue
growth
%
RUB bn
RUB 1.2 bn
net income attributable
to Sistema in 2022 vs
RUB 3.7 bn in 2021
6.5
adjusted OIBDA
2022
2021
Change,%
Revenue
35,978
30,087
19.6
Adjusted OIBDA1
6,532
5,952
9.7
Operating income
2,427
3,978
(39.0)
Net income attributable to Sistema
1,216
3,721
(67.3)
1
R&D - Research and Development
1
OIBDA does not include the financial results of the project for development of Nebo apartment complex.
96
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Агрохолдинг «СТЕПЬ» входит в топ-6 крупнейших землев-
ладельцев в Российской Федерации, земельные активы
расположены на юге страны — в Краснодарском крае,
Ростовской области, Ставропольском крае — в наиболее
благоприятных сельскохозяйственных регионах с точки
зрения климата, урожайности, близости к ключевым экс-
портным портам.
Наличие качественных земельных активов вблизи экс-
портных портов обеспечивает более высокую опера-
ционную эффективность сегмента «Растениеводство»,
а собственная сырьевая база и логистические мощно-
сти создают конкурентные преимущества для развития
агротрейдинга. В «Молочном животноводстве» компания
удерживает лидирующую позицию в России по уровню
надоя на одну корову и операционной эффективности бла-
годаря ведению эффективной племенной работы и вне-
дрению современных технологий
Steppe AgroHolding is one of Russia's
biggest vertically integrated agricultural
players with 578,000 ha of land
and a diversified portfolio of assets.
Business model
№ 1
№ 1
№ 1
№ 1
Traiding
in niche crops
Sugar
& groceries
trading
Dairy farming
Packaged cheese
1
14.3
1
2.0
10
149
in Russia
by milk yield
per cow
lactating cows
as of end of 2022
in Russia
by niche
crop exports
of crops
harvested in 2022
grain exporters
in Russia
of milk produced
in 2022
№
№
TOP
thsd t
thsd.
m t
thsd t
thsd t
thsd t
thsd t
289
358
149
50
Sales
Sales
Gross yield
Sales
top 10
Grain trading
m t
in Russia
in Russia
by milk yield per cow
in Russia
independent traider
1.7
Sales
№6
Crop farming
thsd ha
in Russia
578
Land holdings
№
6
in Russia by land area1
Sistema's
effective stake
89.7%
ahstep.ru
1
BEFL.
2
Steppe AgroHolding plus RZ Agro
Steppe AgroHolding is among Russia's top 6 land owners
with its key land holdings located in the south of the country:
the Krasnodar, Rostov and Stavropol regions, which
are considered the most favourable agricultural areas in terms
of climate, crop yields and proximity to the main export ports.
The close proximity of quality land to export terminals ensures
the high operational efficiency of the crop farming business,
while own raw materials and logistical capacity create
competitive advantages in the agricultural trading segment.
In the dairy farming segment, the company remains a leader
in Russia by milk yields per cow and by operational efficiency
due to effective breeding and state-of-the-art technologies.
Steppe AgroHolding has a vertically integrated business model
with two basic segments: crop farming and dairy farming.
The crop farming segment is integrated with grain and sugar
& grocery trading, as well as with own logistical infrastructure.
Quality assets in the dairy farming segment enable
the company to process raw milk and produce pre-packaged
cheeses, ingredients and dairy products.
Steppe AgroHolding
98
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Results of key assets
Industry overview for 2022
Gross grain and grain legume harvest in Russia, m t
121.4
133.5
121.2
113.3
135.5
120.7
104.7
105.2
92.4
70.9
157.7
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
51.5
45.6
45.4
56.0
37.0
35.4
32.0
43.3
2021–22
2020–21
2019–20
2018–19
2017–18
2016–17
2015–16
2014–15
Sources: RosStat, UISIS.
Grain trading
Russian grain exports in the 2021/2022 crop season
(including exports to the Eurasian Economic Union, or
EAEU) totalled 43.3m t, down by 15.9% year-on-year. Russia
is the world's leading wheat exporter, with its total export
volumes in 2021/2022 reaching 33m t (including exports
to the EAEU).
In the first half of the 2022/2023 crop year, Russia exported
24.3 m t of wheat, up by 12% year-on-year. The positive
dynamics of exports is due to the record harvest of grain
crops in 2022.
The main export destinations for Russia's agricultural crops
are countries in the Middle East, Africa and Southeast Asia.
The key importing countries are Turkey, Egypt, Iran, Saudi
Arabia.
Grain exports (EAEU included), m t
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
31.2
29.9
30.0
29.9
29.8
30.2
30.6
31.4
32.2
32.3
33.0
14.8
16.4
14.4
15.6
14.7
15.2
15.1
14.7
15.7
14.5
16.2
14.4
17.0
14.4
17.9
14.3
18.2
14.2
19.0
14.0
14.0
15.8
Source: RusAgroTrans
Crop farming
In 2022, Russia reported a record-high harvest of grain
and grain legumes, with gross harvest amounting to
157.7m t, a 29.9% increase from 2021 and a 16.3% increase
from the previous record crop of 2017. The 2022 wheat
harvest was 104.2m t, a 37% rise year-on-year. The high grain
production output was driven by the growth of crop yields,
favourable climate conditions in the key grain-producing
regions and expansion of the cultivated area. The total grain
and grain legume field areas increased by 1.1%, from 47m ha
in 2021 to 47.5m ha in 2022.
At the same time, the agricultural sector was impacted
by major changes in the market situation, rising prices
for machinery and equipment. However, big agricultural
producers with a high level of operational efficiency were able
to quickly adapt to the changing environment and achieve
high production results. In general, the crop farming
industry proved highly resilient to the changing conditions
and ensured Russia's all-time record harvest. Governmental
support and stable state subsidies for agricultural producers
were important growth drivers for the industry.
Russia is witnessing a hike in land prices amid investors'
growing interest in farmland. Amid changing market
conditions investors view land assets as a way to preserve
capital. Land remains attractive for investors due to such long-
term factors as continuous growth of demand for agricultural
products, increasing consumption of food and limited land
resources.
157.7 m t
in 2022, Russia reported
a record-high harvest of grain
Dairy farming
Russia's raw milk output continued growing steadily in 2022
with farms of all categories producing 33.0m t of raw milk,
a 2% increase from 2021. In 2022, the raw milk output
of agricultural companies increased by 4.7%, up to 19m t.
Agricultural companies account for 58% of all milk produced
in Russia, the rest coming from private farms and households.
In 2022, the output of raw marketable milk in Russia
is estimated to have increased by 3.7% compared to 2021, up
to 24.6m t, which accounts for 75% of total milk produced.
The dairy industry has significant potential for further growth
to be able to provide the milk processing enterprises with high-
quality raw milk.
The dairy farming sector remains attractive for investors due
to continued stable growth. The launch of new dairy farms
and enhanced productivity are driving the growth of milk
production. The average milk yield per cow in the corporate
segment rose by 6.7% in 2022, reaching 7.6 t per cow a year,
with milk yields of the most productive dairy enterprises
exceeding 15 t of milk per cow a year.
Milk output, m t
Source: RosStat
Corporate farms
Other
100
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SISTEMA PJSFC Annual report 2022
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Results of key assets
2015
2016
2017
2018
2019
2020
2021
2022
622
638
641
670
761
817
906
917
453
169
459
178
464
177
467
203
540
221
572
245
648
258
669
248
Per-cow milk yield in the corporate sector, kg per year
7,644
2022
7,162
2021
6,872
2020
6,492
2019
6,091
2018
5,871
2017
Sources: UISIS, SoyuzMoloko.
Total lactating cows across farm categories, thsd
Sources: UISIS
Fruit growing
Sources: RosStat, UISIS.
24.6 m t
in 2022, the output of raw
marketable milk in Russia
Gross pomaceous fruit harvest grew by 11.3%, to 2.9m t
in 2022 due to an increase in yield indicators
and the orchards gradually reaching the design capacity.
That said, the area of perennial pomaceous fruit plantings
was down to 227,000 ha.
Russia's fruit growing sector has a substantial potential
for growth through increased domestic apple production
and import substitution, as the market is highly dependent
on imported goods with import accounting for 20% of total
consumption.
Cheese market
Cheese consumption in Russia, thsd t
Source:Rosstat, SoyuzMoloko.
The Russian cheese market has good
prospects for further expansion due
to the government's import substitution
policy, growing cheese consumption per
capita, a greater market share of pre-
packaged cheese and development
of the fast food segment with cheese
as a necessary ingredient.
By the end of 2022, the market of cheeses proved to be one
of the fastest growing segments of the dairy industry,
according to preliminary official data, the volume of cheese
production increased by 3% to 669,000 t.
The cheese market has the potential for growth through
an increase in domestic production and replacement
of imported goods, which accounted for 27% of total
consumption in 2022. The growth in raw milk output creates
a production base for milk-intensive product categories
and is an important driver of cheese production.
Cheese consumption in 2022 totalled 917,000 t, up 1.3% from
the previous year.
2022
7,719
3 ,221
4,499
2021
7,784
3,227
4,557
2020
7,898
3,271
4,627
7,964
4,690
2018
7,942
3,283
4,659
2017
7,951
3,316
4,635
2016
7,966
3,359
4,607
2015
8,115
3,387
4,728
2014
8,263
3,439
4,824
2013
8,431
3,533
4,898
2019
2012
8,657
3,640
5,017
3,274
Gross pomaceous fruit harvest and imports of apples in Russia, thsd t
2022
2021
2,607
616
2,904
592
2020
2,342
646
2019
2,179
696
2018
1,997
845
2017
1,521
710
2016
1,726
678
2015
1,495
892
2014
1,597
1,050
2013
1,527
1,352
2012
1,278
1,388
Gross pomaceous fruit harvest
Apple imports
Output
Net import
Corporate farms
Other
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Steppe's market positions in
key segments
In 2022, Steppe AgroHolding achieved a robust growth in
its key indicators: it gathered a record harvest of 2m t of
agricultural crops, gross milk output increased up to 149,000 t
and the company asserted its leadership in terms of milk yield
per cow.
Despite the changing market situation, Steppe AgroHolding
maintained high export volumes of agricultural crops. The
company remains one of the top 10 grain exporters in Russia
and a leading exporter of niche crops.
Crop farming
Steppe AgroHolding is one of the six largest land owners in
Russia with 578,000 ha of total land holdings and a high share
of land in ownership and long-term lease. The land is located
in the most favourable agricultural areas in close proximity
to the largest export terminals, providing the company with
considerable competitive advantages amid growing logistical
costs.
In 2022, the company's gross crop yields totalled 2m t (+9.2%
year-on-year), including 1.1m t of wheat. Such record results
became possible due to the effective work of the management
team and strict compliance with technological standards,
introduction of cutting-edge solutions and application of state-
of-the-art machinery.
Over the last three years, Steppe AgroHolding has been
implementing a large-scale import substitution programme in
the crop farming segment, making it possible to significantly
increase the share of domestically produced equipment in
the procurement structure. Steppe AgroHolding uses only
domestically produced seeds for its main crops, while the
share of the Russian-made plant protection products rose to
90%, with the Russian-made machinery accounting for up to
80% of the entire fleet of vehicles.
Dairy farming
Steppe AgroHolding is one of the Russia's leading companies
operating in the dairy farming segment. The company has
seven modern dairy farms equipped with a centralised system
of online monitoring. In 2022, the farms of Steppe AgroHolding
remained leaders in terms of milk yield per cow and made it to
the first place in the ranking of the Russia's dairy farms.
In 2022, Steppe AgroHolding reported a significant growth of
gross milk yield: milk production output surged by 71% to an
all-time high of 149,000 t. The total number of lactating cows
at the end of the year was 14,307 head (+38% year-on-year). At
the end of the year, the company's total cattle herd increased
to 30,762 head.
Steppe AgroHolding continues intensive development of the
dairy farming segment by implementing projects for building
new dairy farms and enhancing the efficiency of existing
farms.
Business development in 2022
Grain trading and logistics
In 2022, the total sales of agricultural crops in the trading
segment were estimated at 1.7m t. Despite considerable
changes in the market environment, the management team
was able to maintain high sales figures.
The main focus of the segment's development in 2022
is international trade in agricultural products. During the year,
the company improved logistical chains, built new delivery
routes and ensured access to new markets. The management
team's effective work ensured that Steppe AgroHolding
achieved high export growth rates and maintained its leading
positions in the ranking of the largest grain exporters of Russia.
Trading in niche crops
The sales of niche crops in 2022 amounted to 289,000 t, a 39%
increase from 2021. In the first half of the new 2022/2023
crop season, Steppe AgroHolding became the Russia's biggest
exporter of peas.
Among the main drivers of the robust sales growth
were expansion of the range of exported products and entry
into new markets.
Trading in sugar
and groceries
Sugar and grocery trading is a logical extension of the crop
farming business, where Steppe-grown beets are processed
into Steppe-traded sugar.
Total sales in the sugar and groceries segment in 2022
reached 358,000 t, 17% higher than in 2021. The sales
increased on the back of growing wholesale volumes
and higher sales of packaged products.
In 2022, the sales of packaged goods increased by 28%
and totalled about 30,000 t.
Production of pre-packaged
cheese and distribution
of dairy products
In 2022, the company continued to gradually develop its
production of pre-packaged cheese and distribution of dairy
products. The total sales of pre-packaged cheeses and dairy
products exceeded 50,000 t.
In view of the volatile market environment, the company
focused on the most promising segments, while ensuring
the development of new businesses, such as trading in dairy
ingredients.
Source: Steppe AgroHolding's data
Steppe AgroHolding's gross milk
yield, thsd t
Source: Steppe AgroHolding's data
149
2022
87
2021
71
2020
57
2019
47
2018
Steppe's sales of sugar
and groceries, thsd t
Source: Steppe AgroHolding's data
358
2022
306
2021
330
2020
307
2019
176
2018
Steppe AgroHolding's grain exports, thsd t
Source: Steppe AgroHolding's data
1,715
2022
1,761
2021
1,200
2020
1,198
2019
1,115
2018
269
2017
Steppe AgroHolding's sales
of packaged goods (sugar
and groceries, thsd t
29.7
2022
23.2
2021
18.3
2020
12.7
2019
0
2018
104
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Results of key assets
Financial results, RUB m
2022
2021
Change,%
Revenue
83,679
57,150
46.4
Adjusted OIBDA
14,483
14,368
0.8
Operating income
9,757
11,234
(13.1)
Adjusted Net
income
3,528
7,505
(53.1)
In 2022, revenue grew by 46.4% year-on-year, up
to RUB 83.7bn, mainly due to higher sales in the trading
business segments (trade in agricultural products, niche
Steppe AgroHolding's gross harvest (RZ Agro included), thsd t
2022
2021
Change,%
Wheat
1,093.7
965.1
13.3
Barley
60.4
45.3
33.3
Sunflower
77.5
96.3
(19.6)
Peas
53.4
88.1
(39.4)
Corn
39.7
51.4
(22.7)
Beets
361.0
338.7
6.6
Other crops
302.3
236.0
28.1
Total
1,988.0
1,820.8
9.2
Steppe AgroHolding's production results, thsd t
2022
2021
Change,%
Milk production
148.8
87.1
70.8
Grain trading sales
1,715.0
1,761.4
(2.6)
Sugar and grocery trading sales
357.6
306.1
16.8
Packaged product sales (sugar & groceries)
29.7
23.2
28.0
Niche crop trading sales
289.1
207.8
39.1
Financial and operational performance in 2022
Development
strategy
Expansion of land holdings
by acquiring quality land plots
in the southern and other
regions of Russia, adopting
new technologies, including AI
and autonomous vehicles
Intensive development
of the dairy farming segment,
construction of new dairy
farms and boosting milk
production volumes
Development of international
agricultural trading
(including trade in niche
crops), increasing
exports and broadening
the geography of sales
Boosting sales volumes
in the sugar and groceries
trading segment by expanding
the product range
and increasing the sales
volumes of pre-packaged
goods under own brand
Increasing the production
and sales of pre-packaged
and slice-on-slice cheese
Developing milk
processing projects
and production of plant-
based protein
Steppe AgroHolding's
development strategy
is aimed at further
development
of company's key
business lines, which
involves
crops, sugar and groceries). This growth became possible
due to intensive development of international agro trading
and adoption of an effective sales strategy (including
in the domestic market), as well as increased milk sales
in the dairy farming segment and development of such new
business segments as production of pre-packaged cheese
and distribution of dairy products.
Adjusted OIBDA went up by 0.8% year-on-year, reaching
RUB 14.5bn. Despite significant market volatility, OIBDA
remained high due to positive results in the dairy farming
segment, enhancement of operational efficiency in the trading
segment and development of pre-packaged cheese production
and milk distribution.
In 2022, Steppe's Capex totalled RUB 4.1bn. Most of it
went towards the construction and upgrade of dairy farms
and acquisition of agricultural equipment.
106
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Results of key assets
representative
offices
6
binnopharmgroup.ru
Business model
Production:
Product portfolio:
Promotion:
The Centre will employ 450 people. By 2025, Binnopharm Group
expects to launch more than 100 new products in rheumatology,
neurology, gynaecology, paediatrics, etc.
development of biotech drugs
development of synthetic drugs
Research and development:
Revenue by sales channel, 2022
10%
18%
72%
RUB bn
28
Retail segment
Public procurement
Export
Retail portfolio structure, 2022
16%
41%
43%
RUB bn
28
Branded generics
Original drugs
INN generics
Revenue breakdown by product type 2022
,
20%
4%
27%
8%
12%
14%
16%
RUB bn
28
Antibiotics
Gastroenterology
Phlebology
Musculoskeletal
disorders
Cardiology
Cold
Other
Revenue by dosage form, 2022
41%
12%
14%
8%
3%
5%
17%
RUB bn
28
Tablets
Powder
Solutions
Capsules
Gels
Creams
Other
Key figures
Binnopharm Group is a leading Russian
pharma company that manages production
facilities in different regions of the country
and produces a broad range of high-quality
affordable medications.
on the Russian
retail pharma
market
10
among domestic
producers of the Russian
retail pharma market
Source: Alpharm
2
TOP
marketing
authorisations
obtained in 2022
34
of products made
from own
substances
20
medication
packs produced
in 2022
370
m
%
new
TOP
production
facilities
5
segments
13
in the CIS
export
qty
market authorisations
for drugs in Russia
450
>
~
Sistema's
effective stake
Binnopharm Group has five production sites in different regions
of Russia: JSC Alium (Obolensk, the Moscow region), JSC
Binnopharm (two sites: Zelenograd and Krasnogorsk), PJSC
Sintez (Kurgan) and JSC Biocom (Stavropol). In aggregate, these
production facilities manufacture products in more than
200 pharmaceutical groups in various dosage forms (tablets,
capsules, ointments, gels, suppositories, infusion solutions, etc),
or over 370m packs per year.
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 and
musculoskeletal disorders. More than 100 drugs from Binnop-
harm Group's portfolio are included in the government's list of
vital and essential drugs.
Binnopharm Group's key advantage is the combination
of a diversified portfolio of drugs and an effective system
of promotion through media tools, contacts with pharmacy
chains and medical and pharmaceutical representatives.
Binnopharm Group regularly develops new drugs and replenishes
its portfolio. The company is completing construction
of a state-of-the-art R&D centre with an area of 12,000 sq m
in the Krasnogorsk district, the Moscow region. It will have two
research divisions:
Binnopharm
Results of key assets
108
SISTEMA PJSFC Annual report 2022
sistema.com
109
Industry overview for 2022
>1.5
expected volume of drugs and medical
products produced in Russia by the end
of 2030
311
projected exports of drugs and medical
products by the end of 2030
Development of the Russian pharmaceutical market, RUB bn
2018
831
366
2019
915
490
2020
985
624
2021
1,109
926
2022
1,358
894
Source: AlPharm.
The priorities of the government's policy in the pharmaceutical
industry until 2030 include:
▪
import substitution (including production of substances,
drugs from the list of strategically important products; low-
margin drugs and medical products 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 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
▪
creating and improving conditions for developing innovative
drugs and medical products
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.
2022: up to RUB 1.5tn. 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 exports of drugs
and medical products, which are projected to reach RUB 311bn
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 to 90%.
According to DSM Group, the Russian pharma market grew
by 11.9% in 2022 vs. 2021, to RUB 2.6tn. The segment of public
procurement grew by 6.9% to RUB 895.6bn and the pharmacy
segment by 15% to RUB 1.7tn.
Growth of the public segment was first of all supported
by increased purchases of medications for the Krug
Dobra foundation, which amounted to RUB 40bn. Hospital
procurement grew by mere 1.3%; the biggest decline was seen
in procurement of antibiotics - down 85.2% vs. 2021. COVID-
19 drugs were purchased less often, with hospitals mostly
using medications they already had. Hospital procurement
fell by 25% in packs, driven down mostly by antibiotics (-85%)
and plasma substituting and perfusion solutions (-74.4%).
In the retail segment, consumption in physical terms remained
at the level of 2021, with growth coming from inflation
and a shift of the consumption structure towards more
expensive drugs. The weighted average price of a pack grew
by 18% in 2022, exceeding RUB 300. The markup of pharmacy
chains was less than 25%. The most frequently bought
medications were in the price segment of RUB 150–500.
Prices of drugs costing more than RUB 500 demonstrated
the highest growth, 33%. Prices of vital and essential drugs
grew by 1% and of other medications by 12.5%.
The number of pharmacies in Russia continued growing:
at the end of 2022, the country had 69,500 pharmacy outlets,
according to DSM Group. The increase in the number
of outlets was driven by national pharmacy chains, whose
share continues growing year after year.
Retail segment
Public procurement
11.9%
the Russian pharma market
growth in 2022
according to DSM Group
RUB tn
RUB bn
110
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Business development in 2022
Company strategy
and external challenges
At the beginning of 2022, the Russian pharma market
encountered numerous challenges. The key ones were turbulent
demand at pharmacies in March-April 2022, a drastic decline
in consumption of drugs used for COVID-19 treatment
and difficulties with international shipments and logistics,
the system of which changed significantly. Notably, established
ties with suppliers from Europe and North America were severed,
the time of delivery of raw materials increased and terms
of delivery changed: the prices grew, credit limits decreased
and upfront fees were introduced. The key challenges
of the financial markets included high borrowing rates, suspension
of factoring and difficulties with transactions encountered
by major players due to the sanctions, especially those related
to cross-border settlements.
Binnopharm Group's strategy proved efficient and resilient
to external challenges, which were unable to stall the company's
development. In spring 2022, the company implemented
a number of anti-crisis measures, including putting on hold
its investment projects. It increased its standard inventory
to ensure an uninterrupted production process and shifted focus
to alternative suppliers from Asia. Binnopharm Group set up
a separate division of international logistics and procurement
and managed to establish new logistical chains. As a result, it
relaunched its investment programmes in June 2022, now geared
towards alternative manufacturers of pharmaceutical equipment.
Binnopharm Group is totally ready for changes in the structure
of the pharma market, and its strategy has not been altered
by external factors. The company is focused on organic increase
of its market share in the hospital and retail segments, further
diversification of the portfolio and launch of new products.
A successful strategy of promotion and more efficient sales
via pharmaceutical and medical representatives are among
the company's key principles of operation. Binnopharm Group
develops its own active pharmaceutical substances in order
to ensure competitive production costs and operating efficiency.
An important part of its strategy is international expansion, greater
presence in the CIS and inorganic growth via M&A deals.
Expansion of product
portfolio
In 2022, Binnopharm obtained 34 marketing authorisations
in Russia and registered more than 17 drugs in export regions.
About 80% of registration dossiers of Binnopharm Group's
medications were brought in line with the requirements
of international agreements and enactments forming the laws
of the Eurasian Economic Union.
In February 2022, Binnopharm Group signed an agreement
with the international pharma company Dr Reddy's
on acquisition of rights for two antibacterial drugs,
Ciprolet and Levolet, in Russia, Uzbekistan and Belarus.
Acquisition of these drugs strengthened Binnopharm Group's
leadership in the antibiotics market, which is a key segment
for the company.
In June 2022, Binnopharm Group launched a new haemostatic
medication, Venaproct Alium suppositories, expanding its
portfolio of vein tonics, which includes Venarus and Angiorus
tablets and gels.
In July 2022, Binnopharm Group launched Alfaxim, the first
Russian drug with rifaximin as the active pharmaceutical
ingredient. The drug is manufactured at the Alium plant
in the Moscow region.
In the first half of 2022, Binnopharm Group's production
facilities received nine marketing authorisations for antibiotics,
diuretics, haemostatic drugs and other medications. New
additions to the company's portfolio of antibacterial drugs
- doripenem and imipenem, which are used for treatment
of severe hospital infections - meet the current needs
of the Russian healthcare system and provide treatment
34
authorisations were
obtained
in Russia
in export regions
80%
of registration dossiers
of Binnopharm Group's
medications were
brought in line with
the requirements of
international agreements
and enactments forming
the laws of the EEU.
17
drugs were
registered
for millions of patients. The portfolio was also supplemented
with state-of-the-art medicines from other categories, e.g.
diuretics (Torasemide) and haemostatic drugs (Tranexamic
acid).
In December 2022, Binnopharm Group began producing a new
drug for sore throat, Lorothricin-Alium. It is a new combined
drug in form of lozenges. It can be used for treatment of main
throat and mouth diseases, such as pharyngitis, tonsillitis,
laryngitis, stomatitis and gingivitis.
Upgrade of production
facilities
Binnopharm Group began modernisation of the Sintez
production facility in Kurgan. The project envisages
reconstruction of production shops with the help of engineers
and designers of the Industry and Trade Ministry's State
Institute of Drugs and Good Practices, construction of a high-
tech warehouse, upgrade of equipment, including a freeze drier,
and commissioning of a new drug packaging line. Investment
in the upgrade of Sintez will amount to some RUB 3bn.
In February 2022, the company completed renovation
of the section of the Sintez plant that produces syrups
and suspensions, increasing its production capacity threefold,
to RUB 6m bottles per year.
In February 2022, Binnopharm Group started design works
at Sintez in order to build a modern GMP/GDP pharmaceutical
warehouse facility that will store raw materials and finished
products. The warehouse will be divided into five areas
with different temperature regimes. It will also have
a temporary warehouse for customs clearance, which will
significantly optimise the logistics of delivering imported
materials to the plant.
The upgrade also envisages movement of a line producing
infusion solutions included in the list of vital and essential
drugs to the plant. In addition to the existing equipment, which
bottles infusion solutions into glass bottles, the new line will
bottle them into plastic bottles, making it possible to produce
new medications, such as Linezolid (an antimicrobial drug)
and Ropivabin (anaesthetic, ropivacaine).
In the near future, the enterprise will set up a section
with cutting-edge equipment which will use the freeze
drying method to produce sterile active pharmaceutical
substances for production of finished dosage forms. The new
line will increase the output of eye drops by 50%, including
by localisation of Ciprolet, an antibacterial drug the rights
for which were bought by Binnopharm Group from Dr. Reddy's
Laboratories Ltd. (BSE).
In April 2022, the Group's production facility Alium
in the Moscow region received a GMP certificate from
the Eurasian Economic Union.
In May 2022, Binnopharm Group installed a new blister
packaging machine to the packaging shop of the small volume
manufacturing section at Alium.
R&D development
In 2023, Binnopharm Group plans to open a state-of-the-
art R&D Centre in the Krasnogorsk district of the Moscow
region. The Centre will unite the research divisions of all
of the company's production facilities. The project envisages
setup of pharmaceutical research centres for development
of synthetic and biotech drugs. Investment in the project
amounted to RUB 2.5bn. The R&D Centre's capacity will enable
the company to launch over 100 medications by 2025 in such
areas as rheumatology, neurology, gynaecology, paediatrics,
etc.
International expansion
Binnopharm Group registered an official representative office
in Kazakhstan and opened offices in another five CIS countries:
Belarus, Moldova, Azerbaijan, Armenia and Uzbekistan. This
will enable the company to double its export revenue and will
be the first step in building its international infrastructure.
Binnopharm Group is the biggest Russian supplier
of medications to the CIS and is the No 1 pharma company
in the Kyrgyz Republic (according to IQVIA).
112
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SISTEMA PJSFC Annual report 2022
sistema.com
Results of key assets
1
Active pharmaceutical substances.
Financial performance in 2022
Financial results, RUB m2
2022
2021
Change,%
Revenue
28,040
25,139
11.5
OIBDA
7,981
6,583
21.2
Operating income
4,668
3,994
16.9
Net income
1,521
2,226
(31.6)
Revenue 2022 grew by 11.5% year-on-year, mostly due
to increased sales in the retail segment and exports. Retail
sales went up 25% year-on-year, driven mainly by Venarus,
Neobutin, Omeprazol and Kipferon. Exports increased by 17%.
In 2022, OIBDA jumped by 21.2% year-on-year amid growing
revenue, tighter control over administrative and selling
expenses and optimisation of the product portfolio. OIBDA
margin grew by 2.3 p.p. year-on-year, to 28.5%. Net income
decreased mostly due to a spike in interest expenses.
In July 2022, Binnopharm Group placed its second RUB 3bn
bond issue; the quarterly coupon rate was set at 10.35% p.a.
By the end of 2022, net debt grew year-on-year to RUB 13.4bn
due to:
▪
Temporary increase of inventory of raw materials
and packaging to ensure an uninterrupted production
process because of the logistical changes in the new reality.
▪
Effect from the M&A deal with Dr. Reddy's. Net debt/OIBDA
is at a comfortable level of 1.7x.
Inorganic growth
via value generating
M&A deals
Operations & investment
development strategy
Binnopharm Group's
strategic goal is
to build a growing
international
pharmaceutical
company
A clear strategy
aimed at ensuring
a high growth rate
Increasing
the company's share
on the fast-growing
generics market
in Russia
Active development
of the product portfolio
and launch of new
products, development
of proprietary
brands, investment
in biotechnology
Implementation
of a successful
promotion
strategy enhancing
the efficiency
of pharmaceutical
and medical
representatives
Preserving focus
on competitiveness
through low production
costs and high
operating efficiency
(expansion of in-house
production of APS1,
efficiency of R&D)
Expansion
to international
markets in order
to build stronger
presence in the CIS
countries
Entering
the Chinese
and Southeast Asian
markets
+11.5%
revenue growth
in 2022
115
Results of key assets
114
SISTEMA PJSFC Annual report 2022
sistema. com
BPGC is a major power grid company that
ensures electricity transit between
the central part of the country and the Urals
and power transmission and distribution
to end consumers in the Republic
of Bashkortostan; it is also a provider
of power facility engineering
and construction services.
bashes.ru
Business model
servicing volume
length of grids
362.3
89.5
thsd c.u.
thsd km
share of Bashkortostan's
power transmission market
80
connections to power grids
13,880
share of smart electric
meters / automation
of electricity metering
43
headcount
7.8
Power transformer capacity
23,069
MVA
pcs
%
%
thsd people
Sistema's
effective stake
Fuel supply
Power generation
Sale
Electricity transmission
and distribution
Consumption
LLC Energy Retail Company
of Bashkortostan etc.
Renewable
energy sources
Thermal power
plants LLC
Bashkir
Generating
Company (Inter
RAO) etc.
Hydropower
plants LLC
Bashkir
Generating
Company (Inter
RAO) etc.
Gas
Coal
Fuel oil
Residential
buildings
Office
buildings
Industrial
enterprises
Transmission grids
of LLC BGC
Distribution grids
of LLC Bashkirenergo
LLC BPGC
Engineering
+
OTHER CONSOLIDATED ASSETS
117
Results of key assets
116
SISTEMA PJSFC Annual report 2022
sistema.com
Industry overview for 2022
Growth in output and effect
of tariff increases
The overall supply of electricity to consumers and territorial
grid operators went up 6% in 2022. The increase was mostly
driven by lower impact of the OPEC+ deal. At the same
time, electricity supply to households and similar categories
of consumers grew by 4% vs 2021 to 4.886m kWh due
to higher electricity consumption by households.
Uniform (common pot) tariffs for energy transmission
in Bashkortostan were indexed as follows in 2022:
▪
5% from 1 July 2022
▪
12.4% for grid maintenance tariff and one-part rates
▪
9% for rates for power loss component from 1 December
2022
The main reasons for grid tariff indexing by 12.4% instead
of 9% were the growing prices of services of PJSC Rosseti
(FGC) and expansion of the investment programme
of the region's power grid sector.
As part of the region's strategic development plan
for the power grid sector, LLC Bashkirenergo (a subsidiary
of BPGC) will continue using the regulated asset base (RAB)
method of tariff regulation until 2030, which makes it possible
to increase the average annual investment amount in 2023-
2030 by over RUB 1bn.
Decrease in the number
of emergency shutdowns
In 2022, Bashkirenergo saw a decrease in the number
of technological breakdowns (accidents). The number
of accidents in 6–110 kV grids totalled 7,130, down from
7,154 in 2021. The decrease was due to the implementation
of the company's investment and repair programmes.
In 2023, net electricity supply is expected to slump by 139m
kWh, totalling 99% of the level of 2022, including:
▪
Consumers in the oil sector - by 68m kWh (98%)
▪
Oil refineries - by 16m kWh (99%)
▪
Consumers of the guarantee supplier (legal entities) - 41m
kWh (99%)
▪
Consumers of the guarantee supplier (households) - 58m
kWh (99%)
In 2022, power generation in Russia grew by 0.6% to
1.12tn kWh.
Power generation from renewable sources grew by 38%, while
increase in consumption was seen mainly in oil production
and pumping, railway shipments and the aluminium industry.
Electricity consumption in the Unified Energy System
of Russia increased by 1.5% vs 2021 to 1.11tn kWh.
A decline in consumption was registered in two district energy
systems - Middle Volga and Northwest, while the remaining
five systems reported a growth. The biggest growth of 3.8%
was seen in the Eastern Unified Energy System.
Russian electricity exports grew by 15% in 2022 vs 2021.
Eastbound exports were on the rise: exports to China
and Mongolia increased by 20%. Exports to China grew
by 16%.
In Bashkortostan, net supply of electricity and capacity
in the segment of hydrocarbon production and transportation
grew by 22% vs 2021, when restrictions of the OPEC+ deal
were in place.
Business development in 2022
+0.6
growth of power
generation in Russia
in 2022
%
tn kWh
1.12
electricity consumption
in the Unified Energy
System of Russia
+15%
growth of Russian
electricity export in 2022
118
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SISTEMA PJSFC Annual report 2022
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Results of key assets
1
Unified National Power Grid.
Financial performance in 2022
Financial results, RUB m
2022
2021
Change,%
Revenue
23,172
20,740
11.7
OIBDA
6,339
5,443
16.5
Operating income
3,714
2,581
43.9
Net income
attributable
to Sistema
2,758
1,804
52.9
Revenue growth by 11.7% vs 2021 was driven by two main
factors: higher electricity consumption and growth of uniform
common pot tariffs for power transmission.
Electricity consumption was increased by oil producers
and consumers of the guarantee supplier. Common pot tariffs
were indexed twice in the reporting period.
Additional services related to technological connections
to grids also had a positive impact on revenue.
OIBDA grew by 16.5% thanks to the growth of revenue and sale
of non-core assets.
Net income increased by 52.9% supported by OIBDA
and additional financial income.
In 2022, BPGC paid RUB 1.2bn in dividends.
Operating performance
UoM
2022
2021
%
Bashkirenergo
BGC
Bashkirenergo
BGC
Bashkirenergo
BGC
Energy losses
%
Energy losses
m kWh
1,592
322
1,588
313
100
103
Power in
m kWh
22,433
14,807
21,327
18,250
105
81
Net supply from
distribution grids
m kWh
20,841
14,485
19,740
17,937
106
81
New connections
psc
13,876
4
14,706
1
94
400
Connected capacity
MW
338
25
355
8
95
339
The increase in relative losses at LLC BGC was due to lower volumes of inter-
regional power flows
Optimisation and automation
of business processes
and production, plans
and results of smart meters
introduction
In 2022, Bashkirenergo's power metering system
was expanded with installation of 23,000 meters. To make up
for the growing prices and delays in supply of smart meters,
the company completed calibration of 18,000 meters already
installed. The number of meters in the smart metering system
reached 350,000 by the end of the year, or 43% of all meters.
Implementation
of investment programme
and key investment projects
The key areas of the company's investment activities
were development and strengthening of the existing grids
and technological connections of consumers.
Investment in connections in the reporting period
amounted to RUB 2.121m (hereinafter, without VAT),
and in commissioning of fixed assets - RUB 2.381m.
Measures were taken to ensure power supply to socially
important facilities (hospitals and educational facilities),
residential buildings, road infrastructure and industrial
enterprises of Bashkortostan.
Investment in new construction totalled RUB 521m
and in commissioning of fixed assets RUB 241m.
+11.7%
revenue growth
in 2022
BPGC's medium-term strategic plans were developed taking
into account its long-term goals and current challenges;
they envisage maintaining the value of the business
and shareholder returns at the existing level with the help
of the following drivers.
▪
Tariff and regulatory: lower spending on services
of the UNEG1, indexing of tariffs in case of excess
cross-subsidising.
▪
Operating: work with energy losses, ensuring quality
and reliable power supply, introduction of digital
technologies.
▪
Development of non-regulated business lines, first of all,
leveraging the competences of LLC BPGC Engineering.
▪
In investment activities:
– Development and upgrade of grids, technological connections
of new consumers, creation of an information security system.
– Acquisition of power grid assets in Bashkortostan
(consolidation of territorial grid organisations).
Strategic goals
350 thsd
the number of meters
in the smart metering
system
120
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Results of key assets
Sistema's
effective stake
sistema-bn.ru
Business model
Business Nedvizhimost is one of the key
players in Moscow's commercial real estate
market, with a portfolio of 78 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.
credit rating (Expert RA)
ruBBB+
total area
of commercial properties
commercial real
estate
360
78
thsd sq m
properties
of properties in ownership
100
%
%
>
Main focus areas:
The company also develops the Olympic Star fitness
club in Moscow.
Asset management
Facility management
Property management
Flexible space
chain Officeless
Asset management with a view
to increasing the capitalisation
and liquidity of assets and optimising
the entire portfolio of owned
and managed commercial real estate
Operation and maintenance of com-
mercial and residential real estate to
ensure good condition and avoid
accidents.
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
Property management to improve
the efficiency of its use and maximise
net operating income
123
Results of key assets
122
SISTEMA PJSFC Annual report 2022
sistema.com
In 2022, the aggregate offer of offices on the Moscow
market exceeded 17.9m sq m, out of which class
A properties accounted for 5.3m sq m and class B
properties for 12.6m sq m.
A total of 340,800 sq m of properties was commissioned
in 2022, down 42% from 2021 (587,400 sq m); class A projects
accounted for 76% of the new properties. Total commissioning
of office properties in 2022 exceeded the results
of the pandemic-ridden 2020 (224,400 sq m) and was a little
below the results of 2019 (381,000 sq m).
The share of vacancies grew by 3.6 and 1.8 p.p. in class
A and class B, respectively, to 13% and 7.4%. As a result, about
690,000 sq m of class A offices and 16m sq m of class B
offices stood vacant. A significant spike in vacancies was seen
in Moscow's premium projects, 4.2 p.p. since the beginning
of 2022 (to 13.4%), reaching the level of the end of 2020.
Vacancies in class A properties grew unevenly: the growth
was significant in Q2, when foreign companies were actively
scaling down their business and optimising their offices,
mainly in the key business districts of Moscow, and also in Q3,
when a lot of new properties were commissioned.
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 – was negative in 2022, equalling
-107,400 sq m vs. 701,500 sq m in 2021. At the same time,
net absorption of class A offices was positive despite fears
at the beginning of the year and totalled 46,800 sq m.
In 2022, the weighted average asking rental rates for class
A premises, despite the forecast decline, grew by 0.8%
to RUB 26,044 per sq m per year (net of operating expenses
and VAT), which was caused by uneven movement
of the indicator during the year: in H1, when there was a large
supply of offices in quality business centres, the weighted
average asking rates grew; then, after some properties
were commissioned and offered at a rate below the average
market rate for class A, the average rate decreased.
Supply of premises in 2022, %
49
26
26
76
22
Source: Nikoliers
Commissioning of premises in 2022, %
Source: Nikoliers
At the end of 2022, co-working spaces opened in Moscow
totalled 354,600 sq m, offering aggregately 50,600
workstations. As many as 17 new co-working spaces
were opened in Moscow in 2022 with an aggregate area
of 92,000 sq m, offering about 13,000 workstations for rent.
The volume of new offers was 12% higher than in 2021.
