Sustainability report 2017 CONTENTS
Chairman’s statement 4 ANNEX Key performance indicators 6 Information about the Report 162 Recognition 8 Awards and achievements 171 PROFILE OF SISTEMA Glossary and acronyms 174 Overview 12 Consolidated indicators 179 Mission and values 13 GRI index 183 International cooperation 14 Сompliance with the UN Global 190 Compact Membership in public organisations 16 Contact details 196 RESPONSIBLE INVESTMENT Policy and principles 20 Business model and asset management 26 Sustainable development and corporate 32 responsibility Social investment 37 EFFICIENT MANAGEMENT Economic performance 40 Investment programmes 51 Innovations 54 Risk management 58 Ethics and anti-corruption 62 Procurement and supply chains 68 HR management 76 Environmental impact 88 SUSTAINABLE DEVELOPMENT 98 PRACTICES OF PORTFOLIO COMPANIES Telecoms and digital services 100 High technology Forest industry 116 Healthcare and pharmaceuticals 122 Consumer sector 129 Agriculture 134 Real estate 139 We support Electric power 143
Hospitality business 150 Social Charter of the Russian For more details, see: Banking and finance 154 Business www.sistema.com Profile of Sistema Responsible Efficient Sustainable development CHAIRMAN’S STATEMENT investment management practices of portfolio companies
In 2017, the Corporation confirmed its We invest in promising high-tech businesses and other regions. For example, Segezha making it possible to create interactive commitment to the fundamental principles and innovative start-ups both directly and Group's investment in the upgrade exhibitions. Similar technologies are used for of ethical and responsible business through investment funds or partnerships. of the Segezha Pulp and Paper Mill and creating multimedia classes in schools and conduct in the area of human rights, New technologies, innovations, digitalisation construction of the Vyatka Plywood colleges. Every year MTS and MTS Bank take employment relations, environment and of various industries and areas of life Mill helped create about 600 new jobs part in social and educational activities aimed RUB bn prevention of corruption by joining the constitute the main investment focus in Karelia and the Kirov region. Detsky to promote mobile and financial literacy, UN Global Compact Association in Russia of Sistema. We invest in the development Mir's large retail chain operating across forming a new generation of consumers > 100 and becoming a member of the Social and promotion of innovations because 219 Russian cities ensures immediate of digital services and helping elderly people Charter of Russian Business. we understand that new technologies availability of socially important goods to adapt to the new reality. Corporation invests annually drive economic and technological to the people and expands employment in Russian economy Despite the major macroeconomic growth, improve the quality of life and opportunities in retail and logistics. The companies of Sistema Group challenges faced by the company in help build a better future by contributing Our company is keeping pace with are increasing their investments RUB bn 2017, Sistema and all its key assets to the achievement of global Sustainable modern trends and actively developing in environmental projects, thus proving their demonstrated high sustainability and strong Development Goals by 2030. its e-commerce business: the average commitment to the state of environment and >20 financial performance, and maintained revenue growth rate of the online store climate. Development of the "green market" stable levels of social investment. For Sistema's high-tech assets enable the selling goods for children exceeded 120% and forming the culture of responsible in social sphere in form of tax the last several years, Sistema has been company to be at the cutting edge of digital in 2011-2017. consumption, raising people's awareness payments to off-budget social investing over 1 billion roubles annually economy. The companies of the Group are about environmental issues, promoting funds and charity in social development. At the same time, actively participating in the development Development of healthcare is particularly sustainable production models, preservation the scale and scope of our charity and of smart grid infrastructure and a platform important for improving the quality of natural resources and compliance with GRI 102-14 volunteer projects, as well as the number for industrial Internet of Things, which of people's lives. The Medsi chain of clinics international standards – all these initiatives of our beneficiaries and social partners may be used for managing the equipment founded 20 years ago and the effective take Sistema's assets to a new level of Sustainable development keep growing. In 2017, the total number of production facilities, as well as utility, medicines manufactured by Binnopharm environmental performance. of the Corporation's volunteers exceeded development, construction and service help patients receive quality and high-tech is one of the key priorities 10 thousand people, with most of them companies which operate in the housing medical care. In 2017, we established As part of the Year of Ecology the production This year Sistema became the only Russian working at MTS, Detsky Mir and Medsi. and other spheres. The RFID tags a cancer centre on the basis of Medsi assets of the Corporation focused private issuer from the list of the largest of Sistema PJSFC. More manufactured by Mikron are widely used for to provide a full range of medical on implementing internal and external activities public companies Forbes Global 2000 Tax payments to the national budget and automation of processes in retail, logistics, services to cancer patients, including aimed at protection of the environment, that received a maximum reputation score than 15 years ago Sistema social, pension and health insurance healthcare and other segments. The early diagnostics and rehabilitation, and while Sistema Charitable Foundation based on such criteria as reliability and became one of the first funds increased by more than 13%, company develops microchips for transport launched a Medical Academy to enhance organised two large-scale environmental integrity, social responsibility, the quality making Sistema one of the biggest tax and bank cards, systems for wireless the qualifications and competences festivals in the Republics of Altay and Karelia. of products and services, and being a good companies in Russia payers in Russia. We are confident that collection of data from utility meters, etc. of doctors. Medsi's Academic Council has Leader Invest, a real estate developer, employer based on a survey of 15 thousand our success depends on our partners and RTI Concern and Sitronics are conducting for many years been conducting active provides training for its employees in the respondents from 60 countries of the world. to join the UN Global people around us. Therefore, one of our key R&D work to enhance the security of urban R&D and academic work. area of energy efficiency. The company We will do our best to meet the expectations goals is to ensure the welfare and security environment. MTS Bank and Sistema is actively involved in the development of all stakeholders and will continue Compact, and since then of our employees by offering them equal Capital are working to improve financial and The companies of Sistema Group give of "green" construction, the important improving our performance. we have been doing our opportunities and competitive employment investment services via digital and mobile a lot of attention to the matters of quality element of which is implementation conditions in various industries and technologies. As a result, the joint efforts education and implement projects aimed of modern technologies of wooden best to integrate socially regions. Sistema provides employment of Sistema and our portfolio companies at professional development and training multi-storey housing construction to about 0.2% of the entire Russian become a major driver for development of school children and college students, under the leadership of Segezha Group. responsible approaches workforce aged above 18. of smart cities and digitalisation of various especially in the field of engineering and The company takes a responsible approach industries. technologies. For this purpose we created to forest management: almost all the forests into our investment A responsible approach to managing funds a system for finding and preparing future leased by Segezha Group (more than activity to ensure long- and assets, cooperation with employees, For the last few years Sistema has technology leaders as part of our flagship 6m ha) have been certified by the Forest suppliers, local communities is an integral been investing over 100 billion roubles programme "Lift to the Future". However, Stewardship Council (FSC). term value creation for part of our investment process. While annually in Russian economy. This we believe that the objectives of education following the concept of responsible makes it possible to modernise the are much broader and, therefore, invest in I firmly believe that openness and Vladimir Evtushenkov our shareholders and all investment, Sistema determines the key risk manufacturing and agricultural industries, promotion of science and culture by using transparency are key to successful business factors and opportunities of each asset and create new jobs and improve people's new technologies. We adopted this approach and social cooperation. We are happy Chairman of the Board of Directors interested parties: the state, industry in order to monitor the economic, quality of life in the regions where the for setting up a unique virtual network of to present the fifth sustainable development Sistema PJSFC our employees, partners social and environmental impact of the company operates. Sistema acts as one branches of the Russian Museum that we report of Sistema prepared in compliance assets in each region where the company of the anchor investors in the social have been supporting for 15 years. For with GRI standards. In this report we show and society as a whole. operates. We also encourage partnerships and economic sphere in a number more than 10 years Kronstadt Group has how the corporate social responsibility between the companies of the Group, which of regions of the Russian Federation – been developing and supplying high-tech agenda has been incorporated into our enables us to exchange experience and from Moscow to Arkhangelsk, Vologda, equipment and multimedia solutions to investment processes and the activities implement best CSR practices. Rostov, Krasnodar, Krasnoyarsk, Stavropol various museums of Russia and the world, of our portfolio companies.
4 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 5 Profile of Sistema Responsible Efficient Sustainable development KEY PERFORMANCE investment management practices of portfolio companies INDICATORS
GRI 102-7 GRI 102-8
Revenue OIBDA Profit margin Share of investments Share of Sistema's fixed capital Tax allocations and payments in fixed assets investments in all private to social funds investment in Russia
RUB bn RUB bn RUB bn RUB bn 704.6 199.5 28.3% 117.7 1.23% 111.4
+3.58% +8.0% +2.0 p.p. -4.2% -0.26 p.p. +13.6%
2017 704.6 2017 199.5 2017 28.3% 2017 117.7 2017 1.23 2017 111.4
2016 680.9 2016 184.8 2016 26.3% 2016 122.9 2016 1.49 2016 98.1
Operating income Share of Sistema's revenue Share of Sistema's gross income Headcount of Sistema Group The Corporation's Spending on charity and social in Russia's GDP in Russia's gross income representatives in the list of top programmes 1000 Russian managers
RUB bn people people RUB bn 91.2 0.77% 0.88% 142,781 83 1.3
+10.9% -0.02 p.p. -0.09 p.p. +4.2% +15.3% -13.3%
2017 91.2 2017 0.77 2017 0.88 2017 142,781 2017 83 2017 1.3
2016 82.2 2016 0.79 2016 0.97 2016 144,362 2016 66 2016 1.5
Adjusted OIBDA. The ranking, which was established in 2001, is annually published by the Managers' Association and the Kommersant Publishing House and aims to identify the most talented managers of Russia. Including financing of own charity and social projects of Sistema and its portfolio companies, financing of the programmes of Sistema Charitable Foundation, the operating expenses of the corporate charitable foundation and allocations from Sistema and its portfolio companies to the foundation.
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GRI 103-3 RUEI indices in the area Efficient procurement Charity and volunteering Social communications HR potential of sustainable development and social responsibility ТОP-3 The top managers of Sistema Group Vladimir Evtushenkov, Chairman of Sistema was named among Representatives from Sistema, MTS, made it to the first independent ranking Sistema's Board of Directors, was awarded the platinum winners of the international MGTS, Detsky Mir, Medsi and Segezha Sistema is among the leaders of two companies for transparency of procurement professionals compiled the main prize of the national initiative corporate communications contest Group were included in the third sustainable development indices among private businesses and by the Association of Procurement Patron of the Year 2017 for the long-term MarCom Awards in the category annual national ranking of top 50 (Responsibility and Transparency, financial and investment firms Directors and RAEX rating agency. programme of support for the State Russian Strategic Communications / Public corporate social responsibility and Sustainable Development Procurement directors of the Corporation Museum. Relations / Corporate Social managers compiled by the Russian Vector) compiled by the Russian Union Sistema's corporate practices of and its assets received awards in the Responsibility and won the national Managers’ Association. of Industrialists and Entrepreneurs identifying material topics for disclosure categories "Optimisation of Procurement In 2017, Sistema became one of the competition of corporate media (RUIE). The survey carried out by the in the non-financial statement won Processes" (Sistema), "Management top 5 companies in the annual ranking resources Silver Cords 2017 for RUIE covered 124 largest companies it the first Russian professional award of Supplier Relations" (MTS) and of Russia's Leaders of Corporate Charity its multimedia light show Victory and Sistema was among 14 companies "Change Management. Visioners", "Automation of Procurement" (MGTS). compiled by the Donors Forum, Vedomosti demonstrated at 13 Mokhovaya St. with the highest scores in the key areas which aims at introducing a system newspaper and PwC. The list includes 52 ahead of 9 May as part of the company's ТОP-50 that characterise good business practice, of comprehensive efficiency assessment The number of the Group's companies largest Russian and international companies efforts to support war veterans and corporate social responsibility including economic, environmental, social to the social investment market. whose executives are included with a turnover of more than RUB 100m that promote patriotism among young managers and managerial aspects. in the Russian national ranking carry out charitable activities in Russia. people. Sistema Charitable Foundation won of procurement directors compiled in 4 categories of the 8th Russian by AK&M has increased from three national competition of voluntary public to eight: Sistema, MTS, MGTS, BPGC, Three Moscow-based assets annual reports of non-profits Point Medsi, Steppe AgroHolding, Segezha of Sistema were named among the Non-financial reporting of Reference, which is designed Group, Binnopharm. ТОP-5 best employers in a contest organised and corporate transparency to increase the transparency and by the Moscow Labour and Social openness of the non-profit sector MTS, MGTS and Detsky Mir were companies in the annual ranking Security Department, the Moscow Sistema won the national contest in Russia. SCF was given the highest awarded "High Transparency" status of Russia's Leaders of Corporate Federation of Trade Unions and "Russian Business Leaders: mark in the competition, the so-called based on the 2017 National Rating Charity the Moscow Confederation Dynamics and Responsibility "Gold Standard." +of Transparency in Procurement. of Industrialists and Entrepreneurs 2017" organised by the RUIE in the (Employers). The Cosmos Hotel category "High Quality of Sustainability Sistema won the Good Cause Champion managed by Cosmos Group won in the Reporting." national contest of corporate volunteering category Further Professional Training projects in the Complex Project category A nation-wide campaign of Employees rising from the second Corporate governance with its regional charity festival, Solony. #ThankYourTeacher launched by place in 2016, while Binnopharm took Sistema Charitable Foundation became second place in the category Ensuring №1 According to the 2017 National a finalist in the contest of advertising and Work/Family Balance for Employees in the national contest Corporate Governance Index marketing communications Effie Awards with Children, and Mikron received "Russian Business Leaders: compiled by the TopCompetence Russia 2017 and a winner of the 6th an award for Providing Temporary Dynamics and Responsibility centre for corporate development with annual Russian contest Event Breakthrough Employment and Organising Public 2017" the support of the Moscow Exchange, in the category "Social initiative". Work for Young People. Sistema and MTS are among the top Sistema was ranked among top 3 10 companies with the best corporate companies for transparency among governance practices. private businesses and financial and investment firms and one of the top 10 The Independent Directors Association among listed and strategic companies included Sistema's Board members based on the results of an annual Anna Belova, Roger Munnings and corporate transparency survey conducted David Iakobachvili in the list of 50 best among leading Russian companies by the independent directors compiled Russian Regional Network for Integrated as part of the Director of the Year Reporting. The Corporation received the National Award. highest score on corporate governance among all other participants of the ranking. Detsky Mir became the leader for transparency in the retail segment and won in the Debut of the Year category.
