Annual Report 2014

MAJOR RUSSIAN INTERMODAL CONTAINER OPERATOR

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ANNUAL REPORT 2014

1 ABOUT THE COMPANY

TRANSCONTAINER IS A RUSSIAN INTERMODAL CONTAINER OPERATOR THAT MANAGES THE LARGEST FLEET OF CONTAINERS AND FLATCARS IN RUSSIA OVER THE ENTIRE 1520 STANDARD RAILWAY NETWORK. THE COMPANY HAS UNIQUE EXPERIENCE WITH EFFECTIVE FLEET MANAGEMENT ON MORE THAN 300,000 ROUTES IN RUSSIA AND ABROAD AS WELL AS THE IMPLEMENTATION OF DOOR-TO-DOOR INTEGRATED TRANSPORTATION AND LOGISTICS SOLUTIONS THAT ALLOW FOR DELIVERING CONTAINER CARGO TO ANY DESTINATION IN RUSSIA, THE CIS, EUROPE OR ASIA USING IN-HOUSE TRANSPORTATION ASSETS AND/OR INVOLVING PARTNER COMPANIES.

THE COMPANY PROVIDES THE OPPORTUNITY TO SHIP CARGO USING SPECIALISED CONTAINERS: Insulated containers for the shipment of perishable goods Tank containers for the shipment of liquid and chemical cargo Open top containers for the shipment of oversize cargo

Bulk containers for the shipment of bulk goods

MAIN SERVICES PROVIDED BY COMPANY:

railway container shipments container transportation by road maritime / river container shipments terminal cargo handling freight forwarding and logistics services customs clearance services at temporary customs warehouses

Public Joint-Stock Company Centre for the Shipment of Containerised Cargo of TransContainer (PJSC TransContainer)

Contact information: 125047, Russia, Moscow Oryuzheyny per., 19 email: [email protected] www.trcont.ru/en/ UNIQUE ASSET BASE

26,923 64,212 FLATCARS LARGE-TONNAGE CONTAINERS 742 233 AUTOMOTIVE LOADING VEHICLES MACHINES

TERMINAL ASSETS 46 19 1 IN RUSSIA IN KAZAKHSTAN IN SLOVAKIA

130 SALES OFFICES CONNECTED TO A UNIFIED INFORMATION SYSTEM

This ensures an individual approach to each customer and allows for fulfilling both small one- time orders as well as managing the container cargo supply chain of any volume or complexity.

Interactive version of the TransContainer Annual Report for 2014

3 Liability Disclaimer

This annual report (“the Annual Report” hereinafter) was prepared forward-looking statements prove to be erroneous. Given the with the use of information available to Open Joint Stock Company existence of such risks, uncertainties and assumptions, the TransContainer Cargo Transportation Centre (“the Company” Company cautions that actual results may differ materially from hereinafter) and its subsidiaries (“the Group” hereinafter) as of those projected, either directly or indirectly, in such forward- the time of preparing the Annual Report, including information looking statements which are only valid as of the time of writing this obtained from third parties. The Company reasonably believes Annual Report. that the presented information is complete and accurate as of the date of publication of the Annual Report, but does not represent or The Company does not represent nor does it warrant that the warrant that this information will not be further refined, revised or outcomes projected in the forward-looking statements as otherwise altered. expected to result from activities will be achieved. The Company shall not be held liable for any damages that may be sustained This Annual Report may also contain certain forward-looking by persons or entities as a result of acting in reliance upon such statements with respect to the business activities, economic forward-looking statements. Each of such forward-looking indicators, financial condition and the results of economic statements represents only one of many potential scenarios and and production activities of the Company and the Group, its should not be regarded as the most probable one. plans, projects and expected results, the dividend and capital expenditure policies, as well as the trends in prices, tariffs, traffic This is particularly the case as there are other factors capable volumes, terminal processing, production and consumption, costs, of affecting the financial and operational performance of the estimated costs, development prospects, useful lives of assets Company or the Group, its plans, projects, capital expenditures and other similar factors, economic forecasts with respect to the and other aspects of its operations including changes in industry and markets, as well as the timing of the start and end of macroeconomic or market conditions, the activities of state individual projects for acquisition, closing, preservation or sale of authorities in the Russian Federation and other jurisdictions where certain businesses (including associated costs). the Group is analysing, developing or using assets, including changes in tax, environmental and other laws and regulations. Whenever the words “intend”, “seek”, “design”, “expect”, “estimate”, The above list of significant factors is not exhaustive. When “plan”, “believe”, “anticipate”, “may”, “must”, “will”, “continue” and other taking into account the forward-looking statements one should similar words are used in a statement, they normally imply that the carefully consider the above factors, particularly the economic, respective statement has a forward-looking nature. social and legal conditions in which the Company or the Group operates. Except in cases expressly stipulated by applicable Forward-looking statements, by their very nature, involve inherent law, the Company assumes no obligation to publish updates or risks and uncertainties, both general and specific, and there amendments, whether based on additional information available or is a possibility that predictions, forecasts, projects, and other future events, to any of the forward-looking statements. CONTENTS

ABOUT COMPANY 1 110 Statement on Compliance of Corporate 02 Highlights of 2014 Governance Codes 03 Key Indicators 111 Statement by the Audit Committee Concerning 04 Investment Highlights the Accounting (Financial) Statements and Risk 06 Geography of Operations Management and Internal Control System 08 Chairman’ Statement 10 CEO Statement 4FINANCIAL REPORT 114 Consolidated Financial Statement STRATEGIC REPORT 2 for the Year Ended 31 December 2014 16 Business Model 116 Consolidated Statement of Financial Position 18 Market Overview And Company’s 118 Consolidated statement of profit or loss Position in the Industry and other comprehensive income 30 Overview of Strategy 119 Consolidated Statement of Cash Flows 36 Operating Results 121 Consolidated Statement of Changes in Equity 48 Financial Results 167 Opinion of the Revision Commission on the results 60 Sustainable Development of an audit of the financial and business activities of 70 Risk Management Public JointStock Company transcontainer for 2014

3CORPORATE GOVERNANCE 5ADDITIONAL INFORMATION 76 Company Board of Directors 168 Structure of PJSC TransContainer Participation 78 Corporate Governance Model in Organisations with Significant Importance 79 Governance structure for the Company 80 Leadership of the Board of Directors 169 Report On Compliance with the Principles and 82 Effectiveness of the Board of Directors Recommendations of the Corporate Governance 93 Monitoring and Responding Code of the Bank of Russia 97 Remuneration for the Board of Directors 176 Report on Compliance with the UK Corporate and Management Governance Code 102 Shareholders Relations 179 Report on Compliance with the Corporate 106 Executive Bodies Governance Code of JSC TransContainer 108 Assessment of the Corporate Governance 184 Details

1 Annual report 2014 Transcontainer

HIGHLIGHTS OF 2014

CHANGE IN KEY NATIONAL CORPORATE SHAREHOLDER GOVERNANCE RATING IN CAPITAL STRUCTURE UPGRADED 24 November 2014 19 November 2014

OJSC Russian Railways transferred its 50% + 2 shares in PJSC The Russian Institute of Directors upgraded the corporate TransContainer to the charter capital of JSC United Transportation governance rating of OJSC TransContainer from level 7+ to and Logistics Company (JSC UTLC). JSC UTLC was registered level 8 (“Best Corporate Governance Practice”) on the National on 13 November 2014. At present, OJSC Russian Railways owns Corporate Governance Rating scale. 99.84% of its charter capital. Belarusian Railway and JSC NC Kazakhstan Temir Zholy own 0.08% each.

FITCH AFFIRMS RATINGS CERTIFICATION AUDIT AT “BB+” WITH STABLE OF QUALITY MANAGEMENT OUTLOOK SYSTEM

1 December 2014 The quality management system of PJSC TransContainer successfully underwent a certification audit in 2014 under which the Company’s Fitch Ratings affirmed the Company’s long-term Issuer Default activities involving the planning, organisation and control of Ratings (“IDR”) at the level of “BB+” with a “Stable” outlook. containerised cargo shipments were recognised as in compliance with the requirements with GOST ISO 9001-2011 (as confirmed by a compliance certificate). The Company is also the only Russian transporation company to receive a “Recognised for Excellence” certificate from the European Foundation for Quality Management.

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KEY INDICATORS

FINANCIAL INDICATORS For more details see page 48

REVENUE EBITDA (RUB BLN) NET PROFIT (RUB BLN) RETURN ON EQUITY (ROE, %) AND NET REVENUE (RUB BLN) EBITDA MARGIN (%) NET MARGIN (%)

40.8% 39.8% 23.6% 37.2% 38.1% 20.5% 16.9% 17.8% 19.0 19.0 10.43 5.97 36.4 39.2 36.6 26.8% 10.07 5.23 16.2 30.9 -18.9% 8.45 7.82 5.6% 10.8 13.8 3.84 3.66 22.8 8.2 16.0 -22.0% 10.4 -39.0% 6.3 4.43 22.7 25.6 25.3 0.93 4.8 16.5 20.5 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Net revenue EBITDA Net profit Third party services under EL contracts EBITDA margin Net margin

OPERATING INDICATORS

SHIPMENTS OF LTC BY TC ROLLING STOCK CONTAINER HANDLING AT TC TERMINALS CONTAINER SHARE OF SHIPMENTS (‘000 TEU) IN RUSSIA (‘000 TEU) EMPTY RUN RATIO (%) IN CONTAINER TRAINS (%)

42.1 77.1% 72.3% 74.9% 75.5.% 76.5% 1,448 1,483 1,428 1,319 1,331 +0.9% 39.1 36.4 161 139 121 35.9 1,484 1,454 1,467 +0.9% 71 53 34.4 31.3 1,362 28.8 1,202 364 336 662 30.5 342 342 650 640 602 602 28.8 333 525 545 591 599 562 682 646 676 429 521 587 586 637 667 307 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2011 2012 2013 2014 Customer containers TC empty containers Loading Sorting TC loaded containers Share of income- Unloading generating shipments

For more details see page 38 For more details see page 40 For more details see page 44 For more details see page 38

CORPORATE SOCIAL RESPONSIBILITY INDICATORS For more details see page 60

AVERAGE NUMBER OF PERSONNEL OCCUPATIONAL INJURY DYNAMICS (CASES) (PERSONS)

5,150 4,992 4,799 4,591 4,069 3 3 3 -11.4% 2

0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014

3 Annual report 2014 Transcontainer

INVESTMENT HIGHLIGHTS

MARKET LEADER INTEGRATED BUSINESS MODEL COMPANY’S SHARE IN RAILWAY 1 3 CONTAINER SHIPMENTS The Company is the largest player in Russia in key The Company’s business model is predicated on the sectors of its business – railway container shipments principle of the vertical integration of business along (46% market share) and terminal container handling on the process chain of container shipments, is built on its the railway network (23% share). own assets and unique technologies and is optimised in terms of the scale and geography of business as well as The scale of business enables the Company to an extensive customer base. 46% guarantee its customers the maximum level of reliability For more details see page 16 as a partner, transport accessibility and the timely provision of transportation equipment throughout the entire Russian Railways network regardless of their volume of operations. UNIQUE ASSET BASE 4 COMPANY’S SHARE IN RUSSIAN The Company’s offices and terminals are located The Company has its own transportation and infrastructural RAILWAY TERMINAL HANDLING throughout the Russian Railways network and at key assets that are unique for Russia in terms of scale and MARKET 1520 gauge transport hubs. At present and in the scope and provide a fundamental advantage as far as foreseeable future, TransContainer is the only company the reliability and quality of services, the geography of capable of serving customers on a network scale transportation and the coverage of clientele. throughout the 1520 gauge space. The Company has the largest fleet of large-tonnage Maintaining and developing a network-based business containers and specialised rolling stock (flatcars) for 23 % is not only a competitive advantage for the Company, their transportation in Russia and is the country’s only but also a key component for performing its mission and railway operator that owns an extensive network of social responsibility in terms of providing transportation container terminals throughout the country. accessibility within Russia, the Eurasian Economic Union and all CIS countries. The integration of rolling stock and the terminal business makes it feasible to guarantee the quality of service as well For more details see page 29 as provide customers with additional logistics services.

For more details see page 44

MARKET SEGMENT WITH POTENTIAL 2LONG-TERM GROWTH The main market segment for the Company – rail 5BROAD GEOGRAPHY OF OPERATIONS container shipments on the Russian railway network The Company is the only container operator that does – features two fundamental long-term growth factors: business throughout the railway network of the Russian growth in the Russian economy and growth in the Federation, the CIS and the entire 1520 wide gauge containerisation of rail shipments in the Russian space. The Company is ensuring the further expansion Federation. of the customer base and the geography of business via its extensive office and terminal network as well as For more details see page 24 subsidiaries, joint ventures and agent network in the countries of Europe and Asia.

For more details see page 6

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STRONG CUSTOMER BASE The Company’s largest shareholder with a stake of THE COMPANY’S LARGEST 6 SHAREHOLDER IS JSC UNITED The Company’s customer base is unique in terms of its 50% plus 2 shares is JSC United Transportation and TRANSPORTATION AND LOGISTICS scale and is diversified in terms of operations, industry Logistics Company (UTLC), which was established COMPANY (UTLC) affiliation, geography of supplies and the location of by OJSC Russian Railways, JSC National Company customers. This ensures a high level of sustainability for Kazakhstan Temir Zholy and Belarusian Railway in order the Company’s business. to implement the coordinated development strategy for the transportation and logistics potential of the three The network-wide scale of business provides direct access countries in container shipments, including realising to customers in Russia and the CIS as well as the ability transit potential on a core market. 50% to build complex supply chains and optimise empty runs +2 SHARES while ensuring the Company’s services are competitive in Joining the UTLC enables the Company to take part terms of price and quality. The Company has established in the implementation of the large-scale joint project a sizeable customer base that is diversified as far as scale carried out by the three national railway operators and of operations, the geography of supplies, location and generate a synergistic effect. The Company’s major industry affiliation. Utilising its business model and on shareholders also include the European Bank for the core of its own and leased transportation assets, the Reconstruction and Development, one of the leading Company provides a wide range of services that focus international financial institutions that is active on the on the all the Company’s customer groups and ensure a Russian Market, as well as the FESCO Group, one of further expansion in the customer base. the leading intermodal container operators.

For more details see page 36 For more details see page 102

7STRONG MANAGEMENT TEAM 9STABLE FINANCIAL POSITION The Company has a team of competent professionals The Company’s extensive geography of business, that operates on the basis of modern corporate diversified customer base and balanced financial policy governance standards with unique experience in ensure its high level of financial stability. The Company’s transportation technologies and logistics as well as policy aims to further enhance the transparency of management and finance. its results for shareholders and investors as well as reduce the level of financial risks. As part of this policy, For more details see page 106 the Company maintains a low debt burden and a high level of creditworthiness and has established a positive credit history. This provides the Company with additional competitive advantages as regards the terms of and 8SHAREHOLDERS access to financial resources (See section “Financial The Company’s shareholders provide additional stability, Results”) as well as the confidence of customers in facilitate access to financial resources and provide times of economic uncertainty support on matters involving development and the For more details see page 48 Company’s participation in large-scale projects. .

5 Annual report 2014 Transcontainer

3 days GEOGRAPHY CONTAINER 10 days TRAIN ROUTES 9 days OF OPERATIONS 6 days LAUNCHED 5 days 3 days IN 2014 FINLAND 8 days WE OPERATE ON RAPIDLY DEVELOPING RAILWAY CONTAINER SHIPMENT MARKETS AND IN ALL COUNTRIES WITH 1520 GAUGE RAILWAYS. WE DEVOTE SPECIAL ATTENTION TO Saint Petersburg BUSINESS DEVELOPMENT IN THE EURASIAN ECONOMIC UNION ESTONIA THAT CONNECTS THE PROMISING CONTAINER MARKETS OF Perm Krasnoyarsk RUSSIA EUROPE AND ASIA Moscow LATVIA Yekaterinburg

LITHUANIA Vorsino BELARUS Batareynaya

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3 days 10 days 9 days 6 days 5 days 3 days FINLAND 8 days

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LITHUANIA Vorsino BELARUS Batareynaya

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Trans-Siberian Railway

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Route travel time

SALES OFFICES BRANCHES FOREIGN THROUGHOUT RUSSIA IN RUSSIA REPRESENTATIVE OFFICES 130 15 8

AGENT COMPANIES SUBSIDIARIES TERMINALS IN RUSSIA AND REGIONAL PARTNERS AND ASSOCIATED COMPANIES AND ABROAD 37 7 66

7 Annual report 2014 Transcontainer

CHAIRMAN’ STATEMENT

DEAR SHAREHOLDERS, COLLEAGUES AND PARTNERS,

IN PRESENTING THIS REPORT ON TRANSCONTAINER’S PERFORMANCE, I WOULD LIKE TO NOTE THAT UNDER THE CHALLENGING ECONOMIC CONDITIONS OF 2014 THE BENEFITS OF TRANSCONTAINER’S NETWORK-BASED VERTICALLY INTEGRATED BUSINESS MODEL ONCE AGAIN PROVED EFFECTIVE.

Despite the slowdown in economic growth, rewarded with an upgrading in its National The events of the previous year once again increased competition and the crisis on the Corporate Governance Rating to Level 8, the confirmed the timeliness of this project. financial market, the Company achieved growth highest possible level. At the same time, the Given the weak economic dynamics, the in container shipments and was one of just adoption of a new Corporate Governance Code continued contraction of the cargo base and a few players in the Russian transportation in 2014 has created new ambitious goals for the unfavourable pricing environment, the sector to end the year with a solid net profit, improving corporate governance, which will be Company’s top priorities include entering new which amounted to RUB 3.6 bln. Additional a major focus of the Board of Directors in the promising markets and utilising new sources confirmation of the Company’s high quality coming year. of growth involving the accelerated industrial management came in December 2014 from development of Central and Western China. Fitch Ratings, which affirmed TransContainer’s Another event occurred in 2014 for which we credit ratings at BB+ with a Stable Outlook. have long been preparing and which has the The Company along with its management and potential to significantly impact not only the Board of Directors now face the ambitious goal A key factor in the Company’s successful Company’s activities, but also the development of rapidly maximising the full synergistic effect development is the continuous progress made prospects for railway container shipments from the establishment of UTLC in the interests in corporate governance and information throughout the entire 1520 gauge space. Unified of all the Company’s shareholders, customers disclosure. This issue is the subject of constant Transportation and Logistics Company (UTLC), and partners. I am confident that together we will attention from the Company’s Board of which was established by Russian Railways meet this goal. Directors and management. TransContainer’s jointly with the national railway administrations of achievements in corporate governance were Belarus and Kazakhstan, was registered in 2014.

LOCAL SHARE (TICKER: TRCN) PERFORMANCE ON THE MOSCOW EXCHANGE IN 2014

1.2

1.0

0.8

0.6

0.4 06.01.2014 18.03.2012 28.05.2014 07.08.2014 17.10.2014 27.12.2014

TRCN: –27.6% MICEXTRN Index: –53.2%

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In 2015, the Company’s Board of Directors, management and entire team face new challenges related to implementing the objectives that shareholders have set for us. The Company’s Strategy also needs to be modified this year to reflect changes in the external environment as well as the potential effects from establishing UTLC. This will require coherent and hard work from all the Company’s management bodies.

In conclusion, I would like to thank all members of the Board of Directors, shareholders, partners and employees of TransContainer for cooperation and support and wish everyone successful work in the coming year.

Sincerely,

Zhanar Rymzhanova Chairman of the TransContainer Board of Directors

9 Annual report 2014 Transcontainer

CEO STATEMENT

DEAR SHAREHOLDERS, INVESTORS, COLLEAGUES AND PARTNERS!

OVER THE PAST YEAR THE MARKET SAW A SIGNIFICANT DETERIORATION IN THE ECONOMIC AND GEOPOLITICAL ENVIRONMENT IN ADDITION TO INCREASED VOLATILITY ON FINANCIAL MARKETS – FACTORS THAT WERE BOUND TO IMPACT THE CONTAINER TRANSPORTATION MARKET AS WELL. GROWTH SLOWED ON THE CONTAINER MARKET IN 2014, WITH A 2.2% DECLINE IN THE FOURTH QUARTER VERSUS THE SAME PERIOD OF THE PREVIOUS YEAR. OVERALL, THE VOLUME OF CONTAINER SHIPMENTS VIA THE RUSSIAN RAILWAY NETWORK INCREASED BY 3.8% IN 2014, THE LOWEST GROWTH RATE SEEN SINCE 2009.

Under these conditions, the TransContainer team fully affirmed its leadership qualities. In 2014, the Company managed to retain its market share and meet all its key financial and production targets. We carried out substantial work to improve the level of customer service as well as the reliability and the competitiveness of our services. Unlike many of our competitors, the Company ended 2014 with a solid profit and will be the only public company in the cargo transportation sector to pay shareholders dividends for the year.

Key production and financial results In 2014, container shipments using the Company’s rolling stock via the Russian Railways network grew by 0.9% to 1.467 mln TEU, while income- generating shipments increased by 1.7% to 1.131 mln TEU. Container handling at the Company’s terminals on the Russian Railways network grew by 0.9% to 1.331 mln TEU.

Given the fierce competition on the containerised cargo transportation market and the continued unfavourable pricing environment seen throughout the year, the Company’s top priority was to improve business efficiency and the quality of service. In 2014, the container empty run ratio was reduced to an all-time low of 28.8%; container shipments via block trains grew by 16.6% to

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CEO STATEMENT

618,000 TEU. The share of shipments via block large-tonnage containers and other investment decline coming in the import segment due to the trains increased from 36% to 42% in 2014, thus assets. In particular, the Company acquired 5,097 effect of the rouble’s devaluation and a decrease enabling us to significantly increase speed and large-tonnage containers, 1,316 eighty-foot in real income. guarantee delivery times for customer cargo. flatcars and 200 forty-foot flatcars in the reporting period, which made it possible to continue Under these conditions, the Company’s Fluctuations in exchange rates, which optimising the structure of the flatcar fleet and key objective is to utilise the advantages particularly intensified in the second half of timely respond to increased customer demand of its business model to ensure growth in 2014, did not have a negative effect on the for the Company’s containers given the reduced competitiveness, strengthen our market Company’s financial results largely thanks to an supply of shipping line containers on the Russian positions, further improve the quality of our effective debt and financial policy. The quality market. services and the level of customer service as of the Company’s financial management was well as take optimal advantage of any new confirmed by Fitch Ratings, which despite the Corporate governance and sustainable opportunities that inevitably appear as a result of unstable economic environment affirmed the development changes in the market. We will certainly continue Company’s credit rating at BB+ with a Stable work to improve the Company’s technologies Maintaining high standards of corporate Outlook. and business processes, which is a prerequisite governance is one of the Company’s top priorities. for growth in our efficiency. One of the highlights of our work in 2014 was the Establishment of Unified Transportation assignment of a National Corporate Governance Over its relatively short history, the Company and Logistics Company Rating of Level 8, which puts TransContainer has already encountered different challenges among the top three Russian companies The foundation was laid over the past year for on multiple occasions and has always emerged according to this indicator. In June 2014, the the long-term sustainable development not stronger, more confident and more driven. I am Company’s shares were included in the top only of our Company, but the entire container confident that will be the case this time and our quotation list of the Moscow Exchange. Our industry. Unified Transportation and Logistics Company’s team will once again justify the trust Company was also recognised by the professional Company (UTLC), which is currently the majority put in them by all of our customers, partners and community as a market leader in information shareholder in TransContainer, was registered shareholders. disclosure over the previous year. in November 2014. The founders of UTLC are Russian Railways, Kazakhstan Temir Zholy Along with achieving high levels of operating National Company and Belarusian Railway. efficiency, the Company devotes significant Merging the key container assets of the three attention to the social responsibility of its business, countries within UTLC is intended to catalyse including compliance with the Code of Conduct, growth in the container shipment market within monitoring the quality of services, developing the Common Economic Space by utilising both human capital, introducing environmentally safe the effect of economic integration among CES technologies and promoting charity and aid to the constituent nations as well as the potential that needy. we are seeing right now for the development of the cargo base of Western and Central China. In 2014, TransContainer received a quality management certificate for the planning, I am firmly convinced that the successful organisation and control of containerised implementation of this project will facilitate cargo shipments in accordance with the business development and create additional requirements of ISO 9001-2011. Despite the value for TransContainer, its shareholders and difficult economic environment, the Company’s business partners. expenses on environmental measures increased by 23.0% to RUB 42.4 mln in 2014, while Implementation of the investment charitable contributions amounted to RUB 195 programme mln compared with RUB 122 mln a year earlier. The Company’s capital expenditures totalled Best regards, RUB 4.212 bln in 2014. Given the deterioration Outlook for 2015 in the market conditions, the Company quickly In 2015, the Russian economy has already Petr Baskakov adjusted its investment programme while focusing entered into a recession that is bound to affect CEO TransContainer on the main strategic priorities. The main capital container shipment dynamics. We expect the investment item was the acquisition of flatcars, market to contract for the year with the biggest

11 Annual report 2014 Transcontainer

COMMODITY GROUPS

THE GOODS SHIPPED BY THE COMPANY ARE HIGHLY DIVERSIFIED BY INDUSTRY, CONSUMER GROUP, SHIPMENT AND SEASONAL GEOGRAPHY. THIS PROVIDES THE COMPANY’S BUSINESS WITH A HIGH LEVEL OF SUSTAINABILITY FOR CHANGES IN THE MARKET AND IN THE MACROECONOMIC SITUATION.

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THE NUMBER OF GOODS SUITABLE FOR CONTAINER TRANSPORTATION IS MORE THAN 1 000 000

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STRATEGIC REPORT

TECHNOLOGIES

THE “TRANS-SIBERIAN RAILWAY IN 7 DAYS” RAILWAY CONTAINER TRANSPORTATION DEVELOPMENT PROGRAMME IS BEING IMPLEMENTED JOINTLY WITH RUSSIAN RAILWAYS TO OVERCOME THE DISTANCE FROM FAR EASTERN PORTS TO EU BORDERS WITH A ROUTE SPEED OF UP TO 1,500 KM PER DAY.

QUALITY

IN 2014, THE CORPORATE CUSTOMER SERVICE STANDARD TOOK EFFECT AND WORK WAS LAUNCHED TO TIE IN THE INCENTIVE SYSTEM TO COMPANY STANDARDS. THE RATING SYSTEM FOR THE ACTIVITIES OF THE COMPANY’S BRANCHES CONTAINS INDICATORS THAT REFLECT A BRANCH’S COMPETITIVENESS ON THE LOCAL CONTAINERISED SHIPMENT MARKET AND THE QUALITY OF SERVICES PROVIDED.

SERVICE

IN 2014, TECHNOLOGY WAS DEVELOPED TO REGISTER SHIPPING DOCUMENTS USING ELECTRONIC SIGNATURES AND ELECTRONIC DOCUMENT FLOW PROCEDURES WITH RUSSIAN RAILWAYS (ELECTRONIC TRANSPORTATION WAYBILL).

Interactive version of the TransContainer Annual Report for 2014

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COMPANY MISSION To provide effective support to its clients by offering prompt, reliable and comprehensive containerised cargo delivery and logistics solutions.

STRATEGIC GOAL To increase the Company’s market capitalisation through the increase of scale of business and its efficiency.

TARGET BUSINESS MODEL A vertically integrated transportation and logistics holding that provides container freight carriage and logistics services throughout Europe and Asia.

GROWTH IN CONTAINER GROWTH IN CONTAINER SHIPMENTS USING THE HANDLING AT THE COMPANY’S COMPANY’S ROLLING STOCK TERMINALS ON THE RUSSIAN RAILWAYS NETWORK

+13 , 000 TEU +11,500 TEU

GROWTH IN SHIPMENTS NET PROFIT VIA BLOCK TRAINS

+88 ,100 TEU RUB 3.7 bln

15 Annual report 2014 TransСontainer

BUSINESS MODEL

CUSTOMERS AND PARTNERS Customer base management page 37

TOP 10 CUSTOMERS CUSTOMER BASE IN 2014 CHANGES IN SERVICES IN 2010-2014

1.4% 4.5% 4.5% 3.2% 2.3% Integrated freight Unico 7.4 % 5.4% 4.8% 9.2% 7.5% 6.4% forwarding and logistics Fintrans 4.0% 12.3% services 25.3% 18.9% Volkswagen 2.7% 14.3% 13.0% 18.1% Operator services RUSAL 2.1% Terminal services Russian Railways Logistics 2.1% 26.3% Road transportation UNIFIED IT SALES PLATFORM 32.2% Interlink 1.8% 42.3% 45.3% 39.0% Freight forwarding All employees of the Company’s sales network are Transport Development Group 1.6% and logistics services connected to a unified information system that ensures Portexpress 1.5% the online calculation of multimodal tariff rates, the 74.7 % selection of the optimal delivery route, the reserving Voskhod 1.4% 55.3 % of equipment, the registration and transfer of orders LTS 1.1% 41.2% to be fulfilled, order tracking, the preparation of the 29.7% 29.6% 33.3% necessary documentation and customer notification End consignors about a completed order. 25.7% OF TOTAL RECEIPTS Freight forwarders 2010 2011 2012 2013 2014

INTEGRATED CHAIN Development of services portfolio page 38 SERVICES FOR THE DELIVERY OF CONTAINERISED CARGO

CONSIGNOR’S WAREHOUSE RECIPIENT’S WAREHOUSE

LAST MILE TERMINAL SERVICES RAILWAY SERVICES OF ROLLING STOCK OPERATOR RAILWAY SERVICES OF ROLLING STOCK OPERATOR MULTIMODAL TRANSPORTATION LAST MILE (THIRD PARTIES) FREIGHT FORWARDING AND LOGISTICS SERVICES FREIGHT FORWARDING AND LOGISTICS SERVICES

ASSET BASE Development of resource base page 44 AUTOMATED THIRD PARTIES ASSET MANAGEMENT REVENUE STRUCTURE IN 2014 FLATCARS LARGE-TONNAGE LIFTING AUTOMOTIVE RAILWAY CONTAINER SYSTEM LOCOMOTIVE TRACTION AND RAILWAY CONTAINERS EQUIPMENT EQUIPMENT TERMINALS INFRASTRUCTURE SERVICES 44%

MARITIME/RIVER CONTAINER SHIPMENTS 36.56 STEVEDORE AND OTHER RUB bln PORT SERVICES 56% CONTAINER SHIPMENTS BY VEHICLE Revenue from third party services 26,923 64,212 233 742 46 19 1 under integrated logistics contracts CUSTOMS BROKERAGE SERVICES + 618 + 1,845 – 5 –124 Russia Kazakhstan Slovakia Revenue from TransContainer transportation and freight forwarding services

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BUSINESS MODEL

CUSTOMERS AND PARTNERS Customer base management page 37

TOP 10 CUSTOMERS CUSTOMER BASE IN 2014 CHANGES IN SERVICES IN 2010-2014 THE COMPANY’S BUSINESS MODEL IS BUILT ON THE PRINCIPLE OF THE VERTICAL INTEGRATION OF ASSETS AND COMPETENCIES ALONG 1.4% 4.5% 4.5% 3.2% 2.3% Integrated freight Unico 7.4 % 5.4% 4.8% THE TECHNOLOGICAL CHAIN OF CONTAINERISED CARGO DELIVERY. 9.2% 7.5% 6.4% forwarding and logistics Fintrans 4.0% 12.3% services 25.3% 18.9% Volkswagen 2.7% 14.3% 13.0% 18.1% Operator services It is based on the use of in-house production assets in market niches/limited competition and the utilisation of outsourcing RUSAL 2.1% Terminal services for highly competitive links in the logistics chain. The business Russian Railways Logistics 26.3% Road transportation 2.1% model is optimised for an extensive customer base and a broad 32.2% Interlink 1.8% 42.3% 45.3% 39.0% Freight forwarding geography of operations, offers the full range of services for all Transport Development Group 1.6% and logistics services categories of customers – from services involving the provision Portexpress 1.5% of equipment and infrastructure to complex multimodal turnkey 74.7 % Voskhod 1.4% transportation and logistics solutions using the door-to-door 55.3 % principle, ensures a high level of business efficiency and LTS 1.1% 41.2% sustainability and establishes a foundation for further growth 29.7% 29.6% 33.3% and an expansion in the geography of business. This makes the End consignors Company unique to the Russian container industry. 25.7% OF TOTAL RECEIPTS Freight forwarders 2010 2011 2012 2013 2014

INTEGRATED CHAIN Development of services portfolio page 38 SERVICES FOR THE DELIVERY OF CONTAINERISED CARGO

CONSIGNOR’S WAREHOUSE RECIPIENT’S WAREHOUSE

The system aims to function in real time with MARITIME/RIVER CONTAINER a large volume of information and a high SHIPMENTS number of users. It ensures the distribution 36.56 of production assets in accordance with STEVEDORE AND OTHER RUB bln the order portfolio, the harmonisation and PORT SERVICES synchronisation of assets at junctions of the 56% technological chain, including when working CONTAINER SHIPMENTS with third parties, the optimised distribution of BY VEHICLE asset utilisation capacity and planning of the Revenue from third party services work of production units throughout the entire 26,923 64,212 233 742 46 19 1 under integrated logistics contracts geography of operations. CUSTOMS BROKERAGE SERVICES + 618 + 1,845 – 5 –124 Russia Kazakhstan Slovakia Revenue from TransContainer transportation and freight forwarding services

17 Annual report 2014 TransСontainer

MARKET OVERVIEW AND COMPANY’S POSITION IN THE INDUSTRY GLOBAL CONTAINER TRANSPORTATION MARKET

General overview The consolidation of the industry, one of the tools Dynamics and structure of global container The main trends on the global container for business optimisation, continued in 2014. transportation transportation market took shape following Although the Chinese antimonopoly authorities Intraregional transportation accounts for the 2008-2009 crisis. According to Drewry, blocked the creation of an alliance of the major the bulk of container cargo traffic at 83 mln TEU. shipment volumes grew at a rate of 5.2% in 2014, maritime carriers Maersk Lines, Mediterranean The largest interregional segment is the East- an increase of 2.1 percentage points from 2013, Shipping Company and CMA CGM in 2014, this West route, which handles 37% of the overall while the volume of loaded container shipments did not put a stop to consolidation processes. volume of maritime container transportation in grew 4.8%. The capacity of the global container The merger of the companies Hapag-Lloyd and the world. In 2014, shipments along the East- ship fleet increased by 6% compared with 2013. CSAV was announced in addition to the formation West route totalled 69.1 mln TEU, an increase Thus, supply on the maritime container shipment of two new alliances: Ocean Three, which unites of 3.5% from the 2013 level. Transportation market continued to outstrip demand and this the companies CMA CGM, China Shipping between the countries of Southeast Asia and had a destabilising effect on maritime freight Container Lines and United Arab Shipping North America make up 48% of this volume. rates. The decline in freight rates also contributed Co., and 2М comprised of Maersk Lines and Asia-Europe shipments account for 26.7 mln to the decrease in oil prices in the second half Mediterranean Shipping Company. TEU, or 37%, of the total volume of East-West of 2014 as it affected the fuel component in container transportation. the tariff. According to Drewry, spot rates for According to Drewry, the industry generated the Asia-Northern Europe route plunged by a profit of approximately USD 6.1 bln in 2014. almost 50% from January to December 2014. However, this profit was distributed unevenly: major players benefited from economies of scale In these conditions, the policy pursued by and consolidation, while smaller operators the main shipping line operators aimed to reduce encountered increased competition from leading supply by scaling down the average vessel players and were unable to raise prices, which speed and number of routes as well as slashing forced them to cope with financial difficulties. operating costs, primarily by commissioning vessels with increased capacity (18,000 TEU and above). Putting super container ships into GLOBAL CONTAINER operation made it possible to ensure a decrease TRANSPORTATION MARKET in unit costs per TEU, but in the long run this approach may lead to further growth in supply and create the self-sustaining process of a further 185.4 mln TEU price decline. +5.2%

GLOBAL CONTAINER SHIPMENTS IN 2014 BY ROUTE

2014 2013 ROUTE CHANGE, % SHIPPING VOLUME, SHIPPING VOLUME, SHARE, % SHARE, % ‘000 TEU ‘000 TEU

EAST – WEST 69,057 37 66,748 38 3.5

Far East – North America 33,090 18 32,377 18 2.2

North Europe – Far East 17,690 9 16,885 10 4.8

Mediterranean Sea – Far East 8,965 5 8,787 5 2

North Europe – North America 5,465 3 5,171 3 5.7

Mediterranean Sea – North America 3,755 2 3,528 2 6.4

NORTH – SOUTH 32,861 18 31,152 18 5.5

INTRAREGIONAL 83,482 45 78,400 44 6.5

GLOBAL SHIPMENT VOLUME 185,400 100 176,300 100 5.2

Source: Drewry

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CONSOLIDATED ORDER BOOK FOR SHIPMENTS GLOBAL CONTAINER FLEET CAPACITY AND CONTAINER SHIPMENT ORDERS BY MARITIME CARRIERS BY ORDER SIZE, % 11% 70 18,000 5% 60 16,000 14,000 50 1% 12,000 41% 41% 40 10,000 30 8,000 20 6,000 <4,000 4,000 10 2,000 4,000 – 6,000 0 0 6,000 – 8,000 1995 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 8,000 – 10,000 27% 10,000 – 14,000 Fleet capacity, '000 TEU Order volume (as % of fleet) Source: Drewry >14,000 15% Source: Drewry

EAST-WEST SEA FREIGHT SPOT RATES ROUTE IN 2014, USD PER FEU

4,000 3,500 3,000 2,500 Supply and demand 2,000 Despite contained stable demand for container 1,500 transportation, the market pricing environment 1,000 remains rather tense. The main reason for Jan Feb Mar Apr May Jun Jul Avg Sep Oct Nov Dec the decrease in maritime freight rates is faster Asia – N Europe Asia – USWC Asia – Med Source: Drewry, World Container Index growth in the tonnage of the container fleet of maritime carriers compared with the dynamics of demand. This is the result of the investment CHANGE IN SHANGHAI CONTAINERISED FREIGHT INDEX IN 2014 activities of operators prior to the crisis as well as the transition of major operators to vessels 1,054.13 1,200 01.30.2015 with greater tonnage (over 10,000 TEU), which 1,150 ensures a high level of cost efficiency. 1,100 1,050 1,000 According to Drewry Maritime Equity Research, 950 the capacity of the global container fleet 900 increased by 6.3% in 2014, while shipping volume grew by 5.2%, which had a negative 2013 2014 2015 impact on shipping prices.

Price dynamics Forecast for 2015 An unfavourable pricing environment is expected Maritime freight rates in 2014 featured a high In 2015, Drewry analysts forecast growth of 5.3% to continue on the global container market level of volatility with an overall downward trend: in the global container market, which would along with stiffer competition and continued the Shanghai Containerised Freight Index correspond to shipping volume of 195.2 mln consolidated processes in the industry (above ended the year at 1,078 points, down by 1.6% TEU. The primary factors behind the expected all due to the establishment of global alliances from the 2013 level. At the same time, spot market recovery include favourable forecasts that aim to optimise the utilisation of the fleet). maritime freight rates on the Asia-North Europe for growth in global GDP, above all the recovery route fell below the level of USD 1,500 per FEU of the U.S. economy, as well as positive For the Russian container market, this means in December 2014 compared with USD 3,000 dynamics in eurozone economies. At the same continued competitive pressure from maritime at the start of the year. time, the continued entry to the market of new carriers, primarily on transit routes and to a container ships with greater capacity will lead lesser degree import routes. The downward trend in freight rates is expected to growth of roughly 7.2% in the overall capacity to continue in 2015. of the global container ship fleet, which will maintain a sustained level of oversupply.

19 Annual report 2014 TransСontainer

CONTAINER TECHNOLOGIES HELP IMPROVE THE EFFICIENCY OF TRANSPORTATION OF FOOD PRODUCTS FOR SMALL AND MEDIUM-SIZED BATCHES COMMODITY GROUP FOOD ITEMS

MALCOLM MCLEAN IS CONSIDERED TO BE THE FOUNDER OF THE CONTAINER

MALCOLM MCLEAN, WHO PROPOSED THE IDEA OF UNIFIED PACKAGING FOR ITEMISED CARGO IN ORDER TO AVOID MULTIPLE SHIPMENTS WHEN TRANSPORTING FREIGHT VIA DIFFERENT TYPES OF TRANSPORTATION, IS CONSIDERED TO BE THE FOUNDER OF THE CONTAINER. IN APRIL 1956, THE FIRST VOYAGE WAS MADE BY THE PROTOTYPE IDEAL X CONTAINER SHIP, A CONVERTED TANKER. A SHIP CARRYING 58 CONTAINERS SET SAIL FROM THE PORT OF NEWARK TO THE PORT OF HOUSTON. THE LAUNCH OF “CONTAINERISATION” WAS REGARDED AS A SUCCESS AND MCLEAN’S COMPANY RECEIVED NUMEROUS ORDERS FOR CONTAINER SHIPMENTS.

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VOLUME OF FOOD ITEMS TRANSPORTED VOLUME OF FOOD ITEMS TRANSPORTED Food items transported BY PJSC TRANSCONTAINER BY TRANSPORTATION BY PJSC TRANSCONTAINER IN 2011–2014, TEU in specialised containers: MODE IN 2014, TEU

52,329 71,666 68,294 59,624 55,993 thermos containers

refrigerator containers

flexi-tanks 15,6 613 2,531 520 Domestic Export Import Transit 2011 2012 2013 2014 bulk containers

»»Refrigerated containers are used to transport products in certain temperature conditions. They may be used for the long-distance transportation of fish, meat, fruit, SHARE OF A COMMODITY vegetables and even ice cream GROUP (%) IN ALL COMMODITIES, TRANSPORTED IN CONTAINERS »»Bulk food cargo such as grain is VIA RUSSIAN RAILWAYS IN 2014 transported in bulk containers TransContainer Other 40.6%

6.0%

SHARE OF A COMMODITY GROUP (%) TRANSPORTED BY PJSC TRANSCONTAINER IN 2014

21 Annual report 2014 TransСontainer

RUSSIAN RAILWAY CONTAINER TRANSPORTATION MARKET

General situation

Fundamental factors that determine the dynamics of the Russian container market and ensure the potential of long-term sustainable growth in container shipment volumes:

1development of the Russian economy; 2the level of Russia’s involvement 3the level of containerisation of cargo in the international trading system; shipments.

In 2014, the volume of railway container container market compared with 2011-2013 shipments increased by 3.8% to 3.2 mln TEU. resulted from an overall slowdown in economic The decline in growth rates on the railway growth in Russia in 2014, in particular:

RUSSIAN GDP GREW BY 0.6% GROWTH IN PRODUCTION THE PHYSICAL COMPARED WITH GROWTH IN THE MANUFACTURING IMPORT OF GOODS OF 1.4% IN 2013 INDUSTRY TOTALLED DECREASED BY

0.6% 1.6% 9.8%

THE PHYSICAL EXPORT REAL RETAIL TURNOVER OF GOODS DECREASED BY DECREASED BY

5.7% 1.3%

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CONTAINER SHIPMENT VOLUME VIA RUSSIAN RAILWAYS NETWORK In the first half of 2014, monthly container AND RUSSIAN REAL GDP DYNAMICS IN 2007-2014 shipment volumes surpassed the indicators for the same period of 2013 by 5-7%. A shift in 20.0% 14.9% 15.6% 15.6% 25% this market trend became noticeable starting 10.4% from October 2014, when monthly shipments 8.5 % 15% 5.2 % 4.5 % 4.3 % 5.2% 3.4 % 5% were lower than the corresponding indicators 3.8% 1.32 % 0.86 % of the previous year. 2007 2008 2009 2010 2011 2012 2013 2014 –5% –15% –7.8 % –25%

–21.7% Growth in railway container market Growth in real GDP Source: OJSC Russian Railways, Federal State Statistics Service

CONTAINER SHIPMENT VOLUME VIA RUSSIAN RAILWAYS NETWORK IN 2011-2014, ‘000 TEU In 2014, dynamics on the container market were 300 280 dictated by growth in the containerisation of rail 260 shipments. According to Company estimates, 240 the share of containerised cargo transported via 220 the Russian Railways network edged up from 220 180 4.5% in 2013 to 4.9% in 2014. Average annual 160 growth of containerized freight transportation in Jan Feb Mar Apr May Jun Jul Avg Sep Oct Nov Dec 2011–2014 6.3%. 2011 2012 2013 2014 Source: OJSC Russian Railways, Company estimates

CARGO SHIPMENT CONTAINERISATION VIA THE RUSSIAN RAILWAYS NETWORK IN 2001-2014 Increased competition was seen in 2014

20 between operators within the container 18% 18 segment of railway shipments and between 16% 16 14% 14 the container segment and other segments 12 of the transportation market (railway shipments 10 in closed cars and road shipments). Growth 8 6 in the containerisation of railway shipments 4.5 4.9 3.7 4.1 4.2 4 2.6 2.5 2.6 2.6 2.7 3.0 3.3 suggests the cargo base may cross over 2.2 2.3 2 0 to the container segment. At the same time, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 the growth in competition in 2014 had a negative USA India Europe impact on the prices of operator services. Source: Main Computing Centre of OJSC Russian Railways, Company estimates

23 Annual report 2014 TransСontainer

Russian railway container shipment market

In 2014, the fastest growing segment of the market was domestic traffic, which increased by 9.1%. International shipments declined by 0.4% due to imports. The Company believes such dynamics were caused by the rouble’s devaluation as well as reduced consumer demand and investment activity in the country.

VOLUME OF RUSSIAN RUSSIAN RAILWAY CONTAINER SHIPMENT MARKET RUSSIAN RAILWAY CONTAINER SHIPMENT MARKET RAILWAY CONTAINER BY TRAFFIC TYPE, ‘000 TEU BY TRAFFIC TYPE, % TRANSPORTATION MARKET 3,097 3,215 2,943 251 +3.8% 6.3 7.7 7.6 7.8 2,667 228 235 167 617 20.5 21 22.1 21 618 685 TEU 546 3,215,000 848 26 25.4 25.9 26.4 804 694 749

1,499 45.8 46.6 ХХ.Х 1,260 1,349 1,374 ХХ.Х 47.2 44.4 ХХ.Х ХХ.Х 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Domestic (+9.1%) Import (-9.9%) Domestic Import Export (+5.4%) Transit (+7.2%) Export Transit

Source: OJSC Russian Railways, Company estimates

VOLUME OF RUSSIAN RAIL SHIPMENTS IN RUSSIA, % RAIL SHIPMENTS IN RUSSIA, % RAILWAY TERMINAL HANDLING MARKET

TEU 44% 47% 5,676,000 2013 2014

56% 53%

International container Domestic container International container Domestic container shipments shipments shipments shipments

Source: OJSC Russian Railways, Company estimates

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Import traffic

In 2014, the volume of imported railway container Imported container cargo turnover was dominated shipments decreased by 9.9% to 617,000 TEU. by supplies of automotive components (32%), consumer goods (18%), chemicals (14%) and metal Loaded containers accounted for 79% of railway products (13%). container imports in 2014. Given the imbalance in container cargo flow in international traffic in The biggest decrease in 2014 among key cargo favour of exports, a 6.1% increase was seen in types was seen in the container shipments the volume of empty container shipments. Due of automotive components (by 26%). to a 13.3% decrease in the volume of loaded container shipments in 2014, growth was The main import container flows entered the Russian observed in the proportion of empty containers Federation from countries of Southeast Asia (China, in imports from 18% in 2013 to 21% in 2014. South Korea and Japan) and Central and Eastern This trend had an adverse effect on the business Europe (Slovakia, Switzerland, Germany, Czech efficiency of operators. Republic, Netherlands and Spain).

IMPORT CONTAINER SHIPMENTS VIA RUSSIAN RAILWAYS IMPORT CONTAINER SHIPMENTS VIA RUSSIAN RAILWAYS NETWORK IN 2014, ‘000 TEU NETWORK BY KEY CARGO TYPES IN 2014

684.8 2% 6% 617.5 617.3 2% 546.2 –9.9% 2% 3% Automotive components 32% Consumer goods 8% Chemicals 490.2 563.1 488.1 448.3 Metalware Machinery and tools Construction cargo ХХ.Х 13% Food cargo ХХ.Х 97.8 127.2 121.7 129.2 Fabrics 2010 2011 2012 2013 2014 Ferrous metals Other Empty containers Loaded 18% (+6.1%) containers (–13.3%) 14%

Source: OJSC Russian Railways, Company estimates Source: OJSC Russian Railways, Company estimates

GROWTH IN CONTAINERISED IMPORT TRAFFIC VIA RUSSIAN RAILWAYS NETWORK BY KEY CARGO TYPES IN 2014

–26% 200,000

150,000

–5% 100,000 –3% –10% –9% 50,000 –7% –11% –19% –14% –14% 0 Automotive Consumer Chemicals Metalware Machinery Construction Food cargo Fabrics Ferrous Other goods and tools cargo metals 2013 2014

Source: OJSC Russian Railways, Company estimates

25 Annual report 2014 TransСontainer

Export traffic

The volume of exported railway container The increase in export container shipments in In 2014, most container exports via the Russian shipments increased by 5.4% to 847,500 TEU 2014 resulted from continued high demand Railways network were transported to ports in 2014. for containerised Russian exports amidst in Russia’s Northwest and Far East as well continued growth in the global economy and as countries in Eastern and Central Europe In 2014, within the structure of railway container the increased competitiveness of Russian (Germany, Switzerland, Belgium, Netherlands, exports considerable growth was seen in export goods due to the rouble’s devaluation. Slovakia and the Czech Republic). the proportion of loaded containers to 77% The greatest increase was seen for the following (compared with 73% a year prior), which is types of key cargo: paper, including pulp due to growth in the volume of export cargo (growth of 15% to 206,100 TEU), chemicals (including from the effect from the rouble’s (growth of 7% to 115,100 TEU), timber cargo devaluation) and a reduction in demand for (growth of 25% to 104,000 TEU), non-ferrous the return of empty containers for imports. metals (growth of 4% to 65,800 TEU), ferrous In 2014, Russian railway container exports were metals (growth of 11% to 42,200 TEU) and dominated by pulp and paper (32%), chemical chemical and mineral fertilisers (growth of 15% industry products (18%) and timber freight (16%). to 41,500 TEU).

IMPORT CONTAINER SHIPMENTS VIA RUSSIAN RAILWAYS IMPORT CONTAINER SHIPMENTS VIA RUSSIAN RAILWAYS NETWORK IN 2014, ‘000 TEU NETWORK BY KEY CARGO TYPES IN 2014

847.5 5% 1% 804.0 6% 748.9 +5.4% 693.8 6% 32% Paper and pulp Chemicals 653.1 6% Timber cargo 588.7 561.5 Non-ferrous metals 511.7 Ferrous metals Chemical and mineral fertilisers 10% Metalware ХХ.Х Consumer goods 215.3 Other ХХ.Х 182.1 187.4 194.4 18% 2010 2011 2012 2013 2014 16% Empty containers Loaded (–9.7%) containers (+1.1%)

Source: OJSC Russian Railways, Company estimates Source: OJSC Russian Railways, Company estimates

GROWTH IN CONTAINERISED IMPORT TRAFFIC VIA RUSSIAN RAILWAYS NETWORK BY KEY CARGO TYPES IN 2014

+15% 200,000

150,000

+25% +7% 100,000 +4% +11% +15% –10% 50,000 –2% +6% 0 Paper Chemicals Timber Non-ferrous Ferrous Chemical Metalware Consumer Other and pulp cargo metals metals and mineral goods fertilisers 2013 2014 Source: OJSC Russian Railways, Company estimates

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Domestic shipments

In 2014, the volume of domestic container while shipments of empty containers increased Growth in domestic railway container shipments shipments totalled 1,498,800 TEU, an increase by 8.9%, resulting in a slight decline in the share in 2014 is attributable to growth in the volume of of 9.1% from 2013. Domestic shipping was of empty containers in container turnover. chemical industry products (+14%), consumer impacted by the development of import- goods (+13%), engineering products (+9%), substituting industries combined with Domestic railway container cargo turnover was metal products (+6%) and construction cargo the weakening of the rouble and a decrease in more diversified compared with international (+16%). imports. shipments. In 2014, the most significant cargo types were chemical industry products (18%), The main domestic container flows were The proportion of loaded container shipments consumer goods (16%), machinery and tools concentrated on the routes of Central Russia- within the structure of domestic railway container (10%), food cargo (9%) and metal products Siberia as well as within the European part turnover is traditionally lower than in international (9%). Construction and oil products accounted of Russia. traffic due to the more complex structure for 8% of domestic cargo turnover, while paper of delivery routes. In 2014, loaded containers made up 5% of domestic loaded container accounted for 57.4% of domestic shipping. turnover by railway. Shipments of loaded containers grew by 9.3%,

EXPORT CONTAINER SHIPMENTS VIA RUSSIAN RAILWAYS EXPORT CONTAINER SHIPMENTS VIA RUSSIAN RAILWAYS NETWORK IN 2014, ‘000 TEU NETWORK BY KEY CARGO TYPES IN 2014

2% 3% 2% Chemicals 3% 1,498.8 18% Consumer goods 1,373.8 1,348.9 +9.1% 3% Machinery and tools 1,260 4% Food cargo 860.5 5% Metalware 701 737.5 787.6 Construction cargo Oil cargo 8% 16% Paper and pulp ХХ.Х 560 611.4 586.2 638.3 Perishable cargo ХХ.Х Timber cargo 2010 2011 2012 2013 2014 8% Non-ferrous metals Ferrous metals Empty Loaded 10% 9% Automotive components containers (+8.9%) containers (+9.3%) 9% Other Source: OJSC Russian Railways, Company estimates Source: OJSC Russian Railways, Company estimates

GROWTH OF EXPORT CONTAINER SHIPMENTS VIA RUSSIAN RAILWAYS NETWORK BY KEY CARGO TYPES IN 2014, ‘000 TEU

+14% 160,000 +13% 120,000

+9% +2% +6% +16% 80,000 +1% +5% +4% +10% +20% 40,000 +2% +6% +19% 0 Chemicals Consumer Machinery Food Metalware Construction Oil cargo Paper Perishable Timber Non-ferrous Ferrous Automotive Other goods and tools cargo cargo and pulp cargo cargo metals metals components 2013 2014 Source: OJSC Russian Railways, Company estimates

27 Annual report 2014 TransСontainer

Transit traffic

Transit railway container shipments increased by The growth in transit railway container cargo TRANSIT ROSE BY 7.1% in 2014 (from 234,500 to 251,300 TEU). turnover in 2014 is attributable to growth Loaded containers made up 73.1% of transit in the volume of metals products (+77%), in 2014 compared with 70.7% in 2013. Growth consumer goods (+44%) and chemical 7.1% in transit shipments primarily resulted from products (+44%). an increase in transit on the China-Europe route, which grew by 81.7% in 2014, as well Railway container transit primarily takes place as shipments to Central Asian countries. between Central and Eastern Europe (including the Baltic States) and Central Asia as well Transit railway container shipments increased by as between Southeast and Central Asia. 7.1% in 2014 (from 234,500 to 251,300 TEU). Loaded containers made up 73.1% of transit in 2014 compared with 70.7% in 2013.

DOMESTIC CONTAINER SHIPMENTS VIA RUSSIAN RAILWAYS DOMESTIC CONTAINER SHIPMENTS VIA THE RUSSIAN NETWORK IN 2014, ‘000 TEU RAILWAYS NETWORK BY KEY CARGO TYPES IN 2014

251.3 3% 2% 228.0 234.5 +7.1% 4% 8% Automotive components 166.8 32% Metalware 162.4 165.8 183.9 Consumer goods 118.1 9% Machinery and tools Ferrous metals ХХ.Х Chemincals ХХ.Х 48.8 65.6 68.7 67.4 Perishable cargo Food cargo 2010 2011 2012 2013 2014 9% Fibrous cargo Empty Loaded containers (–1.9%) containers (+1.1%) 12% 10%

Source: OJSC Russian Railways, Company estimates Source: OJSC Russian Railways, Company estimates

GROWTH OF DOMESTIC CONTAINER SHIPMENTS VIA THE RUSSIAN RAILWAYS NETWORK BY KEY CARGO TYPES IN 2014, ‘000 TEU

-2% 60,000

40,000

+77% +44% –0.02% –11% 20,000 +44% –34% –9% +23% 0 Automotive Metalware Consumer Machinery Ferrous Chemicals Perishable Food Fibrous components goods and tools metals cargo cargo cargo 2013 2014 Source: OJSC Russian Railways, Company estimates

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Forecast for 2015

Changes in the macroeconomic situation The Company views further growth in CONTINUED ECONOMIC in Russia in the second half of 2014 and geopolitical instability and a deterioration GROWTH IN DEVELOPED the consequent scaling down of official of the economic situation in the EU, China and NATIONS (WHICH WILL macroeconomic forecasts for 2015-2017 countries of the Asia-Pacific region as some FACILITATE GROWTH IN have created expectations of negative of the main risk factors for the market that could EXTERNAL DEMAND FOR dynamics in cargo transportation. The baseline have a negative impact on the Russian economy RUSSIAN CONTAINER EXPORTS), scenario assumes that the rate of decline in and container shipment volume. THE STABILISATION OF THE transportation volume will not be as substantial in 2015 as it was in 2009. With a stagnating or diminished cargo base, ROUBLE’S EXCHANGE RATE, there will be further growth in competition LOWER INFLATIONARY The Russian container market could see a positive on the container market among operators EXPECTATIONS AND THE impact from continued economic growth in both within the container segment as well RECOVERY OF INVESTMENT AND developed nations (which will contribute to growth as between related segments of the cargo CONSUMER ACTIVITY IN RUSSIA in external demand for Russian container exports), transportation market. This will impact future ALL MAY HAVE A POSITIVE the stabilisation of the rouble’s exchange rate, growth in the containerisation of railway EFFECT ON THE RUSSIAN lower inflation expectations and the recovery container shipments. In addition, this indicator CONTAINER MARKET DYNAMICS of investment and consumer activity in Russia. If will remain at a relatively low level compared with the rouble continues to perform poorly versus key the markets of economically developed nations global currencies, this may have a restraining effect and a number of developing countries. Growth on container imports, but will remain a positive in competition will also have a restraining effect factor for exports, and if import-substituting on operator rates. industries are successfully developed, it will support domestic container cargo flows. In this regard, the proportion of export cargo in container turnover is expected to increase with continued high demand for the provision of containers and train cars for cargo loading.