Source: NF group
Forecasts for 2023
Source: NF group
In 2022, Business Nedvizhimost continued implementation
of its medium-term strategy. In line with the strategy,
the company's management focused its efforts on optimising
the commercial real estate portfolio to increase its
liquidity and capitalisation; it was also expected to launch
the Officeless co-working spaces.
The company managed to lease out about 34,000 sq m
in 2022. One of the key transactions was lease of the building
at 52A Sirenevy Boulevard, with a fitness park with an area
exceeding 3,500 sq m.
Main tasks for 2023.
In 2023, JSC Business Nedvizhimost plans to implement
the following tasks:
▪
Launch a new Officeless location at 3 Malaya Polyanka
Street in Moscow with 828 workstations.
▪
Preserve net operating income from traditional lease
at 50%.
▪
Increase the efficiency of using space freed up by MGTS
and maximise operating income.
▪
Sell non-core assets.
▪
Develop a JV under a revenue sharing mode.
▪
Develop a project of self-storage facilities at the company's
portfolio properties.
In 2023, commissioning of new properties may amount
to some 473,000 sq m, with class A projects accounting
for about 80%. We do not expect to see a significant growth
of vacancies in both classes: it will be 14–15% for class
A and 7.5%-8.0% for class B by the end of the year. Asking
rates for class A properties will see a downward correction,
reaching RUB 25,500–25,600 per sq m per year (net
of operating expenses and VAT); rates for class B properties
will remain at the current level, RUB 17,500–17,600 per sq m
per year (net of operating expenses and VAT).
Business development in 2022
34 thsd sq m
of area was leased out
in 2022
19.8
m sq m
339
m sq m
Class А
Class B
Class B-
Industry overview for 2022
124
125
SISTEMA PJSFC Annual report 2022
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Results of key assets
Attractive segments for Business Nedvizhimost's development
are flexible workspaces, traditional build-to-suit projects
and joint ventures that enable it to get rent flow and part
of revenue, without operating a non-core business.
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 workspaces are higher
than those for traditional offices (RUB 35,000 per sq m per
year vs RUB 25,000 per sq m). Business Nedvizhimost plans
to capture up to 30% of the flexible office space market
in Moscow and become its leader.
At present, rental rates are falling due to geopolitical events
and many international companies leaving the market.
Withdrawal of some tenants from class A offices may increase
demand in cheaper classes B and C.
Business Nedvizhimost plans to find tenants for its flexible
workspaces Officeless to improve revenue from premium
locations, but does not intend to further expand the project
at the current stage.
An additional focus will be on renewing the portfolio to enter
new markets, including acquisition of street retail properties
and looking for opportunities for redevelopment of plots
and properties included in comprehensive redevelopment
plans.
Financial results, RUB m
2022
2021
Change,%
Revenue
4,078
4,164
(2.1)
Operating income
1,217
473
157.2
OIBDA
1,540
1,001
53.8
Net income attributable
to Sistema
150
(355)
–
In 2022, the growth of OIBDA was impacted by sale
of the Karacharovo warehouse.
Asset structure by region, thsd sq m
Indicator
2022
2021
Change,%
Area of commercial
properties in Moscow
335
371
(9.7)
Area of commercial
properties in St Petersburg
26
26
–
Total
361
397
(9.1)
The decrease in the area of commercial properties in Moscow
came from sale of the Karacharovo warehouse (37,000 sq m).
Operating and investment development strategy
Financial performance in 2022
30
of the Moscow market
to be taken by flexible
offices
%
thsd sq m
361
total area
of commercial
properties
+53.8%
OIBDA growth
in 2022
127
Results of key assets
126
SISTEMA PJSFC Annual report 2022
sistema.com
Бизнес модель
Авто
Hotels
Customer
services
Technologies
Training
Sistema's effective
stake
cosmosgroup.ru/en
Business model
Cosmos Hotel Group manages a portfolio
of 32 hotels in 19 cities of Russia and abroad,
with a total of about 9,000 rooms.
Cosmos Hotel Group is one of the largest
hotel companies in Russia.
guests in Cosmos
hotels in 2022
1.4 m
>
under
management¹
rooms under
management¹
32
9
hotels
thsd
Average ADR of Cosmos
Hotel Group hotels
Average occupancy rate
of Cosmos Hotel
Group hotels
4,546
57
RUB
%
Ownership
Management
Franchise
Consulting services
Restaurants
Events
Health and wellness
Travel
Booking platform
Hospitality School
Cloud PMS
In-room
entertainment
Cosmos Hotel Group operates its own hotels and manages
third-party hotels. The company is developing at a high
pace by entering into hotel management contracts
with third parties and developing new hotels under own
brands.
The company has expertise in managing existing hotels
and creating new ones, and acts as a single centre
of excellence (it has competences in marketing, sales,
procurement, HR, IT and accounting).
1
The data includes the ten
hotels acquired in March
2023.
129
Results of key assets
128
SISTEMA PJSFC Annual report 2022
sistema.com
2018
2017
25,292
28,074
28,302
27,328
28,979
30,636
2019
2020
2021
2022
Growth
3.9%
2018
2017
884,279
975,645
992,601
977,409
1,027,010
1,078,361
2019
2020
2021
2022
Growth
4.0%
2018
2017
485.2
566.3
599.6
376.5
599.3
683.5
2019
2020
2021
2022
Growth
7.1%
Industry overview for 2022
Number of hotels and other accommodation facilities in Russia, pcs
Sources: Rosstat, Federal Tourism Agency, Market Economics Centre
The total number of available hotel rooms increased by 5%
in 2022, reaching 1.08m rooms. The average annual growth
rate of available rooms in hotels and other accommodation
facilities in Russia (CAGR 2017–2022) was +4%. Over the last
six years, the total number of available hotel rooms increased
by approximately 25%.
Number of rooms in hotels and other accommodation
facilities in Russia, pcs
Sources: Rosstat, Federal Tourism Agency, Market Economics Centre
The total revenues of hotels in 2022 amounted to almost
RUB 0.7tn. The average annual growth rate of revenues
in the Russian hotel industry over the last six years (CAGR
2017–2022) was +7.1%. In the period from 2017 to 2022, total
revenues in the industry rose by 41%.
The hospitality sector was boosted by the growing
demand for domestic tourism and governmental initiatives
Revenues of hotels and other accommodation facilities in Russia, RUB bn
Sources: Rosstat, Federal Tourism Agency, Market Economics Centre
In 2022, city hotels accounted for about 58% of all
accommodation facilities (net of unclassified
accommodation). Hotels also accounted for about 53% of total
available rooms.
Hotel accommodation in Russia in 2022 by type,
% of total facilities and available rooms
58
53
13
13
8
6
2
18
13
8
7
1
Sources: Rosstat, Federal Tourism Agency, Market Economics Centre
Domestic tourism is actively developing in Russia. Over 11
months of 2022, the tourist traffic in Russia was 133.4m
people, of whom more than a half stayed in accommodation
facilities overnight.
In total, hotels and other accommodation facilities received
74.8m guests in 2022, a 12.4% increase from 2021
and a 21.5% increase from 2017. Over the last six years,
the average occupancy of hotels and other accommodation
facilities grew by 4% a year (CAGR 2017–2022). At the same
time, Russian citizens accounted for 96% of the total number
of guests amid the growing popularity of domestic tourism.
In 2022, the hospitality industry showed a high level
of resilience and adaptability to sudden fluctuations
in demand, putting to good use the experience it had acquired
during the COVID-19 pandemic in 2019-2020.
In 2022, the Russian hospitality market saw a considerable
increase in the number of hotels and other types
of accommodation and in the number of total available rooms.
According to preliminary estimates, the number of hotels
and other accommodation facilities exceeded 30,000 in 2022,
a 5.7% increase from the previous year. The average annual
growth rate of accommodation facilities over the last six
years (CAGR 2017–2022) was 3.9%. In 2017-2022, the total
number of hotels and other accommodation facilities in Russia
increased by approximately 20%
Hotels
Health retreats
Countryside hotels,
tourist camps
Hostels
Serviced apartments
Motels
In 2022, the Russian hospitality market saw a considerable
increase in the number of hotels and other types
of accommodation and in the number of total available rooms.
At the same time, the events of the start of 2022 had
a significant impact on the situation in the hospitality sector:
six international hotel operators left the Russian market,
leading to either a change or a loss of brand by many hotels.
aimed at supporting hospitality businesses: in July 2022
the government introduced a five-year zero VAT tax rate
for hotel services. Given that the main expenses of hotels
are payroll-related, and that the amount of VAT liabilities
is considerable, this initiative became a major contributor
to market growth.
130
131
SISTEMA PJSFC Annual report 2022
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Results of key assets
In January 2022, Cosmos Hotel Group launched a project
for the construction of a multifunctional 5-star natural resort
under the Cosmos Collection brand on the eastern coast
of the Lake Baikal as part of the special economic zone Baikal
Haven. The project is aimed at developing tourism on the Lake
Baikal and enhancing the region's attractiveness as one
of Russia's key destinations for local and foreign tourists.
In June 2022, Cosmos Hotel Group started managing a new
3-star Cosmos Smart hotel in Kogalym, a tourist centre
of the Khanty-Mansi Autonomous Area – Yugra. The hotel
offers its guests 123 comfortable modern rooms, a restaurant
for 110 people, a lobby bar and two conference rooms.
The hotel's total capacity is 273 guests.
In August 2022, the company opened its first proprietary hotel
in Segezha (the Republic of Karelia) under the Cosmos Smart
3* brand. The hotel was built jointly with Segezha Group (both
companies are part of Sistema Group). The 60-room hotel
is the first hotel in Segezha offering services of international
quality.
In 2022, the company completed the rebranding of own hotels:
Marriott Courtyard Paveletskaya was renamed as Cosmos 4*
and was transferred under the management of Cosmos Hotel
Group, while Holiday Inn Express Paveletskaya and Holiday Inn
Express Voronezh started operating under the Cosmos Smart
3* brand. All hotels owned by Cosmos Hotel Group in Russia
are now working under the parent brand.
In March 2023, Cosmos North-West LLC, a wholly-owned
subsidiary of the Corporation’s subsidiary Cosmos Hotel
Group, acquired a 100% stake in a number of Russian
companies – owners of ten hotels in four Russian cities
–for EUR 200m.
As a result of the transaction, Cosmos Hotel Group added
the following hotels to its portfolio: six hotels in St Petersburg
(Park Inn by Radisson Pribaltiyskaya, Park Inn by Radisson
Pulkovskaya, Park Inn by Radisson Nevsky, Radisson Blu
Royal Hotel, Park Inn by Radisson Pulkovo, Olympia Garden
Hotel), two in Moscow (Park Inn by Radisson Sheremetyevo,
Radisson Blu Sheremetyevo Airport), one in Murmansk (Park
Inn by Radisson Murmansk) and one in Yekaterinburg (Park
Inn by Radisson Yekaterinburg). Altogether, the hotels have
4,078 rooms and a total floor space of 264,100 square metres.
In 2021, the hotels’ revenue totalled RUB 4.3bn; in 2019,
prior to the pandemic, it was RUB 6.2bn. The total net debt
of the acquired companies is negative.
Most of the acquired hotels can boast a unique location,
being close to the historical centre of St Petersburg and other
cities or Russia's largest airports, Sheremetyevo and Pulkovo.
The acquisition of these international quality hotels will enable
Cosmos Hotel Group to double the number of available
rooms and to significantly strengthen the company's position
in the Russian hospitality market. In 2023, the company
expects its total number of available rooms to exceed 9,500
as a result of the transaction and following the implementation
of its development programme.
Strategic goals
Cosmos Hotel Group's
strategy is aimed
at becoming a leader
in the Russian
hotel market
by brand strength
and recognition
and maintaining its
leadership in terms
of the number
of available rooms
with prospects
for transformation
into a public hotel
company.
The priorities of the company's
strategy include:
Developing Cosmos Hotel
Group's umbrella brand
and a well-functioning
system of subbrands
Plans for 2023:
Opening own hotel Cosmos Omsk 4*
Launching the construction of Cosmos Collection
Baikal 5*
Actively expanding the total
number of rooms under own
brands by implementing
own projects, taking
over the management
of third-party hotels, pursuing
M&A deals
Increasing operational
efficiency, standardising
business processes
(booking, sales, marketing,
training, service and quality,
procurement), introducing
a cluster-based approach
to hotel management
in regions
Ensuring digitalisation
and automation
of all the main
stages of interaction
with the customer
and of internal business
processes
Migrating from a process-
centred to a customer-
centered model
Business development in 2022
Increasing the number of own hotel rooms
through M&A deals, integrating new hotels into the
company's existing structure
Attracting third-party hotels for management
Developing the hospitality training programme
(hospitality school) for employees: launching a
digital platform and introducing training at the
workplace
133
Results of key assets
132
SISTEMA PJSFC Annual report 2022
sistema. com
2022
2021
Change,%
Total rooms available, thsd
4.6
4.6
–
•
Hotels in Russia
4.5
4.5
–
•
Hotels abroad
0.1
0.1
–
Occupancy rate, %
56.8
51.1
5.7 p.p.
•
Hotels in Russia
57.2
52.2
5.0 p.p.
•
Hotels abroad
47.7
22.5
25.2 p.p.
ADR, RUB
4,546
4,302
5.7
•
Hotels in Russia
3,890
3,667
6.1
•
Hotels abroad
24,023
42,119
(43.0)
RevPAR, RUB
2,582
2,197
17.5
•
Hotels in Russia
2,224
1,913
16.2
•
Hotels abroad
11,457
9,458
21.1
The average occupancy rate of Cosmos Hotel Group in 2022
was 56.8%, up by 5.7 p.p. from 2021.
The hotel chain's average ADR improved compared
to 2021 and totalled RUB 4,546, the main growth factors
being the introduction of VAT relief measures and general
improvement of performance in the Russian hospitality sector.
Due to these factors, the average revenue per available room
(RevPAR) rose by 17.5% across the Group.
Operating results
Financial results, RUB m
2022
2021
Change,%
Revenue
5,278
4,013
31.5
OIBDA
941
318
196.0
Operating income
(loss)
119
(369)
–
Net loss
(129)
(614)
–
In 2022, the financial performance of Cosmos
Hotel Group's hotels continued improving. In 2022,
the company's revenue rose by 31.5% year-on-year
and amounted to RUB 5.3 bn, as demand was redistributed
from outbound to domestic tourism.
OIBDА increased more than three-fold, up to RUB 0.9bn,
on the back of a partial recovery of tourist flows
and growing demand for holiday accommodation,
as well as improvement of operational efficiency.
Financial performance in 2022
+31.5%
revenue growth
in 2022
135
Results of key assets
134
SISTEMA PJSFC Annual report 2022
sistema.com
sitronics.com
Sitronics Group is a vertically integrated
IT holding company offering a broad range
of digital transformation solutions for B2B
and B2G customers.
Russian IT companies
in 2021 according
to RAEX rating agency2
0
1
IT suppliers for the industrial
sector in 2021 according
to CNews Analytics1
3
TOP
TOP
employees
2
>
implemented
projects
5
Sistema's
effective stake
>
thsd
thsd
regions
of operations
11
qty
partners
for hardware
and software
400
IT services
Comprehensive Smart City projects
Manufacturing of information, computer
and telecom (ICT) equipment
Manufacturing of electric vessels
Development of electric vehicle
charging infrastructure
Business model
Sitronics Group uses a business model that is typical for the industry and employs traditional tools
for communicating its value proposition to end customers, including implementation consulting,
system integration, installation and maintenance of hardware and software,
development and implementation of complex projects.
Industries
Technologies
Competences
Software development
and implementation
Design and implementation
of computer complexes
Data storage systems
System integration, support,
IT outsourcing
Information security
Design and construction
of communication networks
Design and construction
of data centers
Oil and gas industry
Telecommunications
Retail
Timber industry
Transport and logistic
Banks and insurance
companies
Machine engineering
Healthcare
Constructions
Computer vision
Infrastructure
for electric vehicles
Big Data
Industrial Internet of Things
In-house production
of server hardware
>
1
Source: News.ru
2
Source: Raex
137
Results of key assets
136
SISTEMA PJSFC Annual report 2022
sistema.com
+13%
(0.2%)
+2.4%
3,877
bn
2020
194,200
517,834
696,990
1,071,281
1,396,334
212,376
783,462
722,181
1,244,746
1,422,506
4,385
bn
2022
189,506
732,030
807,580
1,207,966
1,459,483
4,397
bn
2021
+3%
+2.5%
+11%
+7%
+12%
213,853
856,023
685,633
1,312,588
1,423,367
4,492
bn
2023
+5.5%
+0.1%
(5%)
+9%
+0.7%
+13%
+4.5%
+16%
+41%
-2.4%
2020
2019
1,456
938
304
214
1,227
375
267
1,486
419
296
890
334
227
1,869
2,201
1,451
2021
2022
+31%
+23%
+25%
+21%
(40%)
(23%)
+12%
(20%)
+11%
+18%
(34%)
+28%
Industry overview for 2022
Global IT market, USD m
Sources: Gartner, 3D News,
Mercury Research and The Wall
Street Journal
The structure of the global ICT market in 2022:
“Communications Services” (32%), “IT Services” (28%),
“Devices” (17%), “Software” (18%) and “Data Centre Systems”
(5%). The shares of “Communications Services” and “Devices”
continue to decrease in favour of “Software”, which indicates,
among other things, the growing demand for cloud services.
Russian IT market
The Russian IT market accounts for 0.6% to 2% of the global
market depending on the category.
According to preliminary estimates by IDC, it decreased
in 2022 by at least 25% in RUB and 34% in USD.
Given government support for the industry and the relative
success of import substitution for software, the segments
of software and IT services may actually decline less than
projected. As for hardware, however, the year-on-year decline
could be around 50%. However, given the blocked public
access to economic data of some major market players
and the Federal Customs Service, the real size of the market
in 2022 may be hard to assess.
In the long run, investments in R&D aimed at creating next-
generation inventions and technologies ready to be embedded
in the future technological wave of ground-breaking
microelectronics solutions will pay off.
1
IT services include system integration, advisory services, custom software development, hardware and software installation and support, and IT training.
Russian IT market, RUB bn
Source: IDC
Global IT market
The Gartner estimates that the global ICT market declined
in 2022 by 0.2% year-on-year to USD 4.385bn. The main
contributors to the negative change were the segments
of “Communications Services” (-2.5% year-on-year)
and “Devices” (-11% year-on-year).
At the same time, the “Software” segment grew by 9% vs 2021
to USD 783.5bn (for reference: the segment grew by 41% year-
on-year in 2021).
The “Data Centre Systems” segment grew by 12% year-on-year
to USD 212.4bn.
The global ICT market in 2022 was impacted by a deteriorating
global economic environment and a slowdown following
a surge in demand during the pandemic and post-pandemic
periods.
There are indications that the 2022 annual reports
of the global ICT market leaders, to be published in mid-2023,
will be markedly worse than what investors have become
accustomed to. Against this backdrop, there are reports about
significant layoffs at the world's largest IT companies.
The global ICT market in 2023 will be impacted
by the continued fall in demand for processors and flash
memory, as well as PCs/laptops and peripherals.
Software
IT Services
Hardware
Data Centre
Systems
Software
Devices
IT Services1
Communications
Services
138
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SISTEMA PJSFC Annual report 2022
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Results of key assets
Strategic goals
Strategic focus areas:
▪
Developing electric water transport and reformatting
the regional passenger transport market
▪
Developing a portfolio of proprietary products for industrial
and urban digitalisation
▪
Accelerating growth of Sitronics Group by entering new
segments of the IT market and expanding the product
range
Financial performance in 2022
Financial results, RUB m
2022
2021
Change,%
Revenue
32,281
29,247
10.4
OIBDA
3,221
2,478
30.0
Operating income
2,173
1,290
68.5
Net income attributable
to Sistema
963
709
35.8
In 2022, Sitronics Group's revenue grew by 10.4% year-
on-year to RUB 32.3bn amid growing sanctions pressure
on the Group's markets.
OIBDA reached RUB 3.2bn in 2022, up 30.0% year-on-year.
Net income increased by 35.8% due to optimisation of selling,
general and administrative expenses.
+10.4%
revenue growth
in 2022
In 2022, Sitronics Group's previously approved
development strategy was updated to reflect new
challenges and risks associated with the changing
geopolitical and economic environment. The long-term
strategy envisages transformation of Sitronics Group
from a niche integrator into a provider of a broad range
of products and services in high-potential markets,
including on the basis of proprietary solutions.
141
Results of key assets
140
SISTEMA PJSFC Annual report 2022
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142
143
Corporate governance
SISTEMA PJSFC Annual report 2022
sistema.com
CORPORATE
GOVERNANCE
144
Corporate governance
system
160
Remuneration policy applied
to board members and senior
management
162
Risk management
system
1
The text of the Corporate Governance Code recommended by letter of the Bank of Russia No 06–52/2463 dated 10 April 2014 is available at https://www.cbr.ru/statichtml/
file/59420/inf_apr_1014.pdf. The conformity of Sistema’s corporate governance practices with the standards set out in the Code is analysed in Annex 1 to this report.
Corporate
governance system
Corporate governance principles
Sistema’s corporate governance structure
as of 31 December 2022
Professionalism of the Board
of Directors and its active
involvement in strategic planning
and the management and oversight
of business processes
Special focus of the Board of Directors
on related-party transactions
and potential conflicts of interest
Sistema’s corporate governance principles
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 and the recommendations of the Russian Corporate
Governance Code1. Sistema’s Charter and internal regulations
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 aims
to meet the best international standards in these areas
and consistently enhances its corporate governance practices.
01
04
02
05
03
Clear and effective procedures
for taking investment decisions
Reasonable transparency
of management processes
taking into account external
circumstances
A dividend policy that takes
into account both reasonable
expectations of investors
and Sistema’s financial resources
CEO
Management
Board Chairman
Company
Secretary
Internal Audit
Department
Chief Auditor
Board
of Directors
Senior
Managing
Partners
Managing
Partners
Finance Function
Governance bodies
of the Corporation:
▪
General meeting of shareholders
▪
Board of Directors
▪
President
▪
Management Board
Vice President for Corporate Governance
and Legal Affairs
Managing Director for Protocol
Corporate Communications
Department
GR Department
Vice President for Finance
Corporate Governance
and Legal Affairs
Vice President for HR
HR Department
Protocol Service
Vice President for Security
Security Department
Vice President for IT
IT Department
Head of Administrative
Department
Administrative
Department
Vice President for Strategy
and Development
Strategy and Development
Function
Executive Vice President for PR
Executive Vice President for GR
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 additional
commitments of the Corporation, its top management
and employees in terms of transparency and ethical conduct
of business.
144
145
SISTEMA PJSFC Annual report 2022
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Corporate governance
The General Meeting of shareholders is the supreme governing body
of the Corporation. The activities and powers of the Annual General
Meeting of shareholders (hereinafter also, “AGM”) are governed by the laws
of the Russian Federation, the provisions of Sistema’s Charter and the Terms
of Reference of the General Meeting of shareholders. The Corporation seeks
to create the most favourable conditions for its shareholders to participate
in General Meetings.
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 AGM and ballots are also sent by mail to shareholders whose rights to the shares of the Corporation are recorded in the shareholder register.
Observance of shareholders’
rights
Proposing agenda items for AGM
and nominating candidates
to the Corporation’s governance bodies
Shareholders who own at least 2% of the Corporation’s voting
shares are entitled to propose items for the agenda of the AGM
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 AGM 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 AGM, the Corporation actively uses electronic
means of communication. All materials relating to the AGM
agenda items are published on the Corporation’s website
in Russian and in English (www.sistema.ru /
www.sistema.com) at least 30 days before the date
of the meeting and are then sent to nominee shareholders
in electronic form2.
Sistema’s shareholders may use the e-voting option available
on the website of the Corporation’s registrar, JSC Reyestr.
To use this service, shareholders should contact the office
General Meeting of shareholders
Annual General Meeting of shareholders
Date
12 August 2022
Form of the meeting
Absentee voting
Items reviewed and decisions taken
▪
Annual report and financial statements for FY 2021 were approved.
▪
The meeting decided not to pay dividends for 2021.
▪
A new Board of Directors was elected.
▪
Auditors were appointed for RAS and IFRS audits for 2022.
▪
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 67.2% of votes
Date and reference number
of the minutes
15 August 2022, No 3–22
Information about General Meetings
of shareholders in 2022
Extraordinary General Meeting of shareholders
Date
19 May 2022
Form of the meeting
Absentee voting
Items reviewed and decisions taken
▪
The meeting determined the number of Board members: nine.
Attended
Shareholders that held a total of 70.1% of votes
Date and reference number
of the minutes
20 May 2022, No 1–22
Extraordinary General Meeting of shareholders
Date
9 July 2022
Form of the meeting
Absentee voting
Items reviewed and decisions taken
▪
The meeting terminated the powers of the previous Board of Directors.
▪
A new Board of Directors was elected
Attended
Shareholders that held a total of 67.8% of votes
Date and reference number
of the minutes
11 July 2022, No 2–22
of JSC Reyestr for access to their personal shareholder
accounts on the registrar’s website. If a shareholder has
a personal account on the e-government portal, they may
get access to the service without applying to the registrar.
More detailed information on the procedure for connecting
to the e-voting service is available on the website
of the Corporation’s registrar 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 AGM 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 AGM.
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 to give shareholders an opportunity to make
informed decisions with respect to disposing of their shares.
When deciding on recommended dividends for 2021,
the Board of Directors took into account the remaining market
volatility and the need to prioritise the Corporation’s financial
stability and sufficient liquidity and recommended that
the Annual General Meeting not distribute dividends for 2021.
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Corporate governance
Board of Directors
Sistema’s Board of Directors
as of 31 December 2022,%
Independent
directors
Executive
directors
Non-executive
directors
Meetings of the Board of Directors
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.
2022
2021
Number of in-person meetings
12
8
Number of absentee votes
6
8
Number of items according to the Board's work plan
50
36
Actual number of items reviewed by the Board
50
73
1
Sistema’s development strategy and investment policy
2
Potential investment projects
3
Management of and value creation for Sistema’s
investments in portfolio assets operating in various
industries;
4
Sistema’s results and performance against budget
5
Budget planning, approval of the consolidated
budget of Sistema and key performance indicators
of the management
6
Management of the Corporation’s risks
7
Work of the Internal Audit Department
8
HR matters and employee incentive systems
9
Assessment of the quality of corporate governance
10 ESG strategy of the Corporation
11
Mandatory corporate procedures, including convening
of the Annual General Meeting of shareholders
and developing of the work plan of the Board of Directors
12 Composition of Board Committees and determining
the status of Board members
13 Approval of transactions, including acquisition of equity
stakes in various companies
Composition of the Board
The Board of Directors effective as of 31 December
2022 was elected at the AGM held on 12 August 2022.
Independent directors account for 56% of the Board
members.
Under Sistema’s Charter,
the responsibilities of the Board
of Directors include:
The Board of Directors considered the following key items
in the reporting period:
▪
Supervising the operations of the Corporation
in general.
▪
Formulating strategic and financial development plans.
▪
Determining investment principles and criteria.
▪
Assessing management’s performance.
▪
Defining corporate governance principles.
▪
Approving transactions and strategic projects
in accordance with applicable legislation
and the Corporation’s internal regulations.
Number of Board
members
9
22
56
22
In 2022, 18 meetings of the Board of Directors were held.
Given external challenges that emerged in the reporting year,
the Board of Directors had to significantly adjust its initial
work plan. The Board specifically focused on the resilience
and stability of the corporate governance system; 16 agenda
items out of the 50 reviewed in the reporting year were devoted
to this topic.
Meetings of the Board of Directors
The Board of Directors is a collective governance body in charge
of the oversight and strategic management of the Corporation.
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Preparation for meetings and quorum
of the Board of Directors
Main focus areas
Score in 2022
Previous score
Membership
and structure
of the Board of Directors
Number of Board members
4.25
4.57
Balance of knowledge, skills and industry
experience of Board members
4.38
4.13
Organisation
of the Board’s work
Content of the Board's agendas
4.50
4.25
Quality and timely provision of materials
4.34
4.38
Quality of discussions at Board meetings
4.50
4.33
Functional areas
of the Board's work
Strategic management
4.30
4.30
Finance and internal control
4.44
4.20
HR policy and corporate governance
4.21
4.20
The resulting total score was 4.36 on a 5-point scale.
Succession planning with view to form a professional Board
was identified as an area for improvement.
Items reviewed by the Board of Directors in 2022 by topic, %
Items reviewed by the Board of Directors in 2022, by topic
Assessment
of the performance
of the Board of Directors
and its Committees
Assessment of the Board of Directors’ performance
is an important tool that helps to identify areas
where the work of the Board of Directors may
be improved. Sistema continues the practice of annual
comprehensive assessments of the work of the Board
of Directors and all of its Committees.
4.36
The resulting total score
of the Board of Directors
points
06
08
12
08
10
14
10
23
6
5
16
5
3
4
7
4
6
9
18
2
4
8
3
32
Business strategy
Appointments and HR policy
Corporate governance
and securities
Approval of transactions
Approval of internal
documents
Participation in portfolio
companies, groups
and associations; branches
Financial statements, planning
and audit
Functional strategies
0
5
10
15
25
20
Business strategy
Participation in portfolio
companies, groups
and associations; branches
Financial statements,
planning and audit
Appointments and HR policy
Approval of internal
documents
Approval of transactions
Corporate governance
and securities
Functional strategies
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
in advance, which gives directors 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.
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In 2022,
the Committee held
Sistema has three committees of the Board of Directors:
01
02
03
Strategy and Sustainability
Committee;
Audit, Finance and Risk Committee
Nomination, Remuneration
and Corporate Governance
Committee.
Committees of the Board of Directors
Key functions of the Committee
Strategy Committee
▪
Discussion and analysis of strategic matters of Sistema Group management
and control over the strategic planning cycle
▪
Preliminary consideration of M&A transactions and major investment projects
▪
Assistance in the formation and implementation of the Corporation’s strategy
in the area of sustainable development
Audit, Finance and Risk Committee
▪
Assisting with the process of preparation and audit of the Corporation’s financial
reports and supervising it
▪
Facilitating interactions with the Corporation’s external auditors
▪
Facilitating the evolution of the Corporation’s risk management and internal control
systems
▪
Facilitating budgeting and financial modelling
▪
Facilitating the evolution of the internal audit function
▪
Facilitating compliance with ethical standards and regulatory requirements
▪
Facilitating the design, development and implementation of the Corporation’s
investor relations strategy, including its dividend policy
▪
Appraisal of related party transactions and major transactions
Composition of Sistema’s Board Committees as of 31 December 2021, %
Strategy Committee
In 2022,
the Committee held
meetings
meetings
meetings
Audit, Finance and Risk Committee
Nomination, Remuneration and Corporate
Governance Committee1
In 2022,
the Committee held
In 2022, the Board of Directors optimised the work of Board
Committees taking into account the available resources
and tasks. The functions of the former Ethics and Control
Committee and the Sustainability and Investor Relations
Committee were distributed between the three other
committees. This structure of the Board Committees
fully ensures comprehensive review of items submitted
for the Board and is in line with best corporate governance
practices.
Key functions of the Committee
Nomination, Remuneration
and Corporate Governance
Committee
▪
Facilitating the development of an effective corporate governance system meeting
high standards at the Corporation and its portfolio companies
▪
Conducting a preliminary review of candidates:
– for the Board of Directors of Sistema
– for the boards of directors of portfolio companies
– for senior management positions across Sistema Group
– for the position of the Corporation’s Corporate Secretary
▪
Developing the Corporation’s incentive and remuneration policies
▪
Organising assessment of the Board’s performance
Functions of the Board Committees
▶
▶
1
The President of Sistema PJSFC attends Committee meetings in the capacity of a permanent invitee and does not vote on matters submitted for consideration of the Committee.
6
10
13
40
25
20
40
75
80
20
Independent
directors
Executive
directors
Non-executive
directors
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.com/about/corpmanage/docs.
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Corporate governance
as well as in industries where Sistema already has a presence.
The Expert Council is tasked 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.
Risk Committee
The Risk Committee’s responsibilities include:
▪
Assessment of the most material risks facing
the Corporation and its portfolio companies.
▪
Ensuring the preparation of a risk register and a generalised
risk map of Sistema.
▪
Preparation and approval of risk assessment reviews.
▪
Development of proposals regarding acceptable risk levels
(risk appetite) for Sistema.
▪
Coordination of risk management strategies and plans
and monitoring of their implementation.
▪
As of 31 December 2022, the Committee consisted of 13
members. The Committee is chaired by the Vice President
for Finance.
In 2022, the Risk Committee held five 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 and other
operational matters pertaining to risk management across
Sistema Group.
Tender Committee
The responsibilities of the Tender Committee include:
▪
Ensuring the acquisition of goods, works and services
on the best terms available
▪
Minimising the costs of purchase (ownership, operation)
of goods, works and services without compromising their
quality
▪
Ensuring the sale of Sistema’s property and rights as they
become irrelevant to the company’s operations on the best
economic terms available
▪
Ensuring the transparency of procurement procedures
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 the Vice President for Finance.
In 2022, the Tender Committee held 22 meetings.
President
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.
These committees are permanent consultative collective
bodies tasked with a detailed analysis of current affairs
and processes within their remit and with assisting
the President and the Management Board in decision-making.
Finance and Investment
Committee
The responsibilities of the Finance and Investment Committee
include:
▪
Review of the Corporation’s investment projects at different
stages from conception to completion
▪
Approval of the financial model, business plan and hurdle
rate for each investment project
▪
Making recommendations regarding viability of projects,
exit scenarios, and sources of financing
▪
Review of external financing terms
The Committee considers the Corporation’s investment
projects once they are approved by the Expert Council.
The Committee’s approval is required for further review
of the project by the Board of Directors.
As of 31 December 2022, the Committee consisted
of 12 members. The Corporation’s President is the chair
of the Committee.
In 2022, the Committee held 43 meetings.
The Finance and Investment Committee oversees
the work of the Expert Council, the Budget Subcommittee
and the Remuneration Subcommittee.
The Expert Council consists of 12 members and considers
all of the Corporation’s new investment ideas and projects
for acquisition of assets in new and adjacent industries,
Governance bodies reporting to the President
and the Management Board
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 AGM, 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 Annual General
Meeting of shareholders of Sistema PJSFC. The President
chairs the Management Board of Sistema.
The Management Board of Sistema PJSFC determines
methods for the implementation of the Corporation’s
development strategy, formulates development plans,
determines and monitors investment processes
and previews strategic matters to be subsequently submitted
to the Corporation’s Board of Directors.
In 2022, the Management Board held 7 meetings and reviewed
17 agenda items in the following key areas:
▪
Development strategy, value creation and monetisation
of Sistema’s investments in various industries
▪
Risk management
▪
Financial planning and control
▪
ESG strategy of Sistema
▪
Review of various deals
The Board of Directors approved the composition
of the Management Board in May 2020. As of 31 December
2022, the Corporation’s Management Board consisted of 12
members.
43
held by the Finance and
Investment Committee
meetings
meetings
meetings
5
held by the Risk Committee
22
held by the Tender Committee
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Corporate governance
Features of the risk management,
internal control and internal audit system
Risk management
Sistema’s risk management system employs a two-level
approach, under which the risks identified at Sistema and its
portfolio companies are consolidated to assess their impact
on Sistema Group as a whole.
The enterprise risk management system (ERM) used
by the Corporation addresses the following tasks:
▪
Identification of risks at all levels of management (from
the top to line management), which includes identifying risk
owners and making risk passports.
▪
Primary assessment of the materiality of identified risks
and their analysis (VaR methodology).
▪
Ranging risks by management levels.
▪
Assessment of the aggregate influence of material risks
on the Corporation’s key financial indicators (Monte Carlo
modelling).
▪
Development of plans to mitigate identified risks at all
management levels.
▪
Regular monitoring of performance against mitigation plans
and assessment of their effectiveness.
▪
Risk monitoring, quarterly reports on risks facing
the Corporation.
Sistema’s risk management procedures are carried out by risk
owners with the support of professionals from the Risk
Management Department.
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 reviewed at least on a quarterly
basis by a special Expert Group of the Risk Committee, which
includes representatives of the Corporation’s key departments.
The risk management system is monitored by Sistema’s Risk
Committee and Management Board.
Sistema’s senior executives make regular reports on risk
management at the Corporation to the Audit, Finance and Risk
Committee, which translate into further reports to the Board
of Directors.
Internal control system
Sistema’s internal control system is based on advanced
international and Russian internal control practices
and methodologies, covers all the material decision-making
levels and serves the best interests of the Corporation’s
shareholders, investors and management.
The internal control system and the responsibility
for implementation of control procedures are formalised
in codes, policies, procedures and other internal regulations
of the Corporation.
The Internal Control Policy was approved by the Corporation’s
Board of Directors and is an internal top-level document
describing the key principles of internal control as a continuous
and integrated process that involves all units and governance
bodies of the Corporation.
The Corporation methodically works on the development
of a regulatory framework designed to govern all matters
relating to internal control by means of cascading them from
the level of the Board of Directors to the level of employees.
The key objectives of the internal control system are:
▪
Creating new and improving existing control mechanisms
that will ensure efficient business processes
and the implementation of the Corporation’s investment
projects.
▪
Ensuring the safety of the Corporation’s assets and efficient
use of its resources.
▪
Protecting the interests of the Corporation’s shareholders
and preventing and resolving conflicts of interest.
▪
Creating conditions for 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).
Level 1. Heads and employees of the Corporation’s
subdivisions are responsible for building an effective internal
control system and assessing and managing risks within their
remit.
Level 2. Sistema’s controlling bodies and Committees perform
control functions, e.g.:
▪
The Risk Committee and the risk management
function are responsible for developing and monitoring
the implementation of effective risk management practices.
▪
The Finance and Investment Committee of the Corporation
approves and monitors the implementation of investment
projects.
▪
The Security Department is in charge of comprehensive
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 of control mechanisms.
▪
Notification about irregularities, abuse of office, conflicts
of interest.
▪
Ethical standards of business conduct.
▪
Awareness of the Corporation’s employees about
the internal control system.
All of the Corporation’s employees 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.
Internal audit
The Internal Audit Department reports to the Board
of Directors (functionally) and Sistema’s President
(administratively). The 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 divisions and employees
of the Corporation.
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 on improving
it to the governance bodies, the relevant committee,
the divisions and employees of the Corporation.
▪
Assesses the level of corporate governance
at the Corporation and gives recommendations
on improving it to the governance bodies, the relevant
committee, the divisions and employees of the Corporation.
▪
Assesses the reliability and effectiveness of the risk
management system of the Company and gives
recommendations on improving it to the governance
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Corporate governance
Assessment of the Board
of Directors’ performance
After many directors resigned from the Board in spring 2022,
the Board for some time was not authorised to make decisions
pertaining to strategic matters and approval of transactions,
but this problem was successfully resolved in July 2022, when
a new Board was elected. The Board acquired a lot of new
members, but the existing corporate governance system
ensured succession in the work of the Board and management
of the Corporation. Moreover, the Board and Board
Committees still meet the requirements of the Listing Rules
of the Moscow Exchange pertaining to the number and share
of independent directors.
In 2022, nine members were elected to the Corporation’s
Board of Directors, five of which qualified as independent
directors according to the Listing Rules of the Moscow
Exchange 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.
In July 2022, the work of the Board Committees
was optimised taking into account available resources
and tasks. The functions of the Ethics and Control Committee
and the Sustainability and Investor Relations Committee
were distributed between the three other committees.
This structure of the Board Committees fully ensures
comprehensive review of items submitted for the Board
and is in line with best corporate government practices.
Drawing from the experience of 2022 and the results of self-
assessment the Board of Directors formalised the principles
and approaches that were already used by the Corporation
for ensuring the succession of Board members by approving
a relevant policy in December 2022.
Development of the corporate governance
system in 2022
01
02
Revision and update of the Corporation’s regulations
on information turnover (incl. insider information) taking
into account actual and potential changes in the regulatory
framework (before the end of 2023).
Development of the Group’s approaches to responsible
investment, including recommendations for the Corporation’s
employees that sit on boards of directors of portfolio
companies on key ESG aspects and risks, and organising
events for exchange of experience on sustainable development
between the Group companies (throughout 2023).
Plans for 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 2023, which was developed
taking into account the results of the external assessment
of the Board of Directors, among other things, envisages
the following steps:
1
In January 2023, the task of administering the Hotline was transferred to Sistema’s Security Department.
bodies, the relevant committee, the divisions and employees
of the Corporation.
