Annual Report 2013 MOVING AHEAD

Moving Ahead

Annual Report 2013 MOVING AHEAD //

Contents

SOLLERS: MOVING AHEAD

06 Chairman’s Statement 08 CEO’s Statement 12 About the Company 14 Project Mapping 16 Key Performance Indicators

Business & Strategy

20 Market Overview and Sollers’ Product Portfolio 29 Our Strategy 34 Our Business Model 36 Business Projects and Key Assets

Corporate Governance

48 What does Corporate Governance Mean to Sollers? 50 The Profiles of Sollers’ Directors 54 Board of Directors’ Meetings 55 Board Committee Reports 60 The Profiles of Sollers’ Managers 62 Risk Management and Principal Risks

Corporate Social Responsibility

68 Responsible Business Principles in All Our Operations 69 Increasing the Company’s Shareholder Value 70 Growth Through Long-Term Partnerships 71 Continuing Development 73 Improving the Quality of Our Products and Services 74 Improving Employee Competences 75 Contributing to the Social and Economic Development 75 Increasing Operating Safety and Monitoring RUB 61.3 bln >20 76 Reducing Our Impact on the Environment consolidated revenue in 2013 new products were launched by Shareholders’ Equity & Securities 80 Share Capital SOLLERS together with its partners 80 Major Shareholders’ 80 Market Share Price & GDR 81 Investor Relations Calendar 2014 81 Investor Relations Department For more info... SOLLERS is one of the leading Russian automotive Financial Reporting 86 Independent Auditor’s Report This Annual Report is also 87 Sollers Group Consolidated Financial Statements available on our website, companies and works in partnership with global 91 Sollers Group Notes to the Consolidated Financial Statements www.sollers-auto.com at 31 December 2013 automotive producers such as Ford, SsangYong, Additional Information Toyota, Mazda and Isuzu 124 Glossary 125 Corporate Information and Key Contacts

SsangYong retail sales grew by 9% Y-on-Y to 34.1 k Ford Sollers JV tripled its retail sales of Ford SUVs units. The brand was included in the top 20 most in 2013 Y-on-Y to over 17 k units, due to the launch popular car brands in Russia, according to the of the new Kuga and increased production of the Association of European Businesses. This growth was Explorer. Further localisation of Ford SUV models driven by Actyon, which was restyled in August 2013. and new launches will increase the competitiveness SSANGYONG UAZ Domestic market Export ISUZU FORD SUVs of the Ford brand in the SUV segment and improve The launch of the new generation UAZ Patriot has production efficiency. helped to maintain a solid demand for UAZ SUVs and is proving itself to be a good substitute for the old › For more information about 34.1 k units 51.6 k units 10.4 k units 1.3 k units 17 k units UAZ model range. SOLLERS’ market position and business structure +9% –15% +37% +71% TRIPLED see PAGE 13. versus 2012 versus 2012 versus 2012 versus 2012 versus 2012

Our Year in Brief

APRIL 05 > SOLLERS-ISUZU JV APRIL 12 > MAZDA SOLLERS JUNE 14 > Ford Sollers AUGUST 6 > UAZ starts the production › Our CEO discusses our year’s performance starts assembly of the ISUZU ELF 9.5, JV starts production of JV starts assembly and sales of a new UAZ Patriot model a new chassis with a payload the Mazda6, the second of the Ford Tourneo with a Dymos transfer gearbox (Korea) and future priorities on PAGE 8. of 6.6 tonnes, in Ulyanovsk SKYACTIVE-equipped vehicle Custom MPV and new interior from Mazda, at the Vladivostok production site

JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER

MAY 14 > Ford Sollers JV starts building APRIL 11 > Ford Sollers JV starts its first engine plant in Tatarstan, which FEBRUARY 18 > SOLLERS-BUSSAN assembly of the Ford Explorer SUV will be opened in December 2015. The AUGUST 23 > Launch of the SsangYong OCTOBER 16 > Ford Sollers JV starts JV starts production of the Toyota from completely-knocked-down joint venture will also launch Ford Actyon 2014 with a restyled exterior assembly of Ford Kuga crossover utility Land Cruiser Prado at its Vladivostok (CKD) kits at its plant in Elabuga, EcoSport crossover utility vehicles in and interior at MAZDA SOLLERS JV in vehicles from completely-knocked-down production site where it also welds and paints bodies the second half of 2014 Vladivostok kits at its plant in Elabuga

Key Financial Indicators › More KPIs can be found on PAGE 16

Revenue EBITDA Net Debt Net Debt/ EBITDA Net Profit Free Cash Flow RUB 61,317 RUB 6,387 RUB 3,491 0.6 RUB 3,625 RUB 6,923 mln mln mln mln mln

SOLLERS-BUSSAN JV Ford Sollers JV Start of operations in the Russian Far East The largest SOLLERS’ JV project with with the launch of Toyota LC Prado production a revenue of over RUB 82 bln in 2013 and in Vladivostok production capacity up to 350 k units per year

We are moving ahead with our partners in fast-growing market segments, aspiring to market leading positions and keeping a focus on business efficiency SOLLERS: Moving Ahead

SUV segment’s share SOLLERS’ SOLLERS’ of the PC market EBITDA margin Net Debt/ EBITDA 36% 10.4% <0.6 makes Russia the largest SUV compares favourably with our peer record low Net Debt/ EBITDA ratio market in Europe group both in Russia and globally demonstrates our strong financial position

We continued to make progress at SOLLERS Nearly all global automotive groups have now undertaken large Despite difficult trading conditions in 2013, SOLLERS managed investment programmes in the Russian Federation and are governed to achieve an EBITDA margin of 10.4%, which compares favourably in 2013, not just in terms of preparing our by Regulation 166 which rewards the creation of value-added with our peer group both in Russia and globally. Our Net Debt/ business to move ahead when market growth activities and which has become even more important, given EBITDA ratio at year end was an historic low of below 0.6. Our the decline in value of the Russian rouble. The Ford Sollers JV share price in the period considerably outperformed the market returns but also ensuring that we will be able partnership, involving three modern and efficient assembly plants, and continues, together with our dividend payments, to justify the to do so in a robust and sustainable way. We is set to become one of the largest and most successful of these investment community’s positive view of SOLLERS. ventures. It will benefit from Ford's extensive knowledge of platform remain committed to working towards best technology, as well as SOLLERS’ experience and commitment The Board of SOLLERS continues to be dedicated to the highest practice standards, ensuring high levels of to working with existing and new suppliers in Russia. All these international standards of corporate governance, with a majority activities are designed to create a manufacturing base which of independent directors, who chair all Board Committees. governance and ethics whether in our fully- will be competitive on a global scale. SOLLERS also benefits from a transparent management system owned businesses or joint ventures and based on merit. These factors contribute to the Company's Equally, SOLLERS’ continued development of its own range leading ability to secure effective partnerships with international whether in buoyant or more challenging of Sport Utility Vehicles (SUVs) and other all-wheel drive vehicles technology providers and to work effectively with Government, under its own brand, UAZ, is clearly responding well to the needs suppliers and customers alike. trading conditions. of Russian consumers. The SUV segment’s share of the total passenger car market, at 36%, makes Russia the largest SUV 2.77 million new passenger cars and light commercial vehicles were market in Europe. SOLLERS continues to modernise its plant sold in the Russian Federation in 2013, 5.8% below the record level in Ulyanovsk, its paint process for example, and invest in its own of 2012. Viewed from a global perspective, however, this decline engineering capability. At the same time, successful partnerships was modest. While the EU passenger car market fell by just 1.7% for the assembly and distribution of SsangYong and Isuzu products in the same period, EU sales have now been in decline for six are developing well, as are the other assembly projects in the Far years in a row, making 2013 the worst year in the EU since 1995. East plant (Vladivostok), also involving Toyota and Mazda. The coming year is unlikely to see a return to growth, and SOLLERS believes that a further decline of several percentage points is likely. However, healthy growth is expected to resume in 2015 with a compound annual growth rate (CAGR) until 2020 of between 3% and 5%. This growth will be driven by a number of factors, alongside We work in an exciting industry whose strategic importance is recognised and supported by the general economic ones: the relatively low level of car ownership, Russian Government. Together with our commitment to best practice in all that we do, we believe only about half the average of OECD countries, has the potential to improve; despite rapid sales growth in recent years, the average we offer excellent and rewarding opportunities to existing and future employees to be part of our age of the domestic fleet is 13 years and consumers will be looking long-term commitment to shareholder value creation. to upgrade old vehicles or replace obsolete ones; and the level of credit financing is likely to continue to grow.

DAVID J. HERMAN CHAIRMAN

Growth of SOLLERS’ and Ford Sollers Market share Ford Sollers JV’s market share JV’s retail sales for new SUVs of the SUV segment of the C segment 24% 8.0% 12% Y-on-Y from 60.7 k vehicles in 2012 to 75.2 k vehicles versus 7.1% in 2012 In 2013, the Ford Focus became the market in 2013 leader of the C segment in Russia

HOW WOULD YOU SUMMARISE YOUR 2013 RESULTS? Alongside product launches in our consolidated business, ›› Sales strengthened in the growing market segments and SOLLERS’ joint ventures also expanded their model range, adding leadership maintained in the large saturated market segments. In 2013 we progressed well in line with our growth strategy. We global leading products to their portfolio in several market In 2013, SOLLERS’ and Ford Sollers JV’s retail sales in the Russian took another step towards gaining leadership positions through segments. SOLLERS-BUSSAN JV had a successful start to the year, market for new SUVs grew 24% Y-on-Y from 60.7 k vehicles in 2012 to our full-scale partnerships with leading international automakers. commencing assembly of the Toyota Land Cruiser Prado in the Far 75.2 k vehicles in 2013; total market share in the SUV segment is 8.0% To summarise the strategic progress we made I will focus on four East of Russia. This is the first time that Toyota assembly has been (versus 7.1% in 2012). principal milestones in 2013. outsourced to a third party and this fact alone demonstrates the excellence of our production sites and technical ability to live up to Sales of C segment passenger cars were affected more strongly by ›› Successfully incorporated all joint ventures into the new Group Toyota’s high quality standards and controls. In April we also saw the the market deterioration than others. However, the C segment is the structure. launch of the new D-class Mazda6 sedan in Russia. The assembly is second largest segment in the Russian passenger car market and also In January 2013, we started operations at the SOLLERS-BUSSAN carried out by MAZDA SOLLERS JV, located in Vladivostok. one of the most competitive. And we are pleased to announce that JV. This represented the completion of our Group restructuring in 2013 the Focus became market leader of the C segment in Russia, programme and our first full operating year under this Group In April 2013, SOLLERS-ISUZU JV started the production of a new across all models, with almost 12% market share of this segment. structure. ISUZU ELF 9.5 chassis with a payload of 6.6 tonnes in Uliyanovsk. This launch has helped revive ISUZU retail sales, which increased ›› Solid financial position and sound profitability achieved despite ›› Expanded our product range, increased localisation at the joint by 71% to 1,295 trucks in 2013. The joint venture is investing in the adverse operating environment. ventures and improved our sales network. production capacity in preparation for CKD–assembly planned for SOLLERS Group’s Revenue in 2013 amounted to RUB 61,317 million One of the key achievements in our consolidated businesses was 2014. (RUB 65,549 million in 2012). The deterioration in revenue of 6.5% the remodelling of the UAZ Patriot. This best-selling UAZ SUV is is due to the decrease in UAZ sales volumes, the deconsolidation I would like to express my gratitude to our now equipped with a Hyundai-Dymos transfer gear, a new, more In March 2013, Ford Sollers JV launched the new Kuga at the of the ISUZU business and the discontinuation of FIAT sales. shareholders and all of SOLLERS Group’s ergonomic interior and a range of modern options, making it an Elabuga plant, and in October CKD assembly started. In April, EBITDA margin for 2013 was 10.4%, compared to 11.7% in 2012. excellent alternative to the old UAZ model range. We have great CKD assembly kits also started to be used for the production of The decline in EBITDA margin performance was largely driven by stakeholders, including customers, employees, expectations for this affordable and well-equipped SUV and plans the Explorer. Ford Sollers JV is on track with its localisation plans, the restructuring of the Group’s income in 2013. The decrease in international partners, suppliers and local for its gradual makeover are already in place. introducing CKD-production in Elabuga and its R&D centre which consolidated operating profit and EBITDA was due to the transfer of will adapt Ford vehicles for Russia and create special versions SsangYong production to the MAZDA SOLLERS JV, which resulted communities for their sustained support and We also contributed to the success of SsangYong models in Russia. of LCVs tailored to the local market. The company continues to in the deconsolidation of its operating profit margin. This decline in loyalty, as well as the Board of Directors for In October we started selling the restyled Actyon and orders strengthen its supply chain with its strategy now focused on operating profit is compensated for at the net profit level. Therefore, surpassed our expectations, with retail sales in 2013 reaching 20.1 k Tatarstan, where the joint venture is actively developing a supplier if calculated on a like-for-like basis there would be no impact on their professionalism, enthusiastic work and units and shattering all previous records. The model was extremely base and already sourcing components from over 50 companies in EBITDA margin. courage to take on challenging tasks. well received and contributed substantially to its brand popularity Russia. in Russia. According to the Association of European Businesses, Net profit for the year was RUB 3,625 million compared to RUB in 2013 SsangYong’s outperformance in the market made it one of We are continually improving our sales network and quality of our 5,843 million in 2012. The fall in net profit is mainly explained by the 20 best-selling brands in Russia. We consider this to be a great service. The UAZ and SsangYong sales network grew from 254 gains from one-off transactions in 2012 and a decline in operations achievement, as only 10 years ago its brand awareness in Russia was dealerships in 2012 to 266 in 2013. We are creating new credit and in 2013. Free cash flow generated by SOLLERS’ consolidated very low. leasing tools to help finance our vehicles through new partnership entities was a key factor to the Company’s ability to reduce Net programmes with leading banks. debt, which was at a record low level of RUB 3,491 million at the end of 2013 (down by 56% Y-on-Y). This low leverage is an indicator of the financial stability of the Company and enabled us to propose dividends.

CEO’s Statement (continued)

SOLLERS Group’s EBITDA margin for 2013 Net profit for the year Net Debt decreased by Proposed dividend Total declared dividend Consolidated Revenue in 2013 payment RUB 61.3 bln 10.4% RUB 3.6 bln 56% RUB 52.52 RUB 1.8 bln per share

WHAT IS THE MOST IMMEDIATE PRIORITY FOR THE COMPANY? WHAT IS YOUR OUTLOOK FOR THE OPERATING ENVIRONMENT WHAT IS YOUR APPROACH TO DIVIDENDS? WOULD YOU LIKE TO SAY ANYTHING TO SHAREHOLDERS, IN 2014? CUSTOMERS AND EMPLOYEES IN CONCLUSION? Market Maintaining a balanced approach to dividends is always a complex SOLLERS plans to grow further in the SUV segment in Russia. With continued Russian macroeconomic instability the future still decision for the Board of Directors. Historically the Board of Going forward, we aim to manage the Group’s core strengths to The plan to produce the Ford EcoSport in Tatarstan will significantly remains uncertain. Unfortunately, the Russian automotive market Directors proposes a dividend if the Net Debt/ EBITDA is lower than create a resilient business that will not be significantly affected by increase Ford Sollers JV’s presence in the only growing segment of is highly dependent on the USD/ RUB exchange rate. At the current 1.5 and the Group has performed well financially in the year. The exchange rate movements and macroeconomic uncertainty, and to the Russian market. exchange rate, we anticipate a further decline in the automotive market Dividend Yield is also an important ratio that the Board of Directors improve shareholder value. of 7-10% in 2014. considers when making a proposal to the AGM. Localisation We will continue to make competitive and high quality products Further localisation of vehicle components eliminates our exposure Despite this situation, if the rouble valuation is corrected and GDP In 2013, the Group’s Net profit for the year amounted to RUB 3,625 that provide the best solution in each market segment, focusing to foreign exchange risk, which is important in the current revived, the Russian automotive market has all the fundamental million while Net Debt/ EBITDA fell to a record low of 0.6. Taking on specific customer needs and moving our brands into leading environment of a weakening rouble. It also increases our business reasons to show growth: into account the Group’s stable financial position and its strong cash positions on the Russian market. operating efficiency through logistics benefits. Ford Sollers JV is on ›› low car penetration flow, the Board of Directors proposed to the Annual General Meeting track with its localisation plans and remains committed to comply ›› old car fleet of Shareholders a dividend of RUB 52.52 per share, which will make a I would like to thank our shareholders and investors, and all our with Regulation 166 targeting the level of 60% by 2016. ›› high potential of credit financing. total declared dividend payment of RUB 1,800 million. stakeholders, for their continued support and cooperation.

Product development We forecast the SUV segment to attain a 50% share of the total We believe that steady dividend payments will be viewed positively We plan to develop the UAZ model range, alongside increasing car market in the medium term; this is the only large segment that by the market and indicate a strong rationale for the long-term production efficiency, by utilizing UAZ’s spare production capacity is forecast to show sustainable growth in 2014. The main reasons growth potential of SOLLERS’ market capitalisation. for contractual assembly and rental contracts. behind this growth trend are the harsh climatic conditions and the change in Russian consumers’ preferences. The recent emergence of The 2015 Patriot model range will have a new exterior and a number light crossovers, the cheapest SUV category, has also contributed to of technological upgrades, improving passenger comfort and vehicle the segment’s popularity. safety. In 2016, we plan to continue innovating the Patriot range by We will continue to make competitive and high quality products that provide the best solution in introducing a Euro 5 compliant turbo engine and Dynamic Stability 2014 is going to be quite a challenging year for the Ford Sollers Control (DSC). The product development will be accompanied JV due to the continuing contraction of the C segment and high each market segment, focusing on specific customer needs and moving our brands into leading with investments to optimize UAZ plant’s logistics, stamping and exposure to foreign exchange risk. Nevertheless, the JV is continuing positions on the Russian market. painting, which will increase the quality of the product and its to implement its investment plans, which could boost sales in the warranty terms. future. Specifically, the launch of the new Ford Transit and Ford EcoSport at the Tatarstan production sites is seen as the key growth factor for Ford Sollers JV in 2014. VADIM SHVETSOV CHIEF EXECUTIVE OFFICER

SOLLERS // Annual Report 2013 www.sollers-auto.com CORPORATE SHAREHOLDERS’ MOVING BUSINESS & CORPORATE SOCIAL EQUITY & FINANCIAL ADDITIONAL AHEAD STRATEGY GOVERNANCE RESPONSIBILITY SECURITIES REPORTING INFORMATION MOVING AHEAD // 12 13 SOLLERS: Moving Ahead Strengthening Positions About the Company and Internal Efficiency In 2013 we diversified our model mix to create one SOLLERS is one of the leading Russian automotive companies and works in partnership with global of the best SUV portfolios in the Russian market. automotive producers such as Ford, In 2013 we diversified our model mix to create one of the best SUV Further localisation of Ford SUV models and new launches will portfolios in the Russian market. increase the competitiveness of the Ford brand in the SUV segment and improve production efficiency. SsangYong, Toyota, Mazda and Isuzu. SsangYong retail sales grew by 9% Y-on-Y to 34.1 k units. The brand was included in the top 20 most popular car brands in Russia, according In 2013, we remained focused on the overall efficiency of the In 2013, our consolidated to the Association of European Businesses. This growth was driven by business. SOLLERS’ consolidated Net Debt decreased by 56% to RUB Actyon, which was restyled in August 2013. 3,491 mln, which led to a record low level of Net debt/ EBITDA ratio turnover was in excess of 0.6. We achieved effective capacity management through ongoing The launch of the new generation UAZ Patriot has helped to maintain cost-cutting and resource allocation to maintain a sustainable level of RUB 61 billion. a solid demand for UAZ SUVs and is proving itself to be a good of consolidated EBITDA margin of 10.4%. substitute for the old UAZ model range.

Ford Sollers JV tripled its retail sales of Ford SUVs in 2013 Y-on-Y to 17.0 k units, due to the launch of the new Kuga and increased production of the Explorer.

Business structure as of 31.12.20131

SOLLERS assembles a wide range of The production facility in Vladivostok vehicles, which are sold in the fastest- assembles Korean SsangYong off-road and Manufacturing capacity SOLLERS growing and most in demand segments crossover vehicles. of the Russian automotive market, and operates a strong distribution and service Since it was founded SOLLERS has gained CONTROLLED ASSETS PARTNERSHIPS2 network across the country. SOLLERS leading market positions across multiple >550 k FULL SCALE JOINT VENTURES owns production facilities which produce segments of the Russian automotive SsangYong Russian UAZ off-road vehicles, Japanese market; launched together with its Ford Sollers JV (50:50 Joint Venture) SOLLERS-ISUZU JV (50:50 Joint Venture) vehicles p.a. Distribution of SsangYong ISUZU trucks (controlled by SOLLERS- partners over twenty new products; Production and Distribution of Ford Production and Distribution of Isuzu vehicles3 ISUZU JV), and both petrol and diesel increased manufacturing capacity vehicles trucks Production site: Vladivostok engines. to around 550,000 vehicles a year; Production sites: Vsevolozhsk, Production site: Ulyanovsk and become one of the most efficient Naberezhnye Chelny, Elabuga Alongside its fully-owned businesses, companies in the Russian automotive SOLLERS has partnerships with leading industry. INDUSTRIAL PARTNERSHIPS UAZ global automakers. In 2011, we set up a The Ford model range SOLLERS-BUSSAN JV (50:50 Joint Venture) MAZDA SOLLERS JV (50:50 Joint Venture) joint venture, Ford Sollers JV, the exclusive At SOLLERS we have an excellent track Production and Distribution of producer and distributer of Ford vehicles record of integrating innovative ideas into in Russia UAZ vehicles and parts Production of Toyota vehicles Production of Mazda and SsangYong in Russia. The Ford model range in Russia and finding solutions for all projects that Production sites: ZMZ & UAZ Production site: Vladivostok vehicles includes eight vehicles assembled locally, we undertake, whether targeting exciting Production site: Vladivostok of which six were launched in the Republic high growth market segments or focusing 8 vehicles of Tatarstan in the last two years. on improving our operational efficiency. assembled locally, of which 6 were SOLLERS-FINANCE JV (50:50 Joint Venture) We are well-positioned to move ahead, launched in the Republic of Tatarstan Joint Venture with Sovkombank offers The industrial cluster in the Russian taking advantage of our focused, strategic in the last two years a full range of car leasing services Far East, Vladivostok, includes MAZDA actions in this challenging market. SOLLERS JV, the producer of the Mazda CX-5 and Mazda6, and SOLLERS-BUSSAN JV, which at the very start of 2013 began assembling the Toyota Prado. 1 Company source 3 In 2013, the production of SsangYong vehicles 2 Partnerships are equity-accounted under IFRS was transferred to MAZDA SOLLERS JV

SOLLERS-ISUZU JV was established in 2007 as the first Russian-Japanese joint venture Moving Ahead with Our Partners SOLLERS’ overall capacity for the production and distribution of ISUZU commercial vehicles. In June 2012, the Project Mapping production of ISUZU trucks was transferred >550 k units p.a. to the Ulyanovsk production facility. directly owned or through JVs › For more information about SOLLERS- Our strategic partnership with Korean SsangYong was ISUZU JV, please see PAGE 44. established in 2005. Since then, SOLLERS has been the exclusive producer and distributor of SsangYong vehicles in Russia, has developed production facilities SOLLERS-BUSSAN JV is a joint venture in Vladivostok, and achieved one of the leading positions established by Mitsui & Co. (Japan) and SOLLERS in the Russian SUV market with over 34,000 vehicles sold Vsevolozhsk in 2011. In February 2013 the industrial joint in 2013. In 2013 SsangYong production was transferred venture started production of the Toyota LC to the MAZDA SOLLERS JV to benefit from economies of Prado SUV at the production site in Vladivostok. scale and investment sharing. › For more information about SOLLERS- › For more information about SsangYong, MOSCOW BUSSAN JV, please see PAGE 41. please see PAGE 38.

Zavolzhye UAZ Holding manufactures SUVs and commercial MAZDA SOLLERS JV is a joint venture vehicles. Since 1942, UAZ has been a traditional established by Mazda Motor Corporation and Russian OEM, developing large-scale production Ulyanovsk Naberezhnye Chelny SOLLERS. Since September 2012, the joint facilities, including the production of engines and Elabuga venture has been producing Mazda CX-5 automotive components, forging and aluminium crossovers in Vladivostok. At the very beginning casting. of 2013, SOLLERS transferred the production of SsangYong vehicles to MAZDA SOLLERS JV. › For more information about UAZ, please see PAGE 36. In April 2013, the joint venture started assembly of the new Mazda6 sedan.

Ford Sollers JV was established by Ford Motor › For more information about MAZDA Company and SOLLERS. Since October 2011, Ford SOLLERS JV, please see PAGE 40. Sollers JV has been the exclusive producer, distributor and provider of automotive components for all Ford cars in Russia. The three production facilities, financed SOLLERS-FINANCE JV is a financial company, by the joint venture partners, have a total production initially founded by SOLLERS in 2008, which capacity of 350,000 vehicles per year. Vladivostok specialises in leasing services. In December 2010, it was transformed into a 50:50 joint › For more information about Ford Sollers JV, venture between Sovkombank and SOLLERS. please see PAGE 42. › For more information about SOLLERS FINANCE JV, please see PAGE 45.

UAZ ZMZ SOLLERS-ISUZU JV FORD SOLLERS JV FORD SOLLERS JV FORD SOLLERS JV MAZDA SOLLERS JV Headquarters VSEVOLOZHSK ELABUGA NABEREZHNYE CHELNY & SOLLERS-BUSSAN JV Fully Controlled Assets Joint Ventures 100 k units p.a. 200 k units p.a. 5 k units p.a. 350 k units p.a. 100 k units p.a. Production capacity Production capacity Production capacity Total production capacity of Ford Production capacity Sollers JV

PRODUCT LINES: PRODUCT LINES: PRODUCT LINE: PRODUCT LINES: PRODUCT LINES: PRODUCT LINE: PRODUCT LINES: ›› UAZ SUVs ›› Petrol engines ›› ISUZU trucks, N-series ›› Ford Focus ›› Ford Transit ›› To be launched in 2H2014 ›› SsangYong SUVs ›› UAZ LCVs ›› Diesel engines ›› Ford Mondeo ›› Ford Explorer ›› Ford EcoSport ›› Mazda CX-5 ›› Ford Kuga ›› Mazda6 ›› Ford S-MAX ›› Toyota LCPrado ›› Ford Galaxy ›› Ford Edge

SOLLERS’ Consolidated Wholesales, thousand units 2009 2010 2011 2012 2013 Change %

UAZ 35.1 57.0 63.7 70.3 62.9 (7.4) -11%

SUVs 16.7 25.7 30.2 32.1 27.7 (4.4) -14%

LCVs, MPVs 18.4 31.3 33.5 38.2 35.2 (3.0) -8%

SsangYong 7.9 14.3 24.8 32.7 35.2 2.5 8%

TOTAL 43.0 71.3 88.5 103.0 98.1 (4.9) -5%

FIAT5 14.4 23.7 29.8 5.1 - (5.1) -100%

Total Sales, RUB mln EBITDA, RUB mln Free Cash Flow, RUB mln Average Number of Employees6, thousand people 7,903 80,000 8,000 7,652 8,000 25 24,2 69,531 6,923 22,8 65,549 20,5 61,317 6,269 6,387 6,000 5,747 20 19,8 19,3 60,000 55,266 6,000 4,306 4,000 15 40,000 34,743 4,000 2,277 2,000 10

20,000 2,000 0 5

264 –494 0 0 –2,000 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

White 6,8 5,8 6,1 5,0 5,1 collar Production 17,4 16,9 14,4 14,7 14,2 and related Net Profit (Loss)4, RUB mln Net Debt, RUB mln Average Salary per Month, RUB thousand workers 5,843 TOTAL 24,2 22,8 20,5 19,8 19,3 6,000 25,000 23,205 30 4,594 21,442 25.7 4,000 25 25.1 3,625 20,000 22.4 2,000 20 15,000 13,877 17.1 0 15 14.0 10,000 –2,000 7,880 10 –1,815 5,000 –4,000 3,491 5

–6,000 –5,027 0 0 5 SOLLERS discontinued FIAT business in 2012. 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 6 Average number of employees at consolidated business. 4 Attributable to owners of the Company.

75.2 k units $350 mln Total SOLLERS’ and Ford Sollers JV’s retail sales Investments made by Ford Sollers JV in new in the Russian market for new SUVs in 2013 models and localisation in 2013

We work in partnership with global automative producers to generate synergies by combining key competencies into a single, multi-faceted business, enabling us to offer freedom of choice to our customers Business and Strategy

PASSENGER CARS (PC)

The SUV segment is the fastest-growing segment in the Russian ›› Based on 2013 figures, the Russian market remains the second ›› In 2013, market growth was seen in only two segments. Sales of largest in Europe (behind Germany) in terms of new passenger car SUVs and minivans increased by 9% and 61% respectively. All automotive market, with a growth rate of +9% Y-on-Y, unit sales; in 2010 Russia was the fifth largest market. other segments fell versus 2012.

›› Foreign models assembled in Russia have dominated the market ›› In 2013, sales by volume were down 6% while revenues stayed at which outperforms passenger car sales. It is forecast since 2011 and, in 2013, continued to increased their share (47% the same level as in 2012 and the average purchase price of a car to grow steadily over the medium term, with in 2013; 46% in 2012; 43% in 2011). in Russia increased from USD 25,042 to USD 26,353 (+5.2%).13 an average market share up to 40-50% of the total market.

Sales of Passenger Cars and Commercial Vehicles in the Russian Sales of Passenger Cars in the Russian Federation by Origin, Federation by Key Segment, thousand units thousand units12

3,000 2,943 3,000 2,753 2,772 2,596 2,646 2,462 2,500 2,500

2,000 2,000 1,909 1,768

1,500 1,461 1,500 1,357

Major Macro Trends7 1,000 1,000

500 500 In 2013, Russian industrial production increased 0.3%8 Y-on-Y. 2013 was a difficult year for the Russian automotive market: sales of Within the industrial production sectors, the manufacturing sector new cars declined from February to November and the explosive growth 0 demonstrated 0.1%9 annual growth over the year. The mechanical witnessed in December was driven by unprecedented discounts and 0 2009 2010 2011 2012 2013 engineering sector was flat Y-on-Y.10 special offers that continued into 2014. The 2013 figures bear out this 2009 2010 2011 2012 2013 difficult year – 2,772 k vehicles were sold (incl. CVs), 6% lower than B 150 210 283 266 218 Russian 377 560 618 577 477 Automotive production volumes (including PCs, CVs, Trucks and record figures of 2012 (2,943 k units) and 5% lower than in the pre-crisis B+ 273 383 547 554 547 brands 11 Buses) fell in 2013 by 2% to 2,178 k units . Russia’s automobile year of 2008 (2,917 k units). C 438 556 710 755 581 Foreign 343 576 1,049 1,260 1,232 factories produced 1,916 k (-2.0% vs. 2012) passenger cars (PCs) D 68 67 84 92 73 brands and light commercial vehicles (CVs), 209 k trucks (-1.5%) and 52.9 k The market was influenced by both positive and negative factors: assembled SUV+Pickup 320 432 670 883 959 buses (-9.1%). This decline in production is a direct consequence of ›› Deteriorating economic expectations in Russia CV (incl. CDV) 104 141 183 190 176 the reduced purchasing activity in the market. The Association of ›› State car loan subsidizing programme New imports 636 632 796 917 887 European Businesses (AEB) considers that the main reason for this is ›› Exchange rate and oil price fluctuations Others 108 120 169 204 218 TOTAL 1,357 1,768 2,462 2,753 2,596 consumer concern about future economic instability. ›› Decelerating GPD growth TOTAL 1,461 1,909 2,646 2,943 2,772 ›› Gradual saturation of demand in some segments Source: AEB, Association of European Businesses. Source: AEB, Association of European Businesses. ›› High interest rates.