For more information about the key awards and achievements of portfolio companies, see Annex 2 to the Report.
8 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 9 Приложения PROFILE OF SISTEMA
Overview 12
Mission and values 13
International cooperation 14
Membership in public organisations 16
The Corporation, whose investment portfolio includes assets in more than 10 industries of the real sector and finance, is among Russia's systemically important enterprises and is a major player in the international investment market.
http://economy.gov.ru/minec/about/structure/depsectoreconom/2015020801
10 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 11 Profile of Sistema Responsible Efficient Sustainable development OVERVIEW investment management practices of portfolio companies
GRI 102-16 Sistema PJSFC (hereinafter also, The principal shareholder of Sistema Mission Values is the Chairman of its Board of Directors "Sistema", "the Corporation") Vladimir Evtushenkov, who owns 61.7% Sistema's mission is building a classical Responsibility towards shareholders and all is one of Russia's largest of shares. The Board members and top investment company with multi-industry interested parties is one of the core values managers of the Corporation, as well as the expertise and a positive track record of Sistema, which became one of the first private investment companies companies of Sistema Group, hold another in managing shareholder and third-party Russian companies to join the United Nations 6% of shares. More than 30% of Sistema's funds with investment mostly focused Global Compact (in 2002) and strictly abide whose shares are traded stock is held by minority shareholders on new and innovative industries. by the principles of sustainable development on the Moscow Exchange including institutional investors and enshrined therein. individuals. In 2017, the total number of such Our mission is the long-term growth and on the London Stock shareholders reached 29.3 thousand. of shareholder value through efficient Sistema is among the participants of the UN and responsible management Global Compact Network in Russia and it fully Exchange in the form of global Sistema's shares are included in the of the asset portfolio and achievement embraces the social responsibility concept depositary receipts (GDRs). calculation base of the key indices of the of high returns on investment. The most outlined by the Russian Union of Industrialists Moscow Exchange, while the securities important aspects of the strategy are and Entrepreneurs in the Social Charter of MTS along with the stock of other 20 diversification of the business portfolio, of Russian Business that the Corporation largest Russian companies are included financial stability and efficiency of joined in 2017. In its business activities the in the MSCI Russia Index, which serves investments, business transparency Corporation is guided by the provisions as a benchmark for many international and advanced corporate culture. of the international social responsibility GRI 102-1 investors into Russian assets. standard ISO 26000:2010, Principles for As a controlling shareholder Sistema Responsible Investment (PRI) and the United Since 2016, FTSE Russell, a provider of stock strives to turn its portfolio assets into Nations Guiding Principles on Business and market indices and data services owned by industry leaders through restructuring, Human Rights. the London Stock Exchange (LSE), has been improving corporate governance, including Sistema in its FTSE4Good Index developing business strategies, attracting designed to measure the performance of investments and partners and reducing issuers demonstrating strong Environmental, financial and non-financial risks. Social and Governance (ESG) practices GRI 102-4 GRI 102-5 GRI 102-10 based on an analysis of more than 110 The Corporation and its assets (MTS, Detsky indicators, including labour relations, OUR TEAM: we create value through high competences The Corporation is one of the The subsidiaries and investment funds Mir, RTI, Segezha Group, MTS Bank) are observance of human rights, impact on local controlled by Sistema operate in many among the biggest companies of Russia communities, anti-corruption, responsible countries of the world and across Russia, by revenue according to the national ratings supply chain management and impact the key market of the Corporation, and Forbes 2000, RAEX-600, RBC 500 , on climate and environment. TOP 15 generate about 1% of the GDP and all private Expert 400. investments in the national economy. Russian companies OUR WORK PRINCIPLES: Structure of shareholders' equity effective structure and clear goals in terms of sales Sistema, as one of Russia's 20 biggest private companies, was included in the Forbes GRI 102-12 GRI 102-13 Global 2000 list . 5.9% The Company supports:
The UN sustainable OUR STRATEGY: we are goal-oriented development goals 32.4% RUB bn until 2030 61.7% In 2017, Sistema was among the >7.8 ISO 26000
was paid in dividends to the shareholders as V. Evtushenkov TOP 15 OUR REMUNERAION: depends on the company's real income of 31 December 2017 Shares and GDRs in free oat companies included in the social Principles Shares held by the Board members, top performance ranking of Russia's managers and companies of Sistema Group for responsible biggest companies, which was investment compiled by the AK&M rating agency. The ranking is based on an integrated The United Nations OUR RESPONSIBILITY: https://www.forbes.com/global2000/list/#country:Russia. assessment of the social performance http://www.forbes.ru/rating/350675-200-krupneyshih-rossiyskih-kompaniy-2017. Guiding Principles we develop the economy and create value https://raexpert.ru/ratings/expert400/2018. and the environmental impact on Business for society https://www.rbc.ru/rbc500/. of the companies and Human Rights http://expert.ru/ratings/rejting-krupnejshih-kompanij-po-rossii-po-ob_emu-realizovannoj-produktsii/.
12 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 13 Profile of Sistema Responsible Efficient Sustainable development INTERNATIONAL investment management practices of portfolio companies COOPERATION
Germany
GRI 102-43 Priority areas of international Luxembourg cooperation for Sistema in 2017: Sistema has a good Europe Iran track record in building South East Asia Japan China partnerships with Middle East
international strategic Far East investors and is actively Saudi Arabia India developing cooperation UAE Philippines
with other countries in order Singapore to attract investments into the Russian economy and develop the export potential of the Russian business through Key activities International conferences and forums: the Corporation's projects. In January 2017, representatives Corporation, Namura bank and a branch In October 2017, during the visit of a big Iranian company Mostazafan of HSBC bank. Subsequent meetings of the king of Saudi Arabia to Russia To achieve this goal Foundation visited Sistema's head with the representatives of the Japanese an extended meeting of the Russian- International economic forum of Sistema's top managers were focused Sistema joins efforts office. The main subjects of negotiations business were held during the visit of Japan's Arab Business Council (RABC) in Davos on the subjects of import substitution and were agriculture and timber processing. Prime Minister Shinzo Abe to Russia at the and the Russia-Saudi investment production modernisation and creation with the Russian Direct In the course of a return visit in February, end of April 2017 and during the Eastern business forum were held. On the Sistema is a permanent participant of the of the "Made in Russia" national brand. a delegation from Segezha Group Economic Forum in September 2017. sidelines of the forum an agreement forum representing the Russian business. Sistema held talks with foreign partners Investment Fund (RDIF) reached an agreement with the Iranian was signed between the largest In 2017, the Chairman of Sistema's Board to discuss potential investments in the and other partners in the side on supplies of the company's In April 2017, one of Sistema's largest producers of grain and oil crops in the of Directors and the top managers of the projects of Sistema Group in agriculture, products to Iran. partners, China Investment Corporation south of Russia, RZ Agro Holding Group, Corporation held more than 30 meetings timber processing, construction and timber and pulp and paper (CIC), came to Moscow with a joint venture of Sistema and the Louis with the representatives of business pharmaceuticals. In February 2017, a delegation from a business visit. As part of the visit the Dreyfus family, and a Saudi agricultural and political circles, the largest global industries, agriculture, Sistema headed by V. Evtushenkov Chairman of Sistema's Board of Directors and livestock investment company banks, investment and manufacturing Eastern Economic Forum healthcare, residential visited the United Arab Emirates. and the President of CIC held talks, visited SALIC that is considering investing companies in the US, UK, Switzerland During the visit the two sides discussed Detsky Mir's flagship store and Medsi's in RZ Agro Holding Ltd. and some other countries in Europe, Asia The forum is used for establishing development, consumer potential cooperation in agriculture, clinicodiagnostic centre at Krasnaya Presnya. and the Middle East. business contacts with Asian partners and tourism and healthcare. In November 2017, Sistema's developing the Corporation's projects in retail, etc, and co-invests In May 2017, during the visit of the representatives travelled to St Petersburg International the Far East. Following the meetings held in growing companies In March 2017, the management President of the Republic of the Philippines Singapore in order to present the Economic Forum in 2017 Sistema took decisions in relation of Sistema visited New Delhi (India) to Moscow, a business delegation Corporation's opportunities to the local to expansion of its business in the through its venture and Japan. Meetings were held with from the Philippines visited Sistema's entrepreneurs. The forum's discussions of the region in the following sectors: tourism, major Japanese companies: Itochu, head office. During the negotiations the development prospects of the Russian construction, telecommunications and and private equity funds. Sumitiomo Corporation, Marubeni parties discussed opportunities for joint economy in 2017 with participation microelectronics. Corporation, Iida Group Holdings, Sojitz investments.
China Investment Corporation is one of the largest shareholders of Detsky Mir through the Russia-China Investment Fund.
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Sistema and its persentatives take part International organisations Sistema's Board Chairman Vladimir The representatives of Sistema take part The Intergovernmental Working Group in activity of vide range of business and and associations: Evtushenkov is a member of: in the work of specialised advisory bodies of the Russian Ministry of Economic public organizations: of the government authorities, industry Development for implementing EU-Russia Industrialists' Roundtable; Management Bureau of the Russian associations and public organisations, the concept of public non-financial Union of Industrialists and Entrepreneurs including those related to CSR: statements in Russia. Russian organisations and Business Council for Cooperation With (head of the Committee for Industrial associations: India; Policy); Committee for Corporate Social Sistema Charitable Foundation Responsibility and Demographic Policy is a member of the Donors Forum, National Russian Union of Industrialists Russian-Chinese Business Council; Council of the Russian Chamber of the Russian Union of Industrialists Council on Corporate Volunteering and and Entrepreneurs; of Commerce and Industry (chairman of the and Entrepreneurs; Association of Volunteer Centres of Russia. Russian-Arab Business Council; Committee on Scientific and Technical Russian public organisation Business Innovations and High Technology); Corporate Social Responsibility The President of Sistema Charitable Russia Russo-British Chamber of Commerce; Committee of the Managers Association Foundation is also a member Russian-Arab Business Council (the Corporation was a partner of the HR of the Russian Government's Social Chamber of Commerce and Industry Belgian-Luxembourg Chamber (chairman) and Russian-Saudi Business Committee in 2017); Protection Council. of the Russian Federation; of Commerce in Russia; Council;
Russian Institute of Directors; World Economic Forum. National Council on Corporate Governance; Independent Directors Association; Commissions: Board of the Moscow Confederation Russian Managers Association; of Industrialists and Entrepreneurs The India-Russia Intergovernmental (Employers); Agency for Strategic Initiatives (ASI); Commission on Trade, Economic, Scientific, Technical and Cultural Cooperation; Boards of Trustees: the Moscow Exchange Share Issuers Committee; The Russia-Singapore Intergovernmental Fund for Development of the State Commission. Russian Museum “Friends of the Russian Russian Risk Management Society; Museum” (Chairman);
Corporate Lawyers Association; The Lomonosov Moscow State University and its Institute of Russian Language and National Association of Corporate Culture; Secretaries and Club of Corporate Secretaries. Higher School of Management of St Petersburg State University;
The National Research University Higher School of Economics (from 2017);
Russian Geographical Society;
Russian Olympians Foundation;
Handball Federation of Russia;
M-ART Foundation for Support and Development of Art, Culture, Environmental Projects, Science and Sport;
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Investment policy and principles 20
Business model and asset management 26
Sustainable development and corporate 32 responsibility
Social investment 37
Andrey Dubovskov
President of Sistema PJSFC
"We wil continue investing in the "new economy" because that is where we can create maximum shareholder value. Global economic and technological growth is currently concentrated in new technologies, which have a really big impact on the world's economic situation. Our goal is to make sure that the main asset of the Corporations is expertise in the field of new technologies that are changing our lives".
