Annual Report 2014

1 2 Annual Report

2014 CONTENTS

Results Highlights 4

Statement of Chairman of the Board of Directors and Chief Executive Officer 8

Key Events 12 Geographical Development 16 Corporate Structure 18

Market Macroeconomic Overview 22 St. Petersburg and the Leningrad Region 24 Moscow and the Moscow Region 28 Yekaterinburg 30

Review of Operating and Financial Results Key Financials 36 Real Estate Development and Construction 41 Construction 44 Building Materials 45

Real Estate Portfolio 48 Corporate Governance 66 Share Capital 81 Risks 84

Social Responsibility Employees 88 Charity 92 Environmental Protection 96

Glossary 98

3 Results Highlights

FINANCIAL HIGHLIGHTS REVENUE EBITDA and EBITDA margin RUB M RUB M AND % Revenue increased by 53%, up to RUB 92,347 m

EBITDA increased by 84%, 25,000 up to RUB 21,588 m 23% 21,588 EBITDA margin was 23% 20,000 20%

Total comprehensive income was RUB 9,715 m 15,000 15% 19% 11,731 Earnings per share amounted 92,347 to RUB 89.78 10,000 10% 60,201 Net debt decreased by 93%, down to RUB 2,089 m 5,000 5%

Total debt decreased by 20%, down to RUB 27,367 0 0%

Net debt/EBITDA ratio 2013 2014 2013 2014 decreased from 2.4 to 0.1

4 OPERATIONAL HIGHLIGHTS EPS Net debt / EBITDA RUB New contract sales – 1,020 th m2 (+35%)

Value of the contracts – 2.4 RUB 86 bn (+43%)

Construction volume increased by 13%, up to 975 th m2

1.1 m m2 of NSA launched to the market 89.78 Increase in sales of building materials: ready-mix concrete – 1.6 m m3 (+8%), 31.74 brick – 334 m units (+70%), aerated concrete – 0.1 1.4 m m3 (+12%)

2013 2014 2013 2014

In December 2014, we sold our ce- highest returns on invested capital cantly and made it 100% ruble based. ment plant in Slantsy, the Leningrad and the fast growing real estate de- Positive one-off effect from the dis- Region, to Eurocement Group. The velopment business thus maximising posal of the cement plant reflected in deal is a part of LSR Group’s strategy value for our shareholders. As a result EBTIDA and comprehensive income aimed at focusing on projects with the we have decreased our debt signifi amounted to RUB 2,766 m.

5 REVENUE BY REGION REVENUE BY SEGMENT (2014)* (2014)*

72% North-West 76% Building materials and Aggregates 18% Moscow 10% Urals 24% Real estate and Construction

EBITDA BY REGION EBITDA BY SEGMENT (2014)* (2014)*

85% North-West 75% Building materials and Aggregates 7% Moscow 8% Urals 25% Real estate and Construction

* Before inter-group eliminations, unallocated amounts and other operations

KEY FINANCIALS 2013 2014 CHANGE, %

Revenue, RUB m 60,201 92,347 53%

EBITDA, RUB m 11,731 21,588 84%

EBITDA, % 19% 23% –

EBIT, RUB m 8,492 17,910 111%

EBIT, % 14% 19% –

Profit before income tax, RUB m 4,505 11,461 154%

Profit for the year, RUB m 3,293 9 ,202 179%

Total comprehensive income, RUB m 3 ,381 9 ,715 187%

Equity, RUB m 60 ,259 65 ,828 9%

Total debt, RUB m 34,062 27,367 (20%)

Net debt, RUB m 28,163 2,089 (93%)

Net debt / EBITDA 2.4 0.1 –

Earnings per share, RUB 31.74 89.78 183%

Dividend per share, RUB 40 78 95%

Share price at year-end, RUB1 609 454 (25%)

Shares outstanding 103,030,215 103,030,215 –

Market capitalisation at year-end2, RUB m 62,745 46,776 (25%)

1 Ordinary share price on MICEX 2 Based on ordinary share price on MICEX

7 ANDREY MOLCHANOV ALEKSANDR VAKHMISTROV Chairman of the Board of Directors Chief Executivve Officer

DEAR SHAREHOLDERS, Last year was very successful for Statement LSR Group. Once again we broke our own records both in terms of of Chairman of the Board sales and completions, maintained and strengthened our market posi tions, expanded the scope of our of Directors and business activities in Moscow due to the acquisition of some unique pro- Chief Executive Officer jects, decreased our debt and made it 100% ruble based to avoid the risk of currency fluctuations.

In 2014, we generated revenue of RUB 92.3 bn, up 53% year- on- year. EBITDA increased by 84% to reach RUB 21.6 bn. EBITDA margin increased up to 23%. Net debt decreased by 93% to RUB 2.1 bn and the Net debt/EBITDA ratio decreased from 2.4 to 0.1.

8 REAL ESTATE DEVELOPMENT harbour for their savings. In most RUB 86 bn, up 43% against 2013. Real estate development was a key cases they prefer large homebuilders In 2014, we completed 790 th m2 of driver of our growth in 2014. The with an immaculate reputation which net sellable area (+163%), which is company’s real estate sales reve can guarantee delivery of property, also the company’s all-time record. nue increased by 112%, to reach work strictly in accordance with the We currently have 1.9 m m2 of hous- RUB 60.5 bn. EBITDA increased by Federal law 214 and offer their cli- ing in the active construction phase. 98%, up to RUB 12.8 bn. EBITDA ents a wide range of high‑quality In St. Petersburg, we are N 1 real margin was 21%.The deliveries re- real estate in all price segments and estate developer by elite and mass cognised in the company’s 2014 various city districts. LSR Group is market housing under construction. revenue amounted to 780 th m2 , an example of such company. And 2.5 times the corresponding figure we were pleased to observe that Success of a real estate developer for 2013. many customers were choosing our in the market heavily depends on projects. the timely launch of new projects, Apart from the strong fundamental attractive to the customers and di- demand for housing due to the low A sharp increase in the demand for versified in terms of price segments housing stock per capita and a large residential real estate throughout and location. In 2014 we started stock of obsolete housing, 2014 saw the year allowed the company to pre-sales of more than 1 m m2 of the additional feverish demand resul achieve record sales figures. More high-quality housing in all three re- ting from the instability of financial than 1 m m2 of real estate was sold, gions of operation. That included and currency markets. In such cir- up 35% year-on-year. The total va our new mass market residen- cumstances customers in Russia tra- lue of the contracts for the sale of tial project Shuvalovsky with a total ditionally treat real estate as a safe apartments and other premises was area of 422 th m2 being constructed in the most popular and ra pidly developing Primorsky dis- A sharp increase in the demand for residential trict of St. Petersburg, our new elite project with an area of 12 th m2 on real estate throughout the year allowed the Krestovsky island, two new projects company to achieve record sales figures in Yekaterinburg – Rassvetny and Khrustalnye Klyuchi with an aggre gate area of approximately 400 th m2.

9 CONSTRUCTION

In 2014, our construction subsidia ries in St. Petersburg, Moscow and In 2014 we started pre-sales of more than Yekaterinburg transferred to the cus- 1 m m2 of high-quality housing in all three tomers 975 th m2 of panel housing, regions of operation up 13% year-on-year. The highest growth rate was achieved in the Moscow region 50% year-on-year. in terms of sales volume and margin. ject implies construction of approxi Our construction revenue increased As compared to 2013 we increased mately 1.5 m m2 of real estate. We by 23%, up to RUB 25.6 bn. EBITDA our sales by 70%. Our sales revenue are starting construction and pre- amounted to RUB 2.1 bn. EBITDA increased by 88%, up to RUB 3.2 bn. sales already in 2015. First comple- margin was 8%. EBITDA increased by almost 100%, tions are scheduled for 2017. to RUB 1 bn. And EBITDA margin has BUILDING MATERIALS grown up to 33%. As of today we do not need to ac- In our building materials business the quire additional land for our ope key event was the sale of our cement REAL ESTATE PORTFOLIO rations. Taking into account the plant in Slantsy, the Leningrad region. As of today LSR Group has existing construction volumes our The deal is a part of LSR Group’s a high-quality, balanced across portfolio is enough for 7–10 years. strategy aimed at focusing on pro- price segments, portfolio of real jects with the highest returns on in- estate projects in three regions of Each year we initiate a valuation vested capital and the fast growing Russia with the highest purchasing of our real estate portfolio carried real estate development business power. The aggregate net sellable out by an independent appraiser. thus maximising value for our share- area of our projects stands at almost According to Colliers International, holders. The positive effect of the dis- 10 m m2 as compared to 7.8 m m2 as the market value of our real estate posal reflected in EBITDA and com- of the end of 2013. portfolio as of December 31, 2014 prehensive income of the company stands at RUB 135 bn, up 16% as amounted to RUB 2.8 bn. As a result In accordance with the company’s compared to the previous valuation. of the deal we have decreased our strategy of increasing the scope of debt significantly and made it 100% business activities in the Moscow DEBT ruble based. region we have increased our port- As of the end of 2014, the company’s folio of projects located in Moscow total debt decreased by 20%, to Another key event was the launch and the Moscow region more than RUB 27.4 bn. In terms of its structure of the mass production of clinker 2 times, up to 2.4 m m2 of net sellable bank loans account for 88% of the bricks at our brick plant in Nikolskoe, area. The share of the Moscow re- total debt and the ruble bonds – 11%. the Leningrad region. As of today gion in our portfolio has grown from Today our debt is 100% ruble based. LSR Group is the first and the only 13 to 24%. Acquisition of rights for Thus we have eliminated the risks of producer of clinker bricks in Russia. redevelopment of the territories of currency fluctuations. The launch of the new production the automotive plant named after line immediately affected the re Likhachev (ZiL) was a milestone Long-term facilities account for 68% sults of our brick business unit both event for the company. The pro- of the total debt which makes us feel

10 comfortable in terms of the debt pay-out ratio and allocate approxi total debt of RUB 39.5 bn, 52% of maturity. mately 50% of our profits for di- which was denominated in foreign In 2014 we started pre-sales of more than vidends in the coming years. We in- currency. Net debt / EBITDA ratio 1 m m2 of high-quality housing in all three Cash as of the end of the reporting tend to deliver on our promise. In was 2.5 in 2009. As of today we have regions of operation period exceeded RUB 25 bn. The March 2015, the Board of Directors the total debt of RUB 27.4 bn and the company’s net debt was approxi recommended the Annual General Net debt / EBITDA ratio of 0.1. mately RUB 2 bn. Net debt / EBITDA Meeting of Shareholders to adopt ratio decreased to 0.1. a dividend of RUB 78 per ordinary Being a large and reliable company, share. The date to determine the list with a solid financial position, able to DIVIDEND of shareholders entitled to receive di- guarantee the delivery of real estate Taking into account the existing situ- vidends is April 18, 2015. to its customers, LSR Group will not ation in the stock markets we con- only survive the hard times but also sider dividends as the best way to re- We are fully satisfied with the re will be able to capitalise on it. While in munerate our shareholders for their sults achieved in 2014 and despite general the demand for real estate in trust in the company. the tough economic environment the market will possibly decrease in we are quite optimistic about the fu- 2015 it will be divided between a few In accordance with the Regulations ture. The current situation in Russia’s major players including LSR Group. on dividend policy, the recommen- economy is often compared to the That is why 2015 will become the ded amount of dividend payments is crisis of 2008/2009. In this regard year of large and solid companies. determined by the Board of Directors we would like to state that the com- based on the company’s annual pany is in totally different condi- We wish you all fruitful work and financial results and constitute at tion now. In 2013 we completed our every success! least 20% of the consolidated net large-scale investment programme profit as per IFRS. which implied both acquisition of Chairman of the Board of Directors new capacities and upgrade of the Andrey Molchanov In 2014, the Board of Directors adop existing ones. Our land bank will al- ted a dividend of RUB 40.00 per low for at least several years of ope CEO ordinary share based on the re ration without significant investments Aleksandr Vakhmistrov sults of the 2013 financial year. The into new land plots. We decreased total amount of dividend paid was our debt substantially and made it RUB 4.1 bn. We promised our share- 100% ruble based. We would like to holders to maintain high dividend remind you that in 2009 we had the

According to Colliers International, the market value of our real estate portfolio as of December 31, 2014 stands at RUB 135 bn, up 16% as compared to the previous valuation

11 Key Events

JANUARY A new real estate development project was launched in Moscow. The company will build a low-rise neigh- bourhood with a total sellable area exceeding 440 th m2.

FEBRUARY LSR Group started pre-sales in the second phase of its project Kalina- park located in Kalininsky district of St. Petersburg. The second phase implies construction of 8 apartment buildings with a net sellable area of ca. 103 th m2.

The company started mass production of facing clinker brick at its plant located in Nikolskoe, the Leningrad region.

MARCH Construction of Paradny Quarter, A new apartment building is under elite residential project in the histor- construction in Kirovsky district of ical centre of St. Petersburg, is com- Yekaterinburg. The 25-storey build- pleted. The company commissioned ing with 267 apartments will have an the last building with 98 apartments. area of 12.5 th m2. LSR Group won the auction for redevelopment of the automotive plant APRIL named after I.A. Likhachev (ZiL) in LSR Group acquired the former Moscow. The project implies con- territory of Rzhevka airfield near struction of ca. 1.5 m m2. St. Petersburg with a total area of 175 ha. It is planned to build more than 1.1 m m2 of housing on this site.

12 2014

JUNE Pre-sales started in the project Rassvetny in Yekaterinburg. The project combines five high-rise apartment buildings with a total area of 181 th m2.

JULY LSR Group acquired land plots with a total area of 4 hectares ad- jacent to the territory of its project Oktyabrskaya Embankment. As a result the total area of the project increased up to 650 th m2.

The first specialised brick and aer- MAY ated concrete showroom opened, The redevelopment plan for ZiL ter- displaying the whole range of RAUF ritories was presented to the Mayor and AEROC products. of Moscow Sergey Sobyanin and other members of the Moscow government.

13 Key Events

AUGUST LSR Group started construction and pre-sales in its new real estate deve lopment project Shuvalovsky. The project with a total area of 422 th m2 is under construction in Primorsky district of St. Petersburg.

A new project started in Moscow implying construction of high-rise apartment buildings with a total area of 1 m m2.

SEPTEMBER The Mayor of St. Petersburg Georgy Poltavchenko visited the company’s pre-fab factory which is the largest and the most advanced pre-fab faci lity in North-Western Russia.

OCTOBER Business units of LSR Group became winners of the annual professional contest Leader of construction qua lity 2014. The companies were awarded 2 diplomas and the Grand-Prix in LSR Group became the winner of the the nomination Best engineering sys- 2014 East Capital Awards in the Best tems and equipment. Growth nomination.

NOVEMBER DECEMBER Pre-sales started in the new resi LSR Group started construction dential project Crystal Springs in and pre-sales in its new elite project Yekaterinburg. The project implies located in Petrogradsky district of construction of 6 apartment buildings St. Petersburg. The project implies with a total area of 293 th m2. construction of a 7-storey building with 80 apartments with a total area of 11 th m2.

14 2014 2015

JANUARY Sale of the cement plant in Slantsy, the Leningrad region, is completed. The buyer has acquired full operating control over the facility.

FEBRUARY LSR Group was awarded the gold badge of Trusted homebuilder of Russia 2014 for exceptional customer care and transparency.

The Ministry of Economic Develop- ment included LSR Group into the list of strategic companies of Russia.

MARCH A letter of intent was signed by LSR Group and the State Hermitage to create a museum centre Hermitage- Moscow as a part of ZiL project.

A preliminary agreement signed to acquire a sand deposit in Tosno district of the Leningrad region. The proven reserves amount LSR Group entered into 9 contracts to ca. 7 m m3. worth more than RUB 5 bn with the St. Petersburg Committee for state property management (KUGI) for the sale of 1,653 apartments in the project Novaya Okhta.

Reconstruction of the former Leningrad film theater in Taurida Garden was completed. A new multimedia entertainment centre Leningrad-Centre opened in the renovated building.

15 Geographical Development

The main principle of our geographical development strategy is to focus our managerial and financial resources on winning and maintaining leading positions in several key markets: St. Petersburg and the Leningrad region, Moscow and the Moscow region, Yekaterinburg and the Ural region

ST. PETERSBURG MOSCOW YEKATERINBURG AND THE LENINGRAD REGION AND THE MOSCOW REGION AND THE SVERDLOVSK REGION Population: Population: Population: St. Petersburg – 5 m people (4%) Moscow – 12 m people (8%) Yekaterinburg – 1.4 m people Lenigrad region – 1.8 m people (1%) Moscow region – 7 m people (5%) Sverdlovsk Region (including Share in Russia’s GDP: Share in Russia’s GDP: Yekaterinburg) – 4.3 m people (3%) St. Petersburg – 5%, Moscow – 23%, Share in Russia’s GDP: Leningrad region – 1% Moscow region – 5% Sverdlovsk Region – 3%

St. Petersburg and the Leningrad re- The local market for real estate and Yekaterinburg is the industrial, trade gion are our home market where the building materials is the largest in and cultural centre of the Urals re- main part of our business is concen- Russia. That is why it is considered gion. It is the fourth largest city of trated today. a priority direction for the company’s Russia and one of the largest real es- geographic expansion. We set up tate markets in the country. That is In St. Petersburg and the Leningrad re- our real estate development busi- why we continue to develop our busi- gion we are engaged in real estate de- ness in Moscow in 2001. We also run ness in Yekaterinburg. Apart from velopment and construction in all seg- a pre-fabricated factory in the re- real estate development business we ments from mass market to elite real gion and produce bricks, as well as are engaged in pre-fabricated con- estate. We produce aggregates (sand, provide tower cranes rental services. struction in Yekaterinburg. crushed granite) and building materials (bricks, reinforced concrete, ready-mix UKRAINE EUROPE concrete, aerated concrete), provide In Ukraine we focus on developing We set up our business in Munich, tower crane rental services. Our busi- leadership in the market for aerat Germany in 2003. Our business unit ness units are the leaders in most of our ed concrete. Currently we operate is engaged in real estate develop- key markets in St. Petersburg and the two production facilities in Kiev re- ment projects in Germany and su- Leningrad region. gion – Berezan and Obukhov plants. pervises our contracts with foreign We are one of the largest producers producers of construction machinery The head office of the business unit of aerated concrete in Ukraine. and equipment. providing project management and engineering services in all regions of Russia is also located in St. Petersburg.