7 The main source for market data in the paragraph is AEB, Association of European 9 Rosstat. 12 The numbers are different to those published in the 2012 SOLLERS Annual Report 13 Company estimates. Sales data from AEB. Price monitoring from official OEM Businesses, unless otherwise mentioned. 10 Ministry of Industry and Trade. due to a retrospective correction of the origin of several car models later during websites (Evitos-Inform agency). 8 Rosstat. 11 Rosstat. the year 2013, which had actually been assembled locally.

Market Overview and SOLLERS’ Product Portfolio (continued)

COMMERCIAL VEHICLES (CV) SOLLERS’ Position in the Russian WITH A GROSS WEIGHT OF UP TO SIX TONNES Sales of CVs in the Russian Federation by Segment, 18 Sales of SUVs in the Russian Federation by Origin, Automotive Market in 2013 19 The market for commercial vehicles comprises three major segments: thousand units thousand units car-derived vans (CDVs) or box carriers based on light motor vehicles 200 SUV SEGMENT 1,000 40% with a gross vehicle weight (GVW) of up to 2,500 kg; light commercial 183 190 935 176 858 vehicles (LCVs) or light trucks with a GVW of 2,500 kg to 3,500 kg; and ›› In recent years, the SUV segment has been the fastest-growing 800 150 141 36% 30% multi-purpose vehicles (MPVs), mainly minibuses. segment in the Russian automotive market, outpacing the overall 651 600 31% growth rate of passenger car (PC) sales (+9% versus -6% in 2013). 23% 24% 100 104 26% 20% ›› In 2013, CV sales declined by 7%. The Russian light commercial vehicles 422 (LCV) market subsegment shrank for the first time since 2009. 400 ›› In 2012 the SUV segment became the largest car segment in 310 50 10% the Russian market and, in 2013, it increased its share of PC sales 200 ›› In 2013, the LCV subsegment remained the largest within the CV to 36%. segment, despite a fall in unit sales of 5% versus 2012. However, 0 0 0 the decline in LCV sales was the lowest in the CV segment and 2009 2010 2011 2012 2013 ›› The SUV segment is just one of a few segments in the Russian 2009 2010 2011 2012 2013 the growth that this subsegment experienced in 2010 is expected passenger car market (along with pickups and the F+S segment) to return. LCV 60 89 120 124 118 where sales in 2013 surpassed the pre-crisis level of 2008; the SUV Russian 43 68 89 84 77 brands MPV 27 30 31 35 30 segment is forecast to grow steadily outpacing the overall market ›› The market for foreign brands assembled in Russia is dominated CDV 17 21 33 31 28 growth rate over the medium term with an average market share of Foreign 71 129 228 349 417 by Ford Transit. Ford Sollers JV is the only producer of foreign TOTAL 104 141 183 190 176 40-50%. brands branded LCVs and MPVs in Russia, except for a small quantity of assembled Source: AEB, Association of European Businesses. in Russia the Mercedes Sprinter Classic assembled at GAZ since mid-2013. ›› The main growth in the SUV segment is driven by a higher demand In 2013, Transit retail sales grew by 13% versus 2012. for cars with a “universal solution” (e.g. the ability to drive all year New imports 196 225 334 425 441 round in cities and rural areas); higher sales were also driven by TOTAL 310 422 651 858 935 KEY LONG-TERM GROWTH FACTORS the popularity of affordable foreign branded SUVs assembled in Total 23% 24% 26% 31% 36% Sales of CVs in the Russian Federation by Origin, Russia (in 2013 these SUV sales increased by 19% versus 2012). ›› There is considerable potential for the Russian automobile market Market share thousand units of SUVs in PC penetration rate to grow; currently, the number of cars per 1,000 ›› The share of foreign brands assembled in Russia in the SUV market inhabitants in Russia is 266, whereas in developed countries this 200 segment grew from 23% in 2009 to 47% in 2013. Source: AEB, Association of European Businesses. 14 183 190 indicator exceeds 500. 176 ›› In the SUV segment, SOLLERS is represented by several brands: 150 141 ›› An old car fleet and an accelerating replacement rate (the average UAZ, SsangYong and Ford (through Ford Sollers JV). 3.4% in 2012 to 3.5% in 2013; this growth was mainly driven by age of the existing domestic car fleet is currently 13 years, with 104 sales of the SsangYong Actyon, following its recent restyling in 15 100 one third over 15 years old ) favours long-term growth; despite ›› In 2013, SOLLERS’ and Ford Sollers JV’s retail sales in the Russian this fast-growing market segment. the successful implementation of an old-vehicle scrappage market for new SUVs were up 24% Y-on-Y from 60.7 k vehicles programme in 2011, many Russian car owners still have old 50 in 2012 to 75.2 k vehicles in 2013; total market share in the SUV ›› Ford Sollers JV’s SUV production in Russia started in Q4 of 2012 vehicles that will soon be obsolete. segment is 8.0% (versus 7.1% in 2012). with the assembly of the Explorer and Kuga in Elabuga. The joint 0 venture started CKD production of the Explorer in Elabuga in April ›› Foreign automakers’ investments in facility management in Russia 2009 2010 2011 2012 2013 ›› UAZ retail sales fell by 13.3% from 29.1 k vehicles to 25.3 k 2013 and of the Kuga in October. In 2013, Ford SUV sales grew will force OEMs to increase local production. vehicles; UAZ’s market share in the SUV segment was 2.7% at significantly by 172% from 6.3 k units to 17.0 k units; in 2013, Russian 62 89 111 114 108 the end of 2013. The slowdown was due to a decrease in sales of 100% of the 17.0 k SUVs sold were produced in Russia (whereas in brands ›› New industrial assembly aimed at supporting the localisation the old UAZ model range, whereas Patriot sales were virtually flat. 2012 only 36% of Ford SUVs were assembled locally). of foreign brands will enable manufacturers to increase their Foreign 12 17 22 21 15 operating margins. brands ›› Year-on-year, the Company increased its retail sales of SsangYong assembled SUVs by 12.6%, moving SsangYong’s share of the SUV market from ›› The growth in sales financed by credit increased from 25% in 200916 in Russia to 46%17 in 2013. In 2014 this share is expected to reach 50%. New imports 30 34 51 55 53 TOTAL 104 141 183 190 176 ›› The undertaking of joint loan programmes between automakers and banks along with the operations of several captive banks. Source: AEB, Association of European Businesses.

14 Avtostat estimates. 16 Ministry of Industry and Trade estimates. 18 SOLLERS’ Group sales here include retail domestic sales of SsangYong, UAZ, Ford 19 The numbers are different to those published in the 2012 SOLLERS Annual Report 15 Sollers estimates. 17 NBKI (National Bureau of Credit Histories) estimates. and ISUZU. due to a retrospective correction (later during the year 2013) of the origin of several car models, which had actually been assembled locally.

Market Overview and SOLLERS’ Product Portfolio (continued)

UAZ Patriot Explorer A powerful and reliable SUV with a true off-road character – second The legendary American off-roader first appeared on the Russian to none on the Russian market in terms of performance. market in March 2012, when Ford Sollers JV started assembling the SUV in Elabuga. In 2013, the Explorer was one of the top 20 In August 2013, SOLLERS revamped the original model, equipping best-selling vehicles in USA, the biggest SUV and pick-up market the UAZ Patriot with the latest features such as a Hyundai-Dymos in the world, and its prospects look very promising in the Russian transmission with electronic control, windscreen heating, front seat market, especially taking into account the fast-growing share of heaters and individual heating modules for back seats. Together SUVs in Russia. In 2013, Explorer retail sales surpassed the 2012 with the restyling which took place in 2012, when the Patriot was level by 145%, reaching 5.0 k SUVs. equipped with a new diesel engine and improved air conditioning, a soft-touch control panel, a hands-free entertainment system In January 2013, Ford Sollers JV launched a new top-of-the-range and new interior, this additional revamp in 2013 has created a new version – the Explorer Sport. This car is finished with the original member of the Patriot family. exterior elements, which not only make the SUV stand out in urban traffic, but also provide an unforgettable experience of driving In 2013, the model was exported to over a dozen countries, primarily a real off-roader. In addition the Explorer Sport is equipped with Kazakhstan, Belarus and Ukraine. a powerful engine of 355 hp and a range of innovative technologies including Terrain Management System. In 2013, the Explorer was acknowledged the best in class model in the Annual Russian “Car of the year 2013” Awards.

SsangYong Actyon Kuga The SsangYong Actyon is the first crossover to be designed with In March 2013, the new Kuga first appeared in Russian dealerships. an integrated body and four-wheel drive. The model was first Powerful, superior and more stylish, both inside and out, Ford launched in Russia in 2011 and it now occupies a secure place Sollers JV launched the Kuga, the smartest of Ford’s SUVs. The car in the Russian market for compact urban crossovers. Its share of was an instant success on the Russian market. In 2013, retail sales of crossovers, the fastest-growing subsegment of the SUV market, the Ford Kuga tripled compared to 2012, totalling 12 k units. is 3%. In 2013, retail sales of the Actyon reached 20.1 k units, an increase of 26% Y-on-Y. The new Ford Kuga has excellent stowage capacity and boasts the very latest on-demand technology. An Intelligent All-Wheel Drive In 2013, the model had a major internal and external makeover. system adapts instantly to the terrain and driving conditions. Active The restyled version of the model is equipped with LED headlights City Stop automatically brakes at low speed to prevent collisions and and rearlights, seat ventilation, automatic tyre pressure checks, the Ford SYNC allows hands-free control of music, phone calls and a soft-touch interior finish and the latest entertainment and much more. The Ford Kuga is the first SUV model with an innovative navigation systems. SsangYong added a choice of four new colours hands-free tailgate. Packed with innovative features, the Kuga takes and a special “Red Line” version with a red leather interior. SUV styling and technology to a whole new level.

In February 2013, the Ford Kuga won the 2012 Euro NCAP best-in- class safety award, coming top in the SUV segment.

Market Overview and SOLLERS’ Product Portfolio (continued)

C AND D SEGMENTS COMMERCIAL VEHICLES (LCV & MPV, EXCL. CDV)

›› Since the 2008 economic crisis, the Russian passenger car market Sales of C and D Segment Passenger Cars in the Russian ›› In 2013, SOLLERS and its joint ventures were active in the ›› Ford Transit remains the absolute sales leader among foreign has been growing steadily, but in 2013 it went into decline for Federation by Origin, thousand units commercial vehicle segment through UAZ, ISUZU and Ford brands; brands in Russia. In the same period, sales of locally assembled the first time in the post-crisis recovery period. C and D segments 1,000 sales of these three brands in the Russian LCV & MPV market Ford Transit and Tourneo Custom vehicles increased by almost were affected more strongly by the market deterioration than amounted to 35.4 k units, accounting for a 24% share of the 17% (from 11.0 k units to 12.8 k units) despite unfavourable 847 others. Nonetheless, the C segment is the second largest segment 800 794 Russian LCV & MPV market in 2013. market conditions. Ford Sollers JV’s total share of the LCV & MPV of the Russian PC market (behind the SUV segment) and also one 654 market reached 9% in 2013 (7% in 2012). 623 of the most competitive; in 2013, this segment accounted for 22% 600 ›› UAZ commercial vehicles held second place in the Russian LCV & of passenger car sales (27% in 2012); the D segment fell from 5th 507 MPV market, with a market share of around 15%. ›› The ISUZU model range in the LCV & MPV segment is represented place in 2012 to 7th place in 2013 in terms of unit volumes in the PC 400 by NLR and NMR chassis. In 2013 sales of light commercial market, but it maintained its 2012 market share of 3%. vehicles under this brand increased by 22% from 175 units to 200 213 units. ›› For the first time since 2009 sales of foreign imported brands 0 nearly equalled sales of foreign brands assembled in Russia, with 2009 2010 2011 2012 2013 sales of the latter falling by 22% vs. 2012 and holding a 46% share of the total C + D segment. Russian 107 138 147 133 60 brands ›› In 2013, retail sales of Ford cars in the C segment decreased by Foreign 170 253 367 388 297 27% against 2012. However, the Ford Focus is the number one C brands segment car in Russia across all brands with a 12% market share assembled in this segment. In 2012 it was ranked 3rd behind Chevrolet and in Russia Lada. New imports 229 232 280 325 297 TOTAL 507 623 794 847 654 ›› Ford’s D segment sales in 2013 put the brand into the top five most popular models in this class. In 2013, the Ford Mondeo’s market Source: AEB, Association of European Businesses. share in this segment was 9.3%.

Ford Focus Tourneo Custom The Ford Focus is one of the most technologically advanced cars in The Tourneo Custom has obtained a maximum 5-star safety rating its class on the road today. It is equipped with an array of state-of- from Euro NCAP. Two of its innovative technologies, Lane Keeping the-art systems and features, all designed to make every journey Alert and Ford SYNC with Emergency Assistance, also received Euro safer, easier, more efficient and more exhilarating. NCAP Advanced awards for technology.

For example, the innovative Active City Stop helps to avoid collisions The luxurious interior has innovative flexible rear seats, with over in slow-moving traffic or at speeds under 30 km/h. If the system 30 different configurations. There are cutting-edge features such as detects the car in front has unexpectedly stopped, it automatically the Ford SYNC voice control and MP3/phone connectivity system. brakes. Active City Stop recently won a Euro NCAP Advanced Reward And the vehicle’s aerodynamic design, economical engine and for safety. When parking, Active Park Assist automatically steers the fuel‑saving technologies, such as Auto-Start-Stop, make it one of car into the tightest of spaces, completely hands-free. the most efficient vehicles available.

In 2013, Ford Sollers JV launched a new version of the Ford Focus – In Russia assembly of the Tourneo Custom started in June 2013 at Ambiente Plus, which has fewer, but the most popular, extra the Elabuga production site. features. Ambiente Plus represents the best value for money in the Ford Focus range.

Market Overview and SOLLERS’ Product Portfolio (continued) Moving Ahead Towards Leadership Positions Our Strategy TRUCKS

›› This section covers the market for trucks with a gross weight ›› The MDT segment is the smallest truck segment and was the only of over 3.5 tonnes; the market is divided into three payload classes: segment to show a recovery in 2013: +24% versus 2012. light-duty trucks (LDT) with a payload of 2 to 5 tonnes, medium- The Company’s long-term strategic priority duty trucks (MDT) with a payload of 5 to 15 tonnes, and heavy-duty ›› SOLLERS is represented in the truck segment by ISUZU, trucks (HDT) with a payload of over 15 tonnes. a Japanese brand and global leader in the LDT segment. In 2013, is to achieve and maintain a strong ISUZU also moved into the MDT segment with its new model ›› Sales in the Russian truck market declined by 11% versus 2012. range – ELF 9.5 and FORWARD vehicles. leadership position in the manufacturing ›› The HDT class contributed significantly to overall market ›› In 2012, SOLLERS – along with its Japanese joint venture performance, having suffered the most from the downturn, partners – decided to relaunch the ISUZU project and move and distribution of passenger cars with sales in 2009 dropping by 74%. At present, the market production to the Ulyanovsk site. As a result of this move, is slowly recovering. This is a direct consequence of the growth and the temporary halt in production, sales of ISUZU in the LDT and light commercial vehicles in sectors, such as construction and public utilities, that rely segment were quite moderate, resulting in a market share of 2% heavily on HDT vehicles. In 2013, the decline in the HDT segment by the end of 2012. In 2013, ISUZU sales in the LDT segment more in Russia. was in line with the overall truck market: -12% versus 2012. than doubled, from 485 units to 1,015 units, and its market share increased to 6%. ›› The LDT segment suffered the most from the unfavourable market conditions; at the end of 2013 sales had fallen by 19%.

In the last five years the Company has concentrated on areas with considerable growth potential that will be realised when Isuzu ELF 9.5 market conditions improve. Today SOLLERS remains focused In April 2013, the SOLLERS-ISUZU JV started production of the ELF 9.5 chassis with a payload of 6.6 tonnes, the highest payload in on the fastest-growing market segments, launching new the N-series model range. The new ISUZU ELF 9.5 is equipped with a Euro 4 engine, an innovative braking system and a larger fuel tank; products and increasing the level of localisation. it also offers an improved and easy-to-maintain interior. Like all ISUZU trucks it brings the benefits of advanced engineering to every aspect of vehicle design. From superb safety and convenience to In the uncertain macroeconomic environment, we believe unsurpassed power and durability, these top-performing trucks are equipped with the most sought after features to meet the challenge that striking a reasonable balance between improving internal of tough jobs and cost-effective operations. efficiency and increasing our market positions considerably benefits the market capitalisation of the Company.

Our Strategy Sustainable Growth Through Partnerships (continued) SOLLERS developed four 50:50 partnerships with international OEMs and Objectives 2013 Results 2013 Plans 2014 set up a financial joint venture for leasing ›› Increase capacity ›› Increase production services. Today, the SOLLERS’ business MAZDA SOLLERS JV AND SOLLERS’ strategy is aimed at generating shareholder value by growing utilisation by launching capacity utilisation further comprises a number of well-structured SOLLERS-BUSSAN JV new products in the joint ›› Transferred production by launching new products joint ventures and two independently organically in its consolidated businesses and accelerating its joint venture ventures of SsangYong vehicles to in the SUV segment managed businesses. We believe that ›› Create investment MAZDA SOLLERS JV at ›› Open the second Ford activities by investing in new, promising products and localisation. the key growth driver of the SOLLERS’ synergies through the Far East production site Sollers JV factory in business lies in our partnerships with industrial cooperation ›› Launched assembly of the Republic of Tatarstan global OEMs; and the main criteria to the new Mazda6 ›› Implement cost achieve this are: optimisation programmes ›› Increase capacity utilisation in the joint ›› Launched assembly of Strategic objective Key criteria at production facilities ventures with global OEMs the Toyota LC Prado in the Ford Sollers JV ›› Develop partnerships with global ›› Increased capacity to increase economic manufacturers of automotive utilisation at the Far East production site to almost efficiency ›› Increase capacity utilisation in the joint ventures with global components 70% ›› Facelift current Ford OEMs ›› Improve efficiency through economy Sollers JV model range Sustainable growth through ›› Develop partnerships with global suppliers of automotive of scale, localisation and investment FORD SOLLERS JV components sharing ›› Launched the new Kuga partnerships ›› Improve efficiency through economy of scale, localisation and and Explorer Sport investment sharing ›› Launched the Tourneo Custom ›› Increased capacity utilisation at Elabuga production site to almost 40% Development of the most attractive ›› Launch new products in the fastest-growing segments ›› Regularly modernise the current model ranges market segments ›› Maintain leading positions in the large, saturated market segments Development of the Most Attractive Market Segments

The SUV segment is the fastest-growing ›› Develop a supplier cluster with global manufacturers of automotive segment in the Russian automotive Objectives 2013 Results 2013 Plans 2014-2015 components market, with a growth rate of +9% Increase the level of locally-produced ›› Increase sales and market ›› Together, SOLLERS’ and Ford ›› Further development of ›› Launch a Ford Sollers JV engine factory by December 2015 Y-on-Y. It is forecast to grow steadily over share in the SUV segment Sollers JV’s retail sales in Ford’s brand perception as ›› Contribute to the development of a supplier cluster in the Far East of the medium term, with an average market parts and components to 60% ›› Launch new products in the Russian market for new a large SUV producer Russia share of 40-50%. SOLLERS has a strong the SUV segment SUVs grew 24% Y-on-Y ›› Launch of the B segment track record of producing 4x4 vehicles ›› Maintain leading positions ›› SOLLERS’ and Ford Sollers urban crossover, the Ford and has obtained considerable experience in the C segment market JV’s total market share in EcoSport, which in the specifically in the Russian market. We ›› Modernise and facelift the SUV segment reached medium term is expected to plan to invest further to increase our current model ranges 8.0% (versus 7.1% in 2012) become the highest volume activity in the SUV segment. Our key Implement modern product and ›› Ford Sollers JV launched model at the Tatarstan ›› Modernise UAZ capacities to improve product quality and increase priorities for the Russian market are: production sites manufacturing efficiency ›› Launch new products in the fastest- the new Kuga, a modern manufacturing technologies to maintain ›› Start production of the new ›› Develop products with a focus on the UAZ Patriot series growing segments urban crossover, a new top- Ford Transit at the Elabuga the highest quality ›› Regularly modernise and facelift of-the-range version of the production site the current model ranges Explorer and mid-sized 4x4 ›› Modernise current model ›› Maintain leading positions in the large, SUV Ford Edge ranges saturated market segments ›› The Ford Focus is the number one car in the Russian ›› Ensure our operations comply with the highest standards of C segment with almost environmental and industrial safety 12% market share Sustainable development and ›› Respect the environment through the considerate use of natural ›› Facelift of the SsangYong: resources new lighting, electronic environmentally responsible production ›› Develop employee competences in the best interests of the Company equipment and interior and maintain a positive social environment in the communities where we ›› Modernisation of the Patriot: operate new Hyundai-Dymos transmission with electronic control

Our Strategy Implement Modern Product and Manufacturing Technologies (continued) to Maintain the Highest Quality

Increase the Level of Locally-produced Parts and Components to 60% Most of SOLLERS’ plants are modern and have been built to international Objectives 2013 Results 2013 Plans 2014-2015 standards. We are committed to bringing ›› Further improvement of ›› Modernised the Patriot, ›› UAZ Patriot facelift all our production sites up to these the UAZ Patriot model mainly through the including new lighting, standards. SOLLERS’ main priorities range to meet changing new Hyundai-Dymos interior and exterior for the development of its consolidated customer preferences transmission with changes, upgrade of production facilities and products are: on-board equipment, ›› Modernise UAZ assets to improve ›› Increase internal electronic control additional options product quality and increase efficiency of UAZ and ZMZ ›› Optimised UAZ production ›› Acquisition of new painting manufacturing efficiency manufacturing schedule and headcount equipment and transfer to ›› Develop products with a focus on the according to market the cataphoresis method UAZ Patriot series demand ›› Developed industrial ›› Increase corrosion park at ZMZ engine plant. resistance of the UAZ By the end of 2013 ZMZ Patriot industrial park had six ›› Optimisation of moulding, occupants stock logistics and assembly operations ›› Investment in stamping facilities for the UAZ Patriot, UAZ Cargo and UAZ Pickup

The Industrial Assembly regime (Regulation 166) allows manufacturers who are compliant with Objectives 2013 Results 2013 Plans 2014-2016 its conditions to be exempt from import duty on ›› Insrease localisation ›› Ford Sollers JV started ›› Ford Sollers JV will Sustainable Development and Environmentally Responsible Production components. level at Ford Sollers JV in building the engine plant gradually increase the Elabuga in Elabuga, Tatarstan level of localisation to In 2005 the original Regulation 166 was issued Sustainable development is important to ›› Increase component with an investment of reach the target of 60% requiring a minimum capacity of 30 k units p.a. to be the future prosperity of the Company and Objectives 2013 Results 2013 Plans 2014 supplier base for Ford approximately $274 in 2016 the elimination of possible risks, as well installed and a minimum localisation level of 30%. ›› Environmental monitoring ›› Reconstruction of ›› Further repair of Sollers JV in Tatarstan million ›› Construction of an engine as to the welfare of society in general. It The term of the agreement was limited to seven years. ›› Controls for compliance environmental protection environmental protection ›› Determine the scope ›› Ford Sollers JV plant with a minimum is our policy to improve continuously our of localisation for Ford announced the creation capacity of 105 k with environmental equipment resulted in equipment In 2010 the Government amended and extended environmental performance, employee engines of an R&D centre in engines p.a. regulations considerable reduction in ›› Research into an Regulation 166 to 2020 to facilitate further motivation and relations with local ›› Initiate automotive Russia ›› In 2014 switch to CKD ›› Minimisation of pollution appropriate method for development of local car production and the communities. Our aims to achieve this: cluster in the Far East of ›› Ford Sollers JV increased kit assembly of Isuzu environmental footprint ›› UAZ was awarded «GLOBAL the thermal disposal of component industry. The new requirements are ›› Ensure our operations comply with Russia its local component trucks at the Uliaynovsk ECO BRRANDAWARD» combustible waste applicable to large-scale investment projects with the highest standards of environmental supplier base to over production site as an «ECO ›› Introduction of a minimum capacity of 300 k units p.a. and a target and industrial safety 50 companies in Russia ›› In 2014 SOLLERS- REGIONALBRAND» Performance Management localisation level of 60%. New requirements for the ›› Respect the environment through ›› In April 2013 the Ford ISUZU JV will start ›› UAZ won a top-100 System at SOLLERS’ local production of engines and stamping were also the considerate use of natural resources Sollers JV started sourcing large component Organizations award: consolidated business added. ›› Develop employee competences in CKD production of the parts from local suppliers, the best interests of the Company and Environmental Protection divisions Explorer in Elabuga and which should increase the and Management ›› Continue with Ford Sollers JV is one of four large players in maintain a positive social environment in in October switched to localisation level by 5% ›› Ford Sollers JV introduced internship programme at the Russian automotive market to have signed the communities where we operate CKD production of the a Global Safety Operating Ford Sollers JV the new Regulation 166 agreements with the Kuga System which aligns Government. Other SOLLERS’ businesses are also ›› The establishment of internal Company compliant with Regulation 166. Our key priorities a Far East automotive standards with global Ford for localisation are: cluster by 2015 requirements ›› Develop a supplier cluster through partnerships was included by the with global suppliers of automotive components authorities in the ›› Launch Ford Sollers JV engine factory by Region’s development December 2015 plan in March 2013 ›› Contribute to the development of a supplier cluster in the Far East of Russia

Product Development Manufacturing Meeting Customer Sales After-sales Service

›› Ensure strong brands remain in the product ›› Carry out rigorous quality control Expectations ›› Develop independent dealership network ›› Develop independent service network portfolio ›› Ensure all production sites meet ›› Establish and attain the best service ›› Establish and attain excellent automotive ›› Select/ develop marketable products, international standards ›› Provide financing services standards at the dealerships service standards staying up to date with customer ›› Maintain focus on internal efficiency and ›› Carry out efficient product promotion and ›› Monitor financial and operating activity at ›› Improve warranty guarantees in line with preferences continuous localisation marketing activities the dealerships changes in production ›› Modify products tailored to customer needs ›› Introduce investment sharing where ›› Perform wholesale financing possible

›› Long-term partnerships with international ›› Focus on core value chain elements in ›› Track record of successful and ›› Large distribution and after-sales network with strong growth potential OEMs large-scale investments competitive market launches in Russia ›› Well-known brands ›› Investment sharing

As of the end of 2013, SOLLERS’ overall SOLLERS is moving ahead with its partners capacity (directly owned or through joint In-depth market knowledge, a wide range SOLLERS’ independent distribution and The Company’s distribution network to develop the best products for the Russian ventures) exceeded 550 k units per year, of models and the provision of financial service network encompasses 129 UAZ stretches from Kaliningrad in the market. From day one, the Company has making SOLLERS the second-largest services all contribute to the growth in dealers and 137 SsangYong dealers. westernmost part of European Russia successfully implemented a partnership- automaker in Russia. SOLLERS’ customer base. SOLLERS Group The Ford Sollers JV distribution and service to Vladivostok in Russia’s Far East – a focused strategy to generate synergies by is uniquely placed to launch new models network covers 70 Russian cities and distance of almost 10,300 km. All dealers combining key competencies into a single, Three state-of-the-art plants, established by across five brands, with different origins comprises 130 dealers. and service centres are obliged to meet multifaceted business, enabling the Company the partners of Ford Sollers JV, are dedicated and in various market segments. strict requirements developed by the sales to offer great products and services to its to different platforms and market segments. headquarters to ensure delivery of the very customers. The equipment and technological process SsangYong is a good example of successful best products and services to customers. comply with Ford requirements and are market promotion and increased brand Our international partners, with their global aligned with the One Ford concept. Ford loyalty. In 2005, when SsangYong was first operating base, reinforce our strong market Sollers JV is accelerating its manufacturing launched in the Russian market, brand position and enable us to choose the most and localisation level in the Russian market loyalty was very low and customers had no promising models to customise according to through its commitment to build its first idea of the brand’s origin and reputation. the needs of Russian customers. Strong and engine plant in Tatarstan by December 2015. 2013 was a record breaking year for the well-known brands help to gain substantial SsangYong brand in Russia with over 34 k market share in the largest market segments. SOLLERS has made large-scale investments in vehicles sold. The brand was one of the top the production site based in the Far East of Russia. 20 most popular car brands in Russia, Ford Sollers JV, working under a running The capacity and infrastructure are now shared according to the Association of European royalty arrangement, can select any between two industrial partnerships, which helps Businesses. model from the Ford global model range to improve the efficiency of SsangYong’s assembly if the product has proven market demand operations and create localisation opportunities. SOLLERS provides leasing financing and meets the required cost-efficiency The current capacity of the Far East plant is 100 k through its joint venture with level. For example, Ford Sollers JV started units per year which provides economies of scale Sovkombank – SOLLERS-FINANCE JV. production of the Ford Explorer, which before and will facilitate investment sharing between In 2013, the value of its leasing 2012, when it was launched in the Russian the partners when the plant is equipped for CKD portfolio increased to RUB 2,226 million joint venture, was produced only for the US assembly. (+19% Y-on-Y). market. In 2013, Explorer sales grew by 145% and Ford Sollers JV launched CKD- SOLLERS’ plants produce components With a unique range of products for nearly assembly production. The joint venture has and engines which are sold to the Group’s all transportation purposes, SOLLERS is announced the expansion of its SUV model subsidiaries as well as to external clients. present across a broad spectrum of market range to include the subcompact crossover Taking into account the localisation segments and price classes. This helps vehicle Ford EcoSport, which is currently commitments of the four largest market players improve the Company’s flexibility in diverse only produced for the Brazilian and Indian and the requirement to increase the level of market conditions. markets. local content, the Group’s component business is forecast to grow steadily.