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Creation of value for stakeholders, Sistema's investment process is governed Процесс инвестиционного отбора в АФК «Система» by strict internal regulations and procedures. thorough assessment All potential investment projects are of the company's impact registered in an electronic Bank of Ideas, thoroughly analysed and should be on society and environment, approved by the Strategy Department, Board of Directors Meeting of shareholders Finance and Investment Department and effective management Corporate Governance & Legal Affairs of non-financial (ESG) risks and Department before being reviewed by the All related party transactions are Related party transactions worth Expert Council and a relevant committee. reviewed by an independent more than 10% of Sistema's net opportunities are necessary committee asset value All key investment deals and projects for ensuring sustainable proposed by portfolio companies undergo development, generating an in-depth review as part of Sistema's multi-stage investment process. In addition Top management high returns on investment to financial and industrial analysis lying at the basis of decision-making on Finance and Investment Committee (FIC) for shareholders and growing each project, such elements as quality of management, HR processes, production the value of portfolio assets. –– Step 1: Project approval (including business plan, timeline and preliminary terms) base, infrastructure, technologies, social responsibility and environmental risks are –– Step 2: Transaction approval (final terms) also taken into account. External consultants –– Each step requires approval from Strategy Department, Finance and Investment are engaged when it is necessary Department and Corporate Governance and Legal Affairs Department to conduct comprehensive due diligence.
The Corporation promotes the principles of responsible investment in the expert Managing partners /heads of departments Sistema's responsible Efficient management Monitoring and control and professional investment communities investment principles through cooperation with the UN Global Expert Council Introduction of uniform standards in Ensuring regular Board oversight over Compact Association in Russia and other Best practices corporate governance and business ethics implementation of strategies, efficiency non-governmental organisations in which –– Approval of investment ideas in portfolio companies of management systems and reporting Sistema is a member. –– Approval from Strategy Department, Finance and Investment Department and Meeting the priorities of socio-economic processes in portfolio companies Corporate Governance and Legal Affairs Department is required development of countries and regions Involving portfolio companies in a regular of the company's presence and strategic planning cycle, setting common Monitoring incidents in portfolio Investment ecosystem working towards the global sustainable goals for the Corporation's companies companies as part of risk management development goals and ensuring coordinated management system The investment ecosystem of the of the key sustainable development areas Corporation is a model of a non-resource- Observing human rights and complying in portfolio companies (human resources, Promoting innovations and organisational based (not related to production and sale Managing Partners with applicable laws at all stages of risks, procurement and supply chains, improvements in portfolio companies of mineral resources and hydrocarbons) investment activity social responsibility and corporate charity) modern economy that is founded on high- In accordance with the concept of responsible tech businesses and efficiency enhancement Ensuring zero tolerance to corruption and Implementation and certification of investment Sistema selects new areas for in traditional industries through introduction conflicts of interest in investment and asset management systems under international investment and develops strategies for its of innovations and new technologies. management practices standards portfolio companies taking into account the In accordance with its strategy the ESG factors in order to assess the potential Sistema's asset portfolio includes both Corporation invests mostly through funds ≈ Meeting the requirements of international Formation of a homogeneous corporate impact of assets on industrial, social and enterprises and vertically integrated industrial created in partnership with other co-investors 10% ESG guidelines and business transparency culture and responsible business practices environmental spheres in the regions of holdings in which Sistema directly holds and focused on new technologies and of М&А projects originated and based on ethical values, respect for operations. majority stakes, and investments through promising industries, including fast-growing analysed by Managing Partners are Addressing ESG risks and employees, shareholders and consumers, funds and companies under Sistema's startups at mature stages with no limitations submitted to the Expert Council and opportunities and care for people and the environment control, primarily in the growing digital sector. as to geography or industry. Finance and Investment Committee
Taking into account the potential impact of investment projects and operations of portfolio companies on the economy, environment, employees and communities when taking decisions on investments, asset management and exits
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GRI 102-2 GRI 102-6
Investments through SISTEMA'S PE INVESTMENTS INVESTMENTS THROUGH VENTURE AND PE FUNDS portfolio companies
Investments in big and medium assets with potential for creating industry leaders Investments in promising technological businesses, including startups with partners Growth of business and App- roach market shares through M&As, entry into new Making major investments mostly in the segments where the company already operates, engaging industrial partners Developing existing funds and creating new ones with a focus on new technologies as an additional source markets with potential and co-investors for existing and new projects, including through stock market mechanisms of value, capital and income, finding co-investors for synergies. Strategic focus Strategic
Sector Public assets Non-public assets Fund/Investment Specialisation
Telecoms and digital services –– PJSC MTS is the leading telecommunications Sistema Venture Capital Deep Tech startups specialising in knowledge-based technologies Examples of investments: operator and digital that are hard to replicate: machine learning, computer vision, Big Data. Ticketland.ru, service provider Ponominalu.ru -– in Russia and СIS ticket distributors countries –– Russia's leading multi-category online retailer High technology –– RTI is the largest holding operating in the segment of radio systems, microelectronics and comprehensive communication systems –– Scientific and educational products based on VR/AR technologies. –– Kronstadt Group is a Russian leader in development and manufacturing of high-tech products –– Developer of products in the segment of network infrastructure virtualisation –– Sitronics is a large-scale intelligent systems creator and intergrator on the basis of NFV/SDN technologies –– Sarov Technopark –– Innovation Technology Centre Sistema Sarov –– A mobile app that enables users to book flights and hotels and rent cars at the lowest possible price. Forest industry –– Segezha Group is the largest vertically integrated forest holding in Russia –– A training platform for cyber athletes and players of multi-player online games
–– Online and mobile service connecting customers with service providers Healthcare and pharmaceuticals –– Medsi Group is the leading federal chain of healthcare facilities, offering a full range of medical services for performing household errands and business tasks –– Binnopharm is one of Russia's largest full-cycle
company of JSFC Sistema biopharmaceutical companies Sistema Asia Fund Consumer Tech: consumer sector technologies including e-commerce, healthcare, transport, media, finance and education. –– Detsky Mir Group is the –– Concept Group is one of the leading monobrand retailers Consumer sector Enterprise Tech: Internet of Things (IoT), virtual and augmented reality (VR/ largest children's goods in the segment of children's and women's clothes and underwear AR), platform solutions, Big Data, artificial intelligence (AI), machine learning retailer in Russia and in Russia, Belarus, Kazakhstan, Armenia, Azerbaijan and India (ML). Kazakhstan –– Enterprise Digital Rights Management system Agriculture –– Steppe AgroHolding is one of leading agricultural companies
INVESTMENTS –– A supplier of corporate cloud software in the segment of gift cards in the South of Russia specialising in crop farming, dairy farming, fruit and vegetable growing –– A mobile platform for selling women's clothing –– RZ Agro Holding –– Biryulya Maral Farm –– India's biggest digital fitness platform Real estate –– Leader Invest is a full cycle development company, the leader in the number of projects in Moscow –– India's biggest online pharmacy –– Business Nedvizhimost leases out its own real estate assets and the real estate assets under its management Electric power –– Bashkir Power Grid Company (BPGC) is a large regional power –– A marketing platform for restaurants grid company (Russia, the Republic of Bashkortostan)
Hospitality business –– Cosmos Group is one of Russia's leading hotel management Rusnano Sistema SICAR Hard Tech: information technologies, software and cloud technologies, companies renewable energy and microelectronics A developer of unique 3D construction printers
Banking and finance –– MTS Bank is a universal financial organisation that provides –– A developer of unique 3D construction printers banking services –– Sistema Capital is a management company that provides asset management services on global financial markets for individual –– A developer of technologies for analysis of oil wells and corporate customers
Sarov Technopark was set up as a result of a public-private partnership; RTI is in charge of the Technopark's strategic management within Sistema Group. A joint investment of Sistema and MTS. A joint investment of MTS and Sistema Venture Capital.
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Development of a venture ecosystem Support of small enterprises in India
Sistema_VC is an active member Computer vision is an element of artificial On the basis of its Asian investment unit Sistema Asia Fund made an investment Wooplr helps women from small Indian (RUB 22,500 – 45,000) a month. of Russia's venture ecosystem. The intelligence which enables a computer Sistema created a platform called "Sistema in an Indian social e-commerce platform towns to make money, turning them into All logistical matters are handled investment fund organises and supports to recognise images, describe them and Business Scalerator", helping companies Wooplr, which makes a significant small individual entrepreneurs. How by Wooplr and commission is transferred business, technology and innovation extract the most important information at the stage of growth to increase sales, contribution to development of private it works: to the seller's account on a weekly basis. events designed to promote scientific from the collected data. Teaching enter new regions and markets of Russia, entrepreneurship in India. According and technological progress. Such events a machine to see and understand images, India, Singapore and other countries to statistics, a little bit more than Large and small Indian producers For many potential customers in India, provide a platform for exchange of events and the surrounding environment of South-East Asia. 30% of Indian women aged from 15 publish catalogues of fashion and especially those living in small towns, experience within business communities is one of the most complicated tasks to 49 are officially employed. Many home goods on Wooplr and distributors doing online shopping may be an and for introducing portfolio startups faced by scientists in the last decade. of them live in small towns were career find buyers through social media and uncomfortable experience. Placing to the market participants. opportunities are limited. Many women messengers (Facebook, WhatsApp, etc.) an order with a friend through social The summit was attended by world- have to quit their jobs after getting for a commission ranging from 15% media is much easier than searching In 2017, Sistema_VC jointly with its famous scientists and research groups married or having children. That is why to 25% of the product price. In this way for products and buying them on the portfolio company VisionLabs hosted the that have significant influence on the women account for more than 60% the sellers, who act as opinion leaders, producer's website. Moreover, a seller first international summit on computer development of robotics, unmanned of all distributors working via social attract customers and boost sales, are may give recommendations and save vision in Russia and the CIS ("Machines transport, augmented reality, medical shopping platforms in India. able to earn about INR 25,000-50,000 the customer's time. Can See"). diagnostics and many other industries.
Promotion of self-employment in Russia К buyers According to various estimates, there people, and may become one of the are from 15 to 20 million self-employed key tools for developing the market >800 people in Russia working without the and culture of self-employment. official status of a sole trader. At the same All providers are checked by the online К sellers m users time, some categories of the population service and assessed by users, which (students, young mothers, disabled and guarantees a high quality of their work. 2.5 >300 retired people) are often excluded from The procedure of verification and the traditional economic system and identification of new service providers cities are not able to remain a part of active is conducted with the help of neural К providers workforce. An optimum solution for networks and Big Data analysis. YouDo 600 5,000 providing employment to such groups may be accessed through a website of people in the modern digital sharing or a mobile application. In 2017, the service categories economy is to use online aggregators service became available not only to the К goods that connect service providers with their residents of Moscow and St. Petersburg, 16 customers. but also to people from Kazan, Nizhny 50 Novgorod, and Yekaterinburg. Moreover, cities Sistema_VС and MTS invested into the aggregator can now be used by brands Russia's largest service YouDo that corporate clients and sole traders. 5 enables users to quickly find reliable In the near future the service will be 300 providers of various household and launched in all regions of Russia. business services, helping customers * National Family Health Survey 2015-2016 to save time and money and self- The most popular services provided via employed people to find new clients YouDo: minor repairs, home cleaning, RUB bn and earn a living. The platform is taking food delivery, cargo transportation, part in the pilot project of Russia's furniture assembly, courier services, 3.9 Federal Tax Service aimed at testing creation of websites, photography and the new tax status of self-employed video services, computer help, etc. income for service providers
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Based on a clear strategic Sistema is focused on strategic The level of organisational maturity of the portfolio assets is determined development of its investment portfolio by auditing key business processes in the following 8 management vision, strong expertise as a whole, aims to minimise direct categories: and more than 20 years intervention in the operations of its controlled businesses and takes of experience in various a differentiated approach to corporate governance, taking into account the level industries, Sistema of assets' organisational maturity. strategy quality effectiveness of HR policy accumulates and distributes Depending on the assets' ability to ensure sustainable development and efficiency financial capital in such enhancement the Corporation implements uniform corporate a way as to ensure high governance principles and standards returns on investment in compliance with best practices level of development effectiveness of governance and manages portfolio companies of operational expertise processes through the preservation through their boards of directors, which include representatives from and augmentation of the Sistema. The Corporation also conducts productive, intellectual, monitoring and control of key business processes at the initial stage of their human, reputational and formation in developing companies. financial stability effectiveness of internal The Corporation's plans for developing control and audit tools natural capital to ensure corporate governance systems sustainable development at portfolio companies include expansion of the boards' powers and responsibilities of business and society and appointment of more independent directors. quality of planning system effectiveness of communications in the long term.
