ART of CONTAINER LOGISTICS ABOUT the REPORT Statements Basedon Any Newinformationorsubsequentevents

ANNUAL REPORT 2016 ART OF CONTAINER LOGISTICS ABOUT THE REPORT statements basedon any newinformationorsubsequentevents. toforward-looking Except asexplicitlyrequiredbyapplicablelaw, theCompanyassumesnoobligationtopublishupdatesor changes and inparticulartheeconomic,social, legalenvironmentinwhichtheCompanyorGroupoperates,shouldbecarefully considered. and regulations.Thislistofmaterialfactors isnotexhaustive.Whentakingintoaccounttheforward-lookingstatements,abovefactors, Federation andotherjurisdictionswherethe Groupstudies,developsorusesassets,includingchangestotax,environmentalan d otherlaws and otheraspectsofitsoperationsinclude changestomacroeconomicormarketconditions,theactionsofstatebodies theRussian factors thatcouldinfluencethefinancialand operationalperformanceoftheCompanyorGroup,itsplans,projects,capita l expenditure in eachcaserepresentonlyoneofmanypossible outcomesandshouldnotbeconsideredasthemostprobableoutcomes.In particular, other damages thatmaybeincurredbypersons or legalentitiesactingonthebasisofforward-lookingstatements.Suchforward-look ing statements or warrantthattheresultsindicatedinforward-lookingstatementswillbeachieved. TheCompanydoesnotassumeanyliabilityfor in suchforward-lookingstatements,whichareonlyvalidasofthedatethatthisAnnual Reportwasdrafted.TheCompanydoesnotrepresent uncertainties andassumptions,theCompanywarnsthatactualresultsmaydiffersignificantly fromthoseexpressedeitherdirectlyorindirectly there isadangerthatassumptions,forecasts,projectionsandotherforward-looking statementsmayproveunjustified.Inlightoftheserisks, looking statements.Forward-lookingstatements,bytheirnature,involveinherentrisks anduncertainties,bothgeneralspecific, “plans”, “believes”,“anticipates”,“may”,“should”,“will”and“willcontinue”,aswell assimilarexpressions,generallyindicateforward- conservation ordisposalofcertainentities(includingrelatedcosts).Thewords“intends”, “strives”,“projects”,“expects”,“estimates”, economic outlookfortheindustryandmarkets,datesbeginningendof individual projects,aswelltheacquisition,closing, and consumptionvolumes,costs,anticipatedexpenses,developmentprospects,the useful servicelifeofassetsandothersimilarfactors,the dividends andcapitalexpenditure,aswelltrendsrelatingtoprices,rates,transportation volumes,terminalprocessingvolumes,production results ofeconomicandindustrialactivitiestheCompanyGroup,itsplans, projectsandexpectedresults,policiesinrespectof Annual Reportmaycontaincertainforward-lookingstatementsregardingtheoperations, economicperformance,financialconditionand publication. However,itdoesnotrepresentorwarrantthattheinformationwill be furtherrefined,revisedorotherwisechanged.This third parties.TheCompanyreasonablybelievesthattheinformationinAnnualReport wascompleteandaccurateasofthetimeits TransContainer (the“Company”)anditssubsidiaries“Group”)atthetimeof preparation, includinginformationobtainedfrom This annualreport(the“AnnualReport”)hasbeenpreparedusingtheinformationavailabletoCenterforCargoContainerTraffic Disclaimer Remuneration CommitteeoftheCompany’sBoardof Directors. and preliminarilyreviewedbytheAuditCommitteeNominations The informationprovidedinthereporthasbeensubjectedtoaninternalaudit Guidelines. 2016, FRCUKGuidanceandtheGRIStandardsSustainabilityReporting dated 11August2015,theCorporateGovernanceCode,23December MICEX StockExchangeProcedureforProvidingInformationandReports, with OrderNo.3533-UoftheBankRussia,dated15January2015, The datainthe2016AnnualReporthavebeenconsolidatedaccordance Consolidated FinancialStatementsfor2016. intheof theGroupanditsequityinterestinTransContainerare shown for TransContaineranditssubsidiarieswithintheGroup.The composition Traffic TransContainer(TransContainer)fortheyear2016includesresults The reportofthePublicJointStockCompanyCenterforCargoContainer Reporting periodfrom1January2016to31December2016. Pages Financial results Corporate culture Client serviceandsales organisation Services Assets 4 TransContainer’s positionintheindustry Russian rail container transportation market Global containershippingmarket 3 System ofkey performance indicators Strategy 2 with CompanyCEOPetr Baskakov 2016 Year in Review — interview Business model 1 CONTENTS BUSINESSOVERVIEW MARKETOVERVIEW STRATEGICREPORT COMPANY PROFILE

2–13 COMPANY PROFILE

14–23 70 53 47 42 38 35 29 26 22 16 6 4 STRATEGIC REPORT (accounting) statements from the auditsoffinancial auditor andtheconclusionsdrawn of the performanceoftheCompany’s Statement oftheAudit Committee on evaluation Cooperation withshareholdersandinvestors Risk management Control andmonitoring and theManagement of theBoardDirectors,ExecutiveBodies Report onRemuneration CEO and ManagementBoard Board ofDirectors General meeting of shareholders Corporate governancepractices of theBoardDirectors Message from the Chairman 5 CORPORATE GOVERNANCE 24–35

MARKET OVERVIEW

36–79 147 137 133 126 120 116 91 90 84 82 Governance Code Report oncompliancewiththeCorporate 7 Consolidated financialstatements Directors’ responsibilitystatement 6 of thesecases involving TransContainerandtheoutcomes of antimonopoly legislation Number of cases concerning violations party transactions Major transactions and related Corporate risk map for 2016 (GSSB/GRI) Global SustainabilityStandardsBoard PJSC TransContainer Subsidiaries and joint ventures Administrative details

APPENDIX FINANCIALREPORT BUSINESS OVERVIEW

80–147

CORPORATE GOVERNANCE

149 148 221 204 221 239 223 242 240 КОРПОРАТИВНОЕ 2 ГОДОВОЙ ОТЧЕТ 2017 ПРОФИЛЬ СООБЩЕСТВА СТРАТЕГИЧЕСКИЙ ОТЧЕТ ОБЗОР РЫНКА ОБЗОР РЕЗУЛЬТАТОВ ФИНАНСОВЫЙ ОТЧЕТ TRCONT.RU/EN/ УПРАВЛЕНИЕ COMPANY PROFILE T M R O F T A L P VALUE UNIFIED of external factors of external our successful development regardless the we performance deliver ensures A strong sense of responsibility for shareholders and investorspartners, relations employees, with clients, benevolent, andhonest open, trustful values are rooted in aculture of value for all stakeholders Shared leadership by creating additional markethe Company its asserts 3 CORPORATE 4 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE BUSINESS MODEL BUSINESS RUB RUB RUB shipper andprovideroflogisticsservicesinEurasia. A verticallyintegratedtransportandlogisticsgroup,containerisedcargo Net debt EBITDA margin 32.3% Profit fortheperiod Total revenue RUB EBITDA segments alongthelogisticschain. competition marketnichesandoutsourcinginhigh Focused ontheuseofownoperatingassetsinlow/limited 3.5 7.1 3.2 51.5 bn bn bn bn +8.8% bn bn –3.5% +14.6% +0.2 p.p. +21.1% 18.5 Net debt/EBITDA 0.50

10.9

D 4.0

22.0

Adjusted revenue R

E V

+8.3% RUB bn RUB

N U multimodal transportation. for allclientcategories–fromequipmentsuppliestocomplex extensive geographicalfootprint,offeringafullrangeofservices The businessmodelisoptimisedforabroadclientbaseandan

RUB CAPEX

E 2.2

bn W

N –7.9% ,

% 64.2 +68.7% +12.8% +12.3% +4.6% +3.2% +7.2% –7.5% 1.0 Other Bonded warehouseservices Other forwardingservices Road transportation services Terminal handlingandagent Rail containertransportation logistics services Integrated forwardingand 0.9 0.5

S I N G L E I T P L A T F O R

1.23 T E

50% 2 1 R M

Broad clientbase shocks Resilience toexternal ADVANTAGES OFNETWORKASSETMANAGEMENT I P mln TEUs mln R

N OF A E

S placed online orders are L S

N N E DE A

VE L T L O I

S W P

handled M M

O E N

R T

K VALUES R T E

U P

24%

4 3 S

C B

21%

I programmes Ability toquicklyintegratepartner Unlimited geographicalcoverageofservices

in totalrevenue top 10clients’share L

E T

Y N

share market

G E N A

G E M

MANAGEMENT T

R K

O P

E SERVICES R A T O R A S S E T N E T W O R K +7.9% +9.7% transportation international transportation domestic

P A R T N E R S H I P +12.8% logistics from integrated increase inrevenue turnover rolling stock reduction in –7.9% empty runs optimisation of –2.4% Krasnoyarsk. TransContainer openedamodernised containerterminalin 17 NOV2016 cooperation. TransContainer andAzerbaijanRailwayssignedamemorandumof 25 NOV2016 cooperation. TransContainer andLatvianRailwayssignedamemorandumof 30 NOV2016 TransContainer andDalianPortsignedamemorandumofcooperation. 25 NOV2016 TransContainer andLorusSCMsignedanagreementforcooperation. 01 SEP2016 TransContainer andRusalsignedalong-termagreement. 20 APR2016 TransContainer startedtransportingpipesforNordStream-2. 04 OCT2016 Cargo trackingonthemapenabledinTransContainer’sonlinestore. 12 APR2016 be transportedonthird-partyrollingstock. Range ofoperatorservicesextendedbyprovidingowncontainersto 20 APR2016 discount giventotheclient. 10,000,000th containertransportationorderreceived.A50% 31 AUG2016 144 iSales 214 65 514 23,244 67,338 FLATCARS SALES OFFICES REMOTE ACCESSSUITE ONLINE STORE LIFTING MACHINES RAIL CONTAINERTERMINALS TRUCKS CONTAINERS HIGH-CAPACITY ASSET BASE CORPORATE 4 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE BUSINESS MODEL BUSINESS RUB RUB shipper and provider of logistics services in Eurasia. A vertically integrated transport and logistics group, containerised cargo Net debt EBITDA margin 32.3% Profit for the period Total revenue EBITDA segments alongthelogisticschain. competition marketnichesandoutsourcinginhigh Focused ontheuseofownoperatingassetsinlow/limited 3.5 7.1 3.2 51.5 bn bn bnRUB bnRUB +8.8% bn bn –3.5% +14.6% +0.2 p.p. +21.1% 18.5 Net debt / EBITDA .02.2 0.50

10.9

D 4.0

22.0

Adjusted revenue R

E V

+8.3% RUB bn RUB

CAPEX

bnRUB W

N –7.9% ,

S I N G L E I T P L A T F O R

1.23 T E

50% 2 1 R M

Broad clientbase shocks Resilience toexternal ADVANTAGES OFNETWORKASSETMANAGEMENT I P mln TEUs mln R

N OF A E

S placed online orders are L S

N N E DE A

VE L T L O I

S W P

handled M M

O E N Finland andMongolia. in as well as USSR, former the of countries the of territory the in one main the is mm 1524 or 1520 of width a with track The gauge railway network markets, especially in the 1520 geographical and product new traditional markets and entering in competitiveness increasing by goals strategic Achieving R T

K VALUES R T E

U P

24%

4 3 S

C B

21%

I programmes Ability toquicklyintegratepartner Unlimited geographicalcoverageofservices

in totalrevenue top 10clients’share L

E T

Y N

share market

G E N A

G E M

MANAGEMENT T

R K

O P

E SERVICES R A T O R

development: Priorities oftransport A S S E Uzbekistan –Russia (through Mongolia) China-Russia T N E T W O R K +7.9% +9.7% transportation international transportation domestic

P A R T N E R S H I P +12.8% logistics from integrated increase inrevenue turnover rolling stock reduction in –7.9% empty runs optimisation of –2.4% 5 Krasnoyarsk. TransContainer openedamodernised containerterminalin 17 NOV2016 cooperation. TransContainer andAzerbaijanRailwayssignedamemorandumof 25 NOV2016 cooperation. TransContainer andLatvianRailwayssignedamemorandumof 30 NOV2016 TransContainer andDalianPortsignedamemorandumofcooperation. 25 NOV2016 TransContainer andLorusSCMsignedanagreementforcooperation. 01 SEP2016 TransContainer andRusalsignedalong-termagreement. 20 APR2016 TransContainer startedtransportingpipesforNordStream-2. 04 OCT2016 Cargo trackingonthemapenabledinTransContainer’sonlinestore. 12 APR2016 be transportedonthird-partyrollingstock. Range ofoperatorservicesextendedbyprovidingowncontainersto 20 APR2016 discount giventotheclient. 10,000,000th containertransportationorderreceived.A50% 31 AUG2016 144 iSales 214 65 514 23,244 67,338 SALES OFFICES REMOTE ACCESSSUITE ONLINE STORE LIFTING MACHINES RAIL CONTAINERTERMINALS TRUCKS FLATCARS CONTAINERS HIGH-CAPACITY ASSET BASE CORPORATE 6 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE

2014 on theRussianRailways Containerisation 2015 4.9

2016 5.3 2016 YEAR IN REVIEW quite In OPERATING AND FINANCIAL RESULTS BASKAKOV PETR CEO INTERVIEW WITH COMPANY the to in 2016? grew driven up to In of TransContainer. of P.B. 2016, twotrends were strong: specifically switchingcontainerisablecargo from container transportation. Thus,we increasingly competitivepositioning of that pattern,the railway, whilethe the early 2016,the in thesecondhalfofyear. Russian economyshrank by by

a We We by at the bottom. Didyouseeit long-lasting stagnationperiodatthe 10.2% domestic routes, whichgained12.0%,and were luckynotto.Albeit and container transportation marketproved betterthan expected.Though majority reached rail transportation industrysawredistribution of a of record highof 0.2% the analysts expectedthe the may considerthe in macroeconomic environment wasreally close 2016, railway containeroperators, including 3,261 thousandTEUs.Thatwasmainly the railway containertransportation market international routes, whichalsowent market trends in L-shaped crisis,whichmeans

volumes 2016 happen in as asign favour road by by at theterminal.Anothermajorinitiativeis services enablesustooptimisedeliveryandreduce of ourstaff Safety importance. Whatare Company? maincompetitiveadvantagesofthe the In by derive by theinvolvement undertake strength and sincere gratitude to the for However, to our zone thanks stock model. Whilein In these advantagesboostedthe secure safetyand transportation. business enabledustotrack orders, reduce cardowntimeand we P.B. P.B. a promptly adjustto a Russian Railways.In block-trains, includingthosecovered bytheproject “Trans-Siberian in 6.5%. money, rather thanhighperformance perse.Thatis optimised logisticsand decline employees showedhighlyprofessional performance,responsibility and deep recession, onecouldclearlyseethe almost reached the strong competitiveenvironment, operating performancemetricsgainprimary for theclients in

from thecombination I We to aflexibletariffpolicy. Thesemeasures combinedhelpedustocreate and have already mentioned,thatthe full full The of our have three skills keyadvantages–uniquebusinessmodel,unrivalled in ourflatcarfleet,we and to and reliability railway transportation business.Whatinitiativesdoesthe share clients needan bring commitment 2015 significantly reduce transportation volumesof availability of ourpersonnel,thatis and of TransContainer’s team.In its changes. the block-trains grew upto 2016, of attract more cargo to target services scale delivery cut emptyruns,whileintegrated transportation and of thecontainertransportation, inarecover ingmarket of to operator, whichoffersserviceswiththebestvalue the Company’s efficiency. With of of thebusiness these factors. All advantagesoftheCompany these factors.All strong performance.Goodoperating results merely 50%. volume managed in are line traditionally perceived key competitive asthe with the marketexpectations? the with combination of set why, firstof to cargo transported by to advantages a railway routes. 49.2% compared to meet and rapidly changingmarketenvironment, increase vertical integration helped the the of where all, all, surge the terminal of theCompany’s business cargo processing period our I share would liketo extensive geography, empty containers,also develop popularintermodal in we demand block- trains increased and shine. Despite of 43.3% traansortation transportation 7 Days”ran? with in ability express my 2015, Company are a rolling terminal comfort driven 1 of the next loaded run. date of a loadedrun andinitialdate Average daysbetweentheinitial in adjusted revenue,% Intergated logisticsservicesshare and flatcars, days transportation inblok-trains, Volume ofloadedcontainers 2 ‘000 TEU in the totalvolumeoftransportation. Share ofCompanyemptycontainers Turnover 2 2 2 2 2 2 2 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 6 5 3 2 4 6 5 4 2015 25.3 Containers Platforms 1 2 2 2 ofCompanycontainers 0 0 0 1 1 1 6 5 4 62.9 61.6 55.3 13.3 % 13.7 13.7 14.0 14.9

2016 22.7

482 34.1 498 35.4 36.4 37.9 38.2 576 % 7 CORPORATE 8 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE 40,000 60,000 30,000 50,000 20,000 2 2 2 Specialised containersfleet,units sales channels, TEU Orders volumeviaelectronic Revenue andEBITDA,RUBmln 10,000 0 0 0 1 1 1 6 5 2015 4 0 2016 2014 Revenue 2,490 2,374 36,565 2 7,816 0 1 4 92,572 42,505 EBITDA 6,526 119,155 2 0 1 5 51,483 7,099 2 0 224,313 1 6 This flatcars container services)?Is Will on business. Doesthe Client acquisitionand STRATEGY take You operate in The our rail freight transportation industryto the and and (TransContainer Europa, ContainerTrans Scandinaviaand traffic goingthrough Russia.TheseincludeEurope where we We a under theIFRSadjustedfor 1,520 gaugerailway network.Jointlywith transportation volume? transportation volumes.Howfar doesthe new technologies.Goingforward, we fleet years, tankcontainertransportation hasalmostdoubled.We to theapproval payments orders but ourtargets I payout Our but expenses grew by with with This Naturally, increased more thantwo andahalftimes. customers, However, online, is For P.B. P.B. P.B. P.B. would liketo successful JV, whichoperates nearly5,000flatcarsand underpinned e-commerce? us, thebestoptionwouldprobably beto ample opportunitiesoffered by rather extra transportation volumesand also considertappingintokeymarketsfor customers (bothcorporate and financial results forthereportingnot period RailContainer, Asia where we is makes growth the the of in the neartermto in the your expectations?

exactly whatweare going Of Today, onecannotboostsales withoutinvestingheavilyin Indeed, In for and theremaining portion–viasalesoffices. in and specialised containers,whichhelpedus 2016, revenue-generating transportation provided by Company beinvestingin course there is. in thewake 2016. I with abankcard and railway do as the containers increased by of well well not we underline service really user-friendly and by as of theBoard revenue Russia, or well. Thatwasoneofthefactorssupporting well. 5.3%. strong clientrelationships, whichalwaysbuildon operate mostlyin see muchsensein our as have TransContainer Asia Pacific, our intermodal containertransportation almostanywhere in Company planto non-standard of Chinese JV. retention there anyupsidethere? the such As As as This and develop integrated logisticsservicesand third-party charges ,grew by a well well fact thatthe of result, netincomeincreased by segment a earnings pershare is Directors boost, track to as inEurope are online sales.Notably, weare thepioneer retail) canuseour and 12.8% compared to do: Russia, launch new businesssegments(e.g.specialised going fully onlineaswedeal going fully the plan we is traditionally keyobjectivesfor complex orders. Overall, a to expand in outpacing route withoutleavingtheir key incomegrowth driverwasnot Kazakhstan Temir Zholy, we will consideroptimisingour will enhance to 2017. but wehavealsoexpandedacross the an tight costcontrol. handle aroundhandle 75%of popular. spin-off inbound actual financialperformancegoin online ordering service.Today, acquire and only exceededthe its the our Asia. you Whatstepswill sales networkor website isales.trcont.ru to this driven In the and market competitive edge,we TransContainer Slovakia), 19 rail terminalsin 100% subsidiaryin 2015, indeed.Our 8.3%, whileadjustedoperating 2016, business necessary experienceand outbound container have already builta set upthree subsidiaries 14.6% by the higher by the TransContainer’s in the online channels. general: with successful business record highdividend actual results of as asubsidiary, subject share personal interaction. incoming orders home to have setup sales network. RUB 3,244mln. very big will will overall of any for thelastfive or Kazakhstan. revenue online orders South Korea, pricing, in theRussian it Russia, make office. will leveragewill rely place small small entire 2015, test line Please tell us Please tell In demand which we in more emphasison chain. infrastructure parts of In We We we container transportation viaMongoliatotheVorsino station in theKaluga Region,which Another promising project isatransit route across Mongolia.In logistics corridor(bysigningthe Corridor. a P.B. cooperation memorandum to intermodal transportation betweenRussiaand 2017, November 2016,thankstoourstrong track-record, we Dalian Port Corporation Limitedin seek intend are of

are There In also lookingintothe China to for we 2016, In key to build closerlong-termtieswithourregional partnersthrough jointprojects, November 2016,TransContainer and intermodal transportation. In plan is develop we to ourgeographical expansion. and more no secret here. Customer requests indicatethatthere isastrong we to used long-term partnershipwith South Korea to kept developingour establish about in to 2017. offer all-in-one containertransportationoffer all-in-one servicesfrom your plansto opportunities offered bytheNorth-South Transportation a 100% subsidiaryin develop intermodaltransportation alongthe respective memorandum). Russia viathe developing cooperation order develop partnershipties,ifyoucan. key participantsacross the to China, includingviasearoutes. Besides, cross border terminalin the Azerbaijan Railwayssigned Shanghai meet with theDalianseaport,whose Dalian-Zabaikalsk-Russia-Europe this became to demand, consolidate 2016, a strategic partner we we Zabaikalsk. logistics must put our piloted route. positions various Transportation volumein2016 of transportation, % TransContainer marketsharebytype by type of routein2016,% Structure ofcontainershipping 40 30 50 Transit

EXPORT IMPORT DOMESTIC Import Export Domestic +13.4 +8.3 +9.7 Export Domestic Import Domestic 23 16 2 0 1 4 5 % % 2 % Transit Export 0 1 2014 5 44 35 47 56 51 Transit Import 2015 44 40 43 53 2 2016 0 46 45 29 52 1 6 9 CORPORATE 10 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE 2 2 2 Energy saving,TJ in 2016, % Assessment ofstaffperformance 0 0 0 1 1 1 6 5 4 17 4 Below theexpectedlevel Above theexpectedlevel At expected level 79 4.2 5.0 5.9 for the Company for the within for integrates themintoits Which aspectsof The SUSTAINABLE DEVELOPMENT standards of to thefundamentalprinciplesof value platform,and development term impactof the TransContainer Policy, whichwasunanimouslyadoptedbytheBoard of into no workplaceinjuries.In standards. and of range consumption. mln.We RUB 4.2 to thehighestethicaland to are optimises motorvehiclerouting and P.B. P.B. secure long-termsustainability. Professional developmentofourstaff, strictadherence Directors adoptedthe partners electricity, 119tonsof TransContainer’s employees.Theseare theessentialbuildingblocksof all integralall componentsof targets setbytheshareholders. Anotherimportantfactorthatwinsthe investors. the concept

of Most importantly–corporate culture andacommonset of While the system stakeholders, sooperating and and team We We and we of The rules as are is of employees alikeistheCompany’s compliancewithits Anti-Corruption do and the management decisions.Doesthe sustainable developmentrevolves around assessingpossiblelong- consistent one also implementeda communications scale proud and the sustainable developmentdoyouconsiderthe not now of between of itsstrategic priorities? conduct thatour business model.In have stakeholders? of ouroperations meanswe we are going 2016, Code to diesel fueland environmental standards, andafocus report thatforasecondyearrunningthe in a long-term strategic planning. us andourclients mature conceptatthemoment, fully adhering to adhering fully of the sustainable developmentinitsstrategy Business Ethics,whichsetsforththe with Company’s savings amountedto allows allows system to financial growth not alonewill clients, partners,employees,shareholders Company follows in Company follows 1.5 tonsof gradually implementthe 2015, us tosignificantly reduce energy and for environmental we and remote terminalmonitoring that focused need petrol partners. Company viewsustainable of Directors to for anaggregate amount interact on working towards the In and on developing 2016, new principles in social responsibility values Company doesstick labour safety with awide 2016. 214 thousandkWh most significant Company hashad be enough and basic ethical the trust both consistently a trust Board unified fuel say thatthe development of my hopeis year, charityexpensesalmosttripledand of TransContainer’s corporate culture? areWhat doyouthink maindistinctivefeatures the and What hasbeenthe programme, RUB138mfor havingallocated sports programmes and As Yekaterinburg, Gelendzhikand and of that On creative the with with sports eventsforitsemployees, needs appreciate us toofferimproved and discussion, colleagues for ourcolleagues and P.B. P.B. Business Ethicslaysoutthe transportation always, TransContainer takesa its same goal.A partners representing variousindustriesin personal developmentofitspersonnel. we employees, clientsand

Our The and end, and We held lastyearproved effective.We especially collective decision,sofive fundamentalvalueshavebeenchosenbasedonacollective Company hasalwaysbeena wishes the we will begraduallythat theywill integrated intothe the new valueplatformdoesits enterprising, and Company’s transparency andourwillingness were ableto Company doeseverythingto and strong teamspiritmotivatesemployeesto engagement. Looking attheCompany’s performancein of and market players. impact logistics companies,marketexperts,consignors,clients mutual trust. promoting healthylifestyle.In more competitiveservicestothemarket. and identify gapsinouroperations, whichin of the newsystemof of the makes them personally investedintheteam’smakes thempersonally success. following values:responsibility,following professionalism, trust, partners? Irkutsk. Thankstoasincere the proactive approach toitssocialinitiatives,supporting Company developschildren’s sportsviaits tightly knitteam,with job. stood I create think The these purposesin Moscow, St Petersburg, NizhnyNovgorod, at round tableswith RUB 254m. our the values held meetingswithrepresentatives addition core strengths are best conditionsfor working process. The and attimescritical to perform better, bemore in strengths everybody sharing evolve respect 2016. to holding regular We We clients turn enabled with thechanging In hope of the dialogue of the the respect 2016, and professional reporting our charity partners Code clients we can Workplace injuries people Staff promotionin2016bycategory, 2014 1 38 employees Skilled Managers 20 208 2015 0 110 40 employees Blue collar employees White collar 2016 0 11 CORPORATE 12 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE total amountofdividends 4.8 Company dividendyield 2 2 Net debt/LTMEBITDA Dividend pershare,RUB 2 2 2 2 0 0 0 0 0 0 1 1 1 1 1 2016 1 9.5 6 6 5 5 4 4

RUB RUB billion % 70.96 81.47 0.50 0.57 347.6 0.62 an Index gaining26.8%in The from prospects by 4.8 billion, 4.8 billion, We We and entering intonewmarketniches,suchasthespecialisedcontainertransportation business, That meansimproving clientexperience,developingbusiness with Needless on shareholders expectustodeliverfurthergrowth in for The performance? on this In CASE INVESTMENT What OUTLOOK What riskdidyoufacein in ouruniquebusinessmodel.It by TransContainer aheadof demand our the are to market volatility, whichhasbeenrisingovertherecent years,whilebeingcapably and pursuinga historically It initiated to processes, particularlyinthe terminal business. updated developmentprioritiesand to theCompany’s Strategy Committeein were approved bytheCompany’s ExecutiveBoard in P.B. P.B. P.B. P.B. is 2016, raise fundsatalowprice,ifneeded. TransContainer market pressures? additional valueof clients, industrydynamicsand profit. changes Company’s strategy in will keepincreasingwill the delivery already hard overall improvements inthemarketenvironmenta didplay acquiring newclients. minimising open FX positions. All this minimising openFXpositions.All market RUB 29.7 billion asat1Januaryto RUB 29.7billion

As Isaidbefore, the In The The are Company’s the keyprioritiesgoingforward? the for 2016, to the the to and theCompany’s betterfinancials,as container transportation marketstartedto core riskwe or in say, on container transportation, we in themacroeconomic revision the gear upforinadvance.Whathelpsthe is RUB 347.6pershare. The Company sawits progress. long-term targets. As our always our in market capitalisationontheMoscowExchangesurged by core priorityistoleverage opportunitiesavailableinthemarket. all of October 2016.The RUB 20.6 billion totheCompany’sRUB 20.6billion shareholders. fairly conservativefinancialpolicy, maintaininglowleverage TransContainer’s strategy and saw 2016. Investorswelcomedthe We We to the Company, tothe moveposingchallenges on the which all Russianissuersbythisindicator all 2013, havechangeddramatically and turnover also seepotentialfor in Company’s sustainabilityto 2016? Whatactionsdidyoutake? 2016 wasrelated tothestrategy. share pricerise.Can youcomment makes transportation routes. Apartfrom and financial of a result, market environment we rolling stock.However, to Company’s dividendyieldreached 9.5%putting RUB 50.3 billion asat30December.RUB 50.3billion This total dividendpayoutamountedto Q1 2017. us will needto will makes more independenton and in 2016, operating forecasts for further streamlining production well well key financials,withaprimarilyfocus us October 2016and strategic targets. The grow again,andtheCompany’s make newinvestmentsin feel comfortableamidthe as container marketrecovery the Company external shockslies record-high dividendspaid Company’s managementteam in 2016. part, The incorporated into largely impede satisfy existing customers, decisions made to preconditions with theMICEX that, be resistant submitted the 2017–2021 Company’s we RUB increasing 69.6% have been flatcars. brought financial working are What Does What actionsshouldbetakento due a to liquidity, interalia,by with thelistingrequirements, includingappropriate corporate governanceand on theMoscowExchangeandLondon Stock Exchange,we of therelevant applicationsfor related of theCRMsystemsand continueautomatingthe will P.B. P.B. P.B. more optimisticscenario is cover orders not key to

the the Our We Set is external shocksand to theconcentration to on on the mostlikelymarketscenariosin your viewonthe by theCompany’s revised strategy, highervolumesand Company investin increasing TransContainer’s value.As have talked aboutthestrategichave talked importance of budget that. In for only domestic,but 2017, means 2017 design we are planning geopolitical uncertainty. is of theshare capitalandadecrease of really possible.Meanwhile,there are key businessprocesses, includingfurtherdevelopment based iOS new technologiesand At market making.At of all-in-one ITsolutionssetto all-in-one and on amoderate marketgrowth scenario.However, grow also internationalshipments.Development Android to the the expand Company’s marketcapitalisation? the is also the Company’s securitiesare the same time,we in thepipeline. innovations? e-commerce iSales platform’s capabilities manage large terminals. 2017? will takeactionsto will in thefree float. business efficiency some risksleft,mainly see someheadwinds and The will keep will Company traded share comply indicator in 2016. ahead of all Russian issuers by this reached 9.5% putting TransContainer The Company’s dividend yield 13 STRATEGIC REPORT O SERVICES ADVANCED platform andplatform information technologies to the development of the online sales experience Special attention is given at of all client stages services logistics ofhigh uality transportation and improvements on the based at ongoingaimed competitive ur leadership strategy is CORPORATE 16 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE STRATEY strategic goalandbusinessmodel. key elementsoftheCompany’slong-termdevelopment,includingitsmission, approved TransContainer’sDevelopmentStrategy2020,whichdefinesthe Resolution oftheCompany’sBoardDirectorsdated21January2013

OF STRATEGY ADOPTION Net income RUB RUB RESULTS IMPLEMENTATION STRATEGY 3.2

UPDATE STRATEGY bn eaonea +14.8% terminal network the Company’s Optimising RUB RUB FOCUS AREAS KEY STRATEGIC EBITDA 7.1 bn eaonea +8.4% fleet performance Improving flatcar technologies information Рromoting Exchange on theMoscow market capitalisation The Company’s RUB RUB 50.3 bn eaonea +69.6% PARTNERS FOR OURCLIENTSAND CREATING ADDITIONALVALUE Key forachievingstrategicgoal: services transportation andlogistics Оffering clientsintegrated KEY STRATEGIC PRIORITIES sales channels Developing digital containers Purchasing flatcarsandhigh-capacity Tapping intonewmarketniches efficiency Enhancing business

by enhancing businessscale To buildupcapitalisation (value) oftheCompany STRATEGIC GOAL and efficiency 17 18 19

STRATEGY Creating additional value for our clients and partners is key to achieving the strategic goal of ensuring long-term sustainable value growth for shareholders. TRCONT.RU/EN/ COMPANY MISSION The core vehicles for reaching the strategic goal are as follows:

growth of container transportation volumes as a result of: To provide effective support to our clients by offering prompt, reliable and ›› enhancing customer experience; comprehensive container cargo delivery and logistics solutions. ›› simplifying and speeding up the transportation process; ›› expanding freight volumes by tapping into new market segments; ›› competitive pricing; Today, container business is among the most advanced and tech savvy segments of the FINANCIALREPORT freight transportation market. Our mission is to create additional value across the logistics decrease in per unit operating expenses as a result of: chain, making container shipments safer, cheaper and more affordable for both cargo ›› streamlining performance of the flatcar and container fleet; owners and consignors. This will in turn help reduce the transportation component in the › optimising the container terminal network; › Creating additional value for price of the final product and therefore boost the efficiency and competitiveness of the ›› introducing state-of-the-art information technologies, which, among other things, help

our clients and partners is key Russian economy. to improve labour productivity and reduce empty runs by optimising container logistics. to achieving the strategic goal of ensuring long-term sustainable value growth for shareholders. CORPORATE CORPORATE

GOVERNANCE STRATEGIC GOAL TARGET BUSINESS MODEL

A vertically integrated transport and logistics group, containerised cargo shipper and To build up capitalisation (value) of the Company by enhancing business scale supplier of select logistics services in Eurasia. and efficiency. The Company ensures the delivery of its mission and strategic goal by developing a vertically integrated business model of a network container operator.

The Company ensures the delivery of its mission and strategic goal by developing a vertically integrated business model of a network container operator.

BUSINESS OVERVIEW BUSINESS ›› TransContainer builds its business in the container segment, the transport market’s competitive pricing most dynamic segment with a significant growth potential. ›› Wide network coverage of the business results from operating the largest fleet of flatcars and containers in the 1520 gauge market, running a network of railway volumesexpanding by tapping freight GROWTH OF container terminals in Russia and Kazakhstan, and administering a developed sales into new market CONTAINER TRANSPORTATION and service network that includes 115 sales offices in Russia and operations in VOLUME 29 European and Asian countries. This helps to ensure the availability and reliability

simplifying andsegments of container shipments for all categories of clients, and offers them the widest range speeding up the of transportation and logistics services in the container market. The extensive network MARKET OVERVIEW MARKET transportation of routes also enhances the potential for optimising empty runs and increasing freight volumes. enhancing customer process ›› Vertical integration of key transport assets, including flatcars, containers and rail container terminals, improves the control of intermodal haulage quality, and serves

experience as an essential factor in increasing the rolling stock turnover.

introducing KEY STRATEGIC FOCUS AREAS state-of-the- art information STRATEGIC REPORT STRATEGIC STRATEGIC REPORT STRATEGIC technologies Having analysed the changes in the macro environment that have occurred since the adoption of the Company’s Strategy, in October 2016, the Management Board pre- approved TransContainer’s Key Strategic Focus Areas for 2017–2021 and the Company’s

optimising Strategic Business Plan for the next 5 years. Расширение грузовой the container terminal network базы за счет выхода Without reneging on the approved mission, strategic goal and target business model, на новые рыночные the Company re-assessed key paths to achieving them, taking into account the growing streamlining performance of competition and the expected moderate economic growth in the projection period. the flatcar and сегменты container fleet COMPANY PROFILE COMPANY

EXPENSES DECREASE IN PER UNIT OPERATING

For more information on the target business model, see p. 4 ANNUAL REPORT 2016 20 21

The Company views growth of container transportation volumes as the core business The Key Focus Areas are used as a basis for the Company’s Strategic Business Plan (the expansion driver and seeks to ensure it by using its own and third-party transport assets «Business Plan»), which contains the Company’s main business targets for a five-year

TRCONT.RU/EN/ and offering clients integrated transportation and logistics services with an optimal price/ planning horizon. The Business Plan is updated at least once a year (before the start of quality ratio. the budget cycle), and provides benchmarks for annual budget planning, aligning them with the Company’s long-term development outlook and strategic priorities. For example, The Company is planning to expand its business scale, including through the continued business planning helps determine key budget parameters for the upcoming year (key development of digital sales channels (the iSales system), promotion of proactive sales, financial indicators, operating volumes, investment programme and debt metrics) to be and improvement of the order execution quality, by increasing the speed and accuracy further specified and refined as part of the budgeting process. of cargo delivery as a result of reduced container handling time and a higher share of shipments in container block trains. The purpose of the Company is to go beyond the Main strategic priorities are used to define key performance indicators for the Company’s average market volumes. management (on the next page), whereas KPIs for middle managers and branches FINANCIALREPORT primarily depend on the budget metrics. Given the plans to ramp up container transportation volumes, the Company intends to resume flatcar purchases in 2017 and continue buying high-capacity containers to meet The following governance bodies of the Company participate in the Strategy development client demand for container transportation services and achieve the target fleet mix. and implementation: ›› CEO (strategic initiatives, proposals for the investment programme); The Company sees tapping into new market niches as an important tool to grow ›› Management Board (pre-approval of the Company’s key development priorities); transportation volumes. The Company is currently considering incorporation of a subsidiary ›› Strategy Committee of the Board of Directors (preliminary consideration of matters

CORPORATE CORPORATE for specialised container shipments. The final decision is to be taken in 2017. In 2017, we related to the preparation and implementation of the Company’s development strategy GOVERNANCE are also planning to create a forwarding company in Shanghai (100% subsidiary of the and determination of priorities and strategic goals, monitoring of the implementation Company), which will expand the range of services provided to the Company’s clients in the of the Company’s strategy, provision of recommendations on adjusting the existing Chinese market, including the development of intermodal haulage solutions via sea routes. development strategy); ›› Board of Directors (approval of strategic initiatives, proposals for the investment Enhancing business efficiency is vital for the growth of scale, since it enables us to offer programme, reports on the strategy implementation progress, initiation of strategy clients a competitively priced transportation product along with increasing the value of reviews and new strategies). the Company for its shareholders and investors.

The Key Strategic Focus Areas provide for the following major efficiency drivers: STRATEGY IMPLEMENTATION RESULTS

BUSINESS OVERVIEW BUSINESS ›› improving flatcar fleet performance by increasing the number of consignments in block trains, and thereby reducing flatcar downtime at terminals and enhancing their load In 2016, the following strategic KPIs were achieved: factor. In accordance with the medium-term strategy, the average annual growth rate ›› Net income increased by 14.8% year-on-year and amounted to RUB 3.2 billion. of flatcar fleet performance on the planning horizon should be at least 3.4%; ›› EBITDA increased by 8.4% to RUB 7.1 billion. ›› optimising the Company’s terminal network, including through investments in ›› The Company’s market capitalisation on the Moscow Exchange went up by 69.6% debottlenecking of the busiest terminals, management decisions on idle terminals, in the span of one year and at the year-end amounted to RUB 50.299 billion. and use of equity investments in promising terminal projects of third parties; ›› promoting information technologies, including e-commerce channels. In 2017, the Company is planning to expand the scope of the iSales system to international MARKET OVERVIEW MARKET transportation services, and, in the medium term, increase the share of e-commerce orders to 75% of the total traffic volume. The introduction of IT technologies and optimisation of the terminal business are expected to increase labour productivity on the strategy planning horizon by 38%.

MECHANISM FOR STRATEGY IMPLEMENTATION STRATEGIC REPORT STRATEGIC STRATEGIC REPORT STRATEGIC The Company’s strategy is being implemented using a process approach intertwining the strategic, budgetary and operational planning processes, as well as the sales and supporting processes.

The Company applies the principle of continuous strategic planning, which combines medium- and long-term targeting with prompt responses to ongoing changes in the external environment.

The main strategic priorities and vehicles for achieving strategic goals on the planning

COMPANY PROFILE COMPANY horizon are defined in TransContainer’s Key Strategic Focus Areas (the “Key Focus Areas»), which describe the prevailing economic and market trends, and identify target markets, strategic positioning factors, priorities and lines of the Company’s business in the core segments, serving as guidelines for long-term business planning. ANNUAL REPORT 2016 22 23

SYSTEM OF KEY MANAGEMENT PERFORMANCE

TRCONT.RU/EN/ PERFORMANCE INDICATORS Management target KPIs are set out by the CEO on the basis of parameters that have been enshrined in the Company’s development strategy and budget. The system of key performance indicators (KPI) was introduced in 2011 and best reflects the extent to which the Company’s management is By breaking the key strategic objectives down on the basis of anticipated results in meeting both short- and medium-term objectives (as set out in the budget) the areas of Finances, Clients, Assets, Processes and Development and by establishing and achieving the long-term strategic objectives established by the Board indicators to assess their achievement, we ensure the involvement of the management in of Directors. the implementation of the Company’s strategy and reinforce their determination to meet budget parameters.

FINANCIALREPORT Along with the general corporate indicators (as established for the CEO), there are individual indicators that correspond to managers’ functions. Each manager is thus also responsible for the general corporate indicators, but these indicators are assigned a KPI weighting of less than one.

The specific weighting of the general corporate indicators for all manager groups is applied in accordance with the relative weights of those indicators for the CEO. The specific

CORPORATE CORPORATE weighting of individual performance indicators for managers is established in accordance GOVERNANCE CEO KPI MANAGEMENT KPI with their influence on the Company’s operations. The indicator description establishes the methodologies used to assign and calculate the target value of the indicator, as well as the net profit; Finances Processes ›› ›› ›› method for calculating the value achieved. These issues are reviewed by a working group ›› EBITDA; ›› Clients ›› Development ›› the Company’s share price ›› Assets established by order of TransContainer’s CEO. relative performance. Having been in place for five years, this system has proved to be an effective tool for RATING OF BRANCH OFFICES improving the key operational and management processes.

›› Process effectiveness BUSINESS OVERVIEW BUSINESS ›› Process quality (sales and services) RATING OF BRANCH OFFICES In addition to the system of individual KPIs for the management, in 2013 the Company introduced branch office ratings for the following purposes: ›› motivating all employees at Company branch offices to make effective use of human resources and production assets, particularly terminals and rolling stock; System of key performance indicators ›› generating objective assessments to motivate Company management and branch office staff; ›› improving the performance of the Company’s branch offices in order to achieve budget MARKET OVERVIEW MARKET Strategic indicators Operational (process) indicators indicators and fulfil operational objectives; Produced using the balanced scorecard system of Generated on the basis of TransContainer’s ›› spreading the best practices of agencies, terminals and branch offices across all of management by strategic objectives (David Norton process landscape the Company’s divisions; and Robert Kaplan) ›› improving Company processes.

These ratings complement the existing KPI system without duplicating it. The majority of KPIs are measured by comparing actual results against the targets. Branch office ratings CHIEF EXECUTIVE OFFICER PERFORMANCE are generally assigned by comparing the results achieved by branch offices against the STRATEGIC REPORT STRATEGIC STRATEGIC REPORT STRATEGIC Company’s overall performance. According to the resolution of TransContainer’s Board of Directors, the CEO’s performance is assessed based on three indicators: ›› net profit; ›› EBITDA; ›› the Company’s share price relative performance.

Market capitalisation is directly tied to operational excellence, which is why net profit and EBITDA were chosen as the CEO’s KPIs, with their target values based on the Company’s

COMPANY PROFILE COMPANY Board-approved budget effective as at the reporting date.

The market may perceive the management’s strategic business development initiatives as effective and creating (or, conversely, destroying) value, which is why share price performance is used as another KPI for the CEO. ANNUAL REPORT 2016 MARKET OVERVIEW J OF OF GROWTH SOURCES railway network markets, including the 120 gauge our footprintexpanding in new regional of railway container shipments and by ramping up the freight volumes of in the container growth market planning to into tap new points we areointly our with partners, CORPORATE 26 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE 1,000 1,100 USD perFEU Trends inseafreightrates, 600 900 800 500 700 Global rate 2013 2014 2015 East-West rate MARKET OVERVIEW

2016 2017 The In The SHIPPING MARKET GLOBAL CONTAINER to thechronic supply-and-demandimbalance:shippingvolumesgrew by The in thelogisticschainfacilitatingglobaltrade. Sea containershippingformsthe SEA CONTAINER SHIPPING the This Shanghai ContainerizedFreightIndex According largest userof and downturn According to growing The growth by The of acontinueddownward trend. SCFI totalled 688 points, 10.5% down vs 2015. 10.5%down vs 688 points, SCFI totalled compared to 1,000 1,200 400 600 800 2016, 9.8 mln TEUs, 9.8 mln TEUs, 5.05 mln TEUs,andtheWest–East5.05 mln to volumesamounted 1.1% global containercarrierfleetcapacity(incl.write-offs)increased byasmuch fundamentals thatcontinuedto year 2016sawa Asia–Mediterranean route performedsimilarly, withthetotalyear-on-year volumes Shanghai ContainerisedFreight behavedlikewise.In Index (SCFI) were causedbytheoverallin theglobaleconomyand slowdown resulted global containertraffic is in theglobalmarket.Shipmentsalong by to the in to to to 14.4 mlnTEUsin 1.7% global containertraffic 193mlnTEUs,up1.2%compared totalled to China in theseafreight rates dropping toarecord lowduringthe 2015. Drewry, Drewry, there wasa containerised freight services. and theWest–East route sawan to and 7.1 mlnTEUs;whilethe 2015 continued crisisintheglobalcontainerfreight marketdue the increased localisationof shipping volumefrom 2016 (versus14.2mlnTEUsin bulk bulk 10% declinecompared to generally put downward pressure onthemarketpersisted of theglobalcontainermarketandakeylink East–West traffic increased by in

Asia Chinese industry, sinceChinaistheworld’s line increase East–West route wentupby to with thelastyear’s trend. Northern Europe grew of 2015) drivenbya1.2% 0.07 mlnTEUs,down0.3% 2015, markingthe 1.1% 2016 to 2016, trade, economic 4.7 mlnTEUs. first halfof just 1.2%,while 2.5% the average 1.5% as fifth year 2015. 1.8%. 2016. 2017 › › › The demand and –supply freight Sea Despite In consolidation on thefinancialstandingof In of estimated in In of of over10,000TEUs,and 1.1 mln TEUs, Drewry estimatesnewcapacitiesfor 1.8%, whichis of for in in optimistic outlookontheglobalcontainermarketfor by commensurate vessels, 18,000 TEUs. factor behindsuccessfulstabilisationof This of along 1520gaugerailways, the While in theworldcontainermarketcontinuesto costs the In and thedealbetweenHapag-Lloyd are ofessence the key groups: of theglobalseacontainershippingmarketis The each other, but landscape › › › 2017), stronger by disciplineinstilled sea freight rates. At container shippingvolumesandareversal the 2016, light December 2016,Maersk,the operating incomein routes China’s COSCO and 2016), acquisitionof increased write-offs.The in The Marine bringingtogetherChinaCOSCOOcean Alliance, Shipping,CMACGM,Evergreen 2М (Maerskand bankruptcy. acquisition cost net increase inthecapacity players thatremained inthemarketsetabout will playa will total control c.15%ofthemarket.(Source: Alphaliner) and the third quarterof Alliance, madeupof Alliance, of theexpectedpick-upin with theprevious year’s breakdown standing at the of the and helping bulk bulk the of and services partial recovery oftheseafreight rates inthesecondhalfofyear, Drewry market stagnationofthepastseveral yearscontinuedto international services,where railway and This and shipping capacitymanagementby total yearlylossacross industryat with to significant long-term role in of theCompany’s businessrevolves around landdeliveriesof of OOCL (25.7%ofthemarket),and far belowthe with theshippingvolumeincrease. This A also competeforanumber TransContainer, whenit especially number Hamburg Süd,the to ousting somecompaniesfrom themarket. shows 79% and MSC), accountingfor keep seafreight rates in 2016, the China Shipping(fifthand 2015. APL (seventhlargest carrier)by availability of a 39% of same time,the consistent trend inthecapacities new orders (inTEUs)transported by sea containercarriers,resulting in relative equilibriumbetweensupplyand Hapag-Lloyd, “K”Line,MOL,NYKand a M&As tookplaceintheindustry,the mostnotably shipping capacitygrowth rate in top-10 globalcontainercarrierHanjinShippingfiled of of thecontainerfleetfor state leading containershippingcompany, announced additional capacityattributedto global economicgrowth (from 2.9%in of 2016 (netof twelfth largest shippingcompany. of theglobalseashippingmarketdetermines co-contractors consolidation, sea freight rates inthesecondhalfof UASC (sixthand persisting imbalanceof 29.6% further decreasing the pose of in theyears-longdownward trend check amida currently controlled three bythefollowing destinations. USD 5 billion, comparedUSD 5billion, to ninth largest asatthestart globally carriers, Drewry reported a a of theglobalcontainershippingmarket, write-offs) building alliances, and building alliances, fundamental risktotheindustry. comes on thesearoutes, bothof 2017, forecasting an and sea shippingnot CMA CGM(secondlargest), result wasmainlycaused 73% nineteenth largest, respectively). 2016 continued optimisation to competitive market. of at and assessing greater industry previous yearswhile is approximately newly ordered container ships estimated supply 34%, respectively. per unitseashipping vessels above Yang Ming,which demand wasa with thetonnage put pressure only complement the and around 70% 2016 increase competitive at USD 4.8 billion USD 4.8billion moderately containers demand 2016. roughly which merger to 3.2% major (% ofcapacityinTEUs) Worldwide containershiporderbook in 2016 the averageSCFI 688 controlled by three key groups container shipping market is currently Around 70% of the global sea > 18,000 < 4,000 4,000 —6,000 8,000 —10,000 10,000 —14,000 14,000 —18,000 19 4 2 15 points 21

Source: Drewry Maritime Research 27 CORPORATE 28 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE +2.1% volumes in 2017 expected growthinseashipping 4,000 Source: World ContainerIndex rates, (USDperFEU) Asia –NorthernEuropeseafreightspot 3,000 2,000 3,500 2,500 1,000 1,500 500 0 2016 2014 Jan Jun 2015 2013 Sep Dec Drewry analystsforecast a Outlook for 2017 In Sea freight price trends Source: Alphaliner, Drewry, Clarksons, MorganStanleyResearch Supply vsdemand,% New capacitiesto offs). According to quarter, fleet capacity(incl.write-offs)is However, are corresponds Boston ConsultingGroup, a market This of atleast9%supplysurplusoverthenextfiveyears. oversupply pursued The and bytheyear-end were approaching USD2,000perFEU, almost4xabovethe Maritime Research, the of level For carriers, primarilyon of thereporting year. - - 2 1 1 - 1 1 0 0 0 0 5 5 5 5 early 2016,there wasa protectionist policiesin Effective CapacityGrowth Effective CapacityGrowth projected the main driversofthisincrease were large-scale write-offsandabalancedpricingpolicy means thatovercapacity remain will a 2006 is expected for thenearfuture. Russian containermarket,this with by thekeyplayersamidcontinuingindustryconsolidation.According to in thesecondhalfof 2007 on theback to aca.7%increase inthecapacity sea shippingpricesreaching record lowsin to continue growing ontheback to 2008 be commissionedin Morgan Stanley, the be 12%highercompared to transit 2009 rates of key countrieshavethe instability sharp decrease in 2.1% increase in and global consultingfirm,givesa are 2010 2016 expected import routes. close Supply-Demand Gap 2011 in theworldeconomyandpossiblerise the means continuedcompetitivepressure from to 2017 supply surplus will continueuntil2019. supply surpluswill rates startedto equilibrium, to 2012 fundamental problem intheglobalcontainer sea shippingvolumes,andtheworld’s container increase sea freight rates thatpersistedfortheentire first are of thesecondhalf estimated 2016, largely offsettingthe 2013 of theglobalcontainerfleet(net potential by and in2017 2014 3.7%. years recover more conservativeforecast to at 2015 around 1.4mlnTEUs,which undermine by In at afastpace, 2017, seafreight rates April. the 2016 2016, annual average price this 2017 but thecontinuing E negative trends forecast. 2018 Drewry April levels. E sea write- 2019 E thousand TEU Source: Russian Railways,Companyestimates offsetthe fully In RUSSIAN MARKET DYNAMICS TRANSPORTATION MARKET CONTAINERRUSSIAN RAIL Monthly containershipmentvolumescarriedviatheRussianRailwaysnetwork of GDP decrease of economy. Market outperformancewassetagainstthe the In of to thefirstquarterof that by container transportation volumesgrew by against Given via railways insteadof attributed The of from 350 300 250 200 100 150 2016, there wasa the 3,261 thousandTEUs.The 0.5%, volumes 12.4%, -10 10 15 20 -5 0 5 decline 2016 containerisation of 4.9% the first quarterof -5.3 219 Jan economic indicators,withamodestdecrease in the and a5.2%decrease inthereal retail sales. unfavourable economictrends, the In to and inthefourthquarter–by in of to backdrop 2016, 244 containerisation growth, withthecargo suitablefor Feb 3.2 2015 8.0%. containerised shipments. 2015 losses 0.2%, the to 266 Mar -0.1 of strong recovery in of the2015downturn,but 2016, 2015. of roads, whilethe 5.3% Russian Federal State Statistics Service(Rosstat)recorded the freight transported viathe an continued marketstagnation:inthesecondquarterof 2014 10.5 267 incremental increase in Apr the In in market grew at April, however, there wasa 2016. annual trend inthemarket 272 15.4 May 2013 rail transportation industryis Russia’s rail containertransportation thatnot 269 13.7 Jun 15.8%. 13.2% compared to generally unfavourable background of 10.2% compared to fast increase in 2012 271 8.1 July also yieldedthe Russian Railwaysnetworkincreased production 284 15.7 Aug volumes strong recovery in whole followed as awholefollowed 276 13.4 container traffic maybe Sep in theprocessing industry 2015, of record highvolumes containers transported 2015, whichsaw 0.7% compared 300 18.3 Oct seeing redistribution in thethird quarter– 294 11.9 Nov volumes 2016 rail 2016 299 17.2 Dec Russia’s real /2015 only % -20 4 8 6 2 0 0 0 0 0 in 2016 rail containertransportation the recordhighvolumesofRussia’s 3.3 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Railways network,% Containerisation ontheRussian mln 2.6 2.7 TEUs 3 3.3 3.7 4.1 4.2 4.5 4.9 4.9 5.3 29 CORPORATE 30 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE routes in2016 transportation volumeondomestic grouth oftotalcontainer 12.0% in 2016 on international routesgrewby8.3% container transportationvolume 8.3% Domestic 7.8 by typeofroute,thousandTEUs transportation markettrends Russian railcontainer by typeofroute,% transportation marketstructure The TRANSPORTATIONFREIGHT STRUCTURE network in2016,% transportation ontheRussianRailways Structure ofemptyISOcontainer Russian railcontainer domestic routes increased by volume driver (7.9%), transportation wasmainlydrivenby Starting The to that stoodat from 13.4 Import Transit Import Transit Export Export Domestic Domestic recover Domestic Domestic thousand TEUs 7.8 7.8 reporting yearsawgrowth in market structure in 50.6% 4.4 of theRussiancontainertransportation market.The 137.1 13.4 13.4 on and from thesecondquarterof thousand TEUs thousand TEUs and international routes grew by 4.4 4.4 transit operations, whichsawan 137.1 137.1 74.4 to 16% compared to 1,349 2012 2012 25.4 45.8 228 749 617 7.7 increased 21 continually shrinkingimporttraffic51.5%, whichwasmainlydrivenbythecontinually 74.4 74.4

1,374 44.4

2013 2013 804 22.1 685 235 7.6 26 2016 remained largely the by Export 1,499 2014 2014 46.6 26.4 19.2 848

251 617 7.8 22 thousandTEUs(4.4%)fortheyear. 12.0%

Export Export 17% 1,498 2015 2015 50.6 all typesof all 503 741 217 7.3 25 17 2016, export operations, whichgrew by from in 1,678 8.3%. 2016 2016 24.5 2015. 51.5 800 525 258 16.1 7.9 year the railway transportation: transportation via increase container importoperations began The to network in2016,% transportation ontheRussianRailways Structure ofloadedISOcontainer 2 Import 2,943 2 0 year, whilecontainertransportation 17.6 0 Import 1 same, East–West route volumesare themain 2 1 17.6 2 of Import thousand TEUs 33.3 17.6 9.7 41 thousandTEUs(18.8%). with thousand TEUs 33.3 9.7 2,139.6 2 increase 3,097 2 0 2,139.6 0 1 3 1 3 domestic traffic increasing thousand TEUs 33.3 9.7 2,139.6 Transit in Transit 2 3,215 39.4 2 0 0 1 39.4 4 1 international 4 59 thousandTEUs Transit 39.4 2 2,959 2 0 0 1 5 1 5 2 3,261 2 0 0 1 6 1 6

Source: Russian Railways, Company estimates 200 100 150 50 0 by primarycommoditygroup The at transportation structure decreased from The shipping, by theexpansion in Total containertransportation volumeon Domestic traffic Among all commoditygroups,Among all the 6% each, machine-buildingand of industry products (22%)and diversified thaninternationaltransportation. Amongcommoditygroups, chemical over theprevious year’s level. in thereporting period,whiletransportation of Container transportationontheRussianRailwaysdomesticnetwork in The and transportation as Chemicals 2016, up12.0%compared to response 835 thousand TEUs. Transportation835 thousand TEUs. of transportation within European Russia. +18% 22 of structure main domesticrail containerflowswere betweenCentral Russiaand percentage food products. Russian domesticrail transportation of Consumer goods –0,3% as 14 to well well of theRussiandomesticrail containertransportation is Food products declining importvolumes. of of as bythegrowth +9% in chemical industryproducts (18%),as of 9 loaded containersintheRussiandomesticrail container 2016. Food products and import-substitution manufacturingandtheshift Construction materials +10% 9 petroleum products –8%,metalproducts –7%,and consumer goods(14%)accountedforthehighestshares Petroleum products +9% 8 2015. Domestictransportation trends were supported in greatest increase in Machinery and machine tools empty containertransportation since2015 +1% 8 52.2% domestic routes was1,678thousandTEUs loaded containersincreased by products Metal loaded containers. +8% construction materialsaccountedfor 7 empty containersgrew by in Pulp andpaper 2015 +7% 6 2016 wasseenin well well Perishable goods to 50.2% as +14% 5 construction materials

Others in +7% 5 to traditionally more 2016 container container Siberia, 8.0% Ferrous +0,5% metals 16.4% and 3 2016, thousandTEUs in transportation,% 2016, shareofcargo 2015, thousandTEUs stood Timber as –2% paper – 2 9% well well Nonferrous metals +2% 2

Source: Russian Railways, Company estimates 1.68 in 2016 transportation ondomesticroutes the volumeofrailcontainer Source: RussianRailways,Company estimates on domestic routes,thousandTEUs on theRussianrailwaysnetwork Structure ofcontainertransportation volume ondomesticroutes Dynamics ofcontainertransportation 2 2 2 2 2 0 0 0 0 0 1 1 1 1 1 6 5 3 2 4 2016/15 +12.0 Loaded containers Empty containers 586.2 638.3 611.4 717.7 835.2 mln 787.6 737.5 860.5 780.4 % TEUs 842.9 1,260 1,348.9 1,498.8 1,373.8 1,678.1 31 CORPORATE 32 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE 0.53 mln TEUs mln 0.53 Source: RussianRailways,Company estimates Railways network,thousandTEUs on importroutestheRussian Structure ofcontainertransportation in 2016 rail containertransportation the volumeofimport transportation volume Dynamics ofimportcontainer 2 2 2 2 2 0 0 0 0 0 1 1 1 1 1 6 5 3 2 4 2016/15 +4.4 Loaded containers Empty containers 122 127 129 153 150 350 376 490 % 488 563

503 525

618 617 685 by primarycommoditygroup Container transportationonimportroutestheRussianRailwaysnetwork The transportation Import Loaded containersaccountedfor 525 thousandTEUs. container traffic dropped by in Among all commoditygroups,Among all the chemicals (16%),and Containerised importswere dominatedby balanced exportand transportation importsof The products (China, SouthKorea and Germany, 100 50 25 75 0 2016, havingincreased by Consumer goods volume main importcontainertraffic arrivedintheRussianFederationfrom +20% 25 and Motor vehicles the of –4% 22 metals. Czech Republic,the import rail containertransportation increased by Chemicals +5% 16 import volumes. metal goods(13%). Metal goods Japan) consumer goods,as +2% 13 2.2% 2 p.p.from theprevious year’sof volume Machinery and machine tools and +8% 72% 9 Netherlands to biggest increase (20%)in Central 150 thousandTEUsdueto of Ferrous metals +37% 3 rail containertransportation on consumer goods(25%),autoparts(22%), and Other goods well well –1% and 3 Eastern Europe (Slovakia,Switzerland, Food products as Spain). +23% machinery 2 Construction materials –19% 2016 occurred in 2 4.4% market recovery and and Textiles +3% 2 machine tools,food in Pulp andpaper 70%. Empty

Southeast Asia 2016 import routes +16% 2 in transportation,% 2016, shareofcargo 2016, thousandTEUs 2015, thousandTEUs and container Nonferrous metals +3% 2 totalled totalled more

Source: Russian Railways, Company estimates by primarycommoditygroup Container transportationonexportroutestheRussianRailwaysnetwork The transportation Export in to 200 increased Among all commoditygroups,Among all the chemicals (17%)and In in was headedtotheports The Republic). Europe (Germany, Switzerland, Belgium,the 250 100 150 50 0 2016 container transportation exportsof 2016, containerisedexportswere dominatedby 712 thousand TEUs.The 712 thousand Pulp andpaper volume majority -2% 29 and by of totalled 800thousandTEUs,whileloadedcontainertraffictotalled grew by of 3 p.p.and Timber +42% rail containertransportation on 26 export containertransportation ontheRussianRailwaysnetworkin nonferrous metals(10%). Chemicals +10% reached 89%,compared to 17 in theBalticSeaand share Nonferrous metals +1% 10 of biggest increase (42%)in loaded containertransportation in timber, Fertilisers +88% 5 Netherlands, SlovakiaandtheCzech as Far East,as export routes increased by well well Ferrous metals –11% 5 paper 86% as Consumer goods chemicals in and well well +7% 3 2015. 2016 wasrecorded pulp (29%),timber(26%), as toEastern Metal goods and –15% 3 fertilisers. export operations

Other goods 7.9% +54% and 2 in transportation,% 2016, shareofcargo 2016, thousandTEUs 2015, thousandTEUs 12.2% Western 2016

Source: Russian Railways, Company estimates 0.8 in 2016 rail containertransportation the volumeofexport Source: RussianRailways,Company estimates Railways network,thousandTEUs on exportroutestheRussian Structure ofcontainertransportation transportation volume Dynamics ofexportcontainer 2 2 2 2 2 0 0 0 0 0 1 1 1 1 1 6 5 3 2 4 2016/15 +7.9 Loaded containers Empty containers 105.9 87.5 187.4 194.4 215.3 mln % 634.9 712.2 561.5 653.1 588.7 TEUs

740.9 748.9 804 799.7 847.5 33 CORPORATE 34 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE 0.26 in 2016 rail containertransportation the volumeoftransit Source: RussianRailways,Company estimates thousand TEUs on theRussianRailwaysnetwork, Structure oftransittransportation transportation volume Dynamics oftransitcontainer 2 2 2 2 2 0 0 0 0 0 1 1 1 1 1 6 5 3 2 4 2016/15 +18.8 Loaded containers Empty containers 49.6 67.4 65.6 68.7 57 mln 160.2 162.4 165.8 208.5 183.9 %

TEUs 217.2

228 234.5 251.3 258.1 by primarycommoditygroup Transit containertransportationontheRussianRailwaysnetwork The Transit transportation by container share increasing by in theprevious year. The by Transit transportation growth wasmainlydrivenby for the TEUs), whilethe and In to Europe (includingthe Geographically, mostoftherail containertransit flowsare of Consumer goods(+94%),chemicals(+99%),and chemicals (15%),and (12%), metalgoods(18%),consumer(19%),machineryand and 40 30 20 10 0 terms transit rail containertransportation. 51 thousand TEUsin 51 thousand Consumer goods 18.8% 89% 59% China–EU route increased by transit rail containersegmentwasbestperformingin exports. Central Asia. +94% 19 to of of over 153 thousandTEUsin Metal goods cargo types,rail-based containertransits are overall transit volumes,compared to +51% In 18 2015 2016, EU–China volumesgrew by Chemicals +99% and 15 Baltic states)and ferrous metals(7%). the 2016. transportation structure wasalsomuchbetter, with reached 258thousandTEUs,compared to Auto parts majority –22% 12 7 p.p.to Machinery and machine tools 98% (from 52thousandTEUsto 2016. +25% of 11 transit operations wasaccountedforbyautoparts 81%, compared to Central Asia, as Other goods In +2% 2016, shipmentstoandfrom Chinaaccounted 9 72.5% –from Ferrous metals 36% +8% metal goods(+51%)were the 7 Chinese traffic, whichincreased in Nonferrous well well +145% metals more diversifiedthanimports 2015. Transportation along 3 2016: between Central and 74% 30 thousandTEUsin as

between SoutheastAsia –35% Fibres in the 3 102 thousand 2015. Food products machine tools(11%), volumes increased 217 thousandTEUs +6% 2 Pulp andpaper loaded +78% 2 in transportation,% 2016, shareofcargo 2016, thousandTEUs 2015, thousandTEUs Eastern key drivers 2015

Source: Russian Railways, Company estimates In IN THE INDUSTRY COMPANY’STHE POSITION In Outlook for 2017 by theCompany’s flatcarsand market supplyingflatcarsand At in expanding Given theseconditions,the assumes from the2016level,while The which givesgrounds to TransContainer’s marketshare forthisline in themarketcompared to primarily The container transportation. after This The transportation volumes. so of from the by activity container transportation in market,especially continueto Sea shippingsegmentwill High competition will havea High competitionwill for an to freight volume. 2016, the railway containertransportation, expeditethe competition the the continually highcompetitionbothamongrollingcontinually stockoperators and acceptable levelof domestic railway Bloomberg consensusforecast forthetrend Company considersincreasing geopoliticalinstabilityand growth may havean the higher containerisationduetotheinitiatives second halfof same time,the bulk bulk in a the in theUS, rapid 2016growth andtotheaccelerated growth of Russia, GDP growth of on theback and of in Company confirmedits and mid-term growth intherailway containertraffic is containerised cargo production is in motor segmentsoftheRussiantransportation market. and export shipping. adverse impactontheRussianeconomyand, terms the 2016, further developrailway transits. This Company’s basescenariofor profitability EU of expect resumed economicgrowth in of further containerisationcoupledwith 2%. quality and 2016, whichis rail containertransportation marketis the restraining effecton ISO containerstoitsclients. containers amountedto Russian Ministryof China Russian economyshowedthe and and leadership to make playersoptimisecoststo margins amidpricecompetition. be be a of due the major competitorontheinternational business remained flatat terms to theexpectations primary riskfactorsforthemarket. in therailway containertransportation projected in recovery to rates, shiftfocus whichwill Economic Development’s baseforecast Russian GDPisfora1.2%increase 2017 forecasts a of improve competitivepositioning imports 1.54 mlnTEUs.Compared to of The will beaccompanied will to investment 2017 vsthe remain declining globaleconomy, first signsof overall volumetransported infrastructure tariffsfor and consequently, resumed organic growth expected expected of amarketcorrection supply certain slowdown at amodestlevel, support 47.2%. and between previous year. of to recovery, to consumer COCs come on continue container 2015, rail ISO containers), % in 2016 bytraffictype,(loadedandempty traffic onRussianRailwaysnetwork The Company’sshareoftotalcontainer 2016 48 Other Operators TransContainer 55 53 54 47 71 52 2015 57 56 60 thousand TEUs thousand TEUs thousand TEUs thousand TEUs thousand TEUs TransContainer Other Operators All Routes Domestic Transit Import Export 1,543 242 360 867 74 40 43 48 53 44 29 45 46 52 47

Source: Russian Railways, Company data 35 BUSINESS OVERVIEW T AND RELIABILITY AVAILABILITY and the CIS the and availableservices to clients across Russia makeand aakhstan our logistics industrial and transporthubs of Russia solutions, and terminals in the main a million of readymade transportation destinations,over 00,000 more than client of routes Anetwork comprising to make for us any areliable partner financialand a stable position combine asset management technologies in the country, fleet cuttingedge he largest flatcar and container 38 39

ASSETS TRCONT.RU/EN/ OPERATING PERFORMANCE ROLLING STOCK Empty run ratio2 for containers and flatcars, % The turnover of flatcars decreased from 14.9 days in 2015 to 13.7 days in 2016 on Flatcar fleet the back of improved efficiency of flatcar fleet management and growing demand for 7.5 2016 flatcars in the recovering market. The turnover rate of containers grew somewhat up as As at 31 December 2016, the Company had 23,244 container flatcars, or nearly 50% of 32.0 a result of persisting imbalance between exports and imports of containerised cargoes, the total flatcar fleet of Russian rail container operators (by number). 7.4 and a eventually shrinking shortage of containers on the Russian market after the inflow 2015 31.2 of intermodal containers to the market recovered in 2016. Following weak market demand in 2015, the Company made no rolling stock procurement FINANCIALREPORT 7.2 plans for 2016. As the container transportation market rallied in Q4 2016, the Company 2014 Empty container runs increased slightly from 31.2% in 2015 to 32.0% in 2016 because made a contract with rolling stock manufacturers to buy 300 flatcars. In addition, the 28.8 of persisting imbalance between loaded container imports and exports for the most Company used rolling stock of third parties throughout 2016 to transport its containers. 6.7 2013 part of 2016. This imbalance restricted our ability to load containers running backwards Supported by measures to accelerate the turnover, use of third-party rolling stock helped 30.5

on international routes and had a negative effect on the empty run ratio. the Company to satisfy the growing demand for container transportation. 7.5 2012 35.9 Source: Company data Source: Empty run ratio for flatcars was almost flat (7.5% in 2016 vs 7.4% in 2015). Geographic In 2016, the total number of flatcars in the Company’s fleet decreased by 1,217 (or 5.0%)

CORPORATE CORPORATE imbalance of container flows persisted throughout 2016 and was largely offset by to 23,244. A total of 214 40-foot flatcars and 759 60-foot flatcars were written off during Flatcars Containers GOVERNANCE the modernisation of rolling stock management technology. the year. For the same period, the Company added 55 40-foot flatcars and 49 long flatcars to its fleet. Transportation using container block trains is a key to efficient utilisation of transportation Number of container trains shipped by assets and improvement of client experience. It guarantees on-time delivery and 2.5–3 Following the above changes, the share (by capacity) of long flatcars (80 feet, 40+40 feet, the Company in 2016, units times faster shipment than that of small container lots on pick-up trains. Transportation and 60+60 feet) designed mostly for transportation of 40-foot containers grew from 46% of empty containers on express container trains is also more cost-efficient as it reduces in 2015 to 48% in 2016 and approached an optimum level that fits into the container 2015 rigging time and have a discount offered by Russian Railways for container block trains. cargo mix transported by the Company with its own rolling stock. 4,489 2016 5,174 In 2016, container trains arranged by the Company transported 702,000 TEUs (up from Capacity of the fleet decreased 4.6% year-on-year to 73,200 TEUs due to changes in its BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS 602,000 TEUs in 2015). The share of containers transported by the Company’s container structure and size. The average age of the flatcar fleet remained almost flat (15.4 years trains in total container shipments by the Company’s rolling stock increased from 42.5% in 2016 vs 15.2 years in 2015). in 2015 to 45.5% in 2016. BUSINESSOVERVIEW MARKET OVERVIEW MARKET STRATEGIC REPORT STRATEGIC

Turnover1 of Company containers Company shipments Breakdown of Company flatcar fleet as at 31 December 2016 and platforms, days by container trains, ‘000 TEU

13.7 702 2016 36.4 618 602 +16.5 % 529 14.9 2015 35.4 464 -foot -foot -foot Total COMPANY PROFILE COMPANY 2012 2013 2014 2015 2016 Flatcars 40 60 80 14.0 ISO containers transported by Company container trains 2014 37.9 Loaded 400 415 498 482 576 Owned flatcars 5,317 9,226 8,701 23,244 13.7 Empty 65 115 120 120 125 2013 38.2 Total flatcars 5,317 9,226 8,701 23,244 Share in shipments 13.3 by Company flatcars 31.3 36.4 42.0 42.5 45.5 2012 and containers, % 34.1 Company data Source: Capacity, TEU 10,634 27,678 34,902 73,214 2012 2013 2014 2015 2016

2 Flatcars Containers Company data Source: Average age, years 10.5 27.1 6.5 15.4 Empty run to loaded run expressed 1 Average days between the initial date of a loaded run and initial date of the next loaded run. in kilometres. ANNUAL REPORT 2016 40 41

Container fleet The number of lifting equipment decreased by 5 units following the disposal of cranes for Lifting equipment, units medium-duty containers, but the number of lifting machines for high-capacity containers

TRCONT.RU/EN/ In 2016, the Company continued expanding its fleet of ISO containers amid a shortage increased. 2015 of supply from maritime freight carriers and other market players. 2016 All terminals of the Company in the Russia have a ‘Site of Common Use ’ status in 219 214 In 2016, the Company added 2,790 ISO containers to its fleet, which amounted to a total accordance with Federal Law No. 17-FZ dated 10 January 2003 On Rail Transport in of 67,338 high-capacity containers as at 31 December 2016. The average age of the the Russian Federation. In its terminals, the Company provides services categorised as Company’s general-purpose containers was 11.7 years. The Company plans to continue its ‘rail infrastructure services’ (container loading/unloading operations, container sorting, fleet replacement guided by demand. etc.) acting as an agent of Russian Railways, as well as other terminal services at clients’ requests. In 2016, all medium-duty containers (3 tons and 5 tons of capacity) were retired, and the FINANCIALREPORT Company had no more containers of this type in ownership as at 31 December 2016. Terminals of the Company also serve as a ground to provide truck haulage services to deliver containers right to the client’s door.

Specialised container fleet Changes in container fleet in 2016 The decrease in vehicles is associated with disposal of trucks for medium-duty containers as at 31 December 2016, and a decrease in the car fleet in regions with strong competition on the road units transportation market. Depending on technical conditions and age, surplus trucks in such regions were either disposed of or relocated to regions with a local shortage of road

CORPORATE CORPORATE transportation services.