Business Projects and Key Assets

UAZ Holding

FACTSHEET 2013 ACHIEVEMENTS ›› Leading Russian producer of 4x4 vehicles and their spare parts ›› Over 4.6 mln vehicles have been produced since 194120 and over ›› JANUARY ›› OCTOBER ›› ZMZ, as a part of UAZ Holding, is one of the largest Russian 14 million ZMZ engines since 195821 ZMZ started large-scale production and sales of Euro 4 engines UAZ and its subsidiaries successfully passed a re-certification producers of petrol and diesel engines and aluminium castings ›› Average number of personnel as of the end of 2013 was over with various modifications audit and confirmed their quality management compliance with ›› Manufacturing capacity up to 100 k vehicles and 300 k engines per 18,00022 people ›› APRIL the ISO: 9001: 2008 international standard year UAZ was the winner in the 100 Best Russian Organizations for ZMZ passed a re-certification audit and confirmed its quality Ecology and Environmental Management management compliance with the ISO/TS 16 949: 2009 The UAZ Patriot won a prestigious Runet award, coming top in ‘The international automotive standard best national car’ nomination ZMZ and its subsidiaries started large-scale production and sales of ZMZ engine plant celebrated its 55th Anniversary aluminium transmission cases for KAMAZ (Tatarstan) trucks under ›› JUNE a localisation project in partnership with ZF-KAMA (Germany). Now UAZ PATRIOT SERIES LAUNCH TIMELINE23 Ferrum (Russian producer of metal parts for shipbuilding) moved into the ZMZ casts six modifications of aluminium transmission cases and ZMZ industrial park, becoming the sixth member alongside Daido Metal provides subsequent machining for two of them Rus, Trelleborg, LEONI, Flaig+Hommel and SOLLERS- Special Vehicles ›› DECEMBER ›› AUGUST UAZ produced a limited series of the UAZ Patriot Arctic. This UAZ started production of the modernised UAZ Patriot equipped version, equipped with an Eberspecher HYDRONIC coolant with Hyundai-Dymos transmission heater and special winter options, combines exceptional off-road ›› SEPTEMBER capability with comfort in low temperatures UAZ launched the UAZ Patriot’s new Trophy series and the UAZ Pickup with attractive design options and improved off-road capability UAZ Patriot UAZ Cargo UAZ Pickup 4X4 SUV 4X4 LCV 4X4 Pickup Prices start from RUB 480 k Prices start from RUB 580 k Prices start from RUB 590 k

2005 2006 2007 2008 2009 2010 2011 2012 2013

AT THE END OF 2014, PRODUCTION OF THE NEXT UAZ SUV GENERATION – PATRIOT 2015 WILL BE LAUNCHED

UAZ WHOLESALES, thousand units Multimedia system with navigation New instruments panel

2013 2012 UAZ 62.9 70.3 Hunter 7.7 10.2 Selection of options for driver Patriot 20.0 21.9 Updated headlights and passenger comfort Old LCV, MPV model range 30.4 33.2 New LCV model range 4.8 5.0 New exterior Company source. UAZ wholesales represent the Company’s sales to dealers and direct corporate sales, including export. New 18” wheels

20 The year UAZ was established. 22 Includes UAZ OJSC, ZMZ OJSC and all their subsidiaries. 21 The year ZMZ was established. 23 The graph shows retail prices as of 1Q2014.

Business Projects and Key Assets (continued)

SsangYong

FACTSHEET 2013 ACHIEVEMENTS ›› SOLLERS has been the exclusive producer and distributor of ›› In 2013 SsangYong production was transferred to MAZDA ›› SEPTEMBER ›› NOVEMBER SsangYong vehicles in Russia since 2005 SOLLERS JV to benefit from economies of scale and investment For the third consecutive time SsangYong’s Russian distributor was SsangYong starts selling the brand new 4x4 minivan SsangYong ›› In 2009 SOLLERS launched the first automobile plant in the Far sharing awarded the best SsangYong distributor globally, based on sales, Stavic, one of the biggest passenger cars with off-road East of Russia for the production of SsangYong vehicles ›› The distribution of SsangYong vehicles in Russia remains under dealer/service network growth and brand marketing capabilities in Russia SOLLERS’ control ›› OCTOBER SsangYong started selling the SsangYong Actyon 2014 with a restyled exterior and interior. The model is assembled at MAZDA SOLLERS JV in Vladivostok SsangYong launched the SsangYong Actyon Sports 2014 in Russia. The pickup is known globally as the perfect vehicle for outdoor life Launched the Actyon luxury ‘Red Line’ version. The top-of-the- range version of this well-known crossover is equipped with a number of premium class options and an outstanding interior SSANGYONG MODEL RANGE LAUNCH TIMELINE24

SsangYong Rexton SsangYong Kyron SsangYong Actyon Sports SsangYong Actyon SsangYong Stavic SUV SUV Pickup SUV Minivan Prices start from RUB 1,249 k Prices start from RUB 749 k Prices start from RUB 939 k Prices start from RUB 729 k Prices start from RUB 1,079 k

2005 2006 2007 2008 2009 2010 2011 2012 2013

SSANGYONG WHOLESALES, thousand units

2013 2012 SSANGYONG 35.2 32.7 Rexton 0.7 1.7 Kyron 11.9 11.5 NEW Actyon (incl. Actyon Sports) 22.3 19.5 Stavic 0.3 -

Company source. SsangYong wholesales represent the Company’s sales to dealers and direct corporate sales.

24 The graph shows retail prices as of 1Q2014.

Business Projects and Key Assets (continued)

Industrial Cooperation

SOLLERS created two joint ventures in the Russian Far MAZDA SOLLERS JV SOLLERS-BUSSAN JV 2013 ACHIEVEMENTS East in partnership with Japanese OEMs to benefit from FACTSHEET FACTSHEET ›› JANUARY ›› MAZDA SOLLERS JV is a 50:50 joint venture with Mazda located in ›› SOLLERS-BUSSAN JV is a 50:50 joint venture with Mitsui located SsangYong SUV production transferred to MAZDA SOLLERS JV in accelerated economies of scale and investment sharing. Vladivostok in Vladivostok Vladivostok Both joint venture agreements are focused on production ›› The joint venture agreement covers production of Mazda and ›› The joint venture agreement covers the production of the Toyota ›› FEBRUARY only and do not cover distribution rights. The distribution SsangYong vehicles in Russia LC Prado in Russia Large-scale production of the Toyota LC Prado at SOLLERS- of the vehicles is controlled by the corresponding brand ›› Distribution is not covered by the joint venture agreement ›› Distribution is not covered by the joint venture agreement BUSSAN JV in Vladivostok ›› SOLLERS remains the exclusive distributor of SsangYong vehicles ›› Current model range: Toyota Land Cruiser Prado ›› APRIL partner. The joint ventures are structured to remain in Russia ›› Average number of personnel as of the end of 2013 was 22826 Launched production of the new SKYACTIV Mazda6 at MAZDA profitable through cost plus agreements. The total ›› Current model range: Mazda CX-5, Mazda6, SsangYong SUVs people SOLLERS JV in Vladivostok production capacity of the two joint ventures is 100 k ›› Average number of personnel as of the end of 2013 was 67725 ›› Initial investment of RUB 1 billion ›› AUGUST people ›› The joint venture uses project financing provided by VEB on a non- Launched production of the SsangYong Actyon 2014 with a restyled units p.a. ›› Total investment from launch till 2020 – RUB 10 billion recourse basis at a subsidised interest rate exterior and interior at MAZDA SOLLERS JV in Vladivostok ›› The joint venture uses project financing provided on a non- ›› Revenue in 2013 was RUB 10,232 million ›› SEPTEMBER recourse basis at a subsidised interest rate amounting to RUB ›› The Group benefits from industrial cooperation with the global Launched the restyled version of the Toyota LC Prado at SOLLERS- 6 billion automotive leader and Toyota’s production experience BUSSAN JV in Vladivostok ›› Revenue in 2013 was RUB 39,068 million ›› Investment sharing will improve the efficiency of Mazda and SsangYong SKD and CKD assembly operations at the Far East production site

MAZDA SOLLERS JV AND SOLLERS-BUSSAN JV MODEL RANGE LAUNCH TIMELINE

Mazda CX-5 Toyota LC Prado The first Mazda crossover Classic frame based SUV with SKYACTIV technology equipped with Toyota’s leading off-road systems 2007 2008 2009 2010 2011 2012 2013

New Mazda sedan with SsangYong production SKYACTIV-body, one of transferred to MAZDA the lightest models in MAZDA SOLLERS JV AND SOLLERS-BUSSAN JV PRODUCTION VOLUMES , thousand units SOLLERS JV the class SsangYong Vehicles Mazda6 2013 2012 MAZDA SOLLERS JV 58.2 3.4 Mazda CX-5 19.8 3.4 Mazda6 6.4 - SsangYong SUVs 32.0 - SOLLERS-BUSSAN JV 7.9 - Toyota LC Prado 7.9 -

25 Includes factory workers, specialists and managers. 26 Includes factory workers, specialists and managers

Business Projects and Key Assets (continued)

Ford Sollers JV

FACTSHEET 2013 ACHIEVEMENTS ›› 50:50 joint venture formed in October 2011 between Ford Motor ›› Average number of personnel as of the end of 2013 was over ›› APRIL ›› SEPTEMBER Company and SOLLERS OJSC 5,60027 people The first CKD-assembled Explorer was produced at the Ford Ford Sollers JV received a special award “For success in ›› Ford Sollers JV is responsible for the exclusive production, import ›› Total project investment is $1.6 billion. In 2013, the joint venture’s Sollers JV Elabuga plant in the Republic of Tatarstan the development of the Russian market.” The award was and distribution of all Ford brand products, including vehicles, investment cash flow was $350 million ›› MAY announced at the “Best Commercial Vehicle of the Year in Russia” parts and accessories in Russia ›› Revenue in 2013 was RUB 82,362 million Ford Sollers JV announced its plans to build a $274 million (RUB awards ceremony in Moscow, which took place during the ›› The company operates three vehicle assembly plants in Russia ›› In two years, Ford Sollers JV has moved from building two car 10 billion) engine plant in Elabuga (Tatarstan), with the first COMTRANS 2013 commercial vehicle show with a total capacity of over 350 k units per year models, Focus and Mondeo, to producing a wide range of Ford engines to be built in 2015 Ford Sollers JV announced the creation of an R&D centre in Russia ›› Ford Sollers JV is accelerating its plan to grow in the Russian market vehicles ›› JUNE ›› OCTOBER by building its first engine plant in Tatarstan by December 2015 Ford Sollers JV Vsevolozhsk plant started production of the special Ford Sollers JV announced the start of CKD assembly of the Ford 20th anniversary series of the Ford Mondeo Kuga at its plant in Elabuga in the Republic of Tatarstan Over one million Russian customers have chosen Ford vehicles in ›› DECEMBER the past decade Sales of the SUV line tripled in 2013 and Ford Focus became ›› JULY the number 1 C segment car in Russia across all models Ford won the prestigious JATO CO award in Russia FORD SOLLERS JV MODEL RANGE LAUNCH TIMELINE28 2

Ford Focus III Ford Transit Ford Explorer Ford S-Max Ford Turneo Custom Ford Edge Ford Ecosport C-class LCV 4X4 SUV Minivan MPV 4X4 SUV B segment crossover Prices start from RUB 594 k Prices start from RUB 1,107 k Prices start from RUB 1,649 k Prices start from RUB 1,122 k Prices start from RUB 1,501 k Prices start from RUB 1,699 k To be launched in 2H2014 Ambiente Plus version CKD assembly started in April To be launched in 1Q2014 launched in February 2013 2013 2011 2012 2013 2014 C-class crossover Prices start from RUB 989 k ON TRACK WITH LOCALISATION PLANS LCV CKD assembly started in To be launched in 2H2014 October 2013 Ford Sollers JV is highly committed to Russia and regards it as one of the most promising automotive New Ford Transit Ford Kuga markets in Europe: in 2013 the company started ELABUGA ENGINE PLANT MAIN INPUTS: FORD SOLLERS JV WHOLESALES, thousand units building the engine plant in Elabuga, Tatarstan, and announced the creation of an R&D centre in ›› Investment: $274 mln Russia which will adapt Ford vehicles for Russia ›› SOP: December 2015 2013 2012 and create special local versions of LCVs. R&D will ›› Capacity: 105-200 k engines p. a. FORD SOLLERS JV 104.6 134.3 be based in three locations: Moscow, Tatarstan and ›› Staff: over 500 employees Focus 62.6 93.8 the Leningradskiy region. The company is investing Mondeo 6.6 14.4 considerably in the development of its supplier base Transit 14.6 12.7 in the regions where it operates. In St. Petersburg ENGINE TO BE ASSEMBLED a supplier cluster has already been created and in Kuga 13.1 5.1 FORD 1.6-LITRE DURATEC ENGINE: Tatarstan the JV is actively developing its supplier › Gasoline Explorer 5.2 2.0 › Fuel: base and already sourcing components from more ›› Displacement: 1.6 litre Other models 2.5 6.3 than 50 companies in Russia. Ford Sollers JV is fully ›› Output: 85 HP, 105 HP and 125 HP Company source. Ford Sollers JV wholesales represent the Company’s sales to dealers and direct corporate sales. on track with its localisation plans and aims to hit the target of 60% in 2016. 27 Includes three plants and corporate headquarters in Moscow. 28 The graph shows retail prices as of 1Q2014.

Business Projects and Key Assets (continued)

SOLLERS-ISUZU JV SOLLERS-FINANCE JV

FACTSHEET 2013 ACHIEVEMENTS FACTSHEET ›› The first Russian-Japanese joint venture for the production and ›› The locally assembled model range includes ISUZU N-series light ›› APRIL ›› Financial company specialising in leasing services distribution of ISUZU vehicles was launched in July 2007 commercial vehicles and light duty trucks. The joint venture has SOLLERS-ISUZU JV started production of the NQR90 chassis with ›› Founded by SOLLERS in 2008 ›› In 2012 SOLLERS-ISUZU was restructured into a joint venture, a capacity of 5 k trucks per annum a payload up to 6.6 tonnes. This model has the highest payload in ›› In December 2010, it was restructured into a 50:50 joint venture with SOLLERS retaining 50% of share capital. The assembly line ›› Average number of personnel as of the end of 2013 was over the ISUZU model range, assembled in Russia between Sovkombank and SOLLERS was relocated to the Ulyanovsk production site (UAZ) 16029 people SOLLERS-ISUZU JV started selling two F-series trucks: FORWARD ›› Value of leasing portfolio as of 31 December 2013 increased by ›› SOLLERS-ISUZU JV is responsible for the production, import and ›› Revenue in 2013 was RUB 1,987 million 12.0 (FSR90) and FORWARD 18.0 (FRV34), the first ISUZU models 19% Y-on-Y to RUB 2,226 million distribution of ISUZU trucks and their parts in Russia in the medium duty trucks (MDT) segment for Russian customers ›› Cost of vehicles purchased in 2013 increased by 6% Y-on-Y to RUB ›› MAY 2,939 million (incl. VAT) SOLLERS-ISUZU JV announced the successful certification of ›› SOLLERS-FINANCE JV’s IFRS revenue for the year ended the ISUZU ELF 3.5 chassis (NMR85H). The chassis is a modification 31 December, 2013 totalled RUB 599 million (up 38% Y-on-Y) of the well-known ELF 5.2, but with the maximum gross weight reduced to a maximum of 3.5 tonnes ›› DECEMBER In 2013, SOLLERS-ISUZU JV increased its retail sales in Russia to SOLLERS-ISUZU JV MODEL RANGE LAUNCH TIMELINE30 1,295 trucks and commercial vehicles (75% up Y-on-Y)

SOLLERS-FINANCE JV 2013 Leasing Portfolio by Brand

12% Ford ISUZU 34% 11% Special vehicles ISUZU ELF 3.5S ISUZU ELF 3.5 – ELF 5.2 ISUZU ELF 7.5 ISUZU ELF 9.5 ISUZU FORWARD 12.0-18.0 MAZ LCV chassis LCV & LDT chassis LDT chassis LDT chassis MDT chassis KAMAZ Certified name: NLR85A Certified name: NMR85H Certified name: NPR75L Certified name: NQR90L Certified name: FSR90SL and FRV34UL 10% Fiat Payload: 1.5 tonnes Payload: 3.0 tonnes Payload: 4.7 tonnes Payload: up to 6.6 tonnes Payload: up to 12.5 tonnes Hyundai Prices start from RUB 1,107 k Prices start from RUB 1,239 k Prices start from RUB 1,650 k Prices start from RUB 1,910 k Prices start from RUB 2,450 k 2% MAN 4% 9% 2007 2008 2009 2010 2011 2012 2013 HINO 5% 9% 5% Other

SOLLERS-ISUZU JV WHOLESALES, thousand units ON TRACK WITH LOCALISATION PLANS In the second quarter of 2014, SOLLERS-ISUZU JV plans to start 2013 2012 CKD assembly of N-series trucks. Also in the second half of 2014 SOLLERS-ISUZU JV 1,640 727 SOLLERS-ISUZU JV plans to start the local assembly of F-series N-series 1,592 718 medium duty trucks. The 2014 production plan includes the F-series 48 - assembly of 2,340 N-series chassis and 204 F-series chassis. C-series - 9 In 2014, the joint venture will increase the local content of the Company source. SOLLERS-ISUZU JV wholesales represent the Company’s sales to dealers and direct corporate sales. assembled trucks by increasing the number of locally-produced large parts, such as fuel tanks, leaf springs, shock absorbers and propeller shafts. These actions will help to partly reduce logistics costs and decrease the exposure to foreign exchange. The estimated increase of the localisation level is +5%. 29 Includes production site in Ulyanovsk and 30 The graph shows retail prices as of 1Q2014. SOLLERS-ISUZU JV headquarters in Moscow.

Transparent Ethical We are committed to disclosing relevant We believe in the fundamental principle financial and operational information and of protecting the legal rights and interests our future development plans of all our stakeholders

SOLLERS is focused on improving its corporate governance standards, upholding the rights and legal interests of its stakeholders, providing transparent Corporate information and adopting ethical practices Governance

What does Corporate Governance Mean to SOLLERS? Annual General Shareholders Meeting Board of Directors (BoD)

The Annual General Shareholders meeting is the supreme managing The Board of Directors is responsible for the strategic management body of SOLLERS OJSC. and overall control of SOLLERS.

The procedures regarding the Annual General Shareholders Meeting The main role of the BoD is to uphold the rights of SOLLERS’ are set out in the Regulations relating to the Annual General shareholders, develop corporate strategy and determine long- Shareholders Meeting. term objectives, monitor the implementation of this strategy and coordinate internal control and risk management functions.

The procedures and functions of SOLLERS’ Board of Directors are set out in the Regulations relating to the Board of Directors.

› For more info, please see PAGE 59. › For more info, please see PAGE 50.

Board of Directors’ Committees Management

DAVID J. HERMAN CHAIRMAN OF BOARD OF DIRECTORS Corporate Governance Framework Good corporate governance is integral to our overall business approach. It enables us to make informed and considered ANNUAL GENERAL SHAREHOLDERS Direct reporting lines decisions to ensure that we set and execute MEETING Functional reporting lines a sound corporate strategy for the long term on behalf of our shareholders. At the heart of our governance framework sits our Board – a balanced team of qualified individuals who, together, bring an excellent mix of skills, knowledge and CHAIRMAN OF BOARD OF BOARD OF DIRECTORS’S The Company has formed a number of committees to support the Management carries out the day-to-day governance of the experience to our business. The Board is DIRECTORS COMMITTEES Board of Directors in exercising control over different lines of Company’s operations and its subsidiaries/ affiliates. supported by Board Committees, chaired operations. Although the Committees report directly to the BoD they by independent Directors, who advise Board of Directors also have functional reporting lines to Company’s management to Management is responsible for implementing strategy, business and challenge our management team and Audit Committee ensure the provision of timely information about business operations plans, investment programmes and creating a roadmap to achieve the strategic direction of the business. At Strategy Committee for decision-making purposes. operating objectives. It also has operational control over the SOLLERS, we are committed to improving Remuneration financial position of the Company, prepares improvement proposals our governance and aspire to follow best CHIEF EXECUTIVE OFFICER Committee The procedures and roles of the SOLLERS’ Board of Committees are for the main business lines and reports to the BoD. practice standards. Nomination and set out in the Regulations relating to each Committee. Corporate Governance Management operates in compliance with the Company’s Charter Management Committee and internal acts.

› For more info, please see PAGE 55. › For more info, please see PAGE 60.

2 RICHARD BROYD 3 PATRICK T. GALLAGHER Protecting our Long-term Success INDEPENDENT DIRECTOR INDEPENDENT DIRECTOR The Profiles of SOLLERS’ Directors Independent: Yes Independent: Yes Board Committees: Strategy Committee (Chairman) Board Committees: Remuneration Committee (Chairman), Audit Year appointed to the Board: 2007 Committee, Strategy Committee Key skills and experience: Corporate Development and Finance, Year appointed to the Board: 2008 Our Board structure follows corporate governance best practice, Principal Investing and Philanthropy. Key skills and experience: International business career mainly in the telecoms sector. Other current appointments: with a majority of five Independent Directors out of a total of nine. Director of Waypoint Capital, Northill Asset Management and Other current appointments: Euromedic, a diagnostic imaging company in Budapest. He is Chairman of Harmonic Inc (NASDAQ: HLIT) a US-based Chairman of Reach-to-Teach, a charity providing children’s primary global provider of high performance video solutions and a education in rural India and an Advisory Board member of the director of Ciena Corporation, a NYSE-listed global supplier of Independent Directors Legatum Center for Development and Entrepreneurship, MIT. Telecommunications and related equipment. 1 Background: Background: 2 Prior to his current appointments, Richard was Chief Executive of a From 2008 to 2012, Patrick was Chairman of Ubiquisys Ltd in the private investment fund in Brussels. He held a number of positions UK and, from 2008 to 2009, Chairman of Macro 4 plc, a FTSE-listed in the Montedison Group, Milan, including Managing Director of global software company. Prior to this, he was Vice Chairman SIR SpA, a specialty chemical company, and Director of Corporate of Golden Telecom Inc., in Moscow. Patrick was Executive Vice Development and Strategy, and Controller. He has also been a Chairman and served as Chief Executive Officer of FLAG Telecom partner of The Monitor Group, co-founder and managing director of Group and, for 17 years, held various senior management positions Monitor Clipper Partners, a private equity fund, and has worked for at BT Group. the United Nations in Japan. Education and awards: Education and awards: Graduate of Warwick University in Economics and Industry. Richard holds a PhD from Cornell University.

SEPPO REMES ALEXANDER IKONNIKOV 4 INDEPENDENT DIRECTOR 5 INDEPENDENT DIRECTOR

Independent: Yes Independent: Yes 3 4 5 Board Committees: Audit Committee (Chairman) Board Committees: Remuneration Committee, Nomination and Year appointed to the Board: 2004 Corporate Governance Committee Key skills and experience: Wide experience gained mainly in the Year appointed to the Board: 2011 energy sector. Key skills and experience: Over 10 years’ experience serving on the boards of leading Russian companies in the telecommunications, Other current appointments: financial services and brewing industries. Chairman of the Board at EOS Russia (an investment company focusing on the Russian power sector), and board member of Other current appointments: several major companies, including JSC Russian Grids, SIBUR Chairman of the Board of the Independent Directors Association, Holding and Rusnano. an Independent Director at Swedish investment fund East Capital Explorer Plc, and a Member of the Supervisory Board of the DAVID J. HERMAN Background: National Settlement Depository. 1 CHAIRMAN OF BOARD OF DIRECTORS (SINCE 2007) As a board member of RAO UES Seppo took part in the fundamental reform of Russia‘s electric power sector and created one of Background: Independent: Yes Other current appointments: Russia’s first corporate audit committees. Prior to this, he was Prior to holding his current position, Alexander was CEO of the Board Committees: Nomination and Member of the US-Russia Council and the American Chamber of Commerce (Russia), and an vice president for Russian Affairs of Neste-Fortum, an OMX-listed Russian Investor Protection Association. Alexander also served as Corporate Governance Committee independent director of Magnitogorsk Iron and Steel Works, Strategic Initiatives and New global energy company. He was also the founder of the European an independent director of North-West Telecom OJSC and Baltika (Chairman), Strategy Committee, Audit Health Sciences. Business Club (now the Association of European Businesses). OJSC. Committee Year appointed to the Board: 2004 Background: Education and awards: Education and awards: Key skills and experience: Over 30 years of David worked at General Motors for 29 years, including 10 years as Vice President. In addition Seppo Remes is a graduate of Oulu University and holds a Alexander is a graduate of the Gubkin Russian State University international experience in the automotive to establishing GM-AVTOVAZ, the largest Russian automobile joint venture, he was chairman Licentiate Degree from the Turku School of Economics and of Oil and Gas. He holds a PhD in Economics and is a Chartered industry. A qualified lawyer. of the board of Adam Opel AG, CEO of SAAB Automobile, and represented General Motors in a Business Administration in Finland. Seppo has twice been named Director of the Institute of Directors (IoD) in the UK. In 2010, the number of countries. Best Independent Director of the Year by the Investor Protection Yale School of Management recognised him as a “rising star of Association, Russia (2006, 2008) and Director of the Year 2012 corporate governance”. Education and awards: by the Independent Directors Association. He is the Honorary David is a graduate of New York University, holds a Master’s degree from Harvard Graduate Doctor at Plekhanov Russian Academy of Economics and also the School and a Juris Doctor degree from Harvard Law School. He has been awarded the German Honorary Doctor of Turku School of Economics, Finland. Bundesverdienstkreuz and the Belgian Order of Leopold.

The Profiles of SOLLERS’ Directors (continued)

Executive Directors 6 8 NIKOLAY SOBOLEV ZOYA KAIKA VICTOR KHVESENYA 7 FIRST DEPUTY CEO (SINCE 2009) AND 8 DEPUTY CEO (SINCE 2013) AND 9 DIRECTOR OF LEGAL AFFAIRS (SINCE CFO (SINCE 2005) OF SOLLERS DIRECTOR OF PUBLIC AND 2009) OF SOLLERS, SECRETARY OF GOVERNMENT RELATIONS (SINCE THE BOARD OF DIRECTORS Independent: No 2003) OF SOLLERS Board Committees: Strategy Committee, Independent: No Remuneration Committee Independent: No Board Committees: Nomination and Year appointed to the Board: 2005 Board Committees: n/a Corporate Governance Committee Key skills and experience: Financier Year appointed to the Board: 2013 Year appointed to the Board: 2010 and economist, with experience in the Key skills and experience: Journalism and Key skills and experience: International automotive and machine tool industries. economic analysis. legal experience.

Other current appointments: Other current appointments: Background: Since 2012 a Board member of Russian Board member of UAZ OJSC. Between 2005 and 2009 Victor was Vice- Railways. President of Legal Affairs in AMEDIA Background: Group. From 1995 to 2005, he served as Background: Zoya was a member of the board of directors Senior Attorney in the Moscow office of the 7 9 Between 2002-2005 Nikolay was the Director of ZMZ OJSC from 2010 to 2013. Prior to international law firm of White & Case. for Financial and Economic Affairs of UAZ joining the Company as an analyst, she was OJSC and in 2002-2011 he was a Member of Deputy Editor of the economics section of Education and awards: the Board of Directors of UAZ OJSC. From Vedomosti, one of Russia‘s leading business Victor graduated from the Law Faculty of 1997 to 2002, he served as the First Deputy publications. Belarusian State University (Minsk) in 1984 Director General and Vice President of and earned a Master’s degree from the Case Yuzhuralmash Holding JSC and a Member of Education and awards: Western Reserve University School of Law the Board of Directors of Yuzhuralmash OJSC. Zoya holds a Journalism degree from (Cleveland, USA) in 1993. Lomonosov Moscow State University. Education and awards: Nikolay graduated from Lomonosov Moscow State University and the Russian Presidential Academy of National Economy and Public Administration. He holds a PhD in Economics from Lomonosov Moscow State University and an MBA from Kingston University Business School (UK). VADIM SHVETSOV 6 CEO OF SOLLERS, CEO OF UAZ OJSC

Independent: No Other current appointments: Board Composition 2013: Board Committees: Strategy Committee, Chairman of the boards of directors of UAZ OJSC, ZMZ OJSC and Ford Sollers Holding. Percentage Interest that Directors Hold in the Share Capital as of 31 December 2013 Independent Directors Nomination and Corporate Governance Member of the board of directors of Russian Automobile Producers Association, the largest Committee automotive sector association in Russia. Number of direct Number of indirect Year appointed to the Board: 2002 Director voting rights voting rights % of voting rights Key skills and experience: Extensive Background: David J. Herman - - - operational and sales experience in the Vadim Shvetsov has held operational management roles in the Company and its subsidiaries Richard Broyd - - - 44% since 2002. From 1993 to 2002, he held a number of positions at Severstal Group, from Independent Directors automotive sector. Patrick T. Gallagher - - - commercial manager to First deputy CEO. As Head of sales he established Severstal’s system Executive Directors of in-bound and foreign sales. For four consecutive years to 2000, Vadim was a member of the Seppo Remes - - - 56% town council in Cherepovets. Alexander Ikonnikov - - - Vadim Shvetsov 15,980 18,433,919 53.85% Education and awards: Nikolay Sobolev 99,383 - 0.29% Vadim is a graduate of the Moscow Institute of Steel and Alloys, specialising in Electric Drives 44% Viktor Khvesenya - - - Independent Directors and Automation of Industrial Installations and Technological Complexes. In 2001, he received an MBA from Northumbria University Business School (UK). He has been awarded the Order Zoya Kaika - - - Executive Directors As of 31 December 2013 56% for Service to the Motherland (2nd degree) and the Automotive Industry Order of Honour. Source: SOLLERS OJSC List of Affiliates as of 31 December 2013.

SOLLERS // Annual Report 2013 www.sollers-auto.com CORPORATE SHAREHOLDERS’ MOVING BUSINESS & CORPORATE SOCIAL EQUITY & FINANCIAL ADDITIONAL AHEAD STRATEGY GOVERNANCE RESPONSIBILITY SECURITIES REPORTING INFORMATION MOVING AHEAD // 54 55 Board of Directors’ Meetings Board Committee Reports The Board met 11 times in 2013 and the majority of agenda In line with best practice corporate governance, the Company has items discussed were corporate governance matters. formed a number of Board committees to support the Board of Directors in exercising control over different business activities. Meetings and Attendance Matters Discussed and Approved Audit Committee

The Audit Committee was established in The Audit Committee’s exclusive functions 2005. Its mission is to support the Board include: of Directors in exercising control over the ›› evaluating candidates for Company Company’s business activities. The Audit auditors and presenting their conclusions Committee reports to the Company’s Board to the Board of Directors of Directors. ›› assessing the auditors’ opinion ›› evaluating the efficiency of current The Audit Committee consists of the internal control and risk management Chairman and three members who are non- procedures, and making recommendations executive directors of the Company. As of for improving them. During the year under review the Board of Directors held A variety of topics was discussed at the Board meetings during 31 December 2013, the Audit Committee 11 meetings. The Board’s attendance for each meeting is set out in the year. Over 50% of the number of topics discussed related to included the following members of the Board AUDIT COMMITTEE MEETINGS the table below. One new member was appointed to the Board at the corporate governance matters, which demonstrate the Board’s of Directors: AGM on 16 May 2013 (Zoya Kaika) and one member (Evegeny Yasin) commitment to keeping corporate governance high on its agenda. ›› Seppo Remes (Committee Chairman, The Audit Committee meets regularly to ensure “In 2013 we successfully retired from the Board on the same date. Nearly a half of the Board independent director) the prompt monitoring of the Company’s implemented our risk meetings in the year were attended in person. ›› Patrick T. Gallagher (independent director) internal control and audit systems and risk ›› David J. Herman (independent director, management procedures, and to summarise management matrix Chairman of the Board of Directors) the interim and annual results of the Board Meeting Attendance in 201331 Number of Topics Approved at Board Meetings in 2013 and developed our risk 60 Company’s business operations. Director Number of meetings 52 Members of the Audit Committee must management activities.” 1 David J. Herman 11/11 50 be independent and also have relevant Meetings are attended by Committee 2 Richard Broyd 10/11 professional financial qualifications in members, who are invited to make 40 38 38 3 Patrick T. Gallagher 11/11 order to ensure the committee operates in presentations, and also by other SEPPO REMES 4 Seppo Remes 11/11 30 the most effective manner. All members stakeholders, as and when required (for CHAIRMAN OF AUDIT COMMITTEE 5 Alexander Ikonnikov 11/11 fulfil these criteria. Details about the example, the heads of corporate reporting, 20 6 Vadim Shvetsov 11/11 status of each members’ independence and internal audit and control, risk management, 7 Nikolay Sobolev 11/11 10 qualifications can be found in the Board and representatives of external auditor). 8 Viktor Khvesenya 11/11 profiles on page 50. 0 9 Zoya Kaika32 2/3 KEY AUDIT COMMITTEE ACTIVITIES IN 2013 Total number Number of items Number of items 10 Evgeny Yasin33 3/8 of items discussed put to the vote passed unanimously THE ROLE OF THE AUDIT COMMITTEE The following documents were approved at The Audit Committee’s main areas of the Audit Committee meetings in 2013: Number of Board Meetings Held in Person and in Absentia in 2013 Breakdown of Topics Considered at Board Meetings in 2013, % activities include control over the following: ›› Consolidated Financial Statements of ›› completeness and fairness of financial SOLLERS Group for 2012 10% statements, and the process of their ›› Consolidated Financial Statements for preparation and presentation H1 2013 10% Corporate Governance ›› operation of internal control, internal audit ›› approval of PricewaterhouseCoopers Approval of Transactions and risk management systems Audit, as the external auditor of SOLLERS 45% Meetings held in person 52% ›› compliance with current Russian legislation Group’s Financial Statements for 2013 11% Strategy and Main and the Company’s internal regulations. ›› the reports on internal audit findings and Mettings held in absentia Business 55% internal audit plan for 2014. Financials › For more information about our Other In 2013, the Audit Committee also 17% implemented the risk matrix and influenced internal control, risk management the development of major risk management processes and our principal risks, 31 The figures presented in the table indicate the number of meetings in which a 32 New member of the Board of Directors who was elected during the AGM held on activities. please see PAGE 62. Board member actually participated/ the number of meetings in which a Board May 16, 2013. member could participate. 33 Member of the Board of Directors who served on it before the AGM held on May 16, 2013.