Capital Recycling of capital Capital indicators Financial Raising – Allocation – Growth of asset value – Monetisation – Dividends for shareholders >RUB 14bn () Reinvestment (investment in new promising projects, development Return on investment, including dividends from portfolio companies and asset monetisation >RUB 68bn () of current portfolio projects, income from sale of asset (stake) / IPO, Net income attributable to Sistema, RUB 4.1bn () distribution of income in the form of dividends)
Human –– Building management teams for portfolio companies Headcount 142,781() –– Training and professional development of employees Average salary RUB 49,441 () –– Health and well-being of employees Average annual number of training hours per employee 11.8 hours () –– Investments in education and human resource development Average labour productivity RUB 5m/person a year ( = ) Social and –– Interaction with stakeholders Social investments in communities RUB 1.3bn() reputational –– Investments in communities, charity and volunteering Tax payments to the budgets of all levels RUB 111.4bn () Share of positive stories in mass media reflecting the strategic goals of the Corporation 78.5% () Manufacturing –– Modernisation of production facilities Investments in fixed assets 117.7bn () BEST PRACTICES BEST –– Investment programmes of portfolio companies of capital Synergies
Intellectual –– Innovations, new technologies and R&D OF IMPLEMENTATION Number of registered intellectual property rights 172 () –– Venture capital investments system governance Sistema's Number of IP applications submitted 116 () –– Innovation Portfolio companies' governance system governance companies' Portfolio
Natural –– Compliance with environmental standards and environmental protection Volume of direct greenhouse gas emissions 1,205,650.30 tonnes of CO2 equivalent () –– Introduction of “green” technologies, resource saving and energy saving Energy consumption 156,468,588 GJ () –– Preservation of biodiversity Water withdrawal 187,049 K m3 () Water discharge 184,628 K m3 () Environmental protection expenditures RUB 383,096.4m ()
Growth, Reduction, = stable level compared to 2016. Average wage net of top management. Including financing of own charity and social projects of Sistema and its portfolio companies, financing of the programmes of Sistema Charitable Foundation, the operating expenses of the corporate charitable foundation and allocations from Sistema and its portfolio companies to the foundation.
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GRI 102-22 GRI 102-32
Advanced corporate governance practices at Sistema Contribution to improving the quality of corporate governance in Russia
Sistema's corporate governance Sistema's Board of Directors oversees The Corporation implements CSR The representatives of the Corporation secretaries an official status in the law. initiatives in the area of civil and system is built on the basis of best the work of Strategy Committee, projects for all groups of stakeholders. are actively involved in the activities In October 2017, a meeting of the Club corporate legislation, including practices and standards and makes Audit, Finance and Risk Committee, of organisations promoting advanced of Corporate Secretaries was held development of regulations on the legal it possible to safeguard the interests Nomination, Remuneration and The Corporation has procedures corporate governance practices in Sistema's office at Mokhovaya St. status of controlling and controlled of shareholders, ensure transparency Corporate Governance Committee, in place for ensuring informational in Russia: the National Association The meeting was attended by more than persons that would hold a controlling and accountability of the Corporation Ethics and Control Committee and transparency. The Regulation of Corporate Secretaries (NACS) and 50 corporate secretaries who shared person liable for any losses inflicted and achieve its strategic goal of ensuring Investor Relations and Dividend Policy on Information Policy approved the Club of Corporate Secretaries, their experience in the area of planning on a controlled entity. long-term growth of shareholder value. Committee. by the Board of Directors governs the Agency for Strategic Initiatives the work of boards of directors and the company's activities in the and the Moscow Exchange Share ensuring oversight over execution As a member of the Moscow Exchange Key characteristics of Sistema's At the general meetings of shareholders area of external communications, Issuers Committee. of boards’ resolutions. The discussion Share Issuers Committee Sistema took corporate governance system: the Corporation ensures a constructive voluntary and mandatory information was moderated by Sistema's Corporate part in the discussion of amendments dialogue between the shareholders disclosures in accordance with As part of its membership in the National Secretary and Club Chairman Igor Petrov. to the Listing Rules related to pre-listing Following the 2017 annual general and the members of the governance the requirements of Russian and Association of Corporate Secretaries of securities and regular disclosures meeting of shareholders, the share and control bodies who answer all foreign regulators. Sistema proposed amendments to the As a member of the Agency for of information for investors and of independent directors exceeded questions put by the shareholders and Federal Law ”On Joint-stock Companies” Strategic Initiatives the Corporation shareholders on the issuer's website. one third of the entire elected Board. provide clarifications on the agenda with regard to assigning corporate is involved in reviewing lawmaking items. The Board of Directors is effective in performing its key function The remuneration of Sistema's Igor Petrov of strategic management of the management includes short-term Corporation. The fact that a lot of the and long-term components. Corporate Secretary Key social issues on the Board's agenda of Sistema meetings of the Board of Directors require attendance in person The Board of Directors conducts In June 2017, the Board of Directors approved a revised charity strategy provides an opportunity for collective an annual assessment of risk of Sistema approved an updated strategy of the Corporation envisaging creation "One of the Corporation's priority and comprehensive discussion management system and reviews objectives for 2018-2019 is to continue in the area of HR management and of a new programme on the basis of agenda items. a report from the internal control unit. improving corporate governance practices highlighted the following priority areas: of Sistema Charitable Foundation and 15% within Sistema Group. Lift to the Future project designed The Corporation introduced a regular Every year Sistema's Board conducts The Boards of Sistema and its portfolio creating an environment conducive to develop Russia's technology of the total number of items practice of involving independent a self-appraisal of its collective and companies are playing the key role to fulfilment of the employees' career environment and human capital. reviewed by the boards of directors Board members in analysis of individual performance. in building an effective system of corporate potential; are labour relations items investment projects through active relations in Sistema’s assets. A balanced The Group's boards of directors and challenging of the management approach to forming a corporate forming an external succession their relevant committees conduct on the key agenda items of the Board governance system lies at the basis pool which would take into account regular reviews of the following matters: of safeguarding the interests of the meetings. This approach makes the corporate culture and business charity projects, relations with local Corporation's shareholders and investors, it possible to significantly increase Board members and management and, models of Sistema and its assets; communities, quality of products and the involvement of the Board members consequently, achievement of Sistema's services, occupational health and safety. in analysis of investment projects. development goals and objectives, which enhancing employee performance Labour relations is the key CSR matter For more information on the corporate include improvement of the investment and engagement through training on the agendas of the Group's corporate governance system see the 2017 Annual appeal of the Corporation and its assets". and other initiatives. governance bodies: it accounted for 15% Report, p. 72-89 of the total number of items reviewed In December 2017, the Board by the boards of directors of 12 portfolio of Directors of the Corporation companies of Sistema.
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Key international certificates of Sistema Group companies Agreements signed with Russia's regions in 2017 Sector Key certificates of companies Subject of certification Telecoms and digital services ISO 19600 Compliance High technology ISO 9001, 14001, 50001, 27001 Quality, environment, energy management, information security ISO 9001, 14001, FSC, OHSAS 18001, Quality, environment, responsible forest management and supply chains, Forest industry The Agreement with the Samara region The Agreement with the Krasnodar ISO 14025, ISO 21930, EN 15804 occupational health and safety, environmental product declaration envisages attracting investments to such region provides for development Healthcare and sectors as healthcare, industrial and of joint projects in agriculture, retail, ISO 9001, GMP Quality, manufacturing and quality of medicines pharmaceuticals high-tech production, agriculture, retail, information and telecommunication Electric power ISO 9001, 14001 Quality, environment information technologies and banking technologies and attracting Certification of milk under European services. investments into the region's economy. Agriculture Quality and safety of products standards In 2017, Sistema and its portfolio companies The Agreement also sets forth signed a number of new agreements on The Agreement with the Kostroma the parties' unwavering commitment social and economic cooperation which set region is aimed at implementing joint to protection of the environment, out the most promising areas of strategic initiatives in the forest, consumer and rational use and restoration of natural One of the key signs of organisational partnership between the Corporation and textile industries, agriculture, machine resources and ensuring environmental maturity and sustainability of portfolio regional authorities. building and retail. Moreover, the parties security when implementing investment companies is implementation to the Agreement are considering projects. of management systems certified under Moreover, in order to develop modern opportunities for creating a major international standards. telecom infrastructure and overcome competitive and diversified business digital inequality MTS signed a number in the high-tech sector. of agreements for building communication GRI 102-43 Key agreements with Russia's regions networks in the Republic of Adygeya, Social and economic the Komi Republic and the Kamchatka cooperation with Russia's Group companies Other regions Territory. regions Sistema The government of Moscow, the Arkhangelsk, Kirov, Kostroma, Samara and Krasnodar regions. The Corporation is building relations Sistema Charitable The Republic of Altay. with Russia's regions on the basis Foundation of mutually beneficial social and MTS The Republic of Adygeya, the Republic of Dagestan, economic partnership. The existing the Kamchatka region, the Krasnoyarsk region, the Novosibirsk Cooperation with the Karachay-Cherkess Republic agreements signed by Sistema and region, the Komi Republic, the Ryazan region, Tobolsk. its portfolio companies with the local Segezha Group The Republic of Karelia, the Kirov, Kostroma and Rostov regions. In March 2017, Sistema's top managers governments are aimed at raising held a meeting with the governor of the Steppe AgroHolding The Stavropol region. investment, creating a favourable Karachay-Cherkess Republic to discuss economic and social environment BPGC The Bashkortostan Ministry of Education. plans related to modernisation of the in the regions where the Corporation Sitronics The Republic of Ingushetia. Yuzhny Agricultural Complex and operates. increasing Sistema's investments in the region's healthcare and other sectors. As part of its regular cooperation with Russia’s regions the Corporation After acquiring the Yuzhny Agricultural conducts monitoring of the situation, Complex in 2016, the Corporation coordinates and implements joint In 2017, the companies immediately launched comprehensive projects with the regional governments of Sistema Group signed modernisation of the enterprise. As a result, in order to expand its presence in local production volumes, tax payments to the new agreements markets and modernise its production regional budget and employee wages were facilities, boost the productivity of its ≈10 increased three-fold. enterprises, increase the gross regional product and tax receipts, and contribute with Russia's regions to the creation of new jobs.
As of end of 2017
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The Corporation is aware of its Social responsibility and By following the core principles responsibility to stakeholders for effective sustainable development policies of the UN Global Compact in the area management of ESG risks as part and practices of human rights, employment relations, The companies of Sistema of sustainable development and makes environmental protection and zero a substantial contribution to addressing Sistema sees corporate social tolerance to corruption for more than Group operate in many global and national priorities in this area. responsibility (CSR) as a platform for 15 years, as well as the principles of the sectors of the economy Among the key priorities are the UN sustainable and harmonious development Social Charter of Russian Business (that sustainable development goals until 2030. of its business, the communities and Sistema joined in 2017), the Corporation and have significant regions where the company operates pursues its policy not only through strict and their environment, while taking into compliance with laws and ethical business impact on social and account the interests and needs of key practices but also through consistent stakeholders in order to strengthen the and long-term social investments, social natural environments Corporation's reputation as a responsible and economic partnerships with regions, and various aspects investor and a reliable partner. support of communities and non-profit initiatives, and promotes responsible of sustainable development. business practices among its portfolio companies, partners and suppliers.
