Annual Report 2019 Public Joint-Stock Company Lsr Group

ANNUAL REPORT 2019 PUBLIC JOINT-STOCK COMPANY LSR GROUP

APPROVED BY: PRELIMINARILY APPROVED BY: GENERAL MEETING OF SHAREHOLDERS THE BOARD OF DIRECTORS PJSC LSR GROUP OF PJSC LSR GROUP “...... ” ...... 2020 26 March 2020 MINUTES №...... MINUTES № 5/2020 dated “...... ” ...... 2020 dated 26 March 2020

ANNUAL REPORT FOR 2019

A.YU. MOLCHANOV CHIEF EXECUTIVE OFFICER PJSC LSR GROUP

YU.N. RESHETNIKOVA CHIEF ACCOUNTANT PJSC LSR GROUP CONTENTS

“Zilart”, Moscow “Granite-Kuznechnoye” Quarry

LSR GROUP STRATEGIC REPORT OPERATING SUSTAINABILITY CORPORATE ANNEXES

Key Figures and Business Model ��22 AND FINANCIAL Strategy and Sustainability GOVERNANCE Annex 1. List of Major Performance in 2019 �� 6 Management ��64 Transactions in 2019 �� 102 Strategy ��24 PERFORMANCE Corporate Governance Statement from the Chairman Facilitating the Development Management �� 76 Annex 2. List of Transactions LSR Group Development Operating Results ��40 of the Board of Directors ��8 of Sustainable Cities ��66 recognised as interested party Prospects ��26 Financial Results �� 44 Share Capital �� 97 transactions �� 102 Statement from the Chief Occupational Health Market Overview ��28 Real Estate Portfolio ��46 Annex 3. Report on observing Executive Officer �� 10 and Safety ��68 principles and recommendations Risk Management �� 34 Organisational Structure ��12 Project Portfolio ��48 HR Management ��69 of the Corporate Governance Code �� 106 Geographical Reach �� 14 Ethical Business Conduct Annex 4. Financial Statements ��124 and Countering Corruption �� 71 Brief History of LSR Group ��16 Annex 5. List of the Environmental Protection �� 72 Key Events in 2019 ��18 abbreviations �� 208

4 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 5 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE KEY FIGURES AND PERFORMANCE IN 2019 FINANCIAL RESULTS SUSTAINABLE DEVELOPMENT 110.4 7.5 21.0 19% 8 0 0.51 BILLION RUB BILLION RUB BILLION RUB EBITDA MARGIN ON-SITE ACCIDENTS FATAL ACCIDENTS LTIFR AMONG EMPLOYEES AMONG EMPLOYEES AMONG EMPLOYEES REVENUE NET PROFIT ADJUSTED EBITDA (2018: 10) (2018: 0) (2018: 0.54) (2018: 146.4 BILLION) (2018: 16.2 BILLION)

OPERATING RESULTS REAL-ESTATE AND CONSTRUCTION 9,814 4,468 407 PEOPLE PEOPLE MILLION RUB AVERAGE NUMBER NUMBER OF EMPLOYEES WHO INVESTMENTS IN CHARITABLE 817.4 84.2 112.4 OF EMPLOYEES COMPLETED TRAINING AND PROJECTS THOUSAND SQM BILLION RUB THOUSAND RUB (2018: 11,677) UPSKILLING PROGRAMMES (2018: 670 MILLION) SALES CONTRACTS VALUE OF CONTRACTS PRICE PER SQM (2018: 3,611) (2018: 1,001.8 THOUSAND) (2018: 92.7 BILLION) (2018: 98.1 THOUSAND)

BUILDING MATERIALS 7,416 8,240 1,143 305 1,413 0 0 164 ACCIDENTS WITH NUMBER THOUSAND TONS THOUSAND CBM THOUSAND CBM THOUSAND CBM MILLION UNITS THOUSAND CBM ENVIRONMENTAL OF CORRUPTION CASES OF СО2–EQUIVALENT CRUSHED SAND READY-MIXED BRICKS AERATED IMPACT2 (2018: 0) GRANITE (2018: CONCRETE (2018: 300 MILLION) CONCRETE DIRECT GREENHOUSE (2018: 0) 2 (2018: 7,540 THOUSAND) 10,699 THOUSAND) (2018: 1,135 THOUSAND) (2018: 1,418 THOUSAND) GAS EMISSIONS

CASH FLOWS 24.7 2.0 -3.6 BILLION RUB BILLION RUB BILLION RUB OPERATING CASH FLOW INVESTMENT FINANCIAL

BEFORE INCOME TAX (2018: 1.0 BILLION) (2018: 4.5 BILLION) 1 1 Including cash in escrow accounts received during AND INTEREST PAID the reporting period. 2 (2018:30.2 BILLION) Within the Building Materials segment.

6 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 7 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE STATEMENT FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS

Dear shareholders, Developments on the mortgage bond market should lead As per global best practice, the majority of our seven 2019 was a turning point for the construction industry. to a further decline in interest rates. According to DOM.RF, Board of Directors members are independent directors. Russian real estate developers will now need to use 2019 was a record year for the market across a number of Furthermore, we received yet another Director of the Year escrow accounts in order to sell their projects launched metrics. For example, a record RUB 296.9 billion of bonds National Award in 2019, which once again confirms the after 1 July 2019. Nonetheless, to maintain current were issued (up 103% year-on-year) with RUB 555.7 highest level of corporate governance at PJSC LSR Group. construction volumes and minimise the number of billion of bonds outstanding (up 41.6% year-on-year). This time, it was Vitaly Podolsky, member of the Board of Directors, who was named Best Independent Director, incomplete projects on the market, the Government has Market consolidation started to take place as high- while Elena Chistyakova was rated Top-25 best Corporate defined a set of criteria that, if met, allows for residential risk players have slowly begun exiting the real estate Secretary. projects to be completed after 1 July 2019 in line with development market, not being able to secure bank previous legislation, thereby bypassing the new rules. funding. Consequently, the likelihood of defrauded real I am delighted to report that in October 2019, Fitch These criteria, outlined in the Government’s Resolution, estate buyers (co-investors) will be significantly reduced, Ratings upgraded LSR Group’s Long-Term Foreign- require that any apartment building under construction thus improving consumer perception of the entire Currency Issuer Default Rating (IDR) to ‘B+’, outlook must be at least 30% complete, while the total amount construction industry. DOM.RF estimates that the Top 10 Stable. of shared equity agreements for any construction real estate developers have already consolidated about We feel optimistic about the future while continuing to project must cover at least 10% of its total residential 20% of the market for housing under construction, with execute our strategy and maintain our leading positions and non-residential space. However, as a systematically LSR Group being the second largest developer. in key regions. With a sound financial position, balanced important enterprise, LSR Group is required to meet the In line with the strategy to improve and optimise its asset portfolio, and a team of experienced professionals completeness criteria set at only 6%. For this reason, asset portfolio, in 2019 LSR Group sold its share in the we are committed to achieving success in 2020. I hope a significant share of our land bank can be developed ZIL-Yug development project and completed the sale that 2020 will be a successful year for you too! under the old rules, allowing for a smooth transition of LLC LSR. Reinforced Concrete in St. Petersburg, thus period to project financing. continuing to support the effectiveness of its business Mortgage loans remained a key driver in the real estate model. Our main priorities are to grow our real estate Dmitry Goncharov, development market in 2019. Mortgage interest rates development business and strengthen our presence Chairman of the Board of Directors, declined, following the Bank of Russia’s key rate that was across key regions of operation: Moscow and the Moscow LSR Group consistently lowered throughout the year. Interest rates Region, St. Petersburg and the Leningrad Region, and dropped to 9.0% for mortgages issued in December Yekaterinburg. We reiterate our commitment to our Dmitry Goncharov 2019 (annual average: 9.9%). This means that the 8.7% development strategy and are not planning to enter any Chairman of the Board target outlined in the charter of the Housing and Urban new markets at the present in time. of Directors, Environment national project for 2020 will already Our core business philosophy is not limited to profit LSR Group be met in the first half of 2020. To a large extent, the targets. We are striving to improve our social involvement decline in interest rates is driven by government subsidy while addressing our common infrastructural, programmes, such as, for example, the prevalent Family environmental and social agenda, and we aim to Mortgage programme, which offers loans at 6% interest improve the well-being of every individual and society as rate. In partnership with major banks, LSR Group has a whole. Therefore, alongside operational and financial been successfully selling real estate under this and other performance, we also consider our performance across popular state-support programmes. key areas of sustainable development, such as decent and safe working conditions, ethical conduct and countering corruption, sustainable communities and environmental protection. LSR Group’s management places a particular emphasis on embedding sustainability in its strategy, culture and operations in line with international standards. In 2019 LSR Group became a signatory to the UN Global Compact.

Annual Report 2019 │ LSR GROUP 9 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE STATEMENT FROM THE CHIEF EXECUTIVE OFFICER

Dear shareholders, In Yekaterinburg, we launched sales of new 107,000 square In 2020, we are planning to sell around 870,000 square In 2019, we sold 817,000 square metres of real esate across metres. Sales reached RUB 7 billion, with an average price metres, including about 500,000 square metres in all regions of operations. In monetary terms, this amounted of RUB 64,000 per square metre, while completions totalled St. Petersburg, 250,000 square metres in Moscow, and to RUB 84 billion, with the average price increasing 132,000 square metres of real estate. 120,000 square metres in Yekaterinburg. In monetary terms, we expect the sales to amount to approximately 15% to RUB 112,000 per square metre. Mortgage sales In 2019, we sold 8,240,000 cubic metres of sand, 7,416,000 RUB 95 billion. In 2020, we are also planning to accounted for 47% of total transactions. During the year, cubic metres of crushed granite, 1,143,000 cubic metres of launch about 980,000 new square metres, including we launched 835,000 square metres of real estate and concrete, 1,413,000 cubic metres of aerated concrete, and 530,000 square metres in St. Petersburg, 320,000 square completed another 834,000 square metres. We are pleased 305 million bricks. A decrease in reported sales volumes metres in Moscow, and 130,000 square metres in the Urals. with our performance in 2019 taking into account the of sand is largely attributable to the completion of the We are planning to complete 920,000 square metres of high base in 2018, a planned decrease in new launches construction works on the M-11 highway. Nonetheless real estate, including about 500,000 square metres in due to legislative uncertainties in the first half of the year future demand will inevitably be supported by LSR Group’s St. Petersburg, 320,000 square metres in Moscow, and and deferred demand on the back of expected mortgage ongoing plans for involvement in other national and 100,000 square metres in the Urals. We will continue to rate cuts. Last year we decided to focus on achieving related infrastructure projects. Overall, the performance focus on improving our profitability as well as expanding higher margins, as opposed to higher sales volumes, given of the building materials segment is generally in line our presence in the Moscow region with a long-term the substantial cash balance available for construction with our expectations. It is also worth mentioning that strategy of developing projects of about 250,000 square financing needs. in 2019, we acquired LLC H+H, the Russian business metres of net saleable area. In St. Petersburg we launched sales of new 534,000 square of Danish H+H International A/S, thus strengthening metres. Sales reached RUB 43 billion with an average price our leading market position in the aerated concrete In 2020, our building materials business is planning to of RUB 98,000 per square metre, while completions stood market of the Northwestern Federal District, improving sell about 8 million cubic metres of sand, 7.6 million cubic at 416,000 square metres of real estate. In June, LSR Group logistics and optimising production costs. Located in the metres of crushed granite, 300 million bricks, 1.7 million launched sales of apartments in a new business-class Volosovsky District of the Leningrad Region, LLC H+H cubic metres of aerated concrete and 1.1 million cubic residential complex, Morskaya Naberezhnaya, with a living was incorporated into LSR. Wall Materials, our business metres of concrete. unit which already operates another aerated concrete space just over 512,000 square metres. Furthermore, in We have entered 2020 with optimism, clarity and financial production facility in Sertolovo. The production capacity of August, we expanded our sales portolio in Saint Petersburg strength while continuing to execute our strategy, thus our newly acquired asset reaches 450,000 cubic metres of with a new project – Zapovedny Park, a comfort class securing leading market position in our key segments aerated concrete per year. residential complex, located in the Primorsky District, with and regions. Andrey Molchanov a residential area slightly exceeding 90,000 square metres. We are pleased with our financial performance in 2019. Chief Executive Officer and Chairman In Moscow, we launched sales of 195,000 square metres. Cash flow from operating activities before income tax and of the Executive Committee, interest totalled RUB 25 billion while revenue stood at Andrey Molchanov PJSC LSR Group Sales reached RUB 34 billion, with an average price of RUB 173,000 per square metre, while completions reached RUB 110 billion. At end of 2019, our net debt amounted Chief Executive Officer and Chairman 286,000 square metres of real estate. In 2019, our Moscow to RUB 23 billion, with net debt to adjusted EBITDA of of the Executive Committee, real estate development business demonstrated a strong 1.08. In October 2019, LSR Group successfully completed PJSC LSR Group sales performance. Sales increased by 13% year-on-year in two bond placements of RUB 7 billion Series 001P-04 value terms, on the back of well-structured market offering, exchange-traded bonds at a coupon rate of 8.5% per while prices grew by 19% year-on-year. In the business- annum and RUB 6 billion Series 001P-05 exchange-traded class market segment in Moscow, our sales grew by 51% bonds at a coupon rate of 8.4% per annum. in value terms, on the back of positive sales dynamics in We are delighted to report a 15% increase in the square our flagship project ZILART and the increasingly popular metrе value of our land bank, now strengthened with project Leningradka 58. By the end of 2019, the average new acquisitions that help further diversify and support price in ZILART reached RUB 221,000 per square metre. our market offering. The value of our land bank reached Throughout the year, we sold 1,049 apartments and 700 RUB 207 billion, totalling 7.6 million metres of net parking lots, measuring 94,000 square metres in total. Our saleable area. large-scale projects ZILART, a business-class residential complex, and Luchi, a comfort-class residential complex, were recognised as top-sellers in their respective market segments within the “old Moscow” area.

Annual Report 2019 │ LSR GROUP 11 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE ORGANISATIONAL STRUCTURE

THE PUBLIC JOINT-STOCK COMPANY LSR GROUP (PJSC LSR GROUP) IS THE PARENT ORGANISATION OF THE LSR GROUP OF COMPANIES (LSR GROUP).

PJSC LSR Group coordinates the operations Administrative and support functions are carried out by subdivisions of LSR Group, including its Human Resources, of the LSR Group’s business units, which are Information Technology, Financial, Legal, Economic Security, broken down into the following key areas Investor Relations and Sustainable Development, Information of activity: Policy and Corporate Communications, and Centralised Procurement Departments. LSR. Real Estate and Construction REAL ESTATE BUILDING MATERIALS LSR. Building Materials

LSR. LSR. CORPORATE STRUCTURE REAL ESTATE AND AGGREGATES REAL ESTATE AND CONSTRUCTION BUILDING MATERIALS CONSTRUCTION NORTH-WEST

LSR. LSR. REAL ESTATE CONCRETE MOSCOW

LSR. LSR. REAL ESTATE AND WALL CONSTRUCTION MATERIALS URALS

LSR. TOWER CRANES

“Zilart”, Moscow “Granite-Kuznechnoуe” Quarry

12 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 13 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE GEOGRAPHICAL REACH

ST. PETERSBURG AND LSR GROUP PRODUCTION CAPACITIES IN LSR GROUP’S CORPORATE OPERATIONS ARE CONCENTRATED ST. PETERSBURG AND THE LENINGRAD REGION, 2019 THE LENINGRAD REGION IN MAJOR REGIONS OF THE RUSSIAN FEDERATION: Index Capacity ST. PETERSBURG AND THE LENINGRAD REGION READY-MIXED CONCRETE 1,805 thousand cbm St. Petersburg and the Leningrad Region ARE OUR HOME MARKET, WHERE THE MAJORITY Moscow and the Moscow Region OF OUR BUSINESS IS CONCENTRATED BRICKS 327 million pcs AERATED CONCRETE 1,010 thousand cbm Yekaterinburg and the Sverdlovsk Region LSR Group business units in St. Petersburg and the Leningrad Region are engaged in real estate development and construction CRUSHED GRANITE 8,976 thousand cbm of all types, from mass housing to elite real estate, as well as in the SAND 15,550 thousand cbm extraction and production of aggregates (sand, crushed granite) ST. PETERSBURG and building materials (bricks, reinforced concrete, ready-mixed TOWER CRANES 110 pcs concrete and mortars, aerated concrete) and the provision of PREFABRICATED CONSTRUCTION 500 thousand sqm tower crane rental services. The majority of LSR Group products and services occupy leading positions in the regional market.

MOSCOW AND LSR GROUP PRODUCTION CAPACITIES IN MOSCOW AND THE MOSCOW REGION, 2019 MOSCOW THE MOSCOW REGION Index Capacity THE MOSCOW REAL ESTATE AND BUILDING BRICKS 63 million pcs MATERIALS MARKET IS THE LARGEST IN RUSSIA, AND IS THEREFORE A PRIORITY TARGET FOR OUR TOWER CRANES 67 pcs EXPANSION YEKATERINBURG We have been active in the Moscow Region market since 2001, and are currently involved in various projects in Moscow and the rest of the region (including government projects), acting as an investor, real estate developer, or construction subcontractor. We also produce bricks and provide tower crane rental services in the region. MOSCOW MOSCOW THE MOSCOW REGION YEKATERINBURG AND LSR GROUP PRODUCTION CAPACITIES IN * * YEKATERINBURG AND THE SVERDLOVSK REGION, 2019 12.7 7.7 THE SVERDLOVSK REGION MILLION PEOPLE MILLION PEOPLE Index Capacity YEKATERINBURG IS THE INDUSTRIAL, TRADE, PREFABRICATED CONSTRUCTION 200 thousand sqm AND CULTURAL CENTRE OF THE URALS FEDERAL DISTRICT. WE HAVE BEEN ACTIVE IN THE REGION ST. PETERSBURG SINCE 2007 ST. PETERSBURG THE LENINGRAD REGION Yekaterinburg is the fourth largest city in Russia and one of the * * largest real estate markets in the country. We are continuing to develop our activities in the city, and are presently one of the 5.4 1.9 three largest construction firms operating there. MILLION PEOPLE MILLION PEOPLE * LSR Group also produces reinforced concrete in Yekaterinburg for industrial homebuilding. MILLION YEKATERINBURG PEOPLE YEKATERINBURG THE SVERDLOVSK REGION 32 TOTAL POPULATION ACROSS LSR GROUP * * REGIONS OF OPERATIONS. THE LEVEL OF 1.5 4.3 ECONOMIC DEVELOPMENT IN THESE REGIONS IS MILLION PEOPLE MILLION PEOPLE SIGNIGFICANTLY HIGHER THAN IN OTHER REGIONS OF THE RUSSIAN FEDERATION

* Rosstat estimate data as at 1 January 2020.

14 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 15 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE A BRIEF HISTORY OF LSR GROUP

The public joint-stock company LSR Group was created on 14 August 2006 as a result of the reorganisation (conversion) of the limited liability company LSR Group, and is its lawful successor

1993 2005 2013 2019 LSR Group enters the debt capital market. First bond LSR Group becomes the largest producer of bricks in Russia. Creation of LSR Group. Acquisition of Stroydetal, offering for the sum of RUB 1 billion placed in Moscow. The total production capacity of LSR Group’s brick plants LSR Group completed the sale of LLC LSR. Reinforced a company with plants producing joinery products, LSR Group begins to prepare financial reports in accordance increases to 450 million standard-sized bricks per year. Concrete, making yet another important step in delivering concrete, reinforced concrete products, and metalwork. with international standards (IFRS). on LSR Group’s strategy to optimise its reinforced concrete Large-scale programme for modernisation of prefabricated production assets. home construction facilities completed. The objective of 1996-1997 the programme is to increase production capacity, improve In June, LSR Group sold its stake in the ZIL-Yug project 2006 as part of its strategy to diversify development assets Completion of the first elite residential building. labour productivity, reduce production costs and energy Increase in number of construction projects implemented. consumption, and improve product quality. in the Moscow region. Our first experience of redevelopment: a real estate project Acquisition of rights to land plots with a total area of more On 1 September 2019, LSR Group fully completed the built on the industrial land in the centre of St. Petersburg. than 300,000 square metres. Total volume of sites in this segment rises to 800,000 square metres. construction and renovation of tramway networks in the 2015 Krasnogvardeysky District of St. Petersburg. 2001 LSR Group completes formation of the largest construction LSR Group is listed as a systemically important Russian holding in Russia: LLC LSR Group converted to an open enterprise in the housing construction category, and LSR Group completed the acquisition of LLC H+H, LSR Group begins to grow rapidly. General areas for joint-stock company. heads the national ranking of the top ten largest Russian the Russian business of Danish H+H International A/S, strategic development formulated and key construction construction firms. significantly strengthening its position in the aerated industry segments determined: development, general concrete market of the Northwestern Federal District. construction materials, aggregates, and construction 2007 services. LSR Group Group enters the Yekaterinburg market. 2018 Adoption of a programme for gradual modernisation Acquisition of Investproekt, a Yekaterinburg-based Sale of a 100% stake in LSR. Construction – Moscow of LSR Group’s industrial enterprises, and development company controlling two plots of land with a total area of in Moscow, and of 100% of shares in Barrikada, of a management policy designed to create a unified 50 hectares. a manufacturer of reinforced concrete products in the Leningrad Region. The transactions are carried out in line management structure and strengthen the business units Initial public offering (IPO) is held. IPO volume amounts within the LSR Group. with LSR Group’s strategy on optimising its asset portfolio, to 10,643,618 ordinary shares in the form of Russian increasing asset efficiency, and focusing on key and more LSR Group enters the Moscow real estate market. ordinary shares and global depositary receipts (GDRs). profitable activities. LSR Group raises USD 588 million from the offering. In 2018, LSR Group publishes its first ever Sustainable 2003 2010 Development Report, which is prepared in accordance LSR Group enters the tower crane rental services market. with the Global Reporting Initiative (GRI) Sustainability Acquisition of UM-260, a leading operator of tower cranes. Secondary public offering (SPO) is held. A total Reporting Standards. of 9,366,383 ordinary shares are sold as GDRs in the course LSR Group joins the United Nations Global Compact Completion of first two buildings in the economy-class real of the international offering. Net receipts amount to estate segment, with a total area of 35,000 square metres. (UNGC), undertaking to integrate UN principles concerning USD 385 million. human rights, labour, the environment, and countering Development and implementation of new ideas for corruption into its development strategy, management, 2004 structural changes to and integration and unification and corporate culture, and to publish information on the Acquisition of Pobeda. This deal allows LSR Group of companies producing construction materials, outcomes of its sustainable development activities on to consolidate approximately 70% of the bricks market subcontractor construction companies, and development a yearly basis. in St. Petersburg and the Leningrad Region. companies. Unified project management standards formulated and implemented within the new business units. LSR Group leads private construction companies in St. Petersburg for volume of real estate facilities completed: 286,000 square metres.

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KEY EVENTS OF 2019 “Europa City”, St. Petersburg “Tri Vetra”, St. Petersburg

JANUARY JULY NOVEMBER Russian credit rating agency Expert LSR Group’s Tyufeleva Roscha park LSR Group acquires LLC H+H, RA affirms PJSC LSR Group’s credit and Russky Dom residential complex the Russian business of Danish H+H rating at “ruA”, with a stable outlook. win International Architecture Awards International A/S. 2019. Andrey Molchanov, LSR Group’s FEBRUARY LSR Group reports its 1H 2019 results: CEO and Chairman of the Executive new contract sales increased by 6% Committee, is awarded the Medal of LSR Group joins the UN Global year-on-year. the Order for Merit to the Fatherland, Compact. First Class. LSR Group sells its 100% stake in LLC LSR. Reinforced Concrete. LSR Group is ranked among industry APRIL leaders for energy efficiency by RAEX. LSR Group reports its Q1 2019 results: AUGUST new contract sales up by 22% year- DECEMBER on-year, with sales in Moscow up LSR Group starts selling apartments 90%. in its Zapovedny Park comfort-class LSR Group’s annual report is first residential complex in the Primorsky shortlisted for IR awards of Moscow District of St. Petersburg. Exchange. Moscow Exchange also MAY selects the best IR professionals, with Fleet, The Gulf of Finland “Bohemia”, St. Petersburg LSR Group launches a new aerated LSR Group’s IR team named third best The Russky Dom residential project concrete production line in the in the Best Investor Relations Practice, wins FIABCI Prix d’Excellence 2019 Leningrad Region. Small-Cap Company category. Award. The Rating Agency of Construction LSR Group completes 246,000 square Industry assigns LSR Group the metres in the Krasnogvardeysky highest reliability rating among JUNE District of St. Petersburg. Russian property developers for the LSR Group launches the sale of first time in the Agency’s history: “A1”, LSR Group’s top managers are apartments in a new business-class Excellent (Very High) Reliability. named among the winners of the residential development, Morskaya 14th Director of the Year National Naberezhnaya, in St. Petersburg. Award. Vitaliy Podolskiy, member LSR Group becomes the first property SEPTEMBER of LSR Group’s Board of Directors, is developer in St. Petersburg and LSR Group completes the saluted as Best Independent Director, Yekaterinburg licensed to sell housing construction and renovation Dmitri Gontcharov, Chairman of under the “old” housing legislation, of tramway networks in the the Board of Directors, is ranked given its status of a systemically Krasnogvardeysky District of among the Top 25 Board Chairmen, important enterprise. St. Petersburg. while Elena Chistyakova, Corporate Secretary, is rated a Top 25 Corporate LSR Group agrees to sell its stake Expert RA assigns its “ruA” credit Secretary. in LLC Razvitie to Leader-Invest, rating to LSR Group’s bonds. an Etalon Group company, thus selling its stake in the ZIL-Yug redevelopment project. OCTOBER Fitch Ratings upgrades PJSC LSR Group’s Long-Term Issuer Default Rating (IDR) to “B+”, outlook “Morskaya Naberezhnaya”, St. Petersburg Reinforced Concrete Plant Stable. In Yekaterinburg, LSR Group completes its first transaction via an escrow account.

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Business Model ��22 Strategy ��24 LSR Group Development Prospects ��26 Market Overview ��28 Risk Management ��34

“Zilart”, Moscow

20 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 21 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE

LSR GROUP BUSINESS MODEL Strong operational and financial performance allows us to consistently create and increase value for our stakeholders, supporting LSR Group’s long-term growth as well as the economic development of the regions LSR GROUP BUSINESS MODEL COVERS THE ENTIRE VALUE in which we operate. CHAIN AND ALL BUSINESS PROCESSES We intend to continue strengthening our competitive advantages, pursue the chosen strategy, and improve stakeholder relations by ensuring sustainable and well-balanced development of LSR Group.

RESOURCES PROCESSES VALUE CREATION

FINANCIAL RESOURCES REAL ESTATE DEVELOPMENT AND CONSTRUCTION SHAREHOLDERS SUPPLIERS, CONTRACTORS, LSR Group consistently pursues an approach that AND INVESTORS AND CLIENTS ensures a sound balance between investments in business growth and appropriate cash returns LAND BANK to shareholders and other stakeholders. ACQUISITION About 50 74.9 About 12,000 PRODUCTION CAPABILITIES BILLION RUB BILLION RUB POTENTIAL AND CURRENT DESIGN AND CONSTRUCTION PAID TO SHAREHOLDERS IN THE PROCUREMENT AMOUNT SUPPLIERS FORM OF DIVIDENDS FOR THE PERMIT ACQUISTION PROCESS ENTIRE HISTORY OF DIVIDENDS 7 16 PAYMENTS BUSINESS UNITS PLANTS GENERAL CONTRACTING AND SUBCONTRACTING 207 36 EMPLOYEES BILLION RUB FLEET PROJECT LAND BANK UNITS MANAGEMENT 9,814 9.5 252 4,468 PEOPLE BILLION RUB MILLION RUB PEOPLE NATURAL RESOURCES MARKETING AVERAGE NUMBER SALARIES, OTHER INVESTMENTS NUMBER OF EMPLOYEES AND SALES OF EMPLOYEES PAYMENTS AND IN SOCIAL THAT RECEIVED TRAINING BENEFITS TO EMPLOYEES PROGRAMMES When extracting natural resources and throughout the production cycle, LSR Group pays special attention to ensuring environmental safety and minimising its environmental footprint. BUILDING Reserves: MATERIALS GOVERNMENT COMMUNITIES Sand Granites and granite gneisses WE CREATE JOBS IN THE REGIONS 407 NATURAL RESOURCES EXTRACTION: IN WHICH WE OPERATE, ENGAGE MILLION RUB Clay LOCAL SUPPLIERS, IMPLEMENT INVESTMENTS Sand 6,379 IN CHARITABLE PROJECTS INFRASTRUCTURE AND Water MILLION RUB Granites and granite gneisses TAX PAYMENTS AND OTHER DEVELOPMENT PROJECTS, AND RUN CHARITABLE AND SOCIAL r Ai Clay CONTRIBUTIONS TO THE STATE BUDGET PROJECTS BENEFITTING LOCAL Land COMMUNITIES Energy PRODUCTION OF BUILDING MATERIALS: HUMAN RESOURCES Crushed granite Ready-mixed concrete Our people are our key strategic asset, and we work every day to ensure safe and decent working Bricks conditions. Aerated concrete COMPETITIVE ADVANTAGES Reinforced concrete products PARTNERSHIPS POSITIVE IMAGE EXTENSIVE LAND BANK ROBUST CORPORATE SALES : LSR Group has an extensive base of reliable GOVERNANCE OPTIMAL GEOGRAPHY OF CONSISTENTLY STRONG suppliers, partners, customers, and other Sand stakeholders with whom we build long-term OPERATIONS FINANCIAL PERFORMANCE COMMITMENT TO SUSTAINABLE mutually beneficial relations based on fulfilling Crushed granite DEVELOPMENT obligations and business ethics. Ready-mixed concrete DIVERSIFIED PORTFOLIO ACROSS OPERATIONAL EXCELLENCE ALL REAL ESTATE SEGMENTS Bricks Aerated concrete

22 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 23 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE STRATEGY

OUR MISSION STRATEGIC DEVELOPMENT AREAS Maintaining a balanced real estate portfolio We are committed to maintaining a balanced real estate LSR GROUP’S CORE MISSION IS TO EXPAND ITS Growing our real estate development portfolio across a range of segments. LSR Group continues to ACTIVITIES WITHIN THE REAL ESTATE DEVELOPMENT activities occupy leading positions in all market segments in AND BUILDING MATERIALS PRODUCTION SEGMENTS St. Petersburg, along with leading positions in business Over the course of its 25-year history, LSR Group has come market segment in Moscow and mass market segment in We build and sell homes for end customers, and produce a long way, evolving into one of Russia’s foremost property building materials encompassing an expansive product range Yekaterinburg. We plan to increase our market share in the development companies. As a key area of our present- business-class segment in St. Petersburg and Moscow. for professional players in the construction industry. day activities, development and construction account for It is our firm conviction that every person and every family a significant proportion of LSR Group revenue. Maintaining our supporting role has the right to comfortable, high-quality housing in a safe Development and construction accounted for 73.5% of in the construction industry and harmonious urban environment. LSR Group is committed LSR Group revenue in 2019. to building homes that satisfy this most fundamental of The construction segment of our business plays a supporting human needs, creating spaces for living, interacting, creating, It is our intention to increase the contribution made by role in the growth of the real estate development sector. developing, and conserving family traditions and values. development and construction to both our revenue and our profits. Our future plans include an ongoing commitment to Making a profit from the sale of building our business strategy and the continuation of our activities in the key regions of Russia where we operate. materials OUR VISION Our core facilities for the production of building materials are SINCE LSR GROUP WAS FOUNDED, OUR ULTIMATE Expanding our presence in key markets located in St. Petersburg and the Leningrad Region. LSR Group’s production facilities recently underwent a full AIM HAS BEEN TO MAKE OUR MARK IN THE HISTORY LSR Group operates in the markets of St. Petersburg and the modernisation, which we are confident will enable us to OF RUSSIAN BUSINESS AS RUSSIA’S FOREMOST Leningrad Region, Moscow and the Moscow Region, and increase our market share and boost LSR Group profitability. CONSTRUCTION COMPANY Yekaterinburg and the Sverdlovsk Region. We have drawn up a separate development strategy for each of these regions. We focus our efforts on what we do best: building real estate, Our commitment to sustainable providing construction services, and manufacturing building St. Petersburg: we plan to maintain our leading position in development principles materials. It is important to us to occupy a leading position all segments (mass market, business, and elite) of the city’s We are actively engaged in the ongoing implementation and a significant market share in all of these areas, setting the real estate market. of sustainable development principles at all levels of our standard for other members of the industry. Moscow: we intend to make the capital and its surrounding business, with the objective of reducing costs and increasing We also work in such a way as to facilitate Russia’s economic region a key driver of LSR Group revenue and profit growth. our operational efficiency. The principles according to which development. We maintain and develop outstanding LSR Group conducts its business reflect the considerable production capacity, contributing significantly to the Yekaterinburg: LSR Group plans to keep its operations in the responsibility we bear towards society, the environment, development of the Russian construction industry. city at their present level. and generations to come. Our priorities include ensuring decent working conditions, fascilitating development in Diversifying our land bank regions where we operate, protecting the environment, and OUR STRATEGY Our existing projects guarantee LSR Group’s stable combating corruption. LSR Group is undertaking targeted development over the next five years. In the future, we plan to measures to increase its disclosure of financial and non- LSR GROUP FORMULATED ITS STRATEGY 25 YEARS continue acquiring land and obtaining construction rights in financial information with the interests of its stakeholders in AGO. ITS CORE AREAS OF ACTIVITY IN THE REAL ESTATE all regions where LSR Group has operations. mind. We are committed to being leaders in establishing a DEVELOPMENT, HOMEBUILDING, AND CONSTRUCTION responsible business culture within the Russian real estate MATERIALS MARKETS IN KEY GROWTH REGIONS HAVE Optimising existing assets market by implementing positive measures in line with proven global standards. REMAINED UNCHANGED SINCE THEN LSR Group devotes close attention to its land bank and other construction assets with the objective of increasing its share LSR Group’s priorities are subject to an ongoing process of value and further improving profitability. strategic analysis and adjustment by our Board of Directors taking into account the views of our shareholders and managers and in line with the changing landscape of the Russian economy and the increasing complexity of technological advances. Development and monitoring of our strategy is the responsibility of our Board of Directors and Strategy Committee. LSR Group is regulary monitoring and adapting its strategy. Issues relating to the strategic development of LSR Group form an important element of the meetings held by LSR Group’s Board of Directors, enabling us to make rapid adjustments to our business development plans and to quickly and accurately assess and react to risks. Stable and sustainable long-term business growth in accordance with consumer demand and maintenance of LSR Group’s financial viability are key issues in our mission to serve the community. “Morskaya Naberezhnaya”, St. Petersburg

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THE KEY DRIVERS OF BUSINESS GROWTH FOR REAL ESTATE DEVELOPMENT LSR GROUP IN THE COMING YEARS WILL BE REAL ESTATE DEVELOPMENT AND CONSTRUCTION IN AND CONSTRUCTION THE MASS-MARKET AND BUSINESS SEGMENTS, LSR Group companies plan to continue optimising business ALONG WITH THE PRODUCTION OF CORE processes with the objective of cutting production costs, reducing the time taken to build real estate, and increasing BUILDING MATERIALS. IN ADDITION, WE ANTICIPATE profit margins on the finished product. As far as construction A SIGNIFICANT IMPROVEMENT IN THE EFFICIENCY is concerned, we plan to leverage the advantages offered OF WALL MATERIAL CONSTRUCTION THANKS by our prefabricated construction plants, optimising and TO THE EXPANSION OF OUR PRODUCT LINE standardising design and production processes and the AND A REDUCTION IN OPERATING COSTS AT OUR completion of construction and assembly work, and elevating our real estate construction operations to the level of industrial NEW BRICK PRODUCTION PLANTS homebuilding. We intend to develop and strengthen LSR Group’s position With respect to development, LSR Group plans to fully in our target markets through the following measures: leverage the competitive advantage afforded by the Leveraging and developing LSR Group’s unique competitive integration of its development and construction activities advantage: its business-model, which permits reliable, round- and by the optimal size of its land bank, which includes plots the-clock control of key elements in the production chain, from freed up in the process of planned optimisation (transfer, the production of building materials to the construction and modernisation) of LSR Group’s production capacities. sale of real estate. Taken together, these measures will allow us to bring Attracting finance on more favourable terms than key industry competitors by employing a wide range of financial the required volume of high-quality housing real estate instruments, continuing to expand this range, and maintaining to the market within the necessary timeframes, and also a successful credit history and significant business volumes. to react more quickly and flexibly to potential changes in demand. Obtaining economies of scale thanks to our significant market shares, and leveraging this advantage in relations with our suppliers and subcontractors. BUILDING MATERIALS Improving the quality of the goods we create, the work we do, and the services we provide, and broadening our range as part We intend to continue developing our production of building of our portfolio strategy. materials by improving production efficiency and reducing Strengthening LSR Group’s reputation as a stable enterprise costs through utilising the latest technology and equipment, committed to achieving the highest global standards in our implementing advanced process management systems, work. expanding the number of deposits that we develop, and finding new sales markets for our products. Adhering to principles of sustainable development and social responsibility. Our plans also include further reinforcing the synergistic effect of building up our business units in recent years, as well as optimising our portfolio of assets and improving their effectiveness. We plan to ensure the growth of our building materials production business primarily by reducing operating and management costs, while simultaneously improving the quality and range of some products and increasing or maintaining the market share of others. The stability of our building materials operations will be underpinned by factors including the proportion of intra- Group consumption of a range of key products, including concrete, bricks, aerated concrete, and aggregates, as well as by leveraging the scale of LSR Group’s presence on particular goods and related markets. This will enable LSR Group to secure comprehensive supplies of a variety of products essential to the development of the construction industry.

“Kalina Park”, St. Petersburg

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As of December 31, 2019, 107.5 million square metres of SOCIO-ECONOMIC INDICATORS OVERVIEW CONSTRUCTION SECTOR housing were under construction in Russia, 26% of them Macroeconomic indicators of the Russian Federation in 2011–2019 ACTIVITY IN 2019 (28.4 million square metres of housing) located in Moscow and the Moscow Region, and 15% in St. Petersburg and the For the first time in the last 5 years the construction industry Leningrad Region (16.6 million square metres of housing). In Index 2011 2012 2013 2014 2015 2016 2017 2018 2019 in Russia has shown positive dynamics in the volume of fact, 26.2 million square metres of housing or 24% of the total GDP, annual growth % 4.3 3.4 1.8 0.7 -2.5 -0.2 1.5 2.3 1.3 completed housing. In 2019, 4.9% more residential real estate area of housing under construction in the Russian Federation was commissioned compared to 2018 (when there was were developed using escrow accounts.2 Real Disposable Income, annual growth, % 0.5 4.6 4.0 -0.7 -3.2 6.0 -1.1 0.1 0.8 a decline in commissioning of 4.4% relative to 2017). Most of the CPI, Dec to Dec, % 6.1 6.6 6.5 11.4 12.9 5.4 2.5 4.3 3 commissioned housing in 2019 was launched at the time when According to the issued construction permits in the Russian amendments to Federal Law No. 214 were first announced, Federation, as of December 31, 2019, the three leaders among Fixed capital investment, 8.3 6.6 0.8 -1.5 -10.1 -0.9 4.4 4.3 2.0 obliging all developers to switch to the use of project financing Russian residential developers included PIK, LSR and Setl City. annual growth, % and escrow accounts from July 01, 2019. Seeing how the Average URALS oil price, 109.3 110.5 107.9 97.6 51.2 41.9 53 70 63.59 consequences of this new regulation were entirely unknown, Signed housing shared equity agreements by subjects USD per barrel many market players decided to “play it safe” and launch existing of the Russian Federation, % USD exchange rate at the end of the 32.20 30.40 32.70 56.30 72.93 60.66 57.60 69.50 61.91 projects while the “old” rules still applied. period Moscow 13 Dynamics of housing commissioning in Russia Source: Ministry of Economic Development (Russia), Rosstat St. Petersburg 12.7 85.3 80.2 79.2 The Moscow Region 10.4 75.7 79.4 The Krasnodar Region 6.2 The Leningrad Region 4 A BRIEF HISTORY OF THE EMERGENCE OF NEW RULES IN REAL Other regions 85.3 80.2 79.2 of Russia 54 ESTATE DEVELOPMENT ACTIVITY REGULATION 58.2 62.9 In April 2005, the Federal Law No. 214 “On participation in eliminating dishonest players from the market, and therefore shared construction of apartment buildings and other real reducing the number of problematic projects. For example, in 2015 2016 2017 2018 2019 estate” came into force to regulate transactions associated Minsk, the number of problematic projects decreased from 50 with raising funds from citizens and legal entities for shared in 2014 to 4 in 20171. Jan-Nov Over the year construction of multi-apartment buildings and/or other real Source: Federal State Statistics Service (Rosstat). Source: the Ministry of Construction of Russia Unified Housing Information System. estate objects on the basis of an agreement on participation in Understanding that a rapid shift to new rules could create shared construction. However, the practice of applying the law a disruption in the housing market since neither banks nor has revealed insufficient protection mechanisms and home- developers were ready to switch to the new financing scheme buyers often found themselves deceived. half way into projects, the Ministry of Construction developed a criteria that, if met, allows developers to complete the project Real estate market indicators at the end of 2019 In November 2017, President Vladimir Putin instructed the in question following the old rules. The criteria states that the government to develop a new method of financing the project must be at least 30% complete and the area sold must construction of housing that eliminates the possibility of home- represent at least 10% of the total area of the project. Housing under contruction, thousand sqm buyers being cheated. Therefore, in 2018, the amendments Region Number of Total area Sold under the Sold under the Sold outside the scope to the law on shared construction were adopted, replacing If the project in question is a redevelopment project, then the completeness threshold drops to 15%. For system-forming developers escrow scheme old scheme of shared investment old mechanisms of funding with the new ones, and providing agreements developers with the following possibilities: sale of finished developers, building at least 4 million square metres across at The Russian Federation 2,440 107,463 26,356 68,358 12,749 housing without soliciting funds from home-buyers during least four region of the Russian Federation, the completeness the construction stage or the use of project financing to fund threshold drops to 6%. LSR Group and PIK are the only two Moscow 102 16,491 4,519 10,823 1,149 developers included in the list of system-forming organisations. the construction. The second option allows for sales during the The Moscow Region 170 11,899 2,983 8,381 535 construction stage, but the home-buyers’ money is meanwhile Taking into account the amount of housing currently under accumulated in special escrow accounts in banks and transferred construction, and seeing how the majority complies with The Leningrad region 65 3,819 771 2,106 942 to the developer only after the facility is commissioned. the above stated criteria, a smooth transition period to new St. Petersburg 85 12,780 1,594 10,198 988 regulation is expected that will likely last for about 2 years. The cost of project financing (interest rate) correlates with the The Sverdlovsk region 63 3,255 1,055 1,988 212 amount of sales proceeds in escrow accounts. The relationship The changes in legislation, having come into force in 2019, are Source: Dom.rf between the two is as follows: At the time when the loan is likely to result in price increases, given market consolidation, issued and no funds have been collected in escrow accounts, as well the reduced risk for the home-buyer, thus shrinking the base (market) rate is applied. As the funds start to accumulate the discount between the prices during the construction in escrow accounts, the rate begins to decrease, reaching a stage against the prices of completed hosing. Additionally, the minimum point of up to 0.01% once the funds collected in escrow cost of land plots is likely to decrease, given the anticipated accounts exceed by at least 60% the amount of the loan issued. reduction in the number of market players. Similar legislation regulating financing of residential real Some additional amendments to the legislation are currently estate development were adopted in Belarus in 2013, and, as being discussed, the most important being the stage by stage a consequence of new, stricter rules, housing commissioning opening of escrow accounts, which would allow developers dropped by 31% to 3.8 million square metres in 2017. to receive the escrow funds in tranches, depending on the 1 Source: https://riorpub.com/ru/nauka/article/21036/view. However, the new legislation proved to be effective in completion stage of the project. 2 Source: United data system of residential development of Russian Ministry of Construction.

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TOP-10 developers share of the total area of housing under construction as per issued construction PRICE DYNAMICS permits at the end of 2019 107,463 Housing under construction, th sqm Moscow 16,491 During 2019, the pricing environment of the primary housing market showed positive dynamics, increasing 3.5% in the elite Top - 10 Developers, % segment, 6.4% in the business segment and 34% in the mass market segment.