Board Committee Reports (continued)

Strategy Committee Remuneration Committee

The Strategy Committee was established in STRATEGY COMMITTEE MEETINGS The Remuneration Committee was first REMUNERATION COMMITTEE MEETINGS 2005. Its task is to present recommendations established in 2005. Among the Committee’s on the development of the Company’s The Strategy Committee meets on a regular responsibilities is the establishment of fair The Remuneration Committee meets as strategy and to determine its priority basis, at least twice per year. Committee compensation packages for the Company’s required. development areas. The Strategy Committee meetings are attended by the Company’s governing bodies. The Remuneration reports to the Company’s Board of Directors. First Deputy CEO or CEO. Committee reports to the Company’s Board KEY REMUNERATION COMMITTEE of Directors. ACTIVITIES IN 2013 The Strategy Committee includes the The Strategy Committee presents its Chairman and at least three Members of the opinions to the Board of Directors on The Remuneration Committee includes the Based on the results of the Committee’s Company’s Board of Directors. During 2013 documents submitted by management Chairman and at least three members of the work, the Board of Directors made and as of 31 December 2013, the Committee regarding the Company’s development Company’s Board of Directors. During 2013 recommendations to the Annual General included the following Members of the Board strategy. At the Board of Directors’ request, and as of 31 December 2013, the Committee Shareholders Meeting regarding the of Directors: or on its own initiative, the Strategy included the following members of the Board amount of remuneration and compensation ›› Richard Broyd (Committee Chairman, Committee prepares oral or written “In 2013 we focused in of Directors: for members of the Company’s Board of “We put our remuneration independent director) recommendations on specific topics within particular on monitoring ›› Patrick T. Gallagher (Committee Chairman, Directors. proposals to the vote at the ›› Patrick T. Gallagher (independent director) its competence, and issues reports on its independent director) ›› David J. Herman (independent director, work for consideration by the Board of changing consumer ›› David J. Herman (independent director, AGM, based on a detailed Chairman of the Board of Directors) Directors. Chairman of the Board of Directors) ›› Vadim Shvetsov (CEO) demand and the challenging ›› Alexander Ikonnikov (independent director) assessment of the work ›› Nikolay Sobolev (First Deputy CEO, CFO). KEY STRATEGY COMMITTEE ACTIVITIES IN macroeconomic ›› Nikolay Sobolev (First Deputy CEO, CFO). carried out by the Board of 2013 THE ROLE OF THE STRATEGY COMMITTEE environment.” THE ROLE OF THE REMUNERATION Directors and its Committees SOLLERS business is growing organically, COMMITTEE during the year.” The Strategy Committee’s main areas of adapting to changing macro- and activities include: microeconomic factors. The Strategy RICHARD BROYD The Remuneration Committee’s main areas CHAIRMAN OF STRATEGY COMMITTEE ›› reviewing the goals, development concepts, Committee played a significant role in of activity are: PATRICK T. GALLAGHER and strategic plans developed by top defining the Company’s development ›› defining criteria for selecting candidates for CHAIRMAN OF REMUNERATION management, as well as coordinating strategy, focusing in particular on the the Company’s Board of Directors and top COMMITTEE strategic plans in accordance with the changing market structure and deterioration management, and the preliminary evaluation Company’s performance and prospects and of the macroeconomic environment. of candidates communicating these to the Company’s units ›› developing proposals for determining ›› preparing recommendations for the Board of essential contract terms with members Directors concerning investment decisions, of the Company’s Board of Directors and including: top management, including principles and ––acquiring capital of other companies, criteria for determining their remuneration analysis of investment projects and review ›› assessing the performance of the Company’s of their compliance with the development management on a regular basis. strategy (at the project acceptance stage) ––analysis of top-level organisational projects and assessment of their compliance with the development strategy (at the project development stage) ›› preparing recommendations for the Board of Directors regarding potential restructuring, including the utilisation of non-core assets.

› Details of the remuneration for members of the Board and its Committees which were › For more information about approved at the AGM can be strategy, please see PAGE 29. found on PAGE 59.

Board Committee Reports (continued)

Nomination and Corporate Governance Committee Annual General Meetings

The Nomination and Corporate Governance Directors KEY AMENDMENTS TO THE CORPORATE CODE OF GOVERNANCE: Committee was established in 2012. The main ›› make recommendations to the Board of DEFINITION OF INDEPENDENT DIRECTOR purposes of the Nomination and Corporate Directors with respect to the approval of Governance Committee are to develop and and amendments to the Company’s internal SOLLERS is committed to ensuring that the Board of Directors enhance the corporate governance of the corporate rules and policies relating to insider includes at least three independent members of the Board of Company, to carry out preliminary reviews of information and the Company’s confidential Directors, each of whom meets the following requirements: matters regarding the corporate governance information, as well as regarding the procedure ›› within the last five years, he/she has not been a direct or indirect and corporate culture of the Company and relating to the use of information about employee of the Company or of the companies controlled by to make recommendations to the Board of the Company’s operations, securities and the Company Directors on such matters. The Nomination transactions which is not in the public domain ›› he/she does not have, or within the last three years has not had, and Corporate Governance Committee reports ›› handle any other matters relating any relevant business relationships with the Company, directly or to the Company’s Board of Directors. to corporate governance as may be requested indirectly by the Board of Directors or deemed ›› he/she does not receive any additional remuneration from The Nomination and Corporate Governance necessary or desirable by the Committee. “In 2013 we developed the Company, other than the remuneration for performing his/her Committee includes the Chairman and The Annual General Meeting (AGM) is held at least two months duties as a Board of Director member, and does not participate in after, and no later than six months after, the financial year end. at least three members of the Company’s NOMINATION AND CORPORATE a new Corporate Code of any of the Company’s stock options and retirement plans The SOLLERS OJSC’s next AGM will be held on 30 May 2014. Board of Directors. During 2013 and as of 31 GOVERNANCE COMMITTEE MEETINGS Governance, reinforcing ›› he/she is not a close relative of any advisor, any Board of Director December 2013, the Committee included the The information regarding the AGM procedure and Shareholders the importance of corporate member or the Company's Chairperson materials can be found on the Company’s website. following members of the Board of Directors: The Nomination and Corporate Governance ›› he/she, together with other members of the Board of Directors ›› David J. Herman (Committee Chairman, Committee meets as required. governance within our of the Company, does not hold management positions in other The Company’s 2012 AGM took place on 16 May 2013. The SOLLERS Chairman of the Board of Directors, companies and has no other relevant relationships with other independent director) The Nomination and Corporate Governance corporate culture.” OJSC shareholders approved the financial statements for the year members of the Board of Directors through participation in other ended 31 December 2012 as well as the Annual Report for 2012. ›› Alexander Ikonnikov (independent director) Committee presents its opinions and companies or bodies ›› Vadim Shvetsov (CEO) recommendations to the Board of Directors DAVID J. HERMAN ›› he/she is not a major shareholder (please note that if a candidate is On the back of strong financial performance in 2012 ›› Victor Khvesenya (director of Legal Affairs). on the Company’s corporate governance and nominated by or voted for by a major shareholder to hold a position corporate culture. At the Board of Directors’ CHAIRMAN OF NOMINATION AND the shareholders took the decision to pay out a dividend of RUB on the Board of Directors, this candidate is not deemed to be 52.52 per share, making a total declared dividend of around RUB 1.8 THE ROLE OF THE NOMINATION AND request or on its own initiative, the Committee CORPORATE GOVERNANCE COMMITTEE a representative of the major shareholder) billion. Dividends were paid 60 days from the day that the decision CORPORATE GOVERNANCE COMMITTEE prepares oral or written recommendations ›› he/she has not been a member of the Board of Directors of was taken. on specific issues within its competence, and the Company for more than nine years since his/her first election The Nomination and Corporate Governance issues reports on its work for consideration The shareholders elected the nine following members to make Committee’s main areas of activity are to: by the Board of Directors. In its decision to appoint an independent director, the Board of ›› develop general recommendations regarding up the SOLLERS OJSC Board of Directors: David Herman, Vadim Director takes into consideration the above requirements to ensure Shvetsov, Richard Broyd, Patrick Gallagher, Seppo Remes, Nikolay the desired composition and size of the Board KEY NOMINATION AND CORPORATE that there are no circumstances which may affect the independence Sobolev, Viktor Khvesenya, Zoya Kaika and Alexander Ikonnikov. of Directors GOVERNANCE COMMITTEE ACTIVITIES of the member of the Board of Director when performing his/her ›› conduct an evaluation of candidates IN 2013 functions. proposed for election to the Board of The Company’s statutory auditor for the second term running was elected: ACG Business Krug Ltd. The meeting also approved Directors and provide the Board of Directors In 2013, the Committee initiated and The definition of an independent director provided by the Code with recommendations regarding such contributed to the development of a new the new version of the SOLLERS OJSC Charter, the Corporate Code is used exclusively for the purpose of applying the provisions of of Governance and Statute of the Board of Directors. The AGM candidates Corporate Code of Governance, which was this Code and does not cancel or alter any statutorily prescribed ›› review and develop the Company’s standard finally approved at the AGM held on 16 May established remuneration for each member of the Board of Directors definition of an independent director established by the applicable for the period during which they performed their duties: for director independence and recommend 2013. The Corporate Code of Governance laws of the Russian Federation. to the Board of Directors any modifications was established in compliance with the ›› EUR 130 000 for the Chairman of the Board of Directors to that standard terms of the Corporate Code of Conduct, ›› EUR 120 000 for Chairmen of the Committees ›› monitor emerging corporate governance recommended by the Act issued by the Federal ›› EUR 110 000 for each other member of the Board of Directors. trends, evaluate corporate governance policies Committee for Security Markets on 4 April and Company programmes and recommend 2002 # 421 ‘Recommendations for application All resolutions were passed by a majority vote. to the Board of Directors any actions as the of Corporate Code of Conduct’ and the UK Committee may consider appropriate Corporate Governance Code, revised version ›› consider policies relating to the preparation, as of September 2012. The amendments to the convocation and holding of general meetings Corporate Code of Governance primarily of shareholders and meetings of the Board of involve the definition of independent directors.

ALEXANDER KORNEYCHUK OLGA TYRYSHKINA Managing Exclusively for the Benefit 5 GENERAL DIRECTOR OF MAZDA SOLLERS MANUFACTURING RUS 6 DIRECTOR OF RISK MANAGEMENT AND INTERNAL AUDIT LLC (SINCE 2012) AND SOLLERS-BUSSAN LLC (SINCE 2011) OF SOLLERS (SINCE 2010)

Background: Background: of our Shareholders In 2011 Alexander was appointed General Director of SOLLERS- Olga was Chief Accountant of SOLLERS from 2004. From 1993, she BUSSAN LLC. In 2012 this position was combined with the role worked as Deputy Chief Accountant at ZAO Raspadskaya. The Profiles of SOLLERS’ Managers of General Director of MAZDA SOLLERS Manufacturing Rus LLC. In 2009, he became General Director of SOLLERS-Far East. From Education and awards: 2005 to 2009, he was Executive Director of SOLLERS-Naberezhnye Olga graduated in Economics from Kuzbass State Technical Chelny (formerly, OAO ZMA). From 2002 to 2005, he was Director of University. Strategic Development Projects at SOLLERS. In 2000-2001, he was Acquisition Manager at Ford Motor Company.

1 2 3 Education and awards: Alexander is a graduate of the Moscow Aviation Institute.

ALEXEI VOLODIN ANTON KARPOV 7 MANAGING DIRECTOR OF SSANGYONG DISTRIBUTION 8 GENERAL DIRECTOR OF THE UAZ DISTRIBUTION CENTRE (SINCE 2009) (SINCE 2010)

Background: Background: Prior to his current role, Alexei worked in the Sales, Marketing From 2005, he was Head of the UAZ Sales Department. From 2003, & Aftersales operations of General Motors Europe, starting at he was Head of the Marketing Department at UAZ OJSC (Ulyanovsk). Chevrolet BDM Russia in 2005 and ending up as European Fleet & 4 5 6 Remarketing Manager in Russelsheim (Germany). Education and awards: Anton holds a degree in Journalism from the Moscow State Social Education and awards: University, and completed his postgraduate studies at the Higher Alexei is a graduate of the Moscow Legal Institute. School of Economics with a degree in Economics and Management of the Domestic Economy.

ANDREY MATYUSHIN VERONIKA ANTONOVA 9 GENERAL DIRECTOR OF ZMZ OJSC (SINCE 2012) 10 STRATEGIC MARKETING DIRECTOR OF SOLLERS (SINCE MAY 2013) Background: 7 8 9 Alongside his current role Andrey was appointed head of RosALit Background: Foundry LLC (a ZMZ subsidiary) in February 2012. Andrey began his Prior to joining SOLLERS in 2012, Veronika held a managerial career at ZMZ OJSC in 1997 as a technologist and for the past five position at KPMG Strategy Group. She has over 12 years of years has headed its technical department. professional experience in marketing and consulting in Europe and in Russia in B2B and B2C markets. Education and awards: Andrey is a graduate of Nizhny Novgorod State Technical University Education and awards: and where he is currently studying for an MBA. Veronika graduated from the Lomonosov Moscow State University, Faculty of Economics and received a Master’s Degree at Lomonosov Moscow State University Business School. In 2008, Veronika received her MBA from SDA Bocconi in Italy. 10 11 12 TARAS ROSTOPIROV EVGENY SUDARKIN 11 HUMAN RESOURCES DIRECTOR OF SOLLERS 12 INFORMATION TECHNOLOGY DIRECTOR (SINCE 2011), GENERAL (SINCE OCTOBER 2013) DIRECTOR OF PROF-IT GROUP LLC (SINCE APRIL 2013)

Background: Background: Taras joined SOLLERS Group as a Dealer Network Development Evgeny joined SOLLERS Group as a project manager at UAZ OJSC in Director in 2010. In 2012, he was appointed General Director of 2007. In 2009, he was appointed Head of UAZ IT department and from FRONTLINE Company (an education subsidiary of SOLLERS Group). 2010 he also became Head of ZMZ IT department. Evgeny started his He started his career in the automotive sector in 2001 at Rolf Import career in 2005 at Kristal LLC as a senior engineer and was involved in LLC, where he served nine years. several automation projects.

Education and awards: Education and awards: Taras graduated from the Kiev Military Aviation Engineering Evgeny graduated from Uliyanovsk State Technical University Academy and Moscow State Lenin Pedagogical University with majoring in Applied Information Science in Economics and Finance a major in Educational Research. Taras served in the Military Air and Credit. He also has an MBA from International Institute of › For a full biography of Managers numbered 1–4, please see the Board of Directors’ section on PAGE 52 Force as a training specialist at the Yuri A. Gagarin State Scientific Management LINK. Research and Testing Cosmonaut Training Center.

Balanced Approach to Risk Management MARKET RISKS Risk Management and Principal Risks Description Risk management In the last couple of years we have observed a significant change in The Company aims to mitigate these risks through the following the preference of Russian consumers, who are now demanding vehicles actions: from the SUV segment at the expense of the C segment. ›› SOLLERS Group continuously monitors trends in the Russian car The Company faces very tough competition, which includes leading market and changes its model mix and pricing scheme accordingly One of the most important elements of SOLLERS’ corporate global manufacturers, who are focusing their activity on the Russian ›› Ford Sollers JV started production of several Ford SUVs between SUV segment. Competition is particularly intense from those 2012 and 2013 and plans to increase the number of SUV models in its governance is its risk management system that enables companies that have higher production capacities and sales volumes portfolio in 2014 than SOLLERS. Sales of SUVs from some major brands can account for ›› Ongoing modernisation and facelifts of the current SUV model range nearly 70% of their total sales in Russia. (SsangYong and UAZ) in the low-end price range is carried out in the Company’s management to identify current strategic, The successful localisation of competitors, together with their order to support the Company’s sales and market share economies of scale, can result in the emergence of new models in ›› To support sales in the declining C segment, Ford Sollers JV has operational, regulatory and financial risks in a timely manner. the low-end price range. introduced the most affordable versions of the Focus to compete This change in customer preferences and the increased competition in with the top-of-the range cars in the B+ segment. the SUV segment could influence the Company’s profitability.

COUNTRY AND REGIONAL RISKS

Our approach to risk MARKET RISKS COUNTRY AND LEGISLATION RISKS REGIONAL Description Risk management management RISKS SOLLERS’ business activities are mainly concentrated in the Russian The Company continually monitors the macroeconomic and P63 P63 P63 Federation. Deterioration in the Russian economic environment could geopolitical situation and, accordingly, diversifies its activity in The risk management system plays result in a decrease of disposable income and a slow down of GDP different Russian regions and increases its UAZ export sales (up 37% an important role in safeguarding the growth. This could have a negative impact on SOLLERS’ revenues and Y-on-Y). Company’s value creation as it improves lead to a lack of liquidity. The Company uses wholesales bank financing to eliminate the risk the Company’s ability to manage risks by KEY RISK AREAS of late payment of receivables from dealers should any liquidity identifying potentially negative factors, constraints arise. which could affect the achievement of the SOLLERS engages with federal authorities to negotiate the interests Company's goals. of automotive manufacturers through sector associations and has PROCUREMENT RISKS FINANCIAL RISKS also initiated the development of support programmes for the Russian Risk management is integrated into automotive sector. the decision-making processes for all investment, strategic and automation P64 P64 projects. LEGISLATION RISKS

Description Risk management

The introduction of new environmental regulations for CO2 emissions, SOLLERS Group continuously monitors all environmental regulations Euro 4, and the further tightening of standards to Euro 5 impacts and ensures that all new products comply with current environmental the Company’s business, as engine manufacturing is one of its key standards. Risk identification and mitigation brand strengths. The UAZ model range already complies with the Euro 4 standard and The introduction of a recycling fee for imported vehicles and its ZMZ engines are planned to be upgraded to the Euro 5 standard by The Company adopts a balanced approach to risk management with Following a recent review made by senior management, the most expansion to include locally-assembled vehicles could considerably 2016. a focus on mitigating risks in order to minimise their implications significant risks areas and risk factors for the Company are set out impact the profitability of the business. As such, the likelihood of our products failing to comply with and/or likelihood of materialising. In-depth analyses of operational below. The risks are grouped into five categories: market risks, environmental regulation is low. and transaction risks are performed regularly, as well as of market legislation risks, procurement risks, financial risks and country and SOLLERS Group continuously monitors tax and tariff legislation. risks and risks inherent in pricing, financial reporting and taxation. regional risks. Sector associations negotiate with federal authorities on behalf of local producers. To maintain its current level of profitability the Company is focused on continuous improvement of its operational efficiency and product mix. In 2014, the federal authorities introduced subsidies to support Russian producers and to incentivise R&D activities. We consider that the net impact of changes in legislation will be minimal.

Risk Management and Principal Risks (continued)

PROCUREMENT RISKS Risk Management and Internal Audit Directorate

Description Risk management Our Risk Management and Internal Audit The failure to receive components according to agreed delivery terms, SOLLERS continually works with its supplier base and is improving Directorate facilitates the achievement of a sharp increase in prices of materials and components, and any its procurement competences. Ongoing quality management SOLLERS Group’s goals and objectives. It Organisational Structure of the Risk Management deterioration in the quality of components could lead to production improvement enables the Company to control the timely supply and provides shareholders and management stoppages and a loss of customer loyalty. quality of components. with systematic, consistent, independent, and Internal Audit Directorate Long-term relations with global OEMs and joint ventures with substantiated advice and guarantees in international OEMs facilitate the secure supply of assembly kits and relation to risk management, internal audit BOARD OF DIRECTORS’ AUDIT fair pricing policies through mutually beneficial contracts. processes and taxation. Given our mitigating actions, in our opinion, the likelihood of these COMMITTEE risks materialising is quite low. It reports directly to the CEO or First Deputy CEO and also has a functional reporting line into the Board of Directors’ Audit Committee. The Directorate has FINANCIAL RISKS a clear set of objectives: CHIEF EXECUTIVE OFFICER ›› Building a risk management system and supporting its effectiveness at Description Risk management a corporate and operational level within SOLLERS Group An influential financial risk, and currently the most significant for The Company does not typically hedge foreign currencies as the nature ›› Providing Management with the Russian automotive industry, is foreign exchange risk. Leading of its business enables the Group to eliminate possible negative effects methodological assistance and advice Russian banks have forecast a depreciation in the rouble against by changing related rouble-denominated retail prices. regarding risk management and internal the USD to around 36.0034 roubles to the USD by the end of 2014, which As at 31 December 2013 SOLLERS had no debt facilities denominated RISK MANAGEMENT AND INTERNAL AUDIT DIRECTORATE audit issues represents a 9% devaluation in the rouble compared to the end of in foreign currency. ›› Monitoring SOLLERS Group companies’ 2013. The Company strengthens its internal efficiency through ongoing compliance with tax laws and working The Company has a considerable share of materials and components cost-cutting initiatives and by focusing on localisation activities. closely with competent third parties, RISK MANAGEMENT INTERNAL AUDIT TAX denominated in USD and EUR. The level of purchases in foreign By increasing the local content of the vehicle cost, we can reduce DEPARTMENT DEPARTMENT DEPARTMENT including regulatory/government bodies, currency varies from one business to another and also depends on our exposure to foreign exchange risk and, as a result, improve on relevant matters the level of localisation of each model. the competitiveness of the vehicles. SOLLERS aims to increase ›› Developing programmes, organising Given the fact that around 80% of the Russian automotive market is the level of localisation up to 60% in the medium term. and conducting risk-based audits in denominated in foreign currencies35 all industry players will increase the following areas: prices to compensate for the long-term weakening of the national ––assessing the reliability and currency. It will not change the level of competition, as all players effectiveness of monitoring tools applied Direct reporting lines Functional reporting lines will be subject to the same negative impact. However, it will result in in key business processes a change in consumer purchasing patterns as, typically, consumers ––monitoring compliance with applicable tend to defer large purchases until prices start to stabilise again. laws and internal regulations In the short term the market is forecast to respond with normal ––assisting the Company’s Management elasticity to changes in the exchange rate and any decline in consumer to develop corrective measures and spending. risk management activities, based on A long-term, continuous depreciation of the rouble could negatively the results of audits, and following these impact the profitability of the Company. up once implemented ––submitting reports to the Audit Committee and Management on the risks identified within SOLLERS Group and on risk management activities, as well as on the results of audits that have been conducted.

34 Forecast consensus as of 11 March, 2014. 35 SOLLERS’ estimates: 80% of the cost of car sales, for companies active in the Russian market, is denominated in foreign currencies. These companies include local manufacturers who source components from abroad and importers.

Safe Sustainable We are committed to increasing our As we grow we must do so sustainably – operational safety record throughout our nurturing our people and developing a robust business culture for the long term

We take CSR topics into account when embarking on a new project or making important operational decisions – they are an integral part of our strategic Corporate Social planning Responsibility

SOLLERS // Annual Report 2013 www.sollers-auto.com CORPORATE SHAREHOLDERS’ MOVING BUSINESS & CORPORATE SOCIAL EQUITY & FINANCIAL ADDITIONAL AHEAD STRATEGY GOVERNANCE RESPONSIBILITY SECURITIES REPORTING INFORMATION MOVING AHEAD // 68 69 Responsible Business Principles in All Our Operations Corporate Social Responsibility

SOLLERS’ responsible business policy is an integral part of 1. Increasing the Company’s Shareholder Value its overall strategic planning. CSR topics are considered at all levels of corporate governance: at a shareholder level, through The strategy to increase SOLLERS’ shareholder value is based on improving its to the Board of Directors and senior management. This means market capitalisation as well as increasing MARKET CAPITALISATION its dividend payout. In 2013 market Market capitalisation increased by 23%, while SVAV share price Capitalisation* that the Group’s social and environmental impact in its areas the MICEX index remained at the same level. MICEX INDEX (RUB) (RUB mln) Y-on-Y Growth as of 08.01.2013 1,514.8 695.0 23,818 23% of operation is taken into account when making important PROPOSED DIVIDEND as of 30.12.2013 1,504.1 854.3 29,277 * Number of ordinary shares outstanding: 34,270,159 Historically the Company makes dividend operational and economic decisions. payments of between 30–40% of the › You can find more information about the Company’s share price in the Market consolidated net profit for the respective Share Price and GDR section on PAGE 80. period. The final decision on dividend All companies, in which Sollers OJSC owns a controlling stake, SOLLERS partnerships, Ford Sollers JV, SOLLERS-ISUZU JV, payments and their amount is made at the follow the same principles of responsible business in their SOLLERS-BUSSAN JV, MAZDA SOLLERS JV, and SOLLERS-FINANCE Shareholders General Meeting. The Board operations. The Group CSR policy is implemented and monitored JV, implement their own sustainable development strategies, which of Directors will propose to pay dividends in the following consolidated businesses: UAZ Holding (including are not covered in this section of the Annual Report. to shareholders if positive financial results FINANCIAL RATIONALE FOR MAKING THE DECISION TO PAY DIVIDENDS the production of ZMZ engines and components), its headquarters have been achieved in the reporting period (including the distribution divisions for UAZ and SsangYong cars), and if the Net debt / EBITDA ratio does not ›› Strong free cash flow in 2013: up 20% Y-on-Y to RUB 6,923 million and other subsidiaries. exceed 1.5. ›› Stable financial position with a record low Net Debt/ EBITDA ratio of 0.6 as of 31 December 2013 (versus 1.0 as of 31 December 2012) At the Board of Directors meeting held on ›› Positive financial result: Net profit for the year of RUB 3,625 million 7 April 2014 it was decided to recommend to the Shareholders General Meeting to pay › You can find more information about our financial performance in the Financial dividends of RUB 52.52 per share (in line Reporting section on PAGE 83. SOLLERS Group’s Key Corporate Responsibility Principles with the previous dividend payment), which makes a total declared dividend amount of RUB 1.8 billion.

CORPORATE RESPONSIBILITY PRINCIPLES This recommendation represents an increase in the payout ratio to 50%, which demonstrates the Board of Directors’ DIVIDEND PAYMENT HISTORY confidence in the stability of the Group’s ECONOMIC EFFICIENCY SOCIAL INVOLVEMENT ENVIRONMENTAL AND financial position, and is also based on OCCUPATIONAL SAFETY the strong free cash flow generated 2003 9M 2004 2004 2005 2006 2007 1H 2008 2012 P2013 1. Increasing the Company’s 4. Improving the quality of our in 2013. The maintenance of dividend Record date 09.01.04 28.10.04 21.04.05 21.04.06 01.04.07 11.04.08 05.09.08 08.04.13 11.06.14 payments in an environment of financial Dividend per shareholder value P69 products and services P73 17.00 10.00 11.00 14.00 19.70 29.18 16.00 52.52 52.52 7. Increasing operating safety and market volatility and continued economic share (RUB) 2. Contributing to growth through 5. Improving employees’ competences monitoring across our business P74 and geopolitical uncertainty underpins Declared long-term mutually beneficial processes P75 dividend (mln 375 298 328 480 675 1,000 548 1,800 1,800 partnerships P70 6. Contributing to the social SOLLERS’ commitment to create value for RUB) and economic development in 8. Reducing our impact on the its shareholders. Dividend yield 3. Continuing development P71 the regions where we operate P75 environment P76 (as of record n/a n/a n/a 2% 2% 2% 2% 7% n/a date) Payout ratio 0.4 n/a 0.2 0.3 0.4 0.4 n/a 0.3 0.5

Corporate Social Responsibility (continued)

2. Contributing to Growth Through Long-term Mutually Beneficial Partnerships 3. Continuing Development

SOLLERS Group’s sustainable development HISTORY OF SOLLERS’ PARTNERSHIP PROJECTS SOLLERS was founded to meet the needs This is a fast-moving market which requires GLOBAL STRATEGY strategy aims to develop long-term and expectations of private Russian car our employees to improve their skills and partnerships based on its unique corporate owners, as well as to create the best acquire new knowledge and to stay focused SOLLERS’ strategy aims to generate culture. Strategic relationships are built transport solutions for businesses. The on progressing projects with innovative shareholder value by growing organically on mutual trust, a creative approach to Company continues to operate with this solutions. Our CSR policy principle of in its consolidated businesses and ›› acquisition of UAZ and ZMZ solving common tasks, and by striving to 2000–2005 purpose by constantly taking on board new sustainable development, which is evident accelerating its joint venture activities by ›› restructuring of UAZ and ZMZ attain the highest quality standards in all trends in the automotive market and using across all areas of operation, fundamentally investing in new, promising products and areas of operation. 2005 ›› IPO this information to update products for its underpins our approach to stay true to our localisation. ›› acquisition of ZMA customers. original purpose. Within its framework of global ›› strategic partnership with SsangYong for SUV production cooperation, SOLLERS aims to maximise established value for its shareholders and business 2006–2007 ›› strategic partnership with ISUZU for truck production partners through its unique combination of ›› strategic partnership with FIAT for production of passenger cars STRATEGIC OBJECTIVE core competencies: and LCVs ›› a deep understanding of trends in the Russian automotive market 2008 ›› launch of SOLLERS-Elabuga plant for production of LCVs ›› efficient logistics ›› JV with ISUZU established ›› a strong infrastructure and ›› launch of SOLLERS-ISUZU plant for truck production Sustainable growth Development of Increase the level of Implement modern Sustainable ›› a high level of expertise in automobile ›› launch of Far East plant (Vladivostok) for SsangYong production through partnerships the most attractive locally-produced parts product and development and 2009–2011 market segments and components to manufacturing environmentally manufacturing. ›› JV with Sovkombank established for development of leasing 60% technologies to responsible production services maintain the highest The ability to remain flexible is another ›› new major strategic partnership with Ford: 50:50 Ford Sollers JV quality important feature of our market launched on 1 October 2011 strategy, making it possible to take on ›› exit from strategic partnership with FIAT board changing customer preferences. ›› JV with Mazda for production of cars in Vladivostok launched on PAGE 29. Competitive advantage is achieved through 2012–2013 › You can find more information about the Group’s strategic objectives in the Strategy section on 6 September 2012 a unique combination of product lines and ›› JV with Mitsui for production of Toyota LC Prado in Vladivostok brands, across a wide range of segments launched on 18 February 2013 and price bands, shaped to the needs and INVESTMENT IN THE KEY ELEMENTS OF THE VALUE CHAIN WIDE DEALERSHIP NETWORK tastes of the majority of customers. As of the end of 2013, the production capacity of SOLLERS Group SOLLERS’ dealership network comprises 129 UAZ and 137 NEW PROJECTS: AN OPTIMAL PARTNERSHIP STRATEGY WITH A 50:50 STRUCTURE (including joint ventures) was over 550 k cars, making SOLLERS SsangYong centres; the Ford Sollers JV dealership network covers the second largest manufacturer in the Russian market. over 70 cities in Russia and consists of 130 dealerships. ISUZU In 2011, SOLLERS established a joint In the second half of 2012, SOLLERS trucks dealers are present in all federal districts and many of them venture with the Ford Motor Company, set up a joint venture with Mazda Motor Large scale investments in the Far East production site will allow the are authorised to install and update ISUZU chassis superstructures with production assets located in Corporation in Vladivostok and, in the same Company to localise production of SsangYong SUVs effectively and upon request. The ISUZU dealership network has 46 centres. Vsevolozhsk (in the Leningrad Region), and year, started production of Mazda CX5 improve profitability by increasing production volumes (up to 100 k in Naberezhnye Chelny and Elabuga (in SUVs, with the range extended to include vehicles per year) through industrial joint ventures with Japanese Geographically, the dealership and service network covers the the Republic of Tatarstan). The Ford Sollers the new Mazda6 notchback in 2013. automakers. territory from Kaliningrad to Vladivostok. All dealership and service JV manufactures and distributes Ford centres meet the strict requirements of the brand distributor in order branded vehicles exclusively in Russia. In 2012, SOLLERS Group sold a 16% stake SOLLERS Group is developing its industrial park for the production to maintain the traditionally high quality of products and services. in SOLLERS-ISUZU JV and moved to a of automotive components at the Zavolzhsky Engine Plant (ZMZ) By the end of 2011, the Group established 50:50 joint venture ownership structure. site. This industrial park concept uses Russian and foreign a joint venture with the Japanese company In 2013, this structure was used for all of automotive component manufacturers to support the localisation Mitsui&Co., Ltd in Vladivostok, where SOLLERS’ joint ventures. of automotive manufacturing in Russia and enables the Company Toyota LC Prado cars were first launched in to satisfy both the internal needs of the Group and to meet the February 2013. increased demand for components from Russian automakers.

