REPORT ON MOSCOW EXCHANGE COMPLIANCE WITH THE PRINCIPLES AND RECOMMENDATIONS OF THE CORPORATE GOVERNANCE CODE

1.1.2

Procedures for notification of the general meeting and provision of materials for it should enable the shareholders to get properly prepared for participation therein.

1. The notice of the General Meeting of Shareholders was posted (published) on the website at least 30 days prior to the General Meeting date.

2. The notice of the meeting specifies the venue of the meeting and the documents required to get access to the premise.

3. Access to the information on the person who proposed the agenda items and the one who nominated candidates to the Board of Directors and the Internal Audit Commission of the Company was provided to shareholders.

 complied with

 partially complied with

 not complied with

1.1.4

There should be no unjustified difficulties preventing shareholders from exercising their right to demand that a general meeting be convened, nominate candidates to the company’s governing bodies, and to place proposals on its agenda.

1. In the reporting period, shareholders were entitled, within 60 days from the end of the respective calendar year a minimum, put forward proposals to be included into the agenda of the annual General Meeting.

2. In the reporting period, the Company did not refuse to accept proposals to the agenda or candidates to the Company’s bodies due to misprints and other insignificant defects in the shareholder’s proposal.

 complied with

 partially complied with

 not complied with

1.2.1

The company should develop and put in place a transparent and clear mechanism for determining the amount of dividends and their payment.

1. The dividend policy provisions of the Company were developed, approved by the Board of Directors, and disclosed at the Company’s website.

2. If the Company produces consolidated financial statements and its dividend policy uses these financial statements to determine the amount of dividends, the relevant dividend policy provisions incorporate the consolidated measures of financial statements.

3. Rationale for the proposed net profit distribution, including for dividend payments and for the company’s own needs, along with compliance assessment in respect of the company’s dividend policy and explanations and economic substantiation of the need to allocate a certain portion of net profit for the company’s own needs in the reporting period were included in the materials for the general meeting of shareholders, where the agenda of the meeting included an item on profit distribution (including the payment (announcement) of dividends).

 complied with

 partially complied with

 not complied with

1.2.3

The company should not allow deterioration of dividend rights of its existing shareholders.

1. In the reporting period, the Company did not take steps that impaired the existing shareholders’ dividend rights.

 complied with

 partially complied with

 not complied with

2.1.1

The board of directors should be responsible for decisions to appoint and remove [members] of executive bodies, including in connection with their failure to properly perform their duties. The board of directors should also procure that the company’s executive bodies act in accordance with an approved development strategy and main business goals of the company.

1. The Board of Directors has the powers stipulated in the Charter to appoint, dismiss, and determine conditions of the contracts, with respect to members of executive bodies.

2. In the reporting period, the Nominations CommitteeHereinafter, the Nominations Committee. considered how the professional qualifications, skills and experience of the members of the executive bodies meet the current and expected needs of the company, prompted by the approved strategy of the company.

3. In the reporting period, the Board of Directors reviewed the report(s) of the sole executive body and members of the collegial executive body on fulfilment of the Company’s strategy.

 complied with

 partially complied with

 not complied with

2.1.3

The board of directors should determine principles of and approaches to creation of the risk management and internal control system in the company.

1. The principles of and approaches to the risk management and internal control system in the Company are set forth by the Board of Directors and documented in the Company’s internal regulations defining the risk management and internal control policy.

2. In the reporting period, the Board of Directors approved (revised) the acceptable level of risk (risk appetite) of the Company, or the Audit Committee and (or) Risk Committee (if any) considered the expediency of bringing the issue of risk appetite revision to the attention of the Board of Directors.

 complied with

 partially complied with

 not complied with

2.1.5

The board of directors should play a key role in prevention, detection and resolution of internal conflicts between the company’s bodies, shareholders and employees.

1. The Board of Directors plays a key part in prevention, detection, and settlement of internal conflicts.

2. The Company has established the system to identify transactions related to the conflict of interest and the system of efforts designed to settle such conflicts.

 complied with

 partially complied with

 not complied with

2.2.1

Information about the board of directors’ work should be disclosed and provided to the shareholders.

1. The Company’s annual report for the reporting period includes information on the Board of Directors and committee meeting attendance by individual directors.

2. The annual report contains information on the principal findings of the Board of Directors’ performance self-assessment (assessment) in the reporting period.

 complied with

 partially complied with

 not complied with

2.3.2

Board members should be elected pursuant to a transparent procedure enabling the shareholders to obtain information about respective candidates sufficient for them to get an idea of the candidates’ personal and professional qualities.