COMPANY’S POSITION IN THE INDUSTRY

In 2014, the Company increased its share COMPANY’S SHARE IN TOTAL CONTAINER SHIPMENTS COMPANY’S SHARE of the transit segment by 4 percentage points VIA THE RUSSIAN RAILWAYS NETWORK BY TRAFFIC TYPE IN RAILWAY CONTAINER to 46.7%. The Company’s share of domestic IN 2014 (LOADED AND EMPTY LTC), ‘000 TEU SHIPMENT MARKET shipments declined to 51.0% in 2014 from 52.9% in 2013 and its share of international shipments slipped to 40.9% compared with 46% 49% 56% 53% 54% 42.2% in 2013. 65%

The Company’s overall market share totalled 47% 46% 45.6% in 2014 compared with 47.0% in 2013. 51% 44% 35% Given the continued growth in competition Domestic Export Import Transit Total on the cargo container shipment market, TransContainer the Company succeeded in preventing Other operators a significant drop in its market share by implementing measures to improve the quality Source: OJSC Russian Railways, Company data of service.

29 Annual report 2014 TransСontainer

OVERVIEW OF STRATEGY

THE COMPANY’S STRATEGY AIMS ARE TO MAXIMISE THE FULL REALISATION OF ITS COMPETITIVE ADVANTAGES AS WELL AS REVEAL THE POTENTIAL OF ITS BUSINESS MODEL.

TARGET BUSINESS MODEL

A vertically integrated transportation and logistics The strategy centres around developing holding that provides container freight carriage the Company’s basic advantages in order COMPANY and logistics services throughout Europe and to ensure the sustainable development of the Asia. business regardless of fluctuations in market and MISSION economic conditions. The ultimate goal of the strategy of PJSC TO PROVIDE EFFECTIVE TransContainer is to create additional value for all Update to the Strategy SUPPORT TO ITS CLIENTS BY stakeholders: The current version of TransContainer’s Development Strategy Through 2020 was OFFERING PROMPT, RELIABLE adopted in January 2013. However, significant AND COMPREHENSIVE 1for shareholders – via growth in the income changes in economic conditions in 2014 CONTAINERISED CARGO of shareholders and an increase and 2015 as well as a change in the majority DELIVERY AND LOGISTICS in the Company’s value; shareholder in November 2014 have presented SOLUTIONS the Company with the challenge of updating its strategic priorities and ways to implement 2for customers – by providing high-quality and the Strategy under the new conditions. competitive transportation and logistics services that enable customers to develop their own The Company plans to submit an updated businesses; version of TransContainer’s Development STRATEGIC GOAL Strategy Through 2020 (hereinafter the Strategy) to the Board of Directors for consideration in TO INCREASE 3for the public and government – 2015. The document identifies the main strategic THE COMPANY’S MARKET through providing transportation accessibility priorities for the following key business model nationwide, contributing to economic growth, components: customers, services, assets and CAPITALISATION THROUGH creating jobs and paying taxes. business efficiency. AN INCREASE IN SCALE AND EFFICIENCY

CUSTOMERS

Preferred supplier is being optimised, which should enhance One of the Company’s strategic priorities is the competitiveness of the business and to retain existing customers and attract new preserve its economic viability. ones by improving the quality of customer service. As part of this objective, work is The Company’s strategic goal in customer under way to develop the sales network and relations is to attain the market position of a improve the incentive system of core business “preferred supplier” that is capable of offering departments, new transportation and logistics marketable transportation products at an products are under development and pricing optimal price/quality ratio.

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Improved efficiency of customer relations The establishment of JSC United Transportation A KEY OBJECTIVE FOR In an environment of constantly growing and Logistics Company (JSC UTLC), which THE DEVELOPMENT OF competition, improving the efficiency of customer was registered on 13 November 2014, should THE CUSTOMER BASE IS relations is essential for successful business provide a new impetus for the Company’s TO ENSURE ADDITIONAL development. The strategy in this area aims business as well as the container transportation SOURCES OF GROWTH FOR to introduce quality standards and monitoring market as a whole. THE COMPANY GIVEN THE systems as well as develop customer feedback. LIMITED OPPORTUNITIES An agreement on the establishment of UTLC In 2014, an independent study was conducted was signed by OJSC Russian Railways, JSC FOR INTERNAL GROWTH on the quality of service that included measuring NC Kazakhstan Temir Zholy and GO Belarusian IN TRADITIONAL MARKETS the degree of customer satisfaction with Railway on 20 June 2013 as part of the Saint AND THE HIGH RISK OF AN the quality of service. Using the data obtained, Petersburg International Economic Forum. UNFAVOURABLE PRICING the Company has begun forming three basic ENVIRONMENT services: a proactive sales system, a cross UTLC was established to support sales system between branches, an online the development of the transportation communication system with customers and logistics infrastructure of the three that includes the ability of remote access countries based on common pricing policy to databases (for regular customers) and principles, the mutual use of rolling stock and the use of an online store (for private customers the introduction of uniform technologies and as well as small- and medium-sized businesses) standards for transportation and logistics services within the Common Economic Space For more details see page 37 (CES). UTLC is tasked with revealing the transit potential of the Customs Union along the China- Europe route and creating a new competitive Development of customer base and new global transportation corridor to serve sources of growth the growing container traffic shipped from A key objective in this area is to ensure Western China to Central and Eastern Europe. additional sources of growth for the Company given the limited opportunities for internal The main factors for the project’s success growth in traditional markets and the high risk are regarded as the multi-source business that an unfavourable pricing environment might scale of UTLC throughout the CEP and develop. In 2014, the Company continued the existence of a broad network of routes work to enter the rapidly growing markets and a large fleet of rolling stock, which makes of several countries in Southeast Asia. it possible to solve the primary economic problem of transit between China and Europe Container traffic has increased in the segment – the lack of return loading (from Europe of liquid, bulk and perishable cargo that is to China). Combining the transport, import transported using specialised containers. and domestic routes within CEP countries is expected to significantly reduce empty runs and thus create a competitive tariff.

31 Annual report 2014 TransСontainer

SERVICES

The Company offers the full range of services A strategic objective in this segment is to increase being implemented to increase the proportion for containerised cargo delivery, from standard the proportion of integrated services and offer of shipments using block trains, which grew from railway shipment operations from station services with higher added value such as door-to- 28.8% in 2011 to 42.1% in 2014. to station and terminal handling to creating door and just-in-time delivery. complex logistics chains involving various The Strategy also envisages the Company’s types of transportation. The Company uses The Strategy provides for maximising the efficient development as a network container operator, both its own assets as well as third-party use of the technological advantages offered making it possible to provide services to customers services to achieve this. by railway transportation such as delivery regardless of their size, ownership form or speed and reliability. As part of an additional geographical location within Russia and countries For more details see page 38 reduction in shipping costs, a programme is using railways with 1,520-mm rail gauges.

ASSETS

The development strategy for the asset Development of a terminal network base aims to ensure three key competitive One of the Company’s strategic priorities advantages: the network-wide nature is to develop its own terminal network. Key GROWTH IN FLATCAR of business, optimal fleet size and structure terminals have been rebuilt and commissioned FLEET CAPACITY as well as synergy from the vertical integration in recent years at the Zabaykalsk, Kleshchikha, of production assets. Kostarikha, Moscow-Tovarnaya-Paveletskaya stations and work is under way to modernise 5.0% Optimised size and structure of rolling terminals at the Batareynaya and Bazaikha stock fleet stations. The Company’s strategy also does not In 2014, due to the acquisition of high-efficiency exclude the acquisition of terminal assets from eighty-foot flatcars, the fleet’s capacity grew other players in regions with a promising cargo by 5% from 80,100 TEU to 84,100 TEU. Given base. PROPORTION increased demand by exporters, the Company OF SHIPMENTS acquired forty-foot flatcars to ship heavy In 2014, the fleet of crane equipment for containerised cargo that is predominantly for the loading of large-tonnage containers VIA BLOCK TRAINS export. The large-tonnage fleet’s capacity grew increased by 12% and a plan was compiled from 84,700 TEU to 88,900 TEU. for the restructuring of the Company’s terminal business in the Moscow region. The presence of a substantial fleet of its own 42% containers enabled the Company to provide Synergistic effect from vertical business them to customers in a sufficient amount despite integration the decrease in the number of containers on Improving the efficient use of assets as part of a shipping lines on the Russian railway network in single technological complex creates additional the second half of 2014. value for customers. In particular, a new customs and logistics terminal opened at the Zabaykalsk For more details see page 39 station in August 2014 that is capable of providing the full range of services for the customs clearance of international (including transit) shipments regardless of the shipment method.

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BUSINESS EFFICIENCY

Improved utilisation of rolling stock Improved efficiency of personnel LABOUR PRODUCTIVITY The updated Strategy provides for the improved The Company is meeting the challenge GROWTH utilisation of the rolling stock fleet by optimising of improving the efficiency of personnel by the fleet structure of flatcars and containers, optimising the personnel structure, increasing increasing fleet turnover (above all through labour productivity and improving the incentive further growth in shipment volumes by block system. The key performance indicator system 16.3% trains) and reducing the proportion of empty previously implemented for the Company’s runs by containers and railcars. senior management was extended to include middle managers in 2014. An incentive system In 2014, the proportion of high-efficiency eighty- for customer managers tied to the sales volume foot flatcars approached the optimal value of transportation services and customer of 50% (in terms of capacity) and amounted satisfaction index is being built separately. to 45%, while the volume of cargo containers shipped by block trains grew by 20% in 2014. Addressing these challenges enabled The empty run ratio for containers declined to an the Company to increase labour productivity all-time low of 28.8% in the reporting year. by production personnel 16.3% in real terms in 2014. At the same time, growth in shipments Improved utilisation of terminals and terminal handling totalled only 0.9%. This The Company is solving the strategic objective made it possible to reduce average personnel of improving the utilisation of the terminal numbers by 7.9%, including by 3.3% among business by modernising key terminals on the administrative staff. the Russian railway network, optimising under- utilised terminals, increasing the productivity of lifting equipment and developing promising “growth points” in regional clusters that have their own cargo base.

ECONOMIC EFFICIENCY

From 2010 to 2013, despite the start of a The economic downturn that intensified in slowdown in Russian economic growth rates the second half of 2014 had a substantial and the dynamics of the container market, negative impact on the Company’s financial NET MARGIN the Company demonstrated steady growth in results last year. Despite the unfavourable net profit, which increased from RUB 0.9 bln external situation, however, the Company in 2010 to RUB 6.0 bln in 2013, while the net posted net profit of RUB 3.7 bln and a net 17.8 % margin jumped from 5.6% to 23.6%. EBITDA margin of 17.8%, which are the best such expanded from RUB 4.4 bln to RUB 10.1 bln. indicators among public Russian transportation companies.

33 Annual report 2014 TransСontainer

METAL TRANSPORTED IN THE COMPANY’S RAILCARS FOR EXPORT MAKE UP MORE THAN 60% OF THE RUSSIAN CONTAINERISED RAILWAY COMMODITY GROUP SHIPMENTS MARKET METALS

CONTAINERS

ARE A STANDARDISED REUSABLE METAL PACKAGE USED FOR THE SECURE, EFFICIENT AND RELIABLE STORAGE AND TRANSPORTATION OF MATERIALS AND PRODUCTS AS PART OF GLOBAL INTERMODAL CONTAINERISED CARGO SHIPMENTS (EXCEPT AIR TRANSPORTATION). “INTERMODAL” MEANS THAT THE CONTAINER MAY BE MOVED FROM ONE TYPE OF TRANSPORTATION TO ANOTHER WITHOUT LOADING AND UNLOADING.

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VOLUME OF METALS TRANSPORTED VOLUME OF METALS TRANSPORTED Metals are a “heavy” cargo BY PJSC TRANSCONTAINER BY TRANSPORTATION BY PJSC TRANSCONTAINER IN 2011–2014, TEU and are transported in twenty-foot MODE IN 2014, TEU containers 65,998 110,843 110,423 98,179 98,472

26,141 »»Transportation of valuable non- ferrous metals such as aluminium, 15,6 copper, nickel and various alloys of 3,857 2,476 non-ferrous metals. Domestic Export Import Transit 2011 2012 2013 2014 Al Cu Ni

»»The railway tariff for the transportation of metals in containers is normally lower than the tariff for transportation SHARE OF A COMMODITY in open railcars. GROUP (%) IN ALL COMMODITIES, TRANSPORTED IN CONTAINERS VIA RUSSIAN RAILWAYS IN 2014

TransContainer Other 54.6%

10.6% SHARE OF A COMMODITY GROUP (%) TRANSPORTED BY PJSC TRANSCONTAINER IN 2014

35 Annual report 2014 TransСontainer

OPERATING RESULTS

CUSTOMERS

Customer base A number of measures were implemented The international network covers 28 nations, In 2014, more than 35,000 customers throughout 2014 to improve the efficiency including countries in the CIS, Central Europe utilised the Company’s services. The top of the sales network in the Russian Federation: and Southeast Asia. In 2014, the Company ten biggest clients accounted for 26% began expanding its presence in Southeast Asia. of customer payments in 2014, while the largest »»the incentive system was optimised for personnel In particular, services were launched for cargo customer, the UNICO group, which serves in the sales system and aims to grow sales shipments with Thailand, Vietnam and Taiwan as the Company’s partners in import and transit by developing proactive sales and gaining and in the future with Malaysia, Indonesia and projects from South Korea and China (Samsung, the loyalty of the existing customer base through Singapore. As of 31 December 2014, the network GM, Hyundai and Young, among others), the improved quality of customer service; included three subsidiaries, four joint ventures, provided 7.4% of all customer payments. »»sales system employees underwent training that eight representative offices and 37 agent included the development of communication skills, companies and regional partners. End consignors and consignees made up business correspondence and persuasion and 25.3% of the customer base in 2014. negotiating techniques, among other skills. In 2014, an online containerised cargo delivery store that focuses on individuals as well as small- Sales system In December 2014, the Corporate Customer and medium-sized businesses significantly The Company is the only railway container Service Standard took effect and work began to tie expanded its functions, in particular by: operator in Russia that is represented in all the personnel incentive system to the requirements the main administrative centres of the country. of the Standard. A rating system for the activities »»considerably expanding the geography The Company’s business model focuses on of the Company’s branches remained in effect of services sold via the online store; relations with a wide range of customers that throughout the entire year based on indicators »»fine-tuning procedures for interaction with differ in terms of size of business, shipment that reflect the utilisation efficiency of production customers during order placement, payment geography, location and industry affiliation. facilities and personnel, the competitiveness of a and fulfilment; The sales network covers the entire territory branch on the local market for containerised cargo »»adding the services “online consultant” and of the Russian Federation and the main shipments and the terminal handling of containers “personal account”; transportation centres in Europe and Asia. as well as the quality of service. »»making the functionality and interface The Company is adapting a line of services and of the online store more friendly; optimising sales channels for each customer Based on an analysis of business processes »»significantly increasing order fulfilment speed; segment. and the regulation of labour costs, a standard »»initiating a programme to promote online organisational and staff structure was introduced services. As of 31 December 2014, the Company in 2014, making it possible to significantly increase had 130 sales offices in Russia, including labour productivity and the operating efficiency in key cargo-generating clusters, regional of branches. administrative centres and transportation hubs.

COMPANY’S TOP TEN BIGGEST CUSTOMERS BY REVENUE IN 2014

1.4% 1.1% UNICO Fintrans 1.5% 7.4% Volkswagen 1.6% Rusal SHARE OF BIGGEST RZDL 74.3% 1.8% % Interlink CUSTOMER IN REVENUE 25.7 Transport develop. group 2.1% Portexpress 4.0% Voskhod 2.1% LTS 2.7% Other Clients 7.4 %

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In 2014, containers could be ordered in Steps were taken to improve the quality Major improvements were made to the order the online store from more than 40 regions of services as well. In particular, technology fulfilment quality control system at all levels of the Russian Federation, including from was developed in 2014 to register shipping of door-to-door container transportation. the Republic of Crimea. The most popular documents using electronic signatures and The system makes it possible to track the time options were container shipments as part electronic document management procedures required for all stages of container delivery and of regular container trains from Moscow, Saint with OJSC Russian Railways (Electronic Bill compare it with the standard time. If the standard Petersburg, Novosibirsk and Vladivostok. of Lading). This technology makes it possible to: order fulfilment time is exceeded, the container will be put in a “red zone” and management will Development of customer service »»reduce the time spent on paperwork; take action to rectify the situation. In 2014, new services were launched »»reduce the number of visits a customer and the quality of existing services was has to make to the Company to register Given the substantial growth in international improved through the introduction of new documents; shipping volume, the Company has developed technologies. The main areas of optimisation »»significantly improve the quality and speed an automated container fleet management included: a reduction in container shipment of customer service. system abroad. The system was introduced and delivery time, improved accuracy in in Southeast Asian countries in 2014. This meeting declared delivery times, reducing In addition, the Company expanded its ability significantly reduces the time required for the customer’s involvement in procedural to provide services via the Internet as well the provision (booking) of containers in China aspects of the container delivery process while as the geography of such services in 2014. Now and lowers expenses on empty runs and simultaneously enhancing the transparency using the online store customers can: container storage at ports and container depots. of the entire process for the customer and developing an effective feedback system. »»get a quote for the cost of services along a Improvements continued to the system for particular route; feedback with customers and all third parties. New regular container trains were launched »»place an order for container delivery; Customer requests and feedback are sent: along the following routes »»obtain an invoice; »»pay for services using the form of their choice; »»by a multi-channel telephone line; »»Perm – Saint Petersburg; »»prepare a work completion statement or »»by email (with the automated generation »»Saint Petersburg-Tovarny-Vitebsky – invoice and also fully process the shipment of electronic messages sorted by subject Batareynaya; online. and sender profile and sent to specifically »»Ugolnaya (Far East Railways) – Yekaterinburg- to the Company’s relevant services); Tovarny (Sverdlovsk Railways) (jointly with The time required to form complex multimodal »»via the website (electronic customer CJSC Pacific Intermodal Container); container routes based on customer orders application). »»Saint Petersburg – Khabarovsk; has been considerably reduced. This became »»Saint Petersburg-Tovarny-Vitebsky – possible following the introduction in 2014 The expanded number of customer feedback Nakhodka-East; of a single integrated information system that channels and improved operating efficiency »»Saint Petersburg – Krasnoyarsk; processes information about the services of the contact centre resulted in a 5.2% increase »»Dobra (Slovakia) – Vorsino (Russia) (jointly of the Company and third-party operators acting in the number of requests processed in 2014 with South Korea’s HTNS and European as co-contractors for the delivery of containers compared to the 2013 level with 44,100 logistics services provider JTC). to Europe and Asia. requests sent per month. This year, the contact centre has processed 3,100 emails, a 25% year- Regular multimodal service was launched jointly on-year increase. with international ferry operator Stena Line on routes from industrial areas of Scandinavia to manufacturing centres in Russia, Central Asia and China. This service makes up for the lack of regular feeder (linear) service between the Baltic States and Sweden.

37 Annual report 2014 TransСontainer

SERVICES

Operator services the Company’s own empty containers declined Services involving the provision of rolling stock by 1.6% to 336,000 TEU in 2014. Railway for container transportation are provided for shipments of both the Company’s containers In 2014, a reduction was seen in the transportation transportation as well as customer containers (in this case only volume of customer containers. Customer flatcars are provided). In addition, the Company containers made up 39.9% of the overall shipment The Company provides specialised uses part of the rolling stock to supply its own volume by the Company’s rolling stock in 2014 rolling stock for container empty containers for loading. (compared with 40.4% in 2013). The high demand transportation by rail as well for flatcars to transport the containers of other as containers for cargo shipment. PJSC TransContainer generates income from owners in 2011-2013 resulted from a significant The volume of container shipments the transportation of customer containers influx in shipping line containers to the Russian by rolling stock grew 0.9% in 2014 (and the containers of third parties) using container transportation market. Due to a decline compared with 2013 and amounted the Company’s rolling stock (including empty in the volume of container imports in 2014, to 1,467,000 TEU. The main growth cars) as well as the transportation of cargo in the influx of shipping line containers to the Russian factor was domestic shipments, containers provided by the Company. When market declined substantially and this led to growth which increased by 5.2% and totalled transporting its own containers in empty runs, in demand for transportation using the Company’s 765,000 TEU. International container the railway tariff of OJSC Russian Railways own containers. shipments by rail declined by 3.4% and other railway administrations shall be paid in 2014, primarily due to a 19.7% by the Company. Such shipments generate In 2014, the most prevalent cargo items within decrease in imports resulting from expenses for the Company and are not regarded the shipment structure were chemical industry diminished consumer activity and as revenue generating shipments. products (18.1% of total loaded container the effect of the rouble’s devaluation. shipments), automotive components (12%), pulp In 2014, the volume of revenue generating and paper products (10%) and timber industry shipments performed using the Company’s products (9.2%). Compared with 2013, the share rolling stock grew by 1.7% to 1,131,000 of chemical, pulp and paper and timber products TEU, while the proportion of revenue as well as other types of cargo increased within generating shipments in overall container the structure of shipments using the Company’s transportation using the Company’s rolling rolling stock, while the proportion of automotive stock increased from 76.5% in 2013 to 77.1% components, foods and ferrous metals decreased. in 2014. The volume of transportation using

CONTAINER SHIPMENT VOLUME BY THE COMPANY’S CONTAINER SHIPMENTS BY THE COMPANY’S ROLLING CONTAINER SHIPMENTS BY THE COMPANY’S ROLLING ROLLING STOCK IN 2010-2014 (LOADED AND EMPTY LTC, STOCK IN 2014 BY TRAFFIC TYPE (LOADED AND EMPTY LTC, STOCK IN 2010-2014 BY CONTAINER AFFILIATION (‘000 TEU) ‘000 TEU)) SHARE AS % BASED ON TRAFFIC VOLUME IN TEU)

76.5% 77.1% 8% 74.9% 75.5% 72.3% 1,484 1,454 1,467 +0.9% 1,484 1,454 1,467 1,362 1,362 90 100 117 15% 34 336 1,202 247 214 1,202 364 342 29 222 267 342 190 333 329 353 371 264 360 599 525 545 52% 591 562 778 793 765 719 727 521 587 586 25% 429 307 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014

Domestic (+5.2%) Import (-19.7%) Domestic Import Customer containers TC empty containers Export (+3.1%) Transit (+17.2%) Export Transit TC loaded containers Share of income-generating shipments

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Rail containerised shipments using The Company continues to develop The Company is planning further cooperation specialised containers technologies to expand the range of cargo with JSC Kedentransservice as part transported in standard containers, including of the development of railway container shipments Shipments using specialised containers flexi-tank and dry-liner, which are used and integrated logistics services in Kazakhstan hold promise because they make to transport bulk and liquid cargoes. and Central Asia using its own and leased rolling it possible to significantly expand the range stock and the extensive terminal network of JSC of containerised cargo and improve Railway container shipments in Kedentransservice combined with the use the containerisation of rail shipments. the Republic of Kazakhstan and Central of the technologies and IT solutions of PJSC Asia TransContainer. In 2014, the volume of cargo shipped in In 2014, PJSC TransContainer jointly with specialised containers amounted to 9,200 TEU, JSC NC Kazakhstan Temir Zholy continued which makes up approximately 1.6% of shipments developing a business that aims to provide by the Company’s own loaded containers. integrated transportation and logistics services for the delivery of containerised cargo in Kazakhstan The Company’s largest customers that use and Central Asian countries on the core specialised container shipment services are of the joint venture JSC Kedentransservice. PepsiCo (food), OJSC Sady Pridonya (food) and As of the end of 2014, JSC NC Kazakhstan JSC RefService. These customers accounted for Temir Zholy had 4,942 flatcars under its roughly 80% of specialised container shipments operation, including 91 flatcars owned by JSC in 2014. Kedentransservice, 273 flatcars provided by Main types of specialised containers PJSC TransContainer and 4,578 flatcars from operated by the Company: This year, the specialised container fleet third parties. JSC Kedentransservice increased includes containers for the shipment of liquid its volume of containerised shipments by 8.6% cargo – tank containers. At present, the tank in 2014 compared with 2013 to 253,000 TEU, Thermally insulated containers container fleet under the Company’s operational primarily due to an increase in the flatcar fleet Perishable cargo management consists of 84 units. under operation. GROSS 20 FEET UP TO 24 TONNES

Tank containers Liquid cargo (including hazardous)

GROSS 20 FEET UP TO 36 TONNES

Containers with soft covered lid REVENUE GENERATING CONTAINER SHIPMENTS LOADED CONTAINER SHIPMENTS BY THE COMPANY’S (soft top) For transportation of bulky, BY THE COMPANY’S ROLLING STOCK IN 2010-2014 (‘000 TEU) ROLLING STOCK IN 2014 BY KEY CARGO TYPE (PROPORTION heavy and difficult-to-load cargo BASED ON TRANSPORTATION VOLUME IN TEU) GROSS 20 40 TONNES FEET FEET UP TO 24

64.7% 57.9% 53.5% 18.1% Containers with removable metal lids 47.2% 48.2% 25.6% (hard top) For transportation of bulky, 1,120 1,113 1,131 heavy and difficult-to-load cargo 1,020 870 12% GROSS 599 525 545 20 FEET UP TO 24 TONNES 591 562 5.7%

587 586 5.7% 10% Containers for bulk cargo 429 521 307 6.2% (bulk container) For transportation 9.2% 2010 2011 2012 2013 2014 7.6% of cargo shipped in bulk (including food)

Customer containers Share of TC loaded containers Chemicals Lumber Non-ferrous metals GROSS TONNES TC loaded containers in income-generating Automotive comp. Metalware Food 20 FEET UP TO 30 shipments Paper, pulp Machinery, tools Other

39 Annual report 2014 TransСontainer

Terminal operations CONTAINER HANDLING VOLUME AT THE COMPANY’S in the Russian Federation TERMINALS IN THE RUSSIAN FEDERATION (LTC+MTC) Terminal services Handling at the Company’s container IN 2010-2014, ‘000 TEU terminals in the Russian Federation increased The Company provides container handling 0.9% in 2014 and totalled 1,331,000 TEU. 1,448 1,483 1,428 services at its own rail terminals, including The handling of large-tonnage containers 1,331 +0.9% 161 139 121 1,319 the unloading and loading of railway (LTC) grew by 2.6% in 2014 to 1,327,000 71 53 transportation, the sorting and storage TEU, while the handling of medium-tonnage 602 650 662 640 602 of containers and the unloading and loading containers (MTC) plummeted 83.9% (from of road transportation, and also provides a 26,000 TEU to 4,200 TEU) due to the gradual wide range of additional services associated retirement of this type of container equipment. 682 667 646 676 with the terminal handling of containers 637 and containerised cargo (including 2010 2011 2012 2013 2014 the preparation of containers for shipment, Loading the unloading and loading of cargo into Unloading containers and the sealing of containers, Sorting among other services).

Integrated logistics services are in high demand GROWTH OF NET REVENUE FROM SERVICES UNDER since they combine: INTEGRATED LOGISTICS CONTRACTS IN 2010-2014, Integrated »»convenience for the customer (the Company RUB BLN ensures the final result); 55.3% transportation »»simplicity (single price for the entire range 41.2% 29.7% 29.6% 33.3% and logistics services of services); »»reliability (the Company has its own assets during 25.6 25.3 and multimodal 22.7 all key stages of container delivery). 8.5 20.5 10.4 transportation 16.5 6.7 In addition, the Company provides customers 4.9 11.4

with a wide range of additional logistics and freight 17.1 16.0 14.9 Utilising its business model, the Company can forwarding services, including the registration 11.6 9.2 offer its customers integrated transportation of transportation documents, interaction with 2010 2011 2012 2013 2014 and logistics solutions (integrated logistics the carrier, tracking of containerised cargo in transit services), including door-to-door container as well as customs and border procedures, among Net revenue from integrated logistics services Other revenue delivery services at a single tariff according other services. Share of integrated logistics services in net revenue to the “all included” principle. The Company provides integrated logistics services using Net revenue from integrated logistics services its own assets (flatcars, containers, terminals totalled RUB 11.3 bln in 2014, an 8.8% increase and vehicle fleet) as well as third-party on the 2013 level. The share of net revenue from In 2014, the range of services offered at terminals services (OJSC Russian Railways, foreign integrated logistics services in the Company’s was expanded and more flexible working hours railway administrations, agent companies and overall income increased to 55.3% (compared were established for terminals. In particular, shipping lines, among others). with 41.2% in 2013), which can be attributed to an the list of possible container delivery options to/ increase in demand for these services, including by from the terminal or to/from the warehouse was small- and medium-sized customers. expanded, including at night.

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Terminal operations abroad resulted from a decrease in import shipping CONTAINER HANDLING VOLUME In 2014, the Company owned 50% of the capital volumes as well as the devaluation of national AT COMPANY’S TERMINALS of JSC Kedentransservice, the leading private currency of the Republic of Kazakhstan. IN RUSSIA terminal services operator in the Republic of Kazakhstan. In 2014, the container PJSC TransContainer is the operator handling volume by JSC Kedentransservice of the container terminal at the Dobra border 1,331,000 TEU at the border terminals of Dostyk and Altynkol crossing on the border between Slovakia and amounted to 206,700 TEU, an 80.7% increase Ukraine through its subsidiary TransContainer +0.9% from the previous year’s level. In 2014, JSC Slovakia. Container handling at the Dobra terminal Kedentransservice obtained shipment space amounted to 12,200 TEU in 2014, a 0.8% at the Altynkol station, which resulted in a decrease from the 2013 level. CONTAINER HANDLING VOLUME significant increase in handling volume compared OF KEDENTRANSSERVICE AT BORDER with 2013. CROSSINGS WITH CHINA

Cargo handling at the terminal network of JSC Kedentransservice totalled 3.4 mln tonnes in 2014, 206,700 TEU down 1.8% from the 2013 level. This reduction +80.7%

The Company’s in-house and third-party vehicle CONTAINER DELIVERY BY IN-HOUSE AND THIRD-PARTY fleet carried 415,000 TEU in 2014, a 23.8% TRANSPORTATION IN THE RUSSIAN FEDERATION (LTC+MTC) Road transportation decrease from the 2013 level. The decline in IN 2010-2014, ‘000 TEU the road transportation of containers was due Services provided by the Company to a reduction in the volume of transactions for container delivery by road with MTC as well as an increase in the share transportation primarily include of customers among freight forwarders with their 630 657 544 545 –23.8% the transportation of containers own vehicle fleet to perform “last mile” services. 272 286 415 257 249 between the terminal and final 171 358 370 destination of the cargo (or container The proportion of shipments using 288 295 244 unloading destination) and represent the Company’s in-house vehicle fleet within 2010 2011 2012 2013 2014 “last mile” services. For this purpose, the overall road transportation volume declined Third-party vehicle fleet the Company uses both its own to 41.2% in 2014 (compared with 45.8% in In-house vehicle fleet vehicle fleet as well as the services 2013). The proportion of LTC in the shipment of third-party road transportation structure increased from 99.3% in 2013 companies on a contractual basis. to 99.9% in 2014. TRANSPORTATION VOLUME The Company also has the right BY IN-HOUSE AND THIRD PARTY to perform road transportation under VEHICLE FLEET customs control.

415,000 TEU –23.8%

41 Annual report 2014 TransСontainer

Transportation in specialised containers:

COMMODITY GROUP tank container, flexi-tank

CHEMICALS »»Chemicals and petroleum products transported in large-tonnage containers: detergents, soda, AND PETROLEUM polyethylene, chemical fertilizers, polymers, synthetic rubber, paints, plastics, oils, bitumen, lubricants and PRODUCTS propane-butane. »»Special conditions for the transportation of chemicals in large- tonnage containers.

SPECIAL TANK CONTAINERS HAVE BEEN DESIGNED TO DELIVER LIQUIDS.

THEY LOOK LIKE TANKS IN A METAL SHEATH AND ARE SUFFICIENTLY STRONG AND DURABLE. SUCH TANKS MAY BE USED TO TRANSPORT A LARGE NUMBER OF FREIGHT – FROM LIQUEFIED GASSES AND FLAMMABLE LIQUIDS TO OILS, MILK AND WINE. TANK CONTAINERS CAN ENSURE THE TEMPERATURE REQUIRED FOR CERTAIN TYPES OF LIQUID CARGO.

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CHEMICALS AND VOLUME OF CHEMICALS AND PETROLEUM PRODUCTS VOLUME OF CHEMICALS AND PETROLEUM PRODUCTS PETROLEUM PRODUCTS TRANSPORTED BY PJSC TRANSCONTAINER TRANSPORTED BY PJSC TRANSCONTAINER TRANSPORTED IN THE BY TRANSPORTATION MODE IN 2014, TEU IN 2011–2014, TEU COMPANY’S RAILCARS 90,155 196,382 87,655 184,566 FOR EXPORT MAKE UP 174,894 MORE THAN 50% OF THE 161,818 RUSSIAN CONTAINERISED RAILWAY SHIPMENTS MARKET

15,6 14,748 3,825

Domestic Export Import Transit 2011 2012 2013 2014

SHARE OF A COMMODITY GROUP (%) IN ALL COMMODITIES, TRANSPORTED IN CONTAINERS VIA RUSSIAN RAILWAYS IN 2014

TransContainer Other 41.9%

21.2% SHARE OF A COMMODITY GROUP (%) TRANSPORTED BY PJSC TRANSCONTAINER IN 2014

43 Annual report 2014 TransСontainer

ASSETS

Rolling stock

Flatcars As of the end of 2014, the Company also owned Container transportation as part of block trains As of 31 December 2014, the Company 6,235 MTC (with carrying capacity of 3 to 5 tonnes) increases speed by 2.5 to 3 times compared operated a fleet of 26,923 specialized rolling that it had rented. The MTC fleet decreased with car loads within pick-up freight trains. This stock units (flatcars) for the transportation of by 1,193 units in 2014 due to the continued transportation method is not only a reason containers, which makes up approximately 59% decommissioning of this type of container. for the accelerated turnover of the fleet, but of the entire Russian-owned flatcar fleet. As of also ensures a lower price and higher quality the end of 2014, the number of 80 ft flatcars Operating efficiency indicators of service by reducing delivery times and increased from 7,536 units to 9,356 units, or In 2014, the Company continued optimising providing the ability to guarantee delivery times. by 24.2%, while their share of capacity (in TEU) its key operating efficiency indicators taking The shipment of empty containers within block increased from 37.7% to 44.5%. into account requirements for the enhanced trains has also proven its effectiveness given quality of customer service and the competitive the decrease in adjustment periods and a Based on the procurements and situation on the market. discount on the infrastructural tariff for block decommissioning of flatcars in 2014, the total trains. number of flatcars operated by the Company The increase in container turnover to 31.6 days (including the leased fleet) grew by 2.3% in 2014 (compared with 27.1 days a year earlier) As a result of work to organise block trains, from 26,305 to 26,923 units. In addition, due resulted from an expansion in the geography the container shipment volume (including to the change in the fleet structure, its capacity of the Company’s international shipments and empty containers) within block trains using increased by 5.0% to 84,090 TEU. The average container reserves (stocks) in places where the Company’s rolling stock increased by age of the flatcar fleet in 2004 declined from 15.9 container flows originate, including in Europe 16.6% in 2014 to 618,000 TEU (compared with years to 15.0 years. and Southeast Asia. Flatcar turnover totalled 529,000 TEU in 2013). For loaded containers, 14.1 days in 2014 (compared with 13.7 days shipments within block trains grew at a rate Containers in 2013) due to the need for the earlier supply of 20.0% over the same period. The share The Company’s container fleet was replenished of cars for loading and was compensated by of containers transported by the Company’s with 1,663 twenty-foot and 3,434 forty-foot growth in the proportion of rolling stock that runs rolling stock within block trains increased containers in 2014. A total of 2,222 twenty-foot and along with block trains. to 42.1% of the overall shipment volume by 1,030 forty-foot containers were decommissioned. the Company’s rolling stock in 2014 (compared As a result, the LTC fleet increased by 1,845 units in The empty container run indicator reached a with 36.4% a year prior). 2014 and stood at 64,212 units as of 31 December record low of 28.8% in 2014 (compared with 2014, including 39,497 twenty-foot and 24,715 30.5% in 2013). At the same time, the indicator forty-foot containers. The specialised container for empty flatcar runs was 7.2% in 2014, thus fleet was comprised of 2,374 units as of this date, confirming the trend of a gradual decline in this including 115 open-top containers, 12 hard-top indicator over the last five years. The empty containers, 70 bulk containers, 84 tank containers run dynamics reflect targeted work to optimise and 2,093 thermos containers. the management of the rolling stock fleet as well as measures in the marketing and pricing of services that aim to minimise empty runs.

COMPANY’S FLATCAR FLEET AS OF 31 DECEMBER 2014

PLATFORMS OWNED, UNITS LEASED OR RENTED, UNITS TOTAL, UNITS CAPACITY, ‘000 TEU AVERAGE AGE, YEARS 40-foot 5,943 90 6,033 12.07 10.5 60-foot 11,324 210 11,534 34.60 26.0 80-foot 8,652 704 9,356 37.42 4.4 TOTAL: 25,919 1,004 26,923 84.09 15.0

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Terminal assets and road transportation

EMPTY RUN1 RATIO OF THE COMPANY’S As of 31 December 2013, the Company The Company’s terminals serve as a base CONTAINERS AND FLATCARS IN 2010-2014 owned 46 rail container terminals located on for the provision of road transportation all 17 railways within Russia. All terminals in services to customers to ensure 39.1 the Russian Federation have the status of public the delivery of containerised cargo directly 35.9 34.4 places in accordance with the Federal Law to the destination. As of 31 December 2014, 30.5 28.8 “On Railway Transportation of the Russian the vehicle fleet was comprised of 742 units Federation”. The Company also provides a (compared with 866 units a year prior). number of services (loading of containers onto The decline was due to the decommissioning 8.8 8.3 7.5 6.7 7.2 flatcars, unloading containers from flatcars, of equipment intended for the transportation and sorting containers in transit, among of MTC as well as a reduction in the fleet in 2010 2011 2012 2013 2014 others) as an agent of OJSC Russian Railways regions with a high level of competition on

Flatcars in addition to other terminal services directly the local road transportation market, where Containers to customers. the use of outsourcing is not economically viable. The Company had 223 units of loading TURNOVER2 OF THE COMPANY’S CONTAINERS equipment as of 31 December 2014 (compared As of 31 December 2014, the asset base AND FLATCARS IN 2010-2014 with 238 units at the start of 2014). This of JSC Kedentransservice included 155 units 31.6 reduction was a result of the decommissioning of loading and unloading equipment, 88 road 27.1 of cranes used to handle MTC containers that transportation units as well as eight mainline 21.8 21.9 23.1 was partially compensated by an increase in locomotives. JSC Kedentransservice operates 14.2 13.1 13.3 13.7 14.1 the amount of lifting devices for the handing 17 cargo terminals in Kazakhstan as well as of LTC. transshipment space at the border crossings of Dostyk and Altynkol on the border of Kazakhstan 2010 2011 2012 2013 2014 There are also ten temporary storage and China. Flatcars warehouses with total area of 20,600 square Containers metres located at terminals in the Russian Federation.

COMPANY’S SHIPMENT VOLUME WITHIN CONTAINER TRAINS3 IN 2011-2014 16.7%

42.1% 36.4% 31.3% 28.8% 681 592 464 +16.6% 393 498 415 ХХ.Х 335 400 ХХ.Х 58 65 115 120 2010 2011 2012 2013 2014

Shipped LTC shipped, TC container trains (empty, TEU) NUMBER OF FLATCARS NUMBER LTC shipped, TC container trains (loaded, TEU) Share of shipments by in-house rolling stock IN OPERATION AS OF OF LARGE-TONNAGE 31 DECEMBER 2014 CONTAINERS

1 Empty run ratio. Calculated as an average empty run, divided by the aveage total run (km) 26,923 FLATCARS 64,212 CONTAINERS 2 Average number of days between start date of loaded run and next loaded run. +2.3% +3.0%

3 Loaded and empty LTC.

45 Annual report 2014 TransСontainer

CONSUMER GOODS WITH HIGH ADDED VALUE ARE MORE SENSITIVE TO DELIVERY DATES DUE TO THE HIGH COST OF WORKING CAPITAL AND FREQUENT CHANGES IN TRENDS COMMODITY GROUP CONSUMER GOODS

HOW MUCH CARGO FITS IN A CONTAINER?

A STANDARD TWENTY-FOOT CONTAINER CAN HOLD 21-22 TONNES OF GOODS, A HEAVY TWENTY-FOOTER CAN ACCOMMODATE 26–26.5 TONNES AND A FORTY-FOOT CONTAINER CAN ALSO HOLD 26-26.5 TONNES. THERE IS ALSO A FORTY-FIVE-FOOT CONTAINER THAT CAN TRANSPORT 29 TONNES OF CARGO AT ONCE. THE HIGHEST GROSS CONTAINER WEIGHT IS 36 TONNES. A TANK CONTAINER (CISTERN) CAN HOLD AN AVERAGE OF 17,000-26,000 LITRES DEPENDING ON THE CARGO DENSITY. A REFRIGERATED CONTAINER CAN CARRY UP TO 24 TONNES OF CARGO.

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VOLUME OF CONSUMER GOODS VOLUME OF CONSUMER GOODS Thermally insulated containers are TRANSPORTED BY PJSC TRANSCONTAINER TRANSPORTED BY PJSC TRANSCONTAINER used to transport valuable goods such BY TRANSPORTATION MODE IN 2014, TEU IN 2011–2014, TEU as electronics and home appliances

106,303 163,062 in order to ensure the safeguarding of 150,521 155,346 149,554 the freight

thermos containers

27,456 15,6 20,562 8,741 »»Consumer goods include: Domestic Export Import Transit 2011 2012 2013 2014 electronics, home appliances, clothing, footwear, fabrics, furniture, construction freight, dishware and bathroom equipment.

SHARE OF A COMMODITY

GROUP (%) IN ALL COMMODITIES,

TRANSPORTED IN CONTAINERS VIA RUSSIAN RAILWAYS IN 2014 »»China is the primary manufacturer TransContainer of consumer goods. Other 41.3%

17.4%

SHARE OF A COMMODITY GROUP (%) TRANSPORTED BY PJSC TRANSCONTAINER IN 2014

47 Annual report 2014 TransСontainer

FINANCIAL RESULTS

COMPANY’S FINANCIAL RESULTS FOR 2014 REFLECT ITS BUSINESS DEVELOPMENT AMID THE CHALLENGING OPERATING ENVIRONMENT, HIGH LEVEL OF UNCERTAINTY AND INCREASING COMPETITION IN THE CONTAINER SEGMENT, THAT CONTINUED TO IMPOSE THE DOWNWARD PRESSURE ON OPERATORS’ TARIFFS. IN SUCH TOUGH ECONOMIC SITUATION, THE COMPANY’S MANAGEMENT FOCUSED ON BUSINESS OPTIMISATION, FURTHER IMPROVEMENT OF MANAGEMENT EFFICIENCY AND THE QUALITY OF CUSTOMER SERVICE AS WELL AS ON SEARCHING FOR NEW GROWTH OPPORTUNITIES IN THE MARKET.

The Company’s results in 2014 were impacted by the deconsolidation In terms of profitability, the adjusted EBITDA margin in 2014 decreased to 38.1% from of KedenTransService in December 2013, as a result of the disposal of a 17% stake in 39.8% in 2013, while the net income margin decreased from 23.6% to 17.8%. the entity. Following this transaction, KedenTransService’s assets, liabilities, operating results and cash flow statements are excluded from TransContainer’s consolidated As at 31 December 2014, the Company’s total debt was RUB 6,777 million with net results for the reporting period, while they were consolidated for the period from 1 debt of only RUB 4,865 million. As a result, the Net Debt/LTM EBITDA ratio remained January to 23 December 2013. at a comfortable level of 62%.

During the twelve months ended 31 December 2014, the Company’s total revenue Capital expenditure for the twelve months ended 31 December 2014 decreased by was down 6.6% year on year to RUB 36,565 million and the adjusted revenue 36.5% year on year to RUB 4,212 million. In accordance with the Company’s policy, decreased by 18.9% year on year to RUB 20,538 million. EBITDA fell by 22.4% year all capital expenditure during the reporting period was financed by the Company’s on year to RUB 7,817 million from RUB 10,074 million in the corresponding period own cash flow. of 2013. Profit for the period was down 38.8% year on year to RUB 3,658 million from RUB 5,974 million in the corresponding period last year.

COMPANY’S RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2014 AND 2013

YEAR ON YEAR CHANGE 2014 2013 RUB M L N %

Revenue 36,565 39,164 –2,599 –6.6 Other operating income 715 747 –32 –4.3 Operating expenses –33,197 –32,859 –338 +1.0 OPERATING PROFIT 4,083 7,052 –2,969 –42.1 Interest expense –648 –782 +134 –17.1 Interest income 151 223 –72 –32.3 Foreign exchange gain, net 938 65 +873 +1343.1 Share of result of associates and JVs 165 2 +163 +8150.0 Other financial results, net 18 789 –771 –97.7 PROFIT BEFORE INCOME TAX 4,707 7,349 –2,642 –36.0 Income tax expense –1,049 –1,375 +326 –23.7 PROFIT FOR THE PERIOD ATTRIBUTABLE TO: 3,658 5,974 –2,316 –38.8 Equity holders of the parent Non-controlling interest 3,658 5,865 –2,207 –37.6 Other comprehensive income 0 109 –109 –100

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COMPANY’S RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2014 AND 2013

YEAR ON YEAR CHANGE 2014 2013 RUB M L N %

REMEASUREMENTS AND OTHER RESERVES FOR POST-EMPLOYMENT BENEFIT PLANS 1,215 178 +1,037 +582.6 Exchange differences on translating foreign operations (TRCN) 144 169 –25 –14.8 Exchange differences on translating foreign operations (Associates & JV) 101 21 +80 +381.0 Other effects 970 –12 +982 –8183.3 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 4,873 6,152 –1,279 –20.8 Attributable to: Equity holders of the parent 3,802 5,995 –2,193 –36.6 Non-controlling interest 0 157 –157 –100%

The Company’s financial results for the twelve months ended 31 In 2014, the Company’s total revenue was down 6.6% year on year December 2014 reflect the challenging pricing environment in the Russian to RUB 36,565 million and adjusted revenue fell by 18.9% year on year rail container market amid the deteriorating economic conditions and to RUB 20,538 million. This decrease caused a 22.4% year on year toughening competition, as well as the deconsolidation of KDTS. decline in EBITDA to RUB 7,817 million, from RUB 10,074 million in 2013. Profit for the period fell by 38.8% year on year to RUB 3,658 million in 2014, from RUB 5,974 million in 2013.

Additional financial information Adjusted Revenue, Adjusted Operating Expenses, EBITDA, Adjusted of the Company’s operating performance. These supplemental measures EBITDA Margin and Adjusted Operating Margin are not recognised have limitations as analytical tools, and investors should not consider under IFRS as measures of financial performance, but are calculated on any of them in isolation, or any combination of them, as a substitute for the basis of IFRS figures and are presented as supplemental indicators analysis of our results as reported under IFRS.

ADDITIONAL FINANCIAL INFORMATION

YEAR ON YEAR CHANGE 2014 2013 RUB M L N %

Adjusted Revenue1 20,538 25,328 -4,790 -18.9% Adjusted operating expenses2 17,170 19,023 -1,853 -9.7% EBITDA3 7,817 10,074 -2,257 -22.4% Adjusted EBITDA margin4 38.1% 39.8% Total debt 6,777 8,438 -1,661 -19.7% Net debt5 4,865 6,554 -1,689 -25.8%

NET DEBT/EBITDA RATIO 1 Adjusted Revenue is calculated as total revenue less cost of integrated freight forwarding and logistics services. IN 2014 2 Adjusted Operating Expenses are calculated as operating expenses less cost of integrated freight forwarding and logistics services.

3 EBITDA is defined as profit for the period before income tax, interest expense and depreciation and amortisation. 4 Adjusted EBITDA Margin is defined as EBITDA divided by Adjusted Revenue. 62% 5 Net Debt is calculated as long-term debt, finance lease obligations, short-term debt and current portion of long-term debt less cash and cash equivalents and short-term investments.

49 Annual report 2014 TransСontainer

Revenue

The following table sets out the breakdown of total revenue for the twelve months ended 31 December 2014 and 2013 respectively.

REVENUE

YEAR ON YEAR CHANGE 2014 2013 RUB M L N %

Integrated freight forwarding and logistics services 27,379 24,273 +3,106 +12.8 Rail-based container shipping services 5,405 8,154 –2,749 –33.7 Terminal services and agency fees 2,167 4,181 –2,014 –48.2 Truck deliveries 978 1,367 –389 –28.5 Other freight forwarding services 283 571 –288 –50.4 Bonded warehousing services 234 317 –83 –26.2 Other 119 301 –182 –60.5 TOTAL REVENUE 36,565 39,164 –2,599 –6.6

Total revenue decreased by RUB 2,599 million, or by 6.6% year on year, the twelve months of 2013 is eliminated, the Company’s total revenue to RUB 36,565 million for the twelve months ended 31 December 2014, would have increased by 10.0% year on year, driven by an increase in compared to RUB 39,164 million in 2013. This decrease was primarily integrated freight and transportation services. due to the deconsolidation of KDTS’ revenue. If KDTS’ revenue for

Adjusted Revenue

The following table sets out adjusted revenue calculations for the twelve months ended 31 December 2014 and 2013 respectively.

ADJUSTED REVENUE

YEAR ON YEAR CHANGE 2014 2013 RUB M L N % Total revenue 36,565 39,164 –2,599 –6.6 Cost of integrated freight forwarding and logistics services –16,027 –13,836 +2,191 +15.8 ADJUSTED REVENUE 20,538 25,328 –4,790 –18.9

Adjusted revenue (as defined above) declined by 18.9% year on year rail container transportation market. If KDTS’ adjusted revenue for to RUB 20,538 million for the twelve months ended 31 December 2014 the twelve months of 2013 is eliminated, the Company’s adjusted from RUB 25,328 million for the twelve months ended 31 December revenue would have decreased by RUB 1,176 million, or 5.4% year on 2013. This was primarily due to the deconsolidation of KDTS’ costs and year, driven mainly by lower Company’s average tariffs. revenues, as well as the challenging pricing environment in the Russian

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The following table sets out the components of adjusted revenue for the twelve months ended 31 December 2014 and 2013, respectively, and outlines their relative contribution.

ADJUSTED REVENUE

2014 2013 YEAR ON YEAR CHANGE RUB M L N % RUB M L N % RUB M L N % Rail-based container shipping services 5,405 26.3 8,154 32.2 –2,749 –33.7 Adjusted integrated freight forwarding and logistics services 11,352 55.3 10,437 41.2 +915 +8.8 Terminal services and agency fees 2,167 10.6 4,181 16.5 –2,014 –48.2 Truck deliveries 978 4.8 1,367 5.4 –389 –28.5 Other freight forwarding services 283 1.4 571 2.3 –288 –50.4 Bonded warehousing services 234 1.1 317 1.3 –83 –26.2 Other 119 0.6 301 1.2 –182 –60.5

TOTAL ADJUSTED REVENUE 20,538 100% 25,328 100 -4,790 -18.9%

The structure of adjusted revenue changed in 2014 compared to 2013. and logistics services, grew to 55.3% from 41.2%. This was a result The share of rail-based container transportation services in adjusted revenue of the services mix shifting towards transportation under integrated logistics fell from 32.2% for the twelve months ended 31 December 2013 to 26.3% for contracts. The share of terminal services and agency fees decreased from the twelve months ended 31 December 2014. The share of integrated freight 16.5% to 10.6%, mainly due to the deconsolidation of KDTS’ results. forwarding and logistics services, net of cost of integrated freight forwarding

Integrated freight forwarding and logistics services

Revenue from integrated freight forwarding and logistics services increased The following table sets out adjusted integrated freight forwarding and by 12.8% year on year to RUB 27,379 million in 2014. logistics services calculations for the twelve months ended 31 December 2014 and 2013, respectively.

CALCULATION OF ADJUSTED REVENUE FROM INTEGRATED FREIGHT FORWARDING AND LOGISTICS SERVICES

YEAR ON YEAR CHANGE 2014 2013 RUB M L N % Integrated freight forwarding and logistics services 27,379 24,273 +3,106 +12.8 Cost of integrated freight forwarding and logistics services 16,027 13,836 +2,191 +15.8 ADJUSTED REVENUE FROM INTEGRATED FREIGHT FORWARDING AND LOGISTICS SERVICES 11,352 10,437 +915 +8.8

Adjusted revenue from integrated freight forwarding and logistics services grew by 8.8% year on year to RUB 11,352 million for the twelve months of 2014. The increase in the full year result was primarily due to the Company’s business shift towards providing integrated freight forwarding and logistics services, and was partly offset by the deconsolidation of KDTS’ results.

51 Annual report 2014 TransСontainer

Rail-based container transportation services Truck deliveries Revenue from rail-based container transportation fell by 33.7% Revenue from truck deliveries decreased by RUB 389 million, or 28.5% to RUB 5,405 million in 2014 from RUB 8,154 million in 2013. This decline year on year, to RUB 978 million for the twelve months ended 31 December resulted from a change in the mix of services shifting towards transportation 2014, compared to RUB 1,367 million for the year 2013. This was due performed as part of integrated logistics contracts, as well as from lower to a 23.8% year on year reduction in container transportation volumes by average Company’s tariffs. the Company’s own and outsourced truck fleet to 415 thousand TEU in 2014 from 545 thousand TEU in 2013. The deconsolidation of KDTS’ trucking Terminal services and agency fees business also contributed to this decrease. Revenue from terminal services, including agency fees, decreased by 48.2% year on year to RUB 2,167 million in the twelve months ended 31 December Other freight forwarding and logistics services 2014, from RUB 4,181 million in 2013. This decrease was primarily due Revenue from other freight forwarding and logistics services, which are to the deconsolidation of KDTS’ terminal business. freight forwarding and logistics services of a non-integrated nature, fell by 60.5% year on year to RUB 119 million in the twelve months of 2014, On a stand-alone basis, the revenue from terminal services and agency fees compared to RUB 301 million for the year 2013. This decrease was would have increased by 1.5% year on year in the twelve months of 2014, along primarily due to the Company’s business shifting towards providing with 0.9% increase in terminal handling volumes. integrated freight forwarding and logistics services.

Agency fees, which are charged for services the Company renders as an agent Bonded warehousing services of Russian Railways, decreased by 1.9% year on year to RUB 1,685 million Revenue from bonded warehousing services fell by 26.2% year on year, for the twelve months ended 31 December 2014, compared to RUB 1,717 or by RUB 83 million, to RUB 234 million for the twelve months ended 31 million for the corresponding period of 2013. This decrease was primarily due December 2014, compared to RUB 317 million for the year 2013. This to the changes in the structure of terminal services. reduction is largely attributed to the deconsolidation of the results of KDTS bonded warehousing business and a decrease in import transportation volumes.

Operating expenses

The following table provides a breakdown of the Company’s operating expenses for the twelve months ended 31 December 2014 and 2013, respectively.

OPERATING EXPENSES

YEAR ON YEAR CHANGE 2014 2013 RUB M L N % Cost of integrated freight forwarding and logistics services 16,027 13,836 +2,191 +15.8 Freight and transportation services 4,979 4,315 +664 +15.4 Payroll and related charges 4,609 5,048 –439 –8.7 Depreciation and amortisation 2,462 1,943 +519 +26.7 Materials, repair and maintenance 2,419 2,985 –566 –19.0 Taxes other than income tax 631 724 –93 –12.8 Rent 443 1,869 –1,426 –76.3 Other operating expenses 1,627 2,139 –512 –23.9 TOTAL OPERATING EXPENSES 33,197 32,859 +338 +1.0

TransContainer’s total operating expenses increased by 1.0% year on year, expenses related to freight and transportation services and depreciation, or RUB 338 million, to RUB 33,197 million for the twelve months ended partly offset by reduction in payrolls and other cost items. The effect 31 December 2014, compared to RUB 32,859 million for the twelve of deconsolidation of KDTS’ expenses was a significant factor of operating months ended 31 December 2013. This was due to a significant increase expenses reduction. in the cost of integrated freight forwarding and logistics services, higher

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Cost of integrated freight forwarding and logistics services under integrated logistics contracts and higher volume of outsourced Costs of integrated freight forwarding and logistics services increased by transportation services involved in TransContainer’s integrated 15.8% year on year to RUB 16,027 million for the twelve months ended logistics solutions. The effect of deconsolidation of KDTS’ results partly 31 December 2014, from RUB 13,836 million for the year 2013. This compensated the effect of factors described above. was predominantly driven by an increase in volumes of services provided

Adjusted operating expenses

The following table sets out the adjusted operating expenses for the twelve months ended 31 December 2014 and 2013, respectively.

CALCULATION OF ADJUSTED OPERATING EXPENSES

YEAR ON YEAR CHANGE 2014 2013 RUB M L N % Total operating expenses 33,197 32,859 +338 +1.0 Cost of integrated freight forwarding and logistics services 16,027 13,836 +2,191 +15.8 ADJUSTED OPERATING EXPENSES 17,170 19,023 –1,853 –9.7

Adjusted operating expenses, as defined above, decreased by 9.7% year on year to RUB 17,170 million in 2014, compared to RUB 19,023 million in 2013, primarily as a result of the deconsolidation of KDTS’ business.

The following table provides a breakdown of the Company’s adjusted operating expenses, as defined above, for the twelve months ended 31 December 2014 and 2013, respectively.