16 NUMBER OF PLANTS / ST. PETERSBURG AND UNIT CAPACITY REMAINING THE LENINGRAD REGION RESERVES*

Reinforced concrete th m3 599 3

Ready-mix concrete th m3 1,925 8

Bricks m units 380 3

Aerated concrete th m3 372 1

Crushed granite th m3 8,064 583 m m3

Sand th m3 21,607 223 m m3

Tower cranes units 169 ‒

Pre-fabricated 2 construction th m 500 ‒

MOSCOW AND THE MOSCOW REGION

Bricks m units 60 1

Tower cranes units 59 ‒

Pre-fabricated 2 250 ‒ construction th m

YEKATERINBURG AND THE SVERDLOVSK REGION

Pre-fabricated th m2 200 ‒ construction

UKRAINE

Aerated concrete th m3 945 2

*calculated as licensed reserves less quantity of sand extracted by December 31, 2014

17 Corporate Structure

Business units of LSR Group are formed according to the product principle, for example, LSR. Construction, LSR. Real Estate, LSR. Reinforced Concrete.

The management company per- forms administrative functions and combines the departments of HR, IT, finance, accounting, legal matters, investor and public relations, procurement and logistics.

18 REAL ESTATE CONSTRUCTION BUILDING MATERIALS

LSR. Real Estate – North-West LSR. Construction – North-West LSR. Aggregates and Ready- mix Concrete – North-West LSR. Real Estate – Moscow LSR. Construction – Moscow LSR. Bricks and Aerated LSR. Real Estate – Urals LSR. Construction – Urals Concrete – North-West

LSR. Europe LSR. Project Management LSR. Bricks – Moscow

LSR. Tower Cranes LSR. Reinforced Concrete – North-West

19 20 21 Market

MACROECONOMIC which resulted in deterioration of While the disposable incomes of OVERVIEW bank deposits, while the growth of population were declining through- 2014 was a tough year for Rus- the consumer lending market was out the year, mortgage lending was sia’s economy. The country’s slowing down. the key driver behind the demand for fundamental problems including real estate in Russia. Real estate de- the limited diversification and the In times of economic instability Rus- velopers claimed the average share overwhelming dependence on the sians traditionally consider real es- of mortgage sales was 40% in 2014, international oil and gas markets tate as a safe harbour for their sav- reaching 80% at certain projects. were exacerbated by the geopoli ings. In 2014, the share of income tical tensions and the economic they spent on real estate increased In 2014, Russia’s market for mort- sanctions. The increased capital up to 4.6% (against 3.9% in 2013). gage lending saw record results outflow, rising inflation, limited ac- A total of RUB 2.8 tn was spent on both in terms of the number of cess to international capital markets foreign currency (5.9% of popula- loans and their value. The banks ap- are among many difficulties facing tion’s monetary income). proved more than 1 m loans worth Russian economy during the year. RUB 1.8 tn, up 23% in terms of num- In 2014, Russia’s inflation hit 11.4%, ber of loans and up 30% in terms of However, according to Russia’s up 4.9% on the corresponding figure their value, which is an all-time re- Ministry of Economic Development, for 2013. It is the highest level since cord. The aggregate debt increased the country’s GDP saw 0.6% growth 2008. The food prices increased by 33% to reach RUB 3.5 tn. The in 2014. Industrial output increased drastically by 15.4% due to the weak- weighted average rate was 12.5% by 1.7%, agricultural output grew ening rouble. The sharp inflation for the loans denominated in RUB by 3.7%. caused the decrease of the dispos- (in 2013 – 12.4%) and 9.3% for the able income of population by 1%. loans denominated in foreign cur- Russian rouble depreciated by rency (in 2013 – 9.6%). The average 34.5% against USD and by 26.6% According to Rosstat, a total of borrowing term was 15 years for the against EUR. The sharp weaken- 81 m m2 of housing were completed loans in RUB and 12 years 2 months ing of RUB at the end of 2014 af- in 2014, up 14.9% year-on-year. for the loans in foreign currency. fected consumer behavior seriously, The Moscow region is the absolute primarily, in terms of saving and leader by completions with 8.3 m m2 Moscow and the Moscow region spending. The retail trade turnover built. However, the volume of con- was the largest market for mort- increase was driven by the Russian struction works in Russia decreased gage lending in 2014 with 46 th loans consumers spending their savings, by 4.5% in 2014. worth RUB 181 bn approved in

22 KEY MACROECONOMIC INDICATORS FOR THE PERIOD 2010-2014 2010 2011 2012 2013 2014

GDP, annual growth rate 4.5 4.3 3.4 1.3 0.6

Real disposable income, annual growth rate 5.9 0.4 4.6 4 (1)

CPI, Dec/Dec 8.8 6.1 6.6 6.5 11.4

Fixed investments, annual growth rate 6.0 8.3 6.6 (0.2) (2.5)

Average URALS oil price, USD/barrel 78.2 109.3 110.5 107.9 97.6

Net private capital inflow/outflow, USD bn (30.8) (81.4) (54.6) (61.0) (151.5)

RUB/USD exchange rate, as of the end of period 30.48 32.2 30.4 32.7 56.3

Moscow and 56 th loans worth instruments including the interest RUB 153 bn approved in the Moscow rate on the loans secured by the region. St. Petersburg was in third mortgages provided under the pro- place with 41.2 th loans worth almost gramme Military mortgage, which RUB 95 bn. was set at 10.75%.

On December 16, 2014 the Board of The sharp increase of the key rate Directors of the Bank of Russia de- affected the mortgage market im- cided to raise the key rate up to 17% mediately. Within one week two aiming at limiting substantially in- largest players controlling more creased ruble depreciation risks and than 70% of the domestic mortgage inflation risks. That was the sharpest market raised their rates: Sberbank increase of the key rate since 1998. up to 14,5 –16% and VTB-24 up to At the same time the Bank of Rus- 14.95 – 15.95%. Mortgage rates in sia did not change significantly the other commercial banks increased terms for the specialised refinancing up to 17–20%.

23 ST. PETERSBURG AND THE LENINGRAD REGION

St. Petersburg and the Leningrad HOUSING COMPLETIONS IN ST. PETERSBURG, M M2 region is our home market where 3.5 3.2 3.3 a huge part of our business and 2.7 70% of our real estate portfolio is 3.0 2.6 2.6 2.7 2.6 2.6 2.3 2.4 concentrated. It is the second largest 2.5 city in Russia and one of the biggest 1.8 2.0 real estate markets in the country. 2.0 During the last ten years more than 1.5 2 m m2 of housing were constructed in St. Petersburg per annum. As of 1.0 December 2014, the volume of hous- 0.5 ing under construction was more 0.0 than 13 m m2. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 In 2014, 54.7 th apartments with a combined area of 3.3 m m2 were HOUSING COMPLETIONS IN THE LENINGRAD REGION, M M2 completed in St. Petersburg, up 1.8 1.6 26.3% year-on-year. 40% of the 1.6 completed housing is concentrated 1.3 1.4 in three districts – Nevsky, Primorsky 1.1 1.1 1.2 1.0 1.0 and Pushkinsky. In 2014, comple- 0.9 tions per 1,000 people amounted to 1.0 0.8 0.7 630 m2 in St. Petersburg. 0.8 0.5 0.5 0.6 0.4 In the Leningrad region, 24,7 th 0.4 apartments were completed with 0.2 a combined area of 1,6 m m2, up 0.0 18% against 2013. Vsevolozhsk dis- 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 trict accounted for 47% of the completions in 2014. Completions per 1,000 people amounted to 905 m2 in ply was concentrated in Primorsky, the leader by new housing supply in the Leningrad region. Vyborgsky and Krasnogvardeisky St. Petersburg. The company started districts. Mass market segment pre-sales of 625 th m2. According to SPB Realty, during the accounted for 89% of the sup- year developers started pre-sales of ply volume. The share of business 3.3 m m2, almost the same amount class was almost 7%, elite seg- as in 2013. 40% of the new sup- ment – 4%. In 2014, LSR Group was

24 The geography of the supply indi The housing stock of St. Petersburg Another peculiarity of St. Petersburg cates the trend towards decentralisa- includes more than 2 m apartments is a significant number of communal tion of the new housing market which with a total area of 120 m m2, less apartments shared by several house- implies the increased construction than 24 m2 per capita. In this regard holds. The authorities report more activity in the outskirts or even out- St. Petersburg is far behind the aver- than 90 th communal apartments side the borders of the city. In 2014, age European level. In comparison, which makes St. Petersburg the new housing supply in the suburbs of the average housing stock per capita “communal capital” of Russia. St. Petersburg amounted to almost in Austria and Germany is 43 m2, in 3 m m2, 2.3 times more as compared Denmark – 51 m2, in Sweden – 45 m2, Apart from the fundamental demand, to 2013. The decentralisation trend is in Finland and France – 39 m2. 2014 saw an additional hectic de- followed by the change of the market mand driven by the instability of the structure towards large-scale mixed- According to the city’s Department stock and currency markets which use developments. In 2014, such pro- of Inventory and Real Estate Ap- became especially strong at the end jects accounted for 53% of the total praisal (GUION), there are more of the year. As a result, according to new supply in the mass market seg- than 8 m m2 of obsolete housing in SPb Realty, the sales of new hous- ment. St. Petersburg, another 0.5 m m2 ing in St. Petersburg (excluding the are in critical condition. Each fifth suburbs) amounted to 3.32 m m2 The demand for housing in St. Peters- building in the city was built before (64.5 th apartments), up 22.5% as burg is driven by several fundamental 1917 and they account for 15% of the compared to 2013 and up 62% as factors including the insufficient existing stock. Most of the obsolete compared to 2012. The 4th quarter housing stock per capita as well as buildings are located in the Central, of the year saw the peaking demand a huge stock of obsolete housing. Vasileostrovsky and Admiralteisky with the sales figure jumping up to al- districts. most 1 m m2.

NEW APARTMENT SUPPLY IN ST. PETERSBURG, TH M2 1200

1000 1,031 912 800 838 811 757 779 690 737 722 754 600 647 551 492 519 455 421 466 400 383 279 237 200 219 200 139 153

0 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014

25 SALES OF NEW HOUSING IN ST. PETERSBURG, TH M2

1,200

1,000 1,040 890 800 780 710 700 688 660 690 600 620 620 600 580 595 602 486 547 560 448 431 408 446 400 382 325 304

200

One of the key drivers behind the RUB 95 bn (+44%). The average In the Leningrad region, banks ap- increased demand for new housing borrowing rate for the loans denomi proved 11.7 th mortgage loans (+33%) is further development of mortgage nated in RUB was 12.5% (the same worth RUB 22.6 bn (+35%). The aver- lending. According to the Agency for as in 2013), for the loans deno age borrowing rate was 12.4% for the Housing Mortgage Lending (AIZhK), minated in foreign currency – 8.4% loans in RUB and 9.9% for the loans in in 2014 the number of the approved (in 2013 – 8.9%). The average value of foreign currency. loans in St. Petersburg amounted the approved loans was RUB 2.3 m. to 41.2 th (+46%) worth more than

MORTGAGE LENDING IN ST. PETERSBURG Number of loans Value of loans, RUB m

30,000 27,915 25,000 24,020 24,234 21,934 20,000 17,080 18,695 16,288 15,000 15,459 13,113 12,883 12,286 11,633 10,179 10,278 10,000 9,452 9,503 8,447 7,046 5,558 5,614 6,612 6,485 4,085 5,149 5,000

0 | 1 Q 2012 | 2 Q 2012 | 3 Q 2012 | 4 Q 2012 | 1 Q 2013 | 2 Q 2013 | 3 Q 2013 | 4 Q 2013 | 1 Q 2014 | 2 Q 2014 | 3 Q 2014 | 4 Q 2014 |

26 MORTGAGE LENDING IN THE LENINGRAD REGION Number of loans Value of loans, RUB m

7,000 6,586 6,000 5,972 5,547 5,673

5,000 4,758 4,000 3,915 4,000 3,572 3,489 3,105 3,266 3,083 2,882 3,000 2,785 2,825 2,318 2,466 2,130 1,924 2,102 2,000 1,628 1,844 1,101 1,531 1,000

0 | 1 Q 2012 | 2 Q 2012 | 3 Q 2012 | 4 Q 2012 | 1 Q 2013 | 2 кв. 2013 | 3 кв. 2013 | 4 Q 2013 | 1 Q 2014 | 2 Q 2014 | 3 Q 2014 | 4 Q 2014 |

PRICES FOR NEW HOUSING IN ST. PETERSBURG, RUB TH/M2 According to SPb Realty, in 2014 the prices were growing in all segments 300 of the real estate market. The ave Elite rage price per m2 in the mass mar- Business class 250 ket segment increased by 5%, up to Mass-market RUB 103 th. In the business class seg- 200 ment the average price grew also by 5% and reached RUB 159 th. And in 150 the elite segment the average price per m2 amounted to RUB 291 th, up 100 10% against 2013.

73.4 144.3 198.1 216.1 185.5 200.4 211.1 230.0 231.1 290.6 38.9 74.6 89.0 117.9 95.1 92.2 112.6 130.0 144.5 159.1 26.0 55.9 62.7 80.0 70.2 69.8 76.3 84.7 92.1 102.9

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

27 MOSCOW AND HOUSING COMPLETIONS IN MOSCOW, M/M2 THE MOSCOW REGION 6.0 Moscow and the Moscow region rep- 4.8 4.8 resent the largest real estate market in 5.0 4.4 4.6 4.6 Russia. During the last 10 years more 4.0 3.3 3.3 than 10 m m2 of housing were commis- 3.0 3.1 2.7 sioned in the region per annum. The 3.0 active expansion of business activities 1.8 1.8 in Moscow and the Moscow region 2.0

is an essential part of LSR Group’s 1.0 strategy. In 2014, we increased the portfolio of our projects here more than 0.0 two times, up to 2.4 m m2. The share 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 of Moscow and the Moscow region in our real estate portfolio increased from 13 up to 24%. HOUSING COMPLETIONS IN THE MOSCOW REGION, M/M2 9.0 In 2014, housing completions 8.5 8.2 8.3 7.9 amounted to 3.3 m m2 in Moscow, 8.0 7.8 7.9 up 6% year-on-year. That includes 6.9 7.0 6.5 6.6 1.6 m m2 commissioned on the re- 6.0 5.7 cently attached territories of the New 5.3 Moscow, up 33% as compared to 5.0 2013 (1.2 m m2). Less than 1.6 m m2 4.1 were commissioned within the bor- 4.0 ders of the Old Moscow which is, ac- 3.0 cording to the IRN, the lowest result 2.0 since 1990. 1.0

Industrial territories are being actively 0.0 redeveloped in Moscow. In 2014, ap- 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 proximately 1.7 m m2 of real estate were completed in the former industrial zones, up 30% year-on-year. Throughout the year the demand for hurry up with the decision. The num- A consistent trend towards decentrali housing in Moscow and the Mos ber of investors into real estate also sation is observed in the market re cow region was under the influence increased significantly while rouble sulting in the transfer of construction of macroeconomic and geopolitical was depreciating rapidly. According activity to the city outskirts or outside factors. The foreign-policy crisis, the to market analysts, the share of custo the borders of the city. The decentra Ukrainian situation, introduction of the mers acquiring apartments as an in- lisation process is driven by the town sanctions, decrease of the oil prices vestment was reaching 30% in 2014. planning policy introduced by the new and the depreciation of rouble were authorities which bans infill projects the key drivers behind the sharp in- within the city limits. Housing comple- crease of the demand for new housing tions in the Moscow region increased in the 1st and the 4th quarters of the by 12% in 2014, up to 8.3 m m2. year, especially in the mass market segment. Citizens who were planning to buy an apartment were forced to

28 One of the key drivers behind the (+17%). The average borrowing rate In the Moscow region, banks ap- increased demand for new housing for the loans denominated in RUB proved 56 th mortgage loans (+42%) is further development of mortgage was 12.5% (the same as in 2013), worth RUB 153 bn (+49%). The ave lending. According to the Agency for for the loans denominated in foreign rage borrowing rate was 12.5% for Housing Mortgage Lending (AIZhK), currency – 9.2% (in 2013 – 9.6%). the loans in RUB and 9.7% for the in 2014 the number of the approved The average value of the approved loans in foreign currency. loans in Moscow amounted to 46 th loans was RUB 3.9 m (+5%). (+11%) worth more than RUB 181 bn

MORTGAGE LENDING IN MOSCOW Number of loans Value of loans, RUB m

60,000

50,000 51,717 48,973 47,760 40,000 40,206 40,723 40,339 37,387 37,340 30,000 29,787 29,815 28,296 22,767 20,000 13,095 12,308 10,325 11,312 11,283 12,872 9,980 8,073 8,252 7,710 9,584 10,000 6,636

0 | 1 Q 2012 | 2 Q 2012 | 3 Q 2012 | 4 Q 2012 | 1 Q 2013 | 2 Q 2013 | 3 Q 2013 | 4 Q 2013 | 1 Q 2014 | 2 Q 2014 | 3 Q 2014 | 4 Q 2014 |

MORTGAGE LENDING IN THE MOSCOW REGION Number of loans Value of loans, RUB m

50,000 48,944 40,000 40,463 33,947 36,709 30,000 27,237 24,546 23,613 23,897 20,000 19,144 17,886 17,152 17,605 14,076 13,122 13,418 14,194 10,382 9,477 9,010 10,307 10,000 5,663 6,910 7,712 6,768

0 ИПОТЕЧНОЕ КРЕДИТОВАНИЕ В МО | 1 Q 2012 | 2 Q 2012 | 3 Q 2012 | 4 Q 2012 | 1 Q 2013 | 2 Q 2013 | 3 Q 2013 | 4 Q 2013 | 1 Q 2014 | 2 Q 2014 | 3 Q 2014 | 4 Q 2014 |

29 It was for the first time that the sharp PRICES FOR NEW HOUSING IN MOSCOW AND THE MOSCOW REGION, RUB TH / M2 increase of the demand did not re sult in the significant growth of prices Moscow for real estate. According to IRN, in 250 2014 housing prices in Moscow and Moscow region

the Moscow region increased by 200 12% which is just above the infla-

tion level of 11.4%. The 4-5% growth 150 was recorded at the beginning of the

year. Another increase of the prices 100 happened in the 4th quarter. As of

the end of the year, the average price 50 per m2 was RUB 190 th.