GOVERNANCE -foot -foot Total Containers 20 40 The largest asset of the Company outside of Russia is a stake in Kedentransservice that Number of trucks, units Acquired 1,979 2,548 4,527 2,490 operates 18 freight terminals across Kazakhstan and transshipment facilities at Dostyk and Altynkol border crossings (Kazakhstan-China border). As at 31 December 2016, 2015 Retired 1,252 1,171 2,423 Kedentransservice had 132 units of lifting equipment. 660 2016 514 YE total 41,052 26,286 67,338 OPTIMISATION OF NON-CORE ASSETS Insulated containers 2,093 BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS Tank containers 200 In order to streamline TransContainer’s operations, the management developed a non- core asset disposal programme. Open top containers 115 TERMINALS AND TRUCKS Bulk containers 70 As at the date of its approval, two assets were included in the non-core category: Hard top containers 12 As at 31 December 2016, the Company owned 45 railway container terminals located Gryazinsky Container Plant (1 Stantsionnaya St., Gryazi, Lipetsk Region) and Likhobory in all the key Russian industrial areas and transportation hubs. The Moskva-Tovarnaya Container Repair Shop (54th km, Little Ring of the Moscow Railway, Moscow). Total 2,490 Oktyabrskaya Station was closed in accordance with the schedule approved by Russian Railways and the Moscow Government to close all cargo terminals within the Little Ring of the Moscow Railway. In general, the existing terminal network of the Company meets MARKET OVERVIEW MARKET strategic goals of maintaining business scale and a vertically integrated business model.

The Company’s terminals located in Russia host 10 bonded warehouses with a total area of 16,000 square metres to provide additional services for international, particularly inbound, shipments.

The Company continued upgrading its terminals during 2016. In November, a modernised container terminal was put into operation in the Bazaikha Station of the Krasnoyarsk Railway.

STRATEGIC REPORT STRATEGIC Following the reconstruction, the usable area of the terminal was increased twofold to reach 55,000 square metres, while its handling capacity grew 2.7 times, from 75,000 to 200,000 TEUs per annum. The upgraded terminal is capable of simultaneously handling up to 165 standard cars. Reconstruction of existing container sites and constructions of new facilities expanded the terminal’s storage capacity 2.3 times to 3,000 TEUs.

Terminals, units 2015 2016 COMPANY PROFILE COMPANY 46 45

Warehouses, units 2015 11 2016 10 ANNUAL REPORT 2016 42 43

SERVICES Kedentransservice’s container shipments in the reporting year amounted

TRCONT.RU/EN/ to 242,000 TEUs, up 15% year-on-year. In 2016, Kedentransservice saw higher RAIL CONTAINER TRANSPORTATION volumes due to increased transit shipments between China and EU countries, which offset the drop in container imports due to Kazakhstani tenge devaluation in late Rail container shipments using Container transportation via the Russian Railways network and other railway 2015 – early 2016. own transportation assets administrations across the 1520 mm gauge network is key to the Company’s business. It is the pillar of the Company’s strategy to redistribute freight shipments to railways. Because of the above factors, in 2016 the Company’s share of the Russian rail container Domestic transportation market (shipments by the Company’s transportation assets) stood at 47.3% % The key driver behind the growth in domestic shipments was the Company’s expansive vs 47.9% in 2015.

2016/15 footprint (network coverage), which helped it to maintain strong domestic presence %

FINANCIALREPORT +8.9 despite the changing container traffic geography. In addition, the Company operates Provision of rolling stock and containers 2016/15 +9.7 Increase in transportation on domestic, Russia’s largest stock of ISO containers, which supported demand on domestic and export and import routes export routes, especially in the first half of 2016 – a period of undersupply in Russia’s sea Throughout 2016, the Company started to focus on marketing its container shipping International container shipping market. services using third-party rolling stock. Before 2016, the volume of shipments that relied on rolling stock of third parties was negligible. In 2016, the shipping volume that used the In 2016, import shipments rose by 8.3% to 242,000 TEUs. This growth was enabled by Company’s own rolling stock went up by 2.6% compared to the previous year, reaching %

the management’s active cooperation with clients and partners in the Asia-Pacific and 1,426,000 TEUs vs 1,390,000 TEUs in 2015. 2016/15 +7.9

CORPORATE CORPORATE Europe to minimise freight traffic imbalance on the export and import routes, successful GOVERNANCE development of the China–Russia transportation service via the Zabaikalsk Station, and the In 2016, the volume of revenue-generating shipments using the Company’s transportation expansion of international maritime transportation in the second half of 2016. This paved assets (rolling stock and/or containers) grew by 12.8% compared to 2015 and reached the way for increasing the market share of imports from 44.4% in 2015 to 46.1% in 2016. 1,193,000 TEUs. The growth was driven by optimised empty runs and a higher share of shipments that involve third-party containers. In total shipments using the Company’s Growth of revenue-generating volumes In 2016, the Company increased its export shipments by 13.4% by developing new transportation assets, the share of revenue-generating shipments went up to 77.3% from multimodal services that are of demand among exporters, applying a flexible pricing policy 74.7% in 2015. and ensuring the reliability of the container provision service. In 2016, the Company’s share % in export shipments increased to 45.1% from 42.9% a year earlier. In 2016, the Company’s empty container shipments (including those that use rolling stock

2016/15 +12.8 of third parties) declined by 2.4% to 350,000 TEUs. The key factor behind the decline in BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS At the same time, transit shipments dropped by 13.6%. Lower transit volumes resulted empty container transportation was improved container fleet management and flexible from lower transit freight traffic from the Far East to the Central Asia, which was mainly pricing for routes with a dominant share of empty container traffic. Further support also attributable to a decline in shipments to car assembly plants. Therefore, the Company’s came from the gradual recovery of imported cargo traffic in the second half of 2016 as share in transit transportation dropped to 28.7% in 2016 from 39.5% in 2015. the rouble started stabilising. In 2016, the Company’s ratio of empty to loaded container shipments stood at 60.8% compared to 67.1% in 2015. The above factors had a positive At the same time, Kedentransservice – a joint venture between TransContaner and impact on the Company’s costs and financial performance in 2016. Kazakhstan Temir Zholy (KTZ) – was actively growing in the China–Europe transit segment Breakdown of loaded container with a 15% increase in shipments in the reporting year. shipments by own rolling stock, by cargo type, % shares based on MARKET OVERVIEW MARKET Structure of container shipments by volume of shipments in TEUs the Company’s transportation assets Rail container shipments in Kazakhstan and Central Asia in 2015 and 2016 by type of route 2016 (loaded and empty high-capacity In 2016, KTZ and the Company went on to develop Kedentransservice, their joint containers, as % based on shipment project promoting integrated transport and logistics container services in Kazakhstan volumes in TEUs) and Central Asia. Kedentransservice on average operated 4,934 flatcars, including 2015 300 own flatcars in 2016. 5 2016

STRATEGIC REPORT STRATEGIC 16 6 16 Breakdown of railway container shipments1, 2015 ‘000 TEU 56 56 1,543 2015 2016 22 1,484 1,454 1,469 23 1,417 Auto parts 7.6 5.3 1,484 1,543 1,454 1,469 1,417 Chemicals 17.2 19.1 +8.9 % 2012 2013 2014 2015 2016 The Company’s containers shipped in third-party flatcars Paper (pulp) 12.9 11.2 Food products 6.7 6.7 Railway container shipments1, ‘000 TEU Empty containers 0 0 0.2 11.6 44.8

COMPANY PROFILE COMPANY Domestic Metalware 5.6 5.6 Loaded containers 0 0 1.5 15.3 72.3 Export Containers shipped in own flatcars Nonferrous metals 6.9 7.1 Import 2012 2013 2014 2015 2016 2015/16 Timber products 10.4 13.2 Transit Empty containers 364 342 336 347 305 Source: Company data Source: Transit 90 100 117 86 74 –13.6% Machinery and eqipment 5.6 5.2 Loaded containers 599 525 544 519 503 Import 247 267 214 223 242 +8.3%

Other 27.2 26.6 Company data Source: Third-party containers 521 587 587 524 618 Export 353 360 371 318 360 +13.4%

1 1 by the Company’s transportation assets Domestic 793 727 767 790 867 +9.7% eShar of revenue- using in-house transportation assets generating transpotation, % 75.5 76.5 77.1 74.7 77.3 (rolling stock and/or containers) loaded Company data Source: Company data Source: (rolling stock and/or containers), and empty ISO containers 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 by owner of rolling stock and containers ANNUAL REPORT 2016 44 45

In 2016, the largest product groups in the structure of shipments were chemicals (19.1% CONTAINER TERMINAL HANDLING of total loaded container shipments), products of the pulp and paper (11.2%) and timber

TRCONT.RU/EN/ (13.2%) industries, and nonferrous metals (7.1%). Compared to 2015, the structure of The Company provides container handling services at its own rail terminals, shipments using the Company’s transportation assets saw an increase in products of and also offers a wide range of additional services related to terminal handling the timber and chemical industries, and also nonferrous metals. Shares of automotive of containers and containerised cargo. components and pulp and paper products went down.

Rail container shipments using specialised containers Terminal handling in Russia

Specialised container shipments have a strong potential as a line of business that can help In 2016, the volumes handled at the Company’s container terminals in Russia increased by considerably expand the range of containerised cargoes and improve the containerisation 0.9% to 1,230,000 TEUs, including 1,229,000 TEUs of high-capacity containers. The share FINANCIALREPORT of shipments by rail. of medium-duty containers in the total volume of terminal handling services was negligible in 2016 due to the nearly complete retirement of this type of container equipment from Key types of specialised containers operated by the Company: the Russian Railways’ network.

Container type Parameters Suitable cargo The relatively slow growth of handling volumes for high-capacity containers at the Company’s terminals as compared to the overall growth in the container market Insulated containers Size: 20 feet, capacity: up to Perishable cargo results from the increasing share of domestic and export shipments made directly 24 gross tons

CORPORATE CORPORATE from the shippers’ sidings. GOVERNANCE Tank containers Size: 20 feet, capacity: up to Liquid cargo (including 36 gross tons hazardous) Terminal handling abroad

Tented containers (soft top) Size: 20 and 40 feet, capacity: Bulky, heavy, and difficult-to- In 2016, the Company held a 50% stake in Kedentransservice, Kazakhstan’s leading up to 30 gross tons load cargo private provider of terminal services. Kedentransservice operates 18 freight terminals across Kazakhstan and transshipment sites at the Dostyk and Altynkol border crossings between Containers with removable Size: 20 feet, capacity: up to Bulky, heavy, and difficult-to- Kazakhstan and China. metal roof (hard top) 24 gross tons load cargo In 2016, the volume of containers transshipped by Kedentransservice at the border Bulk containers Size: 20 feet, capacity: up to Cargo shipped in bulk BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS crossing with China was 151,500 TEUs, up 1.3% year-on-year. The volume of loading/ 30 gross tons (including food) offloading operations at domestic freight terminals was 33,400 TEUs, down 21% year- on-year. The volume of non-containerised cargo handling at Kedentransservice terminals In 2016, volumes shipped in specialised containers totalled around 9,000 TEUs, or virtually in 2016 was 2.3 mln tons, down 21.5% year-on-year. flat against 2015. The largest clients that use the Company’s specialised container shipments include Sady Pridonia, PepsiCo (both food producers), and RefService. Combined, they Through its subsidiary, TransContainer Slovakia, the Company also operates a container accounted for approximately 60% of specialised container shipments in 2016. terminal at the Dobra border crossing between Slovakia and Ukraine. The volume of containers handled at the Dobra terminal was 3,700 TEUs in 2016 vs 10,100 TEUs In 2016, the fleet of the Company’s specialised containers for liquid cargoes (tank in 2015. MARKET OVERVIEW MARKET containers) was flat and consisted of 200 containers, including 123 and 77 containers operated and owned by the Company, respectively.

The Company continues implementing technologies to expand the range of cargo for soft top containers. STRATEGIC REPORT STRATEGIC

Container handling volumes at the Company’s 1,428 terminals in Russia (high-capacity + medium- 1,319 1,320 duty containers), 2012–2016, ‘000 TEU 1,219 1,230 +0.9 % COMPANY PROFILE COMPANY

2012 2013 2014 2015 2016 Marshalling 121 71 53 45 48

Offloading 640 602 600 560 547

Loading 667 646 667 614 635 Source: Company data Source: 2012 2013 2014 2015 2016 ANNUAL REPORT 2016 46 47

TRUCKING SERVICES CLIENT SERVICE AND SALES

TRCONT.RU/EN/ Container deliveries by truck are referred to as last mile services. For truck deliveries, the The Company is Russia’s only rail container operator with a footprint across Company uses both its own fleet and services of third-party transport companies on the all of the country’s major administrative centres offering services throughout contractual basis. TransContainer is also authorised to perform trucking under customs the Russian network of railways. Our business model is geared towards serving control. a wide range of clients, varying in size, transportation geography, location and industry. In 2016, the Company transported 388,000 TEUs (up 1.5% year-on-year, which is roughly in line with the growth of container handling volumes at the Company’s terminals).

In 2016, the share of the Company’s truck fleet in the total volume of road transportation CLIENT BASE FINANCIALREPORT was 34.4% (vs 39.3% in 2015). This resulted from the greater use of hired trucks driven by the increasing competition in the regional trucking markets. TransContainer’s client universe comprises tens of thousands clients, ranging from global majors to small businesses and individuals. 24.6%

top 10 clients’ share Adjusted revenue from integrated LOGISTICS AND FREIGHT FORWARDING The Company’s top ten clients in 2016 accounted for ca. 25% of client payments, with logistics services, RUB billion the largest client, UNICO Group, our partner focusing on import and transit projects To improve market positioning, the Company expands the range of door-to-door transport originating from South Korea and China (Samsung, GM, Hyundai, Ssang Young, etc.), 2016 CORPORATE CORPORATE 14.4 7.9 22.3 solutions and builds up the portfolio of integrated transport and logistics solutions for making 5.3% of all client payments. GOVERNANCE customers to boost the added value of its services and lay the ground for long-term 2015 12.5 7.8 20.3 cooperation. The Company’s top ten clients by revenue in 2016, %

Our business model facilitates integrated logistics services to customers on an «all- No. Client Revenue share in the reporting period, 2014 11.4 9.2 20.6 inclusive» basis using both our own assets and services of subcontractors (Russian % Railways, foreign railway administrations, agent companies, customs brokers, forwarders, 2013 1 UNICO LOGISTICS 5.3 10.4 14.9 25.3 ports, sea lines etc.).

2 Fintrans 3.3 2012 8.5 17.1 25.6 Developing integrated logistics services means higher customer commitment and more BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS complex processes compared to separate transport services on the price list. Russian Railways Logistics 3.3 Adjusted revenue from integrated logistics services In 2016, our adjusted revenue from integrated logistics services amounted to 4 Rusaltrans 2.5 Other revenue RUB 14.1 billion, up 12.8% year-on-year, Its share in the total revenue was up to 62.9% from 61.6% in 2015. 5 Transport Development Group 2.2

6 Voskhod (Shushary) 2.0

7 Port Express 1.9 MARKET OVERVIEW MARKET Revenue breakdown by 8 DB Schenker Rail Automotive GmbH 1.9 client category

9 Fortmax Shipping LLP 1.3

10 Kedentransservice 1.1

Total 24.6 STRATEGIC REPORT STRATEGIC

Transport and logistics services are provided both to freight forwarding companies and directly to end customers, who account for about a third of the Company’s total revenue.

Container deliveries by the Company’s 2016/15 % p. p. and outsourced trucks in Russia (high- 544 545 Shippers 27.6 –0.6 capacity + medium-duty containers), Metallurgy and metalware 6.7 +0.2 ‘000 TEU 415 COMPANY PROFILE COMPANY 382 388 Timber 5.1 +0.2

+1.5 % Oil and petrochemicals 3.8 +1.3

Chemicals and rubber 3.3 +0.2 2012 2013 2014 2015 2016 Machinery and equipment 2.5 –0.6 Outsourced truck fleet 288 295 244 232 255 Food products 1.7 –0.3 Own truck fleet 257 249 171 150 133 Other 4.6 –0.8 Share of the Company’s truck, % 47.2 45.8 41.2 39.3 34.4 Source: Company data Source: 2012 2013 2014 2015 2016 Freight forwarders 72.4 –0.7 Source: Company data Source: ANNUAL REPORT 2016 48 49

SALES AND CLIENT SERVICE TransContainer works based on a standard freight forwarding services contract to ensure consistent quality standards across the entire 1,520 gauge railway network1 and beyond,

TRCONT.RU/EN/ Our sales network covers the entire territory of Russia and the key transport hubs in Europe wherever the client and our point of sale is located. To streamline customer journey and and Asia. The Company maintains its traditional footprint in these countries through sales identify customer needs, we run targeted surveys. offices, representative offices and joint ventures supported by e-commerce. As at 31 December 2016, the Company operated 115 sales offices across Russia, including Global sales network, countries its headquarters. The sales network relies on the central office in Moscow, key freight traffic clusters, regional administrative centres and transport hubs. 2015 2016 The international sales network covers 29 countries, including the CIS, Central and Eastern 29 TransContainer’s client service policy Europe, and Asia Pacific. It includes three subsidiaries, three joint ventures, one associate, FINANCIALREPORT and eight representative offices. Sales network in Russia, offices To improve service availability, TransContainer is now active developing its online capabilities set to become the Company’s core channel.

2015 2016 In 2016, most of our sales were made via the two key tools: 122 115 NG FOOTPR STRO INT 1. remote access suite;

CORPORATE CORPORATE 2. iSales online store. GOVERNANCE

Remote access suite

S ale Designed for regular customers, including freight forwarders and end shippers, this service s of helps deliver a price quote based on the mix of transport and logistics services the client fic es needs. All the documents are executed online – from ordering to invoicing, the customer a CI Russi S has their individual account monitored and gets a delivery notification in due time. In C en 2016, the remote access suite was transferred to an upgraded platform ensuring better tr s e a e in l a reliability. ic nl E n v o u d BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS r ro E s re p a e le o e s s a t t iS s e iSales online store Online services e rn n i l n Focused on individuals, sole proprietors and SMEs who use container transportation O

s A occasionally, our online store is a one-stop shop for any client to buy a transportation s s e i c a solution, even if they lack special knowledge of how shipping works. In 2016, iSales was c - P a e a t e i c dramatically enhanced to extend the geography of shipments, simplify pricing calculations, t u i f iSales o s i c and map the containers in transit. m

e R FLEXIBLE SERVICE MARKET OVERVIEW MARKET OFFERING In total for 2016, 58% of domestic transportation orders (by volume) was made online,

while the share of e-commerce in orders placed moved up from 25% in January to almost

s CUSTOMISABLE FOR

n d

70% in December 2016. s n o

i U t s

u s r n EACH CLIENT GROUP n s a o e if e r n u i i n p l e c t Remote d r R c d s r a a i e l l a o l h r i d g s u t p t i t t a i g e n s l d t o e w i ic f b n e l R s t a a r r t p a s r n access o s d p u o t c rt n t e s i m

STRATEGIC REPORT STRATEGIC l c r o ic f n k c suite ro a t b W c d le e D id E e C e f I o ra V r so ng p p lu e o ed ts K E a o tio f c at n r r ns om ic ou C R tn a to bine ed c t e te me d transp D ac an A S r et c ort ail ev s lient m el s B E needs e- f r on o cti D C un E L tre f E I Call cen F E La COMPANY PROFILE COMPANY N rge T T p st N artn E BA ers LI SE C

1 1,520 gauge railway is the world’s second largest network by the total length of railways. It is the primary gauge in Russia, Kazakhstan, Turkmenistan, Uzbekistan, Afghanistan, Finland and Mongolia. ANNUAL REPORT 2016 50 51

CLIENT FEEDBACK Service quality survey

TRCONT.RU/EN/ Feedback is a key element of interaction between the Company and its clients. The Company annually conducts a service quality survey interviewing clients on the The feedback system comprises the following permanent channels: following key metrics: ›› 24/7 call centre; ›› service quality; ›› dedicated e-mail accounts (with automatic generation of electronic messages sorted by ›› performance of managers; subject and sender and addressed to relevant corporate teams); ›› performance of terminals; ›› electronic client feedback form on the Company’s website; ›› information on the corporate website; ›› regular round table discussions with clients and partners. ›› changes clients would like to see in the Company; ›› preferences and needs of clients and additional services they would like to see. Call centre FINANCIALREPORT In 2016, the survey involved 2,989 respondents. The total percentage of completed In 2016, the Company further improved its call centre. The average number of processed questionnaires filed was 29.5%, up from 28.8% a year earlier, which indicates high client queries was 10,787, of which phone calls accounted for around 55%. In the reporting loyalty (the average rate in similar surveys is > 10%). period, the call centre service level rose from 63% to 90%, while the average waiting time went down from 34 to 10 seconds. In general, the Company sees a stable upward trend in the quality of services provided. The target value of 8 points was achieved at all of the Company’s branch offices, except Round tables with clients West Siberian Railways (7.9). The Company’s South-Eastern, Gorky, North Caucasus, and

CORPORATE CORPORATE East Siberian branch offices showed the best performance. The leader in terms of service GOVERNANCE Throughout the year, TransContainer held round table discussions with representatives of quality improvement was the Gorky branch office +0.7. transport and logistics companies, market experts, shippers and cargo owners, clients and partners from various industries. The most significant decline year-on-year was at the South Urals and Far Eastern railways. Service quality improvement programme for these branch offices will be approved and In 2016, these meetings were held in Moscow, St Petersburg, Nizhny Novgorod, implemented in 2017. Yekaterinburg, Gelendzhik and Irkutsk. We invited our clients and partners in Moscow, Oktyabrskaya, Gorky, Northern, Sverdlovsk, West Siberian, South-Urals, North Caucasus, Client survey results in 2016 are summarised in the chart below. South-Eastern, Volga, Kuybyshev, East Siberian, Krasnoyarsk, Trans-Baikal and Far Eastern railways. Compared to 2015, the share of price cut requests went down from 37% to 30%, while BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS the number of clients requesting delivery speed-up grew from 13% to 17%. New services and routes of the Company were presented. Also, the events focused on the Company’s interaction with users of transport services, development of e-commerce, container train shipments, and reallocation of cargo traffic from truck delivery to railway. DEVELOPING CLIENT SERVICE Much attention was paid to the development of the Company’s online services, in particular, iSales. In the reporting year, the Company focused its local client service development on long- Changes clients would like to see term partnership with leading Russian shippers. in the Company, Through regular and consistent cooperation with market players and Russian Railways in % of total respondents 2016 we cut the processing time for railway transportation applications (so-called GU- In 2016, TransContainer and UC Rusal (a leading global producer of aluminium) signed MARKET OVERVIEW MARKET 12 forms) when cargoes were accepted for transportation, and completely abandoned an agreement for the transportation of UC Rusal containerised cargo effective for three 7 the GU-12 submission and approval procedures, and discarded memorandum bill years. On 1 May 2016, the Company started transporting all UC Rusal’s cargoes in 9 30 endorsement in direct traffic, with the exception of shipments to railway stations near containers across Russia, and on 1 August, sea containers were added to carry the cargoes ports. It dramatically reduced the time needed to formalise a shipment, simplified the to Southeast Asia (Vietnam, Republic of Korea, Taiwan, Japan). 11 transportation process, accelerated the delivery and improved its quality. In the reporting year, we launched a large-scale project to transport large-diameter pipes 11 17 On a quarterly basis, regional coordination councils are held in St Petersburg and from Vyksa Steel Works and Chelyabinsk Pipe-Rolling Plant to Kotka Railway Station 15 Nizhny Novgorod, chaired by the heads of the Oktyabrskaya and Gorky railways, with (Finland) for the construction of the Nord Stream-2 international gas pipeline. The project

STRATEGIC REPORT STRATEGIC TransContainer representatives involved. is scheduled until July 2018, and the shipments of steel pipes are to total 1,300 thousand tonnes. Reduce rates Ongoing communication with clients and partners ensures prompt response to changes in Speed up cargo delivery the market environment and a competitive service offer with the needs and preferences of As to international routes, developing new international transport corridors and attracting Improve technical condition market players factored in. additional container traffic to Russian railways are high on our agenda. of containers Speed up pricing calculations As part of the East – West corridor, we launched the first container train to deliver Improve the availability of consumer goods on the route Yiwu (China) – Zabaikalsk – Riga. The distance of 11,066 km information on orders, was covered in just 11 days. Upon arrival in Riga, the cargo was sent on to the UK. shipping status COMPANY PROFILE COMPANY Accelerate order processing times at terminals

Other Company data Source: ANNUAL REPORT 2016 52 53

A new joint service of Port of Tianjin, TransContainer and Swift Transport International CORPORATE CULTURE Logistic Co., Ltd, an international freight forwarder, was offered – the first container

TRCONT.RU/EN/ train from China to Moscow via Mongolia. The train is also focused primarily on The Company builds a culture of benevolent, open, honest and trustful relationships with employees, clients, business consumer goods sensitive to delivery time. Transit time of the train from Tianjin to partners, shareholders, investors and other stakeholders. Following an open discussion, our employees defined the five Moscow (Vorsino Station) is 12–14 days, with the route length of over 7,500 km. The core values required to carry out the Company’s mission. train route passes through a new transport corridor for the China–Moscow services via the land border crossings of Erlian (China) / Zamyn-Üüd (Mongolia), Sükhbaatar (Mongolia) / Naushki (Russia). RESPONSIBILITY PROFESSIONALISM TRUST ENGAGEMENT DEVELOPMENT

Also, in 2016, we arranged logistics corridors for regular shipments along the route Port of Busan (Republic of Korea) / ports in China – Port of Dalian (China) – Zabaikalsk – TransContainer leverages on the strengths of these five values when building win-win relationship with all stakeholders and generates FINANCIALREPORT Vorsino (Kaluga Region) for Samsung Electronics. The new route reduces delivery a unique competitive advantage for everyone. The updated strategy of the Company covers business expansion and higher efficiency, time as container trains are put together in the Chinese Port of Dalian, from where development of relationship with new business partners and clients, and stronger footprint in promising market niches. These the trains travel to Russia through the Zabaikalsk border crossing to Vorsino. In FY objectives require a unified platform of values that drives mutual understanding and sustainability of the entire business. 2016, 2,936 TEUs were transported along this route, and starting August 2016 regular container trains are dispatched.

Success of this project became the foundation for signing a Letter of Intent on

CORPORATE CORPORATE Strategic Cooperation between TransContainer and Dalian Port Corporation Limited. GOVERNANCE COMPANY MISSION According to the document, the parties intend to develop cooperation on the basis of the transport hub at the Port of Dalian, and, inter alia, to encourage the accession of To provide effective support to our clients by the Asia-Pacific countries to the international logistics corridor of Dalian – Manchuria/ offering prompt, reliable and comprehensive Zabaikalsk – Russia/Europe. SHAREHOLDERS container cargo delivery and logistics solutions. COMPANY

At the 1520 Strategic Partnership: Caspian Region forum in Baku, TransContainer The Company, by any and all means, The Company monitors current social and Azerbaijan Railways signed a Memorandum of Cooperation on the Development ensures full transparency and fair issues, implements charitable initiatives of Intermodal Shipments along the North–South international transport corridor. distribution of dividends. across the Company’s geographies, reduces environmental footprint, and ›› Majority shareholder controls the development of the health BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS ›› Large minority shareholder and safety system. › Portfolio and retail investors › ›› Mitigation of social tension ›› Support to children without parental care ›› Environment protection STRATEGIC GOAL MARKET OVERVIEW MARKET To build up capitalisation (value) of the Company by increasing business scale and efficiency.

Creating additional value for clients and business partners while complying with the international social and environmental standards is key to achieving the strategic goal.

STRATEGIC REPORT STRATEGIC BUSINESS STATE PARTNERS EMPLOYEES

When dealing with business partners, To be consistent and honest in meeting the The Company discharges its tax the Company is guided by the Company’s obligations to employees. obligations in time and in full, principles of openness, trust and ensures transport accessibility of mutual benefit. container shipments and meets social responsibilities as an employer. ›› Rail infrastructure operators ›› Maritime freight carriers and other ›› Major tax payer subcontractors New jobs in in regions COMPANY PROFILE COMPANY CLIENTS ›› ›› Ports and terminals ›› Contribution to higher efficiency Manufactures and suppliers and competitive position of ›› The Company holds regular meetings of rolling stock, containers Russia’s economy globally and round table discussions with and equipment, repair service its clients and delivers ongoing providers improvements in service quality. ›› IT companies ›› Financial institutions ›› Long-term strategic agreements ›› Corporate clients ›› Small and medium-sized businesses ›› Retail orders ANNUAL REPORT 2016 54 55

QUALITY CONTROL Claim handling system

TRCONT.RU/EN/ TransContainer exercises quality control on a comprehensive and multi-level basis at all The customer-focused approach fully applies to claim handling processes. business units within their competence. TransContainer’s aim is to resolve any disputes in a prompt and efficient manner. The TransContainer regularly assesses the effectiveness of the quality management system and procedure includes both satisfying customer claims and providing reasonable grounds for takes necessary steps to eliminate any identified gaps. In 2016, the Company’s quality refusal, which, if formulated clearly, thoroughly and in simple terms, help resolve disputes management system was audited and certified for compliance with ISO 9001:2008 in most cases. In 2016, 97% of claims addressed to the Company were successfully requirements. The auditors assessed the performance of the quality management system resolved through claim handling procedures. at the executive office and TransContainer’s branches at the Moscow, Sverdlovsk, South Urals and Oktyabrskaya railways. Among quality improvement tools is adding the amount of unreasonably refused claims to FINANCIALREPORT KPIs for branch offices and respective departments of the executive office. The Company In 2016, 97% of claims addressed The effectiveness of the comprehensive quality management system stems from the constantly monitors the situation using the information from reports, enquires and to the Company were successfully uniform values integrated at each level of the production chain: customer claims. resolved through claim handling

procedures. ›› Creating new value (transportation services) for customers. TransContainer focuses on creating new value (transportation services) for customers, In 2016, the Company’s quality fully understanding their needs and expectations related to cargo transportation management system was audited

CORPORATE CORPORATE services and using a proactive approach. GOVERNANCE and certified for compliance with ISO 9001:2008 requirements. ›› Maintaining high quality of services. TransContainer offers high-quality transportation and forwarding services, which includes providing prompt, safe and comprehensive cargo transportation solutions to customers.

›› Coordinating processes. TransContainer manages its operations using well-established processes aligned with its strategy to achieve sustainable results. BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS ›› Personnel training. TransContainer values its employees and aligns their remuneration and incentivisation (including rewards, benefits and bonuses) with the Company’s strategy.

Paying attention to people’s professional needs and having a clear understanding of skills and competencies required to achieve the Company’s strategic goals and the high quality of services, TransContainer launches necessary staff training and development programmes. MARKET OVERVIEW MARKET

›› Fostering win-win relations with customers and key suppliers. TransContainer fully realises the importance of effective partnerships in the current highly competitive environment.

The Company is focused on building relations with customers and key suppliers based on mutual benefit and trust, including sharing resources, experience and expertise to achieve strategic goals.

STRATEGIC REPORT STRATEGIC The amount of unreasonably › Ensuring ongoing improvement and development. › refused claims is KPI for branch TransContainer welcomes new ideas from both within and outside of the Company offices. and establishes the necessary communication channels. It encourages business culture development and innovations across all areas of activity.

›› Maintaining the integrity of the quality control system. TransContainer provides services to internal customers (business units), partners and external customers in line with clearly defined standards. The Company’s legal function

COMPANY PROFILE COMPANY includes a claims handling system, which ensures prompt amendment of management processes and procedures following an in-depth analysis of information received from customers, partners and regulatory authorities. ANNUAL REPORT 2016 56 57

HUMAN RESOURCES Recruitment policy

TRCONT.RU/EN/ Total headcount, people In the current market environment, the Company must place a stronger focus on the The Company’s recruitment policy is aligned with its strategic goals, which ensures rapid development of its staff. In a tougher competitive landscape, high quality service, business growth and flexible response to the needs all across the operating cycle. The efficient management and operational excellence are key to business success. To gain Company focuses its efforts on three areas. these advantages, the Company needs a strong team of professionals sharing the same 01.01.16 4,050 corporate values, namely. Recruitment of highly qualified staff in line with business growth targets The Company’s corporate values were defined at the strategic sessions and set forth in its To attract talent, the Company employs a variety of tools to source promising students Code of Business Ethics in 2016. and manage their professional and personal development during the years of study. Rail transport universities and colleges that train students in key competencies include Moscow FINANCIALREPORT 31.12.16 3,895 They underpin the competency matrix to be complied with by all employees. This helps State University of Railway Engineering, Emperor Alexander I St Petersburg State Transport build a team offering the best fit for the Company’s corporate culture. University, Rostov State Transport University, Samara State Transport University, Ural State University of Railway Transport, Siberian Transport University, and Far Eastern State Transport 368 University. Students can take Specialist and Bachelor Degree programmes sponsored by the Company. total new employees for the reporting period Candidates’ fitting the job profile CORPORATE CORPORATE GOVERNANCE Staff breakdown by genger, Staff breakdown by category, people The key recruitment and employment criterion is whether a candidate fits the job profile people aligned with the Company’s goals. Executives1 29 2016 100 129 New staff breakdown by age, % 29 2015 100 129 2016 Building the talent pool by selecting high-potential employees and developing personal Managers 313 310 2016 623 training plans. 2016 330 2015 306 636 2015 1,285 399 1,684 Skilled employees 2016 Our personnel assessment system helped improve recruitment quality, making the process 1,298 2015 402 1,700 as impartial and unbiased as possible. 2015 362 9 White collar employees 2016 371 398 2015 13 411 BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS 405 683 Blue collar employees 2016 1,088 445 2015 729 1,174 2015 2016 2015 2016 Male 1,550 1,490 Female Male Below 25 years 26.8 22.8

Female 2,500 2,405 26–35 years 35.1 39.9 Employees back from maternity and child care leave Total 4,050 3,895 36–55 years 32.4 34.2 Staff breakdown by age, people Staff category Company total 55+ years 5.7 2.9

MARKET OVERVIEW MARKET 130 92 222 Below 25 years 2016 141 2015 103 244 FTE % 793 462 26–35 years 2016 1,255 Number of employees on maternity and child care leave in FY 2016 130 3.4 840 2015 458 1,298 New staff breakdown by gender, % 1,380 755 2,135 36–55 years 2016 Number of employees back from maternity and child care leave in 106 Х 1,417 779 2015 2,196 FY 2016 2016 102 181 55+ years 2016 283 109 2015 204 312 Number of retained employees back from maternity and child 98 Х care leave as at 31 December 2016 2015 STRATEGIC REPORT STRATEGIC Female Male Retention rate for employees back from maternity and child care leave is 92.5%. Total number of dismissed employees Staff turnover (resignations, dismissals for breach of 12.1 6.1 labour discipline), people Below 25 years 11.7 Male 7.0 2015 2016 Labour disputes reviewed / under review by court 6.2 4.3 Male 47.3 50.3 26–35 years 6.6 Female 5.5 2015 2016 Female 52.7 49.7 Referred to court in FY 2016 3

COMPANY PROFILE COMPANY 3.7 231 194 36–55 years 5.0 Under review by court in FY 2016, including claims filed before the start 1 Staff turnover rate2 3.2 of the reporting period 55+ years 6.5 2016 2015 Adjudicated by court in FY 2016 1 Share of new employees 2015 % 2016 % Dismissed without prejudice in FY 2016 1

6.1 5.3 2015 % 2016 % 1 Top management, heads of branch offices and their deputies, chief accountant, chief engineer 8.3 9.4 2 Staff turnover: number of resigned employees for the period / average headcount for the period •100. ANNUAL REPORT 2016 58 59

Staff onboarding Staff assessment

TRCONT.RU/EN/ Onboarding embraces the following stages: The Company is developing a staff assessment system that helps recruit, on-board and ›› induction to the organisation; retain talented employees. ›› induction to the business unit; ›› induction to the position. In 2016, over 56% of job profiles were drafted for the executive office, and over 50% for Performance assessment, % the branches. The Company plans to complete this programme in 2017. A strong focus The process is based on the dedicated onboarding programme approved by the here is placed on creating a professional competency cluster, in order to work out an 17 Exceeds expectations employee’s superior. The duration of each stage depends on the job category and is effective development programme and build a corporate knowledge retention system. regulated by TransContainer’s Onboarding Policy. The talent pool development plan for 2017 provides for the launch of the welcome training for new employees. Growing investments in staff development require the Company to employ in-house FINANCIALREPORT performance assessment methods. The Company receives weekly company-wide and The Company is working to implement up-to-date onboarding practices. These include per-unit performance snapshots. Before getting a promotion, all employees undergo 79 the introduction of business games in 2016 to enable seamless employee integration into mandatory assessment. In 2016, 8% of staff were promoted following the annual Meets expectations the new structure and interaction chains, while setting up a logistics hub with a matrix performance assessment. structure. Business games feature cases based on real production incidents, which allows for a more precise assessment of the employee potential and effective job placement. Health and safety

CORPORATE CORPORATE Under the Collective Bargaining Agreement, our health and safety expenses must account 4 Below expectations GOVERNANCE Talent development for at least 0.3% of costs attributable to cost of revenue. This serves as a basis for our In accordance with the process-based approach, the Company provides training in three branches to plan their respective budgets. categories: ›› mandatory training for all employees; In 2016, the Company allocated RUB 51.397 mln to health and safety improvement ›› recommended training for employees involved in key business processes; initiatives (all funding sources). ›› recommended training for the Company’s employees. Health and safety expenses, net of IPE expenses, amounted to RUB 39,008 mln, or This classification is in line with the corporate strategy, as well as the Company’s current around 0.36% of the costs attributable to cost of revenue, of which RUB 23,822 mln was goals and objectives. allocated to the reduction of injury rates. In 2016, we purchased hand-held radio units, BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS sets of tools with insulated handles for electric works and fire extinguishers, installed Employees in the current and tactical talent pool can take advanced training programmes, prohibitory, information and mandatory safety signs and fire doors, measured the including MBA, internships abroad and in the leading domestic and foreign research insulation resistance of electric equipment and carried out a number of process control centres, companies and enterprises. initiatives.

MARKET OVERVIEW MARKET Повышение в должности работников ПАО «ТрансКонтейнер» Average training hours per employee Average training hours in 2016 Staffв 2016 promotion г. по in категориям, 2016 by category чел. dynamics, hours 16 24 40 Staff category Average headcount Total training hours Average training hours Managers 2016 13 23 for FY 2016 per employee 2015 34 76 34 33.62 Skilled employees 2016 110 27.47 Male 1,433 48,171 33.62 78 2015 36 114 21.93 35 2016 3 38 Female 2,195 48,129 21.93 White collar employees 8.02 39 2015 3 40 STRATEGIC REPORT STRATEGIC 40.73 16 4 Managers 732 29,814 40.73 Blue collar employees 2016 20 43.21 (acceptance/delivery agents) 16 2015 5 21 10.80 9.30 Skilled employees 1,500 16,202 10.80 Female Male 4.15 0.65 White-collar employees 323 1,342 4.15

45.61 51,397.93 Blue-collar employees 1,073 48,942 45.61 10.61 44,423.04 COMPANY PROFILE COMPANY Total 3,628 96,300 26.54 Health and safety expenses, ‘000 RUB 2016 2015 38,354.41 2014 2015 2016 Individual protective equipment (IPE) 8,669.44 12,405.01 12,389.33

Improvement of working conditions 17,372.23 16,107.05 15,185.93

Reduction of injury rates 12,312.74 15,910.98 23,822.67

Total 38,354.41 44,423.04 51,397.93

2014 2015 2016 ANNUAL REPORT 2016 60 61

Under the investment programme, there was purchased a mobile simulator stand for Non-financial incentives container crane operators worth RUB 4,195 mln, which will help reduce accidents and

TRCONT.RU/EN/ injuries, and enable operators from multi-skill teams to acquire sufficient knowledge and An Honorary TransContainer’s Employee award skills to perform loading and unloading operations. In 2016, the Company approved Regulation on TransContainer’s Employee Incentives and The Company spent RUB 15,186 mln to improve working conditions and prevent an Honorary TransContainer’s Employee sign awarded to the best employees who have occupational diseases. For better microclimatic conditions, we installed heaters, air worked with us for over ten years. The badge entitles its holder to a bonus payment, along conditioning systems and air ionisers, and furnished the windows with sunlight protection with: (window blinds). We also purchased labour-saving devices to reduce workload and ›› free transportation, once a year, by trains of all types (in cars with first-class physical effort. compartments); ›› replacement of free transportation by long-distance trains (in cars with first-class FINANCIALREPORT Lockers were installed to improve employee welfare. Dining areas are furnished with compartments) during the current year with a one-year free transportation, for one electrical appliances, and bottled water is available to ensure high quality of drinking person, by suburban trains of all types in the areas where suburban service is available, 122 employees water. at a distance up to 200 km in two or more directions (or by long-distance trains in case there is no suburban service); have taken advantage of the Pursuant to Clause 3.10.3 of the Collective Bargaining Agreement, we allocated at least ›› all things being equal with other employees, priority in receiving partial compensation programme to improve their housing 50% of the health and safety funds to the transfer of workers from hazardous production of health resort treatment and travel packages, as well as other social benefits under conditions areas and installation of machines and equipment to prevent injuries. the Collective Bargaining Agreement. CORPORATE CORPORATE GOVERNANCE Workplace injuries Best Employee contest

2012 2013 2014 2015 2016 2017(target) The best employee is selected by a company-wide electronic voting. The contest has two nominations: Employee of the Year (for the executive office and each branch) and Number of workplace injuries 3 0 2 0 0 0 Manager of the Year (for the executive office and across branches).

Incentives Best in Profession contest

Staff incentives include remuneration for working hours, including compensations and This is a professional knowledge quiz, judged by a panel of experts. The contest had BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS incentive payments, and social benefits. 45 participants in each nomination.

Financial incentives Business Process Improvement contest

Staff remuneration terms and procedure are set out in Regulation on TransContainer’s The reporting year saw the launch of the Business Process Improvement contest, which Staff Remuneration. In 2016, an average monthly salary for employees on payroll stood at brought about promising projects to streamline current process models. These will be RUB 88,059. implemented by the process management office. All awards are distributed to employees at an annual performance summary event. In order to better motivate our people to contribute to higher container transportation MARKET OVERVIEW MARKET volumes and margins, better quality of freight transportation and forwarding services, and Trade union organisations to deliver stronger performance, we make monthly/quarterly bonus payments. Bonuses are linked to the Company’s operating and financial results, as well as employees’ personal Almost all (98%) of the Company’s employees are members of the primary trade union contribution, and are calculated by unit, occupation and position. organisation under the Russian Trade Union of Railway Workers and Transport Builders 88,059 RUB (Rosprofzhel). We have developed and are continuously improving the scheme which links bonus amount an average monthly salary to the performance of target KPIs.To attract and retain qualified staff, the Company pays The trade union organisation initiates signing of the Collective Bargaining Agreement, for employees in 2016 loyalty bonuses. We motivate our team to perform better by providing social guarantees which governs social and labour relations of the Company and its employees.

STRATEGIC REPORT STRATEGIC and benefits in excess of those required by the Russian labour laws. These are governed by the Collective Bargaining Agreement and internal by-laws. It liaises with the employer on matters related to workplace discipline, work and rest regime, health, safety and working conditions, increase in real wages, social guarantees All our employees are granted voluntary health insurance policies and can get free provided to employees, their families and unemployed pensioners. Jointly with the medical care at healthcare facilities. Also, employees and their families are entitled to a employer representatives, it is continuously engaged in drafting internal by-laws. partial compensation of their health resort treatment packages and reimbursement of railway tickets. In case of a violation of rights or discrimination, each employee can file a free-form complaint to the trade union organisation or write a letter to the CEO. All complaints are Retiring employees receive a one-off payment, and our staff can also take advantage of handled by dedicated commissions as part of the trade union’s day-to-day activities. The

COMPANY PROFILE COMPANY corporate pension plans. employer makes decisions on social and work-related matters put forward by employees, based on the motivated opinion of the trade union bodies. The Company provides financial aid to its employees in specific life circumstances, including hardship payments. We pay subsidies to employees to cover part of their Pursuant to the Collective Bargaining Agreement for 2017–2019, to promote fitness, mortgage interest. There are also a one-off childbirth allowance, and a monthly popular sports, and healthy lifestyle, and to reduce morbidity, the Company has put in allowance for those on leave to care for children from 1.5 to 3 years. place dedicated sports programmes (e.g. it pays for fitness centre membership and hosts corporate sporting events). ANNUAL REPORT 2016 62 63

Social programmes Environment

TRCONT.RU/EN/ As part of its TransContainer for Children charitable programme, the Company arranged TransContainer’s key strategic objective on the environmental front is to ensure Historical environmental expenditure, an excursion for its employees’ children to one of its terminals. The children could see environmentally-friendly and sustainable development of the Company while minimising its RUB mln there loading and unloading machines in operation and take part in a railway-related quiz. environmental footprint. 2016 34.65 Additional social programmes are in place to attract and retain employees: Environmental principles: ›› ensuring compliance with the Constitution of the Russian Federation, federal laws 2015 34.84 Housing programme and other regulations of the Russian Federation, international regulations governing environmental protection and sustainable use of natural resources, and strict 2014 42.35 The housing programme includes: compliance with the rules intended to ensure personnel, community and environment 2016 34.65 FINANCIALREPORT ›› subsidies to employees to cover part of their mortgage interest; safety by all employees; 2013 34.44 342 employees ›› corporate support for home purchase/construction. ›› improving and enhancing environmental performance; 2015 34.84 ›› applying best practices to establish and maintain a high level of environmental received treatment at various health 2012 43.0 To date, 122 staff members have taken advantage of the programme to improve their protection utilising the most advanced of the existing and emerging technologies; 2014 42.35 resorts in 2016 housing conditions.Health programme ›› prioritising activities set to reduce the impact of hazardous operations on people and environment; 2011 126.8 2013 34.44 The health programme includes: ›› staying alert and taking immediate action to prevent and remedy any environmental

CORPORATE CORPORATE › discounted recreation for employees and their families at a number of resorts and accidents, incidents, occurrences, disasters or other emergencies. GOVERNANCE › 2010 15,6 partial reimbursement of travel packages bought; 2012 43.0 ›› summer vacations for employees’ children; The following guidelines were adopted in 2016: ›› creating conditions for physical activity and sports. ›› maximum permissible emissions (MPE) for a 5-year term; 2011 126.8 ›› maximum permissible discharges (MPD) for a 3-year term; 2016 34.650 In 2016, 342 employees, including 111 with children, received treatment at various health ›› standards for waste generation and disposal limits; 2010 15,6 resorts and recreation facilities. As many as 195 children spent their summer holidays in ›› parameters of sanitary protection zones (SPZ) surrounding the sites with no residential Environmental2015 expenditure structure34.842 recreational camps. or public (recreational, nurseries and schools, healthcare providers) facilities permitted. by category, RUB mln The SPZ regulation is effective for a 3-year term. The Company set up a sports committee to coordinate sports-related activities, and 2016 34.650 BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS created conditions for employees to do various sports. Closing down several terminals resulted in an insignificant reduction in pollution charges. 2015 34.842 Corporate pension plan Solid waste 2015 2016 The plan is based on our agreement with Blagosostoyanie Private Pension Fund and Solid waste is collected and stored in sealed containers in compliance with Sanitary Rules Waste management, air emission 5,530 5,351 implemented in compliance with the Regulation on TransContainer’s Private Pension. A and Regulations (SanPiN) 2.1.7.1322-03 Hygienic Requirements for the Storage and treatment and remedial action total of 980 Company’s employees (27%) have become a party to the agreement. At Disposal of Industrial and Consumer Waste. Solid waste control is ensured by means of Prevention of environmental impact and 28,692 28,626 environmental management system present, 633 former TransContainer’s employees receive a corporate pension averaging keeping record of the generated, accumulated and transported industrial and consumer RUB 5,893. waste. Third party services for environmental – 0,223

MARKET OVERVIEW MARKET management system

Research and development 0,620 0,450 Aid to veterans Temporary waste sites were set up in 2016. The Company signed hazardous waste disposal contracts with specialist companies licensed to collect and recycle mercury-vapour The Company’s business units take care of 1,300 unemployed pensioners. The Collective lamps, household waste, scrap metal, and oily rags for a timely disposal of the same. Bargaining Agreement signed by the Company provides for the following benefits and social guarantees to unemployed pensioners: ›› financial aid; ›› discounted recreation and treatment;

STRATEGIC REPORT STRATEGIC ›› reimbursement of dental prosthetics, treatment, household fuel and rail travel expenses.

In 2016, the Company spent RUB 7.2 mln on social benefits to unemployed pensioners. Environmental policy

89.91 87.66 Total solid waste, tonnes 85.37 COMPANY PROFILE COMPANY 2015 2016 2017 (target) Grade 1 0.38 0.36 0.35

Grade 2 1.58 1.50 1.42

Grade 3 6.45 6.2 6.1

Grade 4 39.8 39.3 38.5

Grade 5 41.7 40.3 39

2014 2015 2016 ANNUAL REPORT 2016 64 65

Projects TRCONT.RU/EN/

Storm drain Remote terminal monitoring

In 2016, TransContainer fully completed construction of a storm drain at container To streamline energy efficiency, the Company is rolling out a system of remote terminals of the Batareinaya and Bazaikha stations. The new system promptly drains terminal monitoring. The system helps to control performance of technical excess surface water from railway tracks and electric gantry cranes and thoroughly equipment (cranes, reach stackers, vehicles) by means of GPS navigation enabling cleans up storm runoff so that treated water may be used for technical needs at online connection to the system of a specialist service company to diagnose the terminal. equipment. Real-time monitoring and metering of energy consumption are also FINANCIALREPORT possible now. The system is also used for a more efficient seamless operation This enhances the reliability of the terminal’s process cycle improving production of vehicles – from dispatch and traffic to fuel consumption control. Smart security and reducing the volume of process water intake from external sources. vehicle route planning and installation of fuel level sensors have translated into a significant reduction in empty mileage and fuel consumption.

Technical profile

CORPORATE CORPORATE In the reporting period, the Company continued replacing conventional lighting fixtures GOVERNANCE Bazaikha container terminal Batareinaya container terminal with energy-saving alternatives. The related purchase and installation costs totalled RUB 391,800. Storm sewer length 1,273 m Storm sewer length 987 m

Balancing tanks 2 tanks of A tank with absorption filters 6 tanks 140 m3 (sponge fiber filter elements)

Pump station for 7.3 m2 Performance 10 litre per stormwater runoff second BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS Stormwater treatment unit 23.5 m2 Manhole 3 wells

Treated stormwater tanks 3 tanks of 420 m3 Energy consumption

Costs RUB 5 mln Costs RUB 10 mln 14,796.7 2016 62,071.72 Total electricity, 14,367.1 2015 55,322.9 ‘000 kWh 14,857.3 2014 52,520.8

4,625.9 2016 160,344.02 MARKET OVERVIEW MARKET Diesel fuel, tonnes 4,434.3 2015 146,966.2 4,819.7 2014 153,789.4

Energy efficiency 204.1 2016 7,962.14 Petrol, tonnes 240.3 2015 8,719.9 253.4 2014 8,612.8 In 2016, TransContainer approved a plan of organisational and technical initiatives to be implemented in order to achieve target savings of key energy resources. The first stage 207.6 2016 873.23 Natural gas, ‘000 m3 177.0 695.6 involved launching a system of ongoing monitoring of energy consumption laying the 2015 159.0 2014 766.5 groundwork for a KPI system to be built going forward to keep track of progress with 12,185.5 2016 –

STRATEGIC REPORT STRATEGIC targets. Heat, Gcal 11,800.0 2015 – – 2014 –

Physical amount ‘000 RUB

Energy saving Energy saving

Energy resource 2014 2015 2016 213.9 2016 941.2 Total electricity, MJ MJ MJ ‘000 kWh 481.4 2015 1,974.0 328.5 2014 1,288.8 COMPANY PROFILE COMPANY Electricity, ‘000 kWh 1,182,600 1,733,040 770,220 119.2 2016 4,194.5 Diesel fuel, tonnes 73.9 2015 2,186.7 Diesel fuel, tonnes 2,638,319 3,139,642 5,064,212 62.1 2014 1,886.7

1.5 2016 55.1 Petrol, tonnes 356,288 124,700,8 66,804 Petrol, tonnes 2.8 2015 84.5 8.0 2014 281.6 Total 4,177,207 4,997,382 5,901,236 Physical amount ‘000 RUB ANNUAL REPORT 2016 66 67

Procurement trends, lots SUPPLY CHAIN TransContainer also strives to ensure that its business partners, contractors and other entities operating on behalf and/or at the request and/or for the benefit of the Company 2016 513 TRCONT.RU/EN/ The Company carries out procurement activities in line with the Federal Law No. 223-FZ also undertake a zero tolerance policy against corruption. 2015 524 On Procurement of Goods, Works and Services by Certain Types of Legal Entities dated 18 July 2011 based on the Regulation on the Procedure for the Procurement of Goods, In 2015, TransContainer joined the Anti-Corruption Charter of the Russian Business 2014 659 Work and Services for TransContainer’s needs, approved by TransContainer’s Board of marking another milestone in the Company’s efforts to prevent and combat corruption. Directors on 21 December 2016. As the next important step on the road to harmonising anti-corruption approaches In 2016, 492 procurements were made (513 items). of the Company’s employees and other stakeholders, the Board of Directors of the Savings gained in 2016 through Company approved TransContainer’s Anti-Corruption Policy. Some of the Policy’s core procurement procedures, RUB mln The reason behind the decline in procurement is that in the previous periods the Company principles include zero tolerance for corruption, regular corruption due diligence, and FINANCIALREPORT purchased items with a longer useful life (up to 5 years). Thus, there is less need for implementation of adequate anti-corruption procedures. Savings 152 procurement in the subsequent periods. I am confident that by following the Anti-Corruption Policy we are building a culture Based on the results of the procurement procedures, the Company signed contracts worth without corruption in and outside the Company, which ultimately bolsters TransContainer’s over RUB 30 bn (net of VAT). reputation and leads to greater trust from shareholders, investors, business partners, 4,476 clients and other stakeholders. 1 Value of signed contracts Long-term (up to 5 years) framework contracts with subcontractors engaged in

CORPORATE CORPORATE transportation and forwarding services accounted for the most part (about RUB 25 bn). In 2015, TransContainer joined the Anti-Corruption Charter of the Russian Business. GOVERNANCE The purpose of the Charter is to encourage Russian companies to implement special anti- The Company works to reduce the share of non-competitive procurement from a single corruption programmes focusing on internal control procedures, procurement through supplier (contractor). public auctions, financial controls, training and other HR initiatives, cooperation with law enforcement authorities, and abolition of preferential treatment practices, among other measures. The Anti-Corruption Charter of the Restricted procurement dymanics, ANTI-CORRUPTION POLICY Russian Business % of total purchases By joining the Charter and implementing its requirements in a consistent manner, TransContainer’s Anti-Corruption Policy sets forth the goals and objectives, the key TransContainer confirms having proper anti-corruption procedures in place as generally 2016 6.8 principles and the role of the management and supervisory bodies in implementing the required under Article 13.3 of Federal Law No. 273-FZ On Combating Corruption dated BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS 2015 7.0 Company’s zero tolerance approach to all forms of corruption. It also serves to establish 25 December 2008. a regulatory framework for the Company’s anti-corruption initiatives. 2014 8.0 Control of risks of non-compliance with anti-corruption laws www.rspp.ru The Company’s operations are based on: ›› TransContainer’s Code of Business Ethics; Audit Committee Single-source procurement breakdown ›› Regulation on addressing any existing (or potential) conflict of interest (from a single supplier, subcontractor), % at TransContainer; The main objective of the Audit Committee is to ensure effective functioning of the Board ›› Notification procedure for TransContainer employees to report any inducement of Directors by previewing and issuing recommendations regarding the matters reserved to corruption offences. to the Board of Director to the extent covered by the Audit Committee Regulations. These TransContainer’s Anti-Corruption MARKET OVERVIEW MARKET 16 include preliminary review of situations associated with potential non-compliance with Policy 6 In 2016, the Company approved a Programme to Combat Corruption, Corporate Fraud Russian anti-corruption laws. 81 and Embezzlement implemented together with the Anti-Corruption Due Diligence transactions 16 62 Guidelines. The Company takes measures to make sure that its ethical standards, anti- Risk Committee corruption policy, procedures for handling conflicts of interest, and hotline reporting processes are communicated to the employees in a timely manner. The Company offers The risk map includes the risk of Employee Wrongdoing. This risk is associated with fraud, training programmes to educate employees on anti-corruption and liability for corruption corruption and solicitation of commercial bribery. The Company has developed and www.trcont.ru Transportation services provided by offences. TransContainer maintains relationships with its subsidiaries, partners and third approved action plans to mitigate the risks, and monitors them on a quarterly basis. infrastructures owners, including Russian

STRATEGIC REPORT STRATEGIC parties in line with anti-corruption principles. The Company also assists government Railways (25 procedures), foreign railways authorities in official anti-corruption investigations. The Risk Committee also assesses risk severity and reviews realised risks. and ports, etc. Electricity, heat, utilities, mail service, lease Anti-corruption statement Commission for addressing existing (potential) conflict of interest Goods, works and services related to IT development, support and maintenance Peter Baskakov, CEO of TransContainer In case of suspected corruption, the CEO instructs competent employees to investigate the of software and the Company’s information systems, including with the owners of situation by way of a preliminary internal review. exclusive rights to software, and with the In line with high ethical standards, TransContainer is fully committed to creating a zero developers tolerance environment against any form of corruption. The procedures are governed by the following internal regulations:

COMPANY PROFILE COMPANY Other (participating and advertising at ›› Regulation on addressing any existing (or potential) conflict of interest at exhibitions and specialised events, summer This means that TransContainer will not tolerate any actions that are directly or indirectly TransContainer; camps, etc.) associated with the offering, giving, promising, soliciting or receiving bribes, assisting in ›› Notification procedure for TransContainer employees to report any inducement to bribery, and any payments seeking to facilitate administrative, bureaucratic and other corruption offences. formalities made in any form by or to any persons/organisations, including government officials, public organisations, private companies and political figures. When being hired, all employees are instructed to read the Company’s regulations concerning ethical standards, anti-corruption policy, procedure for resolving conflicts of 1 Excluding framework contracts, tender- We will not accept any deviations from this rule as contradictory to our values and interest and using the hotline. Additionally, the Economic Security Department advises the based contracts and single-source obligations towards our stakeholders. newly employed and other personnel (if so required for preventive purposes) on how to contracts handle conflict of interest, and informs them about the hotline and reporting procedures. ANNUAL REPORT 2016 68 69

All reissued and revised regulations are communicated to all employees by e-mail and Children support by posting in the respective sections of the corporate website. At least once a year, the

TRCONT.RU/EN/ legal function circulates a list of federal and internal regulations related to these matters TransContainer for Children and offers consultations to employees as and when required. At least once a year, the Company checks points of contact with clients for availability and relevance of information Since 2015, the Company has implemented a dedicated long-term programme aimed at: on the location (address) and procedure for contacting the management (via hotline). ›› promoting education, science, culture, art and spiritual development among children; ›› supporting children’s health protection and preventive healthcare, promoting a healthy There is a Hotline hyperlink on the Company’s intranet and a dedicated Combating lifestyle; Corruption section on the external website of the Company. All enquiries are accumulated ›› promoting children’s physical education and sports; via a special address ([email protected]), from which they are automatically redirected ›› providing social rehabilitation assistance to orphans, disabled and disadvantaged to the Deputy CEO, who is in charge of security, as well as to the heads of the Economic children, children without parental care; FINANCIALREPORT Security Department and the Internal Audit Service. ›› promoting patriotic and moral education among children and young people. 34.9 RUB mln The total number and percentage of departments assessed for corruption-related risks – In line with the programme, the Company provides sponsorship to children’s social and 100%. There were no new risks or confirmed cases of corruption identified. healthcare institutions, sports schools and clubs, and supports physically disabled children was allocated to finance the and children with serious health problems. In 2016, the Company allocated RUB 34.9 mln TransContainer for Children SOCIAL PROJECTS to finance the TransContainer for Children programme. programme

CORPORATE CORPORATE Under the programme, the Company also purchased outdoor sports ground and

GOVERNANCE Charity playground equipment for children’s social institutions across Russia for a total of TransContainer’s charitye programme aims to improve living standards and support RUB 2.6 mln, and sports gear for children’s social institutions and sports clubs for a total vulnerable social groups. of RUB 0.8 mln.

Key elements of the charity programme include: ›› long-term charitable projects; Medical equipment Total cost of medical equipment and children’s furniture ›› transparent charitable support; purchased for children’s social and healthcare institutions ›› targeted charitable assistance; amounted to RUB 10.2 mln. ›› cooperation with federal and state government authorities, businesses and charitable BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS non-profit organisations; ›› control over the use of funds allocated by the Company for charitable support. Medical treatment The Company allocated RUB 21.2 mln for children’s medical treatment, social rehabilitation and medical equipment and In 2016, charity expenses stood at RUB 254 mln. pharmaceuticals purchases.

Sports and healthy lifestyle The Company provided RUB 55 mln to the Admiral hockey club Charity programme priorities promotion, support of children’s (Vladivostok) to support the development of the club’s section institutions for children and young people, and RUB 80 mln to the Lokomotiv Area Expenses, RUB mln hockey club (Yaroslavl) to support two sections for children and MARKET OVERVIEW MARKET young people. Children support 35

Sports and healthy lifestyle promotion 135 Support for employees and their The Company provided RUB 14 mln to employees and their families families for medical treatment and social rehabilitation. 13.8 % 27.6 % Preservation of Russian cultural heritage No steps taken (the Company did not receive any requests for charitable assistance) 254 RUB mln

STRATEGIC REPORT STRATEGIC 5.5 % Aid for victims of emergencies No steps taken (the Company did not receive any 53.1 % requests for charitable assistance)

Support for employees and their families 14

One-off events: 70 ›› support for Forum Analytical Centre in establishing an international financial centre in Russia COMPANY PROFILE COMPANY ›› assistance in developing the Open Government system

Total 254 ANNUAL REPORT 2016 70 71

FINANCIAL RESULTS TRCONT.RU/EN/ DESCRIPTION OF KEY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ITEMS

The following table sets out the Company’s results for the twelve months ended 31 December In order to enhance analysis, we apply adjustments to the components of the Company’s 2016 and 2015. revenues and expenses to derive the values that are net of the charges of third parties involved in the Company’s services. Summary of the Company’s key results for the full year ended 31 December 2016 and 31 December 2015 Total revenue adjustment FINANCIALREPORT

Item, 2016 2015 Year-on-year change Item, 2016 2015 Year-on-year change RUB million RUB million RUB mln % RUB mln %

Revenue 51,483 42,505 8,978 21.1 Total revenue 51,483 42,505 8,978 21.1 Other operating income 660 811 –151 –18.6 Third-party charges related to principal –29,495 –22,194 –7,301 32.9 21,988 Operating expenses –48,294 –40,042 –8,252 20.6 activities 51,483

CORPORATE CORPORATE 29,495 GOVERNANCE Operating profit 3,849 3,274 575 17.6 Adjusted Revenue 21,988 20,311 1,677 8.3 Interest expense –492 –508 16 –3.1 Integrated freight forwarding and logistics services revenue adjustment Interest income 276 152 124 81.6

Foreign exchange gain, net –223 0 –223 Item, 2016 2015 Year-on-year change RUB million Share of result of associates and JVs 669 612 57 9.3 RUB mln %

Other financial results, net 0 18 –18 Integrated freight forwarding and logistics 38,767 31,608 7,159 22.6 Profit before income tax 4,079 3,548 531 15.0 services BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS Income tax expense –835 –717 –118 16.5 3rd-party charges related to integrated freight –24,641 –19,090 –5,551 29.1 14,126 forwarding and logistics Profit for the period 3,244 2,831 413 14.6 38,767 24,641 Other comprehensive income (net of income tax) –670 –914 244 –26.7 Adjusted integrated freight forwarding and 14,126 12,518 1,608 12.8 logistics services Total comprehensive income for the period 2,574 1,917 657 34.3

Operating expenses adjustment ADJUSTMENTS AND ADDITIONAL FINANCIAL INFORMATION Item, 2016 2015 Year-on-year change

MARKET OVERVIEW MARKET RUB million The majority of the Company’s services are provided with the use of third-party services. RUB mln % Accordingly, third-party charges for such services are presented within the Company’s revenues and expenses. Such third-party charges include the value of rail infrastructure tariffs Total operating expenses 48,294 40,042 8,252 20.6 and the charges of the Company’s other subcontractors and contracted partners involved in the process of providing the Company’s services. Third-party charges related to principal –29,495 –22,194 –7,301 32.9 18,799 activities 48,294 29,495 Third-party charges other than ones related to integrated freight forwarding and logistics Adjusted operating expenses 18,799 17,848 951 5.3 services are presented within revenues as a separate line item “Cargo transportation

STRATEGIC REPORT STRATEGIC and handling services with involvement of third parties”. Adjusted Revenue, Adjusted Operating Expenses, EBITDA, Adjusted EBITDA Margin All third-party charges, including ones related to integrated freight forwarding and logistics services, and Adjusted Operating Margin are not recognised under IFRS as measures of financial are presented within the list of expenses as “Third-party charges related to principal activities”. performance, but are calculated on the basis of IFRS figures and are presented as supplemental indicators of the Company’s operating performance. These supplemental Summary of 3rd-party charges involved in TransContainer’s revenues measures have limitations as analytical tools, and investors should not consider any of them in isolation, or any combination of them, as a substitute for analysis of our results Item, 2016 2015 Year-on-year change as reported under IFRS. RUB million RUB mln % COMPANY PROFILE COMPANY 4,854 3rd-party charges related to integrated freight 24,641 19,090 5,551 29.1 forwarding and logistics 29,495 3rd-party charges related to cargo transportation and 4,854 3,104 1,750 56.4 handling services 24,641

Third-party charges related to principal activities 29,495 22,194 7,301 32.9 ANNUAL REPORT 2016 72 73

Non-IFRS metrics used in the analysis ADJUSTED REVENUE BREAKDOWN

TRCONT.RU/EN/ Item, 2016 2015 Year-on-year change Item 2016 2015 Year-on-year change RUB million RUB mln % RUB mln share, % RUB mln share, % RUB mln %

Adjusted Revenue1 21,988 20,311 1,677 8.3 Adjusted integrated freight 14,126 64.2 12,518 61.6 1,608 12.8 forwarding and logistics Adjusted operating expenses2 18,799 17,848 951 5.3 services

EBITDA3 7,099 6,526 573 8.8 Rail-based container 4,061 18.5 4,390 21.6 -329 -7.5 shipping services Adjusted EBITDA margin4 32.3,% 32.1,%

FINANCIALREPORT 2,393 Terminal services and 2,393 10.9 2,130 10.5 263 12.3 agency fees Total debt 9,137 5,780 3,357 58.1 4,061 21,988 Truck deliveries 875 4.0 848 4.2 27 3.2 Net debt5 3,534 3,663 –129 –3.5 14,126

Other freight forwarding 226 1.0 134 0.7 92 68.7 Net debt / LTM EBITDA 0.50 0.57 – – services

Bonded warehousing 203 0.9 194 1.0 9 4.6 CORPORATE CORPORATE GOVERNANCE services REVENUE Other 104 0.5 97 0.5 7 7.2 The following table breaks down total revenue for the full year ended 31 December 2016 and 2015, respectively. Total adjusted revenue 21,988 100 20,311 100 1,677 8.3

Revenue breakdown Adjusted revenue (as defined above) increased by 8.3% year-on-year to RUB 21,988 million Item, 2016 2015 Year-on-year change for the full year ended 31 December 2016, from RUB 20,311 million in 2015. This was RUB million RUB mln % driven by an increase in revenue from integrated freight forwarding and logistics services, BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS terminal services and ancillary businesses, which was partially offset by a decrease in rail- Integrated freight forwarding and logistics services 38,767 31,608 7,159 22.6 based container shipping services.

Rail-based container shipping services 4,061 4,390 –329 –7.5 In 2016, the share of integrated freight forwarding and logistics services has been

Cargo transportation and handling services with 4,854 3,104 1,750 56.4 continuing its growth. involvement of third parties 4,854 Integrated freight forwarding and logistics services 4,061 Terminal services and agency fees 2,393 2,130 263 12.3 51,483 Revenue from integrated freight forwarding and logistics services increased by 22.6% year- MARKET OVERVIEW MARKET Truck deliveries 875 848 27 3.2 on-year to RUB 38,767 million for the full year ended 31 December 2016 from RUB 31,608 38,767 million in 2015. Other freight forwarding services 226 134 92 68.7

Bonded warehousing services 203 194 9 4.6 Adjusted revenue from integrated freight forwarding and logistics services was up 12.8% year-on-year to RUB 14,126 million for the full year ended 31 December 2016 Other 104 97 7 7.2 from RUB 12,518 million in 2015. This increase resulted from growing revenue-generating transportation volumes and changes in transportation services structure. The continuing Total revenue 51,483 42,505 8,978 21.1 shift in clients’ preferences in favour of integrated freight forwarding and logistics solutions

STRATEGIC REPORT STRATEGIC also contributed to the growth of this revenue item. In 2016, the share of integrated freight Total revenue increased by RUB 8,978 million, or 21.1% year-on-year, to RUB 51,483 million forwarding and logistic services in the adjusted revenue increased to 64.2% from 61.6% for the full year of 2016, from RUB 42,505 million in 2015. This increase was primarily due a year earlier. to the growth of third-party charges accounted as Cargo transportation and handling services with involvement of third parties being a part of the Company’s total revenue. Rail-based container transportation services

The following table sets out the components of adjusted revenue (as described in Adjustments Revenue from rail-based container transportation was down 7.5% year-on-year and additional financial information above) and their relative contribution to adjusted revenue to RUB 4,061 million for the full year ended 31 December 2016, from RUB 4,390 million for the twelve months ended 31 December 2016 and 2015, respectively. in 2015. These figures reflect the continuing shift of customers’ preferences towards

COMPANY PROFILE COMPANY integrated logistics services.

1 Adjusted Revenue is calculated as total revenue less the third-party charges related to principal activities. Terminal services and agency fees 2 Adjusted Operating Expenses are calculated as operating expenses less the third-party charges related to principal activities. Revenue from terminal services and agency fees increased by 12.3% year-on-year 3 EBITDA is defined as profit for the period before income tax, interest expense and depreciation to RUB 2,393 million for the full year ended 31 December 2016 from RUB 2,130 million and amortisation. for the previous year. This was primarily driven by an increase in average tariffs for terminal 4 Adjusted EBITDA Margin is defined as EBITDA divided by Adjusted Revenue. services and agency fees, while handling volumes being broadly flat. 5 Net Debt is calculated as long-term debt, finance lease obligations, short-term debt and current portion of long-term debt less cash and cash equivalents and short-term investments. ANNUAL REPORT 2016 74 75

Truck deliveries Cost of third-party charges related to principal activities

TRCONT.RU/EN/ Revenue from truck deliveries increased by RUB 27 million, or 3.2% year-on-year, The cost of third-party charges related to principal activities increased by 32.9% year-on- to RUB 875 million for the full year ended 31 December 2016, from RUB 848 million year to RUB 29,465 million for the full year ended 31 December 2016, from RUB 22,194 for the previous year. This was mainly due to a 1.5% year-on-year increase in container million during the previous year. This was predominantly driven by a higher volume transportation volumes by the Company’s own and outsourced truck fleet to 388 thousand of outsourced transportation services involved in TransContainer’s principal activities, TEU for the full year ended 31 December 2016 from 382 thousand TEU for the previous year, particularly in respect of integrated logistics solutions (see also section Adjustments reflecting the dynamics of terminal handling volumes. and additional financial information above).

Other freight forwarding and logistics services ADJUSTED OPERATING EXPENSES FINANCIALREPORT Revenue from other freight forwarding and logistics services, which are freight forwarding and logistics services of a non-integrated nature, increased by 68.7% year-on-year to RUB 226 Adjusted operating expenses, as defined in the Adjustments and additional financial million for the full year ended 31 December 2016, from RUB 134 million in 2015 on the back information section above, increased by 5.3% year-on-year to RUB 18,799 million of market recovery and resumed customer demand for added-value services. for the full year ended 31 December 2016, from RUB 17,848 million in 2015. This was primarily due to an increase in materials, repair and maintenance costs and payrolls. This, Bonded warehousing services in turn, was partially offset by a decrease in rent expenses.

CORPORATE CORPORATE Revenue from bonded warehousing services increased by RUB 9 million, or 4.6% year-on- Adjusted operating expenses structure and dynamics for full year ended 31 December 2016 GOVERNANCE year, to RUB 203 million for the full year ended 31 December 2016, from RUB 194 million and 2015 for the previous year, in line with dynamics of import volumes. Item 2016 2015 Period on period change

RUB mln % RUB mln % RUB mln Percent OPERATING EXPENSES change

The following table provides a breakdown of the Company’s operating expenses for the full Freight and 5,972 31.8 5,858 32.8 114 1.9 transportation services year ended 31 December 2016 and 2015, respectively.