ADJUSTED OPERATING EXPENSES

2014 2013 RUB M L N % RUB M L N % Freight and transportation services 4,979 29.0 4,315 22.7 Payroll and related charges 4,609 26.8 5,048 26.5 Depreciation and amortisation 2,462 14.3 1,943 10.2 Materials, repair and maintenance 2,419 14.1 2,985 15.7 Taxes other than income tax 631 3.7 724 3.8 Rent 443 2.6 1,869 9.8 Other expenses 1,627 9.5 2,139 11.2 ADJUSTED OPERATING EXPENSES 17,170 100 19,023 100

Freight and transportation services run costs incurred from container transportation in the CIS countries. Expenses relating to freight and transportation services increased by The growth in volume of empty runs was driven by increased volumes RUB 664 million, or 15.4% year on year, to RUB 4,979 million for of transit transportation provided by the Company’s rolling stock, and the twelve months ended 31 December 2014. On the standalone basis, the devaluation of the Russian rouble. This increase was partially offset by a costs related to freight and transportation services would have increased decrease in the container empty run ratio in Russia from 30.5% to 28.8%. by 11.6% year on year, mainly due to a rise in the Company’s empty

53 Annual report 2014 TransСontainer

Payroll and related charges Rent Payroll and related charges decreased by 8.7% year on year, or by RUB 439 Rent expenses fell by RUB 1,426 million, or by 74.3% year on year, million, to RUB 4,609 million for the twelve months ended 31 December to RUB 443 million for the twelve months ended 31 December 2014 from 2014, compared to RUB 5,048 million in 2013. This reduction was primarily RUB 1,869 million in 2013, mainly due to the effect of the deconsolidation due to the deconsolidation of KDTS’ results. If the deconsolidation effect of KDTS. On a stand-alone basis, the Company’s rent expenses would is eliminated, payroll and related charges would have increased by 7.1% have grown by RUB 101 million, or 29.6% year on year, primarily due year on year, mainly due to base salary indexing and a year on year rise to the average number of flatcars rented by the Company under operating in payments of performance-related bonuses in the first half of 2014. lease contracts in 2014, as compared to 2013. This increase, however, was partially offset by an 11.4% decrease in TransContainer’s average headcount from 4,591 to 4,069 employees. Other operating expenses Other operating expenses are an aggregate of various expense items such Depreciation and amortisation as security, consulting expenses, fuel and energy, licences and software, Depreciation and amortisation increased by RUB 519 million, or 26.7% communication services, loss of sale of fixed assets, etc. Other expenses year on year, to RUB 2,462 million in the twelve months of 2014, from fell by 23.9% year on year to RUB 1,627 million for the twelve months RUB 1,943 million for the year 2013. This was mainly due to an increase of 2014 from RUB 2,139 million in the corresponding period of 2013, in non-current assets resulting from acquisitions of fixed assets in 2014, primarily due to the deconsolidation of KDTS. If the deconsolidation effect partly offset by the deconsolidation of KDTS. The revision of the useful life is eliminated, other operating expenses would have decreased by 10.1% of Company’s rolling stock was a factor that contributed RUB 462 million year on year, reflecting improved cost control. to depreciation charges increase. Interest expenses Materials, repair and maintenance Interest expenses decreased by RUB 134 million, or 17.1% year on year, Expenses related to materials, repair and maintenance fell by 19.0% year to RUB 648 million for the twelve months of 2014 from RUB 782 million for on year to RUB 2,419 million for the twelve months of 2014, compared the year 2013, mainly due to the scheduled amortisation of series 2 bonds to RUB 2,985 million for the year 2013, due to the deconsolidation in the total amount of RUB 1,500 million in June 2014 and in December of KDTS, as well as to the reduction in the average repair price and 2014. the share of expensive overhaul and depot repairs of flatcars. Interest income Тахes other than income tax Interest income decreased by RUB 72 million, or 32.3% year on year, Taxes other than income tax decreased by 12.8% year on year to RUB 151 million in the twelve months of 2014 from RUB 223 million to RUB 631 million in 2014, from RUB 724 million in 2013, primarily due for the year 2013, due to a decrease in cash balances on the Company’s to the deconsolidation of KDTS. deposit accounts with banks.

LABOUR MATERIAL AND REPAIR EXPENSES IN 2014 EXPENSES IN 2014

4,609 RUB MLN 2,419 RUB MLN –8.7% –19.0%

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Profit before income tax and truck fleet and other purposes. During the reporting period, the Company’s Due to the factors described above, the Company’s profit before income operations and its capital expenditures were financed from internally generated tax for the twelve months ended 31 December 2014 decreased by cash flows. RUB 2,642 million, or by 36.0% year on year, to RUB 4,707 million from RUB 7,349 million for the twelve months ended 31 December 2013. Cash flow generated by operating activities Cash flow generated by operating activities decreased by RUB 1,198 Income tax expenses million, or 16.6% year on year, to RUB 6,027 million for the twelve months Income tax expenses decreased by RUB 326 million, or 23.7% year on ended 31 December 2014 from RUB 7,225 million for the year 2013. year, to RUB 1,049 million in the twelve months of 2014 from RUB 1,375 Operating profit before working capital decreased by RUB 2,886 million, million for the year 2013, due to a decrease in taxable profit. or 31.3% year on year, and this decrease was offset by changes in working capital (primarily by a decrease in trade receivables) and a decrease in The effective tax rate for the twelve months ended 31 December 2014 income tax expense. increased to 22.3% from 18.7% in 2013. Cash flow used in investing activities Total profit and comprehensive income for the period Cash flow used in investing activities decreased by RUB 832 million, or As a result of the factors discussed above, the profit for the twelve months 17.4% year on year, to RUB 3,943 million for the twelve months ended 31 ended 31 December 2014 decreased by RUB 2,316 million, or 38.8% December 2014 from RUB 4,775 million in 2013. This was primarily due to year on year, to RUB 3,658 million compared to RUB 5,974 million for capital expenditures falling by RUB 2,420 million, or 36.5% year on year, to the year 2013. Taking into account the exchange rate differences relating RUB 4,212 million from RUB 6,632 million in the last year. to foreign operations and other effects, the total comprehensive income for the reporting period was down 20.8% year on year and totalled RUB 4,873 Cash flow used in financing activities million, compared to RUB 6,152 million for the twelve months of 2013. Cash flow used in financing activities decreased by 39.4% year on year, or by RUB 778 million, to negative RUB 2,752 million in 2014 from negative Liquidity and Capital Resources RUB 1,974 million in 2013. This was primarily due to the two scheduled As of 31 December 2014, the Company’s net cash and cash equivalents amortisation repayments of series 2 RUB-denominated bonds in total amounted to RUB 1,904 million and the Company’s current liabilities exceeded amount of RUB 1,500 million instead of a sole one in 2013 in the amount current assets by RUB 1,384 million. of RUB 750 million.

The Company’s business is asset and capital-intensive and requires substantial capital expenditure for the purchase of flatcars and containers, for the development of rail-side terminals and for modernising its lifting equipment

Cash flows

The following table sets out the principal components of the Company’s consolidated cash flows for the twelve months ended 31 December 2014 and 2013 respectively.

MAIN COMPONENTS OF CONSOLIDATED CASH FLOW FOR 12 MONTHS OF 2014 AND 2013, RUB MLN

12M 2014 12M 2013

Net cash provided by operating activities 6,027 7,225 Net cash used in investing activities –3,943 –4,775 Net cash used in/ provided by financing activities –2,752 –1,974 Net increase in cash and cash equivalents –668 476 Foreign exchange effect on cash and cash equivalents 689 89 NET CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 1,904 1,883

55 Annual report 2014 TransСontainer

Capital Expenditure As at 31 December 2014, the carrying value of the bonds amounted to Capital expenditure decreased by RUB 2,420 million, or by 39.5% year RUB 740 million (RUB 2,236 million as at 31 December 2013), and this on year, to RUB 4,212 million in the twelve months of 2014 from RUB amount was included as short-term debt in the consolidated statement of 6,632 million in 2013. The majority of the capital expenditure was spent on financial position. The amount of accrued interest is RUB 5 million (RUB 18 acquiring new flatcars and ISO containers, as well as on construction and million as at 31 December 2013), and was included as short-term debt in other investments. In particular, during the reporting period, the Company the consolidated statement of financial position. acquired 5,097 ISO containers, 1,316 units of 80 foot flatcars and 200 units of 40 foot flatcars. There was a shortfall of approximately RUB 1 billion RUB-denominated bonds series 4 of capital expenditures made in the reporting year to the 2014 capital On 1 February 2013, the Company issued non-convertible five-year bonds expenditure programme, due to the changed market conditions, as well as for a total amount of RUB 5,000 million at a par value of RUB 1,000 each. new challenges faced by the Company. Net proceeds from the issuance after the deduction of related offering costs amounted to RUB 4,988 million. The annual coupon rate on the five- Capital resources year bonds is 8.35%, with interest paid semi-annually. The Company’s operations and capital expenditure have historically been financed from internally generated cash flow and proceeds from The series 4 bonds will be redeemed in four equal semi-annual instalments issuing domestic debt. As at 31 December 2014, the Company’s financial within the fourth and fifth years. As a result, these bonds are classified as indebtedness consisted of two outstanding bond issues, financial lease long-term borrowings as at the reporting date. As at 31 December 2014, obligations and other borrowings in an aggregate amount of RUB 6,777 the carrying value of the bonds amounted to RUB 4,990 million (RUB million, compared to RUB 8,438 million as at 31 December 2013. As at 31 4,988 million as at 31 December 2013). December 2014, the Company’s net debt was RUB 4,865 million. The amount of accrued interest is RUB 174 million (RUB 175 million as As at 31 December 2014, the major portion of the Company’s financial at 31 December 2013) and has been included as short-term debt in the indebtedness was unsecured, except for the obligations under finance consolidated statement of financial position. leases, which were secured by the lessors’ title to the lease assets. The Company’s debt is rouble-denominated with a fixed interest rate. Other borrowings On 23 May 2011, the Company borrowed funds from LLC TrustUnion AM RUB-denominated bonds series 2 for the principal amount of RUB 514 million at an interest rate of 9.5% per On 10 June 2010, the Company issued non-convertible five-year annum with a five year maturity to finance the acquisition of the Company’s amortising bonds for a total amount of RUB 3,000 million at a par value of ordinary shares for a share option plan for the Company’s management. RUB 1,000 each. Net proceeds from the issuance after the deduction of The outstanding debt was RUB 468 million as at 31 December 2014. related offering costs amounted to RUB 2,975 million. The annual coupon on the five-year bonds is 8.8%, with interest paid semi-annually. The series 2 bonds is to be redeemed in four equal semi-annual instalments during the fourth and fifth year.

EBITDA NET PROFIT MARGIN IN 2014 MARGIN IN 2014

38.1% 17.8 %

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Working Capital

The Company’s working capital is defined as the difference between its current assets and current liabilities. The table below sets out the key components of TransContainer’s working capital for the twelve months ended 31 December 2014.

MAIN WORKING CAPITAL ITEMS AS OF 31 DECEMBER 2014, RUB MLN

31 DECEMBER 2014 31 DECEMBER 2013

CURRENT ASSETS Inventory 340 358 Trade and other receivables 1,542 1,621 Prepayments and other current assets 2,958 3,435 Prepaid income tax 113 114 Short-term investments 8 1 Cash and cash equivalents 1,904 1,883 Non-current Assets classified as held for sale 100 0 TOTAL CURRENT ASSETS 6,965 7,412 CURRENT LIABILITIES Trade and other payables 3,084 3,216 Short-term debt and current portion of long-term debt 919 1,693 Income tax payable 189 77 Taxes other than income tax payable 401 372 Provisions 16 19 Finance lease obligations, current maturities 60 66 Dividends payable 0 0 Accrued and other current liabilities 912 834 Deffered income 0 0 TOTAL CURRENT LIABILITIES 5,581 6,277 WORKING CAPITAL 1,384 1,135

Working capital increased by RUB 249 million to RUB 1,384 million This increase occurred primarily due to a RUB 774 million decrease at the end of the reporting period from RUB 1,135 million as at 31 in short term debt, partially offset by a RUB 477 million decline December 2013. in prepayments and other current assets.

TOTAL DEBT NET DEBT AS OF 31 DECEMBER 2014 AS OF 31 DECEMBER 2014

RUB 6.777 BLN RUB 4.865 BLN –19.7% –25.8%

57 Annual report 2014 TransСontainer

PAPER AND PULP TRANSPORTED IN THE COMPANY’S RAILCARS FOR EXPORT MAKE UP MORE THAN 30% OF THE RUSSIAN CONTAINERISED RAILWAY SHIPMENTS MARKET COMMODITY GROUP PAPER AND PULP

UNIFIED SIZE STANDARD

IN 1964, THE CONTAINER RECEIVED GLOBAL RECOGNITION AND A UNIFIED SIZE STANDARD IN FEET: 20 Х 8 Х 8.5 AND THE ABBREVIATION THAT IS NOW USED ALL AROUND THE WORLD: TEU (TWENTY-FOOT EQUIVALENT UNIT). THE TWENTY-FOOT EQUIVALENT (TEU) IS A STANDARD UNIT FOR MEASURING THE QUANTITATIVE ASPECT OF CONTAINER FLOWS, THE CAPACITY OF CONTAINER TERMINALS OR THE CAPACITY OF TRANSPORTATION VEHICLES. THE FORTY-FOOT EQUIVALENT UNIT (FEU) BASED ON THE FORTY-FOOT CONTAINER SIZES AND EQUAL TO 2 TEU IS ALSO USED FREQUENTLY.

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Paper is a “heavy” cargo and is trans- VOLUME OF PAPER AND PULP VOLUME OF PAPER AND PULP ported in twenty-foot containers that can TRANSPORTED BY PJSC TRANSCONTAINER TRANSPORTED BY PJSC TRANSCONTAINER accommodate BY TRANSPORTATION MODE IN 2014, TEU IN 2011–2014, TEU 67,639 101,562 94,171 91,123 94,905 A4 3,840 bundles of paper

26,115 »»Highest rate of containerisation. 15,6

»»Safeguarding during transportation 680 471 in large-tonnage containers (special Domestic Export Import Transit 2011 2012 2013 2014 transportation conditions).

SHARE OF A COMMODITY GROUP (%) TRANSPORTED BY PJSC TRANSCONTAINER IN 2014

10.2%

36.3% SHARE OF A COMMODITY GROUP (%) IN ALL COMMODITIES, TRANSPORTED IN CONTAINERS VIA RUSSIAN RAILWAYS IN 2014

TransContainer Other

59 Annual report 2014 TransСontainer

SUSTAINABLE DEVELOPMENT

THE COMPANY NOT ONLY STRIVES FOR A STRONG OPERATIONAL PERFORMANCE, BUT ALSO DEVOTES CONSIDERABLE ATTENTION TO THE SOCIAL RESPONSIBILITY OF ITS BUSINESS, WHICH INCLUDES FOUR PRIORITY AREAS: CULTIVATING AN ATMOSPHERE OF TRUST AMONG STAKEHOLDERS, DEVELOPING THE HUMAN CAPITAL ASSETS OF EMPLOYEES, INTRODUCING ECO-FRIENDLY TECHNOLOGIES AND PROMOTING CHARITY AND AID TO THOSE IN NEED.

TRUST IN THE COMPANY

MONITORING OF COMPLIANCE WITH THE CODE OF ETHICS

The current Code of Ethics was approved by The Company’s activities are based on three The Company has a hotline that any employee the decision of the Board of Directors in 2009 core values: or other concerned party may call to report and reflects the ethical principles that guide violations of the Code of Ethics. The head employees in their relations with customers, of the Internal Audit Service is the person suppliers, partners, competitors, government 1the trust of customers and partners; responsible for interaction with employees on authorities, public organisations and the public. matters concerning compliance with the Code of Ethics. In 2014, there were no violations 2respect for people and their individual rights; of the Code of Ethics or conflicts of interests with respect to interaction with stakeholders.

3the professionalism of employees.

CONTINUOUS QUALITY OF SERVICE IMPROVEMENT PROGRAMME

The Company has established the following core of improvement. Their purpose is to assess The Company annually compiles a quality quality management principles: the quality of processes at the Company, ensure plan that contains a list of projects/measures their stability and controllability and enhance to improve the business processes of PJSC »»expanding the range of transportation resistance to the impact of adverse factors. TransContainer. services for customers; »»improving the quality of services; The following components ensure the enhanced In 2014, PJSC TransContainer underwent a »»process-based management; stability and controllability of processes along certification audit during which it was established »»personnel development; with their continuous improvement: that the quality management system meets »»building mutually beneficial and trusting the requirements of GOST ISO 9001-2011 relationships with customers and key »»an audit that includes monitoring and as regards the planning, organisation and suppliers; analysing the Company’s processes for monitoring of containerised cargo shipments. »»continuous improvement and development compliance with the specified requirements; The Company had previously received a by supporting and consolidating the creative »»planning preventive and corrective actions “Recognised for Excellence” certificate potential of employees; based on the results of the audit; from the European Foundation for Quality »»establishing an integrated quality »»taking steps that aim to prevent possible Management (EFQM) and is currently the only management system. inconsistencies in processes; company in the Russian transportation industry »»implementing corrective actions that aim that is certified according to EFQM standards. The continuous quality of service improvement to eliminate the causes of inconsistencies in programme is based on a process approach processes; and the KPI system. The quality of services »»performing a comprehensive assessment is ensured by the quality of the Company’s of the quality management system and an business processes. Process audits are assessment of the components of the quality conducted regularly as part of a cycle management system.

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DEVELOPMENT OF CUSTOMER-ORIENTED TECHNOLOGIES AND FEEDBACK MECHANISMS

Achieving the goal of optimising registering shipments documents on behalf the efficiency of work by operators and the organisational structure as well of and with a power of attorney from the shipper. the average response time to a request. Each as the incentive and monitoring systems Switching to electronic document management customer request is verified and the relevant throughout the entire sales network became with the use of electronic signatures has measures are taken. Monitoring work with possible thanks to the use of information and accelerated the process of interaction with customer requests is performed by the general technological solutions. carriers, which improves the quality and speed director. Based on survey results, a customer of customer service. satisfaction index is calculated and included in PJSC TransContainer is systematically improving the KPI system of dedicated managers. and simplifying the procedure for interacting Customers have round-the-clock access with customers. It has introduced the ability to the contact centre using all types to work under the “one window” principle, when of communication. The contact centre records the Company fully assumes responsibility for and classifies all requests and also monitors

PROCUREMENT POLICY

PJSC TransContainer carries out procurements Principles of procurement activities: NUMBER OF PROCUREMENTS in accordance with Federal Law No. 223-FZ “On the Procurement of Goods, Work and Services »»information transparency of procurements; 2014 659 by Certain Types of Legal Entities” dated 18 July »»equality, fairness and the absence 2011 (hereinafter the Law on Procurements) of discrimination and unreasonable and the Regulation on the Procedure for competitive restrictions with respect to those 2103 414 Placing Orders for the Procurement of Goods, involved in procurements; Performance of Work and Rendering of Services »»the targeted and cost-effective spending 2012 173 for the Needs of OJSC TransContainer dated 20 of funds on the purchase of goods, work February 2013. and services (taking into account the life cycle cost of the product being purchased The procurement procedures in place at PJSC if necessary) and taking steps to reduce TransContainer aim to create conditions to meet the Company’s costs; the Company’s needs for products on time »»the absence of restrictions on access to a and in full with the required price, quality and procurement through the establishment reliability parameters as well as the efficient use of vague requirements for procurement of funds. participants; »»compliance with the legislation of the Russian Goals of procurement activities: Federation, including antimonopoly legislation. »»to establish market-based prices for products acquired by the Company and a reasonable decrease in the Company’s costs; »»increased opportunities for involvement in procurements, promoting such participation as well as the development of fair competition; »»ensuring the openness and transparency of procurements.

61 Annual report 2014 TransСontainer

PROCUREMENT PROCEDURE PARAMETERS

Contract price requiring procurement procedures about which information must be made publicly available in accordance with the Law on Procurements RUB 0.5 mln Procurement methods »» open competition (including in electronic form); »» open auction (including in electronic form); »» competition with pre-qualification of bidders (including in electronic form); »» closed competition; »» procurement via a request for price quotes; »» procurement via a request for proposals (including in electronic form); »» procurement via placement of offer; »» procurement from a single supplier (contractor). Restrictions on minimum periods set by the customer for applicants to prepare bids for From 7 business days (for a request for proposals, request for price quotes or the procurement the placement of an offer) to 20 calendar days (for competitions or an open auction). Publication of a notice about the procurement in the media Mandatory Maintaining and publishing an annual procurement plan in the media Mandatory Use of special software Required Submission of specific reporting to the government authorities Mandatory

Automation of procurement procedures

In 2014, the “Corporate Procurements of PJSC Automating procurement procedures in DISTRIBUTION OF PROCUREMENTS FROM TransContainer” Information System (CP TC 2014 resulted in savings of RUB 1,134 mln. A SINGLE SUPPLIER (102 PROCEDURES) IS) was put into trial operation. The system is These savings do not include the gains from

integrated with the official website of the Russian conducting competitive procedures for 19% Federation used to publish information on the supply of goods, performance of work 27% procurements, and work is under way for and rendering of services under framework integration with the Company’s other information agreements, when the amount of savings was 6% systems and the OTC-tender electronic determined with the selection of unit prices. platform. 8%

10% 18%

12% PROCUREMENT COST SPECIFICATIONS , RUB MLN DISTRIBUTION BY PROCUREMENT METHOD

Supply of electricity and thermal energy 22% (28 procedures) 20,639 Informatisation, modification and maintenance of software, information systems, etc. (19 procedures) Contracts for transportation services with the owners of infrastructure (foreign railways, ports) 19,505 (12 procedures) Loading and unloading work at stations of Russian 16% Railways (10 procedures) Lease and acquisition of real estate, utility services, 1,134 communications (8 procedures) 66% Advertising services as part of thematic measures (6 procedures) Other (servicing the Company's shares on Total initial (maximum) contract price Open competition (409 procedures) exchanges, vouchers for children's camps, Cost of contracts concluded Procurement from single supplier (102 procedures) interpreting services for the Board of Directors, Savings Other procedures (request for proposals, request for price educational services, security, etc.) (19 procedures) quotes, offers) (148 procedures)

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HUMAN CAPITALS

THE PERSONNEL MANAGEMENT SYSTEM AT THE COMPANY COVERS ALL BUSINESS PROCESSES INVOLVING HUMAN CAPITALS. THE MAIN PURPOSE OF WORK WITH PERSONNEL IS TO IMPROVE EFFICIENCY WHILE OBSERVING HIGH STANDARDS OF INDUSTRIAL SAFETY.

In 2014, two divisions were created within As a result of measures to optimise personnel the management administration: numbers and make them compatible with PERSONNEL STRUCTURE BY AGE: the volume of work performed, employee numbers were reduced by 276 people (6%) 1a personnel management division (which over 2014. 20.9% 22.8% recruits, adapts, trains and develops personnel and also evaluates and creates a talent pool); Personnel structure by education The qualitative component of the Company’s personnel improved in 2014: employees with 2a personnel recordkeeping and social a higher and secondary vocational education affairs division (which monitors compliance make up 75.2% of personnel (3,262 people), 23.7% with labour legislation, the provision of social including specialists with a higher education 32.6% guarantees to employees and retirees and also (58.3%), with a secondary vocational education Under 30 years-old maintains records and analysis of staffing and (16.9%) and 20 employees with advanced 30–40 years-old personnel turnover). degrees (2 doctors of technical science and 40–50 years-old Over 50 years-old (including those 18 candidates of science). The average age who have reached retirement age 5.3%) of the Company’s employees is 40 years. Personnel profile As of 1 January 2015, the Company had As a result of work to retain skilled personnel, total personnel of 4,437 people (excluding staff turnover declined from 10.1% in 2014 NUMBER representative offices). to 7.4% in 2014, which points to the growing OF PERSONNEL loyalty of personnel. 4,347 PEOPLE –6%

FINANCIAL INCENTIVES FOR PERSONNEL

The goal of the financial incentive programme A multi-tiered bonus system provides There is also a system of remuneration for personnel is to ensure high-quality and the ability to pay remuneration depending on payments for loyalty to the Company that productive labour by employees, retain an employee’s personal contribution as well promotes the hiring and retention of a productive experts, hire the necessary as the ultimate result of an entire team’s work professional staff of employees. specialists, involve employees in work and reveal and the Company’s production and financial their potential. indicators.

The current salary system differentiates A bonus system has been developed and is the income of employees depending on their continuously being improved. The bonus amounts qualifications and responsibility level. are determined in accordance with set KPI.

63 Annual report 2014 TransСontainer

NON-FINANCIAL INCENTIVE PROGRAMME

The Company’s personally oriented social The social policy is implemented via »»social guarantees to workers; policy plays a special role in creating incentive the collective bargaining agreement and local »»wellness; for employees and empowering their self- regulatory acts based on a social partnership »»guarantees for young people, women, expression in the workplace. with the union committee of an organisation’s children and families; workers. »»social guarantees for retirees; The social policy of PJSC TransContainer is »»improved work conditions and occupational comprised of measures that involve providing The collective bargaining agreement extends safety; employees with additional benefits, services and to the following areas: »»social partnership; payments of a social nature. »»creating conditions for the activities of a union »»the management of labour relations; organisation. The main goals of the social policy are »»wages; to improve work efficiency, protect the social »»the regulation of labour, work hours and leave; needs of workers, improve the ethical »»the development of human resource potential; atmosphere at the Company and establish a »»employment and guarantees for released favourable social and psychological climate. workers;

SOCIAL GUARANTEES AND BENEFITS

Social guarantees and benefits include: destination, and for employees far from »»partial reimbursement for the cost of children the centre of branches – reimbursement for attending day care centres; »»mandatory and collective voluntary medical airfare in the amount of the travel cost of a »»compensation and benefits for young insurance granting employees the opportunity sleeping car in a passenger train; professionals in accordance with to receive free healthcare at medical »»organisation of summer camps for children; the Regulation on Young Specialists of OJSC institutions; »»vacation by employees and their families TransContainer, which was approved by »»life insurance for employees working in at resorts and retreat centres with discounted the Board of Directors in October 2006. hazardous areas; travel vouchers as well as the right to partial »»reimbursement for travel by railway to and payment for travel packages purchased by from work, to a country house or to a vacation employees;

SOCIAL ENVIRONMENT IMPROVEMENT PROGRAMME

The Company is implementing several targeted Corporate pensions were allocated for 40 Wellness programme programmes in order to hire and retain employees who retired in 2014. The average Conditions are being created for employees. amount of the corporate pension in 2014 was physical education and sport as part RUB 10,106. of the implementation of the wellness Corporate pension programme programme, which aims to improve the health This programme is being implemented on Housing programme of employees. The Company has established a the basis of an agreement with the non- The housing programme: sport committee led by the first deputy general state pension fund BLAGOSOSTOYANIE in director to coordinate sports activities as well accordance with the Regulation on Private »»provides subsidies to workers for a portion as a corporate football club. To this end, sport Pensions for Employees of PJSC TransContainer, of their expenses on the payment of interest facilities are rented for employees to take part in which was adopted by the Board of Directors. accrued on mortgage loan contracts; various types of sports (volleyball and basketball, Any Company employee may join this »»provides workers with corporate support when among others). agreement and generate savings on an purchasing (building) fully owned housing equal basis for a future pension whose size accommodations. depends on the amount of contributions, length of employment at the Company and the amount To date, 87 employees have improved their of average monthly salary for the previous two housing conditions as a result of the programme years. A total of 1,173 employees are involved (6 people in 2014). in the programme (16 people joined in 2014).

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EMPLOYEE DEVELOPMENT AND TRAINING

The personnel development and training half of 2014 for employees of sales unit divisions The Company devotes much attention to training policy aims to improve personnel efficiency by consisting of the following modules: young professionals at railway transportation developing a motivated and competent team. educational institutions. Together with teachers, »»effective business communication; employees develop special additional In 2014, the Company successfully introduced »»disputes and conflicts, their origin and ways training programmes for students who are the concept of position profiling. Based on to settle them; studying disciplines that are a priority for PJSC position profiles, training programmes are »»business communication ethics, TransContainer. A total of 82 students assigned developed and implemented to improve the regulation on telephone conversations by the Company are currently studying full-time the professional, personal and business aptitude and business correspondence; (specialist and undergraduate degree). of employees. »»persuasive communication techniques in the negotiating process; Three students who are currently working Advanced training and the systematic updating »»planning of activities in the sales system. at the Company completed studies as part of the knowledge, abilities and skills of Company of the master’s programme International employees are provided for the following areas: In 2014, this programme was successfully Management in Railway Transportation in 2014 implemented at three Company branches and after being assigned to such training by PJSC »»the development of professional skills; included in the library of the corporate university. TransContainer. »»the development of management skills; »»commercial and marketing activities; In the second half of the year, full-time training A total of 88 people underwent practical »»occupational safety; was organised in the form of a two-day workshop training at PJSC TransContainer facilities in »»ensuring safety; titled Effective Sales Skills that was attended by 2014. The practical training leaders are leading »»financial and management reporting; employees from all the Company’s branches. experts who develop individualised detailed »»accounting; This is an international programme that takes practical training programmes that take into »»corporate development and governance; into account best global practices in the sales account the requirements of the curriculum and »»law and jurisprudence. of services tailored to the Company’s activities. focus on maximising the inclusion of trainees in manufacturing activities. The Company began establishing a corporate Training was also held on Core Management Skills university in 2014. Its activities aim to set which aimed to develop managerial skills among In 2014, two meetings between Company up internal training that covers all levels the Company’s executives. executives and students were arranged during of specialists and managers within the framework production training. The first meeting was devoted of the corporate ideology and based on a As a result, 1,824 people at the Company to the PJSC TransContainer Development Strategy, common methodology. enhanced their skills and took part in information while the second focused on students acquiring and consulting activities. A total of RUB 14.45 mln knowledge about the practical work of terminals. As a result of the corporate university’s activities, was spent on these purposes. a training programme was developed in the first

EMPLOYEE APPRAISAL

Regular appraisal of employees is an effective provided them with a strong incentive to improve tool that the Company has used since 2012. their knowledge and perform high-quality and Appraisal is a basic personnel evaluation efficient work. The appraisal revealed a high skill procedure that not only identifies the skills and level among the majority of managers. knowledge required by a particular job, but also motivates employees to improve their activities In particular, 55.8% of managers received and reveal their personal and professional the highest possible performance rating with potential. the wording “Complies with the position held and has potential for professional growth”. In 2014, a total of 43 employees from For the year, two employees were appointed among the management staff of branches to the position of branch director. (deputy directors, chief engineers and chief accountants) underwent appraisal, which

65 Annual report 2014 TransСontainer

CHARITY

THE MAIN GOALS OF THE CHARITABLE ACTIVITIES OF PJSC TRANSCONTAINER ARE TO IMPROVE QUALITY OF LIFE AND PROVIDE AID TO VULNERABLE SOCIAL GROUPS.

The main principles of charitable aid are: »»aid to the Transsoyuz Charity Fund in the amount of RUB 63 mln for »»the longevity of charitable projects; the implementation of the “Book of Good »»transparency of the charitable aid process; Deeds” charitable programme; »»the targeted nature of the charitable aid; »»aid for holding the Moscow Paramusical »»openness to cooperation with the federal and Festival in the amount of RUB 0.3 mln; public authorities, business representatives »»aid to Yaroslavl’s NP Hockey Club Lokomotiv and charitable non-profit organisations; for the maintenance of two youth schools in »»monitoring the targeted use of the Company’s the amount of RUB 30.0 mln; funds spent on charitable aid. »»aid to Private Educational Institution Lokomotiv SSC for its operation in 2014 in The Board of Directors has approved the amount of RUB 70.0 mln; the following priorities in charitable activities: »»aid to Sverdlovsk Regional Public Organisation Lokomotiv-Emerald Volleyball »»aid to children; Club for the development of youth sport in »»supporting sport and promoting a healthy the amount of RUB 1.0 mln; lifestyle; »»aid to the “Be a Sport” Charity Fund »»preserving Russia’s cultural heritage; to purchase medicines and children’s »»supporting industry-wide charitable treatment equipment in the amount programmes; of RUB 2.1 mln; »»providing aid to Company employees and »»aid to the Illustrated Books for Blind Children their family members (spouses, parents Public Charity Fund to purchase 162 sets and children) for expensive treatment that of books for visually impaired children in is not covered under the medical insurance the amount of RUB 0.9 mln; agreement and whose cost exceeds an »»aid to Malakhovsky Children’s Tuberculosis CHARITABLE employee’s average monthly income; Sanatorium National Public Healthcare Institution AID IN 2014 »»providing aid to victims of emergencies of the Moscow Region to purchase children’s (natural disasters and armed conflicts, among furniture in the amount of RUB 0.5 mln; other things). »»donations to the Istoki Endowment Fund RUB 195 MLN to finance the “Sanctity of Motherhood” All decisions on the provision of charitable charitable programme in the amount +59.8% aid are adopted by the Board of Directors of RUB 10 mln; in accordance with the Charter and based »»charitable aid to religious organisations for a on proposals from the Charitable Aid Affairs total of RUB 0.8 mln; Committee. »»targeted aid to pay for treatment and the purchase of medicines for sick children in Charitable activities of PJSC TransContainer the amount of RUB 5.3 mln; ENVIRONMENTAL in 2014: »»charitable aid to Company employees, EXPENSES their families and retirees in the amount »»aid to the Embassy of the Russian Federation of RUB 10.1 mln. in the Slovak Republic to build a lighting RUB 42 MLN system for the “Slavin” Central Memorial More than RUB 195 mln was spent Complex in the amount of RUB 0.9 mln; on charitable aid in 2014. +23.0%

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ENVIRONMENTAL SAFETY

Environmental protection »»pollutants are discharged into the atmosphere COST OF ENVIRONMENTAL PROTECTION MEASURES, PJSC TransContainer believes taking care in accordance with the prepared and RUB MLN of the environmental situation in the regions where coordinated draft standards for maximum it operates is a priority objective. permissible emissions; 126.8 »»contracts were concluded for the removal and In 2014, the Company fully implemented its disposal of hazardous waste with specialised environmental action plan: organisations that have the relevant licenses; »»repairs were conducted on storm-water »»made payments on time for its negative drainage systems at the Kostarikha environmental impact; and Zabaykalsk stations for a total 43.0 42.35 34.44 »»maximum permissible levels for emissions into of RUB 823,570; the atmosphere and discharges into water »»treatment facilities were built 15.6 bodies were prepared or are being prepared at the Yekaterinburg-Tovarny and at branches as well as draft standards for Bazaika stations. Costs amounted 2010 2011 2012 2013 2014 waste generation, limits on their disposal and to RUB 36,764,200; the sanitary protection zone in connection »»temporary waste storage sites were equipped with the expiration of previous regulatory at the Chelyabinsk and Magnitogorsk stations. documents; Costs amounted to RUB 20,000; »»solid waste is collected and stored in closed »»site improvements were made at the Bazaika containers in accordance with SanPiN station. Costs totalled RUB 50,000; 2.1.7.1322-03 “Hygienic requirements for »»a garage building at the Nizhnevartovsk the disposal and neutralisation of production station was connected to the central and consumption waste”; sewerage system. Costs totalled RUB 1,492,000.

ENERGY EFFICIENCY SAVINGS FROM THE IMPLEMENTATION OF THE ACTION PLAN In order to improve energy efficiency, PJSC TransContainer approved a plan TYPE OF ENERGY RESOURCE PHYSICAL VOLUME MONETARY VALUE, RUB ‘000 RUB 195 MLN of organisational and technical measures Total electricity, ‘000 kWh 328.5 1,288.8 to meet targeted parameters for savings on Diesel fuel, tonnes 62.1 1,886.7 the main fuel and energy resources in 2014. Petrol, tonnes 8.0 281.6

The introduction of energy-saving lighting continued in 2014. Costs on the purchase and ENERGY RESOURCES USED BY PJSC TRANSCONTAINER IN 2014 installation of such lighting devices totalled RUB 280,000. The heating boiler at the Saint TYPE OF ENERGY RESOURCE PHYSICAL VOLUME MONETARY VALUE, RUB ‘000 Petersburg-Tovarny-Vitebsky station was Total electricity, ‘000 kWh 14,857.3 52,520.8 replaced with a more efficient boiler. Costs Diesel fuel, tonnes 4,819.7 153,789.4 totalled RUB 38,000. Petrol, tonnes 253.4 8,612.8 Natural gas, ‘000 cubic metres 159 766.5 RUB 42 MLN

67 Annual report 2014 TransСontainer

CONTINUOUS SUPPLY OF AUTOMOTIVE COMPONENTS FOR MANUFACTURING, ENABLING THE MANUFACTURER TO SUBSTANTIALLY CUT COSTS ON THE WAREHOUSE STORAGE COMMODITY GROUP OF COMPONENTS AUTOMOTIVE COMPONENTS

CONTAINER TRANSPORTATION: AN IDEA THAT CHANGED THE WORLD.

THE USE OF CONTAINERS MADE IT POSSIBLE TO INCREASE CARGO HANDLING SPEED BY SEVERAL TIMES OVER AS UNIVERSAL PACKAGING WAS EASY TO PLACE ON A SHIP AND DELIVER FROM THE SHIP TO THE SHORE. THE RELEASE OF PACKAGING WITH STANDARD SIZES AND FORM BENEFITED THE ENTIRE INDUSTRY AS A WHOLE – CARGO TURNOVER INCREASED AND THE DOWNTIME OF SHIPS DECREASED AS WELL. IT WAS QUICKLY UNDERSTOOD THAT CONTAINERS CAN CONVENIENTLY BE USED IN OTHER SPHERES AS WELL. AT PRESENT, MORE THAN 90% OF GLOBAL PACKAGED AND ITEMISED CARGO IS SHIPPED IN CONTAINERS.

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VOLUME OF AUTOMOTIVE COMPONENTS VOLUME OF AUTOMOTIVE COMPONENTS In 2014, a total of 1,401 container TRANSPORTED BY PJSC TRANSCONTAINER TRANSPORTED BY PJSC TRANSCONTAINER trains with automotive components BY TRANSPORTATION MODE IN 2014, TEU IN 2011–2014, TEU were dispatched

57,847 131,554 134,153 125,169 »»Container trains carrying automotive 106,343 components are dispatched every day 38,172 along the Brest-Kaluga route.

»»Main routes for automotive component 15,6 9,860 shipments: Western Europe – Centre 464 (European part of the Russian Federation), Domestic Export Import Transit 2011 2012 2013 2014 Far East – Central Asia, Europe – China.

SHARE OF A COMMODITY GROUP (%) IN ALL COMMODITIES, TRANSPORTED IN CONTAINERS VIA RUSSIAN RAILWAYS IN 2014 »»Volume of transported automotive TransContainer spare parts in 2010-2014 exceeded Other 600 000 TEU. 46.6% »»Transportation in large-tonnage containers of automotive components from major global automotive companies for semi-knocked down assembly of vehicles in the Russian Federation.

11.5% SHARE OF A COMMODITY GROUP (%) TRANSPORTED BY PJSC TRANSCONTAINER IN 2014

69 Annual report 2014 TransСontainer

RISK MANAGEMENT

Description of the risk management system

Since 2010, the Company has worked »»adequate risk-taking in line with the recommendations of Ernst & Young (CIS) B.V. tirelessly to adopt a world-class corporate risk Company’s scope of operations; as the Company’s external advisor and the management system that ensures the stability of »»compliance with laws and regulations as well risk management experience gained by the its operations. as corporate governance requirements and Company over the period of development of the standards; corporate risk management system. TransContainer views the risk management »»timely responses to changes in the external system as an essential aspect of corporate environment; governance. »»an enhanced decision-making process, transparency of operations and maintaining The Company believes that an effective risk optimum control over the environment; management system, applied on an integrated »»finely-tuned cost controls and improved basis and consistently used, offers a reasonable operational performance; degree of confidence in: »»early identification of and capitalisation on new opportunities. »»achieving strategic and operational goals, factoring in the risks and risk degree that The Company employs a Risk Management the Company is ready to assume in order to Policy and Framework, designed in line with achieve its operational targets by managing widely-accepted risk management standards multiple risks as a whole; (COSO ERM, 2004 and ISO 31000:2009), the

THE CURRENT RISK MANAGEMENT FRAMEWORK IS BASED ON THE FOLLOWING CORE PRINCIPLES: PRINCIPLE DESCRIPTION HOW RISK MANAGEMENT WORKS Consistency The risk management framework is to be implemented at all levels of the The risk management system involves the Board of Directors, the Company. BoD’s Audit Committee, CEO, Deputy CEOs and the Risk Committee composed of the Company’s senior executives. The risk prevention plan is mandatory for all employees of the Company. Continuity The continuity principle implies that the measures required to identify, The Company updates its risk map annually to factor in the changes in assess, prevent and monitor risks are to be carried out on a regular and the external environment. continuous basis. The Board of Directors, BoD’s Audit Committee and Risk Committee review the reports on implemented risk management initiatives and materialised risks (within the scope of their reference) at least once a quarter. The Company’s employees continuously monitor risks and report materialised risks to the risk management business unit. These are analysed on a case-by-case basis to identify causes of losses and take measures to prevent such risks in the future (loss recording). Integrity A set of measures implemented to manage risks that may impact the All identified risks are consolidated annually in the uniform risk register Company’s value and reputation and address all the risks inherent in the (summarised risk list), with contributions from all business units. Company’s operations and business processes.

Balance The Company’s risk management system aims to achieve a reasonable As part of building the risk map, each risk is assessed by severity based balance between the risk management costs and the potential damage on its probability and potential damage. brought about by materialised risks. Division of powers The Company’s decision-making rests on distributing risk management Depending on the risk severity, response measures and the preventive responsibilities across various management levels. action plan, risk-related decisions are considered and adopted at the following levels of the Company (subject to the decision threshold): »» line management (heads of business units and branches, business process owners); »» the Risk Committee; »» the BoD’s Audit Committee; »» the Board of Directors. Integration with the The Company’s risk management processes are supervised (monitored) The efficiency of measures taken with respect to particular risks is internal control system on a comprehensive scale and a multi-level basis that involves all parties evaluated by the Company’s Risk Committee together with the Internal in charge of internal control, within their terms of reference. Audit Service as well as the Board of Director’s Audit Committee. The Service is in charge of risk-based internal audit planning and assessing the adequacy and efficiency of risk management.

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ORGANISATIONAL STRUCTURE OF RISK MANAGEMENT, INCLUDING DETERMINING RESPONSIBLE BUSINESS UNITS AND DESCRIBING THE APPROACH TO RISK MANAGEMENT

Board of directors:

»»The Board of Directors is the supreme management body of the CRMS; »»Reviews critical risks and determines steps to be taken to manage these risks (reviews a list of risk management measures prepared by the Risk Committee and adjusts the measures, if necessary); »»Defines the goals, objectives, and principles underlying the CRMS; »»Reviews and approves risk reports (the Corporate Risk Map, risk monitoring and management reports).

Audit Committee under the Board of Directors: CEO:

»»Exercises overall control of the risk management process (evaluates the effectiveness »»Responsible for the effectiveness of the of the CRMS and issues recommendations on improving the system); Company’s risk management system; »»Reviews critical and acceptable risks and determines steps to be taken to manage »»Distributes risk management rights and acceptable risks (reviews a list of risk management measures prepared by the Risk responsibilities and, inter alia, appoints risk Committee and adjusts the measures, if necessary); owners from the Company’s business unit »»Reviews the draft Corporate Risk Map and advises the Board of Directors on its approval. managers; »»Approves the Company’s internal risk management regulations other than those which are reserved for the Board’s approval.

Risk Committee: Chief Financial Officer

»»Prepares draft regulatory documents on risk management; »»The Chief Financial Officer is the owner of the Risk Management »»Reviews and analyses risks in order to build the Corporate Risk Map; process; »»Ranks the risks based on the Company’s risk severity criteria and »»Ensures coordination of the Company’s risk management processes approves the final draft of the Corporate Risk Map; (including interaction between different business units as part of the »»Approves a summarised preventive action plan for risks ranked as CRMS and coordinating interaction between the Company’s Head “insignificant”; Office, branches and subsidiaries). »»Decides on submitting the Corporate Risk Map and the summarised preventive action plan for critical and acceptable risks for further review by the Audit Committee under the Board of Directors; »»Ensures communication with the Company’s business units on risk management matters.

Corporate finance and risk management/risk manager division

»»Provides methodological support to the risk management process; »»Advises the Company’s executives on risk management matters; »»Issues analytical reports on the Company’s risks and risk management measures; »»Issues/consolidates risk reports.

71 Annual report 2014 TransСontainer

RISK MANAGEMENT PROCESS

1Risk identification 2Risk probability and 3Risk management 4Risk status monitoring impact assessment measures

Risk identification is carried Risks are assessed in terms of Actions plans are developed to Risk management measures out on a continuous basis and probability, severity and potential prevent risks by the time a newly are monitored for efficiency and may be initiated by all Company impact on the Company’s identified risk is included in the timeliness by each individual risk employees. performance and its strategic Corporate Risk Map. on a quarterly basis. targets set by the development strategy. Risks are ranked by severity based on their assessed probability and potential damage.

WHEN CHOOSING ITS RISK MANAGEMENT STRATEGY, THE COMPANY IS GUIDED BY A RISK MANAGEMENT COST-BENEFIT ANALYSIS. IN LINE WITH STANDARD PRACTICES, THE FOLLOWING RISK MANAGEMENT STRATEGIES WERE USED BY THE COMPANY IN 2014: Risk avoidance Risk avoidance implies avoidance of decisions that involve high risks. The Company implements a foreign exchange risk avoidance policy by avoiding borrowing in foreign currencies, given its predominantly rouble-denominated operating cash flow.

Risk control and prevention Risk control and prevention imply that the risk is being actively The Company controls and seeks to prevent the risk of a negative managed by the Company. environmental impact by using state-of-the-art equipment with a lower environmental impact and by complying with environmental laws. Risk-taking Risks are taken when they are at a level acceptable for the Company The Company assumes the risk of economic downturn because it and where implementation of risk treatment measures is not possible cannot influence the macroeconomic environment. or cost efficient. Risk transfer Risks are transferred when it is not possible and/or cost efficient for The Company insures motor vehicles and cargo-lifting equipment the Company to treat the risk, while the risk exceeds the acceptable against destruction, loss or damage resulting from insurance events. level.

RISK CATEGORISATION

All the Company’s risks are divided into areas that meet COSO ERM 2004 classification and are subdivided into strategic, operational, regulatory and financial risks.

Strategic risks Financial risks »»O.12 Personnel »»S.01 Corporate governance »»F.20 Capital market and liquidity »»O.13 Information technologies »»S.02 Strategy »»F.21 Management accounting and reporting »»O.14 Economic security »»S.03 Investment project management »»F.22 Accounting and reporting »»O.15 Production safety »»S.04 Mergers, acquisitions and divestments »»O.16 Records and document management »»S.05 Macroeconomic environment Operational risks »»O.17 External threats (force majeure) »»S.06 Corporate communications »»O.07 Procurements »»O.08 Transportation management This classification makes it possible to structure Regulatory risks »»O.09 Sales the system and objectively determine areas of »»R.18 Legal support of activities »»O.10 Marketing responsibility for each risk. »»R.19 Regulation of activities »»O.11 Repairs and technical maintenance

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MAP OF THE MOST SIGNIFICANT RISKS

COMPANY RISKS CHARACTERISED BY HIGH DEGREES OF PROBABILITY AND/OR DAMAGES IF THEY MATERIALISE ARE INCLUDED IN THE GROUP OF “CRITICAL” RISKS. IN 2014, THE COMPANY SINGLED OUT THE FOLLOWING “CRITICAL” LEVEL RISKS: RISK NAME DEGREE OF MATERIALISATION EVENT Departure of key management (CEO and senior executives) Not materialised Share liquidity risk Materialised Market maker appointed on Moscow Exchange Failure to achieve strategic goals Materialised Analysis of reasons and work initiated to update the strategy taking into account changes to external environment Low level of efficiency of integration processes Not materialised Deterioration in market conditions Materialised Improved quality of work with customers, changes in pricing policy and cost optimisation Company’s diminished competitiveness due to the inability to timely respond to Not materialised changes in customer structure, customer needs and demand intensity Inefficient organisation of transportation (including an increase in empty runs) Not materialised Ineffective customer service Not materialised Occupational injuries Materialised Investigation conducted into accident and additional briefing held for vehicle drivers

Particular attention is paid to these risks, and information about such risks and their status is considered at the level of the Company’s Board of Directors.

CHANGE TO THE LIST OF THE MOST SIGNIFICANT RISKS COMPARED WITH THE PREVIOUS PERIOD

A newly identified risk “Deterioration of share liquidity” was included in the Corporate Risk Map as a “critical” risk in 2014, this increasing the number of “critical” risks by one. In addition, a new critical risk “Failure to meet the requirements of the Moscow Exchange listing rules” was identified in 2014 and included in the Corporate Risk Map for 2015 due to the adoption of the Corporate Governance Coode and the new listing rules of the Moscow Exchange.

73 Annual report 2014 TO CONTENTS TransСontainer

CORPORATE GOVERNANCE

LEADERSHIP

THE BOARD OF DIRECTORS IS RESPONSIBLE FOR THE COMPANY’S STRATEGY AND LONG-TERM SUSTAINABLE DEVELOPMENT. THE BOARD OF DIRECTORS DETERMINES THE COMPANY’S VISION, MISSION, STRATEGY, STRATEGIC GOALS AND KEY PERFORMANCE INDICATORS.

EFFECTIVENESS

THE COMPANY’S BOARD OF DIRECTORS IS BALANCED IN TERMS OF SKILLS, EXPERIENCE, INDEPENDENCE AND KNOWLEDGE ABOUT THE COMPANY, WHICH ENABLES THE BOARD OF DIRECTORS TO EFFECTIVELY PERFORM ITS DUTIES.

ACCOUNTABILITY

THE BOARD OF DIRECTORS PURPOSEFULLY IMPLEMENTS A CULTURE OF CONTROL AND RISK MANAGEMENT THROUGHOUT THE COMPANY. THE COMPANY HAS ESTABLISHED A RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM BASED ON GENERALLY ACCEPTED INTERNATIONAL STANDARDS.

Interactive version of the TransContainer Annual Report for 2014

74 NATIONAL CORPORATE GOVERNANCE RATING – 8 The Russian Institute of Directors has upgraded TransContainer’s National Corporate Governance Rating to Level 8 – “Best corporate governance practice” according to the scale of the National Corporate Governance Rating.

EY ASSESSMENT A final score of 3.45 was assigned based on an assessment of the Company’s corporate governance system by EY, which corresponds to a sustainable level of corporate governance and reflects sustainable processes as well as corporate governance practices.

TRANSCONTAINER MANAGEMENT BOARD ESTABLISHED In November 2014, the General Meeting of Shareholders decided to establish a collective executive body within the Company. On 23 December 2014, the Board of Directors elected the first TransContainer Management Board, which includes seven of the Company’s senior executives

NUMBER OF BOARD AMOUNT OF DIVIDENDS OF DIRECTOR MEETINGS PER SHARE IN 2014 (FOR 2013)

13 meetings RUB 81.47

NUMBER OF MATTERS RATIO OF MEETINGS CONSIDERED BY BOARD HELD IN PERSON/IN ABSENTIA OF DIRECTORS

136 matters 11/2

75 Annual report 2014 TransСontainer

COMPANY BOARD OF DIRECTORS

YURY ZHANAR ALEXANDER DAVID Zachodni WBK, member of NOVOZHILOV PAVEL RYMZHANOVA VINOKUROV HEXTER the Board of Directors of UTLC, Deputy Chairperson ILYICHEV Chairperson Member of the Board Member of the Board senior advisor to the MacQuarie of the Board of Directors Member of the Board of the Board of Directors of Directors of Directors, Independent Infrastructure Fund for Russia and of Directors Director 1 Central Asia and an international Year of birth: 1974 Year of birth: 1968 Year of birth: 1982 advisor to XENON Capital Partners. Year of birth: 1974 Year of birth: 1949 Year elected to the Board Year elected to the Board Year elected to the Board Committee Membership: of Directors: 2007 – 2009 Year elected to the Board of Directors: 2008 – 2011, 2013 of Directors: 2014 Year elected to the Board Chairman of the Audit Committee and 2012 of Directors: 2011 of Directors: 2008 and member of the Strategy Key skills and work Key skills and work experience: Committee. Key skills and work Key skills and work experience: From 1998 to Mr Vinokurov has experience in Key skills and work experience: Mr Novozhilov has experience: Mr Ilyichev has been 2012, Ms Rymzhanova held management as well as finance and experience: Mr Hexter has extensive experience, expertise a member of TransContainer’s management positions at the economics. In 2007, he worked at a wealth of experience at the and skills in finance, economics Board of Directors since 2011, European Bank for Reconstruction the TPG Capital Russia investment international level and possesses and investment management including his stint as Chairman of and Development (EBRD) fund, from 2010-2011 he was vice strong skills and expertise in 1 In 2014, Irina Shytkina and and holds senior positions at the Board until July 2013. Pavel where she was responsible for president of TPG Capital Russia areas such as business strategy, David Hexter served as large financial companies. has a wealth of experience in relations with strategic clients in and from 2011-2014 he was first corporate finance, financial risks, independent directors. Starting Yury has a demonstrable track finance, economics and corporate the infrastructure and transport vice president and president of the investment, financial modelling from 13 November 2014, after record in the railway industry and governance, including audit and sectors, including global Summa Group. and corporate governance. From joining the Board of Directors served as First Deputy Head of financial statements analysis. projects. Since 2008, Zhanar 1970 to 1992, he held a number of UTLC, these members Corporate Finance with Russian From 2003 to 2009, Mr Ilyichev has represented the EBRD as a Education: Mr Vinokurov of positions with Citibank. From of the Company’s Board of Railways from 2004 to 2009. He headed the Treasury and later member of the Board of Directors graduated from Cambridge 1992 to 2004, Mr Hexter worked Directors do not meet the currently works as an executive on Corporate Finance at Eurosib of TransContainer. Appointed as University (UK) in 2004 with a with the European Bank for official independence criteria director and board member of and has been Deputy Head of Advisor to the President of Russian bachelor’s and master’s degrees Reconstruction and Development of the Corporate Governance the BLAGOSOSTOYANIE Private Corporate Finance at Russian Railways in 2012, her focus was in economics. and from 2002 to 2004 was a Code of the Bank of Russia Pension Fund. Railways since 2009. Throughout on logistics and integration within member of the Board of Directors for independent directors. Other positions currently held: 2010 and 2013, Pavel Ilyichev the Common Economic Space for at Small Business Bank. From However, taking into account Member of the Board of Education: Mr Novozhilov was on the Board of Directors Russia, Belarus and Kazakhstan. 2005 to 2010, Mr Hexter acted in that no meetings of the UTLC Directors of Summa Group, graduated from Saint Petersburg with Russkaya Troyka, also an advisory capacity with Denholm Board of Directors were held Summa Telecom, Novorossiysk State University with a degree in serving as Chairman. He was on Education: Ms Rymzhanova Hall Investment Management. in 2014 and that business Sea Commercial Port, Soyuz theoretical economics in 1996. the Board of RZD Logistics and majored in economics at the From 2011 to 2013, David was a operations only in fact began in Petroleum SA, Far East Shipping, TransCreditBank and a member Academy of Public Administration member of INTER RAO’s Strategy 2015, the lack of compliance Other positions currently held: GlobalElectroService, United of the Supervisory Board of TLC under the President of the Committee. with the Code criteria had no Chairman of the Board of Grain Company, Summa Sport Bely Rast, Zheldorremmash and Republic of Kazakhstan in 1989. impact on the substantive Directors at Absolut Bank, and Transengineering. Vagonremmash. In 1997, she received her degree Education: Mr Hexter graduated aspects of work performed by Military and Memorial Company, from Georgetown University. from Oxford University with a Committee Membership: the Company’s independent KIT Finance NPF, Executive Education: Pavel graduated from In 2012, Ms Rymzhanova degree in philosophy, politics member of the Personnel and directors. Director of BLAGOSOSTOYANIE Saint Petersburg State Academy completed an Executive MBA and economics in 1979. In 1974, Remuneration Committee. Insurance Company, a member of Aerospace Instrumentation with with HSA (Paris), London School he received his MBA from the of the Board of Trustees for the a degree in research engineering of Economics, and New-York Cranfield Management School Spread Your Wings children’s in 1997. He also holds a degree University. and in 2007 graduated from the charity, Deputy Chairman of the in economics from the Higher London University with a degree in Board at RusRailLeasing and School of Economics at St. Other positions currently held: philosophy. In 2008, he received a TransFin-M and a member of Petersburg State University of Chairman of the Board of degree in legal and political theory the Board at MOSTOTREST, Economics and Finance. Directors at UTLC and Russkaya from University College London. SPA and TKB BNP Paribas Troyka, member of the Board of Investment Partners Holding B.V. Other positions currently held: Directors at Kedentransservice, Other positions currently held: Member of the Board of Directors member of the Supervisory Board member of Kaspi Bank Committee Membership: of SKB-bank and ZHASO, and a Board at GEFCO S.A. (Caspian Bank), TransTeleCom not on any committees. member of the Supervisory Board (Kazakhstan); Chairman of the of GEFCO S.A. Committee Membership: Supervisory Board of Private not on any committees. Equity New Markets; member of Committee Membership: the Supervisory Board of Bank Member of the Audit Committee.