1 12,780 Dynamics of average price per segment in Moscow, RUB/sqm 11,899 313,816 304,593 303,704 288,547 293,465

50.2 67.0 166,299 20.0 160,028 154,959 57.7 141,132 144,560 156,170 3,819 132,354 3,255 105,926 102,712 114,818

62.5 63.7

Russia Moscow The Мoscow St. Petersburg The Leningrad The Sverdlovsk 2015 2016 2017 2018 Region Region Region 2019 St. Petersburg The most noticeable increase in the average price occurred in the mass market segment: +11% per year in urban facilities and THE STATE OF THE HOUSING STOCK +13% in suburban ones. In the business market segment, the average price increased by 5.7% over the year. In the elite market segment the average price increased by 4.0%. The housing stock in Russia is quite old, with only Age of Russian housing stock, % total 26% of it built over the last 25 years. Dynamics of average price per segment in St.Petersburg, RUB/sqm1 Housing stock per capita in the Russian Federation Over 100 year old 2 remains significantly lower compared to European 75–100 year old 5 176,615 174,090 181,089 standards of living. 159,782 50–75 year old 30 152,478 129,579 134,767 25–50 year old 37 110,474 113,662 114,387 111,819 93,738 100,437 Less than 25 year old 26 84,697 89,864

Source: Dom.rf

2015 2016 2017 2018 2019 Low housing stock per capita 40.4 Average w/o Russia: 38.7 Yekaterinburg 34.6 square metres per capita 34.0 The average price in the primary market in 2019 increased by +5.7%. Over the past two years, the average price in the primary 32.0 market has grown by +13.7%. 36% 28.0 Dynamics of average price per segment in Yekaterinburg, RUB/sqm1 25.4 103,641 79% 92,417 95,736 19.3 80,672 83,653 65,633 60,925 64,598 57,399 57,741 56,783 57,228 54,929 58,696 58,614

Moscow St. Petersburg Zagreb Paris Helsinki Zurich Rome 2015 2016 2017 2018 2019

Source: Rosstat, Eurostat. 1 Source: Knight Frank. Elite market segment Business market segment Mass-market segment

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12% of all mortgage loans in Russia were issued in Moscow Negative dynamics of mortgage lending is mainly due to MORTGAGE MARKET DYNAMICS and the Moscow region while 6% of all mortgage loans were a significant reduction in lending in the secondary residential KEY TAKEAWAYS Against the background of a decrease in real disposable issued in St. Petersburg and the Leningrad region. real estate market. Mortgages in the primary housing market LSR Group remains well positioned, as a leading market player, income of the population in 2019, as well as an increase in showed a positive trend compared to 2018. to profit from the expected market consolidation driven by the weighted average interest rate on mortgages in rubles A 13.2% decline in the number of mortgage loans issued was regulatory changes and benefit from the anticipated increase up to 9.87% (0.31% per year), the volume of issued mortgage recorded in St. Petersburg, while the value of the mortgage In general, the primary residential real estate market in price as well as the lower cost of new land plots. loans in Russia decreased by 5.5% in billion rub and by 13.8% loans decreased by 7.0% to 193.4 billion rubles. In Moscow, the accounted for 32.4% of the total number of issued mortgage in quantitative terms, amounting to 2,848.2 billion rubles, or number of the mortgage loans issued fell by 8.4%, while the loans in the Russian Federation. The volume of mortgages Demand fundamentals remain strong, considering the state 1,269.3 thousand loans. value of loans actually increased by 1.3% to 390.5 billion rubles. in Russia’s primary market increased by 6.0% over the year of housing stock being both low, in terms of square metres and amounted to 922.7 billion rubles. Positive dynamics per capita and considerably aged with only 26% of total As at 01.01.2020, the mortgage portfolio had reached The average mortgage loan in St. Petersburg amounted to were recorded in St. Petersburg with a 13.3% increase housing stock commissioned over the last 25 years. Moreover, 3.03 million rubles, while in Moscow the average amount of 7.49 trillion rubles. 1 (93.9 billion rubles), while a 17.6% increase (177.8 billion household deposits reached record high by the end of 2019, the loan reached 4.83 million rubles. rubles) was recorded in Moscow’s primary market. amounting to 30.7 trillion rubles, and with deposit rates being at historical lows, real estate is beginning to look like Throughout the year, much attention was paid to mortgage a relatively more attractive investment. Mortgage issuance across LSR’s key regions of operation2, thousand units lending programmes with state support. In April 2019, the terms of the mortgage subsidy programme supporting Striving to raise the annual housing commissioning to families with two or more children with a preferential rate 120 million square metres by 2025, the government is 88.2 capped at 6% were amended in a way that the preferential rate expected to play an important role in improving affordability 81 82 is now applied throughout the entire mortgage term. via numerous state subsidy programmes. The mortgage 73.7 market remains supportive as the mortgage interest rate 71 In the period between May-December 2019, about 39 62.5 64 reached a historical low in the beginning of 2020, and the 8.7% thousand preferential rate loans were issued in an amount mortgage rate, set within the scope of the National Projects, 56.6 exceeding 100 billion rubles. At present time, all leading banks 51.8 51 is expected to be achieved already in the first half of 2020. 49.2 44 (Bank DOM.RF, Sberbank, VTB) offer loans at a rate of about 5%. 43.2 43.3 37 Finally, the industry is still expecting additional amendments Additional support measures were announced in January to the legislation such as stage-by-stage opening of the 27 2020. Families will now be receiving a lump sum payment of escrow accounts, which would facilitate construction of large- 21.2 19 466.6 thousand rubles upon the birth of their first child and 15.2 scale redevelopment projects and therefore help reach the 11.9 additional 150 thousand upon the birth of their second child, government’s set target in the scope of the National Projects of which represents a significant increase over an earlier scheme constructing 120 square metres of housing per annum. where 450 thousand rubles were paid only upon the birth of the second child. The use of the funds is limited and in 72% of Moscow The Moscow Region St. Petersburg The Leningrad Region The Sverdlovsk Region the cases is used for housing acquisitions. It is therefore estimated by DOM.RF that the total amount of state support, including lump sum payments, preferential mortgage rate and additional tax breaks amounts to about Mortgage issuance across LSR’s key regions of operation2, billion rubles 2.1 million rubles for a family with two children. A family with three or more children can additionally receive up to 385.3 390.5 450 thousand rubles to repay the existing mortgage loan. A further reduction in rates will be facilitated by the development of a mortgage backed securities market. In 2019, a record of 296.9 billion rubles worth of bonds were 254.2 252.7 241.2 placed (+103%), while the total volume of bonds in circulation 200.3 reached a record high of 555.7 billion rubles (+ 41.6% by 2018). 183.3 193.4 159.5 129.1 114.1 93.6 98 89.8 65 48.1 45.3 44 22 31.2

Moscow The Moscow Region St. Petersburg The Leningrad Region The Sverdlovsk Region

2016 2017 2018 2019

1 Source: United data system of residential development of Russian Ministry of Construction. 2 Source: The Central Bank of Russia.

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LSR GROUP HAS DEVELOPED A RISK OUR RISK MANAGEMENT SYSTEM best practices; the Board found it to be a system comprising FINANCIAL RISKS MANAGEMENT SYSTEM THAT ALLOWS the totality of risk management and internal control processes LSR Group has set up a risk management system that allows us based on the existing organisational structure and internal US TO ACHIEVE OUR STRATEGIC AND to achieve our strategic and operating goals while protecting risk management and internal control policies, regulations, Interest rate risks OPERATING GOALS WHILE PROTECTING our shareholders and other stakeholders from potential losses. procedures, and methods applied across all levels of Higher interest rates on bank loans or other debt instruments OUR SHAREHOLDERS AND OTHER We take into account both internal and external risks and management and all functions at LSR Group. can increase our debt servicing costs and limit our ability STAKEHOLDERS FROM POTENTIAL LOSSES uncertainties, including those associated with the economic to borrow more funds. and political situation within Russia and abroad. LSR Group’s risk management system has been developed in INDUSTRY-SPECIFIC RISKS Receivables risk accordance with both the Russian legislation and international Unpaid receivables are one of LSR Group’s potential financial Real estate markets and markets for building materials and risks. LSR Group’s companies manage their receivables INDUS TRY-SPECIFIC risk management standards. Our approach to the challenges, construction services are subject to seasonal fluctuations in principles, and methods of risk management is grounded and associated risks under LSR Group’s Regulation on business activity. Unfavourable market changes may reduce the Management of Customers’ Accounts Receivable and RISKS in the Risk Management Policy we adopted in 2018, which revenue from the sale of goods and services. is in turn based on the COSO Enterprise Risk Management – local Regulations on Procurement developed in line with FINANCIAL RISKS Integrated Framework. The approaches to risk management LSR Group is exposed to risks that are typical for real estate corporation-wide principles. LSR Group’s companies have stipulated by the policy also reflect the principles set out in the development and construction businesses in Russia. Its adopted in-house regulations, which govern the procedures LEGAL RISKS international risk management standard ISO 31000:2009 Risk business is labour- and capex-intensive and is dependent for receivables tracking and recovery. These include ranking Management – Principles and Guidelines. on permits, authorisations, and approvals from the relevant contractors by their financial status and their historical authorities. Difficulties in obtaining all necessary licences, relationship with LSR Group’s companies; defining supply The key objectives of LSR Group’s existing risk management authorisations, and approvals may extend project timeframes terms based on a contractor’s ranking; screening new system are as follows: to the extent that projects become impossible to complete contractors; and suspending shipments if a contractor Timely identification of risks and can also lead to substantially increased costs. Moreover, breaches its payment obligations or refuses to settle overdue receivables. Where necessary, our legal team may initiate Improved risk assessment accuracy delays to construction schedules can damage our reputation and this can in turn lead to financial losses. Changes to legal proceedings to enforce the collection of outstanding Improved risk awareness for risk owners procedures for obtaining approvals and rights to land plots, receivables. LSR Group also maintains a bad debt reserve for Prevention, neutralisation, and minimisation of risks before along with changes to town planning laws, can result in longer potential write-offs. any negative consequences occur timeframes and increased costs for ongoing projects. Extended Reporting to LSR Group’s governance bodies and other construction timeframes may in turn lead to the government Currency risks stakeholders on risk management issues cancelling land lease agreements. A rapid appreciation of the US dollar or euro against the Monitoring the impact of risks on LSR Group’s financial sta- Higher operating and insurance costs and a potential rouble may affect the key parameters of our investment plans bility and reputation and on the achievement of its strategic involving purchases of foreign equipment. Wherever possible, and operational goals tightening of the tax and environmental laws may negatively affect the profitability of LSR Group’s business. Rising prices LSR Group seeks to minimise any currency mismatch between Fostering a risk management culture within LSR Group for raw materials, services, and energy used by LSR Group’s its key income and expenditure items and between its assets subsidiaries in their activities, as well as higher prices for land and liabilities. The bulk of our revenue is denominated in The most important risk management and internal control roubles, as is the bulk of our expenditure. issues are resolved by LSR Group’s Executive Committee. plots, increased land lease and utility connection fees, along with higher wages may reduce the business’s profitability. Operational risk management is carried out by LSR Group’s Increasing the prices for LSR Group’s products and/or services Liquidity risk companies on the basis of corporation-wide principles set due to the above factors may reduce sales volumes, which Liquidity risk means that LSR Group may potentially be unable out in a variety of regulations. LSR Group’s companies have may lead to a decline in revenue from these businesses as a to meet its financial obligations when due, which may expose adopted relevant in-house regulations, which govern their key result of a reduction in solvent demand (in the event that the it to fines, penalties, and damage to its reputation. LSR Group business processes. increase in prices for products and/or services outstrips the manages its liquidity risk by planning its cash flows from growth in demand). LSR Group’s centralised departments carry out additional risk operating, investment, and financial activities so as to have management activities depending on their roles and duties. The largest share of our business is located in St. Petersburg, at all times sufficient liquidity (in both business-as-usual and the Leningrad Region, Moscow, the Moscow Region, and emergency scenarios, where possible) to meet its obligations, General guidance on the risk management policy is provided Yekaterinburg, which implies a geographical concentration including, if need be, through the use of the existing short- by PJSC LSR Group’s Board of Directors. The Board of Directors’ risk. term credit lines and refinancing of its existing liabilities. Audit Committee oversees management’s take on the extent in which the decision-making process is informed by Acquisition of existing businesses has always been a For a detailed description of our financial risk management, the risk management policy and assesses the adequacy of method to ensure further growth of LSR Group. Acquisitions see Note 25 to the IFRS statements. LSR Group’s risk management activities, given the actual risks inherently involve risks of facing unforeseen contingent faced by LSR Group. Assessment of reliability, adequacy, and liabilities associated with the new acquisitions. Moreover, effectiveness of LSR Group’s risk management system is also the integration of these assets into LSR Group may also prove a responsibility of the Internal Audit Service. challenging. LSR Group regularly overhauls its risk management system and LSR Group’s growth in the recent years is to a significant is committed to improving its effectiveness. extent attributable to the availability of highly qualified and experienced talent. The Russian employment market is subject An annual assessment of LSR Group’s risk management and to change and we cannot assume that such high availability internal control system by the Board of Directors found it in of talent is guaranteed for the future. compliance with the requirements of the Russian legislation, the recommendations of the Corporate Governance Code and

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Other legal risks Another round of amendments to the housing co-investment LEGAL RISKS laws took effect in June 2019. These amendments are Material legal risks arise from gaps in the Russian legal system LSR Group’s operations may be negatively affected by changes essentially intended to provide legal regulation for the and legislation and may lead to uncertainty for investors and to laws on the securities market, including laws on countering transition period while developers adopt project financing businesses. LSR Group’s legal risks, including those related to the misuse of insider information and market manipulation, and the use of escrow accounts for funds contributed by changes in currency regulation, tax laws, or licensing practices, as well as by ambiguities in these laws and the lack of relevant co-investors. For example, they outline the requirements for may materially affect LSR Group. judicial practices. developers that continue their projects under the ‘old’ rules, Amendments to the existing, or introduction of new, corporate under project financing rules and under ‘mixed’ rules, i.e. when Legal risks arising from changes in tax laws rules and procedures, as well as tightening of the statutory a developer applies the ‘old’ rules to some of its projects while Frequent and sometimes inconsistent changes in the Russian requirements applicable to LSR Group’s activities may result following the new rules for other projects. In two years, the Federation’s tax laws may cause significant uncertainty and in additional compliance expenses with respect to such statutory requirement to perform legal due diligence with risks that complicate the process of making tax planning and rules, procedures, and requirements. In addition, regulatory respect to developers and their project declarations will be business decisions in the country and have a considerable uncertainty around some aspects of LSR Group’s activities and cancelled, while developers will no longer need to maintain negative impact on LSR Group’s operations. The tax laws the lack of established judicial or law enforcement practice third-party liability insurance and the surety bonds. The of the Russian Federation contain multiple contradictions, may expose LSR Group to legal liability and negatively affect amendments also concern some other matters. ambiguities, and gaps, which lead to disputes with tax its operations. Even after a company has been acquired In particular, a stricter liability was introduced for developers authorities. Judicial practices with respect to taxation by LSR Group, its liquidation may be enforced if its state who violate housing co-investment laws. For instance, failure often lack sophistication and differ in approaches and registration is held invalid, which would include its committing to provide information or documents required by a competent interpretations. Ambiguous legislation and judicial practices a grave breach of law at the time of its incorporation (in the regional supervisory authority overseeing co-investment expose LSR Group to the risk of substantial fines and penalties event such breach cannot be remedied) or a breach of law projects, as well as incomplete or inaccurate disclosure of even if it complies with all requirements of the tax laws. The committed in the course of its activities. information or documents will entail an administrative fine of Russian Government is forced to increase the tax burden in Changes to environmental laws of the Russian Federation may RUB 250,000 to RUB 500,000 (previously RUB 50,000 to RUB order to boost its revenue. The VAT rate has been raised as impose additional obligations on LSR Group’s subsidiaries, 200,000). of 1 January 2019, and we cannot rule out the risk of having which may subsequently affect their performance. Moreover, certain tax benefits abolished and new taxes introduced, In addition, the Order of the Ministry of Construction, Housing PJSC LSR Group’s subsidiaries may be involved in litigation over and Utilities of the Russian Federation dated 1 November 2019 which could increase LSR Group’s tax burden. Moreover, the environmental claims. Russian Government’s taxation policy is moving towards (in effect as of 11 January 2020) has updated the procedure tougher tax administration practices (i.e., delegating additional Changes to housing co-investment laws or to their application and scope of quarterly reporting by developers to supervisory powers to tax authorities, including the adoption of internal may adversely impact LSR Group’s subsidiaries involved in authorities, forcing them to redesign their reporting system. regulations) and introduction of new taxes. The above relevant projects and, accordingly, LSR Group itself. These Notably, the existing legal and regulatory framework on factors may have a negative impact on LSR Group’s business subsidiaries may face penalties or restrictions on raising funds real estate co-investment is open to multiple and often operations in the future. from housing co-investors. opposite interpretations and inconsistent with other laws Housing co-investment laws have undergone substantial and regulations. Therefore, the existing co-investment Licensing risks changes in less than a year. In particular, fundamental changes laws may be described as unstable, ambiguous, and Changes in licensing requirements may have a significant have been introduced to the procedure for raising funds from inconsistent, which means that developers depend on their impact on financial and business performance of LSR Group’s co-investors. interpretation by regional supervisory authorities and the subsidiaries and affiliates. Inability to extend a licence, or Ministry of Construction, Housing and Utilities; in addition, As of 1 July 2019, developers may raise individuals’ or revocation of a licence, may result in suspension of the developers and their officers are exposed to risks of incurring legal entities’ funds for real estate co-investment projects respective company’s operations. In the event the regulators administrative and other liability or other adverse effects. through escrow accounts only. An exception is made for identify any breach of licensing conditions by LSR Group’s co-investment projects meeting the criteria outlined in These amendments directly affect the operations of LSR Group subsidiaries, they may suspend, change, revoke, or refuse Resolution of the Government of the Russian Federation and its subsidiaries. All these setbacks may prevent LSR Group to extend the licences and permits issued to LSR Group’s No. 480 dated 22 April 2019. Due to the fact that LSR Group from exercising its contractual rights and protecting itself from subsidiaries or demand a cessation of certain types of is a systemically important enterprise and its subsidiaries third-party claims. Moreover, LSR Group cannot guarantee activities. Any of the above factors exposes LSR Group’s involved in developing business have been raising funds for that regulators, courts, or third parties will not contest the business, financial position, and performance to risks. co-investment projects measuring in total over four million compliance of PJSC LSR Group and its subsidiaries with the square metres of housing in four Russian regions, they applicable laws, orders, and regulatory instructions. have been permitted to complete their projects with a low physical progress (six or more percent) under the ‘old’ rules, substantially increasing the number of co-investment projects that PJSC LSR Group’s subsidiaries will be able to continue without using escrow accounts.

36 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 37 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE OPERATING AND FINANCIAL PERFORMANCE

Operating Results ��40 Financial Results ��44 Real Estate Portfolio ��46 Project Portfolio ��48

Reclaimation ground of the Vasilievsky Island

38 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 39 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE OPERATING RESULTS

IN 2019, LSR GROUP ACHIEVED EXCELLENT Real estate in St. Petersburg Real estate in Moscow Real estate in Yekaterinburg OPERATING RESULTS ACROSS ALL KEY BUSINESS In 2019, LSR Group new contract sales reached 461,000 square In 2019, LSR Group new contract sales in Moscow reached New contract sales in Yekaterinburg in 2019 reached SEGMENTS: REAL ESTATE DEVELOPMENT AND metres of net saleable area, with a total value of RUB 43 billion. 241,000 square metres of net saleable area, with a total value 116,000 square metres of net saleable area, with a total value CONSTRUCTION AS WELL AS THE PRODUCTION OF Most of the transactions were completed in the second half of of RUB 34 billion. of RUB 7 billion. KEY BUILDING MATERIALS. A PLANNED REDUCTION the year, with the majority of sales contracts concluded during the fourth quarter. Real estate development in Moscow, 2018–2019 Real estate development in Yekaterinburg, 2018–2019 IN DEVELOPMENT SALES VOLUMES DUE TO REGULATORY UNCERTAINTIES THAT PERSISTED Real estate development in St. Petersburg, 2018–2019 Index 2019 2018 Change, % Index 2019 2018 Change, % FOR THE FIRST HALF OF THE YEAR WAS PARTIALLY New contracts sales, 241 236 2 New contracts sales, 116 167 (30) COMPENSATED WITH AN INCREASE IN PRICE OF Index 2019 2018 Change, % thousand square metres thousand square metres 15% YOY, THEREBY IMPROVING LSR GROUP’S New contracts sales, 461 599 (23) New contracts sales, 34.4 30.3 13 New contracts sales, 7.2 9.7 (26) PROFITABILITY MARGINS AND DEMONSTRATING thousand square metres RUB billion RUB billion STRENGTH OF OUR MARKET OFFERING New contracts sales, 42.6 52.7 (19) Average price, RUB 173 146 19 Average price, RUB 64 60 6 RUB billion thousand/square metre thousand/square metre Average price, RUB 98 92 7 Completions, thousand 286 153 87 Completions, thousand 132 140 (6) REAL ESTATE DEVELOPMENT thousand/square metre square metres square metres Completions, thousand 416 715 (42) AND CONSTRUCTION square metres The average price per square metre (excluding parking spaces) The average price per square metre (excluding parking spaces) In 2019, new contract sales reached 817,000 square metres, was RUB 173,000, compared to RUB 146,000 in 2018. was RUB 64,000, compared to RUB 60,000 in 2018. with a total value of RUB 84 billion. The average price per square metre (excluding parking spaces) was RUB 98,000, compared to RUB 92,000 in 2018. The share of mortgage sales accounted for about 42% of total Mortgage sales accounted for about 51% of total transactions. Real Estate development in Russia, 2018–2019 transactions. A total of 286,000 square metres were completed In 2019, we completed 132,000 square metres of real estate, In St. Petersburg, the share of mortgage sales accounted for at our ZILART, Nakhabino Yasnoe and Luchi projects in Moscow comprised mostly of the Michurinsky, Tsvetnoy Bulvar, about 48% of total transactions. Completions decreased 42% during the year. Voskhod, and Flagman projects. Index 2019 2018 Change, % year-on-year to 416,000 square metres in line with LSR Group’s New contracts sales, 817 1,002 (18) targets. Real estate sales in Moscow by key project in square Real estate sales in Yekaterinburg by key project in square thousand square metres metres, 2019, % metres, 2019, % In June 2019, LSR Group launched the sale of apartments New contracts sales, 84.2 92.7 (9) in a new business-class residential project, Morskaya Flagman 12 RUB billion Naberezhnaya, in St. Petersburg. Located in a 34-hectare land Luchi 36 Average price, RUB 112 98 15 plot, the residential complex has a total area of 886 thousand Nakhabino Yasnoe 13 Michurinsky 25 thousand/square metre square metres, with a living space of just over 512 thousand ZILART 39 Tsvetnoy Bulvar 17 Completions, 834 1,009 (17) square metres. thousand square metres Other 12 Khrustalnye Klyuchi 13 Real estate sales in St. Petersburg by key project in square Prefabricated Construction 478 528 (9) metres, 2019, % Meridian 16 The average price of real estate sold (excluding parking spaces) Voskhod 13 in 2019 was RUB 112,000 per square metre, up 15% year-on- Civilization 14 Other 4 year. In 2019, we completed a total of 834,000 square metres of real estate. Novaya Okhta 20 Ruchyi 12 New contract sales and completions in 2018–2019, thousand square metres Tsvetnoy Gorod 21 Shuvalovsky 9 1,009 1,002 Completions 834 817 Morskaya New contract Naberezhnaya 4 sales Other 19

2018 2019

In 2019, the share of mortgage sales decreased from 54% to 47% year-on-year due to higher mortgage rates in the first half of 2019.

40 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 41 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE OPERATING RESULTS

In 2019, LSR Group’s companies in St. Petersburg and Yekaterinburg transferred 478,000 square metres of panel BUILDING MATERIALS housing to customers. The volume of construction and assembly In 2019, our building materials business segment delivered work declined 9% year-on-year as the 2018 figures also included a fairly stable performance. Sales were mainly in line with the volumes reported by the assets disposed of during 2018 – 2018 results, as per management expectations. LLC LSR. Construction-M (Moscow) and OJSC PO Barrikada (Northwestern Federal District). These asset disposals reflect Sales of building materials, 2018–2019 LSR Group’s strategy to optimise its asset portfolio and focus on its core and more profitable business activities. Sales of crushed granite and sand, products, and ready-mix and aerated concrete, 2018–2019, Volume of construction and assembly work region, thousand cubic metres 2018–2019, thousand square metres 10,699 380 Moscow 8,240 7,540 7,416 315 St. Petersburg Yekaterinburg 163 129 1,418 1,135 1,413 1,143

19 2018 2019 2018 2019 Aerated Ready-mix Sand Crushed concrete concrete granite Note: 1. Operating results in these tables are rounded to the nearest thousand, while % change calculations are based on the full figures. Brick sales, 2018–2019, million pcs 2. Sales volumes in Moscow and Yekaterinburg include both the transfer of completed panel housing to customers and sales of reinforced concrete for 300 panel construction. 2018

305

2019

SALES OF BUILDING MATERIALS, 2018–2019

Product 2019 2018 Change, % Crushed granite, 7,416 7,540 (2) thousand cubic metres Sand, 8,240 10,699 (23) thousand cubic metres Ready-mix concrete, 1,143 1,135 1 thousand cubic metres Bricks, million units 305 300 2 Aerated concrete, 1,413 1,418 – thousand cubic metres

Note. Operating results in these tables are rounded to the nearest thousand, while % change calculations are based on the full figures. The lower reported sales volumes of sand are primarily a result of the completion of the M11 federal highway project; however, LSR Group’s ongoing involvement in national and infrastructure projects will inevitably bolster demand.

“Ruchyi”, St. Petersburg

42 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 43 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE FINANCIAL RESULTS

KEY FINANCIAL INDICATORS DEBT BREAKDOWN Debt structure in 2018–2019, RUB million

Indicator 2019 2018 Change, % At end-2019, LSR Group’s total debt was RUB 89,619 million, a 4.1% increase year-on-year. Net debt amounted to 71,083 15,000 5 Revenue, RUB million 110,438 146,376 (24.6) RUB 22,760 million, a 24.9% reduction from 2018. As at 2018 Adjusted EBITDA, RUB million 21,037 36,400 (42.2) 31 December 2019, the Net debt/Adjusted EBITDA ratio was 1.08. Adjusted EBITDA, % 19.0 24.9 — 62,616 27,000 3 Operating profit, RUB million 16,624 24,798 (33.0) As at 31 December 2019, LSR Group’s debt portfolio was mainly comprised of bank and other loans (69.9%). Bond issues 2019 Operating profit, % 15.1 16.9 — accounted for 30.1% and lease liabilities for less than 0.01% Profit for the year, RUB million 7,469 16,230 (54.0) of our total debt. Adjusted cash flow from operating activities (before income tax and Bank and other loans 24,748 30,248 (18.2) interest paid), RUB million1 Bond issued Depreciation and amortisation 1,898 2,429 (21.9) Lease liabilities Total debt, RUB million 89,619 86,088 4.1 Net debt, RUB million2 22,760 30,290 (24.9) Net debt/Adjusted EBITDA 1.08 0.83 —

Revenue in 2017–2019, RUB million Net profit in 2017–2019, RUB million

146,376 16,230 138,494 15,871

110,438

24.6% 7,469

54.0%

5.7% 2.3%

2017 2018 2019 2017 2018 2019

Cash flow from activities OPERATING ACTIVITIES INVESTING ACTIVITIES FINANCING ACTIVITIES 24.7 2.0 -3.6 RUB BILLION RUB BILLION RUB BILLION Cash flow from operating activities Cash flow from investing activities. Cash outflow from financing activities. before income tax and interest paid1.

INCOME TAX INTEREST PAYMENTS CASH BALANCE AS AT 31 DECEMBER 20192 5.4 6.5 RUB BILLION RUB BILLION 66.9 The amount of income tax paid. The total amount of interest paid. RUB BILLION

1 Including cash in escrow accounts received during the reporting period. 2 Including cash in escrow accounts. “Tri Vetra”, St. Petersburg

44 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 45 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE REAL ESTATE PORTFOLIO

NET SALEABLE AREA BREAKDOWN OF OUR REAL ESTATE BREAKDOWN OF OUR REAL BREAKDOWN OF OUR REAL ESTATE PORTFOLIO BY MARKET SEGMENT ESTATE PORTFOLIO BY STAGE PORTFOLIO BY REGION LSR Group’s real estate portfolio is well balanced across various OF DEVELOPMENT The greater part of LSR Group’s real estate portfolio, i.e. 67.7% market segments, thus allowing us to target different consumer by area and 51.8% by market value, is located in St. Petersburg ,579 As of 31 December 2019, our real estate portfolio included 7 groups. The majority of our portfolio (including land plots to be and the Leningrad Region, our home market. The share of THOUSAND SQM developed in future) is made up of mass-market real estate, which 3,616,000 square metres of net saleable area under portfolio located in Moscow and the Moscow Region at construction, 266,000 square metres at the design stage and LSR GROUP’S NET SALEABLE AREA is always in higher demand relative to other market segments. the end of 2019 amounted to 20.6% by area and 44.3% by LSR Group’s real estate portfolio also includes elite and business- 82,000 square metres of completed real estate. LSR Group’s market value. The share of portfolio located in Yekaterinburg AT THE END OF 2019 class residential projects, as well as commercial property. Although offices occupy an area of 24,000 square metres. Further and the Sverdlovsk Region totalled 11.7% by area and 4.0%, Our real estate portfolio comprises elite, business- these segments account for a relatively small portion of the 3,591,000 square metres of real estate are at the concept by market value. class and mass-market residential projects, as well portfolio in terms of net saleable area, they have a higher market development stage pending necessary urban planning as commercial property. Our development projects value per square metre than mass-market developments. documentation. are located in St. Petersburg, the Leningrad Region, Moscow, the Moscow Region, and Yekaterinburg. Net saleable area by market segment in 2019, Real estate portfolio by stage of development in 2019, Real estate portfolio by region in 2019, thousand sqm thousand sqm thousand sqm VALUATION OF OUR REAL ESTATE PORTFOLIO Mass-market 5,870 Concept St. Petersburg 5,134 development 3,591 e Elit 203 Moscow 1,560 Design 266 ,955 Business class 1,419 Yekaterinburg 886 206 Construction 3,616 MILLION RUB Commercial property under Completed 82 MARKET VALUE OF LSR GROUP’S REAL ESTATE development 64 Operating offices 24 PORTFOLIO AT THE END OF 2019 Operating offices 24 The market value of LSR Group’s real estate portfolio, as per the valuation report by the independent external appraiser Knight Frank. The estimated square metre value of our real estate projects increased by 15% year-on-year.

Market value of our real estate portfolio by market Market value of our real estate portfolio by stage Real estate portfolio by region in 2019, RUB billion segment in 2019, RUB billion of development in 2019, RUB billion

Mass-market 89,957 Concept St. Petersburg 107,111 development 43,188 e Elit 24,174 Moscow 91,629 Design 11,629 Business class 71,561 Yekaterinburg 8 215 Construction 124,706 Commercial property under Completed 22,512 development 4,919 Operating offices 4,919 Operating offices 16,343

46 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 47 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE PROJECT PORTFOLIO

ST. PETERSBURG ELITE SEGMENT ST. PETERSBURG BUSINESS CLASS

SMOLNY OSOBNYAK EUROPA CITY TRI VETRA PARK TRUVOROVA

Net Saleable area Net Saleable area Net Saleable area Net Saleable area 357 4,963 1,690 1,238 SQM SQM SQM SQM Market value Market value Market value* Market value 352,578 1,429,047 1,141,908 501,323 THOUSAND THOUSAND THOUSAND THOUSAND RUB RUB RUB RUB

* Market value of the unsold residual.

NEVA RUSSKY NEO PARK BOHEMIA HAUS DOM

Net Saleable area Net Saleable area Net Saleable area Net Saleable area 13,491 2,471 76,011 5 238 SQM SQM SQM SQM Market value Market value Market value Market value 1,581,933 485,935 10,139,059 1,918,694 THOUSAND THOUSAND THOUSAND THOUSAND RUB RUB RUB RUB

NEVA ART, VERONA MORSKAYA RIVIERE NEVA RESIDENCE NABEREZHNAYA NOIRE (REB Flota)

Net Saleable area Net Saleable area Net Saleable area Net Saleable area 116,304 2,203 514,143 12,936 SQM SQM SQM SQM

Market value Market value Market value Market value 9,472,844 1,000,041 16 ,240,765 1,147,055 THOUSAND THOUSAND THOUSAND THOUSAND RUB RUB RUB RUB

48 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 49 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE PROJECT PORTFOLIO

ST. PETERSBURG MASS MARKET

TSVETNOY SHUVALOVSKY YUZHNAYA NOVAYA GOROD WEST AQUATORIA OKHTA

Net Saleable area Net Saleable area Net Saleable area Net Saleable area 1,354,675 64,773 839 33,213 SQM SQM SQM SQM

Market value Market value Market value Market value 5,451,781 5,011,195 358,605 2,122,336 THOUSAND THOUSAND THOUSAND THOUSAND RUB RUB RUB RUB

OKTYABRSKAYA NAB. 102

Net Saleable area 148,608 SQM

Market value 2,428,648 THOUSAND RUB

ZVEZDNY AEROPORT TSVETNOY RUCHYI DUET RZHEVKA GOROD (Kosmonavtov/ Dunayskiy) Net Saleable area Net Saleable area Net Saleable area Net Saleable area 789,621 121,958 10,784 1,007,956 SQM SQM SQM SQM Market value Market value Market value Market value 8,995,133 801,069 27,259 7,025,147 THOUSAND THOUSAND THOUSAND THOUSAND RUB RUB RUB RUB

50 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 51 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE PROJECT PORTFOLIO

ST. PETERSBURG MASS MARKET ST. PETERSBURG COMMERCIAL PROPERTY

ZAPOVEDNY M. KAZAKOVA GEORGIYEVSKY SMOLNY PARK PARK

Net Saleable area Net Saleable area Net Saleable area Net Saleable area 78,923 203,000 12,607 7,567 SQM SQM SQM SQM

Market value Market value Market value Market value 2,102,362 4,661,311 1,571,587 1,392,087 THOUSAND THOUSAND THOUSAND THOUSAND RUB RUB RUB RUB

TOVARISCHESKIY CIVILIZATION NEVSKY 68 NEVSKY 1 PR. 38 Товарищеский проспект

Net Saleable area Net Saleable area Net Saleable area Net Saleable area 16,000 499,765 8,400 11,201 SQM SQM SQM SQM

Market value Market value Market value Market value 349,728 11,112,215 2,545,814 3,761,290 THOUSAND THOUSAND THOUSAND THOUSAND RUB RUB RUB RUB

52 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 53 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE PROJECT PORTFOLIO

ST. PETERSBURG BUSINESS CENTRES MOSCOW BUSINESS CENTRES

ZOLOTAYA KAZANSKAYA 60 AVTOZAVODSKAYA KAZANSKAYA 22

Net Saleable area Net Saleable area Net Saleable area 2,725 2,020 7,741 SQM SQM SQM

Market value Market value Market value 412,856 243,003 1,295,099 THOUSAND THOUSAND THOUSAND RUB RUB RUB

KAZANSKAYA 36 PARADNY TVERSKOY DAVYDKOVSKAYA KVARTAL BC 11 BULVAR16 16

Net Saleable area Net Saleable area Net Saleable area Net Saleable area 4,957 2,886 2,068 1,737 SQM SQM SQM SQM

Market value Market value Market value Market value 745,747 580,388 1,417,941 224,280 THOUSAND THOUSAND THOUSAND THOUSAND RUB RUB RUB RUB

54 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 55 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE PROJECT PORTFOLIO

MOSCOW BUSINESS CENTRES MOSCOW COMMERCIAL PROPERTY

GRUNWALD ZILART NOVY BALCHUG

Net Saleable area Net Saleable area Net Saleable area 1,367 739,270 24,360 SQM SQM SQM

Market value Market value Market value 235,096 41,539,429 7,071,830 THOUSAND THOUSAND THOUSAND RUB RUB RUB

LENINGRADKA 58

Net Saleable area 25,919 SQM

Market value 2,789,783 THOUSAND RUB

DONSKOY KRASNIY OLYMP MAYAK

Net Saleable area Net Saleable area 6,383 97,296 SQM SQM

Market value Market value 2,031,668 3,728,069 THOUSAND THOUSAND RUB RUB

56 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 57 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE PROJECT PORTFOLIO

MOSCOW MASS MARKET

LUCHI LUCHI 2

Net Saleable area Net Saleable area 162,728 293,181 SQM SQM

Market value Market value 11 ,262,752 11,156,569 THOUSAND THOUSAND RUB RUB

NEW NAKHABINO ILMENSKY 1 ILMENSKY 4 DOMODEDOVO YASNOE

Net Saleable area Net Saleable area Net Saleable area Net Saleable area 1,780 9,929 113,305 72,991 SQM SQM SQM SQM

Market value Market value Market value Market value 243,772 1,220,601 4,832,997 2,578,641 THOUSAND THOUSAND THOUSAND THOUSAND RUB RUB RUB RUB

58 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 59 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE PROJECT PORTFOLIO

YEKATERINBURG MASS MARKET

MICHURINSKY MERIDIAN RASSVETNY

Net Saleable area Net Saleable area Net Saleable area 61,553 162,280 10,331 SQM SQM SQM

Market value Market value Market value 1,531,983 1,387,395 146,135 THOUSAND THOUSAND THOUSAND RUB RUB RUB

FLAGMAN VIZ

Net Saleable area Net Saleable area 19,355 150 000 SQM SQM

Market value Market value KHRUSTALNYE KLYUCHI 573,482 2,156,024 THOUSAND THOUSAND Net Saleable area RUB RUB 134,939 SQM

TSVETNOY BETONSCHIKOV Market value BULVAR 5 946,988 Net Saleable area Net Saleable area THOUSAND RUB 63,550 283,810 SQM SQM

Market value Market value 497,674 975,588 THOUSAND THOUSAND RUB RUB

60 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 61 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE SUSTAINABILITY

Strategy and Sustainability Management ��64 Facilitating the Development of Sustainable Cities ��66 Occupational Health and Safety ��68 HR Management ��69 Ethical Business Conduct and Countering Corruption ��71 Environmental Protection ��72

“NEO Park”, St. Petersburg

62 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 63 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE STRATEGY AND SUSTAINABILITY MANAGEMENT

LSR Group places a particular emphasis on embedding sustainability in its strategy, Sustainable Development Goals Targets and objectives Indicators 2019 2020 target culture and operations. LSR Group’s approach to managing the economic, environmental and social aspects of its activities is grounded in global best practices PROVIDING SAFE WORKING CONDITIONS Reduce work-related injuries among employees in sustainability. LSR Group’s management supports the Sustainable Development Lost time injury frequency rate (LTIFR) 0.51 Achieve 0.45 Goals adopted by the UN General Assembly in 2015. Number of work-related accidents 8 Reduce by 20% As a UN Global Compact signatory since 2019, LSR Group undertakes to integrate Number of work-related fatalities 0 0 the UN principles concerning human rights, labour, the environment and countering corruption into its development strategy, corporate governance and culture. Reduce the occupational disease rate We strive to align the interests of our different stakeholder groups throughout Occupational disease rate among employees 0 0 our operations, and promptly address their expectations, needs and concerns. Safety control LSR Group’s sustainability efforts are focused on four key areas: Percentage of LSR Group’s construction projects and companies that have undergone 100% 100% internal occupational, industrial and fire safety audits Providing decent and safe working conditions PROVIDING DECENT WORKING Recruit and retain talent Ethical business conduct and countering corruption CONDITIONS Facilitating the development of regions of presence Voluntary turnover rate 22% Keep the rate under 25%

Environmental protection Average recruitment and onboarding success rate 78% Maintain the rate at 70% or above Sustainability management is an integral part of LSR Group’s existing corporate Talent training and development governance framework and is carried out across all organisational levels. Number of employees who completed training and upskilling programmes 4,468 Maintain the level at 4,000 people or above LSR Group’s Board of Directors and Board committees, together with the Executive Committee and the Chief Executive Officer, determine business priorities and Ensure social security and develop corporate culture exercise overall management of LSR Group, including its sustainability efforts. Investment in social programmes for employees RUB 252 million Maintain the level The Sustainable Development function is responsible for coordinating and at RUB 200 million or above monitoring LSR Group’s sustainability activities. Relevant structural subdivisions Employee satisfaction survey Ongoing Complete and companies of LSR Group are responsible for setting and implementing specific sustainability objectives and initiatives. In 2019, PJSC LSR Group adopted its Number of confirmed incidents of human rights violations 0 0 Sustainability Policy to improve sustainability management, collate sustainability ETHICAL BUSINESS CONDUCT Ethical conduct of business data and enhance information transparency. AND COUNTERING CORRUPTION Percentage of employees who have read the Code of Ethics 100% 100% Additional information on LSR Group’s sustainability efforts can be found Percentage and number of responses to reports received via the Trust hotline 100% (78 responses) 100% in its Sustainability Report 2019 and on the corporate website. Countering corruption Number of confirmed incidents of corruption 0 0 Number and percentage of employees and counterparties that the organisation’s counter 100% 100% corruption policies and procedures have been communicated to (9,162 employees and 3,819 counterparties1) LSR Group’s key stakeholders Percentage of business units assessed for risks related to corruption 100% 100% Ensure fair competition among counterparties GOVERNMENT AND REGULATORS Percentage of standard contracts with counterparties that contain counter corruption clauses 100% 100% FACILITATING THE DEVELOPMENT Build a responsible supply chain OF REGIONS OF PRESENCE SHAREHOLDERS Percentage of construction and installation contracts featuring occupational health 100%2 100% EMPLOYEES AND INVESTORS and environmental, fire and industrial safety requirements for contractors

Green construction, product quality and consumer safety

MEDIA CLIENTS Percentage of completed projects that have undergone external audits for compliance 100% 100% with quality and safety standards LSR GROUP ENVIRONMENTAL PROTECTION Ensure sustainable use of natural resources and mitigate the negative environmental impact PUBLIC LOCAL Deployment of a GHG calculation and analysis system Ongoing Complete ORGANISATIONS COMMUNITIES Deployment of a centralised automated environmental data system Ongoing Complete pilot deployment within test areas SUPPLIERS, CONTRACTORS AND OTHER BUSINESS Ensuring environmental safety PARTNERS Number of significant environmental incidents 0 0

1 Number of organisations that based on their 2019 scores were assigned reliability categories and buyer-submitted ratings within the internal corporate information system at the new contract signing stage. 2 S tandard contracts signed with counterparties in 2019. When renewing contracts signed during prior periods, LSR Group verifies whether the anti-corruption clause was included and makes sure it is included in existing contracts/agreements.