35 47 58 89 114 127 131 144 160 167 169 216 17 21 26 35 52 62 61 60 65 71 77 77

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

YEKATERINBURG

Yekaterinburg is the third largest Southern and south-western parts of loans denominated in foreign currency city of Russia and one of the largest Yekaterinburg have recently become it was 10.1%. real estate markets in the country. the priority districts for housing con- In 2014, more than 1 m m2 of hous- struction and account for 20% of the In 2014, the market for real es- ing were completed in the city inclu total construction volume and sup- tate in Yekaterinburg saw the same ding 13.6 th units in apartment build- ply. The most notable projects are be- trends observed in other large cities ings with a total area of 822 th m2. ing implemented in these parts of of Russia, being affected by unfa- Completions per capita amounted Yekaterinburg. In the near future sig- vourable macroeconomic situation. to 0.71 m2. As of the end of 2014, al- nificant redevelopment is expec- Pessimistic forecasts, the expec most 2.6 m m2 are under constructed to take place in the district of the tations of crisis, the changing mor tion in Yekaterinburg. During the year, Urals Scientific Centre (UNTs) and the tgage requirements were the key the city’s administration issued ap- Shirokaya Rechka district. drivers behind the demand for new proximately 100 construction permits housing which saw sharp increases for construction of apartment build- Like in other regions of Russia, mor in the 1st quarter and in December. ings with a total area of 1.3 m m2. tgage lending is the key driver behind At the same time a certain decline of the increasing demand for housing in the customers’ activity was observed Several dozens of real estate de- the Sverdlovsk region. According to the during the summer. At that time real velopers are engaged in hous- Agency for Housing Mortgage Lending estate developers were carrying out ing construction in the city. In 2014, (AIZhK), in 2014 the number of the ap- active marketing campaigns aiming 35 companies completed 84 apart- proved loans in the Sverdlovsk re- at attracting customers with the help ment buildings. Five largest players gion amounted to 29 th (+9%) worth of discounts and special offers. As of control approximately 42% of the RUB 51 bn (+16%). The average bor- the end of the year, the average price market by completions. rowing rate for the loans denominated per m2 increased by 6% only, up to in RUB decreased to 12.4%, for the RUB 66.4 th.

30 HOUSING COMPLETIONS Including multy-family houses Completions IN YEKATERINBURG 1,200

1,026 1,050 1,072 1,035 1,000 955 890 908 899 880 817 822 800 789 742 735 709 703 644 648 600 519 569

400

200

0 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 |

MORTGAGE LENDING IN THE SVERDLOVSK REGION Number of loans Value of loans, RUB m

16,000 15,103 14,158 14,000 11,748 13,457 12,000 12,799 10,847 11,345 9,327 10,000 9,414 8,530 8,634 8,288 7,515 6,665 6,906 7,280 7,603 8,000 6,378 6,185 7,598 6,000 5,704 5,574 5,663 4,738 4,000

2 000

0 | 1 Q 2012 | 2 Q 2012 | 3 Q 2012 | 4 Q 2012 | 1 Q 2013 | 2 Q 2013 | 3 Q 2013 | 4 Q 2013 | 1 Q 2014 | 2 Q 2014 | 3 Q 2014 | 4 Q 2014 |

PRICES FOR NEW HOUSING IN YEKATERINBURG, TH / M2

56 54 49 52 58 60 62 66

2007 2008 2009 2010 2011 2012 2013 2014

31 BUILDING MATERIALS MARKET

REINFORCED CONCRETE LSR SALES OF REINFORSED AERATED CONCRETE In 2014, the market for reinforced CONCRETE BY SEGMENT In 2014, the market for aerated con- concrete in St. Petersburg and the crete in St. Petersburg and the Lenin Leningrad region was estimated at grad region increased by more than 850 th m3, up 9% year-on-year. 5% year-on-year up to 1.1 m m3.

The market is highly competitive with The composition of market players more than 100 companies operat- did not change during the year. Apart ing in the region including 15 large from our business unit another five producers and many small firms producers operate in St. Petersburg specialising in one or two products. and the Leningrad region with an ag- Despite the tough competition LSR gregate capacity of approximately Group maintains leadership position 950 th m3. The share of the imported in the market. As of today the aggre 65% Residental aerated concrete is estimated at 5%. gate capacity of our plants amounts 27% Infrastructure In spite of the tough competition our to 599 th m3 per year, which makes 8% Industrial company maintains its leadership in LSR Group the largest producer of the market. reinforced concrete items in North- Western Russia. Housing construction accounts for 91% of our aerated concrete sales. In Most of our reinforced concrete items particular, 53% of our aerated con- are supplied to residential and infra- crete is supplied for low-rise housing structure projects. These segments projects due to the extreme popula accounted for 65 and 27% of our re- rity of this building material among inforced concrete sales in 2014. individuals.

LSR SALES OF AERATED CONCRETE BY SEGMENT

91% Residental 9% Industrial

32 BRICKS The launch of the new production line LSR SALES OF BRICKS BY SEGMENT In 2014, the market for bricks in favourably affected the performance St. Petersburg and the Leningrad re- of our business units, both in terms gion amounted to 327 m units, up 6% of the sales volume and margin. year-on-year. Companies engaged in housing con- The composition of market players struction are the key customers of did not change during the year. Apart ceramic bricks. In 2014, the segment from our business unit there are ano of residential construction accoun- ther two producers controlling 23% ted for 93% of our bricks sales. of the market. The share of bricks imported from other regions is es- The market for bricks in Moscow and 93% Residental timated at 13%, most of the import the Moscow region is estimated at 7% Industrial coming from the Pskov region, the 1.5 bn units, up 7% year-on-year. Novgorod region and the Tver region. The market is highly competitive LSR Group is the undisputed leader with more than 30 large companies in the bricks market of St. Petersburg producing construction and facing and the Leningrad region. The ag- bricks. Approximately 65% of facing gregate capacity of our brick facto bricks are manufactured more than ries here amounts to 380 m units per 250 km away from Moscow. Our year. brick plant is among ten largest brick makers in the market. In 2014, we started mass production of clinker bricks at our plant in In 2014, LSR Group started exporting Nikolskoe, the Leningrad region. As its bricks to Belarus and Kazakhstan. of today, LSR Group is the only mass producer of clinker bricks in Russia.

33 CRUSHED GRANITE LSR SALES OF CRASHED GRANITE SAND In 2014, the market for crushed BY SEGMENT In 2014, the market for sand in granite in St. Petersburg and the St. Petersburg and the Leningrad re- Leningrad region amounted to ap- gion amounted to 16.6 m m3, down proximately 18 m m3, down 3% year- 10% year-on-year. The decrease on-year. The decrease was due to was due to the completion of several the changes in the timeline of seve major projects which were the key ral major projects including the re- drivers of demand in 2013 including construction of A-120 motorway in the new terminal of Pulkovo airport, St. Petersburg and a part of M11 mo- the exhibition centre Expoforum, the torway in the Leningrad region. Western High-Speed Diameter, the logistics terminal in Bronka and also Our business unit is the visible leader due to the changes in the timeline in the market. The market share of 28% Residental of a number of large infrastructure our business unit is two times big- 30% Infrastructure projects including M11 motorway ger than our major competitor’s and the land reclamation project on 15% Industrial share. There are several other play- Vasilyevsky Island which are expec- 27% Production of building ers controlling up to 7% each. The materials ted to become the growth drivers in composition of market players did the coming years. not change significantly in 2014. The Most of our crushed granite is con- key competitive advantage of our sumed by producers of building ma- Our business unit is the absolute business unit is the proximity of our terials. This segment accounted for leader in the market for sand. The quarries and processing plants to the 27% of our crushed granite sales share of our key competitor is two strategic infrastructure projects in in 2014. The share of housing con- times less. Our quarries are located the active construction phase as well struction was 28%, infrastructure close to the major infrastructure pro- as a possibility to supply the whole construction – 30% and industrial jects being carried out in the region. range of aggregates to the custo construction – 15%. Another important competitive ad- mers in the required volumes. vantage of our company is a possi bility to supply the whole range of aggregates to the customers in the required volumes.

34 LSR SALES OF SAND BY SEGMENT READY-MIX CONCRETE LSR SALES OF READY-MIX CONCRETE In 2014, the market for ready-mix BY SEGMENT concrete in St. Petersburg and the Leningrad region exceeded 6 m m3. The volume of the market has not changed since 2013.

Tough competition is typical in the local market, with around 100 batch- ing facilities operating in the city and the surrounding territories. The shares of these companies do not exceed 10%. LSR Group has been 16% Residental 69% Residental holding leading positions in the Infrastructure 34% Infrastructure ready-mix concrete market for many 9% 33% Industrial years. 20% Industrial 18% Production of building 2% Production of building materials materials The year of 2014 saw several merger and acquisition deals. With the market stagnation setting in, the players In 2014, infrastructure projects ac- try to consolidate their capacities counted for 34% of our sand sales, and strengthen their market posi- industrial construction – for 33%. tions. Approximately 18% of our sand was supplied to producers of other The bulk of our ready-mix concrete is building materials and 17% – to the supplied to residential construction companies engaged in residential projects. The share of this segment construction. in our total sales was 69% in 2014. In- dustrial construction and infrastructure construction accounted for 20% and 9%, correspondingly.

35 Review of Operating Results

KEY FINANCIALS

RUB M 2013 2014 CHANGE, %

REVENUE 60,201 92,347 53%

EBITDA 11,731 21,588 84%

EBITDA, % 19% 23% –

Operating profit 8,490 17,492 106%

Operating profit, % 14% 19% –

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 3,381 9,715 187%

Operating cash flow 14,213 22,921 61%

Amortisation and depreciation 3,238 3,678 14%

Capitalised capital expenditure 3,753 1,677 (55%)

DEBT

31.12.13 31.12.14 CHANGE, %

Total debt 34,062 27,367 (20%)

Net debt 28,163 2,089 (93%)

Net debt / EBITDA 2.4 0.1 –

36 CONSOLIDATED INCOME STATEMENT

RUB M 2013 2014 CHANGE, %

REVENUE 60,201 92,347 53%

Cost of sales (41,368) (66,298) 60%

GROSS PROFIT 18,833 26,050 38%

Distribution expenses (4,712) (4,858) 3%

Administrative expenses (5,521) (6,771) 23%

Other income and expenses (110) 3,071 –

OPERATING PROFIT 8,490 17,492 106%

Finance income 369 1,020 176%

Finance costs (4,355) (7 051) 62%

PROFIT BEFORE INCOME TAX 4,505 11,461 154%

Income tax expense (1,211) (2,258) 86%

PROFIT FOR THE YEAR 3,293 9,202 179%

Foreign currency translation differences for foreign operations 87 513 489%

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 3,381 9,715 187%

BASIC AND DILUTED EARNINGS PER ORDINARY SHARE (RUB) 31.74 89.78 183%

EBITDA 11,731 21,588 84%

EBITDA, % 19% 23% –

37 EBITDA AND EBITDA MARGIN RUB M AND %

25,000 21,588

REVENUE RUB M 20,000 20%

15,000 92,347 11,731 15%

60,201 10,000

10% 5,000

0 5%

2013 2014 2013 2014

Our sales revenue in 2014 was Net financing costs increased Interest payments amounted to RUB 92,347 m (+53%). by 51%, up to RUB 6,031 m, primarily RUB 4,180 m. due to the exchange rate fluctuations. The gross profit grew by 38% and The income tax expense paid was amounted to RUB 26,050 m. In 2014, income tax expense RUB 2,580 m. amounted to RUB 2,258 m. The In 2014, the distribution costs grew statutory income tax rate and the The cash outflow from investment by 3%, up to RUB 4,858 m. effective tax rate were 20%. activities decreased by 30%, to RUB 2,524 m. The administrative costs increased In the reported period we received by 23%, to RUB 6,771 m. total comprehensive income of The cash outflow from financing RUB 9,715 m (+187%). activities decreased by 87%, to EBITDA grew by 84%, to RUB 21,588 m. RUB 1,165 m. EBITDA margin was 23%. Operating Cash flow from operations before profit increased by 106%, to income taxes and interest paid was As of 31 December 2014, the cash RUB 17,492 m, and operating profit equal to RUB 29,681 m. balance was RUB 25,278 m. margin was 19%.

38 CASH FLOWS AND LIQUIDITY

CONSOLIDATED CASH FLOW STATEMENT

RUB M 2013 2014

Net Income / (loss) 3,293 9,202

Depreciation & amortisation 3,238 3,678

Net finance costs 3,986 6,031

Other, net 1,227 (234)

OPERATING PROFIT BEFORE CHANGES IN WORKING CAPITAL AND PROVISIONS 11,745 18,678

Change in Inventories (14,447) (30,846)

Change in Trade and Other Receivables (2,411) (7,448)

Change in Trade and Other Payables 26,949 47,832

Increase / decrease in provisions (101) 1,465

CASH FLOW FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST PAID 21,736 29,681

Income Taxes Paid (3,156) (2,580)

Interest Paid (4,367) (4,180)

CASH FLOW FROM (UTILISED BY) OPERATING ACTIVITIES 14,213 22,921

Capital Expenditures (3,568) (1,556)

Acquisitions (925) -

Disposals 836 227

Other 68 (1,194)

CASH FLOW FROM (UTILISED BY) INVESTING ACTIVITIES (3,588) (2,524)

Debt issued (repaid) (6,730) 2,920

Dividends paid (2,061) (4,084)

CASH FLOW FROM (UTILISED BY) FINANCING ACTIVITIES (8,791) (1,165)

NET CHANGE IN CASH 1,834 19,232

CASH AT BEGINNING OF PERIOD 3,967 5,899

Exchange rate fluctuations 99 146

CASH AT END OF PERIOD 5,899 25,278

39 DEBT STRUCTURE

RUB M 31.12.2013 31.12.2014

Bank and other loans 24,502 24,140

Bond issues 9,332 3,017

Finance lease liability 228 211

TOTAL DEBT 34,062 27,367

Less cash and cash equivalents 5,899 25,278

NET DEBT 28,163 2,089

NET DEBT NET DEBT / EBITDA RUB M

28,163

2.4

2,089

0.1

2013 2014 2013 2014

DEBT STRUCTURE DEBT CREDIT RATINGS As of December 31, 2014, the com- LSR Group has “B2” corporate rat- pany’s total debt decreased by 20%, ing, outlook-stable, by Moody’s Bank and Bond issues other loans compared to December 31, 2013, Investor Service. The rating was not down to RUB 27,367 m. The net revised in 2014. 88% 12% debt / EBITDA ratio decreased to 0.1. In December 2014, the global rating agency Fitch Ratings changed outlook for LSR Group to negative but confirmed level “B” rating.