1. Where the agenda of the General Meeting of Shareholders held in the reporting period included election of the Board of Directors d, the Company provided shareholders with biographical data for all the nominees to the Board of Directors, results from assessment of whether the candidates’ professional qualifications, experience and skills meet the company’s current and expected needs performed by the Board of Directors or Nominations Committee, and information on conformity of the nominees to the independence criteria, according to the recommendations in paragraphs from 102 to 107 of the Code and the nominees’ written consent to be elected to the Board of Directors.

 complied with

 partially complied with

 not complied with

In previous reporting periods, the Company complied with this principle. In 2022, the Company’s management decided to limit disclosures about candidates to the Supervisory Board for election at the Annual General Meeting in 2022, so as to minimise the risk of restrictive measures against the persons in question. However, the Supervisory Board approved that the materials for the General Meeting in 2022 should include biographical details of all candidates to the Supervisory Board, outcomes of assessment of the relevance of the candidates’ professional qualifications, experience and skills to the current and expected needs of the company made by the Supervisory Board, along with information on candidates’ compliance with independence criteria. According to the Company, what seps the Company took to minimise the risks of partial non-compliance with the recommendation of the CCG of the Bank of Russia was that the Company allowed shareholders to seek additional information from the Company. In addition, the list of candidates for the Supervisory Board was disclosed on the company’s website.

The company intends to resume disclosure so to adhere to this recommendation once the geopolitical situation stabilises and the risk of restrictive measures against the persons concerned returns to an acceptable level.

2.4.1

An independent director should mean any person who has required professional skills and expertise and is sufficiently able to have his/her own position and make objective and bona fide judgments, free from the influence of the company’s executive bodies, any individual group of its shareholders or other stakeholders. It should be noted that, under normal circumstances, a candidate (or an elected director) may not be deemed to be independent, if he/she is associated with the company, any of its substantial shareholders, material trading partners or competitors, or the government.

1. During the reporting period, all independent members of the Board of Directors met the independence criteria specified in recommendations 102 to 107 of the Code or were recognized as such by resolution of the Board of Directors.

 complied with

 partially complied with

 not complied with

2.4.3

Independent directors should account for at least one-third of all directors elected to the board of directors.

1. Independent directors account for at least one third of the Board of Directors.

 complied with

 partially complied with

 not complied with

At early 2022, independent directors made up more than half of the Supervisory Board.

The Annual General Meeting in 2022 elected 12 members of the Supervisory Board of the Company, among them five directors were independent. Thus, the Company was compliant with the recommendation. During the reporting year two independent directors exited the Supervisory Board. Therefore, as of 31/12/2022, only three of the 10 sitting members of the Supervisory Board were independent or had been recognised as independent directors. Consequently, the non-compliance with the recommendation of the CCR of the Bank of Russia in some part was due to external circumstances, specifically due to the increasing pressure from foreign states on Russian companies. The Company was forced to do so because this was outside the purview of the Company. In the next reporting year, the Company plans to form a new Supervisory Board relying on this recommendation, so that independent directors account for at least one-third of all members elected.

2.5.2

The board chairman should ensure that board meetings are held in a constructive atmosphere and that any items on the meeting agenda are discussed freely. The chairman should also monitor fulfilment of decisions made by the board of directors.

1. Performance of the Chairman of the Board of Directors was estimated as part of the BoD efficiency assessment procedure in the reporting period.

 complied with

 partially complied with

 not complied with

2.6.2

Rights and duties of board members should be clearly stated and documented in the company’s internal documents.

1. The Company adopted and published the internal document that clearly determines rights and duties of members of the Board of Directors.

 complied with

 partially complied with

 not complied with

2.7.1

It is recommended to hold meetings of the board of directors as needed, with due account of the company’s scope of activities and its then current goals.

1. The Board of Directors held at least six meetings in the reporting year.

 complied with

 partially complied with

 not complied with

2.7.3

The form of a meeting of the board of directors should be determined with due account of importance of issues on the agenda of the meeting. Most important issues should be decided at the meetings held in person.

1. The Charter or the internal document of the Company envisage that the most significant issues (according to the list in Recommendation 168 of the Code) should be considered at the personal meetings of the Board.

 complied with

 partially complied with

 not complied with

According to the Charter, the issues listed in Recommendation 168 of the Code (except for material related party transactions and placing the issue of delegating the CEO’s powers to the asset management company for the AGM for consideration) are decided at the meetings held in person.

