SUSTAINABILITY REPORT 2016 SUSTAINABILITY REPORT 2 2016 Contents
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1 SUSTAINABILITY REPORT 2016 SUSTAINABILITY REPORT 2 2016 www.sistema.ru Contents As a large investment company with >> Key indicators 4 a number of assets of principal >> Chairman’s statement 6 importance for Russian economy in >> Events calendar 10 several industries Sistema is able 1. STRATEGIC OVERVIEW to impact on millions of people. 18 >> 1.1. The Corporation profile 20 Acting as a responsible investor, >> 1.2. Responsible investment 30 the Corporation takes into account various ecological and 2. MANAGEMENT SYSTEM social aspects of its activity 40 >> 2.1. Corporate governance 42 and fully takes responsibility >> 2.2. Social responsibility 49 towards different stakeholders. management >> 2.3. HR management 57 >> 2.4. Business ethics 82 and anti-corruption efforts >> 2.5. Risk management 88 >> 2.6. Procurement 94 3 3. INVESTMENT IN SUSTAINABLE DEVELOPMENT 102 3.1. Contribution to Russia's economic development >> 3.1.1. Transition to innovative 105 economy: new technologies and development >> 3.1.2. Modernisation of infrastructure 114 and production facilities 3.2. Social and community projects >> 3.2.1. Development of territories 131 and communities >> 3.2.2. Expanding opportunities 137 for education and science >> 3.2.3. Healthcare practices 148 3.3. Environmental protection >> 3.3.1. Rational models of 162 production and consumption >> 3.3.2. Increasing energy efficiency 170 >> 3.3.3. Taking care of nature 174 and biodiversity ANNEX 179 >> Glossary and acronyms 188 >> Information about the Report 192 >> Awards and achievements 196 For more details, see: http://www.sistema.ru/ustoichivoe- razvitie/ SUSTAINABILITY REPORT 4 2016 www.sistema.ru Key indicators REVENUE OIBDA OPERATING INCOME RUB 697.7 bn RUB 183.7 bn RUB 79.8bn 2016 697.7 2016 183.7 2016 79.8 2015 678.8 2015 173.8 2015 68.4 +2.78% +5.7% +16.67% NUMBER OF PORTFOLIO SHARE OF SISTEMA TOTAL SISTEMA GROUP'S COMPANIES WHICH PAID IN THE RUSSIAN FEDERATION'S INVESTMENTS DIVIDENDS 1 GROSS INCOME 13 0.95 % RUB 161.4bn 2016 13 2016 0.95 2016 161.4 2015 9 2015 0.89 2015 165.4 +44.44% +0.06% -2.4% (1) Excluding MTS (2) Comparable data without Targin and SG-trans, which were divested by Sistema Group in 2016 Key indicators 5 TAX PAYMENTS HEADCOUNT THE CORPORATION'S TO THE FEDERAL AND REGIONAL OF THE SISTEMA GROUP, REPRESENTATIVES IN THE LIST BUDGETS PEOPLE 2 OF TOP 1,000 RUSSIAN MANAGERS RUB 98.0bn 135,281 72 people people 2016 98.0 2016 135 281 2016 72 2015 88.2 2015 132 614 2015 39 +11.11% +2.01% +33 managers SPENDING ON CHARITY AVERAGE LABOUR PRODUCTIVITY RANKING IN THE LIST AND SOCIAL PROGRAMMES IN SISTEMA GROUP OF RUSSIA'S LEADERS OF CORPORATE CHARITY RUB 1.7bn RUB 5.0m Third per person 2016 1.7 2016 5.0 2016 3 2015 1.5 2015 4.6 2015 5 +13.33% +8.7% +2 position SUSTAINABILITY REPORT 6 2016 www.sistema.ru Chairman’s statement G4-1 For more than 20 years, Sistema has been investing in the Russian economy, developing entire industries, creating new jobs, production facilities, products and technologies, and improving the quality of management and capitalisation of companies, as well as the productivity of enterprises and living standards of population. Sistema's companies contribute to the achievement of Russia's strategic targets, such as improving the telecommunications, power-grid and tourism infrastructure and the urban environment, enhancing the country's competitiveness and technology, food and drug safety and security, and improving the nation's health. Our activities are also consistent with the UN sustainable development goals, which determine the global agenda for the next 15 years. Despite the difficult macroeconomic conditions, in 2016 we continued rapid development in all key areas, not only achieving good financial results but also increasing tax payments to the national budget and social, pension and health insurance funds by more than 10%. Our investments in fixed assets over the past three years accounted for about 1.6% of all private capital investments in the Russian Federation, and in some industries the Corporation's contribution is much higher. Dear readers! The Group's companies accounted for 26% of total investment in telecommunications and for 20% We believe that transparency and openness to investors, of investment in manufacturing partners and all stakeholders is one of the main priorities of electronic components and radio systems. To date, LTE networks of our work, and social responsibility is a guarantee have been deployed practically all over Russia, and together with of long-term and sustainable development of our the world's leading manufacturers MTS has started testing solutions business, society and the markets in which we operate. for next-generation communication Chairman’s statement 7 networks (5G). Mikron, a subsidiary packaging, the demand for which is of Sistema's RTI Group, has Russia's steadily growing, but also decrease only microelectronic production