Sistema's assets and the UN sustainable development goals until 2030
Sustainable development goals
Economy sector 1. Telecoms and digital services 2. High technology
3. Forest industry
4. Healthcare and pharmaceuticals 5. Consumer sector
6. Agriculture
7. Real estate
8. Electric power
9. Hospitality business
10. Banking and finance
11. Non-profit sector
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CSR principles CSR and sustainable development management system of Sistema Group: Key regulations on CSR and sustainable development Functions Strict compliance with the law and The operational management of the Group CSR strategy and KPIs business ethics; of companies covers the full range of social –– Sistema's CSR & Charity Strategy –– Development and implementation of corporate policies in the area of responsibility and sustainable development Sistema's key strategic goal is consolidation Zero tolerance and prevention –– Corporate Social Responsibility Policy corporate social responsibility and issues: labour practices, environment, of the Group's efforts to facilitate of corruption in all its forms; –– Charity Policy charity. quality of products and services, human sustainable development of the business, rights, cooperation with local communities, communities and environment on the –– Code of Ethics –– Implementation of uniform business Long-term contribution ethics standards and anti-corruption occupational safety, management of supply basis of shared values and to support the to the development of regions and –– HR Management Code compliance chains, charity, etc. In some of its portfolio good business reputation of the company support of local communities; companies Sistema established special in accordance with the CSR KPIs approved –– Risks Code –– Methodological and informational executive committees chaired by the by the Board of Directors: –– Policy on Remuneration Payable to Sistema Employees support of portfolio companies on Investment in human capital and SCR, sustainable development and President and/or Management Board, stimulation of innovation; –– The Anti-Corruption Policy public non-financial reporting which are responsible for coordinating level of corporate volunteering (share –– The Corruption Prevention Concept –– Participation of the Corporation's the management of the most significant of the total number of volunteers Improvement of living standards representatives on the boards of aspects of the company's impacts. involved in corporate programmes);
SISTEMA –– Policy on the Hotline through social investments and new portfolio companies in reviewing items technologies; –– Policy on Processing and Protection of Personal Data related to social and environmental building a pool of young talents responsibility –– Terms of Reference of the Dispute Resolution Commission (number of active participants of the Lift Creation of favourable and safe working –– Review of strategy and KPIs in the area to the Future programme); conditions and equal opportunities; of social investment and corporate charity by the relevant committee and involvement in joint CSR projects approval by the Board of Directors Observance of human rights and non- (average weighted coefficient of the discrimination; Exchange of best Group's engagement in integrated practices programmes and projects taking into Minimisation of negative impact account the scale of activities); on the environment; –– Charter of Sistema Charitable Foundation –– Development and implementation of social investment strategy of the –– The Corporation's charity strategy CSR regulations and social reporting Corporation Balance of stakeholder interests, (the number of the Group's companies –– Charitable Programme of Sistema Charitable Foundation openness and transparency; –– Formation and financing of the Monitoring and with CSR/environmental policies and –– Anti-Corruption Policy portfolio of strategic programmes reporting public reporting in place, including GRI Implementation of responsible –– Regulation on expenses –– Coordination of corporate charity and reports ) practices in the supply chain; volunteer projects –– Policy on prevention and resolution of conflicts of interest SISTEMA SISTEMA –– Publicising Sistema's input in the communication of CSR activities to the Ensuring high quality and safety –– Code of Ethics improvement of the standards of living mass and social media to raise the of products and services. of local communities awareness of stakeholders.
These principles are set out in the internal FOUNDATION CHARITABLE The corporate social responsibility strategy CSR policies and strategies, and other of Sistema is aimed at creating synergies regulations governing the activities and Investments among the companies of the Group. defining the sustainable development in corporate charitable In 2017, the Corporation implemented goals of the portfolio companies Basic set of regulatory documentsв –– Using uniform corporate standards more than ten major initiatives involving and principles of responsible business foundation of Sistema Group. In accordance with several assets. The level of portfolio –– CSR & charity strategies and policies practice the investment company model Sistema's –– Codes of ethics companies' engagement in joint activities key objectives are: implementation –– Management of health and safety increased from 39% to 66%, and the –– Anti-corruption policies issues, product and service quality, and of uniform standards, formation average weighted value of this indicator –– Hotline policies environmental impacts of strategies, KPIs and public non- adjusted for the level of project priority –– HR management policies Joint projects financial reporting of portfolio companies, –– Organisation of projects synergistic increased two-fold. –– Procurement management policies with other Group companies monitoring of CSR programmes and –– Internal rules of conduct and labour discipline projects, and promoting best practices. Industry-specific regulations Policies/regulations for: –– Environmental protection Volunteering PORTFOLIO COMPANIES PORTFOLIO –– Occupational health and safety –– Quality assurance for products and services
When calculating the indicator, the scale of the project and the number of companies involved in it were taken into account. 34 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 35 SUSTAINABLE DEVELOPMENT AND CORPORATE RESPONSIBILITY Profile of Sistema Responsible Efficient Sustainable development SOCIAL INVESTMENTinvestment management practices of portfolio companies
CSR synergies in Sistema Group Sistema aims to make CSR policies and strategies of portfolio companies: best a regular and consistent Number of practices participants Programme / project contribution to the social (portfolio MTS and Segezha Group are demonstrating of an analytical session attended by the companies) the most mature approach to strategic representatives of 15 Russian and foreign and economic development Children's festival Solony management of sustainable development subdivisions of the holding. (Altay, Karelia) 8 and CSR issues. The CSR strategy of MTS of Russia by managing Be Healthy with MEDSI!: 8 was developed after conducting self- The CSR strategy of MTS was developed its social investments appraisal for compliance with standard ISO and approved by the Board of Directors Lift to the Future 8 26000 and holding a meeting of the CSR in 2016. The strategy sets outs plans for through its corporate “Giving Tuesday” 7 Committee chaired by the President of contribution of the leading mobile operator MTS. The CSR strategy of Segezha Group in Russia and the CIS to implementation charitable foundation. “Telecom Idea” 7 was based on a comprehensive social of the 2030 UN sustainable development “Wishing Tree” (New-Year and environmental audit and the results goals and national priorities. performances) 6
Volunteer clean-up days 6 Alexey Kornya Science festival NAUKA 0+ 5 74% President of MTS Environmental campaign I Choose Forest organised of the Group's companies had internal with FSC. 5 CSR policies and strategies in place “Detsky KinoMay“ charity film or under development in 2017. forum 3 "Our key goal it to improve peoples’ quality of life by developing innovations Russian Climate Week 3 and providing a broad range of services Children's Festival “Redhead” 2 47% to our clients. Being responsible for our actions is essential for the sustainable GRI 203-2 GRI 413-1 Anna Yanchevskaya Festival of corporate of companies set KPIs in the area development of our company". 2 volunteering theatres of corporate social responsibility. Sistema Charitable Foundation (SCF), The charity programme of Sistema founded 15 years ago and being one Charitable Foundation is formed on the President of Sistema Charitable Foundation of Russia's largest corporate charities, basis of the Corporation's development is consolidating the financial and strategy, the social priorities of the #GivingTuesday: World Charity Day volunteering resources of Sistema Group's companies and specific Group to achieve maximum efficiency requests from stakeholders. All of the The World Charity Day attracting five-fold from the ordinary. About 4,000 additional education to special needs of investments. Among SCF's priorities projects included in SCF's charity "Being a corporate charitable foundation, participants from more than 60 people visited the Mikhailovsky castle children and orphans, and to pay for are the infrastructure and systemically programme go through a mandatory we include the priority sustainable countries each year. Sistema has during these two days. their medical rehabilitation. important projects of national scale that expert review and are then submitted development goals determined by been supporting the #GivingTuesday ensure substantial long-term changes for approval to collective governance Sistema into our strategy. The main campaign from the the very first Medsi and Women's Health charity The Onego Palace Hotel (Cosmos in the social environment and create bodies, while relations with beneficiaries projects of SCF are currently aimed day of its launch in Russia. In 2017, project launched a photo exhibition Group) together with the republican a stimulus for its sustainable development. are regulated by internal procedures at achieving two major goals: development of human capital and Sistema Charitable Foundation and "Male Support" at CDC Krasnaya Presnya youth centre organised a charitable designed to ensure the lawfulness and creation of technologies to improve 6 companies of Sistema Group took devoted to the families where men helped auction selling works by local Karelian Implementation of social programmes financial transparency of donations peoples’ quality of life. In addition part in the campaign by conducting their partners to cope with breast cancer craftsmen. The proceeds were divided through an in-house charitable and to rule out any political and other to these long-term initiatives we have activities aimed at promoting charity treatment. The organisers of the event between a foundation helping ill children foundation reporting to Sistema's Board donations that are not consistent with a number of projects aimed at supporting and volunteering projects among also conducted an expert discussion and animal rights advocates. and comprised of Board members, top SCF's purposes. Such procedures the people that need our help right employees, partners and customers. "I'm Not Afraid of Health Checks" about managers of Sistema and its portfolio enable SCF to mitigate potential now. Such projects are focused on shaping the culture of preventive health companies (the key donors) and strategic risks and optimise cooperation with provision of high-tech medical aid, social support, developing accessible museum For example, SCF and the Russian screenings in society. partners, makes it possible to ensure interested parties. environments and launching educational Museum offered free visits to the the necessary expertise, transparency, initiatives. We are capable of achieving exhibitions of the Mikhailovsky Detsky Mir organised a charitable fair for coordination of corporate charity and Sistema's social investments are aimed tangible results in these areas in the castle on 25-26 November, while the fourth successive year. It also held general investment strategy. Sistema's at achieving tangible results and the Museum's Multimedia Centre a Week of Good Deeds for its employees. charity strategy is annually reviewed by promoting innovative, technological, demonstrated educational films created At the fair, children from orphanages the Investor Relations and Dividend Policy social and cultural development with Sistema's support on the basis sitauted in Moscow, Kostroma, Smolensk Committee, approved by the Board of of Russia. of its art collection. As a result, the and Ryazan presented their works. All Directors of Sistema and by the SCF Board. number of the museum's visitors surged money raised at the fair went to provide
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Key focus areas and achievements of Sistema Charitable Foundation
Lift to the Future project aimed at developing engineering education Social projects and volunteering Culture and art: new technologies for education
Lift to the Future
Since 2011, Sistema's flagship project in the field of education has been the “Lift to the Future” programme established jointly with the Lomonosov Moscow State University and implemented with the support of the Ministry of Education and Science of the Russian Federation.
The programme is designed to identify and train young engineers for professional career by solving scientific and practical tasks. Successful graduates of the programme receive support for implementation of their projects and get additional points for admission to the leading Russian universities.
Objectives Objectives Objectives –– Support, education and career guidance for the talented youth in –– >300 representatives of business, science and education –– Systemically important projects in the area of health care and Support to best programmes in culture, arts, and education with science and technology communities worked as coordinators of the programme's social support, including targeted aid for war veterans and children. a focus on new models and state-of-the-art tech solutions. –– Building a pool of young talents for high-potential and knowledge- projects –– Development of corporate volunteering and individual charity intensive industries and high-tech companies –– > 80 best programme graduates received additional points initiatives of employees. Key external partners for their Unified State Exam scores for admission to the top State Russian Museum (SCF); Key external partners 7 universities in Russia Key external partners Russian Geographic Society The Lomonosov Moscow State University, –– >70 institutions providing supplementary school education Governments of the Republic of Altay, the Republic of Karelia, Agency for Strategic Initiatives (ASI), in science and technology received grants of up to RUB 600,000 Moscow; the Moscow City Council of Veterans. Key results Ministry of Education for the implementation of their training programmes –– ≈800,000 people is the audience covered by virtual branches, –– >70 contests were held for students and teachers Key results exhibitions and festivals supported by SCF in 2017 Key results –– >50 winners of student papers contests and young researchers –– More than 30 thousand participants –– ≈ 220 information and education centres of the Russian –– >11,000 school and university students from 46 Russian regions completed internships with European high-tech companies and –– 80 social partners Museum in cultural and education institutions (172 in the Russian participated in the programme leading global research centres –– 23 new play rooms in children's hospitals regions, 42 abroad) –– >20,000 school students were trained at 17 temporary –– >15 student projects developed to resolve real operational –– 4.5 tonnes of humanitarian aid collected for children from remote –– SCF supported 20 grant projects of the Russian Geographical engineering and design schools in 11 Russian regions tasks of Sistema Group companies received grants of up areas of the Republic of Altay and the Republic of Karelia Society –– ≈ 500 university students received scholarships to RUB 500,000 –– Charity festivals and campaigns in 12 regions of Russia and tens –– ≈400 educators who worked with the winners of the –– >10 Russian universities were awarded grants of up of cities programme's contests later attended professional development to RUB 900,000 for their programmes aimed at improving their –– About 1,600 veterans received free rehabilitation treatment courses at the Lomonosov Moscow State University graduates' competitive advantages in the current labour market. at Medsi, including 850 veterans in 2017 –– ≈250 educators received grants to organise projects for school students
For more detail on the activities of Sistema' Charitable Foundation see the annual report of Sistema for 2017: http://bf.sistema.ru.