▪
Provides consultations to the divisions 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.
▪
Provides consultations to the governance bodies, divisions
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 Department1.
▪
Regularly meets with the external auditor of the Corporation
and other persons providing assurance to the Corporation.
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.
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 of the Board of Directors and are also submitted
for consideration by the Board of Directors.
In 2022, the Internal Audit Department conducted 28 audits
to assess the effectiveness of the Corporation’s internal
control, risk management and corporate governance systems.
The audits performed by the Internal Audit Department
did not uncover any weaknesses or risks that could affect
the sustainability of the Corporation’s business as a whole.
Specific comments pertaining to various aspects audited
were communicated to stakeholders in a timely manner
and followed up by recommendations on how to eliminate
them.
Sistema’s Internal Audit Department actively develops
automation technologies in an effort to improve
the effectiveness of audit procedures.
External audit
In compliance with the decision of the Audit, Finance and Risk
Committee, the Corporation uses the following procedures
to appoint independent auditors of Sistema’s financial
statements. The Committee performs 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.
Resolution of conflicts
of interest
Matters related to conflicts of interest are governed
by the Corporation’s Code of Ethics as well as the laws
of applicable jurisdictions. The Corporation has an ethics
assessment procedure: all top managers 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 2022, the results of the ethics declaration campaign
were reviewed by the Audit, Finance and Risk 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 practices.
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Corporate governance
2022
2021
Remuneration
for work as member
of the Board
of Directors
150,702,700
390,957,500
Salaries4, 5
28,358,700
398,492,500
Bonuses 5
91,000,000
351,123,200
Remuneration
for work as member
of the Board
Committees
5,191,500
9,380,000
Reimbursement
of expenses incurred
by Board members
in connection
with their duties
175,700
824,200
Remuneration paid to Sistema’s Board
members and senior management1
2022
2021
Payroll3
608,120,600
988,800,200
Bonuses
3,707,352,200
3,982,281,800
Other types
of remuneration
265,600
6,870,000
The short-term incentive scheme for the top managers
of Sistema PJSFC in 2022 consisted of:
▪
A fixed monthly salary determined in line with the internal
system of job categories (grades).
▪
Bonuses paid for implementation of projects, generation
of cash income, achievement of KPIs and set objectives.
Remuneration is paid based on employees’ individual
performance and positive cashflow generated by projects
implemented by the teams of Managing Partners
and Departments of Sistema. Payments may amount to 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
generated value of an asset (in the event of sale or IPO) less
a) 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 acquisition of an asset; b)
investments made in such an asset and project costs; c) selling
and administrative expenses of the corporate centre, including
payroll.
Other terms and conditions
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 policy applied to Sistema’s senior
management
Remuneration paid to Sistema’s
Management Board members2, RUB
Remuneration and compensation paid
to Sistema’s Board members, RUB
1
All figures in this section are given before the applicable income tax.
2
Including Sistema’s President and other executive members of the Board
of Directors.
3
This amount includes holiday pay and severance pay.
4
Remuneration in the form of salaries and bonuses is the compensation allocated
in the reporting period to the non-executive directors sitting on the Board
of Directors.
5
This amount includes holiday pay and severance pay.
Remuneration policy applied to board
members and senior management
Remuneration policy applied
to Sistema’s Board members
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) had to 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.
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.
Two versions of the Policy were in force during the reporting year:
▪
The version approved by the General Meeting
of shareholders on 29 June 2019 (in force during corporate
year 2021/2022).
▪
The version approved by the General Meeting
of shareholders on 12 August 2022 (in force during
corporate year 2022/2023).
Key differences between the two versions are described below.
Basic remuneration
of members of the Board
of Directors
During the reporting year, the basic remuneration of Board
members equalled:
▪
In case of remuneration paid for corporate year 2021/2022,
RUB 13.7m or RUB 17.8m, depending on whether a Board
member had the status of Russian tax resident.
▪
In case of remuneration paid for corporate year 2022/2023,
RUB 13.7m regardless of whether a member had the status
of Russian tax resident.
Basic remuneration was paid to Board members in cash
in equal quarterly instalments.
Additional remuneration
of members of the Board
of Directors
In accordance with the Policy in effect during corporate year
2021/2022, additional remuneration in the form of Sistema’s
ordinary shares was paid to members of the Board of Directors
subject to capitalisation growth in the reporting year1.
The amount of additional remuneration was set as a variable
equal to a share of the increase in capitalisation for the financial
year2 and in any case was limited by the amount of basic
remuneration (i.e. could not exceed RUB 17.8m).
According to the new version of the Policy, the General
Meeting of shareholders may pass a decision
on payment of additional remuneration to members
of the Board of Directors. The Nomination, Remuneration
and Corporate Governance Committee shall in this case
issue a recommendation regarding the amount and form
of payment of any such additional remuneration.
Remuneration
for performance of additional
duties
According to the version in effect in corporate year 2021/2022,
members of the Board of Directors performing additional
duties, i.e., the Chair of the Board, Deputy Chair of the Board
and Chairs of Board Committees, received remuneration
in the amount stipulated by the Policy on a quarterly basis.
According to the new version of the Policy, only the Chair
of the Board receives remuneration in the amount stipulated
by the Policy on a quarterly basis.
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 members of the Board
of Directors.
Sistema does not provide loans to members of the Board
of Directors.
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Corporate governance
Sistema’s 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 efficient assessment
of the existing risks and the probability of their occurrence,
as well as effective risk management, an important part
of Sistema’s strategy.
Being an integral part of Sistema’s 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.
Sistema has in place an Integrated Risk Management Policy.
The purpose of integrated risk management is to build
and maintain an efficient system for:
▪
Identification and systematic analysis of the Sistema’s
risks.
▪
Mandatory risk analysis accompanying managerial
decisions.
▪
Distribution of responsibilities for risk management.
▪
Preparation of careful response/mitigation plans
and the control of their implementation.
▪
Monitoring of risks and the efficiency of risk management.
▪
Preparation of risk management reports for various
collective bodies within Sistema and for other stakeholders.
▪
Accumulation of knowledge on integrated risk
management.
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 uses the following methods of risk management:
1
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.
2
Risk reduction means controlling and preventing a risk while
owning it and influencing 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.
3
Risk acceptance means assuming a risk without exerting
any influence on it. This method is used when the associated risk
level is acceptable to Sistema or when influencing the risk would
be impossible or economically impractical.
4
Risk transference means handing a risk over to a third party
where modifying it within Sistema would be impossible or
economically impractical and its monetary value is greater
than the limit deemed acceptable to the Corporation. Risk
transference may take the forms of insurance, hedging,
outsourcing, etc.
For Sistema, insurance is an inextricable part of risk
management. Insurance is fully integrated in the corporate
risk management toolkit and protects the financial interests
of Sistema and its shareholders against unforeseen losses
Risk management
system
Integrated risk management system
and the Group’s risk appetite
3rd
line of defence
1st
line
of defence
2nd
line
of defence
Functional
reporting
Board
of Directors
Management
Board/President
of the Corporation
Audit, Finance
and Risk Committee
Managing
Partners
Functions
and Departments
Risk management
Internal control
Compliance
Internal Audit
Department
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that may arise in the course of business processes, whether
as a result of external effects or otherwise.
Sistema 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 signed 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.
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 structure of cash flows of Sistema Group companies
should guarantee the timely fulfilment of obligations
to counterparties in the short 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.
▪
Impeccable business reputation and avoidance
of any action potentially damaging to such business
reputation.
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 financing.
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
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, South and Southeast Asia. Many products
of the Group’s companies are exported to the CIS, Southeast
Asia 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
losses.
Political and economic instability, as well as any potential
downturn or slowdown in Russia’s economic growth, may lead
to a decrease in household incomes and consumer demand,
which could 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.
Due to the situation in Ukraine, Western countries and
supranational unions of states imposed sanctions on a
number of Russian citizens and companies. In particular, in
April 2022 and April 2023, respectively, the UK Government
imposed asset freeze sanctions and certain other sanctions
on two shareholders of Sistema, Vladimir Evtushenkov and
Felix Evtushenkov.
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 any sanctions imposed on the Group may
prevent the companies of the Group from cooperating with
the government authorities of the US/EU/UK, result in civil or
criminal penalties being applied to the sanctioned persons or
Industry risks
Sistema is faced with diverse risks associated
with the presence of Sistema’s portfolio companies in various
sectors of the economy. The most material risks are related
to the Group’s operations in the telecom, electric power,
retail (including e-commerce), banking, high tech, hospitality,
healthcare, pharmaceuticals, timber, agricultural and real
estate industries.
Any significant change in these industries may have a material
negative impact on the financial standing of Sistema’s
portfolio companies and on the Group as a whole.
Sistema’s external risks
and the access of the 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.
Unfavourable macroeconomic environments in many
countries where Sistema has businesses may
make it necessary to re-evaluate goodwill
for some of the Company’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.
their personnel in accordance with the laws of the US/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 of the Group.
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.
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Corporate governance
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.
▪
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.
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.
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:
▪
Possible discrepancies and ambiguities in: (i) federal
and other laws; (ii) bylaws issued by the executive
authorities of the states where Sistema Group operates;
(iii) regional and local laws, rules and regulations.
▪
Gaps in legislation and lack of court and administrative
guidelines on the interpretation of some laws,
as well as conflicts between certain court guidelines
and rulings.
▪
Influence of political, social and commercial factors
on the judicial system.
▪
Potential selective or discretionary actions of government
authorities.
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 due
to its having foreign shareholders.
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.
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 of legal interpretation and a lack of relevant
legal precedents.
Risks related to stock
markets
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 likely
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Corporate governance
Risks related to Sistema Group’s operations
Implementation of business
strategy
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.
The development of Sistema Group companies depends
on numerous factors, including the receipt of necessary
permits from state authorities, sufficient demand from
consumers, successful development of technologies, efficient
risk and cost management and 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 results..
Acquisition, integration,
disposal or restructuring
of assets
Sistema implements its strategy via acquisitions, disposals
and restructuring of assets. New investment opportunities
come with various risks, including failure to find relevant
targets or their not being available for acquisition, 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.
▪
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.
▪
Assuming excessive obligations towards the buyer.
▪
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.
Management and key
personnel
The implementation of Sistema’s strategy to a large degree
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.
Cash flows from Sistema
Group companies
The Corporation’s financial performance depends
on the ability of Sistema Group companies to generate cash
flows needed to service its financial liabilities, including
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.
Borrowings
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
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. The estimates and their underlying
assumptions are formed on the basis of previous experience
and other factors that are considered relevant in the given
circumstances. The actual results may differ from these
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 covenants
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.
to lead to a lack of working capital and cash available
for investment and significantly undermine the Corporation’s
financial performance.
Risks related to delisting
In April 2022, Federal Law No 114-FZ “On amending
the Federal Law “On joint-stock companies” and other laws
of the Russian Federation” came into force. The law requires
that Russian issuers stop trading their shares in form
of depositary receipts, except for cases when a decision
to continue their depositary receipt programme is made
following an issuer’s application.
The Corporation filed an application with the Russian Finance
Ministry and obtained permission to continue trading its
depositary receipts outside Russia till 13 May 2023.
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Corporate governance
Licences and permits
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.
Regulating authorities to a large extent rely on their own
judgement when interpreting and implementing legal
requirements, issuing and extending licences, approvals
and permits, and monitoring compliance with such licences.
There is no guarantee that the existing licences and permits,
including those issued to the Group’s companies, will
be extended, that new licences and permits will be issued
or that the companies will be able to comply with the terms
of such licences. There is no guarantee either that existing or
future licences or permits will not be suspended or revoked
on some grounds. Any of these circumstances may have
material negative consequences for Sistema’s business.
Privatised companies
The portfolio of Sistema Group contains several privatised
assets. In the future, the Corporation or Group companies 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.
Compliance with applicable
laws and regulations
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, prevention of money laundering
and terrorism financing, adherence to the information security
policy and 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.
Moreover, the activities of Sistema and its portfolio assets
are regulated by the anticorruption laws of the jurisdictions
where they conduct their business or where their securities
are listed.
Human rights
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, customer and consumer. Any instance
of human rights violations would adversely affect
the Corporation’s reputation and lead to court disputes, loss
of investor, customer 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 databases 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 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.
Competition
All business segments where Sistema operates are exposed
to competition from other companies. Telecom, electric power,
retail (including e-commerce), hospitality, private healthcare,
pharma, banking, high tech, real estate, timber and agricultural
markets in Russia and elsewhere are highly competitive.
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.
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.
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Corporate governance
SUSTAINABILITY
MANAGEMENT
174
Management
system
176
Responsible
investment
180
Key ESG
areas
188
Social investments
and activities
172
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Sustainability management
The key functions of the Strategy
and Sustainability Committee,
which is chaired by the Chair
of the Board of Directors include
For more details please visit: https://sistema.com/upload/
iblock/214/0cz3o4162nityp8s4euvrwinpmu5ph7z/
Annex-2.-TERMS-OF-REFERENCE-OF-THE-STRATEGY-
AND-SUSTAINABILITY-COMMITTEE-OF-THE-BOARD-OF-
DIRECTORS.pdf
Other Committees of the Board of Directors consider certain
ESG aspects (including corporate governance and ethical
business conduct) within their respective mandates.
The key principles and approaches of the ESG strategy
are consistently cascaded to the Group level through Sistema’s
representatives on the boards of respective companies.
In 2022, Sistema presented an ESG strategy that had been
approved by the Board of Directors. The strategy is aimed
at increasing the stability of Sistema’s investment portfolio,
strengthening Sistema’s positive influence on social
development and decreasing its impact on the environment
by means of effective asset management.
The Corporation’s ESG strategy is based on the fundamental
assumption that high-quality corporate governance, account
for social and environmental risks and opportunities increase
the long-term value and stability of a business, especially amid
high market volatility and economic turbulence.
At the new stage, the Corporation’s strategic ESG priorities
are still responsible investment and asset management
with view to create value for its shareholders and a broad
range of stakeholders. The next cycle of implementation
of the Corporation’s sustainability strategy envisages
break down of approaches to the assessment of ESG
profiles of potential investments and portfolio businesses
by industry in order to avoid potential risks and identify
additional business opportunities related to working on such
socially important tasks as inclusion and mobility, healthy
lifestyle and healthcare, affordable housing and accessible
city infrastructure, clean energy, reduced waste and circular
economy, public catering, etc.
Sustainable development strategy https://sistema.com/upload/
iblock/049/qcmocrz8ygo9s4xrx8af0wkrjtw9984p/Sistema_ESG-
Strategy.pdf
Sistema’s guiding
corporate responsibility
principles
For more details please visit: https://sistema.com/upload/
iblock/0b6/0b6ebeabe7c86c5ccb7f3bb96b76c45c.pdf
Management system
Risk management
Employee care
Integrity and transparency
Focused allocation of
financial and intellectual
resources on promoting
innovation
Respect for human rights
Respect
for the environment
Ethics, loyalty and honesty
Investment in socially
impactful projects and
programmes
01
05
02
06
03
07
04
08
supporting the strategy
development
and transformation
of the Corporation’s
business processes in line
with the sustainability
and responsible investment
principles;
developing recommendations
for enhancing the ESG
strategy of the Corporation
and the Group companies;
reviewing the corporate
charity strategy.
Sistema’s Board of Directors plays a key role in determining
the strategic areas of the Corporation’s activities in the area
of sustainable development and overseeing its results. In the middle
of 2022, Sistema’s Board of Directors approved Terms of Reference
of the Strategy and Sustainability Committee of the Board of Directors.
The updated Terms of Reference provide for the Committee’s leading
role in setting the Corporation’s ESG agenda.
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Sustainability management
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.
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
of production base, infrastructure and technology, related
social obligations and environmental risks can also
be considered for specific projects.
Since 2020, Sistema’s strategic approach
to responsible investment has been incorporated
into a new set of investment criteria, including ESG
factors, that were approved by the Board of Directors
and into corporate governance regulations. Sustainable
development became an integral element of Sistema’s
strategy, carrying weight in all investment decisions
and asset management strategies.
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.
Participation in sustainable development initiatives
Implementation
of principles
for responsible
investment
In 2022, Sistema became one of the founders
of the National ESG Alliance to support transition
of the Russian economy to sustainable development through
partnership and consolidation of efforts of stakeholders
for the purpose of preserving the environment and ensuring
prosperity of society and long-term business growth.
Sistema in ESG ratings and awards
2021
2022
2020
2019
BB
B
BB
BB
When exiting investments
▪
Ensuring the independence and reliability of sustainability
management systems within the company
▪
Preparing reference notes and guidelines on sustainability
When managing assets
▪
Baseline sustainability requirements for portfolio
companies and extra requirements when preparing for IPOs
▪
Engagement with portfolio companies via their boards
(as per established corporate procedures) to enhance
sustainability management and drive ESG performance
When building asset portfolio
▪
No «toxic» industries and activities that are forbidden
by local law or international standards
▪
Attention to the ESG profile of each company when making
investment decisions
2022
low ESG risk
2021
2020
11.5
12.1
15.3
The value of the company has low exposure to the risk
of significant financial impact caused by ESG factors.
№ 1
Best score among
Russian companies
№ 32
out of 900+
companies in the industry
group «Diversified
Financials»
Group
A
which comprises 18 companies
with the highest individual scores in the
index
index
“Responsibility
and Transparency”
Group
B
which comprises companies
with positive changes in the
“Sustainable Development
Vector”
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Sustainability management
Change Management. Visionaries award.
Sistema won the Successful Start nomination of the “Change Management.
Visionaries” award for creating a centre of excellence in the area of multistory
CLT housing construction in Russia
Corporate Charity Rating
ESG rating of sustainable
corporate governance
ESG transparency ranking
Sistema is among 12
participants of the 2022
Leaders of Corporate Charity
rating
Sistema is one
of the leaders of corporate
ESG practices in Russia
Information disclosure
by MTS is close to maximum
and the highest among
telecom companies
MTS is a leader
in the rating
MTS is demonstrating
best corporate ESG
practices
Segezha Group is the leader
in the pulp&paper industry
Segezha Group is included
in the list of companies
with best practices
Segezha Group has well-
developed corporate ESG
practices
Etalon Group
A+
A+
1.86
A+
A
1.23
A+
B+
1.16
points
points
points
1
According to assessment published in December 2021.
Management
B
ESG ranking of public financial companies
Corporate Governance Index
Survey of the companies’ contribution
to the National Projects
Sistema received a diploma for the 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
AMONG THE TOP
TOP
TOP
TOP
in the general rating of 150+ largest Russian
companies
Sistema is among the top 3 out of 30 leading Russian banks, financial organisations
and insurance companies included in the ESG ranking
Sistema is among the leaders of disclosure of corporate governance information
included in the MOEX index
Sistema and MTS made it to the top 11 of 66 Russian
companies that had received a request from investors
to disclose information about climate change risks1
15
3
20
11
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Sustainability management
Key ESG areas
INVESTMENT
STRATEGY
Sistema identified three key ESG areas to cultivate through
investing, with a view to achieving a meaningful positive
impact:
The Corporation’s activities are underpinned by developed corporate governance practices and effective cooperation
of the Group companies.
Key ESG areas
Corporate
governance
and synergies
Accessibility and quality
Well-being
Smart environment
▪Access to products, services
and information
▪Customer experience
▪Product stewardship
▪Human capital
▪Health and safety
▪Data privacy and security
▪Smart homes, cities
and industries
▪Operational eco-efficiency
▪Energy management and climate
change
▪Business ethics
▪Human rights and stakeholder
engagement
▪Risk management
▪Innovation management
▪Sustainable supply chain
smart, efficient
and safe
environment
well-being
of employees,
customers
and local
communities
accessibility
and quality
of products
and services
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 at 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.
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Sustainability management
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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 the value creation potential vary across the Group. Below we provide
some of the most illustrative examples of the efforts portfolio companies
made in 2022.
Development of services
for entrepreneurs
information, the platform will generate a set of documents
to be filed with the Russian Federal Tax Service that fully
meets all regulatory requirements. MTS Your Business also
includes a project for supporting small businesses, Know
in Person. Participants of the project may receive legal
and marketing consultations, help with speaking at industrial
conferences and forums and also bonuses from products
of MTS Your Business. The service includes an online map
showing information about 5,000 entrepreneurs from 41
Russian cities.
Expansion in regions
of operations
In 2022, Sistema signed strategic agreements
with four regions of Russia (Astrakhan, Perm, Adygeya
and Bashkortostan). These agreements are aimed
at promoting a favourable economic and social climate
in the regions, making them more attractive for businesses
and comfortable for local residents and tourists. The key
areas of cooperation are development of industries,
telecommunications, healthcare and tourism and construction
of housing and infrastructure.
The agreement with the Astrakhan region envisages
implementation of projects aimed at development of tourist
and housing infrastructure, agriculture and healthcare.
Sistema and the Astrakhan region also intend to cooperate
in the telecom sector by developing projects related to facility
management systems, information security monitoring
and transport infrastructure.
The strategic agreement between Sistema
and the government of the Republic of Adygeya envisages
cooperation in IT, including digital transformation of the key
economic sectors and the social sphere.
The agreement on cooperation between Sistema and the Perm
region in the development of river tourism and passenger
transportation by water transport envisages creation of modern
eco-friendly electric water transport and development
of the necessary transport and charging infrastructure.
Priority areas of cooperation between Sistema
and the Republic of Bashkortostan include development
of new industrial facilities related to availability of affordable
power sources and prompt connection of users to local power
grids.
As part of development of its international business, Ozon
expanded its chain in several countries in 2022. The company
opened a sorting centre in Bishkek. It receives, processes,
assembles and packages orders. Opening of the sorting centre
in the Kyrgyz Republic will help to expand the range of textile
and homeware products on the platform. Ozon also opened
a logistical centre in Astana. This will enable sellers from
Kazakhstan to start selling to the marketplace’s multi-million
loyal audience in Russia, will drastically increase the number
of local sellers on the platform and help Kazakhstani
businesses to reach a broader circle of customers and make
deliveries cheaper. Ozon opened a representative office
in Istanbul. This is the company’s first foreign office outside
the CIS. Employees of the Turkish office will be responsible
for attracting sellers and retailers to the platform to expand its
product mix. The company plans to focus on Turkish apparel
brands.
In 2022, Etalon continued its expansion in new regions
and started working on new construction projects in Omsk,
Yekaterinburg and Tyumen with an aggregate area of over 3m
sq m. Simultaneously with housing construction, the company
develops social infrastructure in districts under development,
building clinics, schools and public spaces.
Ozon and the My Business entrepreneurs’ support centre
launched a free education programme for entrepreneurs
titled «Ozon. Start. Businessmen». First-time entrepreneurs
learned how to start selling their products on the marketplace.
In addition to practical skills and knowledge about Ozon’s
functioning, project participants can receive initial capital
for their businesses. The education programme was launched
in several regions in a test mode and will later be rolled out
across Russia.
MTS developed a new service, ID Scan, which offers
automated risk monitoring thus helping small and medium-
sized businesses to save time on screening counterparties
and hiring employees. The service will help entrepreneurs
to avoid risks related to fraudulent activities of employees
or partners. It also enables employers to update information
about employees for a specific period of time, thus providing
them with warnings about changes in the balance of risk
factors in a real-time mode. Information for the report
is collected from 15+ open sources, including state
information systems, such as the Unified State Register
of Legal Entities, Unified State Register of Individual
Entrepreneurs, the Federal Bailiff Service, etc.
MTS also launched a number of services for supporting
small and medium-sized businesses as part of its online
digital project MTS Your Business. It now offers its users
free registration of their business. It will take entrepreneurs
15 minutes to prepare a set of documents for registering
as an individual entrepreneur or a limited liability company
without leaving home. After a user provides the necessary
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Sustainability management
Development of healthcare
services
In 2022, the Alium production facility (part
of Binnopharm Group) increased its output by 25% compared
to the previous year, producing 64.5m packs of medications.
The facility began producing 13 new drugs, some of which
are on the government’s list of vital and essential drugs.
In 2022, Sistema BioTech developed 12 innovative natural
medications aimed at prevention and correction of a number
of common conditions, including diabetes and reproductive
function disorder. The new drugs will be launched
on the Russian market in the near future.
Medsi and the UNIM pathology laboratory signed
an agreement on centralisation of cancer diagnostics
at the chain’s clinics based on the company’s Digital Pathology
software. The clinics received access to Russia’s biggest
database of pathologists. The developed software will be used
to hold multidisciplinary online consultations with pathologists,
surgeons, etc.
Medsi had the AI Monitoring and AI Diagnostics
systems installed at its clinics. AI Monitoring is a system
of uninterrupted analysis of video stream from hospital
cameras to prevent such events as a patient’s fall, bed sores,
etc. The service was actively used at Medsi’s COVID-19
hospital in Otradnoye. As a result, time of nurses’ response
to such events was reduced from hours to a few seconds.
Development
of human capital
Sistema Charitable Foundation (SCF) launched a scholarship
programme for young people across Russia as part of its
national education project Lift to the Future, which helps
school and university students and graduates to develop
professional skills. A number of Sistema Group companies
took part in the development of the scholarship programme.
The goal of the programme is to help school and university
students with broadening their knowledge and choosing
a career. The budget of the programme is RUB 30m.
In 2022, Segezha Group actively worked on its School
of Masters project aimed at developing the professional
knowledge and leadership skills of line managers
at production facilities (foremen and heads of shops
and divisions). By the end of 2022, a total of 57 participants
received advanced training certificates and began applying
new skills to efficiently organise the work of their shops
and divisions. The training not only brought new knowledge
and competences, but also entailed a solid financial reward:
increase of the wage premium to 25% of the fixed salary,
to which district and northern premiums are applied.
The training sessions, master classes and workshops
for development of professional competences, leadership
skills and personal efficiency were delivered by invited
teachers and experts.
Segezha Group continued developing its Idea Factory
programme to engage staff in generating ideas about
work improvements and lean production. The programme
is carried out at all enterprises of Segezha Group in all regions
of operations. Each participant aims to find and eliminate
a real or potential loss in the production process and can
come up with a way to enhance operational efficiency, reduce
costs or improve business processes. Segezha Pulp and Paper
Mill has achieved the biggest success with the programme.
In 2022, its employees registered 188 improvement proposals,
55 ideas were approved for implementation and 32 projects
were carried out.
MTS launched Russia’s first free online course on data
annotation for the first stage of building neural network
algorithms for special needs people, including those
on the autistic spectrum and with impaired hearing. The best
students will be offered internships at MTS AI and NtechLab,
which develop AI-based software. The comprehensive online
learning course takes three months and includes 22 hours
of interactive video lectures and about 28 hours of practice.
Enhancement of operating
efficiency
In 2022, Steppe AgroHolding began using machine
vision to assess sunflower crops. The technology uses air
photography to calculate the number of plants on a field
with an error not exceeding 1%. This enables the company
to assess the quality of crop seeds and field works,
as well as the efficiency of plant protection used. Computer
vision also helps to monitor the development of crops
and promptly adjust applied agricultural technologies.
As part of Segezha PPM’s environmental programme,
Segezha Group replaced lime coolers in all the three lime kilns
of the mill’s chemical block. The new coolers will enhance
the efficiency of the technological process and ensure
the hermetic state of kilns during lime cooling, thus preventing
it from getting into discharged air. Thus, the replacement
will help to significantly improve the environmental situation
in the town of Segezha.
LLC Bashkirenergo (a subsidiary of JSC BPGC) began work
to replace outdated oil-filled equipment of substations
with modern gas-insulated equipment. This will improve
the technical characteristics of the power grid equipment
and improve environmental safety, contributing to a favourable
environmental situation. Gas-insulated switches are fire-proof,
have a small size and weight, are noiseless and have increased
switching capacity.
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Sustainability management
Restoration and development
of natural ecosystems
Being one of the country’s largest logging companies,
Segezha Group takes reproduction of forest resources
in its regions of operation very seriously. Last year,
the company carried out reforestation work on about
60,000 ha (compared to 38,600 ha in 2021). The increase
in the area of reforestation efforts was due to participation
of the company’s new assets in the Irkutsk and Krasnoyarsk
regions. Reforestation work is performed on all clear-cut
plots after the end of logging and removal of logged timber.
In logging areas, 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 moisture, 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 landscapes that are classified as protective forests.
Steppe AgroHolding contributes significantly to reforestation
in its regions of operation in the South of Russia. In 2022,
the company planted trees in the Stavropol and Rostov
regions as part of its large-scale project to improve
the environment and preserve soil fertility. The aggregate
planted area was about 160 ha, and the cost of this project
is estimated at RUB 11.5m. Restoration of wood lines is part
of the programme to protect and improve soils, which
is included in the company’s Sustainability Strategy till 2030.
The Group companies also perform reforestation work
as part of volunteer initiatives and campaigns. In 2022,
employees of Segezha Group’s Vyatka Plywood Mill
participated in the Save Forest campaign in the Kirov region.
Volunteers and participants of the enterprise’s youth council
planted about a hundred pine saplings on the territory
of the Bobinsky forest district in Kirov. In autumn 2022,
Segezha Group’s volunteers in the Irkutsk region took
part in a volunteer clean-up in Ust-Kut. They cleaned up
the territory of a local community centre and planted 60
decorative bushes.
Steppe AgroHolding took part in the Day of Tree Planting
festival that was organised in the Rostov region in autumn
2022. The company sponsored the event during which
Improving quality of life
in regions of operations
Ozon opened 16,000 new goods acceptance stations for
sellers in 2,500 cities and towns of Russia. Now more than
80,000 sellers have a drop-off station within a walking
distance from their warehouse. This is especially important
for small entrepreneurs from small towns. Ozon’s order
pick-up points are managed by franchisees.
In 2022, MTS carried out over 100 projects for improvement
and upgrade of mobile communications. The operator
continued developing its internet network in the urban
environment and also provided mobile communications
to remote towns and villages in all regions of operation. In
2022, MTS focused on developing in the Central, Caucasian,
Southern and Volga federal districts. MTS aggregated all
five LTE frequency ranges in use in the Moscow region’s
commercial infrastructure, which will provide subscribers
with mobile internet at a speed of up to 800 Mbit/s and
will enable the operator to use frequencies more efficiently
and save up to 20% of its costs. MTS plans to aggregate all
local residents could participate in beautification of town
parks. About 30,000 trees and bushes were planted during
the event.
In 2022, Lesosibirsk Woodworking Plant No 1
and Novoyeniseisky Timber and Chemical Plant (both
subsidiaries of Segezha Group) released over 320,000
young sturgeons and graylings in the Yenisey river as part
of an ecological programme for reproduction of biological
water resources and habitats.
In the reporting year, LLC Bashkirenergo (a subsidiary
of JSC BPGC) together with PJSC Bashneft released about
20,000 young sterlets in the Belaya river. This initiative
is part of Bashkirenergo’s ESG policy. It was carried
out in compliance with the resolution of the Bashkir
Natural Resources and Ecology Ministry on allowing use
of the Belaya river for the purpose of restoration of biological
water resources.
available LTE ranges in other regions of Russia, including
St Petersburg, the Leningrad region and the Republic of
Bashkortostan.
Sitronics Electro (part of Sitronics Group) is actively involved
in the development of electric charging infrastructure across
Russia. In 2022, the company installed charging stations
for electric cars in Moscow and the Moscow and Leningrad
regions. The stations offer customers to choose between
rapid (80% in 15-20 minutes) or slow charging. The company
installs charging stations at large shopping malls and public
spaces so that a customer can have something to do while
his/her car is being charged. The operator’s stations already
service electric cars and buses in Moscow, the Moscow
region, Nizhny Novgorod, Ulyanovsk, Sochi and Rostov-on-
Don. Sitronics Group plans to further expand its chain of
charging stations.
At the end of 2022, Segezha Group commissioned Russia’s
first multistory apartment buildings built from CLT panels.
The main construction material used in these buildings
is cross laminated timber used to make wall panels and
structural floors for residential and non-residential buildings.
Thanks to its physical and mechanical properties, CLT has
great heat insulation and can stand high pressure, it has high
fire and earthquake resistance, high durability and a positive
carbon balance. It is used for walls, structural floors, roofing
and stair flights. Use of CLT panels as construction blocks
significantly reduces the time needed to construct a building,
which can be important when dealing with consequences
of natural disasters, implementing rehousing programmes
for dilapidated housing and as part of renovation and urban
environment improvement projects.
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sistema.com
Sustainability management
Social investments and activities
Sistema Charitable Foundation (SCF or the Foundation) is one of the largest
charitable foundations in Russia. It was established in 2004 to manage
the social activities and projects of the Group 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 events and campaigns targeting people of various ages
and social categories in all regions of Russia.
Lift to the Future was recognised
as the best corporate project
in the social segment of sustainable
development
At ESG Rethink Forum 2022, the best
corporate projects in the area of sustainability
were awarded with the national award ESG
Awards Russia 2022. Lift to the Future,
a flagship educational project of Sistema
Charitable Foundation, which is carried out
in partnership with the Group companies, won
2nd place in the social category.
Lift to the Future was launched in 2020 and attracted
about 365,000 participants in just one year. About
80 educational materials were issued, and hundreds
of young professionals and students received help
with finding internships or first jobs.
In 2022, the programme focused mainly on supporting
and developing promising young professionals.
Over 2,100 students from across the country
were selected to participate in the Thinking of the Future
online project. Its goal is to teach students basic
skills of various types of thinking, which will become
the foundation of their career success in the future.
Also in 2022, participants of the University Students
to School Seniors programme completed the preliminary
defence of their projects: a total of 98 project teams
presented their case solutions to Sistema Group
professionals. At the first stage of the programme,
the participants undergo an intensive online course
on the basics of project work and project management,
work with school children and soft skills. At the second
stage, they start guiding school project teams:
offering cases from the Group companies and helping
to find a solution, present it as a fully-fledged project
and defend it in front of experts - representatives
of Sistema businesses. Over 240 students passed
the selection and became tutors of school teams.
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.
Lift to the Future
educational materials
students selected to participate
in the Thinking of the Future
online project
became tutors
of school teams
365
80
thsd
participants
in just one year
2,100
240
The Foundation currently has several key
programmes:
▪
Lift to the Future is a nationwide programme that combines
career guidance, education, and employment opportunities
at Sistema Group companies.
▪
Culture and Education - launch and support of projects
to develop and promote an 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.
The following events were organised
as part of the Social Environment section.
▪
Sistema Fest regional festivals were held, with over 9,500
employees of the Corporation participating in them.
▪
Eleven Group companies in 13 regions of Russia joined
a waste paper collecting campaign to support Lift Without
Failure, an educational project for orphaned children.
▪
Over 50 corporate volunteering events took place, involving
over 500 employees of the Group. Volunteers of Sistema
Charitable Foundation spent over 3,000 hours doing
charitable work.
▪
In order to promote sports and a healthy lifestyle,
over 2,000 employees of the Group from 117 cities
and towns took part in the #ZaLes charitable race, during
which 5,200 trees were planted.
▪
Employees of the Group companies received 108
psychological consultations.
In the area of culture and education
Sistema Charity
is one of the key focus areas of SCF. In 2022,
the Foundation focused on social investments. It
launched an intellectual club titled Sistema Experience,
a platform where Group employees can exchange their
experience. Also, 75 school and university students
received scholarships as part of the Lift to the Future pilot
scholarship programme, the financing of which totalled
RUB 30m.
SCF introduces digital solutions and new approaches that
offer the most efficient way to increase accessibility of culture
and art. In 2022, SCF supported opening of the first inclusive
outreach exhibition project, Outside the Establishment. It
was a project of the Russian Museum and the first large-scale
attempt to exhibit works of modern non-professional artists
with mental health issues and/or psychiatric experience.
The project also included a number of educational and outreach
events for professionals and for the public. Over 390,000 people
took part in the project.
employees
of the Corporation
participating in Sistema Fest
9,500
thsd
people took part
in the project
Outside the Establishment
350
trees were planted
in the #ZaLes charitable race
5,200
corporate volunteering
events took place
50
188
189
SISTEMA PJSFC Annual report 2022
sistema.com
Sustainability management
AUDITED
CONSOLIDATED
FINANCIAL
STATEMENTS
190
191
sistema.com
SISTEMA PJSFC Annual report 2022
Audited Consolidated Financial Statements
SISTEMA PJSFC
AND SUBSIDIARIES
Consolidated Financial Statements for 2022
and Independent Auditor’s Report
SISTEMA PJSFC AND SUBSIDIARIES
TABLE OF CONTENTS
Page
INDEPENDENT AUDITOR’S REPORT
1-6
CONSOLIDATED FINANCIAL STATEMENTS FOR 2022:
Consolidated statement of profit or loss
7
Consolidated statement of comprehensive income
8
Consolidated statement of financial position
9-10
Consolidated statement of changes in equity
11
Consolidated statement of cash flows
12-13
Notes to the consolidated financial statements
1.
General
14
2.
Basis of preparation
14
3.
Significant accounting policies, judgements, estimates and assumptions
14
4.
Segment information
19
5.
Discontinued operations and subsidiaries disposals
22
6.
Business combinations
26
7.
Capital transactions of subsidiaries
37
8.
Revenue
38
9.
Impairment of long-lived assets
44
10.
Impairment of financial assets
44
11.
Income taxes
45
12.
Employee benefits expenses
47
13.
Property, plant and equipment
48
14.
Investment property
51
15.
Goodwill
52
16.
Other intangible assets
56
17.
Investments in associates and joint ventures
59
18.
Other financial assets
64
19.
Restricted cash
71
20.
Inventories
71
21.
Accounts receivable
72
22.
Equity
73
23.
Accumulated other comprehensive income
73
24.
Loans and borrowings
74
25.
Lease liabilities and right-of-use assets
78
26.
Bank deposits and liabilities
79
27.
Other financial liabilities
80
28.
Provisions
80
29.
Earnings/(loss) per share
82
30.
Capital and financial risk management
82
31.
Derivative instruments
86
32.
Fair values
88
33.
Related party transactions
91
34.
Subsidiaries
92
35.
Non-cash transactions
93
36.
Reconciliation of liabilities arising from financing activities
94
37.
Contingencies and commitments
95
38.
Subsequent events
100
AO BST
5 Lesnaya Street
Moscow, 125047,
Russia
Tel: +7 (495) 787 06 00
Fax: +7 (495) 787 06 01
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1
INDEPENDENT AUDITOR’S REPORT
To the Shareholders and the Board of Directors of Sistema Public Joint Stock Financial
Corporation
Opinion
We have audited the consolidated financial statements of Sistema Public Joint Stock
Financial Corporation (“Sistema”) and its subsidiaries (the “Group”), which comprise the
consolidated statement of financial position as at 31 December 2022 and the consolidated
statement of profit or loss, consolidated statement of comprehensive income, consolidated
statement of changes in equity and consolidated statement of cash flows for the year then
ended, and notes to the consolidated financial statements, including a summary of
significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Group as at 31 December 2022,
and its consolidated financial performance and its consolidated cash flows for the year then
ended in accordance with International Financial Reporting Standards (“IFRSs”).
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (“ISAs”).
Our responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Consolidated Financial Statements section of our report.
We are independent of the Group in accordance with the Auditor’s Independence Rules and
the Auditor’s Professional Ethics Code, that are relevant to our audit of the financial
statements in the Russian Federation together with the ethical requirements of the
International Ethics Standards Board for Accountants’ Code of Ethics for Professional
Accountants (the “IESBA Code”), and we have fulfilled our other ethical responsibilities
in accordance with these requirements and the IESBA Code. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most
significance in our audit of the consolidated financial statements of the current period.
These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
2
Why the matter was determined to be
a key audit matter
How the matter was addressed in the audit
Significant non-routine transactions
In light of its strategy, the Group regularly
conducts complex acquisitions and
disposals, debt restructurings and other
significant non-routine transactions. In
2022 the non-routine transactions were
conducted in the course of changing
operating environment (see Note 37 to the
consolidated financial statements).
We focus on these matters because the
appropriate accounting treatment of such
transactions is often complex and requires
exercise of significant judgement, in
particular, in determining whether or not
the Group has control over its investees,
and whether or not the Group has assumed
obligations to third-party investors.
In the current period, these included,
among others, sale of a stake in SFH Invest
S.A., recognition of EWUB as assets held for
sale, and other transactions involving the
sale of shares in subsidiaries resulting in the
loss of control by the Group.
See Note 5 to the consolidated financial
statements.
Our procedures included reviewing legal documents
to fully understand the terms and conditions of
each transaction and therefore the associated
accounting implications and evaluating
documentation of management’s positions on how
IFRSs were applied to the transactions.