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ALEXANDER IRINA PAVEL PETR IRINA ALEXEY PANCHENKO KOSTENETS IVANOV BASKAKOV SHYTKINA DAVYDOV Member of the Board Member of the Board Member of the Board CEO and Chairman Member of the Board Member of the Board of Directors of Directors of Directors of the Management Board of Directors, Independent of Directors Director 2 Year of birth: 1989 Year of birth: 1961 Year of birth: 1964 Year of birth: 1961 Year of birth: 1971 Year of birth: 1965 Year elected to the Board Year elected to the Board Year elected to the Board Year elected to Board of Year elected to the Board of Directors: 2014 of Directors: 2013 of Directors: 2013 Directors: 2006 Year elected to the Board of Directors: 2010 of Directors: 2010 Key skills and work Key skills and work Key skills and work Key skills and work experience: Key skills and work experience: Mr Panchenko experience: A member of the experience: Mr Ivanov has an CEO of TransContainer and a Key skills and work experience: experience: Mr Davydov has experience working in Personnel and Remuneration impressive track record in railroad member of its Board of Directors Ms Shytkina holds a J.D. and is has extensive experience and the transportation industry, Committee since 2010, Ms transportation. From 2007 to since 2006, Petr holds over 25 a Professor at the Business Law demonstrable skills in strategic including experience with Kostenets joined TransContainer’s 2008, Pavel headed the Kursk years of management experience Faculty of the Moscow State planning, economics, finance strategic planning and managing Board of Directors in 2013. Branch of the Moscow Railway in the railway transportation University. She is an MBA lecturer, and corporate governance business processes in maritime Irina possesses extensive (branch of Russian Railways). industry and possesses expertise visiting professor of the Stockholm sharpened from 2006 in various and railway transportation. From experience in finance, personnel From 2008 to 2009, Pavel held in strategic planning and strong School of Economics, author leadership roles with Russian 2012 to 2014, he served as management and incentives, in the post of Deputy Head of the business management skills. In and moderator of consulting Railways, including Head of the manager of investment projects. the transport industry and beyond. Transportation Management 2009, Mr Baskakov was also a and practical workshops, Treasury. He is currently Head He is currently an advisor to the Since 1998, Irina has held various Department at Russian Railways member of the TransСontainer- possessing in-depth knowledge of the Subsidiaries and Affiliates President of the Summa Group positions such as the Head of the and, from 2009 to 2011, the First Slovakia, a.s. Supervisory Board. in various business areas, Management Department. From and an advisor to the head Economic Function and Deputy Deputy to the Head of Central From 2010 to 2012, he served on including management and 2008 to 2013, Davydov served of the representative office of Head of Operations for Economic Operations for Traffic Control the Presidium of the NP Council corporate governance. Along on the Board of Directors at Baronetta Investments Limited. Matters at Krasnoyarsk Railways. (branch of Russian Railways). of Railway Operators Market. with her academic and teaching Vagonremmash, Remputmash From 2003 to 2005, Irina worked engagements, Ms Shytkina Kaluga Plant, Zheldorremmash, Education: Mr Panchenko as Deputy Head of the Planning Education: Mr Ivanov graduated Education: Mr Baskakov is a is a practising lawyer and a FPC and Freight One and was graduated from Moscow State and Budgeting Department and from the Moscow Institute of graduate of the Moscow Institute business professional with broad also Chairman of the Board of University in 2011 with a degree from 2005 to 2012 headed the Railway Engineers with a degree of Railway Engineers and holds management experience. From Directors at High-Speed Rail in journalism. Department for Administrative in railway haulage management a degree in railway haulage 2009 to 2011, she was Deputy Lines. and Personnel Matters at Russian in 1986. management and a Ph.D. in CEO for Corporate Governance at Other positions currently Railways. Presently, Ms Kostenets Engineering. Elinar Holding Company. Education: Mr Davydov held: Member of the Board of Other positions currently held: heads the Economics Department graduated from Saint Petersburg Directors of Russkaya Troyka. Head of Central Operations for Other positions currently held: at Russian Railways. Education: Ms Shytkina Engineering and Economics Traffic Control (branch of Russian President, Chairman of the graduated from the Moscow State Institute with a degree in Committee Membership: Education: Irina graduated from Railways). Management Board and a member University in 1998 with a degree in engineering and economics Deputy Chairman of the Audit the Irkutsk Institute of Railway of the Board of Directors of UTLC; law and subsequently completed in 1993 and Saint Petersburg Committee and member of the Committee Membership: Engineers in 1984 with a degree in member of the Supervisory Board of postgraduate and doctoral University with a degree in law Strategy Committee. Member of the Audit Committee. railroad construction and railroad GEFCO S.A.; member of the Board programmes at the Moscow State in 1999. facilities and received a degree of Directors of Kedentransservice; University. from the Russian Presidential Chairman of the Board of Directors Other positions currently held: Academy of National Economy of Oy ContainerTrans Scandinavia, Other positions currently held: Chairman of the Board of in 1988, majoring in state Ltd and RZD Logistics; member Chairman of the Board of Directors Directors at Roszheldorproject, management of railway transport of the Shareholders’ Committee at Elinar Holding Company, BetElTrans, VRK-1, RZD Trading economics and finance. of Trans Eurasia Logistics Chairman of the Board of Directors Company and RZDstroy, and a GmbH; board member with the at NarPromRazvitie, independent member of the Board of Directors Other positions currently held: TRANSSOYUZ Charity Foundation, director at VRK-1, VRK-2, RZD of ELTEZA, Transmashholding, Member of the Board of Directors the All-Russian Association of Health, TransTelecom, FPK, TTK and Federal Freight. with South Caucasus Railways, Rail Transport Employers, the Remputmash Kaluga Plant, High- ZHASO and FPC. Russian Union of Industrialists and Speed Rail Lines and UTLC. Committee Membership: Entrepreneurs and the Association Chairperson of the Strategy Committee Membership: of Russian Freight Forwarders. Committee Membership: Committee. Deputy Chairperson of the Chairman of the Personnel and Personnel and Remuneration Committee Membership: Remuneration Committee. Committee. member of the Strategy Committee. 2 See previous item.

77 Annual report 2014 TransСontainer

CORPORATE GOVERNANCE MODEL

THE BOARD OF DIRECTORS 1Leadership of the Board of Directors 4Effective interaction with the Company’s OF TRANSCONTAINER IS THE KEY shareholders and investors COMPONENT OF THE COMPANY’S CORPORATE GOVERNANCE SYSTEM. 2Effectiveness of the Board of Directors THE ACTIVITIES OF THE BOARD OF DIRECTORS 5Transparent remuneration system for AND ITS COMMITTEES ENSURE THE the Company’s Board of Directors and REALISATION OF THE BASIC PRINCIPLES 3Supervision and accountability of the management OF CORPORATION GOVERNANCE: Company’s management bodies

MONITORIN G AN D R »»Monitoring the activities E PO of the executive bodies R TI »»Information disclosure NG

»»Risk management and internal control P I »»Role of Internal Audit Service H S »»Role of the Board of Directors »»External auditor R E Role of the »»Revision Commission D »» A Chairman of the E L Board of Directors

Audit C om S m »»Independent itt e e H e e Dialogue with directors tt »» A i m shareholders and R

»»Mission, strategy, m investors o E strategic objectives c H y »»Meeting of the Board O g e of Directors L t

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»»Dividend policy R

BOARD OF Interaction with

»»

investors

Balanced Board

»»

of Directors and

committees

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DIRECTORS »»

s exchanges

»»Induction of members o

of the Board of Directors Independent

»»

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registrar

Evaluation of the Board

»»

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m e

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Corporate era m

»» tion Com

governance

E evaluation system

»»Remuneration system for members of the

F »»Corporate secretary

I Board of Directors and committees

I D&O insurance

E »» Remuneration system for the CEO and management

»»

KPI system - the basis for remuneration payments

Y »»

»»Remuneration procedure

NER REMU

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GOVERNANCE STRUCTURE

AUDITOR

GENERAL MEETING OF SHAREHOLDER REVISION COMMISSION

AUDIT COMMITTEE

STRATEGY COMMITTEE CORPORATE BOARD OF DIRECTORS SECRETARY PERSONNEL AND REMUNERATION COMMITTEE

INTERNAL AUDIT SERVICE

Management and supervisory bodies of the Company Committees of the Company’s Board of Directors MANAGEMENT BOARD CEO Officials and divisions that are functionally subordinate to the Company’s Board of Directors Not a Company body

79 Annual report 2014 TransСontainer

LEADERSHIP OF THE BOARD OF DIRECTORS

ROLE OF THE BOARD OF DIRECTORS

The Board of Directors is responsible for the The Board of Directors approves the policy in Company’s strategic management and its long- matters of internal control and risk management term sustainable development. The Board of and ensures the operation of the risk management Directors identifies the Company’s vision, mission and internal control system. When determining the and strategy as and also establishes its strategic risk management policy, the Board of Directors goals and key performance indicators. strives to achieve a reasonable balance between the Company’s risk and return. The Board of The Company’s Corporate The powers of the Board of Directors are Directors determines whether the Company is Governance Code and Code described in the Company Charter and are ready to assume a risk (risk appetite). The Board of of Conduct are posted on clearly distinguished from that of the Company’s Directors is responsible for managing the key risks the corporate website at the address: executive management bodies, which oversee that impact the Company’s strategic goals. The the Company’s daily operations. Board of Directors conducts an assessment of the http://www.trcont.ru/en/ effectiveness of the risk management and internal investor-relations/charter-and- bylaws/bylaws/ One of the most important functions of the Board control system each year. of Directors is establishing effective executive bodies and monitoring their activities. The Board The Board of Directors is responsible for improving of Directors effectively supervises the activities of the corporate governance system and practices at the executive bodies by regularly reviewing reports the Company, approves programmes to improve on the implementation of the Company’s strategy corporate governance and reviews reports on their and business plans. The powers of the Board of implementation. Directors include electing and motivating executive bodies as well as terminating their powers. The Board of Directors is responsible for the Company’s corporate social responsibility as well as the establishment of its corporate culture and business ethics.

CHAIRMAN OF THE BOARD OF DIRECTORS

The Chairman of the Board of Directors is the agenda items while ensuring the effective Board of Directors as well as between the Board personally responsible for managing the activities involvement in the discussion of independent of Directors and management. of the Board of Directors and the effectiveness and non-executive directors. of its work and ensures the Board of Directors The Chairman holds meetings with members focuses on the Company’s strategic governance The Chairman ensures the timely provision to of the Board of Directors, including with while entrusting management with matters members of the Board of Directors of accurate, independent directors, without the involvement of involving the Company’s operational control. reliable and relevant information that is a Company management. The Chairman monitors necessary for a substantive discussion. the implementation of resolutions adopted by the The Chairman of the Board of Directors shall Board of Directors and the General Meeting of create an atmosphere of openness and trust The Chairman of the Board of Directors ensures Shareholders. at meetings of the Board of Directors as well constructive interaction between the Company’s as hold free and constructive discussions of executive and non-executive directors on the

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INDEPENDENT DIRECTORS AND THEIR ROLE

Independent directors provide the Board of facilitate the adoption of resolutions that take and assessing the work of the Board of Directors Directors with an independent perception based into account the interests of various groups and its committees. on their knowledge, experience and skills. The of stakeholders and improve the quality of objectivity of independent directors and their management decisions. The Company highly values the significant constructive criticism are of great value to the contributions made by independent directors Board of Directors and the Company as a whole. The most significant role of the independent to improving the effectiveness of the work directors involves determining the Company’s performed by the Board of Directors. Independent directors demonstrate a high level development strategy, considering reports on its of professionalism, pass independent judgments implementation, assessing the performance of and vote independently on agenda items. executive bodies, evaluating the effectiveness of The contributions of independent directors the risk management and internal control system

ROLE OF THE STRATEGY COMMITTEE

The key role of the Strategy Committee is its »»establishing priority areas of the Company’s »»determining the Company’s dividend policy; contribution to the work of the Board of Directors activities; »»interaction between the Company and its in terms of preparing the Company’s strategy, »»developing a medium-term and long-term subsidiaries and affiliates; monitoring its implementation and preparing strategy for the Company; »»the Company’s participation in other proposals to update and adjust the strategy, if »»monitoring, analysing and assessing the organisations; necessary. implementation of the strategy as well as »»the approval of the Company’s investment adjusting the strategy; programme. The Strategy Committee tentatively draws up »»preparing the Company’s budget and For more details see page 81 and gives recommendations to the Board of monitoring reports on the results of the budget Directors on the following matters: execution;

THE BOARD OF DIRECTORS IS RESPONSIBLE FOR IMPROVING THE CORPORATE GOVERNANCE SYSTEM AND PRACTICES AT THE COMPANY, APPROVES PROGRAMMES TO IMPROVE CORPORATE GOVERNANCE AND REVIEWS REPORTS ON THEIR IMPLEMENTATION

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EFFECTIVENESS OF THE BOARD OF DIRECTORS

MEMBERS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES

The members of the Company’s Board of Members of the Board of Directors have the STRUCTURE Directors are balanced in terms of their skills, necessary knowledge and skills as well as OF THE BOARD OF DIRECTORS experience, independence and knowledge considerable business experience, including AS OF 31 DECEMBER 2014 of the Company, thus enabling the Board of in matters of financial, investment and strategic Directors to effectively perform its duties. management, financial and management accounting, risk management, corporate The Board of Directors includes independent governance and railway transportation. All directors who facilitate the introduction of best members of the Company’s Board of Directors corporate governance practices, non-executive make a significant contribution to ensuring that the directors who bring a broad outside view to the Company achieves positive performance results. Company’s activities and the executive director who is well versed in the Company’s activities. Members of the Board of Directors place a high value on socio-cultural diversity as a factor Over the period from 1 January 2014 to 24 June that improves the effectiveness of the Board of Executive director 2014, the Board of Directors included three Directors. The members of the Board of Directors Independent directors independent directors, seven non-executive are balanced in terms of their age, gender and Non-executive directors directors and one executive director. Over the ethnicity. Over the period from 1 January 2014 to period from 24 January 2014 to 31 December 24 June 2014, the Company’s Board of Directors 2014, there were two independent directors1, included four women and seven men representing eight non-executive directors and one executive different age groups. Over the period from 24 director. January 2014 to 31 December 2013, it included three women and eight men also representing different age groups.

SKILLS AND EXPERIENCE OF MEMBERS OF THE BOARD OF DIRECTORS EDUCATION OF MEMBERS OF THE BOARD OF DIRECTORS2

8 7 6

4 3 3 3 3 2 2 1

Finance, Strategic Jurisprudence Corporate Transportation Personnel Finance, Jurisprudence Industry-wide / Business Other economics, management- governance and logistics management economics technical investments, audit

1 In 2014, Irina Shitkina and David Hexter served as independent directors. Starting from 13 November 2014, after joining the Board of Directors of UTLC, these members of the Company’s Board of Directors do not meet the official independence criteria of the Corporate Governance Code of the Bank of Russia for independent directors. However, taking into account that no meetings of the UTLC Board of Directors were held in 2014 and that business operations only in fact began in 2015, the lack of compliance with the Code criteria had no impact on the substantive aspects of work performed by the Company’s independent directors.

2 Members of the Board of Directors Alexey Davydov, Pavel Ilyichev, Irina Kostenets and David Hexter have two or more types of higher education. Petr Baskakov and Irina Shytkina have advanced degrees.

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Members of the Board of Directors shall exercise STRUCTURE OF THE BOARD OF DIRECTORS GENDER STRUCTURE OF THE BOARD their rights and perform their duties reasonably BY LENGTH OF SERVICE ON BOARD OF DIRECTORS and in good faith and act on behalf of the Company and all its shareholders while taking into account the interests of workers, clients, 2 partners and other stakeholders. 3

Members of the Board of Directors devote sufficient time to performing their duties. 2

In 2014, members of the Board of Directors 7 were actively involved in the main events of 8 the Company and held meetings with the

Company’s shareholders, management, auditors < 1 year Female and other stakeholders in order to find solutions 2-3 years Male < 3 years to problems encountered by the Board when performing its activities.

INDUCTION OF NEW MEMBERS TO THE BOARD OF DIRECTORS

In order to ensure the effective operation of 2Meetings with the Chairperson of the Board of Members of the Board of Directors are granted the Board of Directors, the Programme for Directors and CEO to learn and obtain significant the opportunity to study the Company’s key Orientation of New Members of the Board of information about the Company’s activities, documents, a list of which is contained in the Directors (hereinafter the Programme) was current problems and plans for the future. Programme. approved in November 2013. The Personnel and Remuneration Committee The goal of the Programme is to familiarise first- 3An orientation course and presentations by shall monitor the implementation of the time members of the Board of Directors with the management summarising information about Programme. Company’s production, financial and economic the Company’s activities in the following areas: activities as well as its corporate governance In June 2014, two members were elected practices as quickly and efficiently as possible. »»general information about the Company’s to the Board of Directors for the first time: activities Alexander Vinokurov and Alexander Panchenko. The Programme aims to prepare first-time »»strategic management; In July 2014, the Company implemented members of the Board of Directors for their roles »»sales and customer service; measures envisaged by the Programme for in the shortest time possible. »»development of terminal assets; their orientation as members of the Board of »»information technologies within the company Directors. The Programme includes the following management system; measures: »»budget management; »»organisation of procurement activities; »»risk management system; 1A visit to the Company’s central office by first- »»corporate governance; time members of the Board of Directors. »»stock market.

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D&O INSURANCE

The Company has provided annual insurance for directors, officers and companies between INSURED AMOUNT coverage for members of the Board of Directors TransContainer and Ingosstrakh. (LIMIT OF LIABILITY) since 2009. Insured amount (limit of liability) – USD In November 2014, an Extraordinary General 100,000,000; 100 ,000,000 Meeting of Shareholders approved the conclusion of a liability insurance agreement Insurance territory – around the world. USD

EVALUATION OF THE BOARD OF DIRECTORS

Performance evaluation of the Board of The activities of the Board of Directors and its PARTICIPATION BY MEMBERS OF THE Directors and its committees committees during the 2013/2014 corporate BOARD OF DIRECTORS IN THE SELF- In order to improve the effectiveness of the year were recognised as satisfactory based on ASSESSMENT OF THE PERFORMANCE Board of Directors, the Company has conducted the evaluation results. Following a discussion of OF THE BOARD OF DIRECTORS AND ITS an evaluation of the performance of the Board of the self-assessment results of the performance COMMITTEES Directors and activities of the committees under of the Board of Directors and its committees, the the Board of Directors each year since 2009. following resolutions were made: 45% BoD 81% The Personnel and Remuneration Committee monitors regular performance evaluations of the »»to increase the active personal participation 75% SC 60% Board of Directors and its committees. of members of the Board of Directors in the

meetings of the Board of Directors and its 33% AC 75% In November 2014, the Board of Directors reviewed committees; the results of a self-assessment of the work »»if the Board of Directors adopts a resolution 66% P&RC 100% performed by the Board and its committees in the that is inconsistent with the recommendation

2013/2014 corporate year. The self-assessment of of a committee and/or independent 2012–2013 2013–2014 the work of the TransContainer Board of Directors director, a justification for the reasons why for the 2013/2014 corporate year involved eight the recommendation was not taken into Board members as well as one director who was a consideration shall be reflected in the minutes member of the Company’s Board of Directors in the of the meeting of the Board of Directors; 2013/2014 corporate year. »»designate the members of the Board of Directors to allow for a comprehensive Three of five Strategy Committee members discussion of the matters under consideration took part in a self-assessment of the Strategy taking into consideration various opinions and Committee’s work for the 2013/2014 corporate competencies and also to take into account year. the personal motivation and responsibility of the committee members for the results of the Two of four Audit Committee members as well committee’s work. as one director who was a member of the Audit Committee in the 2013/2014 corporate year took Evaluation of the Board of Directors part in a self-assessment of the Audit Committee’s by an independent consultant work for the 2013/2014 corporate year. Adhering to best corporate governance practices, the Company hires an independent All three members of the Personnel and consultant to conduct an evaluation of the work Remuneration Committee took part in a self- performed by the Board of Directors once every assessment of the Personnel and Remuneration three years. The most recent evaluation involving Committee’s work over the 2013/2014 an independent consultant – Board Solutions – corporate year. was conducted in 2012.

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REPORT ON THE ACTIVITIES OF THE BOARD OF DIRECTORS AND ITS COMMITTEES

In 2014, the Company’s Board of Directors The Board of Directors determines the principles As part of the oversight of corporate governance held 13 meetings, including eleven in person, and approaches used to organise the risk practices at the Company, the Board of which contributed to the adoption of informed management and internal control system at the Directors in 2014 approved a schedule of and effective resolutions on the basis of a Company. As part of this function, the Board activities to prepare for and hold the Annual constructive dialogue. of Directors in 2014 approved the Corporate General Meeting of Shareholders for 2013, Risk Map (Register), the parameters for ranking considered a report on the assessment of The key functions of the Board of Directors risks and the maximum criticality level (retention corporate governance at the Company and the are to determine the main milestones of the ability) of possible losses from risk in 2015, results of the self-assessment of the work of the Company’s activities for the long term, approve considered a report on the implementation of Board of Directors and its committees for the the Company’s Development Strategy as an action plan for critical risks from the fourth 2013/2014 corporate year, reviewed information well as the annual approval of the budget and quarter of 2013 through the third quarter about the lack of compliance of the list of the review of key performance indicators. of 2014, reviewed the information on risk requirements for the corporate governance of an In performing these functions, the Board of management “Deteriorating market conditions” issuer, which must be observed as a condition Directors in 2014 considered information about and the effectiveness of the internal control for the inclusion of shares in the First Level the implementation of the Development Strategy and risk management system in 2013 and also Listing Rules of the MICEX Stock Exchange, in 2013, adjustments to the Budget for 2014, approved the Work Plan and Budget of the approved a new version of the Regulation on the the targeted performance indicators and main Internal Audit Service for 2014. Dividend Policy and determined the members parameters of the investment programme for and term of office of the Management Board. 2015 and the Budget for 2015. The Board of Directors also determines the Company’s remuneration policy for members The Board of Directors monitors the of the Board of Directors, the CEO and key performance of its executive bodies and senior employees. In particular, the Board of management as a whole. In 2014, the Board Directors in 2014 prepared recommendations of Directors approved reports of the CEO on for the General Meeting of Shareholders on the Company’s performance results for 2013 payment of remuneration to members of the and the first nine months of 2014, tentatively Revision Commission, adopted a resolution on IN 2014 THE BOARD approved the annual report for 2013, considered a bonus for the CEO for the fourth quarter of OF DIRECTORS CONSIDERED forecasts for the Company’s performance 2013 through the third quarter of 2014 and on a A TOTAL OF results considered forecasts for the Company’s bonus for the CEO and management for 2013, performance results in 2014 and 2014, reports reviewed monitoring of the remuneration system on the execution of the credit policy for the for the CEO and management for 2013 and 136 MATTERS fourth quarter of 2013 through the third quarter approved a new version of the list of participants of 2014, reports on the implementation of in the Long-term Employee Incentive resolutions by the Board of Directors from the Programme, amendments to the Regulation fourth quarter of 2013 through the third quarter on Incentives for Company Management of 2014 and the resolutions of the Annual and amendments to the Regulation on the IN 2014, THE COMPANY’S General Meeting of Shareholders, a report on Company’s Long-term Employee Incentive BOARD OF DIRECTORS HELD the fulfilment of the recommendations of the Programme. 13 MEETINGS, INCLUDING 11 Revision Commission based on the results of IN PERSON, WHICH CONTRIBUTED an audit of the Company’s performance for 2012, agreed to the CEO serving concurrently TO THE ADOPTION OF BALANCED as a member of the Board of Directors and AND EFFECTIVE DECISIONS ON President of UTLC, determined the terms of the THE BASIS OF A MEANINGFUL employment contract with the CEO as regards DIALOGUE the indexation of salary and reviewed the performance results of Kedentransservice for 2013 and the first half of 2014.

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A sufficient amount of time was allotted for the The Company also has an Audit Committee, OVERALL, THE TIME SPENT BY consideration of each agenda item at meetings Personnel and Remuneration Committee and THE BOARD OF DIRECTORS ON THE of the Board of Directors. The Board of Directors Strategy Committee. The committees tentatively CONSIDERATION OF AGENDA ITEMS WAS devoted the bulk of its time to the most important consider and prepare recommendations on the DISTRIBUTED AS FOLLOWS: items, including matters of a strategic nature that most important matters falling within the purview are significant for the Company. of the Board of Directors. 10 %

10 % 30 %

15% Activities of the Strategy Committee in 2014 The Strategy Committee considered a number of significant matters within its purview, including: 20 % 15 % DETERMINING THE PRIORITY AREAS OF THE COMPANY’S ACTIVITIES: »»information on the implementation of the Development Strategy in 2013; Monitoring the activities of the executive »»adjustments to the targeted parameters of the Development Strategy through 2020; bodies & management board »»a project for the integrated reconstruction of the Kuntsevo-II freight yard and station; Determination of the Company's core »»a project for the development of terminal facilities at the Saint Petersburg Transport Hub; activities »»a project for the construction of a local container terminal at the Lyublino station (Moscow); Operation of the internal control and »»a project to establish a joint venture in the Republic of Belarus between the Company and the Brest Branch of risk management system Belarusian Railway for integrated terminal and logistics services. Operation of the corporate governance system Determination of remuneration for COMPILING THE COMPANY’S BUDGET AND MONITORING REPORTS ON BUDGET EXECUTION RESULTS: members of the Board of Directors, »»reports on the Company’s results for 2013, Q1 2014, H1 2014 and the first nine months of 2014; CEO and key senior executives »»a report on the implementation of measures to reduce spending on the procurement of goods, work and services in Other matters 2013; »»a forecast of the Company’s performance results for Q1 2014; »»adjustments to the Budget for 2014; »»targeted performance indicators and main parameters of the Company’s investment programme for 2015; »»the draft Budget for 2015; »»an increase in the amount of funding for the purchase of new large-tonnage containers in 2014; »»the procurement of specialised large-tonnage containers by the Company.

DETERMINING THE COMPANY’S DIVIDEND POLICY: »»a draft of the new version of the Regulation on the Dividend Policy. THE COMPANY’S INTERACTION WITH SUBSIDIARIES AND AFFILIATES: »»the performance results of Kedentransservice for 2013 and the first half of 2014; »»information on the early repayment of a loan provided to TransContainer Finance by TrustUnion.

SUPPORTING THE COMPANY’S PARTICIPATION IN OTHER ORGANISATIONS: »»the Company’s participation in the Organisation for Co-operation Between Railways (OSJD); »»the Company’s participation in a competition to acquire a stake in ZSSK Cargo Intermodal a.s.

OTHER MATTERS: »»results of the activities of the Strategy Committee in the 2013/2014 corporate year; »»the work plan of the Strategy Committee for the period prior to the Annual General Meeting of Shareholders (Q3 2014 – Q2 2015); »»the draft budget of the Strategy Committee for the 2014/2015 corporate year; »»a draft of the new version of the Regulation on the Strategy Committee.

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Activities of the Audit Committee in 2014 The Audit Committee considered the following matters within its purview:

MONITORING THE ACCURACY AND COMPLETENESS OF THE COMPANY’S FINANCIAL STATEMENTS: »»annual financial statements prepared in accordance with RAS for 2013; »»financial statements prepared in accordance with IFRS for 2013; »»the annual report for 2013; »»interim IFRS consolidated financial statements of the Group for the first half of 2014; »»the accounting policy for 2015; »»effects from the de-mothballing of fixed assets; »»the action plan for the disclosure of information on operating segments in the Company’s IFRS and RAS financial statements; »»progress on the action plan for the disclosure of information on operating segments in the Company’s IFRS and RAS financial statements.

EVALUATING THE EFFECTIVENESS OF THE INTERNAL CONTROL SYSTEM: »»reports of the Internal Audit Service on the results of its activities for Q4 2013 and Q1 2014 – Q3 2014; »»a report on the implementation of the work plan by the Internal Audit Service for 2013; »»the level and structure of remuneration for the head of the Internal Audit Service; »»the draft work plan of the Internal Audit Service for 2015; »»the draft budget of the Internal Audit Service for 2015; »»a draft of the new version of the Regulation on the Internal Audit Service; »»information on the effectiveness of the internal control and risk management system in 2013; »»information on the fulfilment of the recommendations of the Internal Audit Service as regards the accounting of the services provided by the co- contractor Eastern Stevedore Company for the handling of container cargo at the Vostochny port.

EVALUATING THE EFFECTIVENESS OF THE RISK MANAGEMENT SYSTEM: »»a report on the implementation of an action plan to improve the corporate risk management system in 2013; »»a diagnostics report by Ernst & Young of the corporate risk management system; »»an action plan to improve the corporate risk management system for 2014; »»reports on the implementation of an action plan on acceptable and critical risks for Q4 2013 and Q1 2014 – Q3 2014; »»risks that materialised in 2013; »»the management of certain critical and acceptable risks for the Company; »»the draft Corporate Risk Map (Register) for 2015; »»the maximum criticality level of possible losses from risks in 2015 (Company’s retention ability); »»the parameters of risk ranking for 2015; »»information about improvements to the customer relations system; »»information about the lack of compliance of the list of requirements for the corporate governance of an issuer, which must be observed as a condition for the inclusion of shares in the First Level Listing Rules of the MICEX Stock Exchange; »»on the Company’s liquidity.

THE COMPANY’S INTERACTION WITH THE EXTERNAL AUDITOR: »»the evaluation of the auditor’s report on the Company’s financial statements for 2013; »»progress of the IFRS audit of financial statements for 2013; »»results of the IFRS audit of financial statements for 2013; »»payment for the auditor’s services in 2014; »»candidacy of the auditor for 2014; »»letter from the Company’s auditor to management on the audit results of the financial statements for 2013; »»a report on measures adopted to address observations made during the audit of the financial statements for 2013; »»findings of the auditor on the audit results of the Group’s interim IFRS consolidated financial statements of the Group for the first half of 2014; »»information about the fulfilment of recommendations by the auditor on the audit results of the Company’s financial statements concerning the IT system; »»a schedule for closed meetings of the Audit Committee with representatives of the external auditor and the head of the Internal Audit Service in the 2014/2015 corporate year; »»a schedule for a closed competition to select an auditor for the financial statements in 2015.

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THE COMPANY’S INTERACTION WITH THE REVISION COMMISSION: »»a report by management and the Internal Audit Service on the implementation of an action plan to eliminate violations identified by the Revision Commission based on the results of an audit of the Company’s activities in 2012; »»a report by the Revision Commission on the audit results of the Company’s activities in 2013; »»a report form on the implementation of an action plan to eliminate violations identified by the Revision Commission based on the results of an audit of the Company’s activities during the reporting period; »»an action plan to eliminate violations identified by the Revision Commission based on the audit results of the Company’s activities in 2013.

COUNTERACTING UNETHICAL PRACTICES BY COMPANY EMPLOYEES AND THIRD PARTIES: »»violations of the Company’s Code of Conduct in 2013; »»complaints (grievances) received via the hotline in 2012; »»a draft corporate anti-fraud programme; »»a report by EY on the results of an assessment of the anti-corporate fraud and anti-corruption system at the Company; »»information on anti-corporate fraud and anti-corruption measures at the Company; »»results of implementing the Regulation on the Procedure for the Procurement of Goods, Work and Services for the Company’s core businesses; »»a report on the placement of orders for the purchase of goods, work and services to support the Company’s activities in 2013.

OTHER MATTERS: »»results of the introduction of the Company’s process management system; »»an additional agreement to Debt Transfer Contract No. TKd/12/06/0027 dated 3 July 2012 between the Company and RZD Logistics and Far East Lend Bridge Ltd; »»a draft of the new version of the Regulation on the Audit Committee; »»results of the Audit Committee’s activities in the 2013/2014 corporate year; »»the Audit Committee’s work plan for the period prior to the Annual General Meeting of Shareholders (Q3 2014 – Q2 2015); »»the draft budget of the Audit Committee under the Board of Directors for the 2014/2015 corporate year.

Activities of the Personnel and Remuneration Committee in 2014 The Personnel and Remuneration Committee considered the following matters within its purview:

ESTABLISHING AN EFFECTIVE AND TRANSPARENT REMUNERATION PRACTICE AT THE COMPANY FOR MEMBERS OF THE BOARD OF DIRECTORS, EXECUTIVE BODIES, REVISION COMMISSION AND MANAGEMENT: »»a bonus for the Company’s CEO for Q4 2013 and Q1 2014 – Q3 2014; »»a bonus for the Company’s CEO and management for results of work in 2013; »»information on remuneration payment to members of the Board of Directors and its committees and members of the Revision Commission; »»monitoring the remuneration system for the CEO and management; »»a draft of the new version of the list of participants in the Long-term Employee Incentive Programme; »»the effectiveness of the Long-term Employee Incentive Programme and areas for improvement; »»draft amendments to the Regulation on the Long-term Employee Incentive Programme and the Regulation on Incentives for Company Management; »»the terms of the employment contract with the CEO.

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PERSONNEL PLANNING (SUCCESSION PLANNING), THE PROFESSIONAL STAFF AND EFFECTIVENESS OF THE BOARD OF DIRECTORS: »»self-assessment results by members of the Board of Directors and committees for the 2013/2014 corporate year; »»compliance of members of the Board of Directors with independence criteria; »»the members of the committees under the Board of Directors in the 2014/2015 corporate year; »»the nominee for director of the Company’s branch on the Zabaykalsk Railway; »»the nominee for director of the Company’s branch on the West Siberian Railway; »»the nominee for director of the Company’s representative office in Shanghai, China; »»the nominee for election as director and representative of TransContainer Asia Pacific Ltd. Co; »»the nominee for election as the Company’s corporate secretary; »»the nominee for director of the Company’s branch on the Kuybyshev Railway; »»the number of members, term of office and nominees for Management Board members; »»the nominee for election as CEO.

IMPROVEMENTS TO THE CORPORATE GOVERNANCE SYSTEM AND PRACTICES AT THE COMPANY: »»a report by EY on the assessment of corporate governance at the Company; »»an action plan to improve corporate governance at the Company in 2014; »»draft amendments and additions to the Charter; »»a draft of the new versions of the Charter, Regulation on the Management Board and the Regulation on the CEO; »»information on the Programme for the Orientation of New Members of the Board of Directors; »»draft documentation on procurements (invitations to take part in a request for proposals for the liability insurance of the Company, its companies and their directors and officers); »»results of a competition via a request for proposals for the liability insurance of the Company, its companies and their directors and officers.

DETERMINING PRIORITY AREAS OF THE COMPANY’S ACTIVITIES IN PERSONNEL MANAGEMENT: »»the draft Personnel Management Policy of the Company; »»draft amendments to the Regulation on Private Pension Provision.

OTHER MATTERS: »»results of the activities of the Personnel and Remuneration Committee in the 2013/2014 corporate year; »»the Personnel and Remuneration Committee’s work plan for the period prior to the Annual General Meeting of Shareholders; »»the draft budget of the Personnel and Remuneration Committee for the 2014/2015 corporate year; »»a draft of the new version of the Regulation on the Personnel and Remuneration Committee.

Changes to members of the Board of Directors in 2014 From January to June 2014, the Board of Directors acted At the Annual General Meeting of Shareholders of based on the resolution of the Annual General Meeting of TransContainer held on 24 June 2014, the following persons Shareholders dated 26 June 2013 with the following members: were elected to the Board of Directors:

1 Petr Baskakov 7 Irina Kostenets 1 Petr Baskakov 7 Yury Novozhilov 2 Anna Belova 8 Yury Novozhilov 2 Alexander Vinokurov 8 Alexander Panchenko 3 Alexey Grom 9 Zhanar Rymzhanova 3 Alexey Davydov 9 Zhanar Rymzhanova 4 Alexey Davydov 10 David Hexter 4 Pavel Ivanov 10 David Hexter 5 Pavel Ivanov 11 Irina Shytkina 5 Pavel Ilyichev 11 Irina Shytkina 6 Pavel Ilyichev 6 Irina Kostenets

During this period, From July to this version of the 7meetings December 2014, 6meetings Board of Directors the Board of 6 meetings in person 5 meetings in person held 1 meeting in absentia Directors held 1 meeting in the form of absentee voting

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Changes to Strategy Committee members in 2014 Committee members from January to June 2014 Committee members from June to December 2014

Alexey Davydov – Chairman Alexey Davydov – Chairman 1 Head of the Economic Forecasting and Strategic 1 Alexey Grom – Deputy Chairman A Ryshkov – Deputy Chairman Planning Department Petr Baskakov Petr Baskakov of Russian Railways. Not a member of the Board of David Hexter, Independent Director Alexander Panchenko Directors. David Hexter, Independent Director

Kristina Galkina – Secretary. Kristina Galkina – Secretary.

4 meetings 5 meetings held in person held in person

Members of the Strategy Committee have the necessary knowledge and experience in matters of strategic planning, business process management, railway transportation, economics, finance and corporate governance to perform Committee functions.

Changes to Audit Committee members in 2014 Committee members from January to June 2014 Committee members from June to December 2014

David Hexter – Chairman, Independent Director David Hexter – Chairman, Independent Director Anna Belova – Deputy Chairman, Independent Director Alexander Panchenko – Deputy Chairman Irina Kostenets Pavel Ivanov Pavel Ivanov Pavel Ilyichev Pavel Ilyichev

Yulia Gelfer – Secretary Yulia Gelfer, Olga Miller – Secretary

5 meetings 5 meetings held in person held in person

The Chairman of the Audit Committee shall be an independent director. Members of the Audit Committee have the necessary knowledge and experience in matters of finance, economics, railway transportation and corporate governance to perform Committee functions.

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Changes to Personnel and Remuneration Committee members in 2014 Committee members from January to June 2014 Committee members from June to December 2014

Irina Shytkina – Chairman, Independent Director. Irina Shytkina – Chairman, Independent Director. Irina Kostenets – Deputy Chairman Irina Kostenets – Deputy Chairman Yury Novozhilov Alexander Vinokurov

Yulia Gelfer – Secretary Yulia Gelfer, Olga Miller – Secretary

5 meetings 5 meetings held in person held in person

The Chairman of the Personnel and Remuneration Committee shall be an independent director. Members of the Personnel and Remuneration Committee have the necessary knowledge and experience in matters of personnel management and motivation, corporate governance, economics and finances to perform Committee functions.

INFORMATION ON MEETING ATTENDANCE BY MEMBERS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES IN 2014

PERSONNEL AND NAME BOARD OF DIRECTORS AUDIT COMMITTEE STRATEGY COMMITTEE REMUNERATION COMMITTEE Zhanar Rymzhanova 13/13 Yury Novozhilov 13/13 4/5 Anna Belova 7/7 5/5 David Hexter 13/13 10/10 9/9 Irina Shytkina 13/13 10/10 Petr Baskakov 13/13 9/9 Alexey Grom 7/7 4/4 Alexey Davydov 12/13 9/9 Pavel Ivanov 11/13 9/10 Pavel Ilyichev 13/13 10/10 Irina Kostenets 13/13 5/5 10/10 Alexander Vinokurov 6/6 2/5 Alexander Panchenko 6/6 5/5 5/5 Anton Ryshkov 5/5

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CORPORATE SECRETARY

IN ORDER TO ENSURE INDEPENDENCE, THE COMPANY’S CORPORATE SECRETARY IS ACCOUNTABLE IN HIS/HER ACTIVITIES TO THE BOARD OF DIRECTORS.

The main objectives of the Corporate Secretary are: to ensure compliance by the Company’s bodies and officers with the requirements of legislation and the Charter and internal documents governing the safeguarding and protection of the rights and legitimate interests of the Company’s shareholders, to prepare for and hold the General Meeting of Shareholders and meetings of the Board of Directors and its committees, to disclose information about the Company and also to improve the existing corporate governance practices at the Company.

The main functions of the Corporate Security include: OLGA MILLER Corporate Secretary 1organisational and information support for the work of the Board of Directors and its committees; Year of birth: 1976. 2001 – 2004 2012 Division Head, Corporate Policy Nominee for the “Director of Year appointed Corporate Department, RAO UES of Russia the Year” prize in the category Secretary: 2008-2012, 2014. “25 Best Directors/Corporate 1998 – 2001 Secretaries”. preparing for and holding the General Meeting of Shareholders; Education: Chelyabinsk State Specialist/Head of Legal 2 University, Department of Law Division, Chelyabinsk regional 2012 and 2013 (graduated with honours), 1999. branch of the Russian Federal First place in the category In 2007, Miller underwent a Securities Market Commission “Corporate Governance Director “Corporate Director” training in the Transportation Industry 3interaction with members of the Board of Directors and course at the Higher School of 2009 – Top 1000 Russian Managers Economics State University. Winner of the “Director of Rating”. consultations with members of the Board of Directors on the Year” prize given by the corporate governance matters; Key skills and experience: Association of Independent Other positions currently held: November 2014 – present Directors and the Russian member of the Board of Director, Corporate Governance Union of Industrialists and the National Association of Department, UTLC Entrepreneurs in the category Corporate Secretaries and “Corporate Governance Director a member of the Board of organising interaction between the Company and its November 2007 – present 4 – Corporate Secretary”. Directors of DETGIZ. Director, Corporate shareholders; Governance, TransContainer 2010 and 2011 Winner of the “Top 1000 Russian 2004 – November 2007 Managers” rating in the category Head, Subsidiary and Affiliate “Corporate Governance Director”. organising archiving of the Company’s documents on corporate Management Department, 5 Russian Railways governance matters;

6ensuring the disclosure of information about the Company.

The working arrangements of the Corporate Secretary are governed by the From January to November 2014, the functions of Corporate Secretary Regulation on the Corporate Secretary of TransContainer1. were performed by Deputy Director of Corporate Governance Yulia Gelfer. In December 2014, Corporate Governance Director Olga Miller was elected Corporate Secretary. 1 Regulation posted on the Company’s website at the address: http://www.trcont.ru/en/investor-relations/charter-and-bylaws/bylaws/

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MONITORING AND REPORTING

ACCOUNTABILITY

The Company’s Board of Directors is Shareholders and the Board of Directors and accountable to the General Meeting of presents regular reports on his/her activities that Shareholders of TransContainer. The CEO allow for assessing the efficiency and results of is accountable to the General Meeting of the Company’s work.

INFORMATION DISCLOSURE ABOUT THE COMPANY’S ACTIVITIES.

The Board of Directors is responsible for operating results, structure of shareholder capital, While ensuring stakeholders are able to exercise disclosing fair, balanced and clear information lists of affiliated entities, notifications about significant their right to receive information as much as about the Company’s financial position and its facts and other information in accordance with possible, the Company protects their interests development prospects. the requirements of the legislation of the Russian as regards restricting access to insider and Federation and the United Kingdom. confidential information, including information The Board of Directors monitors that the Company that constitutes a commercial or other legally discloses reliable information about all significant The Company prevents the preferential protected secret. matters concerning its activities in a regular, timely satisfaction of the interests of certain recipients and complete manner, including financial and (group of recipients) of information over others.

AUDIT COMMITTEE AND ITS ROLE

THE GOAL OF THE AUDIT COMMITTEE IS 3evaluating the effectiveness of the risk and the chief accountant. In addition, the CEO TO ENSURE THE EFFECTIVE WORK OF THE management system; and representatives of the Company’s Revision COMPANY’S BOARD OF DIRECTORS AS Commission also took part in meetings on REGARDS MONITORING THE COMPANY’S certain agenda items in 2014 under instructions FINANCIAL AND ECONOMIC ACTIVITIES. 4the Company’s interaction with the external from the Audit Committee. At the same time, auditor; members of the Audit Committee hold meetings at least once a quarter with representatives of The Audit Committee prepares recommendations the Company’s auditor and the head of the on the following matters falling within the purview of 5the Company’s interaction with the Revision Internal Audit Service in a confidential format in the Board of Directors: Commission; the absence of management.

According to the approved schedule for 1monitoring the accuracy and completeness of 6countering unethical practices by the closed meetings of the Audit Committee with the Company’s financial statements; Company’s employees and third parties. representatives of the external auditor and the head of the Internal Audit Service, the Committee Meetings of the Audit Committee are regularly held four meetings in 2014 with external auditor 2evaluating the effectiveness of the internal attended by representatives of the Company’s PricewaterhouseCoopers Audit and four meetings control system; auditor, the head of the Internal Audit Service with the head of the Internal Audit Service.

INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM

The Board of Directors purposefully introduces up at the Company is shaped and based on control and risk management system on a a culture of risk control and management generally accepted international standards. continuous basis while delegating day-to-day throughout the entire Company. The risk The Board of Directors appropriately monitors risk control to Company management. management and internal control system set the operation and effectiveness of the internal

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INTERNAL AUDIT SERVICE

THE INTERNAL AUDIT SERVICE WAS ESTABLISHED TO PROVIDE ASSISTANCE TO THE BOARD OF DIRECTORS AND EXECUTIVE BODIES IN ENHANCING THE COMPANY’S EFFECTIVE MANAGEMENT, IMPROVING ITS FINANCIAL AND ECONOMIC PERFORMANCE VIA A SYSTEMATIC AND CONSISTENT APPROACH TO THE ANALYSIS AND ASSESSMENT OF THE RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM AS WELL AS CORPORATE GOVERNANCE AS TOOLS FOR ENSURING REASONABLE CONFIDENCE THAT THE COMPANY WILL ACHIEVE THE GOALS IT HAS SET.

The Internal Audit Service is guided in its activities by the principles of independence and objectivity as well as the Regulation on the Internal Audit Service of TransContainer, the legislation of the Russian Federation, the Regulation on the Audit Committee of TransContainer, the resolutions of the General Meeting of Shareholders and Board of Directors, internal regulatory documents and the standards of external auditors specified by the International Professional Internal Audit Standards and the Code of YELENA USTINOVA Conduct of the Institute of Internal Auditors. Head of the Internal Audit Service.

Main functions of the Service: Year of birth: 1977. 2001 – 2006 CEO, Bernstein and Drucker Year appointed to position: Audit 2009-present 2006 – 2007 1To assess the effectiveness of the internal control system of the Company Education: Institute for the Deputy Head, Control and and its subsidiaries and develop appropriate recommendations based Protection of Entrepreneurs, Internal Audit Division, Jurisprudence (1999) TransContainer on the assessment results. The assessment is conducted in the following

Auditor’s qualification certificate 2007 – 2009 areas: dated 25 January 2001 Head, Control and Internal Audit Division, TransContainer »»the efficiency and effectiveness of the Company’s financial and economic Work experience: 2009 – present activities; Head, Internal Audit Service, 1995 – 1997 TransContainer Paralegal, UM »»the safeguarding of the Company’s assets; »»the accuracy of the Company’s financial statements; 1997 – 1999 Tax lawyer, Business Qualitet »»the compliance of the Company’s activities with the provisions of the

2000 – 2001 legislation of the Russian Federation and internal organisational and Tax lawyer, Stanford Capital administrative documents and standards.

2To assess the effectiveness of the risk management system of the Company and its subsidiaries and develop appropriate recommendations based on the assessment results;

3To assess the Company’s corporate governance;

4To provide assistance to the Company’s executive bodies and workers in developing and monitoring the implementation of procedures and measures to improve the risk management and internal control system as well as the corporate governance system;

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5To coordinate activities with the external auditor 7To prepare and submit proposals for In order to ensure the principle of independence as well as entities that provide consulting consideration by the CEO on the elimination and objectivity, the Service is accountable to services in risk management, internal control and prevention of shortcomings identified the Audit Committee and the Board of Directors and corporate governance; in the Company’s production, financial and with administrative subordination to the CEO. economic activities as well as proposals on The decision to appoint and terminate the the disciplinary, financial and other liability of powers of the Service head is adopted by the 6To prepare and submit reports to the Board of responsible persons in the manner prescribed Board of Directors with a majority of votes by the Directors and executive bodies on the Service’s by the legislation of the Russian Federation and members of the Board of Directors taking part in performance results (including information the Company’s internal regulatory documents; the meeting based on the recommendation of about significant risks, shortcomings, the results the Audit Committee. The employment contract and effectiveness of measures to eliminate with the Service head is signed by the CEO on shortcomings, results on the implementation of 8To prepare a draft work plan for the Service for the terms specified by the Audit Committee. the Service’s plan and the assessment results of the year that contains, among other things, a plan the actual condition, reliability and effectiveness for audits of the Company’s production, financial The Service head reports to the Audit of the risk management, internal control and and economic activities (taking into proposals by Committee on a quarterly basis about the results corporate governance systems); the CEO) and submit it to the Audit Committee for of its activities during the reporting period and coordination and the Board of Directors for approval. the condition of the internal control and risk management system at the Company.

The head of the Internal Audit Servic is Yelena Ustinova.

EXTERNAL AUDITOR

In order to ensure the independence and In April 2011, the Audit Committee held a In June 2014, the Annual General Meeting of objectivity of the audit of the financial competitive selection for TransContainer’s Shareholders of TransContainer reappointed statements, the Company has approved the external auditor. Upon completing the review of PricewaterhouseCoopers Audit as the Policy on the Rotation of the External Auditor the proposals of audit firms, the Audit Committee Company’s auditor. and interaction with the External Auditor announced PricewaterhouseCoopers Audit as Regarding the Provision of Non-audit Services the winner of the selection process. In July 2014, the Board of Directors determined (hereinafter the Auditor Rotation Policy). the amount of payment for the auditor’s services To prepare recommendations on the as RUB 16,800,000 excluding VAT and overhead. The nominee for the external auditor of the reappointment of the external auditor, the Audit financial statements of TransContainer according Committee reviewed the external auditor’s According to the contract on the provision to RAS and IFRS shall be approved by the reports and statements from management, of audit services, the auditor performed the General Meeting of Shareholders based on the assessed the quality of the Company’s following types of work: recommendation of the Board of Directors and external audit and the auditor’s compliance the results of a competitive selection that shall be with the independence requirements and »»an assessment review of the Company’s conducted by the Audit Committee at least once proposed PricewaterhouseCoopers Audit to interim condensed consolidated IFRS every five years among the “big four” auditors. be recommended by the Board of Directors for financial statements for the first half of 2014; The Company also considers it appropriate to re-election at the Annual General Meeting of »»an assessment review of the Company’s select a single auditor for the Company’s financial Shareholders as the Company’s external auditor. special financial statements for the first half statements under both RAS and IFRS. of 2014 prepared in accordance with the instructions and accounting policy of the Russian Railways group;

95 Annual report 2014 TransСontainer

»»an assessment review of the Company’s with the instructions and accounting policy of According to the Auditor Rotation Policy, in order special financial statements for the first half the Russian Railways group; to ensure the external auditor’s independence, of 2014 prepared in accordance with the »»an audit of the Company’s special the remuneration to be received by the audit firm accounting policy of the TransContainer group financial statements for 2014 prepared in for providing non-audit services must not exceed for inclusion in the consolidated financial accordance with the accounting policy of 10% of the cost of services charged by the auditor information of the FESCO Group; the TransContainer group for inclusion in of the Company’s financial statements. The Audit »»an audit of the Company’s consolidated IFRS the consolidated financial information of the Committee tentatively considers the feasibility of financial statements for 2014; FESCO Group; the audit firm providing any services, the volume of »»an audit of the Company’s special financial »»an audit of the Company’s RAS financial non-audit services and the remuneration paid by statements for 2014 prepared in accordance statements for 2014. the Company for such services.

PRICEWATERHOUSECOOPERS PRICEWATERHOUSECOOPERS AUDIT, AS THE COMPANY’S AUDITOR, WAS PAID THE FOLLOWING REMUNERATION IN 2014: AUDIT DID NOT PROVIDE ANY NON-AUDIT SERVICES TO TYPE OF SERVICE REMUNERATION (INCLUDING VAT), RUB TRANSCONTAINER IN 2014 Audit of the RAS financial statements for 2013 4,786,080.00 Audit of the consolidated IFRS financial statements for 2013 3,233,200.00 Assessment review of the interim condensed consolidated IFRS financial statements for H1 2014 1,534,000.00 Advance for the audit of the consolidated IFRS financial statements for 2014 5,310,000.00 Advance for the audit of the consolidated RAS financial statements for 2014 5,664,000.00 TOTAL 20,527,280.00

REVISION COMMISSION

The Revision Commission is a permanent The Revision Commission acts in the interests of On 24 June 2014, the following members were internal control body that monitors the the Company’s shareholders and is accountable elected to the Revision Commission at the Company’s financial and business activities, to the General Meeting of Shareholders. In Annual General Meeting of Shareholders: including those of the Company’s branches and its activities, the Revision Commission is not representative offices, to ensure compliance dependent on any officers in the Company’s with the legislation of the Russian Federation, management bodies. Members of the Revision Oleg Ivanov – Sergey Davydov the Charter and internal documents. Commission are neither Company officers nor Chairman of Maria Kalvarskaya employees. the Revision Alexey Kostylev Commission Natalia Lem

POSITION NAME REMUNERATION, RUB1 Revision Commission members are entitled Chairman of the Revision Commission Oleg Ivanov 225,000.00 to remuneration as set forth in the Company’s Regulation on Remuneration and Compensation Member of the Revision Commission Sergey Davydov 150,000.00 Payable to Members of the Revision Member of the Revision Commission Maria Kalvarskaya 150,000.00 Commission2. The annual remuneration paid to Member of the Revision Commission Fyodor Kuzin 150,000.00 the Revision Commission in 2013 totalled RUB Member of the Revision Commission Natalia Lem 150,000.00 825,000.00. TOTAL 825,000.00

1 Including a 50% allowance for the Revision Commission Chairman.

2 Regulation posted on the Company’s website at the address: http://www.trcont.ru/en/investor-relations/charter-and-bylaws/bylaws/

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REMUNERATION FOR THE BOARD OF DIRECTORS AND MANAGEMENT

PERSONNEL AND REMUNERATION COMMITTEE AND ITS ROLE

The key goal of the Personnel and Remuneration 1establishing an efficient and transparent 3improving corporate governance system and Committee is to ensure the effective work of the practice for remuneration payable to members practices at the Company; Board of Directors by establishing an efficient of the Board of Directors, executive bodies, and transparent practice for remuneration the Revision Commission and Company payable to members of the Board of Directors, management; 4identifying priority areas of the Company’s CEO and other senior employees. activities in personnel management.

The main objective of the Personnel and 2considering matters related to personnel Remuneration Committee is to preview and planning (succession planning) as well as the issue recommendations on the following matters professional structure and effectiveness of the reserved for the Board of Directors: Board of Directors;

REMUNERATION SYSTEM FOR MEMBERS OF THE BOARD OF DIRECTORS

Remuneration to members of the Board of Remuneration payable to members of the meetings of the committee under the Board of Directors and committees under the Board Board of Directors consists of two components: Directors and annual remuneration. of Directors is paid in accordance with the remuneration for attending meetings of the Regulation on Remuneration and Compensation Board of Directors and annual remuneration. Apart from the CEO, members of the Board of Payable to Members of the Board of Directors1 Directors do not own shares in the Company as well as the Regulations on Remuneration Remuneration payable to members of the and did not conclude any transactions with such and Compensation Payable to Members of committee under the Board of Directors consists shares in the reporting year Committees under the Board of Directors2. of two components: remuneration for attending

REMUNERATION PAID TO ZAO PRICEWATERHOUSECOOPERS AUDIT FOR AUDITING SERVICES RENDERED IN 2014, AMOUNTED TO

RUB 20,527,280 (INCLUDING VAT)

1 Regulation posted on the Company’s website at the address: http://www.trcont.ru/en/investor-relations/charter-and-bylaws/bylaws/

2 Regulation posted on the Company’s website at the address: http://www.trcont.ru/en/investor-relations/charter-and-bylaws/bylaws/

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FOR PARTICIPATING ANNUAL REMUNERATION FOR PARTICIPATING REMUNERATION IN BOD COMMITTEE COMPENSATION IN BOD MEETINGS FOR SERVING ON THE BOD FOR SERVING ON A BOD COMPONENT MEETINGS FIXED PAY VARIABLE PAY COMMITTEE Policy and A competitive incentive package to attract A package which incentivises directors to A competitive incentive package Reimbursement objectives and retain skilled professionals on the BoD. implement the Company’s strategy. which attracts and retains skilled of costs related to professionals. participating in BoD Encouraging participation in and BoD committee committee meetings in person. meetings.

Description A BoD member is A BoD committee The fixed annual remuneration The variable annual remuneration of each BoD If approved by the Annual Payments are made paid: member is paid: of each BoD member is member is calculated as follows: General Meeting of in line with the actual RUB 30,000 when RUB 20,000 when calculated as follows: Shareholders, BoD committee costs incurred and participating in a participating in a S = (0.45*Mebitda+0.45*Mnp+0.1* Mspp)*Bfix * members may be paid annual supported by the meeting in person; meeting in person; Sfix = 1,800,000 * M, where M, where remuneration calculated as source accounting RUB 15,000 RUB 12,000 when follows: documents, including when providing a providing a written Sfix is fixed annual Mebitda is the multiplier that reflects the delivery of AR = 2*(20,000*m+12,000*n), travel costs to attend written opinion or opinion remuneration of the BoD the EBITDA target as per the Company’s approved where the BoD meeting, participating in a member budget for the respective period. AR is the annual remuneration VIP lounge services meeting in absentia. RUB 1,800,000 is the base Mnp is the multiplier that reflects the delivery of the amount; in airports and for calculating total annual net profit target as per the Company’s approved m is the number of the meetings railway stations, hotel remuneration budget for the respective period. during the reporting period accommodation M is the multiplier reflecting Mspp is the multiplier showing the Company’s where the committee member costs, participation in the BoD share price performance. participated in person; communication, meetings in person The Company’s share price performance is the n is the number of meetings telephone and M is calculated according to the difference between the relative change in the price during the reporting period Internet costs and following formula: of the Company’s GDR on the LSE and the relative where the committee member other expenses change in FTSE Russia IOB Index for the Period. provided a written opinion associated with M is the number of meetings Bfix is the base for calculating the fixed annual statement. the BoD member’s attended by the BoD member remuneration and is equal to RUB 1,800,000. participation in divided by the total number of M is the multiplier reflecting participation in the BoD the BoD and BoD BoD meetings held during the meetings in person. committee meetings. reporting period. M is calculated according to the following formula: The maximum value of the M is the number of meetings attended by the multiplier is one. BoD member divided by the total number of BoD meetings held during the reporting period.

The maximum EBITDA and net profit multipliers applicable if 150% or more per cent of the target is achieved is 2.

When targets delivered fail to reach 100%, remuneration is not paid.

The variable annual remuneration is not paid to any Executive Directors.

Additional Additional 50% (25%) Additional 25% (25%) Additional 50% (25%) of remuneration Additional 25% (25%) – remuneration for of remuneration of remuneration remuneration acting as Chairman (Deputy Chairman) of the BoD or BoD committee

Maximum possible For participating For participating Chairman of the BoD – RUB If 150% or more of the target is reached: Depends on the number of – payments in one meeting in in one committee 2,700,000; committee meetings held. person (by letter meeting (providing Chairman of the BoD – RUB 5,130,000; ballot or providing a written opinion Deputy Chairman of the BoD – a written opinion statement): RUB 2,250,000; Deputy Chairman of the BoD – RUB 4,275,000; statement): Chairman and Deputy Chairman – RUB Chairman – RUB BoD member – RUB BoD member – RUB 3,420,000. 45,000 (22,500); 25,000 (15,000). 1,800,000. Deputy Chairman Committee member – RUB 37,500 – RUB 20,000 (18,750). (12,000). Committee member – RUB 30,000 (15,000).