Payroll and related 5,244 27.9 4,507 25.3 737 16.4 BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS Operating expenses structure charges

Item 2016 2015 Depreciation and 2,528 13.4 2,470 13.8 58 2.3 5,972 amortisation RUB mln % of % of RUB mln % of % of 2,605 18,799 operating total operating total Materials, repair and expenses revenue expenses revenue 2,605 13.9 2,275 12.7 330 14.5 maintenance 2,528 Third-party charges 29,495 61.1 57.3 22,194 55.4 52.2 5,244 related to principal Taxes other than 543 2.9 521 2.9 22 4.2 activities income tax MARKET OVERVIEW MARKET

Rent Freight and 5,972 12.4 11.6 5,858 14.6 13.8 311 1.7 638 3.6 –327 –51.3 transportation services Other expenses 1,596 8.5 1,579 8.8 17 1.1 Payroll and related 5,244 10.9 10.2 4,507 11.3 10.6 charges Adjusted operating 18,799 100.0 17,848 100.0 951 5.3 5,244 expenses 48,294 Depreciation and 2,528 5.2 4.9 2,470 6.2 5.8 29,495 amortisation 5,972 STRATEGIC REPORT STRATEGIC Freight and transportation services Materials, repair and 2,605 5.4 5.1 2,275 5.7 5.4 maintenance Expenses related to freight and transportation services increased by RUB 114 million, or 1.9% year-on-year, to RUB 5,972 million for the full year ended 31 December 2016 Taxes other than 543 1.1 1.1 521 1.3 1.2 income tax from RUB 5,858 million in 2015. This was driven by a 9.0% year-on-year RZD tariff indexing, which was partially offset by a 2.4% decrease in the transportation volumes Rent 311 0.6 0.6 638 1.6 1.5 of the Company’s empty containers, as well as a decline in the average number of idle Company’s flatcars resulted from improved empty run management, better fleet utilisation Other expenses 1,596 3.3 3.1 1,579 3.9 3.7 and overall market recovery. COMPANY PROFILE COMPANY Total operating 48,294 100.0 93.9 40,042 100.0 94.2 Payroll and related charges expenses Payroll and related charges increased by RUB 737 million, or 16.4% year-on-year, TransContainer’s total operating expenses increased by RUB 8,252 million, or 20.6% year- to RUB 5,244 million for the full year ended 31 December 2016, from RUB 4,507 million on-year, to RUB 48,294 million for the full year ended 31 December 2016, from RUB 40,042 for the previous year. This was primarily due to base salary indexing and performance- million for the previous year. This was primarily due to a significant increase in the cost linked payments. This increase was partially offset by a 4.9% year-on-year decrease of third-party charges related to principal activities. in TransContainer’s average headcount from 3,816 to 3,628. ANNUAL REPORT 2016 76 77

Depreciation and amortisation Total profit and comprehensive income for the period

TRCONT.RU/EN/ Depreciation and amortisation increased by RUB 58 million, or 2.3% year-on-year, As a result of the factors discussed above, the profitfor the full year ended 31 December to RUB 2,528 million for the full year ended 31 December 2016, compared to RUB 2,470 2016 increased by RUB 413 million, or 14.6% year-on-year, to RUB 3,244 million compared million in 2015, reflecting the growth in value of property, plant and equipment other than to RUB 2,831 million in 2015. Taking into account the exchange differences relating to foreign construction in-progress in 2016. operations and remeasurements of post-employment pension plans liabilities, the total comprehensive income for the reporting year was up 34.3% and amounted to RUB 2,574 Materials, repair and maintenance million, compared to RUB 1,917 million in 2015.

Expenses related to materials, repair and maintenance increased by 14.5% year-on-year to RUB 2,605 million for the full year ended 31 December 2016 compared to RUB 2,275 LIQUIDITY AND CAPITAL RESOURCES FINANCIALREPORT million in 2015. This was mainly due to an 6.9% year-on-year increase in a number of flatcar repairs, as well as higher average repair price. This expense item was also As of 31 December 2016, the Company’s net cash and cash equivalents amounted affected by maintenance and repair works on the Company’s terminals. to RUB 5,525 million, while its current assets exceeded current liabilities by RUB 2,634 million.

Тахes other than income tax The Company’s business is asset and capital-intensive and requires substantial capital expenditure for a variety of purposes, including the purchase of flatcars and containers, Taxes other than income tax were up 4.2% year-on-year to RUB 543 million for the full the development of rail-side terminals and investment in expanding and modernising

CORPORATE CORPORATE year ended 31 December 2016, from RUB 521 million in the previous year, primarily due its lifting equipment and truck fleet. During the reporting period, the Company’s GOVERNANCE to changes in VAT settlements. operations and its capital expenditures were financedfrom internally generated cash flows.

Rent CASH FLOWS Rent expenses fell by RUB 327 million, or by 51.3% year-on-year, to RUB 311 million for the full year ended 31 December 2016 from RUB 638 million in the previous year, largely The following table sets out the principal components of the Company’s consolidated cash due to the flatcar operating lease contracts being terminatedin the third quarter of 2015. flows for the full year ended 31 December 2016 and 2015, respectively.

Other operating expenses Item, RUB million 2016 2015 Change BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS Net cash provided by operating activities Other operating expenses are an aggregate of various expense items such as security, 6,236 4,201 2,035 consulting expenses, fuel and energy, licences and software, communication service Net cash used in investing activities –1,564 –2,297 733 and loss of sale of fixed assets. In the reporting year, other expenses were up by 1.1% year-on-year to RUB 1,596 million, from RUB 1,579 million in the previous year. Net cash provided by financing activities –976 –1,956 980 An increase in charity amount was offset by a decrease in costs related to consulting services and other expenses. Net change in cash and cash equivalents 3,696 –52 3,748

Interest expense Foreign exchange effect on cash and cash MARKET OVERVIEW MARKET –281 258 –539 equivalents Interest expenses decreased by RUB 16 million, or 3.1% year-on-year, to RUB 492 million for the full year ended 31 December 2016 from RUB 508 million in the previous year, Net cash and cash equivalents at the end of the 5,525 2,110 3,415 mainly due to a redemption of borrowings and amortisation of bonds throughout 2016. period This effect was partially offset by interest expenses associated with a bond issue series BO2 in September 2016. Cash flow generated by operating activities

Interest income Cash flow generated by operating activities increased by RUB 2,035 million, or 48.4% year-

STRATEGIC REPORT STRATEGIC on-year, to RUB 6,236 million for the full year ended 31 December 2016 from RUB 4,201 Interest income increased by RUB 124 million, or 81.6% year-on-year, to RUB 276 million million in the previous year, mainly due to a 17.6% year-on-year decrease in operating in the reporting year from RUB 152 million in 2015, mainly as a result of an increase profit and changes in working capital. in the Company’s cash balances. Cash flow used in investing activities Profit before income tax Cash flow used in investing activities decreased by RUB 733 million, or 31.9% year-on- As a result of the reasons described above, as well as due to an increased contribution year, to RUB 1,564 million for the full year ended 31 December 2016 from RUB 2,297 of the financial result of KedenTransService to the Company’s profit, profit before income million for the previous year. This decrease was primarily due to an increase in positive flow

COMPANY PROFILE COMPANY tax increased by RUB 531 million, or by 15.0% year-on-year, to RUB 4,079 million of KedenTransService’s dividends amounted to RUB 517 million. for the full year ended 31 December 2016 from RUB 3,548 million for the previous year. Cash flow used in financing activities Income tax expenses Cash flow used by financing activities decreased by RUB 980 million or by 50.1% Income tax expenses increased by RUB 118 million, or 16.5% year-on-year, to RUB 835 to negative RUB 976 million for the full year ended 31 December 2016, compared million for the full year ended 31 December 2016, from RUB 717 million in 2015, mainly to negative RUB 1,956 million in 2015. The cash outflow associated with repayments as a result of an increase in taxable profit. of borrowings, bond amortisation and dividend payments was partially compensated by the new BO-02 RUB 5,000 million bond issue. The effective tax rate for the full year ended 31 December 2016 remained flat at 20.5%. ANNUAL REPORT 2016 78 79

CAPITAL EXPENDITURE As at 31 December 2016, the carrying value of the bonds amounted to RUB 4,987 million. The amount of accrued interest is RUB 129 million and has been included as short-term

TRCONT.RU/EN/ Capital expenditure decreased by RUB 192 million, or 7.9% year-on-year, to RUB 2,242 debt in the consolidated statement of financial position. million for the full year ended 31 December 2016 from RUB 2,434 million in the previous year. The majority of the capital expenditure was incurred for the reconstruction Working Capital and expansion of container terminals in Krasnoyarsk, Yekaterinburg, Irkutsk and Moscow, as well as for the acquisition of ISO containers. The Company’s working capital is defined as the difference between its current assets and current liabilities. The table below sets out the key components of TransContainer’s Planned capital expenditure for 2017 working capital for the twelve months ended 31 December 2016.

The Company’s capital expenditure programme is aimed at maintaining TransContainer’s Item, 31 December 31 December FINANCIALREPORT position as a market leader in the Russian container sector, strengthening its competitive RUB million 2016 2015 advantages, as well as optimising its asset structure and key operational metrics. Current assets

The total capital expenditure for 2017 is budgeted at RUB 7.9 billion (excluding VAT), Inventory 209 315 however, the actual amount of capital expenditure is subject to the market conditions. The 2017 CAPEX programme is focused on the acquisition of flatcars and ISO containers Trade and other receivables 1,605 1,392 and further improvement of terminal infrastructure. 1,605 Prepayments and other current assets 3,584 3,527 CORPORATE CORPORATE GOVERNANCE Prepaid income tax 5 84 5,525 11,006 CAPITAL RESOURCES 3,584 Short-term investments 78 7 The Company’s operations and capital expenditure have historically been financed from internally generated cash flow and proceeds from issuing domestic debt. Cash and cash equivalents 5,525 2,110 As of 31 December 2016, the Company’s financial indebtedness consisted of two outstanding bond issues and financial lease obligations in an aggregate amount Non-current Assets classified as held for sale 0 0 of RUB 9,137 million, compared to RUB 5,780 million as of 31 December 2015. Total current assets 11,006 7,435 As of 31 December 2016, the Company’s net debt was RUB 3,534 million. BUSINESS OVERVIEW BUSINESS BUSINESS OVERVIEW BUSINESS Current liabilities As of 31 December 2016, the major portion of the Company’s financial indebtedness was unsecured, except for the obligations under finance leases, which were secured Trade and other payables 4,279 3,405 by the lessors’ title to the lease assets. The Company’s debt is rouble-denominated and has a fixed interest rate. Short-term debt and current portion of long-term debt 2,762 1,893

Income tax payable 21 99 RUB-denominated bonds series 4 876 Taxes other than income tax payable 378 634 On 1 February 2013, the Company issued non-convertible five-year bonds for a total MARKET OVERVIEW MARKET amount of RUB 5,000 million at a par value of RUB 1,000 each. Net proceeds Provisions 38 12 8,372 4,279 from the issuance after the deduction of related offering costs amounted to RUB 4,988 2,762 million. The annual coupon rate of the bonds for five years is 8.35% with interest paid Finance lease obligations, current maturities 18 18 semi-annually. Dividends payable 0 0

The series 4 bonds will be redeemed in four equal semi-annual instalments within Accrued and other current liabilities 876 686 the fourth and fifth years. As a result, these bonds are classified as of two portions: the long-term one with the carrying value amounted to RUB 1,249 million, and the short- Deferred income 0 0

STRATEGIC REPORT STRATEGIC term one with the carrying value amounted to RUB 2,633 million. Total current liabilities 8,372 6,747 The amount of accrued interest is RUB 133 million and has been included as short-term Working capital 2,634 688 debt in the interim condensed consolidated statement of financial position.

RUB-denominated bonds series BO-02 Working capital increased by RUB 1,946 million to RUB 2,634 million at the end of the reporting period from RUB 688 million as at 31 December 2015. On 22 September 2016, the Company issued non-convertible five-year bonds for a total amount of RUB 5,000 million at a par value of RUB 1,000 each. Net proceeds

COMPANY PROFILE COMPANY from the issuance after deduction of related offering costs amounted to RUR 4,987 million. The annual coupon rate of the bonds for five years is 9.4% with interest paid semi-annually.

The series BO-02 bonds will be redeemed in four equal semi-annual instalments within the fourth and fifth years. As a result, these bonds are classified as long-term borrowings as at the reporting date. ANNUAL REPORT 2016 CORPORATE GOVERNANCE T EXCELLENCE OPERATIONAL of information technologies things, through the implementation labour productivity, among other container and increasing logistics developing terminal assets, optimising and management, container fleet include improving of the uality car business profitability priorities Our of andoffering price, uality service through a perfectly balanced through aperfectly performance operating improving he management is focused on 82 83 TRCONT.RU/EN/

MESSAGE FROM THE CHAIRMAN

FINANCIALREPORT OF THE BOARD OF DIRECTORS

Dear shareholders and investors!

As I present TransContainer’s Corporate Governance Report to you, it is my endeavour to We take a consistent and systematic approach to corporate governance matters. We have The Russian Instituteof Directors assure you that corporate governance quality is constantly on the agenda of the Company’s accomplished a lot, but there are still things to do. We see room for improvement and assigned the Company a National Board of Directors. The Board of Directors is aware of its responsibility for streamlining the keep moving forward, no matter what challenges are thrown our way. Corporate Governance Rating CORPORATE CORPORATE CORPORATE CORPORATE corporate governance framework and takes all steps to implement best corporate governance GOVERNANCE GOVERNANCE of 8 (Best Corporate Governance practices and procedures across the Company. We consider information transparency a crucial element of corporate governance. Practice). The Company discloses information regularly, in a consistent and timely manner, ensuring We are committed to employing the best corporate governance practices, monitoring all its accessibility, reliability, completeness, comparability and neutrality. In 2016, these requirements and recommendations the regulators define. principles were articulated in the Company’s Regulation on Information Policy.

During the reporting period, the Company made significant progress in the continued This section of the Company’s annual report provides information on TransContainer’s implementation of the Corporate Governance Improvement Programme for 2015– corporate governance framework. Our aim was to offer a comprehensive report 2016, which had been approved in 2015. In 2016, as part of this programme, the Board on the corporate governance performance, focus areas for further development, approved the new version of the Corporate Governance Code, which sets forth the rules and the Company’s plans going forward.

BUSINESS OVERVIEW BUSINESS and principles for the Company’s corporate governance practices. The document establishes advanced corporate governance standards (on top of those contained in the Russian law and the Company’s by-laws) to build trust in governance-related matters and to lay the groundwork for all the standards and guidelines that govern corporate relations.

The Corporate Governance Improvement Programme for 2015–2016 also harmonised the Company’s Charter, the by-laws that regulate the activities of the corporate bodies, committees and Corporate Secretary, as well as the by-laws on business ethics, disclosure, internal control and audit, insider information, and combating corruption and fraud, with MARKET OVERVIEW MARKET the applicable Russian law and with the Corporate Governance Code recommended by the Bank of Russia. In the reporting period, we placed great emphasis on risk management. The Board of Directors approved the 2017 Corporate Risk Map, risk ranking criteria, and determined the maximum exposure levels.

I am also proud to say that our efforts to improve corporate governance did not go unnoticed Andrey Starkov CORPORATEGOVERNANCE by the experts, who recognise our accomplishments. In December 2016, the Russian Institute Chairman of the Board1 of Directors reviewed its assessment of TransContainer’s corporate governance practices

STRATEGIC REPORT STRATEGIC in line with the updated methodology and assigned the Company a National Corporate Governance Rating of 8 (Best Corporate Governance Practice). COMPANY PROFILE COMPANY

1 Andrey Starkov was elected as TransContainer’s Chairman of the Board of Directors on 17 February 2017 ANNUAL REPORT 2016 84 85

CORPORATE GOVERNANCE PRACTICES Initiatives proposed under TransContainer’s Corporate Governance Improvement Programme for 2015–2016

TRCONT.RU/EN/ No. Initiative Comments Corporate governance of the Company refers to the system of relationships between shareholders, the Board of Directors, the Company’s management and other stakeholders. I. Improvement of the corporate governance standards

The Company’s system of corporate governance relies on compliance with the following 1. Draft a new version of the Company's The new version of the Corporate Governance Code was approved by the Board of Directors on Corporate Governance Code 21 December 2016 (Minutes No. 7) principles: equitable and fair treatment of the shareholders; ›› 2. Draft a new version of the Company's Charter The by-laws were approved by the Annual General Meeting of Shareholders on 28 June 2016 ›› leadership, effectiveness and responsibility of the Board of Directors; (Minutes No. 30) accountability of the Board of Directors and executive bodies; ›› 3. Draft a new version of the Regulation on the FINANCIALREPORT ›› effective, transparent and fair remuneration system; Company’s General Meeting of Shareholders ›› transparent and responsible disclosure policy; ›› social responsibility and cooperation with stakeholders. 4. Draft a new version of the Regulation on the Company's Board of Directors

TransContainer pays special attention to the quality of its corporate governance, as it recognises the importance of such practices for the trust of the general public and the 5. Draft a new version of the Regulation on the The by-laws were approved by the Board of Directors on 14 June 2016 (Minutes No. 14) Company’s investment case. Moreover, TransContainer views the highquality of corporate Company's Audit Committee CORPORATE CORPORATE CORPORATE CORPORATE governance standards as a tool to boost the Company’s efficiency and competitive GOVERNANCE GOVERNANCE position. 6. Draft a new version of the Regulation on the Company's Nominations and Remuneration Committee The Company closely monitors the corporate governance trends in Russia and foreign jurisdictions in order to improve its own corporate governance practices. TransContainer 7. Draft a new version of the Regulation on the stresses the importance of the Corporate Governance Code adopted in 2014 and Company's Strategy Committee recommended by the Bank of Russia. The principles and recommendations provided for in the Code set high standards for the industry and serve as an important benchmark 8. Draft a new version of the Regulation on The new version of the Regulation was approved by the Annual General Meeting of Shareholders for the Company’s corporate governance system. Another focus area is the regulatory Payment of Remuneration and Compensation on 28 June 2016 (Minutes No. 30) requirements which are reflected in the TransContainer’s bylaws and corporate governance to the Members of the Company's Board of Directors and committees

BUSINESS OVERVIEW BUSINESS practices on an ongoing basis.

The Company keeps monitoring compliance of its corporate governance framework with 9. Draft a new version of the Regulation on the The new version of the Regulation was approved by the Board of Directors on 25 May 2016 Company's Corporate Secretary (Minutes No. 13) the Moscow Exchange’s Listing Rules to which TransContainer is subject as an issuer of securities (shares and bonds) admitted for organised trading. 10. Draft a new version of the Regulation on the The new version of the Regulation was approved by the Board of Directors on 16 November 2016 Company's Insider Information (Minutes No. 6) To boost the quality of its corporate governance, the Company is developing a programme focusing on streamlining the corporate governance practices and procedures across the 11. Draft a new version of the Regulation on the The Regulation on the Company’s Internal Control was approved by the Board of Directors on 21 Company’s business lines. Company's Internal Control December 2016 (Minutes No. 7) MARKET OVERVIEW MARKET

The programme is approved by the Company’s Board of Directors on the recommendation II. Internal audit of the relevant committee. The Board of Directors is also responsible for overseeing the implementation of the Corporate Governance Improvement Programme. 12. Arrange for external independent assessment In November 2015, Deloitte completed independent assessment of the Company’s internal audit 100% of the Company's internal audit function. The report was reviewed by the Audit Committee on 19 January 2016 The initiatives proposed under TransContainer’s Corporate Governance Improvement All initiatives proposed under Programme for 2015–20161 were fully delivered. 13. Draft a new version of the Regulation on the The new version of the Regulation was approved by the Board of Directors on 17 May 2016 TransContainer’s Corporate Governance Company's Internal Audit Service (Minutes No. 12) Improvement Programme for 2015–2016 STRATEGIC REPORT STRATEGIC are completed 14. Develop the Programme to Guarantee Better The Programme to Guarantee Better Quality of Internal Audit was developed and approved by the Quality of Internal Audit CEO order dated 30 December 2016

III. Combating fraud and corruption

15. Draft and post an anticorruption statement of The anticorruption statement of the Company’s CEO was posted at the corporate website in the Company’s CEO at the corporate website March 2016 COMPANY PROFILE COMPANY

1 See TransContainer’s Annual Report for 2015, p. 96. ANNUAL REPORT 2016 86 87

No. Initiative Comments No. Initiative Comments

16. Develop initiatives to timely inform employees The initiatives listed below were developed.

TRCONT.RU/EN/ VI. Improvements in the performance of the Board of Directors and its committees about the Company’s ethical standards, anticorruption policy, procedures for resolving For the newly recruited staff: 28. Draft the Regulation on Assessing Performance The Regulation was approved by the Board of Directors on 18 November 2015 (Minutes No. 5) conflicts and hotline reporting ›› all employees are instructed to read the Company’s regulations concerning ethical standards, anticorruption policy, procedures for resolving conflicts of interest and using the hotline; of the Company’s Board of Directors and its ›› additionally, the economic security department advises the newly employed and other committees personnel (if so required for preventive purposes) on how to handle conflicts of interest, and informs them about the hotline and reporting procedures. 29. Formalise procedures and actions to be taken The procedures are set out in the new version of the Corporate Governance Code approved by by the Board of Directors when a member of the Board of Directors on 21 December 2016 (Minutes No. 7) All reissued and revised regulations are communicated to all employees by e-mail and by the Board of Directors loses the status of an posting in the respective sections of the corporate website. At least once a year, the legal independent director function circulates a list of federal and internal regulations related to these matters and offers FINANCIALREPORT consultations to employees as and when required. At least once a year, the Company checks points of contact with clients for availability and relevance of information on the location 30. Develop a policy to regulate the ownership of The policy was developed approved by the Board of Directors on 17 February 2017 (address) and procedure for contacting the management (via hotline). shares in the Company and its subsidiaries by (Minutes No. 8) members of the Board of Directors

17. Develop an action plan to improve hotline A Hotline hyperlink was created on the Company’s intranet portal as part of the plan efficiency implementation process. By clicking the link, an employee can generate a letter, which is VII. Successors to executive bodies automatically sent to [email protected] and redirected to the Deputy CEO for Security, and heads of the Economic Security Department and the Internal Audit Service. There is also a 31. Develop a Regulation on the Talent Pool and The Regulation on the Talent Pool was developed and approved by the CEO on 15 March 2017. dedicated Combating Corruption section on the external website of the Company, which CORPORATE CORPORATE CORPORATE CORPORATE GOVERNANCE GOVERNANCE a Succession Programme for the Company’s Based on the Regulation on the Talent Pool, an annual succession programme (talent pool list) is enables the visitors to submit their enquiries in the form of letters that are automatically sent to Executive Management approved. [email protected] and redirected to the Deputy CEO for Security, and heads of the Economic Security Department and the Internal Audit Service. VIII. Shareholder/investor relations 18. Develop an AntiCorruption Policy of the The Policy was approved by the Board of Directors on 20 January 2016 (Minutes No. 7) Company 32. Develop a dedicated page on the Company's A new section, Answers to the Questions of Investors and Analysts, was added to the Company's website to answer questions from website shareholders/investors 19. Develop the Programme to Combat Fraud and The Programme was approved by the Management Board on 23 December 2016 (Minutes Unlawful Activities No. 34) 33. Add a sustainable development section to the The sustainable development section was added to the Company's website Company's website

BUSINESS OVERVIEW BUSINESS IV. Sustainable development

20. Define the Company's values The Company's values were were updated in 2015 and reflected in the new version of the Company’s Corporate’s Code of Ethics and the Company’s annual report for 2015. CORPORATE GOVERNANCE QUALITY ASSESSMENT

21. Draft a new version of the Company's Code of The new version of the Code was approved by the Board of Directors on 21 December 2016 Seeking to develop and improve its corporate governance practices and procedures, the Business Ethics (Minutes No. 7) Company has been conducting annual independent quality assessments since 2008.

22. Draft an integrated report (sustainable The sustainable development report was included in the Company's 2015 annual report Corporate governance rating, an external assessment of the Company’s MARKET OVERVIEW MARKET development report) of the Company corporate governance quality 23. Develop stakeholder surveys The stakeholder surveys were developed and approved by the Management Board on 30 January 2017 (Minutes No. 35) In December 2016, the Russian Institute of Directors reviewed its assessment of TransContainer’s corporate governance practices in line with the updated methodology, 24. Develop a plan for interaction with the The plan for interaction with the Company's stakeholders was developed and approved by and confirmed the Company a National Corporate Governance Rating at 8 (Best Corporate Corporate governance rating history Company's stakeholders the CEO on 19 December 2016 Governance Practice). This rating confirms that the Company complies with the Russian 10 corporate governance laws, follows most of the recommendations provided in the Russian 25. Prepare for ISO 14001 environmental A diagnostic audit was carried out to check compliance with ISO 14001, draft by-laws were Code of Corporate Conduct, and respects a significant number of recommendations management certification of the Company’s developed to support implementation of the environmental management system, the managers and 8 8 8

STRATEGIC REPORT STRATEGIC pertaining to the global best practices in corporate governance. The shareholders’ loss risks operations employees of the executive office and branches were trained to get a better understanding of ISO associated with the quality of corporate governance are negligible. 14001 and obtained relevant certificates. Assessment of the environmental management system’s 7 7+ 7+ 7+ readiness for the ISO 14001 certification is scheduled for Q1 2017. Based on the assessment results, the Company will define the timeline for the ISO 14001 environmental management certification For more information on the corporate governance ratings, see the Company’s website. (it’s scheduled for the second quarter of 2018). 6 6+ The following positive aspects of the Company’s corporate governance practices were V. Information disclosure highlighted during the assessment by the Russian Institute of Directors: 5 ›› timely posting of notices about the general meetings of shareholders on the Company’s 2008 2010 2012 2014 2016 26. Draft a new version of the Regulation on The Regulation on Information Policy was approved by the Board of Directors on 21 December website and compliance with the majority of recommendations on making materials

COMPANY PROFILE COMPANY Information Disclosure 2016 (Minutes No. 7) available to shareholders; ›› availability of a duly approved Policy on Rotation of External Auditors and Interaction 27. Improve the quality of information disclosure in Initiatives implemented. with External Auditors with Reference to Providing NonAudit Services, which prescribes Corporate governance ratings the Company’s annual report In November 2016, the Company became the winner of the 19th edition of the Annual Reports the competitive selection of an external auditor at least once every five years; Awards for the Best Corporate Governance Disclosure in an Annual Report. ›› availability of institutions indispensable for the effective corporate governance system, including a robust Board of Directors and its committees, directors’ liability insurance procedures, assessment of performance by the Board of Directors and its members individually, mature internal control, audit and risk management frameworks, and an strong corporate secretary function; www.trcont.ru ANNUAL REPORT 2016 88 89

›› timely disclosure of RAS and IFRS financial statements (including interim IFRS financials), The Company’s corporate governance quality assessment Level of compliance with corporate detailed composition of the corporate governance bodies, and size and structure of the governance assessment components, %

TRCONT.RU/EN/ external auditor’s remuneration; Number of Weight of Actual score Maximum Compliance Components items component score level, % Shareholder › disclosure of additional material information in the Company’s annual report as rights › in overall CSR Board recommended by the Corporate Governance Code (in addition to the information and business of Directors assessment, % ethics disclosed in accordance with the Russian law); 100 ›› availability of approved by-laws regulating corporate social responsibility (CSR); Shareholder rights 22 14 69 79 87 ›› implementation of various social projects for the Company’s employees and their families, active participation in charitable and sponsorship programmes; Board of Directors 56 37 168.5 202 83 TransContainer discloses additional › preparation of the integrated annual report for 2015 in line with the material information in addition to › GRI G4 Guidelines (core). Executive 5 7 36 38 95 0 FINANCIALREPORT required by the Russian law. management The following corporate governance aspects were found to require further improvements: ›› the Company’s by-laws do not provide for any independent appraiser engagement Transparency and 15 25 118 135 87 requirements other than those stipulated in the applicable Russian law; information disclosure

›› the Company has no certificate confirming compliance with the environmental Risk management / Executive management standards (ISO 14001 certificate); Risk management, 16 11 62 63 98 internal control / management internal control and internal audit ›› the Company’s by-laws do not formalise the rules recommended by the Corporate Transparency internal audit and information CORPORATE CORPORATE CORPORATE CORPORATE Governance Code in the event of share purchases and buybacks; GOVERNANCE GOVERNANCE disclosure ›› the Company’s by-laws do not provide timing for the disclosure of lists of persons Corporate social 6 6 23 31 74 entitled to attend the general meeting of shareholders; responsibility, business 2016 2015 ›› the Company’s by-laws do not prohibit directors to accept gifts from persons ethics promoting their interests in the decisionmaking process of the Board of Directors. Overall assessment 120 100 476.5 548 87 The Company has carefully reviewed and taken into consideration the recommendations of the Russian Institute of Directors on improving the Company’s corporate governance Results of the independent corporate governance quality assessment conducted by the practices. Internal Audit Service are used to determine key areas for further improvements in the Company’s corporate governance.

BUSINESS OVERVIEW BUSINESS Internal corporate governance quality assessment

Starting from 2015, the Company’s Internal Audit Service regularly conducts independent CORPORATE GOVERNANCE DEVELOPMENT corporate governance quality assessments in accordance with the Procedure for Corporate Governance Quality Self-Assessment in Companies with Government Participation, Despite the impressive development of corporate governance so far, the Company will developed by the Federal Agency for State Property Management. continuously be guided by the high standards enshrined in the Bank of Russia’s Corporate Governance Code. Based on the expert recommendations, including those provided as In 2016, the Company’s corporate governance quality was assessed at 87%, up 9 pp part of the external and internal corporate governance quality assessments, the Company’s y-o-y. This confirms the high level of compliance with the principles and recommendations Board of Directors and Management Board have identified focus areas for further MARKET OVERVIEW MARKET of the Corporate Governance Code. The overall assessment increased owing to greater development acknowledging its importance. performance against all of the six assessment components.The assessment report was reviewed by the Company’s Audit Committee and Board of Directors. With due account taken of efforts made and expert recommendations, special attention will be given to integrating the best corporate governance practices and principles into 87% The assessment report was reviewed by the Company’s Audit Committee and Board of the Company’s management processes, as TransContainer has committed to follow said Directors. practices and principles in its Charter, Corporate Governance Code, Code of Business Company’s corporate Ethics and other by-laws. As usual, we will keep consistently streamlining our corporate governance quality in 2016 governance standards to enhance the efficiency of the Board of Directors and its

STRATEGIC REPORT STRATEGIC committees, observing the rights and legitimate interests of all shareholders exercising their right to contribute to managing the Company, ensuring sustainable development, and meeting corporate social responsibility and business ethics requirements. The Company constantly Dynamics of assesement improves the standards of of the quality of corporate corporate governance, paying governance attention to the balance of the Board of Directors, sustainable development and business ethics. COMPANY PROFILE COMPANY 2016/15 +9 p.p. ANNUAL REPORT 2016 90 91

GOVERNANCE AND OVERSIGHT STRUCTURE BOARD OF DIRECTORS TRCONT.RU/EN/ ROLE OF THE BOARD OF DIRECTORS

TransContainer’s Board of Directors is a key component of the Company’s corporate GENERAL MEETING governance system, which is based on the following elements: OF SHAREHOLDERS ›› leadership and effectiveness of the Board of Directors; Auditor ›› control and accountability of the Company’s governance bodies; ›› effective interaction with the Company’s shareholders and stakeholders; ›› transparency of the Company’s system for remuneration of the Board of Directors and FINANCIALREPORT RevisionAuditor management. Commission The Board of Directors is responsible for the strategic management of the Company and its long-term development. It defines the vision, mission and strategy for the Company, and

Audit sets strategic goals and key performance indicators for the Company’s operations. Committee The remit of the Board of Directors is set out in TransContainer’s Charter, which clearly CORPORATE CORPORATE CORPORATE CORPORATE differentiates it from the remit of the executive bodies responsible for managing the GOVERNANCE GOVERNANCE Strategy BOARD Committee Company’s ongoing operations. Corporate Secretary Nominations One of the Board’s key responsibilities is to set up strong executive bodies and oversee OF DIRECTORS and Remuneration their performance. The Board of Directors exercises effective control of the executive Committee bodies and regularly reviews reports on the implementation of the Company’s strategy and business plans. The Board of Directors is authorised to elect executive bodies and Internal Audit terminate their powers, determine the terms and conditions of employment contracts signed with the members of the executive bodies and propose incentives for them. Service

BUSINESS OVERVIEW BUSINESS The Board of Directors approves policies on internal controls and risk management The Company’s governance C and oversight bodies E and ensures implementation of the risk management and internal control systems. O / In determining the risk management policy, the Board of Directors seeks to strike a Committees of the Board C H RD reasonable balance between the assumed risks and generated profits. The Board of of Directors AI A RM BO Directors determines the Company’s risk appetite, manages key risks affecting the AN T Officials and business units OF MEN functionally reporting THE MANAGE achievement of the Company’s strategic objectives, and monitors efficiency of the risk tothe Company’s Board management and internal control systems. of Directors M AN Not a Company AGEM RD The Board of Directors is responsible for improving the Company’s corporate governance MARKET OVERVIEW MARKET ENT BOA body system and procedures; it also approves corporate governance improvement programmes and reviews relevant implementation reports.

The Board of Directors is in charge of the Company’s corporate social responsibility initiatives, fostering the corporate culture and business ethics.

The Board of Directors reports to TransContainer’s general meeting of shareholders. GENERAL MEETING OF SHAREHOLDERS

STRATEGIC REPORT STRATEGIC Read more about TransContainer’s Corporate Governance Code and Code of Business TransContainer’s Regulation on Ethics on the Company’s website. TransContainer’s Corporate the Procedure of Preparation The general meeting of shareholders is the Company’s supreme governing body. The Governance Code and Code and Holding of the General Meeting procedure to convene, prepare, and hold a general meeting of shareholders is set out in of Business Ethics of Shareholders detail in TransContainer’s Regulation on the Procedure of Preparation and Holding of the General Meeting of Shareholders.

At the general meeting, shareholders are invited to vote on proposed draft resolutions for each item of the agenda. The voting ballots enable shareholders to express their

COMPANY PROFILE COMPANY opinions on the agenda items and vote for or against the proposed draft resolution or www.trcont.ru abstain from voting. www.trcont.ru

For more information on the general meetings of shareholders held in 2016, shareholder rights and the Company’s dividend policy, see the Shareholder and Investor Relations section. ANNUAL REPORT 2016 92 93

TRANSECONTAINER’S CORPORATE GOVERNACE MODE The Chairman holds meetings with the members of the Board of Directors, including independent Directors, with no other Directors or managers attending. The Chairman

TRCONT.RU/EN/ oversees the implementation of resolutions adopted by the Board of Directors and the general meeting of shareholders. RTIN ND REPO G HT A SIG INDEPENDENT DIRECTORS AND THEIR ROLE ER utive bodies V e exec O er th ov internal con trol ent and trol Independent Directors draw on their knowledge, experience and expertise to bring on agem C an udit Serv › k m ternal A ice an independent perspective on the Board’s operations. The objectivity of independent › Ris he In of t L ›› le disclosure E Ro tion A Directors and their constructive criticism are of great value to the Board of Directors es rma › D e ›› fo isclosure › R itt In tion d o E and the Company as a whole. The inquisitive professional mind of the independent m ma › le R FINANCIALREPORT › r m › fo › R o S In uditor o f H o al a › le t Directors and their ability to ask “uncomfortable” questions and request additional c › rn › h I › xte In o e P its E d f › e t B materials on the agenda items add substance to the discussions of the Board of Directors. d ›› › M p h o n s e e a a r is n r e s B d s b i d o r o e o o n a m n r f e , t d ct D s v D e m r i C Independent Directors demonstrate high professionalism, make independent statements r t s i ir i o REMU i r h

N e d t n y D E o e The Board of Directors analyses D c e r N R n c a c f ar A A i t and hold independent voting on the agenda items. The contributions of the independent e t r r m a T o o o i t S a o m s e I n rs the Directors’ compliance with B s O r D r N s a d e d r e f c O N n Directors help to develop solutions catering to various stakeholder groups and improving s e I s a h o s t S T C tr the independence criteria on an o a d a B r e A O r e the quality of management decisions. t t o a c e e f a N M r annual basis. g h o n I t e B a o M i CORPORATE CORPORATE CORPORATE CORPORATE c

f GOVERNANCE GOVERNANCE n p e M m e r r c g o I h e o m n O o t T v p a C a a Independent Directors play a particularly important role in determining the Company’s

r f o r N u T l

- e s o g u g

E e s h o t BOARD t

e Y k development strategy, reviewing reports on its implementation, assessing the performance r

a f

e a

m E

o of the executive bodies, evaluating the efficiency of risk management and internal control N

o s

E s

E t

D o

e I

OF DIRECTORS c

c T

s ›

A system, and assessing the performance of the Board of Directors and its committees. u

n s C

›

› T

I d

U I

› a l ›

I a

› › D

F B › ›

› › E

T M

›

The Company highly values the contribution independent Directors make to improving

› C

C O

›

S M

y Y the efficiency of the Board of Directors.

o G

› s M

f t E c I

› T

o e T t A

› S m T R h E

T m E S y

› › a s e K n t m fo d › e B B P d i o r n m t a r a The Board of Directors analyses the Directors’ compliance with the independence criteria o I m te r e s n a d m r R s a fo e u o u n s o n t BUSINESS OVERVIEW BUSINESS E t r f e s on an annual basis. This item is first discussed by the Nominations and Remuneration s h a r D ra e M p g e ti v rs e e m ire on in e a b m c h d U y a u to it l s Committee, which then submits its opinion on each Director’s compliance with m s e ne rs w o c N e is n r an ue eh i n t a d it log r th E t fo tio s Dia a e the independence criteria to the Board of Directors. As TransContainer is a public company pr r n rs sh R b ›› lde f ss o o of ho o e A c n ex hare ng n S T e u ec s eti si and its shares are traded on the Moscow Exchange, the Board of Directors and the I d s uti e s u R O ur pa ve b ral m er b E N e ym odies Gene ld d D Nominations and Remuneration Committee take into account the independence criteria e licy o an n ›› po eh y L ts end tak lit O 1 Divid h s ibi H set forth in the Listing Rules when making a decision on the independence of Directors. ›› wit ns E tion po K Interac res A ›› orate ST corp Social ND In September 2016, the Board of Directors analysed compliance of its members ›› S A ER with the independence criteria and deemed Richard Werner, Peter O’Brien

MARKET OVERVIEW MARKET D HOL SHARE and Irina Shytkina to be independent Directors. Irina Shytkina was appointed senior independent Director to coordinate the work of the independent Directors and interact with the Chairman of the Board of Directors.

CHAIRMAN OF THE BOARD OF DIRECTORS

STRATEGIC REPORT STRATEGIC The Chairman of the Board of Directors is held personally responsible for the performance of the Board of Directors and its efficiency. It makes sure that the Board of directors remains focused on the strategic governance of the Company by delegating operational governance matters to the Company’s management.

The Chairman of the Board of Directors fosters openness and trust during Board meetings encouraging a free and constructive discussion of the agenda items and engaging the independent and non-executive Directors to join such discussions.

COMPANY PROFILE COMPANY The Chairman makes sure that the Directors timely get accurate, reliable and relevant information required for an effective discussion.

The Chairman fosters constructive relations among the members of the Board of Directors, on the one hand, and between Directors and managers, on the other hand.

For detailed biographies of the members of the Board 1 MICEX Listing Rules. of Directors see p. 104 ANNUAL REPORT 2016 94 95

BALANCED MAKE-UP OF THE BOARD OF DIRECTORS AND ITS Key competencies of the Board members by professional area3 COMMITTEES

TRCONT.RU/EN/ Finance, Strategy Risk Corporate Transportation HR economics, management governance and logistics management In 2016, there were significant changes in the membership of the Board of Directors. Professional experience audit and legal In June 2016, three newly elected members joined the Board of Directors – Alexander matters of the Board members, years Ikonnikov, Sergey Tugarinov and Petr Baskakov. In September 2016, the Board of Directors 2 Richard Werner was joined by Leila Mammed Zade, Peter O’Brien and Andrey Tonkikh. In other words, - there was a significant overhaul in the membership of the Board, which provided a fresh 7 Alexey Davydov perspective on the matters reviewed at the meetings of the Board of Directors and its 11 Board of Directors: breakdown committees. 4 Irina Kostenets by gender1, % 33 FINANCIALREPORT 1 From January to June 2016, On 28 June 2016, On 7 September 2016, Leila Mammed Zade pursuant to the resolution TransContainer’s annual general TransContainer’s 6 adopted by the extraordinary meeting of shareholders elected extraordinary general 8 Yuri Novozhilov 27 general meeting of shareholders the following Directors: meeting of shareholders 11 on 10 August 2015, the Board of elected the following 1

Peter Lloyd O’Brien 11 Directors included the following Directors: - members members: 3 Alexander Panchenko 4 73 Ivan Besedin Petr Baskakov Yuri Novozhilov, 1 CORPORATE CORPORATE CORPORATE CORPORATE Andrey Tonkikh GOVERNANCE GOVERNANCE Chairman of the Board Chairman of the Board 5+ of Directors Richard Werner of Directors 1 Independent Director Sergey Tugarinov 20 male female Gennady Bessonov Richard Werner, Alexey Davydov 2 Independent Director Marat Shaydaev Alexey Davydov Chairman of the Board 11 of Directors Alexey Davydov 7 Richard Werner Irina Shytkina Board of Directors: breakdown Independent Director Alexander Ikonnikov Irina Kostenets 6 by age1, % Independent Director Erkhat Iskaliev Leila Mammed Zade Irina Kostenets The Company’s Board of Directors achieves impressive performance owing to the balanced Duration of stint as a member Irina Kostenets Peter Lloyd O’Brien, mix of professional skills, knowledge and experience of the members of the Board of the Board of Directors Yuri Novozhilov Independent Director

BUSINESS OVERVIEW BUSINESS of Directors. Professional experience 9 Yuri Novozhilov Independent Director Deputy Chairman Alexander Panchenko in the transportation industry Of the Board of Directors Alexander Panchenko Andrey Tonkikh The combination of professional skills, knowledge and experience of the members Arvid Türkner Sergey Tugarinov of TransContainer’s Board of Directors in key areas, such as strategy, finance, Sergey Tugarinov auditing, transportation and logistics, risk management, corporate governance Alexander Panchenko Arvid Türkner Independent Director Marat Shaydaev and HR management, reflects the Company’s needs and enables the Board of Directors Marat Shaydaev to effectively perform its tasks and functions. 91 Marat Shaydaev Irina Shytkina, Irina Shytkina Independent Director Independent Director Irina Shytkina The members of the Company’s Board of Directors exercise their rights and perform their MARKET OVERVIEW MARKET 35–60 below 35 duties reasonably and in good faith, acting in line with the interests of the Company and The changes in the composition of the Board of Directors in 2016 were due to the all of its shareholders and taking into account the interests of the employees, clients, modification of the share capital structure. In April 2016, the European Bank for partners and other stakeholders. Educational background of the current Reconstruction and Development (EBRD) sold its stake in the Company’s share capital, Board members2 while FESCO Transportation Group and TRANSFINGROUP Asset Management, a trust Diligent and efficient fulfilment of responsibilities by the members of the Board of Key competencies of the Board members manager of pension funds of the BLAGOSOSTOYANIE Nonstate Pension Fund, increased Directors requires, inter alia, sufficient free time to work for the Board of Directors and by professional area their stake in TransContainer’s charter capital. its committees. Each member’s contribution is important in ensuring the efficiency of the Finance, economics and audit 4 Board of Directors. HR Strategy 5 management

STRATEGIC REPORT STRATEGIC From 1 January to 8 July 2016, the Company’s Board of Directors consisted of two independent Directors and nine non-executive Directors. From 8 July to 27 September 10 3 2016, the Board was made up of two independent Directors, eight non-executive Directors and one executive Director (Petr Baskakov, the Company’s CEO). From 27 September 4 3 to 31 December 2016, there were three independent Directors and eight non-executive Directors on the Board. 0

Finance, economics The balanced make-up of the Board of Directors in terms of age, gender and ethnicity Law enables its members to review and discuss the agenda items more effectively and

COMPANY PROFILE COMPANY Industry thoroughly by drawing on their varied sociocultural backgrounds. The resulting decisions Business take greater account of stakeholder interests and promote the Company’s sustainable development in the long run. Transportation Risk Other and logistics management (industrial) Corporate governance and legal matters 1 As at 31 December 2016 3 The key competencies were defined based on the information about the Board members’ educational 2 Richard Werner, Alexey Davydov, Irina and professional backgrounds, including analysis of their positions, employers and industry. The key Number of Board members possessing Kostenets and Marat Shaydaev have competencies of the Board members reflect the added value they bring to the balanced decision-making the relevant competencies two or more university degrees. Richard within the Board of Directors, and, in any case, do not constitute the exhaustive list of competencies of any Werner, Alexander Panchenko and Irina given Board member. Shytkina have an academic degree. ANNUAL REPORT 2016 96 97

Attendance at the meetings of the Board of Directors and its committees in 2016 Report on the performance of the Board of Directors

TRCONT.RU/EN/ Full name Status Board of Directors Audit Committee Nominations and Strategy Committee In 2016, the Board of Directors held 16 meetings, 12 of which were in-person meetings, Key items reviewed by the Board Remuneration and the other 4 were conducted in the form of absentee voting. The average meeting of Directors in 2016, Committee duration was 1.5 hours. by business line, % Petr Baskakov 1, 2 CEO 3 (1) / 3 – – 10 (2) / 10 The Company’s Board of Directors mostly holds in-person meetings, which enables 12 Ivan Besedin3 Chairman of the Board 6 / 9 – – – the Directors to make well-informed and balanced decisions following a constructive 19 of Directors discussion on the agenda items. 17 184 Gennady Bessonov3 Non-executive Director 9 (2) / 9 – 6 (4) / 6 – In 2016, the Board of Directors reviewed 184 items. 18 FINANCIALREPORT

Richard Werner Independent Director / 16 (1) / 16 9 / 9 11 (1) / 11 2 / 2 Key items reviewed by the Board of Directors in 2016 34 chairman of the Audit Committee Corporate governance

Corporate governance Alexey Davydov Non-executive Director / 15 (2) / 16 4 (2) / 5 – 4 / 5 Preparation for the Company’s general meetings of shareholders Strategy/priorities chairman of the Strategy Committee Oversight and reporting 5 CORPORATE CORPORATE CORPORATE CORPORATE › Approval of schedules for arranging and holding general meetings of shareholders ; GOVERNANCE GOVERNANCE › Nominations and remuneration

2 review of items suggested by the Company’s shareholders for inclusion in the agenda Alexander Ikonnikov Independent Director 3 / 3 1 / 1 2 / 2 2 / 2 ›› Corporate social responsibility of the annual general meeting of shareholders; Erkhat Iskaliev3 Non-executive Director 8 (1) / 9 – 5 (1) / 6 – ›› review of the candidates nominated by the Company’s shareholders for the Board of Directors and the Revision Commission; ›› preapproval of TransContainer’s annual report for 2015; Irina Kostenets4 Non-executive Director / 16 (9) / 16 9 (7) / 9 11 (8) / 11 – review of the profit distribution and dividend payout matters; Number of Board meetings deputy chairwoman of ›› the Nominations and ›› preparation of recommendations on the agenda items for the general meetings Remuneration Committee of shareholders; 2016 12 4 16 ›› approval of the form and wording of the voting ballots used to vote on the agenda

BUSINESS OVERVIEW BUSINESS Leila Mammed Zade Non-executive Director 4 / 4 – 3 / 3 1 / 3 items of the general meetings of shareholders. 2015 12 3 15 Yuri Novozhilov4 Deputy Chairman of the 14 (3) / 16 – – 2 / 5 Improvement of the corporate governance and operating practices of the Board of Directors Board of Directors ›› Review of the assessment results for performance of the Board of Directors and its 2014 11 2 13 Peter Lloyd O’Brien Independent Director 4 (1) / 4 3 / 3 3 / 3 – committees; ›› review of reports on performance of the Company’s Board of Directors and its 4 2013 12 1 13 Alexander Panchenko Non-executive Director / 16 (1) / 16 9 / 9 7 (3) / 8 5 / 5 committees in the 2015–2016 corporate year; deputy chairman of the Audit ›› election of the Chairman and Deputy Chairman of the Board of Directors, and the MARKET OVERVIEW MARKET Committee Corporate Secretary of TransContainer; In-person › review of the Directors’ compliance with the independence criteria; In-absentia Andrey Tonkikh Non-executive Director 3 / 4 – – 3 / 3 › ›› approval of the action plan and the meeting schedule for TransContainer’s Board of Directors in the 2016–2017 corporate year; Sergey Tugarinov Non-executive Director 4 (1) / 7 3 (1) / 5 ›› appointment of the members of the Board committees; Number of items reviewed › approval of the new versions of the Company’s Charter, by-laws regulating operations Arvid Türkner2 Non-executive Director 11 / 12 6 (2) / 6 2 / 2 5 (2) / 7 › of the Company’s bodies, the Corporate Governance Code, the Code of Business 2016 184 Ethics, the Regulation on Information Policy and other by-laws; Marat Shaydaev Non-executive Director / 15 (1) / 16 – – 6 (1) / 7 2015 138

STRATEGIC REPORT STRATEGIC deputy chairman of ›› approval of the budgets for the Board of Directors and its committees; the Strategy Committee ›› round-up of the Board’s self-assessment results for the 2015–2016 corporate year. 2014 136 2013 163 Irina Shytkina Independent Director / 15 (3) / 16 3 / 3 11 / 11 – chairwoman of the Nominations and Remuneration Committee

The table presents data in the “8 (1) / 10” format, which means that the Director attended eight out of ten meetings of the Board (committee) in person, including

COMPANY PROFILE COMPANY one meeting via a written opinion or a questionnaire (in case of an inabsentia meeting).

5 The Board of Directors is committed to observing the shareholder rights, including during the 1 Starting from 7 September 2016, Petr Baskakov, TransContainer’s CEO, is no longer a member of the Board of Directors. However, to ensure effective Company’s general meetings of shareholders. By approving the schedules for arranging and holding interaction between the Board of Directors and the management, the Chairman of the Board of Directors invited the CEO to attend all Board meetings as a general meetings of shareholders, the Board of Directors makes sure that the shareholders can duly non-voting participant. exercise their rights. The schedule includes a detailed list of actions to be taken, their respective 2 Had been a Board member until 27 September 2016. timelines, and officers responsible for arranging and holding the general meeting of shareholders 3 Had been a Board member until 28 June 2016. in line with the applicable laws and best practices. 4 Had been a Board member until 27 September 2016. ANNUAL REPORT 2016 98 99

Strategy and business priorities Nominations and remuneration

TRCONT.RU/EN/ Determination of the Company’s development strategy and business priorities Nominations

›› Approval of financing for the investment programme; ›› Resolution on reelecting Petr Baskakov as the Company’s CEO for another term; › approval of the rolling stock purchases in 2016; › approval of the overlapping positions held by TransContainer’s CEO2; The Board of Directors approved › › Petr Baskakov reelected › approval of TransContainer’s budget for 2017. › approval of nominees to the position of directors at TransContainer’s branches; TransContainer’s budget and › › as the Company’s CEO › consideration of nominees to the subsidiaries’ governance bodies. financing for the investment › for another term. Oversight and reporting programme for 2017. Determination of remuneration for members of the governance and supervisory bodies Oversight of performance by the Company’s executive bodies FINANCIALREPORT ›› Determination of the terms and conditions of the employment contract signed with ›› Approval of the Company’s management reports on performance in 2015 and Q1–Q3 the Company’s CEO and the addendum thereto; 2016, including information on the business plan implementation, fulfilment of contracts, ›› determination of the terms and conditions for the employment contracts signed with HR policy, social programmes and insurance; the members of the Management Board;

›› review of reports on the implementation of resolutions adopted by the Company’s Board ›› preparation of recommendations for the general meeting of shareholders on the amount of Directors in Q4 2015 and Q1–Q3 2016; of remuneration paid to the members of the Company’s Revision Commission; ›› review of the CEO’s report on the implementation of recommendations submitted by the ›› consideration of the bonuses paid to the CEO for his performance in Q4 2015, FY 2015 CORPORATE CORPORATE CORPORATE CORPORATE Company’s Revision Commission as a follow-up to the corporate performance audit for and Q1–Q3 2016; GOVERNANCE GOVERNANCE 2013; ›› resolution on the payment of bonuses to TransContainer’s management for their ›› review of the report on the implementation of resolutions adopted by TransContainer’s performance in 2015, and one-off management bonuses; annual general meeting of shareholders; ›› approval of amendments to the Regulation on Labour Incentives for the Management of ›› review of reports on the implementation of TransContainer’s credit policy as at 31 TransContainer. December 2015, 31 March 2016, 30 June 2016 and 30 September 2016; ›› approval of the overlapping of positions held by the members of TransContainer’s Corporate social responsibility Management Board in the governance bodies of other organisations1; ›› review of the key subsidiaries’ performance in 2015. Corporate social responsibility

Risk management BUSINESS OVERVIEW BUSINESS ›› Consideration of matters related to the Company’s charitable support for children, its employees (for expensive treatment), promotion of sports and healthy lifestyle, ›› Review of reports on the implementation of the action plan on critical risks for Q4 2015 preservation of Russia’s cultural heritage, and contributions to the industry’s charitable and Q1–3 2016; programmes and aid for people affected by emergencies; › approval of the corporate risk map for 2017, including determination of the maximum › approval of a new version of TransContainer for Children, the Company’s long-term › › The Board of Directors approved exposure levels and approval of the risk ranking criteria. charitable programme. The Board of Directors approved a new version of , the long-term the corporate risk map for 2017. Oversight of the Internal Audit Service performance charitable programme Induction for newly elected members of the Board of Directors TransContainer for Children. MARKET OVERVIEW MARKET ›› Approval of the action plan and budget for TransContainer’s Internal Audit Service; Since 2013, the Company has been implementing the Induction Programme for Newly ›› review of the report on implementation of the action plan for TransContainer’s Internal Elected Members of the Board of Directors. Audit Service in 2015. In view of the significant changes in the composition of the Company’s Board of Directors Other oversight functions that took place in 2016, the quality and timing of the induction initiatives for the newly elected members of the Board of Directors were of particular significance. ›› Approval of several interested-party transactions; ›› approval of initiatives to improve the procurement system; As part of the induction programme, the members of the Company’s Board of Directors

STRATEGIC REPORT STRATEGIC ›› approval of a new version of the Regulation on the Procedure for the Procurement were granted access to the soft and hard copies of key by-laws in both Russian and English, of Goods, Work and Services for TransContainer’s needs. and got a chance to meet key executives of the Company. The induction programme helped the newly elected members of the Board of Directors to adjust to the Board’s ongoing processes more quickly, learn more about the context of the Company’s business, and establish effective communication between the Board of Directors and the Company’s management.

In December 2016, the Nominations and Remuneration Committee gave a positive assessment of the induction programme for the newly elected members of the

COMPANY PROFILE COMPANY Board of Directors and its key results.

1 Pursuant to Clause 3 of Article 69 of Federal Law No. 208-FZ On Joint-Stock Companies dated 26 2 Pursuant to Clause 3 of Article 69 of Federal Law No. 208-FZ On Joint-Stock Companies dated 26 December 1995 and Subclause 36 of Clause 15.1 of TransContainer’s Charter, the Board of Directors December 1995 and Sub-clause 36 of Clause 15.1 of TransContainer’s Charter, the Board of Directors approved the overlapping positions of Victor Markov as a member of the Management Boards at both approved the overlapping positions of Petr Baskakov as the CEO of TransContainer and the President TransContainer and UTLC. of UTLC. ANNUAL REPORT 2016 100 101

Assessment of performance by the Board of Directors Use of advanced technologies by the Board of Directors

TRCONT.RU/EN/ In 2009, TransContainer included the annual self-assessment component in its corporate In 2016, the Company continued to run the automated information system used for The automated governance model. Self-assessment is conducted by the Board of Directors by surveying conducting meetings of the Board of Directors and its committees1. information system members of the Board of Directors and its committees. In addition, in 2012, the Company started bringing in external independent advisors to review the performance of the Board Use of the automated system in 2016 enabled the members of the Board of Directors to of Directors. give a positive assessment of its application to prepare and hold meetings of the Board of Directors and its committees. The Directors identified the system’s most convenient Regulation on Assessing In November 2015, the Board of Directors approved the Regulation on Assessing features as follows: Performance of TransContainer’s Performance of TransContainer’s Board of Directors and its Committees, which sets ›› remote voting through a secure channel; Board of Directors out the assessment targets and procedures. In 2016, the assessment of performance ›› use of digital (as opposed to printed) materials; FINANCIALREPORT and its Committees by the Board of Directors was carried out in strict compliance with said Regulation. ›› quick search for resolutions adopted by the governance bodies in the previous period (database of resolutions). The self-assessment undertaken by the Board of Directors in 2016 showed that the Board managed to maintain all the strengths identified in the previous reporting period: Directors’ and officers’ liability insurance

›› independence of the Audit Committee from the Company’s management and the majority shareholder; Since 2009, the Company has purchased liability insurance policies for the members TransContainer’s D&O policy www.trcont.ru ›› constructive relationship between the management and the Board of Directors; of the Board of Directors and the Company’s management on an annual basis. Insurance terms and conditions CORPORATE CORPORATE CORPORATE CORPORATE › propitious ambiance of the Board meetings that enables effective discussion of provides financial protection for the Company and its Directors and managers against USD GOVERNANCE GOVERNANCE › the agenda items; potential third party lawsuits arising out of accidental and (or) erroneous actions of 3 ›› prevalence of in-person Board meetings; the officers. The D&O2 policy covers legal costs incurred by the Directors in court 2016 111,000 ›› adequate number and frequency of meetings; and financial expenses arising from any claims lodged against Directors in connection 2015 89,000 ›› timely provision of materials and information on agenda items. with the performance of their responsibilities. 2014 72,000 Moreover, in 2016, the Board of Directors positively assessed its efforts to: The Company selects the insurer through a competitive tender, with the Nominations 2013 132,700 ›› oversee implementation of the resolutions adopted by the Board of Directors; and Remuneration Committee reviewing and approving the tender terms. ›› ensure the committees and independent Directors play a substantial role in the work of 2012 139,872.27 the Board of Directors; In November 2016, an extraordinary general meeting of shareholders of the Company 2011 142,764.3

BUSINESS OVERVIEW BUSINESS ›› give sufficient attention to the risks that may have a material impact on the Company’s approved the liability insurance contract for directors, officers and companies between operations. TransContainer and Ingosstrakh Insurance Company, effective from 7 November 2016 to 6 July 2018. The reporting period brought better results for the items that had been identified as requiring further improvements in the previous reporting period. For example, in 2015, The insured amount (liability limit) is USD 100,000,000. Coverage: worldwide. some members of the Board of Directors had poor meeting attendance rates, while in Insurance premium 2016, this indicator reached a medium level. TransContainer’s D&O policy terms and conditions are in line with the best domestic of TransContainer’s D&O policy, USD and international D&O liability insurance practices. TransContainer has conducted annual In the survey, members of the Board of Directors noted that, in 2016, they added profit

MARKET OVERVIEW MARKET self-assessment of the performance generation in the Company to the priorities identified by the Board in the previous Thanks to the management’s efforts, the Company was able to reduce the insurance of the Board of Directors. reporting period. premium under the 2016 D&O contract (as compared to 2015) through the extension of the insurance period to 1 year and 8 months.

2011–2016 100 000 000 Priorities of the Board of Directors in 2016: ›› strategic planning; ›› development of anti-crisis initiatives; ›› risk management;

STRATEGIC REPORT STRATEGIC ›› corporate governance development; ›› management control; ›› profit generation for the Company.

The results of the survey conducted among the members of the Board of Directors and its committees were thoroughly reviewed and discussed at the Board meeting held in June 2016 to assess the performance of the Board of Directors and its committees in the 2015– 2016 corporate year. COMPANY PROFILE COMPANY

1 For more information on the automated system, see p. 108 of TransContainer’s 2015 annual report. 2 Abbreviation of “Directors and Officers”. 3 for 18 months ANNUAL REPORT 2016 INFORMATION ON TRANSCONTAINER’S BOARD OF DIRECTORS as at 31 December 2016

Andrey Tonkikh Alexey Davydov Irina Kostenets Marat Shaydaev Richard Andreas Werner Irina Shytkina Non-executive Director Non-executive Director Non-executive Director Non-executive Director Independent Director Chairman Independent Director Member of the Strategy Committee Chairman of the Strategy Committee Deputy Chairman of the Nominations Deputy Chairman of the Strategy of the Audit Committee Chair of the Nominations and Member of the Audit Committee and Remuneration Committee Committee Member of the Nominations Remuneration Committee Member of the Audit Committee and Remuneration Committee

Sergey Tugarinov Alexander Panchenko Leila Mammed Zade Yuri Novozhilov Peter Lloyd O’Brien Non-executive Director Non-executive Director Non-executive Director Chairman of the Board of Directors Non-executive Director Chairman of the Strategy Committee Deputy Chairman of the Audit Committee Member of the Strategy Non-executive Director Member of the Audit Committee Member of the Nominations Committee Member of the Strategy Committee Member of the Nominations and Remuneration Committee Member of the Nominations and Remuneration Committee and Remuneration Committee 104 105

INFORMATION ON TRANSCONTAINER’S BOARD OF DIRECTORS AS AT 31 DECEMBER 2016 Alexey Davydov Mr Davydov graduated from the St Petersburg Mr Davydov sits on the boards of directors State Academy of Engineering and Economics at the following companies: RZD Trading

TRCONT.RU/EN/ Non-executive Director in 1993 with a degree in Economics and Company, RZDstroy, Roszheldorproject, Chairman of the Strategy Committee Management in Manufacturing Engineering, Transmashholding, VRK-1, Elteza, Federal Freight, Member of the Audit Committee and went on to graduate from the St Petersburg and Beteltrans. Event after the balance sheet date State University in 1999 with a degree in Law. First elected to the Company’s Board Andrey Starkov was elected of Directors in 2010. PROFESSIONAL EXPERIENCE: as TransContainer’s Chairman of the Board of Directors Mr Davydov does not own shares or any 2010–2016 Head of the Subsidiaries on 17 February 2017 other securities in the Company. and Affiliates Management Department, Russian Railways Born in 1971. Director of the Treasury FINANCIALREPORT Citizenship: Russian Federation. 2006–2010 Department, Russian Railways

Yuri Novozhilov Mr Novozhilov graduated from the St Petersburg Mr Novozhilov sits on the boards of directors at State University in 1996 with a degree the following companies: TKB Investment Partners Chairman of the Board of Directors in Theoretical Economics. (JSC), TKB Investment Partners (LLC), United Credit Non-executive Director CORPORATE CORPORATE CORPORATE CORPORATE Systems, Military-Memorial Company, Absolut GOVERNANCE GOVERNANCE Member of the Strategy Committee PROFESSIONAL EXPERIENCE: Bank, BLAGOSOSTOYANIE Pension Insurance First elected to the Company’s Board 2012–present Executive Director, Company, TransFin-M, Specialised Pension of Directors in 2007. BLAGOSOSTOYANIE Non- Administrator, KIT Finance Holding Company, Irina Kostenets Ms Kostenets graduated from the Irkutsk Institute Ms Kostenets sits on the boards of directors State Pension Fund of Railway Engineers with a degree in Railway at the following companies: Federal Passenger and KIT Finance. Non-executive Director Mr Novozhilov does not own shares Construction, Tracks and Track Facilities in 1984, Company and South Caucasus Railway. President and Chairman Deputy Chairman of the Nominations and or any other securities in the Company. 2009–2012 Member of the Board at the BLAGOSOSTOYANIE and went on to graduate from the Academy of the Management Board, Non-State Pension Fund. Remuneration Committee Born in 1974. of National Economy under the Government TransCreditBank Member of the Audit Committee Citizenship: Russian Federation. of the Russian Federation in 1998 with a degree 2004–2009 First Deputy Head of the Corporate in State Economic and Financial Management Finance Department, Russian First elected to the Company’s Board in the Rail Transport Industry. Railways of Directors in 2013.

BUSINESS OVERVIEW BUSINESS PROFESSIONAL EXPERIENCE: Ms Kostenets does not own shares or any other securities in the Company. 2012–present Head, Economics Department, Russian Railways Born in 1961 Citizenship: Russian Federation. 2009–2012 Head of the Department for Organisational and Staffing Matters, Russian Railways

MARKET OVERVIEW MARKET Richard Andreas Werner Mr Werner graduated from the London School of 2007–2011 Member of the Executive Board Economics, University of London, in 1989 with an of the School of Management Independent Director Chairman honours BSc (Bachelor of Economics) degree in at the University of Southampton of the Audit Committee International Trade and Development, and then Member of the Nominations 2006–2007 Senior Managing Director, Bear went on to graduate from the University of Oxford, and Remuneration Committee Stearns Asset Management, Linacre College, in 1992 (Master’s Degree). In 1990– London 1991, Mr Werner was a graduate research student Alexander Panchenko In 2011, Mr Panchenko graduated from the Mr Panchenko sits on the board of directors First elected to the Company’s Board Journalism Faculty of Lomonosov Moscow State at Russkaya Troyka at the University of Tokyo, and, in 1991, was invited 1998–2014 Managing Director, CIO, Profit Non-executive Director of Directors in 2015. University with a degree in Journalism. In 2015, as a visiting researcher to the University of Tokyo, Research Centre Ltd. Deputy Chairman of the Audit Committee before becoming the first Shimomura Fellow at he defended his PhD thesis in Philology. Mr Werner does not own shares or any 1994–1998 Chief Economist, Jardine Fleming Member of the Nominations and STRATEGIC REPORT STRATEGIC other securities in the Company. the Development Bank of Japan. From 1997 to Securities (Asia) Ltd., Director, JF Remuneration Committee PROFESSIONAL EXPERIENCE1: 2004, Professor Werner studied international and Research Asia Ltd. Born in 1967. monetary economics at Sophia University, Tokyo. 2016–present First Deputy CEO, Summa Group Citizenship: Germany First elected to the Company’s Board In 2005, he was appointed Chair in International Advisor to the President, PROFESSIONAL EXPERIENCE: of Directors in 2014. 2014–2016 Banking at the University of Southampton. Summa Group 2012–present Director of the Local First Mr Werner is the Director of the Centre for Mr Panchenko does not own shares or any Advisor to the Head of Community Interest Company Banking, Finance and Sustainable Development other securities in the Company. 2013–present at the Southampton Business School and Convenor the representative office, 2011–present Member of the ECB Born in 1989. of the Association for Research on Banking Baronetta Investments Limited Shadow Council Citizenship: Russian Federation. and the Economy, organising ECOBATE events. 2012–2014 Manager of Investment Projects,

COMPANY PROFILE COMPANY 2011–2012 Member of the Finance Watch, Summa Group Brussels, CDR IV Working Group 2010–2012 Business columnist, Kommersant 2008–2013 Member of the Supervisory Board of Profit Global Macro Fund AGmvK

1 Professional experience as at 31 December 2015. In March 2016, Mr Panchenko was appointed First Deputy Executive Director at Summa Group. ANNUAL REPORT 2016 106 107

Andrey Tonkikh Mr Tonkikh graduated from the Moscow State 2012 Deputy Executive Director, SRO Peter Lloyd O’Brien Mr O’Brien graduated from the Duke University 2012–2013 Chairman of the Board of Academy of Water Transport with a degree in Union of Railway Operators (the USA) with a Bachelor’s degree in 1991, Directors, RusRailLeasing

TRCONT.RU/EN/ Non-executive Director Non-executive Director Law in 1999. and went on to graduate from the Columbia Member of the Strategy Committee 2012 Deputy Executive Director, Union Member of the Audit Committee 2011–2015 Member of the Board of Trustees, University (the USA) with a Master’s degree in PROFESSIONAL EXPERIENCE: of Railway Operators Market Member of the Nominations and European Pension Fund Business Administration (MBA). First elected to the Company’s Board 2016–present Head of the Business Project 2008–2012 Deputy Director of the Public Policy Remuneration Committee 2012–2013 Independent Director, HRT PROFESSIONAL EXPERIENCE: of Directors in 2016. Management Department, Department for Railway Transport, First elected to the Company’s Board Mr Tonkikh does not own shares or any other Russian Railways Ministry of Transport of the 2012–present Member of the Board of Directors, Russian Federation of Directors in 2016. TMK securities in the Company. 2015–2016 Advisor to the Senior Vice Mr O’Brien does not own shares or any Born in 1977. President, Russian Railways 2012–present Chairman of the Board of other securities in the Company. Directors, TransFin-M Citizenship: Russian Federation. 2015 Advisor, New Forwarding

FINANCIALREPORT Company Born in 1969. 2015–present Independent Director, Chairman Citizenship: USA of the Audit Committee, T Plus 2014–2015 Advisor, StilTrans 2012–2014 Deputy Executive Director, Head of Legislation and Strategic

Development, SRO Union of Railway Operators CORPORATE CORPORATE CORPORATE CORPORATE GOVERNANCE GOVERNANCE

Sergey Tugarinov Mr Tugarinov graduated from the Moscow 2004–2012 Deputy Director at the Public Marat Shaydaev Mr Shaydaev graduated from the Red Banner Mr Shaydaev sits on the boards of directors at State Aviation Institute (Technical Department) Policy Department for Railway, Military Institute of the USSR Ministry of Defence the following companies: FESCO, Vladivostok Non-executive Director Non-executive Director with a degree in Spacecraft and Boosters. Sea and River Transport, Director with a degree in Law in 1990, and went on to Commercial Sea Port, United Grain Company, Chairman of the Strategy Committee Deputy Chairman of the Strategy at the Public Policy Department graduate from the Russian Presidential Academy Novorossiysk Commercial Sea Port, IPP, PROFESSIONAL EXPERIENCE: Committee for Railway Transport, Ministry of Public Administration with a degree in Public Novorossiysk Commercial Sea Port Fleet, First elected to the Company’s Board 2016–present First Deputy CEO, Centre for of Transport of the Russian and Municipal Administration in 2007. Novorossiysk Fuel Oil Terminal, Novorossiysk of Directors in 2016. Corporate Transport Service, First elected to the Company’s Board Federation 1 Shipyard, Novorossiysk Grain Terminal, of Directors in 2015. PROFESSIONAL EXPERIENCE : Mr Tugarinov does not own shares or any Branch of Russian Railways Novoroslesexport, Primorsk Trade Port, Yakutsk 2013–present Advisor to the President, FESCO other securities in the Company. 2014–2016 Advisor to the CEO, GTI Mr Shaydaev does not own shares or any Fuel and Energy Company, and Summa Group. BUSINESS OVERVIEW BUSINESS other securities in the Company. Born in 1970. Management 2012–2013 First Deputy CEO, Novorossiysk Commercial Sea Port Citizenship: Russian Federation. 2012–2014 Advisor to the CEO, Born in 1968. Sevtechnotrans Citizenship: Russian Federation. 2011–2013 Vice President for Investment, Director of the representative office (part time), Novorossiysk Commercial Sea Port 2009–2012 Vice President, Executive Director, First Vice President (Executive

MARKET OVERVIEW MARKET Director), President, Summa Group

Leila Mammed Zade Ms Mammed Zade graduated from the Texas Before joining Summa Group, Ms Mammed Zade Irina Shytkina Ms Shytkina graduated from the Law Faculty of Ms Shytkina sits on the boards of directors at the A&M University (the USA) with a degree worked for major international companies, such Lomonosov Moscow State University in 1988. In following companies: Elinar Holding Company, Non-executive Director Independent Director in Finance and Oil Industry in 2002. as Halliburton (the UK and the USA) and Royal 2006, she defended her PhD thesis in Law. Ms Astrakhan Fiberglass, and Elinar. Member of the Strategy Committee Chair of the Nominations and Dutch Shell HQ in Hague (the Netherlands). Shytkina is a professor of entrepreneurial law at the Member of the Nominations PROFESSIONAL EXPERIENCE: Remuneration Committee From time to time, her remits included M&A, Law Faculty of Lomonosov Moscow State University. STRATEGIC REPORT STRATEGIC and Remuneration Committee 2016–present CEO, Summa Group investment portfolio management, risk She has extensive academic and research experience First elected to the Company’s Board Creative Director, Russia governance, strategy and business development in in corporate and entrepreneurial law. First elected to the Company’s Board 2013–present of Directors in 2010. Restaurant Group Russia and the CIS. of Directors in 2016. PROFESSIONAL EXPERIENCE: Ms Shytkina does not own shares or any Executive Director, APEC Ms Mammed Zade sits on the boards of directors Ms Mammed Zade does not own shares or any 2012 other securities in the Company. 2011–present Advisor to the CEO, Elinar Holding Business Advisory Council, at the following companies: FESCO, Yakutsk Fuel other securities in the Company. Company Russian presidency and Energy Company, Open Port of Nakhodka, Born in 1965. Born in 1975. and United Grain Company. Citizenship: Russian Federation. 2009–2011 Deputy CEO for Corporate Vice President, Assets Citizenship: Azerbaijan 2010–2012 Governance, Elinar Holding Management, Summa Group Company COMPANY PROFILE COMPANY 2005–present Professor, Department of Entrepreneurial Law, Law Faculty, Lomonosov Moscow State University

1 Professional experience as at 31 December 2015. In 2016, Мr Shaydaev was appointed Acting CEO of the United Grain Company. ANNUAL REPORT 2016 108 109

COMMITTEES OF THE BOARD OF DIRECTORS Key items reviewed by the Audit Committee in 2016

TRCONT.RU/EN/ Number of items examined The Board of Directors set up the Audit Committee, the Nominations and Remuneration Financial (accounting) ›› The Company’s annual RAS accounting statements for 2015; by the Board of Directors in 2016, % Committee and the Strategy Committee for preliminary review of critical matters related statements ›› the Company’s IFRS financial statements for 2015; to the Company’s operations. ›› the Company’s annual report for 2015; ›› the Group’s interim consolidated IFRS financial statements for the 15 first half of 2016; In 2016, the committees provided recommendations on 74 out of 184 items reviewed ›› reports by the Company’s management and Internal Audit Service on by the Board of Directors, including recommendations on: implementation of the action plan to eliminate violations identified by the Revision Commission following the Company’s audit in 2016; 184 16 ›› 27 items by the Audit Committee; ›› 30 items by the Nominations and Remuneration Committee; ›› report of the Revision Commission on the results of the Company’s 60 audit in 2015; 9 ›› 17 items by the Strategy Committee. FINANCIALREPORT ›› action plan to eliminate violations identified by the Revision Commission following the Company’s audit in 2015. Report on the Audit Committee’s performance Risk management, internal ›› The Internal Audit Service’s assessment of the internal control / risk Preliminary review by The Company set up the Audit Committee for preliminary review of the matters related control and corporate management systems and the corporate governance quality;

the Audit Committee to the monitoring of the Company’s financial and business operations. governance ›› management of TransContainer’s subsidiaries; Preliminary review by the Nominations ›› the Company’s inactive fixed assets; and Remuneration Committee ›› report on implementation of the action plan to improve the corporate The Committee plays a key role in monitoring the completeness, accuracy and credibility risk management system in 2015; Preliminary review by the Strategy CORPORATE CORPORATE CORPORATE CORPORATE of the Company’s financial statements, reliability and efficiency of the risk management, GOVERNANCE GOVERNANCE action plan to improve the corporate risk management system in Committee ›› internal control and corporate governance systems, and in ensuring independence and 2016; No preliminary review by the committees impartiality of the internal and external audit functions. ›› reports on implementation of the action plan on critical and acceptable risks for Q4 2015 and Q1–Q3 2016; ›› risks materialised in 2015; Changes in the membership of the Audit Committee in 2016 ›› reports on managing select risks; ›› draft corporate risk map (register) of the Company for 2017; Members of the Audit Members of the Audit Committee Members of the Audit ›› regulations on existing (or potential) conflict of interest at Committee from January from July through September Committee from October TransContainer; through June 2016 2016 through December 2016 ›› maximum exposure to potential losses from risks in 2017 (the Company’s tolerance level); Richard Werner, chairman, Richard Werner, chairman, Richard Werner, chairman, ›› plan to develop the Company’s Internal Audit Service; 1 BUSINESS OVERVIEW BUSINESS independent Director independent Director independent Director ›› status of the shareholder conflict and shareholder lawsuit risks ; report on the procurement of goods, works and services to support Alexander Panchenko, deputy Alexander Panchenko, deputy Alexander Panchenko, deputy ›› the Company’s operations in 2015; chairman chairman chairman ›› assessment of internal control, risk management and corporate Alexey Davydov Alexander Ikonnikov Irina Kostenets governance quality conducted by the Internal Audit Service.