In relation to the previously mentioned specific
transactions, we:
analysed legal documents and evaluated the
appropriateness of management’s conclusions
on whether or not the Group has control over
the investees in the context of investee’s
governance structure, size of the Group’s
shareholding relative to other shareholders,
dispersion of other vote holdings and other
factors relevant to determining whether the
Group has current ability to direct relevant
activities of the investees;
analysed agreements and key terms of
transactions on the disposal of Group’s
subsidiaries and reviewed the reflection of the
disposal in the consolidated financial
statements;
analysed management’s calculation of the
expected credit losses allowance for the
financial assets arising as a result of disposal;
verified the compliance of the disclosures
contained in the consolidated financial
statements with IFRS requirements.
In addition, we analysed management’s assessment
of the impact of changes in the operating
environment on the Group’s operations and
significant non-routine transactions.
Diversified structure of the Group
Sistema is a holding company that owns
mainly controlling stakes in its subsidiaries,
whose results are included in the
consolidated financial statements. The
large number of entities of the Group and
diversified nature of their operations
require the Group’s management to design
and implement group wide controls,
including monitoring and control activities
We obtained an understanding of the group-wide
controls over the consolidation process and the
preparation of the consolidated financial
statements, including instructions of the Group’s
management to its subsidiaries.
Our audit approach was developed considering the
Group’s diversified structure and associated risks of
material misstatement of the consolidated financial
statements. It included determination of necessary
procedures and audit scope in relation to each
3
Why the matter was determined to be
a key audit matter
How the matter was addressed in the audit
to ensure timely, reliable and complete
financial information received from its
subsidiaries.
Audit procedures regarding the financial
information of the subsidiaries included in
the consolidated financial statements may
be performed by us or by the auditors of
those subsidiaries (“components”) acting
under our supervision. As the group
auditor, we are fully responsible for
conducting the audit and forming our audit
opinion.
We focused on this matter because the
diversified structure of the Group has a
significant impact on our audit approach,
and the nature and extent of our
involvement in component auditors’ work
is significant.
component’s financial information, depending on
its significance for the Group and identification of
risks of misstatement of their financial information.
The nature and extent of our involvement in the
component auditors’ work was also dependent on
our assessment of their professional competence
in the context of allocated scope.
To obtain reasonable assurance of fair presentation
of the components’ financial information, we
assessed risks and determined audit procedures
performed by the component auditors, and
evaluated the results of the procedures. This
included a critical analysis of the component
auditors’ documentation, discussion of significant
matters with the component auditors, component
or Group management and, if applicable, designing
and performing additional audit procedures.
We also performed procedures with respect
to consolidation adjustments to the financial
information of the subsidiaries in order to assess
their nature, completeness and accuracy.
Compliance with anti-bribery laws and
regulations and associated accounting and
disclosure implications
In March 2019, the Group’s subsidiary MTS
reached a resolution with the United States
Securities and Exchange Commission
(“SEC”) and the United States Department
of Justice (“DOJ”) relating to the
investigation concerning the Group’s
former subsidiary in Uzbekistan. The Group
consented to the commencement of an
administrative cease-and-desist order (the
“Order”) by the SEC and entered into a
deferred prosecution agreement (“DPA”).
Under the DPA and the Order in September
2019 the Group appointed an independent
compliance monitor (“Independent
Monitor”) for, inter alia, review, testing and
improving MTS’ anti-corruption compliance
code, policies, and procedures for a period
of three years. In 2021, the DOJ and SEC
approved a one year extension of the
monitorship, which is permitted by the
terms of the DPA and the Order.
Our audit procedures related to the Group’s
estimation of any contingencies related to any
potential instance of non-compliance with anti-
corruption laws and regulations included the
following, among others:
We inspected the laws and regulations MTS
has to comply with in order to obtain an
understanding of the relevance and
applicability to MTS and to assess any
potential penalties that may arise for non-
compliance;
We read the procedures performed by the
Independent Monitor and evaluated the
implications of their findings, including
discussing these with management as well as
internal and external legal advisors;
We inquired management regarding their
follow up on the results of internal and
external investigations and on the design and
operational effectiveness of the MTS’s
compliance programs and internal controls
relating to the prevention and detection of
fraud and corruption;
4
Why the matter was determined to be
a key audit matter
How the matter was addressed in the audit
The audit procedures necessary to evaluate
management’s judgments in area of
potential instance of non-compliance with
anti-corruption laws and regulations as at
31 December 2022 required a high degree
of auditor judgment in evaluating whether
the audit evidence obtained supports
management’s estimate.
We tested the design and operating
effectiveness of internal controls at MTS,
including, amongst others, the control
environment (including whistle-blower and
internal fraud management cases) and the
controls for the adherence of business
partners to the anti-corruption codes;
We read the minutes of the MTS Board of
Directors’ meetings;
We evaluated management’s assessment of
compliance with anti-corruption laws and
regulations as well as an estimation of
contingencies related to any potential
instances of non-compliance;
We obtained letters from external and internal
legal counsel; and
We evaluated the Group’s accounting policy
with respect to the accounting for provisions
and disclosure of contingent liabilities to
determine if the existing policy continues to
be appropriate, and assessed the compliance
of the disclosures in the consolidated financial
statements against the requirements of IAS 37
“Provisions, Contingent Liabilities and
Contingent Assets”.
Other Information
Management is responsible for the other information. The other information comprises the
information included in the Annual report for 2022 (the “Annual report”) and the Issuer’s
report for 12 months of 2022 (the “Issuer’s report”), but does not include the consolidated
financial statements and our auditor’s report thereon. The Annual report and Issuer’s report
are expected to be made available to us after the date of this auditor’s report.
Our opinion on the consolidated financial statements does not cover the other information
and we will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to
read the other information identified above when it becomes available and, in doing so,
consider whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated.
When we read the Annual report and Issuer’s report, if we conclude that there is a material
misstatement therein, we are required to communicate the matter to those charged with
governance.
5
Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated
financial statements in accordance with IFRSs, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing
the Group’s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless management either
intends to liquidate the Group or to cease operations, or has no realistic alternative but to do
so.
Those charged with governance are responsible for overseeing the Group’s financial
reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs
will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of
these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and appropriate
to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override
of internal control.
Obtain an understanding of internal control relevant to the audit in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis
of accounting and, based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast significant doubt
on the Group’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the
related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Group to cease to continue as a going concern.
6
Evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial
statements represent the underlying transactions and events in a manner that
achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the
consolidated financial statements. We are responsible for the direction, supervision
and performance of the group audit. We remain solely responsible for our audit
opinion.
We communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied
with relevant ethical requirements regarding independence, and to communicate with them
all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those
matters that were of most significance in the audit of the consolidated financial statements
of the current period, and are therefore the key audit matters. We describe these matters in
our auditor’s report unless law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Vladimir Biryukov
(ORNZ №21906100113),
Engagement partner,
Acting based on the power of attorney issued by the General Director on 06.07.2022
authorizing to sign off the audit report on behalf of AO “Business Solutions and
Technologies” (ORNZ № 12006020384)
7 April 2023
7
SISTEMA PJSFC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
(In millions of Russian Rubles, except for per share amounts)
2022
2021
Continuing operations
Revenue
8
912,656
773,218
Cost of sales
(454,602)
(363,358)
Selling, general and administrative expenses
(185,859)
(147,648)
Depreciation and amortisation
(147,905)
(133,069)
(Impairment)/reversal of impairment of long-lived assets
9
(1,846)
603
Impairment of financial assets
10
(4,181)
(4,003)
Taxes other than income tax
(4,958)
(3,360)
Share of the profit or loss of associates and joint ventures, net
17
4,199
19,830
Other income
6
50,060
16,248
Other expenses
(6,317)
(2,642)
Operating income
161,247
155,819
Finance income
10,059
6,272
Finance costs
(113,048)
(70,153)
Currency exchange gain/(loss)
37
(1,667)
Changes in the fair value of financial instruments
9,803
16,050
Profit before tax
68,098
106,321
Income tax expense
11
(27,577)
(41,330)
Profit from continuing operations
40,521
64,991
Discontinued operations
Profit/(loss) from discontinued operations
5
3,296
(11,809)
Net profit for the year
43,817
53,182
Attributable to:
Shareholders of Sistema PJSFC
19,405
16,755
Non-controlling interests
24,412
36,427
43,817
53,182
Profit per share (basic and diluted), Russian Rubles:
29
From continuing operations
1.56
2.95
From continuing and discontinued operations
2.07
1.77
Notes
The accompanying notes are an integral part of these consolidated financial statements.
The consolidated financial statements of the Group for 2022 were approved by:
________________________
Tagir Sitdekov
Chief Executive Officer (President)
________________________
Rovshan Aliyev
Vice President for Finance (CFO)
7 April 2023
8
SISTEMA PJSFC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In millions of Russian Rubles)
2022
2021
Net profit for the year
43,817
53,182
Other comprehensive income/(loss)
Items that may be reclassified subsequently to profit or loss:
Effect on sale of subsidiary
794
-
Currency translation gain/(loss) on foreign operations in subsidiaries
1,284
(1,458)
Currency translation (loss)/gain on foreign operations in associates
and joint ventures
(599)
95
Net loss from revaluation of financial instruments
(134)
-
Items that will not be reclassified subsequently to profit or loss:
Unrecognised actuarial gain
-
215
Other comprehensive income/(loss), net of tax
1,345
(1,148)
Total comprehensive income
45,162
52,034
Attributable to:
Shareholders of Sistema PJSFC
20,019
14,787
Non-controlling interests
25,143
37,247
Total comprehensive income
45,162
52,034
The accompanying notes are an integral part of these consolidated financial statements.
9
SISTEMA PJSFC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(In millions of Russian Rubles)
31 December
31 December
Notes
2022
2021
Assets
Non-current assets
Property, plant and equipment
13
548,305
514,198
Investment property
14
13,165
13,160
Goodwill
15
100,063
88,050
Other intangible assets
16
159,260
139,184
Right-of-use assets
25
201,564
210,480
Investments in associates and joint ventures
17
43,460
63,490
Deferred tax assets
11
43,231
30,956
Other financial assets
18
203,878
214,986
Deposits in banks
115
20
Other assets
23,703
36,157
Total non-current assets
1,336,744
1,310,681
Current assets
Inventories
20
243,343
76,009
Contract assets
8
30,149
8,272
Accounts receivable
21
96,304
69,295
Advances paid and prepaid expenses
33,789
18,179
Current income tax assets
4,057
5,103
Other taxes receivable
28,632
24,930
Other financial assets
18
171,817
154,465
Deposits in banks
85
1,549
Restricted cash
19
1,089
4,909
Cash and cash equivalents
134,402
81,883
Assets classified as held for sale
5
11,064
-
Other assets
6,668
3,610
Total current assets
761,399
448,204
Total assets
2,098,143
1,758,885
10
SISTEMA PJSFC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)
(In millions of Russian Rubles)
31 December
31 December
2022
2021
Equity and liabilities
Equity
Share capital
22
869
869
Treasury shares
22
(5,675)
(6,435)
Additional paid-in capital
94,578
95,075
Accumulated loss
(1,988)
(21,393)
Accumulated other comprehensive income
23
17,399
16,785
including accumulated comprehensive income of
assets classified as held for sale
5
5,961
-
Equity attributable to shareholders of Sistema
105,183
84,901
Non-controlling interests
82,348
40,545
Total equity
187,531
125,446
Non-current liabilities
Loans and borrowings
24
762,219
641,511
Lease liabilities
25
156,527
167,238
Bank deposits and liabilities
26
12,397
16,755
Deferred tax liabilities
11
57,350
42,406
Provisions
28
8,445
8,026
Other financial liabilities
27
25,050
15,972
Other liabilities
15,413
11,334
Total non-current liabilities
1,037,401
903,242
Current liabilities
Loans and borrowings
24
298,846
209,306
Lease liabilities
25
29,303
23,335
Accounts payable
137,508
134,033
Bank deposits and liabilities
26
232,610
225,795
Income tax payable
3,842
951
Other taxes payable
39,541
22,896
Dividends payable
17,989
5,256
Provisions
28
27,447
23,256
Contract liabilities and other liabilities
8
56,506
53,330
Liabilities directly associated with assets classified
as held for sale
5
4,838
-
Other financial liabilities
27
24,781
32,039
Total current liabilities
873,211
730,197
Total equity and liabilities
2,098,143
1,758,885
Notes
The accompanying notes are an integral part of these consolidated financial statements.
11
SISTEMA PJSFC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(In millions of Russian Rubles)
Equity
attributable to
Non-
Additional
Treasury
Accumulated
Currency
shareholders
controlling
Share capital
paid-in capital
shares
loss
reserve
Other
of Sistema
interests
Total equity
1 January 2021
869
75,279
(3,029)
(27,025)
17,934
819
64,847
22,482
87,329
Net profit for the period
-
-
-
16,755
-
-
16,755
36,427
53,182
Other comprehensive (loss)/income,
net of tax
-
-
-
-
(1,961)
(7)
(1,968)
820
(1,148)
Total comprehensive income/(loss)
-
-
-
16,755
(1,961)
(7)
14,787
37,247
52,034
Acqusition and sale of subsidiaries
-
-
-
-
-
-
- 15,313
15,313
Accrued compensation under long-term
motivation programs
-
442
1,521
-
-
-
1,963
- 1,963
Settlements under long-term
motivation programs
-
1,374
-
-
-
-
1,374
3,016
4,390
Capital transactions of subsidiaries (Note 7)
-
24,060
-
-
-
-
24,060
10,910
34,970
Purchase of own shares
-
-
(5,425)
-
-
-
(5,425)
-
(5,425)
Sale of own shares
-
(218)
498
-
-
-
280
-
280
Effect of derivatives reclassification (Note 6)
-
(5,861)
-
(8,179)
-
-
(14,040)
(13,881)
(27,921)
Dividends declared by Sistema PJSFC
-
-
-
(2,944)
-
-
(2,944)
-
(2,944)
Dividends declared by subsidiaries
-
-
-
-
-
-
-
(34,543)
(34,543)
31 December 2021
869
95,076
(6,435)
(21,393)
15,973
812
84,902
40,544
125,446
1 January 2022
869
95,076
(6,435)
(21,393)
15,973
812
84,902
40,544
125,446
Net profit for the period
-
-
-
19,405
-
-
19,405
24,412
43,817
Effect on sale of subsidiary
-
-
-
-
397
-
397
397
794
Other comprehensive (loss)/income,
net of tax
-
-
-
-
(426)
643
217 334
551
Total comprehensive income/(loss)
-
-
-
19,405
(29)
643
20,019
25,143
45,162
Acqusition and sale of subsidiaries
-
-
-
-
-
-
-
46,971
46,971
Accrued compensation under long-term
motivation programs
-
(617)
1,053
-
-
-
436
-
436
Settlements under long-term
motivation programs of subsidiaries
-
1,818
-
-
-
-
1,818
1,883
3,701
Capital transactions of subsidiaries (Note 7)
-
(1,699)
-
-
-
-
(1,699)
546
(1,153)
Purchase of own shares
-
-
(293)
-
-
-
(293)
-
(293)
Dividends declared by subsidiaries
-
-
-
-
-
-
-
(32,739)
(32,739)
31 December 2022
869
94,578
(5,675)
(1,988)
15,944
1,455
105,183
82,348
187,531
comprehensive
Accumulated other
income/(loss)
The accompanying notes are an integral part of these consolidated financial statements.
12
SISTEMA PJSFC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions of Russian Rubles)
2022
2021
Cash flows from operating activities
Net profit for the year
43,817
53,182
Adjustments for:
Depreciation and amortisation
148,778
134,531
Share of the profit or loss of associates and joint ventures, net
(4,199)
(19,830)
Finance income
(10,111)
(6,306)
Finance costs
115,666
71,510
Changes in the fair value of financial instruments
(9,959)
(15,935)
Income tax expense
27,968
40,272
Currency exchange loss
201
1,651
Gain from discontinued operations
(15,485)
(470)
Profit on disposal of property, plant and equipment
(1,747)
(3,483)
Profit on disposal of other assets
825
-
Expected credit losses allowance on loans to customers
25,155
12,218
Non-cash compensation to employees
3,682
7,045
Impairment/(reversal of impairment) of long-lived assets
1,362
(408)
Impairment of financial assets
4,777
4,101
Other non-cash items
(2,517)
(5,311)
Profit from bargain purchase (Note 6)
(32,269)
-
295,944
272,767
Movements in working capital:
Bank loans to customers and interbank loans due from banks
(43,157)
(102,038)
Bank deposits and liabilities
7,773
46,161
Restricted cash
(19,904)
163
Financial assets at fair value through profit or loss
986
(919)
Accounts receivable
(29,276)
(1,671)
Advances paid and prepaid expenses
(24,606)
(665)
Other taxes receivable
1,007
(4,700)
Inventories
(49,634)
(18,277)
Accounts payable
7,832
(7,892)
Subscriber prepayments
(549)
2,215
Other taxes payable
16,648
5,277
Advances received and other liabilities
22,010
27,312
Interest paid
(115,805)
(71,469)
Income tax paid
(25,327)
(31,708)
Dividends received from associates and joint ventures
5,025
7,015
Net cash provided by operating activities
48,967
121,571
13
SISTEMA PJSFC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(In millions of Russian Rubles)
2022
2021
Cash flows from investing activities
Payments for purchases of property, plant and equipment
(110,969)
(123,541)
Proceeds from sale of subsidiaries, net of cash
1,986
1,336
Proceeds from sale of property, plant and equipment
6,448
6,141
Payments to obtain and fulfill contracts
(4,351)
(4,224)
Payments for purchases of intangible assets
(47,590)
(43,635)
Payments for businesses, net of cash acquired
6,224
(36,153)
Payments for investments in associates and joint ventures
(8,881)
(11,522)
Payments for financial assets, long-term
(13,739)
(25,848)
Proceeds from sale of financial assets, long-term
18,443
10,503
Payments for financial assets, short-term
(23,440)
(4,888)
Proceeds from sale of financial assets, short-term
26,315
6,105
Interest received
9,165
6,739
Other
828
(217)
Net cash used in investing activities
(139,561)
(219,204)
Cash flows from financing activities
Proceeds from borrowings
515,950
259,820
Principal payments of loans and borrowings
(316,092)
(147,999)
Debt issuance costs
(950)
(308)
Principal payments of lease liabilities
(22,964)
(19,682)
Acquisition of non-controlling interests in existing subsidiaries
(2,412)
(34,454)
Proceeds from transactions with non-controlling interests
140
50,366
Dividends paid
(20,807)
(35,557)
Deferred payments for acquisition of subsidiaries
(2,470)
-
Other financing activities
(1,900)
-
Repurchase of own shares
(293)
(5,425)
Net cash provided by financing activities
148,202
66,761
Effect of foreign currency translation on cash and cash equivalents
805
(938)
Net increase/(decrease) in cash and cash equivalents
58,413
(31,810)
-
Cash and cash equivalents at the beginning of the year
81,883
113,693
-
-
Cash and cash equivalents at the end of the year
140,296
81,883
Less cash and cash equivalents attributable to
(5,894)
-
assets classified as held for sale
Cash and cash equivalents at the end of the year
134,402
81,883
The accompanying notes are an integral part of these consolidated financial statements.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
14
1.
GENERAL
Sistema Public Joint Stock Financial Corporation or Sistema PJSFC (the “Company”, together with its
subsidiaries, the “Group”) invests in, and manages a range of companies which operate in various
sectors of economy, including telecommunications, retail, high technology, finance, pulp and paper,
utilities, pharmaceuticals, healthcare, agriculture, real estate and tourism. The Company and the
majority of its subsidiaries are incorporated in the Russian Federation (“RF”). The Company’s
registered address is building 1, 13 Mokhovaya street, 125009, Moscow.
As at 31 December 2022, Vladimir Petrovich Yevtushenkov owns a 49.2% stake in PJSC AFK Sistema
(as at 31 December 2021 – 59.2%). In 2022, Vladimir Petrovich Yevtushenkov transferred his 10%
stake, thereby ceasing to be the holder of the majority of shares. 50.8% of the shares belong to
a significant number of shareholders (as at 31 December 2021- 40.8%). The shares are listed on the
London Stock Exchange in the form of Global Depositary Receipts (“GDRs”) and on the Moscow and
SPB Exchanges.
2.
BASIS OF PREPARATION
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board
(“IASB”).
These consolidated financial statements have been prepared on the assumption that the Group will
continue to operate in the foreseeable future. As at 31 December 2022 short-term liabilities of the
Group exceeded its current assets by RUB 111,812 million. The Group determines that it generates
sufficient operating cash flow and has sufficient cash available to repay the Group’s current liabilities,
including, if necessary, unused credit facilities of RUB 673,134 million. The cash flows forecast
prepared by the management of the Group for a period of at least twelve months after the end of
the reporting period demonstrates the Group’s ability to pay off current liabilities within the terms
set by the contractual obligations.
Comparative information for the year ended 31 December 2021 has been retrospectively adjusted
for the completion of the allocation of the purchase price of businesses acquired in 2021 (Note 6)
and reclassification to discontinued operations (Note 5).
These consolidated financial statements were approved by the Company’s Chief Executive Officer
(President) and authorised for issue on 7 April 2023.
3.
SIGNIFICANT ACCOUNTING POLICIES, JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
This note sets out significant accounting policies that relate to the Group’s consolidated financial
statements as a whole and describes the critical accounting judgements that management has
identified as having a potentially material impact on the Group’s consolidated financial statements.
When an accounting policy is generally applicable to a specific note to the accounts, the policy is
described within that note.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
15
Summary of significant accounting policies
Basis of consolidation. The consolidated financial statements incorporate the financial statements
of the Company, entities controlled by the Company and their subsidiaries. Control is achieved when
the Company:
Has the power over the investee;
Is exposed, or has rights, to variable returns from its involvement with the investee; and
Has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate
that there are changes to one or more of the three elements of control listed above.
When the Company has less than a majority of the voting rights of an investee, it has power over the
investee when the rights are sufficient to give it the practical ability to direct the relevant activities
of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing
whether or not the Company’s voting rights in an investee are sufficient to give it power, including:
The size of the Company’s holding of voting rights relative to the size and dispersion of holdings
of the other vote holders;
Potential rights held by the Company, other vote holders or other parties;
Rights arising from other contractual arrangements; and
Any additional facts and circumstances that indicate that the Company has, or does not have,
the current ability to direct the relevant activities at the time that decisions need to be made,
including voting patterns at previous shareholders’ meetings.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and
ceases when the Company loses control of the subsidiary. Specifically, income and expenses of
a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit
or loss from the date the Company gains control until the date when the Company ceases to control
the subsidiary.
Profit or loss and each component of other comprehensive income is attributed to the owners of the
Company and to the non-controlling interests. Total comprehensive income of subsidiaries is
attributed to the owners of the Company and to the non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies in line with the Group’s accounting policies. All intragroup assets and liabilities,
equity, income, expenses and cash flows relating to transactions between members of the Group are
eliminated in full on consolidation.
Non-current assets held for sale and discontinued operations. The Group classifies assets and
disposal groups as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use. This condition is met only when the assets (or
disposal groups) are available for immediate sale in its present condition subject only to terms that
are usual and customary for sale of such assets (or disposal groups) and their sale is highly probable
to occur within a year. Assets classified as held for sale and disposal groups are measured at the lower
of carrying amount or fair value less cost to sell.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
16
Assets and liabilities classifies as held for sale are presented separately as current items in the
consolidated statement of financial position.
A disposal group qualifies as discontinued operation if it is a component of the Group that either has
been disposed of or is classified as held for sale, and:
Represents a separate major line of business or geographical area of operations of the Group;
Is part of a single coordinated plan to dispose of a separate major line of business or
geographical area of operations of the Group;
Or is a subsidiary acquired exclusively with a view to resale.
Discontinued operations are excluded from the results of continuing operations and are presented
as a single amount as profit or loss after tax from discontinued operations in the consolidated
statement of profit or loss.
Consolidated statement of cash flows include both cash flows from continuing and discontinued
operations, amounts related to discontinued operations by operating, investing and financing
activities are presented in Note 5.
Non-controlling interests. Non-controlling interests represent the equity in a subsidiary not
attributable, directly or indirectly, to a parent. Non-controlling interests are presented separately in
the consolidated statement of profit or loss and within equity in the consolidated statement of
financial position, separately from parent shareholders’ equity.
Functional currency. Items included in the financial statements of each of the Group’s entities are
measured using the currency of the primary economic environment in which the entity operates
(functional currency). The functional currency of the Group and the majority of its subsidiaries
operating in Russia is the Russian Ruble (“RUB”). The presentation currency of the consolidated
financial statements of the Group is also the Russian Ruble.
Sources of estimation uncertainty
In the application of the Group’s accounting policies management is required to make estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from
other sources. The estimates and associated assumptions are based on historical experience and
other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that
period or in the period of the revision and future periods if the revision affects both current and
future periods.
Lease liabilities. The Group uses management’s judgement to estimate:
Lease term. The lease term corresponds to the non-cancellable period of each contract except
in cases where the Group is reasonably certain of exercising renewal options. The Group also
considers the cases where the Group is reasonably certain of not exercising early termination
options. When assessing such options management assesses residual useful life of the major
non-separable improvements to the respective leased premises, investment strategy of the
Group and relevant investment decisions and duration of the renewal and early termination
options.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
17
Discount rate. When calculating the present value of the lease payments the Group uses the
incremental borrowing rate. Discount rate is determined for each asset based on the incremental
borrowing rate for the respective company of the Group at the inception of the contract.
Stage of completion of project type contracts. The Group uses management’s judgement to estimate
stage of completion to recognize revenue under project type contracts. This estimate is based on
costs forecasts and calculations and historical experience on similar projects.
Impairment of financial assets. The Group regularly reviews its financial assets to assess for
impairment. The Group uses management’s judgement to estimate allowance for Expected Credit
Losses (ECL). Allowance for ECL are measured in a way that reflects the unbiased and probability-
weighted amount, the time-value of money and reasonable and supportable information at the
reporting date pertaining to past events, current conditions and forecasts of future economic
conditions.
ECL are measured as probability-weighted present value of all cash shortfalls over the expected life
of each financial asset. For receivables from financial services, ECL are mainly calculated using
a statistical model based on three major risk parameters: probability of default, loss given default
and exposure of default.
The estimation of these risk parameters incorporates all available relevant information, not only
historical and current loss data, but also reasonable and supportable forward-looking information
reflected by the future expectation factors. This information includes macroeconomic factors
(unemployment rate, inflation rate) and forecasts of future economic conditions. Significant changes
in risk parameters could affect the estimated amount of ECL.
Impairment of long-lived assets. IFRS requires management to perform impairment tests annually
for indefinite lived assets and, for finite lived assets, if events or changes in circumstances indicate that
their carrying amounts may not be recoverable. Impairment testing requires management to judge
whether the carrying value of assets can be supported by the higher of the fair value of the asset or
the net present value of future cash flows that they generate. Calculating the net present value of
the future cash flows requires assumptions to be made in respect of highly uncertain matters.
Recoverable amount of cash-generating units is estimated based on value in use. In assessing value
in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
The growth rate in the post-forecast period is determined on the basis of the nominal GDP growth
rate for each country and adjusted for the specific risk inherent in each generating unit. The discount
rate used to calculate value in use is the weighted average cost of capital, calculated on the basis of
the average capital structure for the economic sector. The cost of equity is determined on the basis
of the risk-free rate for long-term government bonds issued in the country in which the generating
unit operates. These rates are adjusted for the risk premium reflecting the risk of investing in ordinary
shares and the specific risk of each cash-generating unit.
Deferred tax assets. Deferred tax asset is recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary differences can be utilised. The valuation
of probability is based on management estimation of future taxable profit and includes significant
management judgment.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
18
Fair value measurements. Some of the Group’s assets and liabilities are measured at fair value for
financial reporting purposes. Where the fair value of assets and liabilities recorded in the
consolidated statement of financial position cannot be derived from active markets, their fair value
is determined using valuation techniques, including discounted cash flow models. The inputs to these
models are taken from observable markets where possible, but when this is not feasible, a degree of
judgment is required in establishing fair values. Information about assets and liabilities measured at
fair value on recurring basis is disclosed in Note 32.
Useful lives of property, plant and equipment and intangible assets. Estimates may change due to
technological developments, competition, changes in market conditions and other factors and may
result in changes in the estimated useful life and in the amortisation or depreciation charges.
Technological developments are difficult to predict and management views on the trends and pace
of development may change over time. The estimated useful lives are reviewed at the end of each
reporting period, with the effect of any changes in estimate being accounted for on a prospective
basis.
Provisions and contingencies. The Group is subject to various legal proceedings, disputes, claims and
regulatory reviews related to the Group’s business, licenses, tax positions and investments, where
the outcomes are subject to significant uncertainty. Management evaluates, among other factors,
the degree of probability of an unfavourable outcome and the ability to make a reasonable estimate
of the amount of loss or related expense. Unanticipated events or changes in these factors may
require the Group to increase or decrease the amount recorded or to be recorded for a matter that
has not been previously recorded because it was not considered probable. See Notes 28 and 37 for
further information.
Critical judgments in applying accounting policies
The following are the critical judgements, apart from those involving estimations, that management
have made in the process of applying the Group’s accounting policies and that have the most
significant effect on the amounts recognised in consolidated financial statements.
Management’s judgments in assessing control and classification as assets held for sale – The Group
regularly carries out complex structured transactions including acquisition and disposal of shares in
subsidiaries, debt restructuring and financing arrangements. Determining the accounting treatment
of such transactions is often complex and requires management’s judgment, in particular in
determining whether or not the Group has control over the investees, and whether or not the Group
has obligations to third-party investors. In 2022, transactions in respect of which management has
made significant judgments in these areas include the Group’s acquisition of control over Etalon
Group (Note 6), retaining control in MTS Group (Note 34), recognition of EWUB as assets held for sale,
sale of a stake in SFH Invest S.A. and other transactions involving the disposal of subsidiaries resulting
in the loss of control by the Group (Note 5).
Standards, interpretations and amendments adopted in current year
In 2022 the Group adopted the following standards, interpretations and amendments:
Amendments to IFRS 37
Onerous Contracts – Cost of Fulfilling a Contract
Amendments to IFRS 16
Property, Plant and Equipment—Proceeds before Intended Use
Amendments to IFRS 3
Reference to the Conceptual Framework
Annual improvements to IFRS Accounting
Standards 2018-2020 Cycle
Amendments to IFRS 1 First-time Adoption of International Financial
Reporting Standards, IFRS 9 Financial Instruments, IFRS 16 Leases,
IAS 41 Agriculture
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
19
These IFRS pronouncements do not have a material impact on the Group’s consolidated financial
statements.
Standards, interpretations and amendments in issue but not yet effective
The Group has not applied the following new and revised IFRSs that have been issued but are not yet
effective:
IFRS 17 and amendments to IFRS 17
Insurance Contracts
Amendments to IFRS 10 and IAS 28
Sale of Contribution of Assets between an Investor and its
Associate or Joint Venture
Amendments to IAS 1
Classification of Liabilities as Current or Non-current
Amendments to IAS 1 and IFRS Practice Statement 2
Disclosure of accounting policy, long-term obligations with
covenants
Amendments to IAS 8
Definition of Accounting Estimate
Amendments to IAS 12
Deferred tax on assets and liabilities arising from a single
Amendments to IFRS 16
Lease obligations for sale with leaseback
The Group does not expect that the adoption of these standards will have a material impact on the
Group's consolidated financial position and financial performance in future periods.
4.
SEGMENT INFORMATION
As a diversified holding corporation, the Company invests in a range of businesses, which meet its
investment and return criteria. The Company has determined that the chief operating decision maker
(“CODM”) is Management Board. Information reported to the Management Board for the purpose
of resource allocation and the assessment of segment performance is focused on each individual
business. No operating segments have been aggregated in arriving at the reportable segments of the
Group. The Group’s reportable segments are businesses that offer different products and services
and are managed separately.
The Group’s reportable segments are Mobile TeleSystems PJSC (“MTS”), Segezha Group PJSC
(“Segezha Group”), Etalon Group PLC (“Etalon”), Medsi Group JSC (“Medsi”), Ozon Holdings PLC
(“Ozon”) and Corporate. MTS is one of the leading telecommunications group in Russia and the CIS,
offering mobile and fixed voice, broadband, internet access, pay TV, financial services, as well as
content and entertainment services in Russia and Armenia. Segezha Group is a Russian vertically
integrated forest industry holding that performs a full cycle of timber harvesting and advanced wood
processing operations. Etalon is one of the largest real estate development company in Russia,
specializing in residential real estate development, design, construction, service and operation.
Medsi is the largest federal private network of medical and preventive institutions in the country,
providing a full range of services for the prevention, diagnosis and treatment of diseases, as well as
rehabilitation services for children and adults. Ozon is one of the largest Russian e-commerce internet
platforms. Corporate segment comprises the Company and entities, which hold and manage the
Company’s interests in its subsidiaries, joint ventures and associates. The Other category includes
other operating segments including East-West United Bank (EWUB), Sitronics, Agroholding “Steppe”
(Steppe), Sistema Venture Capital, Hospitality assets, Bashkirian Power Grid Company (“BPGC”),
Business Nedvizhimost, Binnopharm Group, Fishing industry companies, “Arkhyz”, “Vologodskiy
tekstil”, Megapolis-Invest, “New Investment Holding”, none of which meets the quantitative
thresholds for determining reportable segments.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
20
The accounting policies of the operating segments are the same as those described in the Significant
accounting policies, judgements, estimates and assumptions (Note 3) and other relevant notes. The
Group’s CODM evaluates performance of the segments on the basis of operating income and OIBDA.
OIBDA is defined as operating income before depreciation and amortisation of property, plant and
equipment, intangible assets and right-of-use assets.
The following is an analysis of the Group’s revenue and results from continuing operations by
reportable segment for 2022 and 2021:
2022
2021
2022
2021
2022
2021
MTS
536,508
523,699
5,240
4,222 109,325
117,405
Segezha Group
106,728 92,438
38
4
10,099 22,351
Etalon
60,246
- 249
- 17,263
-
Medsi
35,958 30,040
19
47
2,427
3,978
Ozon (Note 17)
-
-
-
-
- (12,584)
Corporate
3,297
3,427
2,409 903
6,551
5,955
Total reportable segments
742,737
649,604
7,955
5,176 145,665
137,105
Other
169,919
123,614 15,107 15,350
17,140 21,129
912,656
773,218 23,062 20,526 162,805
158,234
Inter-segment
eliminations
(1,558)
(2,415)
Operating income
161,247
155,819
Finance income
10,059
6,272
Finance costs
(113,048)
(70,153)
Currency exchange gain/(loss)
37 (1,667)
Changes in the fair value of financial
instruments
9,803 16,050
Profit before tax
68,098
106,321
revenues
revenue
income/(loss)
External
Inter-segment
Segment operating
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
21
The following is an analysis of the Group’s depreciation and amortisation, additions to non-current
assets (comprising property, plant and equipment, investment property, other intangible assets,
right-of-use assets and advances paid for non-current assets), impairment of certain long-lived assets
and other non-cash items (comprising impairment of current assets and financial assets) by
reportable segment:
2022
2021
2022
2021
2022
2021
2022
2021
MTS
114,692
141,400
114,491
110,962
489
17
1,904
711
Segezha Group
14,118
24,490
14,551
6,902
13
907
(61)
339
Medsi
15,587
7,639
4,276
3,256
-
-
40
67
Etalon
3,575
-
282
-
-
-
973
-
Corporate
3,342
1,446
364
963
(1)
5
829
2,190
Other
23,146
27,099
13,941
10,986
1,345
(1,532)
496
696
174,460
202,074
147,905
133,069
1,846
(603)
4,181
4,003
(Reversal) of
impairment/ im-
Other
non-current assets
and amortisation
current assets
non-cash items
Additions to
Depreciation
pairment of non-
The following is an analysis of the Group’s segment assets and liabilities by reportable segment:
31 December
31 December
2022
2021
Segment assets
MTS
1,092,908
1,028,277
Segezha Group
226,896
212,755
Etalon
277,986
-
Medsi
55,357
49,847
Corporate
181,684
169,853
Total reportable segments
1,834,831
1,460,732
Other
382,936
397,181
Total segment assets
2,217,767
1,857,913
Inter-segment eliminations
(119,624)
(99,028)
Consolidated total assets
2,098,143
1,758,885
Segment liabilities
MTS
1,084,163
1,001,311
Segezha Group
186,040
167,756
Etalon
179,314
-
Medsi
29,124
24,925
Corporate
283,568
256,491
Total reportable segments
1,762,209
1,450,483
Other
234,981
269,387
Total segment liabilities
1,997,190
1,719,870
Inter-segment eliminations
(86,578)
(86,431)
Consolidated total liabilities
1,910,612
1,633,439
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
22
As at 31 December 2022 and 2021 the carrying amount of investment in MTS Belarus, an associate
of MTS, included in its reportable segment assets was RUB 5,798 million and RUB 6,265 million,
respectively. The carrying amount of investment in Ozon, included in assets of Corporate, as at
31 December 2022 and 2021 was RUB 0 million. The carrying amount of investments in other
associates and joint ventures representing separate operating segments are included in the assets of
Corporate.
The Group’s revenue from continuing operations from external customers and information about its
non-current assets (property, plant and equipment, investment property, other intangible assets,
right-of-use assets, advance payments for non-current assets and goodwill) by location of assets are
detailed below.
2022
2021
2022
2021
Russia
798,107
691,209
1,020,594
964,116
Other
114,549
82,009
20,216
19,935
912,656
773,218
1,040,810
984,051
Revenue from
external customers
Non-current assets
5.
DISCONTINUED OPERATIONS AND SUBSIDIARIES DISPOSALS
The Group enters into transactions to sell shares of subsidiaries, which result in the Group losing
control over its subsidiaries. The results of subsidiaries disposed of during the reporting period are
included in the consolidated financial statements prior to the date of loss of control over subsidiaries.
Discontinued operations
Information on the sale of shares in subsidiaries, representing separate major lines of business or
geographical areas at operations, and their impact on the Group's results is provided below.
The amounts recognised in profit/(loss) from discontinued operations are as follows:
2022
2021
NVision Czech Republic a.s. results prior to disposal date
234
322
Loss from disposal of NVision Czech Republic a.s.
(1,285)
-
Currency translation on disposal of VF Ukraine
-
93
Change in the fair value of contingent consideration VF Ukraine
(1,867)
378
Non-core assets results prior to disposal date
(9,273)
(12,630)
Gain from disposal of non-core assets
20,111
-
Assets classified as held for sale results prior to disposal date - (loss)/gain
(3,150)
28
Impairment loss recognised of revaluation to FVLCD of assets classified as held for sale
(1,474)
-
Profit/(loss) from discontinued operations
3,296
(11,809)
Attributable to:
Shareholders of Sistema PJSFC
1,800
(12,431)
Non-controlling interests
1,496
233
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
23
VF Ukraine – on November 22, 2019, the Group entered into a sale agreement to dispose of
Preludium B.V., 100% owner of PJSC “Vodafone Ukraine” and its subsidiaries, which carried out the
MTS operations in Ukraine. The disposal was completed on December 3, 2019, and the results of
operations in Ukraine were reported as discontinued operations in the consolidated statements of
profit or loss.
According to the terms of the sale agreement, an additional consideration based on the performance
of the discontinued operations in Ukraine was receivable. The Group received the first part of the
additional contingent consideration in the amount of RUB 1,234 million in March 2021. The Group
recognized contingent consideration receivable of RUB 1,867 million as at December 31, 2021.
In 2022 following uncertainty over the receipt of the consideration and economic volatility and
sanctions in Russia, the Group created expected credit allowance for the total amount of receivable
and its value decreased to nil.
NVision Czech Republic a.s. – In October 2022, the Group disposed of 100% in NVision Czech Republic
a.s., which was included in MTS reportable segment. The disposal was completed on October 24,
2022, and the results of operations of NVision Czech Republic a.s. were reported as discontinued
operations in the accompanying consolidated statements of profit or loss. The fair value of
consideration, receivable in five-year term, amounted to RUB 453 million, of which RUB 50 million
were received in 2022.
EWUB – In October 2022, the Group decided to dispose of a 100% stake in EWUB, which is part of
the “Other” reportable segment. The transaction price will be determined based on the results of an
independent appraisal. The completion of the transaction is planned to be carried out during 2023.