Payment schedule Paid within one month of a BoD (committee) Paid within one month of the Annual General Meeting of Shareholders. Paid within one meeting. month of submitting documents confirming costs incurred.

Remuneration paid RUB RUB RUB RUB RUB RUB for 2014 3,543,750.00 2,331,000.00 20,507,142.86 21,455,357.14 4,264,000.00 3,130,096.50

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REMUNERATION SYSTEM FOR THE CEO AND MANAGEMENT

FIXED REMUNERATION

REMUNERATION COMPONENT VARIABLE REMUNERATION COMPONENT COMPONENT BASE OR FIXED SALARY QUARTERLY BONUS ANNUAL BONUS ONE-OFF BONUS LONG-TERM INCENTIVE PROGRAM Policy and A fixed remuneration Aims to encourage Aims to encourage management to Aims to meet strategic Ensuring alignment of management’s objectives component establishes a management to meet meet corporate and individual key objectives as defined motivation with the shareholders’ interests, competitive base incentive financial and economic performance indicators (KPIs). by the BoD, as well as attracting and retaining skilled staff, improving package to attract and retain targets as well as targets individual projects and/ the quality and stability of Company skilled managers. related to specific production or non-systematic critical governance and ensuring compliance and business operations activities. of remuneration paid to the Company’s employees with international practice and standards.

Description The fixed remuneration Bonuses are based for The annual bonus is paid based upon the The amount of a one- The programme participants are entitled component is defined based Company performance and achievement of KPIs. off bonus is linked to the to purchase shares at the IPO price (RUB on the manager’s expertise, the individual performance significance, complexity 2,464.23) plus 50% of the programme service experience and role in the of each manager during the Annual bonus amounts for each and execution of the costs. The programme allows for either the Company as well as comparable reporting quarter. manager are the product of the fixed strategic objective. purchase of the entire share package available remuneration in the labour remuneration component and the sum The calculation and to the programme participant at the option strike market. Quarterly bonus amounts of multipliers assessing the manager’s approval procedure price or for the receipt of the shares as a set-off are a product of the fixed performance according to the following for one-off bonuses is of counterclaims to the Operator based on the The management remuneration remuneration component and formula: established: difference between the option strike price and is benchmarked against the the sum of multipliers assessing B = (Mcorp + Mind) x Sann, where for the CEO by the Board the current market price. market by the Personnel and the manager’s performance: B is the manager’s annual bonus, RUB; of Directors; For new participants within the second Remuneration Committee Vqurarter = Mcorp is the multiple of the manager’s for management by the and subsequent stages, the initial price is based on the monitoring of (Mgen + Mspec) * S quart, delivery of the corporate KPIs; Board of Directors as determined as follows: management remuneration where Mgen is the sum of Mind is the multiple of the manager’s advised by the CEO based - for participants in the first stage in entities comparable to the the multipliers assessing the delivery of the individual KPIs; on recommendations of the Programme and new participants who are Company in terms of revenue manager’s delivery of the Sann is the fixed remuneration from the Personnel Company employees as of the IPO date – the and/or market capitalisation following budgeted financial component amount (base or fixed and Remuneration price prevailing in the IPO process + 50% of the and the Company’s sector of and economic targets (general salary). Committee. actual interest paid by the operator for the loan operation. indicators): net revenue, sales raised to finance the Programme, per 1 share; profit, net profit margin, labour In the event the actual net profit exceeds - for other new participants – the A manager’s remuneration is productivity; the target in the reporting period, the highest of the following amounts: specified in the employment Mspec is the multiplier Company’s management may be paid - the weighted average price (exchange rate) contract as a base or fixed salary. assessing the manager’s an additional annual bonus in line with the of one share for transactions concluded with delivery of the following following terms: shares on the Exchange as of the date on which The base or fixed salary amount budgeted specific targets if up to 105% of the net profit target is the relevant share sales contract was concluded is based on the amount of actual associated with the Company’s achieved, no additional bonus is paid; with the new participant market price or time worked. operating activities (special if more than 105% of the net profit target - the price prevailing in the IPO process + 50% indicator): loaded containers is achieved, an additional bonus of 15% of the actual interest paid by the operator for In accordance with the transported by the rolling stock of the amount in excess of the target the loan raised to finance the Programme as procedure stipulated by local of the Company; is paid. of the conclusion date of the sales contract, regulations of the Company and S quart is the fixed The additional annual bonus paid is in per 1 share. based on Federal State Statistics remuneration component proportion to the share of the annual Service data, the base or fixed amount (base or fixed salary). bonus of the manager in question salary is indexed semi-annually. to the total annual bonus paid to the The Regulation also stipulates management. grounds for non-payment or reductions of the quarterly The Regulation also stipulates grounds bonus. for non-payment or reductions of the annual bonus.

THE REMUNERATION SYSTEM IS TRANSPARENT, CLEAR AND BASED ON COMPANY’S PERFORMANCE RESULTS

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FIXED REMUNERATION

REMUNERATION COMPONENT VARIABLE REMUNERATION COMPONENT COMPONENT BASE OR FIXED SALARY QUARTERLY BONUS ANNUAL BONUS ONE-OFF BONUS LONG-TERM INCENTIVE PROGRAM

Payment schedule Payable monthly. Remuneration is paid: Remuneration is paid after the BoD’s Remuneration is paid The Programme may be implemented in review of the CEO’s report on the after consideration of the several stages. The number of shares to be to the CEO upon review of Company’s financial and operating one-off bonus payment distributed among participants as part of the CEO’s report on the performance in the reporting year. by the BoD. the first stage corresponds to the amount Company’s financial and of the share ownership fund. The number of operating activities in the shares to be distributed among participants reporting quarter, of the first instalment of this stage may not exceed the number of shares transferred to to management upon the Reserve Fund based on the results of the provision of reporting for the first instalment of the stage, etc. Thus, the relevant quarter. amount of each instalment of the subsequent stage may not exceed the number of shares transferred to the Reserve Fund based on the results of the fulfilment of the corresponding instalment of the previous stage. Maximum possible Stipulated in the employment For the CEO – 3.5 quarterly Annual bonus for the amount of 100% The one-off bonus Within one instalment, the programme payments contract with the manager. fixed remuneration of the fixed annual remuneration amount cannot exceed participant is entitled to purchase 1/4 (one components; component. three times the fixed fourth) of the total number of shares the remuneration component participant is entitled to by the programme For management – 1.5 The maximum percentage of the net of the manager in stage. The maximum amount of shares quarterly fixed remuneration profit target delivery used to calculate question. that may be acquired with the right granted components. an additional annual bonus is 150%. to each new programme participant is determined by the BoD and may not exceed the number of shares in the Reserve Fund.

Amount of payments1 and remuneration to members of the Company’s Management Board in 2014 72,828,325.36 28,831,511.07 70,210,918.70 – 4,947,966.292

Amount of payments3 and remuneration to Company management in 2014 153,705,175.90 64,210,846.44 150,787,574.02 70,000.00 18,915,167.724

Remuneration for the Company’s CEO and retain skilled staff at the Company based on the and long-term incentives (equity-based management is paid in the manner prescribed following core principles: compensation programme), as well as other by the Regulation on Incentives for Company payments stipulated by the labour legislation of Management and the Regulation on the Long- »»procedural transparency when determining the Russian Federation, collective bargaining term Employee Incentive Programme. total remuneration amount and structure; agreement or local regulations. »»a simple formula for calculating total The Regulations set forth the amounts and remuneration; The management’s remuneration is determined procedures for remuneration payments to »»competitive amounts and structures for by taking into account the remuneration prevailing the CEO, first deputy CEOs, deputy CEOs, remuneration; in the labour market for positions comparable to administrative directors in functional areas, »»balanced interests between the Company those of the Company’s management. the chief accountant and the chief engineer shareholders and management. (hereafter management or manager). No remuneration is provided for membership on The total remuneration (incentive package) the Management Board. Incentive for management aims to improve the for management consists of fixed pay (base or effectiveness of the Company’s governance, fixed salary) as established in the employment achieve the Company’s strategic goals and also contract and variable pay, including bonuses

1 The amount of payments refers to the amount of salary payable, excluding income in kind before taxes and other deductions, in accordance with the Regulation on Incentives for Company Management and the Regulation on the Long-term Employee Incentive Programme. (Total amount of payments to members of the Management Board).

2 Remuneration with options to acquire Company shares.

3 The amount of payments refers to the amount of salary payable, excluding income in kind before taxes and other deductions, in accordance with the Regulation on Incentives for Company Management and the Regulation on the Long-term Employee Incentive Programme. (Total amount of payments to management, including payments to members of the Management Board).

4 Remuneration with options to acquire Company shares.

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KPI-BASED REMUNERATION FOR COMPANY MANAGEMENT

The purpose of the remuneration system The list of corporate and individual KPIs and their The CEO’s KPI report is reviewed by the for management is for the Company to weights (weights of both groups and of each Personnel and Remuneration Committee and achieve long-term sustainable business. The KPI) are set as follows: the Board of Directors to decide whether the remuneration system is transparent, clear and annual performance-based bonus is to be paid based on the Company’s performance results. »»for the CEO – by a resolution of the Board of to the CEO. Management’s KPI reports are Directors; reviewed by the CEO. In 2011, the Company introduced a »»for managers (excluding the CEO) – by order comprehensive KPI-based performance of the CEO on the basis of the Company’s Accounting and statistical data as well as assessment system to measure management’s strategic development and budgetary operational and management accounting data achievement of the Company’s short and parameters. are the basis for calculating multipliers on the mid-term budgetary targets and its long-term performance of the relevant KPI. strategic objectives as set forth by the Board of The success in achieving target KPIs linked Directors. The KPI system distinguishes between to the Company’s budget performance is a group of corporate indicators, which are also measured using the Company’s actual budget the individual KPI for the CEO, and a group of data as of the respective reporting date. individual indicators to measure the performance of managers in their key functional areas.

THE INDIVIDUAL KPI OF THE CEO ARE ALSO RECOGNISED AS CORPORATE KPI FOR THE PURPOSES OF The Board of Directors – with respect to the ANNUAL BONUSES: CEO, and the CEO with respect to managers except the CEO – may decide to reduce or not KPI KPI WEIGHT pay an annual bonus to a specific manager if Net profit 0.45 disciplinary punishment took place or there EBITDA 0.45 were critical risks during the reporting year that Company share market value dynamics (SMVD) 0.1 resulted in severe consequences (including death or serious bodily injury) or significant material damage to the Company for which the respective manager is responsible.

REMUNERATION PROCEDURE

The decision to pay bonuses to the CEO is The decision to pay bonuses to managers, THE COMPANY USES ITS BUDGET taken by the Board of Directors based on except for the CEO, is taken by the CEO based INDICATORS IN ORDER TO DETERMINE the recommendation of the Personnel and on proposals from the Company’s Bonus KPI’S PERFORMANCE Remuneration Committee after reviewing the Commission after compiling reporting for the CEO’s report on the Company’s financial and corresponding quarter or year. economic performance for the corresponding quarter or year.

101 Annual report 2014 TransСontainer

SHAREHOLDER RELATIONS

SHARE CAPITAL STRUCTURE

9.32% This data reflects information available to the 7.32% Company based on the shareholder register UTLC 1 compiled by the Company’s registrar as well as FESCO Transportation Group2 9.25% publicly disclosed information by shareholders. 50% + 2 shares European Bank for Reconstruction and Development (EBRD) TRANSFINGROUP Asset Management as manager of pension assets of BLAGOSOSTOYANIE Non-State Pension Fund Other 24.12%

Global Depository Receipts (GDR) 1 On 24 November 2014, Russian Railways contributed shares in TransContainer to the authorised capital of UTLC (transferred the Global Depositary Receipts have been issued ownership right of TransContainer shares as payment for the acquired share of UTLC) during the establishment of UTLC. for TransContainer’s shares at a rate of 10 GDRs 2 Encumbered shareholding with a claim held by VTB Austria. per one (1) share. The depositary bank is The Bank of New York Mellon.

As of 31 December 2013, depositary receipts Ordinary registered shares had been issued for 20.4% of the Company’s TransContainer’s authorised capital amounts to RUB 13,894,778,000 authorised capital. and consists of 13,894,778 ordinary registered shares with par value of RUB 1,000 each. The number of securities traded on stock INFORMATION ABOUT EACH SHARE CATEGORY (TYPE) exchanges is not constant. GDR owners may convert them into shares and vice versa. Share type and category Ordinary registered Issue form uncertificated The GDR are traded on the main market of the Issue volume, shares 13,894,778 London Stock Exchange (LSE). In addition, Par value of 1 (one) security (RUB) 1,000 GDR for the Company’s shares were included Information about the state registration of in the Unlisted Securities section of the List an issue of securities 1-01-55194-Е dated 11 May 2006 of securities permitted to trade on the MICEX As of 31 December 2014, the Company’s ordinary registered shares had been admitted to trading on Stock Exchange on 5 May 2014 by the decree the MICEX Stock Exchange in the First Level quotation list. of the MICEX Stock Exchange.

DIALOGUE WITH SHAREHOLDERS, INVESTORS AND OTHER MARKET PARTICIPANTS

The full, timely and accurate disclosure of The Company complies with the requirements of The Company is also guided in its information information to our shareholders and investors the Federal Law “On Joint-Stock Companies”, disclosure by the principles of the Corporate as well as to the entire investment community the requirements of the Russian Federal Financial Governance Code approved by the Bank of is one of the Company’s main priorities. The Markets Service, the applicable rules of the UK Russia on 21 March 2014. Company devotes particular attention to ensuring Financial Supervisory Authority and all relevant that significant information is simultaneously requirements of the Russian and UK stock made available to all shareholders, investors and exchanges. analysts, both Russian and foreign.

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Since 2011, the Company has published its key UK (www.hemscott.com/nsm.do ). In addition, to obtain feedback from the investment operational metrics as well as RAS and IFRS corporate information is increasingly distributed community. financial statements on a quarterly basis. The through our website (www.trcont.ru), including financial disclosures are followed by conference investor presentations and news releases on The Company is also closely involved in fostering calls with research analysts and investors held operating and financial results or important further development of the Russian stock on a regular basis. In addition, the Company corporate events. The Company provides regular market. In 2014, Company representatives took holds special conference calls or webcasts to updates on its business. Our corporate website part in the activities of the Moscow Exchange provide the market with the required information offers prompt updates for investors and additional Issuers’ Committee and OECD Corporate and comments in case of material events information to reach out to all stakeholders. Governance Roundtable on matters involving affecting the Company or its investment case. corporate governance and the discussion of a Along with transparency, the Company is draft of the new corporate governance code. The Company uses electronic disclosure focused on maintaining an ongoing dialogue systems in Russia (www.e-disclosure.ru) and the with institutional investors and financial analysts

GENERAL MEETING OF SHAREHOLDERS AND COMMUNICATION WITH SHAREHOLDERS

The General Meeting of Shareholders is the The General Meeting of Shareholders is invited to Committees, the CEO, members of the Revision supreme executive body of the Company. The adopt separate resolutions on each item on the Commission, representatives of the external procedures for preparing, convening and conducting agenda. The voting ballots allow the shareholders auditor, the head of the Internal Audit Service and general meetings of shareholders are stipulated to express their opinion and vote for or against any the Chief Accountant. by TransContainer’s Regulation on Preparing and resolution put forward to the General Meeting of Conducting the General Meeting of Shareholders1. Shareholders, or to abstain from voting. The functions of the Counting Committee at the General Meeting of Shareholders are performed Notice of the General Meeting of Shareholders At the General Meeting of Shareholders, the by the Company’s registrar. Since October is sent to shareholders and published on shareholders have the opportunity to meet 2010, STATUS Registrar Company has served as the Company’s website together with the members of the Company’s executive and the Company’s registrar. documentation concerning the agenda of the supervisory bodies to discuss matters of interest. General Meeting of Shareholders at least 30 days The General Meeting of Shareholders held in Voting results are announced at the General before the date of the shareholders’ meeting. June 2014 was attended by the Chairperson of Meeting of Shareholders and disclosed in the Board of Directors, Chairperson of the Board accordance with the law.

In 2014, two General Meetings of Shareholders were held:

The following documents were approved: Company’s annual report for 2013; annual financial statements for 2013 and amendments to the Annual General Meetings TransContainer Charter. of Shareholders Resolutions were adopted to distribute profit, pay dividends and pay remuneration to members of the Board of Directors and Revision Commission. Members of the Board of Directors and Revision Commission were elected and the Company’s auditor was approved. 24 JUNE 2014 A resolution was adopted to approve related party transactions, including transactions that may be concluded in the future.

The following documents were approved: new versions of the TransContainer Charter, Regulation on the TransContainer Management Board and Extraordinary General Meetings Regulation on the TransContainer CEO of Shareholders Approval was given to the conclusion of a liability insurance agreement (policy) for directors, officers and companies between TransContainer and 5 NOVEMBER 2014 Ingosstrakh, which is a related party transaction.

1 Regulation posted on the Company’s website at the address: http://www.trcont.ru/en/investor-relations/charter-and-bylaws/bylaws/

103 Annual report 2014 TransСontainer

DIVIDEND POLICY

According to the TransContainer Regulation The Company’s dividend policy is based on the »»the Company seeks to increase its on the Dividend Policy1, the target for the following principles: capitalisation and promote its investment Company’s net profit payable as dividends appeal; is 25%, as calculated in accordance with »»if there is net profit, the Company uses part of »»the Company respects shareholder rights Russian Accounting Standards (excluding any the profit to pay dividends on an annual basis, in accordance with Russian law and best positive results from the revaluation of financial while using the majority of the retained profit corporate governance practices; investments). However, the actual share of the to implement its investment program and »»the Company uses transparent procedures to Company’s net profit payable as dividends repay financial liabilities maturing in the next determine the amount of dividends and their may be above or below 25% depending on the financial period; payment. Company’s financial and business plans and »»the Company balances its own interests with recommendations from the Board of Directors. those of its shareholders;

DIVIDENDS ACCRUED AND PAID BY THE COMPANY FROM 2009 TO 2014

2009 2010 2011 2012 2013 2014 DIVIDENDS (FOR 2008) (FOR 2009) (FOR 2010) (FOR 2011) (FOR 2012) (FOR 2013) Total dividends, RUB mln 268.0 2.2 40.434 1,218.3 1,204.3 1,132.0 Dividend per share, RUB 19.29 0.16 2.91 87.68 86.67 81.47 Dividends (% of net profit) 10% 10% 10% 35.0% 25.0% 25.0% Announcement date 23/06/2009 23/06/2010 28/06/2011 26/06/2012 26/06/2013 24/06/2014 Actual payment date 20/08/2009 10/08/2010 18/08/2011 25/07/2012 07/08/2013 22/07/2014

EXCHANGES AND SHARE PERFORMANCE

DESPITE THE NEGATIVE TRENDS OF 2014, on the LSE, while the RTS index shed 45.2%. Another factor that had a substantial negative THE COMPANY’S SHARES CONTINUE TO Consequently, the cumulative return for holders effect on share prices was the low volume of the OUTPACE THE DYNAMICS OF STOCK INDICES of ordinary shares and GDR declined 22.5% and Company’s securities in free float following the AND PRICES OF COMPARABLE COMPANIES 49.1%, respectively, in 2014. consolidation of stakes by several prominent IN THE TRANSPORTATION SECTOR IN THE shareholders. Reduced liquidity was a major MEDIUM-TERM. The diminished investment appeal of factor behind the diminished appeal of securities the Russian transportation sector as a to institutional investors and contributed to the TransContainer shares were admitted for trading whole combined with the deteriorating unstable nature of prices and their high volatility. on the MICEX Stock Exchange, which is part of macroeconomic situation throughout 2014 the Moscow Exchange, as of 12 November 2010. had a significant effect on the price dynamics GDRs for the Company’s shares trade on the main of the Company’s securities. In particular, market of the London Stock Exchange (LSE). the MICEX transportation index declined by 53.2% in 2014, while the GDR prices of the Share and GDR price performance Russian transportation companies Globaltrans, In 2014, the Company’s share and GDR prices Globalports and Novorossiysk Commercial continued to decline: prices tumbled 27.6% on Sea Port tumbled 68.0%, 82.4% and 68.2%, the Moscow Exchange for the year as the MICEX respectively. TOTAL DIVIDENDS PAID IN 2014 index edged down 4.7%. Prices fell 51.1% AMOUNTED TO

1 Regulation posted on the Company’s website at the address: http://www.trcont.ru/en/investor-relations/charter-and-bylaws/bylaws/. The Company also posts on its website the resolutions of the General Meeting of Shareholders on the payment of dividends, information RUB 1,132 MLN about the amount, date and form of dividend payments and information about the announcement and payment of dividends in the form of a corporate action notice.

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GDR (TRCN GDR) PERFORMANCE ON LONDON STOCK EXCHANGE (LSE) IN 2014 Even though the main factor behind the decline 1.2 in the liquidity of its securities is beyond the 1.0 Company’s control, a series of measures was

0.8 nevertheless adopted in 2014 to increase the level of liquidity and trading turnover of the 0.6 Company’s shares. 0.4

0.2 02.01.2014 03.05.2014 01.09.2014 31.12.2014 In particular, TransContainer ordinary shares were transferred from the B quote list to the A TRCN: –51.1% GLTR: –68.0% RTS Index: – 45.2% quote list on 30 January 2014 and to the First LOCAL SHARE (TICKER: TRCN) PERFORMANCE ON THE MOSCOW EXCHANGE IN 2014 Level of the List of securities permitted to trade 1.2 on the MICEX Stock Exchange on 9 June 2014, which made it possible to expand the range 1.0 of potential investors to pension funds and 0.8 insurance companies.

0.6 In addition, BKS, one of the leading brokers 0.4 in terms of turnover on the organised stock 06.01.2014 05.05.2014 01.09.2014 29.12.2014 market, was selected as a market maker for the TRCN: –27.6% MICEX Index: –4.7% FESH: –27.6% Company’s shares on the Moscow Exchange as part of an open competition in November 2014. GDR (TRCN GDR) PERFORMANCE ON LONDON STOCK EXCHANGE (LSE) SINCE THE IPO DATE TO 31 DECEMBER 2014 As a result, the average daily trading volume 2.0 of the Company’s shares on the Moscow

1.5 Exchange soared by 59.8% in 2014 compared with the same period of the previous year. 1.0

0.5 At present, the Company along with the LSE and professional securities market participants are 0.0 09.11.2010 27.03.2012 13.08.2013 30.12.2014 studying the feasibility of resuming trading on the LSE. TRCN: –43.2% GLTR: –67.6% RTS Index: –54.1%

However, in the medium-term the Company’s LOCAL SHARE (TICKER: TRCN) PERFORMANCE ON THE MOSCOW EXCHANGE securities will follow the trends on the Russian IN 2014 SINCE IPO DATE TO 30 DECEMBER 2014 stock market as a whole and stay out in front 2.0 of the prices of comparable companies in the

1.5 transportation sector.

1.0

0.5

0.0 12.11.2010 29.03.2012 14.08.2013 30.12.2014

TRCN: –5.5% MICEX Index: –9.4% FESH: –79.5%

LSE MOSCOW EXCHANGE REGISTRAR Price at end of previous year (31/12/2013) 9.00 Price at end of previous year (31/12/2013) 3,210.10 Year’s low (25/12/2014) 3.00 Year’s low (17/12/2014) 1,920.00 As of 27 December 2010, TransContainer’s Year’s high (02/01/2014) 9.00 Year’s high (26/02/2014) 3,699.00 registrar holder is STATUS Registrar Company. Website: http://www.rostatus.ru Price at end of year (31/12/2014) 4.40 Price at end of year (30/12/2014) 2,410.00

105 Annual report 2014 TransСontainer

EXECUTIVE BODIES

VLADIMIR PETR PAVEL VIKTOR DRACHEV BASKAKOV CHICHAGOV SHEKSHUEV Member of the CEO and Chairman of the Other positions currently Member of the Member of the Management Board Management Board held: President, Chairman Management Board Management Board of the Management Board Year of birth: 1951 Year of birth: 1961 Year of birth: 1953 Year of birth: 1961 and a member of the Board Year appointed to the Year elected to the of Directors of UTLC; member Year appointed to the Year appointed to the Management Board: 2014 Management Board: 2014 of the Supervisory Board Management Board: 2014 Management Board: 2014 of GEFCO S.A.; member Key skills and work Key skills and work of the Board of Directors Key skills and work experience: Key skills and work experience: Mr Drachev experience: CEO of of Kedentransservice; Mr Chichagov served as Head experience: Mr Shekshuev has a long track record in TransContainer and a member Chairman of the Board of of the Railway Transportation worked as Deputy Director the railway transportation of its Board of Directors Directors of Oy ContainerTrans Reform Department at the of the Containerised Cargo industry. He was Head of the since 2006, Petr holds over Scandinavia, Ltd and RZD Russian Ministry of Railways Transportation Centre at Transportation Management 25 years of management Logistics; member of the from 1998 to 2003 and Head TransContainer (then a branch of Department at the Russian experience in the railway Shareholders’ Committee of the Corporate Construction Russian Railways) from 2004 to Ministry of Railways from 2002 transportation industry and of Trans Eurasia Logistics and Reform Department at 2006 and TransContainer Deputy to 2003 and Head of the possesses expertise in GmbH; board member with Russian Railways from 2003 CEO for Economics from 2006 Transportation Management strategic planning and strong the TRANSSOYUZ Charity to 2006. He was First Deputy to 2008. He was TransContainer Department at Russian business management Foundation, the All-Russian Head of Sverdlovsk Railways in Deputy CEO for Production from Railways from 2003 to 2005. skills. In 2009, Mr Baskakov Association of Rail Transport 2006, TransContainer Deputy 2008 to 2011. Drachev was First Deputy was also a member of the Employers, the Russian CEO for Strategic Development Head of Sverdlovsk Railways TransСontainer-Slovakia, a.s. Union of Industrialists and from 2006 to 2008 and Education: Mr Shekshuev from 2005 to 2006 and Supervisory Board. From 2010 Entrepreneurs and the TransContainer Deputy CEO graduated from Moscow State TransContainer Deputy CEO to 2012, he served on the Association of Russian Freight for Business Development from University of Railway Engineering, for Production from 2006 Presidium of the NP Council of Forwarders. 2008 to 2011. completed advanced training at to 2008. Railway Operators Market. the Russian Railway Academy of Education: Mr Chichagov the Moscow State University of Education: Mr Drachev Education: Mr Baskakov is graduated from Gorky State Railway Engineering (production graduated in 1982 from the a graduate of the Moscow University, the Finance Academy department) and upgraded Irkutsk Institute of Railway Institute of Railway Engineers under the Government of the his skills at the Institute of Engineers with a degree in and holds a degree in railway Russian Federation with a degree Economic and Mathematical railway operations. haulage management and a in banking and the Plekhanov Business Support as part of Ph.D. in Engineering. Russian Academy of Economics the Accounting, Finances and Other positions currently with a degree in corporate Market Economic programme. held: First Deputy CEO of management and business TransContainer. process reengineering and also Other positions currently completed advanced training at held: Deputy CEO of the Higher School of Economics TransContainer. in the Corporate Director programme. He is a candidate of economic sciences.

Other positions currently held: Deputy CEO of TransContainer.

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The Company’s executive bodies include the Management Board, the collective executive body, and the CEO, the sole executive body, both of which are elected by the Company’s Board of Directors.

Executive bodies manage current activities of the Company and are accountable to the Board of Directors and the General Meeting of Shareholders.

CEO

The CEO shall act on behalf of the Company without power of attorney subject to the restrictions specified by the legislation of the Russian Federation, the Charter and the resolutions of the Company’s Board of Directors.

Petr Baskakov has been the Company’s CEO since 2006. VLADIMIR ANTON VIKTOR CHISNAKOV LOPATIN MARKOV Member of the Member of the Member of the TransContainer CEO acquired 1,700 shares in Management Board Management Board Management Board the Company in 2010. The number of ordinary Year of birth: 1969 Year of birth: 1975 Year of birth: 1976 Company shares owned by Petr Baskakov did Year appointed to the Year appointed to the Year appointed to the not change in 2014 and amounts to 0.012% Management Board: 2014 Management Board: 2014 Management Board: 2014 of the Company’s authorised capital. Key skills and work Key skills and work Key skills and work experience: Mr Chisnakov experience: Mr Lopatin held experience: Mr Markov held served as First Deputy the positions of Deputy Director the positions of Deputy Head The Company’s CEO performs the functions Head of the Main Economic for Corporate Reporting of the of the Legal Department at the of Management Board Chairman. Development and Planning Finance Department and Head Russian Ministry of Railways Department of the Krasnoyarsk of the Corporate Reporting and Head of the Division of Territory Administration from 2002 Department at Protek from 2003 Legal Support for Interaction to 2003 and Deputy CEO and a to 2004 and Chief Financial with the Federal Assembly Department Director at Far East Officer and Deputy CEO for and Railway Transportation Shipping Company from 2003 to Finances at Protek Adaption Reform in 2002, Deputy Head MANAGEMENT BOARD 2004. He was CEO of Russkaya Centre from 2004 to 2006. Anton of the Legal Department at the Troyka from 2004 to 2010. served as TransContainer Deputy Russian Ministry of Railways CEO for Economics and Finance and Head of the Division of The Management Board is the Company’s Education: Mr Chisnakov from 2008 to 2011. Legal Support for Railway graduated from Krasnoyarsk Transportation Reform from collective executive body that acts within the State University. In 2002, he Education: Mr Lopatin 2002 to 2003, First Deputy purview specified in the Company’s Charter completed studies at the Institute graduated from Krasnoyarsk Head of the Legal Department of Professional Accountants of State Agrarian University (with at Russian Railways from 2003 and is accountable to the Board of Directors Russia with a degree in financial honours) and State University of to 2006 and TransContainer and the General Meeting of Shareholders. The management. New York and also completed Director for Legal Affairs from the MBA programme at Insead 2006 to 2008. work of the Management Board is covered in Other positions currently Business School in France. the Regulation on the Management Board. held: First Deputy CEO of Education: Mr Markov TransContainer. Other positions currently graduated from the Gubkin held: First Deputy CEO of State Academy of Oil and Gas The first members of the TransContainer TransContainer and Chief with a degree in law. Financial Officer. Management Board were elected at a Other positions currently held: Director for Legal Affairs meeting of the Board of Directors on 23 and Property Management of December 2014. TransContainer.

The Management Board held one meeting in 2014 at which it elected a secretary and considered matters related to the approval of bank guarantee transactions and the Company’s accounting policy.

107 Annual report 2014 TransСontainer

ASSESSMENT OF THE CORPORATE GOVERNANCE

COMPANY’S CORPORATE GOVERNANCE RATINGS

In order to obtain an external assessment of the In November 2014, TransContainer was assigned quality of corporate governance, the Company National Corporate Governance Rating (NCGR) has supported Russian and international Level 8 “Best Corporate Governance Practice”. corporate governance ratings since 2008. This rating means that the Company complies The international rating of TransContainer was with the requirements of Russian legislation affirmed by the Standard & Poor’s Corporate for corporate governance, follows most of the Information on the corporate Governance Rating Service at GAMMA-6 in recommendations of the Russian Corporate governance ratings is posted on the September 2011 with the simultaneous withdrawal Governance Code and observes a significant Company’s website at the address: of the rating due to the decision of Standard & Poor’s number of the recommendations of global best http://www.trcont.ru/en/investor- to discontinue corporate governance assessment corporate governance practices with negligible relations/additional-info/ratings/ services using GAMMA methodology. risks of the loss of owners due to corporate governance quality. Given the discontinuation by Standard & Poor’s of services to assign international corporate governance ratings, the Company is hiring one of the Big Four audit firms to provide a corporate governance rating for the Company.

CORPORATE GOVERNANCE RATINGS OF TRANSCONTAINER

2009 2010 2011 2012 2013 2014 GAMMA rating (Standard & Poor’s) 6 6 6 - - - National Corporate Governance Rating 6+ 7 7+ 7+ 7+ 8

RATING OF THE RUSSIAN INSTITUTE OF DIRECTORS IN 2014

“The Company’s corporate governance the Board of Directors focuses on net profit Board of Directors, the existence of liability practices are rated as high in terms of the figures determined using the data of financial insurance practices for members of the protection of shareholder rights. The Company statements prepared in accordance with RAS Board of Directors, assessments of the work has established corporate governance instead of IFRS when determining the amount performed by the Board of Directors and its institutions that protect shareholder rights of dividends recommended for the General individual members, detailed systems of internal against abuse by management and also Meeting of Shareholders in accordance with the control, audit and risk management as well as properly take into consideration the rights of Regulation on the Dividend Policy. a corporate secretary who arranges interaction minority shareholders. Experts made particular with shareholders and ensures the effective work note of the existence of the Company’s Policy “The Company’s corporate governance of the Board of Directors. on the Rotation of the External Auditor and practices are rated as high in terms of the Interaction with the External Auditor Regarding activities of management and control bodies. “The Company’s corporate governance practices the Provision of Non-audit Services, which The Company has established institutions that are rated as good in terms of information provides for the competitive selection of are characteristic of an effective corporate disclosure about its activities. The Company has an external auditor at least once every five governance system: an actively functioning undertaken a number of substantial steps to years. One shortcoming noted is the fact that Board of Directors and committees under the ensure the transparency of its activities and the

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continuation of these practices in the future. One involved in charity and sponsorship work. NATIONAL CORPORATE shortcoming in this practice noted by experts is However, the Company does not compile a GOVERNANCE RATING the failure to disclose information about individual report on corporate social responsibility, and the remuneration for members of the Board of Company’s operations have not been certified Directors. for compliance with ISO 140001 as regards 8 environmental protection. “The Company’s corporate governance practices are rated as good in terms of activities “As a result of the assessment of the Company’s in the interests of other stakeholders and corporate governance practices, the National corporate social responsibility. The Company Corporate Governance Rating of TransContainer implements a variety of social projects for its has been raised to Level 8”. employees and their families and is actively

ASSESSMENT OF CORPORATE GOVERNANCE BY EY – 2014

In order to analyse the compliance of Listing Rules of the MICEX Stock Exchange) and ASSESSMENT OF CORPORATE GOVERNANCE BY EY TransContainer’s corporate governance with also utilises certain standards of best corporate the requirements of Russian regulators and governance practices (in particular, the UK Effectiveness best corporate governance practices, Ernst & Corporate Governance Code, the Corporate of Board of Directors Young (CIS) B.V., Moscow branch, conducted Governance Principles of the Organisation for Information Executive an assessment in 2013-2014 of corporate Economic Co-operation and Development 5 disclosure bodies governance at TransContainer and found that (OECD), the Corporate Governance Principles the Company employs sustainable corporate of the International Corporate Governance 4 governance processes and practices, complies Network (ICGN) and the draft Code of 3 with the requirements of Russian regulators in Corporate Governance of the Bank of Russia1). matters of corporate governance (including 2 meeting the requirements of the Federal Law Final score – 3.45, which correlates to a 1 “On Joint-Stock Companies”, most of the sustainable level of corporate governance and recommendations of the Code of Corporate reflects sustainable corporate governance 0 Conduct of the Russian Federal Securities processes and practices. The Company utilises Market Commission and the requirements of the standards of best corporate governance practices.

ASSESSMENT OF INFORMATION DISCLOSURE IN ANNUAL REPORT Audit, risk Ownership management structure and and internal influence of Assessment of the quality of corporate As part of a competition, which was conducted control shareholders governance and information disclosure by the Moscow Exchange for the first time jointly by the expert community with Securities Market Magazine, TransContainer Shareholder The final results of professional events on the finished among the three top companies in two rights assessment of corporate reporting quality in categories: “Best Annual Report by Company 2013 were announced in Russia in September- with Capitalisation of RUB 10-100 Bln” and November 2014. “Best Information Disclosure about Corporate Governance in an Annual Report”.

1 Approved by the Board of Directors of the Bank of Russia on 21 March 2014.

109 Annual report 2014 TransСontainer

STATEMENT ON COMPLIANCE OF CORPORATE GOVERNANCE CODES

TRANSCONTAINER, AS A PUBLIC COMPANY WHOSE SECURITIES ARE PUBLICLY TRADED ON THE MOSCOW AND LONDON EXCHANGES, IN 2014 OBSERVED THE PRINCIPLES AND RECOMMENDATIONS SET FORTH IN THE CORPORATE GOVERNANCE DOES OF THE BANK OF RUSSIA AND THE UNITED KINGDOM. IN ADDITION, IN THE EVENT THE PROVISIONS OF THE CODES DO MATCH, THE COMPANY DEEMS IT NECESSARY TO OBSERVE THE PROVISIONS THAT SET MORE STRINGENT REQUIREMENTS FOR THE COMPANY’S CORPORATE GOVERNANCE SYSTEM.

THE COMPANY ALSO HAS A CORPORATE GOVERNANCE CODE, WHICH ESTABLISHES CORPORATE GOVERNANCE STANDARDS AND PRINCIPLES THAT SUPPLEMENT THE REQUIREMENTS OF LEGISLATION AND THE COMPANY’S INTERNAL DOCUMENTS.

For the report on compliance with the principles and recommendations of the Corporate Governance Code of the Bank of Russia, see page 169

For the report on compliance with the UK Corporate Governance Code, see page 176

For the report on the compliance of the Corporate Governance Code of TransContainer, see page 179

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STATEMENT BY THE AUDIT COMMITTEE CONCERNING THE ACCOUNTING (FINANCIAL) STATEMENTS AND RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM

In 2014, the Audit Committee reviewed the that the Group’s financial statements prepared Group’s interim and annual consolidated in accordance with IFRS and RAS provide a financial statements prepared in accordance reliable, complete and accurate representation with IFRS, the Company’s annual financial of the Company’s financial position and the statements prepared in accordance with RAS, financial results of its activities. the auditor’s opinion, accounting policy and annual report. The Audit Committee also believes that this annual report is reliable, balanced and presents Each Audit Committee meeting devoted to information about the Company’s activities matters concerning the accounting (financial) required by shareholders and investors in a statements is attended by representatives of coherent form. the auditor who inform the Audit Committee members about issues identified during the Having reviewed reports on the activities of the audit and their recommendations to improve Internal Audit Service, reports concerning risk the accounting process and prepare financial management and internal control1, independent statements. audit reports, other materials prepared under the instructions of the Audit Committee and statements After reviewing the Company’s accounting by management, the Audit Committee is satisfied (financial) statements, the positive opinions with the current risk management and internal of auditors and the statements by Company control system in place at the Company and management, the Audit Committee believes regards it as effective as a whole.

Best regards,

David Hexter Audit Committee Chairman

1 The goals, objectives, requirements and principles for the operation of the Company’s risk management and internal control system are set forth in the Corporate Risk Management System Framework and Regulation on Internal Control. The Framework and Regulation are posted on the Company’s website at the address: http://www.trcont.ru/en/investor-relations/charter-and-bylaws/bylaws/

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FINANCIAL REPORT

SCALE

THE COMPANY HAD EQUITY OF RUB 35.2 BLN IN 2014, A 12.0% INCREASE FROM THE PREVIOUS YEAR

PERFORMANCE

IN 2014, THE EBITDA MARGIN REMAINED VIRTUALLY UNCHANGED COMPARED WITH 2013 DESPITE THE SIGNIFICANT DETERIORATION IN BUSINESS CONDITIONS.

SUSTAINABILITY

THE NET DEBT/EBITDA RATIO IS 62%, ONE OF THE BEST INDICATORS IN THE RUSSIAN TRANSPORTATION SECTOR.

Financial and accounting statements are available on the corporate website.

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FITCH RATINGS CREDIT RATING In December 2014, Fitch Ratings affirmed the Company’s credit rating at BB+ with a Stable Outlook

MOODY’S CREDIT RATING The Company’s credit rating assigned by Moody’s Investors Service is Вa3 with a Stable Outlook

NET PROFIT The Company’s net profit was the highest among all public Russian companies in the transportation sector in 2014.

REVENUE NET PROFIT RUB RUB 36.565 bln 3.658 bln

EQUITY ASSETS RUB RUB 35.245 bln 48.977 bln

113 Annual report 2014 TransСontainer

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

Management is responsible for the preparation of consolidated financial Management is also responsible for: statements that present fairly the financial position of PJSC TransContainer (the “Company”) and its subsidiaries (the “Group”) as at 31 December 2014 »»Designing, implementing and maintaining an effective system of internal and the results of its operations, cash flows and changes in equity for the year controls throughout the Group; then ended, in compliance with International Financial Reporting Standards »»Maintaining adequate accounting records that are sufficient to show and (“IFRS”). explain the Group’s transactions and disclose with reasonable accuracy at any time the consolidated financial position of the Group, and which In preparing the consolidated financial statements, management is enable them to ensure that the consolidated financial statements responsible for: of the Group comply with IFRS; »»Maintaining statutory accounting records in compliance with local »»Properly selecting and applying accounting policies; legislation and accounting standards in the respective jurisdictions »»Presenting information, including accounting policies, in a manner that in which the companies of the Group operate; provides relevant, reliable, comparable and understandable information; »»Taking necessary steps to safeguard the Group’s assets; »»Providing additional disclosures when compliance with the specific »»Preventing and detecting fraud and other irregularities. requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on The consolidated financial statements of the Group for the year ended the Group’s consolidated financial position and financial performance; 31 December 2014 were approved on 26 March 2015 by: »»Making an assessment of the Group’s ability to continue as a going concern.

P. V. Baskakov K. S. Kalmykov General Director Chief Accountant

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INDEPENDENT AUDITOR’S REPORT

To the Shareholders and Board of Directors of Public Joint Stock statements, whether due to fraud or error. In making those risk assessments, Company TransContainer the auditor considers internal control relevant to the entity’s preparation We have audited the accompanying consolidated financial statements of Public and fair presentation of the consolidated financial statements in order to Joint Stock Company TransContainer and its subsidiaries (the “Group”), which design audit procedures that are appropriate in the circumstances, but not comprise the consolidated statement of financial position as at 31 December for the purpose of expressing an opinion on the effectiveness of the entity’s 2014 and the consolidated statements of profit or loss and other comprehensive internal control. An audit also includes evaluating the appropriateness of income, changes in equity and cash flows for 2014, and notes comprising a accounting policies used and the reasonableness of accounting estimates summary of significant accounting policies and other explanatory information. made by management, as well as evaluating the overall presentation of the consolidated financial statements. Management’s Responsibility for the Consolidated Financial Statements We believe that the audit evidence we have obtained is sufficient and Management is responsible for the preparation and fair presentation of these appropriate to express an opinion on the fair presentation of these consolidated financial statements in accordance with International Financial consolidated financial statements. Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are Opinion free from material misstatement, whether due to fraud or error. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2014, Auditor’s Responsibility and its financial performance and its cash flows for 2014 in accordance with Our responsibility is to express an opinion on the fair presentation of these International Financial Reporting Standards. consolidated financial statements based on our audit. We conducted our audit in accordance with Russian Federal Auditing Standards and International 27 March 2015 Standards on Auditing. Those standards require that we comply with ethical Moscow, Russian Federation requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. A.A. Okishev, The procedures selected depend on the auditor’s judgment, including the Director (licence no. К002439), assessment of the risks of material misstatement of the consolidated financial ZAO PricewaterhouseCoopers Audit

Audited entity: PJSC TransContainer Independent auditor: ZAO PricewaterhouseCoopers Audit

Certificate of inclusion in the Unified State Register of Legal Entities issued on 4 March 2006 under State registration certificate № 008.890, issued by the Moscow Registration Chamber registration № 1067746341024 on 28 February 1992

Russian Federation, 125047, Moscow, Oruzheiniy pereulok, 19 Certificate of inclusion in the Unified State Register of Legal Entities issued on 22 August 2002 under registration № 1027700148431

Certificate of membership in self regulated organisation non-profit partnership “Audit Chamber of Russia” № 870. ORNZ 10201003683 in the register of auditors and audit organizations

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Amounts in millions of Russian Roubles)

NOTES 2014 2013 ASSETS NON-CURRENT ASSETS Property, plant and equipment 7 37,718 36,326 Advances for acquisition of non-current assets 7 206 243 Investment property 86 74 Intangible assets 8 210 150 Investments in associates and joint ventures 9 3,343 2,330 Trade and other receivables 10 353 365 Other non-current assets 96 76 TOTAL NON-CURRENT ASSETS 42,012 39,564 CURRENT ASSETS Inventory 340 358 Trade and other receivables 10 1,542 1,621 Prepayments and other current assets 11 2,958 3,435 Prepaid income tax 113 114 Short-term investments 8 1 Cash and cash equivalents 12 1,904 1,883 6,865 7,412 Non-current assets held for sale 100 - TOTAL CURRENT ASSETS 6,965 7,412 TOTAL ASSETS 48,977 46,976 EQUITY AND LIABILITIES Capital and reserves Share capital 13 13,895 13,895 Treasury shares 13 (493) (484) Reserve fund 13 697 697 Translation reserve 1,081 10 Equity-settled employee benefits reserve 17 240 221 Other reserves, including investment property’s revaluation reserve 13 (2,156) (2,165) Retained earnings 21,981 19,305 TOTAL EQUITY 35,245 31,479

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NOTES 2014 2013 NON-CURRENT LIABILITIES Long-term debt 14 5,458 6,194 Finance lease obligations, net of current maturities 15 340 485 Employee benefit liability 16 939 1,096 Deferred tax liability 25 1,414 1,445 TOTAL NON-CURRENT LIABILITIES 8,151 9,220 CURRENT LIABILITIES Trade and other payables 18 3,084 3,216 Current portion of long-term debt 14 919 1,693 Income tax payable 189 77 Taxes other than income tax payable 19 401 372 Provisions 16 19 Finance lease obligations, current maturities 15 60 66 Accruals and other current liabilities 20 912 834 TOTAL CURRENT LIABILITIES 5,581 6,277 TOTAL EQUITY AND LIABILITIES 48,977 46,976

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CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (Amounts in millions of Russian Roubles, unless otherwise stated below)

NOTES. 2014 2013 Revenue 21 36,565 39,164 Other operating income 22 715 747 Operating expenses 23 (33,197) (32,859) Foreign exchange gain, net 938 65 Gain on disposal of controlling interest in subsidiary 9 - 757 Gain from early termination of finance lease 15 18 32 Interest expense 24 (648) (782) Interest income 151 223 Share of result of associates and joint ventures 9 165 2 PROFIT BEFORE INCOME TAX 4,707 7,349 Income tax expense 25 (1,049) (1,375) PROFIT FOR THE YEAR 3,658 5,974 OTHER COMPREHENSIVE INCOME (NET OF INCOME TAX) Items that will not be reclassified to profit or loss: Remeasurements of post-employment benefit plans liabilities 16 135 113 Remeasurements of investment property 9 56 Items that may be reclassified subsequently to profit or loss: Share of translation of financial information of associates and joint ventures to presentation currency 9 970 (12) Exchange differences on translating foreign operations 101 21 OTHER COMPREHENSIVE INCOME FOR THE YEAR 1,215 178 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 4,873 6,152 PROFIT ATTRIBUTABLE TO: Equity holders of the parent 3,658 5,865 Non-controlling interest 9 - 109 COMPREHENSIVE INCOME ATTRIBUTABLE TO: Equity holders of the parent 4,873 5,995 Non-controlling interest - 157 EARNINGS PER SHARE, BASIC AND DILUTED (IN RUSSIAN ROUBLES) 267 422 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 13 13,696,127 13,896,193

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CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in millions of Russian Roubles)

NOTES 2014 2013 CASH FLOWS FROM OPERATING ACTIVITIES: PROFIT BEFORE INCOME TAX 4,707 7,349 Adjustments for: Depreciation and amortisation 23 2,462 1,943 Change in provision for impairment of receivables 23 22 194 Gain on disposal of property, plant and equipment (347) (166) Loss on impairment of property, plant and equipment 7 89 123 Share of result of associates and joint ventures 9 (165) (2) Gain on disposal of controlling interest in subsidiary - (757) Interest expense, net 497 559 Equity-settled employee benefits reserve 17 19 41 Foreign exchange gain,net (938) (65) Gain from early termination of finance lease 15 (18) (32) Change in provisions - 20 Other income and expenses - 7 OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES, PAID INCOME TAX AND INTEREST AND CHANGES IN OTHER ASSETS AND LIABILITIES 6,328 9,214 WORKING CAPITAL CHANGES: Decrease in inventory 496 259 Decrease/(increase) in trade and other receivables 515 (1,097) Decrease in prepayments and other assets 439 847 (Decrease)/increase in trade and other payables (236) 24 Increase/(decrease) in taxes other than income tax 26 (6) Increase in accrued expenses and other current liabilities 77 67 Decrease in employee benefit liabilities 16 (28) (51) NET CASH FROM OPERATING ACTIVITIES BEFORE INCOME TAX AND INTEREST 7,617 9,257 Interest paid (655) (665) Income tax paid (964) (1,367) NET CASH PROVIDED BY OPERATING ACTIVITIES 5,998 7,225

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NOTES 2014 2013 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (4,212) (6,632) Proceeds from disposal of property, plant and equipment 76 17 Proceeds from disposal of controlling interest in subsidiary, net of cash disposed - 412 Sale of short-term investments 751 4,937 Sale of long-term investments 25 1 Purchases of short-term investments (758) (3,688) Purchases of intangible assets (93) (87) Dividends received from joint ventures 199 - Interest received 98 265 NET CASH USED IN INVESTING ACTIVITIES (3,914) (4,775) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term bonds 14 - 4,988 Repayments of finance lease obligations (133) (166) Dividends 13 (1,117) (1,187) Principal payments on long-term borrowings (2) (29) Principal payments on short-term borrowings - (1,830) Principal payments on long-term bonds 14 (1,500) (3,750) NET CASH USED IN FINANCING ACTIVITIES (2,752) (1,974) NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (668) 476 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 1,883 1,318 Foreign exchange effect on cash and cash equivalents 689 89 NET CASH AND CASH EQUIVALENTS AT END OF THE YEAR 1,904 1,883

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Amounts in millions of Russian Roubles)

EQUITY- OTHER SETTLED RESERVES, INCLUDING EMPLOYEE INVESTMENT NON- SHARE TREASURY RESERVE TRANSLATION BENEFITS PROPERTY’S RETAINED CONTROLLING TOTAL NOTES CAPITAL SHARES FUND RESERVE RESERVE REVALUATION RESERVE EARNINGS TOTAL INTEREST EQUITY BALANCE AT 1 JANUARY 2013 13,895 (490) 478 49 188 (2,221) 14,725 26,624 937 27,561 Profit for the year ------5,865 5,865 109 5,974 Other comprehensive income for the year - - - (39) - 56 113 130 48 178 TOTAL COMPREHENSIVE INCOME FOR THE YEAR - - - (39) - 56 5,978 5,995 157 6,152 Equity-settled employee benefits reserve 17 - - - - 41 - - 41 - 41 Disposal of controlling interest in subsidiary ------(1,044) (1,044) Exercised options under option plan - 6 - - (8) - 8 6 - 6 Dividends 13 ------(1,187) (1,187) (50) (1,237) Transfer to reserve fund - - 219 - - - (219) - - - BALANCE AT 31 DECEMBER 2013 13,895 (484) 697 10 221 (2,165) 19,305 31,479 - 31,479 Profit for the year ------3,658 3,658 - 3,658 Other comprehensive income for the year - - - 1,071 - 9 135 1,215 - 1,215 TOTAL COMPREHENSIVE INCOME FOR THE YEAR - - - 1,071 - 9 3,793 4,873 - 4,873 Equity-settled employee benefits reserve 17 - - - - 19 - - 19 - 19 Acquisition of treasury shares 13 - (9) - - - - - (9) - (9) Dividends 13 ------(1,117) (1,117) - (1,117) BALANCE AT 31 DECEMBER 2014 13,895 (493) 697 1,081 240 (2,156) 21,981 35,245 - 35,245

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1. NATURE OF THE BUSINESS

PJSC TransContainer (the “Company” or “TransContainer”) was incorporated Furthermore, certain employees previously employed by RZD were hired as an open joint stock company in Moscow, Russian Federation on 4 March by the Company. The Company assumed related employee benefit 2006. On 20 November 2014 Open Joint Stock Company TransContainer liabilities from RZD. Pursuant to this spin-off, RZD maintained the functions was renamed as Public Joint Stock Company. of the carrier, whilst the Company assumed the functions of a freight forwarding agent. The Company was formed as a result of a spin-off by OJSC “Russian Railways” (“RZD”), which is 100% owned by the Russian Federation, The Company’s principal activities include arrangement of rail-based of some of its activities and certain assets and liabilities related to container container shipping and other logistics services including terminal services, transportation into a separate legal entity. In connection with this spin-off freight forwarding and intermodal delivery using rolling stock and containers. RZD contributed to the share capital of the Company containers, flatcars, The Company operates 46 container terminals along the Russian railway buildings and constructions in the amount of RUB 13,057m, VAT receivable network. As at 31 December 2014, the Company operated 15 branches related to these assets of RUB 104m, and cash of RUB 991m, in exchange in Russia. The Company’s registered address is 19 Oruzheiniy pereulok, for the ordinary shares of the Company. Moscow, 125047, Russian Federation.

THE COMPANY HAS OWNERSHIP IN THE FOLLOWING MAJOR ENTITIES:

INTEREST HELD, % VOTING RIGHTS, %

NAME OF ENTITY TYPE COUNTRY ACTIVITY 2014 2013 2014 2013

Oy ContainerTrans Scandinavia Ltd. (Note 9) Joint venture Finland Container shipments 50 50 50 50 JSC TransContainer-Slovakia Subsidiary Slovakia Container shipments 100 100 100 100 Chinese-Russian Rail-Container International Freight Forwarding (Beijing) Co, Ltd. (Note 9) Joint venture China Container shipments 49 49 50 50 TransContainer Europe GmbH Subsidiary Austria Container shipments 100 100 100 100 ТransContainer Asia Pacific Ltd. Subsidiary Korea Container shipments 100 100 100 100 Trans-Eurasia Logistics GmbH (Note 9) Associate Germany Container shipments 20 20 20 20 LLC ТransContainer Finance (Note 17) Subsidiary Russia Share option programme operator 100 100 100 100 JSC Kedentransservice (Note 9) Joint venture Kazakhstan Container shipments 50 50 50 50 Helme’s Operation UK Limited (Note 9) Joint venture Great Britain Investment activity 50 50 50 50 Logistic Investment S.a.r.l. Subsidiary Luxemburg Investment activity 100 100 100 100 Logistic System Management B.V. (Note 9) Joint venture Netherlands Investment activity 50 50 50 50

Significant impact on the financial indicators of the Group’s performance The consolidated financial statements of PJSC TransContainer and its subsidiaries for the year ended 31 December 2014 compared to the same time period (the “Group”) as at 31 December 2014 and for the year then ended were ended 31 December 2013 have been made by the change in the accounting authorised for issue by the General Director of the Company on 26 March 2015. method of investment in JSC Kedentransservice due to the loss of control over it in December 2013. As a result of loss of the control, JSC Kedentransservice was recognised as an investment in joint venture in accordance with IAS 28 Investments in Associates and Joint Ventures as at 31 December 2014 and 31 December 2013.

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2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

Statement of compliance – These consolidated financial statements at the estimated fair value at the date of transfer and initial recognition have been prepared in accordance with International Financial Reporting of financial instruments based on fair value, revaluation of investment Standards (“IFRS”). properties and available-for-sale financial assets.

Basis of preparation – These consolidated financial statements are The accompanying consolidated financial statements differ from prepared on the basis of standalone financial statements of the Company the financial statements issued for statutory purposes in that they reflect and its subsidiaries. The entities of the Group maintain their accounting certain adjustments, not recorded in the statutory books, which are records in accordance with laws, accounting and reporting regulations appropriate to present the financial position, results of operations and cash of the jurisdictions in which they are incorporated and registered. flows of the Group in accordance with IFRS.

The Group’s consolidated financial statements have been prepared using The consolidated financial statements are presented in millions of Russian the historical cost convention, except for the effects of assets acquired and Roubles (hereinafter “RUB m”), except where specifically noted otherwise. liabilities assumed at the formation of the Company, which were recorded

3. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in the preparation of these The Group measures non-controlling interest that represents present consolidated financial statements are set out below. ownership interest and entitles the holder to a proportionate share of net assets in the event of liquidation on a transaction by transaction basis, The accounting policies have been applied consistently by all consolidated either at: (a) fair value, or (b) the non-controlling interest’s proportionate operating entities. share of net assets of the acquiree. Which principle to apply for measuring non-controlling interest is defined by the Group individually for each Consolidated financial statements. The consolidated financial statements particular business combination. incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) prepared through 31 December each Goodwill is measured by deducting the acquiree’s net assets from year. Subsidiaries are those investees, including structured entities, that the aggregate of the consideration transferred for the acquiree, the Group controls because the Group (i) has power to direct relevant activities the amount of non-controlling interest in the acquiree and the fair value of the investees that significantly affect their returns, (ii) has exposure, or rights, of the interest in the acquiree held immediately before the acquisition to variable returns from its involvement with the investees, and (iii) has the ability date. Any negative amount (“negative goodwill”) is recognised in profit to use its power over the investees to affect the amount of investor’s returns. or loss, after management reassesses whether it identified all the assets The existence and effect of substantive rights, including substantive potential acquired and all liabilities and contingent liabilities assumed and reviews voting rights, are considered when assessing whether the Group has power over the appropriateness of their measurement. another entity. For a right to be substantive, the holder must have practical ability to exercise that right when decisions about the direction of the relevant activities The consideration transferred for the acquiree is measured at the fair value of the investee need to be made. The Group may have power over an investee of the assets given up, equity instruments issued and liabilities incurred even when it holds less than majority of voting power in an investee. In such or assumed, including the fair value of assets or liabilities from contingent a case, the Group assesses the size of its voting rights relative to the size and consideration arrangements, but excluding acquisition related costs such as dispersion of holdings of the other vote holders to determine if it has de-facto advisory, legal, valuation and similar professional services. Transaction costs power over the investee. Protective rights of other investors, such as those that related to the acquisition and incurred for issuing equity instruments are deducted relate to fundamental changes of investee’s activities or apply only in exceptional from equity; transaction costs incurred for issuing debt as part of the business circumstances, do not prevent the Group from controlling an investee. combination are deducted from the carrying amount of the debt; and all other Subsidiaries are consolidated from the date on which control is transferred to transaction costs associated with the acquisition are expensed. the Group (acquisition date) and are deconsolidated from the date on which control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also The purchase method of accounting is used to account for eliminated unless the cost cannot be recovered. the acquisition of subsidiaries (other than those acquired from parties under common control). Identifiable assets acquired and liabilities and Non-controlling interest is that part of the net results and of the equity of a contingent liabilities assumed in a business combination are measured subsidiary attributable to equity instruments which are not owned, directly at their fair values at the acquisition date, irrespective of the extent of any or indirectly, by the Company. Non-controlling interest forms a separate non-controlling interest. component of the Group’s equity.