› You can find more information about the Group’s projects in the Business › You can find more information about our value creation in Projects and Key Assets section on PAGE 36. the Business Model section on PAGE 34.

Corporate Social Responsibility (continued)

KPI SYSTEM CORPORATE CULTURE

SOLLERS Group uses an incentive system built in alignment with The Performance Management System is intended to improve the Our most important task in relation to our employees is to create an environment that helps them to work at their best and achieve high results. To the Group’s general strategy and objectives. The set of metrics used Company’s efficiency by enhancing: ensure we are providing the right environment we are developing our corporate culture in six main areas. reflects the specific characteristics of the business and aims both ›› The quality of management to promote the Group’s financial health and to meet customer needs ›› Employee commitment. through the provision of new, high quality products and services. OUR CORPORATE CULTURE: MAIN DEVELOPMENT AREAS Key advantages of the Performance Management System: One of the most important metrics in the incentive system for top ›› Target setting based on transparency, joint discussion of the management of distribution divisions is NPS – Net Promoter Score. desired outcome and criteria for achieving it ›› A set of competencies and their quality assessment method This is a customer loyalty metric based on a direct question: How approved and accepted by all employees Creating Providing health Providing support Recognising Developing Organising large likely are you to recommend our company/product/service to your ›› Maintaining achieved performance levels decent working care in difficult employees’ employees and corporate events friends and colleagues? ›› Accurate planning: conditions circumstances achievements their careers and charitable ––Understanding of team goals by all team members; competition; programmes NPS = % of promoters - % of detractors timely risk detection ––Performance analysis of business units and its employees SOLLERS Group is planning to introduce a Performance ––Building a strong employee database Management System for employees at its headquarters and ––Ability to understand the Company’s expectations more easily vehicle distribution businesses in 2014-2015. The Performance ––Ability to plan employee development. Each company within the Group develops and implements its own All SOLLERS’ companies place great importance on programmes Management System is a system for tracking business objectives for programme of social benefits for its employees, taking into account for young people. UAZ OJSC and ZMZ OJSC have a special “Youth” employees focused on target setting and performance. its local business needs. In-house canteens and medical centres, programme for employees under 35, which aims to develop various corporate events and compensation and incentive systems the creative and intellectual potential of young employees, promote are covered by collective employment agreements — these are used healthy lifestyles and alternative leisure activities, and improve their to ensure that employees are motivated to work to their full potential professional capability. The Company also provides for its long- whilst promoting a good work-life balance and enabling them to serving veterans. Pensioners are covered by the “Care” programme, feel secure about their future in the knowledge that they will be under which former employees can obtain a lump-sum financial supported if faced with difficult circumstances. assistance in critical circumstances, in-home medical services for bedridden patients, and housing repairs. In 2013, the total amount of SOLLERS Group goes beyond legislative occupational safety social expenditure increased to RUB 70 million (compared to RUB 36 requirements: it provides employees with an opportunity to take million in 2012). This increase reflects the higher expenditure made Net health treatments at a reduced price and has significantly expanded by UAZ Holding in its key social programmes. Profit, MEDIUM-TERM SOLLERS Group’s top the range of available medical services under the Voluntary FCF, Market MOTIVATION management Capitalisation Healthcare Insurance programmes. The Group’s large enterprises have in-house healthcare centres, where qualified medical staff can NPS, Market share, give immediate professional medical assistance. ANNUAL AND INTERIM Top management of Revenue, EBITDA, Operating cash flow MOTIVATION distribution divisions

Production perfomance / effiency ANNUAL, INTERIM AND Top management of Defectivity ratios, QUARTERLY MOTIVATION production divisions Industrial safety ratios 4. Improving the Quality of Our Products and Services Individual KPIs for workers, SHORT-TERM MOTIVATION Workers, specialists, specialists, managers and bonus managers, sales personnel We are constantly looking for ways of applying innovation to To achieve this a new EISENMANN production line was installed plans for sales personnel improve our products and services. A key recent development is the at the plant and all equipment was designed in line with the latest introduction at UAZ of a new painting technology, which improves environmental requirements and with the possibility of further body corrosion resistance eight-fold. This is important owing to the upgrading. various climatic conditions to which our vehicles are exposed. The modernisation of this technological process allows the company The new method has several advantages: the paint penetration is to improve significantly the reliability of its manufactured cars far superior, reaching hidden and inaccessible cavities, including and to offer customers warranties of three years or 100 thousand component edges. kilometres for vehicles in the Patriot series.

Corporate Social Responsibility (continued)

5. Improving Employee Competences 6. Contributing to the Social and Economic Development in the Regions of Operation The training of SOLLERS Group’s employees is based on a single We continued to develop our employee succession pool project competency model, which allows us to develop the skills and (scheduled for three years), which involves over 80 professionals. UAZ, which is one of the main industrial enterprises in the city The tours are free, and there is also the opportunity of meeting with our knowledge of employees necessary for the successful fulfilment of of Ulyanovsk and the Ulyanovsk Region, takes an active part in recruitment and adaptation department, where visitors can talk about their official duties. In addition to compulsory training, employees In 2013, the Group continued to implement programmes in the social and economic development of its local community practical training and employment at the plant. have the opportunity to develop personal competences, completing lean manufacturing, occupational health and safety, quality and implements a relevant social policy to support and develop short-term courses. management, and professional development of senior management the region. Following an established tradition, the enterprise CHARITY at UAZ Holding. A Training Centre for mechanical engineers working supports the following Ulyanovsk Region Government’s social In the main, employees in the production companies and at on assembly lines was opened. initiatives: schools sponsorship, Children’s Protection Day, Mother’s In 2013, total charitable donations increased to RUB 111 million the headquarters are trained either by leading training companies, which Day, Disabled People’s Day, and activities to help victims of natural which is 2.6 times higher than in the previous year. The Company have offices in the regions where the Company operates or at special In 2013, the ZMZ engine production facility launched a range of disasters. In recent years UAZ OJSC has funded more than 20 sports increased its contributions to educational, healthcare and child corporate training centres, controlled by the Group, which provide innovative training programmes: from technological innovation and grounds and children’s sports facilities. welfare facilities in the regions where it operates. During the year, a consistent training quality and tailor-made educational programmes. foreign language learning, to training in IT and managing investment the Group also supported charities in Moscow, where SOLLERS’ projects. This line of activities should create a step change in Despite the contribution of the Far Eastern production facilities to headquarters is located. In 2013, training for managers at our headquarters was focused on thinking at a senior management level. MAZDA SOLLERS JV, the plant kept its tradition of supporting regional the development of skills in financial management, professional initiatives and raising awareness of youth in automotive manufacturing. Since its establishment, the SOLLERS Group has been focusing on competencies and changes in the applicable laws of the Russian Each Friday the plant opens its doors to children and teenagers and three charity programme areas: healthcare projects, development Federation. gives them tours around the plant. High school pupils from Ulyanovsk programmes for educational centres, and youth sports teams. and the region visit the plant to see how cars are manufactured.

Number of Employees Receiving Training, thousand people Gender Ratio of Personnel Trained 25.0 100% 21.1 20.0 19.7 19.3 80% 31% 24% 25% 7. Increasing Operating Safety and Monitoring across Our Business Processes 15.0 13.5 14.5 13.5 60%

74% 70% Particular attention is paid to improving safety at the production This programme involves regular occupational safety and health and 10.0 64% 40% 69% 76% 75% facilities of the Group. In 2013, a whole range of measures to environmental protection inspections, the monitoring of compliance 5.0 20% modernise the workplace were implemented at our production sites. with requirements, and disciplinary measures for people in charge. 0 0 In particular, outdated equipment was modernised, the factory Factories train new employees in occupational safety and health and 2011 2012 2013 2011 2012 2013 temperature controlling systems were improved, and workplaces environmental protection and provide regulatory safety procedure were certified according to relevant working conditions. In order to certification for its personnel. Number of employees receiving training Male improve working conditions, the Work-related Accident Prevention Average headcount as of 31 December Female Programme was developed. Over three years, the programme has led to a two-fold reduction in Employees receiving training, percentage of total headcount the number of accidents, and the frequency coefficient (number of accidents per 1,000 employees) decreased by 37%.

Full-time and Distance Learning Compulsory and Optional Courses Number of Accidents Accidents Frequency Coefficient per 1,000 Employees 100% 100% 25 25 4% 23 1.9 17% 10% 80% 80% 20 20 35% 42% 39% 1.2 60% 60% 15 13 15 12 0.9 96% 23% 20% 40% 83% 90% 40% 22% 10 10

20% 20% 5 5 42% 36% 42% 0 0 0 0 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 Full-time Optional Distance Compulsory professional (recertification) Compulsory (occupational and industrial safety)

Corporate Social Responsibility (continued)

8. Reducing Our Impact on the Environment

In order to reduce the volume of solid waste, the Company Within the framework of its long-term technological re-tooling introduced a system to rationalise the use of raw materials and programme, UAZ Holding is increasing the use of high-tech material supplies. The system monitors the supply of components in cost- that does not generate waste. This allows a significant reduction in effective packaging, which allows costs associated with solid waste the volume of solid waste. disposal to be reduced.

Air Emissions, tonnes Water Emissions, tonnes

1,400 600 552 1,208 1,216 1,200 500 1,004 1,000 400 408 390 800 300 600 200 400 200 100 0 0 2011 2012 2013 2011 2012 2013

Water Consumption, thousand cubic metres Solid Waste Disposal, tonnes 7,000 50,000 6,470 6,000 5,716 40,461 5,073 40,000 SOLLERS’ environmental policy aims to conserve energy and A strict adherence to these principles has enabled us to improve our 5,000 35,815 30,000 resources, reduce carbon emissions and manage solid waste performance against all major indicators for resource consumption 4,000 25,353 efficiently. In 2013, SOLLERS’ major focus areas in environmental and environmental pollution. 3,000 20,000 safety were: 2,000 10,000 ›› energy conservation, sustainable use of natural resources, In order to reduce air pollutant emissions and discharges of 1,000 reduction of greenhouse gas emissions, efficient solid waste pollutants into water, in 2013 the manufacturing units of 0 0 management the Company installed new dust- and gas-trapping units, and 2011 2012 2013 2011 2012 2013 ›› compliance of business operations with environmental standards commissioned a thermal waste treatment unit and a sludge ›› environmental footprint measurement and rapid response to any dewatering unit at its wastewater treatment facilities. detected violations The stormwater drainage system was updated and water discharge ›› environmental safety of employees and local communities in areas outlets were joined to the wastewater treatment facility. In 2013, of manufacturing expansion the running of the biological treatment units at the ZMZ Engine Energy Consumption, Gcal Electric Power Consumption, MW*h ›› continuous reinforcement of an environmental culture among Plant was transferred to municipal authorities. This will optimise 600,000 320,000 employees. the wastewater treatment cost, as well as reduce the cost of 310,638 500,000 503,831 486,526 310,000 maintaining treatment facilities. 300,000 399,504 293,036 400,000 290,000 300,000 280,000 268,357 200,000 270,000 AWARDS 260,000 UAZ OJSC was the winner in the 100 Best Russian Organizations for UAZ OJSC was the winner of the GLOBAL ECO BRANDAWARD Prize 100,000 250,000 Ecology and Environmental Management. in the ECO REGIONALBRAND category. 0 240,000 2011 2012 2013 2011 2012 2013

up 23% Dedicated Engaged Market capitalisation is We have a dedicated IR team, We run a variety of investor up from RUB 23.8 bln led by our First Deputy CEO, CFO, events and roadshows to RUB 29.3 bln Y-on-Y Nikolay Sobolev throughout the year

We operate in the best interests of our shareholders. Our share price performed well in 2013 despite significant volatility in the financial markets Shareholders’ Equity & Securities

Ensuring the Best for All Our Investors Shareholders’ Equity and Securities

SOLLERS operates in the best Major Shareholders Investor Relations Calendar 2014 As of 31December 2013 the immediate parent company was Newdeal Investments Limited36. The Group’s ultimate controlling interests of its shareholders. party is Vadim Shvetsov, who is the Company’s principal shareholder. Date VENUE EVENT Our share price performed 14 February - SOLLERS OJSC 4th Quarter Report, 2013 Shareholder Structure37 7 April - SOLLERS Full Year Financial Results, 2013 (Consolidated IFRS Financial Statements) well in 2013 increasing in value May - SOLLERS Group Annual Report 2013 15 May - SOLLERS OJSC 1st Quarter Report, 2014 and SOLLERS OJSC Full Year Financial Results, 2013 compared to the previous year, 34% 30 May Moscow Annual General Shareholders Meeting and SOLLERS OJSC Annual Report 2013 V. Shevtsov 14 August - SOLLERS OJSC 2nd Quarter Report, 2014 despite significant volatility Other shareholders 29 August - SOLLERS Half Year Financial Results, 2014 (Consolidated IFRS Financial Statements) in the financial markets. 54% Free-float 14 November - SOLLERS OJSC 3rd Quarter Report, 2014

12% In addition to the disclosures required by the Regulator and the For the latest upcoming events, please see the investor relations Share Capital quarterly release of operating results, we take part in one-on-one section of our website, which also includes other IR information, for The Company’s subscribed share capital is RUB 428 million, divided into meetings at investor conferences, organised by major investment example, equity analyst coverage and archived reports and results. 34,270,159 ordinary shares at a value of RUB 12.50 each. The Company banks in Russia and abroad. In 2013, we participated in nine has the right to allocate an additional 47,804,033 ordinary shares at Market Share Price and GDR investor conferences. http://www.sollers-auto.com/en/investors/ a value of RUB 12.50 each. These ordinary shares would carry voting The Company’s shares are listed on the Moscow Exchange under the rights in the same proportion as other ordinary shares. ticker SVAV.

Share Price Performance 2013, RUB

1,000 1,800 900 800 1,700 Investor Relations Department 700 1,600 Our First Deputy CEO, CFO, Nikolay Sobolev, has overall 10 Testovskaya Street 600 responsibility for our IR activities. He is supported by a dedicated Moscow International Business Centre 500 1,500 400 IR team, who can be contacted using the details below for any Northern Tower, Moscow City 300 1,400 IR‑related queries: Moscow, 123317, Russia 200 Tel.: +7 (495) 228 3045 1,300 100 Elena Nishanova Fax: +7 (495) 228 3044

0 1,200 Head of Corporate Reporting and Investor Relations Department Email: [email protected] 01.02.2013 01.03.2013 01.04.2013 01.05.2013 01.06.2013 01.07.2013 01.08.2013 01.09.2013 01.10.2013 01.11.2013 01.12.2013 Website: www.sollers-auto.com Anna Mikhaylova SVAV (Last Price) MICEX Index (Last Price) IR-manager

During the reporting period, SOLLERS share price increased by 23% whereas the MICEX index remained almost flat (between DR Ratio: 1:1 8 January 2013 and 30 December 2013). DR ISIN: US8342581050

In August 2005, SOLLERS established a sponsored Global Depositary CUSIP 834258105 Receipt (GDR) programme. The GDRs are unlisted and 1 DR equals DR Type: Reg S / Sponsored 1 ordinary share. The custodian for the programme is Deutsche Bank, Moscow.

36 As of the publication date of this Annual report, but after 4 April 2014, the Cypriot entity, NEWDEAL INVESTMENTS LIMITED, the immediate parent company of the Group, transferred 53.79% of SOLLERS’ shares to the Russian entity, ERFIX LLC. Vadim Shvetsov, the Group’s beneficial owner and ultimate controlling shareholder, maintains a share of 54% of SOLLERS through ERFIX LLC 37 Free-float is estimated by MOEX as of 22 April 2014, source: http://moex.com/

SOLLERS // Annual Report 2013 www.sollers-auto.com CORPORATE SHAREHOLDERS’SHAREHOLDERS MOVING BUSINESS & CORPORATE SOCIAL EQUITY & FINANCIAL ADDITIONAL AHEAD STRATEGY GOVERNANCE RESPONSIBILITY SECURITIES REPORTING INFORMATION MOVING AHEAD // 82 83

up 20% down 56% Strong free cash flow in 2013: up 20% to Net debt was down from RUB 7,880 mln in 2012 to RUB 6,923 mln RUB 3,491 mln in 2013

We have demonstrated a stable operational and financial perfomance, despite the challenges posed by ongoing macroeconomic instability; this performance confirms the financial robustness of our strategy to build strong Financial and long-term partnerships Reporting

SOLLERS GROUP CONTENTS Independent Auditor’s Report...... 86 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Financial Position at 31 December 2013...... 87 Consolidated Statement of Comprehensive Income for the year ended 31 December 2013...... 88 INTERNATIONAL FINANCIAL Consolidated Statement of Cash Flows for the year ended 31 December 2013...... 89 Consolidated Statement of Changes in Equity for the year ended 31 December 2013...... 90 Notes to the Consolidated Financial Statements REPORTING STANDARDS 1 The Sollers Group and its operations...... 91 2 Basis of preparation and significant accounting policies...... 92 3 Critical accounting estimates and judgements in applying accounting policies...... 101 4 Adoption of new or revised standards and interpretations...... 102 5 New accounting pronouncements...... 104 6 Balances and transactions with related parties...... 105 CONSOLIDATED FINANCIAL 7 Property, plant and equipment...... 106 8 Goodwill...... 107 STATEMENTS AND INDEPENDENT 9 Development costs...... 107 10 Other intangible assets...... 108 11 Investments in joint ventures and associates...... 108 AUDITOR’S REPORT 12 Other non-current assets...... 110 13 Inventories...... 110 14 Trade and other receivables...... 110 15 Cash and cash equivalents...... 111 16 Shareholders equity...... 112 17 Borrowings...... 113 31 DECEMBER 2013 18 Advances received and other payables...... 113 19 Taxes payable...... 114 20 Warranty and other provisions...... 114 21 Sales...... 114 22 Cost of sales...... 115 23 Distribution costs...... 115 24 General and administrative expenses...... 115 25 Other operating income – net...... 115 26 Finance costs, net...... 115 27 Income tax expense...... 116 28 Earning per share...... 117 29 Segment information...... 117 30 Financial risk management...... 117 31 Contingencies, commitments and operating risks...... 121 32 Principal subsidiaries...... 123

ZAO PricewaterhouseCoopers Audit, White Square Office Center, 10 Butyrsky Val, Moscow, Russia, 125047

T:+7 (495) 967 6000, F: +7 (495) 967 6001, www.pwc.ru CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2013 (IN MILLIONS OF RUSSIAN ROUBLES) (AMOUNTS TRANSLATED INTO US DOLLARS FOR CONVENIENCE PURPOSES, NOTE 2)

RR million Supplementary information US$ million (Note 2) Note At 31 December 2013 At 31 December 2012 At 31 December 2013 At 31 December 2012 ASSETS Non-current assets INDEPENDENT AUDITOR’S REPORT Property, plant and equipment 7 9,451 11,539 289 380 Goodwill 8 1,484 1,484 45 49 To the Shareholders and Board of Directors of Open Joint Stock Company Sollers: Development costs 9 361 393 11 13 Other intangible assets 10 167 182 5 6 We have audited the accompanying consolidated financial statements of Open Joint Stock Company Sollers and its subsidiaries (the “Group”), Deferred income tax assets 27 196 276 6 9 which comprise the consolidated statement of financial position as at 31 December 2013 and the consolidated statements of comprehensive Investments in associates and joint ventures 11 14,947 14,492 456 477 Other financial assets 20 20 1 1 income, cash flows and changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory Other non-current assets 12 515 677 16 22 information. Total non-current assets 27,141 29,063 829 957 Current assets Management’s Responsibility for the Consolidated Financial Statements Inventories 13 4,526 4,503 138 148 Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Trade and other receivables 14 6,894 9,816 211 323 Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated Other current assets 40 231 1 8 financial statements that are free from material misstatement, whether due to fraud or error. Cash and cash equivalents 15 6,020 2,560 184 84 Total current assets 17,480 17,110 534 563 Auditor’s Responsibility TOTAL ASSETS 44,621 46,173 1,363 1,520 Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance LIABILITIES AND EQUITY EQUITY with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to Share capital 16 530 530 16 17 obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Share options 16 - 50 - 2 Share premium 16 4,538 4,480 139 148 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. Additional paid-in capital 16 1,438 1,438 44 47 The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated Retained earnings 16 9,187 6,340 280 209 financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to Equity attributable to the Company's owners 15,693 12,838 479 423 the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate Non-controlling interest 32 5,083 7,042 155 232 in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes Total equity 20,776 19,880 634 655 evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as LIABILITIES evaluating the overall presentation of the consolidated financial statements. Non-current liabilities Long-term borrowings 17 5,716 3,742 175 123 Deferred income tax liabilities 27 514 854 16 28 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Other long term liabilities 2 31 - 1 Total non-current liabilities 6,232 4,627 191 152 Opinion Current liabilities In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December Trade accounts payable 10,115 10,454 309 344 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Advances received and other payables 18 1,362 2,865 42 94 Taxes payable 19 1,376 1,045 42 34 Warranty and other provisions 20 965 604 29 20 Short-term borrowings 17 3,795 6,698 116 221 Total current liabilities 17,613 21,666 538 713 TOTAL LIABILITIES 23,845 26,293 729 865 TOTAL LIABILITIES AND EQUITY 44,621 46,173 1,363 1,520

4 April 2014 Approved for issue and signed on behalf of the Board of Directors on 4 April 2014. Moscow, Russian Federation

General Director Chief Financial Officer V.A. Shvetsov N.A. Sobolev

The accompanying notes on pages 91 to 123 are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2013 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013 (IN MILLIONS OF RUSSIAN ROUBLES) (IN MILLIONS OF RUSSIAN ROUBLES) (AMOUNTS TRANSLATED INTO US DOLLARS FOR CONVENIENCE PURPOSES, NOTE 2) (AMOUNTS TRANSLATED INTO US DOLLARS FOR CONVENIENCE PURPOSES, NOTE 2)

RR million Supplementary information RR million Supplementary information US$ million (Note 2) US$ million (Note 2) Year ended Year ended Year ended Year ended Year ended Year ended Year ended Year ended Note 31 December 2013 31 December 2012 31 December 2013 31 December 2012 Note 31 December 2013 31 December 2012 31 December 2013 31 December 2012 Sales 21 61,317 65,549 1,925 2,108 Cash flows from operating activities Cost of sales 22 (49,878) (51,475) (1,566) (1,656) Profit before income tax 4,671 7,584 147 244 Gross profit 11,439 14,074 359 452 Adjustments for: Distribution costs 23 (2,554) (2,551) (80) (82) Depreciation 985 839 31 27 General and administrative expenses 24 (4,167) (5,205) (130) (167) Amortisation 161 274 5 9 Net result on formation of joint venture 11 - 922 - 30 Share options 8 18 - 1 Other operating income, net 25 523 5 16 - Provision for impairment of receivables and write-offs 2 172 - 6 Operating profit 5,241 7,245 165 233 Provision for inventories 13 19 71 1 2 Finance costs, net 26 (1,144) (810) (36) (26) Other provision movements (153) 439 (5) 14 Share of result of joint ventures and associates 11 574 1,149 18 37 Loss on disposal of other non-current assets - 28 - 1 Profit before income tax 4,671 7,584 147 244 Amortisation of Government grants (29) (16) (1) (1) Income tax expense 27 (1,093) (1,703) (34) (55) Development expenses write-off - 7 - - Profit for the year 3,578 5,881 113 189 Net (gain)/losses on disposal of property, plant and equip- (563) 220 (18) 7 Total comprehensive income for the year 3,578 5,881 113 189 ment Profit is attributable to: Loss on disposal of investments 31 - 1 - Owners of the Company 3,625 5,843 114 188 Net result on formation of joint venture 11 - (922) - (30) Non-controlling interest 32 (47) 38 (1) 1 Share of result of JV and associates 11 (574) (1,149) (18) (37) Profit for the year 3,578 5,881 113 189 Finance costs, net 1,003 1,438 32 47 Total comprehensive income is attributable to: Operating cash flows before working capital changes 5,561 9,003 175 290 Owners of the Company 3,625 5,843 114 188 (Increase)/decrease in inventories (91) 1,424 (3) 46 Non-controlling interest (47) 38 (1) 1 Decrease in trade and other receivables 3,210 945 101 30 Total comprehensive income for the year 3,578 5,881 113 189 Decrease in other current assets 192 25 6 1 Weighted average number of shares outstanding during 28 34,270 34,152 34,270 34,152 (Decrease) in trade accounts payable, advances received and (499) (584) (16) (19) the period (in thousands of shares) – basic other payables Weighted average number of shares outstanding during 28 34,281 34,275 34,281 34,275 Increase /(decrease) in taxes payable 262 (1,200) 8 (39) the period (thousands) – diluted Cash provided from operations 8,635 9,613 271 309 Profit per share Income taxes paid (1,220) (1,755) (38) (56) (in RR and US$) – basic 28 105.78 171.1 3.32 5.50 Interest paid (1,252) (1,424) (39) (46) Profit per share Net cash from operating activities 6,163 6,434 194 207 (in RR and US$) – diluted 28 105.75 170.5 3.32 5.48 Cash flows from investing activities: Purchase of property, plant and equipment (1,162) (917) (36) (30) Other than as presented above, the Group did not have in year 2013 any items to be recorded as other comprehensive income in the statement of Proceeds from the sale of property, plant and equipment and 2,072 1,626 65 53 advances received comprehensive income (2012: no items). Development costs 9 (88) (86) (3) (3) Purchase of other non-current assets (25) (52) (1) (2) Investment in joint venture 11 (100) (951) (3) (30) Dividends received from participation in joint venture 22 13 1 - Proceeds from sale of subsidiary net of cash disposed 41 (320) 1 (10) Net cash from /(used in) investing activities 760 (687) 24 (22) Cash flows from financing activities Proceeds from borrowings 15,141 6,995 475 225 Repayment of borrowings (15,943) (13,305) (501) (428) Dividends paid to the Group’s shareholders (1,761) (16) (55) (1) Change in non-controlling interest in subsidiaries (900) - (28) - Change in treasury shares - 182 - 6 Net cash used in financing activities (3,463) (6,144) (109) (198) Net increase/(decrease) in cash and cash equivalents 3,460 (397) 109 (13) Effect of exchange rate changes on cash and cash equivalents - - (9) 5 Cash and cash equivalents at the beginning of the year 2,560 2,957 84 92 Cash and cash equivalents at the end of the year 6,020 2,560 184 84

The accompanying notes on pages 91 to 123 are an integral part of these consolidated financial statements. The accompanying notes on pages 91 to 123 are an integral part of these consolidated financial statements.

SOLLERS // Annual Report 2013 www.sollers-auto.com CORPORATE SHAREHOLDERS’ MOVING BUSINESS & CORPORATE SOCIAL EQUITY & FINANCIAL ADDITIONAL NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2013 AHEAD STRATEGY GOVERNANCE RESPONSIBILITY SECURITIES REPORTING INFORMATION (in millions of Russian Roubles – RR) 90 91 - - 8 46 247 232 (80) (900) 3,578 3,578 5,881 5,881 20,776 19,880 13,554 (1,790) Total equity Total 1. THE SOLLERS GROUP AND ITS OPERATIONS - - - - - 38 38 232 595 (47) (47) (774) 5,083 7,042 6,177 These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards for the year ended (1,138) interest 31 December 2013 for Sollers OJSC, previously called OAO “Severstal-auto”, (the “Company”) and its subsidiaries (the “Group”). The Group adopted its new name “Sollers” in 2008. Non- controlling Non- controlling

- 8 The Company and the Group’s principal activity is the manufacture and sale of vehicles, including automotive components, assembly kits and 46 238 774 247 (80) Total Total (595) 3,625 3,625 5,843 5,843 7,377 engines. The Group’s manufacturing facilities are primarily based in Ulyanovsk and the Nizhniy Novgorod region in the Russian Federation. 15,693 12,838 (1,790)

of the Group of Since February 2013 the Group relocated SsangYong SUVs’ production from the Group’s subsidiary site to JV Mazda-Sollers’ production facilities. equity holders holders equity Attributable to Attributable to The Group continues exclusive distribution of the SsangYong SUVs.

- - - - - 238 774 (595) 3,625 9,187

3,625 In 2011 the Group established the joint venture with Ford. Joint venture’s production assets are located in Vsevolozhsk in the St.Petersburg 5,843 6,340 5,843 1,092 (1,790) earnings Retained Retained region, Naberezhnye Chelny and Elabuga in the Republic of Tatarstan. Ford-Sollers joint venture is exclusive manufacturer and distributor of Ford branded vehicles in Russia. ------By the end of 2011 the Group established the joint venture with Japanese Mitsui&Co., Ltd located in Vladivostok. Toyota vehicles production started in February 2013. 1,438 1,438 1,438

Additional During the second half 2012 the Group finalized the foundation of the joint venture with Mazda Motor Corporation in Vladivostok also for

paid-in-capital production of Mazda SUVs and passenger cars. Mazda-Sollers joint venture launched the production of Mazda SUVs in September 2012 and of ------passenger cars in April 2013. 58 (101) (312) 4,538 4,480 4,893 In August 2012 the Group disposed 16% stake in joint venture Sollers-Isuzu and recognised the remained investment as 50%-50% joint venture. The Sollers-Isuzu production of lights-duty trucks is located in Ulyanovsk.The Company was incorporated as an open joint stock company

Share premium Share in the Russian Federation in March 2002 by OAO “Severstal” (the predecessor) by contributing its controlling interests in OAO “Ulyanovsky ------Avtomobilny Zavod” (OAO “UAZ”) and OAO “Zavolzhskiy Motor Works” (OAO “ZMZ”), which were acquired through purchases close to the end 50 77 (50) (27) of 2000, in exchange for the Company’s share capital.