As at 31 December 2022, the Group classified EWUB as assets held for sale and presented as
discontinued operations in the accompanying consolidated statement of profit and loss including
impairment loss to fair value less costs of disposal.
Non–core assets – In September 2022, the Group disposed of a number of non-core assets that were
part of the “Other” reportable segment for the consideration of RUB 3,856 million in cash. This
decision was made by the Group in connection with the current macroeconomic situation in order to
optimize the structure of the Group.
The results of the companies’ activities are presented as part of discontinued operations in the
accompanying consolidated statement of profit and loss for all periods presented. The accompanying
statements of financial position and statements of cash flows were not retrospectively restated.
(Loss)/gain from disposal is presented as follows:
NVision Czech
Republic a.s.
VF Ukraine
Non-core
assets
EWUB
Net (assets)/liabilities at the date of disposal
(1,820)
- 15,503
-
Non-controlling interests at the date of disposal
- - 752
-
Change in the fair value of contingent consideration -
revaluation at fair value
4 (1,867)
- -
Change of contingent consideration -
currency exchange gain
78
-
- -
Received consideration
453
- 3,856
-
Impairment of asset classified as assets held for sale
- -
- (1,474)
(1,285)
(1,867)
20,111
(1,474)
2022
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
24
The results of the disposed subsidiaries included in discontinued operations in the consolidated statements of profit or loss for 2022 and 2021 are as follows:
2022
2021
2022
2021
2022
2021
Revenue
6,004
6,482
13,160
20,473
474
2,226
Expenses
(5,802)
(6,117)
(22,900)
(34,275)
(4,051)
(2,126)
Profit/(loss) before tax
202
365
(9,740)
(13,802)
(3,577)
100
Income tax benefit/(expense)
32
(43)
468
1,172
427
(72)
Net income/(loss) attributable to discontinued operations
234
322
(9,272)
(12,630)
(3,150)
28
NVision Czech Republic a.s.
Non-core assets
EWUB
Cash flows from discontinued operations included in the consolidated statements of cash flows for 2022 and 2021 are as follows:
2022
2021
2022
2021
2022
2021
2022
2021
Net cash provide by/(used in) operating activities
61 (204)
- - (13,264)
(3,245)
(22,125)
3,560
Net cash (used in)/provided by investing activities
(69)
356
- 1,234 (1,620)
(6,137)
16,038 (1,657)
Net cash provided by/(used in) financial activities
31 (154)
- - 35,244
2,817
-
-
Total net cash increase/(decrease) in cash and cash equivalents
23 (2)
- 1,234
20,360 (6,565)
(6,087)
1,903
EWUB
NVision Czech Republic a.s.
VF Ukrane
Non-core assets
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
25
As at 31 December 2022, EWUB assets and liabilities of EWUB classified as held for sale as follows:
31 December
2022
Assets
Current assets
Cash and cash equivalents
5,894
Other financial assets
1,522
Advances paid
52
Total current assets
7,468
Non-current assets
Property, plant and equipment
786
Other intangible assets
124
Other financial assets
3,369
Deferred tax assets
462
Total non-current assets
4,741
Impairment to fair value less costs of disposal
(1,474)
Total assets
10,735
31 December
2022
Liabilities
Current liabilities
Accounts payable
394
Other liabilities
4,031
Total current liabilities
4,425
Non-current liabilities
Deferred tax liabilities
413
Total non-current liabilities
413
Total liabilities
4,838
Other disposals of subsidiaries
Information on other transactions for the sale of shares in subsidiaries is presented below.
Sale of SFH Invest S.A. – On 24 March and 20 May 2022, the Group sold to a third party (the “Buyer”)
90% and 10% of the shares of SFH Invest S.A. (the “Company”), respectively. As a result of the
company’s disposal, the Group’s assets decreased by RUB 13,875 million, the Group’s liabilities
decreased by RUB 62 million, the increase in non-controlling interests, additional capital and other
comprehensive income amounted to RUB 891 million, RUB 591 million and RUB 336 million,
respectively. Аt the same time the Group reflected loans previously issued to the Company and loans
previously received from the Company, in the amount of RUB 19,037 million and RUB 5,580 million,
respectively, as well as accounts receivable and payable on interest in the amount of
RUB 2,295 million and RUB 12 million, respectively. According to the terms of the call option
agreement, a number of actions of the Buyer in relation to the sold company were subject to prior
consent of the Group. Starting from July 2022, the Group has no agreements granting the right to
repurchase any shares of the Company.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
26
6.
BUSINESS COMBINATIONS
Acquisitions of businesses are accounted for using the acquisition method, with the identifiable
assets acquired and the liabilities assumed recognised at their fair value at the acquisition date.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any
non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity
interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets
acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts
of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration
transferred, the amount of any non-controlling interests in the acquiree and the fair value of the
acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in
profit or loss as a bargain purchase gain.
Those interests of non-controlling shareholders that are present ownership interests entitling their
holders to a proportionate share of net assets upon liquidation may initially be measured at fair value
or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable
net assets. The choice of measurement is made on an acquisition-by-acquisition basis.
If the initial accounting for a business combination is incomplete by the end of the reporting period
in which the acquisition occurs, the Group reports in its consolidated financial statements provisional
amounts for the items for which the accounting is incomplete. During the measurement period,
which could be up to one year from the acquisition date, the Group retrospectively adjusts the
provisional amounts recognised at the acquisition date to reflect new information obtained about
facts and circumstances that existed as at the acquisition date.
Business combinations in 2022
The business combinations which took place in 2022 is summarized below:
Principal
Date of
Interest
Share after
Acquiring
Conside-
Acquiree
activity
acquisition
acquired
acquisition
segment
ration
Etalon
Development
May
19%
48,8%
Corporate
24,035
Gulfstream
Security Services
April
58%
58%
MTS
1,999
VisionLabs
IT Developer
February
77%
100%
MTS
5,465
YIT
Development
May
100%
100%
Etalon Group
1,923
Bronevik
Hotel booking
services
July
100%
100%
MTS
4,000
Webinar
Video
conferencing
communications
July
75.5%
75.5%
MTS
2,095
Fishing industry companies
Fishing and
fish processing
July -
December
Other
6,452
Other acquisitions
Other
Other
3,986
Total
49,955
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
27
Obtaining control over Etalon Group
In May 2022, the Group acquired 72.85 million GDRs of the Etalon Group for RUB 4.5 billion.
As a result of this transaction, the effective share of the Group in the authorized capital of Etalon
Group amounted to 48.8%. The Group concluded that it had gained control over the Etalon Group,
taking into account the dispersion of the ownership interests of other shareholders.
The following table summarises the amounts of the assets acquired and liabilities assumed relating
to such acquisitions at the acquisition date:
Etalon
Total consideration satisfied by:
Cash consideration
4,491
Fair value of the previously held interst in the acquiree
19,544
24,035
Recognised amounts of identifiable assets acquired and liabilities assumed:
Property, plant and equipment
5,323
Right-of-use assets
7,896
Deferred tax assets
8,047
Other non-current assets
6,160
Inventories
144,941
Contract assets
22,738
Accounts receivable
8,748
Advances paid and prepaid expenses
12,549
Other taxes receivable
7,598
Cash and cash equivalents
42,577
Other current assets
1,566
Loans and borrowings non-current
(74,292)
Lease liabilities
(7,896)
Deferred tax liabilities
(15,293)
Other financial liabilities
(18,767)
Other non-current liabilities
(545)
Loans and borrowings current
(11,972)
Accounts payable
(27,407)
Other taxes payable
(5,572)
Contract liabilities and other liabilities
(15,226)
Other current liabilities
(464)
Net assets
90,709
Non-controlling interests
(46,443)
Bargain purchase gain
(20,231)
The excess of the consideration transferred over the value of the identifiable assets acquired and
liabilities assumed in the amount of RUB 20.2 billion was caused by the low level of market shares
quotations, and was recognized in “Other income”.
As at 21 December 2022, The Group, with the involvement of an independent appraiser, completed
the assessment of the fair value of the acquired assets and liabilities. Non-controlling interest was
measured at the present ownership instruments’ proportionate share in the recognised amounts of
the acquiree’s identifiable net assets.
.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
28
The following table summarizes the amounts of the other identifiable acquired assets and liabilities at the
acquisition date, except for Etalon:
Gulfstream
VisionLabs
YIT
Bronevik
Webinar
Fishing
industry
companies
Other
acquisitions
Total consideration
satisfied by:
Cash consideration
1,999
3,828
1,923
4,000
2,095 1,380 910
Fair value of the previously held
-
-
-
-
- -
-
interest in the acquiree
-
357
-
-
- -
2,083
Deferred payment
-
659
-
-
- 5,072
-
Fair value of financial assets
-
-
-
-
- - 993
Fair value of contingent
consideration
-
621
-
-
- -
-
1,999
5,465
1,923
4,000
2,095 6,452
3,986
Recognised amounts
of identifiable assets
acquired and liabilities
assumed:
Property, plant and equipment
279
81
371
8
12 1,641
8,567
Right-of-use assets
-
-
-
-
- -
79
Customer base
2,114
2,333
-
-
- -
-
Other intangible assets
332 736
192
38 452 7,555 952
Other non-current assets
289
31
1,619
41
84
6
19
Inventories
-
-
8,314
-
-
209
2,635
Cash and cash equivalents
24
326
2,456
197
58
234
280
Other current assets
2,609
319
10,480
1,266
57
352
2,934
Loans and borrowings
-
- (3,951)
-
- (483)
(5,962)
Put option to purchase NCI
(1,877)
-
-
- (986)
-
-
Lease liabilities
-
-
-
-
- - (79)
Non-current liabilities
(605)
(774)
(578)
(32)
(4)
(313)
(44)
Current liabilities
(3,055)
(816)
(4,747)
(1,416)
(187)
(216)
(5,481)
Net assets
110
2,236
14,156
102
(514)
8,985
3,900
Non-controlling interests
-
- (195)
-
- (2,666)
11
Goodwill
1,889
3,229
-
3,898
2,609
133
289
Bargain purchase gain
-
-
(12,038)
-
-
-
(214)
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
29
The excess of the consideration transferred over the value of the identifiable assets acquired and
liabilities assumed was allocated to goodwill mainly arising from the following:
Gulfstream
Expected synergy effect
VisionLabs
Expected synergy effect
Bronevik
Expected synergy effect
Webinar
Expected synergy effect
Fishing industry companies
Expected synergy effect
Other
Expected synergy effect and development of new
competencies
Acquisition of VisionLabs – In February 2022, the Group acquired a 77% ownership interest in
VisionLabs B.V. (“VisionLabs”), leading provider of computer vision and machine learning solutions.
The acquisition is aimed at reinforcement of the Group’s artificial intelligence product portfolio in the
computer vision space, and enhancing the potential of the Group’s digital ecosystem. The purchase
price for total consideration of RUB 5,464 million constitutes a cash payment of RUB 3,828 million,
deffered consideration of RUB 659 million, the previously held interest of RUB 357 million and
contingent consideration of RUB 621 million. Contingent consideration is based on certain
performance criteria for the periods starting 2022 and ending 2024.
As at 31 December 2022, the Group, with the involvement of an independent appraiser, completed
the assessment of the fair value of the acquired assets and liabilities.
Acquisition of Gulfstream – In April 2022, the Group acquired a 58.38% ownership interest in
Gulfstream Security Systems JSC (“Gulfstream”), one of Russia’s leading providers of digital safeguard
systems for residential households, and commercial real estate, for total consideration of RUB 1,999
million in cash. The acquisition is aimed at expanding the Group’s smart home services. The Group
obtained call and put options to purchase the remaining 41.62% stake, exercisable starting 2025
based on the financial results of Gulfstream.
As at 31 December 2022, the Group has not completed the fair value measurement of the acquired
assets and liabilities and the purchase price allocation. The Group recorded the estimated amounts
of the acquired identifiable assets, determined, among other inputs, based on the carrying value at
the date of acquisition.
Acquisition of YIT – In May 2022, the Group acquired controlling interests in certain legal entities
representing the Russian business of YIT Corporation (“YIT Russia”) for the consideration of
RUB 1,923 million in cash. YIT Russia focuses on mid-market residential real estate and operates
several housing-service companies. The excess of the consideration transferred over the value of the
identifiable assets acquired and liabilities assumed in the amount of RUB 12,038 million was
recognised in “Other income”, which was due to the fact that the seller made the sale in an
accelerated manner.
As at 31 December 2022, The Group, with the involvement of an independent appraiser, completed
the assessment of the fair value of the acquired assets and liabilities.
Acquisition of Bronevik – In July 2022, the Group acquired a 100% ownership interest in LLC
“Company Bronevik” and LLC “Bronevik Online” (together – “Bronevik”), one of the market leaders
in online hotels booking. The acquisition was aimed at developing the Group’s tourism services. Total
consideration of RUB 4,000 million was paid in cash.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
30
As at 31 December 2022, the Group has not completed the fair value measurement of the acquired
assets and liabilities and the purchase price allocation. The Group recorded the estimated amounts
of the acquired identifiable assets, determined, among other inputs, based on the carrying value at
the date of acquisition.
Acquisition of Webinar – In July 2022, the Group acquired a 75.5% ownership interest in LLC
“Webinar” and LLC “Webinar Technologies” (together – “Webinar”), developer and provider of
videoconferencing solutions and video services for corporations, for total consideration of
RUB 2,095 million in cash. The acquisition was aimed at complementing the Group’s ecosystem of
B2B services and development of a single universal application for video calls and conferences further
integrated with videoconferencing services. The Group has acquired call and put options to purchase
the remaining 24.5% stake. In September 2022, options were partly excercised for RUB 328 million
and the Group’s ownership interest in Webinar increased to 84.25%. The remaining put and call
options are exercisable in 2024 and 2025 based on the financial results of Webinar.
As at 31 December 2022, the Group has not completed the fair value measurement of the acquired
assets and liabilities and the purchase price allocation. The Group recorded the estimated amounts
of the acquired identifiable assets, determined, among other inputs, based on the carrying value at
the date of acquisition.
Acquisition of fishing industry companies – During 2022, the Group acquired:
100% stake in Loyd-Fish LLC for RUB 4,929 million. The purchase price includes deferred
consideration in the amount of RUB 4,929 million, which was paid in cash in January 2023.
100% stake in Loyd-Auto LLC for RUB 143 million. The purchase price includes deferred
consideration in the amount of 143 million rubles, which was paid in cash in January 2023.
75% stake in LLC “Crystal Fish” for RUB 1,125 million in cash.
10% stake in Hangar LLC for RUB 255 million in cash. At the same time, the Group entered into
an Option agreement to purchase 80% stake in Hangar LLC, during 2022 the Group exercised it
and acquired an additional 80% stake in Hangar LLC.
These companies specialize in the fishing and processing of red fish on the west coast of the
Kamchatka Peninsula and are integrated into a Group-controlled fishing holding with its own fishing
and processing of Pacific salmon.
As at 31 December 2022, the Group has not completed the assessment of the fair value of the
acquired assets and liabilities and the purchase price allocation, the Group recorded the estimated
amounts of the acquired identifiable assets, determined, among other inputs, based on the carrying
value at the date of acquisition.
The consolidated statement of profit and loss for 2022 includes RUB 66,768 million revenue and
RUB 7,845 million net profit of the acquired companies, starting from the dates of their acquisition.
If the acquisitions had been made at the beginning of the reporting period, the Group’s revenue and
net profit would have amounted to RUB 942,464 million and RUB 45,258 million, respectively.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
31
Business combinations in 2021
The business combinations which took place in 2021 are summarized below:
The following table summarizes the amounts of the identifiable assets acquired and liabilities
assumed relating to such acquisitions at the acquisitions date:
Principal
Date of
Interest
Acquiring
Purchase
Acquiree
activity
acquisition
acquired
segment
price
MTT
Telecomunications
June
100%
MTS
5,798
GreenBush
Telecomunications
June
100%
MTS
5,200
Other acquisitions of MTS
Telecomunications
April
100%
MTS
3,161
Binnopharm Group
Pharmaceuticals
June
n/a
Other
38,343
Inter Forest Rus
Timber procurement
December
100%
Segezha
38,748
Novoeniseysky wood-chemical
complex
Timber procurement
September
100%
Segezha
3,708
Zarya
Fishing
July
49%
Other
3,000
Acquisitions of Medsi
Healthcare
December
100%
Medsi
2,118
Other acquisitions
Other
July-August
Other
3,574
Итого
103,650
Green
Bush
Other
acquisitions
of MTS
Binno-
pharm
Group
Novoeniseysky
wood-chemical
complex
Other
acquisitions
Total consideration satisfied by:
Cash consideration
5,200 1,512 - 3,708
3,574
Fair value of the previously held
interest in the acquiree
- 1,582 38,343 -
-
Deferred payment
- 7 - -
-
Fair value of financial assets
- - - -
-
Fair value of contingent
consideration arrangement
- 60 - -
-
5,200 3,161 38,343 3,708
3,574
Recognised amounts of identifiable
assets acquired and liabilities assumed:
Property, plant and equimpment
5,171 623 13,296 4,058
1,655
Right-of-use assets
- - 403 4,923 679
Other intangible assets
1
360
20,783
-
1,000
Other non-current assets
17 43 988 929
54
Inventories
- - 8,360 1,250
1,587
Other current assets
93 1,590 10,082 746
2,376
Current liabilities
(26) (736) (14,326) (1,315)
(5,515)
Lease liabilities
- (118) (389) (1,837) (592)
Non-current liabilities
(56) -
(8,942) (1,224) (468)
Net assets
5,200
1,762
30,255
7,530
776
Non-controlling interest
-
-
(14,746)
-
13
Goodwill
-
1,399
22,834
-
2,853
Bargain purchase gain
-
-
-
(3,822)
(68)
2021
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
32
The following table summarizes the amounts of the identifiable assets acquired and liabilities assumed relating to such acquisitions at the acquisitions date:
Preliminary
valuation
Adjust-
ments
Final
valuation
Preliminary
valuation
Adjust-
ments
Final
valuation
Preliminary
valuation
Adjust-
ments
Final
valuation
Preliminary
valuation
Adjust-
ments
Final
valuation
Total consideration satisfied by:
Cash consideration
3,680
-
3,680
16,951
(26)
16,925
3,000
-
3,000
2,131
(13)
2,118
Fair value of the previously held
interest in the acquiree
-
-
-
-
-
-
-
-
-
-
-
-
Deferred payment
160
-
160
21,797 26
21,823
-
-
-
-
-
-
Fair value of financial assets
1,958
-
1,958
-
-
-
-
-
-
-
-
Fair value of contingent
consideration arrangement
-
-
-
-
-
-
-
-
-
-
-
-
5,798
-
5,798
38,748
-
38,748
3,000
-
3,000
2,131
(13)
2,118
Recognised amounts of identifiable
assets acquired and liabilities assumed:
Property, plant and equimpment
588
821
1,409
23,490
(7,525)
15,965
756
518
1,274
232
252
484
Right-of-use assets
114 -
114
28,731
14,956
43,687 -
-
-
956
-
956
Other intangible assets
1,947
(737)
1,210
557
(540)
17
5,985
(1,043)
4,942
8
1,091
1,099
Other non-current assets
140
-
140
771
(515)
256
-
-
-
-
-
-
Inventories
- -
-
8,031
(1,663)
6,368
633 (189)
444
67
1
68
Other current assets
3,396
-
3,396
5,375
(143)
5,232
19
10
29
423
2
425
Current liabilities
(2,656)
-
(2,656)
(8,557)
1,364
(7,193)
(3,388)
3,042
(346)
(174)
5
(169)
Lease liabilities
-
-
-
(8,270)
(2,735)
(11,005)
-
-
-
(957)
(2)
(959)
Non-current liabilities
(715)
(23)
(738)
(11,380)
(3,199)
(14,579)
(367)
(328)
(695)
-
-
-
Net assets
2,814
61
2,875
38,748
-
38,748
3,638
2,010
5,648
555
1,349
1,904
Non-controlling interest
-
-
-
-
-
-
(638)
(2,303)
(2,941)
-
-
-
Goodwill
2,984
(61)
2,923
-
-
-
-
293
293
1,576
(1,362)
214
Bargain purchase gain
-
-
-
-
-
-
-
-
-
-
-
-
2021
МТТ
Inter Forest Rus
Zarya
Acquisitions of Medsi
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
33
The excess of the consideration transferred over the value of the identifiable assets acquired and
liabilities assumed was allocated to goodwill mainly arising from the following:
МТТ
Expected synergy effect
Other acquisitions of MTS
Expected synergy effect
Binnopharm
Skilled workforce, ability to develop new medicine
Others
Expected synergy effect and development of new
competencies
Acquisition of MTT – In June 2021, MTS acquired a 100% ownership interest in OJSC Multiregional
TransitTelecom (MTT), a provider of intelligent connectivity solutions for businesses, to expand its
connectivity services portfolio. The purchase price constituted a cash payment of RUB 3,680 million
paid in June 2021, transfer of financial assets offset against the purchase price of RUB 1,958 million
and contingent consideration of RUB 160 million.
As at 31 December 2021, the Group’s consolidated financial statements reflected the allocation of
the purchase price based on a preliminary fair value assessment of the assets acquired and liabilities
assumed. In 2022 the Group finalized the valuation of assets of MTT and the fair value of the assets
changed since the preliminary calculations made at the acquisition date.
Acquisition of GreenBush – In June 2021, MTS acquired a 100% ownership interest in LLC GDTs
Energy Group (GreenBush), the operator of the GreenBush data center in Technopolis special
economic area, to use the facility’s additional capacity to offer colocation and cloud solutions to
customers as well as to facilitate the Group’s own compute and storage needs. The purchase price
constituted a cash payment of RUB 5,200 million paid in July 2021.
Binnopharm Group
Incorporation of a pharmaceutical holding company – In February 2021, the incorporation of
a pharmaceutical holding company, Binnopharm Group was completed. In order to set up a single
pharmaceutical holding, Sistema and the Bank, have contributed a 56.2% stake in Sintez OJSC (including
Biocom GSC) to the capital of Binnopharm Group. At the same time, Sistema, the Bank, 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 Alium JSC (which includes Binnopharm JSC) to the capital
of Binnopharm Group. As a result, the effective share of Sistema together with Bank in the holding
company amounted to 79%, and the Consortium of Investors – 15.8%. The remaining 5.2% of the shares
were distributed among the minority shareholders-individuals. The Group continued to account for
investments in Ristango Holding Limited and Sinocom Investments Limited (holding companies through
which investments in JSC “Alium” and OJSC “Sintez” were made) under equity method.
Acquisition of stake in OJSC Sintez (hereinafter – Sintez) – In March 2021, Sistema (through
a subsidiary Sistema Telecom Assets LLC) purchased a stake of 32.39% of the authorized capital of
Sintez from the Holding Company Nacimbio controlled by State Corporation Rostec. The transaction
amounted to RUB 6.9 billion. In May 2021, Sistema contributed the stake in OJSC Sintez acquired
from the Holding Company Nacimbio to the capital of Binnopharm Group, as a result of which the
share of Binnopharm Group in OJSC Sintez amounted to 88.6%.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
34
Increase of stake in Ristango Holding Limited – In April 2021, the Group purchased a stake of 3.95%
of the authorized capital of Ristango Holding Limited from minority shareholders for RUB 1.2 billion.
Obtaining control over Binnopharm Group – On 25 June 2021, amended and restated Shareholder
Agreement was signed between the members of Ristango Holding Limited, as a result of which the
Group has obtained control over the operating activities of Ristango Holding Limited, the owner of
100% of the authorized capital of Binnopharm Group.
For the period from 1 January 2021 until the date of acquisition of control over Ristango Holding
Limited by the Group, the amount of profit from the revaluation of financial instruments in relation
to the partners’ participation interests in Ristango Holding Limited amounted to RUB 5.5 billion. After
control was obtained, these financial assets were derecognised and financial liabilities in the amount
of the present value of the redemption amount were recognized as part of other financial liabilities,
which resulted in an effect of RUB 8.2 billion, RUB 5.9 billion and RUB 13.9 billion on accumulated
loss, additional capital and non-controlling interests, respectively.
As a result of the transaction, the umbrella brands “Alium” and “Sintez” were identified. These
intangible assets are expected to have indefinite lives based on their history and the Group’s plans
to continue to support and build the acquired brands.
Sale of stake in Ristango Holding Limited to Nevsky Property Limited – On 28 June 2021, Sistema
Telecom Assets LLC, a 100% subsidiary of Sistema, sold an 11.2% stake in Ristango Holding Limited to
Nevsky Property Investments Limited for RUB 7 billion. The transaction was recognized directly in
equity (Note 7).
Exercise of the contract to acquire the Bank’s share in Ristango Holding Limited – In July 2021, the
Group exercised its right under the forward agreement with the Bank and early purchased VTB’s
20.97% share in Ristango Holding Limited for RUB 6.7 billion.
Exercise of the contract to acquire the Bank’s share in Sinocom Investments Limited – In December
2021, Sistema Telecom Assests LLC, a 100% subsidiary of Sistema, exercised its right to acquire the
Bank’s shares of Sinocom Investments Limited, which owns shares of Ristango Holding Limited, for
the amount of RUB 9.06 billion. As a result of the transaction, the effective share of the Corporation
in Binnopharm Group increased to 75.3%.
As at 31 December 2021, the Group, with the involvement of an independent appraiser, completed
the assessment of the fair value of the acquired assets and liabilities.
Acquisition of LLC Inter Forest Rus and its subsidiaries – On December 28, 2021, the Group acquired
100% control over LLC Inter Forest Rus and its 24 subsidiaries from a third party, including four
sawmills, plywood and pellet manufacturers, as well as logging assets with an estimated cutting area
of about 10.9 million cubic meters. All acquired assets are located in the Krasnoyarsk Region and the
Irkutsk Region.
The purchase price includes a cash payment of USD 528 million (RUB 38,748 million at the transaction
date exchange rate), of which USD 230 million (RUB 16,951 million at the transaction date exchange
rate) was paid during 2021, RUB 18,390 million the Group paid in January-March 2022.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
35
As at 31 December 2021, deferred payments in the total amount of USD 50 million (RUB 3,715 million
at the exchange rate as at 31 December 2021), included in long-term other financial liabilities from
the acquisition of companies, are payable in equal amounts in 2 and 4 years from the date of signing
of the sale and purchase agreement, but not discounted, since act as security against possible
property losses of the Group related to the decisions of the previous owners (Note 27). The security
covers, among other things, the risks of loss of property, additional taxes, penalties and fines, disposal
of allowable forest cut.
On 29 December 2022, the Group got notice regarding partial discharge of deferred payment in the
amount of USD 47.5 million (equivalent to RUB 3,386 million at the exchange rates effective on the
agreement date) recognized as “Other expenses” in the consolidated statement of profit or loss and
other comprehensive income.
In preparing the consolidated financial statements for 2022, the Group has completed the fair value
measurement of acquired assets and liabilities with the involvement of an independent appraiser,
as a result the comparative information as at 31 December 2021 was adjusted.
Consolidation of CJSC Novoyeniseysky wood-chemical complex – On 15 February 2021, the Group
submitted an application to participate in an auction held by the bank of non-core assets “Trust” to
sell assets related to CJSC Novoyeniseysky wood-chemical complex (NLHK). NLHK is one of the largest
closed-cycle woodworking enterprises located in the Lesosibirsk, Krasnoyarsk Region, specializing on
the lumber production, dispersed wood fraction, chipboard, pellets, as well as joinery for the
construction of residential and industrial premises.
The auction lot included the bank’s rights to claims on loans and other liabilities in the total amount
of RUB 11.5 billion in different currencies, as well as the right to enter into an option for 71% of NLHK
shares, the condition for the exercise of which was, among other things, the termination of
arbitration proceedings in the bankruptcy proceedings against NLHK. The Group purchased the lot
for a cash consideration of RUB 2,306 million paid in February 2021.
On 20 May 2021, the Group signed an agreement to acquire a minority interest of 29% of NLHK
shares. The transaction was completed on 27 July 2021, the shares became the property of the
Group’s subsidiary, JSC Lesosibirsky LDK №1. The total remuneration amounted to USD 17 million
(RUB 1.2 billion), of which RUB 620 million was paid on 8 June 2021, the remaining amount
RUB 601 million was due after the transfer of ownership, and was paid on 19 August 2021.
On 15 September 2021, the Arbitration Court of the Krasnoyarsk Region decided to terminate the
bankruptcy proceedings in relation to NLHK, and the option to acquire 71% of the shares became
exercisable, and, accordingly, the Group obtained control over operating activities and consolidated
100% of the assets and liabilities of NLHK.
As a result of the acquisition of NLHK, the Group received gain from the acquisition in the amount of
RUB 3,822 million, which was recognized as part of “Other income” in the сonsolidated statement of
profit or loss and other comprehensive income. The gain is related to the bankruptcy proceedings
against NLHK, initiated as a result of a corporate conflict between the previous owners of the
company. As a result of this conflict, NLHK’s potential in terms of both harvesting volumes and sawn
timber production volumes was not fully utilized. In the 4th quarter 2021, having terminated the
bankruptcy procedure, as well as having ensured a sufficient level of working capital, the Group,
without additional capital investments, increased the volumes of logging and production of sawn
timber, increasing the operating profitability of the company.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
36
In preparing the consolidated financial statements for 2022, the Group has completed the fair value
measurement of acquired assets and liabilities with the involvement of an independent appraiser,
as a result the comparative information as at 31 December 2021 was adjusted
Acquisitions of Medsi – In December 2021, the Group acquired the Dialine clinic chain in Volgograd
(DIALINE Clinical Diagnostic Laboratory LLC and DIALINE Multidisciplinary Medical Center LLC), as well
as the Promedicine clinic chain in Ufa (“MMC “Clinic of Allergology and Pediatrics” LLC, “KNTS” LLC,
“MC” Preventive Medicine” LLC, “MMC” Preventive Medicine” LLC and “Preventive Medicine-Pharm”
LLC).
Part of the consideration for the Promedicine chain in the amount of RUB 973 million was paid by
transfer under a letter of credit. As at 31 December 2021, the Group recorded the letter of credit as
restricted cash. The Group recorded other payables for the acquisition of the Promedicine chain and
the Dialine chain in the amount of RUB 1,023 million and RUB 56 million, respectively.
At the beginning of 2022, the Group repaid the debt on the acquisition of the Dialine and Promedicine
clinic chain. Payments in the reporting period were adjusted downward by RUB 13 million and
amounted to RUB 94 million according to the terms of the contracts, due to the consideration
clarification of the acquired assets.
In preparing the consolidated financial statements for 2022, the Group has completed the fair value
measurement of acquired assets and liabilities with the involvement of an independent appraiser,
as a result the comparative information as at 31 December 2021 was adjusted.
Acquisition of Zarya – In July 2021, the Group acquired a 49% stake in LLC Zarya for RUB 3 billion.
The main activity of the company is fish production. The Group and other participants entered into
a shareholder agreement, according to which the Group received control over operating activities.
In December 2021, the Group acquired an additional 41% stake in the authorized capital for
RUB 3.2 billion. As a result of the transaction, the share of the Group in this subsidiary increased
to 90%.
In preparing the consolidated financial statements for 2022, the Group has completed the fair value
measurement of acquired assets and liabilities with the involvement of an independent appraiser, as
a result the comparative information as at 31 December 2021 was adjusted. Non-controlling interest
was measured at the present ownership instruments’ proportionate share in the recognised amounts
of the acquiree’s identifiable net assets.
The following table summarises the details of purchase of subsidiaries, net of cash acquired, reported
in the consolidated statements of cash flows:
2022
2021
Cash consideration
21,285
39,756
Net of cash acquired
(46,152)
(3,603)
Payments for acquisitions of past periods (Note 27)
18,643
-
Acquisitions of subsidiaries less cash acquired
(6,224)
36,153
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
37
7.
CAPITAL TRANSACTIONS OF SUBSIDIARIES
The Group enters into transactions to acquire or dispose ownership interests in its existing
subsidiaries that do not result in the Group losing control over the subsidiaries. Also, the entities of
the Group enter into transactions with each other to transfer ownership interests in subsidiaries
within the Group. Such transactions are accounted for as equity transactions. The carrying amounts
of the Group’s interests and the non-controlling interests (“NCI”) are adjusted to reflect the changes
in their relative interests in the subsidiaries. Any difference between the amount by which the non-
controlling interests are adjusted and the fair value of the consideration paid or received is
recognised directly in equity in additional paid-in capital (“APIC”) and attributed to shareholders of
the Company.
Transactions in 2022
The information on capital transactions of subsidiaries which took place in 2022 and their impacts on
the Group’s equity is summarised below:
(Decrease)/
Increase of
Increase of
additional
non-controlling
paid-in capital
interests
The effect of changes in ownership percentage in subsidiaries
(1,706)
367
Other
7
179
Total impact
(1,699)
546
Transactions in 2021
The information on capital transactions of subsidiaries which took place in 2021 and their impacts on
the Group’s equity is summarised below:
(Decrease)/
(Decrease)/
increase of
increase of
additional
non-controlling
paid-in capital
interests
Purchase of own shares by MTS
(3,239)
(10,541)
Initial Public Offering of Segezha Group
19,540
10,399
Sale of stake in Ristango Holding Limited to
Nevsky Property Investments Limited (Note 6)
3,313
3,388
Sale of stake in Segezha Group
6,738
4,300
Other
(2,292)
3,364
Total impact
24,060
10,910
Purchase of own shares by MTS – In 2021, MTS acquired 65,308,610 ordinary shares, including
acquisition of 22,796,040 ordinary shares from Sistema PJSFC and Sistema Finance S.A., the
subsidiary of the Group, in the amount of RUB 7.5 billion.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
38
Initial Public Offering of Segezha Group – On 28 April 2021, Segezha Group carried out an initial
public offering of 3.75 billion ordinary shares on the Moscow Exchange. As a result, Segezha Group
has raised RUB 30 billion. The amount of expenses directly related to the issue and placement of
shares amounted to RUB 1 billion. Subsequently, Sistema has exercised the option for additional
placement of secondary shares as part of the initial public offering and listing of ordinary shares of
Segezha Group on the Moscow Exchange. The total amount of Sistema’s proceeds from the exercise
of the option for the additional placement is approximately RUB 0.8 billion.
Sale of a stake in Segezha Group – In December 2021, Sistema sold a 8.7% stake in ordinary shares
of PJSC Segezha Group for USD 150 million (RUB 11 billion).
8.
REVENUE
Revenue from contracts with customers specific to the reporting segments of the Group is recognised
in the following way.
MTS – Revenue for access charges, voice and video calls, rendering of cloud services, messaging,
interconnect fees and fixed and mobile broadband is recognised as services are rendered. This is
based upon either usage (minutes of traffic processed, volume of data transmitted) or passage of
time (monthly subscription fees). Products and services may be sold separately or in bundle packages.
The most significant part of revenue relates to prepaid contracts.
The Group capitalizes costs of obtaining contracts (such as sales commissions) and costs of fulfilling
contracts and amortises over the period expected to benefit from the contract. The Group used the
practical expedient allowed by of IFRS 15 whereby such costs may be expensed if the amortisation
period is one year or less.
Revenue from sales of goods (mainly mobile handsets, other mobile devices, software licenses) is
recognised when the significant risks and rewards of ownership have been transferred to the
customer.
Revenue from providing financial services mainly relates to interest bearing assets of MTS Bank. Such
revenue is recognised on an accrual basis using the effective interest method.
Medsi – Medsi recognises revenue from the provision of medical services when (or to the extent
that) it fulfills the performance obligation by transferring the promised good or service to the buyer.
An asset is transferred when (or as) the buyer gains control of the asset.
The Group provides medical services under contracts for payment upon the provision of services and
from advance contracts.
Under contracts that provide for payment upon the provision of services, the Group fulfills the
performance obligation at a certain point in time. Revenue is recognised at the time when the service
is rendered in full.
Revenue from advance contracts (concluded in the usual practice for 1 year) that provide for the
customer’s right to receive a certain package of services during the term of the contract is recognised
on a straight-line basis over the entire term of the contract.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
39
In most cases, fitness services are provided on the basis of an advance payment form and are also
recognised on a straight-line basis over the entire term of the contract.
As medical examination reports on services rendered to insurance companies are received with some
delay, the Group recognises revenue less the provision for services rendered unwarranted, which is
estimated based on historical data.
Segezha Group – Segezha Group receives revenue from the sale of goods (paper and packaging,
lumber, plywood and other goods) and from the provision of finished goods delivery services to the
buyer after the transfer of control over the goods. Sales are recognised at the time when control of
goods is transferred, i.e. when the goods are delivered to the buyer in accordance with the terms of
delivery (Incoterms 2010), the buyer has complete freedom of action with respect to the goods and
when there is no unfulfilled obligation that may affect the acceptance of the goods by the buyer.
Delivery is deemed to have been made when the goods have been delivered to a certain place, the
risks of damage and loss passed to the buyer, and the buyer accepted the goods in accordance with
the contract, the validity of the acceptance provisions has expired or the Group has objective
evidence that all acceptance terms have been met.
Etalon – Etalon recognises revenue when (or as) it transfers control over an asset to a customer.
Control of an asset refers to the ability to direct the use of, and obtain substantially all of the
remaining benefits from, the asset. Transfers of control may vary depending on the individual terms
of the sales contracts.
The Group builds and sells residential real estate under long–term contracts with buyers (contracts
under IFRS 15). Such contracts are concluded at the stage of construction of residential facilities.
According to the terms of the contracts, the Group does not have the right to transfer real estate to
another customer and to be paid for the work performed, and, consequently, revenue is recognized
over a period of time. To recognize revenue over a period of time, the Group evaluates the degree of
fulfillment of obligations using the resource method, determining the percentage of completion as
the share of actual costs incurred in the total estimated costs of fulfilling obligations under contracts
(the cost of a real estate object under construction).
Revenue from contracts under IFRS 15 is recognized after the commissioning of real estate objects,
at the time of transfer of control to customers. Control over such agreements is usually transferred
after the signing of the sale and purchase contract.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
40
The following is analysis of the Group’s revenue from continuing operations for 2022:
MTS
Segezha
Etalon
Medsi
Corporate
Other
Total
Type of goods/services
Connectivity services
419,942
- - - - - 419,942
Sale of goods
43,731
- - - - - 43,731
Production
- 106,728
- - - 111,717 218,445
Development
- - 51,966
- - - 51,966
Financial services
62,731
- - - - - 62,731
Medical services
- - - 35,958
- - 35,958
Other services
10,104
- 414
- 3,297 34,987 48,802
Other
- - 7,866
- - 23,215 31,081
536,508 106,728 60,246 35,958 3,297 169,919 912,656
Revenue from goods or services
transferred to customers
At a point in time
43,731 106,728 13,768 34,516 3,297 159,355 361,396
Over time
492,777
- 46,478 1,442
- 10,564 551,260
536,508 106,728 60,246 35,958 3,297 169,919 912,656
Reportable segments
The following is analysis of the Group’s revenue from continuing operations for 2021:
MTS
Segezha
Etalon
Medsi
Corporate
Other
Total
Type of goods/services
Connectivity services
401,707
- - - - - 401,707
Sale of goods
68,973
- - - - - 68,973
Production
- 92,438
- - - 71,443 163,881
Financial services
46,532
- - - - - 46,532
Medical services
- - - 30,040
- - 30,040
Other services
6,487
- - - 3,427 29,484 39,398
Other
- - - - - 22,687 22,687
523,699 92,438
- 30,040 3,427 123,614 773,218
Revenue from goods or services
transferred to customers
At a point in time
68,973 92,438
- 28,714 3,427 116,610 310,162
Over time
454,726
- - 1,326
- 7,005 463,056
523,699 92,438
- 30,040 3,427 123,615 773,218
Reportable segments
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
41
The Group expects to recognize revenue related to performance obligations that were unsatisfied
(or partially unsatisfied) as at 31 December 2022 as follows:
2023
2024-2028
2029-2033
Total
Mobile and fixed telecommunication services
24,375
1,097
27
25,499
Development
58,440
44,544
-
102,984
Other services
17,995
8,710
1,232
27,937
Loyalty programmes
455
-
-
455
Total
101,265
54,351
1,259
156,875
Contract assets and liabilities
Contract balances include trade receivables related to the recognised revenue, contract assets and
contract liabilities.
Trade receivables represent an unconditional right to receive consideration (primarily in cash).
Contract assets represent accrued revenues that have not yet been billed to customers due to certain
contractual terms other than the payments terms.