40 Real Estate Development and Construction

In 2014, the sales revenue of Real Estate Development and Construction division was RUB 68,524 m, up 85% against 2013

In 2014, the sales revenue of Real Es- lopment revenue for 2014 amounted Starting from January 1, 2014 tate Development and Construction to 780 th m2 (+154%), including the LSR Group has adopted new ac- division was RUB 68,524 m, up 85%, net sellable area completed within counting policy for real estate de- against 2013. EBITDA increased by the reported period and pre-sold/ velopment revenue recognition. Ac- 81% to RUB 15,664 m. EBITDA mar- sold either within the reported period cording to the new policy revenue gin was 23%. or in previous years along with the for the full value of the real estate net sellable area completed in previ- already contracted is recognised on In 2014, in all regions of our opera- ous years but sold within the repor- the date when commissioning certifi- tions we entered into new contracts ted period. cate for the building is issued. for the sale of 1,020 th m2 (+35%). The total value of the contracts for the The sales revenue increased by 112% sale of real estate was RUB 86 bn, up to RUB 60,547 m and EBITDA in- 43% against 2013. In 2014, we com- creased by 98% to RUB 12,762 m. pleted 790 th m2 of net sellable area EBITDA margin was 21%. (+163%). The deliveries recognised in the company’s real estate deve

41 REAL ESTATE IN ST. PETERSBURG In the mass market segment, we REAL ESTATE IN MOSCOW In 2014, in St. Petersburg, we entered into new contracts for In 2014, we entered into new con- entered into new contracts for the the sale of 626 th m2 (+38%). The tracts for the sale of 145 th m2 of net sale of 715 th m2 of net sellable area total value of the contracts was sellable area, up 40% on our sales in (+35%). The total value of the con- RUB 48.2 bn (+43%). In 2014, we 2013. The total value of the signed tracts was RUB 63.8 bn (+39%). In completed 363 th m2 of net sellable contracts was RUB 12.9 bn (+74%). 2014, we completed 446 th m2 of net area (+141%) in Antey, Kalina Park, In 2014, we completed 217 th m2 of sellable area (+152%). The deliveries VIVA, Novaya Okhta, Sophia, Aurora net sellable area in New Domode- recognised in the company’s revenue and Pulkovsky Posad projects. The dovo and Nakhabino Yasnoye pro- for 2014 amounted to 436 th m2. deliveries recognised in the com- jects. The deliveries recognised in pany’s revenue for 2014 amounted the company’s revenue for 2014 In the elite segment, we entered to 366 th m2 . amounted to 208 th m2 . into new contracts for the sale of 89 th m2 of net sellable area (+17%). In December 2014, we entered into The sales revenue was RUB 12,260 m The total value of the contracts was 9 government contracts for the sale and EBITDA was RUB 1,124 m. EBITA RUB 15.6 bn (+30%). In 2014, we of 1,653 apartments with a total margin was 9%. completed 83 th m2 of net sellable area of 94 th m2. The value of the area (+213%) in Europe City, Paradny contracts amounted to RUB 5.2 bn. REAL ESTATE IN YEKATERINBURG Quarter and Smolny Park projects. All apartments are located in our In Yekaterinburg, we entered into new The deliveries recognised in the project Novaya Okhta and sched- contracts for the sale of 159 th m2 of company’s revenue for 2014 amoun- uled for completion before Decem- net sellable area (+32%). The total ted to 71 th m2 . ber 31, 2015. The apartments will value of the contracts signed in 2014 be transferred to the government in was RUB 9.3 bn (+32%). In 2014, we June 2016. completed 127 th m2 of net sellable area (+2%) in Kalinovsky, Serebrya The sales revenue increased by 95% naya podkova, Michurinsky and to RUB 39,018 m and EBITDA in- Berezovaya Roshcha projects. The creased by 94% to RUB 10,101 m. deliveries recognised in the com- EBITDA margin was 26%. pany’s revenue for 2014 amounted to 136 th m2 .

The sales revenue increased by 6% to RUB 7,832 m and EBITDA amounted to RUB 1,383 m. EBITDA margin was 18%.

42 REAL ESTATE DEVELOPMENT 2013 2014 CHANGE, %

COMPLETED (TH M2)

Real Estate St. Petersburg 177 446 152%

Elite Real Estate 27 83 213%

Mass Market Real Estate 150 363 141%

Real Estate Moscow – 217 –

Real Estate Urals 124 127 2%

NEW CONTRACT SALES (TH M2)

Real Estate St. Petersburg 529 715 35%

Elite Real Estate 76 89 17%

Mass Market Real Estate 452 626 38%

to retail customers 452 531 18%

under contracts with the government – 94 –

Real Estate Moscow 104 145 40%

Real Estate Urals 120 159 32%

REVENUE (RUB M) 28,610 60,547 112%

Real Estate St. Petersburg 20,004 39,018 95%

Real Estate Moscow 481 12,260 2,449%

Real Estate Urals 7,390 7,832 6%

EBITDA (RUB M) 6,449 12,762 98%

Real Estate St. Petersburg 5,219 10,101 94%

Real Estate Moscow (246) 1 124 –

Real Estate Urals 1,487 1,383 (7%)

EBITDA, % 23% 21% –

Real Estate St. Petersburg 26% 26% –

Real Estate Moscow – 9% –

Real Estate Urals 20% 18% –

OPERATING PROFIT (RUB M) 6,391 12,300 92%

Real Estate St. Petersburg 5,187 9,825 89%

Real Estate Moscow (268) 996 –

Real Estate Urals 1,485 1,380 (7%)

OPERATING PROFIT , % 22% 20% –

Real Estate St. Petersburg 26% 25% –

Real Estate Moscow – 8% –

Real Estate Urals 20% 18% –

43 CONSTRUCTION 2013 2014 CHANGE, %

TRANSFERRED TO CUSTOMERS, TH M2 862 975 13%

St. Petersburg 546 586 7%

Moscow* 162 243 50% CONSTRUCTION In 2014, our subsidiaries in St. Pe- Yekaterinburg* 155 147 (5%) tersburg, Moscow and Yekaterin- REVENUE (RUB M) 20,734 25,560 23% burg transferred to the customers 975 th m2 of prefab buildings (+13%). St. Petersburg 13,251 16,591 25%

In 2014, the sales revenue of our Con- incl. revenue from struction division was RUB 25,560 m, inter-group sales 11,048 15,137 37% up 23% against 2013. EBITDA decreased by 4% to RUB 2,109 m. Moscow 3,318 5,401 63% EBITDA margin was 8%. incl. revenue from inter-group sales 1,189 3,588 202% In St. Petersburg the revenue of our prefab factory increased by 25%, up Yekaterinburg 4,177 3,569 (15%) to RUB 16,591 m. EBITDA increased by 9%, up to RUB 1,699 m. EBITDA incl. revenue from margin was 10%. In the Moscow inter-group sales 2,649 2,462 (7%) region our revenue was RUB 5,401 m EBITDA (RUB M) 2,203 2,109 (4%) (+63%) and EBITDA was RUB 166 m (–11%). EBITDA margin was 3%. In St. Petersburg 1,563 1,699 9% Yekaterinburg our revenue decreased by 15%, down to RUB 3,569 m. Moscow 187 166 (11%) EBITDA amounted to RUB 243 m (–46%). EBITDA margin was 7%. Yekaterinburg 453 243 (46%)

PROJECT MANAGEMENT EBITDA, % 11% 8% – The sales revenue increased by 12% to RUB 2,241 m and EBITDA was St. Petersburg 12% 10% – RUB 182 m. EBITDA margin was 8%. Moscow 6% 3% –

TOWER CRANES Yekaterinburg 11% 7% – The sales revenue was RUB 1,551 m and EBITDA was RUB 534 m. EBITDA margin was 34%. OPERATING PROFIT (RUB M) 1,608 1,432 (11%)

St. Petersburg 1,198 1,272 6%

Moscow 126 90 (29%)

Yekaterinburg 283 70 (75%)

OPERATING PROFIT, % 8% 6% –

St. Petersburg 9% 8% –

Moscow 4% 2% –

Yekaterinburg 7% 2% –

* Sales figures in Yekaterinburg and Moscow include both transfer of completed panel housing to the customers and sales of reinforced concrete for panel construction

44 Building Materials

BUILDING MATERIALS 2013 2014 CHANGE, %

SALES VOLUME

Crushed granite, th m3 7,174 7,270 1%

Sand, th m3 10,001 8,396 (16%)

Ready-mix concrete, th m3 1,497 1,612 8%

Reinforced concrete, th m3 399 319 (20%)

Cement, th tones 1,305 1,531 17%

Bricks, m units 196 334 70%

Aerated concrete, th m3 1,207 1,355 12%

REVENUE (RUB M) 20,736 21,098 2%

Crushed granite 3,938 3,980 1%

Sand 2,932 2,197 (25%)

Ready-mix concrete 4,832 4,953 3%

Reinforced concrete 3,960 2,508 (37%)

Cement 3,030 3,759 24%

Bricks 1,690 3,176 88%

Aerated concrete 2,721 2,907 7%

EBITDA (RUB M) 5,071 5,231 3%

Crushed granite 845 1 075 27%

Sand 1,105 727 (34%)

Ready-mix concrete 302 44 (85%)

Reinforced concrete 536 (14) –

45 BUILDING MATERIALS 2013 2014 CHANGE, %

Cement 975 1,377 41%

Bricks 521 1,035 99%

Aerated concrete 835 979 17%

EBITDA, % 24% 25% –

Crushed granite 21% 27% –

Sand 38% 33% –

Ready-mix concrete 6% 1% –

Reinforced concrete 14% – –

Cement 32% 37% –

Bricks 31% 33% –

Aerated concrete 31% 34% –

OPERATING PROFIT (RUB M) 2,926 2,705 (8%)

Crushed granite 541 803 48%

Sand 949 576 (39%)

Ready-mix concrete 103 (155) –

Reinforced concrete 288 (281) –

Cement 287 663 131%

Bricks 147 266 81%

Aerated concrete 659 825 25%

OPERATING PROFIT, % 14% 13% –

Crushed granite 14% 20% –

Sand 32% 26% –

Ready-mix concrete 2% – –

Reinforced concrete 7% – –

Cement 9% 18% –

Bricks 9% 8% –

Aerated concrete 24% 28% –

In 2014, the sales revenue of building creased by 3% to RUB 5,231 m. materials division was RUB 21,098 m, EBITDA margin increased from 24 up 2%, against 2013. EBITDA in- to 25%.

46 CRUSHED GRANITE CEMENT BRICKS In 2014, our crushed granite sales In 2014, we sold more than 1.5 m In 2014, our bricks sales amounted were 7.3 m m3 (+1%). tonnes of cement, up 17% against to 334 m units, up 70% on our sales 2013. in 2013. The sales revenue increased by 1% to RUB 3,980 m and EBITDA increased In December 2014, we sold our ce- The sales revenue increased by by 27% to RUB 1,075 m. EBITDA mar- ment plant in Slantsy, the Leningrad 88% to RUB 3,176 m and EBITDA gin increased from 21 to 27%. Region, to Eurocement Group. The increased by 99% to RUB 1,035 m. deal is a part of LSR Group’s stra EBITDA margin increased from SAND tegy aimed to focus on projects with 31% to 33%. Sand sales in 2014 were 8.4 m m3 the highest returns on invested cap- (–16%). ital and the fast growing real estate AERATED CONCRETE development business thus maxi Aerated concrete sales amounted to The sales revenue decreased by mising value for our shareholders. As 1.4 m m3 in 2014 (+12%). 25% to RUB 2,197 m and EBITDA a result we have decreased our debt decreased by 34% to RUB 727 m. significantly and made it 100% ruble The sales revenue increased by 7% to EBITDA margin decreased from based. Positive one-off effect from RUB 2,907 m and EBITDA increased 38 to 33%. the disposal of the cement plant re- by 17% to RUB 979 m. EBITDA margin flected in EBTIDA and comprehensive increased from 31 to 34%. READY-MIX CONCRETE income amounted to RUB 2,766 m. In 2014, ready-mix concrete sales were 1.6 m m3, up 8% against 2013. The sales revenue increased by 24% to RUB 3,759 m and EBITDA The sales revenue increased by 3% to increased by 41% to RUB 1,377 m. RUB 4,953 m and EBITDA decreased EBITDA margin increased from by 85% to RUB 44 m. EBITDA margin 32 to 37%. decreased from 6 to 1%.

REINFORCED CONCRETE In 2014, we sold 319 th m3 of reinforced concrete items, down 20% against our sales in 2013.

The sales revenue decreased by 37% to RUB 2,508 m and EBITDA was RUB –14 m.

47 Real Estate Portfolio

As of December 31, 2014, the net VALUATION OF REAL ESTATE PORTFOLIO ket residential real estate, which is al- sellable area of the projects in our The market value of our hold- ways characterised by higher volume portfolio is equal to 9,985 th m2 *. The ings in our real estate portfolio ac- of demand, accounts for major part real estate portfolio of LSR Group counted for RUB 135,151 m as of of our portfolio (incl. land plots held includes properties/projects in the December 31, 2014. The valuation of for future development). The port- residential elite class, business our real estate portfolio was under- folio also includes residential elite class and mass market property, taken by Colliers International as an (or high-end) and business class gated communities and commercial independent external appraiser. development projects, gated com- property segments. munities and office developments. BREAKDOWN OF REAL ESTATE These segments account for a smal- Real estate development pro- PORTFOLIO BY SEGMENT ler part of the portfolio in terms of jects of LSR Group are located in Our real estate portfolio is well- sellable area however they account St. Petersburg, Moscow, the Moscow balanced across the various property for a more substantial part of market Region and Yekaterinburg. segments which allows us to work value due to higher prices per square with different groups of customers. In meter compared to mass market terms of net sellable area, mass mar- properties.

SEGMENT OF PROPERTY NET SELLABLE/ MARKET % % LEASABLE AREA, VALUE, TH M2 RUB M

Mass market 5,672 57% 63,335 47%

Elite** 105 1% 14,130 10%

Business class 1,180 12% 35,618 26%

Offices 50 0.5% 9,917 7%

Operating offices* 16 0.2% 3,165 2%

Held for future development 2,960 30% 8,986 7%

TOTAL 9,985 100% 135,151 100%

* Including operating offices with a total net lettable area of 16 thm 2, utilized by LSR Group subsidiaries **Including Gated communities

48 REAL ESTATE PORTFOLIO BY SEGMENT (NET SELLABLE / LEASABLE AREA)

57% Mass market 1% Elite 12% Business class 0.5% Offices 0.2% Operating offices 30% Held for future development

REAL ESTATE PORTFOLIO BY SEGMENT (MARKET VALUE)

47% Mass market 10% Elite 26% Business class 7% Offices 2% Operating offices 7% Held for future development

49 STAGE OF DEVELOPMENT NET SELLABLE/ % MARKET VALUE, % LEASABLE AREA, RUB M TH M2

Concept Development 6,366 64% 43,646 32%

Designing 1,699 17% 26,765 20%

Construction 1,874 19% 53,157 39%

Completed 30 0.3% 8,419 6%

Operating offices* 16 0.2% 3,165 2%

TOTAL 9,985 100% 135,151 100%

* Including operating offices with a total net lettable area of 16 th2 m , utilized by LSR Group subsidiaries

PROPERTY PORTFOLIO BY STAGE OF DEVELOPMENT BREAKDOWN OF PROPERTY PORTFOLIO (NET SELLABLE / LEASABLE AREA) BY STAGE OF DEVELOPMENT As of December 31, 2014 our real estate portfolio includes 1,874 th m2 of 64% Concept Development net sellable area at the construction 17% Designing stage and 1,699 th m2 at the design 19% Construction stage. 0.3% Completed We also have 30 th m2 of the com- 0.2% Operating offices pleted properties and operating offi ces with a total net lettable area of 16 th m2 , utilized by LSR Group subsidiaries. 6,366 th m2 of net sellable area are at the stage of concept development.

PROPERTY PORTFOLIO BY STAGE OF DEVELOPMENT (MARKET VALUE)

32% Concept Development 20% Designing 39% Construction 6% Completed 2% Operating offices

50 REGION NET SELLABLE/ % MARKET % LEASABLE AREA, VALUE, TH M2 RUB M

St. Petersburg 7,024 70% 80,908 60%

Moscow 2,356 24% 49,558 37%

Yekaterinburg 604 6% 4,685 3%

TOTAL 9,985 100% 135,151 100%

PROPERTY PORTFOLIO BY REGION BREAKDOWN OF PROPERTY PORTFOLIO (NET SELLABLE / LEASABLE AREA) BY REGION Most of our properties – approxi mately 70% of the portfolio by area 70% St. Petersburg and 60% by value – are located in 24% Moscow our home market in St. Petersburg. During the course of 2014 share of 6% Yekaterinburg projects in Moscow in our portfolio grew almost twice: from 13 to 24% in terms of sellable area and from 21 to 37% in terms of market value.