38 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 39 SOCIAL INVESTMENT Profile of Sistema Responsible Efficient Sustainable development investment management practices of portfolio companies
Financing of charitable Direct social investment of the Corporation, RUB m Regional charity festivals GRI 203-1 and social programmes Parameter 2015 2016 2017 In the reporting period Sistema In 2017, the Solony festival was organised To carry out its social programmes, continued the practice of organising to coincide with the Year of Ecology Sistema uses a broad set of financial Total amount of Sistema Group's social investments 1,521 1,454 978.7 partner charity festivals that was and the 100th anniversary of specially (target donations, grants, fund raising), started in 2016. In accordance with protected natural areas in Russia and took in-kind (goods, services) and non-financial The total investment of SCF in partner Programmes of Sistema Charitable the agreement on social partnership place not only in the Republic of Altay, but (volunteering, pro bono) charity tools. Foundation 542.7 554.3 337.5 charity festivals in 2 years exceeded that was signed between Sistema also in the Republic of Karelia. In these This enables the Corporation to deliver the Programmes of Sistema Group 978.3 899.4 641.1 Charitable Foundation and the two republics SCF conducted numerous RUB m highest possible results at optimum costs. government of the Republic of Altay charity and social campaigns, which were in 2016, the first large-scale charity aimed at involving residents in solving > 40 Every year Sistema Charitable Foundation Direct investments do not include indirect Financing of SCF's social programmes festival Solony was organised in the environmental problems. As part of the and the portfolio companies of Sistema costs (the labour cost of corporate (including regional engineering and republic. Sistema's portfolio companies festival SCF also organised events designed Group invest about RUB 1.4bn in volunteers, the cost of goods and services 3.8% and volunteers in cooperation to provide help to underprivileged groups design schools "Lift to the Future"), society. The total volume of direct social provided by the Group companies with partners conducted a 14-day of people, primarily children (clean-up net of co-financing raised from social investment of the Corporation in 2015- on a free-of-charge basis), the created partners (Detsky Mir, OZON, etc) programme including charitable, social, events, exhibitions, performances of puppet 2017 amounted to RUB 4bn, same as in added value and the funds and material 23.1% in the amount of RUB 10m. 35.5% volunteer and educational projects for theatres, children's film festivals, master 2014-2016. resources provided by clients and more than 5,000 children from large classes, psychological consultations etc). Including investments made in 2017: partners. and underprivileged families of Gorno- The Solony festival in the Republics of Altay In 2017, Sistema and its portfolio companies Altaysk and remote rural areas. and Karelia attracted 16, 000 children. invested more than RUB 641m in social and As part of the annual charity campaign RUB m – charity projects, and another RUB 337.5m "Participate!" Detsky Mir collected more 37.6% ≈ went to financing charity programmes than 7.8m gifts with the total value of 27 through SCF, excluding RUB 263m in RUB 350m for orphans and children Lift to the Future: support of engineering education allocations for SCF's operating expenses without parental custody, underprivileged in direct social investment from SCF Social projects and volunteering including "Lift to the Future" schools and for the Corporate Volunteer Centre. and disabled children. in Gorno-Altaysk and Petrozavodsk This amount does not include the personal Culture and art: new technologies for education donations of the Corporation's employees With the Group's allocations to SCF and Development of charity m – to corporate charity projects. its operating expenses taken into account, ≈ the total amount of contributions to social 4 For example, the charitable New Year programmes reached almost RUB 5bn auction raised over RUB 11m from Sistema in the last three years. The average contribution by social partners Group's employees to construct a state-of- share of Sistema Group's investments from Sistema Group. the-art and accessible playground at the into SCF from the consolidated charity Pavlovsk orphanage that has been under budget is about 20% and the share Sistema's patronage for many years. of funds contributed to implementation of corporate programmes is about a half Every year Sistema Charitable In April 2017, representatives of SCF of the entire amount of the Group's social Foundation and the portfolio delivered RUB 1.4m worth of medical investments. companies of Sistema Group equipment to the Volgograd hospice. invest about The money had been collected by the employees of Sistema Group companies during the New Year "Wishing Tree" RUB bn campaign. 1.4 in society.
The total volume of direct social investment of the Corporation in 2015-2017 amounted to 4RUB bn
Without SCF's operating expenses.. Without contributions to SCF.
40 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 41 SOCIAL INVESTMENT Profile of Sistema Responsible Efficient Sustainable development investment management practices of portfolio companies
Financing of charitable activities Financing of charitable activities SCF's contributions to charity Plans for development of the CSR at Sistema Group in 2017 and other NGOs, RUB K and sustainable development system 1.6% 405,116 372,179 174,417 0.6% 3.2% 4.1% 1.9% 4.3% 38.9% 14.4 % 38.8 % 4.8% 53.0 % Further strengthening of synergies 61.1% 85.6 % between the social investment of Sistema Charitable Foundation 79.5% 61.2 % 47.0 % and Sistema's business strategies with a focus on new technologies 2015 2016 2017 Own projects of portfolio companies and involvement of the Group's MTS Donations to charity foundations companies in implementation SCF RTI The practice of financing social projects Grants to legal entities of comprehensive social projects. Donations to other NGOs through grants is being actively developed by Segezha Group * Excluding contributions from SCF to Lift to the Future the Corporation. Over the last three years the RZ Agro annual amount of grants issued by Sistema 300 13,029 22,813 Steppe AgroHolding Charitable Foundation to individuals and legal 40 entities has increased almost 10-fold and Detsky Mir reached RUB 30m in 2017. Launching new large-scale initiatives BPGC on the basis of Sistema Charitable RUB bn Other ≈ Grant financing from Sistema Foundation. 1 Charitable Foundation 7 1 Total investment into SCF in 2017 is Structure of spending on charitable is invested by the Corporation 3,065 14,979 29,436 and social programmes at portfolio in the social sphere every year 2016 2016 2017 RUB m companies in 2017 9.8 % Total amount of grants*, RUB K Developing a road map for public non- >400 Grant recipients, legal entities financial reporting in the companies 87.0 % 77.5% of Sistema Group to ensure alignment 27.1% 90.2 % with national laws and international * Including grants from SCF to Lift to the Future ESG requirements.
The total amount of donations 22.5 % 13.0 % 72.9% collected in 2017 2015 2016 2017
RUB m Grants to legal entities RUB m Grants to individuals ≈710 Spending on external stakeholders >350 Spending on social aid for employees and their families Grants to individuals In three years SCF has has been contributed by the In 2017, Sistema Charitable awarded 220 grants for companies of Sistema Group in Foundation had the total amount of 2015-2017 2,765 1,950 6,623
88 RUB m, 240 67 4 7. 5 direct beneficiaries, a 3.4 times increase from 2016 60% of which was financed in 2017
17
2015 2016 2017 Total amount of grants*, RUB K
Grant recipients, persons Donations from the employees of Sistema Group and third parties collected under Detsky Mir programmes: the "Participate!" and "Operation Toys". These donations were not included in the total amount of social investments of the Corporation.
42 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 43 Приложения EFFICIENT MANAGEMENT
Economic performance 40
Implementation of investment 51 programmes
Innovations 54
Risk management 58
Ethics and anti-corruption 62
Procurement and supply chains 68
HR management 76
Environmental impact 88
The efficiency and productivity of Sistema and its assets make it possible to timely and fully fulfil the Corporation's obligations to interested parties: pay taxes to the federal, regional and local budgets and make allocations to off-budget funds, implement agreements on social and economic cooperation with Russia's regions, ensure a competitive level of remuneration and a good standard of living for its employees, implement social programmes and make investments in communities.
44 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 45 Profile of Sistema Responsible Efficient Sustainable development ECONOMIC investment management practices of portfolio companies PERFORMANCE Telecom В2В Real estate The Corporation has a significant +105% +3% impact on the development +139% of many industries and communities of the regions Consumer sector +20%
where it operates, and Rental assets +29% +9% on the country as a whole. +23%
+25% company of JSFC Sistema +12%
GRI 103-2 +80% +42% GRI 102-43
+10% ≈ % +2% 40 is the average annual growth rate Other of Sistema Group's revenue over +9% the last 3 years with compound interest taken into account (CAGR)
GRI 201-1
Generated and distributed direct economic value, RUB bn
Показатель 2015 2016 2017
Created value, including 748.098 718.714 721.906
Consolidated revenue 678.821 697.705 704.551 In 2017, Sistema's consolidated Despite the unfavourable market Financial and other revenues 69.277 21.009 17.355 revenue and profit margins increased environment Sistema's investment portfolio 0.80% due to the strong results of its public achieved positive financial year-on-year Distributed value, including 706.147 719.448 803.546 assets and active growth of the medical, results, which are above the growth is the average share Operating and other expenses 608.733 617.75 602.499 hotel, agricultural and pharmaceutical rate of the national economy because of Sistema's consolidated businesses. Detsky Mir, Medsi and Steppe the Corporation's assets: : including wages, social and other payments to employees 136.395 142.099 132.419 revenue in Russia's GDP in 2015-2017 AgroHolding boosted their revenues Taxes 22.251 27.149 17.349 by 21.9%, 24.0% and 22.2% year-on-year, operate in the resistive sectors while their OIBDA margins reached 11.0%, of the economy (communications, Investments in communities 1.584 1.509 1.050 16.9% and 39.4% respectively. children's goods, healthcare); Financial expenses 50.496 56.251 48.983
Other expenses 18.660 6.896 119.603 have a strong export potential (agricultural products, paper sacks Accrued dividends to the holders of Sistema's shares 4.423 9.893 14.062
and timber products); Retained value 41.951 -0.734 -81.640 0.94 % develop in accordance with global is the average share of the trends (E-commerce, innovations, and venture investments). Compound Annual Growth Rate (CAGR) of revenue in 2015-18 / 2016-18 depending on the year of Sistema's entry into the asset. The total value is calculated as an arithmetical mean Corporation in the gross of the indicator for these assets. income of the Russian The estimates are based on IFRS reporting on the basis of accrual accounting. For detailed information on the company's financial performance see the Annual Report of Sistema for economy in 3 years 2017, pages 16-17. Employee remuneration expenses (wages, bonuses and social contributions) included in production cost; selling, general and administrative expenses. Include expenses for income tax and other irrecoverable taxes. Include expenses for social and charity programmes financed through Sistema Charitable Foundation, the administrative expenses of Sistema Charitable Foundation and own programmes of portfolio companies financed from their budgets (excluding contributions to Sistema Charitable Foundation). Including RUB 100bn in expenses under the settlement agreement reached with Rosneft and the Ministry of Land and Property Relations of the Republic of Bashkortostan.