Irina Kostenets Irina Kostenets Peter Lloyd O’Brien Internal and external audit ›› Reports of the Internal Audit Service on the Department’s Arvid Türkner Arvid Türkner Irina Shytkina performance in Q4 2015 and Q1–Q3 2016; ›› report on execution of the Internal Audit Service’s action plan and budget for 2015; Olga Miller, secretary of the Audit Committee (from January through August 2016) MARKET OVERVIEW MARKET ›› assessment of the auditor findings following review of the Company’s Grigory Ovsyannikov, secretary of the Audit Committee (from August through November 2016) accounting statements for 2015; ›› audit of the Company’s IFRS financial statements for 2015; Kristina Galkina, secretary of the Audit Committee (from November through December 2016) ›› audit results for the Company’s IFRS financial statements for 2015; ›› report by the Company’s management on steps taken to eliminate gaps identified during the audit of the Company’s accounting statements for 2015; Items reviewed by the Audit Changes in the membership of the Audit Committee in 2016 were designed to improve ›› findings of the Company’s auditor following review of the Group’s Committee in 2016, the committee’s overall performance. Yet, throughout the reporting period, the Audit interim consolidated IFRS financial statements for 1H 2016. by business line, % Committee was chaired by Richard Werner, an independent Director, while his deputy was

STRATEGIC REPORT STRATEGIC Alexander Panchenko. Combating misconduct ›› Report on violations of the Company’s Code of Business Ethics in by the Company’s 2015; 10 11 Items reviewed by the Audit Committee in 2016 employees or third parties ›› draft Programme to Combat Corruption, Corporate Fraud and 10 Embezzlement at TransContainer; ›› draft Anticorruption Policy of TransContainer 81 In 2016, the Audit Committee held nine in-person meetings and discussed 81 items. The Audit Committee’s agendas were drafted based on the Board requests and the committee’s 43 The Audit Committee’s Performance of the Company’s Audit Committee in the 2015–2016 26 Action Plan, which was approved at the first meeting of the newly elected committee. ›› organisational matters corporate year, including the committee performance assessment results; ›› the Audit Committee’s action plan up to the general meeting

COMPANY PROFILE COMPANY of shareholders (Q3 2016–Q2 2017); Financial (accounting) statements ›› the Audit Committee’s draft budget for the 2016–2017 corporate year; Risk management, internal control, approval of the schedule for confidential meetings of the Audit corporate governance ›› Committee with representatives of the external auditor and head Internal and external audit of TransContainer’s Internal Audit Service in the 2016–2017 corporate year. Combating misconduct by the Company’s employees or third parties The Audit Committee’s organisational matters 1 No premises for the materialisation (or potential materialisation) of the shareholder conflict and shareholder lawsuit risks were identified. ANNUAL REPORT 2016 110 111

Interaction with the Revision Commission Report on the Nominations and Remuneration Committee’s performance

TRCONT.RU/EN/ The chairman of the Audit Committee invites representatives of the Revision Commission The Board of Directors set up the Nominations and Remuneration Committee for to attend the Audit Committee’s meetings to review matters related to the audit of preliminary review of matters related to the development of an efficient and transparent Company’s financial and business operations. The Audit Committee shall therefore create remuneration framework, HR planning, expertise and effectiveness of the Board of a propitious environment for constructive and effective discussion of the audit results Directors, executive bodies and other key managers. and identified violations. The Audit Committee considers opinions of the members of the Revision Commission on the gravity of the identified violations, and management Changes in the membership of the Nominations and Remuneration Committee in 2016 comments on the reasons behind such violations and the steps proposed to address them. The Audit Committee monitors remedial actions taken to eliminate the violations Members of the Nominations Members of the Nominations Members of the Nominations identified by the Revision Commission. and Remuneration Committee and Remuneration Committee and Remuneration Committee

FINANCIALREPORT from January through June from July through September from October through 2016 2016 December2016 Interaction with the external auditor and the Internal Audit Service Irina Shytkina, chairwoman, Alexander Ikonnikov, chairman, Irina Shytkina, chairwoman, The chairman of the Audit Committee invites representatives of the Company’s auditor independent Director independent Director independent Director

and the head of the Internal Audit Service to attend the Audit Committee’s meetings to Irina Kostenets, deputy Richard Werner, deputy Irina Kostenets, deputy improve the interaction between the Audit Committee and the external auditor / Internal chairwoman chairman chairwoman Audit Service. Hence, members of the Audit Committee have an opportunity to timely Gennady Bessonov Irina Kostenets Richard Werner CORPORATE CORPORATE CORPORATE CORPORATE hear the auditors’ opinions and comments on the items discussed at the meetings of the GOVERNANCE GOVERNANCE Audit Committee. In addition, the Company thereby ensures utmost transparency and Richard Werner Arvid Türkner Leila Mammed Zade availability of information on the Company’s operations to all stakeholders, including the Erkhat Iskaliev Alexander Panchenko Peter Lloyd O’Brien Audit Committee, the external auditor and the Internal Audit Service. Alexander Panchenko

On top of that, the Audit Committee holds regular confidential meetings with the external Olga Miller, secretary of the Nominations and Remuneration Committee auditor and the head of the Internal Audit Service, with no management involved. (from January through August 2016) The meetings are held pursuant to the approved schedule for confidential meetings of the Audit Committee with representatives of the external auditor and the head of the Grigory Ovsyannikov, secretary of the Nominations and Remuneration Committee (from August through November 2016) Company’s Internal Audit Service. In 2016, the Audit Committee held eight meetings, Kristina Galkina, secretary of the Nominations and Remuneration Committee

BUSINESS OVERVIEW BUSINESS including four meetings with representatives of PricewaterhouseCoopers Audit, the Company’s external auditor, and four meetings with the head of the Internal Audit (from November to present) Service. In 2016, there was a significant overhaul in the membership of the Nominations Number of the Audit Committee’s confidential meetings with the external auditor and the head and Remuneration Committee, with four out of five members never having sat on of the Company’s Internal Audit Service theNominations and Remuneration Committee before. Despite that, the Nominations and Remuneration Committee managed to ensure succession in maintaining the 2013 2014 2015 2016 effective remuneration practices and HR policy of the Company.

MARKET OVERVIEW MARKET External auditor 1 3 3 4 Throughout 2016, the Nominations and Remuneration Committee was chaired by an independent Director. Head of the Internal 1 1 3 4 8 Audit Service In 2016, with a view to ensuring independence and impartiality of the external audit the Audit Committee’s confidential function, the Audit Committee approved the tender documentation and reviewed the meetings with the external auditor and tender results to select an external auditor for TransContainer. After rounding up the the head of the Company’s Internal

STRATEGIC REPORT STRATEGIC tender results, the Board of Directors recommended that the annual general meeting of Audit Service shareholders approve PricewaterhouseCoopers Audit as TransContainer’s auditor to carry out an audit of the Company’s RAS and IFRS financial (accounting) statements for 2016. COMPANY PROFILE COMPANY

For more information on the professional experience of the members of the Nominations and Remuneration Committee, see p. 104 ANNUAL REPORT 2016 112 113

Items reviewed by the Nominations and Remuneration Committee in 2016 Interviews with candidates to key Company positions

TRCONT.RU/EN/ Items reviewed by the Nominations and In 2016, the Nominations and Remuneration Committee held 11 in-person meetings As regards approval of nominees to key Company positions (managers and heads of the Remuneration Committee in 2016, by and discussed 67 items. The Nominations and Remuneration Committee’s agendas Company’s branches), in 2016, the Nominations and Remuneration Committee carried business line, % were drafted based on the Board requests and the committee’s Action Plan, which was on with personal interviews for candidates to said key positions. The Nominations and approved at the first meeting of the newly elected committee. Remuneration Committee’s involvement in personal interviews with candidates, along with the analysis of the candidates’ educational and professional background, ensure a better 18 Key items reviewed by the Nominations and Remuneration Committee in 2016 understanding of the candidates’ professional and personal qualities and their fitness for the Company’s key positions. 7 39 67 Development of ›› Payment of bonuses to the Company’s CEO for Q4 2015 and Q1– efficient and transparent Q3 2016; Report on the Strategy Committee’s performance FINANCIALREPORT remuneration practices ›› payment of bonuses to the Company’s CEO and management 36 for the Company’s Board based on their performance in 2015; The key role of the Strategy Committee is to ensure efficient performance of the Board of Directors, Revision ›› amending the Regulation on Labour Incentives for the Management Commission, executive of TransContainer; of Directors by providing preliminary reviews of matters related to the Company’s priority bodies and management ›› monitoring the remuneration system for TransContainer’s CEO and businesses lines, and the development and implementation of the Company’s strategy in:

Remuneration policy and practices with management; ›› determination of the Company’s businesses priorities and strategic objectives, control respect to the Company’s Board efficiency of the Company’s long-term incentive programme for of Directors and management ›› over the implementation of the Company’s strategy, provision of recommendations on employees and key areas for further improvement; adjusting the effective development strategy; HR planning, nominations and ›› new draft version of the Regulation on Payment of Remuneration CORPORATE CORPORATE CORPORATE CORPORATE › budget planning and development of the annual investment programme, provision of GOVERNANCE GOVERNANCE composition of the management bodies and Compensation to the Members of TransContainer’s Board of › Directors; recommendations on adjustments thereto, control over implementation of the budget Improvement of the corporate payment of remuneration to the members of the Company’s governance system and practices ›› and the investment programme; Board of Directors and its committees and the members of the ›› development of proposals on the Company’s dividend policy; The Nominations and Remuneration Revision Commission based on their performance in the 2014–2015 assessment of the Company’s efficiency; Committee’s organisational matters corporate year. ›› ›› the Company’s participation in other organisations (including direct and indirect acquisition and disposal of shares in the organisations’ authorised capitals, encumbered HR (succession) planning, ›› Criteria for selecting independent Directors to the Company’s Board professional experience and of Directors for the 2015–2016 corporate year1; shareholdings); efficiency of the Company’s ›› reviewing terms and conditions of the employment contracts signed ›› assessment of voluntary and mandatory offers to acquire the Company’s securities. Board of Directors and with the CEO and members of the Management Board; management › approval of nominees to the position of directors at the Company’s BUSINESS OVERVIEW BUSINESS › Changes in the membership of the Strategy Committee in 2016 branches; approval of nominees to TransContainer’s executive office; ›› Members of the Strategy Members of the Strategy assessment of TransContainer Directors’ compliance with the Members of the Strategy ›› Committee in July–September Committee in October– independence criteria; Committee in January–June 2016 ›› reviewing nominees to the position of the Company’s CEO; 2016 December 2016 ›› reviewing assessment of performance by members of the Company’s Board of Directors and its committees in the 2015–2016 Alexey Davydov – chairman Sergey Tugarinov – chairman Alexander Panchenko – chairman corporate year. Marat Shaydayev – deputy Petr Baskakov chairman Sergey Kust – deputy chairman Richard Werner The Nominations and Review of the Nominations and Remuneration Committee’s MARKET OVERVIEW MARKET ›› Petr Baskakov Petr Baskakov Remuneration Committee’s performance in the 2015–2016 corporate year; Alexander Ikonnikov organisational matters ›› election of the Nominations and Remuneration Committee’s Yuri Novozhilov Leila Mammed Zade chairman, deputy chairman and secretary; Alexander Panchenko action plan of the Nominations and Remuneration Committee up Arvid Türkner Andrey Tonkikh ›› Anton Ryshkov to the general meeting of shareholders; ›› draft budget of the Nominations and Remuneration Committee Marat Shaydayev for the 2016–2017 corporate year. Kristina Galkina – the Strategy Committee’s secretary STRATEGIC REPORT STRATEGIC In 2016, there was a significant overhaul in the composition of the Strategy Committee – four of the five members joined the Committee during the reporting period. COMPANY PROFILE COMPANY

1 Considering the corporate governance requirements imposed by the regulators and the stock exchanges on issuers, including those on the number of independent directors sitting on the board of directors and its committees, the Nominations and Remuneration Committee has resolved to For more information on the approve requirements for the independent director nominees and recommended that the Company’s professional experience of the shareholders take these requirements into account when nominating candidates to the Company’s members of the Strategy Committee, Board of Directors. see p. 104 ANNUAL REPORT 2016 114 115

Items reviewed by the Strategy Committee in 2016 CORPORATE SECRETARY

TRCONT.RU/EN/ Items reviewed by the Nominations In 2016, the Strategy Committee held 10 meetings and reviewed 37 items. The Strategy The Company’s Corporate Secretary should ensure effective interaction with shareholders, and Remuneration Committee in 2016, Committee’s agendas were drafted according to the Committee’s action plan, approved at coordinate the Company’s efforts to protect shareholder rights and interests, and support by business line, % the first meeting of the newly elected committee, and in compliance with the requests of the Board and the committees. the Board of Directors. The Company’s Corporate Secretary shall perform the following functions: The Regulation on TransContainer’s 13 27 Key items reviewed by the Strategy Committee in 2016 ›› organising the preparation and holding of the Company’s general meetings of Corporate Secretary shareholders; 37 Setting the Company’s top ›› TransContainer’s mid-term stabilisation programme for ›› supporting of the Board of Directors and its committees; 27 priorities 2015–2017; ›› contributing to the implementation of the Company’s information disclosure policy; FINANCIALREPORT ›› the Company’s investment programme for 2017; ›› maintaining the Company’s corporate documents; 3 30 ›› project to develop a satellite hub solution based on the › ensuring interaction with the Company’s shareholders; Moscow transport hub; › ›› expansion of TransContainer’s terminal network at the ›› helping to prevent corporate conflicts; www.trcont.ru Moscow transport hub; ›› facilitating the Company’s interaction with regulators, the registrar and other

Priority areas / strategy ›› reconstruction of container terminals of the Bazaikha and professional participants of the securities market; Budgeting and budget monitoring Batareinaya stations; ›› ensuring that procedures set to guarantee the rights and legitimate interests of ›› financing the purchase of high-capacity containers; shareholders, are comply with the Russian laws and the Company’s by-laws; Dividend policy ›› launch of iSales, TransContainer’s on-line sales system. CORPORATE CORPORATE CORPORATE CORPORATE › notifying the Board of Directors about all identified violations of the Russian laws and GOVERNANCE GOVERNANCE Management of the Company’s › of provisions set forth in the Company’s by-laws, which the Corporate Secretary is to subsidiaries and stakes in other Budgeting and budget ›› TransContainer’s performance reports for 2015 and in 9M companies monitoring 2016; comply with; Strategy Committee’s organisational ›› forecast of TransContainer’s performance in Q1 2016; ›› contributing to the improvement of the Company’s corporate governance framework matters ›› forecast of TransContainer’s budget performance in 2016; and practices. ›› TransContainer’s budget for 2017. From January to September 2016, Olga Miller, the Company’s Director for Corporate Managing the Company’s ›› Kedentransservice’s performance reports for 2015, 6M and Governance, acted as the Corporate Secretary. From September 2016 to present, subsidiaries 9M 2016; Kristina Galkina, deputy head of the Corporate Governance Department, acts as ›› forecast of the 2016 budget performance and Kedentransservice’s budget metrics for 2017. the Corporate Secretary. BUSINESS OVERVIEW BUSINESS The Company’s Corporate Secretary has sufficient skills, experience and qualifications to Investing in other entities ›› Incorporation of TransContainer’s subsidiary in Shanghai (China); perform his/her duties, and impeccable professional reputation. The Corporate Secretary ›› TransContainer’s project to invest in Freight Village Kaluga develops professional skills on an ongoing basis and actively participates in the professional North’s share capital. community’s activities as a member of the Board of the National Association of Corporate Secretaries.

Handling the committee’s ›› Election of TransContainer’s Strategy Commitee chairman; To ensure independence, the Corporate Secretary reports directly to the Company’s Board organisational matters ›› election of TransContainer’s Strategy Commitee deputy chairman; of Directors. No conflicts of interests have been identified in the work of the Corporate MARKET OVERVIEW MARKET ›› election of TransContainer Strategy Commitee’s secretary; Secretary. ›› TransContainer’s Strategy Committee action plan for the period up to the general meeting of shareholders; The Corporate Secretary is not the secretary of the Management Board. ›› TransContainer’s Strategy Committee budget for 2016–2017 corporate year. The Corporate Secretary’s duties are provided for by the new version of the Regulation on TransContainer’s Corporate Secretary. STRATEGIC REPORT STRATEGIC

Kristina Galkina Graduated from the Moscow State University of PROFESSIONAL EXPERIENCE: Railways in 2000 with a degree in industrial and civil Corporate Secretary 2016–present TransContainer’s Corporate Secretary. construction. 2008–present Deputy head of TransContainer’s Completed the Corporate Secretary in a Joint-Stock COMPANY PROFILE COMPANY Ms Galkina does not own Corporate Governance Department. shares or any other securities Company retraining programme at the Higher School Secretary of TransContainer’s of the Company. of Economics in 2007. 2014–2016 Management Board. Born in 1978. Completed the Corporate Secretary training Secretary of TransContainer’s Strategy Citizenship: Russian Federation. programme in the Institute of Stock Market and 2012–2016 Management in 2016. Committee. Member of the National Association of Corporate Secretaries (NACS). ANNUAL REPORT 2016 116 117

CEO AND MANAGEMENT BOARD REPORT ON THE MANAGEMENT BOARD’S PERFORMANCE

TRCONT.RU/EN/ In 2016, the Company’s Management Board held 22 meetings and reviewed a total of ROLE OF THE EXECUTIVE BODIES 111 items.

The Company’s executive bodies are the Chief Executive Officer (CEO) and The Management Board sticks to the approved six-month work schedule, which is aligned the Management Board, which are responsible for managing the Company’s with the schedules of the Board of Directors and its committees, and proposals of the ongoing operations. Company’s management.

The executive bodies play a key role in the Company management, ensuring: Given TransContainer’s footprint, extensive branch network and holding structure, the top ›› achievement of strategic goals and objectives as defined by the Company’s Board of priority of the Company’s Management Board in 2016 was to oversee operations of FINANCIALREPORT Directors; the Company’s branches and subsidiaries. In 2016, the Management Board reviewed ›› implementation of the Company’s long-term plans and programmes; 29 reports on the performance of the Company’s branches and 12 reports on ›› implementation of resolutions adopted by the Board of Directors and the general the performance of companies controlled by TransContainer. meeting of shareholders;

›› development and support of an efficient risk management and internal control system; A branch rating was used to assess the performance of branch offices. This rating takes ›› personnel management, motivation and incentives, HR planning; in key performance indicators of the branch offices during the reporting period, changes ›› management of the Company’s branches and subsidiaries; in each of the operating indicators during the current and previous reporting periods, and CORPORATE CORPORATE CORPORATE CORPORATE analysis of the reasons contributing to the deterioration/improvement in performance Number of meetings GOVERNANCE GOVERNANCE during the reporting period and the branch offices’ proposals to remedy the issues (in the of the Company’s ACCOUNTABILITY OF THE COMPANY’S EXECUTIVE BODIES event of deteriorating performance). Management Board

The CEO and the Management Board report to the general meeting of shareholders and As regards management of subsidiaries, the Management Board primarily focused on 2015 the Board of Directors and provide regular reports on their activities helping to assess the 2017 budgets of the key subsidiaries controlled by the Company. 2016 the performance and efficiency of the Company’s executive bodies 11 22 The Chairman of the Management Board invites the heads of branch offices and To ensure accountability of the executive bodies, the Board of Directors: the CEOs of subsidiaries to participate, either in person or through a video conference, ›› elects the Company’s CEO; in Management Board meetings reviewing the branch and subsidiary performance. Number of meetings of the Company’s

BUSINESS OVERVIEW BUSINESS ›› elects members of the Management Board as proposed by the CEO of the Company; Management Board, % ›› determines the number of the Management Board members; In 2016, the Management Board also reviewed some other matters within its remit, ›› determines the term of office for the Company’s executive bodies; including: 18 ›› determines the terms and conditions of employment contracts with the CEO ›› pre-approval of the Company budget for 2017; 26 and the Management Board members; ›› approval of the composition of the Company’s tender commission1; ›› approves overlapping and other paid positions held by the CEO and members of ›› approval of TransContainer’s Programme to Combat Corruption, Corporate Fraud and 111 the Management Board in the executive bodies of other organisations; Embezzlement; 25 ›› reviews reports on the performance of the executive bodies. ›› approval of Transcontainer’s Anti-Corruption Due Diligence Guidelines; ›› establishment of the Committee for Governance Improvement and Interaction 31 MARKET OVERVIEW MARKET Petr Baskakov has been the CEO of TransContainer since 20061. In 2016, the Board of with TransContainer’s Subsidiaries and Affiliates, approval of the regulation on said Directors re-elected Petr Baskakov as the Company’s CEO for another three years (until committee; February 2019). ›› approval of the terms and conditions for TransContainer’s Collective Agreement for Preliminary review of the Company's priorities, strategy, and budget 2017–2019; Charter, the Regulation The Management Board of TransContainer was established in November 2014. ›› approval of bank guarantee transactions to be made in 2017 for the benefit of the Management of the Company's subsidiaries on the Management Board The first Management Board of the Company was set up by the Board of Directors on Federal Customs Service; and the Regulation on the CEO 23 December 2014 and consisted of seven members. The members of the Management ›› approval of the key performance indicators (KPIs) list for TransContainer’s management Management of the Company’s branches and representative oces Board are appointed for a term of three years. Petr Baskakov, the Company’s CEO, acts team; Other matters

STRATEGIC REPORT STRATEGIC as the Chairman of the Management Board. ›› pre-approval of TransContainer’s participation in the newly established subsidiary in Shanghai; The competencies of the Company’s Management Board and CEO are set out in ›› approval of TransContqainer’s key strategic priorities for 2017–2021 and the strategic the Charter, the Regulation on the Management Board and the Regulation on the business plan for 2017–2021. www.trcont.ru CEO of TransContainer. Meetings of both the Management Board and the Board of Directors are held using an automated information system designed to offer ultimate convenience to the members of the Management Board, during both the process of preparation for the meetings and consideration of items on the agenda. COMPANY PROFILE COMPANY

For the biography of Petr Baskakov, the Company’s CEO, see p. 118

For more information on the members of the Company’s Management Board, see p. 118 1 For the purposes of the Company’s procurement. ANNUAL REPORT 2016 118 119

INFORMATION ON THE MEMBERSHIP OF TRANSCONTAINER’S MANAGEMENT BOARD as at 31 December 2016 TRCONT.RU/EN/ FINANCIALREPORT

Anton Petr Vladimir Viktor Vladimir Viktor Pavel CORPORATE CORPORATE CORPORATE CORPORATE GOVERNANCE GOVERNANCE Lopatin Baskakov Drachev Markov Aladin Shekshuev Chichagov Member of the Management Board Chairman of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board Deputy CEO for Economics and and CEO First Deputy CEO Director for Legal Affairs Deputy CEO Deputy CEO Deputy CEO Finance and Property Management

First elected to the Company’s First elected to the Company’s Management Board in 2014. First elected to the Company’s First elected to the Company’s First elected to the Company’s First elected to the Company’s First elected to the Company’s Management Board in 2014. Management Board in 2014. Management Board in 2014. Management Board in 2016. Management Board in 2014. Management Board in 2014. Mr Baskakov holds 1,701 shares in the Company, which represents Mr Lopatin does not hold shares or any 0.012242 percent of the share capital. Mr Drachev does not hold shares or any Mr Markov does not hold shares or Born in 1958. Mr Shekshuev holds 406 shares in the Mr Chichagov does not hold shares or BUSINESS OVERVIEW BUSINESS other securities of the Company. other securities of the Company. any other securities of the Company. Company, which represents 0.002922 any other securities of the Company. Born in 1961. Graduated from the Sverdlovsk percent of the share capital. Born in 1975. Citizenship: Russian Federation. Born in 1951. Born in 1976. University of National Economy in Born in 1953. Citizenship: Russian Federation. Citizenship: Russian Federation. Citizenship: Russian Federation. 1985 with a degree in Economics and Born in 1961. Citizenship: Russian Federation. Graduated from the Moscow Institute of Railway Engineers in 1986, Planning of Procurement (Economist). Citizenship: Russian Federation. Graduated from the Krasnoyarsk State with a degree in Management of Railway Transportation Processes, Graduated from the Irkutsk Institute of Graduated from the Gubkin Russian Graduated from the Gorky State Mr Aladin held senior foreign trade Agrarian University in 1996 with a holds a PhD degree in Technology. Railway Engineers in 1982 with a degree State University of Oil and Gas in Graduated from the Moscow State University in 1975, with a degree in positions at various businesses, degree in Economics and Agricultural in Railway Operations. 1998, with a degree in Law. University of Railways in 1998 with Radio Physics, and from the Finance PROFESSIONAL EXPERIENCE including companies with government Production Management (Production and a degree in Rail Transport Organisation Academy of the Russian Government PROFESSIONAL EXPERIENCE: PROFESSIONAL EXPERIENCE: participation. Accounting Economist). Mr Lopatin went 2006–present CEO, TransContainer and Management, and from the in 1998, with a degree in Banking on to graduate from the State University 2008–present First Deputy CEO, 2006–present Director for Legal Russian Railway Academy at the (Economist). Graduated from the 1 President, UTLC. PROFESSIONAL EXPERIENCE: MARKET OVERVIEW MARKET 2014–2016 of New York (USA) in 2000 with a TransContainer Affairs and Property Management, Moscow State University of Railways Plekhanov Russian University of 2002–2011 senior positions at master’s degree in Business Economics 2003–2006 Director, TransContainer Centre for Container TransContainer in 2001, where he completed Economics in 2007 with an MBA, 2006–2008 Deputy CEO for different executive government bodies. and was awarded an MBA degree at Shipping, a branch of the Russian Railways a retraining programme in Production specialising in Corporate Governance Production, TransContainer 2014–2016 Vice President, Member 2011–2014 Senior Vice-President, INSEAD Business School (France) in 2008. Management. Graduated from the and Business Process Re-engineering 2002–2003 Deputy Head and Head, Centre for Container of the Management Board, UTLC Member of the Management Board, 2005–2006 First Deputy Head, Institute of Business Economics and (Master of Business Administration). PROFESSIONAL EXPERIENCE: Shipping, Ministry of Railways of the Russian Federation Russian Regional Development Bank. Sverdlovsk Railway 2003–2006 First Deputy Head of Mathematics in 2003, where he Completed the Corporate Director Mr Aladin supervised cooperation 2008–present CFO, Deputy CEO for 2000–2002 Head of the Moscow Railway’s Container Shipping Legal Department, Russian Railways completed a training programme in retraining programme at the Higher 2002–2005 Head, Department of with the government authorities, Economics and Finance, TransContainer Department Accounting and Finance in the Market School of Economics in 2009. Holds Transportation Management, Ministry 2002–2003 Deputy Head of major investment projects, financial Economy. a PhD in Economic Sciences. 2007–2008 Enrolled in the MBA 1999–2000 Deputy Head of Railway Centre for Corporate of Railways of the Russian Federation Legal Department, Head of Railway security and matters pertaining to Programme at INSEAD Business School Transport Service, Moscow Railway Transport Reform Legal Support the sustainability of the bank and its PROFESSIONAL EXPERIENCE: PROFESSIONAL EXPERIENCE:

STRATEGIC REPORT STRATEGIC 2001–2002 Advisor on domestic and Department, Ministry of Railways of business reputation 2004–2006 Chief Financial Officer, 1993–1999 Head of the Moskva-Tovarnaya-Kurskaya Station, international transportation, Development, the Russian Federation 2006–present Deputy CEO, 2006–present Deputy CEO, Deputy CEO for Finance, Protek Moscow Railway Servicing and Forwarding of Freight Traffic 2014–2015 Deputy Head of Security TransContainer TransContainer 2000–2002 Head of Section, Service, Rosneft 2003–2004 Deputy Director for Mr Baskakov sits on the boards of directors at the following 1997–2001 First Deputy Head, Legal Support for Interactions with 2004–2006 Deputy CEO, 2003–2006 Head of Department, Corporate Reporting, Finance Division, companies: UTLC, Kedentransservice, GEFCO S.А., Oy ContainerTrans Department of Transportation the Federal Assembly and Railway 2016–present Deputy CEO, TransContainer Centre for Container Corporate Structuring and Reform, Head of Corporate Reporting, Protek Scandinavia Ltd., and Trans-Eurasia Logistics GmbH. Management, Ministry of Railways of the Transport Reform, Legal Department, TransContainer Shipping, a branch of the Russian Russian Railways Russian Federation Railways 2000–2003 Senior Manager, Head Member of the governance bodies at the Freight Forwarders Ministry of Railways of the Russian 1998–2003 Head of Department, of the Financial Management Desk, Association of the Russian Federation, the All-Russia Industrial Federation 1998–2004 Chief Engineer, Deputy Railway Transportation Reforms, Accounting and Reporting Department, Association of Employers in the Railway Transport Industry, the Russian Mr Markov sits on the boards of Head of the Moskva-Passazhirskaya- Ministry of Railways of the Russian Protek Union of Industrialists and Entrepreneurs, and the Union of Railway Kurskaya Station, and Head of the Federation COMPANY PROFILE COMPANY directors at the following companies: Operators Market. Moskva-Tovarnaya-Kurskaya Station Kedentransservice and Russian 1997–1998 Advisor to the Russian Railways Logistics. Minister of Railways Mr Chichagov sits on the boards of directors at the following companies: Oy ContainerTrans Scandinavia Ltd., TransСontainer – Slovakia, a.s. and Rail-Container (Beijing).

1 Ceased to be President of UTLC in March 2016. ANNUAL REPORT 2016 120 121

REPORT ON REMUNERATION OF THE Compensations paid to members of the Board of Directors

TRCONT.RU/EN/ BOARD OF DIRECTORS, EXECUTIVE Compensations are paid to members of the Board of Directors for the amount of actual BODIES AND THE MANAGEMENT expenses related to participation in meetings of the Board of Directors and its committees, including expenses on travel to the venue of a meeting of the Board of Directors, services at airports and railway stations, hotel expenses, expenses on communication such as The remuneration policy for members of the Board of Directors, the Chief telephone calls and the internet. Executive Officer, members of the Management Board and the management is aimed at acquiring, incentivising and retaining persons who have required Total compensations stood at RUB 3,738,524.22 in 2016. competencies to steer the company efficiently towards its strategic goals and objectives. No compensation is paid to members of the Board of Directors for expenses that are not FINANCIALREPORT related to their membership in the Board of Directors or its committees. 55.4 RUB mln Members of TransContainer’s Board of Directors are not participants in pension Remuneration paid to members REMUNERATION OF MEMBERS OF THE BOARD OF DIRECTORS programmes, insurance programmes (except for D&O insurance), option programmes,

investment programmes or recipients of other benefits and privileges. of the Board of Directors in 2016 Regulation on Payment of Remuneration of members of the Board of Directors and committees is paid in accordance including compensations Remuneration and Compensation with the Regulation on Payment of Remuneration and Compensation to the Members Remuneration policy for members of the Board of Directors and CORPORATE CORPORATE CORPORATE CORPORATE to the Members of the Company’s of the Company’s Board of Directors and committees. The regulation sets forth GOVERNANCE GOVERNANCE its committees Board of Directors the procedure for all payments and compensations to members of the Board of Directors and committees. For For participating Annual Compensations participating in a meeting of remuneration in a meeting a committee of for membership The remuneration policy for members of the Board of Directors covers remuneration of the Board the Board of in the Board of for membership in the Board of Directors and remuneration for membership in committees of Directors Directors1 Directors and of the Board of Directors. committees of the www.trcont.ru Board of Directors

Total 4,095,000.00 1,605,000.00 45,998,700.002 3,738,524.22 remuneration and

BUSINESS OVERVIEW BUSINESS compensations paid to members of the Board of Directors in 2016, RUB

Total, RUB 55,437,224.22

Participation in the Annual Purpose Incentivizing members Offering competitive Compensating meeting of the Board remuneration to participate in Board remuneration for expenses related MARKET OVERVIEW MARKET and committee meetings to attract to participation in person highly qualified in Board professionals and committee to the Board meetings of Directors

Description ›› RUB ›› RUB The basis for Compensations Chairman 30,000 for 20,000 for calculating are paid for the of the Board participating participating the annual amount of actual REMUNERATION in a meeting in a meeting remuneration in documented STRATEGIC REPORT STRATEGIC Deputy Chairman FOR MEMBERSHIP in person; in person; the amount of RUB expenses, including of the Board ›› RUB ›› RUB 3,300,000 adjusted expenses on travel IN THE BOARD 15,000 for 12,000 for for a coefficient that to the venue of submitting submitting takes into account a meeting of the Member OF DIRECTORS a written a written the presence of Board of Directors, of the Board opinion or opinion a member of the VIP services at participating Board of Directors airports and railway Remuneration paid to members in a meeting at meetings and stations, hotel of the Board of Directors, RUB in absentia additional payments expenses, expenses for performing on communication the duties of Chair and other

COMPANY PROFILE COMPANY 2016 51,698,700.00 and Deputy Chair expenses related 2015 56,910,918.15 Compensation payments of the Board of to participation in Chairman Extra payments related to participation Directors, and also meetings of the of committee 2014 55,231,346.50 in meetings for membership on Board of Directors 1 In accordance with the regulations for committees of the and its committees remuneration of committee members, 2013 55,566,145.88 Member Board of Directors of committee which were effective before 28 June 2016 2 Annual remuneration paid to members of the Board of Directors from July 2015 until June 2016 ANNUAL REPORT 2016 122 123

Additional payments for the For participating in a meeting of Annual remuneration Remuneration Fixed part of Variable part of the remuneration performance of duties the Board of Directors. Increased by: policy for the remuneration Increased by: the management TRCONT.RU/EN/ basic salary or fixed quarterly bonus annual bonus one-off bonus long-term incentive wages programme Chair 50%1 50%2

Deputy Chair 25%1 25%2 Total amount3 paid 75,315,456.17 45,049,088.08 18,042,036.67 17,744,014.90 – as remuneration Chair of a committee or 33%2 to members of a member of two or more the Management committees of the Board Board (including of Directors the CEO) in 2016, FINANCIALREPORT RUB Member of one committee 25%2 of the Board of Directors Total, RUB 156,150,595.82

Total amount4 paid 170,498,346.90 92,915,708.49 49,652,916.23 37,445,363.42 – REMUNERATION OF MEMBERS OF THE EXECUTIVE BODIES as remuneration to the management AND THE MANAGEMENT (including CORPORATE CORPORATE CORPORATE CORPORATE GOVERNANCE GOVERNANCE the Management Remuneration to the management is paid in accordance with the Regulation on Labour Board and the CEO) Incentives for the Management. in 2016, RUB

The Regulation sets forth the amount and procedure of remuneration payable to the CEO, first deputy CEOs, executive officers in business lines, the chief accountant and the chief Total, RUB 350,512,335.04 engineer (20 key executive officers). Purpose Competitive Incentives for the Incentives for the Incentives for the Long-term incentives for Total remuneration of 20 key executive officers stood at RUB 350,512,335.04 in 2016, basic incentives management to steer management to meet achievement of strategic the management, bringing package to attract the company towards corporate and individual objectives established by the management's including the remuneration of the CEO and members of the Management Board at and retain highly short-term financial and key performance the Board of Directors, interests closer to those of

BUSINESS OVERVIEW BUSINESS RUB 156,150,595.82. The level of remuneration qualified managers production targets indicators (KPIs) certain projects and (or) the shareholders key works of a non- of the management is determined Incentives for the Management are aimed at increasing management efficiency, systematic nature depending on the levels achieving the company’s strategic goals, as well as retaining qualified personnel, based on of remuneration observed the following key principles: in the labour market. Description The fixed part of Bonuses are paid subject Full-year bonuses are The amount of a one-off Participants of the ›› transparency in determining the amount and the structure of total remuneration; remuneration is to the company's paid subject to meeting bonus is determined by programme have the right ›› simplicity of calculating the amount of total remuneration; determined based and each manager’s KPIs The amount of each the Board of Directors to buy shares at the IPO ›› competitiveness in terms of the level and the structure of remuneration; on the manager's performance in the manager's full-year bonus and depends on the price (RUB 2,464.23) plus ›› striking a balance between the interests of shareholders and the management. knowledge, reporting quarter is determined as the significance, complexity 50% of the service costs of

MARKET OVERVIEW MARKET experience, role product of the fixed part and achievement of the the programme. Under the in the company as of remuneration and the strategic objective programme, participants Total remuneration (the incentives package) of the management consists of a fixed part well as the level of sum of multiples assessing may buy either the entire of the remuneration (basic salary or fixed wages) established by the employment contract remuneration in the manager in terms of stake at the strike price and a variable part of the remuneration including bonuses and long-term incentives (the the labour market meeting corporate and of the option or receive individual KPIs shares, offsetting counter privatization programme), as well as other payments stipulated by employment legislation claims on the operator, of the Russian Federation, the collective bargaining agreement or local regulations. based on the difference between the strike price of The level of remuneration of the management is determined depending on the levels of the option and the current market price

STRATEGIC REPORT STRATEGIC remuneration observed in the labour market for positions that are comparable to those of the management.

Terms of payments Monthly Quarterly Annually After the Board of Directors The programme may be decides that a one-off bonus implemented in a number must be paid of stages

Maximum possible Determined in CEO — 3.5 x of the Full-year bonus at 100% The amount of a one-off In one tranche, payments the manager's fixed part of quarterly of the fixed part of annual bonus may not exceed participants have the right

COMPANY PROFILE COMPANY employment remuneration; remuneration. 3x of the fixed part of to buy 1/4 of the total 1 Payable within one month after the Board (committee) meeting agreement the respective manger's number of shares that 2 Payable within one month after the Annual General Meeting of Shareholders Managers — 1.5 x of For calculating an remuneration he or she is entitled to at 3 Total amount means the amount of wages payable excluding income in kind before withholding taxes the fixed part of quarterly additional full-year bonus, the respective stage of the remuneration the maximum percent and other deductions in accordance with the Regulation on Labour Incentives for the Management programme of meeting the net income management and the Regulation on the Long-term Employee Incentive Programme. (Total amount target is 150% paid to members of the Management Board.) 4 Total amount means the amount of wages payable excluding income in kind before withholding taxes and other deductions in accordance with the Regulation on Labour Incentives for the Management management and the Regulation on the Long-term Employee Incentive Programme. (Total amount paid to the management, including members of the Management Board.) ANNUAL REPORT 2016 124 125

KPI Framework as a Basis for Remuneration of the Management Remuneration Procedure for the Management

TRCONT.RU/EN/ The remuneration policy for the Management is aimed at achieving the company’s The Board of Directors decides that bonuses should be paid to the CEO based on the long-term operational sustainability. The remuneration policy for the Management is Nominations and Remuneration Committee’s recommendation after reviewing the CEO’s transparent and determines remuneration subject to the company’s performance and the report on the company’s financial and operating performance for the respective quarter senior manager’s personal contribution thereto. or year.

Since 2011, the Company has had a KPI framework in place that fully reflects the extent to The CEO decides that bonuses should be paid to managers (except the CEO) based on which the management has accomplished short-term and medium-term objectives (of the the Bonus Commission’s proposals after the accounts are prepared for the respective budget) as well as achieved long-term strategic goals set by the Board of Directors. The quarter or year. KPI framework comprises a set of corporate indicators that are also individual KPIs for the FINANCIALREPORT CEO, and a set of individual indicators that correspond to the managers’ key functions. Remuneration and Guarantees for Members of the Management Board

The list of corporate and individual KPIs, the weights of corporate and individual KPIs and Elected in 2014, the Management Board started working in January 2015. the specific weights of each KPI are set as follows: The remuneration policy for members of the Management Board is essentially the

› For the CEO, these are set by resolution of the Board of Directors; same as the one for the CEO and the management. Meanwhile, the Nominations and › The remunerationpolicy for members › For managers, except the CEO, these are set by the CEO’s order based on parameters Remuneration Committee highlighted that managers who have been elected to the › of the Management Board is of the company’s strategy and budget. Management Board now have more responsibilities and a higher workload and thus may essentially the same as the one for CORPORATE CORPORATE CORPORATE CORPORATE require higher incentives. The Nominations and Remuneration Committee has adopted GOVERNANCE GOVERNANCE the CEO and the management. To determine whether the management meet KPIs, when their target values are tied to the terms and conditions of employment agreements with members of the Management budget parameters, the company uses parameters of the budget which is effective as at Board that provide for higher salary coefficients for membership of the Management the relevant reporting date. Board.

The CEO’s KPI report is reviewed by the Nominations and Remuneration Committee In addition, based on the Nominations and Remuneration Committee’s recommendation, and the Board of Directors as part of the CEO bonus process for the full reporting year. members of the Management Board are entitled to fringe benefits such as additional Managers’ KPI reports are reviewed by the CEO. guarantees and compensations as set forth in the company’s budget. Such guarantees and compensations may include a higher service class during business trips, the use of The respective KPI coefficients are calculated based on accounting and statistical data as company vehicles, compensating for renting a residential property, a higher-class voluntary

BUSINESS OVERVIEW BUSINESS well as operating and management accounts. health insurance policy and more options for professional training and development.

Full-year bonuses are determined using the following corporate KPI, which are also the CEO’s KPIs:

Net income EBITDA MARKET OVERVIEW MARKET

The full-year bonus to manager is decreased or not paid when he or she 0.45 0.45 had a disciplinary penalty, or a critical KPI risk event occurred.

0.1 STRATEGIC REPORT STRATEGIC Relative stock market price

The Board of Directors in relation to the CEO, and the CEO in relation to managers may decide to decrease or not pay the full-year bonus when, during the reporting year, he or she had a disciplinary penalty, or a critical risk event occurred with grave consequences (including the death of a person or serious bodily damage, or material damage to the company), the responsibility for which is borne by the respective manager. COMPANY PROFILE COMPANY

For more details about the work of the Management Board, see p. 117 ANNUAL REPORT 2016 126 127

CONTROL AND MONITORING ›› assessment of control procedures over the improvement of business processes at the container terminal in Krasnodar and at the Krasnodar Agency of the North

TRCONT.RU/EN/ Caucasus Railway; INTERNAL AUDIT SERVICE ›› assessment of control procedures pertaining to the IT Financial Responsibility Centre; assessment of control procedures applied under the freight forwarding services Regulation on the Internal The Internal Audit Service was established to assist the Board of Directors and executive contract. Audit Service of TransContainer bodies in enhancing the Company’s management efficiency and improving its financial and economic operations through a systematic and consistent approach to the analysis In 2016, further efforts were made to improve the internal audit function, including and evaluation of risk management, internal control and corporate governance systems as accomplishing the Internal Audit Service Development Plan in terms of1: tools to provide reasonable assurance that the Company will achieve its goals. ›› development and approval of the Programme to Guarantee Better Quality of Internal Audit (TransContainer’s Order No. 324 dated 30 December 2016); FINANCIALREPORT Committed to independence and neutrality, the Internal Audit Service is guided by ›› training two employees to become Certified Internal Auditors in 2016; www.trcont.ru the Russian laws, Regulation on the Audit Committee of TransContainer, resolutions ›› laying groundwork for the automation of internal audit processes. of the general meeting of shareholders and the Board of Directors, internal regulations of the Company, internal auditing guidance as per the International standards for the

professional practice of internal auditing and the Code of Ethics of the Institute of Internal REVISION COMMISSION Auditors. The Revision Commission is a permanent internal control body that monitors the CORPORATE CORPORATE CORPORATE CORPORATE To ensure independence and neutrality, the Internal Audit Service reports to the Board Company’s financial and business activities, including those of the Company’s branches GOVERNANCE GOVERNANCE of Directors through the Audit Committee and has an administrative reporting line and representative offices, to ensure compliance with the existing Russian laws and the to the Company’s CEO. Decisions on the appointment and termination of the Head Company’s Charter and bylaws. of the Internal Audit Service are adopted by the majority of members of the Board of Directors attending the meeting on the basis of the Audit Committee’s recommendation. The Revision Commission acts in the interests of the Company’s shareholders and is The employment contract with the Head of the Internal Audit Service is signed by the accountable to the general meeting of shareholders. It is independent of the Company’s Company’s CEO subject to the terms determined by the Audit Committee. officers, its members not being officers or employees of the Company.

The Head of the Internal Audit Service reports to the Audit Committee and the Board From 24 February to 24 March 2017, the Revision Commission audited the Company’s of Directors on the performance of the Internal Audit Service throughout the reporting 2016 operations.

BUSINESS OVERVIEW BUSINESS quarter and annually, and on the current state of the internal control and risk management systems, progress against the annual action plan and budget of the Internal Audit Service. In 2016, representatives of the Revision Commission were present at the meetings of the Audit Committee where a report on the results of the 2015 audit were discussed. The internal Audit Service is headed by Elena Ustinova.

Key projects of the Internal Audit Service in 2016: ›› corporate governance quality assessment; ›› review of initiatives suggested by the Company’s management to eliminate the gaps identified by the Revision Commission during the audit of the Company’s operations MARKET OVERVIEW MARKET for 2015; ›› assessment of effectiveness of the risk management and internal control systems; ›› audit of operations of the Company’s six branches; ›› assessment of TransContainer’s subsidiary management system; STRATEGIC REPORT STRATEGIC

Elena Graduated from the Institute of Entrepreneurship in 1999 2009 – present Head of the Internal Audit Service, USTINOVA with a degree in Law. Qualifications: Auditor’s qualification TransContainer. certificate to conduct general audits No. 012761, dated 25 2007–2009 Head of Control and Internal Audit Head of the Internal January 2001 (01-000802, dated 10 September 2012, issued Department, TransContainer. Audit Service by way of exchange), valid for an indefinite period; auditor’s qualification certificate No. 001850 issued by the Chamber 2006–2007 Deputy Head of Control and Internal

COMPANY PROFILE COMPANY First appointed as Head of Tax Consultants with qualifications in Tax Consulting Audit Department, TransContainer. of the Internal Audit Service granted on 9 February 2004. 2001–2006 CEO, Bernstein & Drucker Audit in 2009. PROFESSIONAL EXPERIENCE: 2000–2001 Tax Associate, Stanford Capital. Ms Ustinova does not own 2015 member of the Revision Commission, shares or any other securities 1997–1999 Tax Associate, Biznes-Kvalitet Russian Railways Logistics. of the Company. 1995–1997 Paralegal, UM. 2011 – present member of the Audit Committee, Born in 1977. Kedentransservice. Citizenship: Russian Federation. For more details on the сorporate 1 According to Item 9 of the development plan concerning Accomplishment of the development plan governance assessment please of TransContainer’s Internal Audit Service (meeting of the Audit Committee on 14 March 2017). see p. 87 ANNUAL REPORT 2016 128 129

Regulations on Remuneration Revision Commission members are entitled to remuneration as set forth in the Company’s ›› approval by the Board of Directors of a corporate risk map envisaging initiatives focused and Compensation Payable Regulations on Remuneration and Compensation Payable to Members of the Revision on prevention the employee wrongdoing risk. The initiatives aimed at minimising this

TRCONT.RU/EN/ to Members of the Revision Commission. The annual remuneration paid to the Revision Commission active in 2015 risk include checking the key employees and candidates for key roles for potential Commission totalled RUB 825,000. conflict of interest. A report on the occurrence of this risk is considered by the Audit Committee on a quarterly basis; Remuneration paid to the Revision Commission active in 2016 ›› Annual review by the Audit Committee of a report on violations of the Company’s Code of Business Ethics, including situations related to the conflict of interest, prepared No. Position Full name Remuneration, RUB1 by the Company’s Internal Audit Service.

1 Chairperson E.I. Chamortseva 225,000.00 www.trcont.ru To protect its interests in case of a potential conflict of interest, the Company has implemented measures to make sure that all interested-party transactions are reviewed by FINANCIALREPORT 2 Member of the Revision Commission S.V. Davydov 150,000.00 the Board of Directors. These measures include monitoring of all transactions executed by the Company for the existence of interest, maintaining and updating information about 3 Member of the Revision Commission N.A. Lem 150,000.00 the persons interested in the trasnactions.

4 Member of the Revision Commission A.N. Chernyavskaya 150,000.00 On top of the above initiatives, the Company pays special attention to insider information requirements viewing this as another element of the conflict of interest prevention. Total 675,000.00 The Company monitors all transactions executed CORPORATE CORPORATE CORPORATE CORPORATE All measures combined, undertaken in order to identify and prevent conflicts of interest, GOVERNANCE GOVERNANCE by the Company for the existence Members of the Revision Commission elected at the annual general meeting minimise the probability of negative consequences for the Company. of interest. of shareholders of 28 June 2016 In addition to the said measures, the Company has adopted the following documents No. Full name Primary employment determining the principles and procedures for preventing, identifying and minimising any potential conflict of interest: Corporate Governance Code (as amended), Code of Business 1 S.V. Davydov Deputy Head of the Department for Consolidated IFRS Ethics (as amended), Anti-corruption Policy, Programme to Combat Corruption, Corporate Financial Statements, part of Accounting Service, Russian Railways Fraud and Embezzlement, Regulation on Insider Information (as amended), Regulation on the procedure for addressing conflict (or possible conflict) of interest applicable to 2 A.T. Red’kin Deputy Head of the Internal Control Centre, Zheldorcontrol all employees and officers of the Company. These documents determine the rules and

BUSINESS OVERVIEW BUSINESS principles of managing a conflict of interest, including employee obligation to disclose 3 N.A. Lem Head of Accounting Department, part of Accounting Service, information on an existing or potential conflict of interest, balancing the interests of the Russian Railways Company and its employees, and non-retaliation for reporting a conflict of interest.

4 A.G. Derin Deputy Head of Subsidiaries and Affiliates Management Department, Russian Railways

5 A.N. Chernyavskaya Department Head at the Internal Control Centre, Zheldorcontrol, Russian Railways MARKET OVERVIEW MARKET

A.T. Red’kin was elected Chairperson of the Revision Commission of TransContainer.

ADDRESSING POTENTIAL CONFLICT OF INTEREST

Prevention and management of conflicts of interest are an essential tool of Company and shareholder protection. STRATEGIC REPORT STRATEGIC The Company has undertaken measures aimed at preventing potential conflict of interest involving executive bodies and key managers, including: ›› a requirement embodied in the Regulation on the Management Board and the Regulation on the CEO of the Company obliging them to refrain from any actions that TransContainer views insider can or may potentially lead to a conflict of interest with the Company and report any information as an element such conflict arising to the Board of Directors. These obligations are also fixed in the of the conflict of interest prevention. employment contracts with the CEO and members of the Management Board, the terms and conditions of which are determined by the Company’s Board of Directors;

COMPANY PROFILE COMPANY ›› authorising the Board of Directors to approve overlapping and other paid positions held by the CEO and members of the Management Board in the governance bodies of other organisations;

1 Including a 50% increment for the Chairperson of the Revision Commission. ANNUAL REPORT 2016 130 131

COMBATING CORRUPTION the results of tenders held by the Audit Committee at least once every five years. The Company also deems it reasonable to select a single auditor for TransContainer’s RAS and

TRCONT.RU/EN/ Anti-corruption statement of the The Company implements initiatives fostering zero tolerance for all forms of corruption. IFRS financial statements. Company’s CEO TransContainer does not tolerate any actions that are directly or indirectly associated with the offering, giving, promising, soliciting or receiving bribes, assisting in bribery, and any In May 2016, the Audit Committee suggested that the Board of Directors submit a payments seeking to facilitate administrative, bureaucratic and other formalities made recommendation to the general meeting of shareholders encouraging it to approve in any form by or to any persons/organisations, including government officials, public PricewaterhouseCoopers Audit as TransContainer’s external auditor responsible for the organisations, private companies and political figures. audit of the Company’s 2016 financial statements made under the Russian Accounting Standards and the International Financial Reporting Standards. www.trcont.ru In July 2015, TransContainer joined the Anti-Corruption Charter of the Russian Business marking another milestone in the Company’s efforts to prevent and combat corruption. In June 2016, TransContainer’s annual general meeting of shareholders, based on the FINANCIALREPORT Call centre recommendation of the Board of Directors, approved PricewaterhouseCoopers Audit In 2016, the Company completed the implementation of the Corporate Governance as TransContainer’s external auditor responsible for the audit of the Company’s 2016 Improvement Programme for 2015–2016, which included, among other things, anti- financial statements made under the Russian Accounting Standards and the International corruption initiatives: Financial Reporting Standards.

›› posting of an anti-corruption statement of the Company’s CEO at the corporate website; In accordance with the audit contract, the auditor provided services as follows: www.trcont.ru ›› development of initiatives to timely inform employees about the Company’s ethical ›› overview of the Company’s interim condensed consolidated IFRS financial statements CORPORATE CORPORATE CORPORATE CORPORATE standards, anti-corruption policy, procedures for resolving conflicts of interest and for 1H 2016; GOVERNANCE GOVERNANCE The Company’s Anti-corruption hotline reporting; ›› overview of the Company’s special financial statements for 1H 2016 made in Policy ›› development of an action plan to improve hotline efficiency1; accordance with the instructions and the accounting policy of the Russian Railways; ›› development and approval of the Company’s Anti-corruption policy2; ›› overview of the Company’s special financial statements for 1H 2016 made in ›› development of the programme to combat fraud and unlawful activities. accordance with the accounting policy of TransContainer to be included in the consolidated financial statements of FESCO; The implementation of anti-corruption initiatives helps strengthen TransContainer’s ›› audit of the Company’s consolidated IFRS financial statements for 2016; reputation and nurtures trust of shareholders, investors, business partners, customers ›› audit of the Company’s special financial statements for 2015 made in accordance with www.trcont.ru and other stakeholders in the Company. the instructions and the accounting policy of the Russian Railways; ›› audit of the Company’s special financial statements for 2016 made in accordance with

BUSINESS OVERVIEW BUSINESS the accounting policy of TransContainer to be included in the consolidated financial EXTRAORDINARY TRANSACTIONS statements of FESCO; ›› audit of the Company’s RAS accounting statements for 2016. The Company has put in place a framework helping to identify extraordinary transactions (major transactions, interested-party transactions, and transactions requiring prior approval by the Company’s governance bodies in accordance with the applicable laws of Russia and the Company’s Charter) at the stage of internal approval.

This framework was brought on stream through the Company’s electronic transaction MARKET OVERVIEW MARKET approval system, which runs mandatory checks to determine if a transaction needs to be pre-approved by a competent governance body.

Keeping list of the interested parties and regular updates of the system are central to the smooth running of the framework. All employees of the Company have access to the interested-party list, which allows the transaction initiator to determine whether the proposed transaction could be deemed extraordinary and identify the grounds to recognise any given transaction as such. STRATEGIC REPORT STRATEGIC By using the above tools, the Company can significantly mitigate the risk of extraordinary transactions being made without prior approval by the competent governance bodies as prescribed by the applicable laws of Russia and the Company’s by-laws, and also optimise the transaction approval and execution processes.

EXTERNAL AUDIT

COMPANY PROFILE COMPANY To ensure independent and unbiased audit of the Company’s financial statements, 1 In 2012, the Company put in place a hotline (a centralised call centre – http://www.trcont.ru/ru/ the Company has approved the Policy on Rotation of External Auditors and Interaction kontakty/obratnaja-svjaz/) available to anyone wishing to transmit (including anonymously) information with External Auditors with Reference to Providing Non-Audit Services (the Policy on about the Company’s operations, inter alia, details about misconduct of the Company’s employees. Rotation of External Auditors). In 2015, as part of the action plan to enhance the Company’s anti-corruption policies, TransContainer undertook to provide additional notification tools to receive information about potential cases Candidates to the position of the external auditor for TransContainer’s RAS and IFRS of misconduct by the Company’s employees and third parties, and other violations within the Company. financial statements are approved by the general meeting of shareholders from among In 2016, the Company put in place adedicated channel on the Company’s website for users to report the Big Four audit firms based on the recommendation of the Board of Directors and on cases of corruption: [email protected]. 2 The Company’s Anti-corruption Policy was approved by the Board of Directors in January 2016. It is available on the Company’s website. ANNUAL REPORT 2016 132 133

Cost of auditor services RISK MANAGEMENT

TRCONT.RU/EN/ The amount payable as a consideration for the auditor services was determined by the Board of Directors in July 2015 and totalled fifteen million and five hundred thousand TransContainer considers its risk management system to be one of the key components roubles (RUB 15,500,000), excluding VAT and overhead costs. of its corporate governance system. It is aimed at the early identification, assessment, prevention and monitoring of risks that may affect the value, performance and reputation Remuneration paid to the Company’s auditor of the Company. The basic principles and approaches to risk management were embodied (PricewaterhouseCoopers Audit) in 2016 in TransContainer’s risk management concept approved by the Board of Directors on 18 December 2013. Type of services Remuneration (including VAT), RUB Principles of risk management: FINANCIALREPORT Audit of consolidated IFRS financial statements for 2015 3,422,000 ›› a systematic approach; ›› continuity of the process; Audit of RAS accounting statements for 2015 3,540,000 ›› depth of the process; ›› completeness of the process;

Advance payments for the audit of consolidated IFRS 4,838,000 a balanced approach to risk management; financial statements for 2016 ›› ›› a risk management strategy; Overview of interim IFRS financial statements for 6M 2016 1,416,000 ›› allocation of powers; CORPORATE CORPORATE CORPORATE CORPORATE › clear distinction of decision-making levels; GOVERNANCE GOVERNANCE › Advance payments for the audit of RAS accounting 5,310,000 ›› integration with the internal control system. statements for 2016

Total 18,526,000

Oversight of non-audit services provided by the auditor Risk management system Maintaining the risk management system and coordinating its processes, To ensure independence of the external auditor, the Company strives to avoid engaging preparation of materials for meetings of committees and the Board of Directors,

BUSINESS OVERVIEW BUSINESS Policy on Rotation of auditors for the provision of non-audit services. In exceptional cases, though, where consolidation of information, and working External Auditors engagement of an external auditor for the provision of non-audit services is justified, with risk owners such engagement shall be preliminarily review by the Audit Committee, as prescribed by the Policy on Rotation of External Auditors. The Audit Committee preliminarily reviews feasibility of engaging the audit organisation, the type and scope of non-audit services, 1 and the auditor’s remuneration for the provision of any such services. 1 Management and monitoring of the www.trcont.ru Remuneration payable to the audit organisation for the provision of non-audit services Company’s critical risks, approval of risk shall not exceed 10% of the audit costs. Board maps and risk management measures, MARKET OVERVIEW MARKET Of Directors and adoption of governing documents on In 2016, PricewaterhouseCoopers Audit did not provide any non-audit services risk management to TransContainer. 2

Identification, assessment, description, prevention and management of risks

4 Division responsible 2 STRATEGIC REPORT STRATEGIC for coordinating the risk 3 Risk management process Risk Owners (financial department) Committee (Management) Monitoring of acceptable risks, review of reports on realised risks, audit and improvement of the risk management system and recommendations for the Board of Directors to strengthen the risk management system

COMPANY PROFILE COMPANY 4 3 Identifying priorities for the risk management system, overseeing the Audit development of regulations and best Committee practices for risk management, unifying risk management processes that affect multiple business processes, preliminary review of all matters related to the risk management system, and managing minor risks ANNUAL REPORT 2016 134 135

DEVELOPMENT OF THE RISK MANAGEMENT SYSTEM Critical risks

TRCONT.RU/EN/ In 2016, TransContainer completed the roll-out of automated monitoring for action plans Risk Potential damage Risk manageability Risk management actions implementation as part of the Company’s risk management framework. The automation is 1 Violation of stock Drop in market capitalisation, Manageable ›› Monitoring of corporate laws and market operator requirements primarily seeking to improve the quality of risk management implementation at both the exchange requirements reputation damage ›› Control over the compliance with the corporate laws and market Company’s head office and branches enabling TransContainer to: operator requirements in order for the Company to maintain the ›› reduce the time required for information processing and monitoring; listing of its securities ›› improve the efficiency of the business unit responsible for risk management; ›› improve the quality of information received and processed for monitoring purposes; ›› optimise interaction with other business units involved in the process. 2 Departure of key Reduced business efficiency Manageable ›› Competitive benchmarking and monitoring of the CEO and top management (CEO and and manageability, lower management incentive programmes FINANCIALREPORT In 2016, the Company’s Internal Audit Service conducted an independent evaluation of top managers) competitive power and lower TransContainer’s risk management system. It ascertained that the Company’s risk management market capitalisation of the Company is fully in line with the approaches and principles established by the Board of Directors and the Company’s management, while also outlining a number of key areas for improvement. 3 Exclusion of the Drop in market capitalisation, Manageable ›› Raising the number of independent directors to three

Company’s shares from reputation damage ›› Bringing the composition of the Board of Directors’ Nominations Based on the received recommendations, in 2017 the Company will continue strengthening Level 1 listing and Remuneration Committee and Audit Committee in line with the Listing Rules (independent directors to constitute the majority its risk management profile. The corporate risk mapping process is planned to be significantly of the committees’ members) CORPORATE CORPORATE CORPORATE CORPORATE improved and accelerated through automation. Process automation will be based on a single risk GOVERNANCE GOVERNANCE ›› Amending the By-law on TransContainer’s Corporate Secretary database accessible by all eligible users along with the information retrieval functionality enabling ›› Appointing two market makers at the Moscow Exchange the use of databases from other information systems. The Company intends also to introduce ›› Ensuring compliance with the free float requirements risk-focused budget management practices, including, inter alia, the broader use of stress testing, and to ensure a more detailed risk management coverage in key business process regulations. 4 Failure to achieve Loss of income, drop in market Partially ›› Monitoring of the strategy implementation, taking steps to adjust strategic goals capitalisation and dividend yield manageable the strategy as may be required for shareholders ›› Monitoring of the economic environment in Russia and other countries of TransContainer’s operations, and legislative changes, RISK MAP including in customs and tax laws ›› Building a talent pool as part of the Corporate University project Contents of the risk map TransContainer classifies all risks into critical, acceptable and minor risks depending on the ›› Providing career opportunities for talented employees as part of 1

BUSINESS OVERVIEW BUSINESS in 2016 , units likelihood of their occurrence and their material impact. the Talent Pool project

100% Low effectiveness of Failure to reach ROI targets Manageable TransContainer has set up a Subsidiary and Affiliate Management 9 4 5 ›› 14 integration processes in terms of investments in Committee; representatives of the Company’s management hold subsidiaries and joint ventures; seats on the governance bodies and board committees in key 80 1 interest impairment subsidiaries and joint ventures ›› Regular monitoring of key financial and operating results of 3 1 subsidiaries and joint ventures, including through a variance 60 3 analysis 6

MARKET OVERVIEW MARKET 42 7 4 6 Deteriorating market Lower transportation volumes, Non-manageable › Monitoring of the economic environment across key markets, 9 7 2 › conditions declining prices, loss of revenue tracking lead indicators (such as PMI) 40 8 8 Critical risks and profit, drop in market capitalisation Acceptable risks 6 Weaker competitive Lower market share, revenue Manageable Daily follow-up on orders in terms of rolling stock and container Minor risks 20 7 ›› 5 position of the Company and profit availability due to inability to ›› Constant container market monitoring and forecasting promptly adjust to ›› Business expansion in key markets. 0% changes in the customer ›› Optimisation of the cost of co-contractors’ services as part of the 8 2015 8 2016 200 250 300 RUB mln

STRATEGIC REPORT STRATEGIC pool structure, customer bidding process needs and intensity of ›› Monitoring of sea freight rates Category Risk assessment based on the amount of possible damage demand

9 Critical risks ›› Assessed risks that may inflict more than RUB 300 million worth of damage with 8 Ineffective customer Lower market share, revenue Manageable ›› Constant monitoring of the equipment market any likelihood of occurring, service and profit ›› Monitoring of COCs supply across the Russian Raiways’ network ›› or that may inflict more than RUB 200 million worth of damage with a likelihood of ›› Monitoring of TransContainer’s competitive position occurring of more than 5 percent, ›› Monitoring of the customer needs structure ›› or that may inflict more than RUB 100 million worth of damage with a likelihood of ›› Development of expansion programmes for transportation occurring of more than 80 percent. equipment In 2016 critical risk reports were submitted to the Board of Directors on a quarterly basis. COMPANY PROFILE COMPANY 9 Industrial injuries Damage to the employees’ Manageable ›› Purchase of up-to-date equipment in line with the approved 42 Acceptable risks ›› Assessed risks that may inflict between RUB 100 million and RUB 300 million worth of health, administrative and investment programme damage with a likelihood of occurring of between 0 percent and 5 percent, or criminal liability, litigation ›› Conducting an industrial safety assessment pursuant to Federal ›› that may inflict between RUB 50 million and RUB 200 million worth of damage with a charges, reputation damage Law No. 116-FZ of 21 July 1997 On Industrial Safety at Hazardous likelihood of occurring of between 5 percent and 80 percent, or Production Facilities ›› that may inflict less than RUB 50 million worth of damage with a likelihood of ›› Ensuring that all repairs comply with applicable rules and occurring of more than 50 percent regulations 1 To address each of the risks identified, ›› Arranging timely training for the employees in charge of industrial 14 Minor risks ›› Assessed risks that may inflict less than RUB 100 million worth of damage with a safety as required by the Labour Code of Russia preventive action plans were designed likelihood of occurring of less than 5 percent, or with their implementation monitored on a ›› that may inflict less than RUB 50 million worth of damage with a likelihood of quarterly basis. occurring of less than 50 percent ANNUAL REPORT 2016 136 137

Changes to key risks SHAREHOLDER AND INVESTOR

TRCONT.RU/EN/ In 2016, the corporate risk map saw the following changes: RELATIONS ›› the critical Risk of Share Liquidity was replaced with a new critical Risk of Exclusiona of Company’s shares from Level 1 Listing due to the end in 2016 Ordinary shares of the Moscow Exchange’s transition period associated with its listing transformation process and a more general nature of this risk, where Level 1 listing criteria include, TransContainer’s authorised capital is RUB 13,894,778,000 divided into 13,894,778 without limitation, liquidity indicators; ordinary registered shares with a par value of RUB 1,000. ›› the acceptable Risk of the Governance Model Instability due to the Change in Shareholders was renamed to the acceptable Risk Associated with Changes to Information about each category (type) of shares the Shareholding Structure and Transactions with TransContainer’s Shares as FINANCIALREPORT potential risks posed by changes in the share capital structure do not realise exclusively Share type and category Ordinary registered shares in the form of the governance model instability. 15.05% Form of issuance Uncertificated The number and classification of risks did not change year-on-year. of the shares actually traded

Number of shares outstanding 13,894,778 in the form of GDRs

Realised risks Par value of one (1) security, RUB 1,000 CORPORATE CORPORATE CORPORATE CORPORATE In 2016, the Company saw one of its key critical risks, the risk of Failure to Achieve GOVERNANCE GOVERNANCE State registration of the securities issue 1-01-55194-Е of 11 May 2006 Strategic Goals, realise. ›› Causes: adverse macroeconomic environment and structural changes in the container transportation market. As at 31 December 2016, the Company’s ordinary registered shares were admitted to ›› Response: the Company’s management initiated the revision of TransContainer’s trading on the Moscow Exchange (MOEX) its top Level One list under the ticker «TRCN». Development Strategy and strategic targets due to material changes in the external operating environment. The Company’s key strategic priorities and financial and Global depositary receipts (GDRs) operating forecasts for 2017–2021 were approved by the Company’s Executive Board in October 2016 and submitted to the Company’s Strategy Committee in Q1 2017. It TransContainer has GDRs issued for its shares, with ten GDRs representing one share. was resolved to update the functional strategy of TransContainer’s terminal business Since 2010, the depositary bank had been BNY Mellon (Cyprus) Nominees Limited, part of

BUSINESS OVERVIEW BUSINESS and to prepare a development plan for the specialised container transportation business The Bank of New York Mellon. Starting from 16 December 2015, the depository functions as part of the Company’s key business segments development. under the GDR programme were transferred directly to the New York division of The Bank of New York Mellon. The Company also faced a number of acceptable and minor risks that have realised, including those related to third-party wrongdoings affecting the Company’s property; As at 31 December 2016, depositary receipts covered 20.4% of the Company’s authorised the risk of inadequate rolling stock repairs and a number of technical incidents without capital, with approximately 15.05% of the shares actually traded in the form of GDRs. material implications. The aggregate actual loss incurred as a result of realised acceptance The number of securities traded on stock exchanges is not constant as GDR holders may and minor risks in 2016 totalled RUB 2.7 million. convert their securities into shares and vice versa.

MARKET OVERVIEW MARKET The Company’s GDRs are listed on the Main Market of the London Stock Exchange (LSE, ticker: TRCN). Since 5 May 2014, the Company’s GDRs have also been included into the Unlisted Securities section of the list of securities admitted for trading on the MICEX Stock Exchange by the relevant order of the MICEX Stock Exchange. STRATEGIC REPORT STRATEGIC

Structure of share capital1

11.78 13.15 50.00 COMPANY PROFILE COMPANY 25.07

UTLC FESCO Transportation BLAGOSOSTOYANIE Group2 Non-state Pension 1 A detailed risk report is set out As per TransContainer’s share register as at 1 January 2017, its equity is based on long-term Fund Other in the 2016 Corporate Risk investments. Map appendix on p. 223 2 Encumbered shareholding with a claim held by VTB Austria. ANNUAL REPORT 2016 138 139

STOCK EXCHANGES AND PRICE EVOLUTION Measures to maintain liquidity

TRCONT.RU/EN/ On 12 November 2010, TransContainer’s shares were admitted to trading on the Moscow Although the key factor i negatively affecting liquidity of its securities is beyond the Exchange, and its GDRs are listed on the Main Market of the London Stock Exchange. Company’s control, during the reporting year the Company continued its efforts to improve the securities’ liqiuidity in the interests of market participants. Share and GDR prices Since 9 June 2014, TransContainer has been taking steps to make sure that its securities In 2016, the Company’s share and GDR prices started to pick up after several years of remain on the first level quotation list of the Moscow Exchange and also to support two- a downward movement. On the Moscow Exchange, they surged by 69.6% against the way quotes using a market making mechanism. MICEX Index growing by 26.8%. On the London Stock Exchange, they went up by 14.1%, while the RTS Index increased by 52.2% for the same period. In February 2016, the Company increased the number of market makers on the Moscow The total shareholder return FINANCIALREPORT Exchange to two: in an open tender, BCS and FINAM brokerage companies were chosen since the IPO date totaled 9.5% This upward trend was due to the recovery of the railway container transportation market as the market makers for the Company’s ordinary shares. starting from Q2 2016, and also due to the Q3 2016 decision to pay record high dividends dividend yield on the Company’s from the Company’s 2015 and 1H 2016 net profit and retained earnings for the previous In April 2016, an agreement for market making services on the London Stock Exchange

shares for the reporting year, 17.6% periods. As a result, the dividend amount reached RUB 347.6 per share against RUB 70.96 was signed with VTB Capital. In addition, the Company retained Edison, a global according to RBC data for the previous year. investment research company, to provide independent coverage for the Company’s GDRs. per annum for ordinary shares CORPORATE CORPORATE CORPORATE CORPORATE For the reporting year, the dividend yield on the Company’s shares was 9.5%, the highest Over the medium term, the Company’s securities have been performing in line with GOVERNANCE GOVERNANCE Dividend yield on the Company’s in Russia according to RBC data (http://money.rbc.ru/news/5899d7ba9a79473b4ba94171). general trends in the Russian stock market while outperforming its transport sector peers. shares for the reporting year, according to RBC data As a result, the total shareholders’ return of the Company’s ordinary shares improved by The total shareholder return since the IPO date totaled 17.6% per annum for ordinary 85.9% for the reporting period, while for GDR holders the increase was 25.0%. shares and 7.1% per annum for GDRs.