64 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 65 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE FACILITATING THE DEVELOPMENT OF SUSTAINABLE CITIES

Building sustainable cities is one of priorities today. Green construction As a construction and property development company, LSR Group makes a significant contribution to building Green construction is becoming increasingly important for sustainable cities by offering their residents a better the property market players. For us, green construction means quality of life and safety while improving the use of natural much more than the environmental agenda alone: in addition resources. to reducing our environmental impact, we also focus on improving the quality and social aspects of life and safety in LSR Group’s contribution to developing sustainable our new buildings. cities and communities Key elements of green construction at LSR Group: Constructing energy-efficient and energy-saving buildings Utilising water-saving technology in buildings MEETING THE BASIC NEEDS OF COMMUNITIES Introducing advanced separate waste collection and disposal systems Constructing high-quality, safe and Constructing buildings using environmentally safe building comfortable housing materials Constructing healthcare and educational Constructing buildings with an adequate and healthy facilities as a part of social infrastructure microclimate Constructing roads and other urban Using soundproofing technology for buildings infrastructure Providing charitable aid to socially Comprehensive landscaping and planting the areas around vulnerable groups buildings, including construction of necessary social infrastructure “Michurinsky”, Yekaterinburg Using smart information solutions in construction

URBAN IMPROVMENT AND DEVELOPMENT Social and charitable programmes Key charitable projects in 2019 LSR Group is actively involved in addressing development priorities of its regions of operation. We provide financial support for Building parks and planting trees SUPPORTING THE ACTIVITIES OF THE LEAGUE OF PUBLIC ASSOCIATIONS OF PARENTS OF CHILDREN WITH DISABILITIES social and charitable programmes and engage in landscaping, (GAOORDI) IN ST. PETERSBURG Investing in cultural heritage projects construction and renovation of important social infrastructure. In 2019, LSR Group invested a total of RUB 407 million towards The Supporting Group Day Centres for Young People with Developmental Disabilities programme charity objectives. The Novaya Okhta Home assisted living service (opening a second assisted living home for people with mental and physical Taking part in projects to improve the social environment and developmental disorders) RESOURCE EFFICIENCY quality of life for vulnerable social groups is an important part The School of Myology international training course for neurologists of our social agenda. LSR Group’s charity policy is based on the Creating new jobs under disability employment quotas Applying resource-saving technology following key principles: COOPERATION WITH THE CHILDREN ARE WAITING CHARITABLE FOUNDATION AND THE ST. PETERSBURG PARENTS REGIONAL to property construction Targeted efforts ADVOCACY GROUP Effectiveness Arranging assistance with updating and repopulating the databases of adoption service portals and websites Consistency The Family Orientation Centre providing comprehensive support to foster families at all stages of the fostering process ECONOMIC GROWTH AND WELL-BEING LSR Group works closely with not-for-profit organisations, The Nursing Care project to support orphaned children in medical treatment and prevention facilities offering advice and organising joint charitable projects. Key focus areas of LSR Group’s charitable activities: The Mother’s Here project to support single women with young children in difficult living situations Helping to increase employment Children’s photography session for adoption service portals, and the Your View photography studio Boosting regional budget revenues Caring for children by fulfilling tax and other obligations Supporting socially vulnerable groups COLLABORATION WITH THE PARENTS’ BRIDGE CHARITABLE FOUNDATION Contributing to building a responsible Reviving and preserving Russia’s cultural heritage The Angels with Broken Wings programme to support families willing to adopt children deprived of parental care, including supply chain and driving growth in other children with disabilities sectors of the economy SUPPORTING INCLUSIVE CHILDREN’S ART CENTRES

The Dobrotorium Children’s Art Centre in the Moscow region The Arteriya Collaborative Art Centre in St. Petersburg The Development Collaborative Children’s Art Centre in Yekaterinburg

COLLABORATION WITH THE RUSSIAN STATE SPECIALISED ACADEMY OF THE ARTS (RGSAI)

Providing people with disabilities with the access to adequate a higher education in the Arts

66 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 67 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE OCCUPATIONAL HEALTH AND SAFETY HR MANAGEMENT

LSR Group recognises the importance of ensuring safe Injury prevention and occupational health Our people are our key strategic asset, and we work every working conditions for its employees and other individuals day to provide safe working conditions and an environment working with LSR Group. Minimising risks for employees and LSR Group companies prepare and implement annual conducive to realising our employees’ potential and leveraging preventing life- and health-threatening situations are among programmes to prevent work-related injuries in line with all their professional skills. LSR Group’s HR policy ensures that LSR Group’s highest priorities and a key driver of its future legal requirements and internal procedures. Key measures our employees receive a decent pay, provides them with sustainable growth. taken under these programmes include special assessments of social support, and offers them training, and professional working conditions, equipping workplaces in line with safety development as well as career advancement opportunities. Since 2018, LSR Group has in place the Occupational Health requirements, and consistent monitoring of the technical and Industrial and Fire Safety Policy outlining the key goals, condition of LSR Group’s production facilities. We comply with the requirements of the labour law, including principles, and obligations of LSR Group in these areas. those pertaining to human rights, and are committed to In 2019, we adopted and put in place PJSC LSR Group’s implementing uniform approaches to HR and social policies LSR Group’s activities in occupational health and industrial and Directive On Occupational Safety and Industrial and Fire across all business units while enabling LSR Group’s companies fire safety are grounded in the following principles: Safety to strengthen our focus on compliance with safety to build their own HR management processes taking into requirements. The Directive transforms the legacy three-tier account their specific business profile. Prioritising employees’ lives and health over LSR Group’s control system into a new system to enhance internal control performance at each individual company as well as centralised control In 2019, we continued the project to centralise the HR function Holding managers accountable for ensuring safe working provided by the Economic Security Department. The Directive across LSR Group’s entities. The project aims to boost the conditions also updates the list of controllable metrics and the format and performance of our HR staff and improve the quality, reliability, Holding LSR Group employees and contractors accountable frequency of reporting on the results of audits. and speed of updates provided to LSR Group’s management on significant HR-related events and metrics. In 2019, the for their own safety and the safety of those around them, A total of eight accidents occurred at LSR Group companies in with the right to intervene in the event of non-compliance structure and features of all HR-related processes were unified, 2019. This is 20% fewer accidents than in 2018. The lost time along with HR staff’s skill levels; themed reviews of local with safety regulations injury frequency rate (LTIFR) fell by 6% to 0.51. The majority of Involving all employees in activities focused on cutting the regulations and HR documents across all LSR Group’s entities injuries sustained (7 out of 8) were minor in nature, and none were carried out. number of accidents and occupational injuries and diseases of the accidents proved to be fatal. Prioritising preventive measures in all aspects of Ad hoc commissions were set up to investigate the causes occupational health, industrial and fire safety Personnel structure and talent acqusition of each accident, with measures taken to prevent similar LSR Group is one of the largest employers both in its sector LSR Group companies have in place occupational health accidents in the future. PJSC LSR Group’s Directive On and in the regions of its presence. In 2019, LSR Group’s average management systems and conduct regular internal Accidents adopted in 2019 enhances the centralised control by headcount was 9,814 people. Most of the employees work at occupational health and industrial and fire safety checks as the Economic Security Department over investigation results. LSR Group’s entities located in the Northwestern region, and well as audits to ensure their compliance with applicable legal We also established the frequency and form of internal reports the remaining 20% in other regions of LSR Group’s operation. requirements. on accidents, as well as uniform procedures to be followed by responsible officers in case of an accident. Given the nature of LSR Group’s activities, 66% of our Developing a safety culture employees are male. While production workforce comprised Caring for the health of our people and taking steps to prevent 76% of LSR Group’s total headcount in 2019, our administrative We are committed to developing a culture of occupational and reduce the incidence of overall and work-related ill health safety in which each employee is personally accountable staff and sales force accounted for just 20% and 4% of the are also top priorities for LSR Group. Annual measures include total, respectively. both for their own life, and for the lives and health of their medical examinations for employees, ‘’Health Days’’, and colleagues. Hazards and risks are communicated on a regular sports events. LSR Group employees are offered the chance Most of newly recruited personnel at LSR Group are blue-collar basis, and regular occupational health and industrial and fire to participate in sports contests, bike rides, and other events workers. We are particularly keen to attract skilled workers safety briefings are held for LSR Group employees. intended to cultivate a healthy lifestyle. such as electricians, welders, and maritime workers, as well Employees’ fulfilment of safety requirements is taken into as lower-skilled workers, offering them further training and consideration when calculating their bonuses and the variable development opportunities at LSR Group’s training centres. component of their salary. Penalties are applied not only We also work closely with educational institutions to attract to offenders, but also to their supervisors if the accident is young, skilled talent. caused by unsafe working conditions. In 2019, we updated In 2019, we automated the scoring of recruitment and codified the procedure for calculating bonuses payable to effectiveness, an HR-related KPI. This metric evaluates the enterprise managers based on their injury and accident rates. success of recruitment in meeting the demand of LSR Group’s We also ensure our safety requirements extend to our entities for skilled personnel and shows the percentage of staff contractors by including the relevant provisions in our hired within the reporting period who successfully adapted contracts with them. All legal agreement templates with and stayed with LSR Group. In 2019, the average recruitment contractors used since the second quarter of 2018 have success rate was 78%. included clauses holding contractors accountable for All new hires complete a special onboarding programme, in compliance with occupational health and industrial and fire addition to an induction training course and orientation tours safety requirements, with penalties for non-compliance. In around LSR Group’s sites. the event of non-compliance with these requirements, the contractors’ work may be halted, and appropriate measures may be taken with respect to workers and companies.

“Rassvetny”, Yekaterinburg

68 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 69 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE HR MANAGEMENT ETHICAL BUSINESS CONDUCT AND COUNTERING CORRUPTION

Training and development Social policy LSR Group is guided in its daily operations by the principles of honest, transparent, and ethical business conduct. We focus on meeting development and upskilling needs Social policy at LSR Group focuses on creating a comfortable LSR Group’s management closely monitors all matters across all categories of our employees. LSR Group’s Corporate working environment and improving the wellbeing of related to combating corruption and all forms of abuse, HR Assessment and Development Centre is responsible for employees and their families. This in turn helps to boost staff including bribery and fraud. implementing training programmes for specialists and line motivation and performance. A total of RUB 252 million was managers. We also engage external trainers and coaches for allocated for LSR Group’s social programmes in 2019, including LSR Group is developing its own unified internal standards our training programmes. In addition, LSR Group’s entities run approximately RUB 13 million in financial assistance for and corporate code of conduct so as to prevent conflicts in-house licensed training centres to provide training to blue- employees. of interest and unlawful practices. In addition, all business collar workers. Where necessary, LSR Group arranges personnel units at LSR Group regularly perform corruption risk training at third-party educational institutions. Key focus areas of social policy at LSR Group include: assessment and develop appropriate mitigation measures. At the end of each year, all business units prepare a report About 4,500 employees of LSR Group’s entities, including 2,500 Financial assistance for employees and their families Reimbursement of meal costs for blue-collar personnel on their counter corruption activities, reviewed by the blue-collar workers, completed various training and upskilling Economic Security Department. There were no confirmed programmes in 2019. A total of RUB 22 million was spent on Provision of decent social and living conditions for workers incidents of corruption identified within LSR Group in 2019. training programmes during 2019. Medical insurance, including emergency medical care, first-aid stations at LSR Group’s entities or access to medical LSR Group operates the Trust hotline service, an anonymous Building a talent pool of line managers is our key priority. tool for collecting and analysing information related A total of 61 LSR Group’s employees underwent assessment services contracted from nearby medical institutions, and annual vaccination of employees to potential corruption or fraud, human rights abuses, of their managerial and personal skills in 2019; each of them unethical conduct, and other forms of abuse. Investigations received feedback, and a roadmap for their improvement and Organising large-scale corporate sports events into the reports made through the hotline found no development was discussed. Corporate events and programmes for employees’ children confirmed incidents of corruption in 2019. Employee motivation A housing programme Our anti-corruption activities extend to our contractors as LSR Group has a well-developed, performance-based system Growing with LSR is a corporate social programme aimed well. LSR Group is committed to an open and transparent of financial motivation for staff that ensures competitive primarily at setting up learning and career guidance procurement process, and promotes fair competition. and fair compensation. We guarantee our employees stable projects for employees’ children, holding various events for All standard forms of contracts and agreements we sign and timely pay. The average salary of LSR Group’s employees residents outside their apartment blocks and for customers with our counterparties contain anti-corruption clauses. was RUB 58,841 in 2019. Excluding social contributions, at LSR Group’s sales offices, and improving social facilities In 2019, we continued improving our own e-procurement total compensation costs in 2019 were approximately (such as themed children’s playgrounds within LSR Group’s platform and procurement information system to further RUB 9.5 billion. residential projects). Thanks to the programme, our employees enhance the effectiveness and transparency of our can spend quality time with their kids outside of the daily procurement process. Our compensation system is designed to build personal jobs. The programme improves our employee engagement LSR Group also places a particular focus on communicating motivation to understand LSR Group’s strategy and to achieve and loyalty, boosts LSR Group’s brand, and generally enhances its business targets. For blue-collar workers, a piece-rate our anti-corruption policies to contractors and partners, the appeal of the construction trade. The programme is and building a culture of zero tolerance for corruption payment system is used, directly linked to performance. The run across all regions in which LSR Group operates. A total salaries of specialists and line managers consist of a fixed and unethical conduct among LSR Group’s employees. of RUB 4.7 million was allocated for the Growing with A total of 9,162 of LSR Group’s employees and 3,819 of pay and a variable (motivational) component. The size of LSR programme in 2019. the variable component for any given employee category its contractors were provided with this information in is determined by their functional responsibilities and The programme targets children of our employees, customers 2019. Four LSR Group’s dedicated specialists completed a performance during the reporting period. and partners, beneficiaries of LSR Group’s charity projects, and special training course in counter corruption policies and students at higher and vocational education institutions. procedures during 2019. Effective incentive programmes are in place for top managers, linking the amount of their remuneration to the achievement of LSR Group’s strategic goals and their personal KPI targets. As part of its non-financial motivation programme, LSR Group twice a year celebrates employees who have achieved excellent operational results with corporate awards. LSR Group’s awards were presented to 271 employees in 2019, including five who received the Group’s highest accolade: the Best in LSR golden badge. LSR Group’s employees also receive various departmental and industry-specific, municipal, and public awards for their achievements in the construction, industrial, or building materials sectors. 60 employees received these awards in 2019. In 2019, to promote LSR Group’s HR brand, we launched a survey to gauge employee engagement and satisfaction. During the year, about 1,500 employees holding various positions at LSR Group’s entities and representing different length-of-service, age and gender groups were surveyed. In 2020, another 500 employees will be surveyed, followed by an analysis of survey findings. “Granite-Kuznechnoye” Quarry

70 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 71 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE ENVIRONMENTAL PROTECTION

LSR Group operates in several regions of Russia under varying Volumes of energy resources used by LSR Group in 20191 Reducing the burden on water bodies Impact on the atmosphere environmental conditions and recognises the importance of LSR Group’s entities are committed to using water resources as LSR Group’s entities seek to minimise their adverse impact sustaining the environmental well-being of these regions. Our Energy resource type Volume Monetary value key priorities for environmental protection are to minimise any efficiently as possible and to minimising the burden on water on the atmosphere by running monitoring procedures Electricity 166 million kWh RUB 778 million negative impact and to restore the ecosystems damaged in bodies by reducing water withdrawal rates, increasing the to track the volumes of pollutant emissions and ensuring the course of industrial operations. Heat 28 thousand Gcal RUB 54 million quality and reducing the quantity of wastewater discharge, effective operation and maintenance of their gas treatment and by implementing measures to minimise and reverse the facilities. Equally importantly, we endeavour to comply Environmental management at LSR Group is based on strict Petrol 709 thousand litres RUB 26 million impact on flora and fauna in the affected water habitats. with air hygiene standards for populated areas. In 2019, the compliance with the requirements of the environmental Diesel fuel 29 million litres RUB 1,077 million volume of air pollutant emissions released by the Building legislation. Regular environmental operational control The total volume of water withdrawn by entities within Materials segment amounted to 2,998 tonnes,5 in which Natural gas 65 million cubic metres RUB 415 million the Building Materials segment in 2019 amounted to 6,996 procedures and regulators’ inspections are run at LSR Group’s 3 particulate matter accounted for about 43% of the total and entities. All LSR Group’s entities have valid regulatory Heating oil 0.3 thousand tonnes RUB 4.9 million thousand cubic metres, a significant decrease from 2018 CO (carbon monoxide) emissions accounted for approximately paperwork and permits and comply with the relevant limits achieved as result of the completion of the hydraulic filling another 20%. and standards regarding emissions, discharges, and waste. The first-ever estimation (calculation) of the volumes of project in St. Petersburg in 2018. Approximately 86% of all LSR Group’s GHG emissions was performed for the Building water resources used in LSR Group’s operations are withdrawn Waste management The environmental protection data below cover our Materials segment for the year 2019. The GHG emissions from a surface water body (the Neva Bay in the Gulf of Finland). Building Materials segment only (except for energy use volume estimate included the most significant stationary and Around 11% is provided by municipal water supply systems. LSR Group’s entities use the latest construction technologies and environmental protection costs, which account for the mobile emission sources, such as kilns, boilers, diesel-fired that enable them to use building materials efficiently and to entire LSR Group). The activities of LSR Group’s entities in the High water withdrawal amounts were due to large amounts minimise waste generation. power plants, road and off-road vehicles, vessels and railway of dredged sand extracted from subsea deposits in the Gulf Building Materials segment are the biggest contributor to our 2 locomotives. In 2019, the volume of LSR Group’s direct GHG of Finland and hydraulically transferred to an onshore storage All waste generated in our operations is delivered to environmental impact due to the nature of the industrial and emissions within the Building Materials segment amounted contracted third-party waste management organisations technological processes involved. facility. Accordingly, priorities for the environmental teams at to 163, 973 tonnes of CO2-equivalent. LSR. Aggregates, an LSR Group’s entity, include monitoring duly licensed to engage in waste collection, transportation, In 2019, LSR Group spent a total of RUB 88,148 thousand on of fisheries, minimisation of negative impact on the habitats treatment, recycling, decontamination, and disposal. In environmental protection activities, including RUB 22,104 Material resource management of aquatic flora and fauna, and implementing organisational addition, each of our production sites undergoes regular thousand within the Building Materials segment. An important objective for LSR Group is to monitor the quality measures to replenish and grow aquatic resources in water maintenance inspections during which their temporary waste of its material resources, which we do at every stage of the bodies. accumulation areas are checked for compliance with sanitary In 2019, no environmental incidents (volley emissions, and environmental standards. emergency emissions, discharges, or massive spills) occurred production process, and to reduce material consumption A particular focus is made on wastewater treatment prior to at LSR Group’s entities within the Building Materials segment, by our production facilities without compromising product discharge into water bodies. Dedicated officers at LSR Group’s In 2019, the total volume of waste generated within the and no significant penalties were imposed following the quality. entities regularly monitor the operation of water treatment Building Materials segment was reduced to 3,665 tonnes. inspections by regulators. LSR Group’s companies comprise a single production chain facilities and explore various options for upgrading our In terms of its morphological composition, the bulk of waste within which the finished products of one company are the wastewater treatment systems. Third-party independent generated by the segment in 2019, i.e., around 39%, fell within Climate strategy and energy efficiency material resources used by another. LSR Group’s entities within accredited laboratories have been contracted to monitor the hazard category 3 (moderately hazardous) while 31% and 30% fell within hazard categories 4 and 5, respectively, which are LSR Group shares the global community’s concerns about the Building Materials segment use the following key resources quality of treated wastewater and to evaluate the performance as their raw materials: sand, clay, granites and granite gneisses, of wastewater treatment facilities. In 2019, the total volume defined as low-hazard and non-hazardous to the environment. climate change and recognises the importance of addressing Virtually no highly hazardous waste has been generated by this issue. As a construction industry player, we recognise crushed granite, and cement. Whereas sand, clay, granites, and of water discharged by the Building Materials segment 4 LSR Group’s entities within the Building Materials segment. the role we have in making a significant contribution to the granite gneisses are produced from LSR Group’s own deposits, amounted to 6,231 thousand cubic metres. Over 97% of this development of a low-carbon economy in Russia. we buy cement from third-party suppliers. wastewater met the criteria for ‘standard pure’ (not requiring any treatment) and ‘standard treated’ water. LSR Group seeks to reduce both direct GHG emissions from our In 2019, our Building Materials segment reduced its production processes and own heat and electricity generation, consumption of many resource types, which was mainly due and indirect emissions from our purchased energy as well as to the sale of LLC LSR. Reinforced Concrete in 2019, and the from domestic energy use by our customers in the houses and segment’s lower output. Sand consumption, at approximately apartments purchased from LSR Group. 15 million tonnes in 2019, was reduced the most, with the consumption of crushed granite, cement (including Portland We are improving our climate risk management, and also cement), granites, granite gneisses, lime, and plaster also designing and deploying a system to support regular decreased. estimation (calculation) and analysis of GHG emission volumes. The use of fossil fuels in energy generation and consumption is a key source of GHG emissions into the atmosphere. In 2019, LSR Group’s entities used the following types of fuel resources: natural gas, diesel fuel, petrol and heating oil. In 2019, our energy use decreased across all types of fuel resources (except for heating oil, for which consumption remained flat). This progress was largely due to our efforts to optimise out production capacities and processes, vehicle fleet and transport routes. 1 No other types of energy resources were used in 2019. In addition, due to optimised production processes and 2 T he estimation of GHG emissions from stationary sources was carried out in accordance with Order No. 30 of the Ministry of Natural Resources and Environment of the changes in its production asset portfolio, LSR Group reduced Russian Federation, On the Approval of the Methodology and Guidance for Quantitative Assessment of Greenhouse Gas Emissions by Organisations Engaged in Business and Other Activities in the Russian Federation, dated 30 June 2015 (excluding emissions from the production of ceramic products not related to fuel combustion, which are its electricity consumption in 2019 by 8% to 166 million kWh not included in the calculation); GHG emissions from mobile sources were estimated in accordance with the 2006 IPCC Guidelines for National Greenhouse Gas Inventories. and its heat consumption by 22% to 28 thousand Gcal. 3 Ex cluding precipitation. 4 Ex cluding any surface runoff, drainage water. 5 NO emissions are converted into NO2.

72 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 73 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE CORPORATE Aerated Concrete Plant, Sertolovo GOVERNANCE Corporate Governance System ��76 Share Capital ��97

74 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 75 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE CORPORATE GOVERNANCE SYSTEM

These principles are formalised in LSR Group’s regulations, PJSC LSR Group’s corporate governance system comprises Board of Directors OUR APPROACH including the Charter, Regulation on General Meetings of several bodies, the most important of which are: TO DEVELOPING A CORPORATE Shareholders, Regulation on the Board of Directors, Regulation The Board of Directors is responsible for general management on the Executive Committee, Regulation on the Information General Meeting of Shareholders of LSR Group, defines its development strategy, and supervises GOVERNANCE SYSTEM Policy, Internal Control Rules for Preventing, Detecting, and Board of Directors its financial and business operations. The Board of Directors Stopping the Unlawful Use of Insider Information and/or acts in compliance with the Charter and the Regulation on the LSR Group’s success is grounded in an effective corporate Executive Committee Board of Directors. It is authorised to make decisions related to governance system. This system is continuously fine-tuned, Market Manipulation, regulations on committees of the Board CEO of Directors, etc. All the above documents can be found on all aspects of LSR Group’s business, save for matters reserved to enabling LSR Group to achieve its strategic goals and improve the Meeting by legislation. its operational and financial efficiency. LSR Group’s corporate website at https://www.lsrgroup.ru/en/ investor-relations/corporate-documents. General Meeting of Shareholders Members of the Board of Directors are elected at a Meeting for Our corporate governance system complies with The General Meeting of Shareholders (the Meeting) a term until the next annual Meeting. If new members of the the applicable Russian corporate governance legislation, Our commitment to these principles in 2019 was commended is LSR Group’s supreme governing body. An annual Meeting at the 14th Director of the Year National Award ceremony Board are elected at an extraordinary Meeting, their authority the principles and recommendations of the Corporate is convened once a year between 1 March and 30 June. is valid until the next annual Meeting. Any LSR Group’s Governance Code recommended by the Bank of Russia, organised by the Professional Directors Association and Extraordinary Meetings are held by decision of the Board the Russian Union of Industrialists and Entrepreneurs in shareholder(s) holding at least 2% of the voting shares in total the requirements of Moscow Exchange for public companies, of Directors or at the request of the Internal Audit Commission, may propose a nominee to the Board of Directors. and international requirements for public companies listed partnership with PricewaterhouseCoopers, a major audit the Auditor, or shareholders who own at least 10% of voting on London Stock Exchange. company. shares in PJSC LSR Group. A meeting of the Board of Directors is competent (has a quorum) if it is attended by at least 50% of the elected Board Vitaly Podolsky, Chairman of the Human Resources and Shareholders (a shareholder) who own(s) at least 2% of voting Corporate governance principles: Compensation Committee and a member of the Board members (except when decision-making requires a unanimous shares in PJSC LSR Group in total have (has) the right to include or 75% majority vote or a majority vote by the members who Equal treatment of all shareholders of Directors of LSR Group, was awarded for his personal items on the agenda of the annual Meeting and propose are not interested parties). At least one independent director Protection of the rights and interests of all shareholders contribution to the development and promotion of high nominees to the Board of Directors and the Internal corporate governance standards driving effective strategic must attend the meeting. Decisions of the Board of Directors Compliance with legislation in all aspects of business Audit Commission. Such proposals must be submitted are made by a simple majority unless otherwise stipulated business development. He was named the Best Independent to PJSC LSR Group no later than 60 days after the end Independence of the Board of Directors in decision-making Director 2019. by legislation, the Charter, or the Regulation on the Board of the fiscal year. of Directors. Each member of the Board of Directors has one Transparency of information LSR Group’s representatives were also included in the Director Notices of upcoming Meetings are posted on LSR Group vote. Meetings of the Board of Directors are convened by the An effective internal control and audit system of the Year Award ratings. Dmitry Goncharov, Chairman website at least 30 days prior to the date of the relevant Chairman of the Board of Directors. of the Board of Directors, was ranked among the Top 25 board Corporate responsibility and compliance with Meeting. A Meeting is competent (has a quorum) if it is Extraordinary meetings of the Board of Directors may be business ethics chairmen while Elena Chistyakova, Corporate Secretary at attended by shareholders holding in total more than a half of LSR Group, was listed among the Top 25 corporate secretaries. convened by the Chairman of the Board of Directors at his or the votes of outstanding voting shares in PJSC LSR Group. her own initiative, as well as at the request of any member In 2019, only one Meeting was held – the annual Meeting of the Board of Directors, the Executive Committee, the which took place in St. Petersburg on 28 June and was CEO, the Internal Audit Commission or LSR Group’s Auditors, attended by shareholders owning 80.97% of outstanding a committee of the Board of Directors, or any shareholder CORPORATE GOVERNANCE STRUCTURE voting shares in PJSC LSR Group. The Meeting made decisions owning at least 10% of the voting shares. on the following matters: The Board of Directors had seven members in the reporting Approval of the Annual report and annual financial year, following a decision of the annual Meeting, and was statements for 2018 headed by the Chairman. INTERNAL AUDIT GENERAL MEETING INDEPENDENT Profit distribution, including dividend announcement, Composition and structure of the Board of Directors, % COMMISSION OF SHAREHOLDERS AUDITORS based on 2018 performance Election of members of the Board of Directors and the Internal Audit Commission Approval of Auditors EXECUTIVE BOARD AUDIT Voting at the Meeting follows the ‘one voting share, one vote’ COMMITTEE OF DIRECTORS COMMITTEE principle, except for cumulative voting as set out in the Federal Law On Joint Stock Companies. Members of the Board of Directors are elected by cumulative voting where the number of votes held by each shareholder is multiplied by the number of nominees to the Board of Directors, and a shareholder Composition by category Age structure HUMAN RESOURCES AND has the right to give the votes thus obtained entirely to CEO COMPENSATION COMMITTEE one candidate or to distribute them among two or more Independent 57 36-45 29 candidates. Non-executive 29 46-55 71 Elects Executive 14

Reports to STRATEGY AND INVESTMENT Approves COMMITTEE Makes recommendations

76 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 77 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE CORPORATE GOVERNANCE SYSTEM

Independent directors The Board of Directors made decisions on the following Training for members of the Board Activities of the Board of Directors and its committees are matters: well organised, and consistent with the strategic principles LSR Group pays particular attention to developing the of Directors of the PJSC LSR Group and the key recommendations of the role of independent directors. We are confident that their Election of executive bodies of PJSC LSR Group In 2019, Board member Vitaly Podolsky completed the IoD Corporate Governance Code. Difference of opinions among involvement contributes to efficient and unbiased work of the Approval of LSR Group’s internal documents Chartered Director programme at the Institute of Directors members of the Board of Directors results in compromise Board of Directors, and helps protect the rights and interests (UK) and passed an exam to obtain an international Certificate solutions that take into account both shareholder and of our shareholders. PJSC LSR Group’s internal documents Development of an incentive programme for managers for 2020 in Company Direction, and also completed the second grade PJSC LSR Group interest, thus improving the quality stipulate that there must be at least three independent of the programme to obtain a Diploma in Company Direction. of corporate governance and the level of shareholder directors comprising at least one third of the members of the Attendance by members of the Board of Directors involvement in PJSC LSR Group activities. The structure of the Board of Directors. Board member Dmitry Goncharov participated in a series of at meetings in 2019 workshops Current Compliance Trends for Russian Companies; Board of Directors and its committees is fully aligned with the A member of the Board of Directors is recognised as Key Aspects of Bank Financing, organised by the Gibson Dunn needs of PJSC LSR Group, as well as its scale and the level of independent if he or she is not associated with LSR Group, its Member of the Board of Attendance Attendance law firm. business complexity. The corporate governance system is fully substantial shareholder or contractor, a competitor, or a state Directors at in-person at in-absentia compliant with the Russian corporate governance legislation meetings meetings or municipal entity. Independency of members of the Board and corporate governance best practice demonstrated by the of Directors is determined in accordance with the relevant Dmitry Goncharov Induction of new members leading Russian, publically traded, companies. criteria outlined in the annex to the Regulation on the Board Member of the Board of Directors from 6 7 LSR Group has in place an induction procedure for new 1 January 2019 to 31 December 2019 members of the Board of Directors to ensure their fast The Board of Directors also performed a formalised self- of Directors. evaluation of its performance and the performance of its Igor Levit involvement in its activities and effective application of As at 31 December 2019, four out of seven members of the Member of the Board of Directors from 4 5 professional skills of all its members. committees in 2019. Board of Directors were independent, in line with global best 28 June 2019 to 31 December 2019 Following the changes in the Board membership in 2019, the The self-evaluation methodology included the evaluation of: practice. Alexey Makhnev management quickly introduced Igor Levit to LSR Group’s LSR Group’s corporate governance On 15 May 2019, following a decision of the Board of Directors, Member of the Board of Directors from 6 7 1 January 2019 to 31 December 2019 current activities, strategy, corporate and organisational Alexey Makhnev was recognised as independent despite his structure, and corporate governance system. Igor Levit was Performance of the Board of Directors in general formal association with PJSC LSR Group’s substantial contractor Andrey Molchanov provided with instructions on confidentiality and insider Performance of the committees of the Board of Directors VTB Bank (PJSC). Member of the Board of Directors from 6 7 information protection, as well as information on participation 1 January 2019 to 31 December 2019 Performance of the Chairman of the Board of Directors As of 28 June 2019, VTB Bank (PJSC) is no longer substantial in the Board and committee meetings necessary to exercise his Performance of LSR Group’s executive bodies and key Andrey Nesterenko powers. contractor of PJSC LSR Group, hence Alexey Makhnev’s Member of the Board of Directors from 6 6 managers association with VTB Bank (PJSC) is no longer substantial for 1 January 2019 to 31 December 2019 PJSC LSR Group. Performance assessment The evaluation was carried out through questionnaires filled in Vitaly Podolsky by members of the Board of Directors. Member of the Board of Directors from 6 7 of the Board of Directors Chairman of the Board of Directors 1 January 2019 to 31 December 2019 To comply with global best practice in corporate governance, Board of Directors summarised the results of the self- The Chairman organises the work of the Board of Directors, Alexander Prisyazhnyuk PJSC LSR Group engaged an independent organisation, assessment with respect to its own performance, as well as convenes and chairs meetings, and arranges for keeping Member of the Board of Directors from 6 7 JSC VTB Registrar (OGRN 1045605469744) to evaluate the LSR Group’s executive bodies and key managers performance. the minutes of meetings. He or she also ensures effective 1 January 2019 to 31 December 2019 performance of the Board of Directors and its committees. Performance of the Board of Directors and its committees, coordination between the Board of Directors and other Maxim Sokolov The evaluation methodology included (the following): executive bodies and key managers is recognised as effective PJSC LSR Group’s bodies. Member of the Board of Directors from 2 2 and in line with LSR Group’s needs. 1 January 2019 to 28 June 2019 1. Q uestionnaires filled in by the Board and committee Members of the Board of Directors elect the Chairman from members, the Corporate Secretary, and the head of the In 2019, the Board of Directors reviewed the results of the among their number by a majority vote, with the provison that The activities of the Board of Directors in the reporting period Internal Audit Service. corporate governance system’s quality and effectiveness the Chairman of the Board of Directors may not simultaneously are transparent to PJSC LSR Group’s shareholders as all the evaluation. The quality of the corporate governance system in hold the position of the CEO of PJSC LSR Group. minutes of the Board of Directors’ meetings are available 2. Selective interviews. PJSC LSR Group in 2019 reached 93.57% of the maximum level. At the meeting of the Board of Directors held on 28 June 2019, to them upon request. The Board of Directors followed the 3. G eneral analysis of the internal documents regulating PJSC LSR Group developed a criteria based on which the Dmitry Goncharov was elected Chairman of the Board of established working plan and monitored the implementation activities of the Board of Directors and its committees, as compliance with the corporate government principles Directors of PJSC LSR Group. of its decisions. No decisions failed to be implemented in 2019. well as other PJSC LSR Group’s publicly available documents. assessment is carried out. Methodology description is Members of the Board of Directors have no conflicts of interest. provided in the Annex 3 of this report. Summary of the Board of Directors’ It was established that PJSC LSR Group’s internal documents, Members of the Board of Directors do not participate in, hold regulating activities of the Board of Directors and its The Board of Directors reviewed the evaluation of activities positions in the executive bodies of, and/or are not employees committees are consistent with the PJSC LSR Group’s Charter PJSC LSR Group’s compliance with corporate governance The Board of Directors held 13 meetings in 2019: six in-person of legal entities competing with LSR Group. and with the Russian corporate governance legislation. principles detailed in the Report on Compliance with meetings and seven in-absentia meetings. Agenda items In the future, the Board of Directors intends to prioritise Qualitative evaluation of the Board of Directors’ performance the Principles and Recommendations of the Corporate reviewed by the Board of Directors included: improving LSR Group’s profitability, as well as pursuing in 2019 is high, at 4.68 on a scale from 2 to 5 [For reference: Governance Code. Level of compliance with the Corporate Governance Code principles in 2019: full complacence with Preparation and holding of the annual Meeting a sustainable, reliable, and competitive policy in the key sales the scale from 2 to 5: 5 – ‘excellent’; 4 – ‘good’; 3 – ‘satisfactory’; markets. 84.81% of all corporate government principles outlined in the Financial and economic policy 2 – ‘unsatisfactory’]. The indicator represents the arithmetic average of the Board of Directors performance evaluation Corporate Governance Code. Investment programme and LSR Group’s development metrics. Members of the Board of Directors noted opportunities to plans further improve corporate governance practices, taking into Performance assessment of the Board of Directors, account the recommendations outlined in the Corporate executive bodies, and key managers of LSR Group Governance Code. Monitoring of the reliability and effectiveness of LSR Group’s corporate governance system

78 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 79 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE CORPORATE GOVERNANCE SYSTEM

Membership of the Board of Directors Brief biographical details of members of the Board of Directors The membership of the Board of Directors changed once in the reporting period, following the annual Meeting on 28 June 2019. Membership of the Board of Directors from 1 January 2019 to 28 June 2019 Dmitry Igor Goncharov Levit Name Position on the Board of Independent Audit Human Resources Strategy and Directors Committee and Compensation Investment Chairman of the Board Member of the Board Committee Committee of Directors of Directors Dmitry Goncharov Deputy Chairman of the Board of No Committee member Directors Member of the Board Member of the Board of Directors since of Directors since Alexey Makhnev Member of the Board of Directors Yes Committee Committee member June 2007 April 2019 member Andrey Molchanov Chairman of the Board of Directors No Previously: member of the Andrey Nesterenko Member of the Board of Directors Yes Committee Chairman Board of Directors from August 2006 to April 2013 Vitaly Podolsky Member of the Board of Directors Yes Committee Committee Chairman member Alexander Prisyazhnyuk Member of the Board of Directors Yes Committee Committee member Chairman Born in 1970. Born in 1971. Maxim Sokolov Member of the Board of Directors No Committee member Education: graduated from Leningrad State University in Education: graduated from Saint Petersburg State Institute of 1991 and from the Ludwig Maximilian University of Munich Technology in 1994. Board members’ participation in committees of the Board of Directors is indicated as at the date of the annual Meeting, (Germany) in 1996. PhD in Technical Sciences. 28 June 2019. Experience: Experience: Membership of the Board of Directors from 28 June 2019 to 31 December 2019 Positions in audit and tax consulting at BBMS Treuhand GmbH, Commercial Director for Sales to the CIS and Eastern Joined LSR Group in 1995. Name Position on the Board of Independent Audit Human Resources Strategy and Europe at the Information and Communication Networks 1997–1999: Commercial Director of OJSC Lenstroykeramika. Directors Committee and Compensation Investment Division of Siemens AG. Committee Committee 1999–2002: CEO of CJSC Keramika Production Association. 2003–present: Managing Director at MHG Munich Dmitry Goncharov Chairman of the Board of Directors No Committee member Hoteldevelopment Group GmbH (previously LSR Europe 2002–2006: Vice President of LSR Group. Igor Levit Member of the Board of Directors No Committee member GmbH) in Munich, Germany. 2006–2010: CEO of LSR Group. Alexey Makhnev Member of the Board of Directors Yes Committee Committee member 2007–present: member of the Board of Directors member of PJSC LSR Group. 2010–2012: Chairman of the Board of Directors of PJSC LSR Group. Andrey Molchanov Member of the Board of Directors No 2007–2011: member of the Human Resources and Compensation Committee of the Board of Directors 2012–2013: Acting CEO of Rosmorport Federal State Unitary Andrey Nesterenko Member of the Board of Directors Yes Committee Chairman of PJSC LSR Group. Enterprise. Vitaly Podolsky Member of the Board of Directors Yes Committee Committee Chairman 2014–present: member of the Strategy and Investment Since 2014, Mr Levit has been developing his own multi- member Committee of the Board of Directors of PJSC LSR Group. profile business. 2016–2017: Deputy Chairman of the Board of Directors Alexander Prisyazhnyuk Member of the Board of Directors Yes Committee Committee member 2018–present: CEO of JSC FC Leningradets. Chairman of PJSC LSR Group. 2017–2018: Chairman of the Board of Directors of 2019–present: President of the Football Federation of the Board members’ participation in committees of the Board of Directors is indicated as at 31 December 2019. PJSC LSR Group. Leningrad Region. 2018–2019: Deputy Chairman of the Board of Directors 2019–present: member of the Board of Directors of PJSC LSR Group. of PJSC LSR Group. 2019–present: Chairman of the Board of Directors of PJSC LSR Group. Awarded a second class Medal of the Order for Merit to the Fatherland in 2010. Honoured Builder of Russia.

Stake in the registered capital of PJSC LSR Group: 0.014%. Stake in the registered capital of PJSC LSR Group: 0%. Percentage of PJSC LSR Group’s ordinary shares held: 0%. Percentage of PJSC LSR Group’s ordinary shares held: 0%. Made no transactions with PJSC LSR Group shares Made no transactions with PJSC LSR Group shares or GDRs in 2019. or GDRs in 2019.

80 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 81 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE CORPORATE GOVERNANCE SYSTEM

Alexey Andrey Makhnev Molchanov Member of the Board Chairman of the Board of Directors, independent of Directors director Member of the Board Member of the Board of Directors since of Directors since April 2013 April 2015

Born in 1976. 2017–present: member of the Board of Directors of Born in 1971. 2018–present: Chairman of the Board of Directors PJSC M.video. of JSC FC Leningradets. Education: graduated from Saint Petersburg State University Founded LSR Group in 1993. of Economics and Finance in 1998. 2018–present: CEO of the Global Investment and Banking June 2019–present: CEO of LLC LSR. Department of JSC VTB Capital (secondary employment). Education: graduated from the Department of Economics of June 2019–present: Chairman of the Executive Committee, PhD in Economics. 2018–present: Adviser to First Vice President – Chairman Saint Petersburg State University in 1993 and from the Russian CEO, member of the Board of Directors of PJSC LSR Group. Academy of Public Administration in 1998. Experience: of the Board and Senior Vice President of VTB Bank (PJSC). 2018–present: member of the Audit Committee and Human Doctor of Economics. Awarded Medals of the Order for Merit to the Fatherland, 2000–2009: different positions from a senior manager Resources and Compensation Committee of the Board First and Second Class. to the Executive Director at major banking companies. Experience: of Directors of PJSC LSR Group. Honorary Citizen of the Leningrad Region and the town of 2009–2013: Managing Director, Head of Consumer Sector, 2018–present: member of the Board of Directors Founded LSR Group in 1993 and headed it until 2007. Podporozhye. Retail and Real Estate at the Global Investment and Banking of PJSC Magnit. Department of CJSC VTB Capital. In 2007, he was appointed Assistant to the Minister of Awarded a Medal In Commemoration of the 300th 2018–present: member of the Board of Directors Health and Social Development of the Russian Federation. 2009–2015: member of the Board of Directors Anniversary of Saint Petersburg. of LLC VTB Real Estate. 2007–2008: adviser at LLC LSR. of PJSC Magnit. Commended in a Letter of Acknowledgement from the 2013–2018: Head of Consumer Sector, Retail and Real 2008–2011: member of the Federation Council of the Prime Minister of the Russian Federation. Estate at the Corporate and Investment Department Federal Assembly of the Russian Federation (representative of JSC VTB Capital. of the Leningrad Region executive body). Awarded a Certificate of Honour from the Federation 2009–2011: Chairman of the Committee on CIS Affairs at the Council of the Federal Assembly of the Russian Federation, 2013–2018: Head of the Trade, Agriculture, Consumer a Certificate of Honour from the Ministry of Energy of Goods, and Pharmaceuticals Directorate of the Department Federation Council of the Federal Assembly of the Russian Federation. the Russian Federation, and an Honorary Diploma of the for Market Sector Customer Relations – Senior Vice Legislative Assembly of the Leningrad Region. President of VTB Bank (PJSC). 2011–2013: member of the Federation Council of the 2015–present: member of the Board of Directors Federal Assembly of the Russian Federation (representative Honoured Builder of Russia. of PJSC LSR Group. of the Leningrad Region legislative (representative) body), Chairman of the Committee on Economic Policy at the 2015–2018: Chairmen of the Audit Committee, member Federation Council of the Federal Assembly of the Russian of the Human Resources and Compensation Committee, Federation. and Strategy and Investment Committee of the Board of Directors of PJSC LSR Group. 2013–2015: Chairman of the Board of Directors, Chairman of the Strategy and Investment Committee of the Board of Directors of PJSC LSR Group. 2015–2018: member of the Board of Directors, Chairman of the Strategy and Investment Committee of the Board Stake in the registered capital of PJSC LSR Group of Directors of PJSC LSR Group. at the beginning of the reporting period: 60.04%. 2015–2018: CEO of LLC LSR. Percentage of PJSC LSR Group’s ordinary shares held 2015–2018: CEO, Chairman of the Executive Committee at the beginning of the reporting period: 57.56%. of PJSC LSR Group. Stake in the registered capital of PJSC LSR Group 2015–2019: member of the Board of Directors at the end of the reporting period: 50.33%. of LLC Razvitie. 2018–June 2019: Chairman of the Board of Directors Percentage of PJSC LSR Group’s ordinary shares held of PJSC LSR Group. at the end of the reporting period: 47.85%. Stake in the registered capital of PJSC LSR Group: 0%. On 3 April 2019, Andrey Molchanov disposed 10,000,000 ordinary shares in PJSC LSR Group (9.71% of the registered Percentage of PJSC LSR Group’s ordinary shares held: 0%. capital of PJSC LSR Group). Made no transactions with PJSC LSR Group shares Made no transactions with PJSC LSR Group shares or GDRs in 2019. or GDRs in 2019.

82 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 83 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE CORPORATE GOVERNANCE SYSTEM

Andrey Alexander Vitaly Nesterenko Prisyazhnyuk Podolsky Member of the Board Member of the Board Member of the Board of Directors, independent of Directors, independent of Directors, independent director director director

Member of the Board Member of the Board Member of the Board of Directors since of Directors since of Directors since June 2018 April 2016 April 2016

Born in 1976. Born in 1972. Born in 1968. 2015–2016: CEO of PJSC ARMADA. Education: graduated from Moscow University of Consumer Education: graduated from Kuban State University in 1995. Education: graduated from Lomonosov Moscow State 2015–2017: member of the Board of Directors Cooperation in 1997. University in 1991 and the University of Chicago Graduate of PJSC ARMADA. Experience: School of Business in 1995. 2016: CEO of FMF Capital. Experience: 2011–2017: member of the Board of Directors 2016–2017: Chairman of the Audit Committee, member of Experience: 2007–2009: Vice President for Finance, of PJSC Dixy Group. the Human Resources and Remuneration Committee of the CEO of LLC Capital Group. 2011–2017: member of the Board of Directors, member 2008–2016: member of the Board of Directors Board of Directors of PJSC Cherkizovo Group. 2009–2011: member of the Board of Directors, Chairman of the Audit Committee of PJSC M.video. of PJSC ROSINTER RESTAURANTS HOLDING. 2016–present: member of the Board of Directors, member of the Management Board, and CEO of HALS-Development 2016–present: member of the Board of Directors, member 2011–2012: Chairman of the Board of Directors of of the Audit Committee of the Board of Directors, Chairman (MCX: HALS). of the Human Resources and Compensation Committee Kronverk Cinema Group (OJSC Epos), member of the Board of the Human Resources and Compensation Committee of 2011–2012: member of the Board of Directors of the Board of Directors of PJSC LSR Group. of Directors, Chairman of the Finance and Audit Committee the Board of Directors of PJSC LSR Group. of OJSC RG Brands (Kazakhstan). of LLC VTB Real Estate. 2016–2018: member of the Audit Committee of the Board 2016–2018: member of the Strategy and Investment 2012–2014: CEO of LLC Armiks (Russian subsidiary of R.G.I. of Directors, member of the Strategy and Investment 2012–2013: Vice President, member of the Board Committee of the Board of Directors of PJSC LSR Group. International Limited). Committee of the Board of Directors of PJSC LSR Group. of Directors of OJSC Cesar Satellite Group. 2017–2018: member of the Board of Directors of H.B.G. 2012–2014: CEO of R.G.I. International Limited (later 2018–present: Chairman of the Audit Committee of the 2012–2017: member of the Board of Directors HoReCa Band Group Ltd. renamed Rose Group Limited) (AIM: RGI). Board of Directors of PJSC LSR Group. of PJSC Cherkizovo Group. 2017–present: member of the Supervisory Board of the 2013–2014: member of the Board of Directors of R.G.I. 2018–2019: member of the Board of Directors 2012–2016: Chairman of the Human Resources and Institute of Business Studies of the Russian Presidential International Limited (later renamed Rose Group Limited) of PJSC Magnit. Remuneration Committee of the Board of Directors Academy of National Economy and Public Administration. AIM: RGI)). of PJSC Cherkizovo Group. 2019–present: Partner of Chesterfield Fund (UK). 2015–present: consultant at Colombo and Partners SA. 2013–2015: member of the Board of Directors, Chairman 2019–present: President of the Directors’ Cup Supervisory of the Finance and Audit Committee of Kazakhstan Board at the Professional Directors Association. June 2018–present: member of the Board of Directors, Kagazy PLC. member of the Strategy and Investment Committee 2019–present: Chairman of the Board of Directors of of PJSC LSR Group; since August 2018 – Chairman of 2013: member of the Board of Directors, Chairman of the LLC KRAFTER. the Strategy and Investment Committee of the Board Finance and Audit Committee of OJSC Uyuterra. of Directors. 2013–2018: member of the Board of Directors, Chairman of the Finance and Audit Committee of Maria’s Kitchen LTD. 2013–2015: member of the Audit Committee of the Skolkovo Institute of Science and Technology (Skoltech) Board of Trustees.