The immediate parent company is Newdeal Investments Limited. The ultimate controlling party of the Group is Vadim Shvetsov who is Share options Share the principal shareholder of the Company. ------174 559 (80) The Company’s shares are listed on MICEX-RTS. (653)

The registered office of the Company is Testovskaya street, 10, Moscow, Russian Federation. Treasury shares Treasury ------These consolidated financial statements were approved for issue by the General Director and Chief Financial Officer on 4 April 2014. 530 530 530 Operating Environment of the Group The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices. Share capital Share The legal, tax and regulatory frameworks continue to develop and are subject to varying interpretations (Note 31). The political and economic turmoil witnessed in the region, including the developments in Ukraine have had and may continue to have a negative impact on the Russian economy, including weakening of the Rouble and making it harder to raise international funding. At present, there is an ongoing threat of sanctions against Russia and Russian officials the impact of which, if they were to be implemented, are at this stage difficult to determine. 16 32 32 11 32 6, 16 6, 16 Note The financial markets are uncertain and volatile.

In 2014 Rouble exchange rates deteriorated by more than 8% reaching the level of 48.8834 roubles/Euro on 4 April 2014. Given the substantial volume of imports, these events alongside with a decline in customer demand observed in the beginning of 2014 and forecasted to continue throughout 2014 resulted in certain operational cost reduction measures implemented by management in order to maintain short to medium- term profitability. Management is confident that long-term business plans of the joint ventures are sustainable.

The tax, currency and customs legislation within the Russian Federation is subject to varying interpretations and frequent changes, and other legal and fiscal impediments contribute to the challenges faced by entities currently operating in the Russian Federation. The future economic direction of the Russian Federation is largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the Government, together with tax, legal, regulatory, and political developments.

Management is unable to predict all developments which could have an impact on the Russian economy and consequently what effect, if December 2013 31 December at Balance Share options Share Dividends Purchase of non-controlling interest in interest non-controlling of Purchase subsidiary Change of interest in subsidiary interest Change of 2013 for income comprehensive Total Profit for the year for Profit December 2012 31 December at Balance Share options Share Treasury shares disposal shares Treasury Treasury shares acquisition shares Treasury Disposal of subsidiaryDisposal of Change of interest in subsidiary interest Change of 2012 for income comprehensive Total Profit for the year for Profit 1 January at 2012 Balance any, they could have on the future financial position of the Group. Management believes it is taking all the necessary measures to support CONSOLIDATED STATEMENT OF CHANGESCONSOLIDATED STATEMENT IN EQUITY FOR THE YEAR ENDED DECEMBER 31 2013 (IN MILLIONS OF RUSSIAN ROUBLES) The accompanying notes on pages 91 to 123 are an integral part of these consolidated financial statements. the sustainability and development of the Group’s business.

2. Basis of preparation and significant accounting policies (continue)

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES 2.5. Purchases and sales of non-controlling interests The Group applies the economic entity model to account for transactions with owners of non-controlling interest. Any difference between Basis of preparation. These consolidated financial statements have been prepared in accordance with International Financial Reporting the purchase consideration and the carrying amount of non-controlling interest acquired is recorded as a capital transaction directly in Standards (“IFRS”) under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value and equity. The Group recognises the difference between sales consideration and the carrying amount of non-controlling interest sold as a capital by the revaluation of available for sale securities. The principal accounting policies applied in the preparation of these consolidated financial transaction in the statement of changes in equity. statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated (refer to Note 4, Adoption of New or Revised Standards and Interpretations). These financial statements are prepared on a going concern basis. 2.6. Purchases of subsidiaries from parties under common control Purchases of subsidiaries from parties under common control are accounted for using the pooling of interest method. Under this method The Group companies maintain their accounting records in Russian Roubles (“RR”) and prepare their statutory financial statements in accordance the consolidated financial statements of the combined entity are presented as if the businesses had been combined from the beginning of with the Federal Law on Accounting of the Russian Federation. The consolidated financial statements are based on the statutory records, with the earliest period presented or, if later, the date when the combining entities were first brought under common control. The assets and liabilities adjustments and reclassifications recorded for the purpose of fair presentation in accordance with IFRS. of the subsidiary transferred under common control are at the predecessor entity’s carrying amounts. The predecessor entity is considered to be the highest reporting entity in which the subsidiary’s IFRS financial information was consolidated. Related goodwill inherent in the predecessor 2.1. Presentation currency entity’s original acquisitions is also recorded in these consolidated financial statements. Any difference between the carrying amount of net All amounts in these consolidated financial statements are presented in millions of Russian Roubles (“RR millions”), unless otherwise stated. assets, including the predecessor entity’s goodwill, and the consideration for the acquisition is accounted for in these consolidated financial statements as an adjustment to other reserves within equity. 2.2. Supplementary information US Dollar (“US$”) amounts shown in the consolidated financial statements are translated from the Russian Rouble (“RR”) amounts as a matter 2.7. Associates and joint ventures of arithmetic computation only, at the official rate of the Central Bank of the Russian Federation at 31 December 2013 of RR 32.7292 = US$1 Associates are entities over which the Group has significant influence (directly or indirectly), but not control, generally accompanying (31 December 2012: RR 30.3727 = US$1). The profit or loss statement and cash flow statement have been translated at the average exchange a shareholding of between 20 and 50 percent of the voting rights. Investments in associates are accounted for using the equity method of rates during the years ended 31 December 2013 of RR 31.8478 = US$1 (2012: RR 31.0930 = US$1). The US$ amounts are presented solely for accounting and are initially recognised at cost. Dividends received from associates reduce the carrying value of the investment in associates. the convenience of the reader, and should not be construed as a representation that RR amounts have been or could have been converted to Other post-acquisition changes in the Group’s share of net assets of an associate are recognised as follows: (i) the Group’s share of profits or the US$ at this rate, nor that the US$ amounts present fairly the financial position and results of operations and cash flows of the Group. losses of associates is recorded in the consolidated profit or loss for the year as share of result of associates, (ii) the Group’s share of other comprehensive income is recognised in other comprehensive income and presented separately, (iii); all other changes in the Group’s share of 2.3. Consolidated financial statements the carrying value of net assets of associates are recognised in profit or loss within the share of result of associates. Subsidiaries are those investees, including structured entities, that the Group controls because the Group (i) has power to direct relevant activities of the investees that significantly affect their returns, (ii) has exposure, or rights, to variable returns from its involvement with the investees, and (iii) has However, when the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured the ability to use its power over the investees to affect the amount of investor’s returns. The existence and effect of substantive rights, including receivables; the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. substantive potential voting rights, are considered when assessing whether the Group has power over another entity. For a right to be substantive, the holder must have practical ability to exercise that right when decisions about the direction of the relevant activities of the investee need to be made. Joint ventures are those joint arrangements whereby the parties that have joint control of the arrangement have rights to the net assets of The Group may have power over an investee even when it holds less than majority of voting power in an investee. In such a case, the Group assesses the arrangement. When a joint venture is created through loss of control of a subsidiary, the initial carrying amount is recognised at fair value. the size of its voting rights relative to the size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee. Subsequently, they are accounted for using the equity method of accounting. The share of joint ventures’ results is recognised in the consolidated Protective rights of other investors, such as those that relate to fundamental changes of investee’s activities or apply only in exceptional circumstances, financial statements from the date that joint control commences until the date at which it ceases. do not prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date on which control ceases. Unrealised gains on transactions between the Group, its associates and joint ventures are eliminated to the extent of the Group’s interest in the associates and joint ventures; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset The acquisition method of accounting is used to account for the acquisition of subsidiaries other than those acquired from parties under common transferred. control. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. 2.8. Disposals of subsidiaries, associates or joint ventures When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change The Group measures non-controlling interest that represents present ownership interest and entitles the holder to a proportionate share of net in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for assets in the event of liquidation on a transaction by transaction basis, either at: (a) fair value, or (b) the non-controlling interest’s proportionate the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive share of net assets of the acquiree. Non-controlling interests that are not present ownership interests are measured at fair value. Goodwill is income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of non- amounts previously recognised in other comprehensive income are recycled to profit or loss. controlling interest in the acquiree and fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill”) is recognised in profit or loss, after management reassesses whether it identified all the assets acquired and all liabilities If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously and contingent liabilities assumed and reviews appropriateness of their measurement. recognised in other comprehensive income are reclassified to profit or loss where appropriate.

The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities 2.9. Financial instruments – key measurement terms incurred or assumed, including fair value of assets or liabilities from contingent consideration arrangements but excludes acquisition related Depending on their classification financial instruments are carried at fair value or amortised cost as described below. costs such as advisory, legal, valuation and similar professional services. Transaction costs related to the acquisition and incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of the business combination are deducted from Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length the carrying amount of the debt and all other transaction costs associated with the acquisition are expensed. transaction. Fair value is the current bid price for financial assets and current asking price for financial liabilities which are quoted in an active market. For assets and liabilities with offsetting market risks, the Group may use mid-market prices as a basis for establishing fair values for Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are the offsetting risk positions and apply the bid or asking price to the net open position as appropriate. A financial instrument is regarded as quoted also eliminated unless the cost cannot be recovered. The Company and all of its subsidiaries use uniform accounting policies consistent with in an active market if quoted prices are readily and regularly available from an exchange or other institution and those prices represent actual the Group’s policies. and regularly occurring market transactions on an arm’s length basis.

Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not owned, directly or indirectly, by the Company. Non-controlling interest forms a separate component of the Group’s equity.

2. Basis of preparation and significant accounting policies (continue) 2. Basis of preparation and significant accounting policies (continue)

2.9. Financial instruments – key measurement terms (continue) 2.10. Classification of financial assets (continue)

Valuation techniques such as discounted cash flows models or models based on recent arm’s length transactions or consideration of financial All other financial assets are included in the available-for-sale category, which includes investment securities which the Group intends to hold for data of the investees are used to fair value certain financial instruments for which external market pricing information is not available. Valuation an indefinite period of time and which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. techniques may require assumptions not supported by observable market data. Disclosures are made in these consolidated financial statements if changing any such assumptions to a reasonably possible alternative would result in significantly different profit or loss, sales, total assets or 2.11. Classification of financial liabilities total liabilities. Financial liabilities have the following measurement categories: (a) held for trading which also includes financial derivatives and (b) other financial liabilities. Liabilities held for trading are carried at fair value with changes in value recognised in profit or loss for the year in the period Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An in which they arise. Other financial liabilities are carried at amortised cost. incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities 2.12. Initial recognition of financial instruments exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative Trading investments, derivatives and other financial instruments at fair value through profit and loss are initially recorded at fair value. All other or holding costs. financial assets and liabilities are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of data from observable markets. transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (“regular fees deferred at origination, if any), are not presented separately and are included in the carrying values of related consolidated balance way” purchases and sales) are recorded at trade date, which is the date that the Group commits to deliver a financial asset. All other purchases sheet items. are recognised when the entity becomes a party to the contractual provisions of the instrument.

The effective interest method is a method of allocating interest income or interest expense over the relevant period so as to achieve a constant The Group uses discounted cash flow valuation techniques to determine the fair value of options and bonds that are not traded in an active market. periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated Differences may arise between the fair value at initial recognition which is considered to be the transaction price and the amount determined at future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, initial recognition using the valuation technique. Any such differences are amortised on a straight line basis over the term of the options and bonds. if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date except for the premium or discount which reflects the credit spread over the floating rate specified 2.13. Derecognition of financial assets in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expired or (b) of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) the effective interest rate (refer to income and expense recognition policy). also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in 2.10. Classification of financial assets its entirety to an unrelated third party without needing to impose additional restrictions on the sale. The Group classifies its financial assets into the following measurement categories: (a) loans and receivables; (b) available-for-sale financial assets; (c) financial assets held to maturity and (d) financial assets at fair value through profit and loss. Financial assets at fair value through 2.14. Valuation of investments profit and loss have two subcategories: (i) assets designated as such upon initial recognition, and (ii) those classified as held for trading. Available-for-sale investments. The Group classifies investments as available for sale at the time of purchase. Available-for-sale investments are carried at fair value. Interest income on available-for-sale debt securities is calculated using the effective interest method and recognised in Certain derivative instruments embedded in other financial instruments are treated as separate derivative instruments when their risks and profit and loss. Dividends on available-for-sale equity instruments are recognised in profit and loss when the Group’s right to receive payment is characteristics are not closely related to those of the host contract. established and inflow of benefits is probable. All other elements of changes in the fair value are recognised in other comprehensive income until the investment is derecognised or impaired at which time the cumulative gain or loss is reclassified from other comprehensive income to finance Other financial assets at fair value through profit and loss are financial assets designated irrevocably, at initial recognition, into this category. income in profit or loss for the year. Management designates financial assets into this category only if (a) such classification eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases; or (b) Impairment losses are recognised in profit and loss when incurred as a result of one or more events (“loss events”) that occurred after the initial a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with recognition of available-for-sale investments. A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it a documented risk management or investment strategy, and information on that basis is regularly provided to and reviewed by the Group’s key is impaired. The cumulative impairment loss – measured as the difference between the acquisition cost and the current fair value, less any impairment management personnel. Recognition and measurement of this category of financial assets is consistent with the accounting policy for trading loss on that asset previously recognised in profit and loss – is reclassified from other comprehensive income to finance costs in profit or loss for the year. investments. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit and loss, the impairment loss is reversed through current period’s profit and loss. Trading investments are financial assets which are either acquired for generating a profit from short-term fluctuations in price or trader’s margin, or are securities included in a portfolio in which a pattern of short-term trading exists. The Group classifies securities into trading Held-to-maturity investments. Held-to-maturity investments are carried at amortised cost using the effective interest method, net of investments if it has an intention to sell them within a short period after purchase, i.e. within 12 months The Group may choose to reclassify a provision for incurred impairment losses. a non-derivative trading financial asset out of the fair value through profit and loss category if the asset is no longer held for the purpose of selling it in the near term. Financial assets other than loans and receivables are permitted to be reclassified out of the fair value through profit Trading investments. Trading investments are carried at fair value. Interest earned on trading investments calculated using the effective interest and loss category only in rare circumstances arising from a single event that is unusual and highly unlikely to reoccur in the near term. Financial method is presented in the consolidated profit or loss as finance income. Dividends are included in dividend income within other operating assets that would meet the definition of loans and receivables may be reclassified if the Group has the intention and ability to hold these financial income when the Group’s right to receive the dividend payment is established and inflow of benefits is probable. All other elements of the changes assets for the foreseeable future or until maturity. in the fair value and gains or losses on derecognition are recorded in profit and loss as gains less losses from trading investments in the period in which they arise. Loans and receivables are unquoted non-derivative financial assets with fixed or determinable payments other than those that the Group intends to sell in the near term. Embedded derivatives. Foreign currency forwards embedded into sales-purchase contracts are separated from the host contracts and accounted for separately unless the contract is denominated in the functional currency of any substantial party to the contract or in a currency Held-to-maturity assets include quoted non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group that is commonly used in the economic environment in which the transaction takes place, such as in US Dollars and Euros for contracts within has both the intention and ability to hold to maturity. Management determines the classification of investment securities held to maturity at their the Russian Federation. initial recognition and reassesses the appropriateness of that classification at each reporting date.

2. Basis of preparation and significant accounting policies (continue) 2. Basis of preparation and significant accounting policies (continue)

2.15. Property, plant and equipment 2.19. Share based compensation Property, plant and equipment are stated at cost, restated to the equivalent purchasing power of the Russian Rouble at 31 December 2003 for Until May, 16, 2013 the Group operated equity-settled, share-based compensation plans. The fair value of the employee services received in assets acquired prior to 1 January 2003, less accumulated depreciation and provision for impairment, where required. Cost includes borrowing exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by costs incurred on specific or general funds borrowed to finance construction of qualifying assets. reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become Costs of minor repairs and maintenance are expensed when incurred. Costs of replacing or renewing major parts or components of property, exercisable. At each reporting date, the Group revises its estimates of the number of options that are expected to become exercisable. It plant and equipment items are capitalised and the replaced part is retired. recognises the impact of the revision of original estimates, if any, in the consolidated profit or loss for the year, and with a corresponding adjustment to equity over the remaining vesting period. At each reporting date, management assess whether there is any indication of impairment of property, plant and equipment. If any such indication exists, management estimates the recoverable amount, which is determined as the higher of an asset’s fair value less costs to sell and The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when its value in use. The carrying amount is reduced to the recoverable amount and the impairment loss is recognised in the consolidated profit or loss the options are exercised. for the year. An impairment loss recognised for an asset in prior years is reversed if there has been a change in the estimates used to determine the asset’s value in use or fair value less costs to sell. 2.20. Goodwill Goodwill is carried at cost less accumulated impairment losses, if any. The Group tests goodwill for impairment at least annually and whenever Gains and losses on disposals determined by comparing proceeds with carrying amount are recognised in profit and loss. there are indications that goodwill may be impaired. Goodwill is allocated to the cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the business combination. Such units or groups of units represent the lowest level at which 2.16. Depreciation the Group monitors goodwill and are not larger than an operating segment. Land is not depreciated. Depreciation on other items of property, plant and equipment is calculated using the straight-line method to allocate their cost amounts to their residual values over their estimated useful lives: Gains or losses on disposal of an operation within a cash generating unit to which goodwill has been allocated include the carrying amount of goodwill associated with the operation disposed of, generally measured on the basis of the relative values of the operation disposed of and Useful lives in years the portion of the cash-generating unit which is retained. Buildings 35 to 45 Plant and machinery 15 to 25 2.21. Other intangible assets Equipment and motor vehicles 5 to 12 The Group’s intangible assets other than goodwill have definite useful lives and primarily include capitalised computer software, patents, trademarks, licences and clips. The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. The residual value of an asset is nil Acquired computer software licenses, patents and trademarks are capitalised on the basis of the costs incurred to acquire and bring them if the Group expects to use the asset until the end of its physical life. The assets’ residual values and useful lives are reviewed, and adjusted if to use. appropriate, at each reporting date. Development costs that are directly associated with identifiable and unique software controlled by the Group are recorded as intangible assets if 2.17. Operating leases the inflow of incremental economic benefits exceeding costs is probable. Capitalised costs include staff costs of the software development team Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownership from the lessor and an appropriate portion of relevant overheads. All other costs associated with computer software, e.g. its maintenance, are expensed when to the Group, the total lease payments are charged to profit and loss on a straight-line basis over the lease term. The lease term is the non- incurred. Intangible assets are amortised using the straight-line method over their useful lives: cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will Useful lives in years exercise the option. Trademarks 3 to 10 Production licences 5 to 10 Leases embedded in other agreements are separated if (a) fulfilment of the arrangement is dependent on the use of a specific asset or assets and Computer software licences 3 to 5 (b) the arrangement conveys a right to use the asset. When assets are leased out under an operating lease, the lease payments receivable are recognised as rental income on a straight-line basis over the lease term. If impaired, the carrying amount of intangible assets is written down to the higher of value in use and fair value less costs to sell.

2.18. Finance lease receivables 2.22. Inventories Where the Group is a lessor in a lease which transfers substantially all the risks and rewards incidental to ownership to the lessee, the assets Inventories are recorded at the lower of cost and net realisable value. The cost of inventory is determined on the weighted average basis. The cost leased out are presented as a finance lease receivable and carried at the present value of the future lease payments. Finance lease receivables of finished goods and work in progress comprises raw material, direct labour, other direct costs and related production overheads (based on are initially recognised at the date from which the lessee is entitled to exercise its right to use the leased asset, using a discount rate determined normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, at inception (the earlier of the date of the lease agreement and the date of commitment by the parties to the principal provisions of the lease). less the cost of completion and selling expenses. Inventories at the reporting date include expected sales returns subsequent to the period end, where the related sales, profit margin and receivables balance are reversed. Inventories are initially recognised when the Group has control of The difference between the gross receivable and the present value represents unearned finance income. This income is recognised over the inventory, expects it to provide future economic benefits and the cost of the inventory can be measured reliably. For components imported the term of the lease using the net investment method (before tax), which reflects a constant periodic rate of return. Incremental costs from outside of the Russian Federation, this is typically at the point of delivery to the Group’s warehouse and accepted by the Group. directly attributable to negotiating and arranging the lease are included in the initial measurement of the finance lease receivable and reduce the amount of income recognised over the lease term. Finance income from leases is recorded within other operating income in 2.23. Income taxes profit or loss for the year. Income taxes have been provided for in the consolidated financial statements in accordance with Russian legislation enacted or substantively enacted by the balance sheet date. The income tax charge comprises current tax and deferred tax and is recognised in profit or loss for the year, Impairment losses are recognised in profit and loss when incurred as a result of one or more events (“loss events”) that occurred after the initial except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in recognition of finance lease receivables. Impairment losses are recognised through an allowance account to write down the receivables’ net the same or a different periods, in other comprehensive income or directly in equity. carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the interest rates implicit in the finance leases. The estimated future cash flows reflect the cash flows that may result from obtaining and selling Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current the assets subject to the lease. and prior periods. Taxes other than on income are recorded within operating expenses.

2. Basis of preparation and significant accounting policies (continue) 2. Basis of preparation and significant accounting policies (continue)

2.23. Income taxes (continue)

Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between 2.26. Prepayments the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition Prepayments are carried at cost less provision for impairment. A prepayment is classified as non-current when the goods or services relating to exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as non- a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not current upon initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset once the Group has obtained recorded for temporary differences on initial recognition of goodwill and subsequently for goodwill which is not deductible for tax purposes. control of the asset and it is probable that future economic benefits associated with the asset will flow to the Group. Other prepayments are Deferred tax balances are measured at tax rates enacted or substantively enacted at the reporting date which are expected to apply to the period written off to profit and loss when the goods or services relating to the prepayments are received. If there is an indication that the assets, goods when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are netted only or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding within the individual companies of the Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded impairment loss is recognised in profit and loss. only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised. 2.27. Cash and cash equivalents The Group controls reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or on gains at their disposal. Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original The Group does not recognise deferred tax liabilities on such temporary differences except to the extent that management expects the temporary maturities of three months or less. Cash and cash equivalents are carried at amortised cost using the effective interest method. Restricted differences to reverse in the foreseeable future. balances are excluded from cash and cash equivalents for the purposes of the consolidated cash flow statement. Balances restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date are included in other non-current assets. The Group’s uncertain tax positions are reassessed by management at every reporting date. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax 2.28. Share capital authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the reporting date Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on a deduction, net of tax, from the proceeds. Any excess of the fair value of consideration received over the par value of shares issued is recorded as management’s best estimate of the expenditure required to settle the obligations at the reporting date. share premium in equity.

2.24. Trade and other receivables 2.29. Treasury shares Trade and other receivables are carried at amortised cost using the effective interest method. Where the Company or its subsidiaries purchase the Company’s equity instruments, the consideration paid, including any directly attributable incremental costs, net of income taxes, is deducted from equity attributable to the Company’s equity holders until the equity instruments 2.25. Impairment of financial assets carried at amortised cost are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly Impairment losses are recognised in profit and loss when incurred as a result of one or more events (“loss events”) that occurred after the initial attributable incremental transaction costs and the related income tax effects, and are included in equity attributable to the Company’s equity recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or holders. group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment has incurred for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk 2.30. Dividends characteristics and collectively assesses them for impairment. The primary factors that the Group considers in determining whether a financial Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved. Any dividends declared after asset is impaired are its overdue status and realisability of related collateral, if any. The following other principal criteria are also used to the reporting date and before the consolidated financial statements are authorised for issue are disclosed in the subsequent events note. determine whether there is objective evidence that an impairment loss has occurred: ›› any portion or instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems; 2.31. Value added tax ›› the counterparty experiences a significant financial difficulty as evidenced by its financial information that the Group obtains; Output value added tax related to sales is payable to tax authorities on the earlier of (a) collection of the receivables from customers or (b) ›› the counterparty considers bankruptcy or a financial reorganisation; delivery of the goods or services to customers. Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice. The tax ›› there is adverse change in the payment status of the counterparty as a result of changes in the national or local economic conditions that authorities permit the settlement of VAT on a net basis. VAT related to sales and purchases is recognised in the balance sheet on a gross basis impact the counterparty; or and disclosed separately as an asset and liability. Where provision has been made for impairment of receivables, impairment loss is recorded for ›› the value of collateral, if any, significantly decreases as a result of deteriorating market conditions. the gross amount of the debtor, including VAT.

If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of 2.32. Borrowings the counterparty, impairment is measured using the original effective interest rate before the modification of terms. Borrowings are carried at amortised cost using the effective interest method. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. Impairment losses are always recognised through an allowance account to write down the asset’s carrying amount to the present value of All other borrowing costs are expensed. expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of the asset. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that 2.33. Government grants and subsidies may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. Grants from the Government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to the purchase of property, plant and equipment are included in non- If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after current liabilities as deferred income and are credited to the consolidated profit or loss for the year on a straight line basis over the expected lives the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by of the related assets. adjusting the allowance account through profit and loss. Government grants and subsidies relating to costs are deferred and recognised in the consolidated profit or loss over the period necessary to Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to recover the asset have match them with the costs that they are intended to compensate. been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to impairment loss account in the profit or loss for the year. 2.34. Trade and other payables Trade and other payables are accrued when the counterparty performed its obligations under the contract and are carried at amortised cost using the effective interest method.

2. Basis of preparation and significant accounting policies (continue) 2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUE)

2.39. Employee benefits (continue)

2.35. Provisions for liabilities and charges Labour expenses include state pension contributions of RR 1,795 for the year ended 31 December 2013 (2012: RR 1,670). In addition, labour Provisions for liabilities and charges are recognised when the Group has a present legal or constructive obligation as a result of past events, and expenses include payments under share based compensation of RR 8 (2012: RR 18). it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of 2.40. Earnings per share obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of Basic earnings per share are calculated by dividing the profit or loss attributable to equity holders of the Company by the weighted average obligations may be small. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement number of ordinary shares in issue during period. is recognised as a separate asset but only when the reimbursement is virtually certain. The Group recognises the estimated liability to repair or replace products sold still under warranty at the end of each reporting period. This provision is calculated based on past history of the level of If applicable, diluted earnings per share is calculated adjusting the weighted average number of ordinary shares outstanding to assume repairs and replacements and recognised in costs of sale. conversion of dilutive potential ordinary shares under the share based compensation programme. For the share options used in the share based compensation programme a calculation is done to determine the number of shares that would have been issued at the reporting date if this date 2.36. Foreign currency translation was the vesting date. The functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in which the entity operates. The Group’s functional currency and the Group’s presentation currency is the national currency of the Russian Federation, Russian Roubles. 2.41. Offsetting Financial assets and liabilities are offset and the net amount reported in the balance sheet only when there is a legally enforceable right to offset Monetary assets and liabilities are translated into each entity’s functional currency at the official exchange rate of the Central Bank of the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously. the Russian Federation (“CBRF”) at the respective reporting dates. Foreign exchange gains and losses resulting from the settlement of the transactions and from the translation of monetary assets and liabilities into each entity’s functional currency at year-end official exchange 2.42. Segment reporting rates of the CBRF are recognised in profit and loss. Translation at year-end rates does not apply to non-monetary items that are measured at Operating segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operating decision maker. historical cost. Non-monetary items measured at fair value in a foreign currency, including equity investments, are translated using the exchange Segments whose revenue, result or assets are ten percent or more of all the segments are reported separately where they do not have similar rates at the date when the fair value was determined. Effects of exchange rate changes on non-monetary items measured at fair value in a foreign economic characteristics. currency are recorded as part of the fair value gain or loss. 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES At 31 December 2013, the principal rate of exchange used for translating foreign currency balances was US$ 1 = RR 32.7292, Euro 1 = RR 44.9699 (2012: US$ 1 = RR 30.3727, Euro 1 = RR 40.2286). The principal average rate of exchange used for translating income and expenses was The Group makes estimates and assumptions that affect the amounts recognised in the consolidated financial statements and the carrying US$ 1 = RR 31.8478 (2012: US$ 1 = RR 31.0930). amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 2.37. Revenue recognition Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Revenues from sales of vehicles, engines and automotive components are recognised at the point of transfer of the major of risks and rewards Judgements that have the most significant effect on the amounts recognised in the consolidated financial statements and estimates that can of ownership of the goods, normally when the goods are shipped. If the Group agrees to transport goods to a specified location, revenue is cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include: recognised when the goods are passed to the customer at the destination point. The group generally retains physical possession of the vehicle ownership document (“PTS’) until cash is collected from the dealer, however, it considers that substantially all risks and rewards are transferred 3.1. Remaining useful life of property, plant and equipment upon shipment. Management has assessed the remaining useful life of property, plant and equipment in accordance with the current technical conditions of assets and estimated period when these assets will bring economic benefit to the Group. The estimation of the useful lives of items of property, An estimate is made for vehicles that are returned to the Group subsequent to the period end where a dealer is not able to settle receivables plant and equipment is a matter of judgment based on the experience with similar assets. The future economic benefits embodied in the assets owed to the Group. In such instances, the related sales revenue, profit margin and trade receivable balances are reversed during the period and are consumed principally through use. However, other factors, such as technical or commercial obsolescence and wear and tear, often result in the vehicles are included as inventories as at the period end date. the diminution of the economic benefits embodied in the assets. Management assesses the remaining useful lives in accordance with the current technical conditions of the assets and estimated period during which the assets are expected to earn benefits for the Group. The following Sales of services are recognised in the accounting period in which the services are rendered, by reference to the stage of completion of primary factors are considered: (a) expected usage of the assets; (b) expected physical wear and tear, which depends on operational factors and the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. maintenance programme; and (c) technical or commercial obsolescence arising from changes in market conditions.

Sales are shown net of VAT, excise, discounts and other bonuses to dealers. 3.2. Impairment of assets (including goodwill) Management have used judgement when evaluating any indicators of potential impairment of the Group’s non-current assets (including property, Revenues are measured at the fair value of the consideration received or receivable. When the fair value of goods received in a barter transaction plant and equipment, intangibles and goodwill), or, when testing for impairment as at 31 December 2013 as required. Management have cannot be measured reliably, the revenue is measured at the fair value of the goods or service given up. Interest income is recognised on a time- determined that there are two cash-generating units (“CGU”) within the Group: OAO “UAZ” and OAO “ZMZ”. proportion basis using the effective interest method. No indicators in respect of impairment of assets were identified in 2013 due to favourable Group’s financial position. 2.38. Research and development costs Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of During the year 2013 there was a slight slowdown of 6% in the Russian automotive market. The total market sales amounted to 2.8 mln. units. new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial The slowdown was driven mostly by macroeconomic factors, such as an increase in interest rates together with negative changes in foreign and technological feasibility, and costs can be measured reliably. Other development expenditures are recognised as an expense as incurred. currency exchange rates escalated at the end of the year. However, the Group has not experienced significant negative effect. The stocks remain Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs with a finite under control and sustainable cash flows are maintained. The Group managed to improve its net debt position and maintain profitability level. useful life that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis Management considers the current market situation as expected and is able to plan and perform accordingly. over the period of its expected benefit, on average over ten years. Goodwill allocated to OAO “UAZ” and OAO “ZMZ” CGUs have been tested by management for impairment using value-in-use calculations. 2.39. Employee benefits The calculations use business plans and cash flows projections developed and approved by the management. The discounting rate used for each Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual leave and sick leave, bonuses, and CGU was estimated based on weighted average cost of capital, which is post-tax and reflects specific risks related to the CGU and time value of non-monetary benefits (such as health services and kindergarten services) are accrued in the year in which the associated services are rendered money. by the employees of the Group.