Contract assets of MTS represent accrued revenue in a bundled offering which combines the sale of
a mobile device and the provision of mobile services for a fixed-period. The mobile device is invoiced
at a reduced price leading to the reallocation of a portion of amounts invoiced for mobile
communication services to the supply of the mobile phone. The excess of the amount allocated to
the mobile phone over the price invoiced is recognised as a contract asset and thus transferred to
trade receivables as the service is rendered.
Contract assets of MTS also relate to the MTS’s rights to consideration for work completed but not
yet billed for integration services projects.
Contract liabilities represent amounts paid by customers to the Group before receiving the goods or
services promised in the contract. Contract liabilities consisted of advances received from customers
and also amounts invoiced and paid for goods or services that are yet to be transferred.
Etalon’s contract assets are a rights to consideration for work completed but not billed at the
reporting date on sale of residential premises and commercial premises under share participation
agreements and for long-term construction contracts. Contract assets are transferred to accounts
receivable when the rights become unconditional.
Payment terms for contracts on the sale of flats and built-in commercial premises under share
participation agreements usually include advance payments, payments in installments until the date
of completion of construction and payment in arrears of 2 to 5 years after the date of completion of
construction for specific projects.
Contract liabilities include advance consideration received from customers.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
42
Due to the nature of its activities, the Etalon receives significant advances from customers
(designated as contract liabilities), and makes significant prepayments to sub-contractors and other
suppliers. Advances paid are recognised on an undiscounted basis.
The Group adjusts contract liabilities for the significant financing component if the timing of
payments agreed to by the parties provides the Group with a significant benefit of financing. When
adjusting the promised amount of consideration (monetary or non-monetary) for a significant
financing component, the Group applies discount rates that would be reflected in a separate
financing transaction between the entity and its customer at contract inception that is typically the
average mortgage rate for contract assets and the Group’s incremental borrowing rate for contract
liabilities.
The following table provides information about receivables, contract assets and contract liabilities
from contracts with customers as at 31 December 2022 and 2021:
31 December 2022
31 December 2021
Trade accounts receivable
30,012
33,939
Contract assets
30,149
8,272
Total assets
60,161
42,211
Less: current portion
(59,232)
(40,070)
Total non-current assets
929
2,141
Contract liabilities
(39,944)
(32,953)
Thereof:
Mobile telecommunication services
(25,499)
(22,064)
Development
(11,627)
-
Other services
(2,363)
(10,438)
Loyalty programmes
(455)
(451)
Total liabilities
(39,944)
(32,953)
Less: current portion
37,709
31,125
Total non-current liabilities
(2,235)
(1,828)
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
43
Changes in the contract assets and the contract liabilities balances during the 2022 and 2021 are
as follows:
Contract
assets
Contract
liabilities
Contract
assets
Contract
liabilities
Balance as of 1 January
8,272
(32,953)
6,306
(32,395)
Revenue recognized that was included
in the contract liability balance
at the beginning of the period
4,678
34,933
-
26,424
Cash received, excluding amount recognized
as revenue during the period
-
(47,214)
136
(27,355)
Transfer to assets held for sale
(22,719)
-
-
-
Increase as a result of changes
in the measure of progress (Note 6)
19,154
-
(1,941)
373
Increase in revenue for which
no payment was received
-
-
3,771
-
Financing components under IFRS 15
352
(75)
-
-
Discontinued operations
(8,859)
22,594
-
-
Business combinations (Note 6)
29,271
(17,229)
-
-
Balance as of 31 December
30,149
(39,944)
8,272
(32,953)
2022
2021
Cost to obtain and fulfill a contract
The Group capitalizes certain incremental costs incurred in acquiring or fulfilling a contract with
a customer if the management expects these costs to be recoverable and includes them in other
intangible assets and other non-current assets, accordingly.
Costs of acquiring a contract include commissions paid to a third-party distributor as well as the
associated remuneration of the Group’s commercial employees for obtaining a contract with
a customer. These costs are amortised on a straight-line basis over the average subscriber life.
Costs to fulfil a contract mainly relate to costs of equipment transferred to the subscribers required
for the provision of services. These costs are amortised on a straight-line basis for the shorter of
equipment useful life or average subscriber life.
The Group uses a practical expedient from IFRS 15, which allows to expensing of contract costs as
incurred when the expected contract duration is one year or less.
As at 31 December 2022 and 31 December 2021, the balances of cost to obtain and fulfil contracts
capitalized by the Group and represented in consolidated statement of financial position in “Other
assets” (non-current) amounted to:
31 December
2022
31 December
2021
Cost to obtain contracts
8,393
7,779
Cost to fulfil contracts
2,377
3,155
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
44
As at 31 December 2022 and 2021 the accumulated amortisation expense related to cost to obtain
and fulfill contracts amounted to RUB 9,766 million and RUB 9,015 million, respectively. Amortisation
expense related to cost to obtain and fulfill contracts recognised for the year ended 31 December
2022 amounted to RUB 4,457 million (2021: RUB 4,076 million). There was no impairment loss
relating to the costs capitalized.
9.
IMPAIRMENT OF LONG-LIVED ASSETS
Impairment of long-lived assets recognised in the consolidated statement of profit or loss for 2022,
includes impairment of property, plant and equipment, investment property, goodwill and other
intangible assets.
2022
2021
Reversal of impairment of property, plan and equipment
(664)
(313)
Impairment of intangable assets
1,703
40
Impairment/(reversal of impairment) of other non-current assets
318
(469)
Impairment of goodwill (Note 15)
489
139
Total impairment of long-lived assets
1,846
(603)
Impairment of property, plant and equipment – In 2021 the Group analyzed the possible impairment
indicators of property, plant and equipment and construction-in-progress The Group identified
impairment amounted to RUB 130 million relating to Buildings and facilities, Machinery and
equipment and other property, plant and equipment of Segezha Sawmills LLC because of production
closure. The Group has also accrued impairment amounted to RUB 777 million relating to the detailed
design documentation and other capitalized costs because of revised and updated technical
parameters of the projects. The Group reversed the provision for property, plant and equipment in
the “Other” segment in the amount of RUB 1,430 million due to improved financial performance. In
2022, previously impaired individual construction-in-progress items were written off with the
disposal of accumulated impairment.
10. IMPAIRMENT OF FINANCIAL ASSETS
Impairment of financial assets for 2022 and 2021 comprise the following:
2022
2021
Allowance for expected credit losses of accounts receivable
3,147
1,824
Impairment of loans carried at amortised cost (Note 27)
704
1,958
Impairment of other financial assets
330
221
Total impairment of financial assets
4,181
4,003
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
45
11. INCOME TAXES
The Group measures and records its current income tax payable and its tax bases in its assets and
liabilities in accordance with the tax regulations of the countries where the Group and its subsidiaries
operate, which may differ from IFRS.
Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for tax purposes.
Deferred tax assets are not recognised when management believes that it is more than 50% probable
that deferred tax assets or some portion of them will not be realized. At the same time, the Group
takes into account all available evidence, including projected future taxable profit, tax planning
strategies and recent financial transactions.
The tax rate used for the reconciliations below is the corporate tax rate of 20% payable by corporate
entities in the RF on taxable profits (as defined) under tax law in that jurisdiction.
The Group’s income tax expense for 2022 and 2021 comprise the following:
2022
2021
Current income tax expense
(28,832)
(31,589)
Deferred income tax benefit/(expense)
1,255
(9,741)
Total income tax expense recognised in the current year
relating to continuing operations
(27,577)
(41,330)
Income tax expense calculated by applying the Russian statutory income tax rate to income from
continuing operations before income tax differs from income tax expense recognised in the
consolidated statements of profit or loss as a consequence of the following adjustments:
2022
2021
Profit before tax
68,098
106,321
Income tax expense calculated at 20%
(13,620)
(21,264)
Adjustments due to:
Earnings distribution from subsidiaries and associates
(6,132)
(6,221)
(Increase) of unrecognised deferred tax assets
(1,493)
(11,077)
Non-deductible expenses
(7,542)
(3,843)
Different tax rates of subsidiaries
472
600
Non-taxable income
1,142
3,213
Other
(404)
(2,738)
Income tax expense
(27,577)
(41,330)
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
46
The following is the analysis of deferred tax assets/(liabilities) presented in the consolidated
statements of financial position for 2022 and 2021:
Recognised
Opening
in profit
Recognised
Acquisitions
Closing
2022
balance
or loss
in capital
/disposals
balance
Deferred tax (liabilities)/
assets in relation to:
Accrued expenses and
accounts payable
9,830
5,438
(8)
(10,397)
4,863
Property, plant and equipment
(39,124)
1,911
61
(58)
(37,210)
Intangible assets
(11,611)
4,147
-
(1,019)
(8,483)
Cost capitalization
(1,830)
(86)
-
-
(1,916)
Deferred connection fees
1,606
276
-
-
1,882
Inventory obsolescence
735
(2,248)
3
3,292
1,782
Allowance for expected
credit losses
3,525
1,156
5
1
4,687
Undistributed earnings
of subsidiaries and joint
ventures and assoсiates
(4,356)
(1,240)
98
-
(5,498)
Right-of-use assets
5,028
192
2
(9)
5,213
Tax losses carried forward
21,648
(1,633)
8
1,504
21,527
Debt modification
(78)
98
-
-
20
Effect of derivatives reclassification
2,045
-
(1,100)
-
945
Other
1,132
(6,756)
370
3,323
(1,931)
Total
(11,450)
1,255
(561)
(3,363)
(14,119)
Recognised
Opening
in profit
Recognised
Acquisitions
Closing
2021
balance
or loss
in capital
/disposals
balance
Deferred tax assets/
(liabilities) in relation to:
Accrued expenses and
accounts payable
6,516
643
-
2,671
9,830
Property, plant and equipment
(27,351)
(1,743)
32
(10,062)
(39,124)
Intangible assets
(8,358)
1,244
-
(4,497)
(11,611)
Cost capitalization
(1,668)
(162)
-
-
(1,830)
Deferred connection fees
1,430
176
-
-
1,606
Inventory obsolescence
436
(128)
-
427
735
Allowance for expected
credit losses
2,676
761
3
85
3,525
Undistributed earnings
of subsidiaries and joint
ventures and assoсiates
(4,436)
166
(86)
-
(4,356)
Right-of-use assets
4,242
789
-
(3)
5,028
Tax losses carried forward
32,465
(11,904)
168
919
21,648
Debt modification
(123)
52
-
(7)
(78)
Effect of derivatives reclassification
-
-
2,045
-
2,045
Other
805
365
166
(204)
1,132
Итого
6,634
(9,741)
2,328
(10,671)
(11,450)
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
47
As at 31 December 2022 and 2021 the Group reported the following deferred income tax assets and
liabilities in the consolidated statements of financial position:
31 December 2022
31 December 2021
Deferred tax assets
43,231
30,956
Deferred tax liabilities
(57,350)
(42,406)
Net deferred tax liabilities
(14,119)
(11,450)
As at 31 December 2022 and 2021, the tax losses carried forward, for which deferred tax assets were
recognised, amounted to RUB 107,635 million and RUB 108,238 million, respectively.
The Group accrued uncertain income tax positions as a component of income tax payable of
RUB 109 million and RUB 160 million as at 31 December 2022 and 2021, respectively.
Russian Federal law №401-FZ dated 30 November 2016 allowed for the indefinite carry forward of
tax losses, whereas this was previously restricted to 10 years. Also, the law specified that the tax
base for the years 2017-2024 may not be reduced by tax losses carried forward in an amount
exceeding 50% of the base.
The following table summarizes temporary differences, for which deferred tax assets were not
recognised in the consolidated statements of financial position as at 31 December 2022 and 2021:
Carry-forward
Jurisdiction
period
2022
2021
India
2022-2028
59,749
81,463
Russia
Unlimited
268,629
305,335
Total
328,378
386,798
12. EMPLOYEE BENEFITS EXPENSES
Employee benefits expenses consist of salaries, bonuses and social security contributions. Employee
benefits expenses included in cost of sales, selling, general and administrative expenses and result
from discontinued operations for 2022 and 2021 comprised RUB 183,688 million and RUB 159,886
million, respectively.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
48
13. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at historical cost. Cost includes major expenditures for
improvements and replacements, which extend useful lives of the assets or increase their revenue
generating capacity. Repairs and maintenance, including preventive maintenance, are charged to the
consolidated statement of profit or loss as incurred.
The cost of major overhauls and replacements, which extend useful lives of the assets or increase
their revenue generating capacity, are capitalised to the cost of the assets.
After recognition as an asset, an item of property, plant and equipment is carried at its cost less any
accumulated depreciation and any accumulated impairment losses.
Depreciation for property, plant and equipment is computed under the straight-line method utilizing
estimated useful lives of the assets as follows:
Buildings
7 – 150 years
Leasehold improvements
the term of the lease
Base stations
3 – 44 years
Other network equipment
3 – 20 years
Power and utilities
up to 60 years
Forestry equipment
3-20 years
Other
up to 15 years
Borrowing costs directly attributable to the acquisition, construction or production of qualifying
assets, which are assets that necessarily take a substantial period of time to get ready for their
intended use or sale, are added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale. The Group considers a construction period of more
than six months to be substantial. Investment income earned on the temporary investment of
specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing
costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period
in which they are incurred.
Property, plant and equipment, net of accumulated depreciation and impairment, as at
31 December 2022 and 2021 consisted of the following:
31 December
31 December
2022
2021
Carrying amount
Switches, transmission devices, network and base station equipment
229,525
229,958
Buildings and leasehold improvements
108,982
93,938
Power and utilities
32,761
30,854
Forestry equipment
60,110
54,171
Land
26,037
24,153
Other
90,890
81,124
Total
548,305
514,198
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
49
Switches,
transmission
devices,
Buildings
network
and
and
leasehold
Power
base station
improve-
and
Forestry
equipment
ments
utilities
equipment
Land
Other
Total
Cost
Balance as of
1 January 2021
590,550
113,655
52,326
44,801
22,982
117,050
941,364
Additions
59,927
6,963
4,392
18,544
490
27,047
117,363
Disposals
(44,394)
(872)
(741)
(1,043)
(5)
(6,441)
(53,496)
Business
combinations
1,068
18,099
-
13,894
477
9,488
43,026
Reclassified to
assets held for sale
(992)
(1)
-
-
-
(51)
(1,044)
Currency translation
adjustment
1,306
(155)
-
(243)
(32)
74
950
Reclassified from
right-of-use assets
-
-
-
-
56
1,034
1,090
Sale of companies
-
-
-
-
-
(326)
(326)
Other
(341)
673
-
(1,646)
185
3,543
2,414
Balance as of
31 December 2021
607,124
138,362
55,977
74,307
24,153
151,418
1,051,341
Additions
41,687
18,203
4,620
8,813
1,565
28,055
102,943
Disposals
(22,082)
(1,947)
(189)
(1,417)
(70)
(7,425)
(33,130)
Business
combinations
289
4,523
-
6,453
457
4,560
16,282
Reclassified to
assets held for sale
(584)
(4,457)
-
-
-
(1,029)
(6,070)
Currency translation
adjustment
937
(835)
-
(382)
(20)
(374)
(674)
Reclassified from
right-of-use assets
-
-
-
-
51
355
406
Sale of companies
-
(1,823)
-
-
(102)
(13,234)
(15,159)
Other
(1,065)
270
-
(5)
3
5,948
5,151
Balance as of
31 December 2022
626,306
152,296
60,408
87,769
26,037
168,274
1,121,090
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
50
Switches,
transmission
devices,
Buildings
network
and
and
leasehold
Power
base station
improve-
and
Forestry
equipment
ments
utilities
equipment
Land
Other
Total
Accumulated
depreciation and
impairment
Balance as of
1 January 2021
(371,512)
(39,472)
(22,433)
(15,865)
-
(64,771)
(514,053)
Disposals
38,225
572
125
731
-
5,519
45,172
Disposals from sales of
subsidiaries
-
-
-
-
-
255
255
Reclassified from
assets held for sale
1,247
1
-
-
-
15
1,263
Depreciation expense
(44,387)
(6,367)
(2,815)
(4,232)
-
(11,284)
(69,085)
Currency translation
adjustment
(1,016)
154
-
-
-
(29)
(891)
Reclassified from
right-of-use assets
-
-
-
-
-
(358)
(358)
(Impairment)/recovery
of impairment
-
831
-
(835)
-
317
313
Other
277
(143)
-
65
-
42
241
Balance as of
31 December 2021
(377,166)
(44,424)
(25,123)
(20,136)
-
(70,294)
(537,143)
Disposals
21,957
1,364
71
542
-
6,699
30,633
Disposals from sales of
subsidiaries
-
702
-
-
-
5,058
5,760
Reclassified to
assets held for sale
899
2,845
-
-
-
1,446
5,190
Depreciation expense
(43,211)
(4,401)
(2,595)
(8,783)
-
(17,286)
(76,276)
Currency translation
adjustment
240
614
-
121
-
767
1,742
Reclassified from
right-of-use assets
-
-
-
-
-
(326)
(326)
(Impairment)/recovery
of impairment
-
29
-
596
-
39
664
Other
500
(43)
-
1
-
(3,487)
(3,029)
Balance as of
31 December 2022
(396,781)
(43,314)
(27,647)
(27,659)
-
(77,384)
(572,785)
Advances issued for the acquisition of non-current assets are included in Other assets within non-
current assets and amount to RUB 12,718 million and RUB 25,247 million as at 31 December 2022
and 2021, respectively. The decrease is mainly related to the reduction in the advances for the
construction of new medical clinics at the reporting date.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
51
14. INVESTMENT PROPERTY
Investment property primarily includes cottages, office and commercial space and business centers
owned by the companies of the Group operating in real estate sector, mainly Business Nedvizhimost.
Investment property is stated at cost less accumulated depreciation and impairment losses.
Depreciation for investment property is recognised using the straight-line method based on the
average estimated useful lives of the assets of 25 years. Accumulated depreciation as at 31 December
2022 and 2021 amounted to RUB 6,652 million and RUB 5,735 million, respectively.
2022
2021
Balance at the beginning of the year
13,160
12,649
Reclassified from / (to) property, plant and equipment
207
735
Additions
1,500
914
Disposals
(735)
(1,547)
Depreciation expense
(917)
(465)
As part of disposed companies
(4,357)
-
As part of business combinations
968
-
Reclassified from/(to) inventories
3,339
874
Balance at the end of the year
13,165
13,160
In revenue included investment property rental income for 2022 of RUB 3,916 million
(2021: 2,570 million). Operating expenses arising from the investment property that generated rental
income during 2022 totalled RUB 2,318 million (2021: 1,515 million).
In estimating the fair value of the investment property, the Group classified the properties within
Level 3 of the fair value hierarchy. As at 31 December 2022 the Group determined the fair values of
the investment property at RUB 50,328 million (2021: RUB 48,367 million).
The fair values as at 31 December 2022 and 2021 were determined based either on discounted cash
flows or by reference to market values of similar properties in the relevant region. The main inputs
to the fair value measurement are the post-tax discount rate, revenue growth rates, OIBDA margin
and adjustments to market values of similar properties. OIBDA is defined as operating profit, adjusted
on depreciation and amortisation.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
52
15. GOODWILL
Goodwill arising on an acquisition of a business is carried at cost recognised at the acquisition date
less accumulated impairment losses, if any.
The carrying amounts of goodwill attributable to operating segments are as follows:
Binno-
Segezha
Pharm
MTS
Medsi
Steppe
Group
Group
Other
Total
Balance as of
1 January 2021
Gross amount of goodwill
55,611
700
9,352
710
-
13,460
79,833
Accumulated impairment
loss
(8,851)
(168)
-
(241)
-
(13,369)
(22,629)
46,760
532
9,352
469
-
91
57,204
Business combinations
4,383
214
2,694
-
22,834
383
30,508
Impairment
-
(35)
-
-
-
(104)
(139)
Currency translation
adjustment
395
-
-
-
-
82
477
Balance as of
31 December 2021
Gross amount of goodwill
60,389
914
12,046
710
22,834
13,925
110,818
Accumulated impairment
loss
(8,851)
(203)
-
(241)
-
(13,473)
(22,768)
51,538
711
12,046
469
22,834
452
88,050
Business combinations
11,589
15
-
-
-
443
12,047
Impairment
(489)
-
-
-
-
-
(489)
Currency translation
adjustment
709
-
-
-
-
-
709
Other
(61)
-
(34)
-
-
(159)
(254)
Balance as of
31 December 2022
Gross amount of goodwill
72,626
929
12,012
710
22,834
14,209
123,320
Accumulated impairment
loss
(9,340)
(203)
-
(241)
-
(13,473)
(23,257)
63,286
726
12,012
469
22,834
736
100,063
The Group performs impairment test for the goodwill assigned to cash-generating units (CGUs) at
least annually and when there are any indications that the carrying amount of the CGU is impaired.
When the carrying amount of the CGU to which goodwill is allocated exceeds its recoverable amount,
goodwill allocated to this CGU is impaired.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
53
MTS – For the purposes of impairment testing, goodwill attributable to the MTS segment is allocated
to enlarged CGUs as follow:
Unallocated
Telecom
Other
goodwill
Total
Balance as of 1 January 2021
Gross amount of goodwill
30,924
13,904
10,783
55,611
Accumulated impairment loss
(1,466)
(5,321)
(2,064)
(8,851)
29,458
8,583
8,719
46,760
Acquisitions
4,337
46
-
4,383
Reclassification
253
(253)
-
-
Currency translation adjustment
-
395
-
395
Balance as of 31 December 2021
Gross amount of goodwill
35,514
14,092
10,783
60,389
Accumulated impairment loss
(1,466)
(5,321)
(2,064)
(8,851)
34,048
8,771
8,719
51,538
Acquisitions
2,609
8,980
-
11,589
Measurement period adjustment (Note 6)
(61)
-
-
(61)
Impairment
-
(489)
-
(489)
Currency translation adjustment
-
709
-
709
Balance as of 31 December 2022
Gross amount of goodwill
38,062
23,781
10,783
72,626
Accumulated impairment loss
(1,466)
(5,810)
(2,064)
(9,340)
36,596
17,971
8,719
63,286
The enlarged CGU (which represents a group of CGUs) “Telecom” includes the following business
units:
The “Russia convergent” – represents mobile and fixed line operations, which encompasses services
rendered to customers across regions of Russia. Russia convergent also includes sales of equipment
and accessories. Goodwill allocated to these CGUs has arisen on acquisitions made by MTS.
The “Moscow fixed line” – represents the results of fixed line operations carried out in Moscow by
MGTS, a subsidiary of MTS, and divided into two CGU – “MGTS commercial” and “MGTS service”.
The enlarged CGU “Other” includes CGU “Armenia”, CGU “Cloud Retail” and CGU “Entertainment”.
Unallocated goodwill represents goodwill recognized as a result of the purchase of MTS shares by
the Group. It is not subject to allocation to CGUs as it is reviewed by management at the MTS segment
level. Unallocated goodwill is tested for impairment based on the market capitalization of MTS.
The recoverable amounts of the CGUs are determined based on their value in use. In assessing value in
use, the estimated future cash flows are discounted to present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the CGU.
Future cash flows calculations are based on a five-year operation plan. Estimation of future cash flows
requires assumptions to be made in respect of uncertain factors, including management’s
expectations of OIBDA margins, timing and amount of future capital expenditure, terminal growth
rates and appropriate discount rates to reflect the risks associated.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
54
As a result of the impairment test performed on 31 December 2022, CGU “Other” was impaired in
amount of RUB 489 million. In 2021 according to impairment test results, no impairment was
recognized.
The key assumptions used in the value in use calculations
The table below represents OIBDA margin applied for value in use calculation of related CGUs:
December 31,
CGU
2022
2021
Russia Convergent
37.5%-37.9%
41.3%-46.9%
Armenia
50.6%-54.2%
53.5%-60.3%
MGTS Commercial
50.6%-54.2%
59.9%-63.0%
MGTS Service
31.4%-33.9%
42.5%-51.8%
Entertainment
2.1%-11,9%
4.8%-12%
Cloud
39.8%-59.1%
37.7%-67.3%
The table below presents capital expenditure as a percentage of revenue applied for value-in-use
calculations of related CGUs:
December 31,
CGU
2022
2021
Russia Convergent
22%
18%
Armenia
22%
22%
MGTS Commercial
19%
16%
MGTS Service
15%
16%
Entertainment
10%
3%
Cloud
61%
17%
The terminal growth rate into perpetuity has been determined based on the nominal gross domestic
product rates for the country of operation, adjusted for specific characteristic of the CGUs.
The table below presents terminal growth rates applied for value-in-use calculations of related CGUs:
December 31,
CGU
2022
2021
Russia Convergent
1%
1%
Armenia
nil
nil
MGTS Commercial
1%
1%
MGTS Service
1%
1%
Entertainment
1.5%
1.5%
Cloud
1%
1%
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
55
The table below presents pre-tax rates for the discounting of cash flows in functional currencies of
related CGUs:
December 31,
CGU
2022
2021
Russia Convergent
16.9%
10.1%
Armenia
12.3%
11.2%
MGTS Commercial
17.3%
12.7%
MGTS Service
16.5%
9.9%
Entertainment
20.4%
13.1%
Cloud
18.8%
13.6%
Management believes that no reasonably possible change in the current period any of the above key
assumptions would cause the carrying value of any cash-generating unit to materially exceed its
recoverable amount.
Agroholding “Steppe” – The recoverable amounts of the CGUs were determined based on their value
in use. Cash flow models were prepared in Russian rubles. These calculations use cash flow
projections based on financial budgets approved by management covering a five-year period. The
growth rate does not exceed the long-term average growth rate for the business sector of the
economy in which CGU operates.
Key assumptions used for value-in-use calculations are determined based on market analysis, which
is performed regularly. The table below presents key assumptions used for value in-use calculations:
2022
2021
Terminal cash flows growth rate
4.2%
3,8%
Discount rate
14.0%
14.0%
Range of average annual market price growth rate
3,97-6,98%
3,8-8,5%
Management believes that no reasonably possible change in the current period in any of the above
key assumptions would cause the carrying value of any cash-generating unit to materially exceed its
recoverable amount.
Binnopharm Group – The recoverable amounts of the CGUs were determined based on their value in
use. The calculation of future cash flows is estimated on the basis of an eight-year business plan in 2022
and on the basis of a five-year business plan in 2021. The management considers the planning horizon
with a period of 8 years to be sufficiently reliable for making judgments, assessments and managerial
decisions in view of the specifics of the work of generic companies in the pharmaceutical market: the
duration of preparation for the launch of products into the market, the possibility of launching generic
products only after the expiration of patent protection of original products, the lifecycle of products
and the presence of stable forecasted demand for medicines. Additionally, the Group calculated future
cash flows based on a standard five-year business plan and concluded that, due to growth rates in long-
term periods not exceeding the projected inflation rate, the effect on the recoverable amount is
insignificant. The key assumptions used to calculate the CGUs are presented below:
2022
2021
Average annual revenue growth rate
12.2%
17.2%
Average annual growth rate of expenses
8.6%
14.1%
Discount rate
15.3%
15.3%
Terminal cash flows growth rate
3.0%
3.0%
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
56
Management believes that no reasonably possible change in the current period in any of the above
key assumptions would cause the carrying value of any cash-generating unit to materially exceed its
recoverable amount.
16. OTHER INTANGIBLE ASSETS
Other intangible assets are mainly represented by billing and telecommunication software and other
software, operating licenses, acquired customer bases of MTS, patents, trademarks and registration
certificates of Binnopharm Group.
Intangible assets with finite useful lives that are acquired separately are carried at cost less
accumulated amortisation and impairment losses. Intangible assets acquired in a business
combination and recognised separately from goodwill are initially recognised at their fair value at the
acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets
acquired in a business combination are reported at cost less accumulated amortisation and
impairment losses, on the same basis as intangible assets that are acquired separately.
All finite-life intangible assets are amortised using the straight-line method utilising estimated useful
lives of the assets as follows:
Operating licenses
1-20 years
Billing and telecommunication software
1-20 years
Radio frequencies
1-15 years
Customer base
4-31 years
Cost to obtain contracts
2-5 years
Software and other
1-10 years
The estimated useful life and amortisation method are reviewed at the end of each reporting period,
with the effect of any changes in estimate being accounted for on a prospective basis.
Trademarks with indefinite contractual life are not amortised, but are reviewed, at least annually, for
impairment.
Other intangible assets other than goodwill as at 31 December 2022 and 2021 consisted of the
following:
31 December 2022
31 December 2021
Carrying amounts of:
Amortised intangible assets:
Billing and telecommunication software
70,875
70,627
Operating licenses
8,973
9,317
Radio frequencies
609
905
Acquired customer base
6,544
2,853
Software and other
40,227
22,656
Cost to obtain contracts
8,394
7,778
Patents and amortisable trademarks
10,838
12,314
146,460
126,450
Unamortised intangible assets:
Trademarks
12,800
12,734
Total
159,260
139,184
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
57
MTS operating licenses – In connection with providing telecommunication services, the Group has
been issued various GSM operating licenses by the Russian Ministry of Information Technologies and
Communications. In addition to the licenses received directly from the Russian Ministry of
Information Technologies and Communications, the Group has been granted access to various
telecommunication licenses through acquisitions of subsidiaries.
Operating licenses contain conditions specified by legislation which generally include the required
date of services provision, territorial coverage and expiration date. Management believes that the
Group is in compliance with all material terms of its licenses.
The Group’s operating licenses do not provide for automatic renewal. All licenses covering the
territories of the Russian Federation expired as at December 31, 2022 were renewed. The cost to
renew the licenses was not significant. Weighted-average period until the next renewal of licenses
in the Russian Federation is five years.
The license for the provision of telecommunication services in Armenia is valid until 2034.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
58
Billing and
Software
Non-
Cost to
Patents and
telecom
Operating
Customer
Radio
and
amortisable
obtain
amortisable
software
licenses
bases
frequencies
other (1)
trademarks
contracts
trademarks
Total
Cost
Balance as of 1 January 2021
136,665
31,722
11,149
5,604
24,563
6,543
14,149
-
230,395
Additions
34,421
1,365
2,963
-
8,077
-
3,653
43
50,522
Disposals
(14,783)
(44)
(680)
(233)
(2,111)
-
(3,287)
-
(21,138)
Business combinations
571
35
591
-
9,809
6,191
-
12,884
30,081
Currency translation adjustment
381
992
(34)
-
(35)
-
-
-
1,304
Other
(114)
-
-
1
(17)
-
-
-
(130)
Balance as of 31 December 2021
157,141
34,070
13,989
5,372
40,286
12,734
14,515
12,927
291,034
Additions
31,935
1,369
-
-
15,938
-
3,946
1
53,189
Disposals
(11,810)
(69)
(619)
(174)
(2,500)
(50)
(3,250)
-
(18,472)
Business combinations
713
(21)
4,447
-
9,170
116
263
-
14,688
Disposal of subsidiaries
-
-
-
-
(895)
-
-
-
(895)
Currency translation adjustment
298
1,778
(582)
-
(534)
-
-
-
960
Other
(37)
33
-
(34)
56
-
-
(73)
(55)
Balance as of 31 December 2022
178,240
37,160
17,235
5,164
61,521
12,800
15,474
12,855
340,449
Accumulated depreciation and impairment
Balance as of 1 January 2021
(71,486)
(21,931)
(10,789)
(4,362)
(15,478)
-
(6,600)
-
(130,646)
Disposals
14,716
7
679
244
2,076
-
3,287
-
21,009
Amortisation expense
(29,737)
(1,857)
(1,026)
(349)
(4,270)
-
(3,424)
(613)
(41,276)
Impairment
-
(1)
-
-
(39)
-
-
-
(40)
Currency translation adjustment
(211)
(971)
-
-
55
-
-
-
(1,127)
Other
204
-
-
-
26
-
-
-
230
Balance as of 31 December 2021
(86,514)
(24,753)
(11,136)
(4,467)
(17,630)
-
(6,737)
(613)
(151,850)
Disposals
11,792
40
622
193
1,826
-
3,253
-
17,726
Amortisation expense
(31,702)
(1,701)
(220)
(312)
(5,516)
-
(3,596)
(1,224)
(44,271)
Impairment
(1,150)
-
-
-
(373)
-
-
(180)
(1,703)
Disposal of subsidiaries
-
-
-
-
(4)
-
-
-
(4)
Currency translation adjustment
191
(1,742)
43
-
97
-
-
-
(1,411)
Other
18
(31)
-
31
306
-
-
-
324
Balance as of 31 December 2022
(107,365)
(28,187)
(10,691)
(4,555)
(21,294)
-
(7,080)
(2,017)
(181,189)
(1) The line “Software and other” includes, among other things, MTS’s content, as well as contracts for the use of fishing sites and agreements on securing and providing a share of the quota of extraction
(catch) of aquatic biological resources in the acquired assets of the fishing industry.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
59
17.
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
An associate is an entity over which the Group has significant influence and that is neither a subsidiary
nor an interest in a joint venture. Significant influence is the power to participate in the financial and
operating policy decisions of the investee but is not control or joint control over those policies. A joint
venture is a joint arrangement whereby the parties that have joint control of the arrangement have
rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about the relevant activities require
unanimous consent of the parties sharing control.
An investment in an associate or a joint venture is accounted for using the equity method from the
date on which the investee becomes an associate or a joint venture. On acquisition of the investment
in an associate or a joint venture, any excess of the cost of the investment over the Group’s share of
the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill,
which is included within the carrying amount of the investment. Any excess of the Group’s share of
the net fair value of the identifiable assets and liabilities over the cost of the investment, after
reassessment, is recognised immediately in profit or loss in the period in which the investment is
acquired.
Additional investments in associates and joint ventures are added to the carrying amount of the
equity-method investee without specific allocation to the underlying assets and liabilities of the
investee. The additional ownership interest effectively increases the notional goodwill relating to the
equity-method investee. After a transaction, the share of investee’s profit or loss recognised by the
Group is based on the new ownership interest.
Investments in associates and joint ventures as at 31 December 2022 and 2021 consisted of the
following:
Participating
Carrying
Participating
Carrying
share
value
share
value
Assosiates
MTS Belarus
49.00%
5,798
49.00%
6,265
Etalon (Note 6)
48.80%
-
29.79%
18,312
Ozon
32.96%
-
33.04%
-
5,798
24,577
Joint ventures
Megapolis-Invest
75.86%
9,045
75.86%
10,375
Michurinskiy project
50.00%
5,894
50.00%
5,646
New Investment Holding
50.00%
367
50.00%
557
Segezha Zapad
60.00% + 2 shares
-
100.00%
410
15,306
16,988
Other associates and joint ventures
22,356
21,925
Total
43,460
63,490
2022
2021
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
60
Participating share in profit or loss of associates and joint ventures is determined based on the
percentage of the equity interest owned by the Group or on allocations of profits and losses between
investors if designated by shareholders agreements.
Ozon is one of the largest players in the Russian e-commerce market, representing goods in various
categories: electronics, household appliances, home goods and others. It has its own logistics
network, operating marketplace technology, a developed web platform. Ozon Holdings PLC is
registered in the Republic of Cyprus.
The Group’s share in the loss of Ozon recognized for the year ended 31 December 2022 amounted
to RUB 0 million (31 December 2021: RUB 12,584 million). The unrecognized loss represents the
Group’s share in the additional losses after the carrying amount of the Group’s investment in Ozon
amounted to nil. The Group did not incur legal or constructive obligations or make payments on
behalf of Ozon. The amount of unrecognized loss for 12 months 2022 amounted to
RUB 19,178 million (12 months 2021: RUB 6,409 million).
Megapolis-Invest – In 2020, the Group and Sberbank Investments signed the shareholders
agreement and agreements granting Sistema the right to acquire in 2022-2023 and Sberbank
Investments the right to sell to the Group its stake in the equity capital of Megapolis-Invest in 2023
(hereinafter – Option agreements). The right of claim under loan agreement given by Sberbank
Investments to Megapolis-Invest shall be acquired by the Group in any of the events of execution
under Option agreements. The fair value of the financial instruments arising from Option agreements
is determined on the basis of the Black-Scholes model using the discounted cash flow method when
calculating the cost of a stake in Megapolis-Invest. The fair value of the financial instruments as at
31 December 2022 is approximately nil.
The Group does not have the exclusive right to manage the relevant activities of Megapolis-Invest
and therefore the investment is accounted for under equity method.
In February 2021, Megapolis-lnvest LLC signed an agreement to acquire an additional 29.64% stake
in Elektrozavod JSC from the third party for RUB 5.8 billion. As a result, upon the completion of the
deal, the Megapolis-lnvest LLC total ownership interest in Elektrozavod JSC increased to 94.01% of
the company’s authorized capital. As a result of transaction, the Group did not obtain control over
Elektrozavod JSC.
“MTS Belarus” is a telecommunications operator in the Republic of Belarus.
Project Michurinsky carries out construction and sale of apartments, as well as construction of
a medical center. The company is registered in the Russian Federation.
New Investment Holding – In September 2021, New Investment Holding JSC, acquired the Niarmedic
International Limited, which owns 100% of the authorized capital of Nearmedic Plus LLC, Nearmedic
Pharma LLC and a number of other companies conducting business in Russia and Italy in the fields of
pharmaceuticals and medicine for one ruble. The net debt of the Nearmedic Group as at the closing
date of the Transaction amounted to RUB 5.9 billion.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
61
Sistema and Sberbank Group (hereinafter – Sberbank) provided equity financing in equal shares for
the total amount RUB 1.2 billion to repay part of the Nearmedic Group’s debt to Sberbank. The Group
and Sberbank Investments have entered into a shareholders agreement and option agreements with
a maturity of 3.5 years from the closing date of the Deal, granting Sistema the right to acquire and
Sberbank Investments the right to sell to the Group Sberbank Investments’ stake in the capital of
New Investment Holding JSC with the simultaneous transfer to the Corporation the rights to claim
Sberbank on a loan granted to the Nearmedic Group in the amount of up to RUB 2.8 billion. The fair
value of financial instruments arising from entering into Option Agreements as at 31 December 2022
is close to zero.
As at 31 December 2022, The Group, with the involvement of an independent appraiser, completed
the assessment of the fair value of the acquired assets and liabilities
Group Segezha West – As at 31 December 2022, the Group assessed the factors of control over the
companies of the Group Segezha West. Management considered the existence of substantive rights
and the practical possibility of exercising them, in particular, the existence of any barriers to the
exercise of rights, the need for the consent of several parties and the existence of economic benefits
in the exercise of rights, the price of their exercise, as well as the likelihood of exercising options on
withdrawal of financial partners from the project. Based on the results of the assessment,
management concluded that the Group has the practical ability to exercise its rights and, therefore,
the Group exercises control over the Group Segezha West.
Other – During 2022, the Group entered into the following investments in associates and joint
ventures:
Due to obtaining control over the Etalon Group, the Group recognized investments in the joint
venture LLC Strana-Etalon LLC acquired in 2022. LLC Strana-Etalon LLC is involved in real estate
development projects in Tyumen. As at 31 December 2022, the carrying amount of investment
in joint venture is RUB 1,727 million.
In September 2022, the Group acquired a 50.85% ownership interest in Navitel for a cash
contribution of RUB 690 million. Navitel is a leading digital navigation solution provider for
automotive industries around the world. The Group holds more than 50% of the equity interests
in Navitel, it has significant influence over the investee based on its ownership of equity shares,
representation on the investee’s Board of Directors.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
62
The financial position and results of operations of associates as at and for the years ended 31 December 2022 and 2021 were as follows:
2022
2021
2022
2021
2022
2021
2022
2021
Non-current assets
14,743
19,030
129,918
74,752
n/a
16,648
144,661
110,430
Current assets
11,940
15,386
154,903 166,586
n/a
205,450
166,843 387,422
Total assets
26,683
34,416
284,821
241,338
n/a
222,098
311,504
497,852
Non-current liabilities
(4,497)
(9,062)
(106,594) (86,794)
n/a
(105,910)
(111,091) (201,766)
Current liabilities
(10,354)
(12,568)
(194,874)
(123,936)
n/a
(54,831)
(205,228)
(191,335)
Total liabilities
(14,851)
(21,630)
(301,468) (210,730)
n/a
(160,741)
(316,319) (393,101)
Equity attributable to owners
of the Company
11,832
12,786
(16,647)
30,608
n/a
61,357
(4,815)
104,751
The Group’s share in the profit and loss
49.00%
49.00%
32.96%
33.04%
48.80%
29.79%
n/a
n/a
Fair value adjustment on the date of acquisition
-
-
(14,171)
(14,189)
-
28
(14,171)
(14,161)
Accumulated impairment
- - - -
-
-
-
-
Сapital transactions
-
-
(5,952)
(2,333)
-
-
(5,952)
(2,333)
Unrecognised loss
-
-
25,587
6,409
-
-
25,587
6,409
Carrying amount of the Group’s interest
5,798
6,265
-
-
-
18,312
5,798
24,577
Total revenues
37,444
39,383
277,115
178,215
20,060
87,138
334,619
304,736
Total profit/(loss) for the year
9,863
10,379
(58,187)
(56,779)
720
3,006
(47,604)
(43,394)
The Group’s share in profit/(loss)
4,833
5,086
-
(12,584)
214
843
5,047
(6,655)
Total comprehensive income/(loss)
8,322
10,562
(58,246)
(56,782)
720
3,006
(49,204)
(43,214)
The Group’s share in comprehensive
income/(loss) for the year
4,078
5,175
-
(12,584)
214
843
4,292
(6,566)
Dividends paid
(4,545)
(4,034)
-
-
-
(1,076)
(4,545)
(5,110)
Etalon Group (1)
MTS Belarus
Ozon
Total
(1)The company’s financial result for January-April 2022. The Group’s share before obtaining control was 29.79% (Note 6).