Stake in the registered capital of PJSC LSR Group: 0%. Stake in the registered capital of PJSC LSR Group: 0%. Stake in the registered capital of PJSC LSR Group: 0%. Percentage of PJSC LSR Group’s ordinary shares held: 0%. Percentage of PJSC LSR Group’s ordinary shares held: 0%. Percentage of PJSC LSR Group’s ordinary shares held: 0%. Made no transactions with PJSC LSR Group shares Made no transactions with PJSC LSR Group shares Made no transactions with PJSC LSR Group shares or GDRs in 2019. or GDRs in 2019. or GDRs in 2019.

84 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 85 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE CORPORATE GOVERNANCE SYSTEM Over the course of the year, the Board of Directors included the following member who left before the year-end: Maxim Remuneration of members of the Board Audit Committee Sokolov of Directors The key objective of the Audit Committee is to assist the Board Members of the Board of Directors may receive remuneration of Directors in effective fulfilment of its functions related to Member of the Board overseeing LSR Group’s financial and business operations. of Directors and compensation during the period of their service. The amount of such remuneration and compensation The responsibilities of the Audit Committee include matters Member of the Board is determined by the Meeting. relating to the assessment of potential independent of Directors since The remuneration and compensation paid to the members auditors of PJSC LSR Group; analysis of the auditor’s opinion; June 2018 of the Board of Directors in 2019 was as follows: RUB 357,541 verification of the effectiveness of internal control procedures, thousand. risk management, and corporate governance; and preparation of recommendations on relevant improvements. The Audit Remuneration paid to members of the Board of Directors Committee also monitors the preparation of financial in 2019, RUB thousand statements, and the completeness and accuracy of tax, accounting and management reporting. Remuneration type 2019 The Audit Committee operates in accordance with the Born in 1968. Class 2 Active State Adviser of the Russian Federation. Remuneration for service on a governing body 47,400 Regulation on the Audit Committee of the Board of Directors Education: graduated from the Department of Economics of PJSC LSR Group approved on 18 December 2014. Holder of: Salary 84,548 of Leningrad State University in 1991. The Audit Committee of the Board of Directors held seven The Order of Honour. Bonuses 220,911 PhD in Economics. meetings in 2019: six in-person meetings and one in-absentia The Medal of the Order for Merit to the Fatherland Commission fees 0 meeting. Key agenda items discussed at the meetings Experience: (2nd Class). Other remuneration 0 included: 1991–1993: teacher at the Department of Economics of The Russian Federation Presidential Certificate of Honour. TOTAL 352,859 Review of LSR Group’s 2018 financial report; Saint Petersburg State University. Recommendations to the Board of Directors on the The Russian Federation Presidential Certificate of Compensation paid to members of the Board of Directors 1992–1993: commercial agent at CJSC Frezi Grant. approval of IFRS and RAS auditors for 2019; Appreciation. in 2019, RUB thousand 1993–1999: CEO of CJSC Rossi. Monitoring of the reliability and effectiveness of LSR Group’s The Russian Federation Governmental Certificate of Honour. corporate governance system. 1999–2004: CEO of LLC Corporation S. Governing body 2019 The Honoured Transport Worker of Russia badge. 2004–2009: Chairman of the Committee for Investments Board of Directors 4,682 The Audit Committee consists exclusively of independent and Strategic Projects of the Government of St. Petersburg. The In Commemoration of the 300th Anniversary directors in line with international best practice in corporate 2009: member of the Government of St. Petersburg, of St. Petersburg medal. Committees of the Board of Directors governance. Chairman of the Committee for Economic Development, The In Commemoration of the Millennial Anniversary The committees of the Board of Directors are consulting and Industrial Policy and Trade. Composition of the Audit Committee of Kazan medal. advisory bodies that are designed to resolve issues which are 2009–2012: Director of the Department of Industry and of particular importance to LSR Group. The responsibilities of from 1 January 2019 to 31 December 2019 Decorations for services to Moscow and St. Petersburg. Infrastructure of the Government of the Russian Federation. the committees include preliminary consideration of the most 1. Alexey Makhnev. important issues faced by the Board of Directors, as well as 2012–2018: Minister of Transport of the Russian Federation. 2. Vitaly Podolsky. preparation of recommendations for the Board of Directors to June 2018–June 2019: member of the Board of Directors, 3. Alexander Prisyazhnyuk – Chairman. member of the Strategy and Investment Committee of assist their decision-making with regard to these issues. The PJSC LSR Group; June 2018–August 2018: Chairman of activity of the committees is governed by the Regulations on Committees of the Company’s Board of Directors. Attendance by members of the Audit Committee the Strategy and Investment Committee of the Board of of the Board of Directors at meetings in 2019 Directors of PJSC LSR Group. Committee members are elected by the Board of Directors. In 2018–present: member of the Board of Directors of PJSC accordance with the Listing Rules, the Chairman of the Audit Audit Committee of the Board Attendance Attendance Transneft, JSC Zarubezhneft, and PJSC Aeroflot. Committee and the Chairman of the Human Resources and of Directors at in-person at in-absen- August 2018–June 2019: CEO of LLC LSR. Compensation Committee must be independent directors. meetings tia meetings The CEO and members of the Executive Committee cannot be Alexey Makhnev 5 1 August 2018–June 2019: Chairman of the Executive members of the Audit Committee or the Human Resources Committee, CEO of PJSC LSR Group. and Compensation Committee. Decisions are taken by Vitaly Podolsky 6 1 June 2019–December 2019: member of the Executive majority vote of the committee members. Each committee Alexander Prisyazhnyuk 6 1 Committee, First Deputy CEO of PJSC LSR Group. member has one vote. In 2019, PJSC LSR Group had three committees: Audit Committee Human Resources and Compensation Committee Strategy and Investment Committee Below are the details of the functions and composition of the Stake in the registered capital of PJSC LSR Group: 0%. committees of the Board of Directors as at 31 December 2019. Percentage of PJSC LSR Group’s ordinary shares held: 0%. Made no transactions with PJSC LSR Group shares or GDRs in 2019.

86 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 87 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE CORPORATE GOVERNANCE SYSTEM

Human Resources and Compensation Strategy and Investment Committee CEO Activities of the Executive Committee Committee The Strategy and Investment Committee assists the Board In accordance with PJSC LSR Group’s Charter, the CEO is the in 2019 The Human Resources and Compensation Committee provides of Directors in fulfilling its functions in the following sole executive body. The CEO manages PJSC LSR Group’s day- The Executive Committee held 19 meetings in 2019. Key recommendations to the Board of Directors on the material areas: corporate strategy, including monitoring strategy to-day business operations, except for the matters reserved agenda items discussed by the Executive Committee included: terms and conditions of employment contracts for members development and implementation; analysis and approval to the Meeting, the Board of Directors, or the Executive of the Board of Directors and Executive Committee, the of business acquisition and sale transactions; approval and Committee. The Board of Directors elects the CEO by a majority Managing sustainable development of LSR Group; CEO, and senior management, and on their remuneration. follow-up of major investment projects; and investment vote. Reviewing LSR Group’s financial statements for 2018; budget allocation. The responsibilities of the Human Resources and Maxim Sokolov served as PJSC LSR Group’s CEO from August Results of the Incentive Programme for LSR Group’s Compensation Committee also include development of criteria The Strategy and Investment Committee operates in 2018 to June 2019 (his biographical details can be found on Managers for 2018; for the remuneration of members of the Board of Directors, the accordance with the Regulations on the Strategy and page 86 of this report). Long-term financial model of LSR Group for 2019–2023; formulation of human resources policy, and the regulation of Investment Committee of the Board of Directors of Reviewing a draft Incentive Programme for LSR Group’s remuneration and incentive schemes for Company employees. PJSC LSR Group, which were approved on 27 August 2015. In June 2019, Andrey Molchanov was elected to this position (his biographical details can be found on page 83 of this Managers for 2020; The Human Resources and Compensation Committee operates The Strategy and Investment Committee held seven meetings report). Approving LSR Group’s internal documents; in accordance with the Regulations on the Human Resources in 2019; all meetings were held in person. Key agenda items Reviewing LSR Group’s financial plan for 2020. and Compensation Committee of the Board of Directors of discussed at the meetings included: Executive Committee PJSC LSR Group, which were approved on 15 December 2016. Members of the Executive Committee have no conflicts Forecast of the execution of LSR Group’s financial plan The Executive Committee finds solutions to the most The Human Resources and Compensation Committee held important issues surrounding LSR Group’s current economic of interest. Members of the Executive Committee do not based on performance for the first six months and the first participate in, hold positions in the executive bodies of, and/or six meetings in 2019; all meetings were held in person. nine months of 2019; activities, implements financial and economic policy, and Key agenda items discussed at the meetings included: are not employees of legal entities competing with LSR Group. Review of LSR Group’s financial plan for 2020; develops proposals for its development strategy. The Executive Committee was re-elected twice in 2019 in Results of the Incentive Programme for LSR Group’s Preparation status of LSR Group’s 2018 Sustainability report. The Executive Committee operates in accordance with the Managers for 2018; Charter and the Regulations on the Executive Committee. It is order to introduce a new key manager to the Committee and authorised to make operational management decisions on to optimise the number of members of the collegial executive Performance assessment of the Board of Directors and its Composition of the Strategy and Investment body. members, LSR Group’s executive bodies and key managers; LSR Group’s economic activities, with the exception of matters Committee from 1 January 2019 referred by legislation and the Charter to the competence Review of professional qualifications and independence Membership in the executive bodies of all nominees to the Board of Directors. Preparation of to 28 June 2019 of the General Meeting of Shareholders and the Board of Directors. Decisions as to the quantitative composition, Andrey Molchanov is PJSC LSR Group’s CEO and the Chairman recommendations to shareholders on voting in the election 1. Dmitry Goncharov. of the Board of Directors; election, and early termination of the powers of the Executive of the Executive Committee (his biographical details can be 2. Andrey Nesterenko – Chairman. Committee are taken by the Board of Directors. found on page 83 of this report). Recommendations to the Board of Directors on 3. Maxim Sokolov. the candidate for the position of PJSC LSR Group’s CEO; The Executive Committee makes decisions by simple majority. Engagement of an external advisor to assess the Composition of the Strategy and Investment Each member of the Executive Committee has one vote. performance of the Board of Directors; Meetings of the Executive Committee are convened by the Committee from 1 January 2019 Chairman of the Executive Committee as necessary, but at Development of the Incentive Programme for LSR Group’s to 28 June 2019 least once a month. Meetings of the Executive Committee may Managers for 2020. be convened at the request of the Chairman of the Executive 1. Dmitry Goncharov. The Human Resources and Compensation Committee consists Committee or one of its members, or by decision of the Board exclusively of independent directors in line with international 2. Igor Levit. of Directors, the Internal Audit Commission, or an auditor. best practice in corporate governance. 3. Andrey Nesterenko – Chairman. The Executive Committee’s activities are overseen by the CEO, who is its Chairman in accordance with the legislation. Composition of the Human Resources Attendance by members of the Strategy and Investment and Compensation Committee from Committee of the Board of Directors at meetings in 2019 1 January 2019 to 31 December 2019 Strategy and Investment Committee Attendance of the Board of Directors at in-person 1. Alexey Makhnev. meetings 2. Vitaly Podolsky – Chairman. Dmitry Goncharov 7 3. Alexander Prisyazhnyuk. Igor Levit 4 Attendance by members of the Human Resources Andrey Nesterenko 7 and Compensation Committee of the Board of Directors Maxim Sokolov 3 at meetings in 2019

Human Resources and Compensation Attendance Committee of the Board of Directors at in-person meetings Alexey Makhnev 6 Vitaly Podolsky 6 Alexander Prisyazhnyuk 6

88 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 89 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE CORPORATE GOVERNANCE SYSTEM

As at 31 December 2019, the membership of the Executive Committee (the collegial executive body) was as follows:

Galina Dmitry Vasily Volchetskaya Kutuzov Kostritsa Member of the Executive Member of the Executive Member of the Executive Committee Committee Committee

Member of the Executive Member of the Executive Member of the Executive Committee since April 2013 Committee since Committee since December 2016 September 2011

Holder of the Order for Merit to the Fatherland. Born in 1967. Born in 1976. Born in 1964. The Honorary Certificate of the Ministry of Regional Education: graduated from the Department of Law Education: graduated from the Saint Petersburg State Education: graduated with honours from the Leningrad Development of the Russian Federation. of Leningrad State University in 1989. University of Economics and Finance with a degree in Finance Institute of Water Transport with a degree in Economics The Certificates of Merit of the Governor and Legislative and Credit in 1999. Completed the Business Finance and Management of Water Transport in 1986. Assembly of the Leningrad Region. PhD in Law. programme at Saint Petersburg International Management PhD in Economics. Experience: Institute in 2005. The Badge of Merit for Priozersky District. Experience: After graduation, worked as a legal counsel at the State Experience: Honoured citizen of Kuznechnoye, Priozersky District of the Leningrad Region. Procurement Committee of the USSR (Leningrad Territorial After his graduation from the Saint Petersburg State Began his career in 1986 at the Computing Centre Directorate). 1994–2011: worked in state registration of University of Economics and Finance in 1999, worked for Shipping Companies of the Northwestern Basin at the Holder of the Medal of Saint Seraphim of Sarov, 2nd Class. property rights and transactions. 2000–2002: lecturer in civil Ministry of the River Fleet of the RSFSR. in banking until 2004. The Badge of Honour of the Order of Honour and Glory law at the Saint Petersburg State University of Economics 1992–1997: various management positions at the and Engineering. 2004–2008: Head of the Economic Planning Department of the Moscow Patriarchate. at LLC LSR. Northwestern River Shipping Directorate. 2011–2013: Deputy Director for Legal Affairs at LLC LSR. 1997–2011: member of the Board of Directors, CEO, Member of the 4th and 5th Legislative Assembly of the 2008–2011: Deputy Chief Financial Officer, Leningrad Region. January 2013–July 2013: Deputy Executive Director Head of the Treasury Department at LLC LSR. Managing Director of OJSC Granite-Kuznechnoye of LLC LSR. (part of LSR Group since 2000). 2011–2015: Chief Financial Officer of LLC LSR. Deputy Chairman of the Permanent Commission for Natural July 2013–present: Executive Director of LLC LSR. 2011–2013: Managing Director of LSR. Resources and Environmental Protection, member of 2011–2015: Chief Financial Officer of OJSC LSR Group. July 2013–present: Executive Director, member Aggregates – North-West. the Permanent Commission for Construction, Transport, of the Executive Committee of PJSC LSR Group. 2015–2016: First Deputy Chief Financial Officer of LLC LSR. 2013–2015: Deputy CEO of LLC LSR, Managing Director Communication and Road Facilities. 2015–2016: First Deputy Chief Financial Officer of LSR. Aggregates – North-West. Holder of the Badge of Merit for Contribution Holder of the Russian Federation Presidential Certificate of PJSC LSR Group. January 2016–2018: Deputy CEO for Building Materials at to the Development of the Leningrad Region. of Honour. 2016–present: Chief Financial Officer of LLC LSR. LLC LSR. Honoured Builder of Russia. Certificate of Appreciation from the Russian Federation 2016–present: Chief Financial Officer of PJSC LSR Group. 2016–2018: member of the Board of Directors Ministry of Construction, Housing, and Utilities. of PJSC LSR Group, member of the Strategy and Investment Awarded a Certificate of Honour for Professional Committee of the Board of Directors. The Honoured Law Worker of Russia badge. Achievements, Impeccable and Conscientious Work 2018–present: Deputy CEO for Building Materials at The In Commemoration of the 300th Anniversary in the Construction Industry in 2011. PJSC LSR Group. of St. Petersburg medal. Letter of Acknowledgment from Saint Petersburg Committee on Construction.

Stake in the registered capital of PJSC LSR Group: 0.016%. Stake in the registered capital of PJSC LSR Group: 0.019%. Stake in the registered capital of PJSC LSR Group: 0.231%. Percentage of PJSC LSR Group’s Percentage of PJSC LSR Group’s Percentage of PJSC LSR Group’s ordinary shares held: 0.016%. ordinary shares held: 0.019%. ordinary shares held: 0.229%. Made no transactions with PJSC LSR Group Made no transactions with PJSC LSR Group Made no transactions with PJSC LSR Group shares or GDRs in 2019. shares or GDRs in 2019. shares or GDRs in 2019.

90 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 91 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE CORPORATE GOVERNANCE SYSTEM

Evgeny Leonid From 01.01.2019 to 18.12.2019 Maxim Sokolov was a member of the Executive Committee (his detailed biography can be Yatsyshin Sorokko found on page 86) Member of the Executive Member of the Executive Committee Committee Remuneration of management Member of the Executive Member of the Executive In 2019, LSR Group continued its incentive programme for Committee since April 2016 Committee since senior and key managers. The principal objective of the December 2013 programme is to engage key employees in the achievement of LSR Group’s strategic goals. The key indicator within the incentive programme is the achievement of the net profit targets for LSR Group in general and for each line of business individually. Under the annual incentive programme, managers were paid a fixed amount based on the achievement of overall targets for LSR Group and individual KPIs. Born in 1970. Awarded a Construction Glory Badge of Honour. Born in 1954. In 2019, LSR Group introduced a new long-term incentive programme for its key employees for 2019–2023, under which Education: graduated from the Department of Economics Certificate of Honour from the State Committee Education: graduated from the Leningrad Institute of Civil about 100 employees are entitled to PJSC LSR Group shares if of Saint Petersburg State University in 1993 and from Saint for Construction, Housing and Utilities of the Russian Engineering with a degree in Industrial and Civil Construction key strategic targets are achieved. Petersburg International Management Institute in 2001 Federation. in 1976. LSR Group did not issue loans to members of PJSC LSR Group’s Experience: Medal In Commemoration of the 300th Anniversary Experience: executive bodies in 2019. of St. Petersburg. Joined LSR Group in 1993. Working at LSR Group since 2013. Certificate from the Governor of St. Petersburg. Remuneration and compensation paid to members Until 1995: Deputy Head and later Head of the Real Estate Began his career in 1976 and held different positions of the Executive Committee in 2019, RUB thousand Division at OJSC CCR SPb. Letter of Acknowledgment from Saint Petersburg Vice at construction companies, progressing from a construction 1995–1997: First Deputy CEO and later CEO of OJSC GRST-6. Governor – Chairman of the Committee on Construction. specialist to the CEO. Remuneration type 2019 2007–2009: head of the Capital Construction Directorate 1997–1999: First Deputy CEO Honoured Builder of Russia. Remuneration for service on a governing body 235 of OJSC Lenstroyrekonstruktsiya. at the Ministry of Defence of the Russian Federation and Adviser to the Minister of Defence of the Russian Salary 461,889 1999–2000: CEO of OJSC Lenstroyrekonstruktsiya. Federation. Bonuses 189,945 2000–2002: CEO of OJSC CCR SPb. 2009–2013: CEO of LLC Peter the Great Construction Commission fees 0 2002–2003: Vice President for Construction at LSR Group. Company. Reimbursement of expenses 0 November 2003–January 2005: Chairman of the 2013–2018: Deputy CEO of LLC LSR. Other remuneration 0 Construction Committee at Saint Petersburg City 2015–2016: member of the Board of Directors Administration, and later returned to LSR Group as of PJSC LSR Group. TOTAL 652,069 Vice President. 2017–present: member of the Board of Directors of LLC TCC. 2006–2011: Managing Director of LSR Group. Total remuneration and compensation to the highest paid 2018–present: Deputy CEO of PJSC LSR Group. 2012–2013: Deputy CEO for Development at LLC Stroykom. members of PJSC LSR Group’s executive bodies and other key managers in 2019, RUB thousand Since 2012: private investor in the property market. Awarded the Order of Honour in 2008. 2016–2018: member of the Board of Directors Remuneration type 2019 of PJSC LSR Group. Remuneration for service on a governing body 235 2016–present: First Deputy CEO, member of the Executive Committee of PJSC LSR Group. Salary 546,437 2016–present: First Deputy CEO of LLC LSR. Bonuses 373,945 2017–2018: member of the Strategy and Investment Commission fees 0 Committee of the Board of Directors of PJSC LSR Group. Reimbursement of expenses 0 Other remuneration 0 TOTAL 920,617

Stake in the registered capital of PJSC LSR Group: 0.008%. Stake in the registered capital of PJSC LSR Group: 0%. Percentage of PJSC LSR Group’s Percentage of PJSC LSR Group’s ordinary shares held: 0%. ordinary shares held: 0.008%. Made no transactions with PJSC LSR Group Made no transactions with PJSC LSR Group shares or GDRs in 2019. shares or GDRs in 2019.

92 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 93 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE CORPORATE GOVERNANCE SYSTEM

Total remuneration to all members of PJSC LSR Group’s INTERNAL CONTROL AND AUDIT Internal Audit Commission Independent Auditor executive bodies and other key managers covered Supervision of the financial and business operations of PJSC LSR Group’s annual accounting (financial) statements by PJSC LSR Group’s remuneration policy in 2019, LSR Group has a multi-tiered internal control system that is LSR Group is exercised by the Internal Audit Commission, are regularly audited by an external independent auditor RUB thousand designed to protect the rights and interests of the Group’s which is composed of three persons elected by the General appointed annually by the General Meeting of Shareholders. shareholders. The key objectives of the internal control Meeting of Shareholders for a period of one year. Members of Remuneration type 2019 system are as follows: the Internal Audit Commission may not be members of the The General Meeting of Shareholders appointed LLC Audit- service SPb the auditor of PJSC LSR Group’s RAS accounting Remuneration for service on a governing body 235 To identify and analyse risks in the Group’s activities Board of Directors or hold other positions in the Company’s management bodies. statements for 2019 and appointed JSC KPMG the auditor of its Salary 546,437 in a timely manner; IFRS financial statements. Bonuses 373,945 To ensure the reliability of financial and management The Company’s financial and business results are reviewed information and reporting; annually on a mandatory basis, and additionally at the The appointment of auditors was carried out in line with the Commission fees 0 initiative of the Internal Audit Commission, by decision of the requirements of LSR Group’s Regulation on Procurement. The To fulfil financial and economic plans; external auditors’ fees are fixed and thus their independence Reimbursement of expenses 0 General Meeting of Shareholders or Board of Directors, or at To safeguard Group assets and use resources effectively; is not threatened. The auditors’ fees totalled RUB 16.2 million, Other remuneration 0 the request of shareholders with at least 10% of voting shares To facilitate the optimisation of the Group’s organisational in PJSC LSR Group. net of VAT. TOTAL 920,617 structure; The competence of the Internal Audit Commission in matters In order to uphold the principle of objectivity, the external To comply with the requirements of prevailing regulations auditors periodically carry out a rotation of auditing groups. Key provisions of LSR Group’s Policy not provided for in the Charter shall be determined by the and internal procedures. Regulations on the Internal Audit Commission. on Remuneration and/or Compensation The Board’s Audit Committee conducted a performance The internal control system includes the following entities: assessment of the external and internal audit teams and of Expenses The following Internal Audit Commission members were recognised the process of conducting internal and external LSR Group’s remuneration policy ensures that the The Audit Committee of the Board of Directors elected at the Annual General Meeting of Shareholders audit of the Group as effective. remuneration structure and amount are linked to performance. The Internal Audit Commission on 28 June 2019: The incentive part of remuneration is built up differently for The Internal Audit Service 1. Natalya Klevtsova. Corporate Secretary different employee categories, but it is always based on the 2. Denis Sinyugin. The Corporate Secretary ensures effective cooperation role and tasks for each job. For instance, blue-collar employees In 2019, LSR Group made considerable efforts to support 3. Lyudmila Fradina. between PJSC LSR Group and its shareholders, coordinates are paid a piece rate, while specialists (including engineering and improve the internal control system in several areas. the activities the Company undertakes to protect shareholder and technical personnel) have a variable part in their salary In particular, the following documents were prepared and As resolved by the Annual General Meeting of Shareholders, rights and interests, and also facilitates the efficient paid if job duties are performed properly and in full. The approved: The Internal Control Rules for Preventing, Detecting, no remuneration was paid to members of the Internal Audit functioning of the Board of Directors. She participates in incentive part of middle managers’ salaries is mainly structured and Stopping the Unlawful Use of Insider Information and/ Commission in 2019. the organisation and holding of the General Meeting of so as to increase labour productivity. or Market Manipulation; PJSC LSR Group’s Environmental, Shareholders, in the implementation of Group policy on the Sustainability, and Human Rights Policies. Corporate and local Internal Audit Service disclosure of information and storage of corporate documents, regulations governing and improving the effectiveness of the The Internal Audit Service was established at PJSC LSR Group and in the improvement of PJSC LSR Group’s corporate key business processes were updated; latest IT technologies governance system and practices. were deployed to improve transparency of our business in 2007 to assist the Board of Directors and LSR Group’s and enhance control over our business processes. In 2019, management in achieving the set goals, ensuring the The Corporate Secretary operates in accordance with the LSR Group used a risk-based approach when performing efficiency and effectiveness of LSR Group’s operations, and Regulations on the Corporate Secretary, which were approved internal audits. LSR Group’s plans for 2020 include further maintaining and improving the corporate governance, risk by the Board of Directors on 18/12/2014. She is subordinate development and improvement of its internal control and management, and internal control processes at LSR Group. The and functionally accountable to the Board of Directors and audit system based on global best practices. Internal Audit Service’s responsibilities include performing risk- administratively accountable to the CEO of PJSC LSR Group. based assessments of reliability, adequacy and effectiveness of internal control, risk management, and corporate governance systems at LSR Group’s entities, including PJSC LSR Group and its business units.

94 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 95 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE CORPORATE GOVERNANCE SHARE CAPITAL SYSTEM

Elena Shareholder and investor relations The registered capital of PJSC LSR Group as at 31 December Public offerings of PJSC LSR Group shares 2019 amounted to RUB 25,757,553.75 divided into 103,030,215 Chistyakova LSR Group has ongoing relationships with a wide range of ordinary registered uncertificated shares with a nominal value PJSC LSR Group carried out its initial public offering in Russian and international investors, holding one-to-one and November 2007. The IPO volume amounts to 10,643,618 Corporate Secretary of RUB 0.25 each. All issued ordinary shares are fully paid up. group meetings to directly engage with investors. LSR Group’s No preferred shares were issued. ordinary shares in the form of Russian ordinary shares and since 2014 representatives actively attend and participate in major global depositary receipts. investor conferences to update investors on LSR Group’s activities and performance, and answer questions from them. The offering price was USD 72.50 per share and USD 14.50 per In 2019, LSR Group took part in six investor conferences held SHARE CAPITAL STRUCTURE global depositary receipt. As a result, the Company raised USD 588 million (adjusted for the costs of the IPO). The LSR Group across Europe and Russia (such as the Moscow Exchange As at 31 December 2019, 41.62% of the share capital in Forum 2019 and VTB Capital’s ‘RUSSIA CALLING!’ Investment IPO was one of the largest public offerings conducted by a PJSC LSR Group was in free float, with Andrey Molchanov, construction company in Russia. Forum). In 2019, LSR Group held over 250 meetings with the controlling shareholder of PJSC LSR Group, holding existing and potential investors. 50.33%, management of PJSC LSR Group 5.30% and LLC LSR On 30 April 2010, JSC LSR Group conducted an international 2.75% of the share capital. PJSC LSR Group has no treasury secondary public offering, selling a total of 9,366,383 ordinary Official communication channels shares. PJSC LSR Group has no information on any shareholder shares in the form of global depositary receipts. The net for shareholders and investors agreements. proceeds after deducting all the offering expenses were USD Education: graduated in 2001 from St. Petersburg State 385 million. As a result of the secondary public offering, which In order to facilitate the exercise of corporate rights and University with a degree in Law; qualified lawyer. Share capital structure of PJSC LSR Group, % was held with the objective of reinvesting any funds attracted effectively manage shareholder and investor relations, in the Company, the total number of shares increased to Experience: LSR Group maintains several communication channels: Free float 41.62 103,030,215. Hired in 2002 as a specialist in the Corporate Capital LSR Group’s corporate hotline (8 800 770 7577) and email Andrey Molchanov 50.33 On 31 December 2018, the ordinary shares of LSR Group Department at LLC PSG LSR (a subsidiary of LSR Group), ([email protected]); were included in the first-level (top-level) quotation list of the promoted in 2004 to lead specialist of the Corporate Capital Management 5.30 Moscow Exchange under the ticker LSRG. Department, and in 2005 became the head of the Corporate LSR Group’s email for press contacts ([email protected]); C LL LSR 2.75 Property Division of the Corporate Capital Department. Postal communication via the following address: PJSC LSR Group’s shares are traded outside of Russia as global 2007–2011: Deputy Director of the Corporate Capital 36 Kazanskaya St., Letter B, St. Petersburg, 190031, depositary receipts on the London Stock Exchange. Each Management Department at LLC LSR. Russian Federation; depositary receipt represents one fifth of an ordinary PJSC LSR Group share (a ratio of 5 GDRs: 1 ordinary share). 2011–present: Head of Department for Corporate Capital Communication with the Director of Investor Relations Management at LLC LSR. and Sustainable Development or the Corporate Secretary, The GDR programme is implemented and supported under 2013–2014: Secretary of PJSC LSR Group. whose contact details are posted in the Internet at Regulation S and Rule 144A. Deutsche Bank Trust Company Americas acts as depositary, and the functions of custodian 2014–present: Group Corporate Secretary. https://www.lsrgroup.ru/en/investor-relations/contacts. bank are performed by VTB Bank (PJSC). Shareholder FAQs are available on LSR Group’s website Information about shares and GDRs Awarded a Best-in-LSR Gold Medal badge of merit. at https://www.lsrgroup.ru/investors-and-shareholders/ PJSC LSR Group’s shares are traded on both the Russian and Share price performance international stock markets. Its ordinary shares are traded on Certificate of inclusion in the Top 1000 Russian Managers questions. the Russian stock market while its global depositary receipts ranking of the Russian Association of Managers. Share price performance on the Moscow Exchange Information Policy (GDRs) are traded on the international stock markets. in 2019 Honorary Certificate from the President of the St. Petersburg Our information policy is based on the global practice of Association of Builders. information disclosure and the requirements of international PJSC LSR Group shares/GDRs on stock Indicator 2019 and domestic law, the UK’s Financial Conduct Authority exchanges Maximum price (RUB) 812.00 (FCA), and the Bank of Russia (Russian regulator), as well as LSR Group’s Regulation on Information Policy. PJSC LSR Group shares Minimum price (RUB) 590.00 State registration number: 1-01-55234-E Year-end price (RUB) 764.00 Information on LSR Group’s activities is provided in regular disclosures and reports. We prepare and publish our annual State registration date: 28 September 2006 Trading volume (RUB) 11,898,747,867 and quarterly reports which are also promptly posted at the Stock exchange: Moscow Exchange Source: www.micex.ru corporate website www.lsrgroup.ru. Ticker: LSRG Price performance of GDRs on the London Stock ISIN for ordinary shares: RU000A0JPFP0 As per the requirements of Moscow Exchange, PJSC LSR Group Exchange in 2019 files quarterly corporate governance compliance reports. PJSC LSR Group GDRs Information on LSR Group’s activities is also disclosed in press Stock exchange: London Stock Exchange Indicator 2019 releases, notices of material facts, and lists of LSR Group’s Ticker: LSRG Maximum price (USD) 2.600 affiliated persons. Regulation S GDR CUSIP: 50218G206 ISIN: US50218G2066 Minimum price (USD) 1.656 Common Code: 032415202 Year-end price (USD) 2.495 Rule 144A GDR Trading volume (USD million) 54,344,430 CUSIP: 50218G107 ISIN: US50218G1076 Common Code: 032415334 Source: Bloomberg Stake in the registered capital of PJSC LSR Group: 0%. Percentage of PJSC LSR Group’s ordinary shares held: 0%. Made no transactions with PJSC LSR Group shares or GDRs in 2019.

96 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 97 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE SHAREHOLDER CAPITAL

Depositary contacts Dividend policy Dividend history London +44 207 547 6500 PJSC LSR Group’s dividend policy has been designed to balance the interests of the Company and its shareholders Year (dividend Dividend amount, RUB Dividends declared on all Dividends paid on all Date of the Meeting that New York +1 212 250 9100 and to increase both the capitalisation of LSR Group and its period) ordinary shares, RUB ordinary shares, RUB resolved to pay dividends Moscow +7 495 797 5209 attractiveness to investors. 2010 15 1,545,453,225 1,545,453,225 7 April 2011 Mailing address: Our dividend policy is based on the principle of providing our 2011 20 2,060,604,300 2,060,604,300 5 April 2012 shareholders with an equal and fair opportunity to participate 2012 20 2,060,604,300 2,060,604,300 5 April 2013 Deutsche Bank Trust Company Americas in LSR Group’s profit by receiving dividends, and on the 2013 40 4,121,208,600 4,121,206,6001 20 June 2014 Depositary Receipts, 60 Wall Street, New York, NY 10005-2836 strict observance of shareholder rights as provided for by Russian legislation, the Company Charter, and the Corporate 2014 78 8,036,356,770 8,036,352,8701 7 April 2015 Address in Russia: Depositary Receipts, 82 Sadovnicheskaya St., Governance Code. 2015 78 8,036,356,770 8,036,149,3781 5 April 2016 Bld. 2, Moscow, 115035 The Provision on the Dividend Policy of PJSC LSR Group, 2016 78 8,036,356,770 8,036,107,2581 9 June 2017

which was approved on 18 December 2014, regulates the 1 Russian registrar’s contacts 2017 78 8,036,356,770 8,036,171,218 29 June 2018 determination of the net profit share allocated for the payment Joint-Stock Company VTB Registrar of dividends, the conditions in compliance with which we 2018 78 8,036,356,770 8,036,145,4981 28 June 2019 (licence 045-13970-000001) declare dividends, and the process by which we calculate the Address: 23 Pravdy St., Moscow, 127015 size and payment of dividends. The decision to pay dividends for 2018 was made by the Taxation of Dividends annual Meeting held on 28 June 2019 based on performance Tel.: +7 495 787 4483 Decisions as to the payment of dividends are taken by the PJSC LSR Group acts as a tax agent in paying dividends to General Meeting of Shareholders on the recommendation of for 2018. The yield on issuable securities was not paid by PJSC LSR Group in full: unpaid dividends on PJSC LSR Group shareholders whose rights are recorded in the Company’s the Board of Directors. The recommended amount of dividend Register of Shareholders. PJSC LSR Group withholds and payments is determined by the Board of Directors on the basis shares recorded in the register of nominee shareholders totalled RUB 211,272. transfers tax on dividends in accordance with the applicable of the Company’s annual financial performance and, as a rule, legislation. As a result, the tax owing is subtracted from the constitutes at least 20% of the consolidated net profit for the dividend amount paid to shareholders. previous financial year as per IFRS. For shareholders who are tax residents of the Russian Dividends are paid between 10 and 25 working days from the Federation, the tax rate is 13% of income received in the date on which the list of dividend recipients is determined. form of dividends on shares in Russian companies. For non- All payments of dividends to natural persons whose rights to residents, the tax rate is 15%. Income in the form of dividends shares are recorded in the Company’s Register of Shareholders received by non-residents of the Russian Federation may be are made in monetary form by means of a transfer of funds to exempt from tax or subject to a reduced taxation rate if this their bank accounts, or, if bank account details are not available, is provided for by international treaties and agreements with by postal transfer. Other entities whose rights to shares are foreign states on the avoidance of double taxation, provided recorded in the Company’s Register of Shareholders receive that the entity receiving the income submits a document dividends in the form of a transfer of funds to their bank to the tax agent upon payment of the income confirming accounts. Entities who are entitled to the receipt of dividends their status as a resident of a state with which a relevant and whose rights to shares are recorded as being exercised international agreement is in force. through a nominee shareholder receive dividends in monetary form in accordance with the procedure specified by the Russian Federation securities legislation. Prior to 2011, LSR Group did not pay out dividends, by decision of the Annual General Meeting of Shareholders. The entirety of the Company’s profit was reinvested into business development. Dividends for the 2010–2017 fiscal years were paid in accordance with the Company’s dividend policy.

A TOTAL OF ABOUT 50 RUB BILLION HAS BEEN PAID TO OUR SHAREHOLDERS AS DIVIDENDS OVER 1 Dividends were not paid in full due to the lack of correct account details for shareholders or returns by the nominee shareholder due to inability to transfer funds for THE ENTIRE DIVIDEND HISTORY reasons beyond the nominee shareholder’s control.

98 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 99 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE ANNEXES

Annex 1. List of Major Transactions during 2019 ��102 Annex 2. List of Transactions recognised as interested in 2019 ��102 Annex 3. Report on observing principles and recommendations of the Corporate Governance Code ��106 Annex 4. Financial Statements ��124 Annex 5. List of the abbreviations ��208

“Neva Art”, St. Petersburg

100 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 101 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE ANNEX 1

List of transactions made by PJSC LSR Group during the reporting year and recognised No. Transaction Parties to, and beneficiaries of, Subject matter of the transaction Transaction price as major transactions under the Federal Law On Joint Stock Companies date the transaction No major transactions recognised as major transactions under the Federal Law On Joint Stock Companies were made 9 20/06/2019 JSC A Plus Estate (Borrower) The Lender transferred funds to the Borrower, and the RUB 1,200,000,000.00 by PJSC LSR Group in 2019. Borrower shall repay the loan to the Lender within the established time frame 10 26/06/2019 PJSC Bank Saint Petersburg (Bank), LLC LSR. The Surety assumes liability to the Bank for the perfor- RUB 5,000,000,000.00 Construction – North-West (Beneficiary) mance by the Debtor (the Beneficiary) of its obligations under a loan agreement 11 02/07/2019 PJSC Bank Saint Petersburg (Bank), JSC The Surety assumes liability to the Bank for the perfor- RUB 500,000,000.00 LSR. Aggregates (Beneficiary) mance by the Debtor (the Beneficiary) of its obligations under a loan agreement 12 16/07/2019 LLC LSR-Stroy (Borrower) Amendment of the time limit for the current obligation, RUB 3,200,000,000.00 ANNEX 2 without the change in the obligation sum 13 16/09/2019 LLC LSR. Wall Materials (Borrower) The Lender transferred funds to the Borrower, and the RUB 1,000,000,000.00 Borrower shall repay the loan to the Lender within the established time frame 14 16/09/2019 LLC LSR. Construction – North-West (Lender) Amendment of the time limit for the current obligation, RUB 3,193,100,000.00 List of transactions made by PJSC LSR Group during the reporting year and recognised without the change in the obligation sum as interested party transactions under the Federal Law On Joint Stock Companies 15 16/09/2019 JSC CCR SPb (Lender) Amendment of the time limit for the current obligation, RUB 4 000,000,000.00 without the change in the obligation sum No. Transaction Parties to, and beneficiaries of, Subject matter of the transaction Transaction price date the transaction 16 16/09/2019 JSC LSR. Tower Cranes – North-West Amendment of the time limit for the current obligation, RUB 250,000,000.00 (Lender) without the change in the obligation sum 1 13/03/2019 CJSC Brok-Invest-Service and Co Financial The Surety assumes liability to the Creditor for the RUB 80,000,000.00 Trading House (Creditor), LLC LSR (Ben- performance by the Debtor (the Beneficiary) of its 17 24/09/2019 LLC LSR. Concrete (Lender) The Lender transferred funds to the Borrower, and the RUB 150,000,000.00 eficiary) obligations under a supply agreement Borrower shall repay the loan to the Lender within the established time frame 2 15/03/2019 JSC Metallokomplekt-M (Lender), LLC LSR The Surety assumes liability to the Creditor for the RUB 80,000,000.00 (Beneficiary) performance by the Debtor (the Beneficiary) of its 18 06/11/2019 JSC Rosselkhozbank (Bank), LLC LSR. Real The Surety assumes liability to the Bank for the perfor- RUB 767,277,000.00 obligations under a supply agreement Estate – North-West (Beneficiary) mance by the Debtor (the Beneficiary) of its obligations under a bank guarantee agreement 3 01/04/2019 JSC Pikalevskaya Soda (Creditor), LLC LSR The Surety assumes liability to the Creditor for the perfor- RUB 150,000,000.00 (Beneficiary) mance by the Debtor (the Beneficiary) of its obligations 19 06/11/2019 JSC Rosselkhozbank (Bank), LLC LSR. Real The Surety assumes liability to the Bank for the perfor- RUB 941,193,120.00 under a supply agreement Estate – North-West (Beneficiary) mance by the Debtor (the Beneficiary) of its obligations under a bank guarantee agreement 4 24/04/2019 JSC Rosselkhozbank (Bank), LLC LSR. Real The Surety assumes liability to the Bank for the perfor- RUB 804,983,184.00 Estate – North-West (Beneficiary) mance by the Debtor (the Beneficiary) of its obligations 20 20/11/2019 LLC LSR. Razvitie Specialised Developer The Lender transferred funds to the Borrower, and the RUB 2,000,000,000.00 under a bank guarantee agreement (Borrower) Borrower shall repay the loan to the Lender within the established time frame 5 24/04/2019 JSC Rosselkhozbank (Bank), LLC LSR. Real The Surety assumes liability to the Bank for the perfor- RUB 10,000,000,000.00 Estate – North-West (Beneficiary) mance by the Debtor (the Beneficiary) of its obligations 21 20/11/2019 LLC LSR. Construction Solutions (Bor- The Lender transferred funds to the Borrower, and the RUB 1,600,000,000.00 under a loan agreement rower) Borrower shall repay the loan to the Lender within the established time frame 6 14/05/2019 AEROC Investment Deutschland GmbH The parties agreed to assign claims to a new Lender EUR 7,811,574.79/ (new Lender) and extend the time limit for the obligation fulfilment RUB 574,331,194.44 at 22 21/11/2019 LLC LSR. Razvitie Specialised Developer The Lender transferred funds to the Borrower, and the RUB 130,000,000.00 the exchange rate set by (Borrower) Borrower shall repay the loan to the Lender within the the Bank of Russia on the established time frame transaction date 23 19/12/2019 LLC LSR. Construction – North-West The Lender transferred funds to the Borrower, and the RUB 2,000,000,000.00 7 14/05/2019 AEROC Investment Deutschland GmbH The parties agreed to assign claims to a new Lender and EUR 2,019,471.32/ (Lender) Borrower shall repay the loan to the Lender within the (new Lender) extend the time limit for the obligation fulfilment RUB 148,477,791.81 at the established time frame exchange rate set by the Bank 24 30/12/2019 JSC Rosselkhozbank (Bank), JSC LSR. The Surety assumes liability to the Bank for the perfor- RUB 643,964,580.00 of Russia on the transaction Real Estate – Ural Specialised Developer mance by the Debtor (the Beneficiary) of its obligations date (Beneficiary) under a loan agreement 8 17/05/2019 LLC LSR-Stroy (Borrower) The Lender transferred funds to the Borrower, and the RUB 700,000,000.00 Borrower shall repay the loan to the Lender within the established time frame

102 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 103 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE ANNEX 2

In line with Paragraph 1, Article 83 of the Federal Law On Joint 2. Interested party: Andrey Molchanov – Chairman A brief review on the most significant Stock Companies, the above interested party transactions do of the Board of Directors, controlling person not require mandatory prior consent. Consent to (approval of PJSC LSR Group. transactions made by PJSC LSR Group of) the above interested party transactions can be obtained and its controlled legal entities (including at the request of the CEO, members of the Board of Directors Grounds to be deemed an interested party to transactions related party transactions made by or the Executive Committee of PJSC LSR Group (members of 1–10: persons controlled by Andrey Molchanov were parties governing bodies). to/beneficiaries of the transactions. PJSC LSR Group and its controlled legal entity or entities) in 2019 Members of governing bodies were duly informed of the The interested party’s stake in the registered capital of LSR Group sold its stake in the ZIL-Yug project as part of its above interested party transactions as prescribed by the PJSC LSR Group as at each transactions 1-3 date: 60.04% strategy to diversify its development assets in Moscow region. Federal Law On Joint Stock Companies and PJSC LSR Group’s Percentage of PJSC LSR Group shares held by the interested Charter. party as at each transaction 1-3 date: 57.56% In July 2019, LSR Group closed the deal to sell 100% of its stake in LLC LSR. Reinforced Concrete. This was another step towards No requests for consent to/approval of the above transactions The interested party’s stake in the registered capital of optimising LSR Group’s reinforced concrete assets in line with were received from members of governing bodies as at the PJSC LSR Group as at each transactions 4-10 date: 50.33% its strategy. date of signing this report. Percentage of PJSC LSR Group shares held by the interested In November 2019, LSR Group completed the acquisition of Grounds for recognising the above party as at each transaction 4-10 date: 47.85% LLC H+H, the Russian business of Danish H+H International transactions as interested party The interested party’s stake in the registered capitals A/S. LLC H+H located in the Volosovsky District of Leningrad of the legal entities acting as parties to/beneficiaries of Region was incorporated into LSR. Wall Materials which already transactions: transactions 1–10 as at each transaction date: 0%. includes an aerated concrete production facility in Sertolovo. 1. Interested party: Maxim Sokolov – CEO, Chairman By acquiring H+H’s modern plant LSR Group will significantly Percentage of shares in the legal entities acting as parties of the Executive Committee, member of the Board strengthen its position in the aerated concrete market of the to transactions 1-5, 9-10, as at each transaction date: 0%. of Directors of PJSC LSR Group. Northwestern Federal District as well as optimise its shipping logistics, selling and administrative expenses. Grounds to be deemed an interested party to transactions 3. Interested party: Dmitry Goncharov – member 1–3: Maxim Sokolov was the sole executive body of the legal of the Board of Directors of PJSC LSR Group. entity acting as a party to the transactions. Grounds to be deemed an interested party to transactions The interested party’s stake in the registered capital of PJSC 6–7: Dmitry Goncharov was the sole executive body of the LSR Group as at each transaction date: 0%. legal entity acting as a party to the transactions. Percentage of PJSC LSR Group shares held by the interested The interested party’s stake in the registered capital of PJSC party as at each transaction date: 0%. LSR Group as at each transaction date: 0.014%. The interested party’s stake in the registered capital of legal Percentage of PJSC LSR Group shares held by the interested entities acting as parties to/beneficiaries of transactions 1–3 party as at each transaction date: 0%. as at each transaction date: 0%. The interested party’s stake in the registered capital of the Percentage of shares in the legal entities acting as parties to legal entity acting as a party to transactions 6–7 as at each transactions 1-3, as at each transaction date: 0%. transaction date: 0%. 4. Interested party: Andrey Molchanov – CEO, Chairman of the Executive Committee, member of the Board of Directors, controlling person of PJSC LSR Group. Grounds to be deemed an interested party to transactions 11–24: persons controlled by Andrey Molchanov were parties to/beneficiaries of the transactions. The interested party’s stake in the registered capital of PJSC LSR Group as at each transaction date: 50.33%. Percentage of PJSC LSR Group shares held by the interested party as at each transaction date: 47.85%. The interested party’s stake in the registered capitals of the legal entities acting as parties to/beneficiaries of transactions 11–24 as at each transaction date: 0%. Percentage of shares in the legal entities acting as parties to/ beneficiaries of transactions 11, 15–16, 18-19 and 24, held by the interested party as at each transaction date: 0%.