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES (CONTINUE) 4. Adoption of new or revised standards and interpretations (continue)

3.2. Impairment of assets (including goodwill) (continue)

The cash flow projections cover an initial five-year period. Cash flows beyond five year period are extrapolated using basic assumptions such as IFRS 12 “Disclosure of Interests in Other Entities” (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013) potential sales volumes, EBITDA margin level and discounting rate specific for the particular CGU. Management determined budgeted EBITDA applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. It replaces margin on the basis of the past performance of each CGU and its expectations for the market development. For the OAO “UAZ” these include the disclosure requirements previously found in IAS 28 “Investments in associates”. IFRS 12 requires entities to disclose information that helps continued stable demand for quality vehicles in the niche markets in which the units operate, and the CGU’s sales price advantage over its foreign financial statement readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates, competition in those markets. For the OAO “ZMZ” these include expansion of its position as a supplier to the Russian market, development joint arrangements and unconsolidated structured entities. To meet these objectives, the new standard requires disclosures in a number of areas, further the production of spare parts and components and ability to upgrade its products in line with expected increases in regulations over including significant judgements and assumptions made in determining whether an entity controls, jointly controls, or significantly influences emission levels. its interests in other entities, extended disclosures on share of non-controlling interests in group activities and cash flows, summarised financial information of subsidiaries with material non-controlling interests, and detailed disclosures of interests in unconsolidated structured entities. Cash flows beyond the five-year period are extrapolated using estimated growth rate of 3.0% for both CGUs (31 December 2012: 3.5% for both The Standard resulted in additional disclosures in these consolidated financial statements. Refer to Note 32. CGUs); these growth rates do not exceed the long-term average growth rate for the automotive business in which CGUs operate. The discount rate used of 15% for OAO “ZMZ” and 15% for OAO “UAZ” (31 December 2012: 14.8% and 14.9% respectively) are pre-tax and reflect specific IFRS 13 “Fair Value Measurement” (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013) improved risks related to the relevant CGU. consistency and reduced complexity by providing a revised definition of fair value, and a single source of fair value measurement and disclosure requirements for use across IFRSs. The Standard did not have any material impact on the Group’s consolidated financial statements. The inherence of no impairment of OAO “UAZ” CGU is sensitive to the level of future revenues. With all other assumptions held constant, a reduction in revenues of 20% in each future period would result in a need to reduce the carrying value of goodwill by RR 219. IAS 27 “Separate Financial Statements” (revised in May 2011 and effective for annual periods beginning on or after 1 January 2013) was changed and its objective is now to prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and The inherence of no impairment of OAO “ZMZ” CGU is sensitive to the level of future revenues. With all other assumptions held constant, associates when an entity prepares separate financial statements. The guidance on control and consolidated financial statements was replaced a reduction in revenues of 10% in each future period would result in a need to reduce the carrying value of goodwill by RR 277 and other non- by IFRS 10 “Consolidated Financial Statements”. The amended standard did not have any material impact on the Group’s consolidated financial current assets in aggregate by RR 45. statements.

For each of the CGUs identified for impairment testing, management consider that there have not been any significant changes in any of IAS 28 “Investments in Associates and Joint Ventures” (revised in May 2011 and effective for annual periods beginning on or after 1 January the businesses during the year. For all CGUs, the recoverable amount in the valuation performed as at 31 December 2013 exceeded the carrying 2013). The amendment of IAS 28 resulted from the Board’s project on joint ventures. When discussing that project, the Board decided to amount by a substantial margin and based on an analysis of events, the likelihood that the current recoverable amount would be lower that incorporate the accounting for joint ventures using the equity method into IAS 28 because this method is applicable to both joint ventures and the carrying amount is remote. associates. With this exception, other guidance remained unchanged. The amended standard did not have any material impact on the Group’s consolidated financial statements. Management believes that any reasonably possible change in the key assumptions described above would not cause the carrying amount of goodwill related to OAO “UAZ” and OAO “ZMZ” to exceed their recoverable amounts. Amended IAS 19 “Employee Benefits” (issued in June 2011, effective for periods beginning on or after 1 January 2013) makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits, and to the disclosures for all 3.3. Tax legislation and deferred income tax recognition employee benefits. The standard requires recognition of all changes in the net defined benefit liability (asset) when they occur, as follows: (i) Russian tax, currency and customs legislation is subject to varying interpretations. Related accounting treatment requires the use of estimates service cost and net interest in profit or loss; and (ii) remeasurements in other comprehensive income. The Standard did not have any impact on and judgements as further detailed in Note 31. the Group’s consolidated financial statements.

Deferred tax assets represent income taxes recoverable through future deductions from taxable profits and are recorded on the balance sheet. “Disclosures – Offsetting Financial Assets and Financial Liabilities” – Amendments to IFRS 7 (issued in December 2011 and effective for Deferred income tax assets are recorded to the extent that realisation of the tax benefit is probable. In determining future taxable profits and annual periods beginning on or after 1 January 2013). The amendment requires disclosures that enable users of an entity’s consolidated financial the amount of tax benefits that are probable in the future, management makes judgements and applies estimation based on taxable profits statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off. The Standard didn’t result in additional earned in the past three years; the possibility of challenges to the deductibility of expenses; the time period available in order to utilise the losses disclosures in these consolidated financial statements. and expectations of future taxable income that are believed to be reasonable under the circumstances. For details of the deferred tax assets recognised as at 31 December 2013, see Note 27. The balance includes RR 196 (2012: RR 276). Management expects the losses to be utilised in Improvements to International Financial Reporting Standards (issued in May 2012 and effective for annual periods beginning 1 January the next few years based on current profit forecasts. 2013). The improvements consist of changes to five standards. IFRS 1 was amended to (i) clarify that an entity that resumes preparing its IFRS financial statements may either repeatedly apply IFRS 1 or apply all IFRSs retrospectively as if it had never stopped applying them, and (ii) to 4. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS add an exemption from applying IAS 23 “Borrowing costs”, retrospectively by first-time adopters. IAS 1 was amended to clarify that explanatory notes are not required to support the third balance sheet presented at the beginning of the preceding period when it is provided because it The following new standards and interpretations became effective for the Group from 1 January 2013: was materially impacted by a retrospective restatement, changes in accounting policies or reclassifications for presentation purposes, while explanatory notes will be required when an entity voluntarily decides to provide additional comparative statements. IAS 16 was amended to IFRS 10 “Consolidated Financial Statements” (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013) clarify that servicing equipment that is used for more than one period is classified as property, plant and equipment rather than inventory. IAS 32 replaces all of the guidance on control and consolidation in IAS 27 “Consolidated and separate financial statements” and SIC-12 “Consolidation – was amended to clarify that certain tax consequences of distributions to owners should be accounted for in the income statement as was always special purpose entities”. IFRS 10 changes the definition of control so that the same criteria are applied to all entities to determine control. This required by IAS 12. IAS 34 was amended to bring its requirements in line with IFRS 8. IAS 34 now requires disclosure of a measure of total assets definition is supported by extensive application guidance. The Standard did not have any material impact on the Group’s consolidated financial and liabilities for an operating segment only if such information is regularly provided to chief operating decision maker and there has been statements. a material change in those measures since the last annual consolidated financial statements. The amended standards did not have any material impact on the Group’s consolidated financial statements. IFRS 11 “Joint Arrangements” (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013) replaces IAS 31 “Interests in Joint Ventures” and SIC-13 “Jointly Controlled Entities—Non-Monetary Contributions by Venturers”. Changes in the definitions have reduced the number of types of joint arrangements to two: joint operations and joint ventures. The existing policy choice of proportionate consolidation for jointly controlled entities has been eliminated. Equity accounting is mandatory for participants in joint ventures. The Standard did not have any material impact on the Group’s consolidated financial statements.

4. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS (CONTINUE) 5. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUE)

“Transition Guidance Amendments to IFRS 10, IFRS 11 and IFRS 12” (issued in June 2012 and effective for annual periods beginning 1 January An investment entity will be required to account for its subsidiaries at fair value through profit or loss, and to consolidate only those subsidiaries 2013). The amendments clarify the transition guidance in IFRS 10 “Consolidated Financial Statements”. Entities adopting IFRS 10 should assess that provide services that are related to the entity’s investment activities. IFRS 12 was amended to introduce new disclosures, including any control at the first day of the annual period in which IFRS 10 is adopted, and if the consolidation conclusion under IFRS 10 differs from IAS 27 and significant judgements made in determining whether an entity is an investment entity and information about financial or other support to an SIC 12, the immediately preceding comparative period (that is, year 2012) is restated, unless impracticable. The amendments also provide additional unconsolidated subsidiary, whether intended or already provided to the subsidiary. The Group does not expect the amendment to have any impact transition relief in IFRS 10, IFRS 11 “Joint Arrangements” and IFRS 12 “Disclosure of Interests in Other Entities”, by limiting the requirement to on its financial statements. provide adjusted comparative information only for the immediately preceding comparative period. Further, the amendments remove the requirement to present comparative information for disclosures related to unconsolidated structured entities for periods before IFRS 12 is first applied. IFRIC 21 – “Levies” (issued on 20 May 2013 and effective for annual periods beginning 1 January 2014). The interpretation clarifies The amended standards did not have any material impact on the Group’s consolidated financial statements other than application of the relief from the accounting for an obligation to pay a levy that is not income tax. The obligating event that gives rise to a liability is the event identified by disclosure of certain comparative information in the notes to the financial statements. the legislation that triggers the obligation to pay the levy. The fact that an entity is economically compelled to continue operating in a future period, or prepares its financial statements under the going concern assumption, does not create an obligation. The same recognition principles Other revised standards and interpretations: IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine”, considers when and how to apply in interim and annual financial statements. The application of the interpretation to liabilities arising from emissions trading schemes is account for the benefits arising from the stripping activity in mining industry. The interpretation did not have an impact on the Group’s consolidated optional. The Group does not expect the amendment to have any impact on its financial statements. financial statements. Amendments to IFRS 1 “First-time adoption of International Financial Reporting Standards – Government Loans”, which were issued in March 2012 and are effective for annual periods beginning 1 January 2013, give first-time adopters of IFRSs relief from full retrospective Amendments to IAS 36 – “Recoverable amount disclosures for non-financial assets” (issued in May 2013 and effective for annual application of accounting requirements for loans from government at below market rates. The amendment is not relevant to the Group. periods beginning 1 January 2014; earlier application is permitted if IFRS 13 is applied for the same accounting and comparative period). The amendments remove the requirement to disclose the recoverable amount when a CGU contains goodwill or indefinite lived intangible assets 5. NEW ACCOUNTING PRONOUNCEMENTS but there has been no impairment. The Group is currently assessing the impact of the amendments on the disclosures in its financial statements.

Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2014 or Amendments to IAS 39 – “Novation of Derivatives and Continuation of Hedge Accounting” (issued in June 2013 and effective for annual later and which the Group has not early adopted. periods beginning 1 January 2014).The amendments will allow hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated (i.e parties have agreed to replace their original counterparty with a new one) to effect clearing IFRS 9 “Financial Instruments: Classification and Measurement”. Key features of the standard issued in November 2009 and amended in with a central counterparty as a result of laws or regulation, if specific conditions are met. The Group is currently assessing the impact of October 2010, December 2011 and November 2013 are: the amendments on the disclosures in its financial statements.

›› Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those Amendments to IAS 19 – “Defined benefit plans: Employee contributions” (issued in November 2013 and effective for annual periods to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s beginning 1 July 2014). The amendment allows entities to recognise employee contributions as a reduction in the service cost in the period in business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. which the related employee service is rendered, instead of attributing the contributions to the periods of service, if the amount of the employee contributions is independent of the number of years of service. The amendment is not expected to have any material impact on the Group’s ›› An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity’s business model financial statements. is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent payments of principal and interest only (that is, it has only “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss. Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s financial statements. ›› All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and 6. BALANCES AND TRANSACTIONS WITH RELATED PARTIES realised fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or loss, as Related parties are defined in IAS 24, Related Party Disclosures. Parties are generally considered to be related if one party has the ability to long as they represent a return on investment. control the other party, is under common control, or can exercise significant influence or joint control over the other party in making financial and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not ›› Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. merely the legal form. The Group’s immediate parent and ultimate controlling party are disclosed in Note 1. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income. 6.1. Balances and transactions with related parties Balances with related parties of the Group as at 31 December 2013 and 31 December 2012 consist of the following: ›› Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because Balances the standard currently does not address accounting for macro hedging. Associates The amendments made to IFRS 9 in November 2013 removed its mandatory effective date, thus making application of the standard voluntary. Nature of relationship Parent company Other related parties and joint ventures Total The Group does not intend to adopt the existing version of IFRS 9. As at 31 December 2013 Accounts receivable - - 539 539 Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32 (issued in December 2011 and effective for annual periods beginning on Trade and other accounts payable - 2 5,708 5,710 or after 1 January 2014). The amendment added application guidance to IAS 32 to address inconsistencies identified in applying some of the offsetting As at 31 December 2012 criteria. This includes clarifying the meaning of ‘currently has a legally enforceable right of set-off’ and that some gross settlement systems may be Accounts receivable - - 157 157 Loans issued - 203 - 203 considered equivalent to net settlement. The Group is considering the implications of the amendment and its impact on the Group. Advances received - - 961 961 Trade and other accounts payable - - 553 553 Amendments to IFRS 10, IFRS 12 and IAS 27 – Investment entities (issued on 31 October 2012 and effective for annual periods beginning 1 January 2014). The amendment introduced a definition of an investment entity as an entity that (i) obtains funds from investors for the purpose of providing them with investment management services, (ii) commits to its investors that its business purpose is to invest funds solely for capital appreciation or investment income and (iii) measures and evaluates its investments on a fair value basis.

6. Balances and transactions with related parties (continue) 7. PROPERTY, PLANT AND EQUIPMENT (CONTINUE)

6.1. Balances and transactions with related parties (continue)

Transactions with related parties of the Group for the years ended 31 December 2013 and 31 December 2012 consist of the following: As at 31 December 2013, bank borrowings are secured on land and buildings and plant and equipment. The value of these items of property, plant and equipment included above is RR 2,790 (31 December 2012: RR 2,845). See Note 17. Transactions Construction in progress consists mainly of equipment. Upon completion, assets are transferred to plant and equipment. During the year ended Associates 31 December 2013, the Group capitalised borrowing costs of RR 36 (2012: RR 80) as part of the cost of the qualifying assets (see Note 2.14). Nature of relationship Parent company Other related parties and joint ventures Total The annual capitalisation rate was 11.7% (2012: 10.0%). Year ended 31 December 2013 Sales of vehicles and components - - 207 207 The Group owns the land on which factories and buildings, comprising the principal manufacturing facilities of the Group, are situated. At Sale of non-current assets and services - 931 2,975 3,906 31 December 2013, the cost of the land amounted to RR 678 (2012: RR 689). Purchases - 342 18,872 19,214 Dividends paid 920 - - 920 8. GOODWILL Year ended 31 December 2012 Sales of vehicles and components - - 210 210 Sale of non-current assets and services - - 195 195 Goodwill arose first on the original purchase of the controlling stake in OAO “UAZ” and OAO “ZMZ” and then on the increase of the holding stake Purchases - - 488 488 in OAO “UAZ” in 2003 and OAO “ZMZ” in 2004. Capital transaction 247 - - 247 31 December 2013 31 December 2012 6.2. Key management compensation OAO “UAZ” 1,207 1,207 The compensation paid to the nine members of key management (year ended 31 December 2012: nine people) for their services in full or part OAO “ZMZ” 277 277 time executive management positions is made up of a contractual salary and a performance bonus depending on operating results. Each Total goodwill 1,484 1,484 director receives a fee for serving in that capacity and is reimbursed reasonable expenses in conjunction with their duties. No additional fees, compensation or allowances are paid. Impairment tests for goodwill Management have tested goodwill for impairment at 31 December 2013. Goodwill is allocated to two of the Group’s CGUs: OAO “UAZ” and Total key management compensation included in expenses in the consolidated profit or loss for the year ended 31 December 2013 comprises: OAO “ZMZ”. See details of impairment testing in Note 3.2. ›› short-term employee benefits amounting to RR 670 (2012: RR 613); and ›› expenses recognised under equity-settled, share based compensation amounting to RR 8 (2012: RR 16). As a result of the assessment performed by management, no impairment loss has been identified as at 31 December 2013 (31 December 2012: nil). For information on the share based compensation, refer Note 16. 9. DEVELOPMENT COSTS During the year ended 31 December 2013 nil options were exercised (2012: 150,000 options at an exercise price US$ 3) by members of key management. Following an assessment of future economic benefits to the Group for each individual project, as at 31 December 2013, RR 3 of development costs were written off (31 December 2012: RR 7). Management do not consider that the write-off would be materially different in the event of On 16 May 2013 share option programme for the key management was ceased. All expenses related to share options were recognised applying reasonable changes to the underlying assumptions used in reaching this conclusion. immediately with the corresponding change in equity. The compensation for termination of the option programme amounted to RR 40 and recognised in labour costs of the reporting period. 31 December 2013 31 December 2012 Cost 7. PROPERTY, PLANT AND EQUIPMENT Balance at the beginning of the year 1,479 1,401 Additions 92 86 Property, plant and equipment and related accumulated depreciation consist of the following: Write-off (3) (8) Balance at the end of the year 1,568 1,479 Accumulated amortisation Land and buildings Plant and equipment Other Construction in progress Total Balance at the beginning of the year (1,086) (877) Cost Amortisation charge (121) (210) Balance at 1 January 2012 7,184 8,700 2,661 1,477 20,022 Write-off - 1 Additions - - - 897 897 Balance at the end of the year (1,207) (1,086) Disposals (772) (331) (242) (19) (1,364) Net book value Transfers 660 340 265 (1,265) - Balance at the end of the year 361 393 Balance at 31 December 2012 7,072 8,709 2,684 1,090 19,555 Additions - - - 1,725 1,725 Breakdown of development costs Disposals (1,650) (422) (239) (985) (3,296) Transfers 876 198 266 (1,340) - 31 December 2013 31 December 2012 Balance at 31 December 2013 6,298 8,485 2,711 490 17,984 Development of new off-road vehicle (UAZ Patriot) 26 59 Accumulated depreciation Development of Euro-4 engine for UAZ 51 67 Balance at 1 January 2012 (1,972) (3,926) (1,597) - (7,495) Development of new light commercial vehicle (UAZ-2360) 3 3 Depreciation expense for year (174) (422) (284) - (880) Improvement of selected vehicle component parts 65 40 Disposals 77 140 142 - 359 Improvement of vehicles and engines to satisfy Euro-2 requirements 2 2 Balance at 31 December 2012 (2,069) (4,208) (1,739) - (8,016) Vehicles with ABS 7 15 Depreciation expense for year (172) (383) (384) - (939) Improvement of vehicles and engines to satisfy Euro-4 requirements 96 130 Disposals 104 116 202 - 422 Other 111 77 Balance at 31 December 2013 (2,137) (4,475) (1,921) - (8,533) Total development costs 361 393 Net book value Balance at 31 December 2012 5,003 4,501 945 1,090 11,539 Balance at 31 December 2013 4,161 4,010 790 490 9,451

11. Investments in joint ventures and associates (continue)

10. OTHER INTANGIBLE ASSETS The gain from the subsidiary disposal for RR 922 is recognised within operating income in the profit or loss for the year.

Other intangible assets mainly comprise of exclusive licences, which were provided for a period of 4 to 10 years: After the recognition of 50%-50% joint venture the Group provided additional cash contribution to the joint venture for RR 136 and non-cash contribution in the form of debt forgiveness for RR 257. 31 December 2013 31 December 2012 Cost Mazda-Sollers JV Balance at the beginning of the year 559 573 In August 2012 the Group paid its contribution to share capital of joint venture with Mazda Motor Co in amount of RR 750 and finalized Additions 25 52 the foundation of 50%-50% joint venture with Mazda Motor Corporation. The production of Mazda SUVs and passenger cars was launched in Disposals - (66) Balance at the end of the year 584 559 September 2012. Accumulated amortisation Balance at the beginning of the year (377) (374) The Group has pledged it’s share in OOO “DC SanYong” as a collateral for working capital facility related to SsangYong business at Mazda-Sollers JV. Amortisation charge (40) (64) Disposals - 61 Sollers-Bussan JV Balance at the end of the year (417) (377) By the end of 2011 the Group established 50%-50% joint venture with Japanese Mitsui&Co., Ltd located in Vladivostok, where Toyota vehicles are Net book value produced. During 2012 additional RR 65 were contributed to the JV. Balance at the end of the year 167 182 Ford-Sollers JV 11. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES In February 2011, the Group announced cancellation of the alliance with FIAT SPA and the signing of Memorandum of understanding to establish a new joint venture in Russia with Ford. In May 2011 Sollers and Ford signed an Agreement to establish a joint venture for exclusive production Investments in joint ventures and associates are presented by followings assets: and distribution of Ford vehicles in the Russian Federation. 31 December 2013 31 December 2012 Ford-Sollers JV 12,438 12,597 On 1 October 2011 the Group completed formation of 50%-50% Ford-Sollers JV and the commencement of the joint venture was announced. Mazda-Sollers JV 961 797 Ford Sollers JV will manufacture a range of Ford passenger cars and light commercial vehicles in the St. Petersburg region and in the Republic Sollers-Isuzu JV 887 674 of Tatarstan. The project implies development of large-scale production facilities with a high level of localization as well as maintaining of R&D Sollers-Bussan JV 213 45 activities. Sollers-Finance JV 414 345 DaeWon-SeverstalAuto Elabuga 34 34 At 31 December 2013 the Ford-Sollers JV has contractual capital expenditure commitments in respect of property, plant and equipment Total 14,947 14,492 amounted to RR 12,490 (2012: RR 6,087 million) and operating lease commitments for RR 298 (2012: RR 322).

The table below summarises the movements in the carrying amount of the Group’s investment in joint ventures and associates. The financing for the joint ventures Mazda-Sollers, Sollers-Bussan and Ford-Sollers have been agreed and obtained from Vnesheconombank

31 December 2013 31 December 2012 (further “VEB”). The borrowings are secured by joint ventures’ property, plant and equipment. Additionally the Group together with the co- Carrying amount at 1 January 14,492 11,921 investors Mazda Motor Co, Mitsui&Co and Ford, respectively, have pledged 100% interest in the joint ventures to the VEB. Share of profit of joint venture and associates 574 1,149 Unrealised profit from sales to joint venture (197) - For Joint ventures’ contingencies refer to note 31. Fair value of net assets of joint venture and associate acquired - 214 Cash contribution to joint ventures 100 951 At 31 December 2013 and 2012, the Group held 50% interest in joint ventures Ford-Sollers, Mazda Sollers, Sollers-Isuzu, Sollers-Bussan and Non-cash contribution in joint venture - 257 Sollers-Finance and also held 30% interest in OOO DaeWon-SeverstalAuto Elabuga. The summarised financial information of the Joint ventures Dividends received from joint venture (22) - and the associates, including full amounts of total assets, liabilities, revenues, operating and net profit/(loss), is as follows: 14,947 14,492

Sollers-Finance JV Total assets Total liabilities Revenue Operating profit/(loss) Profit/ (loss) In November 2010, the Group established a joint venture with a bank for the development of leasing services and contributed ООО “Sollers-Finance”, Joint ventures: a previously wholly owned subsidiary, to the joint venture. During the year ended 31 December 2013 the dividends of RR 22 were received from Total at 31 December 2013 85,988 55,912 134,248 2,596 1,148 Ford-Sollers JV 64,048 39,302 82,362 400 (319) the Sollers-Finance JV. Mazda-Sollers JV 12,276 9,961 39,068 1,376 722 Sollers-Isuzu JV 3,154 1,329 1,987 170 227 Sollers-Isuzu JV Sollers-Bussan JV 4,176 3,749 10,232 425 336 During 2013 the additional shares issue was performed by the joint venture. In December 2013 the Group paid its contribution amounted to RR 100. Sollers-Finance JV 2,334 1,571 599 225 182 Total at 31 December 2012 64,955 35,983 94,468 3,507 2,298 In May 2012 the Group entered to the agreement with intention of partial shares disposal in ZAO Sollers-Isuzu. On 30 August 2012 the deal was Ford-Sollers JV 56,166 30,934 90,960 3,284 1,983 finalised and 16% stake of ZAO Sollers-Isuzu was sold to the other venturer for RR 257 and the Group’s share declined to 50%. The negative net Mazda-Sollers JV 3,731 2,136 2,625 133 95 assets of the subsidiary at the date of disposal amounted to RR 683, including non-controlling interest of RR 232. Sollers-Isuzu JV 2,454 1,056 448 (16) 134 Sollers-Bussan JV 520 429 - (42) (37) Sollers-Finance JV 2,084 1,428 435 148 123 The Group recognised the retained investment as 50%-50% joint venture with fair value of RR 214. The portion of the gain related to Associates: the remeasurement of the retained non-controlling investment to fair value: Total at 31 December 2013 105 18 (-) (15) (15) Total at 31 December 2012 120 27 - (16) (12) Fair value of recognised share in joint venture 214 The Group's retained share of negative carrying value of subsidiary 342 The Gain on retained non-controlling investment, joint venture 556

14. TRADE AND OTHER RECEIVABLES (CONTINUE)

12. OTHER NON-CURRENT ASSETS The analysis by credit quality of trade receivables outstanding are as follows:

31 December 2013 31 December 2012 31 December 2013 31 December 2012 Advances for construction in progress and equipment 449 675 Current and not impaired – exposure to Other non-current assets 66 2 - Group 1 – large corporate clients 300 621 Total other non-current assets 515 677 - Group 2 – dealers 4,733 7,444 - Group 3 – other clients 877 371 13. INVENTORIES Total current and not impaired 5,910 8,436 Past due but not impaired - less than 30 days overdue 37 - 31 December 2013 31 December 2012 - 30 to 90 days overdue 36 36 Raw materials 1,655 2,067 - 90 to 180 days overdue 9 65 Less: provision (120) (111) - 180 to 360 days overdue 5 10 Total raw materials 1,535 1,956 - over 360 days overdue 9 1 Work in progress 398 709 Total past due but not impaired 96 112 Less: provision - - Individually determined to be impaired (gross) Total work in progress 398 709 - over 360 days overdue 39 60 Finished products 2,657 1,891 Total individually impaired 39 60 Less: provision (64) (53) Less impairment provision (39) (60) Total finished products 2,593 1,838 Total 6,006 8,548 Total 4,526 4,503 The Group retains the PTS (vehicle registration certificate representing the certificate of title of a vehicle) as a pledge when other At 31 December 2013 and 31 December 2012 there were no any pledged inventories. documents are transferred to the dealer in conjunction with a sale. Management considers that this serves as collateral in relation for the trade receivables in Group 2 and Group 3. The fair value of the collateral for the past due but not impaired receivables as at 31 December 14. TRADE AND OTHER RECEIVABLES 2013 was RR 96 (31 December 2012: RR 112) and the fair value of the collateral for the individually determined to be impaired receivables was RR 39 (31 December 2012: RR 60). 31 December 2013 31 December 2012 Trade receivables 6,045 8,608 Movements in the impairment provision for trade and other receivables are as follows: Less: provision for impairment (39) (60) Total trade receivables 6,006 8,548 Other receivables 217 706 31 December 2013 31 December 2012 Less: provision for impairment (13) (21) Other financial Advances Other financial Advances Total other receivables 204 685 Trade receivables receivables to suppliers Trade receivables receivables to suppliers Advances to suppliers, other than for equipment 357 432 Provision for impairment at start of year 60 21 9 151 70 3 Less: provision for impairment (3) (9) Amounts written off Total advances to suppliers, other than for equipment 354 423 during the year as uncollectible (18) - - (71) (54) - Taxes prepayments 162 75 Provision for impairment during the year (3) (8) (6) (20) 5 6 VAT recoverable, net 155 68 Provision for impairment at end of year 39 13 3 60 21 9 Other prepayments 13 17 Total 6,894 9,816 15. CASH AND CASH EQUIVALENTS

At 31 December 2013, trade receivables arising from revenue contracts of RR 2,913 were pledged as a security for a working capital facility 31 December 2013 31 December 2012 related to SsangYong business (at 31 December 2012: RR 5,021). Cash on hand and balances with banks 1,657 1,436 Cash deposits 4,363 1,124 Trade receivables are represented by currency as follows: Total 6,020 2,560

Cash and cash equivalents held by the Group earned the following interest rates per annum: Currency 31 December 2013 31 December 2012 Russian Roubles 6,003 8,463 US Dollars 3 85 non-interest Total 6,006 8,548 <1% 1%-3% 3%-5% 5%-7% bearing Total As at 31 December 2013 Cash on hand and balances with banks 702 387 - - 568 1,657 Cash deposits - - 503 3,860 - 4,363 Total 702 387 503 3,860 568 6,020 As at 31 December 2012 Cash on hand and balances with banks 14 243 - - 1,179 1,436 Cash deposits 157 - 69 898 - 1,124 Total 171 243 69 898 1,179 2,560

15. CASH AND CASH EQUIVALENTS (CONTINUE) 16. SHAREHOLDERS EQUITY (CONTINUE)

The following cash and cash equivalents held by the Group are denominated in foreign currencies: Share based compensation On 10 March 2009, the Group granted to members of key management and other employees options to acquire 855,000 of the Group’s ordinary Currency 31 December 2013 31 December 2012 shares at an exercise price of US$3 that represented the average market share price for the three months preceding the grant date. The market US Dollars 78 831 share price at the grant date was US$3. The vesting period for the options is one year for 285,000 options; two years for 285,000 options and Euro 5 1 three years for 285,000 options. These options are exercisable until 1 March 2013 subject to an employee meeting certain conditions, including Korean won - 6 remaining in employment in the Group up until the date of vesting. Total 83 838 During the year ended 31 December 2012 248,000 options were exercised at an exercise price of US$ 3 by the members of key management and The carrying value of cash and cash equivalents as at 31 December 2013 and 31 December 2012 is approximately equal to their fair value. other employees. The Group holds cash and cash equivalents in the top-20 Russian banks. Credit ratings of the banks where accounts were held as at the year-end date are set out in the analysis below: On 16 May 2013 share option programme was ceased. For further details please see Note 6.2.

31 December 2013 31 December 2012 17. BORROWINGS Rating by Fitch - A- - 59 The Group’s long-term borrowings consisted of bank loans amounted to RUB 5,716 (31 December 2012: RUB 3,742). - A - 100 - BBB+ - 7 The Group’s long-term borrowings are denominated in Russian Roubles at 31 December 2013 and 31 December 2012. The carrying amounts of - BBB 5,326 2,138 long-term borrowings approximates to their fair values as at 31 December 2013 and 31 December 2012. - BBB- 59 - - BВBВ+ - - - BB 513 23 The Group’s short-term borrowings consisted of the following: - B+ 16 16 - B - 24 31 December 2013 31 December 2012 Rating by Moody’s Bank loans 3,730 3,320 - B2 90 183 Bonds - 3,185 Rating by S&P Interest payable 65 193 - B 13 - Total short-term borrowings 3,795 6,698 Other - Unrated 2 4 The Group’s short-term borrowings are denominated in Russian Roubles at 31 December 2013 and 31 December 2012. The carrying amounts - Cash on hand 1 6 of short-term borrowings approximates to their fair values at 31 December 2013. At 31 December 2012 the fair value of short-term borrowings Total 6,020 2,560 amounted to RR 6,737, comprising bonds RR 3,222 and bank loans and interests payable RR 3,513. 16. SHAREHOLDERS EQUITY Certain of the Group’s borrowings are subject to covenant requirements that the Group is required to comply with, or otherwise could result in an acceleration of the repayment period. See Note 31. The value of share capital issued and fully paid up consists of the following amounts: Property, plant and equipment of RR 2,790 (31 December 2012: RR 2,845) are pledged as collateral for long-term and short-term borrowings. See Number of outstanding Note 7. ordinary shares (thousands) Share capital Share premium Additional paid-in capital At 31 December 2013 34,270 530 4,538 1,438 At 31 December 2012 34,270 530 4,480 1,438 The short-term borrowings from Repurchase agreement for RR 250 are secured by 9.6% shares of the Group’s subsidiary OAO “UAZ”.