PROPERTY PORTFOLIO BY REGION (MARKET VALUE)

60% St. Petersburg 37% Moscow 3% Yekaterinburg

51 Real Estate Portfolio

ELITE REAL ESTATE IN ST. PETERSBURG

SMOLNIY PARK | 99.8 TH M2

52 PARADNIY QUARTER | 64.9 TH M2

RADISHEVA 39 | 20.8 TH M2

53 VERONA | 11.7 TH M2

RUSSKIY DOM | 54.8 TH M2

54 DOM NA DVORYANSKOY | 6.4 TH M2

KOVENSKIY 5 | 5.9 TH M2

55 BUSINESS CLASS RESIDENTIAL IN ST. PETERSBURG

EUROPA CITY | 84.5 TH M2

TRI VETRA | 53.8 TH M2

SMOLENSKAYA 14 | 23.1 TH M2

56 MASS MARKET RESIDENTIAL IN ST. PETERSBURG

OKTYABRSKAYA NABEREZHNAYA | 823.7 TH M2

ZAPOVEDNAYA | 209.1 TH M2 TSVETNOY GOROD | 2,960.4 TH M2

YUZHNAYA AQUATORIYA | 310.8 TH M2

57 NOVAYA OKHTA | 794.6 TH M2 AURORA |256.1 TH M2

RYCHI | 211.4 TH M2 SOPHIA |311.4 TH M2

KALINA PARK | 335.9 TH M2

58 KVARTET | 109.6 TH M2

SHUVALOVSKIY | 422.1 TH M2 AEROPORT RZHEVKA 1,146.6 TH M2

VIVA | 102.9 TH M2

59 COMMERCIAL REAL ESTATE IN ST. PETERSBURG

PARADNIY QUARTER | 12.1 TH M2

NEVSKIY 1 | 7.2 TH M2 NEVSKIY 68 | 5.9 TH M2 НЕВСКИЙ 1 | 7,2 ТЫС. КВ. М

5,3 ТЫС. КВ. М ФОНТАНКАFONTANKA 3 3 | | 5.3 TH M2 KAMENOOSTROVSKAYA KOLLEKTSIYA | 7.9 TH M2

60 BUSINESS CLASS RESIDENTIAL IN MOSCOW AND THE MOSCOW REGION

GRUNVALD | 27.3 TH M2

LENINGRADSKOE SHOSSE 58 DONSKOY OLIMP | 85.3 TH M2 36.9 TH M2

ZIL | 951.8 TH M2

61 MASS MARKET RESIDENTIAL IN MOSCOW AND THE MOSCOW REGION

NOVOE NAKHABINO | 40.8 TH M2

IBITSA | 280.8 TH M2

NOVOE DOMODEDOVO | 315.7 TH M2

62 VZLET | 470.5 TH M2 PODOLSK-ERINO 358.8 TH M2

NAKHABINO YASNOE | 143.1 TH M2

COMMERCIAL REAL ESTATE IN MOSCOW

NOVIY BALCHUG | 12.1 TH M2

63 REAL ESTATE IN YEKATERINBURG

MICHURINSKIY | 216.1 TH M2

RASTOCHNAYA | 9.3 TH M2

RASSVETNIY |181.4 TH M2

64 FLAGMAN | 70.0 TH M2

NOVGORODTSEVOY | 12.5 TH M2

KHRUSTALNIYE KLYUCHI | 217.1 TH M2

65 Corporate Governance

CORPORATE The corporate governance system of LSR Group consists of several GOVERNANCE management bodies including: General Meeting of Shareholders, Board of STRUCTURE Directors, Executive Committee, Chief Executive Officer.

GENERAL MEETING INDEPENDENT AUDITORS OF SHAREHOLDERS

AUDIT COMMITTEE

STRATEGY AND INVESTMENT BOARD OF DIRECTORS COMMITTEE HUMAN RESOURCES AND COMPENSATIONS COMMITTEE

EXECUTIVE COMMITTEE

CHIEF EXECUTIVE OFFICER

MANAGEMENT

The report provides information on the composition of the company’s management bodies as of December 31, 2014

GENERAL MEETING prove decisions related to all aspects Board of Directors. Each member of OF SHAREHOLDERS of the company’s business, save the Board of Directors has one vote. The General Meeting of Shareholders for the matters referred to the com- is the supreme authority of LSR Group. petence of the General Meeting of The Chairman of the Board of The General Meeting of Shareholders Shareholders by law. Directors convenes meetings of the is convened by the Board of Directors Board of Directors in accordance at least once a year. The members of the Board of Di with a previously agreed timetable. rectors are elected by the General In 2014, the company held one Gene Meeting of Shareholders for a term Extraordinary meetings of the Board ral Meeting of Shareholders. up to the next annual General Meet- of Directors may be convened by the ing. When members of the Board are Chairman of the Board of Directors BOARD OF DIRECTORS elected by the extraordinary General at his/her initiative, as well as upon The Board of Directors is respon Meeting of Shareholders their autho the request of any member of the sible for general management of the rity remains valid until the next annual Board of Directors, the Executive company, defines the company’s General Meeting of Shareholders. Committee, Chief Executive Officer, development strategy and exercises Any shareholder of LSR Group hold- the Internal Audit Commission or the control of its financial and business ing at least 2% of the company’s vot- auditors of LSR Group, Committees operations. ing shares may nominate a candidate of the Board of Directors, and also for the Board of Directors. Decisions any shareholder with at least 10% of The Board of Directors acts in com- of the Board of Directors are adopted the company’s voting shares pliance with the company’s Charter by a simple majority unless other- and Regulations on the Board of wise provided by law, the company’s Directors and is authorised to ap- Charter and Regulations on the

66 In our practices of corporate governance we adhere to the provisions of the legislation of the Russian Federation related to corporate governance, the Corporate Governance Code recommendations as well as to the international standards applicable to public companies listed on the London Stock Exchange.

EXECUTIVE COMMITTEE The Executive Committee makes de- powers of the Executive Committee’s Activities of the Executive Committee cisions on the most important issues members. are headed by the Chief Executive related to the company’s current Officer, who is the Chairman of the business activities, implements the Decisions of the Executive Commi Executive Committee by virtue of his company’s financial and business ttee are adopted by a simple majority. position. policy and advises on the company’s Each member of the Executive strategy. Committee has one vote. CHIEF EXECUTIVE OFFICER In accordance with the Charter of The Executive Committee acts in The Chairman of the Executive Com- LSR Group, the Chief Executive Offi compliance with the company’s mittee appoints meetings of the cer exercises the powers of sole Charter and Regulations on the Executive Committee as and when executive body. The Chief Execu- Executive Committee, and is au- required, but at least once a month. tive Officer carries out day-to-day thorised to approve operating de- Meetings of the Executive Commi management of the company except cisions related to business activities ttee may be convened at the initiative for the matters referred to the com- of LSR Group save for the matters of the Chairman of the Executive petence of the General Meeting of referred to the competence of the Committee or one of the members of Shareholders, Board of Directors and General Meeting of Shareholders the Executive Committee, as well as the Executive Committee. and the Board of Directors by law. upon request of the Board of Direc The Board of Directors determines tors, the Internal Audit Commission Aleksandr Vakhmistrov is the Chief the number of members, election and the auditor. Executive Officer of LSR Group. In procedures and early termination of 2014, he held no shares of the com- COMPOSITION OF THE BOARD OF DIRECTORS pany.

HUMAN RESOURCES STRATEGY AND POSITION IN THE AUDIT NAME INDEPENDENT AND COMPENSATIONS INVESTMENT BOARD OF DIRECTORS COMMITTEE COMMITTEE COMMITTEE

Member of the Board Ilgiz Valitov No of Directors

Member of the Board Aleksandr Vakhmistrov No of Directors

Member of the Board Member of the Dmitri Gontcharov No of Directors Committee

Member of the Board Chairman of the Chairman of the Member of the Yury Kudimov Yes of Directors Committee Committee Committee

Chairman of the Chairman of the Andrey Molchanov No Board of Directors Committee

Member of the Board Member of the Member of the Member of the Yury Osipov Yes of Directors Committee Committee Committee

Member of the Board Member of the Sergey Skaterschikov Yes of Directors Committee

Member of the Board Member of the Member of the Elena Tumanova No of Directors Committee Committee

Member of the Board Olga Sheikina No of Directors

The following members of the Board were elected by the annual Meeting of Shareholders on June 20, 2014

67 BIOGRAPHIES OF THE MEMBERS OF THE BOARD OF DIRECTORS

ILGIZ VALITOV Currently Ilgiz Valitov is Director of ALEKSANDR VAKHMISTROV MEMBER OF THE BOARD OF DIRECTORS Natural Resources and Construction MEMBER OF THE BOARD OF DIRECTORS Member of the Board of Directors Department of State Corporation Member of the Board of Directors since June 2009. Bank for Development and Foreign since June 2014. Economic Affairs (Vneshekonom- Born in 1964. Graduated from Kazan bank). He is member of the Board of CEO and Chairman of the Executive Finance and Economics Institute. Directors of LLC VEB Project Mana Committee, OJSC LSR Group since gement; member of the Board of Di 01.07.2010. In 2007–2011 at State Corporation rectors of CJSC Kraslesinvest; mem- Bank for Development and Foreign ber of the Board of Directors of OJSC Born in 1954. In 1981 he graduated Economic Affairs (Vneshekonom- Razgulay Group and of OJSC Verkh- from Leningrad Railway Engineers bank) he was Director of Department nekamsk Potash Company. Institute with a degree in Industrial of Regional Development, and Di Construction and Civil Engineering, rector of Natural Resources Depart- In 2014, he held no shares of the in 2000 he graduated from St. Pe- ment – in 2010–2011. company. tersburg University of the RF Ministry of the Interior with a degree in Law. In 2009– 2011 – member of the Board Doctor of Economics. Professor of of Directors of LLC VEB-Invest. St. Petersburg State University of In 2009–2012 – member of the Architecture and Construction and Board of Directors of OJSC Novinsky St. Petersburg State Polytechnic Bulvar, 31 and OJSC Kaluga Region University. Development Corporation and also member of Supervisory Committee In 1975–1994, Aleksandr Vakhmist of OJSC Slava (Moscow Second rov worked for various construc- Watch Factory). In 2011–2013 he was member of the Board of Directors of LLC Titan Agro and member of Supervisory Committee of OJSC Federal Centre for Project Financing. In 2012–2013 – member of the Board of Directors OJSC KB VMK and member of Supervisory Committee of OJSC Belvneshekonombank.

68 tion industry companies holding nistration. In 2010–2013, he was DMITRI GONTCHAROV positions from that of a specialist CEO of LLC LSR-Stroy (subsidiary of MEMBER OF THE BOARD OF DIRECTORS to CEO. He was Head of Construc- LSR Group). Currently he is CEO of Member of the Board of Directors since June tion Department No. 339 of LPSMO LLC LSR. 2007. Glavzapstroy, Production Director of the Soviet-Finnish joint venture First Vice President, member of the Born in 1970. Graduated from Lud- engineering firm Lentek, CEO of the Board of the National Construction wig-Maximilians-Universität (Munich) Soviet-Finnish joint venture con- Union (NOSTROY). Honored Builder with a degree in Economics in 1996. struction company FILCO. In 1994, of Russia. Merited Builder of the Rus- he was invited to the Committee for sian Federation. Awarded the Order Since April 2013, Deputy Chairman of Construction of St. Petersburg to for Merit to the Fatherland, 4th de- the Board of Directors of LSR Group. administer interaction between the gree, Order of Friendship, Order of In 1996–1997 – worked at the Au- city’s authorities and private inves- Honor. Two official commendations dit and Tax Consulting Depart- tors. At the same time he was ap- of Russia’s President, and Science ment of BBMS Treuhand GmbH. pointed CEO of the state institution and Technology Awards of the Rus- In 1997– 2003 – Commercial Director Board of Investments of St. Peters- sian Government. of Sales Department, CIS and East- burg Administration Construction ern Europe Region, Information and Department. In 1996– 2000, he was In 2014, he held no shares of the Communication Networks Division of CEO of the state institution Centre of company. Siemens AG. In 2009–2010 – mem- Bank Loans. In 2000– 2003 – Chair- ber of the Executive Committee of man of the Construction Committee Aeroc International AS, Estonia. of St. Petersburg Administration and Vice Governor of St. Petersburg. In Since 2003 up to date – Managing 2003–2009 – member of the Gover Director, LSR Europe GmbH (Mu- nment of St. Petersburg, Vice Gover nich). nor of St. Petersburg responsible for construction and reconstruction of In 2014, he held no shares of the real estate, road building, architec- company. ture and urban planning, and land policy of St. Petersburg for construction purposes. In 2009–2010 – Vice Governor of St. Petersburg and Head of St. Petersburg Governor Admi

69 BIOGRAPHIES OF THE MEMBERS OF THE BOARD OF DIRECTORS

YURY KUDIMOV ANDREY MOLCHANOV YURY OSIPOV MEMBER OF THE BOARD OF DIRECTORS, CHAIRMAN OF THE BOARD OF MEMBER OF THE BOARD OF DIRECTORS, INDEPENDENT DIRECTOR DIRECTORS INDEPENDENT DIRECTOR Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors since June 2014. since April 2013. since June 2014.

Born in 1953. In 1979 he graduat- Born in 1971. In 1993, he gradu- Born in 1936. In 1959 he graduated ed from Lomonosov Moscow State ated from the Faculty of Econo from Ural State University named af- University, and completed the MBA mics, St. Petersburg State Univer- ter M. Gorky. Professor, Academician program at Dauling College in the sity. In 1998, he graduated from the of the Russian Academy of Sciences. United States in 1998. Russian Academy of Public Admini stration with a degree in State and In 1969–1993 he occupied vari- In 1994–1995 – head of the invest- Municipal Administration. ous positions in the Ural Branch of ment board of the Russian Investment the USSR Academy of Sciences Financial Company. In 1993, Andrey Molchanov founded Institute of Mathematics and LSR Group and headed the compa- Mechanics. In 1987 he became an In 1995–2009 he occupied various ny till 2007. In 2007, he was appoint- Academician of the USSR Academy positions in JSCB National Reserve ed Assistant to Russia’s Minister of of Sciences, in 1991 – Academician Bank. In 2004–2009 – President, Healthcare and Social Development. of the Russian Academy of Sciences. Chairman of the Executive Committee In 2008, he was elected as the Sena In 1991– 2013 – President of the of JSCB National Reserve Bank. tor of the Leningrad Region in the Russian Academy of Sciences. Since Council of Federation of the Federal July 2013 up to date – adviser to the In 2011–2014 – member of the Board Assembly of the Russian Federation. Russian Academy of Sciences. Since of Directors of OJSC Federal Freight 2011 – member of the Board of Company. Doctor of Economics. Honorary Trustees of the Russian International Builder of Russia. In 2012 was award- Affairs Council. In 2012–2014 – Chairman of the Board ed the Order for Merit to the Father- of Directors of OJSC International air- land, the 2nd degree. Foreign member of the Austrian port Sheremetyevo. Academy of Sciences, Hungarian In 2014, he held no shares of the Academy of Sciences, as well as Since 2009 up to date – CEO Company. national academies of sciences of LLC Investment Company of of Armenia, Georgia, Kazakhstan, Vnesheconombank (LLC VEB As of December 31, 2014, Andrey Kyrgyzstan, Mongolia, Tajikistan, and Capital). Molchanov is the final beneficiary of Ukraine. Streetlink Ltd., owning 61% of shares In 2014, he held no shares of the of the company. Full Cavalier of the Order for Merit to company. the Fatherland.

In 2014, he held no shares of the company.

70 SERGEY SKATERSCHIKOV ELENA TUMANOVA OLGA SHEIKINA MEMBER OF THE BOARD OF DIRECTORS, MEMBER OF THE BOARD OF DIRECTORS MEMBER OF THE BOARD OF DIRECTORS INDEPENDENT DIRECTOR Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors since February 2008. since June 2010. since June 2007. Born in 1958. Graduated from Lenin Born in 1960. Graduated from St. Pe- Born in 1972. Graduated from Mos grad Shipbuilding Institute in 1981, tersburg State Mining Institute in cow State University in 1994 and from from St. Petersburg State University of 1983 and St. Petersburg State Uni- Fuqua School of Business, Duke Uni- Economics and Finance in 1995, and versity of Economics and Finance, versity, USA with a Global Executive from International Banking Institute Management Program in 2000. MBA in 2003. and Stockholm University Business School in 2007. She has a degree of Olga Sheikina has been working for In 2004–2012, he was member of Master of Economics and additional LSR Group and its subsidiaries since the Board of Directors of OJSC OMZ. qualification – Master of Business its foundation in 1993. At present In 2006–2009 – member of the Board Administration. Honoured Builder of she is Head of LSR Group Moscow of Directors of OJSC Kirovsky Zavod. Russia. In 2005 – awarded a medal In Office, Head of the Administration In May–September 2011, he was Commemoration of the 300th Anni of the Board of Directors of OJSC member of the Executive Committee versary of St. Petersburg. Certified by LSR Group and also CEO of OJSC of LSR Group. In 2011– 2013 – mem- the Russian Ministry of Finance as an MTO Arkhproekt (subsidiary of LSR ber of the Board of Directors of OJSC auditor, and is also a member of the Group). Volga. In 2012- 2014 he was a mem- Russian Chamber of Auditors. ber of the Board of Directors of Red- In 2014, her share in the company re- line Capital Management SA (Luxem- Elena Tumanova has been working mained unchanged and was 0,13%. bourg). In 2012–2014 – member of for LSR Group since its foundation in the Board of Directors of East West 1993. In 1993–2000 – held a number United Bank SA (Luxembourg). of senior positions at financial departments of the group’s companies. In Since 2006 up to date he is a member 2000–2011 – Chief Financial Officer of the Business Board of Indepen- of LSR Group. In 2011–2013, she was dence Holding Limited. Since 2009 Сhief Operating Officer of LSR Group. up to date – CEO of LLC Capital SA. From July 2013 to June 2014 – Advisor Since 2013 up to date – member of to the Chairman of the Board of Direc the Board of Directors of Paddle8 tors of OJSC LSR Group. During the reporting year Kirill Androsov, and since 2014 up to date – member Mikhail Romanov and Mark Temkin of the Board of Directors of Dauria In 2009–2013, she was auditor of LLC were members of the Board of Directors, Aerospace. Professionalaudit. but they were not members of the Board of Directors by the end of the In 2014, he held no shares of the In 2014, her share in the company re- reporting year company. mained unchanged and was 0,13%.