46 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 47 ECONOMIC PERFORMANCE Profile of Sistema Responsible Efficient Sustainable development investment management practices of portfolio companies
Corporation's revenue in 2015-2017, Sistema Group's payments to Russia's budget system in 2015-2017, RUB bn Sistema's medical, social and pension Structure of tax payments in 2017 by region RUB bn support payments, RUB bn
of Russia’s GDP Parameter 2015 2016 2017 +12.4% 0.5% 0.84% 0.79% 0.77% 0.6% Federal budget Penza region Payments to the budgets of all levels and to off-budget funds 88.4 98.1 111.4 23.9 24.5 0.6% 13.7% 21.8 0.7% Moscow Nizhny Novgorod region +3.8% 0.7% Tax payments to the federal and regional budgets 66.6 74.2 87.0 0.8% Moscow region St Petersburg 704.6 0.9% 678.8 697.7 1.9% Republic of Bashkortostan Leningrad region Allocations to funds 21.8 23.9 24.5 22.3% 55.3% 2.0% Krasnodar region Rostov region
Republic of Karelia Other
2015 2016 2017
2015 2016 2017
Corporation's gross income Structure of Sistema's payments Sistema is one of the biggest taxpayers in 2015-2017, RUB bn to the Russian budget in 2017, % of Russia. The amount of actual The structure of payments to Russia's Structure of tax payments in 2017 by portfolio company tax payments to the budgets of all off-budget funds in 2017 of Russia’s gross income levels and off-budget social funds 0.96% 0.97% 0.88% in 2017 rose by 13.3% and reached 6.0% 21.9% 4.8% 2.0% RUB 111.4bn , with allocations to off- 5.0% MTS Corporate Centre budget funds accounting for almost 22%. 2.0% +12.4% 43.2 % 3.0% RTI Medsi 20.7% 5.0% BPGC Real estate 360.0 366.6 34.9% 4,0% 326.1 Detsky Mir Other 9.0% 64.0% Segezha Group 74.5%
Federal Budget
Regional and local budgets 2015 2016 2017 Russia’s pension fund Allocations to funds Obligatory medical insurance fund Corporation's OIBDA and operating RUB bn Social insurance fund income in 2015-2017, RUB bn Corporation's profitability ≈ 300 +33.3% +3.4 p.p. is the amount of Sistema's Regions account for payments to the budget and The Corporation's assets include RUB bn 173.8 184.8 199.5 28.3 companies with various types of 26.3 off-budget funds over the last 24.9 3 years, of which businesses covered by different taxation ≈ 68.4 82.2 91.2 110 schemes. For example, the Group includes ≈45% RUB bn agricultural and medical assets that are in tax was paid to the budget entitled to income tax benefits; Detsky of all tax payments of the system of Russia in 2017, >70 Mir applies a reduced value added tax for Corporation in 2017 of which was allocated for the medical, children's goods, etc. social and pension support 2015 2016 2017 of households. 2015 2016 2017 ≈ 35% OIBDA went to the regional Operating income and local budgets
Including VAT, income tax and other tax payments.
48 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 49 ECONOMIC PERFORMANCE Profile of Sistema Responsible Efficient Sustainable development INVESTMENTinvestment PROGRAMMESmanagement practices of portfolio companies
For the last few years, Shared service centres Interaction with the investment community Sistema has been investing
The project for creating shared service GRI 102-43 (Leader Invest, Business Nedvizhimost) over 100 billion roubles centres (SSC) was launched by Sistema was made to the key analysts and in 2016 to streamline the management Sistema is giving a lot of attention investors of the Corporation. At the event annually in Russian processes of portfolio companies to interaction with the investment the management talked about the key and further enhance their economic community to communicate relevant elements of the companies' strategies, economy. A lot of the money performance by cutting operating information about the business strategy their real estate portfolio and key financial goes towards boosting expenses. A system of such service of the Corporation and its assets but results. Following the presentation centres at the Corporation included also gets important feedback. a number of key analysts increased their the assets' production and SSCs on the basis of big companies valuations of Sistema's real estate assets and a specialised SSC for the Group's To communicate with investors, in their models. operating potential and small and medium enterprises. At the shareholders, financial institutions and various aspects of efficiency, end of 2017, SSCs provided accounting partners, a wide range of tools is used: Thanks to effective communications services to 19 companies, IT services – with the investment community, which feeds into sought- to 13 companies and HR administration annual participation of Sistema's in February 2017 Detsky Mir conducted services – to 4 companies. management in all major global and a successful IPO, the largest and most for high-quality products Russian economic forums, investment important monetisation transaction both for domestic and for In 2018, for the purpose of further conferences of the Moscow of the Corporation with the total value optimisation of business processes Exchange, leading banks and brokers, of about RUB 19.2bn. The IPO book was exports markets, new jobs, and cost cutting we plan to continue 2x oversubscribed; more than 90% of the expanding the SSC project perimeter face-to-face meetings with investors, final offering went to foreign investors and better standards of living and robotising standard administrative in geographies where processes by using the Blue Prism conference calls, In 2018, the IR Blog on the corporate technology. website was launched, that will publish Sistema companies operate. road shows, the most important news of Sistema and its portfolio companies within market regular disclosure of quarterly and context. The Corporation also intends annual reporting, to develop and post on its website the tools that can be used for simplifying corporate website and websites analysis of financial performance. Sistema's investment activity in 2017, of portfolio companies. Moreover, the Corporation is seeking % to build more effective relationships In 2017, Sistema continued its with individual groups of investors Sistema Group makes roughly successful practice of presenting the and for this purpose it will introduce 17.3 18.5 key non-public assets of Sistema to the new approaches to holding the annual > investment community and organising general meeting of shareholders, and 500 ≈ meetings between analysts and the top establish permanent channels for invested over 5 years in 1% management of portfolio companies. collecting feedback from investors. various industries in Russia, of Russia's total private A presentation of real estate assets in particular: investments RUB bn Investments to GDP Investments to revenue ≈465 ratio in Russia ratio at Sistema in telecom infrastructure Sistema has become one of Russia's top In 2017, the Group's total capital expenditures RUB bn ten investors in fixed assets and top five decreased by 15%, mainly due to the ≈ investors in infrastructure over the completion of a large-scale modernisation 23 last five years, having invested an programme at MTS, an asset responsible for in hi-tech average of ≈14% of its annual revenue, more than 70% of the group's total investment or 49% of EBITDA. volume. At the same time, Segezha Group's RUB bn investment programme grew to 2.7 times ≈ its size in 2015 due to a rapid modernisation 12 of production facilities. in the consumer sector
According to Rosstat. According to The Expert's investment activity ranking: http://expert.ru/expert/2018/42/za-kraem-neftegazovogo-gorizonta/.
50 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 51 IMPLEMENTATION OF INVESTMENT PROGRAMMES Profile of Sistema Responsible Efficient Sustainable development investment management practices of portfolio companies
Sistema Group's investments, RUB bn Sistema's CAPEX in 2017 broken down Segezha Group spent most of its 2017 Detsky Mir's investments in 2017 gained RTI Group made a RUB 10bn worth of designed to accommodate up to 1,800 by sectors, RUB bn investment budget on upgrading its flagship 41.2% YoY, reaching 2.5 billion roubles (more investment over the last three years, or 4% lactating cows and produce up to 20 enterprise Segezha PPM and building than 1% of the total volume of investment of the total volume of investments in Russia's thousand tonnes of milk a year by 2021. 2%2% a brand-new plywood mill designed to in the retail sector in Russia). The money hi-tech . E.g., the company reconstructed Last but not least, in 2017 Steppe acquired 165.4 161.4 130,5 2% 6% produce up to 86,000 cubic metres of high- was used to open 104 new supermarkets its old assembly plant in Yaroslavl and 65 thousand ha of land, pushing its overall 4% quality birch plywood a year. These two and so improve the accessibility of juvenile reinforced it with a new low-batch assembly land holdings to 380 thousand ha. projects consumed more than 81% of the products to the country's residents. At the facility and a microelectronics plant that 26.2 38.5 11% 11.3 billion roubles that the holding invested end of 2017, Russia's largest specialised meets ISO 8 cleanroom standards. Most Another important project carried out 139.2 122.9 26.1 in capital assets in 2017 and created over retailer owned 622 branded Detsky Mir and of the group's effort in 2017 went into in 2017 was the RUB 1.9bn investment 600 new jobs, or 4.6% of the company' total ELC stores in 207 cities of Russia and 12 building a specialised facility for assembling in Sistema's recreational hotel assets: 73% 104.4 headcount. cities in Kazakhstan. and testing payload modules of Russian Izumrudny Les (in the Moscow region) communications satellites. The new and Altay Resort (in the Altay republic). Telecom and digital services For many years now, BPGC has been production site will be used for a new On top of that, Sistema invested in the 2015 2016 2017 investing large amounts of money in RosCosmos/RTI project, and the plant will construction of Moscow's first-ever Forest industry creating an efficient and reliable state-of- become an important link in multi-level Holiday Inn Express hotel. All in all, Investment in assets, including M&A Power industry Segezha Group is responsible for the-art grid infrastructure in Bashkortostan. cooperation with the space company. the corporation is responsible for roughly Capex programmes Consumer sector This includes reconstruction of distribution The total volume of the Yaroslavl plant's 4.5% of all funds invested in hotels and grids, upgrades of generation facilities, investment programme in 2012-2017 public eating facilities in Russia in 2017. Healthcare 9. 4 % and connection of new customers. exceeded 2 billion roubles. Hi-tech The company's investment in new of overall investments Other power facilities in 2015-2017 exceeded Capital investments of Steppe in the Russian forest industry 18 billion roubles (or 0.7% of the country's AgroHolding in 2017 grew by more than made in 2017 total investment in the generation and half, to 1.6 billion roubles (which is more distribution of electrical power, gas, and than 0.4% of Russia's total agricultural RUB bn MTS' investments mainly have to do Medsi has carried on investing in opening water), including roughly 4 billion roubles Capex). Apart from buying new agricultural ≈ with developing telecom infrastructure. new clinics in Moscow and other Russian (about 1.5% of Bashkortostan's total machinery, the company started building 460 In 2017 the company installed more than cities as well as buying equipment for Capex) invested in 2017 only. a new dairy farm in the Krasnodar region 13 thousand brand-new LTE base stations, existing ones. In 2017 the healthcare invested in 2015-2017, with 80% launching 4G service across the entire operator boosted its floorspace by 12,800 spent on fixed assets country. In doing so, MTS reckoned square metres by opening three state-of- with both the needs of local communities the-art medical centres in Moscow and and future prospects of the telecom acquiring new assets in Saint Petersburg technology. While spending most effort and Perm. Roughly 1 billion roubles was Government relations on widening the current 4G network and invested in a new multi-specialty clinic improving its coverage, the company also in Moscow (in Khoroshevsky Proezd) for In 2017 Sistema continued its long-term Segezha Group took active part in the Sistema’s CAPEX in 2015-2017 broken keeps investing in the 3G infrastructure adults and children, designed to receive cooperation with the Russian Government promotion of recent federal laws and down by sectors and prepares to start on the upcoming 5G up to 800 thousand visitors a year. The and key federal departments, ministries, amendments, such as modifications standard. year's three new clinics came with some and agencies in spheres of the company's to the country's Forest Code that optimise 200 permanent jobs. The corporation's interest. regulations applying to the use of forests 2% investment in healthcare in the past three in Russia. 3% 12% years almost reached 8 billion roubles, Among important achievements of 2017 3% or 1.4% of Russia's total capital investment is the new 5-year instalment plan (through The company put forward the initiative 7% in healthcare and social services. 2020) approved by the Russian Ministry of establishing more equitable recycling of Finance that Sistema will use to buy fees for producers of paper packaging 73% out equity of Sistema Shyam TeleServices as opposed to plastic packaging, Limited (SSTL), an Indian/Russian telecom as prescribed by best international MTS Group's total 2017 CapEx in telecom networks in Russia is company, from the Russian Federation. sustainability practices. Once adopted, Telecom and digital services the amendment will serve to promote The plan is integrated into Russia's 2017 recycling in Russia and will benefit the Forest industry RUB bn Medsi is responsible for about federal budget and confirmed by a special entire wood processing industry in the Power industry 65.2 agreement signed with the Russian Federal long term. Consumer sector Agency for State Property Management. or about 20% of total 2017 % Healthcare 5 investments made in the Other Russian telecom market. of the country's total private investment in healthcare
Except for Crimea and Sevastopol, where MTS has no licence to operate. Production of computers, electronic and optical devices (Rosstat).