The total authorised number of ordinary shares is 82,074 thousand (31 December 2012: 82,074 thousand). The nominal value of all shares is 18. ADVANCES RECEIVED AND OTHER PAYABLES 12.5 roubles per share. All issued ordinary shares are fully paid. Each ordinary share carries one vote. 31 December 2013 31 December 2012 Share premium represents the excess of contributions received over the nominal value of shares issued. Dividends payable 56 17 Liabilities for purchased property, plant and equipment 38 34 In accordance with Russian legislation, the Group distributes profits as dividends or transfers them to reserves (fund accounts) on the basis of financial Accrued liabilities and other creditors 94 237 statements prepared in accordance with Russian Accounting Rules. The statutory accounting reports of the Company are the basis for profit distribution Total financial liabilities within other payables 188 288 and other appropriations. Russian legislation identifies the basis of distribution as the accumulated profit. For the year ended 31 December 2013, the net Advances received 197 1,290 Accrued employee benefit costs 244 300 statutory profit for the Company reported in the published annual statutory reporting financial statements was RR 1,786 (2012: net loss RR 2,601) and Vacation accrual 214 266 the closing balance of the accumulated profit including the current reporting period net statutory profit was RR 2,399 (31 December 2012: RR 2,423). Bonus accrual 519 721 However, this legislation and other statutory laws and regulations are open to legal interpretation and accordingly management believes at present that Total advances received and other payables 1,362 2,865 it would not be appropriate to disclose an amount for the distributable reserves in these consolidated financial statements. There were no overdue payables as at 31 December 2013, including in respect of trade payables (31 December 2012: nil). By the date of approval of these consolidated financial statements, no dividends were proposed by the Board of Directors for the year ended 31 December 2013. In May 2013 the General Shareholders Meeting declared the dividends per results of the year ended 31 December 2012 totally The bonus accrual relates to performance based on productivity of employees at a subsidiary during the year ended 31 December 2013 of RR 519 amounted to RR 1,800, or 52.52 Roubles per ordinary share. No dividends were declared at the General Shareholders Meetings during the year (31 December 2012: RR 721). ended 31 December 2012.

During the year ended 31 December 2013 the Group did not perform any transactions with treasury shares. During the year ended 31 December 2012, the Group disposed of 1,047 thousand of ordinary shares and acquired an additional 248 thousand shares.

19. TAXES PAYABLE 23. DISTRIBUTION COSTS

31 December 2013 31 December 2012 Year ended Year ended Value-added tax 755 557 31 December 2013 31 December 2012 Payments to the State Pension Fund and other social taxes 183 156 Transportation 1,284 1,415 Income tax 353 210 Advertising 488 470 Property tax 26 20 Labour costs 401 337 Personal income tax 36 15 Check and inspection performed by dealers 63 113 Other taxes 23 87 Materials 44 106 Total 1,376 1,045 Commission fee 174 35 Other 100 75 The Group had no tax liabilities past due at 31 December 2013 or 31 December 2012. Total 2,554 2,551

20. WARRANTY AND OTHER PROVISIONS 24. GENERAL AND ADMINISTRATIVE EXPENSES

During the year ended 31 December 2013 and 31 December 2012, the following movements in warranty and other provisions were recorded: Year ended Year ended 31 December 2013 31 December 2012 Labour costs 2,776 3,058 Warranty Tax and other claims Total Services provided by third parties 317 497 Balance at 1 January 2012 318 27 345 Depreciation and amortisation 157 192 Additional provision 426 68 494 Rent 120 228 Utilised in the year (213) (22) (235) Taxes other than income 203 193 Balance at 31 December 2012 531 73 604 Business travel 150 155 Additional provision 459 261 720 Fire brigade and security costs 136 144 Utilised in the year (358) (1) (359) Repairs and maintenance 130 130 Balance at 31 December 2013 632 333 965 Transportation 17 73 Materials 38 72 The Group provides a one-year warranty on most UAZ vehicles, except a three-year warranty on the UAZ Patriot; one and two-year warranty Insurance 19 46 on ZMZ engines; and a three-year warranty period on sport utility vehicles. The Group undertakes to repair or replace items that fail to perform Training costs 30 19 satisfactorily. A provision has also been recognised for SsangYong vehicles based on expected costs to be incurred that are not covered by Movement in the provision for impairment of receivables 3 172 warranties provided by the supplier. Other 71 226 Total 4,167 5,205 All of the above provisions have been classified as current liabilities as the Group does not have an unconditional right to defer settlement beyond one year. 25. OTHER OPERATING INCOME – NET

21. SALES Year ended Year ended 31 December 2013 31 December 2012 Net (income)/losses on disposals of property, plant, equipment and investments (557) 220 Year ended Year ended Accounts payables written-off (7) (197) 31 December 2013 31 December 2012 Charitable donations 111 43 Vehicles 51,704 55,071 Social expenses 70 36 Automotive components 5,595 5,841 Loss on disposal of materials 93 60 Engines 1,845 1,684 Research and development expenses - 7 Services 1,145 1,788 Government grant amortisation (29) (16) Other sales 1,028 1,165 Other (204) (158) Total 61,317 65,549 Total (523) (5) 22. COST OF SALES 26. FINANCE COSTS, NET

Year ended Year ended Year ended Year ended 31 December 2013 31 December 2012 31 December 2013 31 December 2012 Materials and components 41,438 40,877 Interest expense, net 1,039 1,574 Labour costs 5,485 5,501 Government subsidy of interest expenses (18) (369) Other production costs 2,401 2,200 Foreign exchange losses/(gain), net 159 (315) Depreciation and amortisation 998 884 Total finance costs, net 1,180 890 Change in finished goods and work in progress (444) 2,013 Less capitalised finance costs (36) (80) Total 49,878 51,475 Total finance costs, net 1,144 810

The Group’s capitalised borrowing costs of RR 36 mainly arising on financing attributable to the construction of property, plant and equipment (2012: RR 80).

Interests paid during 2013 and 2012 to State banks were partly compensated under Government Decrees #640 dated 1 August 2011 and #357 dated 6 June 2005. The compensation was recognised within finance costs of the consolidated profit or loss of the reporting periods to match it with the costs that they are intended to compensate.

27. INCOME TAX EXPENSE (CONTINUE)

27. INCOME TAX EXPENSE The Group has not recorded a deferred tax liability in respect of temporary differences associated with investments in subsidiaries and joint ventures as the Group is able to control the timing of the reversal of these temporary differences and does not intend for them to reverse in The income tax expense recorded in the consolidated statement of comprehensive income for the year comprises the following: the foreseeable future. Un-remitted earnings from subsidiaries and joint ventures were RR 15,882 at 31 December 2013 (31 December 2012: RR 13,776), mostly being subject to tax rate on dividends of 0%. Year ended Year ended 31 December 2013 31 December 2012 28. EARNING PER SHARE Current income tax expense 1,358 1,681 Deferred tax charge (265) 22 Basic earning per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number of ordinary Income tax expense 1,093 1,703 shares in issue during the year, excluding treasury shares.

The income tax rate applicable to the majority of the Group’s income is 20% (2012: 20%). A reconciliation between the expected and the actual Year ended Year ended taxation charge is provided below: 31 December 2013 31 December 2012 Basic earnings per share (in RR per share) 105.78 171.1 Year ended Year ended Diluted earnings per share (in RR per share) 105.75 170.5 31 December 2013 31 December 2012 Profit attributable to equity holders of the Company 3,625 5,843 Profit before income tax 4,671 7,584 Basic weighted average number of shares outstanding (thousands) 34,270 34,152 Theoretical tax charge at statutory rate (2013: 20%; 2012: 20%) 925 1,480 – Adjustment for share options (thousands) 11 123 Theoretical tax charge/(benefit) at different statutory rate (2013: 16%; 2012: 16%) 9 36 Diluted weighted average number of shares outstanding (thousands) 34,281 34,275 Tax effect of items which are not deductible or assessable for taxation purposes: - Non-deductible expenses/(income) at 20% 158 50 29. SEGMENT INFORMATION - Non-deductible expenses at 16% 1 137 Income tax expense 1,093 1,703 IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group which are regularly reviewed by the ‘chief operating decision maker’ in order to allocate resources to segments and to assess their performance. The Group’s operating Differences between IFRS and statutory taxation regulations in Russia give rise to temporary differences between the carrying amount of assets segments are reported based on the financial information provided to the Group’s Chief Executive Officer and that are used to make strategic and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these temporary differences is detailed decisions. below and is recorded at the rate of 20% (31 December 2012: 20%) Since 2011 the Group restructured its automotive and engine segments after OAO UAZ has become the major customer of OAO ZMZ. The sales The recognised deferred tax asset represents income taxes recoverable through future deductions from taxable profits and is recorded on of engine segment became immaterial in terms of segment reporting and are no longer disclosed separately. As at 31 December 2013 the Group the balance sheet. Deferred income tax assets are recorded to the extent that realisation of the related tax benefit is probable. The future taxable activities are considered as one reporting segment: vehicles. profits and the amount of tax benefits that are probable in the future are based on the medium term business plan prepared by management and extrapolated results thereafter. The business plan is based on management’s expectations that are believed to be reasonable under The Group’s production facilities are wholly located within the Russian Federation, and almost all sales are domestic. the circumstances. The Chief Executive Officer reviews financial information prepared on the basis of Russian accounting standards adjusted to meet In the context of the Group’s current structure, tax losses and current tax assets of the different companies may not be set off against current the requirements of internal reporting. Such financial information differs in certain aspects from International Financial Reporting Standards, tax liabilities and taxable profits of other companies and, accordingly, taxes may accrue even where there is a net consolidated tax loss. Deferred including in relation to inventory provisions; receivables provisions and other adjustments. tax assets may be realised in different periods than the deferred tax liabilities may be settled. Management believes that there will be sufficient taxable profits available at the time the temporary differences reverse to utilise the deferred tax assets. See Note 3.3. Performance is evaluated on the basis of operating profit or loss. Accordingly, foreign currency gains/ losses, interest income/ expenses and income tax charges are excluded. No balance sheet information is regularly reviewed and accordingly no information on assets or liabilities is The recognised tax losses carried forward generally expire in the period to 2023, being ten years after the end of the fiscal period when the losses included as part of the segment information presented. were generated. Revenues from external customers are presented in Note 21. Management considers that across the range of vehicles and models produced, Movement Movement these are considered as similar products. During the year ended 31 December 2013 and 31 December 2012 the Group did not have transactions in the year ended in the year ended 1 January 2012 31 December 2012 31 December 2012 31 December 2013 31 December 2013 with a single external customer that amounted to 10% or more of the Group’s revenues. Tax effects of deductible temporary differences: Losses carried forward 1,243 (1,182) 61 60 121 30. FINANCIAL RISK MANAGEMENT Accounts payable and provisions 262 (38) 224 106 330 Taxes payable 159 (85) 74 (74) - 30.1. Financial risk factors Inventories 1,099 (21) 1,078 (347) 731 The risk management function within the Group is carried out in respect of financial risks (market, currency, price, interest rate, credit and Total 2,763 (1,326) 1,437 (255) 1,182 liquidity), operational risks and legal risks. The primary objectives of the financial risk management function are to establish risk limits, and Tax effects of taxable temporary differences: then ensure that exposure to risks stays within these limits. The operational and legal risk management functions are intended to ensure proper Property, plant and equipment (1,027) 57 (970) 114 (856) functioning of internal policies and procedures to minimise operational and legal risks. Accounts receivable (1,332) 287 (1,045) 401 (644) Equity investments (738) 738 - - - Total (3,097) 1,082 (2,015) 515 (1,500) (a) Market risk Recognised deferred tax asset, net 874 (598) 276 (80) 196 Recognised deferred tax liability, net (1,208) 354 (854) 340 (514) The Group takes on exposure to market risks. Market risks arise from open positions in (a) foreign currencies, (b) interest bearing assets and Total net deferred tax assets/(liabilities) (334) (244) (578) 260 (318) liabilities and (c) equity investments, all of which are exposed to general and specific market movements. Management sets limits on the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits in During the year ended 31 December 2013 movement of RR 5 (31 December 2012: RR 222) was due to disposal of subsidiaries. the event of more significant market movements.

30. FINANCIAL RISK MANAGEMENT (CONTINUE) 30. Financial risk management (continue) 30.1. Financial risk factors (continue) 30.1. Financial risk factors (continue)

(i) Currency risk Demand and less than 3 month From 3 to 12 months More than 1 year More than 5 years Total The Group is exposed to currency risk from changes in the exchange rate of following currencies: Euro and US Dollars. The risks arise on purchase 31 December 2013 agreements for delivery of major production components denominated in foreign currencies. Management believes that the nature of its business Fixed interest rates 130 3,600 5,716 - 9,446 enables the Group to offset currency risk by changing related Rouble denominated retail prices. Total 130 3,600 5,716 - 9,446

The Group did not expose to currency risk arising on open loan positions denominated in Euros and US Dollars. Demand and less than 3 month From 3 to 12 months More than 1 year More than 5 years Total The positions are monitored monthly. The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31 December 2013: 31 December 2012 Fixed interest rates 800 5,135 3,742 - 9,677 EURIBOR based interest rates - - - - - Monetary financial assets Monetary financial liabilities CB RF refinancing rate based - 570 - - 570 Cash and cash Bonds Net balance sheet Total 800 5,705 3,742 - 10,247 equivalents Accounts receivable Accounts payable and borrowings position US Dollars 78 3 (874) - (793) At 31 December 2013, if interest rates at that date had been 200 basis points lower (31 December 2012: 200 basis points lower) with all other Euros 5 - (116) - (111) variables held constant, the interest expense for the year would have been RR 196 lower (2012: RR 270 lower). If interest rates at that date had Total foreign currencies 83 3 (990) - (904) Russian Roubles 5,937 6,167 (9,313) (9,511) (6,720) been 100 basis points higher (31 December 2012: 100 basis points higher) with all over variables held constant, the interest expense for the year Total 6,020 6,170 (10,303) (9,511) (7,624) would have been RR 98 higher (31 December 2012: RR 135 higher).

The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31 December 2012: The Group monitors interest rates for its financial instruments. The table below summarises interest rates based on reports reviewed by key management personnel:

Monetary financial assets Monetary financial liabilities In % p.a. 2013 2012 Cash and cash Bonds Net balance sheet Assets equivalents Accounts receivable Accounts payable and borrowings position Cash and cash equivalents 0%-7.4% 0%-6.4% US Dollars 831 85 (6,389) - (5,473) Liabilities Euros 1 - (191) - (190) Borrowings 8.6%-12% 7.5%-12.5%, CB RF refinancing rate + 4% Korean Won 6 - (61) - (55) Total foreign currencies 838 85 (6,641) - (5,718) (b) Credit risk Russian Roubles 1,722 8,711 (4,101) (10,440) (4,108) Total 2,560 8,796 (10,742) (10,440) (9,826) The Group takes on exposure to credit risk, which is the risk that one party to a financial instrument will cause a financial loss for the other The above analysis includes only monetary assets and liabilities. The Group does not hold any currency derivatives. Investments in equities party by failing to discharge an obligation. Exposure to credit risk arises as a result of the Group’s sales of products on credit terms and other and non-monetary assets are not considered to give rise to any material currency risk. transactions with counterparties giving rise to financial assets.

Management monitors exchange rates and market forecasts on foreign exchange rates regularly as well as prepares budgets for long-term, The Group’s maximum exposure to credit risk by class of assets is as follows: medium-term and short-term periods. 31 December 2013 31 December 2012 Cash and cash equivalents 6,020 2,560 The following table presents sensitivities of profit and loss and equity to reasonably possible changes in exchange rates applied at the reporting Accounts receivable, including long-term accounts receivable 6,072 8,548 date relative to the Group’s functional currency, with all other variables held constant: Other receivables 68 203 Other financial assets 30 45 2013 2012 Total on-balance sheet exposure 12,190 11,356 Impact on profit and loss and on equity of: Financial guarantees, Note 31 5,404 - US Dollar strengthening by 10% (10% for 2012) (79) (547) Total maximum exposure to credit risk 17,594 11,356 US Dollar weakening by 10% (10% for 2012) 79 547 Euro strengthening by 10% (10% for 2012) (11) (19) All of the financial assets of the Group, except for RR 20 (31 December 2012: RR 20) in shares, categorised as available for sale, are loans and receivables. Euro weakening by 10% (10% for 2012) 11 19 Korean Won strengthening by 10% (10% for 2012) - (5) The process of management of credit risk includes assessment of credit reliability of the counterparties and reviewing payments received. All Korean Won weakening by 10% (10% for 2012) - 5 the receivables from the Group’s dealers are secured through the Group retaining the PTS of vehicles dispatched until payment has been made.

The exposure was calculated only for monetary assets and liabilities denominated in currencies other than the functional currency Management reviews the ageing analysis of outstanding trade receivables and follows up on past due balances. Management therefore considers of the respective entity of the Group. it appropriate to provide ageing and other information about credit risk as disclosed in Note 14.

(ii) Price risk The credit quality of each new customer is analysed before the Group enters into contractual agreements. The credit quality of customers is assessed taking into account their financial position and past experience. The Group is not exposed to equity securities price risk because it does not hold a material portfolio of equity securities. Although the collection of receivables could be influenced by economic factors, management believes that there is no significant risk of loss to (iii) Interest rate risk the Group beyond the provisions already recorded.

The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The Group’s cash and cash equivalents are held with over 17 banks (31 December 2012: 18 banks) thus there is no significant exposure of The table below summarises the Group’s exposure to interest rate risks. The table below presents the Group’s financial liabilities at their carrying the Group to a concentration of credit risk. Management monitor Moody’s, Fitch and S&P ratings of the banks used to manage the level of credit amounts, categorised by the earlier of contractual interest repricing or maturity dates. risk that the Group is exposed to. Management considers that the credit risk associated with these banks is negligible.

30. Financial risk management (continue) 30. FINANCIAL RISK MANAGEMENT (CONTINUE) 30.1. Financial risk factors (continue) 30.1. Financial risk factors (continue)

Credit risks concentration The Group did not have any derivative financial instruments issued/held during the year ended 31 December 2013 or the year ended 31 December 2012. No single debtor of the Group accounts for more than 2.1% (31 December 2012: 4.1%) of the trade accounts receivable of the Group. However, the majority of the Group’s trade receivables represent dealers who sell the Group’s vehicles to consumers, and therefore are exposed in similar In the year ended 31 December 2013 SsangYong distributor issued a financial guarantee for working capital facility at its joint venture operations ways to reductions in the demand from consumers for new vehicle sales, and their ability to obtain access to credit in the financial markets in related to SsangYong business in amount of RR 5,404 (Note 31). order to finance their businesses. As the Group maintains the PTS registration certificates to each vehicle and has insurance arrangements in place covering the vehicles held by the dealers, this mitigates the potential exposure of the Group in the event that a number of dealers are 30.2. Capital risk management impacted in similar ways and are not able to repay amounts owed. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to Management does not consider any requirement to enter into hedging arrangements in relation to the credit risks to which the Group is exposed. maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. (c) Liquidity risk Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. The ratio is calculated as net debt divided Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. by a sum of total equity and net debt. The Group considers total capital under management at 31 December 2013 to be RR 24,267 (31 December 2012: RR 27,760). The Group manages liquidity risk with the objective of ensuring that funds will be available at all times for all cash flow obligations as they become due by preparing long-term, medium-term and short-term budgets, continuously monitoring forecast and actual cash flows. The gearing ratios at 31 December 2013 and 31 December 2012 were as follows:

The Group monitors the range of financial ratios (net debt/EBITDA, EBIT/Interest expense) in order to ensure that the Group maintains sufficient liquidity 31 December 2013 31 December 2012 in order to meet its obligations as they fall due. Management review the targeted ratios in order to ensure that targets are in line with the market and take Long-term borrowings 5,716 3,742 actions to ensure that the Group is able to maintain sufficient liquid resources to ensure that the Group continues to meet its liabilities as they fall due. Short-term borrowings 3,795 6,698 Less: cash and cash equivalents (6,020) (2,560) Management monitors compliance with covenant requirements on a monthly basis, or more frequently as appropriate. A schedule of covenant Net debt 3,491 7,880 requirements that the Group is subject to is maintained by the Head of Treasury, and management are proactive to obtain revised agreements Equity 20,776 19,880 or waivers to the extent that requirements would otherwise not be achieved. Total net debt and equity 24,267 27,760 Gearing ratio 14% 28% Management considers the targeted ratios sustainable for the foreseeable future. Management believes that the Group has access to additional credit facilities if required. Management constantly monitor profitability ratios, market share price and debt/capitalisation ratio. The level of dividends is also monitored by the Board of Directors of the Group. The analysis below represents management expectations of repayment schedule of monetary assets and liabilities of the Group as of 31 December 2013 and 31 December 2012. The table below is based on the earliest possible repayment dates and on nominal cash flows including Fair value of financial instruments future interest payments. Foreign currency cash flows are translated using spot exchange rates as of 31 December 2013 and 31 December 2012. Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for Demand and less the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations than 3 month From 3 to 12 months More than 1 year More than 5 years Total 31 December 2013 not based on observable market data (that is, unobservable inputs). Management applies judgement in categorising financial instruments Total monetary financial assets 12,127 - 63 - 12,190 using the fair value hierarchy. If a fair value measurement uses observable inputs that require significant adjustment, that measurement Cash and cash equivalents 6,020 - - - 6,020 is a Level 3 measurement. The significance of a valuation input is assessed against the fair value measurement in its entirety. Trade receivables 6,009 - 63 - 6,072 Other receivables 68 - - - 68 The estimated fair values of financial instruments have been determined by the Group using available market information, where it exists, and Other financial assets 30 - - - 30 appropriate valuation methodologies. However, judgement is necessarily required to interpret market data to determine the estimated fair value. Total monetary financial liabilities (10,423) (3,675) (5,716) - (19,814) The Russian Federation continues to display some characteristics of an emerging market and economic conditions continue to limit the volume Loans and bonds (195) (3,600) (5,716) - (9,511) of activity in the financial markets. Market quotations may be outdated or reflect distress sale transactions and therefore not represent fair Trade payables (10,040) (75) - - (10,115) values of financial instruments. Management has used all available market information in estimating the fair value of financial instruments. Other payables (188) - - - (188) Future interest payments (237) (642) (322) - (1,201) Net monetary financial assets / (liabilities) The fair value of long-term and short-term borrowings is disclosed in Note 17. The carrying value of other financial instruments approximates at 31 December 2013 1,467 (4,317) (5,975) - (8,825) to their fair value. Level three measurements were applied. 31 December 2012 Total monetary financial assets 11,356 - - - 11,356 31. CONTINGENCIES, COMMITMENTS AND OPERATING RISKS Cash and cash equivalents 2,560 - - - 2,560 Trade receivables 8,548 - - - 8,548 Legal proceedings. From time to time and in the normal course of business, claims against the Group may be received. On the basis both of its Other receivables 45 - - - 45 own estimates and external and internal professional advice, management is of the opinion that no material losses will be incurred in respect Other financial assets 203 - - - 203 of claims. Total monetary financial liabilities (11,706) (5,731) (3,745) - (21,182) Loans and bonds (993) (5,705) (3,742) - (10,440) Trade payables (10,425) (26) (3) - (10,454) Tax legislation. Russian tax and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Other payables (288) - - - (288) Management’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant Future interest payments (270) (536) (357) - (1,163) authorities. Net monetary financial liabilities at 31 December 2012 (620) (6,267) (4,102) - (10,989)

31. Contingencies, commitments and operating risks (continue)

The Russian tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments, and it is possible 32. PRINCIPAL SUBSIDIARIES that transactions and activities that have not been challenged in the past may be challenged. The Supreme Arbitration Court issued guidance to lower courts on reviewing tax cases providing a systemic roadmap for anti-avoidance claims, and it is possible that this will significantly The principal subsidiaries consolidated within the Group and the degree of control exercised by the Group are as follows: increase the level and frequency of tax authority’s scrutiny. 31 December 2013 31 December 2012 As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect % of effective interest % of effective interest of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods. Entity Activity (total share capital) (total share capital) OOO “DC SanYong” Auto trading 100 100 Different interpretations and applications of the Russian Tax Code are possible. For example, in relation to Russian taxpayers where outstanding OOO “Torgoviy dom Sollers” Auto components trading 100 100 loans are controlled by a foreign company owning directly or indirectly more than 20% of the charter capital of the Russian entity, thin Manufacture and sale of engines for passenger capitalisation limits could be applied to the respective loan interest under certain circumstances even where loans are with other subsidiaries OAO “Zavolzhskiy Motor Works” (further “ZMZ”) automobiles, trucks and buses 68 64 Manufacture and sale of passenger automobiles, or Russian banks for the purpose of financing Russian business activities. As Russian tax legislation does not provide definitive guidance OAO “Ulyanovsky Avtomobilny Zavod” (further “UAZ”) light trucks and minibuses 79 66 in certain areas, other tax matters including assessment of tax bases could also have different interpretations. Nonetheless management OOO “Sollers-Dal’niy Vostok” Vehicle production 100 100 believes that its interpretation of the relevant legislation is appropriate and the Group’s tax, currency legislation and customs positions will be OOO DC UAZ Auto trading 100 100 sustained. The table presents the Group’s effective interest in total share capital comprising of ordinary shares and preference shares. Amended Russian transfer pricing legislation took effect from 1 January 2012. The new transfer pricing rules appear to be more technically elaborate and, to a certain extent, better aligned with the international transfer pricing principles developed by the Organisation for Economic During the year ended 31 December 2013, as part of an internal Group reorganisation, the Group’s effective interest in OAO “Zavolzhskiy Motor Cooperation and Development (OECD). The new legislation provides the possibility for tax authorities to make transfer pricing adjustments and Works” was increased in comparison with prior year although the Group retained a majority effective interest and there were no changes impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with in voting rights. As a result of this reorganisation, an amount of RR 774 is recognised in the Statement of Changes in Equity. unrelated parties), provided that the transaction price is not arm’s length. Management has implemented internal controls to be in compliance with the new transfer pricing legislation and do not anticipate any tax exposures will arise in practice. During the year ended 31 December 2012, as part of an internal Group reorganisation, the Group’s effective interest in OAO “Zavolzhskiy Motor Works” was reduced although the Group retained a majority effective interest and there were no changes in voting rights. As a result of this Russian transfer pricing legislation is also applicable to all the Joint ventures in which the Group participates. Management of respective reorganisation, an amount of RR 595 is recognised in the Statement of Changes in Equity. companies has also implemented internal controls to be in compliance with the new transfer pricing regulations and do not anticipate any tax exposures will arise in practice. The impact of any such exposure cannot be reliably estimated but may have a material effect on the joint At 31 December 2013 and 2012 the Group has two subsidiaries with non-controlling interests that are material: ventures’ financial results. 31 December 2013 31 December 2012 Capital commitments. Company’s commitments totalled RR 1,694 at 31 December 2013 (31 December 2012: RR 185) including contractual The non-controlling The non-controlling obligations to purchase, construct or develop property, plant and equipment. Carrying amount interest’s share Carrying amount interest’s share ZMZ 3,320 32% 3,630 36% Guarantees. Guarantees are irrevocable assurance that the Group will make payments in the event that another party cannot meet UAZ 1,763 21% 3,412 34% its obligations. SsangYong distributor has issued a financial guarantee for working capital facility at its joint venture operations related Total 5,083 7,042 to SsangYong business in amount of RR 5,404. The table below summarises the movements in the carrying amount of the non-controlling interest in the Group’s subsidiaries: Covenants. For certain borrowing agreements, the Group is subject to covenant requirements. Breaches of these requirements could give a lender the right to accelerate the repayment period of the borrowings and demand immediate repayment. ZMZ UAZ Carrying amount at 1 January 2012 2,889 3,527 Management have validated that the Group was in full compliance with all covenants attached to contracts entered into, including borrowing Non-controlling interest in current year result (242) 273 agreements with lenders, as at 31 December 2013 (31 December 2012: no exceptions). Dilution factor effect 983 (388) Carrying amount at 31 December 2012 3,630 3,412 As at the date of approval of these consolidated financial statements, management considers that the Group is in full compliance Non-controlling interest in current year result (60) 13 Dilution factor effect (250) (524) with all covenant requirements. Decrease of non-controlling interest due purchase by the Group - (1,138) Carrying amount at 31 December 2013 3,320 1,763 Environmental matters. Environmental regulation in the Russian Federation is evolving and the enforcement posture of Government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are In November 2013 the Group bought-out 13% of UAZ shares from the State for RR 900. The Group’s result amounted to RR 238 was recognised in determined, they are recognised immediately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litigation equity. or legislation, cannot be estimated but could be material. In the current climate under existing legislation, management believes that there are no significant liabilities for environmental damage. The summarised financial information of the Group’s subsidiaries with significant non-controlling interest, including full amounts of total assets, liabilities, revenues and profit/(loss), is as follows:

Total assets Total liabilities Revenue Profit/ (loss) Net cash flows Total at 31 December 2013 ZMZ 11,908 (1,564) 6,583 (176) (170) UAZ 23,483 (14,892) 28,304 38 1,477 Total at 31 December 2012 ZMZ 12,381 (2,303) 7,508 (889) 308 UAZ 24,299 (14,198) 31,530 807 (109)

AEB LDT Association of European Businesses Light duty truck Registered Office: SOLLERS OJSC Cataphoresis painting process MDT 10 Testovskaya Street A process based on electro-chemical technology Medium duty truck Moscow International Business Centre Northern Tower, Moscow City C segment MPV Moscow, 123317, Russia Medium cars (according to European Commission Classification) Multi-purpose vehicle Tel.: +7 (495) 228 3045 CDV OEM (original equipment manufacturer) Fax: +7 (495) 228 3044 Car-derived van In this report, automotive manufacturer Website: www.sollers-auto.com CKD (Completely Knocked Down) Payload Fully disassembled unit that is required to be assembled by Carrying capacity of a vehicle, usually measured by weight the producer locally (See also SKD) PC Investor Relations Contact: Crossover Passenger car See CUV Head of Corporate Reporting and Investor Relations Department Retail sales Elena Nishanova CV Sales of independent dealers to customers (also see wholesales) [email protected] Commercial vehicle with a gross weight of up to 6 tonnes Tel: +7 (495) 228 30 45 SKD (Semi Knocked Down) Fax: +7 (495) 228 30 44 (please add: “Attn: Investor Relations”) CUV Partially disassembled unit that is required to be assembled Crossover utility vehicle. A vehicle built on a car platform with by the producer locally (See CKD) features of a sport utility vehicle (SUV) and a passenger cars (PC) SUV Media Contact: D segment Sport utility vehicle Large cars (according to European Commission Classification) Head of Public Relations Department SYNC Elena Tarasenko F+S Factory-installed, integrated in-vehicle communications and [email protected] F segment luxury cars and S segment sports coupes (according entertainment system that allows users to make hands-free Tel: +7 (495) 228 30 45 to European Commission Classification) telephone calls, control music and perform other functions Fax: +7 (495) 228 30 44 (please mark: “Attn: Public Relations”) with the use of voice commands GVW Gross vehicle weight UAZ Ulyanovsky Avtomobilny Zavod (Ulyanovsk Automobile Plant) HDT Heavy duty truck Wholesales Sales of SOLLERS’ distributors to independent dealers (also see LCV retail sales) Light commercial vehicle

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Annual Report 2013