71 COMMITTEES OF THE BOARD OF DIRECTORS

Committees of the Board of Directors Committee members are elected by the Decisions are taken by a majority of are consultative and advisory bodies Board of Directors. According to the list- votes of committee members attend- intended for handling particularly im- ing rules, only an independent director ing the meeting. Each committee mem- portant areas of the company’s busi- may chair the Audit Committee, as well ber has one vote. Information on the ness. Their activity is governed by the as the Human resources and compen- responsibilities and composition of Regulations on the Committees of sations Committee. The Chief Executive Board of Directors committees, as of the Board of Directors of the compa- Officer and members of the Executive December 31, 2014, is presented below. ny. The committees meet separately Committee may not be members of the from the Board of Directors. audit committee, or the human resources and compensations committee.

AUDIT COMMITTEE HUMAN RESOURCES AND STRATEGY AND INVESTMENT The Audit Committee is responsible COMPENSATIONS COMMITTEE COMMITTEE for preparing recommendations to The Human Resources and The Strategy and Investment the Board of Directors on exercising Compensations Committee provides Committee assists the Board of control over the financial and busi- recommendations to the Board of Directors in its responsibilities re- ness operations of the company. Directors relating to the material lating to the corporate strategy in- terms and conditions of employment cluding the control of the strategy The Audit Committee provides as- contracts with members of the Board development and implementation, sessment of nominees to be appoin- of Directors, Executive Committee, analysis and approval of acquisi- ted as independent auditors of LSR CEO and senior management, and tions and business sale transactions, Group, analyses auditor’s opinions, also to the compensation of members approval and follow-up of major in- checks the effectiveness of internal of the Executive Committee, CEO and vestment projects, and investment control procedures, and draws up senior management, and develops budget allocation. proposals for their improvement. the criteria for remuneration of the members of the Board of Directors. In 2014, the Strategy and Investment The Audit Committee supervises the Committee held 3 meetings. preparation of financial statements, The responsibilities of the Human the completeness and accuracy Resources and Compensations STRATEGY AND INVESTMENT of tax, accounting and managerial Committee also include development COMMITTEE: reporting. of the HR policy and regulation of the • Andrey Molchanov – remuneration and incentive schemes Chairman of the Committee In 2014, the Audit Committee of the of company employees. • Dmitri Gontcharov Board of Directors held 6 meetings. • Yury Kudimov In 2014, the Human Resources and • Yury Osipov AUDIT COMMITTEE: Compensations Committee held • Sergey Skaterschikov • Yury Kudimov – Chairman 4 meetings. of the Committee • Yury Osipov HUMAN RESOURCES AND • Elena Tumanova COMPENSATIONS COMMITTEE: • Yury Kudimov – Chairman of the Committee • Yury Osipov • Elena Tumanova

72 CHIEF EXECUTIVE OFFICER Aleksandr Vakhmistrov is the Chief Executive Officer and the Chairman of the Executive Committee of LSR Group.

dustry companies holding posi- Governor of St. Petersburg and tions from that of a specialist to Head of St. Petersburg Governor CEO. He was Head of Construction Administration. In 2010–2013, he was Department No.339 of LPSMO CEO of LLC LSR-Stroy (subsidiary of Glavzapstroy, Production Director of LSR Group). Currently he is CEO of the Soviet-Finnish joint venture en- LLC LSR. gineering firm Lentek, CEO of the Soviet-Finnish joint venture con- First Vice President, member of the struction company FILCO. In 1994, Board of the National Construction he was invited to the Committee Union (NOSTROY). Honored Builder ALEKSANDR VAKHMISTROV for Construction of St. Petersburg of Russia. Merited Builder of the CEO AND CHAIRMAN OF THE EXECUTIVE to administer interaction between Russian Federation. Awarded the COMMITTEE, OJSC LSR GROUP, the city’s authorities and private in- Order for Merit to the Fatherland, 01.07.2010 vestors. At the same time he was 4th degree, Order of Friendship, appointed CEO of the state in- Order of Honor. Two official commen- Member of the Board of Directors stitution Board of Investments dations of Russia’s President, and since June 2014. of St. Petersburg Administration Science and Technology Awards of Construction Department. In the Russian Government. Born in 1954. In 1981 he grad- 1996– 2000, he was CEO of the uated from Leningrad Railway state institution Centre of Bank In 2014, he held no shares of the Engineers Institute with a degree Loans. In 2000– 2003 – Chairman company. in Industrial Construction and Civil of the Construction Committee of Engineering, in 2000 he graduated St. Petersburg Administration and from St. Petersburg University of the Vice Governor of St. Petersburg. RF Ministry of the Interior with a de- In 2003 –2009 – member of the gree in Law. Doctor of Economics. Government of St. Petersburg, Professor of St. Petersburg State Vice Governor of St. Petersburg re- University of Architecture and sponsible for construction and re- Construction and St. Petersburg construction of real estate, road State Polytechnic University. building, architecture and urban planning, and land policy of In 1975–1994, Aleksandr Vakhmistrov St. Petersburg for construction worked for various construction in- purposes. In 2009–2010 – Vice

73 BIOGRAPHIES OF THE MEMBERS OF THE EXECUTIVE COMMITTEE:

SERGEY BEGOULEV LEV VINNIK DEPUTY CEO, MANAGING DIRECTOR OF MANAGING DIRECTOR OF LSR. PROJECT sia's Ministry of Defense. Since LSR. BRICKS & AERATED CONCRETE – MANAGEMENT BUSINESS UNIT 2010 – Deputy CEO of LLC LSR NORTH-WEST Story (subsidiary of LSR Group), Born in 1967. In 1991 graduated from since 2013 – CEO of LLC LSR Stroy, Born in 1974. In 1996 graduated Leningrad Institute of Aviation Instru- Managing Director of LSR. Project from St. Petersburg University of mentation, a degree in Radio Tech- management business unit. Since Economics and Finance. nology. In 1999, he graduated from 2013 – CEO of OJSC Stroykorpo- St. Petersburg International Institute ratsiya (subsidiary of LSR Group). of Management, Management pro- Sergey Begoulev joined LSR Group gram. In 2006–2007, he studied at He was awarded the Commenda- in 1999. He started working in ZAO St. Petersburg State University of tion of St. Petersburg Governor for NPO Keramika as Deputy Head of Architecture and Civil Engineering, attracting foreign investments. Commercial Department, Deputy Industrial and Civil Construction pro- CEO and then CEO. In 2005 he be- gram. In 2014, he held no shares of the came Head of CJSC Pobeda LSR company. which united three brick plants of LSR Group into a single compa- In 2002, Lev Vinnik started working ny. In 2012– 2013 – CEO of LLC Ce- at the real estate development busi- ment (subsidiary of LSR Group). In ness unit of LSR Group in St. Pe- July 2013, he was appointed Mana tersburg as New Projects Manag- ging Director, Bricks & Aerated con- er. In 2003, he was appointed Head crete – North- West. Since Decem- of Development Team and then Ex- ber 2013 – Deputy CEO, Managing pert in New Projects. In 2003–2007 Director of LSR. Bricks & Aerated – First Deputy Director and then Di- concrete – North-West. rector of St. Petersburg State Insti- tution Directorate for Investments. In 2014, his share in the company re- In 2007, he started to work for Rus- mained unchanged and was 0.04%.

74 GALINA VOLCHETSKAYA YURI ILYIN DEPUTY CHAIRMAN OF THE EXECUTIVE DIRECTOR OF INVESTOR RELATIONS COMMITTEE, EXECUTIVE DIRECTOR

Born in 1977. In 2000 graduated from Born in 1967. Graduated from the St. Petersburg State University and Faculty of Law of Leningrad State Uni- Stockholm University, School of Busi- versity named after A.A. Zhdanov in ness, МВА. 1989. PhD in Law. Yuri Ilyin joined LSR Group in 2005. In 1989-1991, Galina Volchetskaya In 2005–2006 he was Advisor to First was a Legal Counsel at USSR State Vice President of LSR Group. Logistics Committee (Leningrad terri- torial directorate). In 1992–1994, she In 2006–2007 – Head of Commercial worked for a private law company, in Real Estate of OJSC Construction 1994–2011 – in the system of State Corporation Renaissance of St. Pe- Registrations of Rights for Realty. In tersburg (subsidiary of LSR Group). 2000–2002 she gave civil right lec- tures at St. Petersburg State Universi- In 2007–2010 worked as Deputy CEO, ty of Engineering and Economics. Ga- and later – CEO of CJSC A Plus Es- lina Volchetskaya joined LSR Group in tate (subsidiary of LSR Group). April 2011. She was appointed Depu- ty Chief Legal Officer. In 2013, she be- In June 2010 was appointed Deputy came Deputy Chief Operating Officer. Director of Investor Relations of LSR Since July 2013 – Deputy Chairman Group, in May 2011 – Director of In- of the Executive Committee, Execu- vestor Relations. In May 2012 he be- tive Director. came Director of Investor Relations and Corporate Communications. In 2010, she was awarded the Certi Since July 2013 – Director of Inves- ficate of Merit of the President of the tor Relations. Russian Federation. In 2014, he held no shares of the In 2014, she held no shares of the company. company.

75 VASILY KOSTRITSA Awarded the Medal of St. Seraphim DMITRY KUTUZOV DEPUTY CEO, MANAGING DIRECTOR of Sarov, 2nd degree. Vasily Kos- CHIEF FINANCIAL OFFICER OF LSR. AGGREGATES & READY- tritsa is a Member of the Legislative MIX CONCRETE – NORTH-WEST Assembly of the Leningrad region, Born in 1976. In 1999, graduated Deputy Chairman of the Commission from St. Petersburg State Universi- Born in 1964. In 1986 graduated from for Natural Resources Management ty of Finance and Economics, a de- Leningrad Institute of Marine Trans- and Environmental Protection, mem- gree in Economics. In 2005, graduat- port, a degree in Economics and ber of the Commission for Construc- ed from St. Petersburg International Management of Marine Transport. tion, Transport, Communication and Management Institute (IMISP), Busi- PhD in Economics. Roads. Member of People’s Front of ness Finance program. Russia. Representative of United Rus- Since 1992 he held various posi- sia party in the Legislative Assembly. In 2004, he began his career in LSR tions at North-West River Shipping. Honored Builder of Russia. Group as Head of Economic Plan- From 1997 he was CEO of LLC Stroy- ning Department. In 2008, was ap- Granit SPb. In 1999 he was appoint- In 2014, his share in the company re- pointed Deputy Chief Financial Offi- ed CEO of LLC Baltnerud. In 1997, mained unchanged and was 0.21%. cer, Head of Treasury Department. he became member of the Board of Since May 2011 he is Chief Financial Directors of OJSC Granit-Kuznech- Officer of LSR Group. noye, then, in 2002, was appointed CEO, in 2005 – Managing Director. Awarded the Honorary Certificate of Since 2011, he was Managing Direc the Vice Governor of St. Petersburg tor of LSR Aggregates & Ready-mix for high professional achievements, Concrete – North-West. In July 2013, impeccable and conscientious work he was appointed Deputy CEO, in the construction industry in 2011. Managing Director of LSR. Aggre- gates & Ready-mix Concrete – North- In 2014, he held no shares of the West and LSR. Cement – North-West. company.

Awarded the Honorary Certificate of Russia’s Ministry of Regional Development and the Badge of Mer- it of Priozersky district. Honored citi- zen of Kuznechnoe, Leningrad region.

76 VLADIMIR LOGINOV BORIS MURASHOV Since 2014 has been CEO of LLC DEPUTY CEO, BUSINESS DEPUTY CEO OF LSR GROUP LSR-Stroy (subsidiary of LSR Group). DEVELOPMENT OF LSR GROUP Honored Builder of Russia. Honorary Born in 1957. In 1980, graduated Transport Worker of Russia. Born in 1974. In 1999, he graduated from Moscow Institute of Railway En- from St. Petersburg State University, gineers with a degree in Bridges and In 1997, was awarded the internation- Faculty of Law. In 2007–2009, he Tunnels. al prize for the construction of a busi- studied at the School of Tax Attorneys ness center in Eisenstadt (Austria). of St. Petersburg State University. In 2004, he graduated from the In 2004, 2010 and 2012, was award- Northwest Academy of Public Service ed the Diplomas by the Governor of In 1996 started working at Leningrad with a degree in Finance and Credit. St. Petersburg. In 2009, was award- Region Registration Chamber with In 1974–1994, worked in various con- ed the badge In Commemoration of the Government of Leningrad region struction companies, holding posi- the 200th Anniversary of the Depart- holding various positions from spe- tions from specialist to Head of a ma- ment of Marine and Land Transport. cialist to Deputy Head of Legal Affairs jor construction company. He was Department. In 2003, he was appoint- engaged in various construction proj- In 2014, he held no shares of the ed Head of Legal Affairs Department ects in Russia, Latvia, Estonia, Turk- company. of LSR Group. In 2005– 2013, he was menistan and Austria. In 2001–2009, Chief Legal Officer of LSR Group. he held senior positions in the Fe deral institution Department for Con- Since January 2013 he is Deputy struction of the Ring Road of St. Pe- CEO, business development of LSR tersburg of the Federal Road Agency. Group. In 2006 he was appointed CEO of the institution. In 2009, he headed St. Pe- In 2003, he was awarded the med- tersburg Committee for Improvement al In Commemoration of the 300th and Roads. In 2010, was appointed Anniversary of St. Petersburg, Chairman of the Committee for Trans- in 2011 – the Honorary Certificate of port Infrastructure Development in the Vice Governor of St. Petersburg. St. Petersburg. In 2012– 2013, he was Assistant to the Minister of Re- In 2014, he held no shares of the gional Development. Since Novem- company. ber 2013 – Deputy CEO of LSR Group.

77 IVAN ROMANOV that – Managing Director of the Cor- LEONID SOROKKO MANAGING DIRECTOR, MOSCOW poration. Since 2007 – Managing DEPUTY CEO OF LSR GROUP Director of CJSC Mosstroyrekon- Born in 1973. In 1994, he graduated struktsiya (the company’s real estate Born in 1954. In 1976 graduated from from Leningrad Industrial College of development business unit in Mos- Leningrad Institute of Civil Engineer- Building Materials and Elements with cow). Since 2009 he was Head of ing with a degree in Industrial and a degree in Industrial and Civil Con- LSR. Moscow. Since 2011 – Manag- Civil construction. struction. He continued his educa- ing Director, member of the Execu- tion at St. Petersburg State Technical tive Committee. In 2012, he worked Leonid Sorokko started his career in University and in 1998 he graduated for the Government of the Moscow 1977 – he worked for various con- from the Faculty of Economics and Region. In April 2013, he was ap- struction companies holding posi- Management. In 2001, he studied at pointed Managing Director, Moscow. tions ranging from specialist to CEO St. Petersburg International Manage Since 2014 has been the Director of of a huge construction enterprise. ment Institute (IMISP), Project LLC Promobyekt (subsidiary of LSR In 2007–2009 – Head of the De- Management programme, and also Group). partment for Construction of Rus- at St. Petersburg State University, Fi- sia's Defense Ministry and Advisor nancial Management programme. In 2014, his share in the company to the Minister of Defense of Russia. changed from 0.077 to 0.066%. In 2009–2013, he was CEO of LLC In 1994–1998, Ivan Romanov worked Construction Company Pyotr Veliky. as a real property appraiser in Dom Since November 2013 – Deputy CEO Plus real estate agency, St. Peters- of LSR Group. burg. In 1998, he was invited as a real estate development analyst to the In 2008 he was awarded the Order of World Bank’s project Reconstruction Honour by Presidential Decree. of the historical centre of St. Peters- burg. In 2000– 2001, he was a mem- In 2014, he held no shares of the ber of the Investment Appraisal Board company. of the Russian Federation State Committee for Construction, Archi- tectural and Housing Policy.

He joined LSR Group in 2000. He started as an economist in OJSC Construction Corporation Re- naissance of St. Petersburg, later – Head of Economic Planning Department, in 2001 – Deputy CEO, in 2002– 2007 – CEO, after

78 KLIMENT FALALEEV DMITRY KHODKEVICH MANAGING DIRECTOR, URALS DEPUTY CEO, MANAGING DIRECTOR OF LSR. REAL ESTATE – NORTH-WEST Born in 1978. In 2001 graduated from St. Petersburg National Institute of Born in 1970. Graduated from Lenin Mechanics and Optics. In 2012, he grad Higher Military Engineering completed his education at Chicago and Construction School named af- Booth School of Business (EMBA). ter Army General A. Komarovsky with a degree in Construction and Opera In 2003–2004 worked in LSR Group tion of Buildings and Structures in as a Senior Finance Analyst of Finan 1992. cial Planning and Control Depart- ment. In 2005–2007 – Deputy CFO In 1999, Dmitry Khodkevich became of LSR Group. In 2008–2011, he was Deputy CEO of OJSC Construction Director of Investor Relations. In May Corporation Renaissance of St. Pe- 2011, he was appointed Managing Di- tersburg. In 2000, he was appoint- rector. In January 2013, he was ap- ed Deputy CEO for Construction and pointed Director of Regional De- in 2006 – Director for Construction. velopment, Urals. Since July 2013 Since February 2011 he was Manag- – Managing Director, Urals. ing Director of LLC GDSK. In Septem- ber 2011, he was appointed Managing In 2014, his share in the compa- Director, Real Estate – North-West. ny remained unchanged and was In 2011– 2013 – he was also CEO of 0.0015%. OJSC Stroykorporatsiya. Awarded the Honorary Certificate of the Vice Governor of St. Petersburg, Honorary Certificate of the Chairman of State Committee of Russian Fede ration for Construction and Housing Maintenance and Utilities for long- term efficient work and personal con- tribution to the development of the construction industry.