Issues of material related party transactions are not included on the said list since the Company’s Code of Corporate Governance does not classify related party transactions as a specific material transaction criterion.

Measures aimed at minimizing the risk of partial compliance with the CGC’s recommendation include the Company’s setting materiality thresholds in terms of amount and subject of a transaction, regardless of parties to the transaction.

Therefore, interested-party transactions shall be considered at in-person meetings of the Supervisory Board if the amount and/or subject matter of such transactions meet the established materiality criteria. The Audit Committee considered whether it was appropriate to define other materiality criteria for interested-party transactions and found it inappropriate to do so. Accordingly, the Company has no immediate plans to achieve full compliance with the said recommendation. Placing the issue of delegating the sole executive body’s powers to the asset management company before the AGM is not within the Supervisory Board competence, since, in pursuance with the Federal Law on Organised Trading, (1) the Company’s sole executive body is elected by the Supervisory Board, and (2) the Organiser of Trading is no authorised to delegate the powers of the sole executive body to other entity (asset manager, asset management company).

2.8.2

For the purpose of preliminary consideration of any matters of development of efficient and transparent remuneration practices, it is recommended to form a remuneration committee comprised of independent directors and chaired by an independent director who should not concurrently be the board chairman.

1. The Board of Directors set up the Remuneration Committee consisting of independent directors only.

2. Chairman of the Remunerations Committee is an independent director, who is not concurrently the Chairman of the Board of Directors.

3. The Company’s internal documents determine the objectives of the Remunerations Committee, including those contained in Recommendation 180 of the Code and the circumstances (events), upon the occurrence of which the Remuneration Committee shall consider revising the Company’s remuneration policy with respect to members of the Board of Directors, executive bodies, and other key executives.

 complied with

 partially complied with

 not complied with

1. Partly complied with.

The Nomination and Remuneration Committee consisted solely of independent directors until 1 November 2023, thus the Company was compliant this recommendation. In the second half of 2022, two independent directors withdrew, leaving the total number of members of the Nomination and Remuneration Commitee to only two out of three, including the Chairman of the Commission, in the period from 1.11.2022 until the end of the reporting period.

In forming the Nomination and Remuneration Committee, the Supervisory Board relied not on the need to comply formally with the recommendations of the Corporate Governance Code of the Bank of Russia, but on the competencies that the remaining directors in the Supervisory Board of the Company had, so that the Nomination and Remuneration Committee could perform as efficiently as the prevailing circumstances allowed and could protect interests of the Company and Company’s shareholders.

To minimise the risks of partial non-compliance with the recommendation of the Bank of Russia’s Corporate Governance Code, the Supervisory Board also addressed the key issues considered by the Nomination and Remuneration Committee, which were generally in-person meetings of the Supervisory Board at which independent directors were able to voice their position.

The next reporting year the Company plans to form the Nomination and Remuneration Committee in line with this recommendation, so that the Nomination and Remuneration Committee comprise solely independent directors.

2. Complied with.

3. Partly complied with.

The Company’s internal documents do not set forth the circumstances (events), upon the occurrence of which the Remuneration Committee shall consider revising the Company’s remuneration policy with respect to members of the Board of Directors, executive bodies, and other key executives.

At that, measures to minimise the risks of partial non-compliance with this recommendation include the following.

Every three years, with the assistance of an independent consultant engaged for this purpose, the Company revises the remuneration system for members of the Supervisory Board.

Between these cycles, remuneration due to members of the Supervisory will be adjusted for inflation in accordance with the Regulations on Remuneration and Compensation due to Members of the Supervisory Board of the Moscow Exchange. Once a year, and where appropriate, more frequently, while formulating the Key Performance Indicators for the executive bodies and other key executives of the Company for the following year, the Nomination and Remuneration Committee reviews the executive remuneration policy principles and rules for the executive bodies and other key executives of the Company. The Company finds the actions taken to review the remuneration policy for the board of directors, executive bodies and other key executives of the Company as sufficient and regular, and the Company can also take such actions if a non-standard situation requires so. This allows the Company revise policies in response to ongoing changes in the economic situation in the country, rather than when conditions (events) stated in the internal documents occur, which protects the Company’s interests more effectively in today’s realities. Therefire, the Company does not plan to achieve full compliance with this recommendation of the Code in this respect.