The impressive performance on the Moscow Exchange is attributable, inter alia, to Plans for 2017 better liquidity of the Company’s ordinary shares as compared to depositary receipts. Nevertheless, a further decrease in the free float and subsequent drop in liquidity and In its relations with market operators in 2017, the Company will be focusing its efforts money.rbc.ru trading volumes remain among the key investor risks. on compliance with the Moscow Exchange’s requirements for Level One list and also on

BUSINESS OVERVIEW BUSINESS supporting GDR volumes on the London Stock Exchange. London Stock Exchange (LSE) USD Moscow Exchange (MOEX) RUB

Price as at 31 December 2015 5.0 Price as at 30 December 2015 2,135

Year low (24 June 2016) 4.47 Year high (18 March 2016) 1,870 Annual growth of prices

Year high (11 November 2016) 6.19 Year high (16 September 2016) 4,120

MOEX % MARKET OVERVIEW MARKET +69.6 Price as at 30 December 2016 5.70 Price as at 30 December 2016 3,620 LSE +14.1%

STRATEGIC REPORT STRATEGIC The Company’s GDR price performance The Company’s share price performance The Company’s GDRs (TRCN GDR) The Company’s shares (TRCN) (TRCN GDR) on the London Stock (TRCN) on the Moscow Exchange on the London Stock Exchange in 2016 on the Moscow Exchange in 2016 Exchange for the period from IPO date (MOEX) for the period from IPO date to 30 December 2016 to 30 December 2016

1.6 1.9 1.9 1.8 1.5 1.7 1.7 1.6 1.4 1.5 1.3 1.5 1.3 1.4 COMPANY PROFILE COMPANY 1.2 1.1 1.3 1.2 1.1 0.9 1.0 1.1 0.7 1.0 0.9 0.5 0.9 0.8 0.8 0.3 0.7 0.7 0.1 0.6 Jan Jul Dec Jan Jul Dec 2010 2012 2014 2016 2010 2012 2014 2016

TRCN: +14.1% RTS Index: +53.8% TRCN: +70.0% MICEX Index: +28.7% TRCN: –26.5% RTS Index: –30.6% TRCN: +42.0% MICEX Index: +44.1% ANNUAL REPORT 2016 140 141

DIVIDEND POLICY GENERAL MEETING OF SHAREHOLDERS

TRCONT.RU/EN/ As stated in TransContainer’s Dividend Policy Regulation1, the target dividend payout ratio The general meeting of shareholders is the Company’s supreme governing body. Quorum at TransContainer’s general is 25% of the Company’s net profit in accordance with the RAS. At the same time the The procedure to convene, prepare, and hold a general meeting is set out in detail in meetings of shareholders % actual share of net profit to be distributed in the form of dividends may be above or below TransContainer’s Regulation on the Procedure of Preparation and Holding of the General 25% depending on the Company’s financial and business plan and the Board of Directors’ Meeting of Shareholders. 02.11.2016 99.35 recommendations. 09.09.2016 96.07 At the general meeting, shareholders are invited to vote on proposed draft resolutions for The Company’s dividend policy relies on the following principles: each item of the agenda. The voting ballots enable shareholders to express their opinions 07.09.2016 96.06 annually distribute part of the Company’s net profit, if any, among its shareholders in on the agenda items and vote for or against the proposed draft resolution or abstain from ›› 28.06.2016 95.38 the form of dividends, while using the retained profits mainly for CAPEX projects and voting. FINANCIALREPORT repayment of debt due and payable in the next reporting period; 05.11.2015 96.23 ›› maintain the balance of interests between the Company and its shareholders; In 2016, the Company held four general meetings of shareholders. 10.07.2015 99.58 25% ›› aim at maximising the Company’s capitalisation and investment appeal; ›› respect shareholder rights as provided for by the Russian laws and best corporate Matters discussed at general meetings of shareholders in 2016 24.06.2015 99.99

target dividend payout governance practices; ratio of the Company’s net profit 07.11.2014 99.58 ›› ensure transparency of the dividend calculation and payment procedures. Annual general meeting of Approval of the Company’s 2015 annual report and financial shareholders statements 24.06.2014 99.55 28 June 2016 CORPORATE CORPORATE CORPORATE CORPORATE In 2016, taking into account the Company’s solid financial position and reduced GOVERNANCE GOVERNANCE Approval of the Company’s amended Charter and by-laws TransContainer’s Dividend Policy investments, shareholders decided to fully distribute the net profit for 2015 and 1H 2016 Meeting in person, with voting ballots Election of the Board of Directors and Revision Commission, Regulation and retained earnings for the previous periods. As a result, total dividends paid in 2016 distributed in advance approval of the Company’s auditor were RUB 4,830 mln, or RUB 347.6 in dividend per share. Approval of interested-party transactions, including those that may be made in the future Dividends accrued and paid by the Company from 2010 to 2016

Dividends 2012 2013 2014 2015 2016 Extraordinary general meeting of Election of a new Board of Directors shareholders In 2016, the Company held four www.trcont.ru for 2011 for 2012 for 2013 for 2014 from 7 September 2016 general meetings of shareholders retained Meeting in person, with voting ballots

BUSINESS OVERVIEW BUSINESS earnings for 1H 2016 the previous distributed in advance periods Extraordinary general meeting of Resolution on distributing retained earnings for the previous Total amount of 1,218.3 1,204.3 1,132.0 985.97 3,499.26 1,330.56 shareholders periods and on paying dividends dividends, RUB mln 9 September 2016 Meeting in person, with voting ballots distributed in advance TransContainer’s Regulation Dividend per share, 87.68 86.67 81.47 70.96 251.84 95.76 on the Procedure of Preparation RUB Extraordinary general meeting of Approval of a contract (insurance policy) between and Holding of the General MARKET OVERVIEW MARKET shareholders TransContainer and Ingosstrakh Insurance Company Meeting of Shareholders Dividend (as % of 35.0 25.0 25.0 25.0 100 100 2 November 2016 (an interested-party transaction) to insure the liability of net profit) directors, officers and entities

Announcement 26.06.2012 26.06.2013 24.06.2014 24.06.2015 09.09.2016 09.09.2016 4,830 RUB mln date total dividends paid in 2016 Payment date 25.07.2012 07.08.2013 22.07.2014 23.07.2015 04.10.2016 04.10.2016 www.trcont.ru

STRATEGIC REPORT STRATEGIC Unpaid dividends , 0.00 0.00 162.94 141.92 503.68 191.52 RUB COMPANY PROFILE COMPANY

1 The regulation is available on the Company’s website at http://www.trcont.ru/ru/investoram/ustav- i-vnutrennie-dokumenty/vnutrennie-dokumenty/. The Company’s corporate website also features dividend payout resolutions adopted by the general meeting of shareholders and contains information on the dividend amount, date and form payable, as well as dividend and payment announcements in the form of statements of material facts. 2 Dividends were transferred to the Company’s registrar in full. Dividends were not paid to shareholders who failed to submit the data required by Clause 5 of Article 44 of Federal Law No. 208-FZ On Joint- Stock Companies dated 26 December 1995. ANNUAL REPORT 2016 142 143

SHAREHOLDER RIGHTS We have created equal and favourable conditions for all the shareholders to exercise their rights in managing the Company, including:

TRCONT.RU/EN/ One of the Company’s key principles as set out in the Corporate Governance Code is fair and equitable treatment of all shareholders. ›› right to participate in the general meeting of shareholders; ›› timely notification of the date, time and venue of the general meeting of The Company is committed to maintaining a constructive dialogue with its shareholders, shareholders, as well as the documents required for participant registration; including minority ones, and gives no preferential treatment to the interests of any ›› unhindered access to the premises where the general meeting of shareholders is shareholder(s) to the detriment of others. We rely on this approach to help us build held; confidence in the Company on the part of the investment community. ›› unrestricted and timely access to any relevant information and materials relating to the agenda of the general meeting of shareholders; We guarantee that: ›› access to the list of persons entitled to attend the general meeting of shareholders; FINANCIALREPORT ›› the Company has created equal and favourable conditions for all the shareholders to ›› right to nominate candidates to the Company’s management bodies and propose exercise their rights in managing the Company; items for the agenda of the general meeting of shareholders; TransContainer’s Charter ›› the Company has created equal and fair conditions for all its shareholders to participate ›› right to request the convening of a general meeting of shareholders; in the Company’s profit through dividends; ›› right to vote on agenda items at general meetings of shareholders in a way that the

›› all shareholders, including minority and foreign shareholders, enjoy equal conditions shareholder finds fit and simplest; and relations with the Company. ›› equal opportunity for all persons present at the general meeting of shareholders to express their opinions and ask questions to members of the Company’s management CORPORATE CORPORATE CORPORATE CORPORATE section 6, 7, 10-14 The rights of the shareholders are set out in TransContainer’s by-laws, namely: and supervisory bodies; GOVERNANCE GOVERNANCE www.trcont.ru ›› the Company’s Charter ›› engagement of the Company’s registrar in the capacity of the counting board to ›› Corporate Governance Code ensure the accuracy of voting results; TransContainer’s Corporate ›› Regulation on the Procedure of Preparation and Holding of the General Meeting of ›› announcement of voting results before the general meeting of shareholders is Governance Code Shareholders closed. ›› Code of Business Ethics The Company has created equal and fair conditions for all its shareholders to participate The Company has clear mechanisms in place for exercising the rights of shareholders, in the Company’s profit through dividends, including: including: ›› clear and transparent mechanism for determining the amount and payment of section 2, 3, 10 ›› timely and detailed notification of the general meeting of shareholders and provision of dividends;

BUSINESS OVERVIEW BUSINESS www.trcont.ru agenda materials in the Russian and English languages (including voting ballots) at least ›› payment of dividends in cash only; 30 days prior to the meeting ; ›› measures to prevent shareholders from receiving any profit (income) from the Code of Business Ethics ›› opportunity for shareholders to propose items for the agenda of the annual general Company other than dividends or disposal value. meeting of shareholders no later than 60 days after the end of the calendar year; ›› annual general meetings attendance by CEO, Board and Revision Commission All shareholders, including minority and foreign shareholders, enjoy equal conditions members, external auditor, Head of the Internal Audit Service, and candidates and relations with the Company, including through: nominated to the Board of Directors and Revision Commission, for shareholders to ›› сequitable treatment of all shareholders by the Company’s management bodies and clause 4.1 meet them and ask them questions; officers; Minutes of the general meeting www.trcont.ru ›› use of telecommunications solutions to provide remote access for shareholders wishing ›› prevention of minority shareholders from being prejudiced by the abuse of majority of shareholders and minutes MARKET OVERVIEW MARKET to attend general meetings with an opportunity to ask questions in real time; power; of the counting board Hotline for communicating ›› availability of established communication channels with shareholders, including ›› reliable and effective ways to record their rights to shares; with shareholders the hotline, forum for communicating with shareholders, as well as special forms ›› right to a free and unhindered disposal of their shares. for sending questions to members of the Board of Directors and the Company’s management on the Company’s website. To enable its shareholders to exercise their rights: ›› TransContainer has approved the Regulation on the Procedure of Preparation and The Company is committed to maintaining a constructive dialogue with its shareholders, Holding of the General Meeting of Shareholders. The regulation provides a detailed www.trcont.ru including minority ones, and gives no preferential treatment to the interests of any description of the scope of authority and the procedures for convening, preparing

STRATEGIC REPORT STRATEGIC www.trcont.ru shareholder(s) to the detriment of others. We rely on this approach to help us build and holding general meetings of shareholders. confidence in the Company on the part of the investment community. ›› the Company publicly discloses on its website: Additional information Forum for communicating notices of general meetings of shareholders and agenda materials (including and materials with shareholders voting ballots) at least 30 days prior to the meeting; Board of Directors’ recommendations on agenda items for the general meeting of shareholders in the form of press releases, material facts, and extracts from the Board of Directors meeting minutes; record date (at least 7 days in advance); minutes of the general meeting of shareholders and minutes of the counting board. www.trcont.ru COMPANY PROFILE COMPANY www.trcont.ru

Ask Board of Director’s or Management

www.trcont.ru ANNUAL REPORT 2016 144 145

›› If needed, shareholders may request additional information and materials from the INFORMATION POLICY AND RELATIONS officer in charge (contact details and the relevant procedure are available on the WITH STOCK MARKET PARTICIPANTS

TRCONT.RU/EN/ corporate website). ›› The notice of a general meeting of shareholders contains information that shareholders The Board of Directors is responsible for fair, balanced and transparent need to decide whether to attend the meeting, and choose the best attendance mode. disclosure of the Company’s financial position and its future prospects. The notice also specifies the exact venue of the meeting, including the room where it is to be held, and documents required for participant registration. ›› Shareholders may propose items for the agenda of the annual general meeting of The Company complies with the requirements of the Federal Law On Joint-Stock shareholders no later than 60 days after the end of the calendar year. Companies, requirements of the Bank of Russia, applicable regulations of the UK ›› The procedure to register persons entitled to participate in the general meeting of Financial Services Authority (FSA), and all relevant rules of the Russian and UK stock shareholders is set out in detail in TransContainer’s Regulation on the Procedure of exchanges. In its information disclosure, the Company also relies on the principles of the FINANCIALREPORT Preparation and Holding of the General Meeting of Shareholders. Corporate Governance Code approved by the Bank of Russia on 21 March 2014. ›› Other than as required by the law, shareholders receive additional materials relating to the agenda of the general meeting of shareholders, including: In accordance with the applicable Russian law and requirements of the securities market Documents aimed at protecting information on the Company’s auditor candidates; regulators, the Company has adopted documents aimed at protecting the rights the rights and interests

information on the Board of Directors’ view on the general meeting agenda items; and interests of the Company’s shareholders in transactions involving the Company’s of the Company’s shareholders detailed rationale behind the amendments to the Company’s Charter or by-laws and securities, as well as preventing and combating the illegal use of insider information. in transactions involving description of the impact thereof; The Company regularly implements a range of measures for keeping and updating the Company’s securities CORPORATE CORPORATE CORPORATE CORPORATE in the event of interested-party transactions, the list of persons deemed interested, the insider list. Compliance with insider information requirements is monitored by the GOVERNANCE GOVERNANCE with clearly defined criteria; insider information expert, who reports to the Board of Directors. information on personal and professional qualifications of nominees to the Company’s Board of Directors and other management and supervisory bodies; The full, timely and accurate disclosure of the information to shareholders, investors, information on each person that proposed an agenda item or nominated a and the entire investment community is one of the Company’s key priorities. Special candidate to the Company’s management or other bodies; focus is made on ensuring that significant information is simultaneously made available www.trcont.ru substantiation of the proposed allocation of net profit and its assessments for to all shareholders, investors and analysts both in Russia and abroad. The Board of compliance with the Company’s dividend policy. Directors oversees timely and full disclosure of reliable information on all material ›› Information about the general meeting of shareholders and agenda materials are aspects of the Company’s business. Registrу society «STATUS» provided to shareholders in the Russian and English languages.

BUSINESS OVERVIEW BUSINESS ›› The Company’s registrar acts as the counting board during general meetings of While granting its stakeholders extensive rights to obtain information on the Company’s shareholders. Since October 2010, the Company’s registrar has been Registrar Society activities, TransContainer protects its own interests restricting access to insider and STATUS, Joint-Stock Company (STATUS). Website: http://rostatus.ru. confidential information, including commercial information or other classified data ›› At the general meeting, shareholders have the opportunity to meet members of the protected by law. Company’s management and supervisory bodies and ask them questions. The annual www.rostatus.ru general meeting of shareholders held in June 2016 was attended by the Chairman of Since 2011, the Company has been publishing its key operating metrics and RAS and the Board of Directors, chairs of the Board’s committees, the Company’s CEO, CFO, IFRS financial statements on a quarterly basis. The financial disclosures are followed representatives of the external auditor, Head of the Internal Audit Service, and Chief by conference calls with research analysts and investors held by the Company’s Accountant. management on a regular basis. In addition, the Company holds special conference MARKET OVERVIEW MARKET › TransContainer is among the first businesses in Russia to have adopted calls, or webcasts, to provide the market with the required information and comments TransContainer is among the › telecommunications solutions to provide remote access for shareholders wishing in case of material events affecting the Company or its investment case. first businesses in Russia to have to attend general meetings (streamed live on the Company’s website) and give the adopted telecommunications opportunity to ask questions in real time during the webcast. The voting results are The Company uses electronic disclosure systems in Russia (www.e-disclosure.ru) and solutions to provide remote access announced before the end of the general meeting of shareholders and disclosed as the UK (www.hemscott.com/nsm.do). All the material information is available on for shareholders wishing to attend required by the applicable laws. the Company’s website (www.trcont.ru), including investor presentations and news general meetings. ›› The Company has approved the Dividend Policy Regulation, which outlines key dividend releases on operating and financial results or other important corporate developments. payment principles, decision-making procedure and the calculation, accrual and The Company provides regular updates on its business. Our corporate website offers

STRATEGIC REPORT STRATEGIC payment procedures. The regulation is available on the Company’s corporate website. prompt updates for investors and additional means of communication to reach out to ›› The Company’s dividend policy sets out the target dividend payout ratio at 25% of the all stakeholders. Company’s net profit. TransContainer’s Dividend Policy ›› The decision to pay dividends contains full information for shareholders regarding the Regulation dividend amount, payment procedure, and dates. COMPANY PROFILE COMPANY

www.trcont.ru

For more information about the dividend policy, see p. 140 ANNUAL REPORT 2016 146 147

Along with transparency, the Company is focused on maintaining an ongoing dialogue with institutional investors and financial analysts to obtain feedback from the STATEMENT OF THE AUDIT COMMITTEE ON EVALUATION

TRCONT.RU/EN/ investment community. The Company takes part in investor conferences hosted by the Moscow Exchange, London Stock Exchange, and Russian and international banks and OF THE PERFORMANCE OF THE COMPANY’S AUDITOR AND companies. THE CONCLUSIONS DRAWN FROM THE AUDITS OF FINANCIAL The Company is also closely involved in furthering the development of the Russian (ACCOUNTING) STATEMENTS stock market. In 2016, the Company’s representatives sat on the Moscow Exchange’s Issuers Committee and participated in the OECD round table discussion on corporate governance and a number of other industry conferences and workshops. The Audit Committee of TransContainer (PJSC) is confident that PricewaterhouseCoopers Audit (JSC), which is the Company’s Auditor for FINANCIALREPORT the procedure of auditing its financial statements for 2016 under the Russian Accounting Standards and International Financial Reporting Standards, acted independently, professionally and objectively, based on the following:

Quality of information disclosure in the Company’s annual report 1. The Audit Committee played a direct role in the tender procedures for the selection of the auditor.

The quality of disclosure in TransContainer’s annual reports is traditionally praised by 2. When selecting the Auditor, the provisions of the Policy on Rotation of External Auditors and Interaction with External Auditors with Russian and international experts. Reference to Providing Non-Audit Services approved by the Board of Directors in 2009, were observed. CORPORATE CORPORATE CORPORATE CORPORATE GOVERNANCE GOVERNANCE 1. The Company’s annual report for 2015 won the following awards of the Annual 3. The amount of remuneration paid to the auditor corresponded with the volume of services provided and current market rates. Reports Competition hosted by the Moscow Exchange and RCB Media Group: When selecting the Auditor, the provisions of the Policy on Rotation of External Auditors and Interaction with External Auditors with Best Annual Report by Company with Market Cap of below RUB 40 bn Reference to Providing Non-Audit Services approved by the Board of Directors in 2009, were observed. Best Information Disclosure on Corporate Governance in Annual Report Independent international rating 2. The Company’s annual report made it into the TOP 100 Global Annual Reports, 4. The Audit Committee monitored the audit with a view to early identification and prevention of problems in the relationship between of annual reports according to Report Watch 2016, an independent international rating of annual the parties to the audit process. The relationship between the auditor and the Company’s management was founded on an exclusively reports. Moreover, the Company’s report ranked among the TOP 30 global annual constructive basis. The Audit Committee did not identify any facts which might have affected the auditor’s objectivity. reports in the Strategy, Business Model and Value category for the second year running. 5. The audit was conducted in accordance with the terms of the audit services contract and complied with the agreed schedule and

BUSINESS OVERVIEW BUSINESS 3. The Company’s annual report also received a number of international professional audit procedures. awards: www.reportwatch.net ARC Awards (honours in the Logistics Enterprises category); 6. In the course of the audit, the Audit Committee received from the Company’s auditor in a timely manner all necessary information, LACP 2015 Vision Awards (silver in the Transportation and Logistics requested clarifications and answers to questions. category). 7. The Audit Committee held meetings with the Company’s auditor on a quarterly basis, convened in a confidential format (without the participation of the Company’s management), to discuss various subjects, including issues related to auditing the Company’s financial (accounting) statements.

MARKET OVERVIEW MARKET 8. The auditor promptly informed the Audit Committee of its opinion on any risks that might be faced by the Company in connection with its financial and economic activities.

9. The Audit Committee believes that the audit was conducted in accordance with Russian laws on auditing and the International Standards on Auditing.

Upon examining the conclusions of the Company’s auditor, the Audit Committee believes that the audit conducted provides a reasonable basis for the auditor’s opinion that the Company’s financial (accounting) statements are an accurate reflection, in all material respects, of

STRATEGIC REPORT STRATEGIC the Company’s financial position as at 31 December 2016, as well as the results of the Company’s financial and economic activities during the period from 1 January to 31 December 2016.

Richard A. Werner

COMPANY PROFILE COMPANY Chairman TransContainer Audit Committee ANNUAL REPORT 2016 CORPORATE 148 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE

FINANCIAL REPORT 25 April2017 Chairman oftheBoard Andrey K. Starkov Section 90AoftheFinancialServicesandMarketsAct2000. any untrueormisleadingstatementomissionshallbedeterminedinaccordancewith under Englishlaw.Accordingly,anyliabilitytoapersonwhohasdemonstratedrelianceon relation tothemanagementreportexceptextentthatsuchliabilitycouldarise Neither PJSC“TransContainer”northedirectorsacceptanyliabilitytopersonin (b) (a) Statement that: of theBoardDirectorstobestitsknowledgeasdateResponsibility Andrey K.Starkov,ChairmanoftheBoardPJSC“TransContainer”confirmsonbehalf STATEMENT DIRECTORS’ RESPONSIBILITY “Group”); and “TransContainer” anditsjointventuressubsidiaries(hereinafterreferredtoasthe true andfairviewoftheassets,liabilities,financialpositionprofitorlossPJSC Standards (“IFRS”)asissuedbytheInternationalAccountingBoard,givea statements for2016,preparedinaccordancewithInternationalFinancialReporting Auditon27March2017,theconsolidatedfinancial AO PricewaterhouseCoopers taking intoaccounttheIndependentAuditor’sReportproducedby description oftheprincipalrisksanduncertaintiesthatitfaces. and performanceofthebusinesspositionGroup,togetherwitha the managementreportforyear2017includesafairreviewofdevelopment › › › › › › › › › In preparingtheconsolidatedfinancialstatements,Managementisresponsiblefor: and changesinequityfortheyearthenended,compliancewithInternationalFinancialReportingStandards(“IFRS”). asat31December2016and theresultsofitsoperations,cashflows TransContainer (the“Company”)anditssubsidiaries(the “Group”) positionofPJSC Management isresponsibleforthepreparationofconsolidatedfinancialstatementsthatpresentfairlythe financial FOR THEYEARENDED31DECEMBER2016 CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF FOR RESPONSIBILITIES MANAGEMENT’S THE PREPARATION AND APPROVAL OF THE FOR THEYEARENDED31DECEMBER2016 CONSOLIDATED STATEMENTS FINANCIAL Chief Accountant M. V. Usenko General Director P. V. Baskakov The consolidatedfinancialstatementsoftheGroupforyearended31December2016wereapprovedon27March2017by: Management isalsoresponsiblefor: › › › › › › › › › Preventing anddetectingfraudotherirregularities. Taking necessarystepstosafeguardtheGroup’sassets; which thecompaniesofGroupoperate; Maintaining statutoryaccountingrecordsincompliancewithlocallegislationandstandardstherespectivejurisdictions statements oftheGroupcomplywithIFRS; accuracy atanytimetheconsolidatedfinancialpositionofGroup,andwhichenablethemtoensurethatfinancial Maintaining adequateaccountingrecordsthataresufficienttoshowandexplaintheGroup’stransactionsdisclosewithreasonable Designing, implementingandmaintaininganeffectivesystemofinternalcontrolsthroughoutthe Group; Making anassessmentoftheGroup’sabilitytocontinueasagoingconcern. performance; the impactofparticulartransactions,othereventsandconditionsonGroup’sconsolidatedfinancialpositionfinancial Providing additionaldisclosureswhencompliancewiththespecificrequirementsinIFRSareinsufficienttoenableusersunderstand information; Presenting information,includingaccountingpolicies,inamannerthatprovidesrelevant,reliable,comparableandunderstandable Properly selectingandapplyingaccountingpolicies; 149 CORPORATE 150 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE › › › › › that represented ariskofmaterialmisstatementdue tofraud. the riskofmanagement overrideofinternalcontrols, includingamongothermatters considerationofwhetherthere wasevidenceofbias accounting estimatesthatinvolved makingassumptionsandconsideringfutureeventsthatareinherently uncertain.Wealsoaddressed statements. Inparticular,weconsidered wheremanagementmadesubjectivejudgements;forexample, inrespectofsignificant We designedourauditbydetermining materialityandassessingtherisksofmaterialmisstatement in theconsolidatedfinancial forwarding andintermodaldeliveryusingrollingstockcontainers. principal activitiesincludearrangementsofrail-basedcontainershippingandotherlogisticsservicesincludingterminalservices,freight Shares ofPJSCTransContainerarequotedattheMoscowExchange.GlobaldepositoryreceiptslistedLondonStockExchange .The Overview Our audit approach other ethicalresponsibilitiesinaccordancewiththeserequirementsandtheIESBACode. Independence RulesthatarerelevanttoourauditoftheconsolidatedfinancialstatementsinRussianFederation.Wehavefulfilled Professional Accountants(IESBACode)togetherwiththeethicalrequirementsofAuditor’sEthicsCodeandAuditor’s We areindependentoftheGroupinaccordancewithInternationalEthicsStandardsBoardforAccountants’Code Independence We believethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion. further describedintheAuditor’sResponsibilitiesforAuditofConsolidatedFinancialStatementssectionourreport. We conductedourauditinaccordancewithInternationalStandardsonAuditing(ISAs).Ourresponsibilitiesunderthosestandardsare forBasis opinion The Group’sconsolidatedfinancialstatementscomprise: What wehaveaudited Reporting Standards(IFRS). consolidated financialperformanceanditscashflowsfortheyearthenendedinaccordancewithInternationalFinancial Joint StockCompanyTransContainer(the“Company”)anditssubsidiaries(together–the“Group”)asat31December2016,its In ouropinion,theconsolidatedfinancialstatementspresentfairly,inallmaterialrespects,positionofPublic opinionOur To theShareholdersandBoardofDirectorsPublicJointStockCompanyTransContainer: INDEPENDENT AUDITOR’S REPORT › › › › › the notestoconsolidatedfinancialstatements,whichincludesignificantaccountingpoliciesandotherexplanatoryinformation. the consolidatedstatementofchangesinequityforyearended; the consolidatedstatementofcashflowsforyearthenended;and the consolidatedstatementofprofitorlossandothercomprehensiveincomeforyearthenended; the consolidatedstatementoffinancialpositionasat31December2016; Audit scope Materiality Key audit matters › › › › › › › › Timing ofrevenuerecognition plant and equipment. Our audit scope addressed 99%oftheGroup’srevenue and 99%of the Group’stotalcarryingvalueofproperty, on individual share inGroup revenue (99%). We conductedauditofPJSCTransContainer,considered the onlysignificantcomponentofGroup based freight forwardingandlogisticsservices. and adjusted revenue,representingrevenuenet of the charges of third partiesinvolvedin providing of integrated Overall groupmateriality:350million Russian roubles(RR million), which represents 1%ofanaveragebetweenrevenue whole, andinformingouropinionthereon,wedonotprovideaseparateonthesematters. statements ofthecurrentperiod.Thesematterswereaddressedincontextourauditconsolidatedfinancialstatementsasa Key auditmattersarethosethat,inourprofessionaljudgment,wereofmostsignificancetheconsolidatedfinancial Key auditmatters misstatements, ifany,bothindividuallyandinaggregateonthefinancialstatementsasawhole. helped ustodeterminethescopeofourauditandnature,timingextentproceduresevaluateeffect for theconsolidatedfinancialstatementsasawholesetoutintablebelow.These,togetherwithqualitativeconsiderations, Based onourprofessionaljudgement,wedeterminedcertainquantitativethresholdsformateriality,includingtheoverallgroupmateriality of theconsolidatedfinancialstatements. material ifindividuallyorinaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonbasis consolidated financialstatementsarefreefrommaterialmisstatement.Misstatementsmayariseduetofraudorerror.Theyconsidered The scopeofourauditwasinfluencedbyapplicationmateriality.Anisdesignedtoobtainreasonableassurancewhetherthe Materiality the current period is complex and involves management’s judgment. services dueto the factthatprocess of assigningrevenue from theseservicesto handling serviceswithinvolvementofthirdpartiesandrail-basedcontainershipping from integrated freight forwardingandlogisticsservices, cargotransportationand We paidspecialattention to determiningthetiming of recognitionof revenue period, level of details usedin calculations andon a number of judgmentsused. authorisation. The accuracyof management’s estimates depends ontheanalysed of information available at the date oftheconsolidatedfinancialstatements’ transportation services thatare outstanding atthereporting dateonthebasis The Group’s managementestimatesthestageof completion in respectof transaction at the end of the reporting period. transaction shallberecognisedby reference to thestage ofcompletion of the the rendering ofservicescanbeestimatedreliably,revenueassociatedwiththe In accordancewithIAS 18 «Revenue»whentheoutcomeofa transaction involving transport). to a foreign railroad, or transferredfor further transportation by other meansof the destination point, delivered toatemporarystoragewarehouse,transferred waybill issuance(i.e.onthedatewhencargo is provided to the consignee at For the above services, acts ofworksperformed arepreparedatthedateof reporting date. not completed itsperformanceobligationsundersomeof those servicesat the In practice, the above services arecarried out over a long time andtheGroup has from rail-based container shipping services. handling serviceswith involvement ofthirdpartiesandRR 4,061 millionof revenue and logisticsservices, RR 4,854 million of revenue from cargotransportationand million, includingRR 38,767 million of revenuefromfreightintegrated forwarding The Group’s revenuefor the yearended31 December 2016was RR51,483 discloses, accountingpolicies,judgmentsandestimates. See notes3,6 and 21tothe consolidated financial statementsforrelevant Rationale for the materialitybenchmark applied How wedetermined it Overall groupmateriality TIMING OFREVENUERECOGNITION Key auditmatter We chose1%whichis consistent withquantitativematerialitythresholds, usedforprofit-orientedcompanies. services ofthirdpartiesinrevenue,revenuetaken alone doesnotreflect thefulleffectiveness of the business). because, inour view, thiscombinedmeasure reflects theGroup’sperformance(dueto the significant share of We choseaverage between revenueand adjusted revenue,determinedasdescribedabove, as thebenchmark 1% of anaveragebetween revenue and adjusted revenuedeterminedasdescribedabove RR 350 million › › › › › required tothe accompanying consolidatedfinancialstatements. we havenotidentifiedanyfactsthatwould indicatethatsignificantadjustmentsare 31 December 2016hasbeenconsideredacceptable. As aresultof our procedures services recognisedintheconsolidatedfinancialstatementsfor the yearended handling serviceswithinvolvementofthirdpartiesandrail-basedcontainershipping from integrated freight forwardingandlogisticsservices, cargotransportationand transportation services outstanding as at the reportingdateinrespect of revenue The Group management’scurrentestimateofthestage of completion disclosure requirementsof IAS 18 “Revenue”. and 21oftheconsolidatedfinancialstatements, compared themwiththe Furthermore, we assessed theadequacy of the related disclosuresinNotes 3, 6 based containershippingservicesincludedthe following: transportation and handlingserviceswith involvement ofthirdparties and rail- for revenues fromintegratedfreightforwardingandlogisticsservices,cargo Our audit proceduresforverifyingappropriatenessof the cut-offassumption How ourauditaddressedtheKeymatter › › › › › reporting dateandcorrectnessofcorrespondingrevenue calculations. completion stage determined for transportationservices outstanding asat the obtaining writtenrepresentations from managementon correctness ofthe confirm servicesrendered in prior accounting period; and appendicesto them thatwereissuedin the followingaccountingperiodand of transportationservicescompletion,forexample,acts on the services rendered sample testing of the documentsusedbymanagementinestimating the stage estimations; Group’s consolidatedfinancialstatementsin accordance with themanagement’s balances related to outstandingtransportationservicesrecognisedinthe analysis oftheGroup’soperating expenses, andaccountsreceivablepayable management’s estimations; recognised intheGroup’sconsolidatedfinancialstatementsaccordance with signed in the following accounting period toassess the amountofrevenue reporting datebasedonactsofservicesrenderedandapplicableappendices recalculation of revenue related tooutstandingtransportation services at the Group’s management; of sufficiency of the period of services rendered beingunderevaluation of the analysis oftheaverage duration of transportation, resulting inconfirmation 151 CORPORATE 152 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE reasonably beexpected toinfluencetheeconomic decisionsofuserstakenonthe basis oftheseconsolidatedfinancial statements. when itexists.Misstatements canarisefromfraud orerrorandareconsideredmaterial if,individuallyorintheaggregate, theycould level ofassurance,butisnotaguarantee thatanauditconductedinaccordancewithISAswillalways detectamaterialmisstatement misstatement, whetherduetofraud orerror,andtoissueanauditor’sreportthatincludesouropinion. Reasonableassuranceisahigh Our objectivesaretoobtainreasonable assuranceaboutwhethertheconsolidatedfinancialstatements asawholearefreefrommaterial Auditor’s for responsibilities the audit of the consolidated statements financial Those chargedwithgovernance(theAuditCommittee)areresponsible foroverseeingtheGroup’sfinancialreportingprocess. either intendstoliquidatetheGrouporceaseoperations,has norealisticalternativebuttodoso. concern, disclosing,asapplicable,mattersrelatedtogoingconcern andusingthegoingconcernbasisofaccountingunlessmanagement In preparingtheconsolidatedfinancialstatements,managementis responsibleforassessingtheGroup’sabilitytocontinueasagoing free frommaterialmisstatement,whetherduetofraudorerror. for suchinternalcontrolasmanagementdeterminesisnecessaryto enablethepreparationofconsolidatedfinancialstatementsthatare Management isresponsibleforthepreparationandfairpresentation oftheconsolidatedfinancialstatementsinaccordancewithIFRS,and governance with of and those management charged Responsibilities statements for the consolidated financial financial statementsorourknowledgeobtainedintheaudit,otherwiseappearstobemateriallymisstated. when itismadeavailabletous,and,indoingso,considerwhethertheotherinformationmateriallyinconsistentwithconsolidated In connectionwithourauditoftheconsolidatedfinancialstatements,responsibilityistoreadotherinformationidentifiedabove, conclusion thereon. Our opinionontheconsolidatedfinancialstatementsdoesnotcoverotherinformationandwewillexpressanyformofassurance available tousafterthedateofthisauditor’sreport. thereon. PJSCTransContainer’sAnnualReportfor2016andIssuer’sofTransContainerQ12017areexpectedtobemade Issuer’s ReportofPJSCTransContainerforQ12017,butdoesnotincludetheconsolidatedfinancialstatementsandourauditor’sreport AnnualReportfor2016and Management isresponsiblefortheotherinformation.OtherinformationincludesPJSC TransContainer information Other appropriate auditevidencetoformouropinionontheconsolidatedfinancialstatementsofGroupasawhole. at theGrouplevel,aswellprocedureswithregardtoconsolidationreportingprocess,webelievehaveobtainedsufficient Based ontheresultsofourprocedurescarriedoutasamplingbasisatlevelGroupcomponents,analyticalprocedures equipment valuationandaccountingforemployeebenefitliabilities. Procedures wereperformedbytheauditteamwithinvolvementoftaxspecialists,andexpertsinIFRSmethodology,property,plant the Group. detailed testing,inourview,haveprovidedsufficientcoveragerespectofindividualamountstheconsolidatedfinancialstatements In general,auditproceduresthatweperformedatthelevelofsignificantandothercomponentsGroup,includingsample-based evidence obtainedfromasignificantcomponentandconcentrationofbalancestypesoperationsintheGroup’sstructure. each lineoftheGroupconsolidatedfinancialstatementincludedinscopeaudit,anddependedonsuchfactorsaslevelaudit Our choiceofothercomponentstheGroupforauditindividualbalancesandtypesoperationswascarriedoutseparately Group levelandauditedindividualaccountbalancestypesofoperations,subjecttomateriality. our opinionontheconsolidatedfinancialstatements,weperformedanalyticalproceduresinrespectofotherGroupcomponentsat In caseifproceduresperformedatthelevelofasignificantcomponent,inourview,didnotprovideuswithsufficientevidencetoexpress Group’s totalrevenue.PJSCTransContainerwasconsideredastheonlysignificantcomponent. Similar totheoverallmaterialitydetermination,ofcomponentswasestimatedonbasistheirindividualsharein considered tobesignificant,weperformedanauditofitsfinancialinformation,basedonthelevelmateriality,setforsuchcomponent. The Group’sreportingprocessisbasedonthefinancialinformationofitscomponents-individualGroupcompanies.Ifacomponentwas controls andtheindustryinwhichGroupoperates. statements asawhole,takingintoaccountthegeographicandmanagementstructureofGroup,accountingprocesses We tailoredthescopeofourauditinordertoperformsufficientworkbeablegiveanopiniononconsolidatedfinancial How wetailoredourgroupauditscope › › › › › › certified auditor(licenceno.01-000170), AO PricewaterhouseCoopersAudit A.A. Okishev, Moscow, RussianFederation 27 March 2017 The certifiedauditorresponsiblefortheauditresultinginthisindependentauditor’sreportisAlexeiOkishev. expected tooutweighthepublicinterestbenefitsofsuchcommunication. determine thatamattershouldnotbecommunicatedinourreportbecausetheadverseconsequencesofdoingsowouldreasonably be our auditor’sreportunlesslaworregulationprecludespublicdisclosureaboutthematterwhen,inextremelyrarecircumstances,we audit oftheconsolidatedfinancialstatementscurrentperiodandarethereforekeymatters.Wedescribethesemattersin From thematterscommunicatedwiththosechargedgovernance,wedeterminethatwereofmostsignificance in the independence, andwhereapplicable,relatedsafeguards. independence, andtocommunicatewiththemallrelationshipsothermattersthatmayreasonablybethoughtbearonour We alsoprovidethosechargedwithgovernanceastatementthatwehavecompliedrelevantethicalrequirementsregardi ng significant auditfindings,includinganydeficienciesininternalcontrolthatweidentifyduringouraudit. We communicatewiththosechargedgovernanceregarding,amongothermatters,theplannedscopeandtimingofaudit and We also: As partofanauditinaccordancewithISAs,weexerciseprofessionaljudgmentandmaintainscepticismthroughouttheaudit. › › › › › › Russian Federation,125047,Moscow,Oruzheiniypereulok,19 March 2006underregistration № 1067746341024 Certificate of inclusion intheUnified State Registerof Legal Entitiesissuedon4 Audited entity:PJSCTransContainer group audit.Weremainsolelyresponsibleforourauditopinion. express anopinionontheconsolidatedfinancialstatements.Weareresponsiblefordirection,supervisionandperformanceof Obtain sufficientappropriateauditevidenceregardingthefinancialinformationofentitiesorbusinessactivitieswithinGroupto presentation. whether theconsolidatedfinancialstatementsrepresentunderlyingtransactionsandeventsinamannerthatachievesfair Evaluate theoverallpresentation,structureandcontentofconsolidatedfinancialstatements,includingdisclosures,and may causetheGrouptoceasecontinueasagoingconcern. Our conclusionsarebasedontheauditevidenceobtaineduptodateofourauditor’sreport.However,futureeventsorconditions report totherelateddisclosuresinconsolidatedfinancialstatementsor,ifsuchareinadequate,modifyouropinion. to continueasagoingconcern.Ifweconcludethatmaterialuncertaintyexists,arerequireddrawattentioninourauditor’s obtained, whetheramaterialuncertaintyexistsrelatedtoeventsorconditionsthatmaycastsignificantdoubtontheGroup’sability Conclude ontheappropriatenessofmanagement’susegoingconcernbasisaccountingand,basedauditevidence by management. Evaluate theappropriatenessofaccountingpoliciesusedandreasonablenessestimatesrelateddisclosuresmade circumstances, butnotforthepurposeofexpressinganopiniononeffectivenessGroup’sinternalcontrol. Obtain anunderstandingofinternalcontrolrelevanttotheauditinorderdesignproceduresthatareappropriatethe fraud mayinvolvecollusion,forgery,intentionalomissions,misrepresentations,ortheoverrideofinternalcontrol. for ouropinion.Theriskofnotdetectingamaterialmisstatementresultingfromfraudishigherthanoneerror,as and performauditproceduresresponsivetothoserisks,obtainevidencethatissufficientappropriateprovideabasis Identify andassesstherisksofmaterialmisstatementconsolidatedfinancialstatements,whetherduetofraudorerror,design

ORNZ 11603050547 in the registerofauditorsandaudit organizations (Association) Member of Self-regulatedorganization of auditors«Russian Unionofauditors» on 22 August 2002underregistration № 1027700148431 Certificate of inclusion intheUnifiedState Register of Legal Entitiesissued Chamber on28 February 1992 State registration certificate№ 008.890, issued by the MoscowRegistration Independent auditor:AOPricewaterhouseCoopersAudit 153 CORPORATE 154 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE The accompanying notesareanintegralpartoftheseconsolidated financialstatements. (AMOUNTS INMILLIONSOFRUSSIANROUBLES) CONSOLIDATED STATEMENT POSITION OF FINANCIAL Share capital TOTAL ASSETS TOTAL CURRENTASSETS TOTAL EQUITYATTRIBUTABLETOTHECOMPANY’SOWNERS TOTAL NON-CURRENTASSETS Property, plant and equipment Trade and other receivables Inventory NON-CURRENT ASSETS ASSETS Treasury shares Advances foracquisition of non-currentassets Prepayments and other currentassets CAPITAL ANDRESERVES EQUITY ANDLIABILITIES CURRENT ASSETS Reserve fund Intangible assets Investment property Cash and cash equivalents Short-term investments Prepaid incometax Equity-settled employee benefitsreserve Translation reserve Investments inassociatesandjointventures Other reserves, including investmentproperty’srevaluationreserve Trade and other receivables Retained earnings Other non-currentassets Notes 13 10 13 11 13 12 17 13 10 7 7 8 9 51,828 11,006 34,509 40,822 13,895 37,317 22,390 (2,133) 1,605 3,584 5,525 2,685 (340) 2016 697 209 346 115 290 78 53 16 5 – – 49,174 36,187 41,739 13,895 37,636 23,779 (2,140) 7,435 1,392 3,527 2,110 3,023 (494) 2015 315 431 105 210 697 246 240 212 84 86 7 The accompanying notesareanintegralpartoftheseconsolidated financialstatements. 27 March 2017 Chief Accountant M. V. Usenko General Director P. V. Baskakov TOTAL EQUITYANDLIABILITIES TOTAL CURRENTLIABILITIES Trade and other payables CURRENT LIABILITIES TOTAL NON-CURRENTLIABILITIES Long-term debt NON-CURRENT LIABILITIES Current portionoflong-termdebt Finance leaseobligations, net of current maturities Taxes other thanincometaxpayable Income taxpayable Employee benefit liability Finance leaseobligations, current maturities Deferred taxliability Accruals andothercurrentliabilities Notes 18 14 14 15 19 16 15 25 20 51,828 8,372 8,947 4,279 6,236 2,762 1,067 1,523 2016 121 378 914 21 18 49,174 6,747 6,240 3,405 3,744 1,893 1,466 2015 126 634 904 698 99 18 155 CORPORATE 156 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE The accompanying notesareanintegralpartoftheseconsolidated financialstatements. 27 March 2017 Chief Accountant M. V. Usenko General Director P. V. Baskakov (AMOUNTS INMILLIONSOFRUSSIANROUBLES,UNLESSOTHERWISE STATED BELOW) COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OTHER LOSS OR AND PROFIT OF Revenue Other comprehensive(loss)/income(netofincometax) PROFIT FORTHEYEARATTRIBUTABLETOCOMPANY’SOWNERS Income taxexpense Profit beforeincometax Remeasurements of post-employment benefitplans liabilities Items that willnotbereclassifiedtoprofitor loss: Other comprehensivelossfortheyear Other operatingincome Share of translation of financialinformation associates and jointventurestopresentation currency Items that maybereclassifiedsubsequentlytoprofit or loss: Remeasurements of investment propertyupontransferfromproperty,plant and equipment EARNINGS PERSHARE,BASICANDDILUTED(INRUSSIANROUBLES) COMPANY’S OWNERS TOTAL COMPREHENSIVEINCOMEFORTHEYEARATTRIBUTABLE Operating expenses Exchange differencesontranslating of other foreign operations WEIGHTED AVERAGENUMBEROFSHARESOUTSTANDING Gain from earlyterminationof finance lease Foreign exchange loss, net Interest expense Share of resultassociatesand joint ventures Interest income Revaluation of investment property Notes 13 21 25 16 22 23 15 24 9 9 13,821,562 (48,294) 51,483 3,244 2,574 4,079 (670) (835) (127) (490) (223) (492) 235 2016 660 276 669 (60) 7 – – 13,693,737 (40,042) 42,505 2,831 1,917 3,548 (914) (717) (932) (508) 207 2015 811 152 (59) 612 16 61 24 (6) – The accompanying notesareanintegralpartoftheseconsolidated financialstatements. (AMOUNTS INMILLIONSOFRUSSIANROUBLES) СONSOLIDATED FLOWS STATEMENT CASH OF Income taxpaid Increase/(decrease) in accruedexpenses and other current liabilities (Decrease)/increase in taxes other than income tax Increase intradeandotherpayables Net cashprovidedbyoperatingactivities Interest paid Net cashfromoperatingactivitiesbeforeincometaxandinterest Increase/(decrease) in employeebenefit liabilities Increase inprepayments and other assets (Increase)/decrease in trade and otherreceivables Decrease ininventory changes inotherassetsandliabilities Operating profitbeforeworkingcapitalchanges,paidincometaxandinterest Depreciation andamortisation Adjustments for: Profit beforeincometax CASH FLOWSFROMOPERATINGACTIVITIES: Change in provisionforimpairmentofreceivables WORKING CAPITALCHANGES: Gain ondisposalofproperty,plantandequipment Reversal onimpairmentof property, plantandequipment Share of resultassociatesand joint ventures Gain fromearlyterminationof finance lease Foreign exchange loss, net Interest expense,net Loss/(gain) onrevaluation of other long-terms obligationsto employees Other (income)/expenses Change in provisionforestimated liabilities Notes 23 22 22 15 16 7 9 6,236 7,421 6,062 4,079 1,019 2,528 (781) (256) (404) (267) (669) 2016 189 445 (19) (25) 223 216 (57) (36) 26 28 (9) 6 – 4,201 5,437 5,177 3 548 2,470 (727) (229) (509) (519) (376) (612) 2015 233 133 556 112 (26) 356 (72) (51) (24) (72) 10 – – 157 CORPORATE 158 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE The accompanying notesareanintegralpartoftheseconsolidated financialstatements. 27 March 2017 Chief Accountant M. V. Usenko General Director P. V. Baskakov Foreign exchange effect on cash and cash equivalents Cash andcashequivalentsatbeginningoftheyear Net increase/(decrease)incashand cash equivalents Net cashusedinfinancingactivities Proceeds fromissuanceof long-term bonds Proceeds fromsaleoftreasuryshares Net cashusedininvestingactivities Dividends receivedfromjointventures Purchases ofintangibleassets Purchases ofshort-term investments Sale of short-terminvestments Sale of long-terminvestments Proceeds fromdisposalofproperty, plant and equipment Purchases ofproperty,plantand equipment NET CASHANDEQUIVALENTSATENDOFTHEYEAR CASH FLOWSFROMINVESTINGACTIVITIES: Dividends Repayments offinanceleaseobligations Interest received CASH FLOWSFROMFINANCINGACTIVITIES: Principal paymentsonshort-term part of long-term bonds Principal paymentsonshort-term borrowings Notes 12 14 13 9 (1,564) (2,242) (1,250) (4,830) 5,525 2,110 (976) 3,696 4,999 (281) (345) (468) 2016 578 274 239 517 (85) 28 50 (5) (1,956) (2,297) (2,434) 2,110 1,904 (103) (122) (232) (750) (974) 2015 258 123 115 (52) 90 34 – – – – The accompanying notesareanintegralpartoftheseconsolidated financialstatements. 27 March 2017 Chief Accountant M. V. Usenko General Director P. V. Baskakov (AMOUNTS INMILLIONSOFRUSSIANROUBLES) CONSOLIDATED EQUITY IN STATEMENT CHANGES OF BALANCE AT31DECEMBER2016 Execution ofshareoptionplan the year Total comprehensive(loss)/incomefor Profit fortheyear BALANCE AT31DECEMBER2015 Acquisition of treasury shares the year Total comprehensive(loss)/incomefor Profit fortheyear BALANCE AT1JANUARY2015 Sale of treasuryshares the year Other comprehensive(loss)/income for Dividends the year Other comprehensive(loss)/incomefor Dividends 13, 17 Notes 13 13 13 13,895 13,895 13,895 capital Share – – – – – – – – – – – Treasury (494) (493) shares 451 43 (1) – – – – – – – – – Reserve 697 697 697 fund – – – – – – – – – – – Translation 1,081 (340) reserve (550) (871) (550) (871) 210 – – – – – – – employee benefits reserve Equity- settled (240) 240 240 – – – – – – – – – – – Other reserves, revaluation investment property’s (2,133) (2,140) (2,156) including reserve 16 16 7 7 – – – – – – – 22,390 23,779 21,981 Retained earnings (4,830) 3,117 2,772 3,244 2,831 (127) (974) 197 127 (59) – attributable Total equity Company’s 34,509 36,187 35,245 (4,830) 2,574 1,917 owners 3,244 2,831 (914) (670) (974) to the 578 (1) – 159 CORPORATE 160 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE then endedwereauthorisedforissue bytheGeneralDirectorofCompanyon27March2017. 2016andfortheyear asat31 December The consolidatedfinancialstatementsofPJSCTransContainerand itssubsidiaries(the “Group”) The Companyhasownershipinthefollowingmajorentities: pereulok,Moscow,125047, RussianFederation. registered addressis19 Oruzheiniy terminals alongtheRussianrailwaynetwork.Asat31December2016,Companyoperated15branchesinRussia.TheCompany’s services, freightforwardingandintermodaldeliveryusingrollingstockcontainers.TheCompanyownsoperates45container The Company’sprincipalactivitiesincludearrangementofrail-basedcontainershippingandotherlogisticsservicesincludingterminal functions ofafreightforwardingagent. benefit liabilitiesfromRZD.Pursuanttothisspin-off,RZDmaintainedthefunctionsofcarrier,whilstCompanyassumed Furthermore, certainemployeespreviouslyemployedbyRZDwerehiredtheCompany.TheCompanyassumedrelatedemployee Company. VATreceivablerelatedtotheseassetsofRUR104m,andcash991m,inexchangefortheordinaryshares RUR 13,057m, with thisspin-offRZDcontributedtothesharecapitalofCompanycontainers,flatcars,buildingsandconstructionsinamount of someitsactivitiesandcertainassetsliabilitiesrelatedtocontainertransportationintoaseparatelegalentity.Inconnection The Companywasformedasaresultofspin-offbyOJSC“RussianRailways”(“RZD”),whichis100%ownedtheRussianFederation, PJSC TransContainer(the“Company”or“TransContainer”)wasincorporatedinMoscow,RussianFederationon4March2006. BUSINESS THE OF 1. NATURE STATED BELOW) FOR THEYEARENDED31DECEMBER2016(AMOUNTSINMILLIONSOFRUSSIANROUBLES,UNLESSOTHERWISE STATEMENTS CONSOLIDATED TO THE NOTES FINANCIAL JSC TransContainer-Slovakia, a.s. TransContainer Europe GmbH ТransContainer Asia PacificLtd. Oy ContainerTrans ScandinaviaLtd. (Beijing) Co,Ltd. International Freight Forwarding Chinese-Russian Rail-Container JSC Kedentransservice (Note 9) Trans-Eurasia Logistics GmbH LLC ТransContainerFinance(Note 17) Logistic InvestmentS.a.r.l. Helme’s Operation UK Limited Logistic SystemManagement B.V. Name ofEntity Subsidiary Subsidiary Subsidiary Joint venture Joint venture Joint venture Associate Subsidiary Subsidiary Joint venture Joint venture Type Slovakia Austria Korea Finland China Kazakhstan Germany Russia Luxemburg Great Britain Netherlands Country shipments Container shipments Container shipments Container shipments Container shipments Container shipments Container shipments Container operator programme Share option Investment activity Investment activity Investment activity Activity 2016 100 100 100 100 100 50 49 50 20 50 50 Interest held,% 2015 100 100 100 100 100 50 49 50 20 50 50 2016 100 100 100 100 100 50 50 50 20 50 50 Voting rights,% 2015 100 100 100 100 100 50 50 50 20 50 50 owned, directly or indirectly, by the Company. Non-controlling interest forms a separate componentofthe Group’sequity. owned, directlyor indirectly,bytheCompany.Non-controlling interestformsa separate Non-controlling interest isthatpartofthenetresults andoftheequityasubsidiary attributabletoequityinstruments whicharenot also eliminatedunlessthecostcannot berecovered. Intercompany transactions,balances andunrealisedgainsontransactionsbetweengroupcompanies areeliminated.Unrealisedlosses deducted fromthecarryingamount ofthedebt;andallothertransactioncostsassociatedwith acquisitionareexpensed. for issuingequityinstrumentsare deductedfromequity;transactioncostsincurredforissuingdebt aspartofthebusinesscombinationare related costssuchasadvisory,legal,valuationandsimilarprofessional services.Transactioncostsrelatedtotheacquisitionandincurred incurred orassumed,includingthefairvalueofassetsliabilities from contingentconsiderationarrangements,butexcludingacquisition The considerationtransferredfortheacquireeismeasuredatfair valueoftheassetsgivenup,equityinstrumentsissuedandliabilities measurement. it identifiedalltheassetsacquiredandliabilitiescontingent liabilitiesassumedandreviewstheappropriatenessoftheir acquisition date.Anynegativeamount(“negativegoodwill”)isrecognised inprofitorloss,aftermanagementreassesseswhether the amountofnon-controllinginterestinacquireeandfair valueofaninterestintheacquireeheldimmediatelybefore Goodwill ismeasuredbydeductingthenetassetsofacquiree from theaggregateofconsiderationtransferredforacquiree, principle toapplyformeasuringnon-controllinginterestisdefinedby theGroupindividuallyforeachparticularbusinesscombination. share ofnetassetstheacquiree.Non-controllingintereststhatare notpresentownershipinterestsaremeasuredatfairvalue.Which assets intheeventofliquidationonatransactionbybasis,eitherat:(a)fairvalue,or(b)non-controllinginterest’sproportionate The Groupmeasuresnon-controllinginterestthatrepresentspresentownershipandentitlestheholdertoaproportionateshareofnet their fairvaluesattheacquisitiondate,irrespectiveofextentanynon-controllinginterest. common control).Identifiableassetsacquiredandliabilitiescontingentassumedinabusinesscombinationaremeasuredat The acquisitionmethodofaccountingisusedtoaccountforthesubsidiaries(otherthanthoseacquiredfrompartiesunder control ceases. thedateonwhich consolidated fromthedateonwhichcontrolistransferredtoGroup(acquisitiondate)andaredeconsolidated from of investee’sactivitiesorapplyonlyinexceptionalcircumstances,donotpreventtheGroupfromcontrollinganinvestee.Subsidiariesare determine ifithasde-factopowerovertheinvestee.Protectiverightsofotherinvestors,suchasthosethatrelatetofundamentalchanges acase,theGroupassessessizeofitsvotingrights relativetothesizeanddispersionofholdingsothervoteholders In such need tobemade.TheGroupmayhavepoweroveraninvesteeevenwhenitholdslessthanmajorityofvotingin . the holdermusthavepracticalabilitytoexercisethatrightwhendecisionsaboutdirectionofrelevantactivitiesinvestee potential votingrights,areconsideredwhenassessingwhethertheGrouphaspoweroveranotherentity.Forarighttobesubstantive, power overtheinvesteestoaffectamountofinvestor’sreturns.Theexistenceandeffectsubstantiverights,including affect theirreturns,(ii)hasexposure,orrights,tovariablereturnsfromitsinvolvementwiththeinvestees,and(iii)abilityuse structured entities,thattheGroupcontrolsbecause(i)haspowertodirectrelevantactivitiesofinvesteesthatsignificantly ofeachyear.Subsidiariesarethoseinvestees,including entities controlledbytheCompany(itssubsidiaries)preparedasat31 December Consolidated financialstatements.TheconsolidatedstatementsincorporatetheofCompanyand The accountingpolicieshavebeenappliedconsistentlybyallentitiesoftheGroup. The significantaccountingpoliciesadoptedinthepreparationoftheseconsolidatedfinancialstatementsaresetoutbelow. 3. ACCOUNTING SIGNIFICANT POLICIES otherwise. The consolidatedfinancialstatementsarepresentedinmillionsofRussianRoubles(hereinafter“RURm”),exceptwherespecificallystated appropriate topresentthefinancialposition,resultsofoperationsandcashflowsGroupinaccordancewithIFRS. statements issuedforstatutorypurposesinthattheyreflectcertainadjustments,notrecordedthebooks,whichare jurisdictions inwhichtheyareincorporatedandregistered.Theaccompanyingconsolidatedfinancialstatementsdifferfromthe The entitiesoftheGroupmaintaintheiraccountingrecordsinaccordancewithlaws,andreportingregulationsthe at thedateoftransferandinitialrecognitionfinancialinstrumentsbasedonfairvaluerevaluationinvestmentproperties. for theeffectsofassetsacquiredandliabilitiesassumedatformationCompany,whichwererecordedestimatedfairvalue Basis ofpreparation.TheGroup’sconsolidatedfinancialstatementshavebeenpreparedusingthehistoricalcostconvention,except Reporting Standards(“IFRS”). Statement ofcompliance.TheseconsolidatedfinancialstatementshavebeenpreparedinaccordancewithInternationalFinancial 2. BASIS OF PRESENT 161 CORPORATE 162 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE › › › › › statements, theresultsandfinancialpositionofentityaretranslated intothepresentationcurrencyusingfollowingprocedures: When thefunctionalcurrencyofanentityGroupisnot presentation currencyoftheCompany’sconsolidatedfinancial foreign exchangeratesrulingatthedatesfairvaluewasdetermined. Non-monetary assetsandliabilitiesdenominatedinforeigncurrenciesthataremeasuredatfairvaluetranslatedtoRussianRouble that aremeasuredintermsofhistoricalcostaforeigncurrencytranslatedusingtheexchangerateatdatetransaction. the reportingperiod.Exchangedifferencesarisingfromsuchtranslationareincludedinprofitorloss.Non-monetaryassetsandliabilities denominated insuchcurrenciesatthebalancesheetdatearetranslatedintofunctionalcurrencyexchangerateasendof currency areinitiallyrecordedattheratesofexchangeprevailingondatestransactions.Monetaryassetsandliabilities is alsothecurrencyinwhichtheseconsolidatedfinancialstatementsarepresented.Transactionscurrenciesotherthanfunctional of theprimaryeconomicenvironmentinwhichentityoperates.TheRussianRoubleisfunctionalcurrencyCompanyand Foreign currencytransactionsandtranslation.FunctionalofeachtheGroup’sconsolidatedentitiesis amounts previouslyrecognisedinothercomprehensiveincomearereclassifiedtoprofitorlosswhereappropriate. If theownershipinterestinanassociateorjointventureisreducedbutsignificantinfluenceretained,onlyaproportionateshareof are reclassifiedtoprofitorloss. had directlydisposedoftherelatedassetsorliabilities.Thismaymeanthatamountspreviouslyrecognisedinothercomprehensiveincome In addition,anyamountspreviouslyrecognisedinothercomprehensiveincomerespectofthatentity,areaccountedforasiftheGroup as anassociate,jointventureorfinancialasset. recognised inprofitorloss.Thefairvalueistheinitialcarryingamountforpurposesofsubsequentaccountingretainedinterest retained interestintheentityisremeasuredtoitsfairvalueatdatewhencontrollost,withchangecarryingamount Disposals ofsubsidiaries,associatesorjointventures.WhentheGroupceasestohavecontrolsignificantinfluence,any asset transferred. in theassociates(jointventures);unrealisedlossesarealsoeliminatedunlesstransactionprovidesevidenceofanimpairment Unrealised gainsontransactionsbetweentheGroupanditsassociates(jointventures)areeliminatedtoextentofGroup’sinterest associate (jointventures). unsecured receivables,theGroupdoesnotrecognisefurtherlosses,unlessithasincurredobligationsormadepaymentsonbehalfof When theGroup’sshareoflossesinanassociate(jointventure)equalsorexceedsitsinterestventure),including recognised inconsolidatedprofitorlosswithintheshareoffinancialresultassociates(jointventures). and presentedseparately,(iii)allotherchangesintheGroup’sshareofcarryingvaluenetassetsassociates(jointventures)are result ofassociates(jointventures),(ii)theGroup’sshareothercomprehensiveincomeisrecognisedincomprehensive share ofprofitsorlossesassociates(jointventures)isrecordedintheconsolidatedprofitlossforperiodasfinancial Other post-acquisitionchangesintheGroup’sshareofanassociate’s(jointventures’)netassetsarerecognisedasfollows:(i) acquisition. Dividendsreceivedfromassociates(jointventures)reducethecarryingvalueofinvestmentin(jointventures). and thecarryingamountisincreasedordecreasedtorecogniseinvestor’sshareofprofitlossinvesteeafterdate Investments inassociatesandjointventuresareaccountedforbytheequitymethodofaccountinginitiallyrecognisedatcost, ofthevotingrights. shareholding ofbetween20and50 percent Associates areentitiesoverwhichtheGrouphassignificantinfluence(directlyorindirectly),butnotcontrol,generallyaccompanyinga activities requiretheunanimousconsentofpartiessharingjointcontrolinaccordancewithcontract. over theactivity,haverightstonetassetsofactivity.Jointcontroloccursincasewhendecisionsrelatingrelevant Investments inassociatesandjointventures.Jointventureisaactivitywhichimpliesthattheparties,havecontrol reclassified toprofitorlossforthe yearaspartofthegainorlossondisposal. When controloveraforeignoperation islost,theexchangedifferencesrecognisedpreviouslyinother comprehensiveincomeare › › › › › translation tothepresentationcurrency. fluctuation ofexchangeratesduring theperiodisinsignificant.Otherwiseexchangeratesatdates ofthetransactionsareusedfor rates effectiveatthecorrespondingdates.Allcashflowsaretranslated ataverageexchangeratesforthepresentedperiodsif in thestatementofcashflowsbalancesatbeginningand attheendofeachpresentedperiodaretranslatedexchange all resultingexchangedifferencesarerecognisedasothercomprehensive income; components ofequityaretranslatedathistoricalrates; transactions areusedfortranslationtothepresentationcurrency; for theperiodiffluctuationofexchangeratesduringwas insignificant.Otherwiseexchangeratesatthedatesofthe income andexpensesforeachstatementofprofitorlossother comprehensiveincomearetranslatedataverageexchangerates all assetsandliabilitiesaretranslatedattheclosingratedate ofeachpresentedstatementfinancialposition; which isnotoccupied bytheGroup.Investmentproperty includesassetsunderconstruction forfutureuseasinvestment property. Investment property.propertyisheld bytheGrouptoearnrentalincomeorforcapitalappreciation, orbothand carrying amountoftheassetand isrecognisedintheconsolidatedprofitorloss. The gainorlossarisingonthedisposal orretirementofanassetisdeterminedasthedifferencebetween thesalesproceedsand Gain orlossondisposal usefullifeoftheassetandleaseterm. the estimated Capitalised leasedassetsheldunderfinanceleaseandoperatingleasehold inseparableimprovementsaredepreciatedovertheshorterof Leased assets The assets’usefullivesarereviewed,andadjustedasappropriate, at theendofeachreportingperiod. The estimatedusefullivesforproperty,plantandequipmentareasfollows: method overtheestimatedusefullivesofeachpartanitemproperty,plantandequipment. charged totheconsolidatedprofitorlosssoaswriteoffcostofassetslesstheirestimatedresidualvalues,usingthestraight-line Owned landplotsandconstructioninprogressarenotdepreciated.Depreciationonotheritemsofproperty,plantequipmentis Depreciation to determinetheasset’svalueinuseorfairlesscostsofdisposal. An impairmentlossrecognisedforanassetinprioryearsisreversedwhereappropriateiftherehasbeenachangetheestimatesused recognised inprofitorlossfortheyear. fair valuelesscostsofdisposalanditsinuse.Thecarryingamountisreducedtotherecoverableimpairmentloss equipment. Ifanysuchindicationexists,Managementestimatestherecoverableamount,whichisdeterminedashigherofanasset’s At theendofeachreportingperiodManagementassesseswhetherthereisanyindicationimpairmentproperty,plantand reliably. Theassetsbeingreplacedarewrittenoffimmediately.Allothercostsrecognisedintheconsolidatedprofitorlossforyear. and thecostofitemcanbemeasured probable thatthefutureeconomicbenefitsassociatedwithitemwillflowtothe Group The costofreplacingapartproperty,plantandequipmentisincludedinthecarryingamountwhenincurred,onlyifit Subsequent costs as forotherpropertyassets,commenceswhentheassetsarereadytheirintendeduse. attributable variableoverheadsincludingcapitalisedborrowingcostsonqualifyingassets.Depreciationoftheseassets,thesamebasis capital expendituresdirectlyrelatedtotheconstructionofproperty,plantandequipmentincludinganappropriateallocation the reconstructionofexistingterminals.Constructioninprogressiscarriedatcost,lessanyrecognisedimpairmentloss.Costincludes Construction inprogressincludes,principally,capitalexpenditureincurredrelationtotheconstructionofnewcontainerterminalsand Construction inprogress plant andequipment. Where partsofanitemproperty,plantandequipmenthavedifferentusefullives,theyareaccountedforasseparateitemsof maintenance expenditure,isexpensedasincurred. depreciation andprovisionforimpairment.Thecostsofdaytoservicingproperty,plantequipment,includingrepairs Property, plantandequipment.equipmentarerecordedatacqusitionorconstructioncost,lessaccumulated Other equipment Vehicles Cranes andloaders Flatcars Containers Constructions Buildings

2-25 3-15 5-31 28-38 10-20 5-70 20-84 Number ofyears 163 CORPORATE 164 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE current period. reclassified orre-presented inthecomparativeconsolidated statementoffinancial position toreflecttheclassification attheendofthe Non-current assetsordisposalgroups classifiedasheldforsaleinthecurrentperiod’sconsolidated statementoffinancialpositionarenot (e) (d) (c) (b) (a) after thereportingperiod.Assetsarereclassifiedwhenalloffollowing conditionsaremet: will berecoveredprincipallythroughasaletransaction(includingloss ofcontrolasubsidiaryholdingtheassets)withintwelvemonths current assets)areclassifiedintheconsolidatedstatementoffinancial positionas‘non-currentassetsheldforsale’iftheircarryingamount Non-current assetsclassifiedasheldforsale.anddisposalgroups(whichmayincludebothnon-current and date. (cash-generating units).Priorimpairmentsofnon-financialassets(other thangoodwill)arereviewedforpossiblereversalateachreporting For thepurposesofassessingimpairment,assetsaregroupedat lowestlevelsforwhichtherearelargelyindependentcashinflows amount isthehigherofanasset’sfairvaluelesscostsdisposaland valueinuse. An impairmentlossisrecognisedfortheamountbywhichasset’s carryingamountexceedsitsrecoverableamount.Therecoverable indicate thatthecarryingamountmaynotberecoverable. Assets thataresubjecttodepreciationandamortisationreviewedforimpairmentwhenevereventsorchangesincircumstances subject toamortisationandaretestedannuallyforimpairment. Impairment ofnon-financialassets.Intangiblethathaveanindefiniteusefullifeorintangiblenotreadyforuseare If impaired,thecarryingamountofintangibleassetsiswrittendowntohighervalueinuseandfairlesscostsofdisposal. estimates. or theexpectedpatternofconsumptionfutureeconomicbenefitsembodiedinassetareaccountedforaschangesaccoun ting Useful livesandamortisationmethodsforintangibleassetsarereviewedateachfinancialyear-end.Changesintheexpectedusefullife when determined. usefullivesforexistingassetsvaryfrom2to7years Intangible assetsareamortisedfromthedatetheyavailableforuse.The estimated Amortisation ischargedtotheconsolidatedprofitorlossonastraight-linebasisoverestimatedusefullivesofintangibleassets. accumulated amortisationandprovisionforimpairment. Intangible assets.assetsthatareacquiredbytheGrouprepresentmainlypurchasedsoftwareandrecordedatcostless when incurred. with theexpenditurewillflowtoGroupandcostcanbemeasuredreliably.Allotherrepairsmaintenancecostsareexpensed Subsequent expenditureiscapitalisedtotheasset’scarryingamountonlywhenitprobablethatfutureeconomicbenefitsassociated with anyremainingdecreasechargedtoprofitorlossfortheyearasimpairment. carrying amountofthepropertyisinitiallychargedagainstanyrevaluationsurpluspreviouslyrecognisedinothercomprehensiveincome, previous impairmentloss,withanyremainingincreasecrediteddirectlytoothercomprehensiveincome.Anyresultingdecreaseinthe Any resultingincreaseinthecarryingamountofpropertyisrecognisedprofitorlossforyeartoextentthatitreversesa transfer inanothercategoryistreatedthesamewayasarevaluationofproperty,plantandequipment. property becauseitsusehaschanged,anydifferenceresultingbetweenthecarryingamountandfairvalueofthisitematthedate date ofreclassificationbecomesitsdeemedcostforaccountingpurposes.Ifanitemowner-occupiedpropertyinvestment If aninvestmentpropertybecomesowner-occupied,itisreclassifiedasproperty,plantandequipment,itscarryingamountatthe the fairvalueofinvestmentpropertyarerecordedinprofitorlossforyearandpresentedseparately. Earned rentalincomeisrecordedinprofitorlossfortheyearwithinotheroperatingincome.Gainsandlossesresultingfromchanges relevant professionalqualificationsandwhohaverecentexperienceinthevaluationofpropertysamelocationcategory. Market valueoftheGroup’sinvestmentpropertyisdeterminedbasedonreportsindependentappraisers,whoholdrecognisedand active marketforsimilarpropertyinthesamelocationandcondition. asset inanorderlytransaction,withoutdeductionofanytransactioncosts.Thebestevidencefairvalueisgivenbycurrentprices market conditionsattheendofreportingperiod.Fairvalueinvestmentpropertyispricethatwouldbereceivedfromsale Investment propertyisinitiallyrecognisedatcost,includingtransactioncosts,andsubsequentlyremeasuredfairvalueupdatedtoreflect it isunlikelythatsignificantchanges totheplansellwillbemadeorthatbe withdrawn. isexpectedwithin oneyear;and the sale the assetsareactivelymarketedfor saleatareasonableprice; the Group’sManagementapproved andinitiatedanactiveprogrammetolocateabuyer; the assetsareavailableforimmediatesaleintheirpresentcondition;

the consolidated statementoffinancialposition. (including feesdeferredatorigination, ifany),arenotpresentedseparatelyandincludedinthe carryingvaluesoftherelateditemsin method. Accruedinterestincome andaccruedinterestexpense,includingbothcoupon amortiseddiscountorpremium of transactioncostsdeferredatinitial recognitionandofanypremiumordiscounttothematurityamount usingtheeffectiveinterest minus accruedinterest,andforfinancial assetslessanywrite-downforincurredimpairmentlosses. Accruedinterestincludesamortisation Amortised costistheamountatwhich thefinancialinstrumentwasrecognisedatinitialrecognition lessanyprincipalrepayments,plusor duties. Transactioncostsdonotincludedebtpremiumsordiscounts, financingcostsorinternaladministrativeholdingcosts. commissions paidtoagents,advisors,brokersanddealers,leviesby regulatoryagenciesandsecuritiesexchanges,transfertaxes incremental costisonethatwouldnothavebeenincurredifthetransaction hadnottakenplace.Transactioncostsincludefeesand Transaction costsareincrementalthatdirectlyattributable totheacquisition,issueordisposalofafinancialinstrument.An Transfers betweenlevelsofthefairvaluehierarchyaredeemedto haveoccurredattheendofreportingperiod. (c) (b) (a) is notavailable.Fairvaluemeasurementsareanalysedbylevelinthefairhierarchyasfollows: financial dataoftheinvesteesareusedtomeasurefairvaluecertaininstrumentsforwhichexternalmarketpricinginformation Valuation techniquessuchasdiscountedcashflowmodelsorbasedonrecentarm’slengthtransactionsconsiderationof the quotedprice. absorb thequantityofassetsandliabilitiesheldbyCompanyplacingorderstosellpositioninasingletransactionmightaffect liability and the number of instruments held by the entity. This is the case even if a market’s normal daily trading volume is not sufficient to Fair valueoffinancialinstrumentstradedinanactivemarketismeasuredastheproductquotedpriceforindividualassetor transactions fortheassetorliabilitytakeplacewithsufficientfrequencyandvolumetoprovidepricinginformationonangoingbasis. participants atthemeasurementdate.Thebestevidenceoffairvalueispriceinanactivemarket.Anmarketonewhich Fair valueisthepricethatwouldbereceivedtosellanassetorpaidtransferaliabilityinorderlytransactionbetweenmarket Depending ontheirclassificationfinancialinstrumentsarecarriedatfairvalue,oramortisedcostasdescribedbelow. Financial instruments-keymeasurementterms Financial instruments in profitorlossfromcontinuingoperationstheperiodwhichcriteriaarenolongermet. The Groupshallincludeanyrequiredadjustmenttothecarryingamountofanon-currentassetthatceasesbeclassifiedasheldforsale (b) (a) classified asheldforsaleatthelowerof: The Groupshallmeasureanon-currentassetthatceasestobeclassifiedasheldforsaleorincludedindisposalgroup to classifytheassetordisposalgroupasheldforsale. If theGrouphasclassifiedanassetordisposalgroupasheldforsalebutrecognitioncriteriaarenolongermet,Groupshallcease separately intheconsolidatedstatementoffinancialposition. Liabilities directlyassociatedwiththedisposalgroupthatwillbetransferredintransactionarereclassifiedandpresented carrying amountandfairvaluelesscostsofdisposal. financial instruments,deferredtaxesandinvestmentpropertiesheldatfairvaluearenotsubjecttowritedowntheloweroftheir sale property,plantandequipment,investmentpropertiesintangibleassetsarenotdepreciatedoramortised.Reclassifiednon-current Held forsaledisposalgroupsasawholearemeasuredattheloweroftheircarryingamountandfairvaluelesscostsdisposal. reclassification isrequired,boththecurrentandnon-currentportionsofanassetarereclassified. assets arethatincludeamountsexpectedtoberecoveredorcollectedmorethantwelvemonthsafterthereportingperiod.If disposal groupincludesanoperationwithinacash-generatingunittowhichgoodwillhasbeenallocatedonacquisition.Non-current transaction, andliabilitiesdirectlyassociatedwiththoseassetsthatwillbetransferredinthetransaction.Goodwillisincludedif A disposalgroupisaofassets(currentornon-current)tobedisposedof,bysaleotherwise,togetherasinsingle its recoverableamountatthedateofsubsequentdecisionnottosell. revaluations thatwouldhavebeenrecognisedhadtheasset(ordisposalgroup)notclassifiedasheldforsale,and its carryingamountbeforetheassetordisposalgroupwasclassifiedasheldforsale,adjustedanydepreciation,amortisation unobservable inputs). level threemeasurementsarevaluationsnotbasedonsolelyobservable marketdata(thatis,themeasurementrequiressignificant prices) orindirectly(thatis,derivedfromprices),and level twomeasurementsarevaluationstechniqueswithallmaterial inputsobservablefortheassetorliability,eitherdirectly(thatis,as level onearemeasurementsatquotedprices(unadjusted)inactive marketsforidenticalassetsorliabilities,