In 2014, he held no shares of the company.

79 INTERNAL AUDIT COMMISSION INTERNAL AUDIT SERVICE DISCLOSURE POLICY In accordance with the existing legis- In order to enhance the efficiency of In our information policy we are guid- lation and the Charter of LSR Group, control over the company’s finan- ed by the international practices of the supervision of financial and cial and business operations, the In- information disclosure and the re- business operations of LSR Group ternal Audit Service was established quirements of the international and is exercised by the Internal Audit in 2007. The Internal Audit Service Russian legislation, United Kingdom Commission composed of three per- should assess compliance of the Financial Services Authority (FSA) sons elected by the General Meeting financial and business operations of and the Russian regulator, Federal Fi- of Shareholders for the period of one LSR Group, its business units, sub- nancial Markets Service (FSFR), and year. Members of the Internal Audit sidiaries and associated companies also the company’s Disclosure Poli- Commission may not be members of to the interests of LSR Group, se- cy Provisions. the Board of Directors or hold other cure the company’s assets, evalu- positions in the company’s manage- ate risks and develop risks mitigation Information covering the activities of ment bodies. measures. LSR Group is contained in documents and reports made on a regular basis. Financial and business results of the INDEPENDENT AUDITOR In particular, in accordance with the company are reviewed annually on In accordance with the existing legis- provisions of the RF legislation, the a mandatory basis, and additional- lation, the General Meeting of Share- company publishes on its website an- ly at the initiative of the Internal Audit holders approves an independent nual and quarterly reports on a regu- Commission, by decision of the Gene auditor to audit the company’s finan- lar basis. ral Meeting of Shareholders, Board of cial statements on an annual basis. Directors, or upon request of share- CJSC Audit-Servis was approved to Under the listing requirements of holders with at least 10% of voting audit RAS-based financial statements CJSC MICEX Stock Exchange, a re- shares in OJSC LSR Group. of LSR Group. CJSC KPMG was ap- port on compliance with the corpo- proved to audit the company’s IFRS- rate conduct regulations is submitted The competence of the Internal Audit based statements. by LSR Group on a quarterly basis. Commission on matters not provided for in the Charter shall be determined The Company’s RAS-based finan- Information regarding the activities by the Regulations on the Internal Au- cial statements auditor CJSC Audit- of LSR Group is also disclosed by dit Commission. Servis was reorganized to LLC Audit- means of press releases, notices of Servis SPb with assignment of all the material facts and the lists of associ- The Internal Audit Commission is es- rights, liabilities and obligations of the ated companies. tablished in accordance with the reorganised company in accordance existing legislation under which all with the act of transfer and accep- joint stock companies registered with- tance on 30.12.2014. in Russia should have this body for the purpose of exercising supervision of REMUNERATION OF the financial and business operations MEMBERS OF COMPANY’S of the company. MANAGEMENT BODIES In 2014, remuneration paid to the members of company’s management bodies, including the Board of Directors and the Executive Commit- tee, was RUB 239,805 th

80 Share Capital

As of December 31, 2014 the share capital of OJSC LSR Group was RUB 25,757,553.75 and consisted of 103,030,215 ordinary shares, each with a nominal value of RUB 0.25. All issued ordinary shares are fully paid-up. The company did not place any preference stock

SHAREHOLDING STRUCTURE Ordinary shares on MICEX Stock As of December 31, 2014, 33% of Exchange: the share capital of LSR Group was in free float. The key shareholder of State registration number: LSR Group – Streetlink Ltd. – was 1-01-55234-Е holding 61% of the shares, the com- State registration date: 28.09.2006 pany’s management – 5% and LLC Stock exchange: CJSC MICEX Stock LSR – 1% of the share capital. Exchange Ticker: LSRG ISIN for ordinary shares: 5% Management RU000A0JPFP0 33% Free float GDRs on London Stock 61% Street Link Limited Exchange: 1% LLC LSR Stock exchange: London Stock Exchange Ticker: LSRG INFORMATION ON ORDINARY Regulation S GDR SHARES AND GDRS CUSIP: 50218G206 The company’s shares are traded ISIN: US50218G2066 both on domestic and international Common Code: 032415202 stock markets. In particular, the com- Rule 144A GDR pany’s ordinary shares and bonds are CUSIP: 50218G107 traded on the Russian stock market, ISIN: US50218G1076 the company’s global depositary re- Common Code: 032415334 ceipts (GDRs) are traded on London Stock Exchange.

81 PUBLIC OFFERINGS tional offer. The net proceeds after The GDR programme is implement- OF COMPANY’S SHARES deducting all the offering expenses ed and supported under Regulation S In November 2007, LSR Group car- were USD 385 m. As a result of the and Rule 144A. Deutsche Bank Trust ried out an initial public offering. The secondary public offering, the to- Company Americas acts as deposi- offering volume was 10,643,618 or- tal number of shares increased up to tary and the functions of custodi- dinary shares in the form of ordinary 103,030,215 shares. an bank are performed by Deutsche shares and global depositary receipts. Bank Ltd. Moscow. The offering price was USD 72.50 As of December 31, 2013, the ordinary per share and USD 14.50 per glob- shares of LSR Group are included into al depositary receipt. As a result, the quotation list of the First level of LSR Group raised USD 588 m (adjust- MICEX stock exchange under the tick- ed for the IPO costs). The IPO of LSR er LSRG. Group became one of the largest public offerings implemented by a con- LSR Group’s global depositary re- struction sector company in Russia. ceipts are traded under the ticker symbol LSRG on the Main Market of On April 30, 2010, LSR Group car- London Stock Exchange (LSE). Each ried out a secondary public offering. depositary receipt represents 1/5 of A total of 9,366,383 ordinary shares an ordinary share (a ratio of 5 GDRs : in the form of global depositary re- 1 Ordinary Share). ceipts were placed under interna-

SHARE PRICE PERFORMANCE IN 2014 ORDINARY SHARES ON MICEX 700 656 610 594 588 581 580 600 556 560 568 488 500 455 454

Trading volume 400 2,065,182,644.50 300

Maximum price 693.50 200 Minimum price 366.20 100 End-year price 454.00 0 Source: www.micex.ru JAN FEB MAR APR MAY JUNE JULY AUG SEPT OCT NOV DEC

SHARE PRICE PERFORMANCE IN 2014 GDRS ON LONDON STOCK EXCHANGE

5.0

4.0 3.94 3.90 3.60 3.66 3.51 3.40 3.41 2.99 2.92 Trading volume 3.0 2.75 352,409,772 2.32 2.0 1.56 Maximum price 4.18 Minimum price 1.35 1.0 End-year price 1.56 0.0 Source: Bloomberg JAN FEB MAR APR MAY JUNE JULY AUG SEPT OCT NOV DEC

82 DEPOSITARY’S CONTACTS RUSSIAN REGISTRAR’S CONTACTS Deutsche Bank ZAO «Kompyutersher Registrator» Trust Company Americas (license № 10-000-1-00252) London +4 4 207 547 6500 Address: 8 Ivana Franco New York +1 212 250 9100 Street, 121108 Moscow Moscow +7 495 797 52 09 Phone: +7 495 926 81 60

Correspondence address: Address of St. Petersburg Deutsche Bank Trust Company Americas subsidiary of ZAO Kompyutersher Depositary Receipts60 Wall Street New Registrator: 6 Belovodsky Pereulok, York NY 10005-2836 194044 St. Petersburg Address in Russia: 82 Building 2, Phone: +7 812 541 82 48 Sadovnicheskaya Street, 115035 Moscow Depositary Receipts

DIVIDEND POLICY company’s annual financial results Shareholders Meeting should con- The dividend policy of LSR Group and, as a rule, constitutes at least sider returning surplus capital to our is developed in accordance with 20% of the consolidated net profit as shareholders in the form of dividends the existing Russian legislation, the per IFRS. to be paid based on the results of the company’s Charter and internal 2011 fiscal year. regulations of LSR Group. In 2014, Prior to 2011, LSR Group did not the Board of Directors of LSR pay out dividends. The company’s Group adopted a new version of the profit was reinvested into business dividend policy, which is available development. on the company’s website. The recommended amount of dividend In 2012, after analyzing the com- payments is determined by the pany’s capital structure, the Board Board of Directors based on the of Directors recommended that the

DIVIDEND HISTORY DATA

YEAR (DIVIDEND DIVIDENDS PER TOTAL AMOUNT TOTAL AMOUNT OF DATE OF THE GENERAL PERIOD) SHARE, RUB OF DIVIDENDS ON DIVIDENDS PAID ON MEETING OF SHAREHOLDERS, ORDINARY SHARES, ORDINARY SHARES, WHEN THE DIVIDEND WAS RUB RUB DECLARED

2010 15 1,545,453,225 1,545,453,225 07.04.2011

2011 20 2,060,604,300 2,060,604,300 05.04.2012

2012 20 2,060,604,300 2,060,604,300 05.04.2013

2013 40 4,121,208,600 4,121,206,600 20.06.2014

83 Risks

COUNTRY AND REGION RISKS censes, permits and approvals from an adverse effect on the profitabili The country and region specific risks relevant authorities. ty of LSR Group. Growing prices for include risks of macroeconomic in- raw materials, services and energy stability in Russia due to fluctuations Problems with obtaining all the used by the company’s subsidiaries of the global economy and a decline necessary licenses, permits and ap- in their business, an increase in land in the prices for raw materials, risks provals may result in an increase in prices and rental fees, fees for utili- related to unsatisfactory infrastruc- the project timeline including the im- ties, and also in wages may reduce ture condition, political and social possibility of completing such proj- the profitability of the company’s instability, and also possible natural ects, and the increased costs. Apart business. The increase of prices for and man-caused disasters. All of the from that, delayed completions may the company’s products and/or ser- above may have an adverse effect on adversely affect our reputation, which vices due the above mentioned fac- the ability of LSR Group to efficiently may result in financial loss. tors may result in lower sales volumes carry out business, and also on the which would entail reduced revenues value of shares and global depositary Changes in the permitting process from such operations due to a decline receipts. and the process of obtaining rights to in the effective demand (in the event land plots, as well as changes in the that the growth of prices for products INDUSTRY-SPECIFIC RISKS town-planning legislation, may result and/or services outstrips demand). The markets for real estate, build- in the increased timeline of projects ing materials and services, similarly and additional costs. In its turn, the Most of our operations are located in to any other commodity market, are increased timeline of projects may St. Petersburg, the Leningrad region, exposed to fluctuations in business result in the cancellation of leasehold Moscow, the Moscow region and activity. The above markets are like- agreements. Yekaterinburg; this results in the risk ly to suffer from adverse changes in of geographical concentration. the market situation, which may re- The success of real estate develop- sult in lower revenues from the sales ment businesses depends, to a great Acquisitions of existing businesses of products and services. extent, on the ability to locate and ac- have always been one of the priorities quire land suitable for construction of company’s development. How The company is exposed to the risks on attractive terms. ever, they may result in the risk of cir- typical of the real estate development cumstances arising from the acquisi- and construction businesses in Rus- Higher operating costs, growing va tion of new legal entities. In addition, sia. This business is labour-intensive, lue of insurance coverage, potential- problems may emerge with the inte- requires significant investments, de- ly stricter requirements of the tax and gration of newly acquired businesses pends on the obtaining of different li- environmental legislations may have into the group.

84 Our growth in the past was large- Group, the delivery terms are adjust- lished time, which may result in fines, ly due to the possibility of attracting ed in accordance with the rating, we penalties and damage to business highly skilled and experienced per- carry out analyses of new contrac- reputation. LSR Group manages the sonnel to the company. The labour tors and suspend delivery in the case liquidity risk by planning cash flows market in Russia is changing, and it of contract terms violation and refus- from operational, investment and fi- is impossible to guarantee that in the al of the contractor to settle the in- nancial activities to ensure as much future it will be as easy for us to find debtedness. If necessary, our legal as possible – both under normal and the human resources required. department starts legal action to col- extraordinary circumstances – suffi- lect debts. The company establishes cient liquidity to meet its obligations FINANCIAL RISKS allowance reserves to write off bad using if necessary short-term credit RISKS OF INTEREST RATE CHANGE debts if needed. facilities and making efforts to refi- An increase in the interest rate of nance debt. A detailed description of bank loans or other financial instru- CURRENCY RISKS financial risk management is present- ments may result in higher debt ser- A sharp increase in the exchange rate ed in Note 26 to IFRS financial state- vicing costs, and also limit the avail- of USD or EUR to RUB may result in ments. ability of external financing to the higher payments on leasing liabilities, company. and also affect the key parameters of LEGAL RISKS the company’s investment plans pro- The legal risks are determined, CREDIT RISKS viding for the procurement of the im- among other things, by the flaws of The default on accounts receivable is ported equipment. The company mi- the Russian legal system and Rus- one of the financial risks the company nimises any disproportion between sian legislation, which results in an may be exposed to. Management of the currency units in which its basic atmosphere of uncertainty regarding the financial risks is carried out by the revenues and expenditures are de- investment and commercial activi- business units of LSR Group based nominated, and between the compa- ties. The legal risks of LSR Group, in- on the unified corporate principles ny’s assets and liabilities. The com- cluding those due to changes in the and in accordance with the Policies pany receives most of its revenues in currency exchange regulation, tax on management of credit risks with- RUB, and its costs are also denomi- legislation, and licensing may have in LSR Group. Business units have nated mainly in RUB. a considerable effect on LSR Group. the approved procedures to moni- tor and collect the accounts receiv- LIQUIDITY RISKS RISKS OF TAX LEGISLATION CHANGE able: the contractors are rated in ac- The liquidity risk means that a com- Change in the tax system of the Rus- cordance with their financial position pany may be unable to meet its fi- sian Federation may result in signifi- and the history of interaction with LSR nancial obligations within the estab- cant uncertainty and risks that will

85 complicate the decision making pro- tivities. If regulators identify breach- enforcement practice may cause LSR cedure in tax planning and business es of license conditions made by the Group to be brought to liability, and in Russia and may have a substan- company’s subsidiaries, it may re- have a negative impact on its busi- tial negative effect on the business of sult in the suspension, change, and ness. Formal violations of the corpo- LSR Group. Changes in the legislation cancellation of, or refusal to extend rate legislation committed upon es- on taxation are not properly elaborat- licenses and permits issued to the tablishment of, or during the activities ed and allow for different approach- subsidiaries, or in the demand to give of organisations may result in their es and interpretations. The vague le up certain types of activity. Each of compulsory liquidation, including af- gislation exposes LSR Group to the the above factors may have an ad- ter such organisations have been risk of substantial fines and penalties verse effect on the company’s busi- acquired by LSR Group. Such com- in spite of its keenness to comply with ness, financial standing and operatio pulsory liquidation of LSR Group’s the legislation, and may result in in- nal results. subsidiaries may have a substantial creased tax burden for the company. negative effect on its business. The tax collection system is relatively OTHER LEGAL RISKS inefficient, and the RF Government is Changes in the securities market The requirements of the environmen- forced to increase the tax burden to legislation, including the adoption of tal legislation of the Russian Federa- collect more revenues. The aforesaid the legislation on suspending illegal tion may impose various additional factors increase the risk of impos- use of insider information and market obligations on the company’s sub- ing unexpected and arbitrary taxes manipulation, as well as its shortcom- sidiaries compliance with which may as well as cancelling tax allowances. ings such as the uncertainty and lack affect operational results. In addition, There is a risk of new taxes, fines and of enforcement actions may have claims may be lodged against the penalties, which may have a negative a negative impact on the activities of company’s subsidiaries on environ- effect on the business of LSR Group. LSR Group. mental issues.