104 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 105 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE ANNEX 3

PJSC LSR Group strives to adhere to the principles and Information on Compliance with Corporate Governance Principles REPORT ON COMPLIANCE recommendations set out in the Code. Compliance WITH THE PRINCIPLES AND No. Corporate governance principles Compliance criteria Reasons for non-compliance PJSC LSR Group’s management bodies carry out their functions status in line with the principles recommended in the Code, the RECOMMENDATIONS OF THE 1.1 The company shall ensure fair and equitable treatment of all shareholders in exercising their rights to participate in the governance of the company. most important of which is the protection of shareholders’ CORPORATE GOVERNANCE CODE and investors’ rights. The Board of Directors pays particular 1.1.1 The company ensures the most 1. The company’s internal document approved by attention to respecting and protecting shareholders’ rights. favorable conditions for its shareholders the general meeting of shareholders governing Statement by the Board of Directors to participate in the general meeting, the procedures to hold general meetings of Shareholders have the right to participate in the governance develop an informed position on items shareholders is publicly available. Being aware of its key role in the corporate governance system, of PJSC LSR Group by taking decisions on the most important on the agenda of the general meeting, 2. The company provides accessible means the Board of Directors states that PJSC LSR Group is committed coordinate their actions, and voice their matters relating to PJSC LSR Group operations at the Meeting. of communication with the company, such full compliance to complying with the highest standards and best practices in opinions on items considered. as a hotline, email or online forum, to enable corporate governance. Shareholders have the right to participate in the distribution of shareholders to express their opinion and send profits by taking decisions on the distribution of profits at the questions on the agenda in preparation for The Board of Directors believes that compliance with the key Meeting. the general meeting. The company performed principles and recommendations of the Corporate Governance the above actions in advance of each general Code is an effective tool for increasing the effectiveness of PJSC LSR Group provides shareholders with the opportunity to meeting held in the reporting period. corporate governance at PJSC LSR Group aimed at ensuring its familiarise themselves with information about its operations 1.1.2 The procedure for giving notice of, and 1. The notice of an upcoming general meeting of long-term sustainable development. in accordance with the Federal Law On Joint Stock Companies, providing relevant materials for, the shareholders is posted (published) online at least the Federal Law On the Securities Market and regulations of general meeting allows shareholders 30 days prior to the date of the general meeting. This Report on Compliance with the Principles and the Bank of Russia. to properly prepare for attending the 2. The notice of an upcoming meeting indicates Recommendations of the Corporate Governance Code general meeting. the location of the meeting and the documents full compliance (the ‘Code’) was reviewed by the Board of Directors of The overarching principle on which PJSC LSR Group required for admission. LSR Group at the meeting held on 26 March 2020, Minutes builds relationships with shareholders and investors 3. Shareholders were given access to the No. 5/2020 dated 26 March 2020. The Board of Directors is the maintenance of a reasonable balance between information on who proposed the agenda certifies that the data in this Report contains full and reliable PJSC LSR Group’s interests as a business entity and its interests items and nominees to the company’s board of information on compliance by PJSC LSR Group with the as a joint stock company motivated to protect the rights and directors and the internal audit commission. principles and recommendations of the Corporate Governance legitimate interests of its shareholders. 1.1.3 In preparation for the general meeting 1. In the reporting period, shareholders were Code in 2019. and during the general meeting, given an opportunity to pose questions to shareholders shall be enabled to receive members of executive bodies and members of information about, and all materials the board of directors in advance of and during related to, the meeting, pose questions the annual general meeting. to executive bodies and members 2. The position of the board of directors (including of the board of directors, as well as dissenting opinions entered in the minutes) on communicate with each other, in an each item on the agenda of general meetings full compliance unobstructed and timely manner. held in the reporting period was included in the materials for the general meeting of shareholders. 3. The company gave duly authorised shareholders access to the list of persons entitled to participate in the general meeting, as from the date when such list was received by the company, in all instances of general meetings held in the reporting period. 1.1.4 The exercise of shareholders’ right to 1. In the reporting period, shareholders had an demand the convocation of a general opportunity to make proposals for the agenda of meeting, nominate candidates for the annual general meeting for at least 60 days the management bodies and make after the end of the respective calendar year. full compliance proposals for inclusion in the agenda 2. In the reporting period, the company did not for the general meeting was not made reject proposals for the agenda or candidates to unreasonably difficult. management bodies due to misprints or other insignificant flaws in the shareholder’s proposal. 1.1.5 Each shareholder was allowed to freely 1. The company’s internal document (internal exercise his/her voting right in the policy) contains provisions stipulating that every simplest and most convenient way. participant in the general meeting may, before full compliance the end of the respective meeting, request a copy of the ballot filled in by him/her and certified by the counting commission.

106 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 107 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE ANNEX 3

Compliance Compliance No. Corporate governance principles Compliance criteria Reasons for non-compliance No. Corporate governance principles Compliance criteria Reasons for non-compliance status status 1.1.6 The general meeting procedure 1. During general meetings of shareholders held 1.2.4 The company strives to exclude any 1. To exclude any ways for its shareholders In the reporting year, the Regulation established by the company equally in the reporting period in the form of a meeting ways for its shareholders to receive profit to receive profit (income) from the company on the Electronic Document Approval allows all persons attending the meeting (joint presence of shareholders), sufficient time (income) from the company other than other than dividends and liquidation value, the System at LSR Group (the Regulation on to voice their opinion and ask questions. was allocated for the reports on, and discussion of dividends and liquidation value. company’s internal documents provide control the EDAS) was the internal document the items listed in the agenda. mechanisms to ensure timely identification and formalising control mechanisms at 2. Candidates to the company’s management procedure for approval of transactions with PJSC LSR Group, which ensure timely and control bodies were available to answer affiliates (associates) of the company’s significant identification and procedure for approval shareholders’ questions during the meeting at full compliance shareholders (persons entitled to use the votes of transactions with affiliates (associates) which their nominations were put to vote. attached to voting shares) in cases when the law of significant shareholders (persons does not formally recognise these transactions as entitled to use the votes attached to 3. When taking decisions on the preparation and interested party transactions. voting shares) in cases when the law does holding of general meetings of shareholders, not formally recognise these transactions the board of directors considered the use as interested party transactions. The of telecommunications means to provide electronic document approval system shareholders with remote access to general allows employees in charge to track all meetings in the reporting period. partial compliance PJSC LSR Group’s transactions and, should 1.2 Shareholders have equal and fair rights to share profits of the company by receiving dividends. there be any doubt as to the correct- ness of a certain transaction, including 1.2.1 The company has developed and 1. The company’s dividend policy is developed, the need to approve such transaction, introduced a transparent and clear approved by the board of directors, and disclosed. suspend the transaction approval process mechanism for determining the 2. If the company’s dividend policy uses the until relevant details and circumstances dividend amount and paying dividends. company’s reporting figures to determine the full compliance are clarified. A transaction that has not dividend amount, then the respective provisions been approved shall not be executed, of the dividend policy take into account the and documents related to this transaction consolidated financial statements. shall not be signed by PJSC LSR Group’s authorised officer. 1.2.2 The company does not take a decision to 1. The company’s dividend policy contains clear PJSC LSR Group’s approach to determin- pay out dividends if such decision, while indications of financial/economic circumstances ing circumstances under which divi- In due course, it is planned that the formally remaining in line with statutory under which the company shall not pay out dends shall not be paid out is stipulated Regulation on the EDAS will formalise a restrictions, is not economically feasible dividends. in Clause 1.11 of the Regulation on the mechanism to control transactions that and may lead to a false representation of Dividend Policy. The Board of Directors are not formally recognised as interested the company’s performance. is guided by this approach when party transactions. making recommendations on the distri- 1.3 Corporate governance system and practices ensure equal treatment for all shareholders owning the same type (class) of shares, including minority bution of profits, including the Board’s and non-resident shareholders, and their equal treatment by the company. position on dividend payout. This ensures that the amount of dividends 1.3.1 The company has created conditions 1. In the reporting period, the procedures for partial compliance to be paid out is economically justified, for fair treatment of each shareholder managing potential conflicts of interest among by the management bodies and the significant shareholders were efficient, and the which is crucial for shareholders to get full compliance an objective view of PJSC LSR Group’s company’s controlling entities, including board of directors paid due attention to conflicts performance. conditions ruling out abuse of minority among shareholders, if such conflicts occurred. shareholders by major shareholders. The Board of Directors plans to consider a new version of the Regulation on the 1.3.2 The company does not perform actions 1. Quasi-treasury shares do not exist or did not Dividend Policy listing factors to be tak- which lead or may lead to artificial participate in voting in the reporting period. full compliance en into account by the Board of Direc- redistribution of corporate control. tors when making recommendations 1.4 Shareholders are provided with reliable and effective methods for recording their rights in shares, as well as are enabled to freely dispose of their shares on the distribution of PJSC LSR Group’s without any hindrance. profit, including dividend payout. 1.4 Shareholders are provided with reliable 1. The quality and reliability of the securities 1.2.3 The company does not allow the 1. In the reporting period, the company did and effective methods for recording register maintained by the company’s registrar dividend rights of its existing not take any actions that would lead to the full compliance their rights in shares, as well as are meet the requirements of the company and its full compliance shareholders to be impaired. impairment of the dividend rights of its existing enabled to freely dispose of their shares shareholders. shareholders. without any hindrance. 2.1 The board of directors carries out the strategic management of the company, establishes the basic principles of, and approaches to, setting up a risk management and internal control system in the company, controls the activities of the company’s executive bodies, and performs other key functions. 2.1.1 The board of directors is responsible for . The board of directors has the authority taking decisions related to appointment stipulated in the charter to appoint and remove and removal of executive bodies, members of executive bodies and to determine including due to their inadequate the terms and conditions of their contracts. performance. The board of directors also 2. The board of directors reviewed the report(s) full compliance ensures that the company’s executive by the sole executive body or members of the bodies act in accordance with the collective executive body on the implementation approved growth strategy and along the of the company’s strategy. company’s core lines of business.

108 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 109 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE ANNEX 3

Compliance Compliance No. Corporate governance principles Compliance criteria Reasons for non-compliance No. Corporate governance principles Compliance criteria Reasons for non-compliance status status 2.1.2 The board of directors defines the main 1. In the reporting period, the board of directors 2.3.2 The company’s board of directors is 1. Whenever the agenda of the general meeting long-term targets of the company’s reviewed at its meetings matters related to the elected as per a transparent procedure of shareholders included election of the board of operations, assesses and approves its progress in the implementation of the strategy enabling shareholders to receive directors, the company provided to shareholders key performance indicators and key and its updates, approval of the company’s information about candidates which is the biographical details of all nominees to the business goals, as well as the strategy financial and business plan (budget), and full compliance sufficient to get an idea of their personal board of directors, the results of their assessment and business plans for the company’s consideration of the implementation criteria and professional qualities. carried out by the board of directors (or its full compliance core lines of business. and performance (including interim criteria and nomination committee), and the information on performance) of the company’s strategy and whether the nominee meets the independence business plans. criteria set forth in Recommendations 102–107 of the Code, as well as the nominees’ written 2.1.3 The board of directors determines 1. The board of directors has determined the consent to be elected to the board of directors. the principles of, and approaches to, principles of, and approaches to, organising a risk organising a risk management and management and internal control system in the 2.3.3 The board of directors is balanced, 1. As part of assessment of the board of directors internal control system in the company. company. full compliance including in terms of qualifications of its carried out in the reporting period, the board 2. The board of directors assessed the risk members, their experience, knowledge of directors analysed its needs in terms of full compliance management and internal control system in the and business qualities, and it has the professional qualifications, experience, and company during the reporting period. trust of shareholders. business skills. 2.1.4 The board of directors defines the 1. The company has developed and put in place 2.3.4 The company has a sufficient number 1. As part of the assessment of the board of company’s policy on remuneration the policy on remuneration due to, and/or of directors to organise the board of directors carried out in the reporting period, due to, and/or reimbursement reimbursement (compensation) of costs incurred directors’ activities in the most efficient the board of directors considered whether the (compensation) of costs incurred by, by members of the board of directors, executive way, including the ability to set up number of members on the board of directors committees of the board of directors was in line with the company’s needs and with full compliance members of the board of directors, bodies, and other key executives, approved by the full compliance executive bodies, and other key board of directors. and enable the company’s significant the interests of shareholders. executives of the company. minority shareholders to elect a 2. In the reporting period, the board of directors nominee to the board of directors for reviewed at its meetings matters related to the whom they vote. said policy (policies). 2.4 The board of directors includes a sufficient number of independent directors. 2.1.5 The board of directors plays a key role 1. The Board of Directors plays a key role in in preventing, identifying and settling preventing, identifying and resolving internal 2.4.1 An independent director is a person of 1. In the reporting period, all independent internal conflicts between the company’s conflicts. sufficient professionalism, experience members of the board of directors met and self-reliance to form his/her the independence criteria set forth in bodies, shareholders and employees. 2. The company has set up a system for full compliance own opinion, able to make impartial Recommendations 102–107 of the Code, or were identification of transactions involving a conflict judgements in good faith independent deemed independent by resolution of the board of interest, and defined a set of measures to from the company’s executive bodies, of directors. resolve such conflicts. particular groups of shareholders or 2.1.6 The board of directors plays a key role in 1. The board of directors has approved the other stakeholders. It should also be full compliance ensuring the company’s transparency, regulation on information policy. taken into account that in normal the timeliness and completeness of its conditions a candidate (elected to the 2. The company has designated the persons full compliance information disclosures, and unhindered responsible for the implementation of the board of directors) cannot be considered access to the company’s documents for information policy. independent if he/she is related to the shareholders. company, its significant shareholder or contractor, the company’s competitor, or 2.1.7 The board of directors controls the 1. In the reporting period, the board of directors the government. company’s corporate governance considered the matter of the company’s corporate full compliance practices and plays a key role in its governance practices. 2.4.2 Compliance of candidates to the 1. In the reporting period, the board of significant corporate events. board of directors with the criteria directors (or the nomination committee of the for independence is assessed, and board of directors) formed its opinion on the 2.2 The board of directors shall be accountable to the shareholders of the company. a regular review of compliance of independence of each nominee to the board of 2.2.1 Performance of the board of directors 1. The company’s annual report for the reporting independent members of the board of directors and presented respective opinions to is disclosed and made available to the period includes the information on individual directors with such criteria is performed. shareholders. full compliance shareholders. attendance at board of directors and committee Substance shall prevail over form in such 2. In the reporting period, the board of meetings. assessments. directors (or the nomination committee of the 2.2.2 The chairman of the board of directors 1. The company has in place a transparent board of directors) reviewed at least once the full compliance is available to communicate with the procedure enabling shareholders to send independence of the current members of the full compliance company’s shareholders. questions to the chairman of the board of board of directors listed by the company in its directors and express their respective position. annual report as independent directors. 3. The company has developed procedures 2.3 The board of directors manages the company in an efficient and competent manner and makes fair and independent judgements and decisions in line defining the actions to be taken by a member with the best interests of the company and its shareholders. of the board of directors if he/she ceases to be 2.3.1 Only persons with impeccable business 1. The procedure for assessing the board of independent, including the obligation to timely and personal reputation, possessing directors’ performance established in the company notify the board of directors thereof. the knowledge and expertise required includes, inter alia, assessment of professional 2.4.3 Independent directors constitute at least 1. Independent directors constitute at least one to make decisions falling within the qualifications of members of the board of directors. one third of the total elected number of third of the board of directors. full compliance authority of the board of directors and 2. In the reporting period, the board of directors full compliance members of the board of directors. to perform its functions efficiently, are (or its nomination committee) assessed nominees elected to the board of directors. to the board of directors in terms of having the required experience, knowledge, business reputation, absence of a conflict of interest, etc.

110 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 111 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE ANNEX 3

Compliance Compliance No. Corporate governance principles Compliance criteria Reasons for non-compliance No. Corporate governance principles Compliance criteria Reasons for non-compliance status status 2.4.4 Independent directors play a key role 1. Independent directors (who do not have 2.6.3 Members of the board of directors have 1. Individual attendance at board and committee in preventing internal conflicts in the a conflict of interest) carry out a preliminary sufficient time to perform their duties. meetings, as well as time devoted to preparation company and in the performance by the assessment of material corporate actions for attending meetings, was recorded as part of full compliance latter of material corporate actions. implying a possible conflict of interest, and the the procedure for assessing the board of directors results of such assessment are presented to the in the reporting period. board of directors. 2. In accordance with the company’s internal full compliance 2.5 The chairman of the board of directors facilitates the best performance of assigned duties by the board of directors. documents, members of the board of directors shall inform the board of their intentions to join 2.5.1 An independent director is elected 1. The board of directors is chaired by an Criterion 1 is not complied with. management bodies of other organisations chairman of the board of directors, or a independent director, or a senior independent The Chairman of the Board of Directors (except for entities controlled by, or affiliated to, senior independent director is appointed director is appointed from among the is a non-executive director who, the company), or of the relevant appointment from among the elected independent independent directors. in addition to his experience and made. directors to coordinate the activities of 2. The role, rights and duties of the chairman of professional qualifications, has the 2.6.4 All members of the board of directors 1. In accordance with the company’s internal independent directors and enable the the board of directors (and, if applicable, of the knowledge of the Company’s key assets, have equal access to the company’s documents, members of the board of directors interaction with the chairman of the senior independent director) are duly set out in strategy and business practice, and is documents and information. Newly are entitled to have access to documents and board of directors. the company’s internal documents. well acquainted with the Company’s elected members of the board of make queries regarding the company and its organisational structure and key directors are provided sufficient controlled entities, and the company’s executive executives. The Chairman of the Board information about the company and the bodies must provide relevant information and full compliance of Directors was elected unanimously. operation of the board of directors as documents. At the same time, the majority of soon as possible. partial compliance members of the Board of Directors are 2. The company has in place a formalised independent directors who play a key induction programme for newly elected members role in the work of the Board. They are of the board of directors. all given every opportunity to talk to 2.7 Meetings of the board of directors, preparation for such meetings and participation of members of the board of directors ensure efficient performance the Chairman of the Board of Directors by the board of directors. in person. In this way, the Board of Directors is ideally structured so as to 2.7.1 Meetings of the board of directors are 1. The board of directors held at least six meetings held as needed, taking into account in the reporting year. promote its effective operation. PJSC full compliance LSR Group is monitoring the situation the scale of operations and goals of the and, if any negative factors come into company at a particular time. play, will take any available measures to 2.7.2 The company’s internal documents 1. The company has an approved internal In accordance with Clause 8.7 of the adjust the existing structure. provide a procedure for arranging document that describes the procedure for Regulation on the Board of Directors, Criterion 2 is complied with. and holding meetings of the board arranging and holding meetings of the board notice of the meeting is sent to members of directors, allowing members of the of directors and sets out, in particular, that the of the Board of Directors at least three days 2.5.2 The chairman of the board of directors 1. The performance of the chairman of the board board of directors to prepare for such notice of the meeting shall be given, as a rule, at before the date of the meeting, which is maintains a constructive environment of directors was assessed as part of the procedure meetings in a proper manner. least five days before the date of the meeting. due to the specifics of the procedure for at meetings, enables free discussions for assessing the performance of the board of full compliance convening and holding such meetings. In of agenda items, and supervises the directors in the reporting period. partial compliance order to reduce the risk of members of the execution of decisions made by the Board of Directors receiving information board of directors. too late, PJSC LSR Group uses all available 2.5.3 The chairman of the board of directors 1. The company’s internal documents set out the communication channels, including email takes all steps necessary for the timely duty of the chairman of the board of directors to and instant messengers. PJSC LSR Group provision to members of the board of take all steps necessary for the timely provision has no plans to make amendments to the full compliance directors of information required to to members of the board of directors of materials Regulation on the Board of Directors in the make decisions on agenda items. regarding items on the agenda of the board near future. meeting. 2.7.3 The format of the meeting of the board 1. The company’s charter or internal document Not all matters within the competence 2.6. Members of the board of directors act reasonably and in good faith in the best interests of the company and its shareholders, relying on sufficient of directors is determined taking into provides for the most important matters (as per of the Board of Directors recommended information, exercising due care and prudence. account the importance of items on the the list set out in Recommendation 168 of the by the Code for consideration at agenda. The most important matters are Code) to be considered at in-person meetings of in-person meetings were considered 2.6.1 Members of the board of directors 1. The company’s internal documents provide that dealt with at meetings of the board of the board of directors. at meetings held in this format. This make decisions based on all information a member of the board of directors shall notify directors held in person. is due to PJSC LSR Group’s desire to available, without conflict of interest, the board of directors if he/she has a conflict of ensure that all members of the Board subject to equal treatment of the interest in respect of any item on the agenda of Directors can perform their duties in company’s shareholders, and assuming of the board meeting or the board’s committee partial compliance a convenient manner. PJSC LSR Group normal business risks. meeting, prior to the discussion of the relevant uses all possible means to provide agenda item. sufficient information to members 2. The company’s internal documents provide that full compliance of the Board of Directors, including a member of the board of directors shall abstain email and instant messengers. PJSC from voting on any item in connection with which LSR Group has no plans to make he/she has a conflict of interest. amendments to the Regulation on the 3. The company has in place a procedure allowing Board of Directors in the near future. the board of directors to get professional advice 2.7.4 Decisions on most important matters 1. The company’s charter provides for decisions on matters within its competence at the expense relating to the company’s operations on the most important matters set out in of the company. are taken at a meeting of the board of Recommendation 170 of the Code to be taken at full compliance 2.6.2 The rights and obligations of members 1. The company has adopted and published an directors by a qualified majority or by a a meeting of the board of directors by a qualified of the board of directors are clearly internal document clearly defining the rights and majority of all elected members of the majority of at least three quarters or by a majority full compliance defined and set out in the company’s obligations of members of the board of directors. board of directors. of all elected members of the board of directors. internal documents.

112 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 113 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE ANNEX 3

Compliance Compliance No. Corporate governance principles Compliance criteria Reasons for non-compliance No. Corporate governance principles Compliance criteria Reasons for non-compliance status status 2.8 The board of directors sets up committees for preliminary consideration of the most important matters related to the company’s operations. 2.9 The board of directors ensures performance assessment of the board of directors, its committees, and members of the board of directors. 2.8.1 An audit committee comprised of 1. The board of directors has set up an audit 2.9.1 The board of directors’ performance 1. Self-assessment or external assessment of independent directors has been set up committee comprised entirely of independent assessment is aimed at determining the the board of directors’ performance carried out for preliminary consideration of matters directors. efficiency of the board of directors, its in the reporting period included performance related to controlling the company’s 2. The company’s internal documents set out the committees and members, consistency assessment of committees, individual members of financial and business operations. of their work with the company’s the board of directors, and the board of directors tasks of the audit committee, including those full compliance listed in Recommendation 172 of the Code. development requirements, as well in general. as bolstering the work of the board 3. At least one member of the audit committee full compliance 2. Results of self-assessment or external of directors and identifying areas for assessment of the board of directors’ performance represented by an independent director has improvement. experience and knowledge of preparing, carried out in the reporting period were reviewed analysing, assessing and auditing accounting at the in-person meeting of the board. (financial) statements. 2.9.2 Performance of the board of directors, 1. The company engaged an external organisation 4. Meetings of the audit committee were held at its committees and members is assessed (advisor) to conduct an independent assessment least once a quarter during the reporting period. regularly at least once a year. An external of the board of directors’ performance at least organisation (advisor) is engaged at once over the last three reporting periods. full compliance 2.8.2 A remuneration committee, comprised 1. The board of directors has set up a least once in three years to conduct an of independent directors and headed remuneration committee comprised solely of independent assessment of the board of by an independent director who is not independent directors. directors’ performance. the chairman of the board of directors, 2. The remuneration committee is chaired by an 3.1 The company’s corporate secretary ensures efficient ongoing interaction with shareholders, coordinates the company’s efforts to protect shareholder has been set up for preliminary independent director who is not the chairman of full compliance rights and interests, and supports the effective work of the board of directors. consideration of matters related to the board of directors. adopting an efficient and transparent 3.1.1 The corporate secretary has the 1. The company has adopted and disclosed an remuneration scheme. 3. The company’s internal documents set out the tasks of the remuneration committee, including knowledge, experience and internal document – regulations on the corporate those listed in Recommendation 180 of the Code. qualifications sufficient to perform his/ secretary. her duties, as well as an impeccable 2. Corporate secretary’s bigoraphy is published 2.8.3 A human resources committee, 1. The board of directors has set up a human full compliance reputation and the trust of shareholders. on the corporate website and in the company’s predominantly comprised of resources committee (or its tasks listed in annual report with the same level of detail as independent directors, has been set Recommendation 186 of the Code are fulfilled by for members of the board of directors and the up for preliminary consideration of another committee) predominantly comprised of company’s executives. matters related to talent management independent directors. full compliance (succession planning) and professional 2. The company’s internal documents set out the 3.1.2 The corporate secretary is sufficiently 1. The board of directors approves the composition and performance of the tasks of the nominations committee (or the tasks of independent of the company’s appointment, dismissal and additional board of directors. the committee with combined functions), including executive bodies and has the powers remuneration of the corporate secretary. full compliance those listed in Recommendation 186 of the Code. and resources required to perform his/ her tasks. 2.8.4 Taking into account the company’s 1. In the reporting period, the company’s board of scale of operations and level of risks, directors considered whether the composition of 4.1 Remuneration payable by the company is sufficient to attract, motivate and retain people with competencies and qualifications required by the company. the company’s board of directors its committees was in line with the board’s tasks Remuneration payable to members of the board of directors, executive bodies and other key executive officers of the company is in compliance with the made sure that the composition of and the company’s business goals. Additional approved remuneration policy of the company. its committees is fully in line with committees were either set up or not deemed 4.1.1 The amount of remuneration paid 1. The company has in place an internal company’s business goals. Additional necessary. full compliance by the company to members of the document (internal documents) – the policy committees were either set up or not board of directors, executive bodies (policies) on remuneration of members of the deemed necessary (strategy committee, and other key executives creates board of directors, executive bodies and other corporate governance committee, ethics sufficient incentives for them to work key executives, which clearly defines (define) the committee, risk management committee, efficiently, while enabling the company approaches to remuneration of the above listed budget committee, health, safety and to engage and retain competent and persons. full compliance environment committee, etc.). qualified specialists. At the same time, 2.8.5 Committees are composed so as to 1. Committees of the board of directors are the company avoids unnecessarily high enable comprehensive discussions of headed by independent directors. remuneration, as well as unjustifiably large gaps between remunerations matters under preliminary consideration, 2. The company’s internal documents (policies) of the above listed persons and the taking into account the diversity of include provisions stipulating that persons company’s employees. opinions. who are not members of the audit committee, full compliance the human resources committee and the 4.1.2 The company’s remuneration policy is 1. During the reporting period, the remuneration remuneration committee may attend committee devised by the remuneration committee committee considered the remuneration meetings only by invitation of the chairman of the and approved by the board of directors. policy (policies) and the practical aspects of respective committee. The board of directors, assisted by the its (their) introduction and presented relevant remuneration committee, ensures recommendation to the board of directors as full compliance 2.8.6 Committee chairmen inform the board 1. During the reporting period, committee control over the introduction and required. of directors and its chairman on the work chairmen reported to the board of directors on full compliance implementation of the company’s of their committees on a regular basis. the work of committees on a regular basis. remuneration policy, revising and amending it as required.

114 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 115 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE ANNEX 3

Compliance Compliance No. Corporate governance principles Compliance criteria Reasons for non-compliance No. Corporate governance principles Compliance criteria Reasons for non-compliance status status 4.1.3 The company’s remuneration policy 1. The company’s remuneration policy (policies) 4.3 The company considers its performance and the personal contribution of each executive to the achievement of such performance when determining the includes transparent mechanisms includes (include) transparent mechanisms for amount of remuneration payable to members of executive bodies and other key executives of the company. for determining the amount of determining the amount of remuneration due 4.3.1 Remuneration due to members 1. In the reporting period, annual performance Criteria 1 and 2 are complied with. remuneration due to members of the to members of the board of directors, executive of executive bodies and other results approved by the board of directors were board of directors, executive bodies and bodies and other key executives of the company, full compliance Criterion 3 is partially complied with. key executives of the company is used to determine the amount of the variable part other key executives of the company, and regulates (regulate) all types of expenses, determined in a manner providing for of remuneration due to members of executive The procedure in place at PJSC LSR and regulates all types of expenses, benefits and privileges provided to such persons. reasonable and justified ratio of the bodies and other key executives of the company. Group stipulates that bonuses to benefits and privileges provided to such fixed and variable parts of remuneration, members of executive bodies and persons. 2. During the latest assessment of the other key executives are paid after the depending on the company’s results and remuneration system for members of executive 4.1.4 The company defines a policy on 1. The remuneration policy (policies) defines the employee’s personal contribution. results of PJSC LSR Group’s operations bodies and other key executives of the company, for the given period are summed reimbursement (compensation) of (define) the rules for reimbursement of expenses the board of directors (remuneration committee) expenses detailing a list of reimbursable incurred by members of the board of directors, up. In this manner, each employee’s made sure that the company applies efficient ratio individual performance is recorded expenses and specifying service executive bodies and other key executives of the of the fixed and variable parts of remuneration. levels that members of the board of company. full compliance and analysed, and serves as a basis directors, executive bodies and other 3. The company has in place a procedure that for bonus payments, thus virtually key executives of the company can guarantees return to the company of bonus excluding the probability of illegal claim. Such policy can make part of the payments illegally received by members of partial compliance receipt of such payments. Throughout company’s remuneration policy. executive bodies and other key executives of the its business operations, PJSC LSR Group company. has never faced a situation where 4.2 Remuneration system for members of the board of directors ensures alignment of financial interests of the directors with long-term financial interests members of its executive bodies or of the shareholders. other key executives received illegal bonus payments. Should such situation 4.2.1 The company pays fixed annual 1. Fixed annual remuneration was the only form occur, PJSC LSR Group intends to act in remuneration to members of the board of monetary remuneration payable to members compliance with the labour and civil of directors. of the board of directors for their service on the legislation of the Russian Federation. The company does not pay board of directors during the reporting period. In due cause, it is also planned to remuneration for attending individual supplement contracts with members meetings of the board of directors or its full compliance of executive bodies and other key committees. executives with provisions stipulating The company does not apply any form the return of illegally received bonus of short-term motivation or additional payments. financial incentive to members of the board of directors. 4.3.2 The company has in place a long-term 1. The company has in place a long-term incentive Criterion 1 is complied with. incentive programme for members programme for members of executive bodies and Criterion 2 is not complied with. 4.2.2 Long-term ownership of the company’s 1. If the company’s internal document(s) – of executive bodies and other key other key executives of the company with the use shares helps align the financial interests the remuneration policy (policies) stipulates executives of the company with the use of the company’s shares (financial instruments The long-term incentive programme of members of the board of directors (stipulate) provision of the company’s shares to of the company’s shares (options and based on the company’s shares). for key employees of LSR Group for with long-term interests of shareholders members of the board of directors, clear rules 2019–2023 (the Programme) was other derivative instruments where the 2. The long-term incentive programme for to the utmost. At the same time, the for share ownership by members of the board of approved by the Board of Directors on full compliance company’s shares are the underlying members of executive bodies and other key company does not link the right to directors shall be defined and disclosed, aimed at 14 December 2018. asset). executives of the company implies that the dispose of shares to performance stimulating long-term ownership of such shares. right to dispose of the shares and other financial Under the Programme, the ban on the targets, and members of the board of instruments used in this programme takes disposal of shares (the lock-up period) directors do not participate in stock effect at least three years after such shares upon termination of the Programme is option plans. or other financial instruments are granted. not applied. 4.2.3 The company does not provide for any 1. The company does not provide for any extra The right to dispose of such shares or other The results of the Programme shall be extra payments or compensations in payments or compensations in the event of early financial instruments is linked to the company’s summed up after the Board of Directors the event of early termination of powers termination of powers of members of the board performance targets. approves the financial statements full compliance of members of the board of directors of directors resulting from the change of control for the last calendar year of the resulting from the change of control or or any other circumstances. partial compliance Programme. any other circumstances. Shares shall be granted to the Programme participants provided that LSR Group achieves all financial targets set for 2019–2023 and calculated based on financial statements. Global best practice shows that the options system in its pure form is more effective for stimulating top managers. At the same time, “restricted shares” are perceived as a sign of insufficient trust from the part of the employer and an attempt to limit the freedom of action. PJSC LSR Group has no plans to make amendments to the Programme in the near future.

116 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 117 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE ANNEX 3

Compliance Compliance No. Corporate governance principles Compliance criteria Reasons for non-compliance No. Corporate governance principles Compliance criteria Reasons for non-compliance status status 4.3.3 The compensation (golden parachute) 1. In the reporting period, the compensation 6.1.2 The company discloses information on 1. The company discloses information on its Criteria 1 and 2 are complied with. payable by the company in case of early (golden parachute) payable by the company in its corporate governance system and corporate governance system and general Criterion 3 is partially complied with. termination of powers of members of case of early termination of powers of members practices, including detailed information principles of corporate governance applied in the executive bodies or key executives at the of executive bodies or key executives at the on compliance with the principles and company, in particular, on the corporate website. PJSC LSR Group’s controlling company’s initiative, provided that there company’s initiative, provided that there have full compliance recommendations of the Code. shareholder is its CEO, the Chairman 2. The company discloses information on the of the Executive Committee, and a have been no actions in bad faith on been no actions in bad faith on their part, did not structure of executive bodies and the board of their part, does not exceed the double exceed the double amount of the fixed part of member of the Board of Directors. His directors, independence of members of the board plans regarding corporate governance amount of the fixed part of their annual their annual remuneration. of directors, and their membership in committees remuneration. are reflected in publicly available of the board of directors (as defined in the Code). documents of PJSC LSR Group 5.1 The company has in place an effective risk management and internal control system providing reasonable assurance in the achievement of the 3. If the company has a controlling person, the approved by the Board of Directors company’s goals. company publishes a memorandum of the partial compliance and the Meeting, which are published controlling person setting out the latter’s plans for on PJSC LSR Group’s website. At the 5.1.1 The company’s board of directors 1. Functions of different management bodies and the company’s corporate governance. same time, PJSC LSR Group enables its has determined the principles of, units of the company in the risk management shareholders to request clarification of and approaches to, organising a risk system and internal control are clearly defined full compliance matters that are of interest to them in management and internal control in the company’s internal documents/relevant any convenient way. PJSC LSR Group system in the company. policy approved by the board of directors. plans to make every effort to formalise 5.1.2 The company’s executive bodies ensure 1. The company’s executive bodies ensured the the controlling person’s plans regarding establishment and continuous operation distribution of functions and powers related to corporate governance at PJSC LSR of an efficient risk management and risk management and internal control between full compliance Group in a separate document which internal control system in the company. the heads (managers) of units and departments will be published. accountable to them. 6.2 The company makes timely disclosures of complete, updated and reliable information to allow shareholders and investors to make informed decisions. 5.1.3 The company’s risk management and 1. The company has in place an anti-corruption 6.2.1 The company shall disclose information 1. The company’ information policy defines the internal control system ensures an policy. based on the principles of regularity, approaches to, and criteria of, identification of objective, fair and clear representation 2. The company has arranged for accessible consistency and promptness, as well as information that can have a material impact on of the current state of the company means of notifying the board of directors or the full compliance availability, reliability, completeness and the company’s evaluation and the price of its and its future prospects, the integrity audit committee of the board of directors about comparability of disclosed data. securities, as well as procedures ensuring timely and transparency of the company’s violations of the law, the company’s internal disclosure of such information. reporting, as well as reasonable and procedures and code of ethics. acceptable risk exposure. 2. If the company’s securities are traded on foreign regulated markets, the company ensures full compliance 5.1.4 The company’s board of directors takes 1. In the reporting period, the board of directors concerted and equivalent disclosure of material necessary measures to make sure that or the audit committee of the board of directors information in the Russian Federation and in the the company’s risk management and assessed the effectiveness of the company’s said markets throughout the reporting period. internal control system is consistent risk management and internal control system. full compliance with the principles of, and approaches Information on the key results of this assessment 3. If foreign shareholders hold a significant to, its organisation determined by the is included in the company’s annual report. amount of the company’s shares, during the board of directors, and that the system is reporting year, information was disclosed not functioning effectively. only in the Russian language, but also in one of the most widespread foreign languages. 5.2 The company performs internal audits for regular independent assessment of the reliability and effectiveness of the risk management and internal control system and corporate governance practices. 6.2.2 The company avoids a formalistic 1. In the reporting period, the company disclosed approach to information disclosure, and annual and semi-annual financial statements 5.2.1 business unit or engaged an 1. To perform internal audits, the company has discloses significant information about prepared under the IFRS. The company’s annual independent external organisation to set up a separate internal audit unit functionally its operations even if such disclosure is report for the reporting period contains annual carry out internal audits. reporting to the board of directors or the audit not required by law. financial statements prepared under the IFRS, full compliance The functional and administrative committee or engaged an independent external along with the auditor’s report. organisation under the same principle of full compliance subordination of the internal audit unit 2. The company discloses complete subordination. are separated. The internal audit unit information on its capital structure, as stated in functionally reports to the board of Recommendation 290 of the Code, in its annual directors. report and on the official website of the company. 5.2.2 The internal audit unit assesses the 1. In the reporting period, the effectiveness of the 6.2.3 The annual report, as one of the 1. The company’s annual report contains performance of the effectiveness of internal control and risk management system was most important tools of information information on the key aspects of the company’s internal control, risk management, and assessed as part of the internal audit procedure. exchange with shareholders and other operations and its financial results. corporate governance systems. full compliance full compliance 2. The company applies generally accepted stakeholders, contains information 2. The company’s annual report contains The company applies generally accepted approaches to internal control and risk enabling appraisal of the company’s information on the environmental and social standards of internal audit. management. performance in the reporting year. aspects of the company’s operations. 6.1 The company and its business are transparent for shareholders, investors, and other stakeholders. 6.3 The company provides information and documents as per the requests of shareholders in compliance with the principles of equal and unhindered access. 6.1.1 The company has developed and 1. The company’s board of directors approved an 6.3.1 The company provides information 1. The company’s information policy establishes adopted an information policy ensuring information policy developed in accordance with and documents as per the requests of the procedure for providing shareholders at their an efficient exchange of information the Code’s recommendations. shareholders in compliance with the request with unhindered access to information, full compliance between the company, its shareholders, 2. The board of directors (or one of its full compliance principles of equal and unhindered including information on legal entities controlled investors, and other stakeholders. committees) considered matters related to the access. by the company. company’s compliance with its information policy at least once in the reporting period.