165 CORPORATE 166 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE the differencein the respectivecarryingamounts is recognisedintheprofitandloss statementfortheyear. modified, suchan exchangeormodificationistreated asaderecognitionoftheoriginal liabilityandtherecognition ofanewliability,and liability isreplacedbyanotherfrom thesamelenderonsubstantiallydifferentterms,ortermsof anexistingliabilityaresubstantially A financialliabilityisderecognised whentheobligationunderliabilityisdischargedorcancelled orexpired.Whenanexistingfinancial needing toimposeadditionalrestrictions onthesale. Control isretainedifthecounterparty doesnothavethepracticalabilitytosellassetinitsentirety toanunrelatedthirdpartywithout substantially alltherisksandrewardsofownershipbutnotretaining control. whilst (i)alsotransferringsubstantiallyalltherisksandrewardsof ownership oftheassetsor(ii)neithertransferringnorretaining (b) (a) The Groupderecognisesfinancialassetswhen: Derecognition offinancialassetsandliabilities All otherpurchasesarerecognisedwhentheentitybecomesaparty tothecontractualprovisionsofinstrument. (“regular way”purchasesandsales)arerecordedattradedate,which isthedateonwhichGroupcommitstodeliverafinancialasset. All purchasesandsalesoffinancialassetsthatrequiredeliverywithin thetimeframeestablishedbyregulationormarketconvention technique whoseinputsincludeonlydatafromobservablemarkets. transaction pricewhichcanbeevidencedbyotherobservablecurrentmarkettransactionsinthesameinstrumentoravaluation evidenced bythetransactionprice.Againorlossoninitialrecognitionisonlyrecordedifthereadifferencebetweenfairvalueand Financial instrumentsoftheGroupareinitiallyrecordedatfairvalueplustransactioncosts.Fairinitialrecognitionisbest Initial recognitionoffinancialinstruments finance costs)intheperiodwhichtheyarise.Otherfinancialliabilitiesarecarriedatamortisedcost. Liabilities heldfortradingarecarriedatfairvaluewithchangesinrecognisedprofitorlosstheyear(asfinanceincome (b) (a) Financial liabilitieshavethefollowingmeasurementcategories: Classification offinancialliabilities recognition ofinterestwouldbeimmaterial. the amortisationprocess.Interestincomeisrecognisedbyapplyingeffectiveinterestrateexceptforshort-termreceivableswhen losses arerecognisedintheconsolidatedprofitorlosswhenloansandreceivablesderecognisedimpaired,aswellasthrough intends tosellinthenearterm.Loansandreceivablesarecarriedatamortisedcostusingeffectiveinterestratemethod.Gains Loans andreceivablesareunquotednon-derivativefinancialassetswithfixedordeterminablepaymentsotherthanthosethattheGroup The Grouphasthefollowingfinancialassets. (b) (a) Financial assetsatfairvaluethroughprofitorlosshavetwosub-categories: (d) (c) (b) (a) Financial assetshavethefollowingcategories: Classification offinancialassets to thecontractthatareanintegralpartofeffectiveinterestrate. amortised overthewholeexpectedlifeofinstrument.Thepresentvaluecalculationincludesallfeespaidorreceivedbetweenparties over thefloatingratespecifiedininstrument,orothervariablesthatarenotresettomarketrates.Suchpremiumsdiscounts of variableinterestinstrumentstothenextrepricingdate,exceptforpremiumordiscountwhichreflectscreditspread or ashorterperiod,ifappropriate,tothenetcarryingamountoffinancialinstrument.Theeffectiveinterestratediscountscashflows discounts estimatedfuturecashpaymentsorreceipts(excludingcreditlosses)throughtheexpectedlifeoffinancialinstrument a constantperiodicrateofinterest(effectiverate)onthecarryingamount.Theeffectiveisthatexactly The effectiveinterestmethodisaofallocatingincomeorexpenseovertherelevantperiod,soastoachieve financial assetsatfairvaluethroughprofitorloss. financial assetsheldtomaturity,and available-for-sale financialassets; loans andreceivables; other financialliabilities. held fortradingwhichalsoincludesfinancialderivatives,and the Grouphastransferredrightstocashflowsfromfinancial assetsorenteredintoaqualifyingpass-througharrangement the assetsareredeemedorrightstocashflowsfrom otherwiseexpire,or those classifiedasheldfortrading. assets designatedassuchuponinitialrecognition,and bearing deposits withoriginalmaturitiesofnotmore thanthreemonths(notmore than91days). Cash andcashequivalents.equivalentscomprise cashinhand,depositsheldatcallwithbanksandshort-terminterest- and arerecognisedinitiallyatfair valueandsubsequentlycarriedatamortisedcostusingtheeffective interestmethod. Trade andotherpayables.payablesareaccrued whenthecounterpartyperformsitsobligationsundercontract is writtendownaccordinglyand a correspondingimpairmentlossisrecognisedinprofitorfor the year. there isanindicationthattheassets,goodsorservicesrelatingto a prepaymentwillnotbereceived,thecarryingvalueof to theGroup.Otherprepaymentsarewrittenoffprofitorlosswhen thegoodsorservicesrelatingtoprepaymentsarereceived.If asset oncetheGrouphasobtainedcontrolofanditisprobable thatfutureeconomicbenefitsassociatedwiththeassetwillflow itself beclassifiedasnon-currentuponinitialrecognition.Prepayments toacquireassetsaretransferredthecarryingamountof or servicesrelatingtotheprepaymentareexpectedbeobtained afteroneyear,orwhentheprepaymentrelatestoanassetwhichwill Prepayments. Prepaymentsarecarriedatcostlessprovisionforimpairment.Aprepayment isclassifiedasnon-currentwhenthegoods cost usingtheeffectiveinterestmethod. Borrowings. Borrowingsarerecognisedinitiallyatfairvalue,netoftransaction costsincurredandaresubsequentlycarriedatamortised amortised costusingtheeffectiveinterestmethod. Trade andotherreceivables.receivablesarerecognisedinitiallyatfairvalue aresubsequentlycarriedat written offarecreditedtotheimpairmentlossaccountwithinprofitorforyear. recover theassethavebeencompletedandamountoflosshasdetermined.Subsequentrecoveriesamountsprevious ly Uncollectible assetsarewrittenoffagainsttherelatedimpairmentlossprovisionafterallnecessaryprocedurestowhollyorpartially reversed byadjustingtheallowanceaccountthroughprofitorlossforyear. after theimpairmentwasrecognised(suchasanimprovementindebtor’screditrating),previouslyimpairmentlossis If, inasubsequentperiod,theamountofimpairmentlossdecreasesanddecreasecanberelatedobjectivelytoaneventoccurring that mayresultfromforeclosurelesscostsforobtainingandsellingthecollateral,whetherornotisprobable. the asset.Thecalculationofpresentvalueestimatedfuturecashflowsacollateralisedfinancialassetreflects of expectedcashflows(whichexcludefuturecreditlossesthathavenotbeenincurred)discountedattheoriginaleffectiveinterestrate Impairment lossesarealwaysrecognisedthroughanallowanceaccounttowritedowntheasset’scarryingamountpresentv alue flows. This isnormallyevidencedbyasubstantialdifferencebetweenthepresentvaluesoforiginalcashflowsandnewexpected asset isthenderecognisedandanewrecognisedatitsfairvalueonlyiftherisksrewardsofsubstantiallychanged. of thecounterparty,impairmentismeasuredusingoriginaleffectiveinterestratebeforemodificationterms.Therenegotiated If thetermsofanimpairedfinancialassetheldatamortisedcostarerenegotiatedorotherwisemodifiedbecausedifficulties (d) (c) (b) (a) that animpairmentlosshasoccurred: realisability ofrelatedcollateral,ifany.Thefollowingotherprincipalcriteriaarealsousedtodeterminewhetherthereisobjectiveevidence impairment. TheprimaryfactorsthattheGroupconsidersindeterminingwhetherafinancialassetisimpairedareitsoverduestatusand significant ornot,itincludestheassetinagroupoffinancialassetswithsimilarcreditriskcharacteristics,andcollectivelyassessesthemfor the Groupdeterminesthatnoobjectiveevidenceexistsimpairmentwasincurredforanindividuallyassessedfinancialasset,whether the amountortimingofestimatedfuturecashflowsfinancialassetgroupassetsthatcanbereliablyestimated.If result ofoneormoreevents(“lossevents”)thatoccurredaftertheinitialrecognitionfinancialassetandwhichhaveanimpacton Impairment offinancialassetscarriedatamortisedcost.lossesarerecognisedinprofitorlosswhenincurredasa (2) (1) and settletheliabilitysimultaneously.Sucharightofsetoff: a legallyenforceablerighttooffsettherecognisedamounts,andthereisanintentioneithersettleonnetbasis,orrealiseasset Financial assetsandliabilitiesareoffsetthenetamountreportedinconsolidatedstatementoffinancialpositiononlywhenthereis Offsetting financialinstruments the valueofcollateral,ifany,significantlydecreasesasaresultdeterioratingmarketconditions. that impactthecounterparty;or there isadversechangeinthepaymentstatusofcounterpartyasaresultchangesnationalorlocaleconomicconditions the counterpartyconsidersbankruptcyorafinancialreorganisation; the counterpartyexperiencesasignificantfinancialdifficultyasevidencedbyitsinformationthatGroupobtains; must belegallyenforceableinallofthefollowingcircumstances: must notbecontingentonafutureeventand (c) (b) (a) in theeventofinsolvencyorbankruptcy. in theeventofdefault,and in thenormalcourseofbusiness, 167 CORPORATE 168 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE lease agreements. infrastructure charges. Revenuesfromoperatinglease ofrollingstockarerecognised onastraight-linebasisoverthe termofoperating Revenues fromtheseservicesare recognisedintheaccountingperiodwhichservicesarerendered, netofreinvoicedrail the customersdirectlyorpassed through toaproviderofrailinfrastructureservices. of recognisingrevenue,theGroup chargesitscustomersforprovisionofownrollingstockwhile railinfrastructurechargesarebornby containers byrailmeansofprovision offlatcarsand/orcontainersorleasingand tothirdparties.Forthepurposes Rail-based transportationservices providedbytheGroupprimarilyincludearrangingtransportation ofitsownandthird-party Rail-based containershippingservices to thebuyer. measured. Incomefromsalesofinventoriesarerecognisedwhen the significantrisksandrewardsofownershipgoodshavepassed Revenue isrecognisedtotheextentthatitprobableeconomic benefitswillflowtotheGroupandrevenuecanbereliably receivable forservicesprovided,netofdiscounts,returnsandvalue addedtax. Revenue recognition.ismeasuredatthefairvalueofconsiderationreceived orreceivableandrepresentsamounts impairment ofreceivables,lossisrecordedforthegross amountofthedebtor,includingVAT. statement offinancialpositiononagrossbasisanddisclosedseparately asanassetandliability.Whereprovisionhasbeenmadefor services providedwhichisreclaimableuponconfirmationofexport).VATrelatedtosalesandpurchasesrecognisedintheconsolidated upon receiptoftheVATinvoice.Thetaxauthoritiespermitsettlementonanetbasis(exceptforinputrelatedtoexport goods orservicestocustomers,(b)collectionofprepaymentsfromcustomers.InputVATisgenerallyrecoverableagainstoutput Value addedtax.Outputvaluetax(“VAT”)relatedtorevenuesispayableauthoritiesontheearlierof(a)delivery Fund oftheRussianFederationvaryfrom10%to22%,dependingonannualgrossremunerationemployee. charged totheconsolidatedprofitorlossinyearwhichservicesareprovided.ContributionsforeachemployeeStatePension to itsRussianemployees.TheGroup’scontributionsthePensionFundofFederation,asfordefinedcontributionplan,are is topaythecontributionsastheyfalldue.Assuch,Grouphasnolegalobligationanddoesnotguaranteeanyfuturebenefits In addition,theGroupislegallyobligedtomakecontributionsPensionFundofRussianFederation.TheGroup’sonlyobligation State Plan Group’s contributionsrelatingtothedefinedcontributionplanarechargedconsolidatedprofitorlossinyearwhichtheyrelate. In additiontothedefinedbenefitplansdescribedabove,Groupalsosponsorsacontributionplanforselectedemployees.The Defined contributionplans Upon introductionofanewplanorimprovementanexistingplan,pastservicecostsarerecognisedinfullastheyariseprofitloss. Remeasurements ofthenetdefinedbenefitliabilityarerecognisedinprofitandlossfullastheyarise. The obligationandcostofbenefitsfortheotherlong-termaredeterminedusingprojectedunitcreditmethod. benefits arenotfunded. In addition,theGroupprovidescertainretirementbenefits,otherpost-employmentandlong-termbenefitstoitsemployees.These Remeasurements ofthenetdefinedbenefitliabilityarerecognisedinothercomprehensiveincomefullastheyarise. where thecurrencyandtermsofthesebondsareconsistentwithestimateddefinedbenefitobligation. measured atthepresentvalueofestimatedfuturecashflowsusingadiscountratethatissimilartointerestongovernmentbonds attribute thetotalpensioncostoverservicelivesofemployeesinaccordancewithbenefitformulaplan.Thisobligationis each unitseparatelytobuildupthefinalobligation.Thecostofprovidingpensionsischargedconsolidatedprofitorloss,soas unit creditmethod.Thismethodconsiderseachyearofserviceasgivingrisetoanadditionalbenefitentitlementandmeasures The Groupoperatesdefinedbenefitpensionplan.obligationandcostofbenefitsundertheplanaredeterminedusingprojected Defined benefitplans as anexpenseinthatreportingperiod. Employee benefits.Remunerationtoemployeesinrespectofservicesrenderedbyduringthereportingperiodisrecognised bringing themtotheirexistinglocationandcondition. The costofinventoriesisdeterminedontheweightedaveragebasisandincludesexpenditureincurredinacquiringinventories ordinary courseofbusiness,lesstheestimatedcostscompletionandsellingexpenses. sellingpriceinthe Inventories. Inventoriesarerecordedatthelowerofcostandnetrealisablevalue.Netvalueisthe estimated Revenue fromother freightforwardingservicesis recognised intheaccountingperiod inwhichtheservicesarerendered. (v) (iv) (iii) (ii) (i) The Groupprovidesotherfreightforwardingservices,suchas: Other freightforwardingservices from truckdeliveriesonthegrossbasisinaccountingperiod whichtheservicesarerendered. truck fleetaswellthirdparties’trucks.TheGroupconsidersitself theprincipalinthesearrangements,andthereforerecognisesrevenue Truck deliveryservicesincludetransportingcontainersbetweenthe containerterminalsandclient-designatedsitesusingtheGroup’sown Truck deliveries of thenumberdaysduringwhichservicesarerendered. terminals whilependingcustomsclearanceorpaymentofotherapplicableduties.Revenuefromtheseservicesisrecognisedonthebasis Bonded warehousingservicesarerelatedtostorageofcustomers’containersinseparatewarehouseslocatedatcontainer Bonded warehousingservices and revenuefromotherterminaloperationsarerecognisedintheaccountingperiodwhichservicesprovided. intermediary (agent)betweenclientsandRZDcollectsacommission.Commissionfeescollectedfromforactivities designated asthe“sitesofcommonuse”bylegislation.InthiscapacityGroupprovidessomeitsterminalservicesaslegal The GroupactsasanagentonbehalfofRZDinprovidingmandatoryrailroadservicesforallrailwayusersattheGroup’sterminals, loading andunloadingoperations,containerstorageotherterminaloperations. Terminal servicesprimarilyincludearrangementswherebytheGroupactsasaprincipalprovidingcontainerhandlingservices,such Terminal servicesandagencyfees which theservicesarerendered. Revenues fromcargotransportationandhandlingserviceswithinvolvementofthirdpartiesarerecognisedintheaccountingperiod and isindependentinitsownpricingpolicy. parties havingacontractualrelationshipswiththeGroupandbearscreditrisk,controlsflowofreceiptsandpayments Management believesthattheGroupactsasaprincipalprovidingtheseservicesGroup’scustomersdonotinteractwiththird- ports, withinvolvementofthirdpartiesandpossessingcertaincharacteristicsagencyservices. terminals, truckdeliveries,freightforwardingandlogisticservices,servicesfortrans-shipmentstorageofcargointhesea(river) Cargo transportationandhandlingserviceswithinvolvementofthirdpartiesarecontainershippingservices,oncontainer Cargo transportationandhandlingserviceswithinvolvementofthirdparties rendered. Revenues fromintegratedfreightforwardingandlogisticsservicesarerecognisedintheaccountingperiodwhichservices provided underseparatecontracts,areshowninthecorrespondingrevenuelineitems. Revenue fromintegratedfreightforwardingandlogisticsservicesisacombinationofrevenuesrelatingtovariousservices,which,when (b) (a) As partsofthecompoundrateservicefollowingservicesareavailabletocustomers: the singleprice. deliveries, freightforwardingandlogisticservices.Accordingtothemethodofprovidingtheseservicesarecompoundrateat Integrated freightforwardingandlogisticsservicesareservicepackagesincludingrailcontainertransportation,terminalhandling,truck Integrated freightforwardingandlogisticsservices while remainingservicesareprovidedonastand-alonebasisseparately. incomplete setofservices.InthiscaseservicesrenderedbytheCompanyatasinglepricerepresentonlypartlogisticchain full-service underasinglecontractatpriceor; hazardous cargo,andensuringproper documentationforthetransportedcargo. cargo securityservices,including provision ofinsurance,speciallabelsforhazardouscargo, terms fortransportationof route optimisationandplanning; cargo trackingservicesbyproviding clientswithinformationaboutcargolocation; customs clearancebrokeragebyproviding clientswithcustomsdocumentationandservicesforRussian customsclearance; preparation andensuringofaccuracyshippingdocumentation required forthedeliveryprocesstobeeffected; 169 CORPORATE 170 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE filing relevanttax returns.Taxesotherthanonincome arerecordedwithinoperating expenses. current andpriorperiods.Taxable profitsorlossesarebasedonestimatesiftheconsolidatedfinancial statementsareauthorisedpriorto Current taxistheamountexpected tobepaidto,orrecoveredfrom,thetaxationauthoritiesinrespect oftaxableprofitsorlossesforthe it relatestotransactionsthatare also recognised,inthesameoradifferentperiod,othercomprehensive incomeordirectlyinequity. recognised inconsolidatedprofit or lossfortheyear,exceptifitisrecognisedinothercomprehensive incomeordirectlyinequitybecause substantively enactedbytheend of thereportingperiod.Theincometaxcharge/(credit)comprises currenttaxanddeferredis Income taxes.taxeshavebeenprovidedforintheconsolidatedfinancial statementsinaccordancewithlegislationenactedor borrowings arecapitalised. this occurs,actualborrowingcostsincurredonthespecificborrowings lessanyinvestmentincomeonthetemporaryofthese the qualifyingassets),excepttoextentthatfundsareborrowed specificallyforthepurposeofobtainingaqualifyingasset.Where costs capitalisedarecalculatedattheGroup’saveragefundingcost (theweightedaverageinterestcostisappliedtotheexpenditureson The Groupcapitalisesborrowingcoststhatcouldhavebeenavoided ifithadnotmadecapitalexpenditureonqualifyingassets.Borrowing Capitalisation ofborrowingcostscontinuesuptothedatewhen assetsaresubstantiallyreadyfortheiruseorsale. (c) (b) (a) The commencementdateforcapitalisationiswhen commencement dateforcapitalisationisonorafter1January2009. a substantialtimetogetreadyforintendeduseorsale(qualifyingassets)arecapitalisedaspartofthecoststhoseassets,if General andspecificborrowingcostsdirectlyattributabletotheacquisition,constructionorproductionofassetsthatnecessarilytake (c) (b) (a) Borrowing costs.costsinclude: Contingent rentalsunderoperatingleasesarerecognisedasanexpenseintheperiodwhichtheyincurred. Lease incentivesreceivedarerecognisedasaliabilityandreductioninexpenseonstraight-linebasis. Payments madeunderoperatingleasesarerecognisedintheconsolidatedprofitorlossonastraight-linebasisovertermoflease. Operating leases Contingent rentalsarerecognisedasexpensesintheperiodswhichtheyincurred. reasonably certainthatitwillobtainownershipbytheendofleaseterm. liability. Theassetsacquiredunderfinanceleasesaredepreciatedovertheirusefullifeortheshorterleaseterm,ifGroupisnot is allocatedtoeachperiodduringtheleasetermsoasproduceaconstantperiodicrateofinterestonremainingbalance Minimum leasepaymentsareapportionedbetweenthefinancechargeandreductionofoutstandingliability.Thecharge is includedintheconsolidatedstatementoffinancialpositionasafinanceleaseobligation. propertyor,iflower,atthepresentvalueofminimumleasepayments. Thecorrespondingliabilitytothelessor fair valueofthe leased Assets underfinanceleasesarerecognisedintheconsolidatedstatementoffinancialpositionasassetsatinceptionthelease Finance leases the lessee.Allotherleasesareclassifiedasoperatingleases. Leases areclassifiedasfinanceleaseswheneverthetermsofleasetransfersubstantiallyallrisksandrewardsownershipto to usetheasset. assetorassetsthearrangementconveys a right date ofwhetherthefulfilmentarrangementisdependentonusea specific Leases. (ii) (i) Dividend andinterestincome it undertakesactivitiesthatarenecessarytopreparetheassetforits intendeduseorsale. it incursborrowingcosts;and the Groupincursexpendituresforqualifyingasset; Interest incomeisaccruedonatimebasis,byreferencetotheprincipaloutstandingandateffectiveinterestrateapplicable. established; Dividends frominvestmentsarerecognisedinconsolidatedprofitorlosswhentheshareholder’srighttoreceivepaymenthasbeen exchange differences arising from foreign currency borrowings to the extent that they are regarded asanadjustmenttointerestcosts. exchange differencesarisingfromforeigncurrencyborrowingstotheextentthattheyare regarded finance chargesinrespectofleases; interest expensecalculatedbytheeffectivemethod; The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement atinception The determinationofwhetheranarrangementis,orcontains,aleaseisbasedonthesubstancethe arrangement triggers theobligation topaythelevy.Ifalevyispaid beforetheobligatingevent, it isrecognisedasaprepayment. to payarises,arerecognisedasliabilities whentheobligatingeventthatgivesrisetopayalevyoccurs, asidentifiedbythelegislationthat Levies andcharges,suchastaxes otherthanincometaxorregulatoryfeesbasedoninformationrelated toaperiodbeforetheobligation to thepassageoftimeisrecognised asaninterestexpense. reflects currentmarketassessments ofthetimevaluemoneyandrisksspecifictoobligation. Theincreaseintheprovisiondue Provisions aremeasuredatthepresent valueoftheexpendituresexpectedtoberequiredsettle the obligationusingapre-taxratethat obligation canbemade. outflow ofresourcesembodyingeconomicbenefitswillberequired tosettletheobligation,andareliableestimateofamount They areaccruedwhentheGrouphasapresent(legalorconstructive) obligationasaresultofpastevents,itisprobablethatan Provisions forliabilitiesandcharges.chargesarenon-financialofuncertain timingoramount. issue. Dividends aredisclosedwhentheydeclaredafterreportingdate butbeforetheconsolidatedfinancialstatementsareauthorisedfor Dividends. Dividendsarerecognisedasaliabilityanddeductedfromequityin theperiodinwhichtheyaredeclaredandapproved. between theoptiongrantdateandvestingspecified intheoptionshareacquisitioncontract. the termsandconditionsuponwhichinstrumentsweregranted. Thefairvalueoftheoptionsisthenchargedoffduringperiod value ofshare-basedpaymentawardsismeasuredatthegrantdatebasedonBlack-Scholes-Mertonmodel,whichtakesintoacc ount Share-based paymenttransactions.TheshareoptionplanallowsGroupemployeestoacquiresharesoftheCompany.fair any potentiallydilutiveequityinstruments. weighted averagenumberofordinarysharesoutstandingduringthereportingperiod,excepttreasuryshares.TheGroupdoesnothave Earnings pershare.sharearedeterminedbydividingtheprofitorlossattributabletoownersofCompany Company’s owners. of anydirectlyattributableincrementaltransactioncostsandtherelatedincometaxeffects,areincludedinequityattributableto instruments arecancelled,reissuedordisposedof.Wheresuchsharessubsequentlysoldreissued,anyconsiderationreceived,net attributable incrementalcosts(andnetofincometaxes)isdeductedfromequitytotheCompany’sownersuntil paid,includinganydirectly Treasury shares.WhereanyGroupcompanypurchasestheCompany’sequityinstruments,the consideration value ofconsiderationreceivedandtheparsharesissuedisrecognisedasotherreservesinequity. shares (otherthanonabusinesscombination)areshownasdeductionfromtheproceedsinequity.Thedifferencebetweenfair Share capitalandotherreserves.Ordinarysharesareclassifiedasequity.Incrementalcostsdirectlyattributabletotheissueofnew the incometaxcharge. required tosettletheobligationsatendofreportingperiod.Adjustmentsforuncertainincometaxpositionsarerecordedwithin Liabilities forpenalties,interestandtaxesotherthanonincomearerecognisedbasedManagement’sbestestimateoftheexpenditure have beenenactedorsubstantivelybytheendofreportingperiod,andanyknowncourtotherrulingsonsuchissues. being leviedifthepositionsweretobechallengedbytaxauthorities.Theassessmentisbasedoninterpretationoftaxlawsthat Liabilities arerecordedforincometaxpositionsthatdeterminedbyManagementasmorelikelythannottoresultinadditionaltaxes Uncertain taxpositions.TheGroup’suncertainpositionsarereassessedbyManagementattheendofeachreportingperiod. expects thetemporarydifferencestoreverseinforeseeablefuture. their disposal.TheGroupdoesnotrecognisedeferredtaxliabilitiesonsuchtemporarydifferencesexcepttotheextentthatManagement The Groupcontrolsthereversaloftemporarydifferencesrelatingtotaxeschargeableondividendsfromsubsidiariesorgainsupon and liabilitiesarenettedonlywithintheindividualcompaniesofGroup. the sametaxableentityordifferententitieswherethereisanintentiontosettlebalancesonanetbasis.Deferredtaxassets liabilities andwhenthedeferredincometaxesassetsrelatetoleviedbysametaxationauthorityoneither Deferred incometaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttocurrentagainst deductions canbeutilised. probable thatthetemporarydifferencewillreverseinfutureandthereissufficienttaxableprofitavailableagainstwhich be utilised.Deferredtaxassetsfordeductibletemporarydifferencesandlosscarryforwardsarerecordedonlytotheextentthatitis reporting period,whichareexpectedtoapplytheperiodwhentemporarydifferenceswillreverseortaxlosscarryforwards is notdeductiblefortaxpurposes.Deferredbalancesaremeasuredatratesenactedorsubstantivelytheendof Deferred taxliabilitiesarenotrecordedfortemporarydifferencesoninitialrecognitionofgoodwill,andsubsequentlygoodwillwhich a transactionotherthanbusinesscombinationifthetransaction,wheninitiallyrecorded,affectsneitheraccountingnortaxableprofit. initial recognitionexemption,deferredtaxesarenotrecordedfortemporarydifferencesonofanassetoraliabilityin between thetaxbasesofassetsandliabilitiestheircarryingamountsinconsolidatedfinancialstatements.Inaccordancewith Deferred incometaxisprovidedusingthebala 171 CORPORATE 172 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE › › › › › › › › › › The followingamendedstandardsbecameeffectivefrom1January2016,butdidnothaveanymaterialimpactontheGroup: REVISED4. INTERNATIONAL FINANCIAL REPORTING STANDARDS The Groupiscurrentlyassessingthe impactoftheamendmentonitsconsolidatedfinancialstatements. reduce costandcomplexityfora company whenitfirstappliesthenewStandard. should berecognisedatapointin timeorovertime.Inadditiontotheclarifications,amendments includetwoadditionalreliefsto (responsible forarrangingthe goodorservicetobeprovided);andhowdeterminewhether the revenuefromgrantingalicence service toacustomer)incontract;howdeterminewhether company isaprincipal(theproviderofgoodorservice)anagent principles shouldbeapplied.Theamendmentsclarifyhowtoidentify aperformanceobligation(thepromisetotransfergoodor beginning onorafter1January2018).Theamendmentsdonotchange theunderlyingprinciplesofStandardbutclarifyhowthose Amendments toIFRS15,RevenuefromContractswithCustomers (issuedon12April2016andeffectiveforannualperiods The Groupiscurrentlyassessingtheimpactofnewstandardon itsconsolidatedfinancialstatements. customers havetobecapitalisedandamortisedovertheperiodwhen thebenefitsofcontractareconsumed. any reason,minimumamountsmustberecognisediftheyarenot atsignificantriskofreversal.Costsincurredtosecurecontractswith any discountsorrebatesonthecontractpricemustgenerallybeallocated totheseparateelements.Whenconsiderationvariesfor transferred tothecustomer,attransactionprice.Anybundled goodsorservicesthataredistinctmustbeseparatelyrecognised,and 1 January2018).Thenewstandardintroducesthecoreprinciplethat revenuemustberecognisedwhenthegoodsorservicesare IFRS 15,RevenuefromContractswithCustomers(issuedon28May2014andeffectivefortheperiodsbeginningorafter The Groupiscurrentlyassessingtheimpactofnewstandardonitsconsolidatedfinancialstatements. beginning onorafter1January2018).Keyfeaturesofthenewstandardare: IFRS 9“FinancialInstruments:ClassificationandMeasurement”(amendedinJuly2014effectiveforannualperiods not earlyadopted,areasfollows: applicable fortheGroup’sactivityandapprovedadoptioninRussianFederation(unlessstatedotherwise)whichGrouphas New standardsandimprovementsthosearemandatoryforannualperiodsbeginningonorafter1January2017laterthat › › › › › › › › › › hedges becausethestandardcurrentlydoesnotaddressaccountingformacrohedging. with anaccountingpolicychoicebetweenapplyingthehedgerequirementsofIFRS9andcontinuingtoapplyIAS39 all Hedge accountingrequirementswereamendedtoalignmorecloselywithriskmanagement.Thestandardprovidesentitie s measured usinglifetimeECLratherthan12-monthECL.Themodelincludesoperationalsimplificationsforleaseandtradereceivables. not creditimpaired(orlifetimeECLfortradereceivables).Wheretherehasbeenasignificantincreaseinrisk,impairmentis mean thatentitieswillhavetorecordanimmediatelossequalthe12-monthECLoninitialrecognitionoffinancialassetsthatare stage’ approachwhichisbasedonthechangeincreditqualityoffinancialassetssinceinitialrecognition.Inpractice,newrules IFRS 9introducesanewmodelfortherecognitionofimpairmentlosses–expectedcredit(ECL)model.Thereis‘three fair valuethroughprofitorlossinothercomprehensiveincome. The keychangeisthatanentitywillberequiredtopresenttheeffectsofchangesinowncreditriskfinancialliabilitiesdesignatedat Most oftherequirementsinIAS39forclassificationandmeasurementfinancialliabilitieswerecarriedforwardunchangedtoIFRS9. held fortrading,changesinfairvaluearepresentedprofitorloss. present changesinfairvalueothercomprehensiveincome,providedtheinstrumentisnotheldfortrading.Ifequityinstrument Investments inequityinstrumentsarealwaysmeasuredatfairvalue.However,managementcanmakeanirrevocableelectionto financial assetsbutwillbeincludedinassessingtheSPPIcondition. cash flowsthatareSPPImustbemeasuredatFVPL(forexample,derivatives).Embeddedderivativesnolongerseparatedfrom where anentitybothholdstocollectassets’cashflowsandsellsassetsmaybeclassifiedasFVOCI.Financialthatdonotcontain at amortisedcostifitalsomeetstheSPPIrequirement.Debtinstrumentsthatmeetrequirementareheldinaportfolio contractual cashflowsrepresentsolelypaymentsofprincipalandinterest(SPPI).Ifadebtinstrumentisheldtocollect,itmaybecarried Classification fordebtinstrumentsisdrivenbytheentity’sbusinessmodelmanagingfinancialassetsandwhether at fairvaluethroughprofitorloss(FVPL). those tobemeasuredsubsequentlyatfairvaluethroughothercomprehensiveincome(FVOCI)andsubsequently Financial assetsarerequiredtobeclassifiedintothreemeasurementcategories:thosemeasuredsubsequentlyatamortisedcost, Disclosure InitiativeAmendmentstoIAS1(issuedinDecember2014andeffectiveforannualperiodsonorafterJanuary2016). 2016). Annual ImprovementstoIFRSs2014(issuedon25Septemberandeffectiveforannualperiodsbeginningorafter1January and effectivefortheperiodsbeginningonorafter1January2016). Clarification ofAcceptableMethodsDepreciationandAmortisation‒AmendmentstoIAS1638(issuedon12May2014 periods beginningonorafter1January2016). 2014andeffectiveforthe Accounting forAcquisitionsofInterestsinJointOperations‒AmendmentstoIFRS11(issuedon6 May › › › › › › › RUR 256mordecrease byRUR208m). December 2016 would betoincreaseitbyRUR261m ordecreaseitbyRUR214m (fortheyearended31December 2015:toincreaseby Were theestimatedusefullivesto differby10%fromManagement’sestimates,theimpactondepreciation fortheyearended31 equipment, therangesoftermsfor eachgroupofitemsproperty,plantandequipmenthavenot changed. As at31December2015and December 2016theGroupreassessedremainingusefullivesof itemsofproperty,plantand depreciation expensefortheperiod. and errors”.Theseestimatesmayhaveamaterialimpactontheamount ofthecarryingvaluesproperty,plantandequipmentandon are accountedforasachangeinanaccountingestimateaccordance withIAS8“Accountingpolicies,changesinaccountingestimates period duringwhichtheassetsareexpectedtoearnbenefitsfor Group.Ifexpectationsdifferfrompreviousestimates,thechanges and equipmentatleasteachfinancialyear-endinaccordance withthecurrenttechnicalconditionsofassetsandestimated diminution oftheeconomicbenefitsembodiedinassets.The Group assessestheremainingusefullivesofitemsproperty,plant principally throughuse.However,otherfactors,suchastechnical or commercialobsolescenceandweartear,oftenresultinthe is amatterofjudgmentbasedontheexperiencewithsimilarassets. Thefutureeconomicbenefitsembodiedintheassetsareconsumed Depreciable livesofproperty,plantandequipment.Theestimationtheusefulitemsequipment impairment ofreceivableswasrecognisedintheamountRUR169m andRUR275m,respectively(Notes1011). 2016and31December2015,the provisionfor were todeteriorate,actualwrite-offsmightbehigherthanexpected. Asat31 December historical write-offexperience,customercreditworthinessandchanges incustomerpaymentterms.Ifthefinancialconditionofcustomers evaluating theadequacyofthisallowanceaccount,Managementbasesitsestimatesonageingaccountsreceivablebalances and in theformofanallowanceaccountresultingfrominabilitycustomersandotherdebtorstomakerequiredpayments.When Provision forimpairmentofreceivables.ManagementtheGroupmaintainsaprovisionshort-termreceivables that cancauseamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinnextreportingyear,arediscussedbelow. The keyassumptionsconcerningthefutureandcurrentyearaswell,othersourcesofestimationuncertaintyatreportingdate, 5. SOURCES KEY OF ESTIMATION UNCERTAINTY The followingothernewpronouncementsarenotexpectedtohaveanymaterialimpactontheGroupwhenadopted: The Groupiscurrentlyassessingtheimpactofamendmentonitsconsolidatedfinancialstatements. January 2017).TheamendedIAS7willrequiredisclosureofareconciliationmovementsinliabilitiesarisingfromfinancingactivities. Disclosure Initiative–AmendmentstoIAS7(issuedon29January2016andeffectiveforannualperiodsbeginningorafter1 The Groupiscurrentlyassessingtheimpactofnewstandardonitsconsolidatedfinancialstatements. leases asoperatingorfinanceleases,andtoaccountforthosetwotypesofdifferently. statement. IFRS16substantiallycarriesforwardthelessoraccountingrequirementsinIAS17.Accordingly,acontinuestoclassifyits unless theunderlyingassetisoflowvalue;and(b)depreciationleaseassetsseparatelyfrominterestonliabilitiesinincome lessee accountingmodel.Lesseeswillberequiredtorecognise:(a)assetsandliabilitiesforallleaseswithatermofmorethan12months, eliminates theclassificationofleasesaseitheroperatingorfinanceisrequiredbyIAS17and,instead,introducesasingle right touseanassetatthestartofleaseand,ifpaymentsaremadeovertime,alsoobtainingfinancing.Accordingly,IFRS16 sets outtheprinciplesforrecognition,measurement,presentationanddisclosureofleases.Allleasesresultinlesseeobtaining IFRS 16,Leases(issuedon13January2016andeffectiveforannualperiodsbeginningorafter12019).Thenewstandard › › › › › › › or after1January2018).TheamendmentshavenotbeenendorsedforapplicationintheRussianFederation. Transfers ofInvestmentProperty-AmendmentstoIAS40(issuedon8December2016andeffectiveforannualperiodsbeginningo n beginning onorafter1January2018).TheamendmenthasnotbeenendorsedforapplicationintheRussianFederation. IFRIC 22-ForeignCurrencyTransactionsandAdvanceConsideration(issuedon8December2016effectiveforannualperiods have notbeenendorsedforapplicationintheRussianFederation. 1 January2017foramendmentstoIFRS12,andonorafter2018IAS28).The Annual ImprovementstoIFRSs2014-2016cycle(issuedon8December2016andeffectiveforannualperiodsbeginningorafter amendments havenotbeenendorsedforapplicationintheRussianFederation. temporary exemptionoption,orwhentheentityfirstappliesIFRS9forentitiesthatchoosetoapplyoverlayapproach).The effective, dependingontheapproach,forannualperiodsbeginningorafter1January2018entitiesthatchoosetoapply 2016and Applying IFRS9FinancialInstrumentswith4InsuranceContracts‒Amendmentsto(issuedon12 September 2018). Amendments toIFRS2,Share-basedPayment(issuedon20June2016andeffectiveforannualperiodsbeginningorafter1Janu ary periods beginningonorafter1January2017). 2016andeffectiveforannual Recognition ofDeferredTaxAssetsforUnrealisedLosses‒AmendmentstoIAS12(issuedon19 January 11 September2014andeffectiveforannualperiodsbeginningonorafteradatetobedeterminedbytheIASB). Sale orContributionofAssetsbetweenanInvestoranditsAssociateJointVenture‒AmendmentstoIFRS10IAS28(issuedon 173 CORPORATE 174 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE › › › › › asset, theleaseisclassifiedby Groupasafinancelease,unlessitisclearlydemonstratedotherwise (Note15). or attheinceptionoflease presentvalueoftheminimumleasepaymentsamountstoatleast 90%ofthefairvaluetheleased to thoseaspectsandimplications thathaveaneconomiceffect.Iftheleasetermisforlongerthan 75%oftheeconomiclifeofasset, lease, allaspectsandimplications ofanarrangementsareevaluatedtodeterminethesubstance suchtransactionswithweightgiven transaction ratherthantheformofcontract.Indetermining accountingtreatmentoftransactionsthatinvolvethelegalforma Otherwise itisclassifiedasanoperatinglease.Whetheralease a financeleaseoranoperatingdependsonthesubstanceof Accounting forleases.Aleaseisclassifiedasafinanceifittransferssubstantiallyall therisksandrewardsincidentaltoownership. carrying amountsofassetsandliabilitieswithinthenextfinancialyear: estimates, whichhavethemostsignificanteffectonamounts recognised intheconsolidatedfinancialstatementsandmayfluence In theprocessofapplyingGroup’saccountingpolicies,Management hasmadethefollowingjudgments,apartfromthoseinvolving JUDGEMENTS ACCOUNTING CRITICAL 6. The followingkeyassumptionsweremadeincarryingoutthereview: its non-currentassets. As at31December2016inconnectionwiththerecenteconomicdownturnGrouphascarriedoutareviewofrecoverableamount Current yearreviewofimpairmentproperty,plantandequipment rate andthetimingvalueofrelevantcashflowsforvalue-in-usecalculation. necessarily appliesitsjudgmentindeterminingtheappropriatecashgeneratingunittobeevaluated,estimatingappropriatediscount carrying value.Iftheasset’sfairvalueisnotreadilydeterminableorlessthanpluscostsofdisposal,Management Whenever suchindicationsexistManagementmakesanestimateoftheasset’srecoverableamounttoensurethatitisnotlessthits of service,currentreplacementcostsandotherchangesincircumstancesthatindicateimpairmentexists. growth intheindustry,increasedcostofcapital,changesfutureavailabilityfinancing,technologicalobsolescence,discontinuance cause foranypossiblereductioninvalue,includinganumberoffactorssuchaschangescurrentcompetitiveconditions,expectations and equipmenttodeterminewhetherthereisanyindicationthatassetsareimpaired.Thisprocessinvolvesjudgmentinevaluatingthe Impairment of property, plant and equipment.TheGroupreviewsateachreportingdatethecarryingamountsofitsproperty,plant interest rateanalyses.Termsandconditionsofrelatedpartybalances aredisclosedinNote26. market forsuchtransactions.Thebasisjudgementispricingsimilartypesoftransactionswithunrelatedpartiesandeffective fair values.Judgementisappliedindeterminingiftransactionsarepricedatmarketornon-marketinterestrates,wheretherenoactive parties. IAS39,FinancialInstruments:RecognitionandMeasurement,requiresinitialrecognitionoffinancialinstrumentsbasedontheir Initial recognitionofrelatedpartytransactions.InthenormalcoursebusinessGroupentersintotransactionswithits further changesinthekeyassumptionsarerequired,amountsofpensionbenefitcostsmaybemateriallyaffected(Note16). disability andearlyretirement,etc.),aswellfinancialassumptions(discountrate,futuresalarybenefitslevels,etc.).Intheeventthat the currentandformeremployeeswhoareeligibleforbenefits(mortality,bothduringafteremployment,ratesofemployeeturnover, obligations andrelatedcurrentservicecost.Thismethodinvolvestheuseofdemographicassumptionsaboutfuturecharacteristics Pension obligations.TheGroupusesprojectedunitcreditmethodformeasurementofthepresentvaluepost-employmentbenefit than thoseoftheManagement,andeffectsuchdifferencescouldbesignificant(Note28). on itsinterpretationsoftaxlegislation.However,thereexistsapossibilitythatrelevantauthoritiesmayhavediffering Management believesthatithasaccruedallapplicabletaxes.adequatelyprovidedfortaxliabilitiesbased in respectoftaxesforthreecalendaryearsprecedingtheyearreview.Undercertaincircumstancesreviewsmaycoverlongerperiods. degree ofinterpretationandcanberoutinelychallengedbythetaxauthorities.Fiscalperiodsremainopentoreviewauthorities Compliance withtaxlegislation.legislation,particularlyintheRussianFederation,issubjecttosignificant Results ofthereview: › › › › › estimated futurecashflowswithin17.2%. No impairmentlosswouldresultifthediscountrateincreasedlessthanby9.3%.Similarly,isnotsensitivetodecreasein As aresultofthereviewnoimpairmentlosswasrecognisedinconsolidatedfinancialstatements. weighted averagecostofcapital. The discountrateusedinthecalculationsforperiodfrom2017to2026wasequal16.0%,whichisanestimateofGroup’s The Groupestimateditsfuturecashflowsonanominalbasisfortheperiodfrom2017to2026; The Grouprepresentsonecashgeneratingunit; 7. PROPERTY, AND PLANT EQUIPMENT AND ADVANCES FOR ACQUISITION ASSETS OF NON-CURRENT with involvementofthirdparties). 19,090m forintegratedfreightforwardingandlogisticsservices,RUR3,104mmanagementofcargotransportationhan dling 2015thiseffectwouldbeRUR22,194m(including handling withinvolvementofthirdparties).Fortheyearended31 December RUR 24,641mforintegratedfreightforwardingandlogisticsservices,4,854mmanagementofcargotransportation third-party chargesrelatedtoprincipalactivitieswouldhavedecreasedbyRUR29,495mfortheyearended31December2016(including freight forwardingandlogisticsservices,managementofcargotransportationhandlingwithinvolvementthirdparties that havecertaincharacteristicsofagencyservicesbeenexcludedfrombothrevenueandexpenses,thenintegrated Had therailwaytariffandthird-partyservicesdirectlyattributabletointegratedfreightforwardinglogisticsandother bears thecreditrisk,controlsflowofreceiptsandpaymentsisindependentinitsownpricingpolicy. these servicesastheGroup’scustomersdonotinteractwiththird-partieshavingacontractualrelationshipsGroupand within expensesas“Third-partychargesrelatedtoprincipalactivities”.ManagementbelievesthattheGroupactsaprincipalproviding presented asrevenueitem“Cargotransportationandhandlingserviceswithinvolvementofthirdparties”correspondinglypresented 3) In2015theGroupstartedtoprovideservices(includingthird-partyservices)thathavecertaincharacteristicsofagencyservices will bebornebytheclient. locomotive services.Managementbelievesthatrailroadtariffshouldnotbeincludedinrevenueandexpenses,asanyvariationthe excluding therailroadtariffwhichispaidbyGroupandreinvoicedtoclientasreimbursementofprovidingrailinfrastructure 2) IncaseswhereRail-basedcontainershippingservicesareprovided,theGroupagreeswithcustomertransportfeeasabove, sales revenue.Third-partycharges,includingtherailroadtariff,isincludedinthird-partychargesrelatedtoprincipalactivities. Management believesthattheGroupactsasaprincipalinthesearrangementsandaccountsforreceiptsfromcustomers However, theGroupbearscreditriskasitcontrolsflowofreceiptsandpaymentsisindependentinitsownpricingpolicy. public, thereforeareknowntothecustomer,andriskofdeliveryisbornebytransportationorganisations. There arecertaincharacteristicsindicatingthattheGroupisactingasanagent,particularlyfactrailwaytariffsareavailableto terminal handling,trucking,etc.andthefullthird-partycharges,includingrailwaytariff. organisations. AfullservicefeeischargedbytheGrouptoitscustomersforservicesincludingrail-basedcontainertransportation, 1) IncasetheGroupprovidesintegratedfreightforwardingandlogisticservicescustomersdonotinteractwithothertransportation third parties.ThefollowingtypesoftheGroup’sservicesinvolvecriticalaccountingjudgmentsinrevenuerecognition: Revenue fromintegratedfreightforwardingandlogisticsservicescargotransportationhandlingwithinvolvementof Disposals for sale Reclassification from non-currentassetsheld Transfers 31 DECEMBER2016 Transfers Additions 31 DECEMBER2015 Сapitalised borrowingcosts Additions Disposals Сapitalised borrowingcosts 1 JANUARY2015 COST and constructions Land, buildings 12,388 11,482 11,164 230 906 (57) (64) 66 64 72 7 – Сontainers and 36,615 36,206 36,408 flatcars (823) (600) 971 608 13 38 – – – Cranes and 2,692 2,119 2,025 loaders (192) 318 447 12 22 64 (4) – – other equipment Vehicles and 2,891 2,893 2,528 (173) (225) 416 216 76 46 7 – – Construction in progress 1,207 (1 398) 1,178 (311) 473 333 632 (13) 11 45 (4) – 53,907 55,059 52,458 (1,061) (1 094) 2,338 2,201 Total 154 18 45 – – 175 CORPORATE 176 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE for theconstruction ofthenewcontainerterminal inPrimorskyRegion. of containerterminalsinMoscow, IrkutskandYekaterinburgamountingtoRUR158m,56m RUR31m,respectively,and90m Сonstruction in-progressasat31 December2016consistedmainlyoftheсapitalexpendituresincurred forthereconstructionandexpansion 2015comprisedthefollowing: 31 December The carryingamountofproperty,plantandequipmentnotinuse and notclassifiedasheldforsaleat31December2016 2015comprisedthefollowing: The carryingamountoftemporarilyidleproperty,plantandequipmentasat31December201631 December as at31December2016and2015respectively. The grosscarryingamountoffullydepreciatedproperty,plantandequipmentthatisstillinuseamountedtoRUR1,301mRUR1,513m 2015respectively. amount ofRUR714mand791masat31December201631 December The item“Vehiclesandotherequipmentgroup”includesmotortransportusedforterminalservicestruckdeliverieswithgrosscarrying 212m, RUR208mand27matcontainerterminalsinKrasnoyarsk,ZabaykalskMagnitogorsk,respectively. Yekaterinburg andIrkutskintheamountofRUR455m,240m205mrespectively,craneequipment ofRUR During theyearended31December2016GroupputintooperationbuildingsandconstructionsatcontainerterminalsinKrasn oyarsk, plots ownedbytheGroupasat31December2016and2015respectively. The item“Land,buildingsandconstructions”includestheamountsofRUR112m112m,whichrepresentnetbookvalue ofland 31 DECEMBER2016 31 DECEMBER2015 NET BOOKVALUE 31 DECEMBER2016 Disposals Reversal ofimpairment Disposals for sale Reclassification from non-currentassetsheld (Impairment) /reversalof impairmen NET BOOKVALUE Impairment Accumulated deprecation Cost NET BOOKVALUE Accumulated deprecation Cost Depreciation chargefortheyear 31 DECEMBER2015 Depreciation chargefortheyear 1 JANUARY2015 ACCUMULATED DEPRECIATION and constructions Land, buildings (2,490) (2,276) (2,043) 9,206 9,898 (271) (271) 57 47 (9) – – Сontainers and (12,238) (11,059) (10,009) 25,147 24,377 (1,733) (1,775) flatcars 525 665 29 60 – Cranes and (1,053) (1,080) 1,039 1,639 (965) loaders (160) (108) 180 (6) (4) 7 3 other equipment Vehicles and (1,961) (1,856) (1,723) 1,037 (315) (263) 930 210 169 (34) (5) – Construction in (101) (152) progress 1,207 2016 2016 339 (27) 86 17 44 473 – – – – – – – – – – (17,742) (16,271) (14,740) 37,636 37,317 (2,479) (2,417) (103) (152) (106) Total 137 2015 2015 972 884 (49) 349 243 36 51 94 The tablebelowsummarisesthemovementsincarryingamountof theGroup’sinvestmentinassociatesandjointventures. IN9.INVESTMENTS ASSOCIATES AND JOINT VENTURES management andfinancialaccounting.Theseassetsaredepreciatedonlinearbasis.Economicliveslengthoftheisfrom24to84months. Other intangibleassetsaremostlycomprisedofrailwayservicesoperationssoftware,logisticsrenderingsoftwarefortax, as at31December2015respectively),whicharemostlycomprisedofORACLEsoftwaredevelopmentcosts. Included inintangibleassetsarenotreadyforintendedusewithhistoricalcostofRUR184masat31December2016(RUR132m 62m asat31December2016(RUR305mandRUR59m2015respectively). Company’s intangibleassetsarecomprisedofsoftwarewithinitialcostRUR352mandaccumulateddepreciationtothesum INTANGIBLE8. ASSETS respectively). ofothernon-currentassets(RUR10mand RUR 21m, the acquisition respectively),advancesforthepurchaseofrollingstock(RUR0mandRUR37m,respectively) 183m andRUR 259m, ofcontainers(RUR andRUR114m,respectively),advancesforthe acquisition ofcranesandloaders(RUR 153m for the acquisition As at31December2016and2015,advancesfortheacquisitionofnon-currentassets,netVAT,consistedadvan ces Advances foracquisitionofnon-currentassets constructions”. SeeNote15forfurtherdetailsregardingfinanceleases. The remainingpremisesoftheheadofficebuildingareownedbyGroupandincludedinitem“Land,buildings non-residential premisesinaMoscowheadofficebuildingandcomprisedthefollowing: Leased assetsasat31December2016and2015,forwhichtheGroupisalesseeunderfinanceleaseagreementsrelatedto 2015atarateofcapitalisation8.61%. 31 December ofcapitalisation8.77%andRUR18mcapitalised fortheyearended 2016wasRUR45mata rate for theyearended31 December connection withtheconstructionandreconstructionsofproperty,plantequipmentitems.Thetotalamountinterestcapitalised Additions ofconstructionin-progressincludecapitalisedinterestexpensesonbondsandotherrelatedproceedsfromborrowedfundsin equipment fortheamountofRUR404mwhichwasnotinputintousageuseasatreportingdate. respectively, andaсquiredrealtyforconstructionofthenewcontainerterminalinPrimorskyRegionamountRUR86mcrane expansion ofcontainerterminalsinKrasnoyarsk,YekaterinburgandIrkutskamountingtoRUR201m,194m86m, Сonstruction in-progressasat31December2015consistedmainlyoftheсapitalexpendituresincurredforreconstructionsand Accumulated depreciation Cost Carrying amountasat31December 2016 Effect of translation to presentationcurrency Dividends receivedfromjointventures Share of profit of associatesandjointventures Carrying amountasat31December2015 Share of profit/(loses) associates and jointventures NET BOOKVALUE Carrying amountasat1January2015 Effect of translation to presentationcurrency Kedentransservice andLogistic System ManagementB.V. Joint venturesJSC 2,584 2,910 3,246 (463) (511) (953) 648 617 Other jointventures 105 (25) 93 80 19 20 (6) 5 Associates 151 2016 160 (10) (9) 17 (2) 8 8 2 1 – Total associatesand joint ventures 3,343 2,685 3,023 (517) (490) (932) 153 2015 160 669 612 (7) 177 CORPORATE 178 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE Additional financialinformationofjointventureJSCKedentransserviceandLogisticSystemManagementB.V.isasfollows: Summarised financialinformationofassociatesandjointventuresisasfollowsat31 December201631December2015: elimination oftheownershipinterestheldbyotherinvestorsandgoodwillarisingonacquisitionassociatesjointventures. The reconcilingdifferencebetweentheaboveamountsandcarryingamountofinvestmentsinassociatesjointventuresis comprised ofcashandequivalents. 2015)andmainly Net assetsofLogisticSystemManagementB.V.isRUR13masat31December2016(RUR416m31 December 1,022m (50%toPJSCTransContainerand50%JSCNCKTZ). During theyearended31December2016LogisticSystemManagementB.V.paiddividendstoshareholdersinamountofRUR Profit/(loss) Revenue Net assets Non-current liabilities Current liabilities Non-current assets Income taxexpense Interest expense Interest income Depreciation andamortisation Non-current financialliabilities(excludingtradeandother payables andprovisions) Current financialliabilities(excluding trade andotherpayablesprovisions) Cash and cash equivalents ventures Investments inassociatesandjoint Net assets Current assets Interest held,% Goodwill and LogisticSystemManagementB.V. Joint venturesJSCKedentransservice Joint venturesJSCKedentransservice 2,584 1,296 9,811 4,645 1,057 3,561 2,563 4,645 2016 50% 422 2016 261 and LogisticSystem Management B.V. 11,609 2,910 1,235 5,203 1,246 4,219 2,785 5,203 2015 50% 555 2015 309