2.8.4

Taking account of its scope of activities and levels of related risks, the company should form other committees of its board of directors, in particular, a strategy committee, a corporate governance committee, an ethics committee, a risk management committee, a budget committee or a committee on health, security and environment, etc.

1. In the reporting period, the Company’s Board of Directors reviewed the conformity of membership in its committees to the objectives assigned to the Board of Directors and to the Company’s operating goals. Additional committees were either established or were not recognized as necessary.

 complied with

 partially complied with

 not complied with

2.9.1

Evaluation of quality of the board of directors’ work should be aimed at determining how efficiently the board of directors, its committees and board members work and whether their work meets the company’s needs, as well as at making their work more intensive and identifying areas of improvement.

1. The internal documents of the Company set out procedures for assessment (self-assessment) of quality of the Board of Director’s work.

2. Self-assessment or external assessment of the Board of Directors’ performance conducted in the reporting period included the assessment of operations of the committees, individual members of the Board of Directors and the entire Board of Directors.

3. The findings of assessment (self-assessment) of the Board of Directors in the reporting period were reviewed at the personal meeting of the Board of Directors.

 complied with

 partially complied with

 not complied with

4.1.1

It is recommended that the level of remuneration paid by the company to its board members, executive bodies, and other key managers should be sufficient to motivate them to work efficiently and enable the company to attract and retain knowledgeable, skilled, and duly qualified persons. The company should avoid setting the level of remuneration any higher than necessary, as well as an excessively large gap between the level of remuneration of any of the above persons and that of the company’s employees.

1. The level of remuneration due to members of the Board of Directors, executive bodies and to other key managers is set based on remuneration level benchmarking among peer companies

 complied with

 partially complied with

 not complied with

4.1.3

The company’s remuneration policy should provide for transparent mechanisms to be used to determine the amount of remuneration due to members of the board of directors, the executive bodies, and other key managers of the company, as well as to regulate any and all types of payments, benefits, and privileges provided to any of the above persons.

1. The Company’s remuneration policy(-ies) contain(s) transparent arrangements on determining the amount of the remuneration of members of the Board of Directors, executive bodies and other key managers of the Company and govern(s) all types of fees, benefits and advantages provided to these persons.

 complied with

 partially complied with

 not complied with

4.2.2

Long-term ownership of shares in the company contributes most to aligning financial interests of board members with long-term interests of the company’s shareholders. However, it is not recommended to make the right to dispose of shares dependent on the achievement by the company of certain performance results; nor should board members take part in the company’s option plans.

1. If the Company’s internal document(s), such as the remuneration policy(-ies), envisage(s) granting of shares to members of the Board of Directors, clear rules for holding shares by members of the Board of Directors, intended to encourage long-term ownership of such shares, should be available and disclosed.

 complied with

 partially complied with

 not complied with

Company’s internal documents do not provide for the provision of shares to the Supervisory Board members.

4.3.2

Companies whose shares are admitted to trading at organised markets are recommended to put in place a long-term incentive programme for the company’s executive bodies and other key managers involving the company’s shares (or options or other derivative financial instruments the underlying assets for which are the company’s shares).

1. In case the Company has introduced a long-term incentive program for members of executive bodies and other key managers of the Company using shares in the Company (financial instruments based on the shares in the Company), the program implies that the right to sell the shares and other financial instruments used in such program will not arise until three years from their provision; provided that the right to sell the same is conditional upon achievement of certain performance indicators of the Company.

 complied with

 partially complied with

 not complied with

5.1.2

The company’s executive bodies should ensure the establishment and continuing operation of the efficient risk management and internal control system in the company.

1. The Company’s executive bodies ensured allocation of the functions and powers as concerns risk management and internal control among their subordinate managers (heads) of business units and divisions.

 complied with

 partially complied with

 not complied with

5.2.1

It is recommended that internal audits be carried out by a separate structural division (internal audit department) to be created by the company or through retaining an independent third-party entity. To ensure the independence of the internal audit department, it should have separate lines of functional and administrative reporting. Functionally, the internal audit department should report to the board of directors, while from the administrative standpoint, it should report directly to the company’s one-person executive body.

1. For the purposes of internal audit, the Company established a separate business unit for internal audit, which functionally reports to the Board of Directors or the Audit Committee, or engaged an independent external company with the same principle of reporting.

 complied with

 partially complied with

 not complied with

6.2.1

The company should disclose information in accordance with the principles of regularity, consistency and timeliness, as well as accessibility, reliability, completeness and comparability of disclosed data.

1. The company has a procedure for coordinating the work of all company divisions and employees associated with the disclosure of information or whose activities may require the disclosure of information.