LICENSE RISKS Changes in, or adoption of new cor- All these weaknesses may affect the Changes in the licensing require- porate regulations and procedures company’s abilities to exercise its ments may have a substantial effect established by laws and other enact- rights under contracts, as well as its on the business results of the sub ments, may entail unfavorable con- ability to defend itself against third sidiaries and associated companies sequences for LSR Group in the form party claims. Moreover, the company of LSR Group. The impossibility to ex- of additional expenses incurred to is unable to guarantee that regulatory tend the validity of licenses, or their abide by the above procedures. Un- and judicial authorities as well as third withdrawal, may result in the suspen- certainty in the regulatory control and parties will not challenge the com- sion of the respective company’s ac- insufficiencies of the case law or law pliance by the company and its sub

86 sidiaries with the provisions of laws, tices with the actual risks faced by the decrees and regulatory instructions. Company. The Internal Audit Service assesses the state of risk manage- RISK MANAGEMENT ment and internal control systems at STRUCTURE the level of the company’s business LSR Group has a multi-level system units, and reports to the Audit Com- of risk management and internal con- mittee and senior management. Ex- trol, which is assessed by the Board ternal auditors conduct an annual of Directors. The Executive Commit- audit of the financial statements of tee approves key decisions on risk LSR Group, prepared in accordance management and internal control. with RAS (Audit Service of St. Peters- Operational risk management is car- burg) and in accordance with IFRS ried out by subsidiaries of LSR Group (KPMG). The Audit Committee has based on the general corporate prin- found the process of external and in- ciples as set out in the various regu ternal audit to be effective. The In- lations of the Company. The cor- ternal Audit Service of LSR Group responding acts regulating the core also monitors financial and economic business processes of their activit- activities. In order to improve the ef- ies are adopted by the subsidiaries fectiveness of risk management and of the Company. The company has internal control systems, LSR Group centralised accounting, legal, in- has organised a secure, confidential formation technology support and and easy way to inform officers of the economic security functions. The Company about the facts of violations Board of Directors is responsible for by company’s employees of the law, the general policies in regard to risk the Code of Ethics or other internal management and internal control. procedures (The “Trust” Line). The Audit Committee of the Board of Directors oversees that the management correctly evaluates compliance of the decision-making practice with policies on risk management and internal control, as well as the compliance of the risk management prac-

87 Social Responsibility Employees

OUR PEOPLE in other regions of presence – the The main principle of our HR policy Moscow region, Yekaterinburg and is that our people are the strategic Ukraine. Blue-collar workers account resource of the company. Our task for 80% of our personnel. The aver- is to create opportunities for our em- age employment period is more than ployees to unlock their potential and 5 years. The average age of our em- fulfill their professional ambitions as ployees is 41. part of the company’s development strategy. MOTIVATION PROGRAMMES Our subsidiaries use contemporary The company’s corporate HR policy motivation techniques aimed at im- is based on the unified principles of proving personnel efficiency and recruitment, training, social support, encouraging personal involvement motivation and remuneration of our in the company's goals. The incen- employees in order to implement the tive programmes for top managers company’s business goals more ef- answering the company’s annual ficiently. and medium-term goals are being successfully implemented. In 2014, By creating favourable working con- we introduced a long-term share- ditions, maintaining decent salaries based incentive programme for top and improving professional skills of managers aimed at enhancing the our people we ensure high efficiency company’s performance and creat- and supreme quality of our products ing greater shareholder value. We and services which are the drivers of also have introduced motivation pro- our future achievements. grammes for mid-level managers and specialists. GENERAL INFORMATION ON EMPLOYEES We guarantee our employees stable LSR Group is one of Russia’s largest income and timely payment of com- employers. As of the end of 2014, we petitive salaries. In 2014, the compa- employed more than 15.5 th people. ny's payroll was more than RUB 9 bn. Most of them – 73% – are working in The average monthly salary was our business units in the Northwest- RUB 42,120. ern Federal District. 27% are working

88 We also use non-financial motiva- ployee vaccination, transfers to out- tion techniques, including the corpo- lying work locations. Our employees rate awards of LSR Group. In 2014, are also provided with health resort 327 employees of LSR Group were treatment benefits. given corporate awards including 7 employees given the highest cor- In 2014, we introduced a programme porate award – the golden badge to increase availability of housing for Best in LSR. our employees. During the reported

The company’s social policy is based on the efficient labour management and social security of our people

The achievements of our employ- year 237 employees acquired apart- ees have been acknowledged with ments in our real estate development various government and industry projects at a corporative discount. awards. In 2014, 180 employees of LSR Group were awarded for their In 2014, we spent more than achievements in construction, build- RUB 260 m to our social programmes ing materials industry and contribu- including the monetary subsidies to tion to the development of the con- our employees worth RUB 18 m. struction sector. In 2014, 445 children were born in the SOCIAL SECURITY families of our employees, including The company’s social policy is based 161 second children and 30 third chil- on the efficient labour management dren, which shows that our people and social security of our people. It feel confident about their future. fully complies with the existing labour regulations including those related to social benefits and social security of all categories of employees. Great attention is paid to the employees’ welfare, including catering, provision of work clothing, emergency medical aid, in-house medical stations and health care arrangements with local medical institutions, annual em

89 GROWING WITH LSR ings which are being constructed In 2014, our project Growing with LSR by LSR Group. In 2014, only in the was in the active phase. The project Leningrad region the company built is aimed at boosting the awareness 8 kindergartens for 1,435 children. of LSR Group’s brand, making the profession of a builder more popular, The project also implies charity and strengthening corporate traditions, volunteer activities aimed at sup- promoting family values, increasing porting orphanages and educational the involvement and loyalty of our institutions. Special attention is paid employees. The target audience in- to professional schools training spe- cludes the employees of LSR Group cialists for the construction industry. and their children, our clients and For such students we provide factory partners and their children, partici- visits and internship programmes. pants of the company’s charity programmes and students.

In 2014, only in the Leningrad region the company built 8 kindergartens for 1,435 children

The project was carried out in all re- TRAINING gions of our presence and included The expanding scale of our business cultural and educational events for and introduction of the advanced children, excursions to our produc- management techniques require ef- tion facilities and real estate devel- ficient and high quality human re- opment projects. As a part of this sources. That is why we pay particular project we also developed decorative attention to personnel development elements for children’s playgrounds, programmes and creation of a suc- kindergartens and other public build- cession pool.

90 In 2014, our centralised Personnel A Professional Assessment Centre proved for further detailed analyses Evaluation and Development Cen- is a part of our Personnel Evaluation and implementation. The shortlist tre was engaged in a number of and Development Centre providing included 21 projects implying up- programmes aimed at developing qualification certificates which allow grade of equipment and production the company’s management pool. employees to perform certain types facilities, improvement of business In particular we continued our pro- of works. In 2014, 17 employees were processes, launch of new products gramme “Tools of efficient work” successfully certified by the centre. and services. Over the last three designed for promising employees years 326 applications were received who may soon become managers. The subsidiaries of LSR Group have and their number is increasing each In 2014, 38 employees were trained their own training centres aimed at year as our employees are inspired under this programme. Apart from satisfying the company’s demand to play an active role in the life of the that we continued a programme for qualified professionals. In 2014, company and improve their labour Business Erudite which combines approximately 3 th employees were efficiency. The financial effect from 3 courses – Corporate Finance and trained in such centres. The total the innovation projects implement- Economics, Marketing Management number of employees trained during ed in 2013–2014 was estimated at and Project Management. During the 2014 exceeded 4 th. RUB 21.7 m. year 45 employees completed these courses. In LSR Group training programmes are treated as an important tool to In 2014, in our Assessment Centre we increase labour productivity and effi- evaluated 58 managers at different ciency of the company as a whole. In levels. Based on this assessment we 2014, the costs of personnel training introduced a training programme to exceeded RUB 20 m. improve competencies of our mana gers with an assistance of profes- Increasing labour efficiency is a pri- sional coaches and advisors. ority task for the company. In order to promote development and imple- A group of 7 managers successfully mentation of business ideas and in- completed a programme Mini-MBA. novations we introduced the annual Corporate Economy and Manage- Development award. During 2014, ment at the St. Petersburg State Uni- 136 applications were submitted in- versity. cluding 51 applications that were ap-

91 Charity

THE CHARITY POLICY OF LSR GROUP Social and charitable activities car- IS BASED UPON THE FOLLOWING ried out on the basis of the above- PRINCIPLES: mentioned principles demonstrate our willingness to undertake long- term obligations and guarantee their Targeted assistance fulfillment. We not only provide financial assistance to individuals or insti- Consistency tutions, but introduce a whole system to make this aid most efficient. Involvement We use modern approaches to chari ty programmes providing both finan- Transparency cial and non-financial support including allocation of building materials Audit and providing consulting services. and improvement Our employees are also involved in of social programmes charity activities.

CHILD CARE PROGRAMMES LSR Group social programmes are aimed at providing each child with all LSR Group is one of the major tax the things which are necessary for payers and employers in Russia. a happy childhood: a loving family Apart from that, the company is and a safe and developmental envi- actively involved in various charity ronment. programmes and considers charity a very important component of cor- One of the most significant and effec- follow-up advice for the families as porate social responsibility. tive charity projects of LSR Group is well as preventing secondary rejec- the cooperation with Parents’ Bridge tions. In 2014, with a support from We treat our charity activities as an in- Foundation whose specialists help LSR Group, Parents’ Bridge Founda- vestment into human capital assets, parentless children find new families. tion continued to implement its train- improvement of social environment This cooperation started in 2004 and ing programme School for Foster and living standards in all our regions is based on a programme aimed at Parents aimed at citizens willing to of presence: in St. Petersburg and the families willing to adopt orphans. In foster orphans. In 2014, 38 children Leningrad region, Moscow and the total, as a result of this programme found new families as a result of this Moscow region, Yekaterinburg and known as Angels with Broken Wings, programme. the Ural region. The charity activities 113 children have already found new are a very important component of parents. Funds are allocated for the In 2014, LSR Group and the North- our positive business reputation and targeted financial support of the ad- West Orphans Fund Deti Zhdut con- public image. opted and fostered children and in- tinued another project aimed at dividual work of psychologists and assisting families willing to adopt social educators providing efficient orphans – the creation of the Inter-

92 net portal детиждут.рф. Precise, de- chologists, social workers and law- the participation of famous singers, tailed and constantly updated inform- yers. With the help of the fund’s em- actors, popular music bands and ation on children institutionalised in ployees young mothers can learn to with the help of modern computer orphanages of Northwest Russia is solve household issues, plan out the technologies. Children of LSR Group employees were also invited to the concerts.

Arteria Centre for Collective Art Work opened in December, 2013 as a social project financed by LSR Group. The project implies organising art classes for children with disabilities and for orphans in the same environment with healthy children who live in families. The classes are mainly aimed at enhancing socialisation for children with disabilities, including them in the system of social relations and broadening their social circle.

In 2013–2014, 30 children had classes at the Centre. Currently 61 children between ages 6 and 14 are going to the Centre. In 2014, the educational programme was expanded. Apart posted on the portal. The programme budget, raise and teach children. In from art classes the Centre also gives has already helped 1,791 children to 2014, in total 13 mothers and 17 chil- music lessons at which children lis- find new parents. In 2014, new St. Pe- dren resided in the shelter. ten to music, sing, play music in- tersburg foster care institutions web- struments and dance. Last year the sites were launched. In 2014, with support from LSR Group Centre expanded its aims and added several charity concerts for children another student category – children In 2014, LSR Group and Deti Zhdut were given at Grand Concert Hall from families in challenging condi- fund continued to work together in Oktyabrsky in St. Petersburg. Chil- tions. Children from such families another charity project Mama Rya- dren from needy and large families are socially isolated and they need to dom aimed at young mothers who were invited to the charity concerts learn new communication skills, rules found themselves in a difficult situ- in order to listen to popular songs, of conduct and to create positive va ation. Its main goal is to prevent or- operatic arias and symphonic music lue systems. The organisers arrange phanhood: save a marriage for the and to watch folk dancing and par- plein-airs on a regular basis for the child, teach mothers new skills and ticipate in exciting contest games. Centre students. their successful implementation. The Project Music from A to Z is aimed project implies providing comfortable at teaching music history to children In 2014, LSR Group supported mass accommodation, assistance of psy- in an interactive and playful way with charity events of Anima Centre which

93 PRIORITIES OF CHARITY POLICY OF LSR GROUP:

Child care

Restoration and preservation of Russia’s cultural heritage

Regional development in our key markets

Healthy lifestyle promotion

Support of veterans, disabled people, various vulnerable social groups

94 helps families in social rehabilitation RESTORATION AND PRESERVATION OF donezh carries out several projects. of children with disabilities. The Cen- THE COUNTRY’S CULTURAL HERITAGE In summer 2014, a monument to tre unites more than 300 families with For many years LSR Group has taken World War I heroes was unveiled in children, teenagers or young people part in various projects aimed at de- St. Petersburg. Apart from that the with disabilities which range from veloping national culture and pre- Charity Fund of St. Sergius of Ra- musculoskeletal system problems to serving art and historic values. In or- donezh carries out a number of res- autism. Children have classes in mu- der to preserve the country’s cultural toration projects, as an example, in sic, art, dance, literature and global heritage, in 2014 we provided either Abramtsevo country estate. culture twice a week. The Organisa- building materials or financial aid for tion cooperates closely with the State construction and reconstruction of The company supports restoration of Hermitage Museum, State Rus- the following churches: Optina Pustyn architectural monuments, takes part sian Museum, Russian Museum of Monastery, St. Fyodor’s Cathedral in in projects aimed at developing Rus- Ethnography and other museums in Pushkin, Cathedral of the Kazan Icon sian literature and theatre. the city where on its initiative various of the Mother of God, Nikolsky Ca-

The company supports restoration of architectural monuments, takes part in projects aimed at developing Russian literature and theatre.

charity events with the participation thedral in Krasnogorsk, buildings of REGIONAL DEVELOPMENT SUPPORT of children with disabilities are held. Solovetsky Monastery. Our subsidiaries not only contribute Children’s works are displayed at to regional development as the ma- exhibitions of the Union of Artists, at With support from LSR Group the jor employers and taxpayers but Anichkov Palace and in other show- Charity Fund of St. Sergius of Ra- they are also actively involved in ad- rooms. dressing local community priorities through funding social and charity The company has traditionally sup- programmes and participating in imported educational establishments, portant social projects. primarily vocational schools and higher education institutions train- In 2014, we transferred significant ing specialists for the construction funds to the regional budgets in our industry. key markets for development of social infrastructure. We continued carrying HEALTHY LIFESTYLE PROMOTION out a large-scale programme which PROGRAMMES implies purchase of equipment and In order to increase popularity of renovation of children’s pre-school healthy lifestyle and sports, LSR institutions, secondary schools, and Group sponsored youth sports com- health care institutions in various dis- petitions. In 2014, LSR Group lent tricts of the Leningrad region. support to hockey team LSR Griffins, the Eparchy football team and other sportsmen and sports events.

95 Environmental Protection

In our environmental protection activities we assume broad responsibilities to society for maintaining clean environment

ENVIRONMENTAL POLICY ENVIRONMENTAL PROTECTION OF LSR GROUP PROGRAMMES In our environmental protection ac- During 2014, our subsidiaries were tivities we assume broad responsi carrying out the pre-scheduled en- bilities to society for maintaining vironmental activities. Development clean environment. of new technologies, introduction of environment-friendly solutions, The company’s environmental pol- reduction of fuel consumption and icy is based upon strict compliance pollutant emissions are an integral with the environmental legislation of part of our environmental policy. the Russian Federation. Our enter- prises undergo environmental au- In 2014, we carried out the emis- dit on a regular basis to review their sions inventory at our business compliance with the existing envi- unit LSR. Bricks and Aerated Con- ronmental regulations. All our sub- crete – Norh-West aimed at identify- sidiaries obtain permits and licenses ing and quantifying all sources of air necessary for their operations. pollution. The sewage water disposal system was upgraded at one of our clay quarries to reduce the con-

96 centration of iron and prevent the laboratory studies of sewage and nonauthorized sewage discharge. drinking water.

In 2014, LSR. Aggregates and In 2014, LSR. Construction-Urals ac- Ready-mix Concrete – North-West quired, installed and put into opera- acquired and installed aeration tion cement storage facility with air equipment at one of its crushed cleaning function to reduce air pol- granite production facilities. The lutant emissions. During the year all measure was aimed at reducing the employees of the business unit, concentration of air pollutant emis- who are responsible for environmen- sions and eliminating negative im- tal protection measures, completed pact of the pollutants on personnel career enhancement training in en- and population. We also installed vironmental safety and compliance new surface water drainage filters at and hazardous waste management. the repair and maintenance facility The training took place at Forest En- of our fleet to reduce the concentra- gineering University in Yekaterinburg. tion of pollutants in sewage waters Employees of the business unit also to the Neva River. took part in seminars on the environmental legislation changes. In 2014, on the initiative of LSR. Aggregates and Ready-mix Con- crete– North-West, 30,000 trout un- deryearlings were released to the Lake Ladoga in order to reverse the damage to water resources.

Our LSR. Reinforced Concrete – North- West business unit conducted the efficiency audit of the aspiration equipment, noise measurements, air quality research at the borders of the sanitary protection zones as well as

97 Glossary

EBITDA equals to operating profit Net sellable area includes the area plus amortization of intangible assets of apartments, offices and other are and depreciation of property, plant as designated for sale, including the and equipment less change in fair area of balconies which is adjusted value of investment property. using the appropriate ratio.

EBITDA margin is calculated by di- Net sellable area, gross buildable viding EBITDA by revenue. area and other parameters of real estate development projects (espe- Total debt is calculated as the sum cially those of them which are at the of non-current loans and borrowings, initial stages of development) can current loans and borrowings and change during their design and con- bank overdraft. struction.

Net debt is calculated as total The list of the development projects debt minus cash and cash equiva- presented in this report includes only lents. Total debt / EBITDA and Net the projects with unsold (or partly debt / EBITDA ratios are calculated unsold) premises as of Decem- on annualised basis. ber 31, of the reporting year. Certain large-scale development projects EBITDA and EBITDA margin are not are made up of several phases. This defined in the International Finan- report only contains information on cial Reporting Standards and should those phases of development proj- therefore be regarded only as sup- ects which include unsold areas at plementary information. December 31, of the reporting year.

The financial items in this report are rounded to whole numbers in RUB m while percentage changes in the financial items are calculated using data in RUB th.

98 99 LSR Group 36, Kazanskaya Street, St. Petersburg, 190031, Russia Tel.: +7 (800) 770 75 77 e-mail: [email protected] www.lsrgroup.ru

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