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
63
The financial position and results of operations of joint ventures as at and for the years ended 31 December 2022 and 2021 were as follows:
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
Non-current assets
26,838 29,773 566 929 5,761 5,745
n/a 3,217 33,165 39,664
Current assets
10,211 8,256 12,884 18,842 963 1,420
n/a 900 24,057 29,418
Total assets
37,049 38,029 13,450 19,771 6,724 7,165
n/a 4,117 57,223 69,082
Non-current liabilities
(3,269) (24,047) - - (4,859) (4,736)
n/a (2,947) (8,128) (31,730)
Current liabilities
(27,677) (6,127) (186) (7,003) (793) (1,315)
n/a (760) (28,657) (15,205)
Total liabilities
(30,947) (30,174) (186) (7,003) (5,652) (6,051)
n/a (3,707) (36,785) (46,935)
Non-controlling interest
(358) (358) - - - -
n/a - (358) (358)
Equity attributable to owners
of the Company
5,745 7,497 13,264 12,768 1,072 1,114
n/a 410 20,080 21,789
The Group’s share in the profit and loss
75.86%
75.86%
50.00%
50.00%
50.00%
50.00%
60.00% +
2 shares
100.00%
n/a
n/a
Fair value adjustment on the date of acquisit
4,687
4,687
(738)
(738)
-
-
-
-
3,949
3,949
Accumulated impairment
-
-
-
-
-
-
-
-
-
-
Carrying amount of the Group’s interest
9,045
10,375
5,894
5,646
367
557
-
410
15,306
16,988
Total revenues
8,866
6,806
2,030
9,731
2,117
1,092
-
-
13,013
17,629
Total profit/(loss) for the year
(4,004)
(2,548)
496
2,848
(380)
(87)
-
-
(3,888)
213
The Group’s share in profit/(loss)
(2,807)
(1,957)
192
1,392
(190)
(43)
-
-
(2,805)
(608)
Total comprehensive (loss)/income
(4,004)
(2,548)
496
2,848
(380)
(87)
-
-
(3,888)
213
The Group’s share in comprehensive
income/(loss) for the year
(2,807)
(1,957)
192
1,392
(190)
(43)
-
-
(2,805)
(608)
Dividends paid
-
-
-
-
-
-
-
-
-
-
Megapolis-
Invest
Total
New Investment
Segezha
project
Holding
Zapad
Michurinskiy
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
64
The financial position and results of operations of other associates and joint ventures as at and for
the years ended 31 December 2022 and 2021 relating to the Group’s share were as follows:
2022
2021
Non-current assets
18,837
49,594
Current assets
31,242
21,737
Total assets
50,079
71,331
Non-current liabilities
(12,607)
(26,331)
Current liabilities
(20,000)
(19,166)
Total liabilities
(32,607)
(45,497)
Non-controlling interest
(2,259)
(977)
Net assets
15,213
24,858
Carrying amount of the Group’s interest
22,356
21,925
The Group's share in revenues
15,930
24,495
The Group’s share in profit
938
661
The Group’s share in comprehensive income for the year
913
678
Dividends paid
(476)
(1,104)
Other
18. OTHER FINANCIAL ASSETS
The Group’s financial assets, other than cash and cash equivalents, deposits in banks and accounts
receivable shown separately on the face of the consolidated statements of financial position,
primarily comprise assets of MTS Bank, the Group’s subsidiaries engaged in banking activities, and
investments of the Corporate segment.
The Group applies expected credit losses model for impairment analysis of financial assets classified
at amortised cost. The Group applies the simplified approach for its trade and other receivables which
requires recognition of expected credit losses at a lifetime from initial recognition of trade
receivables.
Financial assets are recognised initially at fair value plus transaction costs that are directly
attributable to the acquisition or issue of the financial asset, except for a financial asset accounted
for at fair value through profit or loss, in which case transaction costs are expensed. Subsequently
such financial assets are measured either at amortised cost or fair value depending on the
classification of those assets.
Financial assets are classified into the following categories depending on their nature and purpose:
Financial assets measured at fair value through profit or loss (FVTPL), financial assets measured at
fair value through other comprehensive income (FVTOCI), financial assets measured at amortised
costs.
If the financial assets are held for collecting contractual cash flows in the form of principal and
interest on the specified dates, they are classified as carried at amortised cost.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
65
If the financial assets are held not only for collecting contractual cash flows in the form of principal
and interest on the specified dates, but also for selling the financial asset, they are classified as
measured at fair value through other comprehensive income.
All other financial assets are classified as measured at fair value through profit or loss.
As at 31 December 2022 and 2021 financial assets, other than those shown separately on the face of
the statements of financial position, less allowance for impairment losses, comprise:
31 December
31 December
2022
2021
Financial assets measured at fair value through profit or loss
Debt and equity securities
80,584
79,282
Contingent consideration
473
1,867
Option contracts
112
112
Derivatives embedded in lease agreements
82
434
Cross-currency derivatives not designated as cash flow hedges
23
110
Currency rate swaps and forwards not designated as hedge instruments
2,207
4,640
83,481
86,445
Financial assets measured at fair value through
other comprehensive income
Debt and equity securities
20,132
12,804
20,132
12,804
Financial assets measured at amortized cost
Debt securities
3,220
22,996
Bank loans to customers
224,700
217,525
Interbank loans due from banks
3,288
4,010
Other loans
40,874
25,671
272,082
270,202
Total financial assets
375,695
369,451
Current
171,817
154,465
Non-current
203,878
214,986
Total financial assets
375,695
369,451
The following table summarizes changes in loss allowance for financial assets other than for financial
assets attributable to the Group’s banking activities and accounts receivable for 2022 and 2021:
2022
2021
Balance as of 1 January calculated under IFRS 9
4,583
4,688
Charge for the period
513
(54)
Amounts written off against the allowance
(1,042)
(619)
Currency translation adjustments
(9)
568
Balance as of 31 December calculated under IFRS 9
4,045
4,583
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
66
As at 31 December 2022 and 2021, financial assets attributable to the Group’s banking activities
comprise:
31 December
31 December
2022
2021
Financial assets measured at fair value
through profit or loss
Debt and equity securities
915
23,278
915
23,278
Financial assets measured at fair value through
other comprehensive income
Debt and equity securities
20,132
11,782
20,132
11,782
Financial assets measured at amortized cost
Cash and cash equivalents
58,221
30,371
Bank loans to customers
261,354
239,698
Interbank loans due from banks
3,432
4,010
Debt securities
2,805
22,999
325,812
297,078
Less: allowance for loan losses
(36,654)
(22,173)
310,205
309,965
The movement in the allowance for loan losses, attributable to the Group’s banking activities, during
2022 and 2021 was as follows:
2022
2021
Allowance for loan losses, 1 January
22,173
17,511
Charge for the period
23,199
11,032
Amounts written-off against the allowance
(3,776)
(3,361)
Disposal
(3,301)
(4,334)
Reversal of allowance written-off
513
1,557
Transition to discontinued operations
(990)
-
Currency translation adjustment
(1,164)
(232)
Allowance for loan losses, 31 December
36,654
22,173
In accordance with IFRS 9, the Group records an allowance for expected credit losses (ECL) for all
financial assets not held at fair value through profit or loss in “cost of sales” line. ECLs are based on
the difference between the contractual cash flows due under the contract and cash flows that the
Group expects to receive. The shortfall is discounted at an approximation to the asset’s original
effective interest rate. The allowance expense for expected credit losses relating to banking activities
is recorded in the “Cost of sales” line.
The expected credit-loss approach uses three stages for allocating impairment losses:
Stage 1: expected credit losses within the next twelve months.
Stage 1 includes all contracts with no significant increase in credit risk since initial recognition and
usually contains new contracts that are fewer than 31 days past due date. The portion of the lifetime
expected credit losses resulting from default events possible within the next 12 months is recognised.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
67
Stage 2: expected lifetime credit losses- not credit impaired.
If a financial asset has a significant increase in credit risk since initial recognition but is not yet credit
impaired, it is moved to Stage 2 and measured at lifetime expected credit loss. This is defined as the
expected credit loss that results from all possible default events over the expected life of the financial
instrument.
Stage 3: expected lifetime credit losses – credit impaired.
If a financial asset is defined as credit impaired or in default, it is transferred to Stage 3 and measured
at lifetime expected credit loss. The Group considers a financial asset to be in default when the
borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group
to actions such as realizing security (if any is held).
Movements in impairment loss allowance attributable to loans to individuals for the year ended
31 December 2022 and 2021 were as follows:
Stage 1
Stage 2
Stage 3
Total
Balance as of 1 January 2022
6,093
3,361
8,522
17,976
- Transfer to Stage 1
1,844 (1,690) (154)
-
- Transfer to Stage 2
(2,600)
3,086 (486)
-
- Transfer to Stage 3
(115)
(10,263)
10,378
-
New financial assets originated or
purchased
4,644
- - 4,644
Change due to change of credit risk
(3,813)
12,497 9,163 17,847
Write-offs
- - (3,720) (3,720)
Sale
-
-
(3,220)
(3,220)
Recovery of previously
written-off assets
-
-
287
287
Balance as of 31 December 2022
6,053 6,991 20,770 33,814
Stage 1
Stage 2
Stage 3
Total
Balance as of 1 January 2021
3,099 1,446 8,147 12,692
- Transfer to Stage 1
1,809
(1,633)
(176)
-
- Transfer to Stage 2
(939)
1,220 (281)
-
- Transfer to Stage 3
(278) (4,691)
4,969
-
New financial assets originated or
purchased
3,821
- - 3,821
Change due to change of credit risk
(1,419)
7,019 2,887 8,487
Write-offs
- - (3,282) (3,282)
Sale
- - (4,324) (4,324)
Recovery of previously
written-off assets
- - 582 582
Balance as of 31 December 2021
6,093 3,361 8,522 17,976
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
68
Movements in impairment loss allowance on loans to legal entities for the year ended 31 December
2022 and 2021 were as follows:
Stage 1
Stage 2
Stage 3
Total
Balance as of 1 January 2022
1,003
55
3,140
4,198
- Transfer to Stage 1
29
(28)
(1)
-
- Transfer to Stage 2
(135)
136
(1)
-
- Transfer to Stage 3
-
(89)
89
-
New financial assets originated or
purchased
194
-
-
194
Change due to change of credit risk
(57)
46
(184)
(195)
Sales of financial assets
-
-
(6)
(6)
Write-offs
-
-
(15)
(15)
Recovery of previously
written-off assets
-
-
235
235
Discontinued operations
(185)
(30)
(815)
(1,030)
Foreign exchange difference
(635)
-
94
(541)
Balance as of 31 December 2022
214
90
2,536
2,840
Stage 1
Stage 2
Stage 3
Total
Balance as of 1 January 2021
1,028
221
3,570
4,819
- Transfer to Stage 1
119
(119)
-
-
- Transfer to Stage 2
(46)
49
(3)
-
- Transfer to Stage 3
(105)
(26)
131
-
New financial assets originated or
purchased
355
-
-
355
Change due to change of credit risk
(168)
(67)
(1,433)
(1,668)
Sales of financial assets
-
-
-
-
Write-offs
-
-
(49)
(49)
Recovery of previously
written-off assets
-
-
975
975
Foreign exchange difference
(180)
(3)
(51)
(234)
Balance as of 31 December 2021
1,003
55
3,140
4,198
The following valuation categories represent the Group’s classification of credit quality of the loans:
Low to fair risk – loans of high credit quality and low probability of default, not past due or
immaterially overdue;
Monitoring – loans with increased probability of default including restructured loans;
Impaired – impaired loans including more than 90 days overdue.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
69
The table below summarizes information regarding the quality of loans to individuals as at
31 December 2022 and 2021:
31 December 2022
Stage 1
Stage 2
Stage 3
Total
Low to fair risk
197,198
16,268
-
213,466
Monitoring
-
8,105
5,034
13,139
Impaired
-
-
23,509
23,509
Loss allowance
(6,053)
(6,991)
(20,770)
(33,814)
Total
191,145
17,382
7,773
216,300
31 December 2021
Stage 1
Stage 2
Stage 3
Total
Low to fair risk
174,667
756
-
175,423
Monitoring
-
7,125
831
7,956
Impaired
-
-
10,072
10,072
Loss allowance
(6,093)
(3,361)
(8,521)
(17,975)
Total
168,574
4,520
2,382
175,476
The table below summarizes information regarding the quality of loans to legal entities as at
31 December 2022 and 2021:
31 December 2022
Stage 1
Stage 2
Stage 3
Total
Low to fair risk
3,582
4,236
-
7,818
Monitoring
179
191
-
370
Doubtful
-
-
2
2
Impaired
-
-
3,050
3,050
Loss allowance
(214)
(90)
(2,536)
(2,840)
Total
3,547
4,337
516
8,400
31 December 2021
Stage 1
Stage 2
Stage 3
Total
Low to fair risk
34,643
721
-
35,364
Monitoring
5,700
1,321
-
7,021
Doubtful
-
-
767
767
Impaired
-
-
3,095
3,095
Loss allowance
(894)
(194)
(3,110)
(4,198)
Total
39,449
1,848
752
42,049
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
70
Analysis by credit quality of loans to individuals outstanding as at 31 December 2022 is as follows:
As of 31 December 2022
Gross loans
Impairment loss
allowance
Net loans
Impairment loss
allowance to
gross loans
Collectively assessed
Not past due
213,465
(9,922)
203,543
5%
Overdue:
up to 30 days
6,203
(1,718)
4,485
28%
31 to 60 days
3,588
(1,904)
1,684
53%
61 to 90 days
3,037
(1,930)
1,107
64%
91 to 180 days
6,578
(4,779)
1,799
73%
over 180 days
16,775
(13,513)
3,262
81%
Total collectively assessed
249,646
(33,766)
215,880
14%
Individually impaired
Not past due
308
(18)
290
6%
Overdue:
up to 30 days
-
-
-
0%
31 to 60 days
3
-
3
0%
61 to 90 days
-
-
-
0%
91 to 180 days
18
-
18
0%
over 180 days
139
(30)
109
22%
Total individually impaired
468
(48)
420
10%
Total
250,114
(33,814)
216,300
14%
Analysis by credit quality of loans to small and medium-sized enterprises outstanding as at
31 December 2022 is as follows:
As of 31 December 2022
Gross loans
Impairment loss
allowance
Net loans
Impairment loss
allowance to
gross loans
Collectively assessed
Not past due
760
(10)
750
1%
Overdue:
up to 30 days
20
(4)
16
20%
31 to 60 days
17
(16)
1
94%
61 to 90 days
7
(6)
1
86%
91 to 180 days
29
(25)
4
86%
over 180 days
621
(446)
175
72%
Total
1,454
(507)
947
35%
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
71
The table below summarizes carrying value of loans to customers analysed by type of collateral
obtained by the Group:
31 December
31 December
2022
2021
Loans collateralized by cash deposits
-
556
Loans collateralized by guaranties of legal entities
9,085
36,746
Loans collateralized by pledge of real estate
26,012
19,115
Loans collateralized by pledge of equipment
-
1
Loans collateralized by securities
131
1,946
Loans collateralized by pledge of inevntories
-
924
Unsecured loans
226,126
180,410
Allowance for impairment losses
(36,654)
(22,173)
Total loans to customers, net
224,700
217,525
19. RESTRICTED CASH
As at 31 December 2022 several companies of the Group has RUB 1,089 million (2021: RUB 4,909
million) of cash on special accounts which are presented as restricted cash within current assets.
20. INVENTORIES
Inventory mainly include the retail network of MTS and raw materials and product of Segezha Group
and Steppe, and the costs of construction projects of Etalon.
Inventory cost is determined using the weighted average cost method. Further, inventory is
accounted at the lower of net realisable value and carrying amount. The Group periodically assesses
its inventories for obsolete or slow-moving stock.
The cost of raw materials includes the cost of purchase, customs duties, transportation and handling
costs. Work-in-progress and finished goods are stated at production cost which includes direct
production expenses and manufacturing overheads.
Inventories as at 31 December 2022 and 2021 consisted of the following:
2022
2021
Raw materials and spare parts
33,486
25,342
MTS finished goods and goods for resale
14,199
18,806
Other finished goods and goods for resale
28,159
15,619
Inventories under construction and development
152,733
-
Other work-in-progress
14,766
16,242
Total
243,343
76,009
As at 31 December 2022 Group’s inventories under construction and development include among
others inventories related to construction projects that will be completed after more than 12 months
for the Etalon.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
72
The cost of inventories recognised as an expense during the year in respect of continuing operations
was RUB 154,042 million (2021: RUB 154,894 million). The cost of inventories recognised as an
expense includes RUB 8,169 million (2021: RUB 2,585 million) in respect of write-downs of inventory
to net realisable value and has been reduced by RUB 4,529 million (2021: RUB 261 million) in respect
of the reversal of such write-downs.
21. ACCOUNTS RECEIVABLE
Accounts receivable include amounts owed by the customers to the Group.
The carrying value of all trade receivables is reduced by appropriate allowances for ECL. For trade
receivables the Group applies a simplified approach and calculates ECL based on lifetime expected
credit losses.
Accounts receivable, net of allowances, as at 31 December 2022 and 2021 consisted of the following:
2022
2021
Accounts receivable
104,288
76,661
Allowance for ECL
(7,984)
(7,366)
Total
96,304
69,295
Below is the age analysis of receivables that are past due but not impaired:
2022
2021
60-90 days
1,974
1,634
more than 90 days
6,571
3,404
Total
8,545
5,038
Movement in the allowance is as follows:
2022
2021
Balance at the beginning of the year
(7,366)
(7,089)
Charge for the period
(4,228)
(3,061)
Usage of allowance to doubtful accounts write-off
2,899
1,808
Allowance recovery
627
850
Currency exchange gain
84
126
Balance at the end of the year
(7,984)
(7,366)
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
73
22. EQUITY
Share capital – As at 31 December 2022 and 2021, the Company had 9,650,000,000 voting common
shares with a par value of RUB 0.09 issued, of which 9 420 050 947 and 9,393,161,501 shares were
outstanding, respectively.
Treasury shares – Movement of treasury shares during 2022 and 2021 years in quantity was
as follows:
2022
2021
Balance at the beginning of the year
256,838,499
143,815,709
Purchase of own shares
13,683,100
192,072,542
Sale of own shares
-
(20,997,160)
Settlements under long-term motivation program
(40,572,546)
(58,052,592)
Balance at the end of the year
229,949,053
256,838,499
Dividends – Dividends declared to the holders of the Company’s ordinary shares are included in the
financial statements in the period in which the dividends are approved for distribution by the
shareholders.
On 12 August 2022, an annual general meeting of shareholders decided not to pay dividends based
on the results of 2021.
23. ACCUMULATED OTHER COMPREHENSIVE INCOME
Components of accumulated other comprehensive income balance, net of taxes, as at 31 December
2022 and 2021:
2022
2021
Cumulative effect of translation to the presentation currency
22,609
21,264
including effect on assets classified as held for sale
5,961
-
Unrecognized actuarial income
518
518
Total accumulated other comprehensive income
23,127
21,782
Less: attributable to non-controlling interests
(5,728)
(4,997)
Total accumulated other comprehensive income,
attributable to Shareholders of Sistema PJSFC
17,399
16,785
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
74
24. LOANS AND BORROWINGS
The Group’s borrowings primarily comprise bank loans and corporate bonds. The Group enters into
variable-to-fixed interest rate swap agreements to manage exposure to changes in variable interest
rates related to a portion of its obligations, as well as into cross-currency interest-rate swap
agreements to mitigate the impact of both, interest rate and exchange rate fluctuations, for a certain
portion of its USD- and Euro-denominated borrowings.
Borrowings are initially recognised at fair value less transaction costs and subsequently measured at
amortised cost using the effective interest method.
Finance costs in profit or loss consist of interest expense for financial liabilities not classified as at
FVTPL. In 2022, finance costs did not include borrowing costs that were included in the cost of
qualifying assets in amount of RUB 1,194 million (2021: RUB 853 million).
At 31 December 2022 and 2021, the Group’s borrowings comprised:
31 December
31 December
2022
2021
Bank loans
572,667
425,479
Corporate bonds
473,864
414,911
Other
14,534
10,427
Total
1,061,065
850,817
Current
298,846
209,306
Non-current
762,219
641,511
At December 31, 2022, the Group’s bank loans include, among other thing, the project financing of
Etalon in the amount of RUB 54,762 million.
As at 31 December 2022 the bank balances kept in escrow accounts of Etalon amounted to
RUB 60,362 million. Bank balances kept in escrow accounts are not included in the balance of cash
and cash equivalents in the Group’s consolidated statement of financial position. They represent
funds received by authorized banks from escrow-account holders – participants of share participation
agreements for construction of real estate as a means of payment of consideration under such
agreements. The funds will be transferred to the Group’s bank accounts upon completion of
construction of respective real estate.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
75
Bank loans – As at 31 December 2022 and 2021, the Group’s loans from banks and financial
institutions consisted of the following:
Interest rate
(as at 31 December
31 December
31 December
Maturity
2022)
2022
2021
EUR-denominated:
Alfa Bank
2027
0.24%
293
16,548
Sberbank
2022
-
-
6,682
ING Bank
2023-2027
EURIBOR+1.5%
(4.13%)
2,738
3,609
Other
302
1,221
3,333
28,060
RUB-denominated:
Sberbank
2023-2029
0.01%-22.85%
CB+1.01%-3%
(8.51% - 10.5%)
273,773
181,311
VTB
2023-2027
7.08%-23%;
CB+0.5%-2.75%
(8% - 10.25%)
162,630
143,480
Alfa Bank
2023-2030
0.01%-13.9%;
CB+2.14%-3.85%
(9.64% - 11.35%)
55,621
29,652
Gazprombank
2023-2027
7.3%-9.6%;
CB+1.7%-2.45%
(9.2% - 9.95%)
33,299
22,011
Moscow Credit Bank
2025
10.25%-10.63%
14,842
-
Otkrytie
2024-2026
9.45%
CB+2.9%-3.15%
(10.4% - 10.65%)
6,578
2,412
Bank DOM.RF
2026-2027
0.01%;
CB+4% (11.5%)
4,674
-
Uralsib
2025
10%-12%
2,500
-
AiCiBiCi
2023
8.50%
2,125
3,600
Other
12,604
14,589
568,646
397,055
Other currencies
688
364
Total bank loans
572,667
425,479
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
76
Corporate notes – As at 31 December 2022 and 2021, the Group’s notes consisted of the following:
Interest rate (as
of 31 December
31 December
31 December
Currency
2022)
2022
2021
MTS International 2023
USD
5.00%
23,187
32,800
MTS Notes 2025
RUB
8.00%
14,993
14,990
MTS Notes 2022
RUB
7.70%
-
14,991
MTS Notes 2023
RUB
6.85%
14,992
14,982
MTS Notes 2027
RUB
6.60%
14,980
14,975
Sistema PJSFC March 2027
RUB
17.00%
3,917
10,607
Sistema PJSFC May 2030
RUB
6.60%
14,717
14,741
MTS Notes 2026
RUB
7.90%
9,998
9,999
MTS Notes 2022
RUB
9.00%
-
10,000
Sistema PJSFC July 2030
RUB
6.35%
9,197
9,218
Sistema PJSFC January 2028
RUB
6.90%
9,937
9,943
MTS Notes 2022
RUB
6.45%
- 9,994
MTS Notes 2025
RUB
7.25%
9,885
9,882
MTS Notes 2024
RUB
8.70%
9,834
9,831
Sistema PJSFC February 2029
RUB
11.30%
1,024
3,800
Sistema PJSFC August 2030
RUB
6.70%
9,854
9,858
Sistema PJSFC November 2026
RUB
6.85%
9,619
9,624
Sistema PJSFC October 2029
RUB
7.85%
9,684
9,689
Sistema PJSFC March 2029
RUB
9.90%
1,856
9,641
Sistema PJSFC July 2029
RUB
9.40%
9,849
9,849
Sistema PJSFC October 2026
RUB
6.35%
6,210
6,181
Segezha Group JSC January 2023
RUB
7.10%
9,384
9,605
Segezha Group JSC October 2036
RUB
9.85%
10,000
10,000
Segezha Group JSC November 2036
RUB
9.70%
9,914
10,000
Segezha Group JSC January 2037
RUB
10.90%
9,000
-
Segezha Group JSC May 2037
RUB
11.00%
8,054
-
Segezha Group JSC July 2037
RUB
10.75%
9,738
-
Segezha Group JSC September 2025
RUB
10.75%
5,000
-
Segezha Group JSC April 2024
RUB
10.83%
10,000
-
Segezha Group JSC October 2037
CNY
4.15%
4,947
-
MTS Notes 2023
RUB
6.50%
9,986
9,923
MTS Notes 2022
RUB
5.50%
- 9,995
MTS Notes 2024
RUB
8.60%
7,494
7,491
MTS Notes 2027
RUB
6.60%
-
6,983
Sistema PJSFC November 2030
RUB
6.10%
4,742
4,748
MTS Notes 2022
RUB
8.40%
-
4,997
MTS Notes 2026
RUB
6.60%
4,993
4,992
Sistema PJSFC November 2030
RUB
6.75%
14,000
14,000
Sistema PJSFC September 2025
RUB
17.00%
3,613
4,817
Sistema PJSFC February 2031
RUB
6.90%
4,813
4,819
Sistema PJSFC February 2031
RUB
7.35%
12,049
12,055
Sistema PJSFC April 2031
RUB
8.20%
9,913
9,912
Sistema PJSFC June 2031
RUB
8.40%
14,852
14,851
Sistema PJSFC September 2031
RUB
8.20%
15,000
15,000
Sistema PJSFC November 2031
RUB
9.95%
4,294
4,294
Business Nedvizhimost August 2024
RUB
10.45%
3,340
3,330
Binnopharm Group November 2036
RUB
9.90%
3,000
3,000
Binnopharm Group July 2037
RUB
10.35%
2,724
-
MTS Notes 2031
RUB
6.25%
78
78
Sistema PJSFC February 2028
RUB
9.00%
244
244
MTS Notes 2024
RUB
6.50%
4,333
4,172
Etalon-Finance February 2023
RUB
7.95%
4,073
-
Etalon-Finance September 2026
RUB
9.10%
9,967
-
MTS Notes 2024
RUB
8.30%
19,960
-
Sistema PJSFC November 2032
RUB
10.00%
9,856
-
MTS Notes 2027
RUB
6.60%
6,986
-
MTS Notes 2025
RUB
11.69%
9,962
-
MTS Notes 2026
RUB
11.75%
9,952
-
MTS Notes 2026
RUB
9.65%
9,863
-
MTS Notes 2024
RUB
8.40%
14,007
-
Other
-
10
Total
473,864
414,911
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
77
The Group has an unconditional obligation to repurchase certain notes at par value if claimed by the
noteholders subsequent to the announcement of the sequential coupon. Such notes are disclosed
maturing in the reporting period when the demand for repurchase could be submitted, irrespective
of the Group’s expectations about the intentions of the noteholders.
Sistema PJSFC February 2029
February 2026
Sistema PJSFC Semtember 2025
April 2023
Sistema PJSFC March 2027
March 2023
Sistema PJSFC March 2029
September 2025
Sistema PJSFC November 2030
March 2023
Sistema PJSFC July 2030
April 2023
Sistema PJSFC July 2029
July 2023
Sistema PJSFC October 2026
November 2023
Sistema PJSFC February 2031
November 2023
Binnopharm Group November 2036
November 2023
Binnopharm Group July 2037
July 2024
Sistema PJSFC November 2026
February 2024
Sistema PJSFC May 2030
May 2024
Sistema PJSFC February 2028
August 2024
Sistema PJSFC August 2030
September 2024
Sistema PJSFC October 2029
October 2024
Segezha Group JSC October 2036
November 2024
Sistema PJSFC February 2031
February 2025
Sistema PJSFC November 2030
June 2025
Sistema PJSFC January 2028
July 2025
MTS Notes 2031
February 2026
Sistema PJSFC November 2031
February 2026
Sistema PJSFC April 2031
May 2026
Sistema PJSFC June 2031
June 2026
Segezha Group JSC November 2036
November 2026
Sistema PJSFC September 2031
December 2026
Sistema PJSFC November 2032
December 2025
Segezha Group JSC January 2037
January 2024
Segezha Group JSC May 2037
November 2023
Segezha Group JSC July 2037
February 2026
Segezha Group JSC October 2037
November 2025
Covenants – Loans and notes payable by the Group are subject to various restrictive covenants and
events of default, which permit lenders to demand accelerated repayment of debt. Such covenants
and events include noncompliance with certain financial ratios, cancellation of principal telecom
licenses, significant court rulings, encumbrances and confiscation of certain assets and other material
adverse changes.
As at 31 December 2022 and 2021, the Group had long-term debt denominated in Russian rubles,
presented as part of current liabilities in the consolidated statement of financial position for the
following reasons:
2022
2021
Violation of other non-financial restrictive conditions
4,969
10,685
Total
4,969
10,685
Assets pledged as security – As at 31 December 2022 and 2021, land and buildings with carrying
amounts of RUB 32,746 million and RUB 23,399 million, respectively, have been pledged to secure
borrowings of the Group. The freehold land and buildings have been pledged as security for bank
loans under a mortgage. The Group is not allowed to pledge these assets as security for other
borrowings or to sell them to another entity. As at 31 December 2022 and 2021, other assets
including inventories and deposits with carrying amounts of RUB 119,408 million, RUB 9,105 million
respectively have been pledged to secure borrowings of the Group.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
78
Stakes in some subsidiaries and affiliates of Segezha, Steppe, Hospitality assets, Etalon and others
have been pledged to secure borrowings of the Group.
25. LEASE LIABILITIES AND RIGHT-OF-USE ASSETS
The Group assesses whether a contract is or contains a lease at inception of a contract. The Group
recognizes a right-of-use asset and a corresponding lease liability with respect to all lease agreements
(including sub-lease and lease of intangible assets), which conveys the right to control the use of
identified assets for a period of time in exchange for consideration, except for short-term leases (with
lease term of 12 months or less). For these leases, the Group recognizes the lease payments as
operating expense on a straight-line basis over the term of the lease. When identifying the lease, the
Group uses practical expedient of IFRS 16 permitting the lessee not to separate non-lease
components of the contract and, instead, to account for any lease and associated non-lease
components as a single arrangement.
The lease liability is initially measured at the present value of the lease payments that are not paid at
the commencement date, discounted by using the incremental borrowing rate of the respective
companies of the Group.
The following table presents a summary of net book value of right-of-use assets:
31 December
31 December
2022
2021
Sites for placement of network and base station equipment
83,042
91,566
Land and buildings
112,131
114,141
Other
6,391
4,773
Rights-of-use assets, net
201,564
210,480
Depreciation of the right-of-use assets for the year ended 31 December 2022 and 2021, included in
the depreciation and amortisation of fixed assets, intangible assets and the right-of-use assets in the
accompanying consolidated statement of profit or loss. Amounts of RUB 0 million and RUB 0 million,
respectively, were recognised as part of the financial result from discontinued operations in the
accompanying consolidated statement of profit or loss.
Depreciation of the right-of-use assets included in depreciation and amortisation expense in the
accompanying consolidated statement of profit or loss was as follows:
2022
2021
Sites for placement of network and base station equipment
11,600
11,448
Land and buildings
14,851
11,516
Other
160
103
Depreciation charge, total
26,611
23,067
Additions to right-of-use assets during the year ended 31 December 2022 amounted to 19,941 million
(including RUB 7,975 million through acquisitions within business combinations) and for the year
ended 31 December 2021 amounted to RUB 65,231 million. The main additions of right-of-use assets
in 2022 relate to MTS, Segezha, Steppe and Medsi.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
79
Interest expenses on lease obligations for the year ended 31 December 2022 and 2021, were included
in finance expenses in the accompanying consolidated statement of profit or loss. Wherein amounts
of RUB 0 million and RUB 0 million, respectively, were recognised as part of the financial result from
discontinued operations in the accompanying consolidated statement of profit or loss.
The following table presents expenses related to lease, recognised in the consolidated statement of
profit or loss for:
2022
2021
Depreciation of right-of-use assets
26,611
23,067
Interest expense on lease liabilities
16,818
13,887
Expenses relating to variable lease payments not included
in the measurement of the lease liability
11,437
10,721
The following table presents future lease payments under lease arrangements together with the
present value of the net lease payments as at 31 December 2022 and 2021:
31 December
31 December
2022
2021
Lease payments, including:
Less than 1 year
41,119
36,872
From 1 to 5 years
120,831
120,480
Over 5 years
158,083
159,653
Total lease payments
320,033
317,005
Less amount representing interest
(134,203)
(126,432)
Present value of net lease payments, including:
Less than 1 year
29,304
23,335
From 1 to 5 years
80,289
84,225
Over 5 years
76,237
83,013
Total present value of net lease payments
185,830
190,573
Less current portion of lease obligations
(29,303)
(23,335)
Non-current portion of lease obligations
156,527
167,238
Total cash outflows for leases for the year ended 31 December 2022 amounted to RUB 39,475 million
(31 December 2021: RUB 32,950 million), including interest paid in amount of RUB 16,511 million
(31 December 2021: RUB 13,269 million).
26. BANK DEPOSITS AND LIABILITIES
Bank liabilities primarily consist of customer accounts and deposits. These liabilities are initially
measured at fair value, net of transaction costs. Liabilities are subsequently measured at amortised
cost using the effective interest method and classified based on their contractual maturity.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
80
Bank deposits and liabilities as at 31 December 2022 and 2021 consisted of the following:
2022
2021
Customer accounts
221,562
213,236
Bank loans received
10,984
21,430
Debt securities issued
10,481
5,581
Other liabilities
1,980
2,303
245,007
242,550
Less: amounts maturing within one year
(232,610)
(225,795)
Total bank deposits and liabilities, net of the current portion
12,397
16,755
27. OTHER FINANCIAL LIABILITIES
Other financial liabilities as at 31 December 2022 and 2021 consisted of the following:
31 December
31 December
2022
2021
Payables for the acquisition of a stakes and shares
33,032
26,901
Obligations under swap agreements, repo transcations
and put option agreements
9,763
9,932
Obligation in relation to preferred shares of subsidiary
2,000
2,000
Other
5,036
9,178
Non-current
25,050
15,972
Current
24,781
32,039
Total other financial liabilities
49,831
48,011
In 2022, payables for the acquisition of LLC Inter Forest Rus decreased by RUB 21,017 million (Note
6). As at 31 December 2022, payables for the acquisition of a stakes and shares mainly represented
by obligations for acqusition of 88% share capital of LLC “ZIL-YUG” amounted to RUB 23,168 million.
28. PROVISIONS
Provisions primarily consist of provisions related to employees’ bonuses and other rewards,
decommissioning and restoration obligations.
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result
of past event, it is probable that the Group will be required to settle that obligation and a reliable
estimate can be made of the amount of obligation. Provisions are measured at the management’s
best estimate of the expenditure required to settle the obligation at the reporting date and are
discounted to present value where the effect is material.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
81
Provisions as at 31 December 2022 and 2021 consisted of the following:
2022
2021
Employees’ bonuses and other rewards
19,491
13,741
Provisions for decomissioning and restoration
5,096
7,490
Tax provisions other than for income tax
844
47
Other
10,461
10,004
Total
35,892
31,282
Current
27,447
23,256
Non-current
8,445
8,026
Employees’
Tax
Provisions
bonuses and
Provisions
provisions
for litigation
other
for decomis-
other than
and
rewards
sioning
income tax
Other
Total
Balance as of
1 January 2021
(9,246)
(5,273)
(792)
(8,689)
(24,000)
Additional provisions
recognized
(19,204)
(2,329)
(165)
(5,870)
(27,568)
Payments
14,169
31
298
2,946
17,444
Unwinding of discount and
effect of changes in the
discount rate
4
(145)
-
-
(141)
Unused amounts reversed
713
226
820
1,565
3,324
Other
(18)
-
(1)
47
28
Purchases
(159)
-
(207)
(3)
(369)
Balance as of
31 December 2021
(13,741)
(7,490)
(47)
(10,004)
(31,282)
Additional provisions
recognized
(25,427)
(2,118)
(1,023)
(9,805)
(38,373)
Payments
19,494
68
163
7,240
26,965
Unwinding of discount and
effect of changes in the
discount rate
-
(173)
-
-
(173)
Unused amounts reversed
205
4,597
180
134
5,116
Disposals (Note 5)
138
-
-
2,942
3,080
Other
-
20
-
6
26
Purchases
(160)
-
(117)
(974)
(1,251)
Balance as of
31 December 2022
(19,491)
(5,096)
(844)
(10,461)
(35,892)
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
82
29. EARNINGS/(LOSS) PER SHARE
Earnings/(loss) per share is the amount of earning/(loss) for the year attributable to ordinary shares
of the Company divided by the weighted average number of ordinary shares outstanding during the
year.
The earnings/(loss) and weighted average number of ordinary shares used in the calculation of basic
and diluted earnings/(loss) per share are as follows:
2022
2021
Earning/(loss) for the year from discontinued operations
attributable to shareholders of Sistema PJSFC
4,793
(11,186)
Earning for the year from continuing operations
attributable to shareholders of Sistema PJSFC
14,612
27,943
Earnings used in the calculation of basic and
diluted earnings per share
19,405
16,757
Weighted average number of ordinary shares for the purposes
of basic and diluted earnings per share
9,381,822,364
9,466,994,541
Earnings/(loss) per share – basic and diluted
2.07
1.77
From continuing operations
1.56
2.95
From discontinued operations
0.51
(1.18)
30. CAPITAL AND FINANCIAL RISK MANAGEMENT
Capital risk management – The Group manages its capital to ensure that entities of the Group will
be able to continue as a going concern while maximising the return to the shareholders through the
optimisation of the debt and equity balance.
The capital structure of the Group consists of net loans and borrowings (loans and borrowings offset
by cash and cash equivalents) and equity of the Group.
The Group’s policy is to maintain a strong capital base to maintain investor, creditor and market
confidence and to sustain future development of the business. The Group manages its capital
structure and adjusts it, in light of changes in economic conditions. The Group may sell assets to
reduce debt, maintain or adjust the capital structure.
The Board of Directors monitors the net loans and borrowings to OIBDA ratio. Since these are non-
IFRS measures, the Group’s definition of OIBDA and net borrowings may differ from that of other
companies.
The OIBDA represents operating profit before depreciation and amortizations. The OIBDA is non-IFRS
measure and should be considered as an addition setting, but not as a substitute. The Group’s
management consider that this measure is useful for users, as it is an indicator of the sustainability
and efficiency of the Group’s operations, including the Group’s ability to finance capital expenditures,
business acquisitions and other investments, as well as the ability to attract debt financing and
service debt.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
83
Consolidated net debt is defined as consolidated long-term and short-term loans and borrowings less
cash and cash equivalents and bank deposits. The Group’s management consider that information
about consolidated net debt provides useful information for users of financial statements, as this
measure is part of the management of liquidity, financial flexibility, capital and its structure.
The Group’s Net debt to OIBDA ratio was as follows:
2022
2021
Net debt
926,664
768,934
OIBDA
309,152
288,888
Net debt to OIBDA ratio
3.00
2.66
The Group is subject to certain externally imposed capital requirements and restrictions that are
incorporated into the management of capital.