2. If the Company’s securities are traded in foreign organized markets, materials information is disclosed in the Russian Federation and on such markets simultaneously and equivalently in the reporting year.

3. If foreign shareholders hold a significant number of shares in the Company, then, in the reporting period, disclosures were carried out not only in Russian but also in one of the most common foreign languages.

 complied with

 partially complied with

 not complied with

1. Complied with.

2. Not applicable, as the Company securities do not trade on foreign regulated markets.

3. Complied with.

6.3.1

Exercise by the shareholders of their right to access the company’s documents and information should not be unreasonably burdensome.

1. The Company’s information policy (internal documents setting the information policy) defines an easy procedure for providing access for shareholders to Company’s information and documents upon their request.

2. The Company’s information policy (internal documents setting the information policy) include provisions requiring that if a shareholder requests information on entities under the company’s control, the company shall make the necessary efforts to obtain such information from the relevant entities under the company’s control

 complied with

 partially complied with

 not complied with

1. Complied with.

2. Partly complied with.

Information on entities under the Company’s control that the Company decided to disclose is available on the Company’s website on the Internet. The Company assumes no obligations towards shareholders to provide information other than referred to above, as such information may be confident and may also result in restrictive measures. In view of the above, the Company’s Information Policy excludes such provisions.

To minimize non-compliance risk, the Company discloses the list of entities under the Company’s control on the Company’s website on the Internet. Also, the Company reserves the right to provide the shareholder with the information requested proceeding from the principle of reasonableness. At the same time, it should be noted that shareholders have not made any such queries and, according to the Company, no other risk mitigation actions need to be taken.

In referring to the above, the Company does not plan to achieve full compliance with this recommendation of the Code in this respect.

7.1.2

The board of directors should play a key role in passing resolutions or making recommendations relating to material corporate actions; for that purpose, it should rely on opinions of the company’s independent directors.

1. The Company envisages the procedure; whereby independent directors announce their standpoint on material corporate actions before their approval.

 complied with

 partially complied with

 not complied with

7.2.2

Rules and procedures in relation to material corporate actions taken by the company should be set out in its internal documents.

1. The Company’s internal documents define when and how to engage an independent appraiser in evaluating the assets disposed of or purchased under a major transaction or a related party transaction.

2. The Company’s internal documents envisage the procedure for engaging an independent appraiser in evaluating the purchase and redemption price for the shares in the Company.

3. If a member of the board of directors, the sole executive body, a member of the collegial executive body of the company or a person who controls the company, or a person who has the right to give the company binding instructions, has no formal interest in transactions of the company, but has a conflict of interest or any other de facto interest, the internal documents of the company require that such persons shall not participate in voting on the approval of such transaction.

 complied with

 partially complied with

 not complied with

1. Partly complied with

In February 2019, the new Corporate Governance Code of the Company was adopted, allowing for the engagement of an appraiser when purchasing or selling assets under major transactions.

In February 2019, the new Corporate Governance Code of the Company was adopted, allowing for the engagement of an appraiser when purchasing or selling assets under major transactions.

Company’s internal documents do not provide for an independent appraiser to be engaged in assessing assets sold or purchased under related party transactions (as separate grounds).

However, the new Corporate Governance Code of the Company provides for the engagement of an appraiser for the real estate or non-core assets valuation when the value of such assets exceeds RUB 600 mln, whether there is an interested party in the transaction or not. The Company believes that this approach aims to reduce the risk of non-compliance with the Code’s principle described above.

2. Partly complied with.

In redemption requested by shareholders, an appraiser is engaged under the law. The Company’s by-laws do not envisage the obligation to engage an appraiser to evaluate the Company’s shares.

The reason for this non-compliance is that since Company’s shares are traded on the exchange, the share purchase price has been determined subject to share weighted average price according to trading results for six months. Hence, the Company does not plan to establish the obligation to involve an appraiser in purchasing its shares in the near future.

However, the Company may engage an appraiser in any other cases not expressly provided for by law, in particular, to determine the share acquisition price. Thus, in accordance with the Company’s Corporate Governance Code, the decision to engage an independent appraiser may be made by the executive management bodies or may be recommended by the Supervisory Board depending on the nature of the transaction and the assets to be disposed of or acquired.

Regardless of the purpose of the engagement, the appraiser shall be chosen in accordance with the internal procedures of Moscow Exchange which ensure that the choice is efficient and transparent.

3. Compiled with