the energy intensity of production based on 180-90-65 nm technology and create 140 new high-tech jobs % and is conducting research into for the residents of the city of + 45 nm technology. The plant Segezha, for which purpose Segezha 11 in Zelenograd produces over 400m Group already prepares young TAX PAYMENTS TO RUSSIA'S RFID tags, 50m bank microchips, specialists jointly with local education BUDGET SYSTEM, INCLUDING 30m bank cards and over 5m and employment authorities. PENSION, MEDICAL AND SOCIAL chips for biometric passports and SECURITY FUNDS. electronic documents annually. We have invested a total of about The company exports over RUB 20bn in the agricultural sector 500m microchips used in the in recent years, including acquisition manufacturing of electronic devices of agricultural assets and land, to Europe and Southeast Asia. which enabled Sistema to become one of the ten largest land owners % Our capital investments in the in Russia in early 2017. Rational use 1.6 forestry and pulp & paper industry of these resources without damage grew by 108% in 2015-2016 – i.e. to the environment will enable OF ALL PRIVATE CAPITAL four times faster than overall us to effectively solve the import INVESTMENTS IN THE RUSSIAN in the country – and exceeded substitution issues by increasing FEDERATION. 14% of the total investment in the the production of high-quality industry aimed at construction, organic domestic products in the reconstruction and expansion segments with the highest demand. of production facilities, and In 1990, milk consumption in Russia acquisition of new machinery reached 390 kg per capita, whereas and equipment. We launched today this figure has dropped to 235 a large-scale modernisation kg and even to 80-170 kg according programme at Segezha Group to some estimates, although it should % with an investment of about RUB be 300-330 kg per person according 26 40bn until 2021. A substantial part to the recommendations of the WHO of these funds has already been and Russian authorities. According OF TOTAL INVESTMENT invested, including about RUB 2.6bn to official data, domestic production IN TELECOMMUNICATIONS. for modernisation of the logging covers less than 80% of the country's fleet. We are investing even more needs for milk and dairy products, in construction of new facilities, and only 30% of the needs for including profound modernisation greenhouse vegetables and fruit. of the Segezha Pulp and Paper Mill % located in Karelia. We plan to spend Steppe AgroHolding is the industry up to RUB 14bn on the development leader by milk yield, demonstrating 20 of this major enterprise, of which results on a par with the best global OF TOTAL INVESTMENT about RUB 5bn have already been practices – more than 10 tonnes IN MANUFACTURING invested. The unique project a year per one cow, while the OF ELECTRONIC COMPONENTS for the installation of a modern average yield in Russia is 3.9 tonnes AND RADIO SYSTEMS. paper-making machine, the cost of a year. I would like to note also which is comparable to the annual that last year Steppe AgroHolding budget of Petrozavodsk, is the first received confirmation of compliance investment project of this scale in with European standards, which the sector in the last 25 years. As guarantees high quality and makes a result, we will not only increase the it possible to supply our milk to the output of sack paper for eco-friendly EU countries. SUSTAINABILITY REPORT 8 2016 www.sistema.ru In the Krasnodar region, we are These funds were spent on new Stavropol and other regions. laying out intensive orchards and construction, renovation, provision For instance, within the framework we are already among the top 5 of the most modern equipment, of the social partnership agreement apple producers in Russia. Crop and creation of a comfortable with the Republic of Altay signed yields at Steppe AgroHolding environment for patients. We pay in 2016, we held the first charity enterprises exceed the average equal attention to attracting the festival Solony for more than five Russian levels, but we have room for best medical specialists, training thousand young people of the region improvement. Sistema's investments doctors, and introducing new who participated in educational and in sustainable development of effective methods of diagnosis and cultural events organised by SCF agriculture are aimed at replacing treatment of the most common with the assistance of Sistema Group obsolete equipment, introducing diseases. In 2016, Medsi Group joined companies. advanced agricultural technology, the programme of government using progressive management guarantees of free medical care In the modern “smart” economy systems and upgrading enterprises, to Russian citizens in the Moscow driven by knowledge and technology, primarily the Yuzhny Agricultural region, which significantly increased the quality of human capital – highly Complex in the Karachay-Cherkess the patient flow (by 11% year-on- qualified managers and engineers Republic acquired by Sistema at year).