118 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 119 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE ANNEX 3

Compliance Compliance No. Corporate governance principles Compliance criteria Reasons for non-compliance No. Corporate governance principles Compliance criteria Reasons for non-compliance status status 6.3.2 When providing information to 1. In the reporting period, the company did not 7.1.3 When taking material corporate actions 1. Taking into account the specifics of the Criterion 1 is complied with. shareholders, the company ensures refuse shareholders’ requests for information, or affecting the rights and legitimate company’s operations, the company’s charter Criterion 2 is partially complied with. reasonable balance between the such refusals were justified. interests of shareholders, equal establishes lower minimum criteria for the interests of particular shareholders and terms and conditions are ensured company’s transactions to be deemed material Due to the specific structure of 2. In cases defined by the company’s information full compliance its own interests consisting in preserving for all shareholders of the company, corporate actions than those provided by law. transactions with credit institutions, policy, shareholders are warned of the not all material corporate actions were the confidentiality of important confidential nature of the information and and, in case of insufficient statutory 2. In the reporting period, all material corporate commercial information which may mechanisms for protecting shareholder subject to the approval procedure prior undertake to maintain its confidentiality. actions were subject to the approval procedure to execution. Nevertheless, the Board materially affect its competitiveness. rights, additional measures shall prior to execution. be taken to protect the rights and partial compliance of Directors considered and approved 7.1 Actions that significantly impact or may significantly impact the share capital structure or financial condition of the company and, respectively, legitimate interests of the company’s all material corporate actions in the shareholders position (material corporate actions) are fairly executed providing observance of the rights and interests of shareholders and other shareholders. In doing so, the company reporting year, including those that stakeholders. is guided by the corporate governance had been executed prior to approval. In the next reporting period, PJSC LSR 7.1.1 Material corporate actions include 1. The company’s charter sets out a list of Criteria 1 and 2 are complied with. principles set forth in the Code, as well as Group plans to take measures to adjust restructuring of the company, transactions or other actions classified as by formal statutory requirements. PJSC LSR Group’s Charter refers the structure of transactions with credit acquisition of 30% or more of the material corporate actions, and criteria for their decision-making in respect of institutions, allowing such transactions company’s voting shares (takeover), identification. Making decisions on substantial transactions or other actions classified to be considered prior to execution. execution by the company of significant corporate actions falls within the competence as material corporate actions to the transactions, increase or reduction of the of the board of directors. When execution of competence of the Board of Directors 7.2 The company executes material corporate actions in such a way as to ensure that shareholders timely receive complete information about such actions, company’s charter capital, listing or de- such corporate actions is expressly referred by given the significance of said corporate allowing them to influence such actions and guaranteeing adequate protection of their rights when executing such actions. listing of the company’s shares, as well as law to the competence of the general meeting actions for PJSC LSR Group’s operations. 7.2.1 Information about material corporate 1. In the reporting period, the company disclosed other actions which may lead to material of shareholders, the board of directors presents The relevant provisions of the Charter, changes in the rights of shareholders or relevant recommendations to shareholders. actions is disclosed with explanations information about its material corporate actions specifically, sub-clauses 1, 3–9, and of the grounds, circumstances and in due time and in detail, including the grounds violation of their interests. The charter of partial compliance full compliance 2. Under the company’s charter, material 18 of Clause 13.7, and sub-clauses consequences. for, and timelines of, such actions. the company sets out a list (criteria) of corporate actions include at least: company 8–10, 31, 32, 40, and 48 of Clause 14.2 transactions or other actions classified as reorganisation, acquisition of 30% or more of the of the Charter list specific types of material corporate actions pertaining to company’s voting shares (takeover), execution by such significant corporate actions and the competence of the company’s board the company of significant transactions, increase criteria for their identification. 7.2.2 Rules and procedures related to material 1. The company’s internal documents set out Criterion 1 is complied with. The of directors. or reduction of the company’s charter capital, It is planned that the next amendment corporate actions executed by the the procedure for engaging an independent procedure for engaging an independent listing or de-listing of the company’s shares. to the Charter will formalise the company are set out in the company’s appraiser to determine the value of the property appraiser to assess the value of property indication that the listed actions are internal documents. disposed of or acquired pursuant to a major is consistently applied in the PJSC LSR classified as material corporate actions transaction or an interested party transaction. Group’s business practice. for PJSC LSR Group. 2. The company’s internal documents set out Criterion 2 is complied with. In 2019, the procedure for engaging an independent PJSC LSR Group did not repurchase or 7.1.2 The board of directors plays a key role 1. The company has in place a procedure PJSC LSR Group has in place a appraiser to assess the value of the company’s buy back its own shares. Where provided in making decisions or working out enabling independent directors to express their procedure enabling members of shares at their repurchase or redemption. for by law, PJSC LSR Group plans to the Board of Directors, including recommendations regarding material judgements on material corporate actions prior to engage an independent appraiser. corporate actions, relying on the approval thereof. independent directors, to express 3. The company’s internal documents set out an opinions of the company’s independent their opinions on any matter to be expanded list of grounds on which members In other cases, the share price shall be directors. considered by the Board of Directors of the company’s board of directors and other determined based on the results of prior to its discussion at a meeting. persons defined by law are deemed to be exchange trading. Thus, independent directors can interested parties to the company’s transactions. Criterion 3 is not complied with in respect state their positions on material of the extension of the list of grounds on corporate actions prior to their which members of the Board of Directors approval, by directly contacting the and other persons defined by law may be Chairman and other members of recognised as interested parties to PJSC partial compliance the Board of Directors, as well as the LSR Group’s transactions. If introduced, Corporate Secretary. The Regulation this practice could significantly hamper on the Board of Directors also allows PJSC LSR Group’s business and place a member of the Board of Directors partial compliance it in an inferior position compared to to express a dissenting opinion (his/ other construction market players. At the her own decision) on the matter under same time, PJSC LSR Group has in place consideration, as well as a written internal documents determining business opinion if he/she cannot attend the conduct and ethics rules and setting meeting. out preventive measures intended to It is planned that the next amendment avert the potential risk of factors coming to the Procedure on the Board of into play which could cause a conflict of Directors will formalise the relevant interest. procedure. It is PJSC LSR Group’s opinion that, as a result of changes in the legislation on joint stock companies concerning extension of the list of grounds on which persons may be recognised as interested parties to a transaction, the risk of non-compliance with this recommendation has been eliminated. Nevertheless, PJSC LSR Group monitors potential risks and, in case of negative developments, will consider making relevant amendments to its internal documents.

120 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 121 LSR GROUP STRATEGIC OPERATING AND FINANCIAL SUSTAINABILITY CORPORATE ANNEXES REPORT PERFORMANCE GOVERNANCE

Description of corporate governance model Explanation of reasons, factors and/ Plans and measures to be implemented by and practices in PJSC LSR Group or circumstances by virtue of which the PJSC LSR Group to improve the corporate PJSC LSR Group’s corporate governance model and practices Company fails to comply or does not fully governance model and practices are described in section 5 of the Annual report, Corporate comply with the corporate governance Subject to detailed elaboration of relevant measures, in the Governance. principles set out in the Code mid-term, PJSC LSR Group plans to: Criteria applied by PJSC LSR Group to During the reporting period, PJSC LSR Group strictly complied complete harmonisation of its internal regulatory with Russian statutory requirements and listing rules of the framework with the recommendations of the Code; and evaluate compliance with the corporate stock exchanges where its securities are traded. governance principles set out in the Code, enhance and develop the risk management and internal PJSC LSR Group continued to develop and implement internal control system aimed at providing reasonable assurance in and the weight of these criteria documents with due regard to recommendations of the Code the achievement of PJSC LSR Group’s goals. PJSC LSR Group has developed a methodology and criteria to and changes in legislation. evaluate compliance with the corporate governance principles set out in the Code. In the reporting period, the Board of Directors approved the Internal Control Rules for Preventing, Detecting, and Stopping The methodology includes 115 questions, each scoring a the Unlawful Use of Insider Information (the Internal Control certain number of points. The questions are structured around Rules). The Internal Control Rules were developed in response six areas to be evaluated: to changes in legislation. 1. Shareholders’ rights The main reason why PJSC LSR Group did not fully comply 2. Board of Directors with the corporate governance principles listed above was the 3. Executive management incomplete compliance of PJSC LSR Group’s internal regulatory framework with the recommendations of the Code. 4. Information transparency and disclosure 5. Risk management, internal control and internal audit Description of corporate governance 6. Corporate social responsibility and business ethics mechanisms and tools used by the Each area accounts for a certain percentage of the overall score. joint stock company instead of those The results of the evaluation are expressed in percentages, where: recommended by the Code Among such mechanisms and tools used by PJSC LSR Group, 100% is excellent quality; the following have the strongest impact on corporate 0% is low quality. governance quality: The maximum possible number of points is 521, which is Formalisation of relations between corporate governance equivalent to 100%. participants by way of adopting regulations and developing formal procedures; The Board of Directors has approved the minimum permissible Strict accountability of the management to the Board of corporate governance quality score of 70%. Directors, and accountability of the Board of Directors to In 2019, corporate governance quality at PJSC LSR Group was the Meeting; rated at 93.57% of the maximum value. Resolution of all important issues beyond day-to-day In its operations, PJSC LSR Group is governed by Russian management at meetings of the Board of Directors or legislation as well as the principles set out in the Corporate shareholders’ Meetings; Governance Code, which is a benchmark for building the best Prevention of conflicts of interest and management corporate governance practices at PJSC LSR Group. affiliation; Publication of as much information as possible about PJS LSR Group’s operations and financial performance.

122 LSR GROUP │ Annual Report 2019 Annual Report 2019 │ LSR GROUP 123 ANNEX 4

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 AND INDEPENDENT AUDITORS’ REPORT

Contents Independent Auditors’ Report 3-8 Consolidated Statement of Profit or Loss and Other Comprehensive Income 9-10 Consolidated Statement of Financial Position 11-12 Consolidated Statement of Cash Flows 13-14 Consolidated Statement of Changes in Equity 15-16 Notes to the Consolidated Financial Statements 17-84

124 LSR GROUP │ Annual Report 2019

PJSC LSR Group Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2019

mln RUB Note 2019 2018

Revenue 12 110,438 146,376 Cost of sales (77,009) (104,848) Gross profit 33,429 41,528 Distribution expenses (7,362) (7,211) Administrative expenses 7 (9,571) (9,392) Other income 8 815 131 Other expenses 8 (687) (258) Results from operating activities 16,624 24,798 Finance income 10 3,497 2,755 Finance costs 10 (9,319) (6,466) Profit before income tax 10,802 21,087 Income tax expense 11 (3,333) (4,857) Profit for the year 7,469 16,230 Other comprehensive (loss) / income Items that are or may be reclassified subsequently to profit or loss: Foreign currency translation differences (80) 520 Total comprehensive income for the year 7,389 16,750

The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 17 to 84. PJSC LSR Group Consolidated Statement of Financial Position as at 31 December 2019

mln RUB Note 31 December 2019 31 December 2018 ASSETS Non-current assets Property, plant and equipment 13 22,999 23,867 Intangible assets 14 4,016 4,092 Other investments 15 493 955 Deferred tax assets 16 3,099 2,862 Trade and other receivables 18 504 1,163 Total non-current assets 31,111 32,939 Current assets Other investments 15 865 1,330 Inventories 17 136,214 137,360 Contract assets, trade and other receivables 18 29,969 32,093 Cash and cash equivalents* 19 66,684 55,798 Total current assets 233,732 226,581 Total assets 264,843 259,520

* In Cash and cash equivalents is not included cash received to escrow accounts by the authorized bank from the accounts owners (the real estate buyers). This cash on escrow accounts was received as the settlement of the share participation agreements’ price in the amount of RUB 175 million as at 31 December 2019 (31 December 2018: there were no cash receipts to the escrow accounts).

The consolidated statement of financial position is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 17 to 84. PJSC LSR Group PJSC LSR Group Consolidated Statement of Financial Position as at 31 December 2019 Consolidated Statement of Cash Flows for the year ended 31 December 2019

mln RUB 2019 2018 mln RUB Note 31 December 2019 31 December 2018 OPERATING ACTIVITIES EQUITY AND LIABILITIES Profit for the year 7,469 16,230 20 Equity Adjustments for: Share capital 35 35 Depreciation and amortisation 1,898 2,429 Treasury shares (2,073) (2,073) Gain on disposal of property, plant and equipment (187) (57) Share premium 26,408 26,408 Loss on disposal of subsidiaries 6 258 Additional paid-in capital 16,859 16,859 Gain on acquisitions subsidiaries (81) - Foreign currency translation reserve 328 408 Portion of excess of fair value over purchase price of assets* 28 181 Retained earnings 42,353 42,726 Capitalised interest, including significant financing component in respect of prepayments from customers, recognized in cost Total equity attributable to shareholders of the of sales 2,487 8,969 Company 83,910 84,363 Significant financing component in respect of prepayments Non-controlling interest - (10) from customers recognised in revenue (1,840) (7,725) Total equity 83,910 84,353 Net finance costs 5,822 3,711 Impairment of goodwill - 23 Income tax expense 3,333 4,857 Non-current liabilities Operating profit before changes in working capital and Loans and borrowings 22 79,937 74,755 provisions 18,935 28,876 Deferred tax liabilities 16 2,373 4,317 (Increase) / decrease in inventories net of non-cash items (645) 15,629 Trade and other payables 24 3,175 8,813 Decrease/ (increase) in contract assets, trade and other receivables 3,620 (3,130) Provisions 23 476 81 Increase / (decrease) in contract liabilities, trade and other Total non-current liabilities 85,961 87,966 payables 2,808 (10,224) Current liabilities Decrease in provisions (145) (903) Loans and borrowings 22 9,682 11,333 Cash flows from operations before income taxes and 24,573 30,248 Contract liabilities, trade and other payables 24 80,140 71,910 interest paid** Income taxes paid (5,365) (4,675) Provisions 23 5,150 3,958 Interest paid (6,495) (5,487) Total current liabilities 94,972 87,201 Cash flows from operating activities 12,713 20,086 Total liabilities 180,933 175,167 * Portion of excess of fair value over purchase price of land plot acquired from entities under Total equity and liabilities 264,843 259,520 common control and revaluation of assets, included in cost of development object, which was sold in the period and recognised at cost of sales. ** In Cash flows from operations is not included cash received to escrow accounts by the authorized bank from the accounts owners (the real estate buyers). This cash on escrow accounts was received as the settlement of the share participation agreements’ price in the amount of RUB 175 million (in 2018, there were no cash receipts to the escrow accounts).

12 13

The consolidated statement of financial position is to be read in conjunction with the notes to, and forming The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, part of, the consolidated financial statements set out on pages 17 to 84. the consolidated financial statements set out on pages 17 to 84. PJSC LSR Group PJSC LSR Group Consolidated Statement of Cash Flows for the year ended 31 December 2019 Consolidated Statement of Changes in Equity for the year ended 31 December 2019

mln RUB 2019 2018 mln RUB Attributable to shareholders of the Company INVESTING ACTIVITIES Foreign Treasury Additional currency Non- Proceeds from disposal of non-current assets 419 1,306 Share share Share paid-in translation Retained controlling Total Interest received 1,590 938 capital reserve premium capital reserve earnings Total interest equity Acquisition of property, plant and equipment (870) (1,189) Balance at 1 January 2018 35 - 26,408 16,824 (112) 34,562 77,717 (28) 77,689 Decrease in restricted cash - 6 Total comprehensive income Acquisition of intangible assets (40) (5) Profit for the year - - - - - 16,227 16,227 3 16,230 Loans given (1,797) (2,244) Other comprehensive income Loans repaid 2,599 514 Foreign currency translation differences for foreign operations - - - - 520 - 520 - 520 Acquisition of subsidiaries (907) - Total comprehensive income for the year - - - - 520 16,227 16,747 3 16,750 Disposal of subsidiaries 1,016 1,639 Transactions with owners recorded directly Cash flows from investing activities 2,010 965 in equity PJSC LSR Group FINANCING ACTIVITIES Disposal of subsidiaries - - - 35 Consolidated- Statement of Changes- in Equity for35 the year ended15 31 December 201509 Proceeds from borrowings 81,972 105,932 Treasury shares acquired - (2,096) - - - (79) (2,175) - (2,175) Proceeds from bonds 13,000 - Treasury shares sold - 23 - - - - 23 - 23 Repayment of borrowings (88,708) (92,702) mlnDividends RUB to shareholders - - Attributable- to shareholders- of the Company- (7,984) (7,984) - (7,984) Repayment of bonds (1,000) - Balance at 31 December 2018 35 (2,073) 26,408 16,859 Foreign408 42,726 84,363 (10) 84,353 Treasury Additional currency Non- Payment of land lease liabilities (1,054) - Share share Share paid-in translation Retained controlling Total Payment of lease liabilities - (51) capital reserve premium capital reserve earnings Total interest equity Payment of outstanding balance for own shares - (692) Balance at 1 January 2018 35 - 26,408 16,824 (112) 34,562 77,717 (28) 77,689 Dividends paid (7,842) (7,984) Total comprehensive income Profit for the year - - - - - 16,227 16,227 3 16,230 Cash flows (utilised by) / from financing activities (3,632) 4,503 Other comprehensive income Net increase in cash and cash equivalents 11,091 25,554 Foreign currency translation differences for Cash and cash equivalents at the beginning of the year 55,798 29,713 foreign operations - - - - 520 - 520 - 520 Effect of exchange rate fluctuations on cash and cash Total comprehensive income for the year - - - - 520 16,227 16,747 3 16,750 equivalents (205) 531 15 TransactionsThe consolidated with ownersstatement recorded of changes directly in equity is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on Cash and cash equivalents at the end of the year inpages equity 17 to 84. (note 19) 66,684 55,798 Disposal of subsidiaries - - - 35 - - 35 15 50 Treasury shares acquired - (2,096) - - - (79) (2,175) - (2,175) Treasury shares sold - 23 - - - - 23 - 23 Dividends to shareholders - - - - - (7,984) (7,984) - (7,984) Balance at 31 December 2018 35 (2,073) 26,408 16,859 408 42,726 84,363 (10) 84,353

15 The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, The consolidated statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on the consolidated financial statements set out on pages 17 to 84. pages 17 to 84. PJSC LSR Group PJSC LSR Group Consolidated Statement of Changes in Equity for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

mln RUB Attributable to shareholders of the Company Notes to the Consolidated Financial Statements…...……………...……………….………...... Page Foreign Additional currency Non- 1 Background ...... 18 Share Treasury Share paid-in translation Retained controlling Total 2 Basis of preparation ...... 18 capital share reserve premium capital reserve earnings Total interest equity 3 Significant accounting policies ...... 23 Balance at 1 January 2019 35 (2,073) 26,408 16,859 408 42,726 84,363 (10) 84,353 4 Determination of fair values...... 37 Total comprehensive income 5 Operating segments ...... 38 Profit for the year - - - - - 7,469 7,469 - 7,469 6 Acquisitions and disposals of subsidiaries and non-controlling interests ...... 42 7 Administrative expenses ...... 45 Other comprehensive loss 8 Other income and expenses ...... 46 Foreign currency translation differences for 9 Total personnel costs ...... 46 foreign operations - - - - (80) - (80) - (80) 10 Finance income and finance costs ...... 47 Total comprehensive income for the year - - - - (80) 7,469 7,389 - 7,389 11 Income tax expense ...... 48 Transactions with owners recorded directly 12 Revenue ...... 48 in equity PJSC LSR Group 13 Property, plant and equipment ...... 50 14 Intangible assets ...... 52 Adjustment to non-controlling interest - - - - Consolidated Statement- of Changes- in Equity for- the year ended10 31 December 201109 15 Other investments ...... 55 Dividends to shareholders - - - - - (7,842) (7,842) - (7,842) 16 Deferred tax assets and liabilities ...... 55 Balance at 31 December 2019 35 (2,073) 26,408 16,859 328 42,353 83,910 - 83,910 17 Inventories ...... 57 mln RUB Attributable to shareholders of the Company 18 Contract assets, trade and other receivables ...... 58 19 Cash and cash equivalents ...... 58 Foreign Additional currency Non- 20 Equity ...... 59 Share Treasury Share paid-in translation Retained controlling Total 21 Earnings per share ...... 60 capital share reserve premium capital reserve earnings Total interest equity 22 Loans and borrowings ...... 60 Balance at 1 January 2019 35 (2,073) 26,408 16,859 408 42,726 84,363 (10) 84,353 23 Provisions ...... 62 24 Contract liabilities, trade and other payables ...... 64 Total comprehensive income 25 Financial risk management ...... 64 Profit for the year - - - - - 7,469 7,469 - 7,469 26 Leases liabilities ...... 73 Other comprehensive loss 27 Commitments ...... 73 Foreign currency translation differences for 28 Contingencies ...... 74 foreign operations - - - - (80) - (80) - (80) 29 Related party transactions ...... 75 30 Subsidiaries ...... 78 Total comprehensive income for the year - - - - (80) 7,469 7,389 - 7,389 16 31 Events subsequent to the reporting date ...... 79 TheTransactions consolidated with ownersstatement recorded of changes directly in equity is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on 32 Supplementary disclosures ...... 80 pagesin equity 17 to 84. Adjustment to non-controlling interest ------10 10 Dividends to shareholders - - - - - (7,842) (7,842) - (7,842) Balance at 31 December 2019 35 (2,073) 26,408 16,859 328 42,353 83,910 - 83,910

16 The consolidated statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 17 to 84. 17 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

1 Background (d) Use of estimates and judgments The preparation of the consolidated financial statements in conformity with IFRSs requires (a) Organisation and operations management to make judgments, estimates and assumptions that affect the application of accounting PJSC LSR Group (the “Company”) and its subsidiaries (together referred to as the “Group”) comprise policies and the reported amounts of assets, liabilities, income and expenses. Actual results could Russian limited liability and joint stock companies as defined in the Civil Code of the Russian differ from those estimates. Federation, and companies located in other countries. The Company’s shares are traded on the London Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting Stock Exchange and Moscow Exchange. estimates are recognised in the year in which the estimates are revised and in any future years affected. The Company’s registered office is at 36B Kazanskaya Street, Floor 4, Office 32-N (18), Suite 404, In particular, information about significant areas of estimation uncertainty and critical judgements in Saint Petersburg, 190031, Russia. applying accounting policies are described in the following notes: The Group’s principal activities include real estate development, prefabricated panel construction,  contracting, subcontracting and engineering services in civil and industrial construction, extraction of Note 3 – useful lives of property, plant and equipment; sand and clay, production of crushed granite, ready-mix concrete and mortars, reinforced concrete,  Note 12 – revenue; bricks, aerated concrete, transportations and crane rental services. The Company primarily operates in  Note 14 – impairment; the following geographic markets: Saint Petersburg, the Leningrad region, Moscow and  Note 17 – inventories; Yekaterinburg.  Note 18 – allowances for trade receivables; The Group’s significant subsidiaries are detailed in note 30.  Note 23 – provisions (for site finishing and environment restoration; warranty and litigation; for The Group is ultimately controlled by an individual, Andrey Molchanov. Related party transactions onerous contracts; for social infrastructure); are detailed in note 29.  Note 28 – contingencies. (b) Russian business environment A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group’s operations are primarily located in the Russian Federation. Consequently, the Group is When measuring the fair value of an asset or a liability, the Group uses market observable data as far exposed to the economic and financial markets of the Russian Federation which display characteristics as possible. Fair values are categorised into different levels in a fair value hierarchy based on the of an emerging market. The legal, tax and regulatory frameworks continue development, but are inputs used in the valuation techniques as follows: subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation. The  Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. consolidated financial statements reflect management’s assessment of the impact of the Russian  Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or business environment on the operations and the financial position of the Group. The future business liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). environment may differ from management’s assessment.  Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) (refer to note 4). 2 Basis of preparation If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the (a) Statement of compliance same level of the fair value hierarchy as the lowest level input that is significant to the entire These consolidated financial statements have been prepared in accordance with International Financial measurement. Reporting Standards (IFRSs) as issued by International Accounting Standards Board. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting The Group additionally presents the consolidated financial statements in Russian language in period during which the change has occurred. accordance with the Federal law #208-fz “On consolidated financial reporting”. Further information about the assumptions made in measuring fair values is included in the following This is the first set of the Group’s financial statements where IFRS 16 Leases have been applied. The notes: related changes to significant accounting policies are described in Note 2(e).  Note 6 – acquisition of subsidiary; and  Note 25 (e) – financial instruments. (b) Basis of measurement The consolidated financial statements are prepared on the historical cost basis. (e) Change in accounting policies Except for the changes below, the Group has consistently applied the accounting policies to all years (c) Functional and presentation currency presented in these consolidated financial statements. The national currency of the Russian Federation is the Russian Rouble (“RUB”), which is the IFRS 16 Leases Company’s functional currency and the currency in which these consolidated financial statements are presented. The Group has initially adopted IFRS 16 Leases from 1 January 2019. All financial information is presented in the Russian Rouble and has been rounded to the nearest million, except if otherwise indicated.

18 19 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Group, as depend on an index or rate or reflect changes in market rental rates) or in-substance fixed, and a lessee, has recognised right-of-use assets representing its rights to use the underlying assets and lease therefore these payments are not be included in the measurement of the lease liability. liabilities representing its obligation to make lease payments. The Group has applied judgement to determine the lease term for some lease contracts in which it is a The Group has applied IFRS 16 using the modified retrospective approach. lessee, based on the year for which the contract is enforceable. The Group considers that enforceability of the lease is established by the written contract (including penalty clauses) in combination with Accordingly, the comparative information presented for 2018 has not been restated – i.e. it is applicable legislation related to renewal or termination rights (specifically the lessee’s preferencial presented, as previously reported, under IAS 17 and related interpretations. The details of the changes rights to renew the lease). Consequently, for the leases with short contractually stated term (usually 11 in accounting policies are disclosed below. months) where the Group has a preferential right to renew in accordance with law, determining the enforceable period, the Group considered the broader economics of the contract and not only the A. Definition of a lease contractual termination payments. Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4 Determining whether an Arrangement contains a lease. The Group now assesses (ii) Transition whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset Previously, the Group classified land plots leases as operating leases under IAS 17. The leases for a period of time in exchange for consideration. typically vary from an initial year of four to forty nine years. On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously the present value of the remaining lease payments, discounted at the Group’s incremental borrowing identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not rate as at 1 January 2019. Right-of-use assets are measured at an amount equal to the lease liability, reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts adjusted by the amount of any prepaid or accrued lease payments. entered into or changed on or after 1 January 2019. The Group used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17: B. As a lessee – applied the exemption not to recognise right-of-use assets and liabilities for leases with less than The Group leases municipal land plots for residential property construction. 12 months of lease term; – assets in the form of lease rights are assumed to be equal to the lease liabilities at the date of As a lessee, the Group previously classified leases as operating leases based on its assessment of transition, including lease contract prepayments, therefore, there is no effect on retained earnings at whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the date of inception. the Group recognises right-of-use assets and lease liabilities for most leases – i.e. these leases are on-

balance sheet. The Group presents right-of-use assets related to the lease of land plots for construction development in ‘inventories’ in the statement of financial position. The Group presents lease liabilities in “contract liabilities, trade and other payables” in the statement of financial position.

(i) Significant accounting policies The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently recognized in cost of sales based on the stage of completion. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The unified discount rate is applied in respect of the lease agreements portfolio with similar characteristics as at 1 January 2019. The weighted average borrowing rate comprised 8.88%. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment made. In accordance with IFRS 16 variable payments which do not depend on index or rate, i.e. do not reflect changes in market rental rates, should not be included in calculation of lease liability. In respect of municipal (or federal) land leases where the lease payments are based on cadastral value of the land plot and do not change until the next potential revision of that value or payments (or both) by the authorities, the Group determined that these lease payments are not considered as either variable (that

20 21 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

C. Impacts on financial statements from 1 January 2019 and apply them to borrowing costs incurred on or after that date. The amendments clarify that the general borrowings pool used to calculate eligible borrowing costs (i) Impacts on transition excludes only borrowings that specifically finance qualifying assets that are still under development or construction. Therefore, the Group treats as part of general borrowings any borrowing originally made On transition to IFRS 16, the Group recognised additional right-of-use assets and additional lease to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for liabilities. The impact on transition is summarised below. its intended use or sale are complete. Borrowings that were intended to specifically finance qualifying 31 December Effect from 1 January assets which are now ready for their intended use or sale – or any non-qualifying assets – the Group mln RUB 2018 IFRS 16 2019 includes in its general pool. ASSETS

Non-current assets

Property, plant and equipment 23,867 - 23,867 3 Significant accounting policies Intangible assets 4,092 - 4,092

Other investments 955 - 955 The accounting policies set out below have been applied consistently to all years presented in these

Deferred tax assets 2,862 - 2,862 consolidated financial statements, and have been applied consistently by Group entities. Trade and other receivables 1,163 - 1,163

Total non-current assets 32,939 - 32,939 (a) Basis of consolidation Current assets

Other investments 1,330 1,330 (i) Business combinations Inventories 137,360 544 137,904

Contract assets, trade and other receivables 32,093 - 32,093 Business combinations are accounted for using the acquisition method as at the acquisition date, which

Cash and cash equivalents 55,798 - 55,798 is the date on which control is transferred to the Group. The Group controls an entity when it is

Total current assets 226,581 544 227,125 exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to

Total assets 259,520 544 260,064 affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. 31 December Effect from 1 January mln RUB 2018 IFRS 16 2019 The Group measures goodwill at the acquisition date as: EQUITY AND LIABILITIES

Equity  The fair value of the consideration transferred; plus

Share capital 35 - 35  The recognised amount of any non-controlling interests in the acquiree; plus Treasury shares (2,073) - (2,073)

Share premium 26,408 - 26,408  If the business combination is achieved over time, the fair value of the pre-existing equity interest

Additional paid in capital 16,859 - 16,859 in the acquire; less

Foreign currency translation reserve 408 - 408  The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities Retained earnings 42,726 - 42,726 assumed. Total equity attributable to shareholders of the 84,363 - 84,363 When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. Company Non-controlling interest (10) - (10) The consideration transferred does not include amounts related to the settlement of pre-existing Total equity 84,353 - 84,353 relationships. Such amounts are generally recognised in profit or loss.

Non-current liabilities Transaction costs, other than those associated with the issue of debt or equity securities, that the Group

Loans and borrowings 74,755 - 74,755 incurs in connection with a business combination are expensed as incurred.

Deferred tax liabilities 4,317 - 4,317 Any contingent consideration payable is recognised at fair value at the acquisition date. If the Trade and other payables 8,813 519 9,332 contingent consideration is classified as equity, it is not remeasured and settlement is accounted for Provisions 81 - 81

Total non-current liabilities 87,966 519 88,485 within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are

Current liabilities recognised in profit or loss.

Loans and borrowings 11,333 - 11,333

Contract liabilities, trade and other payables 71,910 25 71,935 (ii) Subsidiaries

Provisions 3,958 - 3,958 Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included Total current liabilities 87,201 25 87,226 in the consolidated financial statements from the date that control commences until the date that Total liabilities 175,167 544 175,711 control ceases. The accounting policies of subsidiaries have been changed when necessary to align Total equity and liabilities 259,520 544 260,064 them with the policies adopted by the Group.

IAS 23 Borrowing Costs (iii) Acquisitions from entities under common control The Group has adopted amendments to IAS 23 Borrowing Costs issued by the International Business combinations arising from transfers of interests in entities that are under the control of the Accounting Standards Board as part of Annual Improvements to IFRS Standards 2015–2017 Cycle shareholder that controls the Group are accounted for at the date of transfer of shares to the Group. The assets and liabilities acquired are recognised at their carrying amounts in the financial statements 22 23 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

of the entities transferred. If these companies previously have not prepared IFRS financial statements, (c) Financial instruments assets and liabilities are determined in accordance with IFRS 1. Any difference between the book value of net assets acquired and consideration paid is recognised as a contribution from, or distribution (i) Recognition and initial measurement to, shareholders. Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the (iv) Acquisitions and disposals of non-controlling interests contractual provisions of the instrument. Any difference between the consideration paid to acquire a non-controlling interest, and the carrying amount of that non-controlling interest, is recognised as a contribution from or a distribution to A financial asset (unless it is a trade receivable without a significant financing component) or financial shareholders. liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing Any difference between the consideration received upon disposal of a minority portion of the Group’s component is initially measured at the transaction price. interest in a subsidiary, and the carrying amount of that portion of the Group’s interest in the subsidiary, including attributable goodwill, is recognised as a distribution to, or a contribution from, (ii) Classification and measurement of financial assets and financial liabilities shareholders. On initial recognition, a financial asset is classified as measured at: amortised cost; FVOCI – debt (v) Transactions eliminated on consolidation investment; FVOCI – equity investment; or FVTPL. Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its are eliminated in preparing the consolidated financial statements. business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. (b) Foreign currencies A financial asset is measured at amortised cost if it meets both of the following conditions and is not (i) Foreign currency transactions designated as at FVTPL: Transactions in foreign currencies are translated to the respective functional currencies of the Group ‒ it is held within a business model whose objective is to hold assets to collect contractual cash entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated flows; and in foreign currencies at the reporting date are translated to the functional currency at the exchange rate ‒ its contractual terms give rise on specified dates to cash flows that are solely payments of at that date. The foreign currency gain or loss on monetary items is the difference between amortised principal and interest on the principal amount outstanding. cost in foreign currency translated at the exchange rate at the beginning of the year, adjusted for A debt investment is measured at FVOCI if it meets both of the following conditions and is not effective interest and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities that are designated as at FVTPL: measured at fair value in a foreign currency are translated to the functional currency at the exchange ‒ it is held within a business model whose objective is achieved by both collecting contractual rate at the date that the fair value was determined. Foreign currency differences arising on translation cash flows and selling financial assets; and are recognised in the statement of profit or loss and other comprehensive income. Non-monetary items ‒ its contractual terms give rise on specified dates to cash flows that are solely payments of that are measured in terms of historical cost in a foreign currency are translated using the exchange principal and interest on the principal amount outstanding. rate at the date of the transaction. All financial assets not classified as measured at amortised cost or FVOCI as described above are (ii) Foreign operations measured at FVTPL. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising The Group makes an assessment of the objective of the business model in which a financial asset is on acquisition, are translated to RUB at exchange rates at the reporting date. The income and expenses held at a portfolio level because this best reflects the way the business is managed and information is of foreign operations are translated to RUB at the weighted average exchange rate for the year which provided to management. The information considered includes: approximates the exchange rates at the dates of the transactions. – the stated policies and objectives for the portfolio and the operation of those policies in practice. Foreign currency differences are recognised in other comprehensive income. Since 1 January 2005, the These include whether management’s strategy focuses on earning contractual interest income, Group’s date of transition to IFRSs, such differences have been recognised in the foreign currency maintaining a particular interest rate profile, matching the duration of the financial assets to the translation reserve (FCTR). When a foreign operation is disposed of, in part or in full, the relevant duration of any related liabilities or expected cash outflows or realising cash flows through the sale amount in the FCTR is transferred to the statement of profit or loss and other comprehensive income of the assets; as part of profit or loss on disposal. – how the performance of the portfolio is evaluated and reported to the Group’s management; Foreign exchange gains and losses arising from a monetary item received from or payable to a foreign – the risks that affect the performance of the business model (and the financial assets held within that operation, the settlement of which is neither planned nor likely in the foreseeable future, are business model) and how those risks are managed; considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and are presented within equity in the foreign currency translation reserve. – how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and – the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.

24 25 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not Financial liabilities are classified at amortised cost or FVTPL. A financial liability is classified as at considered sales for this purpose, consistent with the Group’s continuing recognition of the assets. FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, Financial assets that are held for trading or are managed and whose performance is evaluated on a fair including any interest expense, are recognised in profit or loss. Other financial liabilities are value basis are measured at FVTPL. subsequently measured at amortised cost using the effective interest method. Interest expense and Financial assets – Assessment whether contractual cash flows are solely payments of principal foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is and interest also recognised in profit or loss. For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on (iii) Derecognition initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other The Group derecognises a financial asset when the contractual rights to the cash flows from the asset basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin. expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are In assessing whether the contractual cash flows are solely payments of principal and interest (SPPI transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards criterion), the Group considers the contractual terms of the instrument. This includes assessing of ownership and it does not retain control of the financial asset. Any interest in transferred financial whether the financial asset contains a contractual term that could change the timing or amount of assets that is created or retained by the Group is recognised as a separate asset or liability. contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers: The Group enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In – contingent events that would change the amount or timing of cash flows; – terms that may adjust the contractual coupon rate, including variable-rate features; these cases, the transferred assets are not derecognised. – prepayment and extension features; and The Group derecognises a financial liability when its contractual obligations are discharged or – terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features). cancelled or expire. The Group also derecognises a financial liability when its terms are modified and A prepayment feature is consistent with the solely payments of principal and interest criterion if the the cash flows of the modified liability are substantially different, in which case a new financial prepayment amount substantially represents unpaid amounts of principal and interest on the principal liability based on the modified terms is recognised at fair value. amount outstanding, which may include reasonable additional compensation for early termination of On derecognition of a financial liability, the difference between the carrying amount extinguished and the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised amount, a feature that permits or requires prepayment at an amount that substantially represents the in profit or loss. contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if (iv) Offsetting the fair value of the prepayment feature is insignificant at initial recognition. Financial assets and liabilities are offset and the net amount presented in the statement of financial The following accounting policies apply to the subsequent measurement of financial assets. position when, and only when, the Group currently has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis or to realise the asset and settle the Financial assets at FVTPL These assets are subsequently measured at fair value. Net gains and liability simultaneously. losses, including any interest or dividend income, are recognised in profit or loss. (v) Impairment of financial assets

Financial assets at These assets are subsequently measured at amortised cost using the The impairment model applies to financial assets measured at amortised cost, contract assets and debt amortised cost effective interest method. The amortised cost is reduced by investments at FVOCI. impairment losses. Interest income, foreign exchange gains and losses The financial assets at amortised cost consist of trade receivables, cash and cash equivalents, and and impairment are recognised in profit or loss. Any gain or loss on corporate debt securities. derecognition is recognised in profit or loss. The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, Debt investments at These assets are subsequently measured at fair value. Interest income which are measured as 12-month ECLs: FVOCI calculated using the effective interest method, foreign exchange gains ‒ debt securities that are determined to have low credit risk at the reporting date; and and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in other comprehensive income. On ‒ other debt securities and bank balances for which credit risk (i.e. the risk of default occurring derecognition, gains and losses accumulated in other comprehensive over the expected life of the financial instrument) has not increased significantly since initial income are reclassified to profit or loss. recognition. The Group has elected to measure loss allowances for trade receivables and contract assets at an Equity investments at These assets are subsequently measured at fair value. Dividends are amount equal to lifetime ECLs. FVOCI recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net When determining whether the credit risk of a financial asset has increased significantly since initial gains and losses are recognised in other comprehensive income and recognition and when estimating ECLs, the Group considers reasonable and supportable information are never reclassified to profit or loss. that is relevant and available without undue cost or effort. This includes both quantitative and

26 27 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

qualitative information and analysis, based on the Group’s historical experience and informed credit (d) Share capital assessment and including forward-looking information. Ordinary shares The Group assumes that the credit risk on a financial asset has increased significantly if it is more than Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary 30 days past due. shares are recognised as a deduction from equity, net of any tax effects. The Group considers a financial asset to be in default when: Repurchase of share capital (treasury shares) ‒ the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by When share capital recognised as equity is repurchased, the amount of the consideration paid, the Group to actions such as realising security (if any is held); or including directly attributable costs, is recognised as a deduction from equity. ‒ the financial asset is more than 90 days past due. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. The Group considers a debt security to have low credit risk when its credit risk rating is equivalent to When treasury shares are sold or reissued subsequently, the amount received is recognised as an the globally understood definition of ‘investment grade’. The Group considers this to be Baa3 or increase in equity, and the resulting surplus or deficit of the transaction is presented in additional paid- higher per Moody’s. in capital.

The maximum period considered when estimating ECLs is the maximum contractual period over (e) Property, plant and equipment which the Group is exposed to credit risk. Measurement of ECLs (i) Recognition and measurement Items of property, plant and equipment, except for land, are measured at cost less accumulated ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present depreciation and impairment losses. The cost of property, plant and equipment at 1 January 2005, the value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance date of transition to IFRSs, was determined by reference to its fair value at that date. with the contract and the cash flows that the Group expects to receive). Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self- ECLs are discounted at the effective interest rate of the financial asset. constructed assets includes the cost of materials and direct labour, any other costs directly attributable Credit-impaired financial assets to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt Purchased software that is integral to the functionality of the related equipment is capitalised as part of securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more that equipment. events that have a detrimental impact on the estimated future cash flows of the financial asset have When parts of an item of property, plant and equipment have different useful lives, they are accounted occurred. for as separate items (major components) of property, plant and equipment. Evidence that a financial asset is credit-impaired includes the following observable data: Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are significant financial difficulty of the borrower; recognised net within other income in the statement of profit or loss. a breach of contract such as a default or being more than 90 days past due; (ii) Reclassification of owner occupied property it is probable that the borrower will enter bankruptcy or other financial reorganisation. Presentation of impairment When the use of a property changes from owner-occupied to investment property, the property is remeasured to fair value and reclassified as investment property. Any gain or loss on remeasurement is Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying recognised in equity. amount of the assets. (iii) Subsequent costs For debt securities at FVOCI, the loss allowance is recognised in other comprehensive income. The cost of replacing part of an item of property, plant and equipment is recognised in the carrying Impairment losses on other financial assets are presented under ‘finance costs’, and not presented amount of the item if it is probable that the future economic benefits embodied within the part will separately in the statement of profit or loss and other comprehensive income due to materiality flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is considerations. derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in the statement of profit or loss as incurred. (vi) Write off The gross carrying amount of a financial asset is written off when the Group has no reasonable (iv) Depreciation expectations of recovering a financial asset in its entirety or a portion thereof. The Group has a policy Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount of writing off the gross carrying amount when the financial asset is 3 years past due based on historical substituted for cost, less its residual value. experience of recoveries of similar assets. The Group expects no significant recovery from the amount Depreciation is recognised in the statement of profit or loss on a straight-line basis over the estimated written off. useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased

28 29 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably (g) Leased assets certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. Policy applicable before 1 January 2019 The estimated useful lives for the current and comparative years are as follows: Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are  Buildings 7 to 50 years; classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to  Machinery and equipment 5 to 29 years; the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that  Transportation equipment 5 to 20 years; asset.  Other fixed assets 3 to 20 years. Other leases are operating leases and the leased assets are not recognised in the Group’s statement of Depreciation methods, useful lives and residual values are reviewed at each financial year-end and financial position. Acquired rights to lease of land for development are recognised at cost in inventory adjusted if appropriate. or investment property under development.

(f) Intangible assets (h) Investment property (i) Goodwill Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services Goodwill that arises on the acquisition of subsidiaries is included in intangible assets. For the or for administrative purposes. In the case when investment property forms part of a larger property measurement of goodwill at initial recognition refer to note 3(a)(i). unit, it is distinguished on the basis of the area which it occupies in the total area of the property unit. Subsequent measurement Investment property is measured at fair value with any change therein recognised in the statement of profit or loss and other comprehensive income. Goodwill is measured at cost less accumulated impairment losses. In respect of equity-accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and When the use of a property changes such that it is reclassified as property, plant and equipment, its fair an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms value at the date of reclassification becomes its cost for subsequent accounting. part of the carrying amount of the equity-accounted investee. (i) Inventories (ii) Other intangible assets Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at on the weighted average principle and includes expenditure incurred in acquiring the inventories, cost less accumulated amortisation and accumulated impairment losses. production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate (iii) Subsequent expenditure share of overheads based on normal operating capacity. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in Net realisable value is the estimated selling price in the ordinary course of business, less the estimated the specific asset to which it relates. All other expenditure, including expenditure on internally costs of completion and selling expenses. generated goodwill and brands, is recognised in the statement of profit or loss and other comprehensive income as incurred. (j) Contract assets and liabilities The contract assets relate to the Group’s right for consideration for work completed but not billed at (iv) Amortisation the reporting date on participant agreements and construction contracts. The contract assets are Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its transferred to receivables when the rights become unconditional. This usually occurs when an advance residual value. consideration becomes due based on participant agreement schedule. The contract liabilities primarily relate to the advance consideration received from customers under participant agreements. Amortisation is recognised in the statement of profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use, The contract assets and contract liabilities are offset and the net amount is presented in the statement since this most closely reflects the expected pattern of consumption of the future economic benefit s of financial position on the particular participant agreements basis. embodied in the asset. Impairment losses related to contract assets are recognised by the Group based on “expected credit Amortisation methods, useful lives and residual values are reviewed at each financial year-end and losses” model (see note 3 (c) (v)). adjusted if appropriate. (k) Impairment of non-financial assets The carrying amounts of the Group’s non-financial assets, other than investment properties, inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, recoverable amount is estimated each year at the same time.

30 31 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair A liability is recognised for the amount expected to be paid under short-term cash bonus or profit- value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result their present value using a pre-tax discount rate that reflects current market assessments of the time of past service provided by the employee, and the obligation can be estimated reliably. value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash (n) Provisions inflows from continuing use that are largely independent of the cash inflows of other assets or groups A provision is recognised if, as a result of a past event, the Group has a present legal or constructive of assets (the “cash-generating unit, or CGU”). Subject to an operating segment ceiling test, for the obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will purpose of goodwill impairment testing, CGU’s to which goodwill has been allocated are aggregated be required to settle the obligation. Provisions are determined by discounting the expected future cash so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks for internal reporting purposes. Goodwill acquired in a business combination, for the purpose of specific to the liability. The unwinding of the discount is recognised as finance costs. impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination. (i) Warranties The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a A provision for warranties is recognised when the underlying products or services are sold. The corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the provision is based on historical warranty data. corporate asset belongs. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds (ii) Site and environment restoration its recoverable amount. Impairment losses are recognised in the statement of profit or loss and other In accordance with the Group’s environmental policy and applicable statutory requirements, provision comprehensive income. Impairment losses recognised in respect of cash-generating units are allocated is made for the Group’s obligation to incur additional costs including costs associated with clean up first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the the surrounding area after sand extraction and finishing the construction of apartment building. The carrying amount of the other assets in the unit (group of units) on a pro rata basis. related expense is recognised in the statement of profit or loss and other comprehensive income. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior years are assessed at each reporting date for any indications that the loss has (iii) Litigation provision decreased or no longer exists. An impairment loss is reversed if there has been a change in the A provision is recognized, if the probability is high that the Group will lose lawsuit in which the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent Group is a defendant, and there will be a need (requirement) to settle the obligation. that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (iv) Onerous contracts Goodwill that forms part of the carrying amount of an investment in associate is not recognised A provision for onerous contracts is recognised when the expected benefits to be derived by the Group separately, and therefore is not tested for impairment separately. Instead, the entire amount of the from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The investment in an associate is tested for impairment as a single asset when there is objective evidence provision is measured at the present value of the lower of the expected cost of terminating the contract that the investment in an associate may be impaired. and the expected net cost of continuing with the contract.