2016 50% 456 186 232 2016 186 Other jointventures 38 57 11 Other jointventures 93 – – 2015 50% 105 2015 279 211 105 300 211 16 9 – – 3,413 20% 2016 2016 524 545 12 41 20 41 – 8 – Associates Associates 2,446 20% 2015 2015 682 (51) 690 38 30 38 8 – – 2016 337 320 525 12 45 77 20 Total associatesandjoint Total associatesandjoint 13,680 2,685 1,346 4,872 1,638 3,592 3,340 4,872 2016 2016 422 261 – ventures ventures 14,334 3,023 5,452 1,193 5,452 2,033 4,265 3,775 1,283 2015 2015 2015 309 555 364 472 117 26 13 24 – Analysis bycreditqualityoftradeandotherreceivablesisasfollows: December 2015),wasrecognisedasapartofshort-termtradereceivables(Note26). asat31 2016apartoflong-termreceivablesJSCRZDLogisticsintheamountRUR247m(RUR 138m 2015). Asat31 December 2016 thecurrentvalueoflong-termaccountsreceivableJSCRZDLogisticsamountedtoRUR15m(RUR212masat31December 2018. Adiscountrateof8.6%hasbeenusedforthereceivables’fairvaluedeterminationatdaterecognition.As31December Long-term receivablesarerepresentedmainlybyaccountsreceivableofJSCRZDLogistics,whichisexpectedtobefullyrepaidtillApril to benotimpaired.TheGroupholdscollateraloverapartoftheseoutstandingbalances(Note29). December 2016and312015,respectively,whicharepastdueattherespectivereportingdateGroupconsi ders Included intheGroup’stotaltradeandotherreceivablesaredebtorswithacarryingamountofRUR212m245masat31 RECEIVABLES OTHER AND TRADE 10. 31 DECEMBER2016 › › › › › › Neither pastdue nor impaired Total individuallyimpaired Individually impaired Total pastduebutnotimpaired Past due butnotimpaired Total neitherpastduenorimpaired FINANCIAL ASSETS TOTAL CURRENTTRADEANDOTHERRECEIVABLES,CLASSIFIEDAS Trade receivables 31 DECEMBER2015 FINANCIAL ASSETS TOTAL CURRENTTRADEANDOTHERRECEIVABLES,CLASSIFIEDAS Trade receivables Other receivables Other receivables Less impairmentprovision TOTAL › › › › › › more than 180 days 90-180 days less than 90 days more than 180 days 90-180 days less than 90 days Trade receivables 1,430 1,306 1,306 (78) 124 78 78 19 22 83 – – Outstanding balance, 31 December2016 Other receivables 1,649 1,773 1,440 1,508 gross 175 (90) 265 209 90 88 87 87 86 31 21 36 4 – Trade receivables Provision for impairment 1,188 1,016 (257) (168) (252) 1,016 (252) 252 172 (78) (90) 191 161 (5) 34 27 8 3 Outstanding balance, 31 December2015 Other receivables 1,392 1,605 1,430 1,188 204 131 175 204 131 (5) 73 net 18 47 5 3 8 2 – 179 CORPORATE 180 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE 11. PREPAYMENTS AND OTHER CURRENT ASSETS CURRENT OTHER AND 11. PREPAYMENTS equivalents ofMoody’sorFitchratingsasfollowsat31December 2016and31December2015: The creditqualityofcashandequivalentsbalancesmaybesummarised basedonStandardandPoor’slong-termratingsor 8m. ThedepositsmaturedinJanuary-February2017. 31 December2016.ThetotalamountofaccruedinterestonRussianRoubledenominatedshort-termbankdepositsamountedtoRUR 9.30% to10.35%wereplacedwithPJSCBankOtkritieFinancialCorporation,CBAbsolutBank,VTB,arelatedparty asat Six RussianRoubledenominatedshort-termbankdepositsintheamountofRUR1,629mbearinginterestatannualratesarange from 12. CASH AND CASH EQUIVALENTS CASH AND CASH 12. 1m andRUR18m,respectively. As at31December2016and2015provisionforimpairmentofadvancestosupplierswasrecognisedintheamount RUR Movement intheimpairmentprovisionfortradeandotherreceivablesisasfollows: › › › TOTAL CASHANDEQUIVALENTS Russian Rouble denominated bank deposits Foreign currencydenominatedcurrentaccountswith banks Cash and RussianRoubledenominated current accounts with banks TOTAL PREPAYMENTSANDOTHERCURRENTASSETS Other current assets Advances tosuppliers(net of provision) VAT receivable › BALANCE ATENDOFTHEYEAR Foreign currencytranslation Utilisation ofprovision Release ofprovision Additional provision,recognisedinthecurrentyear TOTAL BALANCE ATBEGINNINGOFTHEYEAR › › › › BBB toA-rated A- to A+rated Unrated Lower than BBB rated Bank balancespayable on demand 3,888 3,377 174 335 2 Term deposits 1,637 1,637 2016 – – – Bank balancespayable on demand 1,900 5,525 3,584 (168) (257) 1,577 1,637 1,496 2,392 1,668 1,818 (100) 2016 2016 2016 121 230 29 39 89 98 4 Term deposits 2,110 3,527 (257) (250) 1,719 1,731 210 2015 2015 2015 2015 210 (26) (11) 210 916 984 14 16 77 – – – and 31December2015,respectively. andRUR 18,368mofundistributedandunreservedearningsasat31December 2016 Accounting Rules.TheCompany had RUR 16,193m unreserved earningsasshownin the Company’sstatutoryfinancialstatements,whichareprepared inaccordancewithRussian In accordancewiththeRussianlegislation, dividendsmayonlybedeclaredfromtheCompany’saccumulated undistributedand Dividends Earnings, Retained 2015 -2013). investment property’srevaluationwasrecognisedinothercomprehensive incomefortheamountofRUR7m(RUR81mduringyears Due tothetransferofpartproperty,plantandequipment theinvestmentpropertyduringyearended31December2016 differences arisingfromtransactionswithshareholders,ofRUR2,221m wererecordedasotherreservesat31December2012. The differencebetweenthefairvalueofnetassetscontributedand thenominalvalueofsharesissuedbyCompany,aswell at 31December2015). As at31December2016OtherReserves,includinginvestmentproperty’s revaluationreserveamountedtoRUR2,133m(RUR2,140mas flatcars, buildingsandconstructions,VATreceivablerelatedtothese assets,andcash,inexchangeforordinarysharesoftheCompany. As discussedinNote1,theCompanywasformedasaresultofspin-offbyRZDwhichinvolvedcontributioncontainers, Reserves,Other including investment revaluation property’s reserve During theyearended31December2015notreasurysharesweresoldandoptionsexercised. plan forthetotalamountofRUR43m,andthereaftertreasurysharesweresold451m. During theyearended31December2016optionswereexercisedandtreasurysharesrepurchasedbyGroupundershare option Treasury shares amounted to13,821,562shares(13,693,737duringtheyearended31December2015). During theyearended31December2016weightedaveragenumberofoutstandingordinaryshares,excludingtreasuryshares shares. The JSCUnitedTransportationandLogisticsCompany(JSCUTLC)istheimmediateparentofCompany,holding50%+2itsordinary The Company’sauthorised,issuedandpaidsharecapitalasat31December20162015comprises: Share Capital 13. EQUITY TREASURY SHARESASAT31DECEMBER2014 TREASURY SHARESASAT31DECEMBER2016 Sale of treasurysharesduring the year Acquisition of treasury shares during theyear Repurchase oftreasurysharesundershare option plan Sale of treasurysharesundershareoptionplan(Note17) Payments under share optionplan TREASURY SHARESASAT31DECEMBER2015 Acquisition of treasury shares during theyear Ordinary shares(parvalue:RUR 1,000) Number ofordinary 13,894,778 shares Number oftreasury 200,799 201,306 (186,729) (167,123) 149,934 (17,189) 13,895 2,612 shares Value 507 – 181 CORPORATE 182 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE Current portionoflong-termdebt The fairvalueofCompany’sbondisdisclosedinNote29. amount hasbeenincludedascurrentportionoflong-termdebtin theconsolidatedstatementoffinancialposition. As at31December2016thecarryingvalueofbondsamounted toRUR4,987m.Theamountofaccruedinterestis129m.This are classifiedaslong-termborrowingsatthereportingdate. The seriesBO-02bondswillberedeemedinfourequalsemi-annual installmentswithinthefourthandfifthyears.Asaresult,thesebonds of thebondsforfiveyearsis9.4%withinterestpaidsemi-annually. 1,000 each.Netproceedsfromtheissuanceafterdeductionofrelated offeringcostsamountedtoRUR4,987m.Theannualcouponrate On 22September2016,theCompanyissuednon-convertiblefive-year bondsforatotalamountofRUR5,000matparvalue BO-02 series bonds, RUR Five-year consolidated statementoffinancialposition. of accruedinterestisRUR133m(RUR176masat31December2015)andhasbeenincludedcurrentportionlong-termdebtin the 2015).Theamount As at31December2016thecarryingvalueofbondsamountedtoRUR3,749m(RUR4,993mas31 December repayment ofitsobligationunderthefirstinstallmentinJuly2016year. The series4bondswillberedeemedinfourequalsemi-annualinstallmentswithinthefourthandfifthyears.Companymade bonds forfiveyearsis8.35%withinterestpaidsemi-annually. each. NetproceedsfromtheissuanceafterdeductionofrelatedofferingcostsamountedtoRUR4,988m.Theannualcouponrateo f the ataparvalueofRUR1,000 On 1February2013,theCompanyissuednon-convertiblefive-yearbondsforatotalamountofRUR 5,000m 4 series bonds, RUR Five-year Long-term borrowingsoftheGrouparedenominatedinRussianRoubles. Long-term debt 14. LONG-TERM DEBT Company’s reservefundwasRUR697m. 2015the issued bondsorpurchasetreasurysharesandcannotbedistributedtoshareholders.Asat31December201631 December amount oftheCompany’sissuedsharecapital.ThereservefundmayonlybeusedtooffsetlossesCompanyaswellredeem computed undertheRussianAccountingRules.Thetotalamountofreservefundislimitedto5percentnominalregistered ofnetprofitas According toitscharter,theCompanyisrequiredestablishalegalreservefundthroughallocationof5 percent Reserve Fund the Company’sresultsforyearended31December2014.InJuly2015dividendshavebeenfullypaid. Dividends ofRUR70.96pershare(RUR974mintotal)wereapprovedattheannualshareholders’meetingon24June2015relatingto meeting on9September2016.InOctober2016thedividendshavebeenfullypaid. Company’s resultsforthesix-monthperiodended30June2016(RUR4,830mintotal)wereapprovedatannualshareholders’ Dividends ofRUR251.84persharefromretainedearningsthepreviousyearsanddividends95.76relatingto Current portionoflong-termborrowings Current portionoflong-termbond TOTAL Bonds, series BO-02 Bonds, series 4 TOTAL Effective interestrate Effective interestrate 8,40% –9,45% 9,45% 8,40% 9,50% 6,236 2,762 4,987 1,249 2,762 2016 2016 – 3,744 1,893 3,744 1,425 2015 2015 468 – December 2015consistedofthefollowing: The totalamountrecognisedasanexpenseinrespectofpaymentsto defined contributionplansfortheyearsended31December2016and Defined contributionplans service period,abenefitfordedicationtothecompanyandcertain otherrequirements.Thesebenefitsarenotfunded. costs onlong-distancetrains,aone-timebonusretirementranging fromonetosixmonthlysalaries,dependingontheduratiof addition, theGroupprovidesotherretirementandpostemployment benefitstoitsemployees,coveringcompensationfortransportation Benefits accruedthroughFundBlagosostoyaniearepartiallyfunded, whilstbenefitsadministeredbytheFundPochetarenotfunded.In defined benefitplansprovidedthoughtheFundBlagosostoyaniewereintroduced. Blagosostoyanie”). Thenot-for-profitfundPochet(”FundPochet”)providespensionstotheGroup’semployeesthatretiredbefore of itsemployees,requiringcontributionstobemadeaseparatelyadministerednon-statepensionfundBlagosostoyanie(”Fund The Groupalsoprovidessupplementarydefinedbenefitandcontributionretirementplanscoveringaboutaquarter Federation tofundthebenefits. Group isrequiredtocontributeaspecifiedpercentageofpayrollcostsaspartthecontributionsPensionFundRussian The employeesoftheGrouparemembersastate-managedpensionplanoperatedbygovernmentRussianFederation. The 16. EMPLOYEE BENEFIT LIABILITY assets. All leasesaredenominatedinRussianRoubles.TheGroup’sobligationsunderfinancesecuredbythelessors’titletoleased of RUR130mattheendleaseperiod. not entitlethirdpartiestousetherightacquireleasedpremises,Groupisobligedpremisesforthe amount In accordancewiththeleaseagreementifGroupdoesnotuserighttoacquireleasedpremisesduringperiodor for atotalamountofRUR24mintheconsolidatedprofitorloss. obligation intheamountofRUR271madvancethatresultedrecognitiongainfromearlyterminationfinanceleaseobligations During theyearended31December2015,Groupboughtbackpartofnon-residentialpremisesbuildingandredeemed its premises inaMoscowofficebuilding.Theleaseagreementisforsix-yearperiodwithaneffectiveinterestrateof9.65%. ofnon-residential During theyearended31December2012Groupenteredintoafinanceleaseagreementonthe acquisition 15. FINANCE OBLIGATIONS LEASE management (Note17). inordertocarry outaShareOptionPlanfortheCompany’s 2011 yeartofinancetheacquisitionofordinarysharesinPJSC TransContainer In July2016theGroupfullyrepaid468mofitsobligationunderloanfromLLCTrustUnionAssetManagementwhichwasobtainedin Less future financecharges Due after one year but not morethanfiveyears Due within oneyear Defined contributionplanBlagosostoyanie Pension FundoftheRussianFederation PRESENT VALUEOFMINIMUMLEASEPAYMENTS TOTAL EXPENSEFORDEFINEDCONTRIBUTION PLANS 139 2016 158 139 (19) 19 Minimum leasepayments 144 2015 177 158 (33) 19 Present valueofminimumleasepayments 655 2016 139 2016 634 139 121 21 18 – 630 2015 144 2015 609 144 126 21 18 – 183 CORPORATE 184 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE Movements inthepresentvalueofdefinedbenefitobligationareasfollows: respect ofthesedefinedbenefitplansareasfollows: The amountsrecognisedintheconsolidatedstatementoffinancialpositionasat31December2016and2015,respectively, 2015,respectively. 2016and31 December benefit constituteRUR127and59mfortheyearsended31 December Net lossrecognisedinothercomprehensiveincomeforpost-employmentbenefitsrelatedmainlytoremeaserumentsofthenetdefi ned the yearended31December2016and2015,respectively,inrespectofthesedefinedbenefitplansareasfollows: The amountsrecognisedintheconsolidatedstatementofprofitorlossandothercomprehensiveincomePayrollrelatedchargesfor projected unitcreditmethod. The presentvalueofthedefinedbenefitobligations,andrelatedcurrentservicecostspastcost,weremeasuredusing The mostrecentactuarialvaluationofthedefinedbenefitobligationwascarriedoutasat31December2016byanindependentactuary. employment definedbenefitplanscoversubstantiallyallemployeesoftheGroup. 2016and31December2015, respectively.Otherretirementandpost- program oftheGroupthroughFundPochetasat31 December depended onsalaryandyearsofservice.Inaddition,therewere7482retiredemployeeseligibleforthepost-retirementbenefit There were137employeesasat31December2016(as2015:173)eligiblefordefinedbenefitpensionplanwithbenefits Defined benefitplans Remeasurements of the net defined benefit Fair value of plan assets Net interestonobligation PRESENT VALUEOFDEFINEDBENEFITOBLIGATIONASAT1 JANUARY2015 Settlement ofliability Losses arising ontransferof employees* other from changes infinancialassumptions from changes indemographic assumptions Actuarial losses/(gain): Interest onthedefined benefit liability Past service cost Current servicecost Service cost: NET EMPLOYEEBENEFITLIABILITY Present valueofdefinedbenefitobligation PROFIT ORLOSS NET EXPENSERECOGNISEDINTHECONSOLIDATED Service cost Post-employment benefits Post-employment benefits 792 2016 2016 855 (63) 84 58 26 – 635 2015 2015 690 (55) 78 63 15 – Post-employment benefits Other long-termbenefits Other long-termbenefits 275 152 2016 2016 275 112 28 12 – (125) 670 (11) 28 23 58 70 26 15 2 7 Other long-termbenefits 269 2015 2015 269 123 (72) 76 25 – 1,067 1,130 (135) 236 328 2016 2016 138 130 123 (63) (72) (72) 28 70 25 (7) – – – (260) 154 998 904 2015 2015 Total Total Total 959 138 (72) 156 138 (55) (49) (14) (18) 88 28 95 2 7 * Thelossesarisingfromtransferofemployees representthetransferofobligationsonpost-retirementbenefits, whichoriginatedfromthemovement Blagosostoyanie carriesoutalltherisksofplanwithrespectto thisparticipant. local lawsFundBlagosostoyanieplacestheassetsinadiversifiedportfolio withastatutorystructure.SinceretirementofparticipantFund Plan assetsunderthesupplementarydefinedbenefitpensionplan aresubjecttoinvestmentrisks.Toreducetherisksinaccordancewith retired employees. employment benefitsarealsosubjecttodemographicriskdue the dependenceofpaymentdurationtochangesinlifeexpectancy Most benefitstoemployeesandretireddependonwage growthandrisingconsumerprices.Besidesinflationrisk,post- sheet datewereasfollows: The majorcategoriesofplanassetsadministeredbyFundBlagosostoyanieasapercentagethefairvaluetotalatbalance Movements inthefairvalueofdefinedbenefitpensionplanassetsareasfollows: assets arisingfrom transferofemployees of employeesfrom, aswellbackto,theparentcompany. Netlossesarethedifferencebetween thelossesarisingfromtransferofemployeesand the PRESENT VALUEOFDEFINEDBENEFITOBLIGATIONASAT31 DECEMBER2015 Other Bank deposits Shares inclosedinvestmentfunds Corporate bondsandstock of Russianlegal entities Settlement ofliability (funded plans) Settlement ofliability Losses arising ontransferofemployees* other from changes in financial assumptions Actuarial losses/(gain): Interest onthedefined benefit liability FAIR VALUEOFPLANASSETSASAT31DECEMBER Contributions from the employer (funded plans) the return onplanassets,excludingamountsincludedinnetinterestthedefinedbenefitliability interest ontheplan assets Income onplan assets: PRESENT VALUEOFDEFINEDBENEFITOBLIGATIONASAT31 DECEMBER2016 Past service cost Current servicecost Service cost: FAIR VALUEOFPLANASSETSASAT1JANUARY Post-employment benefits 690 855 128 127 (58) (11) 64 26 26 (1) 6 Other long-termbenefits 100% 18% 72% (63) (55) 2016 2016 (24) (12) 5% 5% 28 (6) (6) Share intotalplanassets (146) 269 275 112 112 24 28 12 (7) 4 – 100% 1,130 (204) 11% 11% 20% 58% (55) (61) 959 2015 2015 Total 132 155 138 138 (69) (18) 23 79 76 (4) (7) 6 3 185 CORPORATE 186 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE The maturityprofileofthedefinedbenefitobligationasat31December2016: Weighted averagedurationofthedefinedbenefitobligationis5.9years(2015:5.3years). Results ofsensitivityanalysisdefinedbenefitobligationat31December2016and2015: growth ofsalaryandbenefitswillbeinlinewiththeconsumerprices. As at31December2016theGroupassumedthatwageandsalarygrowthinwillbe5.5%averagesubsequentperiods The principalassumptionsusedforthepurposesofactuarialvaluationswereasfollows: entity, LLCТransContainerFinance, whichisfullycontrolledbytheGroup. Ordinary shareswereallocatedfrom treasurysharespurchasedbytheGroupforthispurposeon openmarketbyaspecial-purpose shares. Under certaincircumstanses,including breachofspecificlabouragreementprovisions,PlanParticipants canforfeittheirrighttopurchase the righttoacertainquantityofshareoptionsforeachyearservice withtheCompany. The optionswerevestedinfourannualinstallmentsattheendof each offournextyearsafterJune2011.EachPlanParticipantobtains The Planprovidesforgrantingshareoptionstothemembersof Group’sManagement(the“PlanParticipants”). Directors. participation inthePlanandnumberofsharesindividualmanager’s shareoptionagreementsaredeterminedbytheBoardof the Company’soutstandingordinarysharesmaybeallocatedunder thisPlan,whichhasbeenineffectsince20May2011.Management In October2010,theBoardofDirectorsapprovedaShareOption PlanfortheCompany’sManagement(the“Plan”).Ingeneral,1.5%of PLAN OPTION SHARE 17. EMPLOYEE Average life expectancyafterretirement Projected averagegrowthof consumer prices Rate of employee turnover Discount rate Discount rate Life expectancy table Projected averageannualgrowthofconsumerprices Average rate of employee turnover Other long-term benefits Post-employment benefits 8.3% corrected to84%ofthe initial level Russia, 2015,withprobability 4.5% Based ontheindustry average rates 2016 Change inassumption Before year +1 year –1 year +1% +1% +1% –1% –1% –1% 225 111 114 9.8% corrected to87%ofthe initial level Russia, 2014,withprobability 5.3% Based ontheindustry average rates 2015 1 to2years 195 2016 105 (60) (21) (53) 70 24 61 90 (3) 3 Change inliabilities 2 to5years 349 2015 100 249 (47) (17) (39) 54 16 45 (2) 2 Share optionplanwasexercised as at31December2016. Movements inthereserveheldforShare-basedoptionplanduring year: RUR 3,032andtheweightedaveragesharepriceatdateofexercise wasRUR3,380. During theyearended31December2016167,123optionsinrespectofshareswereexercised,weightedaverageexerciseprice was During theyearsended31December2016and2015noexpensesinrespecttooptionswereincurred. over thelastsixmonthsbeforegrantdate. rates ofreturnontheshareoveraperiodtime.Volatilityhasbeendeterminedbasishistoricalvolatilityprice The measureofvolatilityusedintheBlack-Scholes-Mertonmodelisannualisedstandarddeviationcontinuouslycompounded The Black-Scholes-Mertonmodelisusedtoestimatethefairvalueofshareoptiongranted. options granted. The fairvalueofservicesreceivedinreturnforshareoptionsgrantedtoemployeesismeasuredbyreferencethe The followingnumberofshareoptionsisoutstanding: 514m. TheshareswerepurchasedbyLLCTransContainerFinance. In relationtothePlan,atdateofitsrecognitionGrouphadpurchased208,421treasuryshares.TheirpurchasecostwasRUR Active ParticipantsofthePlanshouldtoexercisetheirshareoptionsuntilJune2016. could begrantedtootherornewPlanparticipants. the sharesrepurchasedunderPlanfromparticipantsandinrespectofwhichforfeitedtheirrighttopurchase, Plan participantscouldbeentitledtosellthesharesacquiredthroughexerciseofoptionsGroupatmarketprice.Optionsrelated Cancelled options Options cancelledduring the year RESERVE ASAT31DECEMBER Exercised options FAIR VALUEATMEASUREMENTDATE(INRUSSIANROUBLES) Share price (in Russian Roubles) OPTIONS OUTSTANDINGAT31DECEMBER Options exercisedduring the year Option life Expected volatility implementation ofthePlan) Exercise price (in RussianRoubles)(includingexpensesrelatedto RESERVE ASAT1JANUARY OPTIONS OUTSTANDINGAT1JANUARY Risk-free interestrate Options grantedasat13May2014 2,367 –2,853 7.9% –8.4% 845 –938 years 1 –2 2,878 47% 174,935 (167,123) Options grantedasat20May2011 (7,812) (231) 240 2016 2016 (9) – – 1,308 –1,462 2,464 –3,145 4.6% –7.4% years 1 –5 174,935 174,935 3,116 37% 240 240 2015 2015 – – – – 187 CORPORATE 188 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE 20. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES CURRENT OTHER AND EXPENSES ACCRUED 20. PAYABLE TAX INCOME THAN OTHER 19. TAXES PAYABLES OTHER AND TRADE 18. Analysis ofrevenuebycategory management reportsarepreparedonthesamebasisastheseconsolidated financialstatements. General Directortoassessperformanceandallocateresources,isprepared basisasasinglereportablesegment.TheGroup’sinternal customers withrail-basedcontainershippingandotherlogisticsservices. Assuch,theGroup’sinternalreporting,asreviewedby The Company’sGeneralDirectorisitschiefoperatingdecision-maker. TheGroup’sbusinessactivitiesareinterdependentinproviding 21. SEGMENT INFORMATION respectively. RUR 399m,respectively,andaccrualsforunusedvacationof189mRUR 184m, Settlements withemployeesasat31December2016and2015comprisedaccruedsalariesbonusesofRUR657m and TOTAL TAXESOTHERTHANINCOMETAXPAYABLE Other taxes Personal income tax VAT Property tax Social insurance contribution TOTAL FINANCIALLIABILITIESWITHINTRADEANDOTHERPAYABLE Amounts payable for the intangible assets Amounts payable for the acquisition ofproperty,plantandequipment Trade payables Integrated freightforwardingandlogistics services TOTAL ACCRUEDEXPENSESANDOTHERCURRENTLIABILITIES Settlements withemployees TOTAL TRADEANDOTHERPAYABLES Liabilities to customers (advances) Cargo transportation and handling services with involvement of thirdparties Provisions for liabilities Other liabilities(financialliabilities) Rail-based containershippingservices Terminal servicesandagencyfees Truck deliveries Other freight forwarding services 38,767 4,279 4,854 4,061 2,393 3,372 378 2016 898 914 2016 2016 2016 110 208 875 226 829 846 33 22 61 38 30 5 8 31,608 3,405 3,104 4,390 2,130 2,603 634 2015 698 802 2015 2015 2015 117 164 313 848 134 583 103 157 645 10 30 12 – 23. OPERATING EXPENSES INCOME OPERATING OTHER 22. the yearended31December2015:RUR3,649mor9%ofGroup’stotalrevenue). During the year ended 31 December 2016, UNICO LOGISTICS CO. LTD accounted for RUR 2,489m or 5% of the Group’s total revenue (for the yearended31December2015:RUR3,254mor8%ofGroup’stotalrevenue). During theyearended31December2016,RZDanditssubsidiariesaccountedforRUR3,704mor7%ofGroup’stotalrevenue (for Analysis ofrevenuebylocationcustomers Other Finland China Latvia Kazakhstan Great Britain Germany Materials, repairandmaintenance Payroll andrelatedcharges Freight handlingandtransportationservices Third-party chargesrelatedtoprincipalactivities Other operatingincome Change inprovisionforimpairmentofproperty,plantandequipment Change inprovisionforimpairmentofreceivables Gain fromthe sale of inventory andfromthereuseofspareparts Gain fromdisposalofproperty,plantandequipment TOTAL REVENUE Korea Russia TOTAL OTHEROPERATINGINCOME TOTAL REVENUE Bonded warehousing services REVENUE FROMEXTERNALCUSTOMERS Other 51,483 51,483 29,495 43,941 2,605 5,244 5,972 1,440 2,729 660 2016 2016 2016 2016 203 104 164 136 267 450 176 539 599 767 842 36 57 42,505 42,505 22,194 34,919 2,275 4,507 5,858 1,317 3,961 811 2015 2015 2015 2015 194 154 159 376 294 150 425 363 550 526 97 50 72 189 CORPORATE 190 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE Profit beforeincometaxforfinancialreportingpurposesisreconciledtoexpenseasfollows: The statutorytaxrateappliedtotheprofitofGroupwas20%foryearsended31December2016and2015. 25. INCOME TAX INCOME 25. INTEREST EXPENSE 24. INCOME TAXEXPENSE Other non-taxablenon-deductibleexpenses andothereffects,net Non-taxable incomeofresultassociates andjoint ventures Income taxadjustmentsforpriorperiods Non-deductible charitabledonations Non-deductible post-employmentbenefits Benefits in-kindandothernon-deductible payments toemployees PURPOSES ANDOTHEREFFECTS: TAX EFFECTOFITEMSWHICHARENOTDEDUCTIBLEORASSESSABLE FORTAXATION Theoretical taxcharge at statutoryrate of 20% INCOME TAXEXPENSE Deferred income tax expense Current incometaxcharge TOTAL INTERESTEXPENSE Interest expense on bank loans andborrowings Interest expense on financelease obligations Interest expense on RUR bonds TOTAL OPERATINGEXPENSES Other expenses Communication costs License andsoftware Consulting and information services Fuel costs Security Charity Rent Taxes other thanincometax Depreciation andamortisation PROFIT BEFOREINCOMETAX 48,294 4 055 (835) (835) 2,528 (782) (811) 492 2016 2016 2016 2016 (53) 133 (89) (51) (11) (21) 460 579 156 157 170 207 254 311 543 15 19 13 73 40,042 3,548 (717) (717) 2,470 (666) (710) 508 2015 2015 2015 2015 (51) 122 (36) (43) (18) (10) (22) 431 621 161 261 166 211 638 521 44 33 70 89 enforceable righttooffsetcurrenttaxassetsagainstliabilities. tax loss.Therefore,deferredassetsandliabilitiesareoffsetonly whentheyrelatetothesametaxableentityandthereisalegally current taxliabilitiesandtaxableprofitsofothergroupcompanies and,accordingly,taxesmayaccrueevenwherethereisaconsolidated In thecontextofGroup’scurrentstructure,taxlossesand taxassetsofdifferentgroupcompaniesmaynotbeoffsetagainst all associatesandjointventuresbecauseanysalewouldoccurina taxfreejurisdiction. recovered primarilythroughasaleandpartiallydividends. Nodeferredtaxesrelatedtoafuturesalearerecognisedinrespectof in theforeseeablefuture.Forallassociatesandjointventures,Management expectsthatthecarryingvalueofinvestmentswouldbe potential deferredtaxliabilitieswheretheGroupdoesnotcontrol reversalofthetemporarydifferenceorexpectsreversaltooccur Management hasperformedananalysisofthedividendpoliciesat theGroup’sassociatesandjointventureswithregardsto not intendtoreversethemintheforeseeablefuture. respect ofinvestmentsinsubsidiariesastheGroupisabletocontroltimingreversalthesetemporarydifferencesanddoes The GroupdidnotrecogniseadeferredtaxliabilityconcerningtemporarydifferencesofRUR438m(31December2015:318m) in the accompanyingconsolidatedstatementsoffinancialpositiongiverisetofollowingdeferredtaxeffects: Total accumulatedtemporarydifferencesthatarisebetweentheRussianstatutorytaxbaseofassetsandliabilitiestheircarryingamountsin Other Trade and otherpayables Other Trade and otherpayables Trade and otherreceivables Trade and otherreceivables Employee benefitsliability Property, plantandequipment Employee benefitsliability Property, plantandequipment Finance leaseobligations Finance leaseobligations Intangible assets Loans and borrowings Investment property Intangible assets Loans and borrowings Investment property TOTAL NETDEFERREDTAXLIABILITY TOTAL NETDEFERREDTAXLIABILITY DEFERRED TAXASSETS 1 January2015 1 January2016 1,414 1,466 1,796 1,871 (199) (140) (113) (10) (11) (65) (74) (97) (29) (80) (10) (2) 17 21 (2) 4 1 Charged toprofit Charged toprofit or loss or loss (84) (75) (4) 51 57 59 82 49 21 51 (3) (2) (8) (3) 6 9 3 1 2 – – comprehensive income comprehensive income Charged toother Charged toother (2) (5) 1 2 4 2 – – – – – – – – – – – – – – – 31 December2015 31 December2016 1,523 1,466 1,845 1,796 (140) (224) (11) (65) (96) (97) (28) (12) (29) (10) (6) 17 21 23 (5) 1 3 191 CORPORATE 192 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE had significantbalancesoutstandingasat31December2016and2015,aredisclosedbelow: The natureoftherelated-partyrelationshipsforthoserelatedpartieswithwhichGrouphasenteredintosignificanttransactions,or effected onthesameterms,conditionsandamountsastransactionsbetweenunrelatedparties. Related partiesmayenterintotransactionswhichunrelatedmightnot,andbetweenrelatednotbe not merelythelegalform. and operationaldecisions.Inconsideringeachpossiblerelated-partyrelationship,attentionisdirectedtothesubstanceofthe party hastheabilitytocontrolotherorcanexercisesignificantinfluencejointoverinmakingfinancial In accordancewithIAS24“Relatedpartydisclosures”,partiesareconsideredtoberelatediftheyundercommoncontrolorone 26. BALANCES AND TRANSACTIONS WITH RELATED PARTIES consolidated profitorloss. in theperformanceofthesefunctions. Company’srevenuegeneratedfromsuchtransactionswith RZD isreportedasagencyfeesinthe As theassetsrequiredforperforming suchfunctionsweretransferredtotheCompany,RZDengaged theCompanytoactasitsagent Under currentRussianregulations, onlyRZDcanperformcertainfunctionsassociatedwitharranging thecontainertransportationprocess. stock inoperatingcondition. services inRussia.Furthermore,RZDownsthevastmajorityofrail-car repairfacilitiesinRussia,whichtheGroupusestomaintainitsrolling The GroupcarriesoutvarioustransactionswithRZD,whichisthe sole ownerandproviderofrailroadinfrastructurelocomotive Relationships withRZD,itssubsidiaries,jointventuresandassociates for freefundsplacement.Servicesareprovidedonmarketterms. state-controlled. PJSCBankVTBprovidessettlementandcashservicing ofCompany’sbankaccountsandcarriesoutdepositoryoperations subsidiaries, jointventuresandassociates(shownas“OtherRZDgroup entites”inthetablebelow),andPJSCBankVTB,whicharealso transactions areconductedoncommercialterms.Themajorityof related-party transactionsarewithOJSCRussianRailways,its transactions withgovernmententitiesforacquisitionofgoodsand providingserviceslikeelectricity,taxesandpost.These related entitiesandgovernmentalbodies,whichareshownas“Other relatedparties”inthetablesbelow.TheGroupalsoenters As apartofitsordinarycoursebusiness,theGroupentersintovarioustransactionsandhasoutstandingbalanceswithgovernment of theseconsolidatedfinancialstatements. treated asrelatedpartiesoftheGroupforthe purposes The Group’sultimatecontrollingpartyistheRussianFederationand,therefore,allcompaniescontrolledbyFederationarealso FAR-EASTERN SHIPPINGCOMPANYPLC Fund Blagosostoyanie PJSC Bank VTB JSC RZD Logistics JSC Carriage RepairCompany-3 JSC Carriage RepairCompany-2 JSC Carriage RepairCompany-1 Far EastLandBridgeLtd. Trans-Eurasia Logistics GmbH Co, Ltd. Chinese-Russian Rail-Container InternationalFreightForwarding(Beijing) Oy ContainerTrans ScandinaviaLtd. JSC Kedentransservice JSC UTLC (Note 13) OJSC Russian Railways (RZD) Related party Significant shareholder employees Post-employment benefitplanforCompany State-controlled entity Subsidiary ofRZD Subsidiary ofRZD Subsidiary ofRZD Subsidiary ofRZD Subsidiary ofRZD Associate oftheCompany Joint ventureofthe Company Joint ventureofthe Company Joint ventureofthe Company Immediate parent company Ultimate controllingcompany 31 December2016 Nature ofrelationship Significant shareholder employees Post-employment benefitplan for Company State-controlled entity Subsidiary ofRZD Subsidiary ofRZD Subsidiary ofRZD Subsidiary ofRZD Subsidiary ofRZD Associate oftheCompany Joint ventureofthe Company Joint ventureofthe Company Joint ventureofthe Company Immediate parentcompany Ultimate controllingcompany 31 December2015 Transactions andoutstandingbalanceswithrelatedpartiesasatfortheyearended31December2016areshownbelow: Non-current assets ASSETS Contributions to non-state pension funds Purchases ofinventory Other operatingincome Dividends receivedfromjointventures TOTAL OTHERTRANSACTIONS Purchases ofproperty,plantand equipment TOTAL EXPENSES Freight andtransportationservices TOTAL INCOME Other interestincome Interest incomeondeposits Other services transportationandhandlingserviceswithinvolvementofthirdparties Cargo Integrated freightforwardingandlogistics services Terminal servicesandagencyfees Rail-based containershippingservices REVENUE Total liabilities Other payables Liabilities to customers (advances) Trade payables Current liabilities LIABILITIES TOTAL ASSETS Other expenses Rent of propertyandequipment Repair services Third-party chargesrelatedtoprincipalactivities Advances tosuppliers Other receivables Trade receivables Cash and cash equivalents Current assets Trade and other receivables OPERATING EXPENSES company (RZD) controlling 28,436 Ultimate 23,874 2,107 1,496 4,064 1,915 1,251 116 140 329 221 61 14 12 13 29 24 2 2 1 – – – – – – – – – – RZD group 1,124 1,888 entities 1,560 1,054 Other 152 544 421 152 175 102 32 59 20 42 38 64 47 16 66 22 15 4 3 – – – – – – – associates Group’s 215 210 3 5 3 1 1 2 3 3 – – – – – – – – – – – – – – – – – – – – Group’s joint ventures 1,801 1,477 1,667 517 100 906 134 78 51 67 33 59 16 2 1 3 – – – – – – – – – – – – – – Other related 2,602 parties 2,504 248 136 263 114 152 49 13 74 45 13 11 46 59 23 17 76 96 3 6 7 9 8 3 9 2 – – – 31,609 25,709 4,723 5,950 2,723 1,942 4,210 1,392 1,398 2,504 290 Total 165 241 517 265 114 269 130 122 263 145 661 49 76 13 71 67 35 15 6 193 CORPORATE 194 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE Transactions andoutstandingbalanceswithrelatedpartiesasatfortheyearended31December2015areshownbelow: trade receivablesbalanceisRUR59m. As at31December2016provisionforimpairmentofaccountsreceivableFarEastLandBridgeLtd.,subsidiaryRZD,inrespect As at31December2016therewerenosignificanttransactionswithJSCUTLC,theparentcompany. Other operatingincome Other interestincome Interest incomeondeposits Other services Other expenses Cargo transportation andhandlingserviceswith involvement ofthirdparties Advances tosuppliers Rent of propertyandequipment Integrated freightforwardingandlogistics services Other payables Other receivables REVENUE Repair services Third-party chargesrelatedtoprincipalactivities Terminal servicesandagencyfees Liabilities to customers (advances) Trade receivables Non-current assets ASSETS Purchases ofproperty,plantand equipment TOTAL EXPENSES Freight andtransportationservices OPERATING EXPENSES TOTAL INCOME Rail-based containershippingservices Total liabilities Trade payables TOTAL ASSETS Cash and cash equivalents Current assets Trade and other receivables Current liabilities LIABILITIES company (RZD) controlling 21,630 Ultimate 17,165 1,946 1,691 1,440 1,678 3,885 116 169 381 210 133 13 17 30 41 90 13 2 – – – – – – – Other RZD 1,496 entities 1,287 group 914 619 351 145 812 212 114 40 20 73 69 10 46 27 20 31 73 56 2 4 – – – – associates Group’s 117 113 13 11 5 2 1 2 1 4 2 1 1 1 – – – – – – – – – – – – Group’s joint ventures 2,499 1 934 557 181 122 522 528 45 37 20 32 39 32 13 3 – – – – – – – – – – – Other related 1,211 1,123 parties 348 239 108 183 61 91 17 10 65 87 22 49 34 47 32 1 3 1 3 7 5 5 – – 25,404 19,320 4,355 3,704 1,573 1,989 1,198 1,703 4,467 1,123 269 Total 158 384 194 602 212 197 269 173 91 59 83 35 89 3 7 Decrease ofminimum leasepaymentsundercontracted operatingleasesrelatesto theterminationandexpirationof leaseagreements. Future minimumleasepaymentsundercontractedoperatingleases,including VAT,areasfollows: from onetofiveyears.Additionally,theGroupleaseslandon which itscontainerterminalsarelocated. The Groupleasescertainproductionbuildingsandofficepremises inRussia.Theremainingtermsoftherelevantleaseagreementsare As at31December2016,theGroupleasescontainerterminalDobra inSlovakia.Theremainingperiodofagreementsvalidityis8years. LEASES OPERATING UNDER 27. COMMITMENTS expenses relatedtotheShareOptionPlanandoptionsprovidedGeneralDirectorhisdeputies. As statedinNote17,duringtheyearended31December2016and2015,Groupdidnothaveany liability amountedtoRUR19m(RUR93mand15mrespectivelyasat31December2015). As at31December2016liabilitiesonaccruedexpensesandothercurrentassetsamountedtoRUR177m,employeebenefit of theGrouparecalculatedbasedonsametermsasforotheremployees. generally sort-termexcludingfuturepaymentsunderpensionplanswithdefinedbenefits.DefinedbenefittoKeymanage ment consolidated profitandlosscomprisesprimarilyshort-termbenefits.MajorpartofcompensationforKeymanagementpersonn el is ended 31December2016and2015,respectively.Thiscompensationisincludedunderpayrollrelatedchargesin the total socialinsurancecontributionsofRUR50m)and263m(including28m)fortheyears insurance contributionsandbeforewithholdingofpersonalincometax,tokeymanagementpersonnelamountedRUR374m(includ ing and comprised2021personsasat31December20162015,respectively.Totalgrosscompensation,including Key managementpersonnelconsistofmemberstheCompany’sBoardDirectors,aswellGeneralDirectorandhisdeputi es, personnel key of management Compensation were paidinJuly2015for2014. andRUR238m,respectively, Dividends payabletoJSCUTLCandFAR-EASTERNSHIPPINGCOMPANYPLC.amountedRUR 493m and werepaidinOctober2016for2015. Dividends payabletoJSCUTLCandFAR-EASTERNSHIPPINGCOMPANYPLC.amountedRUR2,415m1,165m,respectively, Dividends respect ofadvancestosuppliersandliabilitiescustomers)inthenormalcoursebusiness. The amountsoutstandingtoandfromrelatedpartiesareunsecuredexpectedbesettledbycashorsuppliesofgoodsservices(in trade receivablesbalancewasRUR202m. As at31December2015provisionforimpairmentofaccountsreceivableFarEastLandBridgeLtd.,subsidiaryRZD,inrespect related toprincipalactivities”amountedRUR14masat31December2015. “Other services”fromJSCUTLCamountedtoRUR2mandexpensestransactionswithundertheitem“Third-partycharges UTLC, theparentcompany.Theamountof“Tradereceivables”JSCUTLCamountedtoRUR2masat31December2015.Revenueon As at31December2015transactionsundertheitem“Advancestosuppliers”inamountofRUR16mwereenteredintowithJSC Contributions to non-statepensionfunds TOTAL FUTUREMINIMUMLEASE PAYMENTS After five years Within twotofiveyears Within oneyear TOTAL OTHERTRANSACTIONS Purchases ofinventory company (RZD) controlling Ultimate 90 – – Other RZD entities group 145 72 – associates Group’s – – – Group’s joint ventures – – – 462 2016 111 234 117 Other related parties 147 102 11 382 719 2015 Total 102 232 335 152 83 195 CORPORATE 196 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE adverse effectontheGroup’soperations andfinancialposition. Until theGroupobtainsadequate insurancecoverage,thereisariskthatthelossordestructionof certain assetscouldhaveamaterial insurance policiesthatpartiallycoveritsvehicles,buildingsandconstructions, machinery,DirectorsandOfficersliabilityinsurancepolicy. Insurance. TheGroupholdsnoinsurancepoliciesinrelationtoitsassets,operations andotherinsurablerisks,withtheexceptionof beyond thosealreadyrecognisedinthesefinancialstatements. outstanding, whichManagementbelievescouldhaveamaterialeffect ontheresultofoperationsorfinancialpositionGroup, arising intheordinarycourseofbusiness.InopinionManagement, therearenocurrentlegalproceedingsorotherclaims Legal proceedings.Duringtheyear,Groupwasinvolvedinanumberofcourtproceedings (bothasaplaintiffanddefendant) existing legislation,Managementbelievesthattherearenosignificant liabilitiesforenvironmentaldamage. in existingregulations,civillitigationorlegislation,cannotbeestimated butcouldbematerial.Inthecurrentenforcementclimateunder regulations. Asobligationsaredetermined,theyrecognisedimmediately. Potentialliabilities,whichmightariseasaresultofchanges posture ofgovernmentauthoritiesiscontinuallybeingreconsidered. TheGroupperiodicallyevaluatesitsobligationsunderenvironmental Environmental matters.TheenforcementofenvironmentalregulationintheRussianFederationisevolvingand challenge cannotbereliablyestimated;however,itmaysignificanttothefinancialpositionand/oroveralloperationsofGroup. of resourceswillberequiredshouldsuchtaxpositionsandinterpretationschallengedbytheauthorities.Theimpactany estimates thatthetaxpositionsandinterpretationsithastakencanbesustained,thereisapossibleriskanincrementaloutflow the provisionsoftaxlawininterpretationthatdiffersfromapplicablebyregulatoryauthorities.Whilemanagementcurrently Because ofthecontroversyinterpretationsandlackuniquenessestimatesvarioustaxrelations,Groupisallowedtouse evaluation oftaxresidencystatus,liabilityfortaxestotheRussianbudgetinrespectCFC’sprofitsisnotidentified. as aresultofthepreliminaryanalysisrelevantforeigncompanies’businessandstructureearnings,expenses,dividendpolicy, structures (includingtrusts)controlledbyRussiantaxresidents(controllingparties).CFC’sprofitsaresubjecttoa20%rate.However, The ControlledForeignCompany(CFC)legislationintroducedRussiantaxationonprofitsofforeigncompaniesandnon-corporate be reliablyestimated;however,itmaysignificanttothefinancialpositionand/oroveralloperationsofGroup. of theinterpretationtransferpricingrules,thatsuchpricescouldbechallenged.Theimpactanychallengecannot Tax liabilitiesarisingfromtransactionsbetweencompaniesaredeterminedusingactualtransactionprices.Itispossible,withtheevolution controls tocomplywiththetransferpricinglegislation. related partiesandequivalenttothose),providedthatthetransactionpriceisnotarm’slength.Managementhasimplementedinternal authorities tomaketransferpricingadjustmentsandimposeadditionaltaxesinrespectofcontrolledtransactions(transactionswith developed bytheOrganisationforEconomicCo-operationandDevelopment(OECD).Thislegislationprovidespossibilitytax Transfer pricing.TheRussiantransferpricinglegislationistoalargeextentalignedwiththeinternationalprinciples Management’s currentexpectationsandassessmentmaydifferfromactualresults. to ensurestableoperationsoftheGroup.Nevertheless,futureimplicationscurrenteconomicsituationisdifficultpredict,and economic environmenthasasignificantimpactontheGroup’soperationsandfinancialposition.Managementtakesnecessarysteps changes inpricesandincreasespreadsontradingoperations.RussianFederationratinghasbeencutto«belowinvestmentgrade».This gross domesticproductwasaresultofthesefactors.Financialmarketsarestillcharacterisedbylackstability,frequentandsignificant and internationalsanctionsagainstcertainRussiancompaniesindividuals.Theeconomicrecessioncharacterisedbythefallingindexof and varyinginterpretations.During2016theRussianeconomywasnegativelyimpactedbyadeclineinoilprices,ongoingpoliticaltension a highsensitivitytooilandgasmaterialsprices.Thelegal,taxregulatoryframeworkscontinuedevelop,theyaresubjectchanges Operating environmentoftheGroup.TheRussianFederationdisplayscertaincharacteristicsanemergingmarket.Itseconomyhas The Group’scapitalcommitmentsasat31December2016and2015consistedofthefollowing,includingVAT: CONTINGENCIES,28. COMMITMENTS AND OPERATING RISKS TOTAL CAPITALCOMMITMENTS Construction of containerterminalcomplexesandmodernisation of existingassets Acquisition of lifting machines and other equipment Acquisition ofcontainersandflatcars 2,676 2,339 2016 108 229 2,676 1,901 2015 632 143 term borrowings).Allfinancialliabilitiesarecarriedatamortisedcost. The Group’sprincipalfinancialliabilitiesaretradeandotherpayables,financeleaseobligations,debt(whichincludesbondsshort- assets. AllfinancialassetsfallintotheloansandreceivablescategoryunderIAS39“Financialinstruments:recognitionmeasurement”. The Group’sfinancialassetsincludetradeandotherreceivables,cashequivalents,short-terminvestmentsnon-current Major of Categories Financial Instruments capital andtherisksassociatedwitheachclassofcapital. The ManagementoftheGroupreviewscapitalstructureonaregularbasis.Aspartthisreview,considerscost The capitalstructureoftheGroupconsistsissuedcapital,reservesandretainedearningsasdisclosedinNote13. 2015: RUR36,187m). assets toreducedebt.TheamountofcapitalthattheGroupmanagedasat31December2016wasRUR34,509m(as31 December structure, theGroupmayadjustamountofdividendspaidtoshareholders,returncapitalissuenewsharesorsell shareholders withanacceptablelevelofreturnrespectingtheinterestsotherstakeholders.Inordertomaintainoradjustcapital The Group’sobjectiveswhenmanagingcapitalistomaintainanoptimalstructurereducethecostofandprovide through theoptimisationofdebtandequitybalance. The Groupmanagesitscapitaltoensurethatitwillbeablecontinueasagoingconcernwhilemaximisingthereturnshareholders Risk Management Capital 29. RISK MANAGEMENT ACTIVITIES Other non-currentassets TOTAL FINANCIALLIABILITIES Finance leaseobligations Current portionoflong-termdebt Long-term debt Other currentliabilities Trade and other payables Short-term investments Trade and otherreceivables Cash and cash equivalents TOTAL FINANCIALASSETS LOANS ANDRECEIVABLES FINANCIAL ASSETS FINANCIAL LIABILITIES 10,065 7,227 2,762 6,236 1,621 5,525 2016 2016 139 898 30 78 3 6,686 3,726 1,893 3,744 1,604 2,110 2015 2015 103 144 802 5 7 197 CORPORATE 198 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE arrangements (i.e.derivatives)tomanageforeigncurrencyriskexposure. (depreciated againsttheUSDby30%andEUR17% asat31December2015).TheGroupdoesnothaveoruseanyformal As at31December2016therewasthestrengtheningofRussian RoubleagainsttheUSDby17%,andEUR20% financial liabilities. As at31December2016and2015theGroup’sfinancialassetsdenominated inforeigncurrencyhaveexceededits Russian Rouble,thefunctionalcurrencyofCompany. Certain receivableandpayablebalances,relatedprimarilytosettlements withcustomers,aredenominatedincurrenciesotherthanthe is exposed.TheGrouphasexportrevenue,andpurchasesthirdparty transportationservices,whicharedenominatedinforeigncurrencies. Currency riskisthethatfinancialresultsofGroupwillbeadverselyimpactedbychangesinexchangeratestowhich Risk Currency pay orexpecttomakethepayment. date onwhichtheGroupcanberequiredto undiscounted cashflowsoffinancialliabilities,includingfutureinterest,basedonthe earliest The followingtabledetailstheGroup’sremainingcontractualmaturityforfinancialliabilities.tableshavebeendrawnupbasedon obligations, debtandbondobligations.Thenon-interestbearingliabilitiesincludetradeotherpayables. The Grouphasbothinterestbearingandnon-interestfinancialliabilities.liabilitiesconsistoffinancelease financial positionasat31December2015andaffectedcurrentliquidityratiooftheGroup. Management intheamountofRUR468mwhichwereclassifiedascurrentportionlong-termdebtconsolidatedstatementof In 2016theCompanyrepaidapartofbondloanseries4inamountRUR1,250mandfromLLCTrustUnionAsset the momentofsigningnewcredit,loanorleaseagreementsandbybudgetingprocedures. cash flowsandexpectedrevenuereceipts.Inthelong-termperspectiveliquidityriskisdeterminedbyforecastingfuturecashat has adequatecashavailabletomeetitspaymentobligationsastheyfalldue.Managementcontrolscurrentliquiditybasedonexpected monitored andmanagedbythetreasuryfunction.TheGrouphasestablishedbudgetingcashflowplanningprocedurestoensureit Liquidity riskisthethatGroupwillnotbeabletosettleallliabilitiesastheyfalldue.TheGroup’sliquiditypositioncarefully RiskLiquidity Finance leaseliabilities Bonds Finance leaseliabilities 2016 Short-term debt Bonds TOTAL payables and otherliabilities) Non-interest bearingliabilities (including tradeand other TOTAL payables and otherliabilities) Non-interest bearingliabilities (including tradeand other 2015 8.40% -9.45% Effective interest 9.65% 8.35% 9.65% 9.5% rate Less than1 2,077 1,406 month 794 208 580 669 2 2 4 1-3 months 259 478 235 249 240 3 3 7 – 3 months-1 2,022 1,621 1,458 1,588 474 year 14 14 76 19 1-5 years 4,220 7,964 4,062 7,825 158 139 – – – 12,140 11,054 7,295 5,728 Total 177 158 485 905 928 The carryingamountsoftheGroup’sforeigncurrencydenominatedmonetaryassetsandliabilitiesasatreportingdateareasfollows: denominated inrespectivecurrencies. sheetdates USD andEURby30%,allothervariablesbeingheldconstant.Theanalysiswasappliedtomonetaryitemsatthe balance The tablebelowprovidesanalysisofsensitivityGroup’sprofitandlosscapitaltostrengtheningtheRussianRoubleagainst by economicfactors, Managementbelievesthatthere isnosignificantriskoflossto theGroupbeyondprovision alreadyrecorded. cash equivalents(Note12)represents themaximumamountexposedtocreditrisk.Althoughcollection ofreceivablescouldbeinfluenced The carryingamountofaccounts receivable,netofprovisionforimpairmentreceivables(Note10), andcarryingamountofcash other customersaremadeonaprepayment basis. Management. Deferredpayment terms areofferedonlytothemostsignificantcustomersofGroup withprovencredithistory.Salesto Credit exposureismanagedbyestablishing creditlimitsforthemostsignificantcustomersthatare reviewed andapprovedby The Group’sexposuretocreditriskarisesprimarilywithrespect receivablesinconnectionwithcontainershippingactivities. does nothedgeitscreditrisk. Credit riskreferstothethatcounterpartywilldefaultonitscontractual obligationsresultinginfinanciallosstotheGroup.TheGroup Credit risk interest risk. Finance leaseobligationsarefinancialinstrumentsbearingafixed interest rate,therefore,theydonotsubjecttheGrouptoanadditional All bondsweregrantedatfixedinterestrates,thereforetheGroup didnothaveanadditionalinterestrisk. further changes.Theeffectiveinterestrateofthebonds,seriesBO-02is9.45%. The annualcouponrateofthefive-yearRURbonds,seriesBO-02issuedon22September2016wassetat9.4%forfiveyearswithoutany further changes.Theeffectiveinterestrateofthebonds,series4is8.4%. The annualcouponrateofthefive-yearRURbonds,series4issuedon1February2013wassetat8.35%forfiveyearswithoutany lease liabilities(Note15). As at31December2016theGroup’sborrowedfundsconsistoflong-termdebt,currentportiondebt(Note14)andfinance Group hasfinancialliabilitieswithbothfloatingandfixedinterestrates,maintaininganappropriatemixbetweendebtdequity. performance. Managementmonitorschangesininterestratesandtakesstepstomitigatetheserisksasfarpracticablebyensuringthe Interest rateriskisthethatmovementininterestratesforborrowedfundswillhaveanadverseeffectonGroup’sfinancial Interest rate risk on theconsolidatedfinancialstatementsofGrouptothatshownabove. The weakeningoftheRussianRoubleinrelationtosamecurrenciesbypercentagewillproduceanequalandoppositeeffect Trade and otherreceivables ASSETS Cash and cash equivalents LIABILITIES TOTAL ASSETS TOTAL LIABILITIES Trade and other payables TOTAL 973 113 2016 880 113 93 (258) 2016 1,157 355 2015 357 800 355 USD USD –impact (241) 637 2016 613 2015 33 24 33 210 2015 111 EUR 33 99 33 (181) 2016 2016 18 15 4 3 4 EUR –impact Other (53) 2015 2015 3 4 4 3 – 199 CORPORATE 200 ANNUAL REPORT 2016 COMPANY PROFILE STRATEGIC REPORT MARKET OVERVIEW BUSINESS OVERVIEW FINANCIAL REPORT TRCONT.RU/EN/ GOVERNANCE financial entitiesinroublesforaperiod from181daysto1year. average interestrateestablished by theCentralBankofRussiaforDecember2016onattracted credit institutionsdepositsofnon- hierarchy (Note3)accountsforRUR 240m(RUR200masat31December2015).Thecalculationis basedontheuseofaweighted As at31December2016thefair valueofaccountsreceivableJSCRZDLogisticsrelatedtoLevel 3 inthefairvaluemeasurement liabilities relatetoLevel3inthefair valuehierarchy. of JSCRZDLogistics),otherfinancialassets,tradeandpayables, financeleaseobligations.Exceptforcash,thesefinancialassetsand of thefollowingassetsandliabilitiesapproximatestheircarryingvalue: cash,tradeandotherreceivables(excludingaccountsreceivable For financialassetsandliabilitiesnotmeasuredatfairvaluebutfor whichfairvalueisdisclosed,Managementbelievesthatthe hierarchy (Note3).AsatthereportingdateGrouphadfinancial assetsandliabilitiesclassifiedasLevel13. Management usesitsjudgmenttotheassessmentandclassification offinancialinstrumentsbycategoryusingthefairvaluemeasurement liabilities and assets of Fair value statement offinancialposition,describedabove. The Group’smaximumexposuretocreditriskbyclassofassetsis reflected inthecarryingamountsoffinancialassetsconsolidated Group. cash andequivalentsasat31December2016(as2015:53%)wereheldwithonebankwhichisrelatedtothe Credit riskonliquidfundsislimitedbecausetheseareplacedonlywithfinancialinstitutionswellknowntotheGroup.45%oftotal The Group’sManagementmonitorspastduebalancesofreceivablesandprovidesageinganalysisasdisclosedinNote10. performance ofcontractualobligationsandminimiseriskscollectingreceivables(nosuchguaranteesat31December2015). As at31December2016theGroupreceivedfinancialguaranteesintotalamountofRUR200mordertoensureproper continuous basisandtakesactionsregularlytoensurecollectionminimizelosses. contract executionstage.TheGroupconsiderstheirfinancialpositionandcredithistory.monitorstheexistingreceivablesona There isnoindependentratingfortheGroup’scustomersandthereforeGroupconsiderscreditqualityofatthe analysed onaregularbasisbytheGroupforreliabilityandcollectability. creditworthiness andthelikelihoodofrecovery.Accountsreceivablefromothercompanieshavesimilarratescreditcapacity companies inthetransportationandlogisticssector.Accountsreceivablefromrelatedpartiesarecharacterisedbyahighdegreeof Financial assetsneitherpastduenorimpairedareprimarilyreceivablesfromrelatedparties(Note26)andother Accounts receivableofJSCRZDLogisticswasdiscountedinaccordancewithconfirmedschedulefortherepaymentdebts(Note10). As at31December2016and2015noimpairmentofaccountsreceivablehasbeenidentifiedforallthesecustomers. The largesttradeandotherreceivablesoutstandingasatthebalancesheetdatearefollows: largest counterparties). amount oftradeandotherreceivablesrelatedtosevenlargestcounterpartiestheGroup(asat31December2015:81%five The Group’sconcentrationofcreditriskisdependentonafewlargekeycustomers.Asat31December201663%thetotalnet TOTAL Chinese-Russian Rail-Container International FreightForwarding(Beijing)Co,Ltd JSC Kuznetskie Ferrosplavy PJSC Chelyabinsk Pipe-RollingPlant JSC Vyksa SteelWorks UNICO LOGISTICS DB Cargo LogisticsGmbH(DBSchenkerRail Automotive GmbH) RZD JSC RZD Logistics 1,028 2016 131 245 419 33 48 60 92 – Outstanding balance,net 1,293 2015 251 617 316 23 86 – – – › › › › Acquisition ofcontainers.InJanuary-March2017theGroupobtainedunderpreviouslysignedagreements: 30. SUBSEQUENT EVENTS based onexpectedcashflowsdiscountedatcurrentinterestratesfornewinstrumentswithsimilarcreditriskandmaturity. determined usingvaluationtechniques.Theestimatedfairvalueoffixedinterestrateinstrumentswithstatedmaturitywasestimated Liabilities carriedatamortisedcost.Thefairvalueofbondsisbasedonquotedmarketprices.Fairvaluesotherliabilitieswere counterparty. current interestratesfornewinstrumentswithsimilarcreditriskandremainingmaturity.Discountuseddependoncreditofthe estimated fairvalueoffixedinterestrateinstrumentsisbasedonfuturecashflowsexpectedtobereceiveddiscountedat Financial assetscarriedatamortisedcost.Thefairvalueoffloatingrateinstrumentsisnormallytheircarryingamount. TransContainer FreightForwarding(Shanghai)Co.,LtdontheterritoryofPeople’sRepublicChinainShanghai. Establishment ofsubsidiary.InFebruary2017theCompany’sBoardDirectorsapprovedestablishment100%subsidiary- amount ofRUR201m(plusVATinthe36m)underpreviouslysignedagreement. Acquisition offlatcars.InJanuary-March2017theGroupobtained115flatcarsfromOJSCTransportnoyeMashinostroyeniyefortotal The followingtabledetailsthefairvalueofCompany’sbonds: hierarchy. Company’s bondsareplacedontheMoscowStockExchangeandquotedmarket,thustheyrefertoLevel1infairvalue › › › › FINANCIAL LIABILITIES TOTAL Bonds 210 containersfromLLCTradingCompanyRMRailforthetotalamountofRUR36m(plusVATin6m). Russian Federationexchangerateasatthedateofpurchase),netVAT; 281 containersfromTaicangCIMCspeciallogisticequipmentCo.,LtdforthetotalamountofRUR30m(atCentralBank exchange rateasatthedateofpurchase),netVAT; 312 containersfromEngineeringSolutionsOUforthetotalamountofRUR56m(atCentralBankRussianFederation as atthedateofpurchase),netVAT; 385 containersfromSTORYHILLSLTDforthetotalamountofRUR40m(atCentralBankRussianFederationexchangerate 8,750 8,750 2016 4,800 4,800 2015 201 and the outcomes of these cases and theoutcomesof these legislationinvolvingTransContainer Number ofcasesconcerningviolationsof antimonopoly Major transactionsandrelatedparty Report oncompliancewiththeCorporateGovernanceCode Corporate riskmapfor2016 Subsidiaries andjointventuresPJSCTransContainer Administrative details Global SustainabilityStandardsBoard(GSSB/GRI)

APPENDIX

204 240 242 223 239 221 221 204 205

REPORT ON COMPLIANCE WITH THE CORPORATE

TRCONT.RU/EN/ GOVERNANCE CODE

№ Corporate governance principles Criteria for evaluating compliance with corporate Status <1> Explanations <2> of deviations from № Corporate governance principles Criteria for evaluating compliance with corporate Status <1> Explanations <2> of deviations from governance principles of compliance with criteria for evaluating compliance governance principles of compliance with criteria for evaluating compliance corporate governance with corporate governance principles corporate governance with corporate governance principles principles principles

1.1 The company must ensure equal and fair treatment of all shareholders as they exercise their right to participate in governance of the 1.1.4. The exercising by a shareholder of Compliant company. the right to call a general meeting, to nominate candidates for executive 1.During the reporting period, shareholders were able Compliant 1.1.1 The company shall create the Compliant bodies and to make suggestions to submit proposals for inclusion on the agenda of most advantageous conditions for for inclusion on the agenda for a the annual general meeting for at least 60 days after shareholders to participate in the 1. The internal company document approved by the Compliant general meeting shall not entail undue the end of the relevant calendar year. general meeting of shareholders; general meeting of shareholders that governs the difficulties. conditions to enable the development procedures for conducting the general meeting is 2. During the reporting period, the company did not Compliant of well-founded positions on agenda openly available. refuse to accept proposals from a shareholder on items at the general meeting of the agenda or candidates for corporate bodies shareholders; coordination of their 2. The company provides an accessible means of Compliant due to typographical errors or other insignificant actions; and the opportunity to express communicating with the company such as a hotline, shortcomings in the shareholder’s proposals. their opinion on the issues under an email address or an Internet forum through which 1.1.5. Each shareholder shall be able to Compliant consideration. shareholders can express their opinion and submit questions on the agenda during preparations for the exercise their right to vote in a simple general meeting. The company took these actions and convenient manner without 1. The internal company document (internal policy) Compliant on the eve of each general meeting held during the impediment. contains provisions according to which each reporting period. participant in a general meeting may request a copy of the ballot which he/she filled out, certified by the 1.1.2. The procedure for notification of the Compliant ballot committee, prior to the end of a meeting. general meeting and for submitting information to the general meeting shall 1. The notification of the general meeting of Compliant 1.1.6. The procedure established by the Partially compliant enable shareholders to prepare properly shareholders was posted (published) on the website company for conducting a general 1. At general meetings of shareholders held during Compliant for participation in it. at least 30 days prior to the date of the general meeting shall ensure that all persons meeting. present at the meeting have the equal the reporting period in the form of a meeting right to express their opinion and ask (with shareholders jointly present), sufficient time 2. The notification of the general meeting indicated Compliant questions of interest to them. was provided for reports on agenda items and for APPENDIX the location of the meeting and the documents discussion of these items. necessary for admission to the premises. 2. The candidates for the company’s management Partially compliant Some candidates for executive and 3. Information on who proposed agenda items and Compliant and supervisory bodies were available to answer supervisory bodies were available who nominated candidates for the company’s board questions from shareholders at the meeting where to answer shareholders’ questions their candidacies were raised for voting. during the Annual General Meeting. ОБЗОР РЫНКА ОБЗОР of directors and revision commission was provided to shareholders. That said, as per the Company’s Corporate Governance Code (as 1.1.3. During preparations for the general Compliant amended), annual general meetings meeting of shareholders and at the are attended by CEO, Board and meeting itself, shareholders were 1. During the reporting period, shareholders were able Compliant Revision Commission members. given timely and unhindered access to submit questions to the company’s executive to information and materials on the bodies and members of the board of directors before meeting, and the opportunity to submit and during the annual general meeting. 3.When making decisions relating to preparing for Compliant questions to the company’s executive and holding general meetings of shareholders, bodies and members of the board of 2. The positions of the board of directors (including Compliant the board of directors examined the issue of using directors and to communicate with special opinions included in the minutes) on each telecommunications technologies to provide each other. agenda item for general meetings conducted during shareholders with remote access to general meetings the reporting period were included in the materials during the reporting period. for the general meeting of shareholders.

3. The company provided access to the list of persons Compliant having the right to participate in the general meeting to all entitled shareholders, from the date on which this list was received by the company, in all cases where general meetings were held during the reporting period. ANNUAL REPORT 2016 206 207

1.2. Shareholders shall be provided equal and fair opportunities to share in the company’s profits by receiving dividends. 1.4. Shareholders have been provided with reliable and effective means for accounting for rights to shares, as well as the opportunity to dispose of the shares belonging to them freely and without encumbrance. 1.2.1. The company has developed and Partially compliant introduced a transparent and 1.4.1. Shareholders have been provided Compliant understandable mechanism for 1. A dividend policy has been developed by the Compliant with reliable and effective means for determining and paying dividends. company, approved by the board of directors and accounting for rights to shares, as well 1. The quality and reliability of the work carried out Compliant disclosed. as the opportunity to dispose of the by the company’s registrar to maintain a register of shares belonging to them freely and owners of securities conform to the requirements of 2. If the company’s dividend policy uses company Not compliant The Company’s dividend policy without encumbrance. the company and its shareholders. reporting indicators to determine the amount of specifies that dividend payments dividends, the corresponding provisions of the be calculated as a percentage of 2.1. The board of directors shall exercise strategic governance of the company, determine the fundamental principles and approaches to the dividend policy account for consolidated financial the Company’s net profit calculated company’s risk management and internal control system, oversee the activities of the company’s executive bodies, and also perform other statement indicators. according to RAS (not including key functions. earnings from revaluation of financial investments). The dividend policy 2.1.1. The board of directors shall be Partially compliant. was developed by the Company prior responsible for making decisions to the publication of the Corporate about appointments to and dismissals 1. The board of directors has powers defined in the Compliant Governance Code recommended from executive bodies, including due charter to appoint, dismiss and determine the terms for use by the Bank of Russia, to failure to perform. The board of and conditions of contracts for members of executive and reflected the practice for the directors shall also exercise control to bodies. calculation of dividend payments ensure that the company’s executive generally Accepted in the Russian bodies act according to the approved 2. The board of directors reviews the report(s) of the Partially compliant. On a quarterly basis, the Strategy Railways group. The Company plans development strategy and main areas of sole executive body and members of the collegial Committee and Board of Directors to switch to calculating dividend operations of the company. executive body on fulfilment of the company’s discuss CEO performance report payments as a percentage of the strategy. with elements of MD&A focusing Company’s net profit calculated on macroeconomic trends, market according to IFRS by 2018. overview, competitive environment, key operational and financial metrics, 1.2.2. The company will not make a decision Compliant investment project status. to pay dividends if such a decision, although not formally in violation of legal 1. The company’s dividend policy contains clear Compliant 2.1.2. The board of directors shall define Partially compliant requirements, is not economically justified instructions on the financial and economic the benchmarks for the company’s and may lead to a false impression of the circumstances under which the company shall not operations over the long term; evaluate 1. Issues relating to the fulfilment and updating of Partially compliant During 2016, the Company’s Board company’s operations. pay dividends. and approve key performance indicators the strategy, approval of the company’s financial of Directors reviewed all these issues, APPENDIX and the primary business goals of the and business plan (budget), and criteria and except the issue of updating the 1.2.3. The company does not permit Compliant company; and assess and approve the indicators (including intermediate indicators) for Company’s strategy. The Company’s degradation of the dividend rights of strategy and business plans for the implementation of the company’s strategy and key strategic priorities and long-term significant shareholders. 1. During the reporting period, the company did not Compliant company’s primary operations. business plan, were reviewed at meetings of the business goals were discussed by the take actions leading to degradation of the dividend board of directors during the reporting period. Company’s Executive Board in October

ОБЗОР РЫНКА ОБЗОР rights of significant shareholders. 2016 after the container cargo crisis was over and the market saw a clear 1.2.4. The company will strive to prevent Not compliant recovery trend. The Company’s key the use by shareholders of methods strategic priorities and long-term for gaining profit (earnings) at the 1. To prevent the use by shareholders of methods for Not compliant These control mechanisms have not business goals are on the Strategy company’s expense other than gaining profit (earnings) at the company’s expense been established in internal Company Committee’s agenda for Q1 2017. dividends and disposal value. other than dividends and disposal value, internal documents to date. In transactions company documents have established control with persons affiliated to (associated 2.1.3. The board of directors shall define Compliant mechanisms that ensure timely identification and a with) significant shareholders the principles and approaches to the procedure for approval of transactions with persons (persons having the right to control company’s risk management and 1. The board of directors has defined the principles and Compliant affiliated to (associated with) significant shareholders votes attached to voting shares), the internal control system. approaches to the company’s risk management and (persons having the right to control votes attached to Company obeys the requirements of internal control system. voting shares) in those cases where the law does not Russian Federation law. formally recognize such transactions as interested 2. The board of directors has evaluated the company’s Compliant party transactions. risk management and internal control system during the reporting period. 1.3. The corporate governance system and practice ensures equal conditions for all shareholders – owners of shares of one category (type), including minority shareholders and foreign shareholders, and equal treatment of them by the company. 2.1.4. The board of directors shall define the Compliant company’s policy on remuneration and 1.3.1. The company has created conditions Compliant (or) reimbursement of expenses of the 1. A policy (policies) on remuneration and Compliant for fair treatment of each shareholder members of the board of directors, reimbursement of expenses of the members of the by the company’s management and 1. During the reporting period, procedures for Compliant executive bodies and other key board of directors, executive bodies and other key supervisory bodies, including conditions managing potential conflicts of interest among managers of the company. managers of the company was developed, approved that prevent abuse of minority significant shareholders were effective, while the by the board of directors and introduced. shareholders by majority shareholders. board of directors devoted proper attention to conflicts between shareholders, if such existed. 2. Issues relating to this policy (policies) were reviewed Compliant at meetings of the board of directors during the 1.3.2. The company does not take actions Compliant reporting period. that lead or may lead to artificial redistribution of corporate control. 1. There was no quasi-reacquired stock, or it was not Compliant involved in voting during the reporting period. ANNUAL REPORT 2016 208 209

2.1.5. The board of directors shall play a key Compliant 2.3.3. The membership of the board of Compliant role in preventing, identifying and directors shall be balanced, including regulating internal conflicts between 1. The board of directors plays a key role in preventing, Compliant in terms of the qualifications of its 1. As part of the procedure for evaluating the work of Compliant company bodies, shareholders and identifying and regulating internal conflicts. members, their experience, knowledge the board of directors during the reporting period, employees. and business qualities, and have the the board of directors has analysed its own needs in 2. The company has created a system for identifying Compliant trust of the shareholders. terms of professional qualifications, experience and transactions involving a conflict of interest and a business skills. system of measures aimed at resolving such conflicts. 2.3.4. The quantitative composition of the Compliant 2.1.6. The board of directors shall play a key Compliant company’s board of directors shall make role in ensuring the transparency of it possible to organise the activity of the 1. As part of the procedure for evaluating the board Compliant the company, timely and complete 1. The board of directors has approved a by-law on Compliant board of directors in the most efficient of directors carried out during the reporting period, disclosure of information by the information policy. manner, including the ability to establish the board of directors has reviewed the issue of the company and the unhindered access of committees of the board of directors, conformity of the quantitative composition of the shareholders to company documents. 2.Individuals within the company have been identified Compliant and shall also enable significant minority board of directors to the needs of the company and as responsible for implementing the information shareholders of the company to elect the interests of its shareholders. policy. the candidate they vote for to the board of directors. 2.1.7. The board of directors shall exercise Compliant oversight of corporate governance 2.4. The board of directors shall include a sufficient number of independent directors. practice in the company and play a key 1. The board of directors has reviewed the issue of Compliant role in significant corporate events. corporate governance practice in the company 2.4.1. An independent director is a person Compliant during the reporting period. who has sufficient professionalism, experience and independence to 1. During the reporting period, all independent Compliant 2.2. The board of directors shall be accountable to the company’s shareholders. determine his or her own position, members of the board of directors met all criteria who is capable of making objective indicated in recommendations 102–107 of the Code, 2.2.1. Information on the work of the board Compliant and conscientious judgements that are or were declared independent by decision of the of directors is disclosed and provided to independent of the influence of the board of directors. shareholders. 1. The company’s annual report for the reporting period Compliant includes information on the attendance of individual company’s executive bodies, groups directors at meetings of the board of directors and of shareholders or other interested its committees. parties. It must be noted here that, under normal conditions, a candidate 2. The annual report contains information on the main Compliant (elected member of the board of directors) who is connected to the APPENDIX results of an assessment of the work of the board of directors conducted during the reporting period. company, is a significant shareholder, significant contractual counterparty or 2.2.2. The chairman of the board of directors Compliant competitor of the company, or who has shall be accessible for communication connections to the government, cannot with the company’s shareholders. 1. The company has a transparent procedure enabling Compliant be deemed independent.

ОБЗОР РЫНКА ОБЗОР shareholders to submit questions and their positions on them to the chairman of the board of directors. 2.4.2. The conformity of the candidates for the Compliant board of directors to the independence 2.3. The board of directors is an effective and professional management body of the company, capable of making objective, independent criteria shall be evaluated, and 1. During the reporting period, the board of directors Compliant judgements and decisions meeting the interests of the company and its shareholders. the conformity of independent (or the nomination committee of the board of members of the board of directors directors) formed an opinion of the independence 2.3.1. Only persons with impeccable business Compliant to the independence criteria shall be of each candidate for the board of directors and and personal reputations, having analysed regularly. Content must take submitted its conclusions to the shareholders. the knowledge, skills and experience 1. The company’s procedure for evaluating the Compliant precedence over form when conducting necessary for making decisions under performance of the board of directors includes an such an evaluation. 2. During the reporting period, the board of directors Compliant the purview of the board of directors assessment of the professional qualifications of (or the nomination committee of the board of and required for effective performance members of the board of directors. directors) reviewed the independence of the current of its functions shall be selected as members of the board of directors, whom the members of the board of directors. 2. During the reporting period, the board of directors Compliant company lists as independent directors in the annual (or its nomination committee) evaluated candidates report, at least once. for the board of directors from the viewpoint of whether candidates possessed the necessary 3. The company has developed procedures defining Compliant experience, knowledge, business reputation, lack of the necessary actions of a member of the board of conflicts of interest, etc. directors in the event that he or she ceases to be independent, including the responsibility to inform 2.3.2. Members of the company’s board Compliant the board of directors of this fact in a timely manner. of directors shall be elected by a transparent procedure that enables 1. At all general meetings of shareholders during the Compliant 2.4.3. At least one third of the elected Not compliant shareholders to obtain sufficient reporting period for which the agenda included members of the board of directors shall information on the candidates to items regarding the election of the board of be independent directors. 1. At least one third of the elected members of the Not compliant In 2016, the Company’s Board had gain an idea of their personal and directors, the company provided shareholders with board of directors shall be independent directors. 3 independent directors out of 11 professional qualities. biographical information on all candidates for the in total. board of directors, the results of the evaluation of such candidates conducted by the board of directors (or its nomination committee), and information about whether the candidates met the independence criteria, according to recommendations 102–107 of the Code and the written consent of the candidates for the board of directors. ANNUAL REPORT 2016 210 211

2.4.4. Independent directors shall play a key Partially compliant 2.6.3. Members of the board of directors Compliant role in preventing internal conflicts shall have sufficient time to fulfil their in the company and in significant 1.Independent directors (who have no conflict of Partially compliant Independent directors declare obligations. 1. Individual attendance at meetings of the board Compliant corporate actions by the company. interest) preliminarily evaluate significant corporate their position on the approval of and its committees, as well as the time devoted to actions involving potential conflicts of interest, and significant corporate actions prior to preparing for participation in meetings, have been the results of this evaluation are submitted to the and during meetings of the Board of considered in the process of evaluating the board of board of directors. Directors. directors in the reporting period.

2.5. The chairman of the board of directors shall promote the most efficient exercise of the functions assigned to the board of directors. 2.According to internal company documents, members Compliant of the board of directors are obliged to notify 2.5.1. An independent director shall be elected Compliant the board of directors of their intent to become chairman of the board of directors, or members of management bodies of other entities a senior independent director shall be 1. The chairman of the board of directors is an Compliant (other than entities controlled by the company determined from among the elected independent director, or a senior independent and its subsidiaries), as well as of the fact of such independent directors to coordinate the director has been determined from among the appointment. work of the independent directors and independent directors.<3> 2.6.4. All members of the board of directors Compliant interact with the chairman of the board shall have equal access to company of directors. 2. The role, rights and responsibilities of the chairman Compliant of the board of directors (and the senior independent documents and information. Newly 1. According to internal company documents, members Compliant director, if applicable) are properly defined in internal elected members of the board of of the board of directors have the right to access company documents. directors are provided with sufficient documents and to ask questions about the company information on the company and on the and its subsidiaries, while company management 2.5.2. The chairman of the board of directors Compliant work of the board of directors as quickly bodies are obliged to provide the applicable shall ensure a constructive atmosphere as possible. information and documents. for conducting meetings, free discussion 1. The performance of the chairman of the board of Compliant of the issues on the meeting agenda directors has been evaluated as part of the procedure 2. The company has a formalised induction programme Compliant and oversight of the fulfilment of for evaluating the performance of the board of for newly elected members of the board of directors. decisions made by the board of directors during the reporting period. directors. 2.7. Meetings of the board of directors, preparation for them and participation in them by members of the board of directors shall ensure the effective functioning of the board of directors. 2.5.3. The chairman of the board of directors Compliant shall take the steps necessary to provide 2.7.1. Meetings of the board of directors shall Compliant members of the board of directors 1. The obligation of the chairman of the board of Compliant be held as necessary, depending on the with the information required to make directors to take the steps necessary to provide scale of operations and the tasks facing 1.The board of directors held at least six meetings in the Compliant APPENDIX decisions on agenda items in a timely members of the board of directors with the the company in a given period. reporting year. manner. information required to make decisions on agenda items for a meeting of the board is directors in 2.7.2. Internal company documents shall Compliant a timely manner is specified in internal company define the procedure for preparing for documents. and holding meetings of the board of 1.An internal document defining the procedure for Compliant directors that ensure that members preparing for and holding meetings of the board ОБЗОР РЫНКА ОБЗОР 2.6. The members of the board of directors shall act conscientiously and reasonably in the interests of the company and its shareholders on of the board of directors are able to of directors has been approved in the company, the basis of sufficient information, and act with due diligence and prudence. prepare for them properly. specifying, among other things, that notification of a meeting shall be provided, as a rule, at least five days 2.6.1. Members of the board of directors Compliant in advance. shall make decisions on the basis of all 2.7.3. The format for holding a meeting of the Compliant information available, without conflicts 1. Internal company documents specify that a member Compliant board of directors shall be determined of interest, with consideration of equal of the board of directors is obliged to notify the taking into account the importance 1. The company’s charter or an internal document Compliant treatment of Company shareholders, board of directors if he or she has a conflict of of the agenda items. Decisions on the stipulates that the most important issues (according within the scope of normal business interest with respect to any agenda item of a most important issues shall be taken at to the list provided in Recommendation 168 of the risk. meeting of the board of directors or committee Code) shall be reviewed at in-person meetings of of the board of directors before discussion of the in-person meetings. the board. applicable agenda item begins. 2.7.4. Decisions on the most important issues Compliant 2. Internal company documents specify that a member Compliant of company operations shall be made of the board of directors must abstain from voting at meetings of the board of directors by 1.The company’s charter stipulates that decisions on the Compliant on any issue with which he or she has a conflict of a qualified majority or majority of votes most important issues listed in Recommendation 170 interest. of all elected members of the board of of the Code shall be made at meetings of the board of directors by a qualified majority of at least three 3. A procedure has been established in the company Compliant directors. quarters of the votes, or by a majority of the votes of which enables the board of directors to obtain all elected members of the board of directors. professional advice on issues under its jurisdiction, at the company’s expense.

2.6.2. The rights and responsibilities of Compliant members of the board of directors are clearly stated in internal company 1. The company has adopted and published an internal Compliant documents. document that clearly defines the rights and responsibilities of members of the board of directors. ANNUAL REPORT 2016 212 213

2.8. The board of directors shall establish committees for preliminary review of the most important issues in company operations. 2.8.4. In view of the scales of activity and Compliant levels of risk, the company’s board of 2.8.1. An audit committee consisting of Partially compliant directors shall be confident that the 1. The company’s board of directors has considered Compliant independent directors shall be created composition of its committees fully the issue of the conformity of the composition of its for preliminary review of issues related 1.The board of directors has created an audit Not compliant In 2016, the Company’s Audit matches the goals of the company’s committees to the tasks of the board of directors and to the financial and business operations committee consisting exclusively of independent Committee was not only made operations. Additional committees to the goals of the company’s operations during the of the company. directors. up of independent directors. The shall be either created or declared reporting period. Additional committees were either Audit Committee included all unnecessary (strategy committee, created or were not deemed necessary. the independent directors and corporate governance committee, Board members representing the ethics committee, risk management majority shareholder and minorities. committee, budget committee, HSE A majority of the Committee’s committee, etc.). members was independent directors. 2.8.5. The composition of committees Partially compliant 2. Internal company documents define the tasks of Compliant shall be determined so as to enable the audit committee, including the tasks listed in thorough discussion of the issues 1. Committees of the board of directors are headed by Partially compliant The committees of the Company’s Recommendation 172 of the Code. under preliminary review, with various independent directors. Board of Directors are headed by opinions considered. independent directors, except in the 3. At least one member of the audit committee, who Compliant case of the Strategy Committee. is an independent director, has knowledge and experience in preparing, analysing, assessing and 2. Internal company documents (policies) include Compliant auditing accounting (financial) statements. provisions according to which persons who are not members of the audit committee, nominations 4. Meetings of the audit committee were held at least Compliant committee or remuneration committee may once per quarter during the reporting period. only attend meetings of these committees at the invitation of the chair of the applicable committee. 2.8.2. A remuneration committee consisting Partially compliant of independent directors and headed 2.8.6. Committee chairs shall regularly inform Compliant by an independent director who is not 1. The board of directors created a remuneration Not compliant The Company’s Nominations and the board of directors and its chair the chairman of the board of directors committee consisting exclusively of independent Remuneration Committee did not about the work of their committees. 1. Committee chairs regularly informed the board of Compliant shall be created for preliminary review directors. consist exclusively of independent directors about the work of their committees during of issues relating to the establishment directors in 2016. The Nominations the reporting period. of an effective and transparent and Remuneration Committee remuneration practice. included all the independent directors 2.9. The board of directors shall evaluate the performance of the board of directors, its committees and members of the board of directors. APPENDIX and Board members representing the majority shareholder and minorities. 2.9.1. The evaluation of the quality of the Compliant A majority of the Committee’s board of directors’ work shall be aimed members was independent directors. at determining the performance of the 1. The self-assessment or external evaluation of the Compliant board of directors, its committees and work of the board of directors conducted during the 2. The chairman of the remuneration committee is an Compliant members of the board of directors, reporting period included a performance evaluation ОБЗОР РЫНКА ОБЗОР independent director who is not the chairman of the the conformity of their work to the of committees, individual members of the board of board of directors. company’s development needs, directors and the board of directors as a whole. updating the work of the board of 3. The tasks of the remuneration committee, including Compliant directors and determining areas in 2. The results of the self-assessment or external Compliant the tasks listed in Recommendation 180 of the Code, which their performance can be evaluation of the work of the board of directors are defined in internal company documents. improved. conducted during the reporting period were reviewed at an in-person meeting of the board of 2.8.3. A committee on nominations Partially compliant directors. (appointments, HR), in which the majority of members are independent 1. The board of directors has created a Partially compliant The Company’s Nominations and 2.9.2. The work of the board of directors, its Compliant directors, shall be created for nominations committee (or the tasks indicated in Remuneration Committee acts as committees and members of the board preliminary review of issues relating Recommendation 186 of the Code are performed by a nominations committee. During of directors shall be evaluated regularly, 1.The company has hired an external entity (consultant) Compliant to workforce planning (succession a different committee <4>), in which the majority of the reporting year, the Nominations at least once per year. An external entity to conduct an independent evaluation of the work planning) and the professional members are independent directors. and Remuneration Committee was (consultant) shall be hired to conduct of the board of directors at least once during the last composition and performance of the first made up of six members, with an independent evaluation of the work three reporting periods. board of directors. two of them being independent of the board of directors at least once directors; then, it consisted of six every three years. members, with three of them being independent directors; finally, it 3.1. The company’s corporate secretary is responsible for conducting all ongoing communications with shareholders, coordinating actions to comprised five members, with three protect the rights and interests of shareholders, and supporting effective action by the board of directors. of them (the majority of Committee members) being independent 3.1.1. The corporate secretary has sufficient Compliant directors. knowledge, experience and expertise to execute his or her duties. This official 1. The company has adopted and disclosed an internal Compliant 2. Internal company documents define the tasks of Compliant enjoys an impeccable reputation and document listing provisions on the corporate the nominations committee (or the corresponding the confidence of shareholders. secretary. committee with combined functions), including the tasks listed in Recommendation 186 of the Code. 2. The company’s website and annual report provide Compliant biographical information about the corporate secretary with the same level of detail that is afforded to members of the company’s board of directors and executive management team. ANNUAL REPORT 2016 214 215

3.1.2. The corporate secretary is sufficiently Compliant 4.2.2. Long-term ownership of company Compliant independent of the company’s executive shares is the best way to ensure the bodies, and has been invested with the 1. The board of directors approves decisions to appoint Compliant convergence of the financial interests 1. If internal document(s) detailing remuneration policy Compliant necessary authority and resources to and dismiss the corporate secretary, as well as all of the members of the board of (policies) include a provision allowing company carry out his or her assigned duties. decisions to award additional remuneration to the directors with the long-term interests shares to be granted to members of the board of corporate secretary. of shareholders. For this reason, the directors, then clear rules are stipulated and disclosed company shall not make the right to regulating the ownership by board members of those 4.1. The level of remuneration paid by the company shall be sufficient to enable it to attract, motivate, and retain employees having the dispose of shares dependent on the shares, intended to promote the long-term holding required skills and qualifications. remuneration shall be paid to board members, the executive bodies, and other key executives at the achievement of certain performance of such shares. company in accordance with the remuneration policy adopted by the company. results, and board members do not participate in option programmes. 4.1.1. The level of remuneration provided Compliant by the company to members of the 4.2.3. The company shall not provide any Compliant board of directors, executive bodies, 1. The company has adopted internal document(s) Compliant additional payments or compensation in and other key executives shall create regulating the remuneration policy (policies) for the event of the early termination of the 1. The company does not provide any additional Compliant sufficient incentives for them to work members of the board of directors, executive bodies, authorities of members of the board of payments or compensation in the event of the early effectively, allowing the company to and other key executives, which clearly define the directors in connection with the transfer termination of the authorities of members of the attract and retain competent and skilled approaches governing the remuneration of these of control over the company or other board of directors in connection with the transfer of professionals. This enables the company persons. circumstances. control over the company or other circumstances. to avoid having to pay remuneration that is higher than necessary, and it 4.3. The system of remuneration for members of the executive bodies and other key executives of the company shall provide for their prevents the emergence of unjustifiably remuneration to be dependent on the company’s performance and their personal contributions to achieving it. large wage gaps between these officials and company employees. 4.3.1. Compensation for members of executive Partially compliant bodies and other key executives at the 4.1.2. The company’s remuneration Compliant company shall be determined in such 1. During the reporting period, the annual performance Compliant policy shall be determined by the a way as to ensure a reasonable and indicators approved by the board of directors remuneration committee and approved 1. During the reporting period, the remuneration Compliant justified ratio between base salary and were used to determine the amount of variable by the board of directors. The board committee has reviewed the remuneration policy variable remuneration depending on compensation awarded to members of executive of directors, with the support of the (policies) and how such policies are implemented the company’s performance and the bodies and other key executives at the company. remuneration committee, shall monitor in practice, and, when necessary, it has presented personal (individual) contribution of the introduction and implementation appropriate recommendations to the board of each employee to the final result. 2. In the course of the last evaluation of the Compliant of the company’s remuneration policy, directors. remuneration system for members of executive

APPENDIX and if necessary review and make adjustments to it. bodies and other key executives at the company, the board of directors (the remuneration committee) confirmed that the company employed an effective 4.1.3. The company’s remuneration policy Compliant ratio of base salary to variable compensation. shall contain transparent mechanisms for determining the amount of 1. The company’s remuneration policy (policies) Compliant

ОБЗОР РЫНКА ОБЗОР 3. The company has established a procedure that Not compliant The by-law on annual performance remuneration paid to members of the contains (contain) transparent mechanisms for provides for the return to the company of bonuses bonus payments made to executives board of directors, executive bodies and determining the amount of remuneration paid to that were unlawfully obtained by members of the at TransContainer does not stipulate other key executives at the company, members of the board of directors, executive bodies executive bodies and other key executives at the a procedure for ensuring the return and shall regulate all types of payments, and other key executives at the company, and company. of funds that were improperly benefits and privileges provided to such regulates (regulate) all kinds of payments, benefits obtained by executive bodies and persons. and privileges provided to such persons. other key executives.