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Investments in associates and joint ventures. Joint venture is a joint If the ownership interest in an associate or joint venture is reduced but activity which implies that the parties, that have joint control over the activity, significant influence is retained, only a proportionate share of the amounts have the rights to the net assets of the activity. Joint control occurs in the case previously recognised in other comprehensive income are reclassified to when decisions relating to the relevant activities require the unanimous profit or loss where appropriate. consent of the parties sharing joint control in accordance with the contract. Foreign currency transactions and translation. Functional currency Associates are entities over which the Group has significant influence is the currency of the primary economic environment in which the entity (directly or indirectly), but not control, generally accompanying a operates. The Russian Rouble is the functional currency of the Company shareholding of between 20 and 50 percent of the voting rights. and is also the currency in which these consolidated financial statements are presented. Transactions in currencies other than the functional currency Investments in associates and joint ventures are accounted for by are initially recorded at the rates of exchange prevailing on the dates the equity method of accounting and are initially recognised at cost, and of the transactions. Monetary assets and liabilities denominated in such the carrying amount is increased or decreased to recognise the investor’s currencies at the balance sheet date are translated into the functional share of the profit or loss of the investee after the date of acquisition. currency at the year-end exchange rate. Exchange differences arising from Dividends received from associates (joint ventures) reduce the carrying such translation are included in profit or loss. value of the investment in associates (joint ventures). Other post- acquisition changes in the Group’s share of an associate’s (joint ventures’) Non-monetary assets and liabilities that are measured in terms of historical net assets are recognised as follows: (i) the Group’s share of profits cost in a foreign currency are translated using the exchange rate at the date or losses of associates (joint ventures) is recorded in the consolidated of the transaction. Non-monetary assets and liabilities denominated in foreign profit or loss for the period as the share of financial result of associates currencies that are stated at fair value are translated to Russian Rouble at foreign (joint ventures), (ii) the Group’s share of other comprehensive income is exchange rates ruling at the dates the fair value was determined. recognised in other comprehensive income and presented separately, (iii) all other changes in the Group’s share of the carrying value of net assets When the functional currency of an entity of the Group is not of associates (joint ventures) are recognised in consolidated profit or loss the presentation currency of the Company’s consolidated financial within the share of financial result of associates (joint ventures). statements, the results and financial position of the entity are translated into the presentation currency using the following procedures: When the Group’s share of losses in an associate (joint venture) equals or exceeds its interest in the associate (joint venture), including unsecured receivables, »»all assets and liabilities are translated at the closing rate at the date of each the Group does not recognise further losses, unless it has incurred obligations or presented statement of financial position; made payments on behalf of the associate (joint ventures). »»income and expenses for each statement of profit or loss and other comprehensive income are translated at average exchange rates Unrealised gains on transactions between the Group and its associates for the period if fluctuation of exchange rates during the period was (joint ventures) are eliminated to the extent of the Group’s interest insignificant. Otherwise exchange rates at the dates of the transactions are in the associates (joint ventures); unrealised losses are also eliminated used for translation to the presentation currency; unless the transaction provides evidence of an impairment of the asset »»component of equity and reserves are translated at historical rates; transferred. »»all resulting exchange differences are recognised as other comprehensive income; Disposals of subsidiaries, associates or joint ventures. When the Group »»in the statement of cash flows cash balances at the beginning and ceases to have control or significant influence, any retained interest in the entity at the end of each presented period are translated at exchange rates is remeasured to its fair value at the date when control is lost, with the change effective at the corresponding dates. All cash flows are translated at average in carrying amount recognised in profit or loss. The fair value is the initial exchange rates for the presented periods. carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. When control over a foreign operation is lost, the exchange differences recognised previously in other comprehensive income are reclassified to In addition, any amounts previously recognised in other comprehensive profit or loss for the year as part of the gain or loss on disposal. income in respect of that entity, are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that Property, plant and equipment. Property, plant and equipment are amounts previously recognised in other comprehensive income are recorded at purchase or construction cost, less accumulated depreciation recycled to profit or loss. and accumulated impairment in value. The costs of day to day servicing of property, plant and equipment, including repairs and maintenance expenditure, is expensed as incurred.

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Where parts of an item of property, plant and equipment have different Subsequent costs useful lives, they are accounted for as separate items of property, plant and equipment. The cost of replacing a part of property, plant and equipment is recognised in the carrying amount when that cost is incurred, if it is probable that Construction in progress the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. The assets being Construction in progress includes, principally, capital expenditure replaced are written off immediately. All other costs are recognised incurred in relation to the construction of new container terminals and in the consolidated profit or loss for the year. the reconstruction of existing terminals. Construction in progress is carried at cost, less any recognised impairment loss. Cost includes capital Depreciation expenditures directly related to the construction of property, plant and equipment including an appropriate allocation of directly attributable variable Depreciation is charged to the consolidated profit or loss so as to write overheads including capitalised borrowing costs on qualifying assets. off the cost of assets (other than land and construction in progress) Depreciation of these assets, on the same basis as for other property assets, less their estimated residual values, using the straight-line method over commences when the assets are ready for their intended use. the estimated useful lives of each part of an item of property, plant and equipment. Owned land plots are not depreciated.

THE ESTIMATED USEFUL ECONOMIC LIVES FOR PROPERTY, PLANT AND EQUIPMENT ARE AS FOLLOWS:

NUMBER OF YEARS Buildings 20-82 Constructions 5-50 Containers 10-20 Flatcars 28-38

Cranes and loaders 5-23 Vehicles 3-15 Other equipment 2-25

The assets’ useful lives and amortisation methods are reviewed and Investment property is initially recognised at cost, including transaction costs, and adjusted as appropriate, at each reporting year-end. subsequently remeasured at fair value updated to reflect market conditions at the end of the reporting period. Fair value of investment property is the price that would be Leased assets received from sale of the asset in an orderly transaction, without deduction of any transaction costs. The best evidence of fair value is given by current prices in an active Capitalised leased assets and operating leasehold improvements are market for similar property in the same location and condition. depreciated over the shorter of the estimated useful life of the asset and the lease term. Market value of the Group’s investment property is determined based on reports of independent appraisers, who hold recognised and relevant Gain or loss on disposal professional qualifications and who have recent experience in the valuation of property in the same location and category. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying Earned rental income is recorded in profit or loss for the year within other amount of the asset and is recognised in the consolidated profit or loss. operating income. Gains and losses resulting from changes in the fair value of investment property are recorded in profit or loss for the year and Investment Property. Investment property is property held by the Group presented separately. to earn rental income or for capital appreciation, or both and which is not occupied by the Group. Investment property includes assets under If an investment property becomes owner-occupied, it is reclassified construction for future use as investment property. as property, plant and equipment, and its carrying amount at the date

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of reclassification becomes its deemed cost for accounting purposes.] If the recoverable amount of an asset (or cash-generating unit) is [If an item of owner-occupied property becomes an investment estimated to be less than its carrying amount, the carrying amount property because its use has changed, any difference resulting between of the asset (cash-generating unit) is reduced to its recoverable amount. the carrying amount and the fair value of this item at the date of transfer is An impairment loss is recognised immediately in the consolidated profit or treated in the same way as a revaluation of property, plant and equipment. loss.

Any resulting increase in the carrying amount of the property is recognised Where an impairment loss subsequently reverses, the carrying amount in profit or loss for the year to the extent that it reverses a previous of the asset (cash-generating unit) is increased to the revised estimate impairment loss, with any remaining increase credited directly to other of its recoverable amount, but so that the increased carrying amount does comprehensive income. Any resulting decrease in the carrying amount not exceed the carrying amount that would have been determined had of the property is initially charged against any revaluation surplus previously no impairment loss been recognised for the asset (cash-generating unit) recognised in other comprehensive income, with any remaining decrease in prior years. A reversal of an impairment loss is recognised immediately charged to profit or loss for the year as impairment. in the consolidated profit or loss.

Subsequent expenditure is capitalised to the asset’s carrying amount Non-current assets classified as held for sale. Non-current assets only when it is probable that future economic benefits associated with and disposal groups (which may include both non-current and current the expenditure will flow to the Group and the cost can be measured assets) are classified in the statement of financial position as ‘non-current reliably. All other repairs and maintenance costs are expensed when assets held for sale’ if their carrying amount will be recovered principally incurred. through a sale transaction (including loss of control of a subsidiary holding the assets) within twelve months after the reporting period. Assets are Intangible assets. Intangible assets that are acquired by the Group reclassified when all of the following conditions are met: (a) the assets are represent mainly purchased software and are stated at cost less available for immediate sale in their present condition; (b) the Group’s accumulated amortisation and impairment losses. management approved and initiated an active programme to locate a buyer; (c) the assets are actively marketed for sale at a reasonable price; Amortisation is charged to the consolidated profit or loss on a straight-line (d) the sale is expected within one year; and (e) it is unlikely that significant basis over the estimated useful lives of intangible assets. Intangible assets changes to the plan to sell will be made or that the plan will be withdrawn. are amortised from the date they are available for use. The estimated useful lives for existing assets range from 1 to 5 years. Non-current assets or disposal groups classified as held for sale in the current period’s statement of financial position are not reclassified or Useful lives and amortisation methods for intangible assets are reviewed re-presented in the comparative statement of financial position to reflect at least at each financial year-end. Changes in the expected useful life the classification at the end of the current period. or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for as changes in accounting A disposal group is a group of assets (current or non-current) to be estimates. disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be Impairment of non-current assets. At each balance sheet date, transferred in the transaction. Goodwill is included if the disposal group the Group reviews the carrying amounts of its non-current assets to includes an operation within a cash-generating unit to which goodwill has determine whether there is any indication that those assets have suffered been allocated on acquisition. Non-current assets are assets that include an impairment loss. If any such indication exists, the recoverable amount amounts expected to be recovered or collected more than twelve months of the asset is estimated in order to determine the extent of the impairment after the reporting period. If reclassification is required, both the current loss (if any). Where it is not possible to estimate the recoverable amount and non-current portions of an asset are reclassified. of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Held for sale disposal groups as a whole are measured at the lower of their carrying amount and fair value less costs to sell. Held for sale property, Recoverable amount is the higher of fair value less costs to sell and value plant and equipment, investment properties and intangible assets are not in-use. In assessing value in-use, the estimated future cash flows are depreciated or amortised. Reclassified non-current financial instruments, discounted to their present value using a pre-tax discount rate that reflects deferred taxes and investment properties held at fair value are not subject to current market assessments of the time value of money and the risks write down to the lower of their carrying amount and fair value less costs to sell. specific to the asset.

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Liabilities directly associated with the disposal group that will be transferred of deteriorating market conditions. in the disposal transaction are reclassified and presented separately in the consolidated statement of financial position. If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties Classification of financial assets. Financial assets are classified into of the counterparty, impairment is measured using the original effective the following specified categories: financial assets at fair value through interest rate before the modification of terms. profit or loss, held-to-maturity investments, available-for-sale financial assets and loans and receivables. The classification depends on the nature Impairment losses are always recognised through an allowance account and purpose of the financial assets and is determined at the time of initial to write down the asset’s carrying amount to the present value of expected recognition. As at the reporting date the Group had financial assets cash flows (which exclude future credit losses that have not been incurred) classified as loans and receivables only. discounted at the original effective interest rate of the asset.

Loans and receivables If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after Loans and receivables are non-derivative financial assets with fixed or the impairment was recognised (such as an improvement in the debtor’s determinable payments that are not quoted in an active market. credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss for the year. Such assets are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in the consolidated profit or Uncollectible assets are written off against the related impairment loss loss when the loans and receivables are derecognised or impaired, as provision after all the necessary procedures to recover the asset have been well as through the amortisation process. Interest income is recognised by completed and the amount of the loss has been determined. Subsequent applying the effective interest rate except for short-term receivables when recoveries of amounts previously written off are credited to impairment loss the recognition of interest would be immaterial. account within the consolidated profit or loss for the year.

Impairment of financial assets carried at amortised cost. Financial instruments – key measurement terms. Depending on their Impairment losses are recognised in consolidated profit or loss when classification financial instruments are carried at fair value or amortised incurred as a result of one or more events that occurred after the initial cost as described below. recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial Fair value is the price that would be received to sell an asset or paid to asset or group of financial assets that can be reliably estimated. If transfer a liability in an orderly transaction between market participants the Group determines that no objective evidence exists that impairment at the measurement date. The best evidence of fair value is price in an was incurred for an individually assessed financial asset, whether active market. An active market is one in which transactions for the asset or significant or not, it includes the asset in a group of financial assets with liability take place with sufficient frequency and volume to provide pricing similar credit risk characteristics, and collectively assesses them for information on an ongoing basis. impairment. The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and Valuation techniques such as discounted cash flow models or models realisability of related collateral, if any. based on recent arm’s length transactions or consideration of financial data of the investees are used to measure fair value of certain financial The following other principal criteria are also used to determine whether instruments for which external market pricing information is not available. there is objective evidence that an impairment loss has occurred: Fair value measurements are analysed by level in the fair value hierarchy as »»any portion or instalment is overdue and the late payment cannot be follows: attributed to a delay caused by the settlement systems; »»the counterparty experiences a significant financial difficulty as »»Level one are measurements at quoted prices (unadjusted) in active evidenced by its financial information that the Group obtains; markets for identical assets or liabilities; »»the counterparty considers bankruptcy or a financial reorganisation; »»Level two measurements are valuations techniques with all material »»there is adverse change in the payment status of the counterparty as inputs observable for the asset or liability, either directly (that is, as a result of changes in the national or local economic conditions that prices) or indirectly (that is, derived from prices); impact the counterparty; or »»Level three measurements are valuations not based on solely observable »»the value of collateral, if any, significantly decreases as a result market data (that is, the measurement requires significant unobservable inputs).

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For disclosure of information on fair value the Group classified assets and recognised when the entity becomes a party to the contractual provisions liabilities on the basis of an appropriate level of hierarchy of fair value as it is of the instrument. stated above. Derecognition of financial assets. The Group derecognises financial Amortised cost is the amount at which the financial instrument was assets when (a) the assets are redeemed or the rights to cash flows from recognised at initial recognition less any principal repayments, plus accrued the assets otherwise expire or (b) the Group has transferred the rights to interest, and for financial assets less any write-down for incurred impairment the cash flows from the financial assets or entered into a qualifying pass- losses. Accrued interest includes amortisation of transaction costs through arrangement while (i) also transferring substantially all risks and deferred at initial recognition and of any premium or discount to maturity rewards of ownership of the assets or (ii) neither transferring nor retaining amount using the effective interest method. Accrued interest income and substantially all risks and rewards of ownership but not retaining control. accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not Control is retained if the counterparty does not have the practical ability to presented separately and are included in the carrying values of related items sell the asset in its entirety to an unrelated third party without needing to in the consolidated statement of financial position. impose additional restrictions on the sale.

Effective interest method is a method of allocating interest income or interest Offsetting financial instruments. Financial assets and liabilities expense over the relevant period, so as to achieve a constant periodic rate of interest are offset and the net amount reported in the consolidated statement (effective interest rate) on the carrying amount. The effective interest rate is the rate of financial position only when there is a legally enforceable right to offset that exactly discounts estimated future cash payments or receipts (excluding future the recognised amounts, and there is an intention to either settle on a credit losses) through the expected life of the financial instrument or a shorter period, net basis, or to realise the asset and settle the liability simultaneously. if appropriate, to the net carrying amount of the financial instrument. The effective Such a right of set off (a) must not be contingent on a future event and interest rate discounts cash flows of variable interest instruments to the next interest (b) must be legally enforceable in all of the following circumstances: repricing date, except for the premium or discount which reflects the credit spread (i) in the normal course of business, (ii) in the event of default and (iii) over the floating rate specified in the instrument, or other variables that are not in the event of insolvency or bankruptcy. reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid Inventories. Inventories are stated at the lower of cost and net realisable or received between parties to the contract that are an integral part of the effective value. Net realisable value is the estimated selling price in the ordinary interest rate. course of business, less the estimated costs of completion and selling expenses. Classification of financial liabilities. Financial liabilities have the following measurement categories: (a) held for trading which also The cost of inventories is based on the weighted average cost principle includes financial derivatives and (b) other financial liabilities. Liabilities held and includes expenditure incurred in acquiring the inventories and bringing for trading are carried at fair value with changes in value recognised in profit them to their existing location and condition. or loss for the year (as finance income or finance costs) in the period in which they arise. Other financial liabilities are carried at amortised cost. Cash and cash equivalents. Cash and cash equivalents comprise cash As at the reporting date the Group had financial liabilities classified as other on hand, balances with banks and short-term interest-bearing deposits financial liabilities only. with original maturities of not more than three months (not more than 91 days). Initial recognition of financial instruments. All financial instruments of the Group are initially recorded at fair value. Fair value at initial recognition Employee benefits. Remuneration to employees in respect of services is best evidenced by the transaction price. A gain or loss on initial recognition rendered during the reporting period is recognised as an expense in that is only recorded if there is a difference between fair value and transaction reporting period. price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs Defined benefit plans include only data from observable markets. The Group operates defined benefit pension plans. The obligation and All purchases and sales of financial assets that require delivery within cost of benefits under the plans are determined separately for each plan the time frame established by regulation or market convention (“regular using the projected unit credit method. This method considers each year way” purchases and sales) are recorded at trade date, which is the date on of service as giving rise to an additional unit of benefit entitlement and which the Group commits to deliver a financial asset. All other purchases are measures each unit separately to build up the final obligation. The cost

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of providing pensions is charged to the consolidated profit or loss, so on a gross basis and disclosed separately as an asset and liability. Where as to attribute the total pension cost over the service lives of employees provision has been made for impairment of receivables, impairment loss is in accordance with the benefit formula of the plan. This obligation is recorded for the gross amount of the debtor, including VAT. measured at the present value of estimated future cash flows using a discount rate that is similar to the interest on government bonds where Accounts payable and other financial liabilities. Accounts payable the currency and terms of these bonds are consistent with the currency and other financial liabilities are initially recognised at cost, which is the fair and estimated terms of the defined benefit obligation. Remeasurements value of the consideration received, taking into account transaction costs. of the net defined benefit liabilityare recognised in other comprehensive After initial recognition, financial liabilities are carried at amortised cost, incomein full as they arise. using the effective interest method, with interest expense recognised on an effecitve yield basis. In addition, the Group provides certain retirement benefits, other post- employment and other long-term benefits to its employees. These benefits As normally the expected term of accounts payable is short, the value is are not funded. stated at the nominal amount without discounting, which corresponds with fair value. The obligation and cost of benefits for the other long-term benefits are determined using the projected unit credit method. Remeasurements Provisions. Provisions are recognised when, and only when, the Group has of the net defined benefit liability are recognised in the profit and loss in full a present obligation (legal or constructive) as a result of a past event, and it as they arise. is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable Upon introduction of a new plan or improvement of an existing plan, past estimate can be made of the amount of the obligation. Where the Group service costs are recognised in full as they arise. expects a provision to be reimbursed (for example under an insurance contract) the reimbursement is recognised as a separate asset but only Defined contribution plans when the reimbursement is virtually certain. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where In addition to the defined benefit plans described above, the Group the effect of the time value of money is significant, the amount of a provision is also sponsors a defined contribution plan for certain of its employees. the present value of the cash flows required to settle the obligation. The Group’s contributions relating to the defined contribution plan are charged to the consolidated profit or loss in the year to which they relate. Revenue recognition. Revenue is recognised at the fair value of the consideration received or receivable and represents amounts State Plan receivable for goods and services provided in the normal course of business, net of discounts, returns and value added taxes. Revenue is In addition, the Group is legally obliged to make contributions to recognised to the extent that it is probable that the economic benefits will the Pension Fund of the Russian Federation (a multi-employer defined flow to the Group and the revenue can be reliably measured. Revenues contribution plan). The Group’s only obligation is to pay the contributions from sales of inventories are recognised when the significant risks and as they fall due. As such, the Group has no legal obligation to pay and does rewards of ownership of the goods have passed to the buyer. not guarantee any future benefits to its Russian employees. The Group’s contributions to the Pension Fund of the Russian Federation, designated Rail-based container shipping services as a defined contribution plan, are charged to the consolidated profit or loss in the year to which they relate. Contributions for each employee Rail-based transportation services provided by the Group primarily include to the Russian Federation State Pension Fund vary from 10% to 22%, arranging the transportation of its own and third-party containers by rail depending on the annual gross remuneration of employee. by means of provision of flatcars and/or containers or leasing of flatcars and containers to third parties. For the purposes of recognising revenue, Value added tax. Output value added tax (“VAT”) related to revenues the Group charges its customers for provision of its own rolling stock while is payable to tax authorities upon delivery of the goods or services to rail infrastructure charges are born by the customers directly or passed customers, as well as upon collection of prepayments from customers. through to a provider of rail infrastrucutre services. Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice. The tax authorities permit the settlement of VAT on a Revenues from these services are recognised in the accounting period net basis (except for input VAT related to export services provided which in which the services are rendered, net of reinvoiced rail infrastructure is reclaimable upon confirmation of export). VAT related to sales and charges. Revenues from operating lease of rolling stock are recognised on purchases is recognised in the consolidated statement of financial position a straight-line basis over the term of operating lease agreements.

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Integrated freight forwarding and logistics services Other freight forwarding services

Integrated freight forwarding and logistics services are service packages The Group provides other freight forwarding services, such as: including rail container transportation, terminal handling, truck deliveries, freight forwarding and logistic services. There are two types of integrated »»preparation and ensuring of correctness of shipping documentation freight forwarding and logistic services: through-rate services and required for the delivery process to be effected; compound rate services. »»customs clearance brokerage by providing clients with customs documentation and services for Russian customs clearance; If the Company is responsible for the rendering of services throughout »»cargo tracking services by providing clients with information about cargo the entire logistic chain and such services are rendered under a single location; contract at a single price, they are treated as through-rate services. If »»route optimisation and planning; services rendered by the Company at a single price represent only a part »»cargo security services, including provision of insurance, special labels of the logistic chain while remaining services are provided on a stand-alone for hazardous cargo, special terms for transportation of hazardous basis separately, the intial services are treated as “compound services”. cargo, and ensuring proper documentation for the transported cargo. Revenue from integrated freight forwarding and logistics services is a combination of revenues relating to various services, which, when provided Revenue from other freight forwarding services is recognised under separate contracts, are shown in the corresponding revenue line in the accounting period in which the services are rendered. items. Revenues from integrated freight forwarding and logistics services are recognised on a gross basis in the accounting period in which Dividend and interest income the services are rendered. »»Dividends from investments are recognised in consolidated profit or loss Terminal services and agency fees when the shareholder’s right to receive payment has been established; »»Interest income is accrued on a time basis, by reference to the principal Terminal services primarily include arrangements whereby the Group acts as a outstanding and at the effective interest rate applicable. principal providing container handling services, such as loading and unloading operations, container storage and other terminal operations. Leases. The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date The Group acts as an agent on behalf of RZD in providing mandatory railroad of whether the fulfilment of the arrangement is dependent on the use of a services for all railway users at the Group’s terminals, designated as the “sites specific asset or assets or the arrangement conveys a right to use the asset. of common use” by the legislation. In this capacity the Group provides some of its terminal services as a legal intermediary (agent) between clients and Leases are classified as finance leases whenever the terms of the lease RZD and collects a commission. Commission fees collected from RZD transfer substantially all of the risks and rewards of ownership to the lessee. for intermediary activities and revenue from other terminal operations are All other leases are classified as operating leases.Finance leases recognised in the accounting period in which the services are provided. Finance leases Bonded warehousing services Assets under finance leases are recognised in the consolidated statement Bonded warehousing services are services related to storage of financial position as assets at the inception of the lease at the fair value of customers’ containers in separate warehouses located at container of the leased property or, if lower, at the present value of the minimum terminals while pending customs clearance or payment of other lease payments. The corresponding liability to the lessor is included applicable duties. Revenue from these services is recognised on the basis in the consolidated statement of financial position as a finance lease obligation of the number of days during which the services are rendered. Minimum lease payments are apportioned between the finance charge Truck deliveries and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant Truck delivery services include transporting containers between periodic rate of interest on the remaining balance of the liability. The assets the container terminals and client-designated sites using the Group’s acquired under finance leases are depreciated over their useful life or own truck fleet as well as third parties’ trucks. The Group considers itself the shorter lease term, if the Group is not reasonably certain that it will the principal in these arrangements, and therefore recognises revenue obtain ownership by the end of the lease term. from truck deliveries on the gross basis in the accounting period in which the services are rendered.

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Contingent rentals are recognised as expenses in the periods in which they only to the extent that it is probable that the temporary difference will reverse are incurred. in the future and there is sufficient future taxable profit available against which the deductions can be utilised. Operating leases Deferred income tax assets and liabilities are offset when there is a legally Payments made under operating leases are recognised in the consolidated enforceable right to offset current tax assets against current tax liabilities and profit or loss on a straight-line basis over the term of the lease. Lease when the deferred income taxes assets and liabilities relate to income taxes incentives received are recognised as a liability and as a reduction levied by the same taxation authority on either the same taxable entity or in expense on a straight-line basis. different taxable entities where there is an intention to settle the balances on a net basis. Deferred tax assets and liabilities are netted only within the individual Contingent rentals under operating leases are recognised as an expense companies of the Group. in the period in which they are incurred. The Group controls the reversal of temporary differences relating to taxes Borrowing costs. For the periods beginning 1 January 2009, borrowing chargeable on dividends from subsidiaries or on gains upon their disposal. costs directly attributable to the acquisition, construction or production The Group does not recognise deferred tax liabilities on such temporary of an asset that necessarily takes a substantial period of time to get ready differences except to the extent that Management expects the temporary for its intended use or sale are capitalised and amortised over the useful differences to reverse in the foreseeable future. life of the asset. Other borrowing costs are recognised as an expense in the period in which they are incurred. For periods prior to 1 January Uncertain tax positions. The Group’s uncertain tax positions are 2009 all borrowing costs were expensed in the period in which they were reassessed by management at the end of each reporting period. Liabilities incurred. are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if Income tax. Income taxes have been provided for in the consolidated financial the positions were to be challenged by the tax authorities. The assessment statements in accordance with legislation enacted or substantively enacted by is based on the interpretation of tax laws that have been enacted or the end of the reporting period. The income tax charge comprises current tax and substantively enacted by the end of the reporting period, and any known deferred tax and is recognised in consolidated profit or loss for the year, except court or other rulings on such issues. Liabilities for penalties, interest and if it is recognised in other comprehensive income or directly in equity because it taxes other than on income are recognised based on management’s best relates to transactions that are also recognised, in the same or a different period, estimate of the expenditure required to settle the obligations at the end in other comprehensive income or directly in equity. of the reporting period. Adjustments for uncertain income tax positions are recorded within the income tax charge. Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of taxable profits or losses for the current and Share capital and other reserves. Ordinary shares are classified prior periods. Taxable profits or losses are based on estimates if consolidated as equity. External costs directly attributable to the issue of new shares financial statements are authorised prior to filing relevant tax returns. Taxes (other than on a business combination) are shown as a deduction other than on income are recorded within operating expenses. from the proceeds in equity. The difference between the fair value of consideration received and the par value of shares issued is recognised Deferred income tax is provided using the balance sheet liability method for tax as other reserves. loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for consolidated financial Treasury shares. Where any Group company purchases the Company’s reporting purposes. In accordance with the initial recognition exemption, equity instruments, the consideration paid, including any directly deferred taxes are not recorded for temporary differences on initial recognition attributable incremental costs (and net of income taxes) is deducted from of an asset or a liability in a transaction other than a business combination if equity attributable to the Company’s owners until the equity instruments are the transaction, when initially recorded, affects neither accounting nor taxable cancelled, reissued or disposed of. Where such shares are subsequently profit. Deferred tax liabilities are not recorded for temporary differences on sold or reissued, any consideration received, net of any directly attributable initial recognition of goodwill. Deferred tax balances are measured at tax incremental transaction costs and the related income tax effects, are rates enacted or substantively enacted at the end of the reporting period, included in equity attributable to the Company’s owners. which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets Earnings per share. Earnings per share are calculated by dividing for deductible temporary differences and tax loss carry forwards are recorded the income for the period attributable to equity holders of the parent by

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the weighted average number of ordinary shares outstanding during meeting. Dividends are disclosed when they are declared after the balance the period, except treasury shares. The Group does not have any sheet date but before the consolidated financial statements are authorised potentially dilutive equity instruments. for issue.

Share-based payment transactions. The share option plan allows Provisions for liabilities and charges. Provisions for liabilities and Group employees to acquire shares of the Company. The fair value charges are non-financial liabilities of uncertain timing or amount. They are of share-based payment awards is measured at the grant date based on accrued when the Group has a present (legal or constructive) obligation the Black-Scholes-Merton model, which takes into account the terms as a result of past events, it is probable that an outflow of resources and conditions upon which the instruments were granted. The fair value embodying economic benefits will be required to settle the obligation, and of the options is then charged off during the period between the option a reliable estimate of the amount of the obligation can be made. grant date and the option vesting date specified in the option share acquisition contract. Reclassifications. In order to bring the statements data for the previous reporting period in accordance with the data presentation form adopted Dividends. Dividends are recognised as a liability and deducted from in the current reporting period, there have been made a number equity at the balance sheet date only if they are declared and approved of reclassifications. All reclassifications are immaterial. before or on the balance sheet date by the shareholders at a general

4. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

IFRSs and IFRIC interpretations adopted in the current year its investments on a fair value basis. An investment entity is required to In the current year, the Group adopted all new and revised standards and account for its subsidiaries at fair value through profit or loss, and to interpretations issued by the International Accounting Standards Board consolidate only those subsidiaries that provide services that are related (“IASB”) and International Financial Reporting Interpretation Committee to the entity’s investment activities. IFRS 12 was amended to introduce (“IFRIC”) of the IASB that are mandatory for adoption in the annual new disclosures, including any significant judgements made in determining periods beginning on or after 1 January 2014 and applicable for whether an entity is an investment entity and information about financial or the Group’s activity. The effect from their adoption has not resulted in any other support to an unconsolidated subsidiary, whether intended or already significant changes to measurement and presentation of disclosures provided to the subsidiary. in the consolidated financial statements of the Group. IFRIC 21 – “Levies” (issued on 20 May 2013 and effective for “Offsetting Financial Assets and Financial Liabilities” – annual periods beginning 1 January 2014). The interpretation clarifies Amendments to IAS 32 (issued in December 2011 and effective for the accounting for an obligation to pay a levy that is not income tax. annual periods beginning on or after 1 January 2014). The amendment The obligating event that gives rise to a liability is the event identified by added application guidance to IAS 32 to address inconsistencies the legislation that triggers the obligation to pay the levy. The fact that identified in applying some of the offsetting criteria. This includes clarifying an entity is economically compelled to continue operating in a future the meaning of ‘currently has a legally enforceable right of set-off’ and period, or prepares its financial statements under the going concern that some gross settlement systems may be considered equivalent to net assumption, does not create an obligation. The same recognition settlement. The standard clarified that a qualifying right of set off 1) must principles apply in interim and annual financial statements. The application not be contingent on a future event and 2) must be legally enforceable of the interpretation to liabilities arising from emissions trading schemes is in all of the following circumstances: (a) in the normal course of business, optional. (b) the event of default and (c) the event of insolvency or bankruptcy. Amendments to IAS 36 – “Recoverable amount disclosures for “Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment entities” non-financial assets” (issued in May 2013 and effective for annual (issued on 31 October 2012 and effective for annual periods beginning periods beginning 1 January 2014; earlier application is permitted if 1 January 2014). The amendment introduced a definition of an investment IFRS 13 is applied for the same accounting and comparative period). entity as an entity that (i) obtains funds from investors for the purpose The amendments remove the requirement to disclose the recoverable of providing them with investment management services, (ii) commits to amount when a CGU contains goodwill or indefinite lived intangible assets its investors that its business purpose is to invest funds solely for capital but there has been no impairment. appreciation or investment income and (iii) measures and evaluates

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Amendments to IAS 39 – “Novation of Derivatives and Continuation record an immediate loss equal to the 12-month ECL on initial recognition of Hedge Accounting” (issued in June 2013 and effective for annual of financial assets that are not credit impaired (or lifetime ECL for trade periods beginning 1 January 2014). The amendments allow hedge receivables). Where there has been a significant increase in credit risk, accounting to continue in a situation where a derivative, which has been impairment is measured using lifetime ECL rather than 12-month ECL. designated as a hedging instrument, is novated (i.e parties have agreed to The model includes operational simplifications for lease and trade replace their original counterparty with a new one) to effect clearing with a receivables (not approved for adoption in the Russian Federation). central counterparty as a result of laws or regulation, if specific conditions »»Hedge accounting requirements were amended to align accounting are met. more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting IFRS and IFRIC interpretations not yet effective requirements of IFRS 9 and continuing to apply IAS 39 to all hedges New standards and improvements those are mandatory for annual periods because the standard currently does not address accounting for macro beginning on or after 1 January 2015 or later periods that are applicable for hedging. the Group’s activity and approved for adoption in the Russian Federation and which the Group has not early adopted (unless stated otherwise), are The Group is currently assessing the impact of the new standard on its as follows: consolidated financial statements.

IFRS 9 “Financial Instruments” (amended in July 2014 and effective Amendments to IAS 19 – “Defined benefit plans: Employee for annual periods beginning on or after 1 January 2018). Key features contributions” (issued in November 2013 and effective for annual of the new standard are: periods beginning 1 July 2014). The amendment allows entities to recognise employee contributions as a reduction in the service cost »»Financial assets are required to be classified into three measurement in the period in which the related employee service is rendered, instead categories: those to be measured subsequently at amortised cost, those of attributing the contributions to the periods of service, if the amount to be measured subsequently at fair value through other comprehensive of the employee contributions is independent of the number of years income (FVOCI) and those to be measured subsequently at fair value of service. The amendment is not expected to have any material impact on through profit or loss (FVPL). the Group’s financial statements. »»Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether the contractual Annual Improvements to IFRSs 2012 (issued in December 2013 cash flows represent solely payments of principal and interest (SPPI). If a and effective for annual periods beginning on or after 1 July 2014, debt instrument is held to collect, it may be carried at amortised cost if it unless otherwise stated below). The improvements consist of changes also meets the SPPI requirement. Debt instruments that meet the SPPI to seven standards. IFRS 2 was amended to clarify the definition of a requirement that are held in a portfolio where an entity both holds to ‘vesting condition’ and to define separately ‘performance condition’ and collect assets’ cash flows and sells assets may be classified as FVOCI. ‘service condition’; The amendment is effective for share-based payment Financial assets that do not contain cash flows that are SPPI must be transactions for which the grant date is on or after 1 July 2014. IFRS 3 was measured at FVPL (for example, derivatives). Embedded derivatives are amended to clarify that (1) an obligation to pay contingent consideration no longer separated from financial assets but will be included in assessing which meets the definition of a financial instrument is classified as a the SPPI condition. financial liability or as equity, on the basis of the definitions in IAS 32, »»Investments in equity instruments are always measured at fair value. and (2) all non-equity contingent consideration, both financial and non- However, management can make an irrevocable election to present financial, is measured at fair value at each reporting date, with changes changes in fair value in other comprehensive income, provided in fair value recognised in profit and loss. Amendments to IFRS 3 are the instrument is not held for trading. If the equity instrument is held effective for business combinations where the acquisition date is on or after for trading, changes in fair value are presented in profit or loss.Most 1 July 2014. of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key IFRS 8 was amended to require (1) disclosure of the judgements made by change is that an entity will be required to present the effects of changes management in aggregating operating segments, including a description in own credit risk of financial liabilities designated at fair value through profit of the segments which have been aggregated and the economic indicators or loss in other comprehensive income. which have been assessed in determining that the aggregated segments »»IFRS 9 introduces a new model for the recognition of impairment losses – share similar economic characteristics, and (2) a reconciliation of segment the expected credit losses (ECL) model. There is a ‘three stage’ approach assets to the entity’s assets when segment assets are reported. The basis which is based on the change in credit quality of financial assets since for conclusions on IFRS 13 was amended to clarify that deletion of certain initial recognition. In practice, the new rules mean that entities will have to paragraphs in IAS 39 upon publishing of IFRS 13 was not made with

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an intention to remove the ability to measure short-term receivables IFRS 15, Revenue from Contracts with Customers (issued on 28 May and payables at invoice amount where the impact of discounting is 2014 and effective for the periods beginning on or after 1 January 2017). immaterial. IAS 16 and IAS 38 were amended to clarify how the gross The new standard introduces the core principle that revenue must be carrying amount and the accumulated depreciation are treated where recognised when the goods or services are transferred to the customer, an entity uses the revaluation model. IAS 24 was amended to include, at the transaction price. Any bundled goods or services that are distinct as a related party, an entity that provides key management personnel must be separately recognised, and any discounts or rebates on services to the reporting entity or to the parent of the reporting entity (‘the the contract price must generally be allocated to the separate elements. management entity’), and to require to disclose the amounts charged When the consideration varies for any reason, minimum amounts must be to the reporting entity by the management entity for services provided. recognised if they are not at significant risk of reversal. Costs incurred to The Group is currently assessing the impact of the amendments on its secure contracts with customers have to be capitalised and amortised over consolidated financial statements. the period when the benefits of the contract are consumed. The Group is currently assessing the impact of the new standard on its consolidated Annual Improvements to IFRSs 2013 (issued in December 2013 financial statements. and effective for annual periods beginning on or after 1 July 2014). The improvements consist of changes to four standards. The basis for New standards and improvements those are mandatory for annual periods conclusions on IFRS 1 is amended to clarify that, where a new version of a beginning on or after 1 January 2015 or later periods that are applicable for standard is not yet mandatory but is available for early adoption; a first- the Group’s activity and not currently approved for applying in the Russian time adopter can use either the old or the new version, provided the same Federation and which the Group has not early adopted, are as follows: standard is applied in all periods presented. IFRS 3 was amended to clarify that it does not apply to the accounting for the formation of any Sale or Contribution of Assets between an Investor and its joint arrangement under IFRS 11. The amendment also clarifies that Associate or Joint Venture – Amendments to IFRS 10 and IAS 28 the scope exemption only applies in the financial statements of the joint (issued on 11 September 2014 and effective for annual periods beginning arrangement itself. The amendment of IFRS 13 clarifies that the portfolio on or after 1 January 2016). These amendments address an inconsistency exception in IFRS 13, which allows an entity to measure the fair value of a between the requirements in IFRS 10 and those in IAS 28 in dealing with group of financial assets and financial liabilities on a net basis, applies to the sale or contribution of assets between an investor and its associate all contracts (including contracts to buy or sell non-financial items) that or joint venture. The main consequence of the amendments is that a are within the scope of IAS 39 or IFRS 9. IAS 40 was amended to clarify full gain or loss is recognised when a transaction involves a business. A that IAS 40 and IFRS 3 are not mutually exclusive. The guidance in IAS partial gain or loss is recognised when a transaction involves assets that 40 assists preparers to distinguish between investment property and do not constitute a business, even if these assets are held by a subsidiary. owner-occupied property. Preparers also need to refer to the guidance The Group is currently assessing the impact of the amendments on its in IFRS 3 to determine whether the acquisition of an investment property consolidated financial statements. is a business combination. The Group is currently assessing the impact of the amendments on its consolidated financial statements. Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods beginning on or after 1 January 2016). Accounting for Acquisitions of Interests in Joint Operations - The amendments impact 4 standards. IFRS 5 was amended to clarify that Amendments to IFRS 11 (issued on 6 May 2014 and effective for change in the manner of disposal (reclassification from «held for sale» to «held the periods beginning on or after 1 January 2016). This amendment adds for distribution» or vice versa) does not constitute a change to a plan of sale or new guidance on how to account for the acquisition of an interest in a joint distribution, and does not have to be accounted for as such. The amendment operation that constitutes a business. The Group is currently assessing to IFRS 7 adds guidance to help management determine whether the terms the impact of the amendments on its consolidated financial statements. of an arrangement to service a financial asset which has been transferred constitute continuing involvement, for the purposes of disclosures required by Clarification of Acceptable Methods of Depreciation and IFRS 7. The amendment also clarifies that the offsetting disclosures of IFRS 7 Amortisation - Amendments to IAS 16 and IAS 38 (issued on 12 are not specifically required for all interim periods, unless required by IAS 34. May 2014 and effective for the periods beginning on or after 1 January The amendment to IAS 19 clarifies that for post-employment benefit obligations, 2016). In this amendment, the IASB has clarified that the use of revenue- the decisions regarding discount rate, existence of deep market in high-quality based methods to calculate the depreciation of an asset is not appropriate corporate bonds, or which government bonds to use as a basis, should be because revenue generated by an activity that includes the use of an asset based on the currency that the liabilities are denominated in, and not the country generally reflects factors other than the consumption of the economic where they arise. IAS 34 will require a cross reference from the interim financial benefits embodied in the asset. The Group is currently assessing statements to the location of «information disclosed elsewhere in the interim the impact of the amendments on its consolidated financial statements. financial report». The Group is currently assessing the impact of the amendments on its consolidated financial statements.

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Disclosure Initiative Amendments to IAS 1 (issued in December comprised of line items made up of amounts recognised and measured 2014 and effective for annual periods on or after 1 January 2016). in accordance with IFRS; (b) be presented and labelled in a manner that The Standard was amended to clarify the concept of materiality and makes the line items that constitute the subtotal clear and understandable; explains that an entity need not provide a specific disclosure required by (c) be consistent from period to period; and (d) not be displayed with more an IFRS if the information resulting from that disclosure is not material, prominence than the subtotals and totals required by IFRS standards. even if the IFRS contains a list of specific requirements or describes them as minimum requirements. The Standard also provides new guidance on Unless otherwise described above, the new standards and interpretations subtotals in financial statements, in particular, such subtotals (a) should be are not expected to affect significantly the Group’s financial statements.

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

The key assumptions concerning the future, and other key sources conditions, expectations of growth in the industry, increased cost of capital, of estimation uncertainty at the reporting date, that have a significant risk changes in the future availability of financing, technological obsolescence, of causing a material adjustment to the carrying amounts of assets and discontinuance of service, current replacement costs and other changes liabilities within the next reporting year, are discussed below. in circumstances that indicate impairment exists.

Provision for impairment of receivables. Management of the Group Whenever such indications exist management makes an estimate maintains a provision for impairment of short-term receivables in the form of the asset’s recoverable amount to ensure that it is not less than its of an allowance account equal to estimated losses resulting from the inability carrying value. If the asset’s fair value is not readily determinable or is less of customers and other debtors to make required payments. When evaluating than asset’s carrying value plus costs to sell, management necessarily the adequacy of this allowance account, management bases its estimates on applies its judgment in determining the appropriate cash generating unit to the ageing of accounts receivable balances and historical write-off experience, be evaluated, estimating the appropriate discount rate and the timing and customer creditworthiness and changes in customer payment terms. If value of the relevant cash flows for the value-in-use calculation. the financial condition of customers were to deteriorate, actual write-offs might be higher than expected. As at 31 December 2014 and 31 December 2013, Current year review of impairment of property, plant and equipment the provision for impairment of receivables was recognised in the amount of RUB 336m and RUB 259m, respectively (Note 10). As at 31 December 2014 in connection with the recent economic downturn the Group has carried out a review of recoverable amount of its fixed assets. Depreciable lives of property, plant and equipment. The Group assesses the remaining useful lives of items of property, plant and Key assumptions equipment at least at each financial year-end and in accordance with the current technical conditions of the assets and estimated period The following key assumptions were made in carrying out the review: during which the assets are expected to earn benefits for the Group. If expectations differ from previous estimates, the changes are accounted »»The Group represents one cash generating unit; for as a change in an accounting estimate in accordance with IAS 8 »»The Group estimated its future cash flows on a nominal basis for “Accounting policies, changes in accounting estimates and errors”. These the period from 2015 to 2029; estimates may have a material impact on the amount of the carrying »»The discount rate used in the calculations for the period from 2015 to values of property, plant and equipment and on depreciation expense for 2016 was equal to 17.3%, for the period from 2017 to 2029 was equal the period. to 14.6%, which is an estimate of the Group’s weighted average cost of capital. As at 31 December 2013 the Group reassessed the remaining useful lives of items of property, plant and equipment (Note 7), the ranges of terms Results of the review have not changed. »»As a result of the review no impairment loss was recognised Impairment of property, plant and equipment. The Group reviews at each in the consolidated financial statements, except for certain individually reporting date the carrying amounts of its property, plant and equipment impaired assets as disclosed in Note 7; to determine whether there is any indication that assets are impaired. This »»No impairment loss would result if the discount rate increased less than process involves judgment in evaluating the cause for any possible reduction by 1.47% in each period. Similarly, the result is not sensitive to decrease in value, including a number of factors such as changes in current competitive in estimated future cash flows within 7.42%.

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Compliance with tax legislation. Compliance with tax legislation, and former employees who are eligible for benefits (mortality, both during particularly in the Russian Federation, is subject to significant degree and after employment, rates of employee turnover, disability and early of interpretation and can be routinely challenged by the tax authorities. retirement, etc.), as well as financial assumptions (discount rate, future Fiscal periods remain open to review by the authorities in respect of taxes salary and benefits levels, etc.). In the event that further changes in the key for three calendar years preceding the year of review. Under certain assumptions are required, the amounts of the pension benefit costs may circumstances reviews may cover longer periods. Management believes be materially affected (Note 16). that it has accrued all applicable taxes. Management believes that it has adequately provided for tax liabilities based on its interpretations of tax Initial recognition of related party transactions. In the normal course legislation. However, there exists a possibility that relevant tax authorities of business the Group enters into transactions with its related parties. IAS may have differing interpretations than those of the management, and 39 requires initial recognition of financial instruments based on their fair the effect of such differences could be significant. values. Judgement is applied in determining if transactions are priced at market or non-market interest rates, where there is no active market Pension obligations. The Group uses an actuarial valuation method for such transactions. The basis for judgement is pricing for similar types for measurement of the present value of post-employment benefit of transactions with unrelated parties and effective interest rate analyses. obligations and related current service cost. This method involves the use Terms and conditions of related party balances are disclosed in Note 26. of demographic assumptions about the future characteristics of the current

6. CRITICAL ACCOUNTING JUDGEMENTS

In the process of applying the Group’s accounting policies, management 1) In case the Group provides integrated freight forwarding and logistic has made the following judgments, apart from those involving estimates, services the customers do not interact with other transportation which have the most significant effect on the amounts recognised organisations. A full service is charged by the Group to its customers for its in the consolidated financial statements: services including rail-based container transportation, terminal handling, trucking, etc. and the full third-party charges, including railway tariff. Accounting for leases. A lease is classified as finance lease if it transfers substantially all the risks and rewards incidental to ownership. Otherwise There are certain characteristics indicating that the Group is acting as an it is classified as operating lease. Whether a lease is a finance lease or agent, particularly the fact that railway tariffs are available to the public, an operating lease depends on the substance of the transaction rather therefore are known to the customer, and the risk of delivery is borne by than the form of the contract. In determining the accounting treatment the transportation organisations. of transactions that involve the legal form of a lease, all aspects and implications of an arrangements are evaluated to determine the substance However, the Group bears the credit risk as it controls the flow of receipts of such transactions with weight given to those aspects and implications and payments and is independent in its own pricing policy. that have an economic effect. If the lease term is for longer than 75% of the economic life of the asset, or at the inception of the lease Management believes that the Group acts as a principal in these the present value of the minimum lease payments amounts to at least 90% arrangements and the Group accounts for receipts from customers as sales of the fair value of the leased asset, the lease is classified by the Group as revenue. Third-party charges, including the railroad tariff is included in third- a finance lease, unless it is clearly demonstrated otherwise. party charges relating to integrated freight forwarding and logistics services.

Functional currencies of different entities of the Group. Different entities Had the railway tariff directly attributable to such services been excluded within the Group have different functional currencies, based on the underlying from revenue and expenses both would have decreased by RUB 16,027m economic conditions of their operations. This determination, of what for the year ended 31 December 2014 (RUB 13,836m for the year ended the specific underlying economic conditions are, requires judgement. In 31 December 2013). making this judgement, the Group evaluates among other factors, the location of activities, the sources of revenue, risks associated with activities and 2) In cases where Rail-based container shipping services are provided, denomination of currencies of operations of different entities. the Group agrees with the customer the transport fee as above, excluding the railroad tariff which is paid by the Group and reinvoiced to the client Revenue from integrated freight forwarding and logistics services. as reimbursement of providing rail infrastructure and locomotive services. There are two types of the Group’s services for which critical accounting Management believes that railroad tariff should not be included in revenue judgments are involved in revenue recognition: and expenses, as any variation in the tariff will be borne by the client.

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7. PROPERTY, PLANT AND EQUIPMENT AND ADVANCES FOR ACQUISITION OF NON-CURRENT ASSETS

LAND, LOCOMOTIVES, VEHICLES BUILDINGS AND CONTAINERS AND CRANES AND AND OTHER CONSTRUCTION CONSTRUCTIONS FLATCARS LOADERS EQUIPMENT IN-PROGRESS TOTAL Cost 1 January 2013 10,464 30,229 1,680 2,917 1,482 46,772

Additions 138 4,079 150 321 1,832 6,520 Transfers 1,997 409 126 40 (2,572) - Сapitalised borrowing costs - - - - 87 87 Disposals (94) (559) (38) (203) (6) (900) Disposal of the controlling interest in subsidiary (1,887) (561) (280) (561) (31) (3,320) Foreign currency translation 93 28 14 28 - 163

31 DECEMBER 2013 10,711 33,625 1,652 2,542 792 49,322

Additions 2 3,069 387 175 580 4,213 Transfers 536 430 10 11 (987) - Сapitalised borrowing costs - - - - 20 20 Reclassification to non-current assets held for sale (66) - (12) (76) - (154) Disposals (19) (716) (12) (124) (72) (943)

31 DECEMBER 2014 11,164 36,408 2,025 2,528 333 52,458

ACCUMULATED DEPRECIATION

1 JANUARY 2013 (1,791) (8,255) (932) (1,557) (4) (12,539)

Depreciation charge for the year (229) (1,168) (106) (346) - (1,849) (Impairment) / reversal of impairment (18) (92) (3) (13) 3 (123) Disposals 59 377 33 170 - 639 Disposal of the controlling interest in subsidiary 261 356 120 175 1 913 Foreign currency translation (13) (14) (4) (6) - (37) 31 DECEMBER 2013 (1,731) (8,796) (892) (1,577) - (12,996)

Depreciation charge for the year (248) (1,796) (80) (297) - (2,421) (Impairment) / reversal of impairment (86) 3 (8) 2 - (89) Reclassification to non-current assets held for sale 9 - 6 33 - 48 Disposals 13 580 9 116 - 718

31 DECEMBER 2014 (2,043) (10,009) (965) (1,723) - (14,740)

NET BOOK VALUE 31 DECEMBER 2013 8,980 24,829 760 965 792 36,326 31 DECEMBER 2014 9,121 26,399 1,060 805 333 37,718

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Included under land, buildings and constructions are the amounts of RUB Additions of construction in-progress include interest expenses on bonds 109m and RUB 109m, which represent the value of land plots owned by and other related proceeds from borrowed funds in connection with the Group as at 31 December 2014 and 31 December 2013, respectively. the construction and reconstructions of property, plant and equipment items. The total amount of interest capitalised for the year ended During the year ended 31 December 2014 container terminal 31 December 2014 was RUB 20m at a rate of capitalisation of 8.96% in Yekaterinburg was put into operation under the group land, buildings and and RUB 87m capitalised for the year ended 31 December 2013 at a rate constructions in the amount of RUB 333m. of capitalisation of 9.19%.

The vehicles and other equipment group includes motor transport used for Leased assets as at 31 December 2014 and 31 December 2013, for terminal services and truck deliveries with gross carrying amount of RUB which the Group is a lessee under finance leases primarily related to land, 814m and RUB 845m as at 31 December 2014 and 31 December 2013, buildings and constructions and comprised the following: respectively. 2014 2013 As at 31 December 2013 the Group revised the useful lives of individual Cost 431 575 fixed assets mainly within a group of flatcars. As a result, the amount Accumulated depreciation (15) (12) of depreciation charges for the year ended 31 December 2014 increased Net book value 416 563 by RUB 462m in comparison with the one that would have been charged under the previous useful life, ranges of economic useful lives for During the year ended 31 December 2013 the Group bought out a part property, plant and equipment groups remain unchanged. The estimation of non-residential premises in a Moscow head office building, previously of the effect on further periods is impracticable. acquired under a finance lease agreement. The cost of the bought out building part was RUB 144m. The remaining premises are owned by The gross carrying amount of fully depreciated property, plant and the Group and included in the group land, buildings and constructions. See equipment that is still in use amounted to RUB 1.588m and RUB 1.678m Note 15 for further details regarding finance leases. as at 31 December 2014 and 31 December 2013, respectively. Advances for acquisition of non-current assets The carrying amount of temporarily idle property, plant and equipment as at 31 December 2014 and 31 December 2013 comprised the following: As at 31 December 2014 and 31 December 2013, advances for the acquisition of non-current assets, net of VAT and impairment provisions, 2014 2013 consisted of advances for the acquisition of cranes and loaders (RUR Cost 224 792 155m and RUR 147m, respectively), advances for the acquisition of Accumulated deprecation (93) (285) containers (RUR 41m and RUR 85m, respectively) and advances for Net book value 131 507 the acquisition of other non-current assets (RUR 10 and RUR 11m, respectively).

Сonstruction in-progress as at 31 December 2014 consisted mainly As at 31 December 2014 and 31 December 2013, advances for of the сapital expenditures incurred for the reconstructions and expansion the acquisition of non-current assets, net of VAT and impairment of container terminals in Yekaterinburg and Irkutsk amounting to RUB provisions, consisted of advances for the acquisition of cranes and loaders 145m and RUB 88m, respectively, and containers aсquired for the amount (RUB 155m and RUB 147m, respectively), advances for the acquisition of RUB 8m. of containers (RUB 41m and RUB 85m, respectively) and advances for the acquisition of other non-current assets (RUB 10 and RUB 11m, Сonstruction in-progress as at 31 December 2013 consisted mainly respectively). of the сapital expenditures incurred for the reconstructions and expansion of container terminals in Yekaterinburg, Khabarovsk and Moscow region As at 31 December 2014 and 31 December 2013 provision was amounting to RUB 143m, RUB 56m and RUB 57m, respectively, and recognised for impairment of advances for acquisition of non-current containers aсquired for the amount of RUB 367m. assets in the amount of RUB 43m and RUB 48m, respectively (Note 10).

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8. INTANGIBLE ASSETS

LEASE AGREEMENTS SOFTWARE TOTAL

COST 1 JANUARY 2013 613 169 782 Additions - 146 146 Disposals - (28) (28) Disposal of the controlling interest in the subsidiary (664) - (664) Foreign currency translation 51 - 51 31 DECEMBER 2013 - 287 287 Additions - 100 100 Disposals - (138) (138) 31 DECEMBER 2014 - 249 249

ACCUMULATED AMORTISATION 1 JANUARY 2013 (80) (110) (190) Disposals - 18 18 Amortisation charge for the year (49) (45) (94) Disposal of the controlling interest in the subsidiary 134 - 134 Foreign currency translation (5) - (5) 31 DECEMBER 2013 - (137) (137)

Disposals - 138 138 Amortisation charge for the year - (40) (40) 31 DECEMBER 2014 - (39) (39)

NET BOOK VALUE - 150 150 31 DECEMBER 2013 31 DECEMBER 2014 - 210 210

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9. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

THE TABLE BELOW SUMMARISES THE MOVEMENTS IN THE CARRYING AMOUNT OF THE GROUP’S INVESTMENT IN ASSOCIATES AND JOINT VENTURES.

TOTAL ASSOCIATES JOINT VENTURE JSC OTHER JOINT AND JOINT KEDENTRANSSERVICE VENTURES ASSOCIATES VENTURES CARRYING AMOUNT AS AT 1 JANUARY 2013 - 43 11 54

Share of profit of associates and joint ventures - 3 (1) 2 Fair value of net assets of associates and joint ventures acquired 1,977 - - 1,977 Goodwill arising on acquisition of associates and joint ventures 309 - - 309 Effect of translation to presentation currency (16) 4 - (12)

CARRYING AMOUNT AS AT 31 DECEMBER 2013 2,270 50 10 2,330

Share of profit of associates and joint ventures 163 1 1 165 Dividends received from joint ventures (120) (2) - (122) Effect of translation to presentation currency 933 31 6 970

CARRYING AMOUNT AS AT 31 DECEMBER 2014 3,246 80 17 3,343

As at 31 December 2012 the Group owned 100% of Logistic System As at 31 December 2013 the consolidated financial statements present Management B.V., 100% of Helme’s Operation UK Limited and 67% the amount of investment in JSC Kedentransservice at fair value in amount of JSC Kedentransservice. of RUB 2,270m determined on the basis of the independent appraiser’s report, including fair value of net assets in amount of RUB 1,961m and In May 2013 within the frame of additional issue of shares of Logistic RUB 309m of goodwill (level 3 in the fair value hierarchy). While carrying out System Management B.V. the Group transferred 100% of shares the evaluation of investment’s fair value independent appraiser primarily of Helme’s Operation UK Limited (which owns 46.9% of shares of JSC used the income approach, considering the cost method approach results. Kedentransservice) and 20.1% of the shares of Kedentransservice and In accordance with a conservative approach JSC Kedentransservice’s JSC National Company Kazakhstan Temir Zholy («KTZ») transferred business development plans, that involve high capital investments for business 33% of shares of JSC Kedentransservice in exchange for 67% of shares expansion, as well as revenue growth and operating profitability increase, and 33% of shares of Logistic System Management B.V. respectively. As are not included in the forecast. In addition the low capacity utilization rate a result of this transaction the Group owned 67% of shares of Logistic of Dostyk Station and the terminals allows to increase the volume of cargo System Management B.V. and 67% of shares of Kedentransservice. handling without providing additional capital investment.