(l) Non-current assets held for sale (v) Provision for social infrastructure Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be The Group records provision in respect of the Group’s obligation to construct social infrastructure that recovered primarily through sale rather than through continuing use are classified as held for sale. is necessary for the apartment buildings’ tenants. Immediately before classification as held for sale, the assets (or components of a disposal group) are remeasured in accordance with the Group’s accounting policies. Thereafter generally the assets (or Provision is initially recognised in the amount of expected costs to construct social infrastructure disposal group) are measured at the lower of their carrying amount and fair value less cost to sell. Any discounted for the year of the social infrastructure objects’ construction. Subsequently the provision is impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and decreased by the actually incurred costs. liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax The costs for the social infrastructure objects construction are initially recognized in inventories and assets and investment property, which continue to be measured in accordance with the Group’s subsequently are included into the cost of sales based on the stage of construction completion and accounting policies. Impairment losses on initial classification as held for sale and subsequent gains selling progress. and losses on remeasurement are recognised in statement of profit or loss and other comprehensive income. Gains are not recognised in excess of any cumulative impairment loss. Intangible assets and property, plant and equipment once classified as held for sale are not amortised or depreciated.

(m) Employee benefits Obligations for contributions to defined contribution pension plans, including Russia’s State pension fund, are recognised as an expense in the statement of profit or loss and other comprehensive income when they are due.

32 33 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

(o) Revenues The Group applies input method to measure progress towards satisfaction of performance obligations as costs incurred relative to the total expected inputs. Costs of land plots are excluded from both (i) Goods sold incurred and expected inputs and are recognized in cost of sales based on the same measure of progress as revenue. Revenue from the sale of goods in the course of ordinary activities is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third (ii) Services parties, adjusted for variable considerations (e.g. discounts) and the significant financing component, which reflects the price that a customer would have paid for the promised goods when (or as) they are Revenue from services, rendered by the Group’s companies is recognised in the statement of profit or transferred to the customer. Revenue is recognised when the control is transferred to a customer. loss over time, applying the input method to measure progress towards satisfaction of performance obligation when it is possible under standard IFRS 15. Type of goods / services Revenue recognition Significant payment terms Revenue under share Revenue is recognized in accordance with Payment is usually received before (iii) Construction contracts and designing participation agreements in contracts’ stage of completion the construction’s completion development As soon as the outcome of a construction contract can be estimated reliably, contract revenue and Revenue under sales Revenue is recognized when control is Payment is normally received prior expenses are recognised in the statement of profit or loss and other comprehensive income over time, contracts in development transmitted to the customer (at the earliest to the act of acceptance signing applying the input method to measure progress towards satisfaction of performance obligation. from two events: act of acceptance signing Contract expenses are recognised as incurred unless they create an asset related to future contract or legal title registration) activity. Sale of finished goods Revenue is recognized when control is The bill is payable either before the transmitted to the customer dispatch or based on the period, An expected loss on a contract is recognised immediately in the statement of profit or loss and other stated in the contract comprehensive income. Construction and research Revenue is recognized in accordance with The services are paid based on the services contracts’ stage of completion contracts’ schedule (p) Other expenses Tower crane services Revenue is recognised over time After the services are rendered (in the current month for the prior (i) Lease payments month) Policy applicable before 1 January 2019 Services Revenue is recognized upon the stage of Based on the contract terms, completion. normally - after the services has Payments made under operating leases are recognised in the statement of profit or loss on a straight- been rendered line basis over the term of the lease. Lease rights received are recognised as an integral part of the total The Group estimates significant financing component at contract inception using an interest rate that lease expense, over the term of the lease. would be reflected in a separate financing transaction between the entity and its customer. Interest Minimum lease payments made under finance leases are apportioned between the finance expense and expense recognized as a result of adjusting for the effect of the significant financing component is the reduction of the outstanding liability. The finance expense is allocated to each year during the lease regarded as borrowing costs, as prepayments received under share participation agreements are term so as to produce a constant annual rate of interest on the remaining balance of the liability. considered specific borrowings. Contingent lease payments are accounted for by revising the minimum lease payments over the The significant financing component is capitalised in the cost of land plots, on which construction remaining term of the lease when the contingency no longer exists and the lease adjustment is known. objects are being built. (ii) Social expenditure The timing of the transfer of control – satisfaction of performance obligation varies depending on the individual terms of the contract. To the extent that the Group’s contributions to social programs benefit the community at large and are not restricted to the Group’s employees, they are recognised in the statement of profit or loss and other The major part of the Group’s revenue is contracted under share participation agreements. comprehensive income as incurred. Before 1 January 2017 for the share participation agreements performance obligation is being satisfied upon completion of construction, when the building is approved by State commission for acceptance (q) Finance income and finance costs of finished buildings. The Group’s finance income and finance costs include interest income, interest expense, dividend Starting 1 January 2017 amended № 214-FZ Federal Law is effective. The change in the legislation income, the net gain or loss on the disposal of investments in debt securities measured at FVOCI, the made the share participation agreements non-cancellable. As a result, the revenue under share net gain or loss on financial assets at FVTPL, the foreign currency gain or loss on financial assets and participation agreements signed starting 1 January 2017 has been recognized over time, based on the financial liabilities, impairment losses (and reversals) on investments in debt securities carried at contracts' stage of completion. amortised cost or FVOCI, the fair value loss on contingent consideration classified as a financial liability. In 2018, after the Consolidated Interim Financial Statements for the six-month period ended 30 June 2018 were published, the Group has identified the legal practice that has proved that all the Interest income or expense is recognised using the effective interest method. Dividend income is share participation agreements are non-cancellable, even those, signed prior to 1 January 2017. recognised in profit or loss on the date on which the Group’s right to receive payment is established. As a result, the revenue under all share participation agreements has been recognized over time, based on the contracts' stage of completion. This new significant fact was accounted prospectively, starting 1 July 2018.

34 35 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

The ‘effective interest rate’ is the rate that exactly discounts estimated future cash payments or receipts (u) New Standards and Interpretations not yet adopted through the expected life of the financial instrument to: A number of new Standards, amendments to Standards and Interpretations are not yet effective as at – the gross carrying amount of the financial asset; or 31 December 2019, and have not been applied in preparing these consolidated financial statements. – the amortised cost of the financial liability. The Group plans to adopt these pronouncements when they become effective. Of these pronouncements, potentially the following will have an impact on the Group’s operations. In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or to the amortised cost of the liability.  Various Improvements to IFRSs have been dealt with on a standard-by-standard basis. All However, for financial assets that have become credit-impaired subsequent to initial recognition, amendments, which result in accounting changes for presentation, recognition or measurement interest income is calculated by applying the effective interest rate to the amortised cost of the purposes, will come into effect for annual years beginning after 1 January 2020. The Group has financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts not yet analysed the likely impact of the improvements on its financial position or performance. to the gross basis. Foreign currency gains and losses are reported on a net basis. 4 Determination of fair values (r) Income tax expense A number of the Group’s accounting policies and disclosures require the determination of fair value, Income tax expense comprises current and deferred tax. Income tax expense is recognised in the for both financial and non-financial assets and liabilities. Fair values have been determined for statement of profit or loss and other comprehensive income except to the extent that it relates to a measurement and / or disclosure purposes based on the following methods. When applicable, further business combination, or items recognised directly in equity or in other comprehensive income. information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous (a) Property, plant and equipment years. The fair value of property, plant and equipment recognised as a result of a business combination is Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets based on market values. The market value of property is the estimated amount for which a property and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred could be exchanged on the date of valuation between market participants in an orderly transaction. The tax is not recognised for the following temporary differences: the initial recognition of goodwill, the fair value of items of plant, equipment, fixtures and fittings is based on the market approach and cost initial recognition of assets or liabilities in a transaction that is not a business combination and that approaches using quoted market prices for similar items when available and replacement cost when affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to appropriate. the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they When no quoted market prices are available, the fair value of property, plant and equipment is reverse, based on the laws that have been enacted or substantively enacted by the reporting date. primarily determined using depreciated replacement cost. This method considers the cost to reproduce Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax or replace the property, plant and equipment, adjusted for physical, functional or economical liabilities and assets, and they relate to income taxes levied by the same tax authority on the same depreciation (via application of discounted cash flow method), and obsolescence. taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. (b) Intangible assets A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary The fair value of patents and trademarks acquired in a business combination is based on the discounted differences, to the extent that it is probable that future taxable profits will be available against which estimated royalty payments that have been avoided as a result of the patent or trademark being owned. temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are The fair value of customer relationships acquired in a business combination is determined using the reduced to the extent that it is no longer probable that the related tax benefit will be realised. multi-year excess earnings method, whereby the subject asset is valued after deducting a fair return on all other assets that are part of creating the related cash flows. (s) Earnings per share The fair value of other intangible assets is based on the discounted cash flows expected to be derived The Group presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated from the use and eventual sale of the assets. by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. (c) Inventories The fair value of inventories acquired in a business combination is determined based on its estimated (t) Segment reporting selling price in the ordinary course of business less the estimated costs of completion and sale, and a An operating segment is a component of the Group that engages in business activities from which it reasonable profit margin based on the effort required to complete and sell the inventories. may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. An operating segment’s operating results are reviewed (d) Investments in equity and debt securities regularly by the CEO to make decisions about resources to be allocated to the segment and assess its The fair value of financial assets measured at amortised cost or measured at fair value through profit or performance, and for which discrete financial information is available. loss and other comprehensive income is determined by reference to their quoted closing bid price at Inter-segment pricing is determined on an arm’s length basis. the reporting date. The fair value of financial assets measured at amortised cost is determined for disclosure purposes only. Investments in equity securities that are not quoted on a stock exchange are

36 37 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

principally valued using valuation techniques such as discounted cash flow analysis, option pricing Information regarding the results of each reportable segment is included below. Performance is models and comparisons to other transactions and instruments that are substantially the same. measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Group’s CEO. Segment profit is used to measure performance as management (e) Contract assets, trade and other receivables believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. The fair value of contract assets, trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined The operations of the Group are conducted and managed primarily in North-West region, Moscow and for disclosure purposes. Ural, where the production facilities and sales offices of the Group are located. The Group has also operations in Ukraine, the volume of which is not significant to total operations of the Group. Accordingly, no geographical segmental information is presented. The Group has aerated concrete production facilities in Ukraine. Net assets of Ukrainian subsidiary (f) Non-derivative financial liabilities amounts to 1.43% of total net asset of the Group (31 December 2018: 1.72%) and adjusted EBITDA Fair value, which is determined for disclosure purposes, is calculated based on the present value of equals to 3.85% of adjusted EBITDA of the Group (year ended 31 December 2018: 1.97%). The future principal and interest cash flows, discounted at the market rate of interest at the reporting date. political and economic situation in Ukraine has been subject to significant turbulence in recent years. In respect of the liability component of convertible notes, the market rate of interest is determined by After economic crisis in 2014-2015, the Ukrainian economy recovered considerably in the last couple reference to similar liabilities that do not have a conversion option. For finance leases the market rate of years, with a slowed down inflation, stable Hryvnia exchange rate, growing GDP and general of interest is determined by reference to similar lease agreements. revival in business activity. In 2019, a new law on currency and currency transactions came into force. The new law abolished a 5 Operating segments number of restrictions, defined new principles of currency operations, currency regulation and supervision, and resulted in significant liberalisation of foreign currency transactions and capital Due to disposal of some subsidiaries and concentration of the “Construction” segment on internal movements. In particular, the requirement of mandatory sale of foreign currency proceeds on the contracts, the Group has made changes to the reportable segments in the consolidated financial interbank market was cancelled, while the settlement period for export-import transactions in foreign statements for the year ended 31 December 2019. currency was increased considerably. Also, all restrictions on payment of dividends abroad were lifted. The “Construction” and the “Real Estate” segments has been joined into the “Real Estate Whilst management believes it is taking appropriate measures to support the sustainability of the Development and Construction” segment, the “Cranes” segment has been included in the “Building Group’s Ukrainian subsidiary’s business in the current circumstances, a continuation of the current Materials” segment, the “Project management” segment has been assigned to “Other” (the structure unstable business environment could negatively affect the subsidiary’s results and financial position in and composition of the segments are presented in Note 32). Comparative periods’ information has a manner not currently determinable. These consolidated financial statements reflect management’s been recalculated. current assessment of the impact of the Ukrainian business environment on the operations and the financial position of the subsidiary. The future business environment may differ from management’s The Group has two reportable segments as described below which are the Group’s strategic business assessment. units. The strategic business units offer different products and services and are managed separately, because they require different technology and marketing strategies. The format of reporting segments (b) Major customers is based on Group’s management and internal reporting structure. Revenues from the largest customer of the Group represents approximately RUB 5,209 million (year Segment results, assets and liabilities include items directly attributable to a segment as well as those ended 31 December 2018: RUB 4,392 million). that can be allocated on a reasonable basis. Unallocated items comprise mainly other assets and revenue, interest-bearing loans, borrowings, and corporate assets, liabilities and expenses. Revenue from the next four significant customers of the Group amounts approximately to RUB 4,230 million (year ended 31 December 2018: RUB 6,004 million). (a) Operating segments The following summary describes the operations in each of the Group’s segments: Building Materials. The building materials business units are engaged in the production of brick, concrete and reinforced concrete items, ready-mix concrete, aerated concrete blocks, crushed stone production, land-based and marine-dredged sand extraction, providing of tower cranes services. These business units are located in Saint Petersburg, Leningrad region and Moscow. Real Estate Development and Construction. The Real Estate and Construction business units specialize in the development of elite, mass-market and business class residential real estate and commercial real estate, panel construction, providing of construction contracting services, transportation of construction materials. These business units are located in Saint Petersburg, Moscow and Ural region. There are varying levels of integration between the “Building Materials” and “Real Estate Development and Construction” reportable segments. This integration includes transfers of raw materials and services, respectively. Inter-segment pricing is determined on an arm’s length basis. The accounting policies of the reportable segments are the same as described in notes 2 and 3.

38 39 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

(i) Operating segments Reconciliations of reportable segment revenues, profit, assets and liabilities and other material items For the year ended Real Estate Revenue 31 December 2019 Building Development and mln RUB 2019 2018 mln RUB Materials Construction Other entities Total Total revenue for reportable segments 104,891 143,866 Revenue from external customers 17,231 81,405 5,801 104,437 Other revenue 1,496 570 Inter-segment revenue 362 92 - 454 Transportation revenue 4,505 4,230 Total segment revenue 17,593 81,497 5,801 104,891 Elimination of intersegment revenue (454) (2,290) Segment result 1,960 15,984 - 17,944 Consolidated revenue 110,438 146,376

Depreciation/amortisation 1,096 624 178 1,898 Capital expenditure 573 194 76 843 Profit for the year mln RUB 2019 2018

For the year ended Total segment result 17,944 28,828 Real Estate Other result 537 (837) 31 December 2018 Development (recalculated) Building and Unallocated expenses and income, net (1,857) (3,193) mln RUB Materials Construction Other entities Total Finance income 3,497 2,755 Revenue from external customers 18,048 118,100 5,428 141,576 Finance costs (9,319) (6,466) Inter-segment revenue 2,099 191 - 2,290 Income tax expense (3,333) (4,857) Total segment revenue 20,147 118,291 5,428 143,866 Profit for the year 7,469 16,230 Segment result 2,457 26,371 - 28,828

Assets Depreciation/amortisation 1,391 732 306 2,429 31 December 31 December Capital expenditure 629 305 93 1,027 mln RUB 2019 2018

Segment assets, excluding net financial position 252,219 245,917 Real Estate Elimination of intersegment assets (2,123) (3,127) Development Unallocated assets 14,747 16,730 As at 31 December 2019 Building and mln RUB Materials Construction Other entities Total Total assets 264,843 259,520 Segment assets, excluding net financial position* 20,208 232,011 - 252,219 Segment liabilities, excluding net Liabilities financial position* 5,952 110,906 - 116,858 31 December 31 December Net financial position* 5,280 53,606 30,733 89,619 mln RUB 2019 2018 Segment liabilities, excluding net financial position 116,858 103,841 Elimination of intersegment liabilities (29,763) (21,828) Real Estate As at 31 December 2018 Development Consolidated loans and borrowings 89,619 86,088 (recalculated) Building and Unallocated liabilities 4,219 7,066 mln RUB Materials Construction Other entities Total Total liabilities 180,933 175,167 Segment assets, excluding net financial position* 20,970 224,947 - 245,917

Segment liabilities, excluding net financial position* 5,825 98,016 - 103,841 Other material items Net financial position* 5,825 56,245 24,018 86,088 mln RUB 2019 2018 Capital expenditure 843 1,027 * NFP (Net financial position). Net financial position is debt of the Group allocated to Operating Elimination of intersegment purchases (7) (50) Segments. Net financial position is calculated as loans and borrowings, including lease payables, Consolidated capital expenditure 836 977 minus Loans given to Group companies.

40 41 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

6 Acquisitions and disposals of subsidiaries and non-controlling interests The fair value of net assets at the acquisition date was determined by independent appraisal. The major assumptions used by the appraisal were as follows: (a) Acquisition of subsidiaries  Cash flows were projected based on budgeted operating results for 2019 and five years In October 2019 one of the Group subsidiaries acquired from the third party 100.00% of shares of business plans; OOO “LSR. Gazobeton” (before the acquisition it was known as LLC “H+H”), entity that produces  The 14.25% post-tax discount rate was applied for Property plant and Equipment impairment aerated concrete in Leningrad region. The entity was included in segment “Building materials”. The test; primary reason of business combination was to strengthen the market position and to extend market  The increase in usage of production capacity to 2024 from 60% to 80% as the results of both share in Saint-Petersburg and Leningrad region. improved market conditions and internal marketing efforts; The bargain purchase gain arose because of the Group’s negotiation powers: firstly, the former owner was seeking to leave the market, and secondly, the seller was seeking to raise cash through a quick There were no significant adjustments made in the financial statements to the amounts provided in the sales process. appraisal’s report. The acquisition had the following effect on the Group’s assets and liabilities at the date of acquisition: During the year ended 31 December 2018 the Group has not acquired any subsidiaries.

Recognised fair values on acquisition mln RUB (b) Disposal of subsidiaries Non-current assets During the year ended 31 December 2019 the Group has disposed off some subsidiaries, as Property, plant and equipment 1,057 management has decided to focus on projects with the highest return on invested capital. Deferred tax assets 3 In May 2019 the Group sold 100.00% shares to a related party and lost control over subsidiaries in Current assets segment “Real Estate Development and Construction”. Inventory 61 The disposal of the subsidiaries has the following effect on the Group's assets and liabilities at the date Trade and other receivables 47 of disposal. Cash and cash equivalents 210 Carrying amounts at the date of disposal mln RUB Non-current liabilities Non-current assets Property, plant and equipment 465 Deferred tax liabilities (107) Goodwill 50 Current liabilities Deferred tax assets 23 Trade and other payables (73) Current assets Net identifiable assets, liabilities and contingent liabilities acquired 1,198 Inventories 2,980 Negative goodwill on acquisition (81) Trade and other receivables 147 Consideration paid 1,117 Cash and cash equivalents 165 Consideration paid satisfied in cash (1,117) Current liabilities Current interest-bearing loans and borrowings (1,731) Cash acquired 210 Trade and other payables (1,179) Net cash outflow (907) Net identifiable assets, liabilities and contingent liabilities to be disposed (including goodwill) 920

Consideration 920 Cash and cash equivalents to be disposed (165) Net consideration inflow 755

In July 2019 the Group sold 100.00% shares OOO “LSR. Zelezobeton” to a third party and lost control over the subsidiary, as management has decided to focus on projects with highest return on invested capital. OOO “LSR. Zelezobeton” is engaged in production of reinforced concrete in Saint Petersburg.

42 43 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

The disposal of the subsidiary has the following effect on the Group's assets and liabilities at the date The disposal of the subsidiaries has the following effect on the Group's assets and liabilities at the date of disposal: of disposal.

Carrying amounts at the date of disposal mln RUB Carrying amounts at the date of disposal mln RUB Non-current assets Non-current assets Property, plant and equipment 273 Property, plant and equipment 587 Deferred tax assets 9 Goodwill 11 Current assets Deferred tax assets 305 Inventories 76 Current assets Trade and other receivables 37 Inventories 292 Cash and cash equivalents - Assets under construction contracts recognized over time 1,320 Current liabilities Income tax receivable 1 Trade and other payables (128) Cash and cash equivalents 156 Net identifiable assets, liabilities and contingent liabilities to be disposed 267 Non-current liabilities Excess of book values of net assets sold over consideration received (6) Deferred tax liability (24) Consideration 261 Cash and cash equivalents to be disposed - Current liabilities Net consideration inflow 261 Liabilities under construction contracts recognized over time (1,670) Short-term provisions (1) In March 2018 the Group sold 100.00% shares of AO “PO “Barrikada” (before 2018 was known as AO “LSR.Zelezobeton-SZ”) to a third party and lost control over the subsidiary. The company is Net identifiable assets, liabilities and contingent liabilities to be disposed engaged in production of the reinforced concrete in Saint Petersburg and Leningrad region. (including goodwill) 977 The disposal of the subsidiary has the following effect on the Group's assets and liabilities at the date Non-controlling interest in disposal subsidiaries 14 of disposal. Excess of consideration received over book values of net assets sold 209 Carrying amounts at the date of disposal mln RUB Consideration 1,200 Non-current assets Cash and cash equivalents to be disposed (156) Property, plant and equipment 868 Net consideration inflow 1,044 Goodwill 17 Deferred tax assets 26 Current assets 7 Administrative expenses Inventories 232 Trade and other receivables 59 mln RUB 2019 2018 Cash and cash equivalents 5 Wages and salaries 5,459 5,168 Non-current liabilities Services 1,178 1,018 Deferred tax liability (33) Overhead expenses on finished projects 1,001 867 Current liabilities Social expenditure 534 807 Trade and other payables (153) Taxes other than profit tax 520 447 Net identifiable assets, liabilities and contingent liabilities to be disposed Depreciation and amortisation 182 235 (including goodwill) 1,021 Materials 109 143 Excess of book values of net assets sold over consideration received (421) Insurance 14 24 Consideration 600 Other administrative expenses 574 683 Cash and cash equivalents to be disposed (5) 9,571 9,392 Net consideration inflow 595

In April 2018 the Group sold 100.00% shares LLC “DSK-Progress (before March 2018 was known as ООО “LSR.Stroitelstvo-M”), including its 59.11% share in OAO “Zavod ZhBI-6”, to a third party and lost control over subsidiaries. The companies are engaged in construction activities in Moscow and Moscow region. 44 45 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

8 Other income and expenses 10 Finance income and finance costs

mln RUB 2019 2018 mln RUB 2019 2018 Other income: Recognised in profit or loss Gain on disposal of property, plant and equipment 187 57 Finance income Negative goodwill recognized as gain 81 - Interest income 3,267 2,297 Gain on disposal of other assets - 58 Unwind of discount 143 171 Other income 547 16 Gain from write-off financial liabilities / recovery of financial assets 76 6 Total other income 815 131 Foreign exchange gain 11 169 Other expenses: Interest income (significant financing component) - 112 Loss on disposal of other assets (28) - 3,497 2,755 Loss on disposal of subsidiaries (6) (258) Other expenses (653) - Finance costs Interest expense (6,471) (5,113) Total other expenses (687) (258) Interest expense (significant financing component) (2,064) (1,120) Net other income / (expenses) 128 (127) Change in allowance recognised for doubtful debts (639) (188) Foreign exchange loss (142) (36) 9 Total personnel costs Unwind of discount (2) (4) mln RUB 2019 2018 Other finance costs (1) (5) Wages and salaries: (9,319) (6,466) Cost of sales 5,696 6,664 Net finance costs recognised in profit or loss (5,822) (3,711) Administrative expenses 5,459 5,168 Distribution expenses 241 269 Recognised in other comprehensive income 11,396 12,101 Finance (costs) / income Foreign currency translation differences for foreign operations (80) 520 Finance (costs) / income recognised in other comprehensive income, net of tax (80) 520 Attributable to: Equity holders of the Company (80) 520

In addition to borrowing costs recognised as an expense during the year ended 31 December 2019, interest in the amount of RUB 1,363 million (31 December 2018: RUB 1,843 million) has been capitalized using a capitalization rate of 8.81% (31 December 2018: 8.91%) as part of the objects under construction. In addition to interest expense (significant financing component), recognized as finance costs during the year ended 31 December 2019, interest expense in the amount of RUB 696 million (31 December 2018: RUB 908 million) has been capitalized as part of the objects under construction. In addition to unwind of discount on long-term payables for land plots and lease rights, recognized as finance costs during the year ended 31 December 2019, unwind of discount in the amount of RUB 1,257 million (31 December 2018: RUB 1,455 million) has been capitalized as part of the objects under construction.

46 47 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

11 Income tax expense Revenue segregated by product type is presented below:

mln RUB 2019 2018 mln RUB 2019 2018 Sand 1,521 2,277 Current tax expense Crushed Granite 3,274 3,130 Current year 5,653 4,163 Ready-mix Concrete 4,190 3,938 Deferred tax expense Brick 2,984 2,853 Aerated Concrete 3,941 3,538 Origination and reversal of temporary differences (2,320) 694 Reinforced Concrete 362 1,427 Income tax expense 3,333 4,857 Tower crane services 959 885 Sales of Residential Property and Construction services The majority of the Group activities are taxed in Russia at a corporate income tax rate of 20.00% provision 81,405 118,100 (2018: 20.00%). Project management 5,534 5,151 Reconciliation of effective tax rate: Other 6,268 5,077 Total consolidated revenue 110,438 146,376 2019 2018 mln RUB % mln RUB % Profit for the year 7,469 70 16,230 77 The following table provides information about receivables, contract assets and contract liabilities from contracts with customers. Income tax expense 3,333 30 4,857 23 mln RUB 31 December 2019 31 December 2018 Profit before income tax 10,802 100 21,087 100 Receivables, which are included in “trade receivables” 8,739 9,754 Income tax at applicable tax rate 2,160 (20) 4,217 (20) Contract assets 4,057 4,495 Non-taxable income (62) 1 (464) 2 Contract liabilities (49,226) (43,063) Non-deductible expenses 1,235 (11) 1,171 (6) The contract assets relate to the Group’s right for consideration for work completed but not billed at Tax incentives - - (67) 0 the reporting date on share participation agreements and construction contracts. The contract assets are Total income tax expense for the year 3,333 (30) 4,857 (24) transferred to receivables when the rights become unconditional. The contract liabilities primarily relate to the advance consideration received from customers under participant agreements. For breakdown of contract liabilities by type of contracts, see note 24. 12 Revenue Significant changes in the assets and liabilities balances during the year are as follows: The following table provides a breakdown of the Group’s revenue based on timing of satisfaction of its performance obligations – over time or at the point in time. 31 December 2019 31 December 2018 Liabilities mln RUB 2019 2018 Assets under under the Liabilities the contracts contracts Revenue recognized over time under share participation Assets under under the recognized recognized agreements (refer to note 3 (o) (i)) 66,432 95,307 mln RUB the contracts contracts over time over time Increase due to cash received, excluding Revenue recognized over time under long-term construction contracts (refer to note 3 (o) (ii) and (iii)) 5,607 6,475 amount recognized as revenue during the year 261 26,945 819 31,064 Revenue recognized that was included in the Revenue recognized over time under automated services contract liability balance at the beginning of contracts, (refer to note 3 (o) (ii)) 786 724 the year - 28,049 - 45,719 72,825 102,506 Total revenue recognised over time The remaining aggregate amount of the transaction price allocated to the performance obligations Total revenue recognized at a point in time 37,613 43,870 under share participation agreements that are unsatisfied or partially unsatisfied as of the end of the Total revenue 110,438 146,376 reporting period and are expected to be recognized within the next two to three years equals to RUB 54,566 million.

The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

48 49 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

13 Property, plant and equipment During the year ended 31 December 2019 depreciation expense of RUB 1,645 million has been charged in cost of goods sold (2018: RUB 2,118 million), RUB 58 million in distribution expenses Machinery Transpor- Land and and tation Other fixed Assets under (2018: RUB 60 million) and RUB 179 million in administrative expenses (2018: RUB 205 million). mln RUB buildings equipment equipment assets construction Total Cost/Deemed cost (a) Impairment At 1 January 2018 25,841 19,477 3,911 1,930 515 51,674 Property, plant and equipment were tested for impairment; the basis for impairment is disclosed in Additions 78 347 93 102 357 977 Disposals (414) (711) (279) (953) (58) (2,415) note 14. Business disposals (1,262) (2,755) (154) (77) (10) (4,258) Reclassifications to (b) Security inventories (682) (1) - - - (683) Properties with a carrying amount of RUB 5,787 million are subject to a registered debenture to secure Transfers and reclassifications 13 65 (12) 2 (68) - bank loans (31 December 2018: RUB 6,096 million) (refer to note 22). Effect of movements in Properties with a carrying amount of RUB 43 million are pledged to secure payments under the exchange rates 194 148 14 3 14 373 purchase contracts with payments by instalments. (31 December 2018: RUB 64 million). At 31 December 2018 23,768 16,570 3,573 1,007 750 45,668

At 1 January 2019 23,768 16,570 3,573 1,007 750 45,668 (c) Leased plant and machinery Acquisitions through The Group leases production equipment under a number of finance lease agreements. At the end of business combinations 573 470 9 4 1 1,057 each of the leases the Group has the option to purchase the equipment at a beneficial price. Additions 107 356 99 58 216 836 At 31 December 2019 the net book value of leased plant and machinery was RUB 7 million Disposals (123) (346) (118) (28) (6) (621) Business disposals (737) (477) (29) (15) (32) (1,290) (31 December 2018: RUB 14 million). Reclassifications to inventories (5) - - - - (5) Transfers and reclassifications 47 156 1 (8) (196) - Effect of movements in exchange rates (20) 36 4 1 6 27 At 31 December 2019 23,610 16,765 3,539 1,019 739 45,672 Depreciation and impairment losses At 1 January 2018 (6,163) (13,434) (3,044) (753) - (23,394) Depreciation charge (761) (1,217) (235) (172) - (2,385) Disposals 261 617 203 56 - 1,137 Business disposals 573 2,028 127 72 - 2,800 Reclassifications to inventories 168 1 - - - 169 Transfers and reclassifications (1) (16) 17 - - - Effect of movements in exchange rates (44) (76) (7) (1) - (128) At 31 December 2018 (5,967) (12,097) (2,939) (798) - (21,801)

At 1 January 2019 (5,967) (12,097) (2,939) (798) - (21,801) Depreciation charge (725) (916) (170) (72) - (1,883) Disposals 50 306 110 25 - 491 Business disposals 86 422 29 15 - 552 Transfers and reclassifications (9) 5 - 4 - - Effect of movements in exchange rates (10) (20) (2) - - (32) At 31 December 2019 (6,575) (12,300) (2,972) (826) - (22,673)

Net book value At 1 January 2018 19,678 6,043 867 1,177 515 28,280 At 31 December 2018 17,801 4,473 634 209 750 23,867 At 31 December 2019 17,035 4,465 567 193 739 22,999

50 51 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

14 Intangible assets (a) Impairment testing of goodwill, other intangible assets and property, plant and equipment mln RUB Goodwill Other Total Goodwill is allocated to the Group’s entities or business units when appropriate. For the purpose of impairment testing these units represent the lowest level within the Cost Group at which the goodwill is monitored for internal management purposes. Balance at 1 January 2018 3,728 1,208 4,936 Additions - 4 4 The aggregate carrying amounts of goodwill allocated to each entity or business unit (BU) and the related impairment losses recognised are as follows: Disposals - (84) (84) 31 December 2019 31 December 2018 Business disposals (156) (309) (465) Entity / Business Unit Allocated Impairment Allocated Impairment Effect of movements in exchange rates - 1 1 mln RUB Operating Segment goodwill losses Net book value goodwill losses Net book value Balance at 31 December 2018 3,572 820 4,392 BU LSR. Wall Materials (Aerated Concrete) Building Materials 819 (164) 655 819 (164) 655 MHG Munich Balance at 1 January 2019 3,572 820 4,392 Hoteldevelopment Group Real Estate and Additions - 40 40 GmbH Construction - - - 50 - 50 Disposals - (58) (58) JOINT-STOCK COMPANY Business disposals (50) - (50) “CONSTRUCTION PJSC LSR Group CORPORATION “REVIVAL Real Estate and Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Balance at 31 December 2019 3,522 802 4,324 OF SAINT-PETERSBURG” Construction 23 (23) - 23 (23) - Real Estate and Amortisation and impairment losses LSR.Construction-Urals Ltd Construction 736 - 736 736 - 736 AO “Spetsializirovanny Balance at 1 January 2018 (281) (393) (674) (a) Impairment testing of goodwill, other intangible assets and property, plant and equipment zastroishchik Real Estate and Amortisation charge - (45) (45) Goodwill“LSR.Nedvizimost is allocated-Ural” to the Group Construction’s entities or business units when appropriate1,277 . For the purpose- of impairment1,277 testing these units1,277 represent the lowest- level withi1,277n the Disposals - 66 66 BUGroup LSR.Basic at which Materials the goodwill is Building monitored Materials for internal management purposes.155 - 155 155 - 155 Business disposals 117 259 376 BU LSR. Wall Materials The(Brick) aggregate carrying amounts Building of goodwill Materials allocated to each entity or512 business unit (BU) and- the related impairment512 losses recognised512 are as follows:- 512 Impairment losses during the year (23) - (23) 3,522 (187) 3,335 3,572 (187) 3,385 Balance at 31 December 2018 (187) (113) (300) 31 December 2019 31 December 2018

Entity / Business Unit Allocated Impairment Allocated Impairment Balance at 1 January 2019 (187) (113) (300) mln RUB Operating Segment goodwill losses Net book value goodwill losses Net book value Amortisation charge - (17) (17) BU LSR. Wall Materials (Aerated Concrete) Building Materials 819 (164) 655 819 (164) 655 Disposals - 9 9 MHG Munich Balance at 31 December 2019 (187) (121) (308) Hoteldevelopment Group Real Estate and GmbH Construction - - - 50 - 50 Net book value JOINT-STOCK COMPANY At 1 January 2018 3,447 815 4,262 “CONSTRUCTION CORPORATION “REVIVAL Real Estate and At 31 December 2018 3,385 707 4,092 53 OF SAINT-PETERSBURG” Construction 23 (23) - 23 (23) - At 31 December 2019 3,335 681 4,016 Real Estate and LSR.Construction-Urals Ltd Construction 736 - 736 736 - 736 AO “Spetsializirovanny Other intangible assets mainly include licences for extraction of sand and crushed granite in Leningrad zastroishchik Real Estate and region. “LSR.Nedvizimost-Ural” Construction 1,277 - 1,277 1,277 - 1,277 BU LSR.Basic Materials Building Materials 155 - 155 155 - 155 BU LSR. Wall Materials (Brick) Building Materials 512 - 512 512 - 512 3,522 (187) 3,335 3,572 (187) 3,385

52 53 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

Impairment review was conducted by the Group as at 31 December 2019. 15 Other investments The following key assumptions were used in determining the recoverable amounts of the respective mln RUB 31 December 2019 31 December 2018 companies as at 31 December 2019 and have not significantly changed compared to those that were Non-current used as at 31 December 2018. Investments at amortised cost: The cash flow projections and budgeted results were updated to take into consideration current Stated at cost 27 28 economic circumstances. Originated loans 466 927 Segment “Building Materials”: 493 955  Cash flows were projected based on budgeted operating results for 2020 and three-six years Current business plans; Originated loans 865 1,330  Cash flows for further years were extrapolated assuming 2.00% further growth in production; 865 1,330  Pre-tax discount rate of 14.50% was applied in determining the recoverable amount of the The Group’s exposure to credit, currency and interest rate risks related to other investments is plants. The discount rate was estimated based on the Group weighted average cost of capital, disclosed in note 25. which was based on a possible range of debt leveraging of 48.54% at a market interest rate of 12.76% p.a. and an industry average beta-coefficient. 16 Deferred tax assets and liabilities Segment “Real Estate and Construction”:  Cash flows were projected based on budgeted operating results for 2020 and five years business (a) Recognised deferred tax assets and liabilities plans; Deferred tax assets and liabilities are attributable to the following items:  Plan for 2020 is prepared based on the actual contract portfolio and the actual prices; Assets Liabilities Net 31 December 31 December 31 December 31 December 31 December 31 December  Cash flows for further years were assuming 2.00% further growth in production; mln RUB 2019 2018 2019 2018 2019 2018  Pre-tax discount rate of 19.55% was applied in determining the recoverable amount of the Property, plant and plants. The discount rate was estimated based on the Group weighted average cost of capital, equipment (256) (256) 825 679 569 423 which was based on a possible range of debt leveraging of 50.07% at a market interest rate of Intangible assets (3) (10) 36 38 33 28 10.56% p.a. and an industry average beta-coefficient. Inventories (15,354) (16,683) 942 703 (14,412) (15,980) The values assigned to the key assumptions represent management’s assessment of future trends in Contract assets, trade and the construction, development and construction materials production industry and are based on other receivables (445) (188) 452 330 7 142 both external sources and internal sources. Contract liabilities, trade and other payables (179) (164) 15,750 19,264 15,571 19,100 No impairment loss was recognised in respect of goodwill allocated to the entities and business Tax loss carry-forwards (2,494) (2,258) - - (2,494) (2,258) units above and other non-financial assets, as the impairment test demonstrates that for these entities and business units’ values in use are significantly higher than carrying amounts in Tax (assets)/liabilities (18,731) (19,559) 18,005 21,014 (726) 1,455 aggregate and individually. Set off of tax 15,632 16,697 (15,632) (16,697) - -

The estimates made for goodwill impairment test are sensitive in the following area: Net tax (assets)/liabilities (3,099) (2,862) 2,373 4,317 (726) 1,455  A 10.00% decrease in undiscounted net cash inflows would have caused the impairment loss in Deferred tax assets on tax losses carry-forwards recognised as at 31 December 2019 represent tax respect of the following entities/BU: effect of accumulated unused tax losses recoverable by the future taxable profit. In assessing recoverability of deferred tax assets on tax losses carry-forward the Group applied the same input Entity / Business unit mln RUB data and assumptions as it used for impairment testing of goodwill and property, plant and equipment (refer to note 14). The major part of those tax losses relates to operating segments LSR.Construction-Urals Ltd 73 “Building Materials” and “Other”. BU “LSR. Wall Materials” 9 An increase of one percentage point in the discount rate have not caused the impairment loss for all entities/BU.

54 55 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

(b) Movement in temporary differences during the year 17 Inventories Effect of mln RUB 31 December 2019 31 December 2018 Recognised movements 1 January in profit or Acquired/ in exchange 31 December Work in progress, construction of buildings 84,622 89,984 mln RUB 2019 loss disposed rate 2019 Finished goods, construction of buildings 26,574 21,045 Property, plant and equipment 423 32 111 3 569 Lease rights 14,674 16,750 Intangible assets 28 5 - - 33 Social infrastructure 5,126 3,540 Inventories (15,980) 1,568 - - (14,412) Raw materials and consumables 2,441 3,113 Contract assets, trade and other Finished goods and goods for resale 2,157 2,670 receivables 142 (137) 2 - 7 Work in progress 1,130 945 Contract liabilities, trade and 136,724 138,047 other payables 19,100 (3,529) - - 15,571 Less: allowance for obsolete inventory (510) (687) Tax loss carry-forwards (2,258) (259) 23 - (2,494) 136,214 137,360 1,455 (2,320) 136 3 (726) Work in progress, construction of buildings represents the expenditure incurred during the construction of buildings before they are put into operation. The expenditure is financed by Effect of liabilities under share participation agreements (refer to note 24), loans and borrowings (refer to Recognised movements note 22), and profits of the developer. 1 January in profit or Acquired/ in exchange 31 December mln RUB 2018 loss disposed rate 2018 Work in progress, construction of buildings with a carrying amount of RUB 61,537 million are expected to be completed in more than 12 months from the reporting date (31 December 2018: Property, plant and equipment 400 (123) 146 - 423 RUB 65,113 million). Intangible assets 42 (10) (4) - 28 Lease rights represent assets under land lease contracts (refer to note 2(e)) and the amount paid to Inventories (16,267) 415 (128) - (15,980) obtain the right of development of land plot which are capitalized into the cost of object upon Contract assets, trade and other completion of development. Lease rights are recognized at the present value of future cash receivables 595 (483) 30 - 142 outflows (refer to note 24). Loans and borrowings (16) 16 - - - Significant financing component, related to the real estate contracts under share participation Contract liabilities, trade and agreements, with a carrying amount of RUB 1,343 million was capitalized as a part of work in other payables 17,988 1,092 20 - 19,100 progress, construction of buildings (31 December 2018: RUB 1,020 million). Tax loss carry-forwards (2,246) (213) 204 (3) (2,258) Inventories with a carrying amount of RUB 1,530 million are subject to a registered debenture to 496 694 268 (3) 1,455 secure bank loans (31 December 2018: RUB 4,627 million) (refer to note 22).

(c) Unrecognised deferred tax assets Social infrastructure represents the amount of expected costs for the social infrastructure objects’ construction. Deferred tax assets have not been recognised in respect of the following items: The following is movement in the allowance for obsolete inventory: mln RUB 31 December 2019 31 December 2018 Tax losses - 252 mln RUB 2019 2018 Deductible temporary differences on intercompany sales of Balance at 1 January 687 629 investments - 84 Change in the allowance for obsolete inventory (177) 58 Total deferred tax assets have not been recognised - 336 Balance at 31 December 510 687

The deductible temporary differences do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that the Group As at 31 December 2019 the net realizable value testing resulted in an amount which was less than will sell investments in the foreseeable future and can utilize the benefits therefrom. the carrying amount by RUB 510 million (31 December 2018: RUB 687 million) and the respective allowance was recognized in cost of sales. As at 31 December 2019 major part of the allowance of RUB 461 million (31 December 2018: RUB 637 million) relates to finished goods and goods for resale.