4.1.4. The company shall define an expense Compliant 4.3.2. The company shall implement a long- Partially compliant reimbursement (compensation) policy term incentive programme for members which enumerates the reimbursable 1. The policy (policies) on remuneration or the Compliant of the executive bodies and other key 1. The company has implemented a longterm incentive Compliant expenses and the level of service company’s other internal documents establish executives of the company using the programme for members of the executive bodies and for which members of the board of expense reimbursement rules for board members, company’s shares (or options or other other key executive employees of the company using directors, executive bodies and other executive bodies and other key executives at the derivative instruments whose underlying the company’s shares (or financial instruments based key executives at the company may company. asset is company shares). claim. This policy may be an integral on company shares). part of the company’s remuneration policy. 2.The long-term incentive programme for members Not compliant The Company’s long-term incentive of executive bodies and other key executives at programme for executives and key 4.2. The system of remuneration for members of the board of directors shall ensure that the financial interests of the directors are in line with the company provides that the right to dispose managers did not include a provision the long-term financial interests of shareholders. of shares and other financial instruments that are under which the LTI shares would granted within the programme shall not be granted vested at least over three years. The earlier than three years after the date that such right to cash out of the stock was not 4.2.1. The company shall pay an annual base Not compliant shares or instruments are awarded. The right to contingent upon any KPI actuals. salary to the members of the board sell shares shall be conditional upon the company’s of directors. The company shall not 1. An annual base salary was the only form of monetary Not compliant In accordance with the current achievement of certain performance indicators. pay a fee for participation in individual remuneration that members of the board of directors By-law on the Payment of meetings of the board or of board received for their work on the board during the Remuneration and Compensation committees. The company shall not reporting period. to Members of the TransContainer use forms of short-term motivation Board of Directors, members of or additional material incentives for the Company’s Board of Directors members of the board of directors. receive annual remuneration as well as remuneration for participation in meetings of the Board of Directors. ANNUAL REPORT 2016 216 217

4.3.3. The amount of compensation (golden Compliant 5.2.2. The internal audit unit shall evaluate Compliant parachute) that is paid by the company the effectiveness of the internal control in the event of the early termination 1. The amount of compensation (golden parachute) Compliant system and assess the effectiveness of 1. During the reporting period, the effectiveness of the Compliant of the authorities of members of the paid by the company in the event of the early the risk management and corporate internal control and risk management systems was executive bodies or key executives at termination of the authorities of members of the governance systems. The company shall assessed as part of the internal audit process. the initiative of the company and in the executive bodies or key executives at the initiative of apply generally accepted standards in absence of any unscrupulous actions the company and in the absence of any unscrupulous the field of internal auditing. 2. The company uses generally accepted approaches to Compliant taken by the executives themselves actions taken by the executives themselves did not internal control and risk management. shall not exceed two times the base exceed two times the base salary paid as part of the salary that is paid as part of the annual annual compensation package. 6.1. The company and its operations are transparent to shareholders, investors and other interested parties. compensation package. 6.1.1. The company shall develop and Compliant 5.1. The company shall establish an efficient risk management and internal control system designed to provide reasonable assurance that the implement an information policy to company’s goals will be achieved. ensure the effective communication 1. The board of directors has approved the company’s Compliant of information between the company, information policy, which is designed to meet the 5.1.1. The board of directors shall determine Compliant shareholders, investors and other recommendations of the Code. the principles and approaches used to interested parties. shape the company’s risk management 1. The functions that the company’s various Compliant 2. The board of directors (or one of its committees) Compliant and internal control system. management bodies and units play in the risk has discussed issues relating to the company’s management and internal control systems are clearly compliance with its information policy at least once defined in the internal documents/relevant company during the reporting period. policies approved by the board of directors. 6.1.2. The company shall disclose information Partially compliant 5.1.2. The company’s executive bodies Compliant on its corporate governance system and shall ensure the establishment and practice, including detailed information 1. The company discloses information about its Compliant maintenance of an effective system of 1. The executive bodies of the company have ensured Compliant on compliance with the principles and corporate governance system and the general risk management and internal control at the distribution of functions and authorities for risk recommendations of the Code. principles of corporate governance applied at the the company. management and internal control between their company, including on the company’s website. subordinate unit and department heads. 2. The company discloses information on the Compliant 5.1.3. The company’s risk management and Compliant composition of the executive bodies and the board internal control system shall provide of directors, as well as the independence of the an objective, fair and clear picture of 1. The company has approved a policy on combating Compliant APPENDIX board members and their membership on the the current state and prospects of the corruption. committees of the board of directors (in accordance company, the integrity and transparency with the definitions provided in the Code). of the company’s reporting, and the 2. The company provides an accessible way of Compliant reasonableness and acceptability of the notifying the board of directors or the board’s audit 3. In the event that a person should assume control Not compliant During the reporting period, risks taken by the company. committee about violations of the law, internal of the company, the company publishes a the Company did not publish a ОБЗОР РЫНКА ОБЗОР procedures or the company’s code of ethics. memorandum by the controlling person concerning memorandum by the controlling the plans of this person for the corporate governance shareholder due to the fact that 5.1.4. The board of directors shall Take the Compliant of the company. the controlling shareholder did not necessary measures To ensure that notify the Company of their plans the company’s Current system of risk 1. During the reporting period, the board of directors Compliant for the corporate governance of the Management and internal Control or the audit committee of the board of directors Company. coincides with the Principles and evaluated the effectiveness of the company’s approaches Determined by the board risk management and internal control system. 6.2. The company shall disclose complete, updated and reliable information about itself on a timely basis to allow its shareholders and Of directors to ensure the Effective Information about the main findings of this investors to make informed decisions. organisation and Functioning of the evaluation is included in the company’s annual system. report. 6.2.1. The company shall disclose information Compliant in accordance with the principles of 5.2. The company shall organise an internal audit to ensure a systematic, independent evaluation of the reliability and effectiveness of the regularity, consistency and efficiency, 1. The company’s information policy defines Compliant company’s risk management and internal control system and its corporate governance practices. as well as the accessibility, accuracy, approaches and criteria for identifying information completeness and comparability of the that could materially affect the company’s valuation, 5.2.1. The company shall create a separate Compliant data disclosed. the value of its securities and the procedures that structural unit or contract with an ensure the timely disclosure of such information. independent external organisation to 1. The company has created a separate structural Compliant conduct the internal audit. The internal unit to conduct internal audits that is functionally 2. If the company’s securities are traded on foreign Compliant audit unit has been assigned separate subordinate to the board of directors or the audit organised markets, then equivalent amounts of functional and administrative reporting committee, or it has engaged an independent material information were disclosed in the Russian relationships. Functionally, the internal external organisation with the same subordinate Federation and on these foreign markets at the same audit function is subordinate to the status, to conduct internal audits. time during the reporting year. board of directors. 3. If foreign shareholders hold a substantial number of Compliant shares in the company, then during the reporting year, information was disclosed not only in Russian, but also in one of the more commonly spoken foreign languages. ANNUAL REPORT 2016 218 219

6.2.2. The company shall avoid taking a Compliant 7.1. Any actions that may materially affect the company’s share capital structure and its financial position and, accordingly, the position formal approach to the disclosure of of its shareholders (“material corporate actions”) shall be taken under fair terms and conditions that ensure that the rights and interests information, and shall disclose material 1. During the reporting period, the company disclosed Compliant of shareholders as well as other interested parties are observed. information about its activities even its annual and semi-annual financial statements when such disclosure is not required prepared according to IFRS. The company’s 7.1.1. Material corporate actions include the Partially compliant by law. annual report for the reporting period included reorganization of the company, the annual financial statements that were prepared in acquisition of 30 percent or more of 1. The company’s charter contains a list of transactions Partially compliant The Company’s Charter does not accordance with IFRS together with the auditor’s the voting shares (takeover), material or other actions that constitute material corporate provide criteria for identifying report. transactions by the company, an actions and the criteria that are used to identify material corporate actions and increase or decrease in the company’s such actions. Decisions regarding material corporate does not provide a list of them. 2. The company discloses full information on the Compliant share capital, the listing and delisting of actions fall within the purview of the board of However, transactions and other capital structure of the company in accordance with company shares and other actions that directors. In cases where the authority to perform actions referred to in the Corporate Recommendation 290 of the Code in the annual may lead to a significant change in the these corporate actions is invested by law in Governance Code of the Bank of report and on the company’s website. rights of shareholders or a violation of the general shareholders meeting, the board of Russia that constitute material their interests. The company’s charter directors provides shareholders with appropriate corporate actions are assigned by the 6.2.3. The annual report, which is One of Compliant shall include a list of (or criteria for recommendations. Company’s Charter to be within the the most important Tools for sharing identifying) transactions or other actions purview of the general shareholders falling within the category of material information With shareholders and 1. The company’s annual report provides information Compliant meeting and the Board of Directors. corporate actions. These actions fall other Interested parties, shall Contain on the key aspects of the company’s operations and As a rule, such actions are approved within the purview of the company’s information that Makes it possible to its financial performance. by the Board of Directors or the assess The company’s activities for The board of directors. general shareholders meeting on the recommendation of the Board of year. 2. The company’s annual report contains information Compliant Directors. Material transactions are about the environmental and social aspects of the subject to approval by the Board of company’s activities. Directors at in-person meetings only. 6.3. The company shall provide information and documents at the request of shareholders in accordance with the principle of equal and unhindered access. 2. At a minimum, the company’s charter recognises Compliant the following to be material corporate actions: the reorganisation of the company, the acquisition of 30 6.3.1. The company shall provide information Compliant percent or more of voting shares (takeover), material and documents requested by its transactions by the company, an increase or decrease shareholders in accordance with the 1. The company’s information policy defines a non- Compliant in the company’s share capital and the listing and principle of equal and unhindered burdensome procedure for providing shareholders delisting of company shares. access.

APPENDIX with access to information, including information about the company’s subsidiaries, at the request of 7.1.2. The board of directors shall play a key Not compliant shareholders. role in making decisions or making recommendations about material 1. The company has determined a procedure under Not compliant The Company has not provided a special 6.3.2. When the company provides Compliant corporate actions. The board of which the independent directors declare their procedure under which the independent information to shareholders, it directors shall rely on the position of the positions on material corporate actions prior to their directors declare their positions on ОБЗОР РЫНКА ОБЗОР shall ensure a reasonable balance 1. During the reporting period, the company did Compliant company’s independent directors. approval. material corporate actions prior to between the interests of specific not refuse to satisfy shareholder requests for their approval. However, independent shareholders and the interests of the information, or if it did deny any requests, then such directors declare their position on the company itself, which must protect refusals were justified. approval of material corporate actions the confidentiality of important trade prior to meetings and during meetings secrets and information that may have 2. In cases determined by the company’s information Compliant of the Board of Directors. a material impact on the company’s policy, shareholders are warned about the competitiveness. confidential nature of the information that is 7.1.3. When carrying out material corporate Compliant disclosed and assume responsibility to preserve its actions that affect the rights and confidentiality. lawful interests of shareholders, 1. Considering the nature of the company’s business, Compliant equal conditions shall be afforded to the company charter establishes lower criteria than all shareholders. If the mechanisms the minimum provided for under law for classifying protecting the rights of shareholders the company’s transactions as material corporate under law are insufficient, then further actions. measures to protect the rights and lawful interests of the company’s shareholders 2. During the reporting period, all material corporate Compliant shall be taken. In doing so, the company actions were approved before they were carried out. shall be governed not only by compliance with the formal requirements of the law, but also by the principles of corporate governance set out in the Code. ANNUAL REPORT 2016 220 221

№ Corporate governance principles Criteria for evaluating compliance with corporate Status <1> Explanations <2> of deviations from MAJOR TRANSACTIONS AND RELATED PARTY TRANSACTIONS governance principles of compliance with criteria for evaluating compliance corporate governance with corporate governance principles TRCONT.RU/EN/ principles Information on transactions made by the Company are recognized in accordance with the Federal Law “On Joint-Stock Companies” 7.2. The company shall provide a procedure for material corporate actions which allows shareholders to receive timely and complete shall major transactions and/or transactions in which fulfillment there is an interest, is available on the network page Internet: information on such actions, provides them with the opportunity to influence decision making about such actions and ensures compliance http://www.trcont.ru/en/investor-relations/reporting/annual-reports/. and an adequate level of protection of shareholder rights in the performance of such actions.

7.2.1. Information about material corporate Compliant In accordance with the Regulation on information disclosure by issuers of the Company also discloses bumag information on such actions shall be disclosed together transactions in the quarterly reports and material facts that are available on the web site: http://www.e-disclosure.ru/portal/company. with the reasons, conditions and 1. During the reporting period, the company promptly Compliant aspx?id=11194 . consequences of such actions. and thoroughly disclosed information on the company’s material corporate actions, including the reasons for and timing of such actions.

7.2.2. The rules and procedures governing the Partially compliant material corporate actions taken by the company shall be established in internal 1. Internal company documents stipulate the procedure Compliant www.trcont.ru www.e-disclosure.ru company documents. governing the hiring of an independent appraiser to determine the value of property that is alienated or acquired through a large transaction or a related party transaction.

2. Internal company documents stipulate the procedure Not compliant Internal Company documents do for hiring an independent appraiser to assess the not stipulate a procedure for hiring NUMBER OF CASES CONCERNING VIOLATIONS OF value of shares that are acquired or bought back by an independent appraiser to assess the company. the value of shares that are acquired ANTIMONOPOLY LEGISLATION INVOLVING TRANSCONTAINER or bought back by the Company. However, if there are reasons for a AND THE OUTCOMES OF THESE CASES share buyback, then the Company will engage an appraiser to determine the buy-back price of shares in № Summary Date Actions taken by the organisation accordance with the Law on Joint Stock Companies (Cl. 3 of Art. 76). 1 Signs of the violation of Article 10, Part 1 of the Federal Law 02.03.2015 On 07 August 2015, the Office of the Federal Antimonopoly Service (OFAS) 3. Internal company documents provide for an Not compliant In identifying the persons interested On Protection of Competition by Russian Railways (JSC), which issued a ruling on case No. 4/06-2015 acknowledging the violation of Article 10, expanded list of grounds on which the members of in a transaction, the Company is restricted access to the railway transportation market for other Part 1, Clauses 8 and 9, and Article 10, Part 1 of the Federal Law On Protection APPENDIX the board of directors and other persons stipulated guided by the requirements of economic entities by cancelling local specifications for placing of Competition by Russian Railways (JSC), which restricted access to the railway by law are deemed to have an interest in the Russian law. and securing cargo approved by Orders of Russian Railways (JSC) transportation market and discriminated the Applicant by cancelling local company’s transactions. Nos. 570r and 494r. specifications for placing and securing cargo approved by Orders of Russian TransContainer (PJSC) is involved as a third party. Railways (JSC) No. 570r of 24 March 2008 and No. 494r of 12 March 2012, which infringed interests of the Applicant; and injunction No. 04/06-2015 to

ОБЗОР РЫНКА ОБЗОР <1> The status “Compliant” is indicated only if the company meets all the criteria for assessing compliance with corporate governance cease the violation of the antitrust law. Russian Railways (JSC) submitted an appeal against the ruling to the Arbitration principles. Otherwise, the status “Partially compliant” or “Not compliant” is indicated. Court of the Primorye Territory (case No. A51-17692/2015); The Arbitration Court of the Primorye Territory made a ruling of 05 November <2> These statuses are assigned for each criterion that is used to assess compliance with corporate governance principles in the event that 2015 on case No. А51-17692/2015 rendering the OFAS ruling and injunction the company meets only part of the criteria or does not meet any of the criteria for assessing compliance with the principle. If the invalid due to non-compliance with the Federal Law On Protection of company has indicated the status of “Compliant”, then no further explanations are required. Competition. Appeals were filed with the Fifth Arbitration Court of Appeal by Nakhodka Transervice Plus (LLC), Orion Express (LLC) and the OFAS for the Primorye <3> Specify which of the two alternative approaches permitted by the principle have been implemented at the company and explain why Territory. this approach was chosen. By its ruling of 07 April 2016, the Fifth Arbitration Court of Appeal left the ruling of the Arbitration Court of the Primorye Territory of 05 November 2015 on case <4> When the functions of the nominating committee are carried out by another committee, then name that committee here. No. A51-17692/2015 unchanged. 2 Signs of the violation of Article 10, Part 1 of the Federal Law 17.03.2016 Ruling of 08 July 2016 No. 02-05-2663 was made on the termination of <5> Specify the list of additional committees that have been created. On Protection of Competition by Russian Railways (JSC) and proceedings for case No. 1 with respect to the violation of the antitrust law TransContainer (PJSC) (abuse of the dominant position) against Russian Railways (JSC) and TransContainer (PJSC)

3 Signs of the violation of Article 10, Part 1 of the Federal 11.04.2016 Currently, the case is pending in the Office of the Federal Antimonopoly Service Law On Protection of Competition by TransContainer (PJSC), for the Krasnoyarsk Territory which evaded from issuing container No. RZDU0282541 to TLK TradeEx (LLC) from the container terminal at Bazaikha Station of the Krasnoyarsk Railway (TN AA 365828) ANNUAL REPORT 2016 222 223

TRANSCONTAINER’S CORPORATE RISK MAP FOR 2016 TRCONT.RU/EN/

№ Summary Date Actions taken by the organisation Risk Potential risk drivers Potential risk impact Mitigators

COSO CLASSIFICATION – STRATEGIC RISKS 4 Investigation of the complaint by RSK Krepost (LLC) concerning 02.09.2016 A ruling was issued on 8 September 2016 in Case No. 380-18.1/2016 stating the actions of TransContainer claiming that the latter violated that the complaints of RSK Krepost were unfounded. 01.1. Corporate governance model tender procedure when conducting an request of proposals for the right to enter into an agreement for the installation and 01.1.1 1. Failure to disclose, fully or timely, information 1. Decline in market valuation 1. Monitoring of compliance with the Company’s accompanying works on the construction of the retaining wall about the Company’s operations to of the Company’s securities Regulation on Information Disclosure (on an of the container platform in the container terminal Bazaikha Breach of Russian and English shareholders/investors in accordance with the (lower liquidity, higher ongoing basis) disclosure laws laws of the Russian Federation and the United financing costs) 5 Investigation of the complaint by Aplit+ (LLC) concerning the 12.10.2016 A ruling was issued on 17 October 2016 stating that the Applicant’s complaint 2. Monitoring of disclosure laws and best practices, Criticality: Kingdom actions of TransContainer, claiming that the latter acted illegally about the actions of the Client during the Competition left without consideration 2. Regulatory fines alignment of the Company’s disclosure practices Acceptable risk when holding an open tender in electronic form for the right 2. Disclosure process insufficiently formalised with said requirements (on an ongoing basis) 3. Lower investor appeal to enter into an agreement for the modernization of the IT Risk management method: 3. Oversight of compliance with disclosure infrastructure of the container terminal Yekaterinburg-Tovarniy Control and prevention 4. Shareholder’s claims against procedures and timelines prescribed by the branch of PJSC «TransContainer» on the Sverdlovsk Railway the Company and its Directors Federal Law on Securities Market and Regulation On Disclosing Information by the Issuers of 6 Investigation of the complaint by Progressive mobile systems 21.10.2016 A ruling was issued on 26 October 2016 stating that the Applicant’s complaint Issue-Grade Securities approved by order of (LLC) concerning the actions of TransContainer, claiming about the actions of the Client during the Competition left without consideration the Russian Federal Financial Markets Service that the latter acted illegally when holding an open tender in No. 11–46/pz-n dated 04 October 2011 (on an electronic form for the right to enter into an agreement for the ongoing basis) supply of equipment, installation and commissioning within the framework of modernization of the multimedia system 4. Staff development/training in disclosure matters as required by the law (on an ongoing basis)

7 Signs of the violation of Article 10, Part 1, Clause 1 of Federal 27.10.2016 The case is currently pending in the Federal Antimonopoly Service 01.1.2 1. Corporate governance non-compliant with 1. Decline in market valuation 1. Monitoring of the corporate laws and market Law 135-FZ of 26 July 2006 On Protection of Competition market operator requirements as needed to of the Company’s securities operator requirements (on an ongoing basis) by First Container Terminal (JSC), which set and maintained a Breach of corporate law maintain the current listing of the Company’s (lower liquidity, higher high monopolistic price for loading and unloading of cargoes 2. Control over compliance with the corporate laws Criticality: securities financing costs) (containers). and market operator requirements in order to Acceptable risk TransContainer (PJSC) is involved as an interested party. 2. Decision-making processes in the Company’s 2. De-listing of the Company’ keep the Company’ securities listed under the Risk management method: governance bodies non-compliant with the securities, suspension of relevant category (on an ongoing basis) Control and prevention Russian laws, Charter and internal regulations trading of the Company

APPENDIX 8 Signs of the violation of Article 10, Part 1, Clause 1 of Federal 27.10.2016 The case is currently pending in the Federal Antimonopoly Service 3. Invalidation of resolutions Law 135-FZ of 26 July 2006 On Protection of Competition by 3. Delays in providing shareholders of the adopted by the governance Petrolesport (JSC), which set and maintained a high monopolistic Company with materials required to prepare bodies (Board of Directors, price for loading and unloading of cargoes (containers). for the general meeting of shareholders general meeting of TransContainer (PJSC) is involved as an interested party. shareholders) and (or) 4. Delays in providing shareholders of the completed transactions Company with documents and information ОБЗОР РЫНКА ОБЗОР when such provision is mandatory in 4. Regulatory fines 9 Signs of the violation of Article 10, Part 1, Clause 1 of Federal 25.11.2016 The case is currently pending in the Federal Antimonopoly Service accordance with the Russian laws Law 135-FZ of 26 July 2006 On Protection of Competition 5. Lower investor appeal by Container Terminal Saint-Petersburg (JSC), which set and 5. Failure to follow the procedure and time limits 6. Shareholder’s claims against maintained a high monopolistic price for loading and unloading for issuing official resolutions by the Company’s the Company and its Directors of cargoes (containers). governance bodies TransContainer (PJSC) is involved as an interested party. 6. Failure to fulfil the Company’s obligation to pay dividends to shareholders in full and on time

10 Signs of the violation of Article 10, Part 1, Clause 1 of Federal 09.12.2016 The case is currently pending in the Federal Antimonopoly Service 01.1.3 1. Corporate governance non-compliant with 1. Exclusion of the Company’s 1. Bringing the number of independent Directors up market operator requirements as needed to shares from Level 1 listing to 3 (Q2 2016) Law 135-FZ of 26 July 2006 On Protection of Competition Violation of market operator by Vostochnaya Stevedoring Company (LLC), which set and maintain the current listing of the Company’s requirements securities 2. Damage to the Company’s 2. Election of independent Directors only to the maintained a high monopolistic price for loading and unloading goodwill Nominations and Remuneration Committee and of cargoes (containers). Criticality: the Audit Committee, unless they make up the TransContainer (PJSC) is involved as an interested party. Critical risk 3. Decline in the Company’s majority of said committees (Q2 2016) capitalisation and liquidity of Risk management method: TOTAL 10 CASES its securities 3. Amendments to the Regulation on the Corporate Control and prevention Secretary (Q1 2016)

01.2. Shareholder relations

01.2.1 Risk associated with 1. Shareholder’s investment/debt policy 1. Corporate conflicts 1. Risk acceptance changes to the shareholding structure and transactions 2. Decline in the corporate with TransContainer’s shares governance quality

Criticality: 3. Slower decision-making Acceptable risk 4. Decline in the Company’s Risk management method: capitalisation Acceptance 5. Damage to goodwill ANNUAL REPORT 2016 224 225

Risk Potential risk drivers Potential risk impact Mitigators Risk Potential risk drivers Potential risk impact Mitigators

01.2.2 1. Disagreements and disputes between the 1. Obstruction of decision 1. Timely identification and prevention of corporate 01.4. Corporate structure and allocation of powers TRCONT.RU/EN/ Company and its shareholders, as well as making conflicts (on an ongoing basis) Shareholder conflict disputes between shareholders when such 01.4.1 1. Violation of power/responsibility allocation 1. Delays in management 1. Annual audit of processes in line with the 2. Loss recovery claims lodged 2. Control over compliance with the Company’s Criticality: disputes affect interests of the Company principles decision making; approved audit schedule (on an ongoing basis) by shareholders corporate procedures (on an ongoing basis) Mismatch between Acceptable risk 2. Inadequate mechanisms for identification, the organisational and 2. Non-compliance with process regulations 2. Poor performance of 2. Review of the Order on the Allocation of Powers 3. Lower investor appeal Risk management method: prevention and settlement of corporate functional model and in business units the business units, inefficiency in TransContainer following the business Acceptance conflicts 4. Declining stock value the Company’s goals and increasing costs processes audit 3. Inefficient internal communications (overlapping functions and Criticality: 01.2.3 1. Disagreements and disputes between the 1. Obstruction of decision 1. Timely identification and prevention of corporate processes); Minor risk 4. Organisational structure of the Company not Company and its shareholders, as well as making conflicts (on an ongoing basis) adapted to changes in the external/internal Lawsuits from shareholders 3. Internal conflicts, deteriorating disputes between shareholders when such 2. Control over compliance with the Company’s Risk management method: environmen 2. Court rulings obliging working environment across disputes affect interests of the Company corporate procedures (on an ongoing basis) Control and prevention Criticality: the Company and (or) its the Company 3. Annual D&O insurance (Q4 2016) Acceptable risk 2. Inadequate mechanisms for identification, Directors to repay losses to Risk management method: prevention and settlement of corporate shareholders 01.5. Quality management system conflicts Control and prevention 3. Lower investor appeal 01.5.1 1. The selected governance model does not meet 1. Failure to meet customer 1. Annual internal audit of TransContainer in line 4. Declining stock value market requirements, is outdated or does not needs and (or) regulatory with the approved annual audit schedule (on an TransContainer’s match the organisational culture. This also service requirements, lower ongoing basis) incompliance with GOST ISO 01.2.4 1. Changes in corporate governance and 1. Delays in management 1. Competitive benchmarking and monitoring covers inadequately formulated QMS objectives customer satisfaction 9001 quality management 2. Development of an annual action plan to achieve significant reduction in powers decision making; of the CEO and top management incentive and policies, and erroneous management system requirements 2. Deterioration in performance TransContainer’s quality targets (on an ongoing Resignation of the key programmes decisions executives (CEO and top 2. Non-competitive remuneration 2. Decline in market valuation of of an element (or several basis) Criticality: managers) the Company’s securities; 2. Missing and (or) non-performing QMS elements) within the quality 3. Change of control Minor risk element(s) management system Criticality: 3. Weaker competitiveness; Risk management method: Critical risk 3. Omission, error, gaps in QMS performance or 3. Suspension or revocation 4. Decrease in the efficiency of Control and prevention QMS documentation of TransContainer’s quality Risk management method: the Company’s operations management certificate Control and prevention and business management; 4. Missing or inconsistent performance indicators for processes, inability to adjust them or 5. Deterioration of operating measure performance performance; 5. Inadequately skilled personnel 6. Deterioration of financial performance 6. Failure to take corrective actions to close gaps from previous inspections 01.2.5 1. Decrease in free float; resolutions made by 1. Listing downgrade 1. Raising the number of independent directors APPENDIX shareholders’ meeting to three 02.1. Strategic planning Risk of exclusion from 2. Reduction in the number the Level 1 Quotation List of pension fund and insurance 2. Bringing the composition of the Board of 02.1.1 1. Challenging macroeconomic environment 1. Shortfall in revenues from 1. Compliance with the Strategic Management investors Directors’ Nominations and Remuneration Criticality: core businesses, such as Procedure for developing, updating Committee and Audit Committee in line with the Failure to deliver on 2. Higher competition in the container market railway transportation and and controlling the implementation of Critical risk 3. Decline in the Company’s Listing Rules (independent directors to constitute the strategic goals

ОБЗОР РЫНКА ОБЗОР terminal handling TransContainer’s Strategy (on an ongoing basis) capitalisation the majority of the committees’ members) 3. Lower business efficiency (marketing and tariff Risk management method: Criticality: policies, asset management, service quality, Acceptance 4. Damage to goodwill 2. Decline in the Company’s 2. Initiation and implementation of strategic 3. Amending the Regulation on TransContainer’s Critical risk etc.) market capitalisation development projects as approved by the Corporate Secretary Company’s shareholders (on an ongoing basis) Risk management method: 3. Drop in shareholders’ dividend 4. Appointing two market makers at the Moscow Control and prevention income Exchange

5. Ensuring compliance with the free float 03.1. Project management requirements 03.1.1 1. Errors in project cost estimation 1. Additional unforeseen project 1. Diversification of supplier base financing costs 01.3. Subsidiary and branch management Failure to achieve expected 2. Inadequate sequencing and scheduling of 2. Procurement of additional information to select results of investemnt project tasks 2. Failure to deliver on the investment project contractors (where needed) 01.3.1 1. Subsidiaries inefficiently managed either by 1. Longer payback periods of 1. Inclusion of TransContainer’s representatives projects by timing, quality, investment programme 3. Compliance with the procedures to prepare TransContainer as a shareholder or by the investments in subsidiaries (as in the governance, supervisory and operating commissioning 3. Above-market increase in prices for resources Failure to achieve target ROI management of such subsidiaries compared to the targets set in bodies of subsidiaries (on an ongoing basis) 3. Fines, penalties, sanctions, budget estimates (on an ongoing basis) 4. Tougher regulatory requirements for in subsidiaries and affiliates the subsidiary incorporation Criticality: and counterparty claims as investment projects (HSE, etc.) 4. Compliance with the tender procedures and business plan) 2. Sourcing and monitoring of information from Acceptable risk regards supply and service Criticality: timelines set out in TransContainer’s by-laws (on subsidiaries (on an ongoing basis) agreements made under Acceptable risk Risk management method: 5. Discrepancy between the scope of work and an ongoing basis) design and cost estimates construction projects 3. Control over compliance with the shareholder Control and prevention Risk management method: agreements made in respect of TransContainer’s 5. Inclusion of investment project costs in the 6. Breach of obligations by contractors 4. Wrong priorities Control and prevention joint ventures (on an ongoing basis) budget (on an ongoing basis) 7. Late funding 4. Control over subsidiaries’ compliance with the 6. Contractor evaluation at the stage of contract approved budgets (on an ongoing basis) 8. Project suspension for economic reasons execution (on an ongoing basis) ANNUAL REPORT 2016 226 227

Risk Potential risk drivers Potential risk impact Mitigators Risk Potential risk drivers Potential risk impact Mitigators

04.1.Divestment 05.2.3. 1. Changes in the cost of co-contractors’ services 1. Weaker competitiveness 1. Daily control over the execution of orders TRCONT.RU/EN/ Changes in market environment in terms of providing rolling stock and Changes in specialised 2. Drop in shipping volumes 04.1.1 1. Errors in integration of newly acquired 1. Higher integration costs than 1. TransContainer has set up a Subsidiary a container fleet (on an ongoing basis) container shipment pricing 2. Changes in the market environment companies due to the lack of TransContainer’s initially planned and Affiliate Management Committee; 3. Drop in shipping profitability Poor efficiency of integration 2. Constant monitoring and projections of the integration experience representatives of Company’s management Criticality: 3. Changes in transportation geography processes 2. Failure to achieve container shipping market (on an ongoing basis) hold seats on the governance bodies and Acceptable risk 2. Lack of integration teams at TransContainer performance targets in 4. Switch to alternative means of transport, Criticality: board committees in key subsidiaries and joint 3. Expansion of the presence in key markets the acquired company Risk management method: alternative routes, alternative types of rolling Critical risk ventures Regular monitoring of key financial through the development of an agent network Control and prevention stock 3. Decrease in consolidated and operating results of subsidiaries and joint (on an ongoing basis) Risk management method: financial results of the parent ventures, including through a variance analysis 4. Provide the possibility of rates indexation with Control and prevention company notification period of not less than 2 months when concluding contracts by branches (on 04.1.2 1. Inefficient corporate controls over subsidiaries 1. Loss of control over 1. Cooperation with government agencies and a permanent basis) from both TransContainer as the shareholder a subsidiary courts (on an ongoing basis) Hostile takeover and subsidiary management 5. Procurement of services on the basis of a tender. of subsidiaries and affiliates, 2. Changes in the shareholding 2. Training in opposing hostile takeovers (where including by asset-grabbing structure needed) 05.2.4. 1. Changes in Russian Railways’ tariff policy 1. Weaker competitiveness in 1. Quarterly (seasonal as it applies to shipments Criticality: 3. Damage to the Company’s the segment of specialised with temperature control equipment) monitoring Changes in specialised Minor risk goodwill shipments and forecasting of the specialised container container shipment pricing market (on an ongoing basis) Risk management method: 4. Lower business efficiency 2. Drop in shipping volumes Criticality: Control and prevention 2. Flexible tariff policy Acceptable risk 3. Drop in shipping profitability

05.1 Political factors Risk management method: 4. Unprofitable shipments Control and prevention 05.1.1 1. Political situation in Russia or in foreign 1. Loss of the Company’s assets 1. Monitoring of political environment and jurisdictions that affects the company’s legislative changes in Russia and other footprint 05.2.5. 1. One service provider only is available 1. Drop in shipping volumes 1. Identification and implementation of new Adverse impact of political operations, including changes in legislation 2. Problems with investment countries, including customs and tax laws (on an logistics solutions, better transportation Insufficient throughput 2. Russian Railways’ infrastructure not meeting 2. Delivery delays factors on the Company’s projects ongoing basis) planning, increase in the share of container block business and financial capacity of rail infrastructure the market demand 3. Lower rolling stock turnover train shipments (on an ongoing basis) performance 3. Breach of obligations 2. Membership in industry associations, including Criticality: 4. Fines the international ones (on an ongoing basis) 2. Decrease in the number of cars set up for Criticality: Acceptable risk marshalling, development of transportation Acceptable risk 3. Notification of TransContainer’s management 5. Claims from anti-monopoly Risk management method: by high-speed container trains (on an ongoing of negative political changes and associated agencies Control and prevention basis) Risk management method: factors (to the extent such information becomes Control and prevention/ 6. Failure to achieve strategic available)

APPENDIX 05.2.6. 1. Government regulated tariffs 1. Higher expenses to run empty 1. Cooperation with government agencies Acceptance targets cars or containers responsible for tariff regulations (on an ongoing Weaker competitive position 7. Higher investment project basis) due to rail tariff indexation 2. Switch to alternative means of costs transport 2. Timely notification of stakeholders of upcoming Criticality: price changes (where needed) 05.2. Industry-specific factors Acceptable risk ОБЗОР РЫНКА ОБЗОР 3. Change of the base rates for TransContainer’s 05.2.1 1. Lower consumer demand 1. Drop in shipping volumes 1. Monitoring of the economic environment across Risk management method: rail cars and (or) containers (where needed) key markets, tracking lead indicators Acceptance Market environment 2. Inflation 2. Drop in prices deterioration 3. Slower GDP growth 3. Lower financial results 05.3. Socio economic factors Criticality: 05.3.1 1. Changes in the structure of the economic 1. Discrepancies between 1. Daily follow-up on orders in terms of rolling Critical risk 4. Economic downturn 4. Lower profits environment and technologies the sold products/services and stock and container availability Weaker competitive position Risk management method: market demand, declining due to inability to promptly 2. Demand seasonality 2. Constant container market monitoring and Acceptance sales adjust to changes in the forecasting customer mix, customer 3. Limited / outdated production capacities 2. Lost customers 05.2.2. 1. Strong dependence on monopolistic suppliers 1. Higher procurement costs 1. Industry prices projections (on an ongoing basis) 3. Footprint expansion in the key markets needs and intensity of 4. Underdeveloped infrastructure and related 3. Declining revenues Changes in prices for 2. Higher energy prices 2. Lower margins 2. Active targeted marketing (on an ongoing basis) demand services, such as ports, terminals, etc. 4. Optimisation of the cost of co-contractors’ transportation subcontractors 4. Lost profits services as part of the bidding process 3. Rising prices for components 3. Lost profits 3. Energy prices monitoring across Russian regions Criticality: 5. High concentration on several major customers Criticality: (on an ongoing basis) Critical risk 5. Monitoring of sea freight rates Minor risk 6. Terminals in need of further revamp and Risk management method: upgrade Risk management method: Control and prevention Control and prevention 7. Cargo handling imitations in terminals ANNUAL REPORT 2016 228 229

Risk Potential risk drivers Potential risk impact Mitigators Risk Potential risk drivers Potential risk impact Mitigators

05.4. Competition 08.1. Railway transportation TRCONT.RU/EN/

05.4.1 1. Consolidation of smaller market players 1. Drop in sales and profitability 1. Targeted quarterly monitoring of rates charged 08.1.1 1. Suboptimal logistic decisions 1. Delays in delivery 1. Approval of competitive rates charged for the for shipping services provided by operators of Company’s equipment based on detailed analysis 2. Damage to the Company’s Risk of tougher competition in 2. Competition from other related means of 2. Declining revenues other means of transport (performed, where Inefficient organisation 2. Obsolescence of the flatcar fleet of cargo flows and use of third party rolling goodwill the container transportation transport needed, by engaging third-party advisors) of transportation (more stock (on an ongoing basis) market empty runs) 3. Excessive idle time 3. Lost profits due to 3. Potential entry of major global container 2. Quarterly monitoring of market peers to be 2. Addition of new rail cars to the ongoing projects 4. Shortage of TransContainer’s rolling stock on unavailability of the rolling Criticality: transportation providers into the Russian included in the CEO’s quarterly report on the Criticality: (where needed) certain routes stock Acceptable risk market Company’s performance Acceptable risk 3. Assets (rail cars and containers) management in 5. Order processing errors 4. Fines and penalties payable Risk management method: 4. Seasonal demand for transportation 3. Monitoring of changes in the flatcar market Risk management method: line with resource requests (where needed) Acceptance Control and prevention to customers that cannot be 5. Market additions in the modernised flatcar fleet (quarterly) 6. Failure to consider all transportation factors and conditions recovered from the carrier 4. Optimisation of rail car and container turnover, 4. Monitoring of peer pricing policies using public efficient management of the car and container 5. Declining freight volumes information sources and, where needed, 7. Lengthy processing of applications by Russian flows (on an ongoing basis) adjustment of TransContainer’s rates (on an Railways 6. Declining revenues 5. Processing of requests with a focus on ongoing basis) 8. Delays in issuing shipping documents 7. Higher shipment costs with no rolling stock availability, individual shipment requirements, technical capabilities of the 06.1. Media relations 9. Ineffective rates for certain routes changes in payments received from the customers loading and offloading yards, regulatory restrictions, seasonal changes in shipment 06.1.1 1. Ineffective monitoring of Сompany media 1. Damage to the Company’s 1. Ongoing cooperation with the media and 10. Imbalance of container flows 8. Inflated costs patterns, throughput capacities of the border coverage goodwill disclosure of information on the Company’s 11. Inefficient planning in terms of routes and crossing and ports (on an ongoing basis) Reputation risk operations (on an ongoing basis) 2. Lengthy response time to adverse information 2. Decline in the Company’s shipping types 6. Timely provision of information required for Criticality: capitalisation 2. Media monitoring: compilation of full-text news request approval, control over the approval Minor risk 3. The company’s public image is not assessed articles, analytic reviews and tables providing process (on an ongoing basis) Risk management method: 4. Unauthorised sharing of information between industry-wide insights and information about Control and prevention the Company’s business units and mass media specific segments of operation (on an ongoing 7. Timely distribution of orders and instructions basis) related to shipment management, control over 5. Deterioration of media relations the order/request approval process (on an 3. Media audits: evaluation of the Company’s brand ongoing basis) mentions in the media

4. Timely response to negative media coverage (on 08.1.2 1. Non-compliance with shipping requirements 1. Fines and penalties payable 1. Third-party liability insurance (where needed) an ongoing basis) to customers that cannot be Loss or damage to the 2. Non-compliance with safety requirements recovered from the carrier 2. Regular staff training, certification and briefings 5. Methodological corporate communications cargo at temporary storage (where needed) 3. Non-compliance with technical requirements support as requested by the Company’s branches warehouses, terminals or 2. Declining revenues APPENDIX for storage and executive office (on an ongoing basis) during the delivery 3. Damage to goodwill Criticality: 06.1.2 1. Inefficient investments into the Company’s 1. Low return on advertising 1. Media planning (development of media plans Minor risk advertising strategy; no positioning in major investments (advertisement display schedules), planning Inefficient advertising strategy industry media of marketing campaigns emphasising the Risk management method:

ОБЗОР РЫНКА ОБЗОР Criticality: Company’s market footprint (where needed) Transfer Minor risk 09.1. Sales planning and order management Risk management method: Control and prevention 09.1.1 1. Discrepancy between commercial terms and 1. Poorer financial performance 1. Constant monitoring of the equipment market market environment 2. Decreased volume of services COSO CLASSIFICATION – OPERATIONAL RISKS Poor customer service 2. Monitoring of COC performance in the Russian 2. Significant deviations in the process of Raiways’ network Criticality: 07.1 Procurement, storage logistics rendering a service Critical risk 3. Monitoring of TransContainer’s competitive position 07.1.1 1. Infeasibility of procurement 1. Inefficient investment and 1. Feasibility analysis of contracts being signed by Risk management method: resource management supervisors (on an ongoing basis) Control and prevention 4. Monitoring of the customer demand structure Inefficient procurement 2. Insufficient quality and quantity control in respect of purchased goods and services 2. Procurement of insufficient or 2. Monitoring of the goods/services/works market 5. Development of fleet expansion programmes Criticality: low-quality goods/services/ and supplier base, including through market Acceptable risk works surveys (on an ongoing basis) 09.1.2 1. Lack of transportation equipment 1. Customers switching to other 1. Monitoring demand for cargo fleet (where Risk management method: providers of transportation needed) 3. Higher operating expenses 3. Keeping of an unreliable supplier register (on an Failure to provide 2. Delays in issuing the existing transportation equipment» Control and prevention ongoing basis) the full range of specialised equipment 2. Daily follow-up on orders in terms of cargo fleet shipment services provision to customers (daily) 4. Asking suppliers of goods/services/works to provide, where needed, compliance, product Criticality: and other certificates and licences required for Minor risk contract management (on an ongoing basis) Risk management method: 5. Planning of goods/works/services procurement Control and prevention based on the updated inventory protocol and the Company’s needs (on an ongoing basis)

6. Putting in place an IT Expert Group (on an ongoing basis) ANNUAL REPORT 2016 230 231

Risk Potential risk drivers Potential risk impact Mitigators Risk Potential risk drivers Potential risk impact Mitigators

10.1.Pricing 12.1. HR management TRCONT.RU/EN/

10.1.1 1. Change in the transportation market in respect 1. Lack of demand and shrinking 1. Setting competitive base rates for the Company’s 12.1.1 1. Lack of a unified personnel training and 1. Additional costs related to 1. Corporate environment surveys (employee of container transportation customer base services (on an ongoing business) development framework, including talent pool new hires’ training surveys) (on an ongoing basis) Pricing not in line with Departure of key employees and professional growth opportunities the transporation market 2. Competition from other market players 2. Decreased competitiveness; 2. Monitoring competitors’ pricing based on public 2. Poorer personnel performance 2. Rollout of assessment methods across sources and adjusting TransContainer rates Criticality: 2. Lack of a talent pool in certain areas and a subsidiaries 3. Potential leaks/loss of Criticality: 3. Competition from alternative transportation 3. Decreased sales and where needed (on an ongoing basis) Acceptable risk time-consuming process of personnel training Acceptable risk profitability information 3. Building a talent pool as part of the Corporate 4. Force majeure Risk management method: 3. Shortage of experts with the required University project 4. Damage to the employer’s Risk management method: Control and prevention qualifications in the labour market due to the image 4. Providing career opportunities for talented Control and prevention specialised nature of the Company’s business employees as part of the Talent Pool project (for example, a sales manager) 5. Failure to achieve Company’s 11.1 Repair and maintenance goals 4. Lack of a uniform personnel training policy 11.1.1 1. Inadequate quality of the rolling stock and 1. Lower fleet reliability 1. Rolling stock and container repair quality integrated into the incentive system containers monitoring (on an ongoing basis) Inefficient repairs of rolling 2. Decrease in the number of 5. Lack of a uniform personnel development stock and containers 2. Inflated repair prices available rail cars 2. Rolling stock and container repair cost policy and opportunities for the personnel to monitoring to prevent overpricing (on an realise their professional abilities Criticality: 3. Insufficient diversification of the repair options 3. Failure to meet safety ongoing basis) Acceptable risk requirements 6. Lack of transparent mechanisms in terms of 4. Insufficient maintenance data on the fleet 3. Development of initiatives to diversify sources of horizontal and vertical career mobility Risk management method: 4. Duplication of current repair repair services (where needed) Control and prevention 5. Lack of centralised tools to monitor fleet repair costs due to low quality of 13.1 Information management systems needs, possible risks and consequences, goals maintenance (higher overall 4. Fleet condition monitoring (on an ongoing basis) and compliance with repair schedules repair and maintenance costs) 5. Selecting facilities for TransContainer fleet repairs 13.1.1 1. Obsolescent IT equipment 1. Higher IT-related costs, 1. Scheduled replacement and upgrade of obsolete 6. Inadequate quality of the depot, current providing the best combination of service range overlapping functions, hardware (where needed) IT systems and equipment not 2. Obsolescent software uncoupling or overhaul repairs and quality (where needed) disruptions in operations meeting the Company’s needs 2. Software updates and upgrades (where needed) 3. Deviations in IT strategy implementation 6. Monitoring compliance with TransContainer’s Criticality: 3. Monitoring the IT strategy implementation by-laws applicable to rail car repairs. Introducing Acceptable risk 4. Insufficient integration of IT systems an additional tier of monitoring (on an ongoing 4. Monitoring the performance and utilisation of basis) Risk management method: the developed and implemented IT solutions by Control and prevention end users 7. Recovering the cost of substandard current repairs/maintenance from repair service providers 13.1.2 1. IT equipment failures, including due to external 1. Interruptions 1. Hardware redundancy, data backups (on an (where needed). factors in the Company’s operations ongoing basis) Failures of IT systems and APPENDIX 11.1.2 1. Discrepancy between the repairs cost and the 1. Failure to meet safe operation 1. Signing repair service agreements in a timely infrastructure 2. Virus attacks 2. Loss of critical data 2. Timely anti-virus software updates (on an cost estimate documents requirements manner and in line with approved budgets for ongoing basis) Inefficient other repairs overhauls and current repairs (on an ongoing Criticality: 3. Unauthorised access 3. Monitoring and implementation of measures (excluding rolling stock 2. Lack of centralised tools to monitor fleet repair basis) Acceptable risk and containers) needs, possible risks and consequences, goals 4. Software errors aimed at preventing unauthorised access to IT and compliance with repair schedules 2. Conducting industrial safety audits pursuant Risk management method: systems (on an ongoing basis) ОБЗОР РЫНКА ОБЗОР 5. Ineffective IT continuity plan Criticality: to Federal Law No. 116-FZ dated 21 July 1997 Control and prevention 4. Fulfilment of IT continuity requirements (on an Acceptable risk 3. Preventative maintenance delays On Industrial Safety at Hazardous Production 6. Communication service interruptions ongoing basis) Facilities (where needed) Risk management method: 7. Lack of contracts on hardware and software 5. Communication systems redundancy (on an Control and prevention 4. Checking repair cost estimates against repair lists support and maintenance ongoing basis) based on industry-specific unit price guidelines applicable to construction and specialised 6. Development of annual professional training services (where needed) plans 5. Regular monitoring of repair quality and timing for compliance with construction rules and 14.1. Fraud prevention regulations (on an ongoing basis) 14.1.1 1. Insufficient compliance with procedures 1. Direct or indirect financial 1. Regular audits for compliance with procedures applicable to confidential/proprietary data losses, including potential applicable to confidential/propriety data and site 11.2. Repairs Confidential/proprietary claims from third-party security information leaks 2. Insufficient level of IT security confidential data owners 11.2.1 1. Expiry of time between repairs 1. Fleet idling 1. Monitoring of time between repairs by branches’ 2. Regular information security audits to ensure repair services and the operational department Criticality: 3. Violations of the established procedures of 2. Decrease in the Company’s data protection from external attacks and Prolonged time between 2. Insufficient diversification of the repair options 2. Additional costs associated (on an ongoing basis) Acceptable risk handling information and documents by the competitiveness prevent the use of confidential information and repairs with using more rail cars 3. Low quality of materials or equipment, obsolete Company’s employees (negligence) Internet resources by Company employees 2. Monitoring repair quality (acceptance testing Risk management method: 3. Loss of reputation as a reliable Criticality: technology 3. Financial losses related to after repairs) due to low quality of materials, Control and prevention 4. Deliberate actions of the Company’s employees partner in the container 3. Procedure to make sure that all agreements Acceptable risk redoing maintenance/repairs 4. Inadequate qualification of the contractor’s equipment, and obsolete technologies (on an or other parties that have gained legitimate transportation market contain confidentiality clauses, where applicable, Risk management method: personnel, discrepancy between the declared 4. Failure to meet safety ongoing basis) access to confidential information with the or that there are separate agreements covering aim of divulging such confidential information 4. Penalties for violation of Control and prevention worker category and the real skill level requirements 3. Repair quality monitoring due to a low level of confidentiality; audits for compliance with to competitors based on profiteering or other personal data protection laws contractual provisions regarding confidentiality 5. Higher accident and incident skills of contractor’s personnel and overstated self-interest rate personnel qualifications and certification (on an ongoing basis) ANNUAL REPORT 2016 232 233

Risk Potential risk drivers Potential risk impact Mitigators Risk Potential risk drivers Potential risk impact Mitigators

14.1.2 1. Criminal intent to engage in fraud, commercial 1. Damage related to lost 1. Monitoring the performance of security service 15.1.2 1. Employee non-compliance with occupational, 1. Damage to personnel’s health 1. Work safety training TRCONT.RU/EN/ bribery, theft of the Company’s property, assets, business recovery, providers (on an ongoing basis). industrial and fire safety requirements 2. Administrative and criminal 2. Three-tier health and safety monitoring Wrongful acts of third parties deliberate or accidental damage to such lost profits due to suspension Workplace injuries contained in the applicable laws and against the Company’s 2. Ensuring continuous operation of video charges property, or terrorist and/or other extremist (interruption) of operations Company’s by-laws 3. Special assessment of working conditions property or personnel surveillance and security systems at all Criticality: acts. 3. Litigation costs and expenses pursuant to Federal Law No. 426 dated 28 2. Casualties, negative public TransContainer’s sites (on an ongoing basis) Critical risk 2. Equipment non-compliance with the safety Criticality: December 2013 On Special Assessment of 2. Incomplete (based on objective or subjective opinion requirements 4. Damage to the Company’s Acceptable risk 3. Taking applicable legal actions against persons Risk management method: Working Conditions reasons) evaluation of contractors’ reliability goodwill apprehended in the course of committing Control and prevention 3. Delayed personnel training on safe operating 4. Technical training programmes for employees Risk management method: 3. Inadequate monitoring of access to facilities: criminal acts and submitting the relevant procedures Control and prevention rail sidings, container terminals (sites), information to law enforcement agencies in 5. Development and update of the relevant health 4. Non-compliance with the internal work production and administrative buildings order to recover losses (where needed) and safety regulations to reflect changes in (properties), containers, flatcars, etc. regulations 4. Organising regular training for the Company health and safety requirements set by applicable personnel Russian laws and regulations

5. Running “know your partner” checks (on an 15.2. Environmental protection ongoing basis) 15.2.1 1. Untimely upgrade and replacement of obsolete 1. Damage to personnel’s health 1. Developing environmental protection initiatives 14.1.3 1. Inadequate security measures 1. Losses suffered by 1. Identifying potential conflicts of interest and outdated equipment the Company, including lost Negative environmental 2. Administrative and criminal 2. Purchasing insurance policies for hazardous Wrongful acts of 2. Insufficient level of employees’ ethical maturity assets 2. Running background checks of potential new footprint associated with 2. Insufficient level of professional qualifications charges production facilities the Company’s employees hires the use of equipment of designated officers 3. Theft of the Company’s money, assets and 3. Purchasing up-to-date equipment (including 2. Lost profits and technology 3. Litigation costs and expenses Criticality: other property 3. Investigating thefts and losses, identifying the 3. Non-compliance with conditions of use, wear technical equipment) in line with the approved 4. Damage to the Company’s Acceptable risk 3. Casualties culprits and their motivations, and assessing Criticality: and tear of, and damage to equipment, investment programme 4. Fraud, corruption, extortion or commercial br goodwill losses suffered by the Company (where needed) Minor risk accidents Risk management method: ibery 4. Damage to the Company’s 4. Complying with the production and process Control and prevention goodwill 4. Sending all partners a clear message on the Risk management method: procedures 5. The Company’s employees deliberately Company’s commitment to combating fraud, Control and prevention arranging unfavourable contract terms based corruption and abuse; maintaining hotlines for 5. Providing personnel retraining on pecuniary or other self-interest whistle-blowers, publicising any measures taken 6. Ensuring timely payments for permitted against the culprits (on an ongoing basis) 6. Domestic political situation, continued threat environmental discharges pursuant to Federal from extremist groups 5. Monitoring compliance with collegiate decision- Laws No. 7-FZ dated 10 January 2002 On making procedures and independent document Environmental Protection, No. 96-FZ dated 04 approval procedures (on an ongoing basis). May 1999 On Atmospheric Air Protection, and No. 89-FZ dated 24 June 1998 On Industrial 15.1. Incident management Waste

APPENDIX 7. Developing the Company’s internal 15.1.1 1. Obsolescence of and damage to equipment 1. Production process 1. Ensuring timely repairs as prescribed by safe environmental regulations and obtaining interruptions operation rules for cargo cranes (PB 10-382-00) regulatory approvals thereof in a timely manner Technical incidents (accidents, 2. Manufacturing defects in the equipment and loading and unloading machinery operation emergencies while processing 2. Costs related to business manual (TsMM-20) (where needed) hazardous cargos) 3. Low-quality repairs recovery 16.1. Document management

ОБЗОР РЫНКА ОБЗОР 4. Inadequate qualifications of employees/ 2. Purchasing up-to-date equipment in line with Criticality: 3. Fines, penalties and liquidated 16.1.1 1. Non-compliance with the Rules for Preparing 1. Decreased performance, 1. Monitoring compliance with document contractors the approved investment programme (where Acceptable risk damages needed) and Designing Regulatory and Other unsatisfactory performance, management regulations Inefficient document Documents at TransContainer approved unfulfilled obligations, Risk management method: 4. Losses caused by accidents 2. Monitoring the progress and quality of 3. Conducting industrial safety audits pursuant management by TransContainer’s Order No. 238 of 18 slow-down in business Control and prevention to Federal Law No. 116-FZ dated 21 July 1997 document execution 5. Hazards to personnel’s health Criticality: September 2007 applicable to all business units processes, business process On Industrial Safety at Hazardous Production and life Minor risk of the Company failures, negative impact on Facilities (where needed) TransContainer’s image 6. Damage to goodwill Risk management method: 2. Non-compliance with the Documentation 4. Ensuring that repairs are compliant with Control and prevention Management Procedure approved by applicable regulations (safe operation rules for TransContainer’s order applicable to all cargo cranes (PB 10-382-00) and loading and business units of the Company unloading machinery operation manual (TsMM- 20)) (on an ongoing basis) 3. Non-compliance with the Procedure for Arranging Operations of the Reception Office, 5. Providing timely training for task owners Meetings, Business Travel, Storage and Use pursuant to the Russian Labour Code, Order of of the Corporate Seal at TransContainer the Federal Environmental, Technological and (other than the documentation management Nuclear Energy Supervision Service No. 37 dated subprocess) approved by TransContainer’s 29 January 2007 On Training and Certification order applicable to all business units of the of Employees in Companies and Organisations Company Regulated by the Federal Environmental, Technological and Nuclear Energy Supervision Service, other regulations, rules and instructions, as well as approved training and professional development programmes (where needed) ANNUAL REPORT 2016 234 235

Risk Potential risk drivers Potential risk impact Mitigators Risk Potential risk drivers Potential risk impact Mitigators

17.1. Force majeure 19.1. Industry-specific regulations TRCONT.RU/EN/

17.1.1 1. Natural disasters, climate change 1. Lost assets, costs related to 1. Obtaining insurance coverage 19.1.1 1. Non-conformity of the equipment, 1. Penalties, restrictions on 1. Monitoring and enforcing compliance of business recovery technologies, quality of products/services with shipping operations, fines equipment, technologies and quality of products/ 2. Regular civil defence and emergency response Failures or interruptions in 2. Challenging crime situation in certain localities Non-observance of laws and regulatory requirements imposed by the Federal Anti- services with applicable railway transportation operations due to natural 2. Damage to personnel’s health training sessions and safety briefings regulations applicable to Monopoly Service regulations or man-caused emergencies 3. Inefficient protection of production assets and life the Company’s business as 2. No monitoring procedures to follow legislative 3. Emergency response plans or terrorism regards car and container developments 2. Tax authorities questioning 2. Monitoring and analysing regulatory changes 4. Accidents, explosions, fires at third-party 3. Third-party injuries repairs depreciation in tax documents Criticality: facilities preventing the Company from 3. Signs of monopoly in container transportation, 3. Monitoring and ensuring accuracy of Acceptable risk performing its operations Criticality: government regulation of tariffs 3. Restrictions on transactions documentation related to movable assets Acceptable risk with assets (sale, lease, etc.) Risk management method: 5. Breach of production and process discipline 4. Ambiguous legislative interpretations of 4. Monitoring and enforcing compliance with new Control and prevention/ 6. No formal procedures for critical incident Risk management method: “immovable property” 4. Fleet idling regulations and promptly providing information Acceptance Control and prevention on such regulations to branches response and crisis management 5. Incomplete/inaccurate documentation for 5. Restrictions on equipment the equipment in use operations 5. Assessing, analysing and reimbursing damage COSO CLASSIFICATION – REGULATORY RISKS caused to equipment

18.1. Legal support 19.1.2. 1. Non-compliance of operated facilities with 1. Failure in utility systems’ 1. Monitoring the state of TransContainer facilities applicable regulations operation 18.1.1 1. Inefficient government relations 1. Significant decrease in 1. Continuous interaction and efficient dialogue Violation of technical 2. Repairing buildings and constructions pursuant the Company’s operating with government agencies aimed at protecting requirements as regards 2. Untimely inspections and repairs of buildings 2. Repair/recovery costs to approved plans as prescribed by building New regulations negatively 2. Inadequate analysis of legislative developments building/construction and structures codes and financial performance the Company’s interests that may be affected by 3. Deterioration of building/ affecting the Company’s and their conseqiences with impact on the proposed new laws and regulations in order to operation business, untimely adoption Company’s operations 2. Discontinuation of some 3. Failure to communicate legislative construction performance 3. Informing personnel of any changes to identify provisions and requirements that may be Criticality: developments to employees regulations and standards in a timely manner of the planned regulations business activities 4. Loss of functionality of 3. Inadequate representation of the Company unfavourable to the Company’s business (on an Acceptable risk and amendments to ongoing basis) building/construction the existing regulations before the government authorities 3. Damage to business reputation Risk management method: elements 2. Participation in working groups, expert boards Control and prevention Criticality: and other deliberative bodies working with the Minor risk government, as wall as in public organisations 19.2. Customs laws and regulations Risk management method: to monitor changes in the legislation and regulations applicable to the transportation Control and prevention 19.2.1 1. Failure to provide documents or details required 1. Delays in delivery to buyers 1. Providing customers with timely information on industry and lobby relevant legislative changes for customs clearance in line with the selected document and data submissions depending on (to the extent possible) Sanctions and restrictions customs procedure 2. Additional customs costs and relevant customs procedures and goods being imposed by customs expenses 3. Provision of legal knowledge and clarifications transported authorities related to related to legal provisions as requested by the APPENDIX international cargo 2. Checking that customers have all required Company’s business units (where needed) transportation documents and data depending on relevant procedures and goods at the time of container 18.2. Contractual Criticality: acceptance for shipment Acceptable risk 18.2.1 1. Inadequate contractual framework for 1. Additional costs and expenses 1. Monitoring and enforcing compliance with all 3. Training branches’ personnel on the customs Risk management method: ОБЗОР РЫНКА ОБЗОР protecting the Company due to unfavourable contract negotiation and review procedures legislation and regulations Control and prevention Failure to serve the contractual terms Company’s interests 2. Inadequate terms and conditions of 2. Monitoring and enforcing compliance with 4. Analysing and summarising the Company’s when signing contracts transactions regulations related to contracts and agreements expertise related to this risk with contractors 3. Monitoring and enforcing compliance with 19.3. Tax legislation Criticality: bidding procedures Acceptable risk 4. Ensuring personnel development 19.3.1 1. Incorrect application of tax laws 1. Additional taxes, fines and 1. Training employees (continuous professional Risk management method: penalties development) 5. Providing guidance on contract execution Non-observance of tax law 2. Ambiguous interpretations of tax law Control and prevention requirements requirements 2. Litigation costs and expenses 2. Ensuring that contracts are executed in a timely manner 18.3. Representing TransContainer in courts Criticality: 3. Rejection of certain costs Acceptable risk and expenses by the Federal 3. Engaging consultants (where needed) 18.3.1 1. Inadequate review of transaction terms and 1. Losses stemming from 1. Developing solid legal reasoning and proper Tax Service when calculating Risk management method: conditions by the initiator of the transaction damages, fines, penalties, defence tactics corporate income tax Control and prevention Losing litigation cases compensations, legal costs 4. Seizure of assets/accounts related to contractors’ or 2. Absence of the required source documents or and expenses or lost goodwill 2. Recording litigations in the electronic document employees’ claims, imposition their improper execution by the Company’s management system and monitoring legal of administrative sanctions employees precedents 19.4. Anti-fraud and anti-corruption legislation on the Company severely 3. Default by the Company or its contractors 3. Analysing cases involving TransContainer affecting its financial 19.4.1 1. Absence of documents governing the key 1. Company’s, officers’ and 1. Development and approval of the Company’s under agreements performance principles of, and approaches to, combating employees’ liability (including Anti-Corruption Policy Absence of documents 4. Unreasonably refused partner claims corporate fraud liability under the UK law) Criticality: governing key principles 2. Development and approval of the Company’s Acceptable risk 5. Non-compliance with law of, and approaches to, 2. Decline of the Company’s Programme for Combating Corporate Fraud and combating corporate fraud stock value Corruption Risk management method: Control and prevention Criticality: 3. Damage to the Company’s Acceptable risk goodwill

Risk management method: Control and prevention ANNUAL REPORT 2016 236 237

Risk Potential risk drivers Potential risk impact Mitigators Risk Potential risk drivers Potential risk impact Mitigators

19.5. Other legal/regulatory requirements 20.3. Credit risk TRCONT.RU/EN/

19.5.1 1. Failure to fulfil obligations towards former 1. Additional costs and expenses 1. Strict compliance with labour laws 20.3.1 1. Financial standing of counterparties, adverse 1. Cash shortage 1. Calculating, controlling and setting counterparty employees (for example, in case of wrongful related to employees’ claims economic conditions limits 2. Professional development programmes for Non-compliance with dismissal). Insufficient solvency of 2. Deterioration of financial employment laws 2. Damage to goodwill HR departments at the executive office and counterparties, default on 2. Misinformation about counterparties« performance 2. Non-compliance with employment laws branches, review of periodicals related to the obligations Criticality: (for example, wrongful disciplinary action). application of labour laws 3. Increase in overdue Minor risk Criticality: receivables 3. Non-compliance with laws and regulations 3. Holding video conferences with branches’ HR Acceptable risk Risk management method: governing the provision of guarantees and departments on compliance with labour laws (on Control and prevention benefits to certain categories of employees an ongoing basis) Risk management method: (pregnant women and women with children Acceptance/Control and 4. Audits of HR activities pursuant to the approved under the age of three; the disabled, minors; prevention plan secondary job employees; employees exposed to harmful and/or hazardous environment 20.4. Interest rate risk factors; employees combining work and study, etc.). 20.4.1 1. Deteriorating economic conditions 1. Cash shortage 1. Hedging interest rate risks (where needed)

4. Unreasonable use of fixed-term contracts for Growth of debt portfolio 2. Rating downgrade 2. Deterioration of financial 2. Staff development/training value performance employment. 3. Deteriorating financial condition of the 5. Errors and inaccuracies in work record books. Criticality: company Acceptable risk 6. Disregard of employee rights and entitlement 4. Mistakes in debt policy implementation to annual leave (basic or additional), Risk management method: educational leave, compensations, additional Acceptance/Transfer leave days. 20.4.2 1. Budgeting mistakes 1. Cash shortage 1. Doing market research 7. Violations pertaining to work on weekends and Inability to raise loans and 2. Deteriorating economic environment 2. Deterioration of financial 2. Diversifying the lender and investor base holidays and overtime work. borrowings at target rates performance 3. Rating downgrade 8. Failure to provide guarantees and Criticality: 3. Failure to meet budget targets compensations relating to employment Acceptable risk termination. Risk management method: 9. Non-compliance with personal data laws. Acceptance/Control and 19.5.2 1. Inadequate qualifications in international law 1. Penalties and restrictions on 1. Professional development programmes for legal prevention

APPENDIX international operations staff on foreign laws Legal risks associated with 2. Changes in the legislation of foreign states 21.1 Budgeting the Company’s deals related 2. Damage to goodwill 2. Engaging foreign law experts to operations in foreign 21.1.1 1. Macroeconomic changes 1. Failure to meet strategic 1. Reviewing budgets at the Budget Committee’s jurisdictions targets meetings Inefficient budgeting process 2. Inaccurate information provided to financial Criticality: responsibility centres for the purpose of 2. Failure to meet budget targets 2. Monitoring the macroeconomic environment (on ОБЗОР РЫНКА ОБЗОР Acceptable risk Criticality: building/adjusting the Company’s budget an ongoing basis) Acceptable risk Risk management method: 3. Inadequate automation of the budgeting Control and prevention Risk management method: process Control and prevention COSO CLASSIFICATION – FINANCIAL RISKS 21.1.2 1. Inefficient controlling system 1. Deviation of budget 1. Carrying out plan/actual factor gap analysis parameters 20.1 Liquidity risk Uncontrollable deviations 2. Monitoring budget execution reports by heads from the budget 2. Shortage of cash to fund of financial responsibility centres (on an ongoing 20.1.1 1. Unpredictable increase in spending, absence 1. Fines, counterparty claims 1. Maintaining the payment schedule in line the company’s operations basis) of reserves and provisions, lower income, tax with TransContainer’s Regulation for Finance Criticality: Shortage of cash to cover claims, lack of access to funding Management Acceptable risk short-term payments 2. Supporting limits and credit facilities with banks Risk management method: Criticality: Control and prevention Acceptable risk 3. Adjusting budget processes 22.1 RAS accounting and reporting Risk management method: Control and prevention 22.1.1 1. Untimely and inaccurate provision of 1. Misrepresentation of financial 1. Training employees (continuous professional information by departments and process statements, fines for late development) 20.2. Currency risk Unreliable and/or untimely owners delivery RAS accounting statements 2. Ensuring that contracts are executed in a timely 20.2.1 1. Unpredictable changes in foreign exchange 1. Deterioration of financial 1. Monitoring exchange rates on a daily basis 2. Lack of a documented contractor service manner (on an ongoing basis) rates performance Criticality: distribution procedure FX risk Minor risk 3. Ensuring compliance with local regulations 3. Execution of reconciliation reports despite Criticality: 4. Engaging consultants Risk management method: discrepancies, or lack of reconciliation reports Acceptable risk Control and prevention 4. Untimely and inaccurate accounting. Risk management method: Acceptance/Control and prevention ANNUAL REPORT 2016 238 239

Risk Potential risk drivers Potential risk impact Mitigators SUBSIDIARIES AND JOINT VENTURES PJSC TRANSCONTAINER

22.2 IFRS accounting and reporting TRCONT.RU/EN/

22.2.1 1. Untimely/incomplete and/or inaccurate 1. Misrepresentation of IFRS 1. Training employees (continuous professional disclosure of information and documents by financial statements development) Unreliable and/or untimely subsidiaries, branches, business units, advisers 2. Unreliable data disclosed in 2. Ensuring that contracts are executed in a timely IFRS consolidated financial and process owners PJSC TRANSCONTAINER statements IFRS consolidated financial manner (on an ongoing basis) 2. Errors in the transformation and consolidation statements 3. Ensuring compliance with local regulations Criticality: of financial statements Minor risk 3. Late delivery of IFRS 4. Engaging consultants 3. Untimely and/or incomplete provision of consolidated financial Risk management method: information about major transactions for the statements Control and prevention purpose of disclosure in consolidated financial 4. Decrease in users’ (company LLC TRANSCONTAINER TRANSCONTAINER ASIA TRANSCONTAINER- statements management, shareholders, FINANCE PACIFIC LTD. SLOVAKIA, A.S. 4. Untimely and/or incomplete provision of investors, banks, information about acquisition/sale of interest/ counterparties, etc.) reliance shares, incorporation/creation of new on financial statements companies/joint ventures/special purpose % % % 5. Decrease in the market value vehicles, company liquidation of shares, breach of LSE 100 Russia 100 South Korea 100 Slovakia 5. Malfunctioning of the IFRS and other requirements automated systems, untimely/incomplete IT 6. Breach of Law 208-FZ On support, untimely and/or incomplete provision Consolidated Financial of services pertaining to the support and LOGISTIC INVESTMENT TRANSCONTAINER EUROPE OY CONTAINERTRANS Statements and Law 39-FZ On upgrade of the IFRS reporting system. S.A R.L. GMBH SCANDINAVIA LTD the Securities Market % % % 100 Luxembourg 100 Austria 50 Finland

LOGISTIC SYSTEM MANAGEMENT B.V. KOO RAIL-CONTAINER

APPENDIX VR-YHTYMÄ OY 50% Finland % 100 Netherlands % ОБЗОР РЫНКА ОБЗОР % JSC NC KTZ 49 China 50 Kazakhstan JSC KEDENTRANSSERVICE TRANS-EURASIA LOGISTIC % CRIMT GMBH 51 China % 100 Kazakhstan % 20 Germany % JSC RZD 30 Russia TOO “TRANSPORT KAZAKHSTAN LLC TRANS-EURASIA HOLDING” % DB MOBILITY LOGISTICS VOSTOK 40 LOGISTICS AG % Germany % 100 Kazakhstan 100 Russia % KVG 10 Germany

Financial (holding) company

Operating company Representative offices Joint venture company

Other shareholders

Ukraine Belarus Uzbekistan Latvija Abkhazia China Share of ownership % ANNUAL REPORT 2016 240 241

GLOBAL SUSTAINABILITY STANDARDS

TRCONT.RU/EN/ BOARD (GSSB/GRI)

GRI Standards Сontent index Сontent Page /Сomment GRI Standards Сontent index Сontent Page /Сomment

General 102-1 Name of the organization Cover 2 General 102-50 Reporting period 01.01.2016 – 31.12.2016 Disclosures Disclosures 102-2 Activities, brands, products, and services 42 102-51 Date of most recent report May 2016

102-3 Location of headquarters 242 102-52 Reporting cycle annual

102-4 Location of operations 19 102-53 Contact point for questions regarding the report 242

102-5 Ownership and legal form Cover 2 102-54 Claims of reporting in accordance with the GRI Standards with considering GSSB

102-6 Markets served 26 102-56 External assurance The report passes the internal audit procedure.

Confirmation of completeness of disclosure of GRI 102-7 Scale of the organization 38 indicators by external parties is not carried out

102-8 Information on employees and other workers 56 Energy 103-1,2,3 Explanation of the material topic and its Boundary 6-13

102-9 Supply chain 66 201-1 Direct economic value generated and distributed 70

102-10 Significant changes to the organization and its supply chain Without changes Water 303-1 Water withdrawal by source 64

102-11 Precautionary Principle or approach Used locally when evaluating large projects Effluents and 306-2 Waste by type and disposal method 63 Waste 102-12 External initiatives Prepare for certification according to ISO 14001 Employment 401-1 New employee hires and employee turnover 56 102-13 Membership of associations The company is a member of the RUIE since 2009 APPENDIX 401-3 Parental leave 56 102-14 Statement from senior decision-maker 6 Training and 404-1 Average hours of training per year per employee 58 102-16 Values, principles, standards, and norms of behavior 53 Education ОБЗОР РЫНКА ОБЗОР 102-18 Governance structure 90 Diversity 405-1 Diversity of governance bodies and employees 56 and Equal Opportunity 102-40 List of stakeholder groups 53

102-41 Collective bargaining agreements 100% Local 413-1 Operations with local community engagement, impact 68 Communities assessments, and development programs

102-42 Identifying and selecting stakeholders The company refers to stakeholders that have a significant impact on the value chain and the environment in which its units operate.

102-43 Approach to stakeholder engagement 53

102-45 Entities included in the consolidated financial statements 160

102-46 Defining report content and topic Boundaries 4

The structure of the report is consistent with the main elements of the Company’s business model.

102-47 List of material topics The report reveals significant aspects for the major stakeholder groups in the areas of operational efficiency, financial sustainability, environmental and industrial safety, social responsibility and corporate governance.

102-48 Restatements of information Without changes

102-49 Changes in reporting Without changes ANNUAL REPORT 2016 ADMINISTRATIVE DETAILS

Full name of the Company in Russian: Shareholder and investor relations: Публичное акционерное общество Email: [email protected] «Центр по перевозке грузов в контейнерах «ТрансКонтейнер». Andrey Zhemchugov, Abbreviated name of the Company in Russian: Director for Capital Markets and Investor Relations ПАО «ТрансКонтейнер». Phone: +7 (495) 637 91 78 Full name of the Company in English: Alexander Shakhanov, Public Joint Stock Company Deputy Director for Capital Markets and Investor Relations “Center for Cargo Container Traffic “TransContainer”. Phone: +7 (495) 609 60 62 Abbreviated name of the company in English: PJSC “TransContainer”. Kristina Galkina, Director for Corporate Governance Location of the Company: Moscow. Phone: +7 (495) 788 17 17, ext. 10-17 Postal address: Sales and customer relations: 19 Oruzheyny Per., Moscow, 125047. Email: Sales@trcont. ru; isales.trcont.ru Date of state registration: Customer hotline: 4 March 2006 (OGRN: 1067746341024) 8 800 100 22 20 (24hr) Website: A glossary and other useful information for customers www.trcont.ru are available at: Email: [email protected] http://www.trcont.ru/en/customers/supporting-information/ Multichannel line: +7 (495) 788 17 17 +7 (499) 262 77 00 STATUS, the Company’s registrar: Location: CEO’s office reception desk: 32/1 ul. Novorogozhskaya, Moscow, Russia, 109544 Tel.: +7 (499) 262 85 06 Fax: +7 (499) 262 75 78 Phone/fax: +7 (495) 974 83 50; 974 83 45 Email: Email: [email protected] [email protected] Licence: No. 10-000-1-00304 dated 12.03.2004 Contact person: Natalia Rostova, Press Secretary Issued by: Federal Commission for the Securities Market Licence term: unrestricted Phone: +7 (499) 262 06 65 Date on which STATUS began to maintain securities registers: +7 (495) 788-17-17, ext. 10-70 20 June 1997.

PricewaterhouseCoopers Audit, the Company’s auditor Location: 10 ul. Butyrsky Val, Moscow, Russia, 125047 OGRN: 1027700148431 INN: 7705051102 Phone: +7 (495) 967 60 00 Fax: +7 (495) 967 60 01 Website: http://www.pwc.ru/en Member of the non-commercial partnership Audit Chamber of Russia, a self-regulating organisation of auditors. Principal registration number in the register of auditors and auditing organisations: 10201003683.