On 23 December 2013 the Group sold KZT 17% of shares of Logistic System JSC Kedentransservice will extend the lease agreements on Dostyk Station’s Management B.V., which owns only 100% of shares of JSC Kedentransservice transshipment locations. (46.9% via Helme’s Operation UK Limited and directly 20.1%). During carrying out of the evaluation of fair value of investment in JSC As a result of linked transactions described above, the Group has lost control Kedentransservice the following key assumptions were used in the income over Logistic System Management B.V., Helme’s Operation UK Limited and JSC approach: Kedentransservice and its ownership in these companies accounted for 50%. As the result of losing control over JSC Kedentransservice the Group recognised »»The growth rate of gross domestic product in Europe was used as income in the amount of RUB 757m in the consolidated profit and loss. Dostyk Station’s volume growth rates and growth rate of gross domestic product in Kazakhstan was used as terminal activity’s growth rates.

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»»Since the revenue from transshipment at Dostyk Station was formed from 23 December 2013 to 31 December 2018. The discount rate was in Swiss francs, the prices were forecasted under growth rate calculated as weighted average cost of capital (RWACC). of producer price index (PPI) for Switzerland. »»Prices on cargo handling at the terminals were forecasted under PPI Summarised financial information of each associate and joint venture is as in Kazakhstan. follows as at 31 December 2014 and 31 December 2013: »»The fixed discount rate of 18.1% was used for the all forecast period

JOINT VENTURE TOTAL ASSOCIATES AND JSC KEDENTRANSSERVICE OTHER JOINT VENTURES ASSOCIATES JOINT VENTURES 2014 2013 2014 2013 2014 2013 2014 2013 Current assets 1,526 1,078 243 185 567 210 2,336 1,473 Non-current assets 6,171 4,022 9 7 7 6 6,187 4,035 Current liabilities 1,203 544 92 92 488 163 1,783 799 Non-current liabilities 887 635 - - 1 - 888 635 Net assets 5,607 3,921 160 100 85 53 5,852 4,074 Revenue 9,282 - 137 178 996 909 10,415 1,087 Profit/(loss) 326 - 2 4 3 (2) 331 2

The reconciling difference between the above amounts and the carrying amount of the investments in associates and joint ventures is elimination of the ownership interest held by the other investors and goodwill arising on acquisition of associates and joint ventures.

ADDITIONAL FINANCIAL INFORMATION OF JOINT VENTURE JSC KEDENTRANSSERVICE IS AS FOLLOWS:

2014 2013 Cash and cash equivalents 347 253 Current financial liabilities (excluding trade and other payables and provisions) 50 7 Non-current financial liabilities (excluding trade and other payables and provisions) 220 -

The following table provides information about JSC Kedentransservice that comprehensive income and cash flows of the subsidiary presented until had non-controlling interest that was material to the Group. Information the date when control was lost. for the year ended 31 December 2013 concerning revenue, profit,

2014 2013 Proportion of non-controlling interest - 33% Profit attributable to non-controlling interest - 109 Dividends paid to non-controlling interest - 50 Revenue - 6,613 Profit - 329 Cash flows - (19)

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10. TRADE AND OTHER RECEIVABLES

OUTSTANDING PROVISION FOR OUTSTANDING BALANCE, GROSS IMPAIRMENT BALANCE, NET 31 DECEMBER 2014 Trade receivables 1,650 (239) 1,411 Other receivables 142 (11) 131 TOTAL TRADE AND OTHER RECEIVABLES, CLASSIFIED AS FINANCIAL ASSETS 1,792 (250) 1,542

OUTSTANDING PROVISION FOR OUTSTANDING BALANCE, GROSS IMPAIRMENT BALANCE, NET 31 DECEMBER 2013 Trade receivables 1,365 (162) 1,203 Other receivables 427 (9) 418 TOTAL TRADE AND OTHER RECEIVABLES, CLASSIFIED AS FINANCIAL ASSETS 1,792 (171) 1,621

Included in the Group’s total trade and other receivables are debtors with of long-term accounts receivable of OJSC RZD Logistics amounted to a carrying amount of RUB 322m and RUB 231m as at 31 December 2014 RUB 313m (RUB 364m as at 31 December 2013). As at 31 December and 31 December 2013, respectively, whichare past due at the respective 2014 a part of trade receivables of OJSC RZD Logistics in the amount reporting date and which the Group considers to be not impaired. of RUB 119m (RUB 207m as at 31 December 2013), was recognised as a The Group does not hold any collateral over these outstanding balances. part of short-term trade receivables.

Long-term receivables are represented mainly by accounts receivable As at 31 December 2014 long-term accounts receivable of OJSC RZD of OJSC RZD Logistics, which is expected to be fully repaid till December Logistics under the contract of purchase of Far East Land Bridge Ltd. 2018. A discount rate of 8.6% has been used for the receivables’ shares accounted for RUB 40m (RUB 0m as at 31 December 2013). present value determination. As at 31 December 2014 the present value

ANALYSIS BY CREDIT QUALITY OF TRADE AND OTHER RECEIVABLES IS AS FOLLOWS: 31 DECEMBER 2014 31 DECEMBER 2013 TRADE RECEIVABLES OTHER RECEIVABLES TRADE RECEIVABLES OTHER RECEIVABLES Neither past due nor impaired 1,137 83 1,025 365 TOTAL NEITHER PAST DUE NOR IMPAIRED 1,137 83 1,025 365 Past due but not impaired - less than 90 days 240 12 113 18 - 90-180 days 11 18 37 13 - more than 180 days 23 18 28 22 TOTAL PAST DUE BUT NOT IMPAIRED 274 48 178 53 Individually determined to be impaired - less than 90 days 65 - 3 7 - 90-180 days 22 - 5 - - more than 180 days 152 11 155 2 TOTAL INDIVIDUALLY IMPAIRED 239 11 162 9 LESS IMPAIRMENT PROVISION (239) (11) (162) (9) TOTAL 1,411 131 1,203 418

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MOVEMENT IN THE IMPAIRMENT PROVISION FOR TRADE AND OTHER RECEIVABLES AND PREPAYMENTS IS AS FOLLOWS: 2014 2013 BALANCE AT BEGINNING OF THE YEAR (259) (184) Additional provision, recognised in the current year (31) (201) Release of provision 9 7 Utilisation of provision 23 17 Disposal of controlling interest in subsidiary - 104 Foreign currency translation (78) (2)

BALANCE AT END OF THE YEAR (336) (259)

As at 31 December 2014 and 31 December 2013 provision for impairment advances to suppliers (RUB 43m and RUB 40m, respectively, Note 11), of accounts receivable was recognised in respect of trade and other advances for acquisition of non-current assets (RUB 43m and RUB 48m, receivables balances (RUB 250m and RUB 171m, respectively), respectively, Note 7).

11. PREPAYMENTS AND OTHER CURRENT ASSETS

2014 2013 VAT receivable 1,428 1,674 Advances to suppliers 1,383 1,633 Other current assets 147 128 TOTAL PREPAYMENTS AND OTHER CURRENT ASSETS 2,958 3,435

12. CASH

2014 2013 Cash and Russian Rouble denominated current accounts with banks 392 742 Foreign currency denominated current accounts with banks 1,512 1,141 TOTAL CASH 1,904 1,883

THE CREDIT QUALITY OF CASH BALANCES MAY BE SUMMARISED BASED ON STANDARD AND POOR’S LONG-TERM RATINGS AS FOLLOWS AS AT 31 DECEMBER 2014 AND 31 DECEMBER 2013:

- A- to A+ rated 136 65 - BBB to A- rated 1,763 1,814 - Lower than BBB rated 1 1 - Unrated 4 3 TOTAL 1,904 1,883

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13. EQUITY

Share Capital

THE COMPANY’S AUTHORISED, ISSUED AND PAID SHARE CAPITAL AS AT 31 DECEMBER 2014 AND 31 DECEMBER 2013 COMPRISES: NUMBER OF ORDINARY SHARES VALUE Ordinary shares (par value: RUB 1,000) 13,894,778 13,895

As at 31 December 2013 RZD was the controlling shareholder Retained Earnings, Dividends of the Company, holding 50%+2 of its ordinary shares. In accordance with the Russian legislation, dividends may only be declared from the Company’s accumulated undistributed and unreserved earnings On 24 November 2014 Russian Railways transferred its full shareholding as shown in the Company’s statutory financial statements, which are of 50%+2 shares in the Company to the share capital of the JSC United prepared in accordance with Russian Accounting Rules and Reporting of Transportation and Logistics Company (JSC “UTLC”), a newly created subsidiary of OJSC RZD. As a result JSC UTLC became the parent the Russian Federation. The Company had RUB 17,499m and company of PJSC TransContainer. As at 31 December 2014 ownership RUB 14,678m of undistributed and unreserved earnings as of JSC UTLK in the Company accounts for 50%+2 shares. at 31 December 2014 and 31 December 2013, respectively.

During the year ended 31 December 2014 the weighted average number Dividends of RUB 81.47 per share (RUB 1,117m in total) were approved of outstanding ordinary shares, excluding treasury shares and including at the annual shareholders’ meeting on 24 June 2014 relating to the number of shares acquired in accordance with the option plan the Group’s results for the year ended 31 December 2013. In July 2014 amounted to 13,696,127 shares (13,896,193 during the year ended the dividends have been fully paid. 31 December 2013). Dividends of RUB 86.67 per share (RUB 1,187m in total) were approved Treasury shares at the annual shareholders’ meeting on 26 June 2013 relating to In relation to the Share Option Plan for the Company’s management the Group’s results for the year ended 31 December 2012. In August 2013 (Note 17), the Group purchased 208,421 treasury shares in 2011. Their the dividends have been fully paid. purchase cost was RUB 514m. During the year ended 31 December 2013 exercised options amounted to RUB 6m. During the year ended Dividends of KZT 561.31 per share were approved at the annual 31 December 2014 the Group acquired treasury shares in the amount shareholders’ meeting of JSC Kedentransservice on 27 June 2013 relating of RUB 9m. to the results for the year ended 31 December 2012.

Other Reserves, including investment property’s revaluation Dividends for the total amount of KZT 233m (RUB 50m at the Central reserve Bank of Russia exchange rate as at 27 June 2013) were accrued to As discussed in Note 1, the Company was formed as a result of a spin- the shareholder of JSC Kedentransservice JSC National Company off by RZD which involved the contribution by RZD of containers, flatcars, “Kazakh Temir Zholy». In June 2014 the dividends have been fully paid. buildings and constructions, VAT receivable related to these assets, and cash, in exchange for ordinary shares of the Company. Reserve Fund According to its charter, the Company is required to establish a legal reserve The difference between the fair value of net assets contributed and fund through the allocation of 5 percent of net profit as computed under the nominal value of the shares issued by the Company, as well as the Russian Accounting Rules. The total amount of the reserve fund is limited differences arising from transactions with shareholders, of RUB 2,221m to 5 percent of the nominal registered amount of the Company’s issued share were recorded as other reserves as at 31 December 2012. capital. The reserve fund may only be used to offset losses of the Company as well as to redeem issued bonds or purchase treasury shares and cannot be Due to the transfer of the part of property, plant and equipment to distributed to shareholders. As at 31 December 2014 and 31 December 2013 the investment property during the year ended 31 December 2014 the Company’s reserve fund was RUB 697m. the investment property’s revaluation reserve was recognised for the amount of RUB 9m (RUB 56m during the year ended 31 December 2013).

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14. LONG-TERM DEBT

EFFECTIVE INTEREST RATE 2014 2013 Bonds 8.35-8.8% 4,990 5,724 Other borrowings 9.5% 468 470 TOTAL 5,458 6,194

The amount of accrued interest as at 31 December 2014 was RUB 5m Long-term borrowings of the Group are denominated (RUB 18m as at 31 December 2013), and was included as current portion in Russian Rubles. of long-term debtt in the consolidated statement of financial position. During the year ended 31 December 2011 the Group obtained borrowed funds from LLC TrustUnion Asset Management for the amount of RUB Five-year RUB bonds, series 4 514m to finance the acquisition of ordinary shares in PJSC TransContainer On 1 February 2013, the Company issued non-convertible five-year bonds in order to carry out a Share Option Plan for the Company’s management for a total amount of RUB 5,000m at a par value of RUB 1,000 each. (Note 17). The loan matures in five years. As at 31 December 2014 Net proceeds from the issuance after deduction of related offering costs the amount of loan was RUB 468m (RUB 470m as at 31 December 2013). amounted to RUB 4,988m. The annual coupon rate of the bonds for five years is 8.35% with interest paid semi-annually. Five-year RUB bonds, series 2 In accordance with the terms of issue the Company made a partial The series 4 bonds will be redeemed in four equal semi-annual installments principal repayment on bonds, series 2 in December 2013, June 2014 and within the fourth and fifth years. As a result, these bonds are classified as December 2014, respectively, for the total amount of RUB 2,250m. long-term borrowings as at the reporting date.

As at 31 December 2014 the carrying value of the bonds amounted to As at 31 December 2014 the carrying value of the bonds amounted to RUB RUB 740m and this amount was included as current portion of long-term 4,990m (RUB 4,988m as at 31 December 2013). The amount of accrued debt in the consolidated statement of financial position. interest is RUB 174m (RUB 175m as at 31 December 2013) and has been included as current portion of long-term debt in the consolidated statement As at 31 December 2013 the carrying value of the bonds amounted to of financial position. The fair value of Company’s bond is disclosed RUB 2,236m. Current portion of long-term bonds was RUB 1,500m as in Note 29. at 31 December 2013 and this amount was included as current portion of long-term debt in the consolidated statement of financial position.

CURRENT PORTION OF LONG-TERM DEBT

EFFECTIVE INTEREST RATE 2014 2013 Current portion of long-term bonds 8.8% 919 1,693 TOTAL 919 1,693

15. FINANCE LEASE OBLIGATIONS

MINIMUM LEASE PAYMENTS PRESENT VALUE OF MINIMUM LEASE PAYMENTS Due within one year 64 69 60 66 Due after one year but not more than five years 463 703 340 485 Less future finance charges (127) (221) - - PRESENT VALUE OF MINIMUM LEASE PAYMENTS 400 551 400 551

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During the year ended 31 December 2012 the Group entered into a in the amount of RUB 185m in advance that resulted in recognition finance lease agreement on the acquisition of non-residential premises of income from early termination of finance lease obligations for a total in a Moscow office building. The lease agreement is for a six-year period amount of RUB 32m in the consolidated profit or loss. with an effective interest rate of 9.65%. In accordance with the lease agreement if the Group does not use the right During the year ended 31 December 2014, the Group bought back part to acquire the leased premises during the lease period or does not entitle of the non-residential premises of the building and redeemed its obligation third parties to use the right to acquire the leased premises, the Group in the amount of RUB 144m in advance that resulted in recognition is obliged to acquire the leased premises for the amount of RUB 349m of income from early termination of finance lease obligations for a total at the end of lease period. amount of RUB 18m in the consolidated profit or loss. All leases are denominated in Russian Roubles. The Group’s obligations During the year ended 31 December 2013, the Group bought back part under finance leases are secured by the lessors’ title to the leased assets. of the non-residential premises of the building and redeemed its obligation

16. EMPLOYEE BENEFIT LIABILITY

The employees of the Group are members of a state-managed pension provides pensions to the Group’s employees that retired before the defined plan operated by the government of the Russian Federation. The Group benefit plans provided though the Fund Blagosostoyanie were introduced. is required to contribute a specified percentage of payroll costs as part of the contributions to the Pension Fund of the Russian Federation to fund Benefits accrued through Fund Blagosostoyanie are partially funded, whilst the benefits. benefits administered by the Fund Pochet are not funded. In addition, the Group provides other retirement and post employment benefits to The Group also provides supplementary defined benefit and defined its employees, covering compensation for transportation costs on long- contribution retirement benefit plans covering about a quarter substantially distance trains, a one-time bonus on retirement ranging from one to six all of its employees, requiring contributions to be made to a separately monthly salaries, depending on the duration of the service period, a benefit administered non-state pension fund “Blagosostoyanie” (“Fund for dedication to the company and certain other requirements. These Blagosostoyanie”). The not-for-profit fund “Pochet” (“Fund Pochet”) benefits are not funded.

Defined contribution plans

THE TOTAL AMOUNT RECOGNISED AS AN EXPENSE IN RESPECT OF PAYMENTS TO DEFINED CONTRIBUTION PLANS FOR THE YEARS ENDED 31 DECEMBER 2014 AND 31 DECEMBER 2013 CONSISTED OF THE FOLLOWING: 2014 2013 Pension Fund of the Russian Federation 573 553 Defined contribution plan “Blagosostoyanie” 19 18 TOTAL EXPENSE FOR DEFINED CONTRIBUTION PLANS 592 571

Defined benefit plans The most recent actuarial valuation of the defined benefit obligation There were 223 employees as at 31 December 2014 (as at 31 December was carried out as at 31 December 2014 by an independent actuary. 2013: 274) eligible for defined benefit pension plan with benefits The present value of the defined benefit obligations, and related current depended on salary and years of service. In addition, there were 83 and service costs and past service cost, were measured using the projected 85 retired employees eligible for the post-retirement benefit program unit credit method. of the Group through Fund Pochet as at 31 December 2014 and 31 December 2013, respectively. Other retirement and post-employment defined benefit plans cover substantially all employees of the Group.

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THE AMOUNTS RECOGNISED IN THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME IN PAYROLL AND RELATED CHARGES FOR THE YEAR ENDED 31 DECEMBER 2014 AND 31 DECEMBER 2013, RESPECTIVELY, IN RESPECT OF THESE DEFINED BENEFIT PLANS ARE AS FOLLOWS: POST-EMPLOYMENT OTHER LONG-TERM BENEFITS BENEFITS TOTAL 2014 2013 2014 2013 2014 2013 Service cost 27 2 115 118 142 120 Net interest on obligation 51 58 14 13 65 71 Remeasurements of the net defined benefit - - 13 9 13 9 NET EXPENSE RECOGNISED IN THE CONSOLIDATED PROFIT OR LOSS 78 60 142 140 220 200

Net income recognised in the other comprehensive income for post- benefit constitute RUB 135m and 113m for the year ended 31 December employment benefits related mainly to remeaseruments of the net defined 2014 and 31 December 2013, respectively.

THE AMOUNTS RECOGNISED IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014 AND 31 DECEMBER 2013, RESPECTIVELY, IN RESPECT OF THESE DEFINED BENEFIT PLANS ARE AS FOLLOWS: POST-EMPLOYMENT BENEFITS OTHER LONG-TERM BENEFITS TOTAL 2014 2013 2014 2013 2014 2013 Present value of defined benefit obligation 670 837 328 321 998 1,158 Fair value of plan assets (61) (62) - - (61) (62) NET EMPLOYEE BENEFIT LIABILITY 609 775 328 321 937 1,096

MOVEMENTS IN THE PRESENT VALUE OF DEFINED BENEFIT OBLIGATION ARE AS FOLLOWS:

POST-EMPLOYMENT OTHER LONG-TERM TOTAL BENEFITS BENEFITS PRESENT VALUE OF DEFINED BENEFIT OBLIGATION AS AT 1 JANUARY 2013 1,013 311 1,324 Service cost: 2 118 120 Current service cost 44 118 162 Past service cost (42) - (42) Interest on the defined benefit liability 62 13 75 Actuarial (gain)/losses: (123) 9 (114) from changes in demographic assumptions 15 - 15 from changes in financial assumptions (54) (13) (67) other (84) 22 (62) Losses arising on transfer of employees1 3 - 3 Settlement of liability (120) (130) (250) PRESENT VALUE OF DEFINED BENEFIT OBLIGATION AS AT 31 DECEMBER 2013 837 321 1,158 Service cost: 28 115 143 Current service cost 36 121 157 Past service cost (9) (6) (15) Interest on the defined benefit liability 56 14 70 Actuarial (gain)/losses: (136) 13 (123) from changes in financial assumptions (196) 2 (194) other 60 11 71 Losses arising on transfer of employees1 1 - 1 Settlement of liability (116) (135) (251) PRESENT VALUE OF DEFINED BENEFIT OBLIGATION AS AT 31 DECEMBER 2014 670 328 998

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MOVEMENTS IN THE FAIR VALUE OF DEFINED BENEFIT PENSION PLAN ASSETS ARE AS FOLLOWS:

2014 2013 FAIR VALUE OF PLAN ASSETS AS AT 1 JANUARY (62) (58)

Income on plan assets: (3) (3) interest on the plan assets (5) (4) the return on plan assets, excluding amounts included in net interest on the net defined benefit liability 2 1 Assets arising on transfer of employees1 1 – Contributions from the employer (funded plans) (80) (76) Settlement of liability (funded plans) 83 75 FAIR VALUE OF PLAN ASSETS AS AT 31 DECEMBER (61) (62)

THE MAJOR CATEGORIES OF PLAN ASSETS ADMINISTERED BY FUND BLAGOSOSTOYANIE AS A PERCENTAGE OF THE FAIR VALUE OF TOTAL PLAN ASSETS AS AT THE BALANCE SHEET DATE WERE AS FOLLOWS: SHARE IN TOTAL PLAN ASSETS 2014 2013 Corporate bonds and stock of Russian legal entities 53% 57% Shares in closed investment funds 22% 26% Bank deposits 16% 14%

Other 9% 3% 100% 100%

Most benefits to employees and retired employees depend on wage Plan assets under the supplementary defined benefit pension plan are growth and rising consumer prices. Besides inflation risk, post-employment subject to investment risks. To reduce the risks in accordance with local benefits are also subject to demographic risk due to the dependence laws Fund Blagosostoyanie places the assets in a diversified portfolio with a of payment duration to changes in life expectancy of retired employees. statutory structure. Since retirement of a participant Fund Blagosostoyanie carries out all the risks of the plan with respect to this participant.

THE PRINCIPAL ASSUMPTIONS USED FOR THE PURPOSES OF THE ACTUARIAL VALUATIONS WERE AS FOLLOWS:

2014 2013

Discount rate 13.0% 7.8% Average rate of employee turnover Based on the industry average Based on the industry average Projected average annual growth of consumer prices 6.7% 5.0% Russia, 2013, with probability corrected Russia, 2012, with probability corrected Life expectancy table to 90% of the initial level to 83% of the initial level

As at 31 December 2014 the Group assumed that wage growth in 2015 The change in the discount rate in general resulted in the recognition of an will be 5% in average and in subsequent periods the growth of salary and actuarial gains for the current period. benefits will be in line with the growth of consumer prices

1 The losses arising from transfer of employees represent the transfer of obligations on post-retirement benefits, which originated from the movement of employees from, as well as back to, the parent company. Net losses are the difference between the losses arising from transfer of employees and the assets arising from transfer of employees.

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RESULTS OF SENSITIVITY ANALYSIS OF DEFINED BENEFIT OBLIGATION AT 31 DECEMBER 2014 AND 31 DECEMBER 2013: CHANGE IN ASSUMPTION CHANGE IN LIABILITIES 2014 2013 -1% 36 65 Discount rate +1% (32) (56) -1% 14 23 Rate of employee turnover +1% (14) (22) -1% (39) (66) Projected average growth of benefits and +1% 44 74 -1 year (1) (3) Average life expectancy after retirement +1 year 1 3

Weighted average duration of the defined benefit obligation is 4.4 years (2013: 6.2 years).

THE MATURITY PROFILE OF THE DEFINED BENEFIT OBLIGATION AS AT 31 DECEMBER 2014:

BEFORE YEAR 1 TO 2 YEARS 2 TO 5 YEARS Post-employment benefits 98 92 266 Other long-term benefits 126 112 143 224 204 409

17. EMPLOYEE SHARE OPTION PLAN

In October 2010, the Board of Directors approved a Share Option Plan participants may be entitled to sell the shares acquired through Plan for the Company’s management (the “Plan”). In general, 1.5% exercise of options to the Group by market price. Options related to of the Company’s outstanding ordinary shares may be allocated under the shares repurchased under the Plan from participants and shares this Plan, which has been in effect since 20 May 2011. Management in respect of which the participants forfeited their right to purchase, could participation in the Plan and the number of shares in individual manager’s be granted to other or new Plan participants. share option agreements are determined by the Board of Directors. Active Participants of the Plan will have up until June 2016 to exercise their The Plan provides for granting share options to the members share options. of the Group’s management (the “Plan Participants”). The options are to be vested in four annual installments at the end of each of four next years after In relation to the Plan, at the date of its recognition the Group had June 2011. Each Plan Participant obtains the right to a certain quantity purchased 208,421 treasury shares. Their purchase cost was RUB 514m. of share options for each year of service with the Company. The shares were purchased by LLC TransContainer Finance.

Under certain circumstanses, including breach of specific labour On 13 May 2014 the Board of Directors amended the list of Plan agreement provisions, Plan Participants can forfeit their right to purchase Participants and the number of share options for some Plan Participants. shares. These changes are disclosed as granted and cancelled options.

Ordinary shares wiil be allocated from treasury shares purchased by the Group for this purpose on the open market by a special-purpose entity, LLC ТransContainer Finance, which is fully controlled by the Group.

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THE FOLLOWING NUMBER OF SHARE OPTIONS IS OUTSTANDING:

2014 2013 OPTIONS OUTSTANDING AT 1 JANUARY 165,177 171,873 Options granted during the year 11,708 - Options exercised during the year - (6,696) Options cancelled during the year (1,953) -

OPTIONS OUTSTANDING AT 31 DECEMBER 174,932 165,177

The fair value of services received in return for share options granted to employees is measured by reference to the fair value of share options granted. The Black-Scholes-Merton model is used to estimate the fair value of the share option granted.

OPTIONS GRANTED AS AT 13 MAY 2014 OPTIONS GRANTED AS AT 20 MAY 2011 Share price (in Russian Roubles) 2,878 3,116 Exercise price (in Russian Roubles) (including expenses related to implementation of the Plan) 2,367-2,853 2,464-3,145 Expected volatility 47% 37% Option life 1-2 years 1-5 years Risk-free interest rate 7.9%-8.4% 4.6%-7.4%

FAIR VALUE AT MEASUREMENT DATE (IN RUSSIAN ROUBLES) 845-938 1,308-1,462

The measure of volatility used in the Black-Scholes-Merton model is During the year ended 31 December 2014, the Group recognised the annualised standard deviation of the continuously compounded rates expenses of RUB 19m related to the options. These expenses were of return on the share over a period of time. Volatility has been determined included into payroll. on the basis of the historical volatility of the share price over the last six months before grant date. During the year ended 31 December 2014 no options were exercised.

MOVEMENTS IN THE RESERVE HELD FOR SHARE-BASED OPTION PLAN DURING THE YEAR:

2014 2013 RESERVE AS AT 1 JANUARY 221 188 Expense recognised for the period 19 41 Exercised options under option plan - (8)

RESERVE AS AT 31 DECEMBER 240 221

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18. TRADE AND OTHER PAYABLES

2014 2013 Trade payables 662 505 Amounts payable for the acquisition of property, plant and equipment 34 90 Amounts payable for the intangible assets 17 - TOTAL FINANCIAL LIABILITIES WITHIN TRADE AND OTHER PAYABLE 713 595 Liabilities to customers (advances) 2,371 2,621 TOTAL TRADE AND OTHER PAYABLES 3,084 3,216

19. TAXES OTHER THAN INCOME TAX PAYABLE

2014 2013 Social insurance contribution 197 171 Property tax 127 148 VAT 42 22 Personal income tax 29 26 Other taxes 6 5

TOTAL TAXES OTHER THAN INCOME TAX PAYABLE 401 372

20. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

2014 2013 Settlements with employees 812 740 Other liabilities (financial liabilities) 100 94

TOTAL ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES 912 834

Settlements with employees as at 31 December 2014 and 31 December 580m, respectively, and accruals for unused vacation of RUB 184m and 2013 comprised accrued salaries and bonuses of RUB 628m and RUB RUB 160m, respectively.

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21. SEGMENT INFORMATION

The Company’s General Director is its chief operating decision-maker. performance and allocate resources, is prepared on a consolidated basis as The Group’s business activities are interdependent in providing customers a single reportable segment. The Group’s internal management reports are with rail-based container shipping and other logistics services. As such, prepared on the same basis as these consolidated financial statements. the Group’s internal reporting, as reviewed by the General Director to assess

ANALYSIS OF REVENUE BY CATEGORY 2014 2013

Integrated freight forwarding and logistics services 27,379 24,273 Rail-based container shipping services 5,405 8,154 Terminal services and agency fees 2,167 4,181 Truck deliveries 978 1,367 Other freight forwarding services 283 571 Bonded warehousing services 234 317 Other 119 301

TOTAL REVENUE 36,565 39,164

ANALYSIS OF REVENUE BY LOCATION OF CUSTOMERS 2014 2013 REVENUE FROM EXTERNAL CUSTOMERS Russia 28,785 28,598 Korea 3,633 1,829 Germany 1,716 1,367 Kazakhstan 898 5,465 Latvia 493 154 China 396 550 Cyprus 105 193 Switzerland 105 99 Other 434 909 TOTAL REVENUE 36,565 39,164

During the year 31 December 2014, UNICO LOGISTICS CO. LTD accounted During the year 31 December 2014, OJSC RZD and its subsidiaries accounted for RUB 3,259m or 9% of the Group’s total revenue (for the year ended for RUB 2,692m or 7% of the Group’s total revenue (for the year ended 31 December 2013: RUB 1,374m or 4% of the Group’s total revenue). 31 December 2013: RUB 2,683m or 7% of the Group’s total revenue).

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22. OTHER OPERATING INCOME

2014 2013 Income from the sale and disposal of property, plant and equipment 347 166 Income from the sale of inventory and from the reuse of spare parts 212 370 Refund of VAT on the sale of services by applying the tax rate 0% - 100 Other operating income 156 111 TOTAL OPERATING INCOME 715 747

23. OPERATING EXPENSES

2014 2013 Cost of integrated freight forwarding and logistics services 16,027 13,836 Freight and transportation services 4,979 4,315 Payroll and related charges 4,609 5,048 Depreciation and amortisation 2,461 1,943 Materials, repair and maintenance 2,419 2,985 Taxes other than income tax 631 724 Rent 443 1,869 Consulting and information services 212 243 Security 206 288 Charity 195 130 Fuel costs 172 211 License and software 107 131 Change in provision for impairment of property, plant and equipment 89 123 Communication costs 68 88 Change in provision for impairment of receivables 22 194 Other expenses 557 731 TOTAL OPERATING EXPENSES 33,197 32,859

24. INTEREST EXPENSE

2014 2013 Interest expense on RUB bonds 555 614 Interest expense on finance lease obligations 48 61 Interest expense on bank loans and borrowings 45 65 Discounting of accounts receivables - 42 TOTAL INTEREST EXPENSE 648 782

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25. INCOME TAX

2014 2013 Current income tax charge (1,077) (1,317) Deferred income tax benefit/ (expense) 28 (58) INCOME TAX (1,049) (1,375)

The statutory tax rate effective in the Russian Federation was 20% for the years ended 31 December 2014 and 31 December 2013.

PROFIT BEFORE INCOME TAX FOR FINANCIAL REPORTING PURPOSES IS RECONCILED TO INCOME TAX EXPENSE FOR AS FOLLOWS: 2014 2013 PROFIT BEFORE INCOME TAX 4,707 7,349 Theoretical tax charge at statutory rate of 20% (941) (1,470) TAX EFFECT OF ITEMS WHICH ARE NOT DEDUCTIBLE OR ASSESSABLE FOR TAXATION PURPOSES: Benefits in-kind and other non-deductible payments to employees (19) (39) Non-deductible post-employment benefits (11) (12) Non-deductible charitable donations (39) (24) Income tax adjustments for prior periods - 50 Disposal of controlling interest in subsidiary - 155 Other non-deductible expenses (39) (35) INCOME TAX (1,049) (1,375)

TOTAL ACCUMULATED TEMPORARY DIFFERENCES THAT ARISE BETWEEN THE RUSSIAN STATUTORY TAX BASE OF ASSETS AND LIABILITIES AND THEIR CARRYING AMOUNTS IN THE ACCOMPANYING CONSOLIDATED STATEMENTS OF FINANCIAL POSITION GIVE RISE TO THE FOLLOWING DEFERRED TAX EFFECTS: 1 JANUARY 2014 CHARGED TO PROFIT CHARGED TO OTHER 31 DECEMBER 2014 OR LOSS COMPREHENSIVE INCOME Investment property 15 - 2 17 Loans and borrowings 4 - - 4 Intangible assets (3) 1 - (2) Finance lease obligations (110) 30 - (80) Property, plant and equipment 1,914 (43) - 1,871 Employee benefits liability (117) 9 (5) (113) Trade and other receivables (78) 4 - (74) Trade and other payables (153) (46) - (199) Other (27) 17 - (10) TOTAL NET DEFERRED TAX LIABILITY 1,445 (28) (3) 1,414

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CHARGED DISPOSAL OF 1 JANUARY CHARGED TO OTHER CONTROLLING FOREIGN 2013 TO PROFIT COMPREHENSIVE INTEREST CURRENCY 31 DECEMBER OR LOSS INCOME IN SUBSIDIARY TRANSLATION 2013 Investment property - 1 14 - - 15 Loans and borrowings 4 - - - - 4 Intangible assets 105 (19) - (94) 5 (3) Finance lease obligations (150) 40 - - - (110) Property, plant and equipment 2,100 99 - (302) 17 1,914 Employee benefits liability (140) 17 6 - - (117) Trade and other receivables (45) (51) - 19 (1) (78) Trade and other payables (143) (16) - 6 - (153) Other (31) (14) - 18 - (27) TOTAL NET DEFERRED TAX LIABILITY 1,700 57 20 (353) 21 1,445 TOTAL NET DEFERRED ASSETS LIABILITY (1) 1 - - - -

The Group did not recognise a deferred tax liability concerning temporary in respect of all associates and joint ventures because any sale would occur differences of RUB 413m (2013: RUB 113m) in respect of investments in a tax free jurisdiction. in subsidiaries as the Group is able to control the timing of the reversal of these temporary differences and does not intend to reverse them In the context of the Group’s current structure, tax losses and current tax in the foreseeable future. assets of different group companies may not be offset against current tax liabilities and taxable profits of other group companies and, accordingly, taxes Management has performed an analysis of the dividend policies at the Group’s may accrue even where there is a consolidated tax loss. Therefore, deferred associates and joint ventures with regards to the Group’s potential deferred tax assets and liabilities are offset only when they relate to the same taxable tax liabilities where the Group does not control reversal of the temporary entity and there is a legally enforceable right to offset current tax assets against difference or expects the reversal to occur in the foreseeable future. For all current tax liabilities. associates and joint ventures, management expects that the carrying value of the investments would be recovered primarily through a sale and partially Management estimates that deferred tax liabilities of RUB 1,567m through dividends. No deferred taxes related to a future sale are recognised (31 December 2013: RUB 1,692m) are recoverable after more than twelve months after the end of the reporting period.

26. BALANCES AND TRANSACTIONS WITH RELATED PARTIES

In accordance with IAS 24 “Related party disclosures”, parties are considered Related parties may enter into transactions which unrelated parties might not, to be related if they are under common control or if one party has the ability to and transactions between related parties may not be effected on the same control the other party or can exercise significant influence or joint control over terms, conditions and amounts as transactions between unrelated parties. the other party in making financial and operational decisions. In considering each possible related-party relationship, attention is directed to the substance of the relationship, not merely the legal form.

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THE NATURE OF THE RELATED-PARTY RELATIONSHIPS FOR THOSE RELATED PARTIES WITH WHICH THE GROUP HAS ENTERED INTO SIGNIFICANT TRANSACTIONS, OR HAD SIGNIFICANT BALANCES OUTSTANDING AS AT 31 DECEMBER 2014, ARE DISCLOSED BELOW: RELATED PARTY NATURE OF RELATIONSHIP OJSC Russian Railways Ultimate controlling company JSC UTLC (Note 13) Parent company JSC Kedentransservice Joint venture of the Company Oy ContainerTrans ScandinaviaLtd Joint venture of the Company Chinese-Russian Rail-Container International Freight Forwarding (Beijing) Co, Ltd. Joint venture of the Company Trans-Eurasia Logistics GmbH Associate of the Company CJSC Torgovy'y dom TMH Associate of the RZD Far East Land Bridge Ltd. Subsidiary of RZD OJSC Wagon Repair Company - 1 Subsidiary of RZD OJSC Wagon Repair Company - 2 Subsidiary of RZD OJSC Wagon Repair Company - 3 Subsidiary of RZD OJSC RZD Logistics Subsidiary of RZD OJSC Bank VTB State-controlled entity Fund Blagosostoyanie Post-employment benefit plan for Company employees FAR-EASTERN SHIPPING COMPANY PLC. Significant shareholder

OJSC Russian Railways Parent company JSC Kedentransservice Joint venture of the Company Oy ContainerTrans ScandinaviaLtd Joint venture of the Company Chinese-Russian Rail-Container International Freight Forwarding (Beijing) Co, Ltd. Joint venture of the Company Trans-Eurasia Logistics GmbH Associate of the Company Far East Land Bridge Ltd. Associate of the RZD CJSC Torgovy'y dom TMH Associate of the RZD JSC Wagon Repair Company - 1 Subsidiary of RZD JSC Wagon Repair Company - 2 Subsidiary of RZD JSC Wagon Repair Company - 3 Subsidiary of RZD OJSC RZD Logistics Subsidiary of RZD OJSC Bank VTB State-controlled entity Fund Blagosostoyanie Post-employment benefit plan for Company employees FAR-EASTERN SHIPPING COMPANY PLC. Significant shareholder

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The Group’s ultimate controlling party is the Russian Federation Relationships with RZD, its subsidiaries, joint ventures and Government and, therefore, all companies controlled by the Russian associates Federation Government are also treated as related parties of the Group for The Group carries out various transactions with RZD, which is the sole the purposes of these consolidated financial statements. owner and provider of railroad infrastructure and locomotive services in Russia. Furthermore, RZD owns the vast majority of rail-car repair As a part of its ordinary course of business, the Group enters into various facilities in Russia, which the Group uses to maintain its rolling stock transactions and has outstanding balances with state-controlled entities in operating condition. and governmental bodies, which are shown as “Other related parties” in the tables below. The Group also enters in transactions with government Under current Russian regulations, only RZD can perform certain entities for equisition of goods and providing services like electricity, taxes functions associated with arranging the container transportation and post services. These transactions are conducted on commercial process. As the assets required for performing such functions were terms. The majority of related-party transactions are with OJSC Russian transferred to the Company, RZD engaged the Company to act as its Railways, its subsidiaries, joint ventures and associates (shown as “Other agent in the performance of these functions. Company’s revenues RZD group entites” in the table below), and OJSC Bank VTB, which are also generated from such transactions with RZD is reported as agency fees state-controlled. OJSC Bank VTB provides settlement and cash servicing in the consolidated profit or loss. of Company’s bank accounts and carries out depository operations for free funds placement. Services are provided on market terms.

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TRANSACTIONS AND OUTSTANDING BALANCES WITH RELATED PARTIES AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2014 ARE SHOWN BELOW: ULTIMATE OTHER RZD GROUP’S GROUP’S JOINT OTHER RELATED TOTAL CONTROLLING GROUP ENTITIES ASSOCIATES VENTURES PARTIES COMPANY (RZD) REVENUE Rail-based container shipping services 131 37 4 88 62 322 Terminal services and agency fees 1,679 6 - - 5 1,690 Integrated freight forwarding and logistics services 3 846 156 328 206 1,539 Other services 19 16 4 3 18 60 1,832 905 164 419 291 3,611 Interest income on deposits - - - - 90 90 Other interest income - - - - 6 6 Other operating income 104 88 - 2 2 196 104 88 - 2 98 292 TOTAL INCOME 1,936 993 164 421 389 3,903 OPERATING EXPENSES Freight and transportation services 3,218 1 - 651 14 3,884 Third-party charges relating to integrated freight forwarding and logistics services 12,258 2 23 1,524 73 13,880 Repair services 346 883 - - 3 1,232 Rent of property and equipment 30 1 - - 3 34 Other expenses 93 122 1 2 104 322 TOTAL EXPENSES 15,945 1,009 24 2,177 197 19,352 Purchases of property, plant and equipment 29 861 - - 64 954 Purchases of inventory - 6 - - - 6 Contributions to non-state pension funds - - - 111 111 TOTAL OTHER TRANSACTIONS 29 867 - - 175 1,071

As at 31 December 2014 provision for impairment of accounts receivable of Far East Land Bridge Ltd., subsidiary of RZD, was recognised in respect of trade receivables balance in the amount of RUB 175m.

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TRANSACTIONS AND OUTSTANDING BALANCES WITH RELATED PARTIES AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2013 ARE SHOWN BELOW: PARENT OTHER RZD GROUP’S GROUP’S JOINT OTHER TOTAL COMPANY GROUP ASSOCIATES VENTURES RELATED (RZD) ENTITIES PARTIES ASSETS NON-CURRENT ASSETS Trade receivables - 364 - - - 364 Current assets Cash and cash equivalents - - - - 1,811 1,811 Trade receivables 228 400 21 85 2 736 Other receivables 65 94 - 2 96 257 Advances to suppliers 1,475 59 2 - 1 1,537 1,768 553 23 87 1,910 4,341 TOTAL ASSETS 1,768 917 23 87 1,910 4,705 LIABILITIES Current liabilities Trade payables 12 5 1 156 9 183 Liabilities to customers 2 28 1 8 69 108 Other payables - - - - 73 73 TOTAL LIABILITIES 14 33 2 164 151 364 REVENUE Rail-based container shipping services 143 136 8 31 120 438 Terminal services and agency fees 1,706 11 2 - 15 1,734 Integrated freight forwarding and logistics services 6 698 133 317 137 1,291 Other services 30 67 21 6 35 159 1,885 912 164 354 307 3,622 Interest income on deposits - - - - 180 180 Other interest income - - - - 14 14 Other operating income 140 27 2 - 3 172 140 27 2 - 197 366 TOTAL INCOME 2,025 939 166 354 504 3,988 OPERATING EXPENSES Freight and transportation services 3,113 5 - 5 6 3,129 Third-party charges relating to integrated freight forwarding and logistics services 9,030 4 4 214 34 9,286 Repair services 381 1,059 - - 3 1,443 Rent of property and equipment 39 1 - - 4 44 Other expenses 124 198 - - 182 504 TOTAL EXPENSES 12,687 1,267 4 219 229 14,406 Purchases of property, plant and equipment 6 834 - - 77 917 Contributions to non-state pension funds - - - - 100 100 TOTAL OTHER TRANSACTIONS 6 834 - - 177 1,017

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As at 31 December 2013 provision for impairment of accounts receivable and comprised 20 and 20 persons as at 31 December 2014 and of Far East Land Bridge Ltd., associate of RZD, was recognised in respect 31 December 2013, respectively. Total gross compensation, including of trade receivables balance in the amount of RUB 100m. insurance contributions and before withholding of personal income tax, to key management personnel amounted to RUB 355m (including total The amounts outstanding to and from related parties are unsecured and insurance contributions of RUB 38m) and RUB 280m (including total expected to be settled by cash or supplies of goods or services (in respect insurance contributions of RUB 22m) for the years ended 31 December of advances to suppliers and liabilities to customers) in the normal course 2014 and 31 December 2013, respectively. This compensation is of business. included under payroll and related charges in the consolidated profit and loss and comprises primarily short-term benefits. Major part Dividends of compensation for Key management personnel is generally sort- Dividends payable to RZD and FAR-EASTERN SHIPPING COMPANY PLC. term excluding future payments under pension plans with defined amounted to RUB 566m and RUB 232m, respectively, and were paid benefits. Defined benefit payments to Key management of the Group are in July 2014. calculated based on the same terms as for the other employees.

Dividends payable to RZD and FAR-EASTERN SHIPPING COMPANY PLC. As stated in Note 17, during the year ended 31 December 2014, amounted to RUB 602m and RUB 270m, respectively, and were paid the Group recognised expenses of RUB 19m (41m as at 31 December in August 2013. 2013) related to the Share Option Plan approved by the Board of Directors in October 2010. Expenses related to options provided Compensation of key management personnel to the General Director and his deputies comprised RUB 7m (22m as Key management personnel consist of members of the Company’s at 31 December 2013). Board of Directors, as well as the General Director and his deputies,

27. COMMITMENTS UNDER OPERATING LEASES

As at 31 December 2014, the Group leases container terminal Dobra five years. Additionally, the Group leases the land on which its container in Slovakia. The remaining period of agreements validity is 10 years. terminals are located.

The Group leases certain production buildings and office premises in Russia. The relevant lease agreements have terms varying from one to

FUTURE MINIMUM LEASE PAYMENTS UNDER CONTRACTED OPERATING LEASES, INCLUDING VAT, ARE AS FOLLOWS: 2014 2013 Within one year 362 199 Within two to five years 753 195 After five years 259 221 TOTAL MINIMUM LEASE PAYMENTS 1,374 615

Increase of minimum lease payments under contracted operating leases relates to the conclusion of new lease agreements.

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28. CONTINGENCIES, COMMITMENTS AND OPERATING RISKS

THE GROUP’S CAPITAL COMMITMENTS AS AT 31 DECEMBER 2014 AND 31 DECEMBER 2013 CONSISTED OF THE FOLLOWING, INCLUDING VAT: 2014 2013 Acquisition of containers and flatcars 1,453 961 Acquisition of lifting machines and other equipment 317 234 Construction of container terminal complexes and modernisation of existing assets 5 230 TOTAL CAPITAL COMMITMENTS 1,775 1,425

Operating environment of the Group. The Russian Federation displays their ability to repay the debt due to increase in loan interest rates and certain characteristics of an emerging market. Its economy has a high currency exchange rates. sensitivity to oil, gas and other raw materials prices. The legal, tax and regulatory frameworks continue to develop and therefore are subject to These events may have a further significant impact on the Group’s future changes and varying interpretations. During 2014 the Russian economy was operations and financial position, the effect of which is difficult to predict. negatively impacted by a decline in oil prices and ongoing political tension The future economic and regulatory situation and its impact on the Group’s in the border regions and international sanctions against certain Russian operations may differ from management’s current expectations. companies and individuals. As a result during 2014: Transfer pricing. The Russian transfer pricing legislation is to a large »»there was the weakening of the Russian Rouble against major foreign extent aligned with the international transfer pricing principles developed currencies while the CBRF exchange rate fluctuated between RUB by the Organisation for Economic Cooperation and Development 32.7292 and RUB 56.2584 per USD as at 31 December 2013 and (OECD). This legislation provides the possibility for tax authorities to make 31 December 2014, respectively; transfer pricing adjustments and impose additional tax liabilities in respect »»the CBRF key refinancing interest rate was increased from 5.5% p.a. to of controlled transactions (transactions with related parties and some types 17.0% p.a. including an increase from 12.0% p.a. to 17.0% p.a. on 16 of transactions with unrelated parties), provided that the transaction price December 2014; is not arm’s length. Management has implemented internal controls to be »»the RTS stock exchange index ranged between 1,445 and 791; in compliance with this transfer pricing legislation. »»access to international financial markets to raise funding was limited for certain russian entities; Tax liabilities arising from transactions between companies are determined »»capital outflows from the Russian Federation increased compared to prior years. using actual transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices The financial markets of the Russian Federation continue to be volatile and are could be challenged. The impact of any such challenge cannot be reliably characterised by frequent significant price movements on trading operations estimated; however, it may be significant to the financial position and/or and increased spreads of quotes. Subsequent to 31 December 2014: the overall operations of the Group.

»»the CBRF exchange rate fluctuated between RUB 56.2376 per USD and The Group includes companies incorporated outside of Russia. The tax RUB 69.664 per USD; liabilities of the Group are determined on the assumption that these »»Russia’s credit rating was downgraded by Fitch Ratings in January 2015 to companies are not subject to Russian profits tax, because they do not BBB-, whilst Standard & Poor’s cut it to BB+, putting it below investment have a permanent establishment in Russia. In 2014, the Controlled Foreign grade for the first time in a decade. Moody’s Investors Service and Fitch Company (CFC) legislation introduced Russian taxation of profits of foreign Ratings still have Russia as investment grade. However, these rating companies and non-corporate structures (including trusts) controlled by agencies indicated a negative outlook, meaning further downgrades are Russian tax residents (controlling parties). possible. »»the RTS stock exchange index ranged between 733.11 and 929.73; Starting from 2015, CFC income will be subject to a 20% tax rate. However, »»bank lending activity decreased as banks are reassessing due to the preliminary content analysis of relevant foreign companies’ activities the creditworthiness of their borrowers due to the increase in lending and and the earnings structure the obligation to pay taxes from CFC’s profit to exchange rates; the Russian budget is not revealed. However, due to the preliminary analysis »»the CBRF key refinancing interest rate decreased from 17.0% p.a. to 14.0% p.a. of the relevant foreign companies’ business and the structure of earnings, liability for taxes to the Russian budget out of CFC’s profit is not revealed.

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Due to the fact that the Russian legislation does not consist guidance the current enforcement climate under existing legislation, management on certain issues, the Group occasionally applies such interpretations of believes that there are no significant liabilities for environmental damage. legislation, that decrease the amount of taxes for the Group. At the present time, the Management thinks that its position as regards to taxes as well Legal proceedings. During the year, the Group was involved in a as interpretations applied by the Group may be confirmed, however there number of court proceedings (both as a plaintiff and a defendant) arising is a risk that the Group may bear additional expenses, should the position in the ordinary course of business. In the opinion of management, of the Management as regards to taxes as well as interpretations applied there are no current legal proceedings or other claims outstanding, by the Group be contested by tax authorities. The influence of such which management believes could have a material effect on the result developments may not be reliably estimated, however may be substantial in of operations or financial position of the Group, beyond those already terms of financial position and/or business activity of the Group in general. recognised in these financial statements.

Environmental matters. The enforcement of environmental regulation Insurance. The Group holds no insurance policies in relation to its assets, in the Russian Federation is evolving and the enforcement posture operations, or in respect of public liability or other insurable risks, with of government authorities is continually being reconsidered. The Group the exception of insurance policies that partially cover its vehicles, flatcars and periodically evaluates its obligations under environmental regulations. As buildings, Directors and Officers liability insurance policy and a carrier’s liability obligations are determined, they are recognised immediately. Potential insurance policy. Until the Group obtains adequate insurance coverage, there is liabilities, which might arise as a result of changes in existing regulations, a risk that the loss or destruction of certain assets could have a material adverse civil litigation or legislation, cannot be estimated but could be material. In effect on the Group’s operations and financial position.

29. RISK MANAGEMENT ACTIVITIES

Capital Risk Management The capital structure of the Group consists of issued capital, reserves and The Group manages its capital to ensure the continuous operations of its retained earnings as disclosed in Note 13. companies and also to maximise shareholder income by optimising the debt to equity ratio. The management of the Group reviews the capital structure on a regular basis. As part of this review, management considers the cost of capital and the risks The Group manages its capital to ensure that it will be able to continue as a going associated with each class of capital. concern while maximising the return to the equity holder through the optimisation of the debt and equity balance. The Group’s objectives when managing capital Major Categories of Financial Instruments is to maintain an optimal capital structure to reduce the cost of capital and to The Group’s financial assets include trade and other receivables, cash and provide the shareholders with an acceptable level of return respecting the interests cash equivalents, short-term investments and other non-current assets. All of other stakeholders. In order to maintain or adjust the capital structure, financial assets fall into the loans and receivables category under IAS 39 the Group may adjust the amount of dividends paid to shareholders, return capital “Financial instruments: recognition and measurement”. to shareholders, issue new shares or sell assets to reduce debt. The amount of capital that the Group managed as at 31 December 2014 was RUB 35,245m (as at 31 December 2013: RUB 31,479m).

2014 2013 FINANCIAL ASSETS LOANS AND RECEIVABLES Cash and cash equivalents 1,904 1,883 Trade and other receivables 1,895 1,986 Short-term investments 8 1 Other non-current assets 5 7 TOTAL FINANCIAL ASSETS 3,812 3,877

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The Group’s principal financial liabilities are trade and other payables, finance lease obligations, and debt (which includes bonds and long-term borrowings). All financial liabilities are carried at amortised cost.

2014 2013 FINANCIAL LIABILITIES Trade and other payables 713 595 Other liabilities 100 94 Long-term debt 5,458 6,194 Current portion of long-term debt 919 1,693 Finance lease obligations 400 551 TOTAL FINANCIAL LIABILITIES 7,590 9,127

Liquidity Risk of RUB 1,822m classified as short-term debt in the consolidated statement Liquidity risk is the risk that the Group will not be able to settle all liabilities of financial position as at 31 December 2012 were repaid by the Company as they fall due. The Group’s liquidity position is carefully monitored and which affected current liquidity ratio of the Group. managed by the treasury function. The Group has established budgeting and cash flow planning procedures to ensure it has adequate cash The Group has both interest bearing and non-interest bearing financial available to meet its payment obligations as they fall due. Management liabilities. The interest bearing liabilities consist of finance lease obligations, controls current liquidity based on expected cash flows and expected debt and bond obligations. The non-interest bearing liabilities include trade revenue receipts. In the long-term perspective the liquidity risk is and other payables. determined by forecasting future cash flows at the moment of signing new credit, loan or lease agreements and by budgeting procedures. The following table details the Group’s remaining contractual maturity for In 2014 part of series 2 bonds in the amount of RUB 1,500m classified financial liabilities. The tables have been drawn up based on undiscounted as current portion of long-term debt in the consolidated statement cash flows of financial liabilities, including accrued interest, based on of financial position was repaid by the Company which affected current the earliest date on which the Group can be required to pay or expect to liquidity ratio of the Group. In 2013 loans to OJSC Alfa Bank in the amount make the payment.

EFFECTIVE LESS THAN 1-3 MONTHS 3 MONTHS- 1-5 YEARS TOTAL INTEREST RATE 1 MONTH 1 YEAR 2014 Non-interest bearing liabilities (including trade and other payables and other liabilities) 364 409 40 - 813 Long-term debt 9.5% 4 7 33 485 529 Bonds 8.35% - 8.8% 208 - 783 5,937 6,928 Finance lease liabilities 9.65% 4 9 51 463 527 TOTAL 580 425 907 6,885 8,797 2013 Non-interest bearing liabilities (including trade and other payables and other liabilities) 442 181 66 - 689 Long-term debt 9.5% 4 7 33 532 576 Bonds 8.35% - 8.8% 208 - 1,873 6,928 9,009 Finance lease liabilities 9.65% 6 12 52 703 773 TOTAL 660 200 2,024 8,163 11,047

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Currency Risk During 2014 and 2013 the Group’s financial assets denominated in foreign Currency risk is the risk that the financial results of the Group will be currency have exceeded its foreign currency financial liabilities. adversely impacted by changes in exchange rates to which the Group is exposed. The Group has export revenue, and purchases third party For the year ended 31 December 2014 the Russian Rouble depreciated transportation services, which are denominated in foreign currencies. against the US Dollar by 72%, and against EURO by 52% (depreciated Certain receivable and payable balances, related primarily to settlements against the US Dollar by 8% and against the EURO by 12% for the year with customers, are denominated in currencies other than the Russian ended 31 December 2013). The Group does not have or use any formal Rouble, the functional currency of the Company. arrangements (i.e. derivatives) to manage foreign currency risk exposure.

THE CARRYING AMOUNTS OF THE GROUP’S FOREIGN CURRENCY DENOMINATED MONETARY ASSETS AND LIABILITIES AS AT THE REPORTING DATE ARE AS FOLLOWS: USD EUR OTHER 2014 2013 2014 2013 2014 2013 ASSETS Cash and cash equivalents 1,256 981 247 159 8 1 Trade and other receivables 633 162 56 251 1 1 TOTAL ASSETS 1,889 1,143 303 410 9 2 LIABILITIES Trade and other payables 290 273 33 34 2 2 TOTAL LIABILITIES 290 273 33 34 2 2

The table below provides analysis of sensitivity of Group’s profit and loss and capital to strengthening of the Russian Rouble against the US Dollar and EURO by 30%, all other variables being held constant. The analysis was applied to monetary items at the balance sheet dates denominated in respective currencies.

USD – IMPACT EUR – IMPACT 2014 2013 2014 2013 Total (480) (261) (81) (113)

The weakening of the Russian Rouble in relation to the same currencies The annual coupon rate of the five-year RUB bonds, series 4 issued by the same percentage will produce an equal and opposite effect on on 1 February 2014 was set at 8.35% for five years without any further the consolidated financial statements of the Group to that shown above. changes. The effective interest rate of the bonds, series 4 is 8.4%.

Interest rate risk As at 31 December 2014 and 31 December 2013, loan from LLC Interest rate risk is the risk that movement in interest rates for borrowed TrustUnion Asset Management were recognised by the Group. funds will have an adverse effect on the Group’s financial performance. Management monitors changes in interest rates and takes steps to All bonds and loan were granted at fixed interest rates, therefore the Group mitigate these risks as far as practicable by ensuring the Group has did not have an additional interest risk. financial liabilities with both floating and fixed interest rates, and maintaining an appropriate mix between debt and equity. In 2012, the Group entered into the lease agreement of premises in a Moscow office building for a six-year period. The rent under the agreement As at 31 December 2014 the Group’s borrowed funds consist of long-term includes a fixed fee for the possession and use of leased premises, as debt and current portion of long-term debt (Note 14), long-term debt (Note well as compensation of utility expenses. The effective interest rate under 14) and finance lease liabilities (Note 15). the agreement is 9.65% (Note 15). As these finance lease obligations are financial instruments bearing a fixed interest rate, therefore, they do not The annual coupon rate for RUB bonds, series 2 has been set at 8.8% subject the Group to an additional interest risk. for the entire five-year maturity period of the bonds, with no subsequent changes. The effective interest rate for these bonds is 9.01%.