56 57 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

The impairment allowance was made based on the following key assumptions: Cash on escrow accounts  Cash inflows were projected as total of contracted revenue and forecasted revenue determined The cash on escrow accounts, which are not reflected in the Consolidated Statement of financial based on current prices or prices of objects considered analogues; position of the Group, represent funds, received by authorized bank from the real estate buyers as  Cash outflows include costs accumulated to date and budgeted costs to finish the construction. the settlement of the share participation agreements’ price. In accordance with the changes in the Federal Law №214-FZ that has come in effect as at 1 July 2019, the financing received by the developer from the customers under share participation 18 Contract assets, trade and other receivables agreements is received to the authorized bank accounts. The developer has no longer access to these funds but can obtain bank loans that are secured by those funds at the lower interest rates. mln RUB 31 December 2019 31 December 2018 The access to these funds is obtained only upon the corresponding constructions’ completion. The Non-current developer reflects those funds off balance and states for information within cash on escrow Accounts receivable - trade 504 1,093 accounts. Notes receivable on disposals of subsidiaries - 70 The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and 504 1,163 liabilities are disclosed in note 25. Current The Group’s ability to use funds on current accounts is not restricted by the covenant disclosed in Prepayments to suppliers 15,456 16,152 note 22. Receivables under share participation agreements 5,655 5,479 Assets under share participation agreements 3,077 3,781 20 Equity Accounts receivable – trade 2,580 3,182 Assets under construction contracts 980 714 (a) Share capital Notes receivable 228 432 Number of shares unless otherwise stated Ordinary shares VAT receivable 221 698 31 December 2018 Income tax receivable 142 206 31 December 2019 (as recalculated) Current receivables on disposals of subsidiaries / shares 66 79 Par value RUB 0.25 RUB 0.25 Deferred expenses 63 62 On issue at beginning of the year 100,200,773 103,030,215 Employee receivables 1 3 On issue at end of the year, fully paid 100,200,773 100,200,773 Other receivables 2,377 1,761 The holders of ordinary shares are entitled to receive dividends which can be declared from time to 30,846 32,549 time and are entitled to one vote per share at meetings of the Company. Provision for doubtful debtors (877) (456) 29,969 32,093 (b) Treasury share reserve The Group’s exposure to credit and currency risks and impairment losses related to trade and other The reserve for the Company’s treasury shares comprises the cost of the Company’s shares held by receivables (excluding construction work in progress) are disclosed in note 25. the Company. At the reporting date the Company held 2,829,442 of its own shares (31 December 2018: 2,829,442). 19 Cash and cash equivalents (c) Dividends mln RUB 31 December 2019 31 December 2018 In accordance with Russian legislation the Company’s distributable reserves are limited to the balance of retained earnings as recorded in the Company’s statutory financial statements prepared Petty cash 2 2 in accordance with Russian Accounting Standards. As at 31 December 2019 the Company had Current accounts 62,616 54,445 unaudited retained earnings, including the profit for the current period, of RUB 16,188 million (as Call deposits 4,066 1,351 at 31 December 2018: RUB 16,575 million). Cash and cash equivalents in the consolidated statement of In June 2019 the Company declared dividends in the amount of RUB 8,036 million at value financial position and consolidated statement of cash flows 66,684 55,798 RUB 78.00 per share for financial year ended 31 December 2018. The dividends were paid in full Cash on escrow accounts 175 - in August 2019. Cash and cash equivalents including cash on escrow accounts 66,859 55,798

58 59 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

21 Earnings per share Changes in liabilities arising from financing activities were as follows:

The calculation of earnings per share is based on profit attributable to the shareholders of the 1 January Changes from financing activities Other 31 December Company divided by the weighted average number of ordinary shares outstanding during the year, mln RUB 2019 Received Paid movements 2019 refer to note 20 (a). The Company has no dilutive potential ordinary shares. Bank and other loans 71,083 81,972 (88,708) (1,731) 62,616 15,000 13,000 (1,000) 27,000 2019 2018 Bond issued - 86,083 94,972 (89,708) 89,616 Issued shares at 1 January 100,200,773 103,030,215 (1,731) Effect of own shares (held) / sold - (1,187,001)

Weighted average number of shares for the year ended 1 January Changes from financing activities Other 31 December 31 December 100,200,773 101,843,214 mln RUB 2018 Received Paid movements 2018 Bank and other loans 57,737 105,932 (92,702) 116 71,083 Bond issued 15,000 - - - 15,000 22 Loans and borrowings 72,737 105,932 (92,702) 116 86,083 This note provides information about the contractual terms of the Group’s loans and borrowings. For more information about the Group’s exposure to interest rate and foreign currency risk, refer to Other movements represent bank and other loans of disposed subsidiaries and exchange note 25. differences.

mln RUB 31 December 2019 31 December 2018 Covenants and other matters Non-current The Credit Agreements require the Group to comply with certain general, informational and Secured bank loans 16,487 30,872 financial covenants, including: Unsecured bank loans 40,449 29,880  a limitation on the Group’s ability to incur additional debt beyond certain financial ratios; Unsecured bond issues 23,000 14,000  maintaining by the Group’s of some of financial coefficients on a fixed level; Lease liabilities 1 3  subject to certain exceptions, a prohibition restricting the Group ability to issue significant 79,937 74,755 borrowings, provide guarantees or indemnities to the third party; Current  an obligation to provide to the Banks with such financial and other information, the Banks may Secured bank loans 5,680 3,131 reasonably require in relation to the loan contracts, including the Group’s annual audited and Unsecured bank loans - 7,200 unaudited consolidated financial statements, prepared in accordance with IFRS. Unsecured bond issues 4,000 1,000 Credit arrangements for unsecured bank loans of RUB 18,148 million (31 December 2018: Lease liabilities 2 2 RUB 22,650 million) require Group to keep the ratio of bank account opened in the bank-lender to loan principal at no less than one. 9,682 11,333 Terms and debt repayment schedule The Group complies with covenants described above. Terms and conditions of outstanding loans were as follows: Bank loans are secured by the following: 31 December 2019 31 December 2018  Property, plant and equipment with a carrying amount of RUB 5,787 million is pledged as collateral to secure bank loans (31 December 2018: RUB 6,096 million) – refer to note 13(b). Cur- Nominal Year of Face Carrying Face Carrying mln RUB rency interest rate maturity value amount value amount  Inventories with a carrying amount of RUB 1,530 million are pledged as collateral to secure bank loans (31 December 2018: RUB 4,627 million) – refer to note 17. Secured RUB 8.13% - 10.00% 2020 - 2023 22,167 22,167 32,272 32,272 facility EUR 2.15% - 3.00% 2019 - - 1,731 1,731 The lease liabilities are secured by the leased assets (refer to note 13(c)). Unsecured Bank loans are secured by the pledge of the following shares in subsidiary companies as at facility RUB 6.50% - 10.75% 2021 - 2024 67,449 67,449 52,080 52,080 31 December 2019: Lease  100.00% JOINT-STOCK COMPANY “CONSTRUCTION CORPORATION “REVIVAL OF liabilities RUB 16.02% 2020 - 2021 3 3 5 5 SAINT PETERSBURG”; 89,619 89,619 86,088 86,088  100.00% of LSR. Wall Materials Ltd.

60 61 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

23 Provisions (a) Site finishing Provision The Group records provisions in respect of the Group’s obligation to incur additional costs Environ- for social including costs associated with cleaning up the surrounding area after finishing the construction of Site ment Warranty Litigation infra- apartment buildings in Saint Petersburg, Moscow and Yekaterinburg. mln RUB finishing restoration provision provision structure Total Current (b) Environment restoration Balance at 1 January 2019 348 24 8 38 3,540 3,958 The Group records provisions in respect of the Group’s obligation to clean up the surrounding area Provisions made during the year 1,153 - - 135 2,158 3,446 after quarrying sand in water and forested areas. The damage caused during quarrying is cleaned up Provisions used during the year (1,263) (4) - (10) (688) (1,965) after quarrying is completed. The amount of provision is estimated based on the available Unused provisions (52) - - (106) - (158) information. The Group expects the resulting outflow of economic benefits over the next five years. Unwind of discount - - - - 262 262 (c) Warranty provision Reclassification to non-current provisions - - - - (385) (385) The provision for warranties relates mainly to the residential units sold as at the date of reporting. Disposals of subsidiaries - - (7) - - (7) The provision is based on estimates made from historical warranty data associated with similar Exchange differences - - (1) - - (1) products and services and is required under the German legislation. Balance at 31 December 2019 186 20 - 57 4,887 5,150 (d) Provision for unprofitable contracts

Provisions for unprofitable contracts are recognized when costs to complete or terminate the contracts exceed the expected economic benefits. Non-current Balance at 1 January 2019 - 81 - - - 81 (e) Litigation provision Provisions made during the year - 10 - - - 10 The Group recognises provision on legal obligations that can be estimated reliably, and it is Provisions reclassified based on probable that an outflow of economic benefits will be required to settle the obligation. terms during the year - - - - 385 385 Balance at 31 December 2019 - 91 - - 385 476 (f) Provision for social infrastructure The Group records provisions in respect of the Group’s obligation to construct social infrastructure that is necessary for the apartment buildings’ tenants. Environ- Provision Provision ment for unpro- for social Site restora- Warranty fitable Litigation infra- mln RUB finishing tion provision contracts provision structure Total Current Balance at 1 January 2018 1,194 33 26 7 82 - 1,342 Provisions made during the year 349 - 4 - 67 3,540 3,960 Provisions used during the year (1,079) (9) (25) (6) (28) - (1,147) Unused provisions (116) - - (1) (82) - (199) Disposals of subsidiaries - - - - (1) - (1) Exchange differences - - 3 - - - 3

Balance at 31 December 2018 348 24 8 - 38 3,540 3,958

Non-current Balance at 1 January 2018 - 60 - - - - 60 Provisions made during the year - 21 - - - - 21 Balance at 31 December 2018 - 81 - - - - 81

62 63 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

24 Contract liabilities, trade and other payables Risk management framework mln RUB 31 December 2019 31 December 2018 The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established an Audit Committee, which is Non-current payables responsible for developing and monitoring the Group’s risk management policies. The Audit Accounts payable – trade 1,373 6,539 Committee reports regularly to the Board of Directors on its activities. Liabilities under lease contracts 1,802 - The Group’s risk management policies are established to identify and analyse the risks faced by the Taxes and other payables to the budget - 2,274 Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk 3,175 8,813 management policies and systems are reviewed regularly to reflect changes in market conditions Current payables and the Group’s activities. The Group, through its training and management standards and Contract liabilities under share participation agreements procedures, aims to develop a disciplined and constructive control environment in which all recognized over time 47,160 39,824 employees understand their roles and obligations. Accounts payable – trade 25,461 22,580 The Group Audit Committee oversees how management monitors compliance with the Group’s Advances from customers under other contracts 2,064 1,944 risk management policies and procedures, and reviews the adequacy of the risk management Taxes and other payables to the budget 1,380 3,501 framework in relation to the risks faced by the Group. The Group Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk Employee-related liabilities 1,167 1,153 management controls and procedures, the results of which are reported to the Audit Committee. Liabilities under lease contracts 988 - Income tax payable 529 308 (b) Credit risk Interest payable 285 336 Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial Liabilities under construction contracts 2 1,295 instrument fails to meet its contractual obligations, and arises principally from the Group’s Other payables 1,104 969 receivables from customers. 80,140 71,910 99% of the Group’s cash and cash equivalents are hold in the top rated banks, that are included in Trade payables include payables for land plots and lease rights to be repaid in instalments. Payables the list of Russia’s key financial institutions. The most significant cash balances are deposited in for land plots are discounted at rates 11.20% and 10.80%, payables for lease rights are discounted JSC Rosselkhozbank and PJSC Sberbank. at rate 10.70%. Credit Rating JSC Rosselkhozbank by Fitch is: Long Term Foreign Currency Issuer Default The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed Ratings (IDR) BBB-, Local Currency Long Term IDR BBB-. Credit Rating PJSC Sberbank is: in note 25. Long Term Foreign Currency IDR BBB, Local Currency Long Term IDR BBB.

(i) Contract assets, trade and other receivables 25 Financial risk management Trade receivables from the largest five debtors of the Group represents approximately RUB 1,808 million (31 December 2018: RUB 2,264 million) of the Group’s total Trade (a) Overview receivables. Geographically there is concentration of credit risk as the most significant part of The Group has exposure to the following risks from its use of financial instruments: Group’s operations is located in Russia.  credit risk; The Group has established a credit policy under which each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms are offered. The  liquidity risk; Group’s review includes external ratings, when available, and in some cases bank references.  market risk; Purchase limits are established for each customer, which represents the maximum open amount without requiring approval from the Managing Directors; these limits are reviewed quarterly.  operational risk. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group This note presents information about the Group’s exposure to each of the above risks, the Group’s on a prepayment basis. objectives, policies and processes for measuring and managing risk, and the Group’s management Most of the Group’s customers in the “Building Materials” operating segment have been of capital. Further quantitative disclosures are included throughout this consolidated financial transacting with the Group for over four years, and losses have occurred infrequently. The Group’s statement. exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Group does not have a unified policy for management of credit risk in place. Due to significant differences in operations at different business units specific credit policies are developed at the level of operational companies. Each of the operating companies has established procedures in place to review and collect outstanding receivables. New customers, as well as customers with

64 65 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

significant outstanding and overdue balances are reviewed on a regular basis and resulting actions are put in place. All companies involved in the extraction and production of building materials have The ageing of trade receivables at the reporting date was: in place credit control procedures which require them to cancel despatching goods in case of the Gross Impairment Gross Impairment absence of a signed contract, previous fail to pay or previous violations of contract conditions. Also mln RUB 31 December 2019 31 December 2019 31 December 2018 31 December 2018 certain limits for the accounts receivable are established for particular customers. Not past due 2,621 - 3,649 - “Real Estate Development and Construction” operating segment the Group is not exposed to Past due 0-30 days 262 - 226 - significant credit risk as most customers are individuals and legal title on premises sold under share Past due 31-60 days 91 (19) 89 - participation agreements is transferred to the customers upon full payment. Past due 61-90 days 43 (2) 31 - The Group establishes an allowance for impairment that represents its estimate of incurred losses in Past due more than 90 days 67 (13) 280 (52) respect of contract assets, trade and other receivables and investments. This allowance represents a 3,084 (34) 4,275 (52) specific loss component that relates to individually significant exposures. The movement in the allowance for impairment in respect of trade receivables during the year was (ii) Investments as follows:

The Group does not invest any of its assets in traded securities. The Group limits its exposure to mln RUB 2019 2018 credit risk by investing in credit notes of trade counterparties (customers and suppliers of the Group) that have an appropriate reputation in the market. Management does not consider that any Balance at 1 January (52) (59) of the counterparties may not perform their obligations. Impairment reversal 18 7 Balance at 31 December (34) (52) (iii) Guarantees As at 31 December 2019 guarantees made to third parties were RUB 922 million The impairment loss at 31 December 2019 relates to several customers that have indicated that they (31 December 2018: nil). are not expecting to be able to pay their outstanding balances, mainly due to economic circumstances. The Group believes that the unimpaired amounts that are past due by more than Exposure to credit risk 30 days are still collectible, based on historic payment behaviour and internal analysis on the underlying customers’ credit ratings. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: The following table provides information about the exposure to credit risk and ECLs for trade receivables and contract assets for customers as at 31 December 2019. mln RUB Carrying amount 31 December 2019 31 December 2018 Equivalent to external credit rating (Agency Gross carrying Impairment loss Credit- Financial assets at amortised cost 27 28 mln RUB Moody's) amount allowance impaired Loans and receivables 13,406 14,774 Grades 1–6: Low risk Baa3- to Aaa 1,983 - No Cash and cash equivalents 66,684 55,798 Grades 7–9: Fair risk Ba3 to Ba1 11,423 - No 80,117 70,600 Grade 12: Loss D 289 (289) Yes 13,695 (289) The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:

mln RUB Carrying amount The movement in the allowance for impairment in respect of contract assets, advances paid and 31 December 2019 31 December 2018 other receivables during the year was as follows: Domestic 3,017 4,147 mln RUB 2019 2018 Euro-zone countries 2 49 Balance at 1 January (404) (369) Other CIS countries 31 27 Impairment loss (439) (35) Balance at 31 December (843) (404) 3,050 4,223

The Group’s most significant trade debtor Limited Liabitily Company “Transport consession (c) Liquidity risk company” accounts for RUB 1,027 million of the trade receivables carrying amount at 31 December 2019 (31 December 2018: St. Petersburg Property Relations Committee RUB 1,253 Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations million). associated with its financial liabilities that are settled by delivering cash or another financial asset. The total amount of impaired trade receivables at the reporting date was RUB 34 million The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have (31 December 2018: RUB 52 million).

66 67 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. 31 December The Group uses cash flow budgets which are prepared for each year and quarter to forecast 2018 Average interest rate potential liquidity deficit and identify sources of covering that deficit. As at 31 December 2019 the Less than Over Group’s undrawn credit facilities amount is RUB 83,266 million (31 December 2018: RUB 48,126 mln RUB Contractual Effective 1 year 1-5 years 5 years Total million). Interest would be payable at the rate of 6.50% to 8.75% for loans in RUB. Secured bank loans: The following are the contractual maturities of financial liabilities, including estimated interest RUB* 8.20% - 10.00% 8.68% 1,400 30,872 - 32,272 payments and excluding the impact of netting agreements. It is not expected that the cash flows EUR* 2.15% - 3.00% 2.29% 1,731 - - 1,731 included in the maturity analysis could occur significantly earlier, or at significantly different Unsecured bank loans: amounts. RUB* 7.50% - 9.35% 8.86% 3,200 22,880 - 26,080 31 December CBR rate + 0.75% -

2019 Average interest rate RUB CBR rate + 1.50% 8.55% 4,000 7,000 - 11,000 Less than Over Unsecured bond issues: mln RUB Contractual Effective 1 year 1-5 years 5 years Total RUB* 9.00% - 10.75% 9.80% 1,000 14,000 - 15,000 Secured bank loans: Lease liabilities RUB* 8.13% - 10.00% 8.61% 5,680 16,487 - 22,167 RUB* 11.81% - 16.02% 15.64% 2 3 - 5 Unsecured bank loans: Trade and other payables - 23,885 6,127 412 30,424 RUB* 6.50% - 9.35% 8.38% - 31,449 - 31,449 Future interest** - 8,353 9,052 231 17,636 CBR rate + 0.75% 43,571 89,934 643 134,148 - CBR rate + RUB 1.50% 7.18% - 9,000 - 9,000 Unsecured bond issues: *Fixed rate RUB* 8.40% - 10.75% 9.12% 4,000 23,000 - 27,000 ** Future interest contains not charged, expected interest. Future interest does not reflect current Lease liabilities payables of the Group. Future interest is calculated based on current credit facilities, which the Group had on 31 December 2018. RUB* 16.02% 16.02% 2 1 - 3 Trade and other payables - 27,838 2,844 331 31,013 (d) Market risk Future interest** - 8,148 9,196 141 17,485 Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates Guarantees*** - 922 - - 922 and equity prices will affect the Group’s income or the value of its holdings of financial 46,590 91,977 472 139,039 instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. *Fixed rate (i) Currency risk ** Future interest contains not charged, expected interest. Future interest does not reflect current payables of the Group. Future interest is calculated based on current credit facilities, which the The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in Group had on 31 December 2019. a currency other than the respective functional currencies of Group entities, primarily the Russian *** Guarantees contain guarantees made to third parties. Guarantees do not reflect current payables Rouble (RUB), but also EUR and Ukrainian Hryvna (UAH). The currencies in which these of the Group. transactions primarily are denominated in EUR and USD. Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the Group, primarily RUB. This provides an economic hedge and no derivatives are entered into.

68 69 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

Exposure to currency risk Fair value sensitivity analysis for fixed rate instruments The Group’s exposure to currency risk was based on the following principal amounts: The Group does not account for any fixed rate financial assets and liabilities at fair value through 31 December 2019 profit or loss and other comprehensive income, and the Group does not designate derivatives mln RUB EUR-denominated USD-denominated (interest rate swaps) as hedging instruments under a fair value hedge accounting model. Therefore Contract assets, trade and other receivables 148 - a change in interest rates at the reporting date would not affect the statement of profit or loss and Contract liabilities, trade and other payables (17) (18) other comprehensive income. Net exposure 131 (18) (e) Fair values versus carrying amounts 31 December 2018 The fair value of unquoted equity investments is discussed in note 4. In other cases management mln RUB EUR-denominated USD-denominated believes that the fair value of its financial assets and liabilities approximates their carrying amounts Contract assets, trade and other receivables 169 3 except for loans. Secured bank loans (1,731) - Contract liabilities, trade and other payables (17) (19) The following table shows the carrying amounts and fair values of financial assets and financial Net exposure (1,579) (16) liabilities, including their levels in the fair value hierarchy. The following significant exchange rates applied during the year: 31 December 2019 Note Carrying Fair value mln RUB amount Level 1 Level 2 Total

31 December 2019 31 December 2018 Financial assets RUB RUB Financial assets at amortised cost 15 27 - 27 27 1 USD equals 61.9057 69.4706 Loans and receivables 13,406 - 13,406 13,406 1 EUR equals 69.3406 79.4605 Cash and cash equivalents 19 66,684 66,684 - 66,684 1 UAH equals 2.6121 2.5071 80,117 66,684 13,433 80,117 Sensitivity analysis Financial liabilities A 10.00% strengthening of RUB against the above currencies would have decreased profit by Secured bank loans 22 (22,167) - (22,296) (22,296) RUB 11 million. A 10.00% weakening of the RUB against the above currencies would have the Unsecured bank loans 22 (40,449) - (40,216) (40,216) equal but opposite effect on the basis that all other variables remain constant. Unsecured bond issues 22 (27,000) (27,603) - (27,603) Trade and other payables 24 (31,013) - (31,013) (31,013) (ii) Interest rate risk Lease liabilities 22 (3) - (3) (3) Changes in interest rates impact primarily loans and borrowings by changing either their fair value (120,632) (27,603) (93,528) (121,131) (fixed rate debt) or their future cash flows (variable rate debt). Management does not have a formal policy of determining how much of the Group’s exposure should be to fixed or variable rates. However, at the time of raising new loans or borrowings management uses its judgment to decide 31 December 2018 Note Carrying Fair value whether it believes that a fixed or variable rate would be more favourable to the Group over the mln RUB amount Level 1 Level 2 Total expected year until maturity. Financial assets Profile Financial assets at amortised cost 15 28 - 28 28 At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments Loans and receivables 14,774 - 14,774 14,774 was: Cash and cash equivalents 19 55,798 55,798 - 55,798 mln RUB Carrying amount 70,600 55,798 14,802 70,600 31 December 2019 31 December 2018 Financial liabilities Fixed rate instruments Secured bank loans 22 (34,003) - (32,698) (32,698) Financial assets 1,358 2,285 Unsecured bank loans 22 (37,080) - (35,682) (35,682) Financial liabilities (80,619) (75,088) Unsecured bond issues 22 (15,000) (14,636) - (14,636) (79,261) (72,803) Trade and other payables 24 (30,424) - (30,424) (30,424) Variable rate instruments Lease liabilities 22 (5) - (5) (5) Financial liabilities (9,000) (11,000) (116,512) (14,636) (98,809) (113,445)

70 71 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

The interest rates used to discount estimated cash flows, where applicable, are based on The Group’s liabilities to adjusted capital ratio at the end of the reporting period were as follows: incremental borrowing rates, available for the Group as at: mln RUB 31 December 2019 31 December 2018 31 December 2019 31 December 2018 Total liabilities 180,933 175,167 Loans and borrowings 8.25% 4.37% - 10.70% Less: cash and cash equivalents (66,684) (55,798) Leases 16.02% 11.81% - 16.02% Net liabilities 114,249 119,369

(f) Operational risk Total equity 83,910 84,353 Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated Net liabilities to capital ratio 1.36 1.42 with the Group’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group’s operations. 26 Leases liabilities The Group’s objective is to manage operational risk so as to balance the avoidance of financial Based on the information currently available, the Group recognized the following amounts at losses and damage to the Group’s reputation with overall cost effectiveness and to avoid control 1 January 2019 and at 31 December 2019: procedures that restrict initiative and creativity. mln RUB Leases liabilities

The primary responsibility for the development and implementation of controls to address Lease payments (less than one year) 1,343 operational risk is assigned to senior management within each business unit. This responsibility is Lease payments (between 1 and 5 years) 3,162 supported by the development of overall Group standards for the management of operational risk in Lease payments (more than 5 years) - the following areas: Total undiscounted lease liabilities as at 1 January 2019 4,505  requirements for appropriate segregation of duties, including the independent authorisation Effect from discounting (658) of the transactions; Leases liabilities as at 1 January 2019 3,847  requirements for the reconciliation and monitoring of the transactions; Current 1,054  compliance with regulatory and other legal requirements; Non-current 2,793  documentation of controls and procedures; Interest accrued 286  requirements for the annual assessments of operational risks faced, and the adequacy of Lease payments, including interest (1,343) controls and procedures to address the risks identified; Total lease liabilities as at 31 December 2019 2,790  requirements for the reporting of operational losses and proposed remedial action;  Current 988 development of contingency plans; Non-current 1,802  training and professional development;  ethical and business standards; Variable lease payments not included in the measurement of lease liabilities (342)  risk mitigation, including insurance where this is effective. Lease payments under short-term leases not included in the measurement of lease

Compliance with Group standards is supported by a programme of annual reviews undertaken by liabilities (1,625) Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit, to which they relate, with summaries submitted to the Audit Committee and senior The Group leases a number of land plots. The leases typically vary from an initial year of four to management of the Group. forty nine years, with an option to renew the lease after that date. The lease payments are mostly expressed as a percentage of cadastral value of the related land plot or are based on rental rates, (g) Capital management determined by authorities, which are not necessarily based on market. The Group has no formal policy for capital management but management seeks to maintain a sufficient capital base for meeting the Group’s operational and strategic needs, and to maintain 27 Commitments confidence of market participants. This is achieved with efficient cash management, constant At 31 December 2019 the Group was committed to purchase property, plant and equipment for monitoring of Group’s revenues and profit, and long-term investment plans mainly financed by the approximately RUB 23 million net of VAT (31 December 2018: RUB 67 million). Group’s operating cash flows. With these measures the Group aims for steady profits growth.

72 73 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

28 Contingencies 29 Related party transactions (a) Insurance (a) Control relationships The insurance industry in the Russian Federation is in a developing state and many forms of insurance protection common in other parts of the world are not yet generally available. The Group The Company is ultimately controlled by Andrey Molchanov. does not have full coverage for its plant facilities, business interruption, or third party liability in respect of property or environmental damage arising from accidents on Group property or relating (b) Transactions with management and close family members to Group operations. Until the Group obtains adequate insurance coverage, there is a risk that the The management and their close family members control 5.30% of the voting shares of the Group. loss or destruction of certain assets could have a material adverse effect on the Group’s operations (31 December 2018: 5.35%). and financial position.

(b) Litigation (i) Management remuneration Existing litigations include a number of small claims relating to purchases from domestic Key management received the following remuneration during the year, which is included in customers. Based on experience in resolving such claims, management believes that they will be personnel costs (refer to note 9): settled without significant cost to the Group. Accordingly, no provision has been made for such mln RUB 31 December 2019 31 December 2018 amounts. Salaries and bonuses 1,291 1,289 (c) Taxation contingencies The taxation system in the Russian Federation continues to evolve and is characterised by frequent (c) Transactions with other related parties changes in legislation, official pronouncements and court decisions, which are sometimes The Group’s other related party transactions are disclosed below: contradictory and subject to varying interpretation by different tax authorities. Taxes are subject to review and investigation by a number of authorities, which have the authority (i) Revenue to impose severe fines, penalties and interest charges. A tax year generally remains open for review by the tax authorities during the three subsequent calendar years. Recent events within the Russian mln RUB Transaction value year ended Outstanding balance Federation suggest that the tax authorities are taking a more assertive and substance-based position 31 December 31 December 31 December 31 December in their interpretation and enforcement of tax legislation. 2019 2018 2019 2018 All these circumstances may create tax risks in the Russian Federation that are substantially more Sale of goods and services provided to: significant than in other countries. Management believes that it has provided adequately for tax Beneficial owner and companies controlled liabilities based on its interpretations of applicable Russian tax legislation, official pronouncements or significantly influenced by or on behalf of and court decisions. However, the interpretations of the tax authorities and courts, especially due to the Group’s ultimate beneficial owner or reform of the supreme courts that are resolving tax disputes, could differ and the effect on these persons acting on their behalf 76 458 6 32 consolidated financial statements, if the authorities were successful in enforcing their Companies significantly influenced by the interpretations, could be significant. Group key management - 7 - - The Group companies entered into transactions involving other Group companies at prices which 76 465 6 32 management believed were consistent with applicable tax law. However, based on the uncertainty of legislation, the tax authorities could take a different position and attempt to assess additional tax All outstanding balances with related parties are to be settled in cash within the 12-month of the and interest. The potential amount of such assessment cannot be reasonably estimated based on the balance sheet date. None of the balances is secured. uncertainty of transfer pricing rules, but could be significant. Management has not made any Other expenses to companies controlled or significantly influenced by or on behalf of the Group’s provision because it believes there will be no outflow of funds relating to any such assessment. ultimate beneficial owners for the year ended 31 December 2019 amounts to RUB 15 million (d) Environmental liabilities (other income for the year ended 31 December 2018: RUB 872 million). Outstanding balance – nil (31 December 2018: nil). The Group is engaged in dredging sand from the sea bed and quarrying sand in the 7 areas. There is no liability to perform any restoration work in relation to the sea bed after the dredging is complete. The Group is engaged in crushed granite production in the 6 areas and extraction of clay in 2 areas. According to existing legislation and the terms of licenses obtained by the Group, there is a liability for the Group to restore these sites when quarrying is complete. In case the planned restoration costs can be identified before the quarrying is completed and the licence is used, the reserve for restoration is recognized. It is planned that quarrying of the remaining 15 areas will be completed after 2023.

74 75 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

(ii) Expenses and capital expenditures (iv) Transactions with shares / promissory notes mln RUB Transaction value year ended Outstanding balance mln RUB Transaction value year ended Outstanding balance 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 2019 2018 2019 2018 2019 2018 2019 2018 Purchase of goods and services from: Purchase of shares / promissory notes from Beneficial owner and companies controlled Beneficial owner and companies controlled or significantly influenced by or on behalf of or significantly influenced by or on behalf of, the Group’s ultimate beneficial owner or the Group’s ultimate beneficial owner or persons acting on their behalf 140 148 - 2 persons acting on their behalf - 400 215 411 Companies significantly influenced by the Group key management - 11 - - - 400 215 411 140 159 - 2

All outstanding balances with related parties are to be settled in cash within the 12-month of the mln RUB Transaction value year ended Outstanding balance balance sheet date. None of the balances are secured. 31 December 31 December 31 December 31 December 2019 2018 2019 2018 (iii) Loans Sale of shares / promissory notes to mln RUB Transaction value year ended Outstanding balance Beneficial owner and companies controlled 31 December 31 December 31 December 31 December or significantly influenced by or on behalf of, 2019 2018 2019 2018 the Group’s ultimate beneficial owner or Loans given (included into other persons acting on their behalf 920 116 - - investments – originated loans category– 920 116 - - refer to note 15): Beneficial owner and companies controlled or significantly influenced by or on behalf of the Group’s ultimate beneficial owner or persons acting on their behalf 1,342 1,956 307 1,485 1,342 1,956 307 1,485

The interest rate on loans given during the year ended 31 December 2019 is 5% (year ended 31 December 2018: 5%).

mln RUB Transaction value year ended Outstanding balance 31 December 31 December 31 December 31 December 2019 2018 2019 2018 Interest receivable (included into other receivables): Beneficial owner and companies controlled or significantly influenced by or on behalf of the Group’s ultimate beneficial owner or persons acting on their behalf 76 28 19 3 Companies significantly influenced by the Group key management - 2 - - 76 30 19 3

76 77 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

30 Subsidiaries 31 Events subsequent to the reporting date Ownership/ Ownership/ voting interest voting interest (a) Financing events Country of 31 December 31 December Entity incorporation 2019 2018 In January 2020 the subsidiaries of the Group fully repaid the loan agreements with JOINT-STOCK COMPANY “CONSTRUCTION JSC Rosselkhozbank with amount RUB 5,000 million. CORPORATION “REVIVAL OF SAINT- PETERSBURG” Russia 100.00% 100.00% (b) Operating events OOO “LSR.Nedvizimost-SZ” Russia 100.00% 100.00% ООО “LSR.Stroitelstvo-SZ” Russia 100.00% 100.00% AO “LSR.Krany-SZ” Russia 100.00% 100.00% There are no events subsequent to the reporting date which are required to be disclosed in the AO “LSR.Nedvizimost-M” Russia 100.00% 100.00% consolidated financial statements. LSR. Wall Materials Ltd Russia 100.00% 100.00% OOO “Leningradka 58” Russia 100.00% 100.00% Limited Liability Company Smolniy District Russia 100.00% 100.00% MHG Munich Hoteldevelopment Group GmbH (LSR Europe GmbH)** Germany - 100.00% S&G Development Partners Objekt Leipzig GmbH & Co KG** Germany - 99.60% Max-Josephs-Hohe Immobilien- und Projektentwicklungs GmbH** Germany - 94.80% Projektgesellschaft Bayerstraße 79 mbH** Germany - 80.00% Aignerstraße Projektentwicklungsgesellschaft mbH** Germany - 100.00% Kirchenstraße Verwaltungs GmbH**** Germany - 100.00% Zu Hause auf Zeit Landshut GmbH** Germany - 100.00% AEROC Investment Deutschland GmbH Germany 100.00% - JSC “A Plus Estate” Russia 100.00% 100.00% AO “Stroicorporatciya” Russia 100.00% 100.00% AO MTO “ARHPROEKT”* Russia 25.00% 25.00% OOO “Velikan - XXI vek” Russia 100.00% 100.00% Lsr Group Ltd Russia 100.00% 100.00% LSR.Construction-Urals Ltd Russia 100.00% 100.00% AO “Spetsializirovanny zastroishchik “LSR.Nedvizimost-Ural” Russia 100.00% 100.00% PJSC “AEROC OBUCHOW”*** Ukraine - 97.36% LLC “AEROC” Ukraine 100.00% 100.00% OOO “LSR-Stroy” Russia 100.00% 100.00% AO “LSR. Bazovye” Russia 100.00% 100.00% ООО “Kamenskoe-3”** Russia - 100.00% OOO “Landshaft” Russia 100.00% 100.00% ООО “Zagorodnaya, 9” Russia 99.99% 99.99% “LSR. Object-M” Ltd Russia 100.00% 100.00% OOO “RAZVITIE”** Russia - 50.00% OOO “LSR. Beton” Russia 100.00% 100.00% OOO “LSR.Zelezobeton”** Russia - 100.00% OOO “Spetsializirovanny zastroishchik “LSR” Russia 100.00% 100.00% OOO “Ravan snabzhenie”** Russia - 100.00% OOO “Kallelovo” Russia 100.00% - OOO “LSR. Stroitelnye resheniya” Russia 100.00% - OOO “Spetsializirovanny zastroishchik “LSR. Razvitie” Russia 100.00% - OOO “Spetsializirovanny zastroishchik “LSR. Ural” Russia 100.00% - OOO “LSR. Gazobeton” ( LLC H+H) Russia 100.00% - OOO “Chekalovskoe” Russia 100.00% - * The Group retained de facto control. ** Subsidiaries disposed to third or related parties during the year ended 31 December 2019. *** Not significant subsidiaries liquidated during the year ended 31 December 2019. **** Subsidiaries merged to the Group companies during the year ended 31 December 2019.

78 79 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

Segment Business unit Product Entity

32 Supplementary disclosures AO MTO “ARHPROEKT”

JSC “A Plus Estate” The following Group entities are included in Segments and Business unit disclosures: AEROC Investment Deutschland GmbH

Segment Business unit Product Entity ООО “Zagorodnaya, 9”

Building Materials LSR. Basic Materials Sand OOO “Landshaft”

OOO “Ravan snabzhenie”

OOO “Kallelovo”

AO “LSR. Bazovye” Sand

Crushed Granite AO “LSR. Bazovye” Crushed Granite

LSR. Ready-mix Concrete Ready-mix Concrete OOO “LSR. Beton”

LSR. Wall Materials Brick LSR. Wall Materials Ltd

OOO “Chekalovskoe”

Aerated Concrete PJSC “AEROC OBUCHOW”

LLC “AEROC”

OOO “LSR. Gazobeton” ( LLC H+H)

LSR Stenovye (Aerated Concrete)

LSR. Reinforced Concrete - North- Reinforced Concrete OOO “LSR.Zelezobeton” West LSR. Cranes Cranes AO “LSR.Krany-SZ”

Real Estate Development LSR. Real Estate and Construction Real Estate and Construction - JOINT-STOCK COMPANY “CONSTRUCTION CORPORATION “REVIVALPJSC OF LSR SAINT Group- PJSC LSR Group and Construction - North-West North -West PETERSBURG”Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Limited Liability Company Smolniy District

AO “Stroicorporatciya” Segment Business unit Product Entity

32 Supplementary disclosures OOO “Spetsializirovanny zastroishchik “LSR” AO MTO “ARHPROEKT”

OOO “LSR.Nedvizimost-SZ” JSC “A Plus Estate” The following Group entities are included in Segments and Business unit disclosures: ООО “LSR.Stroitelstvo-SZ” AEROC Investment Deutschland GmbH

Segment LSR. Real BusinessEstate - Moscow unit Real Estate -Product Moscow AO “LSR.Nedvizimost-M” Entity ООО “Zagorodnaya, 9”

Building Materials LSR. Basic Materials Sand OOO“LSR. “Landshaft” Object-M” Ltd

OOO “Ravan“Leningradka snabzhenie” 58”

OOO “Kallelovo”“LSR. Stroitelnye resheniya”

OOOAO “LSR. “Spetsializirovanny Bazovye” Sand zastroishchik “LSR. Razvitie”

Crushed Granite OOOAO “LSR. “RAZVITIE” Bazovye” Crushed Granite

LSR. Ready-mix Concrete Ready -mix Concrete OOO “LSR.“Velikan Beton” - XXI vek”

LSR. WallReal EstateMaterials and Construction BrickReal Estate and Construction - LSR. Wall Materials Ltd AO “Spetsializirovanny zastroishchik “LSR.Nedvizimost-Ural” - Ural Ural OOO “Chekalovskoe” OOO “Spetsializirovanny zastroishchik “LSR. Ural” Aerated Concrete PJSC “AEROC OBUCHOW” LSR.Construction -Urals Ltd LLC “AEROC” ООО “Kamenskoe -3” OOO “LSR. Gazobeton” ( LLC H+H) Other Other Other entities PJSC LSR Group LSR Stenovye (Aerated Concrete) OOO “LSR -Stroy” LSR. Reinforced Concrete - North- Reinforced Concrete LsrOOO Group “LSR.Zelezobeton” Ltd West LSR. Cranes Cranes AO “LSR.Krany-SZ”

Real Estate Development LSR. Real Estate and Construction Real Estate and Construction - JOINT-STOCK COMPANY “CONSTRUCTION CORPORATION “REVIVAL OF SAINT80- 81 and Construction - North-West North -West PETERSBURG” Limited Liability Company Smolniy District

AO “Stroicorporatciya”

OOO “Spetsializirovanny zastroishchik “LSR”

OOO “LSR.Nedvizimost-SZ”

ООО “LSR.Stroitelstvo-SZ”

LSR. Real Estate - Moscow Real Estate - Moscow AO “LSR.Nedvizimost-M”

“LSR. Object-M” Ltd

OOO “Leningradka 58”

OOO “LSR. Stroitelnye resheniya”

OOO “Spetsializirovanny zastroishchik “LSR. Razvitie”

OOO “RAZVITIE”

OOO “Velikan - XXI vek”

LSR. Real Estate and Construction Real Estate and Construction - AO “Spetsializirovanny zastroishchik “LSR.Nedvizimost-Ural” - Ural Ural OOO “Spetsializirovanny zastroishchik “LSR. Ural”

LSR.Construction-Urals Ltd

ООО “Kamenskoe-3”

Other Other Other entities PJSC LSR Group

OOO “LSR-Stroy”

Lsr Group Ltd

80 81 PJSC LSR Group PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019 Notes to the Consolidated Financial Statements for the year ended 31 December 2019

Key financial performance indicators business segment / business unit were as follows:

Write off of Write off Results from Capitalized change in of change For the year ended operating For the year ended Results from 31 December 2019 Revenue activities Depreci- Interest fair value 31 December 2018 Impair- Capitalized in fair recognized of the operating from Inter- (excl. ation/ (as recalculated) Revenue activities Depreci- ment Interest value of external group Total management Amortisa- in cost of disposed Adjusted from Inter- (excl. ation/ losses recognized the mln RUB customers revenue revenue fee) tion sales asset EBITDA* external group Total management Amortisa- on in cost of disposed Adjusted Sand 1,521 246 1,767 332 41 - - 373 mln RUB customers revenue revenue fee) tion goodwill sales asset EBITDA* Crushed Granite 3,274 556 3,830 286 141 - - 427 Sand 2,277 256 2,533 1,195 76 - - - 1,271 Eliminations ------Crushed Granite 3,130 593 3,723 349 165 - - - 514 LSR. Basic Materials 4,795 802 5,597 618 182 - - 800 Land improvement - 1,655 1,655 475 1 - - - 476 LSR. Ready-mix Concrete 4,190 177 4,367 493 11 - - 504 Eliminations ------Brick 2,984 2 2,986 (5) 554 - - 549 LSR. Basic Materials 5,407 2,504 7,911 2,019 242 - - - 2,261 Aerated Concrete 3,941 1 3,942 746 216 - - 962 LSR. Ready-mix Concrete 3,938 181 4,119 439 51 - - - 490 Eliminations ------Brick 2,853 8 2,861 (382) 687 - - - 305 LSR. Wall Materials 6,925 3 6,928 741 770 - - 1,511 Aerated Concrete 3,538 1 3,539 541 186 - - - 727 LSR. Reinforced Eliminations ------Concrete - North-West 362 119 481 53 8 - - 61 LSR. Wall Materials 6,391 9 6,400 159 873 - - - 1,032 LSR. Cranes 959 68 1,027 62 125 - - 187 LSR. Reinforced Eliminations - (807) (807) (7) - - - (7) Concrete - North-West 1,427 32 1,459 (107) 76 - - - (31) Building Materials 17,231 362 17,593 1,960 1,096 - - 3,056 LSR. Cranes 885 121 1,006 (43) 149 - - - 106 LSR. Real Estate and Eliminations - (748) (748) (10) - - - - (10) Construction - North- Building Materials 18,048 2,099 20,147 2,457 1,391 - - - 3,848 West 41,694 92 41,786 11,449 443 157 (28) 12,077 LSR. Real Estate and LSR. Real Estate - Construction - North- Moscow 31,927 - 31,927 2,800 38 2,290 - 5,128 West 69,015 191 69,206 18,256 501 - 2,363 (181) 21,301 LSR. Real Estate and LSR. Real Estate and Construction - Ural 7,714 - 7,714 1,660 143 40 - 1,843 Construction - Moscow 39,393 - 39,393 6,270 72 - 6,493 - 12,835 Eliminations 70 - 70 75 - - - 75 LSR. Real Estate and Real Estate Development Construction - Ural 9,354 2 9,356 2,068 154 - 113 - 2,335 and Construction 81,405 92 81,497 15,984 624 2,487 (28) 19,123 LSR - Europe 220 - 220 (84) 5 - - - (79) Project management 5,534 29 5,563 667 1 - - 668 Eliminations 118 (2) 116 (139) - - - - (139) Other entities 267 - 267 - 177 - - 177 Real Estate Development and Unallocated income and Construction 118,100 191 118,291 26,371 732 - 8,969 (181) 36,253 expenses 1,496 - 1,496 (2,524) - - - (2,524) Project management 5,151 92 5,243 (52) 1 - - - (51) Transportation revenue 4,505 - 4,505 - - - - - Other entities 277 - 277 - 305 - - - 305 Eliminations - (483) (483) 537 - - - 537 Unallocated income and Consolidated 110,438 - 110,438 16,624 1,898 2,487 (28) 21,037 expenses 570 - 570 (3,141) - - - - (3,141) Transportation revenue 4,230 - 4,230 ------

Eliminations - (2,382) (2,382) (837) - 23 - - (814) * Adjusted EBITDA = Results from operating activities + Depreciation/amortisation – (Increase in fair value of Investment property – Decrease in fair value of Investment property) – (Increase in results from operating activities due to write off of change in fair value of Consolidated 146,376 - 146,376 24,798 2,429 23 8,969 (181) 36,400 the disposed asset – Decrease in results from operating activities due to write off of change in fair value of the disposed asset) + Impairment losses recognised during the reporting period + Capitalized interest recognized in cost of sales. * Adjusted EBITDA = Results from operating activities + Depreciation/amortisation – (Increase in fair value of Investment property – Decrease in fair value of Investment property) – (Increase in results from operating activities due to write off of change in fair value of the disposed asset – Decrease in results from operating activities due to write off of change in fair value of the disposed asset) + Impairment losses recognised during the reporting period + Capitalized interest recognized in cost of sales.

82 83 PJSC LSR Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019

Net financial position**

mln RUB 31 December 2019 31 December 2018 LSR. Basic Materials - - LSR. Ready-mix Concrete 290 80 LSR. Wall Materials (5,728) (5,855) LSR. Reinforced Concrete - North-West - (218) LSR. Cranes 158 168 Building Materials (5,280) (5,825) LSR. Real Estate and Construction - North-West (2,442) (3,090) LSR. Real Estate - Moscow (51,164) (50,256) LSR. Real Estate and Construction - Ural - - LSR - Europe - (2,899) Real Estate Development and Construction (53,606) (56,245) Other entities (30,733) (24,018) Consolidated (89,619) (86,088)

**NFP (Net financial position). Net financial position is debt of the Group allocated to Business Units. Calculated as loans and borrowings, including lease payables, minus Loans given to Group companies.

84 ANNEX 5

LIST OF THE ABBREVIATIONS

Designation Description CUSIP A 9-character alphanumeric code that uniquely identifies a North American financial security EBITDA Earnings before interest, taxes, depreciation and amortisation – an accounting indicator equal to a company's net earnings before interest, taxes, depreciation, and amortisation are deducted FSA Financial Services Authority – the UK financial regulatory and supervisory body, responsible for regulating the activities of investment, banking, and financial companies GDR Global depository receipt GRI Global Reporting Initiative HR Human resources ISIN International Securities Identification Number IPO Initial public offering – the first offering of a company’s shares on the stock market LFL Like-for-like sales LTIFR Lost time injury frequency rate RAEX Rating agency Expert RA SPO Secondary public offering – a public offering of shares that belong to existing shareholders URALS A Russian export brand of petroleum mixture JSC Joint-stock company GDP Gross domestic product VCIOM Russian Public Opinion Research Center GDR Global depository receipt UN GC United Nations Global Compact – an international UN initiative to encourage businesses to develop corporate social responsibility policies EPA Equity participation agreement ERZ Russia’s Unified Register of Homebuilders ZhBI Reinforced concrete products CJSC Closed joint-stock company IKI RAN Space Research Institute of the Russian Academy of Sciences MGIMO MID Moscow State Institute of International Relations of the Russian Ministry of Foreign Affairs IFRS International Financial Reporting Standards VAT Value-added tax NP Non-commercial partnership OJSC Open joint-stock company CONTACT INFORMATION LLC Limited liability company PJSC Public joint-stock company Main office: RGSAI Russian State Specialized Academy of the Arts 36 Ul. Kazanskaya, Rosstat Russian Federal State Statistics Service St. Petersburg, RF The Russian Federation 190031, Russia RSBU Russian Accounting Standards Тel.: +7 (800) 770 75 77 CIS Commonwealth of Independent States Email: [email protected] www.lsrgroup.ru

208 LSR GROUP │ Annual Report 2019