The CBR requires that banks comply with the minimum capital adequacy ratio of 8% calculated based
on statutory standalone financial statements. The Group’s banking activities met the requirements
established by the CBR. As at 31 December 2022 and 2021, capital adequacy ratio was 16.07% and
12.54% respectively.
Financial risk management objectives – The Management Board has overall responsibility for the
establishment and ongoing management of the Group’s risk management framework, and the
implementation and operation of the Board’s policies are handled by the Management Board.
The Management Board monitors and manages the financial risks relating to the operations of the
Group through internal management reports, which analyses exposures by degree and magnitude of
risks. These risks include market risk (including foreign currency risk, interest rate risk and other price
risk), liquidity risk and credit risk.
Foreign currency risk – Foreign currency risk is the risk that the financial results of the Group will be
adversely impacted by changes in exchange rates to which the Group is exposed. The Group
undertakes certain transactions denominated in foreign currencies and is primarily exposed to the
US Dollar and Euro.
The Group manages its net exposure to foreign exchange risk by balancing both financial assets and
financial liabilities denominated in Russian Ruble, US Dollar and Euro and by using certain derivative
instruments (Note 31).
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary
liabilities (excluding hedged items) at the year-end are as follows:
2022
2021
2022
2021
US Dollar
46,931
63,395
50,834
34,497
Euro
21,387
39,940
11,187
5,081
Liabilities
Assets
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
84
The table below details the Group’s sensitivity to the strengthening of the US Dollar and Euro against
the Russian Ruble. This analysis assumes that all other variables, in particular interest rates, remain
constant. This analysis is based on foreign currency exchange rate variances that the Group
considered to be reasonably possible at the end of the reporting period. The analysis was applied to
monetary items at the year-end denominated in the respective currencies.
Increase in US
Dollar and Euro
Decrease in profit
before tax
2022
30%
1,889
2021
50%
31,260
The effect of a corresponding strengthening of the Russian Ruble against the US Dollar and EUR is
equal and opposite.
Interest rate risk – Interest rate risk arises from the possibility that changes in interest rates will affect
finance costs. The Group is exposed to interest rate risk because entities in the Group borrow funds
at both fixed and floating interest rates. The risk is managed by the Group by maintaining an
appropriate mix between fixed and floating rate borrowings and by using certain derivative
instruments (Note 31).
A change of floating rates by 1% applied to the borrowings (excluding hedged items) would result in
an increase in the Group's future interest expense by RUB 3,787 million.
Fixed rate loan agreements often stipulate creditor’s right to increase interest rates under certain
circumstances, including increase of the key rate of the Central Bank of Russia. Therefore, in addition
to the effect from changes in floating interest rates, the Group is also exposed to interest rate risk
arising from these agreements.
Other price risks – Price risk is the risk that the value of a financial instrument will fluctuate as a result
of changes in market prices. These changes may be caused by factors specific to the individual
security or its issuer or factors affecting all securities traded in the market. The sensitivity analysis
below has been determined based on the exposure to price risks at the end of the reporting period.
Sensitivity analysis was prepared on pre-tax basis.
If prices of securities as at the year-end had been higher/lower:
Change in prices
Profit before tax increase
Other comprehensive
income increase
2022
30%
2,992
4,350
2021
30%
10,282
2,828
The effect of a corresponding decrease in prices of securities is equal and opposite.
Liquidity risk – Liquidity risk is the risk that the Group will not be able to settle all its liabilities as they
fall due.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
85
The Group’s liquidity position is monitored and managed at the level of operating segments. The Group
manages liquidity risk by continuously monitoring forecasted and actual cash flows, by matching the
maturity profiles of financial assets and liabilities and by maintaining available credit facilities.
As at 31 December 2022, the schedule of repayments of financial liabilities (except for lease liabilities,
presented in Note 25) of the Group for the next five years and thereafter was as follows:
<1 year
1-2 years
2-3 years
3-4 years
4-5 years
>5 years
Loans and borrowings
298,846
272,328
314,876
147,081
26,888
1,046
Accounts payable
137,508
-
-
-
-
-
Bank deposits and
liabilities
232,610
8,678
1,860
1,240
619
-
Other financial liabilities
24,781
20,903
-
164
3,983
-
Total financial liabilities
693,745
301,909
316,736
148,485
31,490
1,046
For day-to-day liquidity requirements the Group had unused credit facilities of RUB 673,134 million
as 31 December 2022 (31 December 2021: RUB 485,128 million).
Credit risk – Credit risk refers to the risk that a counterparty will default on its contractual obligations
resulting in a financial loss to the Group. The Group is exposed to credit risks on cash and cash
equivalents, deposits, derivatives and certain other financial instruments with financial institutions,
loans and receivables carried at amortised cost and debt securities.
The determination of whether a financial asset has experienced a significant increase in credit risk is
based on an assessment of the probability of default, which is made at least quarterly, incorporating
external credit rating information as well as internal information on the credit quality of the financial
asset. For debt instruments that are not receivables from financial services, a significant increase in
credit risk is assessed mainly based on past-due information.
For contract assets, trade and other receivables, a simplified approach is applied whereby ECL are
initially measured over the lifetime of the instrument.
Financial assets in financial institutions – the Group maintains mixture of cash and cash equivalents,
deposits, derivatives and certain other financial instruments in financial institutions. These financial
institutions are located in different geographical regions and the Group’s policy is designed to limit
exposure to any one institution. As part of its risk management processes, the Group performs
periodic evaluations of the relative credit standing of the financial institutions.
As at 31 December 2022 and 2021, the Group has a significant cash balances, cash equivalents and
deposits in the following financial institutions:
31 December
31 December
2022
2021
The Central bank the Russian Federation
7,094
9,721
The Central bank of Luxemburg
-
10,902
RuААА (RAEX)
19,829
10,430
RuAAA (ACRA)
10,826
1,745
RuAA (ACRA)
6,328
-
Total
44,077
32,798
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
86
Bank loans to customers and interbank loans due to the banks – MTS Bank performs daily monitoring
of future expected cash flows on clients’ and banking operations, which is a part of assets/liabilities
management process. The credit risk exposure is monitored on a regular basis to ensure that the credit
limits and credit worthiness guidelines established by the MTS Bank’s risk management policy are not
breached. The Group structures the levels of credit risk it undertakes by placing limits on the amount
of risk accepted in relation to one borrower, or group of borrowers, and to geographical segments.
Other loans and receivables carried at amortised cost – Concentrations of credit risk with respect to
loans and trade receivables are limited given that the Group’s customer base is large and unrelated.
Management believes there is no further credit risk provision required in excess of ECL allowance.
31. DERIVATIVE INSTRUMENTS
The Group uses derivative instruments, including interest rate and foreign currency swaps, to manage
foreign currency and interest rate risk exposures. The Group measures derivatives at fair value and
recognizes them either other current or other non-current financial assets or liabilities in the
consolidated statement of financial position. Cash flows from derivatives are classified according to
their nature. The Group reviews related fair value hierarchy classifications on a quarterly basis. The
fair value measurement of the Group’s derivative instruments is based on the observable yield curves
for similar instruments.
Gain and losses from changes in the fair value are recorded immediately in profit or loss.
Assets and liabilities related to multiple derivative contracts with one counterparty are not offset by
the Group.
Cross-currency interest rate swap agreements – The Group has entered into several cross-currency
interest rate swap agreements. The contracts are designated to manage the exposure to changes in
currency exchange rate. The contracts assumed periodic exchange of principal and interest payments
from RUB-denominated amounts to USD- and Euro-denominated amounts at a specified rate. The
rate was determined by the market spot rate upon issuance. Cross-currency interest rate swap
contracts mature in 2023-2024.
In aggregate the Group entered into cross-currency interest rate swap agreements designated to
manage the exposure to changes in currency exchange rate for 0 and 65% of the Group’s bank loans
denominated in USD and EUR outstanding as at 31 December 2022 and 31 December 2021
respectively.
The notional amounts related to currency derivative instruments amounted to RUB 0 million and
39,788 million as at 31 December 2022 and 2021 respectively.
The Group has entered into currency forward and swaps agreements to minimize the foreign
currency risk exposure for operating activities. The contracts assumed the purchase or sale of the
agreed amount of currency at a specified exchange rate and on a specific date. The rate was
determined by the market spot rate upon issuance. As the result of currency forward and swap
agreements, unfulfilled as at 31 December 2022 and 2021, the Group recognised gain
RUB 1,446 million and RUB 635 million loss in the consolidated statement of profit or loss for the
2022 (loss RUB 83 million in the consolidated statement of profit or loss for the 2021).
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
87
The notional amounts of currency forward and swap instruments, unfulfilled as at
31 December 2022 and 2021 was RUB 10,873 million and RUB 9,993 million, respectively.
Fixed-to-variable interest rate swap agreements – The Group’s notes and bank loans denominated
in Russian Rubles bear primarily fixed interest rates. To reduce the cost of debt servicing, the Group
entered into swap agreements. In aggregate the Group entered into fixed-to-variable interest rate
swap agreements manage of the debt related to 5% of the Group’s notes and bank loans with fixed
rates outstanding as at 31 December 2022 (2021: 6%).
The notional amounts related to interest rate derivative instruments amounted to
RUB 35,000 million as at 31 December 2022 (2021: RUB 39,788 million).
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
88
32. FAIR VALUES
The following fair value hierarchy table presents information regarding Group’s financial assets and liabilities measured at fair value on a recurring basis at
31 December 2022 and 2021. Fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value
measurements are observable and the significance of the inputs to the fair value measurement in its entirety. Level 1 classification comprises financial
instruments where fair value is determined by unadjusted quoted prices in active markets for identical assets or liabilities that the Group can access at the
measurement date; Level 2 – from inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or
indirectly; Level 3 – from unobservable inputs.
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Financial assets
At fair value through other
comprehensive income
18,124 2,008
- 20,132 11,782
- 1,022 12,804
Deferred consideration
- - 473 473
- - 1,867 1,867
At fair value through profit
or loss
9,974 46,925 26,109 83,008 34,274 11,974 38,330 84,578
28,098 48,933 26,582 103,613 46,056 11,974 41,219 99,249
Financial liabilities
Derivative instruments
- (18)
- (18)
- (4,150)
- (4,150)
Deferred considerations and others
- - (1,220) (1,220)
- - (188)
(188)
Liabilities under put
option agreements
- - (2,780) (2,780)
- - - -
- (18) (4,000) (4,018)
- (4,150)
(188) (4,338)
31 December 2022
31 December 2021
The fair value of financial assets and liabilities categorised into Level 2 is based on the observable data about quotations on the active market for similar assets,
and is an estimate of the amount, taking into account the additional discount that the Group would receive when selling the asset or by which it would reduce
the financial liability
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
89
The fair value of financial assets and liabilities categorized into Level 3 is primarily measures using
the discounted cash flows technique. The unobservable inputs to the models include assumptions
regarding the future financial performances of the investee, its risk profile, and economic
assumptions regarding the industry and jurisdiction in which the investee operates.
During the year ended 31 December 2022, Eurobonds of Russian issuers held by Group, accounted
for at fair value, in amount of RUB 2,008 million were transferred in the hierarchy level from Level 1
to Level 2 due to the Moscow Exchange suspension of main trading mode for these securities. There
were no transfers between levels of inputs within the hierarchy for the years ended 31 December
2021.
During the year ended 31 December 2022, corporate, bank and government debt securities held by
MTS Bank, accounted for at fair value, in amount of RUB 22,544 million as at 31 December 2021,
were transferred from the category “financial assets at fair value through profit or loss” to the
“financial assets at fair value through other comprehensive income” due to the change in investment
policy, reviewed to include both sale and receipt of contractual cash flows for the reclassified
securities. At the date of reclassification, the fair value of the securities remained unchanged. As at
31 December 2022, the fair value of reclassified securities amounted to RUB 20,132 million. There
were no transfers between the accounting categories of financial instruments for the years ended
31 December 2021.
The carrying value of the Group’s financial instruments accounted for at amortized cost approximates
their fair value due to their short-term nature and market interest rates, except for MTS bank
deposits and loans to customers and also Group’s borrowings, as disclosed in the table below:
Carrying value
Fair value
Carrying value
Fair value
Financial assets
Bank deposits and loans to
227,988
230,395
203,440
208,127
customers
Financial liabilities
Loans and borrowings
1,061,065
1,038,704
850,817
839,849
31 December 2022
31 December 2021
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
90
The table below presents the change in fair value of financial assets and liabilities of Level 3 as at
31 December 2022 and 2021.
Liabilities
under
Other
Other
put option
financial
financial
agreements
assets
liabilities
Total
Balance as of 1 January 2021
(55)
32,748
(1,067)
31,626
Total gains/(losses):
- in profit or loss
55
18,996
392
19,443
- in other comprehensive income
-
(650)
-
(650)
Reclasses to other categories
-
(10,085)
-
(10,085)
Disposals
-
(3,194)
-
(3,194)
Repayments
-
(880)
487
(393)
Purchases
-
4,284
-
4,284
Balance as of 31 December 2021
-
41,219
(188)
41,031
Total gains/(losses):
- in profit or loss
83
(139)
(411)
(467)
- in other comprehensive income
-
1,446
-
1,446
Impairment
-
(1,866)
-
(1,866)
Disposals
-
(15,309)
-
(15,309)
Disposals of business line
-
473
-
473
Additions
(2,863)
50
(621)
(3,434)
Reclassification to associates
-
(990)
-
(990)
Purchases
-
1,698
-
1,698
Balance as of 31 December 2022
(2,780)
26,582
(1,220)
22,582
Net unrealized gains and losses of Level 3 assets and liabilities resulting from fair value measurements
were recognised in the following amounts:
2022
2021
Net unrealized (losses)/gains of Level 3 assets
(1,446)
385
Net unrealized (losses)/gains of Level 3 liabilities
(3,657)
391
(5,103)
776
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
91
33. RELATED PARTY TRANSACTIONS
The Group has a number of related parties including shareholders holding more than 20% of the
Company’s voting rights and entities under common control, associates and joint ventures, and key
management personnel.
Trading transactions – The Group’s trading transactions with related parties that are not members
of the Group comprise sales and purchases of goods and services in the normal course of business.
The counterparties for these transactions are predominantly associates and joint ventures.
During the year ended 2022 sales to related parties comprised RUB 5,483 million
(2021: RUB 1,634 million), purchases from related parties comprised RUB 2,723 million
(2021: RUB 5,554 million). As at 31 December 2022, trade balances receivable from and payable to
related parties comprised RUB 6,416 million and RUB 3,474 million, respectively (31 December 2021:
RUB 6,935 million and RUB 1,936 million). Bank loans to related parties as at 31 December 2022 are
amounted to RUB 825 million (31 December 2021: RUB 4,665 million). Debt obligations to related
parties as at 31 December 2022 are RUB 9,794 million (31 December 2021: RUB 8,016 million).
Dividends received – In 2022, the Group received dividends from MTS Belarus in the amount of
RUB 4,545 million (2021: RUB 4,034 million), Etalon Group in the amount of RUB 1,076 million in 2021
before obtaining control (Note 6).
Financial transactions – The Group’s financial transactions with related parties primarily comprise
loans, deposits and other debt instruments issued to or by the Group entities. At 31 December 2022
and 2021, amounts owed by or to related parties under such arrangements are as follows:
31 December
31 December
31 December
31 December
2022
2021
2022
2021
Shareholders holding more than
20% of the Company’s voting rights
and Entities under common control
12,570
31,143
3,992
26,897
Key management personnel
-
- 1,328
5,392
Other related parties
-
- 6,034
11,859
Amounts owed by related parties
Amounts owed to related parties
Finance costs related to such transactions with related parties and recognised in the consolidated
statement of profit or loss in 2022 amounted to RUB 106 million (2021: RUB 1,171 million).
Payments and transfers from other financial transactions with related parties for the twelve months
ended 31 December 2022 amounted to RUB 7,234 million (2021: RUB 3,496 million).
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
92
Compensation of key management personnel – In 2022 and 2021, the aggregate compensation for
key management personnel, being the members of the Company’s Board of Directors and
Management Board was as follows:
2022
2021
Short-term benefits
4,387
4,643
Share-based payments
204
1,486
4,591
6,129
34. SUBSIDIARIES
Details of the Group’s most material subsidiaries at the end of the year are as follows:
Significant entities
Short name
Principal activity
2022
2021
Mobile TeleSystems PJSC(1)
MTS
Telecommunications
49.93%
50.58%
Segezha Group PJSC
Segezha Group
Pulp and paper
62.17%
62.17%
Etalon Group Plc(1)
Etalon
Development
48.80%
29.79%
Medsi Group JSC
Medsi
Healthcare services
95.49%
95.49%
Bashkirian Power Grid Company JSC
BPGC
Energy transmission
90.96%
90.96%
Agroholding Steppe JSC
Steppe
Agriculture
89.72%
91.26%
Binnopharm Group LLC
Binnopharm Group
Pharmaceuticals
72.15%
75.32%
Beneficial ownership
as of 31 December
(1)The Group consolidates MTS and Etalon based on IFRS 10 “Consolidated Financial Statements” due to the presence of the
largest block of shares and a high dispersion of external shareholders.
The table below shows details of non-wholly owned subsidiaries of the Group that have material non-
controlling interests:
Principal place of
Name of subsidiary
business
2022
2021
2022
2021
MTS
Russia
16,278
31,633
(5,237)
4,286
Segezha Group
Russia
2,279
3,229
15,442
17,015
Etalon
Russia
4,216
-
50,520
-
Accumulated non-controlling
interests
Profit allocated to
non-controlling interests
Summarised financial information in respect of each of the Group’s subsidiaries that has material
non-controlling interests is set out below. The summarised financial information below represents
amounts before intragroup eliminations. The consolidated financial information presented below is
indicative of pre-exclusion of intra-group transactions.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
93
2022
2021
2022
2021
2022
2021
Current assets
300,883
263,299
64,628
54,583
226,941
n/a
Non-current assets
782,047
752,518
163,462
159,365
21,104
n/a
Total assets
1,082,930
1,015,817
228,090
213,948
248,045
n/a
Current liabilities
551,345
473,364
70,126
76,967
68,989
n/a
Non-current liabilities
535,202
527,851
116,666
90,789
104,867
n/a
Total liabilities
1,086,547
1,001,215
186,792
167,756
173,856
n/a
Equity attributable to shareholders of Sistema
(4,130)
5,480
26,564
29,150
23,654
n/a
Non-controlling interests
513
9,123
15,490
17,042
50,535
n/a
Revenue
541,749
534,403
106,766
92,442
80,556
n/a
Expenses
(508,314)
(470,134)
(100,714)
(77,205)
(67,555)
n/a
Profit for the year
33,435
64,269
6,052
15,237
13,001
n/a
Profit attributable to shareholders of Sistema
16,295
31,840
3,751
12,041
8,982
n/a
Profit attributable
to the non-controlling interests
17,140
32,429
2,301
3,196
4,019
n/a
Other comprehensive income attributable
to shareholders of Sistema
947
605
147
140
-
n/a
Other comprehensive income attributable
to the non-controlling interests
949
592
-
-
-
n/a
Other comprehensive income for the year
1,896
1,197
147
140
-
n/a
Total comprehensive income attributable
to shareholders of Sistema
17,243
32,445
3,898
12,181
8,982
n/a
Total comprehensive income attributable
to the non-controlling interests
18,088
33,021
2,301
3,196
4,019
n/a
Total comprehensive income for the year
35,331
65,466
6,199
15,377
13,001
n/a
2022
2021
2022
2021
2022
2021
Dividends accrued to non-controlling interests
28,103
30,747
3,799
2,493
-
n/a
Net cash inflow/(outflow) from
operating activities
190,592
142,579
2,259
13,068
(50,815)
n/a
Net cash (outflow)/inflow from
investing activities
(118,238)
(116,165)
(32,367)
(50,473)
416
n/a
Net cash (outflow)/inflow from
financing activities
(34,622)
(71,214)
37,682
46,154
29,698
n/a
Net cash inflow/(outflow)
37,702
(44,800)
7,574
8,749
(20,700)
n/a
MTS
MTS
Segezha Group
Segezha Group
Etalon (Note 6)
Etalon (Note 6)
35. NON-CASH TRANSACTIONS
The Group entered into the following non-cash investing and financing activities, which are not
reflected in the consolidated statements of cash flows:
2022
2021
Additions to the right-of-use assets
11,732
29,393
Сapital expenditure liabilities
(12,160)
5,402
Employee benefits
3,682
7,045
Deferred payment
5,731
26,579
Fair value of contingent consideration
621
60
Fair value of financial assets
993
1,958
.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
94
36. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
Cash flows
Cash flows
Disposal/
from
from
acquisition
financing
operating
of
Changes
Other
1 January
activities
activities
subsidiaries
Currency
in
changes
31 December
2022
(i)
(ii)
(Note 5, 6)
exchange
equity
(iii)
2022
Loans and borrowings
850,817
198,858
-
50,305
(10,313)
-
(29,345)
1,060,322
Capital transactions
of subsidiaries
-
(2,254)
-
-
-
(49,518)
51,772
-
Lease liability
190,571
(22,964)
(16,511)
7,029
(400)
-
28,105
185,830
Dividends payable
5,258
(20,807)
-
-
-
32,739
800
17,990
Other financial liabilities
48,011
(4,631)
-
-
-
(143)
6,644
49,881
Total
1,094,657
148,202
(16,511)
57,334
(10,713)
(16,922)
57,976
1,314,023
Cash flows
Cash flows
Disposal/
from
from
acquisition
financial
operation
of
Changes
Other
1 January
activities
activities
subsidiaries
Currency
in
changes
31 December
2021
(i)
(ii)
(Note 5, 6)
exchange
equity
(iii)
2021
Loans and borrowings
723,961
111,514
-
20,428
(2,243)
-
(2,843)
850,817
Capital transactions
of subsidiaries
-
31,680
-
-
-
(54,677)
22,998
-
Lease liability
165,574
(19,682)
(13,269)
14,908
(8)
-
43,047
190,571
Dividends payable
3,326
(35,557)
-
-
-
37,489
-
5,258
Other financial liabilities
7,476
(21,194)
-
22,126
-
5,425
34,177
48,011
Total
900,337
66,761
(13,269)
57,462
(2,251)
(11,763)
97,379
1,094,657
Non-cash changes
Non-cash changes
(i)
The cash flows from bank loans, loans from related parties and other borrowings make up the net amount of proceeds from borrowings and repayments of borrowings in the consolidated
statement of cash flows.
(ii)
The cash flows are represented by lease liability interest paid.
(iii) Other changes include new lease agreements, interest accruals and changes of other financial liabilities.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
95
37. CONTINGENCIES AND COMMITMENTS
Capital commitments – A capital commitment is a contractual obligation for future payments mainly
for the acquisition of network infrastructure. These amounts are not recorded in the consolidated
statement of financial position since the Group has not yet received goods or services from suppliers.
As at 31 December 2022, the Group had capital commitments of RUB 53,553 million (31 December
2021: RUB 104,616 million), relating to the acquisitions of property, plant and equipment.
Guarantees – As at December 31, 2022, the Group’s banking subsidiaries acted as guarantors for
loans in the amount of RUB 18,626 million (31 December 2021: RUB 16,172 million), and also had
commitments to provide loans under open credit lines in the amount of RUB 67,629 million
(31 December 2021: RUB 37,327 million). Total commitments on loans and guarantees issued as at
31 December 2022 and 2021 are RUB 1,043 million and RUB 752 million, respectively. The Group will
be required to make payments under these guarantees only if the respective debtors fail to meet
their payment obligations. These guarantees would require payment by the Group in the event of
default on payment by the respective debtor. Such guarantee contracts issued by the Group are
initially measured at their fair values and are subsequently measured at the higher of the amount of
the expected credit losses allowance, and the amount initially recognised less, where appropriate,
cumulative income recognised in accordance with the revenue recognition policies.
Telecommunication licenses – The management believes that as at 31 December 2022, the Group is
in compliance with conditions of the used licenses.
Restriction on transactions with the shares of BPGC – In 2014, in the course of litigation, which the
Group is not a party to, the court imposed restrictions on transactions with the shares of BPGC owned
by the Group. The restrictions do not limit the Group’s voting rights, rights to receive dividends or
any other shareholders rights.
Taxation – Russian legislation on taxation for business purposes continues to change rapidly.
Management’s interpretation of such legislation as applied to the activity of the Group may be
challenged by tax authorities. Recent events suggest that the tax authorities are taking a more
assertive position in their interpretation of the legislation and assessments and as a result, it is
possible that transactions and activities that have not been challenged in the past may be challenged.
Fiscal periods generally remain open to tax audit by the tax authorities in respect of taxes for three
calendar years preceding the year of tax audit. Under certain circumstances, reviews may cover
longer periods. Management believes that it has provided adequately for tax liabilities in accordance
with its interpretations of the Russian tax legislation. However, the tax authorities may have different
interpretations, and the effects on the consolidated financial statements could be significant.
Where uncertainty exists, the Group has accrued tax liabilities as management’s best estimate of the
probable outflow of resources, which will be required to settle such liabilities. 31 December 2022,
provisions for additional taxes and customs settlements comprised RUB 412 million
(31 December 2021: RUB 414 million).
The Group also assesses the following contingent liabilities in respect of additional tax settlements:
31 December
31 December
2022
2021
Contingent liabilities for additional taxes other than income tax
498
860
Contingent liabilities for additional income taxes
1,021
1,132
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
96
In accordance with the rules on controlled foreign companies, undistributed profits of the Group
foreign subsidiaries, qualifying as controlled foreign companies, should be included in the income tax
base of the controlling entities in particular cases.
Operating Environment – Emerging markets such as Russia are subject to different risks than more
developed markets, including economic, political and social, and legal and legislative risks. Laws and
regulations affecting businesses in Russia continue to change rapidly, tax and regulatory frameworks
are subject to varying interpretations. The future economic direction of Russia is heavily influenced
by the fiscal and monetary policies adopted by the government, together with developments in the
legal, regulatory, and political environment.
Starting from 2014, sanctions have been imposed in several packages by the U.S. and the E.U. on
certain Russian officials, businessmen and companies. Because Russia produces and exports large
volumes of oil and gas, its economy is particularly sensitive to the price of oil and gas on the world
market.
Due to the deterioration of the geopolitical situation since February 2022 the EU, the US, the UK and
several other countries have introduced significant new sanctions and export controls on certain
Russian individuals and entities. These include, among other things, restrictions targeting a number
of large Russian financial institutions and the Central Bank of Russia, several companies and
individuals, and technology export controls.
Changes in these matters are highly unpredictable, occur quickly and often without warning, and are
largely beyond the control of the Group.
Current and future risks include, but are not limited to, the risk of limitation and complete closure of
access to capital markets and the possibility of obtaining financing on commercially reasonable
terms, the risk of decrease of fair value of financial assets, the risk of restrictions on payments and
transactions with foreign counterparties, the risk of restrictions on the import of certain equipment
and software and the export of finished products, as well as the risk of high volatility of the Russian
ruble against other currencies, which could adversely affect the Group’s investment program as
a significant portion of its capital expenditures are closely linked to foreign currencies. The
strengthening of the ruble against foreign currencies has a negative impact on the financial
performance of the Group’s export-oriented operating segments. In addition, Central Bank’s of
Russia increase of its key rate to 20% on February 2022, impacted floating-rate credit facilities and
consequently increased the Group’s finance costs. Further in 2022, the Central Bank of Russia has
gradually decreased its key rate to 7.5% as at 31 December 2022. As at date of financial statement
approval, the key rate did not change and remained at 7.5%.
Violation of financial and non-financial covenants stipulated by loan agreements of the Group may
result in banks’ demand of accelerated repayment of existing loans. The Group’s management
regularly analyzes the implementation of covenants. To date of this financial statement, the Group’s
covenants stipulated by loan agreements have not been violated.
The negative impact on the Russian economy is likely to increase the credit risk of many customers,
leading to the need for recognition a significant additional amount of expected credit losses, which
at the moment it is not possible to quantify.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
97
The operations of MTS Bank, a company of the Group, are subject to risks that affect the ability of
borrowers to repay amounts due to the Group, which may depend on the overall macroeconomic
and business environment. Unfavorable changes in economic conditions could lead to a deterioration
in the value of collateral for loans and other liabilities.
Delisting Events
In April 2022, Russian Federal Law No. 114-FZ, requiring Russian companies to terminate their
depositary receipt programs, came into force. In May 2022, the Company has received permission to
continue listing of GDRs outside Russia until 13 May 2023.
In July 2022, MTS delisted its ADRs from the NYSE. In January 2023, the guaranteed conversion period
for ADRs into ordinary shares of MTS PJSC in accordance with the depository agreement expired. In
the opinion of MTS PJSC, the depository may continue to convert the ADR into ordinary shares and/or
sell the unconverted shares to distribute the funds received among the holders of the ADR.
The trading of the Ozon’s ADSs on the NASDAQ Global Select Market was suspended on 28 February
2022, and remains suspended on 31 December 2022. Under the conditions of the Company’s
convertible bonds (the “Bonds”), this trading suspension constituted a “Delisting Event” entitling the
holders of the Bonds to exercise their rights to require redemption of their Bonds by way of giving
the Ozon an irrevocable notice (the “Delisting Event”). The bondholders, who exercised the rights to
require redemption, forfeited their conversion rights under the Bonds. In September 2022, Ozon and
the bondholders reached an agreement on the terms of the bond restructuring (“Restructuring”).
On 15 March 2023, Ozon received a notice from the NASDAQ about delisting the Ozon’s ADSs from
the Exchange. According to the Notice, the decision was made based on NASDAQ’s discretionary
authority under Rule 5100 in light of the geopolitical circumstances affecting Russia and their
potential impact on the company.
On 21 March 2023, Ozon filed an appeal against NASDAQ’s decision to force the delisting of ADSs.
According to the rules of the exchange, the company has the right to request a hearing of a special
commission to appeal the exchange’s decision, which it did. The hearing must be held within 45 days
from the date of receipt of the request from the company. Actions to exclude the company from the
listing must be suspended until the written decision of the commission is made.
Sanctions
In April 2022 the UK Government imposed asset freeze sanctions on Vladimir Evtushenkov. The
sanctions imposed by the UK Government on Vladimir Evtushenkov are personal and do not target
the Company and other Group companies.
In February 2023, the US Office of Foreign Assets Control (OFAC) and the UK Office of Financial
Sanctions Implementation (OFSI) designated MTS Bank as a sanctioned person pursuant to applicable
sanctions regulations adopted by the US and the UK, respectively. Accordingly, MTS Bank became
subject to so-called “blocking” (asset-freeze) sanctions maintained by the US and the UK. Among
other matters, these sanctions require US and UK third parties, including banks, to block or freeze
assets which MTS Bank holds with such parties or otherwise block the settlement of payments to or
from MTS Bank and its counterparties.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
98
Also, MTS Bank does not carry out settlements in US dollars, Turkish liras, Omani rials, Swiss francs,
Pounds sterling. In addition, MTS Bank is currently unable to dispose of certain assets (balances on
the Group’s nostro accounts in South Korea). The current carrying amount of the blocked assets as
of the date of issuance of these consolidated financial statements is RUB 9.6 billion. Currently, MTS
Bank has filed an application for a license that will allow the transfer of balances on these accounts
to the Russian jurisdiction, the probability of obtaining the license is assessed as high.
The full impact and potential implications of the imposed sanctions on MTS Bank on the Group’s
operations, assets and liabilities cannot be reliably estimated at this time. MTS Bank Management
believes it is taking the appropriate measures to mitigate the related negative effects.
The above events require the business of the Group to adapt to a changing operating environment,
characterized by significant uncertainty and having a significant impact on the Group and its
operations. The actual future operating environment and its impact on the Group may differ from
the management’s current expectations. The management of the Group is currently assessing the
possible impact of the above events and is taking all necessary measures to ensure the sustainability
of the Group’s operations.
Legal proceedings – In the ordinary course of business, the Group is a party to various legal
proceedings, and subject to claims, certain of which relate to the developing markets and evolving
regulatory environments in which the Group operates. At 31 December 2022, management estimates
the range of possible losses, if any, in all pending litigations or other legal proceedings being up to
RUB 5,492 million.
Litigation related to operations in Turkmenistan – In September 2017, the Group’s subsidiary
in Turkmenistan MTS Turkmenistan or MTS-TM, suspended the provision of telecommunication
services to its subscribers, due to the termination by Turkmen state-owned companies and state
authorities of line rental, frequency allocation, interconnect, and other agreements necessary to
provide telecommunication services. The license for the provision of telecommunication services on
the territory of Turkmenistan was valid until July 2018.
In July 2018, the Group filed a Request for Arbitration against the Sovereign State of Turkmenistan
with the World Bank’s International Center for Settlement of Investments Disputes (“ICSID”) in order
to protect its legal rights and investments in Turkmenistan. As at December 31, 2022 the case is
pending.
Antimonopoly proceedings – In August 2018, the Federal Antimonopoly Service of Russia
(“FAS Russia”) charged MTS and other federal operators with violation of antimonopoly laws in
respect to establishing discriminatory terms and conditions for bulk SMS pricing for the banks with
state-owned equity interest as compared to the terms and conditions for other banks and later –
with establishing unreasonably high bulk SMS prices.
In May 2019, FAS Russia considered that MTS had breached the provisions of antimonopoly laws in
respect to establishing discriminatory terms and conditions for bulk SMS pricing and charging
unreasonably high bulk SMS prices, prescribing MTS to cease its violations. MTS contested the
decision and the prescription of FAS Russia, however courts at different levels upheld the position of
FAS Russia. In August 2021, the Group paid the fine imposed by FAS Russia in full amount of RUB 189
million.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
99
In 2021, certain financial institutions in Russia initiated litigations against the Group, claiming
reimbursement for losses incurred in connection with violation of antimonopoly laws in respect to
establishing unreasonably high bulk SMS prices. The arbitration courts at three levels have dismissed
all the claims in full. It’s currently impossible to predict the possibility or outcome of new litigations
on violation of antimonopoly laws in respect to establishing unreasonably high bulk SMS prices.
Management of the Group believes that as at 31 December 2022, it has adequately provided for
claims related to antimonopoly proceedings.
Compliance monitorship – In March 2019, the Group reached a resolution with the United States
Securities and Exchange Commission (“SEC”) and the United States Department of Justice (“DOJ”)
relating to the previously disclosed investigation concerning the Group’s former subsidiary in
Uzbekistan, consented to the entry of an administrative cease-and-desist order (the “Order”) by
the SEC and entered a deferred prosecution agreement (“DPA”). Under the DPA and the Order in
September 2019 the Group appointed an independent compliance monitor for, inter alia, review,
testing and perfecting MTS’ anti-corruption compliance code, policies, and procedures.
As at 31 December 2022 the Group has not received notice from the SEC, the DOJ or the monitor of any
breach of the terms of the DPA or the Order. In 2021, given a variety of factors, including the COVID-19
pandemic, the Group has agreed to a one-year extension of the DPA and the monitorship with the DOJ
and the SEC to (i) provide the Group with adequate time to implement necessary enhancements to
certain critical components of the Group’s anti-corruption compliance and ethics program and (ii) allow
the monitor sufficient time to be able to complete its review of the remedial efforts, including the
Group’s implementation of the monitor’s recommendations and an assessment of the sustainability of
the Group’s remedial actions. The term of the monitorship will continue until September 2023.
In connection with compliance monitorship, certain transactions were identified relating to the
Group’s subsidiary in Armenia, and such transactions were disclosed to the DOJ and SEC. The DOJ and
SEC have requested information regarding the transactions and the Group has initiated an
investigation into the matter. It’s currently impossible to predict the timing or outcome of the
investigation.
In December 2020, the Group received a request for information from the DOJ concerning certain
historical transactions with a supplier of telecommunication and information technology. Currently,
the Group is cooperating to provide information to the DOJ and the SEC responsive to the request.
Class action complaint – In March 2019, a proposed class action complaint on behalf of Shayan Salim
and all other persons similarly situated was filed in the United States District Court for the Eastern
District of New York against MTS PJSC and certain of its managers. In March 2021, US District Judge
of Eastern District Court of New York granted MTS’s motion to dismiss with prejudice and dismissed
the complaint in full. The plaintiff filed an appeal of the dismissal by the Eastern District Court of New
York. On March 31, 2022, United States Court of Appeals for the Second Circuit affirmed the dismissal
by the Eastern District Court of New York and concluded the plaintiff’s claims are without merit.
License fee and spectrum charges for 2002-2011 in India – In December 2019, SSTL received the
Supreme Court of India judgment regarding license fee and spectrum charges for 2002-2011 in
accordance with the definition and interpretation of Annual Gross Revenue (AGR) approved by the
Supreme Court of India. The company calculated immaterial amount to be paid based on the
aforementioned definition of AGR and considering the scheme of demerger with RCOM (which is
currently undergoing bankruptcy procedures) of 2017. This amount was paid in February 2020. The
Group does not expect any significant effect of this matter on the consolidated financial statements
of the Group.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
100
38. SUBSEQUENT EVENTS
Melon Fashion Group – In October 2022, Sistema announced the signing of binding agreements on the
acquisition of 47.7% of the shares of Melon Fashion Group JSC, Russia’s leading manufacturer and
retailer of fashion clothing, from Swedish companies Eastnine and East Capital Holding AB and a group
of private investors for RUB 15.8 billion.
In March 2023, Eastnine and Sistema terminated the agreement on the sale of a block of shares by
mutual consent.
Purchase of stake in Buzzoola – In February 2023, the Group purchased 67% stake in Buzzoola
Internet Technologies LLC (“Buzzoola”), provider of digital advertising services. Total consideration
contains cash payment of RUB 371 million and contingent consideration. The purchase of 67% stake
was accounted as investment in joint venture. The Group is in the process of the fair value
measurement of the stake.
Acquisition of the portfolio of hotel assets of Wenaas Hotel Russia – In March 2023, the Group
completed acquisition from the Norwegian company Wenaas Hotel Russia AS controlling stake of a
number of Russian companies that own of ten hotels located in four cities of Russia. Total
consideration contains cash payment of RUB 16,056 million which includes voluntary contribution to
budget. The purchase of controlling stake was accounted as business combination. The Group is in
the process of the assets and liabilities’ fair value measurement of the acquired business.
Disposal of Arka Merchants Limited and its subsidiaries – On 22 February 2023, Segezha Group
entered into agreement to sell 100% stake in share capital of Arka Merchants Limited and its
subsidiaries (7 Segezha Packaging plants located in Europe and Turkey). Revenue and net profit for
the year ended 31 December 2022 for Arka Merchants Limited and its subsidiaries included in
“Segezha Group” segment results are RUB 13,747 million and RUB 384 million, respectively.
Concession agreement for the project to create a medical hub “Medsi” in Vyksa – In February 2023,
Vyksa Group LLC (segment “Medsi”) and the Government of the Nizhny Novgorod Region concluded
a concession agreement for the creation and construction of a medical hub in Vyksa with overall cost
of RUB 3.9 billion, including VAT (in prices as at 1 January 2022).
Concession agreement for the construction of a facility in Perm with the participation of the
company in Corporate segment – in March 2023, the Government of the Perm Region and a
subsidiary of Sistema System Concessions LLC concluded a concession agreement on the construction
of a student campus in Perm, a capital grant amounts to RUB 19,6 billion.
MTS bond issue placement – On 23 March 2023, MTS PJSC placed a two-year issue of exchange-traded
bonds of the 001P-24 series with a nominal volume of RUB 20 billion at a coupon rate of 9.05% p.a.
Segezha Group bond issue settlement and placement – On 26 January 2023, Segezha Group settled
corporate bonds with nominal value of RUB 10,000 million.
On 3 February 2023, Segezha Group raised funds by placing exchange-traded bonds of the 003P-02R
series with a nominal value of RUB 6 billion for a period up to the offer of 2.25 years and a coupon
rate of 10.6% p.a.
SISTEMA PJSFC AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of Russian Rubles, unless otherwise stated)
101
Etalon bond issue placement – On 22 February 2023, Etalon-Finance JSC (segment “Etalon”) placed an
issue of exchange-traded bonds of the 002P-01 series with a nominal volume of RUB 8 billion at
a coupon rate of 13.7% p.a. with an offer in 3 years.
Medsi bond issue placement – On March 16, 2023, Medsi JSC placed two debut issues of exchange-
traded bonds of series 001P-01 and 001P-02 in the amount of RUB 3 billion each and for a period of
2 and 3 years, respectively, until the offer. According to the results of the formation of the application
book, quarterly coupon rates were: 9.85% p.a. for the 001P-01 series and 10.35% p.a. for the 001P-02
series.