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Credit risk The carrying amount of accounts receivable, net of provision for impairment Credit risk refers to the risk that counterparty will default on its contractual of receivables (Note 10), and carrying amount of cash and cash equivalents obligations resulting in financial loss to the Group. The Group does not hedge (Note 12) represents the maximum amount exposed to credit risk. its credit risk. Although collection of receivables could be influenced by economic factors, management believes that there is no significant risk of loss to the Group The Group’s exposure to credit risk arises primarily with respect to receivables beyond the provision already recorded. in connection with container shipping activities. The Group’s concentration of credit risk is dependent on a few large key Credit exposure is managed by establishing credit limits for the most significant customers. As at 31 December 2014 83% of the total net amount of trade and customers that are reviewed and approved by management. Deferred payment other receivables related to the seven largest counterparties of the Group (as terms are offered only to the most significant customers of the Group with proven at 31 December 2013: 62%). credit history. Sales to other customers are made on a prepayment basis.

THE LARGEST TRADE AND OTHER RECEIVABLES OUTSTANDING AS AT THE BALANCE SHEET DATE ARE AS FOLLOWS: OUTSTANDING BALANCE, NET 2014 2013 OJSC RZD Logistics 667 638 UNICO LOGISTICS 470 70 RZD 281 294 Rail-Container (Beiging) Go., LTD 69 51 InterRail Services AG 44 - Schenker Rail Automotive GmbH 33 146 LLC Unico Logistics Rus 2 31 TOTAL 1,566 1,230

As at 31 December 2014 and 31 December 2013 no impairment The Group’s management monitors past due balances of receivables and of accounts receivable has been identified for all these customers. provides ageing analysis as disclosed in Note 10. Accounts receivable of OJSC RZD Logistics was discounted in accordance with confirmed schedule for the repayment of debts (Note 10). Credit risk on liquid funds is limited because these funds are placed only with financial institutions well known to the Group. 86% of total cash and cash Financial assets neither past due nor impaired are the primarily receivables equivalents as at 31 December 2014 (as at 31 December 2013: 96%) were from related parties (Note 26) and receivables from other companies held with one bank which is related to the Group. in the transportation and logistics sector. Accounts receivable from related parties are characterised by a high degree of creditworthiness and The Group’s maximum exposure to credit risk by class of assets is reflected the likelihood of recovery. Accounts receivable from other companies have in the carrying amounts of financial assets in the consolidated statement similar rates of credit capacity and analysed on a regular basis by the Group of financial position, described above. for reliability and collectibility.

There is no independent rating for the Group’s customers and therefore the Group considers the credit quality of customers at the contract execution stage. The Group considers their financial position and credit history. The Group monitors the existing receivables on a continuous basis and takes actions regularly to ensure collection and to minimize losses.

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Fair value of assets and liabilities Management uses its judgment to the assessment and classification As at 31 December 2014 the fair value of long-term accounts receivable of financial instruments by category using the fair value measurement of OJSC RZD Logistics accounts for RUB 263m. The calculation is based hierarchy. Fair value of financial assets and liabilities is analysed and on the use of a weighted average interest rate established by the Central distributed by level in the fair value hierarchy as described in Note 3. As Bank of Russia for December 2014 on attracted by credit institutions at the reporting date the Group had financial assets and liabilities classified deposits of non-financial entities in rubles for a period from 1 to 3 years. as Level 1 and Level 3, and also financia liabilities classified as Level 2. The fair value of long-term debt classified as Level 2 in the fair value For financial assets and liabilities not measured at fair value but for measurement hierarchy approximates their carrying value. which fair value is disclosed, management believes that the fair value of the following assets and liabilities approximates their carrying value: Company’s bonds are placed on the Moscow Stock Exchange and quoted trade and other receivables (excluding long-term receivables of OJSC on the market, thus they refer to the Level 1 in the fair value hierarchy. RZD Logistics), other financial assets, trade and other payables. These financial assets and liabilities relate to Level 3 in the fair value hierarchy.

THE FOLLOWING TABLE DETAILS THE FAIR VALUE OF THE COMPANY’S BONDS:

2014 2013 FINANCIAL LIABILITIES Bonds 5,327 7,308 TOTAL 5,327 7,308

Financial assets carried at amortised cost. Liabilities carried at amortised cost. The fair value of floating rate instruments is normally their carrying amount. The fair value of bonds is based on quoted market prices. Fair values The estimated fair value of fixed interest rate instruments is based on of other liabilities were determined using valuation techniques. estimated future cash flows expected to be received discounted at current The estimated fair value of fixed interest rate instruments with stated interest rates for new instruments with similar credit risk and remaining maturity was estimated based on expected cash flows discounted maturity. Discount rates used depend on credit risk of the counterparty. at current interest rates for new instruments with similar credit risk and maturity.

30. SUBSEQUENT EVENTS

Acquisition of containers. In January-March 2015 the Group obtained under the previously signed agreements:

»»338 containers from Yang Zhou Runyang Logistic Equipment Co.,Ltd for the total amount of RUB 52m (at the Central Bank of Russia exchange rate as at the date of purchase), not subject to VAT; »»501 containers from LLC Con-service for the total amount of RUB 81m (plus VAT in the amount of RUB 15m).

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OPINION OF THE REVISION COMMISSION ON THE RESULTS OF AN AUDIT OF THE FINANCIAL AND BUSINESS ACTIVITIES OF PUBLIC JOINT-STOCK COMPANY TRANSCONTAINER FOR 2014

Moscow 13 April 2015

In accordance with Article 85 of the Federal Law “On Joint-Stock Companies” and the work plan for the Revision Commission approved by the resolution of the Revision Commission of TransContainer (hereinafter the Company) (Minutes No. 1 dated 28 August 2014), the Revision Commission as comprised of Chairman O. Ivanov and commission members A. Kostylev, N. Lem, S. Davydov and M. Kalvarskaya conducted a planned audit of financial and business activities for 2014.

The audit took place at the Company’s central office as well as its branches from 16 February to 8 April 2015.

Subject of the audit: the Company’s financial and business activities for 2014.

Sources of information on the Company’s financial and business activities: financial and business documentation, including financial statements, primary accounting documents, bank documents and contracts, among other sources.

The audit was conducted with random sampling of the Company’s accounting data and financial statements.

Based on the audit conducted, the Revision Commission has reasonable grounds to confirm the data contained in the reports and other financial documents, including in the annual report of TransContainer for 2014.

Chairman of the Revision Commission of TransContainer

O.B. Ivanov

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ADDITIONAL INFORMATION

STRUCTURE OF PJSC TRANSCONTAINER PARTICIPATION IN ORGANISATIONS WITH SIGNIFICANT IMPORTANCE FOR THE COMPANY

PJSC TransContainer

Holding company Operating company Share of ownership %

Logistic System LLC TransContainer Finance Logistic Investment SARL Management B.V. 50%

100 % Russia 100 % Luxembourg Netherlands

Helme’s Operation UK Limited

TransContainer- Slovakia, a.s Oy ContainerTrans Scandinavi 100%

Slovakia Finland 100 % 50% JSC Kedentransservice 46.9% 53.1% Kazakhstan TransContainer Asia Pacific Ltd. KOO Rail-Container

100 % South Korea 49% China

LLC Trans-Eurasia TransContainer Europe GmbH Trans-Eurasia Logistics GmbH Logistics Vostok 100%

100 % Austria 20% Germany Russia

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REPORT ON COMPLIANCE WITH THE PRINCIPLES AND RECOMMENDATIONS OF THE CORPORATE GOVERNANCE CODE OF THE BANK OF RUSSIA

EXPLANATION OF KEY REASONS, FACTORS AND BRIEF DESCRIPTION CIRCUMSTANCES WHY THE PRINCIPLE OR KEY OF WHICH PART CRITERIA ARE NOT BEING OBSERVED OR ONLY OF PRINCIPLE OR KEY PARTIALLY OBSERVED AND A DESCRIPTION CRITERIA IS NOT BEING OF THE ALTERNATIVE MECHANISMS AND TOOLS NO. CORPORATE GOVERNANCE PRINCIPLE(S) OR KEY CRITERIA (RECOMMENDATION) OBSERVED OF CORPORATE GOVERNANCE USED 1 2 3 4 I. RIGHTS OF SHAREHOLDERS AND EQUAL CONDITIONS FOR SHAREHOLDERS WHEN EXERCISING THEIR RIGHTS 1.1. THE COMPANY SHALL ENSURE THE EQUITABLE AND FAIR TREATMENT OF ALL SHAREHOLDERS WHEN THEY EXERCISE THEIR RIGHTS TO TAKE PART IN THE COMPANY’S MANAGEMENT. THE CORPORATE GOVERNANCE SYSTEM AND PRACTICE SHALL ENSURE EQUAL CONDITIONS FOR ALL SHAREHOLDERS – OWNERS OF SHARES OF A SINGLE CATEGORY (TYPE), INCLUDING MINORITY SHAREHOLDERS AND FOREIGN SHAREHOLDERS, AND THEIR EQUITABLE TREATMENT BY THE COMPANY. 1.1.1. The company shall approve an internal document that describes the main The internal According to accepted practice at the Company, procedures for preparing, convening and holding a general meeting documents of PJSC the information and materials specified in the Code of shareholders and meets the recommendations of the Corporate Governance TransContainer do not are provided to persons entitled to take part Code, including the company’s duty: envisage an additional in the annual General Meeting of Shareholders. to inform shareholders about a general meeting of shareholders and provide list of information access to materials, including posting a message and materials on the company’s and materials website no less than 30 days prior to the meeting date (unless the legislation on the agenda items of the Russian Federation provides for a longer period); of the General Meeting to disclose information about the compilation date of the list of persons entitled of Shareholders to take part in the general meeting of shareholders no less than 7 days prior to said as required by date; the Code. provide additional information and materials on agenda items for the general meeting of shareholders in accordance with the recommendations of the Corporate Governance Code. 1.1.2. The company shall assume the duties of granting shareholders the opportunity These duties are According to the Corporate Governance Code when preparing for and holding the annual meeting of shareholders to pose not stipulated of OJSC TransContainer as well as accepted questions about the company’s activities to the members of management and in the Charter or practice, the Company invites such people supervisory bodies, members of the audit committee, the chief accountant, the Company’s internal to take part in General Meetings of Shareholders. the company’s auditors as well as candidates for management and supervisory documents. Shareholders have the unimpeded opportunity to ask bodies. These duties shall be stipulated in the charter or the company’s internal questions when preparing for and during the General documents. Meeting of Shareholders. 1.1.3. The company shall assume the duties of adhering to the principle of preventing These duties are PJSC TransContainer adheres to the best global actions that lead to the artificial redistribution of corporate control (for example, not stipulated practices in corporate governance and even though voting with “quasi-treasury” shares, deciding to pay dividends on preferred shares in the Charter or it is not directly specified in its internal documents with limited financial capabilities or deciding to not pay dividends specified the Company’s internal the Company strives to prevent actions that aim in the company charter on preferred shares when there are sufficient sources documents. to artificially redistribute corporate control. to pay them). These duties shall be stipulated in the charter or the company’s internal documents. 1.2 SHAREHOLDERS SHALL BE GRANTED THE EQUAL AND FAIR OPPORTUNITY TO SHARE THE COMPANY’S PROFITS BY RECEIVING DIVIDENDS. 1.2.1. The company shall approve an internal document that describes the company’s Observed. dividend policy, meets the recommendations of the Corporate Governance Code and, among other things, establishes: the procedure used to determine the portion of net profit (for companies that compile consolidated financial reporting – the minimum portion (share) of consolidated net profit) that is to be spent on dividend payments and the conditions that must be met for dividends to be announced; the minimum amount of dividends for different categories (types) of the company’s shares; the duty to disclose the document that describes the company’s dividend policy on the company’s website.

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EXPLANATION OF KEY REASONS, FACTORS AND BRIEF DESCRIPTION CIRCUMSTANCES WHY THE PRINCIPLE OR KEY OF WHICH PART CRITERIA ARE NOT BEING OBSERVED OR ONLY OF PRINCIPLE OR KEY PARTIALLY OBSERVED AND A DESCRIPTION CRITERIA IS NOT BEING OF THE ALTERNATIVE MECHANISMS AND TOOLS NO. CORPORATE GOVERNANCE PRINCIPLE(S) OR KEY CRITERIA (RECOMMENDATION) OBSERVED OF CORPORATE GOVERNANCE USED 1 2 3 4 II. COMPANY’S BOARD OF DIRECTORS 2.1 THE BOARD OF DIRECTORS SHALL IDENTIFY THE MAIN STRATEGIC BENCHMARKS FOR THE COMPANY’S ACTIVITIES IN THE LONG TERM AND THE COMPANY’S KEY PERFORMANCE INDICATORS, HANDLE THE COMPANY’S STRATEGIC MANAGEMENT, DETERMINE THE MAIN PRINCIPLES AND APPROACHES FOR ESTABLISHING A RISK MANAGEMENT AND INTERNAL MONITORING SYSTEM AT THE COMPANY, MONITOR THE ACTIVITIES OF THE COMPANY’S EXECUTIVE BODIES, DETERMINE THE COMPANY’S POLICY FOR REMUNERATION OF MEMBERS OF THE BOARD OF DIRECTORS AND THE EXECUTIVE BODIES AND ALSO PERFORM OTHER KEY FUNCTIONS. 2.1.1. The company shall form a Board of Directors which: Observed. identifies the main strategic benchmarks for the company’s activities in the long term and the company’s key performance indicators; monitors the activities of the company’s executive bodies; determines the principles and approaches for establishing a risk management and internal monitoring system at the company; determines the company’s policy for remuneration of members of the board of directors, the executive bodies and other key senior employees of the company. 2.2. THE BOARD OF DIRECTORS SHALL BE AN EFFECTIVE AND PROFESSIONAL MANAGEMENT BODY OF THE COMPANY THAT IS CAPABLE OF PASSING OBJECTIVE AND INDEPENDENT JUDGMENTS AND MAKING DECISIONS THAT MEET THE INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS. THE CHAIRMAN OF THE BOARD OF DIRECTORS SHALL FACILITATE THE MOST EFFECTIVE PERFORMANCE OF THE FUNCTIONS ASSIGNED TO THE BOARD OF DIRECTORS. MEETINGS OF THE BOARD OF DIRECTORS, PREPARATIONS FOR SUCH MEETINGS AND THE PARTICIPATION IN SUCH MEETINGS BY MEMBERS OF THE BOARD OF DIRECTORS SHALL ENSURE THE EFFECTIVENESS OF THE BOARD OF DIRECTORS. 2.2.1. The chairman of the board of directors shall be an independent director, or An independent Zhanar Rymzhanova has been elected Chairman a senior independent director shall be determined from among the elected director is not elected of the Company’s Board of Directors by independent directors to coordinate the work of independent directors and as the Chairman the unanimous decision of members of the Board interact with the chairman of the board of directors. of the Company’s of Directors. From 2008 to 2012, Zhanar Board of Directors. Rymzhanova worked actively as a member No senior of the Company’s Board of Directors. independent director The Company has established effective is determined from communication between the independent directors among the elected and the Chairman of the Board of Directors, independent directors. independent directors and management. Independent directors see no need for the additional coordination of their work. 2.2.2. The company’s internal documents shall formalise the procedure for preparing Observed. and holding meetings of the board of directors, which provides members of the board of directors the opportunity to properly prepare for the meeting and stipulate, in particular: the deadline for notifying members of the board of directors about an upcoming meeting; the deadlines for sending voting documents (ballots) and receiving completed documents (ballots) when conducting meetings in absentia; the ability to send and take into account a written opinion on agenda items for members of the board of directors who are absent from an in-person meeting; the ability to hold discussions and vote via conference calls and video conference calls. 2.2.3. The most pressing matters shall be resolved at meetings of the board of directors The Company’s The Company has adopted the practice whereby held in person. The list of such matters shall correspond to the recommendations internal documents over 90% of the decisions of the Board of Directors of the Corporate Governance Code1. do not describe are made in person and all key matters are only the form for holding a considered in person. meeting of the Board of Directors when considering the matters listed in clause 168 of the Code. 2.3. THE BOARD OF DIRECTORS SHALL INCLUDE A SUFFICIENT NUMBER OF INDEPENDENT DIRECTORS. 2.3.1. Independent directors shall make up at least one-third of the elected members The Company’s Consultations are currently being held with of the board of directors. Board of Directors the Company’s shareholders to increase the number includes two elected of independent directors on the Board of Directors. independent directors (of 11) – David Hexter and Irina Shytkina2.

1 Indicared in clause168 part B of the Corporate Governance Code.

2 In 2013, Irina Shуtkina and David Hexter were non-executive directors. Since November 13, when they entered the Board of Directors of UTLC, the above-mentioned members of the Board of Directors do not meet formal criteria of independence of Corporate Governance Code of Bank of Russia, that non-executive directors should meet. However, taking into account that there were no meetings of the Board of Directors of UTLC, in 2014, and actual business activities began in 2015, formal noncompliance with the criteria of the Code did not affect substantive aspects of work of Company’s non-executive directors.

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The Company’s main functions are formalised in the Company Charter and fully meet the issuer’s corporate governance requirements, which must be observed for shares to be included in the First Level of the Listing Rules of CJSC MICEX SE.

2.4.2. The company’s board of directors shall establish a remuneration committee The Company Given that the Company’s Board of Directors (may be combined with the (nominating committee (personnel, appointments)) has established includes two independent directors, establishing a comprised of independent directors whose functions meet the recommendations a Personnel and Committee solely from independent directors is not of the Corporate Governance Code3. Remuneration possible. All see item 2.3.1. Committee that includes one independent director who is committee chairman – Irina Shytkina4.

The Committee’s main functions are stipulated in the Company Charter and fully meet the issuer’s corporate governance requirements, which must be observed for shares to be included in the First Level of the Listing Rules of CJSC MICEX SE. 2.4.3. The company’s board of directors shall establish a nominating committee (personnel, appointments) (may be combined with the remuneration committee) on which the majority of the members are independent directors whose functions meet the recommendations of the Corporate Governance Code5. 2.5. THE BOARD OF DIRECTORS SHALL ENSURE THE PERFORMANCE EVALUATION OF THE BOARD OF DIRECTORS, ITS COMMITTEES AND MEMBERS OF THE BOARD OF DIRECTORS. 2.5.1. The performance evaluation of the board of directors shall be conducted on a Observed. regular basis at least once a year and once every three years with the involvement of a third-party organisation (consultant).

1 Indicared in clause172 part B of the Corporate Governance Code

2 Refer to the footnote to the article 2.3.1.

3 Indicared in clause180 part B of the Corporate Governance Code

4 Refer to the footnote to the article.2.3.1.

5 Indicared in clause186 part B of the Corporate Governance Code 171 Annual report 2014 TransСontainer

EXPLANATION OF KEY REASONS, FACTORS AND BRIEF DESCRIPTION CIRCUMSTANCES WHY THE PRINCIPLE OR KEY OF WHICH PART CRITERIA ARE NOT BEING OBSERVED OR ONLY OF PRINCIPLE OR KEY PARTIALLY OBSERVED AND A DESCRIPTION CRITERIA IS NOT BEING OF THE ALTERNATIVE MECHANISMS AND TOOLS NO. CORPORATE GOVERNANCE PRINCIPLE(S) OR KEY CRITERIA (RECOMMENDATION) OBSERVED OF CORPORATE GOVERNANCE USED 1 2 3 4 III. COMPANY’S CORPORATE SECRETARY 3.1 THE CORPORATE SECRETARY (A SPECIAL STRUCTURAL UNIT HEADED BY THE CORPORATE SECRETARY) SHALL ENSURE EFFICIENT INTERACTION WITH SHAREHOLDERS AND THE COORDINATION OF THE COMPANY’S ACTIONS TO PROTECT THE RIGHTS AND INTERESTS OF SHAREHOLDERS AND SUPPORT THE EFFECTIVE WORK OF THE BOARD OF DIRECTORS. 3.1.1. The corporate secretary shall be accountable to the board of directors and be Observed. appointed and dismissed based on the decision or with the consent of the board of directors. 3.1.2. The company shall approve an internal document that describes the rights and Observed. duties of the corporate secretary (Regulation on the Corporate Secretary) whose contents meet the recommendations of the Corporate Governance Code1. 3.1.3. The corporate secretary shall hold a position that cannot be combined Observed. with the performance of any other functions at the company. The corporate secretary shall be assigned functions in accordance with the recommendations of the Corporate Governance Code2. The corporate secretary shall have sufficient resources to perform its functions. IV. REMUNERATION SYSTEM FOR THE MEMBERS OF THE BOARD OF DIRECTORS, EXECUTIVE BODIES AND OTHER KEY SENIOR EMPLOYEES OF THE COMPANY 4.1. THE LEVEL OF REMUNERATION PAID BY THE COMPANY SHALL BE SUFFICIENT TO HIRE, MOTIVATE AND RETAIN PEOPLE WHO HAVE THE NECESSARY SKILLS AND QUALIFICATIONS FOR THE COMPANY. REMUNERATION SHALL BE PAID TO MEMBERS OF THE BOARD OF DIRECTORS, EXECUTIVE BODIES AND OTHER KEY SENIOR EMPLOYEES OF THE COMPANY IN ACCORDANCE WITH THE REMUNERATION POLICY ADOPTED BY THE COMPANY. 4.1.1. All payments, benefits and privileges granted to members of the board of directors, Observed. executive bodies and other key senior employees of the company shall be regulated. 4.2. The remuneration system for members of the board of directors shall ensure a convergence between the financial interests of directors and the long-term financial interests of shareholders. 4.2.1. The company shall not use any other forms of remuneration for members The Company The Company’s General Meeting of Shareholders of the board of directors except fixed annual remuneration. has other forms has approved the Regulation on the Payment of remuneration for of Remuneration and Compensation to Members members of the Board of the OJSC TransContainer Board of Directors of Directors. under which members of the Board of Directors receive annual remuneration and remuneration for participating in meetings of the Board of Directors. Annual remuneration consists of a fixed and variable portion. 4.2.2. Members of the company’s board of directors shall not be granted the opportunity Observed. to take part in option programmes, and the right to sell their company shares shall be conditional upon achieving certain performance indicators. 4.3. THE REMUNERATION SYSTEM FOR EXECUTIVE BODIES AND OTHER KEY SENIOR EMPLOYEES OF THE COMPANY SHALL STIPULATE THAT REMUNERATION DEPENDS ON THE COMPANY’S PERFORMANCE RESULTS AND THEIR PERSONAL CONTRIBUTION TO ACHIEVING THESE RESULTS. 4.3.1. The company shall introduce a long-term incentive programme for members Observed. of the executive bodies and other key senior employees of the company. V. RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM 5.1. THE COMPANY SHALL HAVE AN EFFICIENTLY FUNCTIONING SYSTEM OF RISK MANAGEMENT AND INTERNAL CONTROL THAT AIMS TO PROVIDE REASONABLE ASSURANCE THAT THE COMPANY’S GOALS WILL BE ACHIEVED. 5.1.1. The board of directors shall identify principles and approaches for establishing a Observed. risk management and internal control system at the company. 5.1.2. The company shall establish a separate structural unit for risk management and Observed. internal control.

1 Indicared in clause217 part B of the Corporate Governance Code

2 Indicared in clause218 part B of the Corporate Governance Code

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EXPLANATION OF KEY REASONS, FACTORS AND BRIEF DESCRIPTION CIRCUMSTANCES WHY THE PRINCIPLE OR KEY OF WHICH PART CRITERIA ARE NOT BEING OBSERVED OR ONLY OF PRINCIPLE OR KEY PARTIALLY OBSERVED AND A DESCRIPTION CRITERIA IS NOT BEING OF THE ALTERNATIVE MECHANISMS AND TOOLS NO. CORPORATE GOVERNANCE PRINCIPLE(S) OR KEY CRITERIA (RECOMMENDATION) OBSERVED OF CORPORATE GOVERNANCE USED 1 2 3 4 5.1.3. The company shall develop and introduce an anti-corruption policy that The Company does not In 2014, the Company conducted an assessment identifies measures which aim to establish components of corporate culture, have an anti-corruption of the corporate fraud and corruption resistance the organisational structure as well as rules and procedures that ensure policy. system involving EY. Based on the assessment the prevention of corruption. results, work is under way to develop measures aimed at improving the corporate fraud and corruption resistance system at the Company for 2015. 5.2. THE COMPANY SHALL ORGANISE AN INTERNAL AUDIT FOR A SYSTEMATIC AND INDEPENDENT ASSESSMENT OF THE RELIABILITY AND EFFECTIVENESS OF THE RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM AND CORPORATE GOVERNANCE PRACTICES. 5.2.1. The company shall form a separate structural unit that performs internal audit Observed. functions and is functionally subordinate to the company’s board of directors. The functions of this unit shall meet the recommendations of the Corporate Governance Code and include, in particular: an assessment of the effectiveness of the internal control system; an assessment of the effectiveness of the risk management system; an assessment of corporate governance (in the absence of a corporate governance committee). 5.2.2. The head of the internal audit unit shall report to the company’s board of directors Observed. and be appointed and dismissed based on the decision of the company’s board of directors. 5.2.3. The company shall approve a policy on internal audit matters (Regulation Observed. on Internal Audit) that describes the goals, objectives and functions of an internal audit. VI. INFORMATION DISCLOSURE ABOUT THE COMPANY AND THE COMPANY’S INFORMATION POLICY 6.1. THE COMPANY AND ITS ACTIVITIES SHALL BE TRANSPARENT FOR SHAREHOLDERS, INVESTORS AND OTHER STAKEHOLDERS. 6.1.1. The Company shall approve an internal document that describes the company’s Observed. information policy which meets the recommendations of the Corporate Governance Code. The company’s information policy shall include the following methods of interaction with investors and other stakeholders: the creation of a special page on the company’s website that provides answers to standard questions posed by shareholders and investors and a regularly updated calendar of the company’s corporate events as well as other useful information for shareholders and investors; regular meetings by members of the executive bodies and other key senior employees of the company with analysts; regular presentations (including in the form of teleconferences and webcasts) and meetings attended by members of management bodies and key senior employees of the company, including accompanying publications of the company’s accounting (financial) reporting or publications related to the company’s main investment projects and strategic development plans. 6.1.2. The company’s executive bodies shall handle the implementation Observed. of the information policy. The company’s board of directors shall monitor the proper disclosure of information and compliance with the information policy. 6.1.3. The company shall establish procedures to ensure the coordination of work by all Observed. the company’s services and structural units involved in information disclosure or whose activities may necessitate information disclosure. 6.1.4. Other key criteria (recommendations) of the Corporate Governance Code in the company’s view pertaining to this principle(s) of corporate governance. 6.2. THE COMPANY SHALL DISCLOSE FULL, UPDATED AND ACCURATE INFORMATION ABOUT ITSELF IN A TIMELY MANNER TO PROVIDE THE OPPORTUNITY FOR THE COMPANY’S SHAREHOLDERS AND INVESTORS TO MAKE INFORMED DECISIONS. 6.2.1. If foreign investors have a significant stake in the company’s capital, along with Observed. the disclosure of information in Russian, the most substantial information about the company (including messages on the general meeting of shareholders and the company’s annual report) shall also be disclosed simultaneously in the foreign language that is generally accepted on the financial market.

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EXPLANATION OF KEY REASONS, FACTORS AND BRIEF DESCRIPTION CIRCUMSTANCES WHY THE PRINCIPLE OR KEY OF WHICH PART CRITERIA ARE NOT BEING OBSERVED OR ONLY OF PRINCIPLE OR KEY PARTIALLY OBSERVED AND A DESCRIPTION CRITERIA IS NOT BEING OF THE ALTERNATIVE MECHANISMS AND TOOLS NO. CORPORATE GOVERNANCE PRINCIPLE(S) OR KEY CRITERIA (RECOMMENDATION) OBSERVED OF CORPORATE GOVERNANCE USED 1 2 3 4 6.2.2. The company shall provide information disclosure not only about itself but also Observed. about legal entities under its control that have significant importance. 6.2.3. The company shall disclose annual and interim (semi-annual) consolidated or Observed. individual financial statements prepared in accordance with International Financial Reporting Standards (IFRS). The annual consolidated or individual financial statement shall be disclosed together with an auditor’s report, while the interim (semi-annual) consolidated or individual financial statement shall be disclosed together with a report on the results of a general audit review or an auditor’s report. 6.2.4. The company shall disclose a special memorandum that contains plans for The entity that controls The Company is planning to inform the shareholder the company by the entity that controls the company. This memorandum shall be the Company does about the need to prepare a memorandum with prepared in accordance with the recommendations of the Corporate Governance not disclose plans respect to PJSC TransContainer. Code1. in the form of a memorandum. 6.2.5. The company shall disclose detailed information about the biographical data Observed. of the members of the board of directors, including information about whether they are independent directors, and also promptly disclose information about the loss of independent director status by a member of the board of directors. 6.2.6. The company shall disclose information about the structure of its capital Observed. in accordance with the recommendations of the Corporate Governance Code. 6.2.7. The company’s annual report shall contain the following additional information The amount In accordance with the practice adopted recommended by the Corporate Governance Code: of individual at the Company, remuneration for members an overview of the most significant transactions, including related transactions, remuneration for of the Company’s Board of Directors is disclosed concluded by the company and legal entities under its control over the previous each member cumulatively by type of remuneration. year; of the Company’s a report on the work of the board of directors (including the committees Board of Directors is of the board of directors) for the year that contains, among other things, not disclosed. information about the number of in-person (in absentia) meetings, about the participation of each member of the board of directors in meetings, a description of the most significant issues and most challenging problems considered at meetings of the board of directors and committees of the board of directors and the main recommendations that the committees gave the board of directors; information about the direct or indirect ownership of company shares by members of the company’s board of directors and executive bodies; information about a conflict of interests among members of the board of directors and executive bodies (including related to the involvement of such persons in the management bodies of the company’s competitors); a description of the remuneration system for members of the board of directors, including the amount of individual remuneration for the year for each member of the board of directors (with a breakdown by basic and additional remuneration for chairmanship on the board of directors and for chairmanship (membership) in committees of the board of directors, the amount of participation in the long- term incentive programme and the amount of participation by each member of the board of directors in the option programme, if any), reimbursement of expenses associated with participation on the board of directors as well as the company’s expenses on the liability insurance of directors as members of management bodies; information about total remuneration for the year: a) for a group of at least the top five highest paid members of the executive bodies and other key senior employees of the company with a breakdown by each type of remuneration; b) for all members of the executive bodies and other key senior employees of the company to whom the company’s remuneration policy extends with a breakdown by each type of remuneration; information on remuneration for the sole executive body that was received or was to be received from the company (legal entity from a group of organisations that includes the company) with a breakdown by each type of remuneration, both for performing the duties of the sole executive body as well as for other reasons.

1 Indicared in clause279 part B of the Corporate Governance Code

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the alienation by the company of treasury and “quasi- treasury” shares.

7.2. THE COMPANY SHALL PROVIDE A PROCEDURE FOR CARRYING OUT SIGNIFICANT CORPORATE ACTIONS THAT ENABLES SHAREHOLDERS TO RECEIVE COMPLETE INFORMATION ABOUT SUCH ACTIONS IN A TIMELY MANNER, ENSURES THEIR ABILITY TO AFFECT SUCH ACTIONS AND GUARANTEES THE OBSERVANCE AND AN APPROPRIATE LEVEL OF PROTECTION OF THEIR RIGHTS WHEN TAKING SUCH ACTIONS. 7.2.1. The company’s internal documents shall stipulate the principle for ensuring The Company has not When carrying out significant corporate actions, equitable treatment for all the company’s shareholders when carrying out approved a document the Company adheres to the principle of equitable significant corporate actions that concern the rights and legitimate interests that formalises these and fear treatment of shareholders, which is of shareholders and also formalise additional measures that protect the rights and additional measures. formalised in the Corporate Governance Code legitimate interests of the company’s shareholders as required by the Corporate of OJSC TransContainer, and hires independent Governance Code, including: appraisers in the cases required by Russian the hiring of an independent appraiser with an impeccable reputation legislation. on the market and experience with appraisals in the relevant sphere or providing reasons for not hiring an independent appraiser when determining the value of property that is alienated or acquired as part of a major transaction or related party transaction; the determination of the company’s share price in the event of acquisition or purchase by an independent appraiser with an impeccable reputation on the market and experience with appraisals in the relevant sphere taking into account the weighted average share price over a reasonable period, but excluding the effect associated with the company’s conclusion of the relevant transaction (and excluding changes in the share price with the dissemination of information about the company’s conclusion of the relevant transaction) and also excluding the discount for the alienation of shares within a non-controlling stake; expansion in the list of grounds for which members of the company’s board of directors and other persons specified by legislation are recognised as interested parties in the company’s transactions in order to assess the actual relatedness of the relevant persons.

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REPORT ON COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE

INFORMATION ABOUT COMPLIANCE WITH THE MAIN PRINCIPLES OF THE UK CORPORATE GOVERNANCE CODE:

1. Leadership 1.1. Every company should be headed by an effective board which is collectively responsible for the long-term Observed success of the company. 1.2. There should be a clear division of responsibilities at the head of the company between the running Observed of the board and the executive responsibility for the running of the company’s business. No one individual should have unfettered powers of decision. 1.3. The chairman is responsible for leadership of the board and ensuring its effectiveness on all aspects of its Observed role. 1.4. As part of their role as members of a unitary board, non-executive directors should constructively challenge Observed and help develop proposals on strategy. 2. EFFECTIVENESS 2.1. The board and its committees should have the appropriate balance of skills, experience, independence Observed and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively. 2.2. There should be a formal, rigorous and transparent procedure for the appointment of new directors Partially observed. to the board. The Company has no special procedure for considering candidates for newly appointed members of the Board of Directors. At the same time, the Company adheres to the requirements of Russian legislation that specify the procedure for nominating candidates to the board of directors. 2.3. All directors should be able to allocate sufficient time to the company to discharge their responsibilities Observed effectively. 2.4. All directors should receive induction on joining the board and should regularly update and refresh their skills and Observed knowledge. 2.5. The board should be supplied in a timely manner with information in a form and of a quality appropriate Observed to enable it to discharge its duties. 2.6. The board should undertake a formal and rigorous annual evaluation of its own performance and that of its Observed committees and individual directors. 2.7. All directors should be submitted for re-election at regular intervals, subject to continued satisfactory Observed performance. 3. ACCOUNTABILITY 3.1. The board should present a fair, balanced and understandable assessment of the company’s position and Observed prospects. 3.2. The board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its Observed strategic objectives. The board should maintain sound risk management and internal control systems. 3.3. The board should establish formal and transparent arrangements for considering how they should apply Observed the corporate reporting, risk management and internal control principles and for maintaining an appropriate relationship with the company’s auditors. 4. REMUNERATION 4.1. Executive directors’ remuneration should be designed to promote the long-term success of the company. Observed Performance-related elements should be transparent, stretching and rigorously applied. 4.2. There should be a formal and transparent procedure for developing policy on executive remuneration and Observed for fixing the remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration. 5. RELATIONS WITH SHAREHOLDERS 5.1. There should be a dialogue with shareholders based on the mutual understanding of objectives. The board Observed as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place. 5.2. The board should use general meetings to communicate with investors and to encourage their participation. Observed

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INFORMATION ABOUT PARTIAL COMPLIANCE WITH SUPPORTING PRINCIPLES AND PROVISIONS OF THE UK CORPORATE GOVERNANCE CODE: № SUPPORTING PRINCIPLES AND PROVISIONS OF THE UK CORPORATE GOVERNANCE CODE INFORMATION ON COMPLIANCE COMMENTS 1 А. 3.1. The chairman should on appointment meet the independence criteria. A chief Partially observed The Chairman of the Board of Directors is executive should not go on to be chairman of the same company. If exceptionally not an independent director. a board decides that a chief executive should become chairman, the board should consult major shareholders in advance and should set out its reasons to shareholders The Chairman of the Board at the time of the appointment and in the next annual report. of Directors does not hold meetings with non-executive directors without The chairman should hold meetings with the non-executive directors without the participation of members the executives present. Led by the senior independent director, the non-executive of the executive bodies, however it is directors should meet without the chairman present at least annually to appraise common practice for personal meetings the chairman’s performance and on such other occasions as are deemed appropriate. to be held with independent directors, committee chairmen and representatives of minority shareholders. 2 A. 4.1. The board should appoint one of the independent non-executive directors Partially observed The Company has not elected a senior to be the senior independent director to provide a sounding board for the chairman independent director, while effective and to serve as an intermediary for the other directors when necessary. The senior communication has been established independent director should be available to shareholders if they have concerns which between independent directors and contact through the normal channels of chairman, chief executive or other executive the Chairman of the Board of Directors directors has failed to resolve or for which such contact is inappropriate. and independent directors and management. Independent directors see no need for additional coordination of their work. 3 B. 1.2. Except for smaller companies, at least half the board, excluding the chairman, Partially observed The Company’s Board of Directors should comprise non-executive directors determined by the board to be independent. includes two independent directors A smaller company should have at least two independent non-executive directors. – Irina Shytkina and David Hexter1. C. 3.1. The board should establish an audit committee of at least three, or in the case The Company’s independent directors are of smaller companies two, independent non-executive directors. In smaller companies actively involved in the work of the Board the company chairman may be a member of, but not chair, the committee in addition of Directors and its committees. to the independent non-executive directors, provided he or she was considered independent on appointment as chairman. The board should satisfy itself that at least Consultations are currently being held one member of the audit committee has recent and relevant financial experience. with the Company’s shareholders in order to increase the number of independent D. 2.1. The board should establish a remuneration committee of at least three, or directors on the Board of Directors. in the case of smaller companies two, independent non-executive directors. In addition the company chairman may also be a member of, but not chair, the committee if he The Company’s Board of Directors or she was considered independent on appointment as chairman. The remuneration has established the Audit Committee committee should make available its terms of reference, explaining its role and and the Personnel and Remuneration the authority delegated to it by the board. Where remuneration consultants are Committee. appointed, they should be identified in the annual report and a statement made as to whether they have any other connection with the company. The Audit Committee includes one independent director – the committee chairman.

The Personnel and Remuneration Committee includes one independent director – the committee chairman. The Company has an insufficient number of members of the Board of Directors to meet the independence criteria for establishing committees from three independent directors.

1 In 2013, Irina Shуtkina and David Hexter were non-executive directors. Since November 13, when they entered the Board of Directors of UTLC, the above-mentioned members of the Board of Directors do not meet formal criteria of independence of Corporate Governance Code of Bank of Russia, that non-executive directors should meet. However, taking into account that there were no meetings of the Board of Directors of UTLC, in 2014, and actual business activities began in 2015, formal noncompliance with the criteria of the Code did not affect substantive aspects of work of Company’s non-executive directors.

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In accordance with Russian legislation, the right to nominate candidates to the Board of Directors belongs to owners of at least 2% of the Company’s voting shares. In the event of the absence or an insufficient number of candidates nominated by shareholders, the Company’s Board of Directors may include candidates in the list of nominations at its own discretion. At the same time, the Company has never had any instances when there was an absence or insufficient number of candidates nominated by shareholders. 5 D. 1.3. Levels of remuneration for non-executive directors should reflect the time Partially observed The existing remuneration system commitment and responsibilities of the role. Remuneration for non-executive at the Company for members of the Board directors should not include share options or other performance-related elements. If, of Directors, in addition to the fixed annual exceptionally, options are granted, shareholder approval should be sought in advance remuneration, includes a variable portion and any shares acquired by exercise of the options should be held until at least one year within the annual remuneration that aims after the non-executive director leaves the board. Holding of share options could be to achieve the Company’s strategic relevant to the determination of a non-executive director’s independence. objectives. The remuneration system also provides remuneration for participation in meetings of the Board of Directors.

No option programme is envisaged for members of the Board of Directors.

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REPORT ON COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE OF JSC TRANSCONTAINER

№ MAIN PROVISIONS OF THE CORPORATE GOVERNANCE CODE OF OJSC OBSERVED / TRANSCONTAINER NOT OBSERVED COMMENTS1 GENERAL MEETING OF SHAREHOLDERS 1. The Company shall ensure that shareholders are effectively involved Observed The Company has approved a Regulation on the Procedure in making key decisions. The rights of shareholders shall be regulated by to Prepare for and Hold a General Meeting of Shareholders the provisions of the Charter and the Company’s internal documents. of OJSC TransContainer. 2. Selection and appointment of an independent registrar that has all Observed The Company’s independent registrar is CJSC STATUS. the necessary technical means and an impeccable reputation. 3. Shareholders who own voting shares shall be entitled to take part Observed in the General Meeting of Shareholders with the right to vote on all matters falling within their competence. 4. Notification about a General Meeting of Shareholders shall be sent to each Observed person specified in the list of persons entitled to take part in the General Meeting of Shareholders by registered mail or delivered in person no later than 30 (thirty) days prior to the meeting date. 5. The Company shall provide persons entitled to take part in the General Observed Materials for the General Meeting of Shareholders are posted Meeting of Shareholders with information (materials) about the agenda on the Company’s website. items of the General Meeting of Shareholders 30 (thirty) days prior to the General Meeting of Shareholders. 6. When determining the location, date and time of the General Meeting Observed The Company’s annual and extraordinary General Meeting of Shareholders, the Company shall proceed from the need to provide of Shareholders that took place in 2014 were held in Moscow shareholders with a real and unfettered opportunity to take part (at a large hotel close to the Company’s office/at the office) with in the meeting. The General Meeting of Shareholders shall be held in a the start of registration of shareholders (their representatives) populated area at the Company’s location no earlier than 9:00 a.m. and no at 10:00 a.m. Moscow time; the time of the General Meeting later than 10:00 p.m. local time. of Shareholders was 11:00 a.m. Moscow time. 7. Voting at the General Meeting of Shareholders shall take place according Observed to the principle of “one voting share – one vote”, except for cumulative voting on the election of members of the Board of Directors. 8. The Chairman of the Board of Directors shall perform the functions Observed of chair at the General Meeting of Shareholders. If the chairman is absent, the functions of chair at the General Meeting of Shareholders shall be performed by one of the members of the Board of Directors or representatives of the shareholders present at the General Meeting of Shareholders based on the decision of shareholders. 9. The Company shall invite the CEO, members of the Board of Directors and Observed Revision Commission, the external auditor and the head of the Internal Audit Service to take part in the General Meeting of Shareholders. 10. The functions of the Company’s counting commission at the General Observed Meeting of Shareholders shall be performed by the Company’s Registrar, which shall maintain a register of the Company’s shareholders. BOARD OF DIRECTORS 11. In order to ensure objectivity in decision-making and maintain a balance Observed At present, ten of the eleven directors are non-executive directors of interests between different groups of shareholders, the Company shall and two directors meet the requirements for independent seek to establish an optimal structure of the Board of Directors, including directors2. increasing the number of non-executive and independent directors as well as representatives of minority shareholders. 12. The Company’s Board of Directors shall determine each year whether Observed members of the Board of Directors meet the criteria for independent directors.

1 To check internal documents of the Company, please visit the corporate website: http://www.trcont.ru/en/investor-relations/charter-and-bylaws/bylaws/, as well as a website of CJSC Interfax, authorized to disclose information on stock markets in accordance with the established procedure: http://www.e-disclosure.ru/portal/company.aspx?id=11194

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№ MAIN PROVISIONS OF THE CORPORATE GOVERNANCE CODE OF OJSC OBSERVED / TRANSCONTAINER NOT OBSERVED COMMENTS1 13. The Chairman of the Company’s Board of Directors shall be responsible Observed for managing the work of the Board of Directors and ensuring its effective operation. The Chairman of the Board of Directors shall ensure the Company’s effective communication with shareholders and constructive relations between the Board of Directors and Company management. 14. The Chairman of the Board of Directors shall aim to create a favourable Observed atmosphere at meetings of the Board of Directors that is conducive to a comprehensive discussion of the agenda items, the expression of views by all members of the Board of Directors and the development of effective solutions. 15. Along with the Company’s corporate secretary, the Chairman of the Board Observed of Directors shall ensure directors receive accurate and complete information in a timely manner about matters on the agenda of meetings of the Board of Directors. 16. The Board of Directors shall conduct an assessment of its performance Observed Based on the 2013-2014 corporate year, the Board of Directors and the work of committees each year via a questionnaire and make conducted an assessment of its performance and the work decisions on improving the efficiency of the performance of the Board of committees in November 2014. of Directors based on a discussion of the assessment results at an in-person meeting of the Board of Directors. COMMITTEES UNDER THE BOARD OF DIRECTORS 17. Committees under the Board of Directors shall be formed from persons Observed Audit Committee Chairman David Hexter and Personnel having vast experience and knowledge in the relevant sphere, which and Remuneration Committee Chairman Irina Shytkina are enhances the effectiveness and quality of the work of the Board independent directors1. In addition, Hexter is a member of Directors. The Company shall strive to have independent directors and of the Strategy Committee. representatives of minority shareholders on the Committees. CEO 18. The CEO shall be accountable in his/her activities to the Company’s Observed General Meeting of Shareholders and Board of Directors. 19. The Company’s Board of Directors shall exercise the rights and duties Observed of the employer on the Company’s behalf with respect to the CEO. REVISION COMMISSION 20. In its activities, the Revision Commission shall be independent from officials Observed of the Company’s management body and officials of the structural divisions of the Company’s administration. 21. Members of the Revision Commission shall not be Company officials or Observed employees. ROLE OF STAKEHOLDERS 22. The Company shall strive to achieve long-term sustainable business Observed profitability based on a balance between its economic and social interests. 23. The Company shall aim to identify the interests of different groups Observed of stakeholders during meetings, negotiations, conferences and working groups on specific problems. The Company shall aim to take into account the interests of stakeholders when making decisions on business management. 24. The Company shall ensure effective work with public expectations, Observed including their identification, analysis and response measures. 25. In order to ensure a high level of social responsibility of OJSC Observed The Code of Ethics of OJSC TransContainer was approved by TransContainer, the Company has adopted a Code of Ethics that the decision of the Board of Directors dated 18 May 2009. establishes the principles and standards that should guide all Company employees in their performance, including during interaction with the Company’s stakeholders.

1 Refer to a footnote to the item 11 of the present table

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№ MAIN PROVISIONS OF THE CORPORATE GOVERNANCE CODE OF OJSC OBSERVED / TRANSCONTAINER NOT OBSERVED COMMENTS1 26. The Company shall implement corporate social responsibility projects for Observed Information is provided in the Sustainable Development section Company employees and their families, for the local population at sites of this annual report. where the Company operates and for the Company’s partners and contractors as well as implementing charitable and sponsorship projects. 27. The Company shall employ the practice of competitive selection Observed The decision of the Board of Directors dated 20 February 2013 of suppliers to provide the Company with goods or services for any amount approved the Regulation on the Procedure for Placing Orders exceeding the standards established by the Company. for the Procurement of Goods, the Performance of Work and the Rendering of Services for the Needs of OJSC TransContainer. INFORMATION DISCLOSURE 28. The Company’s information disclosure policy shall aim to ensure a high Observed The information disclosure policy, the list of information disclosed degree of trust among shareholders, creditors, investors and other by the Company as well as the information disclosure procedure stakeholders in the Company by providing such persons with information and deadlines are determined by the Regulation on Information about the Company, its activities and securities in an amount sufficient Disclosure of OJSC TransContainer, which was approved by for them to adopt reasonable and informed decisions with respect the Company’s Board of Directors to the Company and its securities. 29. When disclosing information about itself, the Company shall not restrict Observed The Company has been disclosing information in accordance with itself to information that is required to be disclosed by the regulatory and the requirements of stock exchanges, including the London Stock legal acts of the Russian Federation and shall additionally disclose other Exchange, since 2010. information that ensures a high degree of transparency for the Company. 30. When disclosing information, the Company shall be guided by the following Observed principles: - regular and timely provision of information; - accuracy and completeness of information; - availability of disclosed information; - neutrality of information disclosure; - maintaining a reasonable balance between the Company’s openness and observing its commercial interests. 31. In order to find a reasonable balance between the Company’s openness Observed The procedure for handing information that constitutes a and observing its commercial interests, when disclosing information commercial secret at OJSC TransContainer was approved the Company shall ensure the protection of confidential information, Company Order No. 58 dated 20 October 2006. including information that constitutes a state or commercial secret, in accordance with the legislation of the Russian Federation and the Company’s regulatory documents. The Company shall approve a document that describes the list of information constituting a commercial secret, the criteria for classifying information as a commercial secret as well as the procedure for accessing such information. Information obtained by Company employees and members of their management bodies in the process of performing their duties may not be used by them for personal purposes. 32. In order to control the use of insider information, the Company’s Board Observed The Regulation on Insider Information of OJSC TransContainer was of Directors has approved the Regulation on Insider Information of OJSC approved by a decision of the Board of Directors dated 19 June TransContainer, which provides a definition of insider information and 2012. establishes the procedure for using and protecting such information. RISK MANAGEMENT 33. The Company has established processes and procedures that aim Observed Information on risk management activities at the Company is to identify, assess and minimise the Company’s risks. Risk assessment presented in the Risk Management section of this annual report. and management is fundamental to the development and implementation of the Company’s development strategy. 34. The Board of Directors shall continuously monitor risk management, Observed The Company has developed a regulatory and methodological including via the committees under the Board of Directors. framework for risk management. The Board of Directors has approved the Risk Management Policy, which is the basic document governing risk management processes and formalises the role and responsibility of those involved in the risk management system; the Risk Management Concept, which clearly governs the process of building a corporate risk management system; maintains a risk map and risk register, and has determined the powers of risk owners as well as the general approach to risk management.

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№ MAIN PROVISIONS OF THE CORPORATE GOVERNANCE CODE OF OJSC OBSERVED / TRANSCONTAINER NOT OBSERVED COMMENTS1 35. The Company has established a Risk Committee comprised of senior Observed Company employees that provides methodological support to risk owners, a summary report on risks and their basic assessment, compiles a register of risks, prepares reports on the monitoring of “critical”, “acceptable” and “negligible” risks and also performs other risk management functions. EXTERNAL AND INTERNAL AUDIT 36. In order to ensure the independent audit of the financial statements Observed The External Auditor Rotation Policy was approved by the decision of OJSC TransContainer, the Company has approved the External Auditor of the Board of Directors dated 7 September 2009. Rotation Policy and interaction with the external auditor as regards the provision of non-auditor services. 37. Candidates for the external auditor of the financial statements of OJSC Observed TransContainer according to Russian Accounting Standards (RAS) and International Financial Reporting Standards (IFRS) shall be selected on a competitive basis at least once every five years. OJSC TransContainer shall select an auditor organisation from among the “Big Four” auditors. At the same time, the Company believes it is advisable to select a single auditor to audit the Company’s financial statements according to RAS and IFRS. 38. The Company deems it necessary to publicly disclose information about Observed Information presented in the Corporate Governance section. the amount of remuneration paid to the auditor for the provision of both auditor and non-auditor services. 39. In order to ensure the independence of the external audit, the Audit Observed Committee shall monitor the provision of non-auditor services in the manner prescribed by the External Auditor Rotation Policy and interact with the external auditor as regards the provision of non-auditor services. 40. The Audit Committee shall assess the quality of work of the Company’s Observed external auditor and its compliance with independence requirements each year. 41. The Internal Audit Service shall be established based on the decision Observed The Internal Audit Service was established by of the Board of Directors in order to improve the efficiency of the internal OJSC TransContainer Order No. 235 dated 30 November 2009. control and risk management system at the Company, provide the Company’s management bodies with accurate and complete information about the Company’s activities as well as identify, prevent and limit potential abuse by Company officials. The Internal Audit Service shall be accountable to the Audit Committee under the Company’s Board of Directors.

DIVIDENDS 42. The Company’s dividend policy is based on the following principles: Observed The Regulation on the Dividend Policy of OJSC TransContainer - the annual payment of dividends given the existence of net profit was approved by the decision of the Board of Directors dated 19 generated by the Company; February 2014 (Minutes No. 8). - a balance of interests between the Company and its shareholders; - striving to increase the Company’s capitalisation and investment appeal; - observing the rights of shareholders envisaged by the legislation of the Russian Federation and the best corporate governance practices; - the transparency of procedures for determining the amount of dividends and for their payment. 43. The Company recognises the importance of shareholders receiving Observed dividends as a form of income from investment in the purchase of shares and shall strive to establish a mechanism for determining dividends and their payment that is transparent and clear to shareholders.

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№ MAIN PROVISIONS OF THE CORPORATE GOVERNANCE CODE OF OJSC OBSERVED / TRANSCONTAINER NOT OBSERVED COMMENTS1 MANAGEMENT OF SUBSIDIARIES AND AFFILIATES 44. Participating in the capital of subsidiaries, the Company is interested Observed in ensuring profitability and the overall balanced development of the Company and the subsidiary. When adopting decisions on the development of subsidiaries, the Company aims to take into account the interests of other participants/shareholders in the subsidiary and coordinate approaches for the subsidiary’s management with them. Developing the business of subsidiaries, the Company is also interested in identifying and taking into account the interests of the subsidiary’s stakeholders (investors, partners and clients, among others). 45. The Company shall manage subsidiaries using corporate governance Observed methods, specifically: via participation in the management bodies of subsidiaries and their adoption of management decisions (the decisions of the General Meeting of Shareholders and Board of Directors within their competence) as well as through monitoring the activities of subsidiaries by the supervisory bodies of the subsidiaries. CORPORATE DISPUTES 46. The Company aims to conduct activities to identify, prevent and settle Observed disputes in early stages. 47. In the event of a corporate dispute that affects the interests Rule does not apply No such situations have arisen to date. of the Company itself or its shareholders between a body of the Company and its shareholder or between the Company’s shareholders, the Board of Directors shall consider this dispute and determine the feasibility of its own involvement as a mediator to settle the dispute as well as the necessary and possible measures for settling such a dispute. In order to prevent and effectively settle corporate disputes, the Board of Directors may form a special Corporate Dispute Settlement Committee from among its members. The Company shall seek to only involve independent directors in the Corporate Dispute Settlement Committee. In cases when this is impossible due to objective reasons, the Corporate Dispute Settlement Committee shall be headed by an independent director and be comprised of non-executive members of the Board of Directors who are not parties (representatives of parties) to the corporate dispute. 48. If a member of the Board of Directors who is involved in settling a dispute Rule does not apply No such situations have arisen to date. deems that the dispute affects or may affects his/her interests, the Board member must inform the Company’s Board of Directors about this immediately as soon as the member becomes aware of this. In this case, the Board of Directors must determine whether the member of the Board of Directors can continue to participate in settling the dispute. 49. The Company’s CEO may become involved in the settlement of a Rule does not apply No such situations have arisen to date. corporate dispute, if necessary. 50. The Company’s Board of Directors and/or CEO may serve as a mediator Rule does not apply No such situations have arisen to date. in the settlement of a dispute with the consent of the shareholders who are parties to the corporate dispute. 51. With the consent of the shareholders who are parties to the corporate Rule does not apply No such situations have arisen to date. dispute, the Board of Directors (members of the Board of Directors) and/ or CEO may take part in negotiations between the shareholders, explain the rules of shareholder legislation and the provisions of the Company’s internal documents and give recommendations on the preparation of draft documents that aim to settle a dispute. 52. The Company’s Corporate Secretary shall maintain a record of corporate Observed This standard is contained in the Regulation on the Corporate disputes. The Corporate Secretary shall register complaints, letters and Secretary of OJSC TransContainer, which was approved by claims received from shareholders, provide a preliminary assessment and the Board of Directors, however no such situations have arisen ensure they are considered by the Board of Directors. to date.

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DETAILS

Company’s full name in Russian: Публичное акционерное общество «Центр по перевозке грузов в контейнерах «ТрансКонтейнер».

Company’s abbreviated name in Russian: ПАО «ТрансКонтейнер».

Company’s full name in English: Public Joint Stock Company Center for cargo container traffic TransContainer.

Company’s abbreviated name in English: PJSC TransContainer.

Company’s location: Moscow.

Company’s mailing address: 125047, Moscow, Oruzheyny per., d. 19.

Date of Company’s state registration: 4 March 2006 (OGRN: 1067746341024)

E-mail: [email protected]

Reception for CEO: Tel.: +7 (499) 262 85 06; Fax: +7 (499) 262 75 78

Press Centre: e-mail: PR@ trcont. ru

Contact person: Natalya Rostova, Press Secretary

Telephone: +7 (499) 262 06 65; +7 (495) 788-17-17, ext. 10-70

Web page: www.trcont.ru/en/

184 Shareholder and Investor Relations: e-mail: IR@ trcont.ru

Andrey Zhemchugov, Stock Market and Investor Relations Director Telephone: +7 (495) 637 91 78

Alexander Shakhanov, Deputy Stock Market and Investor Relations Director Telephone: +7 (495) 609 60 62

Olga Miller, Corporate Governance Director Telephone: +7 (495) 788 17 17, ext. 10-17

Sales and Customer Relations: e-mail: Sales@ trcont. ru; isales.trcont.ru

Customer hotline: +7 (495) 788 17 17; +7 (499) 262 77 00

STATUS, Company’s registrar: Location: 109544, Russia, Moscow, ul. Novorogozhskaya, d. 32, str.1 Telephone/fax: +7 (495) 974-83-50, 974-83-45 E-mail: [email protected] License: No. 10-000-1-00304 dated 12 March 2004 Authority issuing license: Federal Securities Market Commission License validity: indefinite Date from which STATUS performing work to maintain securities register: 20 June 1997.

PricewaterhouseCoopers, Company’s auditor Location: 125047, Russia, Moscow, ul. Butyrsky Val, d. 10. OGRN: 1027700148431 INN: 7705051102 Telephone: +7 (495) 967-6000 Fax: 7 (495) 967-6001 Web page: http://www.pwc.ru/ Member of the Audit Chamber of Russia non-profit partnership, which is a self-regulating organisation of auditors. Principal registration number of entry in the register of auditors and audit organisations: 10201003683.

A glossary and other useful information for customers are posted at the address: www.trcont.ru/en/customers/supporting-information