52 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 53 Profile of Sistema Responsible Efficient Sustainable development INNOVATIONS investment management practices of portfolio companies
Sistema considers innovations to be its main Innovation Days competitive advantage Innovation, digital transformation and new technologies are at the and results of innovation heart of the Corporation’s strategy. It has become a good tradition to hold activities to be valuable “Innovation Days” for Sistema Group's intangible assets. senior executives where they discuss the latest trends and their potential The Corporation consistently application in companies. 2017's events and seminars were dedicated invests in increasing to the discussion of such topics as intellectual potential: agile software development, big data, innovations in medicine and healthcare, science and education, Industry 4.0 and many others. research and development, innovation infrastructure and digitalisation. Idea of the Year
In 2017, Sistema held the first corporate- The contest was held in April-July. A total Artyom Zasursky wide contest of innovative ideas Idea of of almost 200 ideas were received, of the Year. The main goals of the contest which the jury selected the top 10. Then Vice President for Strategy at Sistema were strengthening intra-corporate three winners were selected and received The Corporation cooperates with Key achievements A number of digital products were relationships and employees' loyalty their awards on 14 July during the organisations that support innovations, of the project office: launched at various levels of the to the Corporation, and motivating celebration of Sistema’s anniversary party. sets up own R&D centres and helps its Corporation in 2017, including: employees to generate innovative ideas The winning innovative ideas include the portfolio companies adopt advanced 1 and initiatives. creation of MGTS's virtual reality store, technologies and organisational Creation and adoption of the ACM MTS's online crowdfunding platform "Innovative development, digitalisation innovations. Inclusion of innovative development system for managing the investment Any employee or a team of employees with the prospect of development into and business automation are topics and digital transformation in the process, which reduced the time of the Corporation could take part in the a full-fledged business incubator, and the that continue to attract the attention of managers in Russia and worldwide In 2017, Sistema established a project office Corporation’s business strategy; required for analysis of investment contest by proposing an idea in any area, centre for electromagnetic compatibility who don't want to miss out on changes for the implementation of digital projects proposals at the level of the Corporation provided that it met two criteria: novelty testing of equipment to comply with that can lead to "seismic shifts” in the life in the interests of the Corporation and its 2 by 3-5x; and economic benefits. aviation requirements based on Kronstadt of companies and business practices. assets. Strategic projects of the Corporation Group's testing lab. Nowadays, not only sustainable are implemented or coordinated at the level Organisation of a functional IT & Identification, adaptation and development, but the very survival of a single cross-functional digital team. digital vertical across the Corporation, implementation of a system for building of a company depends on its ability The practice of continuous training and raising including: 3D models based on video stream to navigate the ever-changing technology landscape, determine priority areas awareness of both top management and analysis (applicable in real estate for development, and make strategic functional leaders was created; the following Creation of a common communication development, healthcare and retail); decisions on investing and adopting events were held in 2017: space and platform for exchanging advanced methods and approaches. experience and information; Implementation of a number of projects With the opening of a specialised project The following events were held in 2017: based on RFID technologies (retail, office, we have moved from simple Introduction of the life cycle agriculture and forestry); tracking of technology, macroeconomic 2 strategic offsite session of Sistema and of the development and implementation and social trends to active adoption of Group; of IT and digital strategies at portfolio Start of transformation of the product line breakthrough technologies, in both the companies. for the banking customers, with a focus Corporation and its portfolio companies. 16 strategy sessions of portfolio on the concept of “mobile only”; Being at the very beginning of this process, we hope that our efforts companies; will allow us to better prepare for the Development and execution of a digital challenges we will face in the near 6 strategy sessions of funds; medicine strategy, including telemedicine future". services, P4 medicine, etc. 4 meetings of strategists;
3 Innovation Days.
54 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 55 INNOVATIONS Profile of Sistema Responsible Efficient Sustainable development investment management practices of portfolio companies
Innovations are actively adopted and Sistema works on digitalisation of all its development goals. It also applies to other by Sistema Sarov are aimed at ensuring developed in all of Sistema’s portfolio businesses and invests in promising portfolio companies of the Corporation public security. Medsi and Binnopharm companies and cover a wide range Culture of innovation innovative technology projects through that introduce innovative solutions conduct their own research and introduce of industries and segments. The its funds. in various fields. For example, Mikron’s innovative medical and biopharmaceutical Corporation takes a responsible approach The Corporation's enterprises have an Maxim Kuzyuk solutions based on RFID tagging can technologies that improve the quality to intellectual property protection enormous research potential, and the Practically all activities of such companies help reduce illegal logging, control supply of diagnosis, prevention and treatment in accordance with the established history of some of them is closely related CEO of RTI as MTS, RTI, Kronstadt Group and Sitronics chains and combat counterfeit products. of deceases. Steppe AgroHolding has high- procedure for registering new inventions. to the technological development of Russia. are associated with technology innovations The intellectual hardware and software tech farms where “smart” technologies are In the summer of 2017, RTI, in cooperation that contribute to the achievement complex Safe City developed by Sitronics used in every process: from development with Sistema Charitable Foundation and the of both business goals and sustainable and the audio surveillance system created of fodder to genetics and breeding. New intellectual property of Sistema Lumière Brothers Centre for Photography, "The long history of our research Group companies held an exhibition The Revolution of Ideas – and production companies is closely The Revolution of People. The exhibition related to national interests. This is the was based on rare archival materials shown aspect reflected in our exhibition. The 129 156 172 to the general public for the very first time, project is focused on the photo archives reflecting the contribution of the enterprises of RTI's subsidiaries, some of which have 74 70 116 included in RTI Group to the development been around for more than a century. Platform for industrial Internet of Things (IoT) of Soviet industry. The exhibition showed These documents showcase specific researchers, engineers and designers the revolutionary nature of ideas and Platform for industrial internet of things The platform can be used to monitor The users will control the equipment and who, despite difficult times, contributed inventions in high tech, radio engineering, to technological progress. Such exhibitions the equipment of producing companies, write reports through a web interface microelectronics, aviation, heavy industry, help promote engineering professions and In December of 2017 MTS launched electricity suppliers, and service or computer programmes they are familiar which were implemented by scientists, the culture of domestic production. Our its very own IoT platform to deploy IoT providers. E.g., it's perfect for controlling with, provided they are connected to the participation in such a project is another 2015 2016 2017 engineers and workers whose names were solutions for Russian companies. pressure in boiler plants, ventilation and IoT platform through API. Prompt synergy often unknown. More than 30,000 visitors way to raise awareness of our youth and air conditioning systems, refrigerators, between the customer's IT system and the attended the exhibition. society in general". The 'industrial' IoT platform makes and electricity and water supply IoT platform will be secured by means of it possible to control various equipment systems. MTS' platform may also be a hub, a special hardware solution. It easily remotely from a single control centre and used to power solutions for agriculture, adapts to specific tasks and allows the track the working parameters of such logistics, retail, and other industries. user to hook up both standard and non- equipment, whatever the distance. standard protocols and devices.
JOINT PROJECT OF MTS AND DANFOSS
+40Сº Online control over – 40Сº production processes M2M Manager "Termo" SIM cards MTS communicator Cloud-control
For more information on innovative projects of portfolio companies, see the section Sustainable development practices of portfolio companies. We are confident that the new loT-platform will help business to adapt more quickly to requirements of the digital economy, reduce costs and bring the enterprise to a new level, and will help the state to become a driver for the development of "smart cities".
The data are given for RTI Group, Kronstadt Group, Binnopharm and Sitronics for the following types of intellectual property: inventions, trademarks, utility models, know-hows, software and databases, and topologies of integrated circuits.
56 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 57 Profile of Sistema Responsible Efficient Sustainable development RISK MANAGEMENT investment management practices of portfolio companies
GRI 103-3 Effective risk management The main role of Sistema, as a responsible Significant risks at the level of Sistema are ESG risks in sustainable investor, is to implement the principles and those risks that can have a negative impact development of the Corporation is one of the important build a risk management system in portfolio on its financial stability, shareholder value prerequisites for the stability companies with subsequent monitoring. This and reputation, including the state of the GRI 102-15 approach ensures an adequate level of asset global, national and regional economies, of the Corporation’s business. management and allows Sistema to improve political (including geopolitical) and social Risks associated with reputation and the operating efficiency of its assets. Timely environment, and legal aspects of the brand are the most significant ESG risks Sistema implements the information on the risks of each asset of the Group’s activities (including regulatory, at the level of the entire Corporation, strategy of transformation Corporation is taken into account in Sistema’s anti-corruption and other provisions). ESG and the main way to mitigate them strategic planning. risks are identified, evaluated and managed is to introduce such a system of corporate into an investment based on the degree of their impact on the governance and compliance in the The Corporation and its portfolio companies implementation of the Corporation’s overall Corporation and its portfolio companies company adopted in 2017, have an integrated risk management system strategy (top level) and the operating that minimises the probability of adverse which is reflected in its (Enterprise Risk Management, ERM) based activities of its portfolio companies as part events and their impact on market on international standards, recommendations of regular risk management procedures. capitalisation. changed approaches and best practices in risk management. It keeps risks at the level that is acceptable to risk management. for Sistema’s shareholders and management.
Reputational risk management Participants of risk management system at the Corporation Any investment activity is subject Bashkir oil assets owned by Sistema corporate website where all materials to risks associated with the acquisition from 2009 to 2014. A high level and documents related to this case Level of Corporate Centre (CC) Level of portfolio companies and restructuring of assets, especially of openness and transparency became were published, including the opinions in case of complex transactions the basis of Sistema’s programme of independent experts: economists involving interests of multiple parties. of anti-crisis communications with and specialists in the field of corporate Board of Directors Strict observance of all requirements stakeholders during the proceedings and company law . Sistema’s website Review of risk Representatives of Sistema of applicable law and adherence with Rosneft, Bashneft and the Republic was the top search result in Google management in boards of directors and to best international practices in the of Bashkortostan, which resulted for queries about this lawsuit, and the BoD’s Audit, Finance BoD’s Audit, Finance and Risk Committees reports risk committees of the field of corporate governance are the in a settlement agreement. Along with section about the proceedings had and Risk Committee Group’s companies fundamental principles of Sistema legal actions, Sistema took all reasonable over 25,000 visitors. The company President’s / CEO’s Risk Committees as a responsible investor respecting steps to minimise the negative media also stayed in direct contact with Regulations, limits and the rights of shareholders and always impact of the proceedings and the analysts from financial and ESG rating President’s Finance and acting with the purpose of increasing consequences for the Corporation and agencies. In particular, interaction Investment Committee the value of assets. its shareholders by publicly explaining with Sustainalytics, one of the leading (FIC) Quarterly its legal position. A total of over 800 independent global providers of ESG monitoring of ERM A serious challenge to the reputation and articles were published by the media research and corporate governance FIC’s Risk sustainability of the Corporation in 2017 on this subject, including more than ratings for investors, made it possible subcommittee was the litigation (see the Annual 135 analytical pieces and more than to monitor Sistema’s ESG rating and Report of Sistema PJSFC for 2017, 45 stories in dozens of influential improve it in terms of business ethics p. 14) regarding the reorganisation outlets in English, German and French. by the time the settlement agreement CC’s risk managers of the ownership structure of the A special section was created on the was performed.
Information on risks in the Group’s companies Consolidated register of risks of the Risk managers/ Consideration, (register, changes and Corporation, risk assessment models, coordinators development and financial models) plans and measures for risk management implementation of measures for the mitigation of industry and
Information operating risks, For more information on risk management Institute of Economics of the Russian Academy of Sciences, Centre for Resource-Based Economy of the Russian Risk owners Presidential Academy of National Economy and Public Administration (RANEPA), National Research University Higher Risk owners on risks including ESG risks system, see the 2017 Annual Report, pp. 64-69 and 86-87 School of Economics, multinational law firm Clifford Chance, Centre for Economic and Financial Research, Law Department of the Moscow State University, Alekseev Research Centre of Private Law under the President of the Russian Federation, etc.
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Other risks that are significant across Plans for development of the risk the Group include environmental and GRI 412-1 Risks related to human rights management system in 2018 occupational risks inherent to all industrial companies, as well as risks related to The Corporation fully complies, and takes into account risks associated Measures for development and improvement the state of the infrastructure and the requires all of its assets to comply, with HR management, consumer of the risk management function in the threat of accidents, which are critical with Russian and international human privacy, children’s rights and protection Corporation planned for 2018 include: for telecommunications and power grid rights laws. The risk management of personal data of employees and companies. In addition, ERM focuses on system of the Group’s companies customers. Raising the status and reorganising the specific risk zones of each industry where work of the Risk Committee, creating Sistema has its assets, for example: an expert group of the Committee and updating the internal regulatory Telecommunications – violation framework; of “digital rights” of subscribers (spam Climate risks and fraud in communication networks, Updating the risk profile with strategy dangerous content, personal data Risks associated with climate change agricultural technologies and rational transformation risks and their leaks, etc) can have the most significant impact land use methods reducing the impact mitigation plans; on the Corporation’s agricultural assets of production activities on climate High technologies – motivation located in Southern Russia. Steppe change and the environment, and also Updating/adjusting the plan for and retention of the key personnel, AgroHolding monitors such risks and a set of protective measures against development of the risk management formation of the succession pool, takes into account a number of climatic adverse natural factors, introduction system in the Corporation (introduction recruitment of new employees and factors associated with soil freezing, of special software to predict the impact of the ERM in the new assets, transfer of knowledge; heavy rains, drought, storms, hail, fires, of weather conditions on agricultural improving maturity of the existing risk floods, plant diseases, pests, etc. A set works, insurance of winter crops and management systems, etc.), taking into Healthcare and pharmaceuticals – of activities to manage these risks perennial plantations, etc. account the recommendations of the quality of professional training, accuracy includes the introduction of modern internal and external audits; of diagnoses and risks of medical errors; Updating a comprehensive insurance programme for industrial assets and Consumer sector – product quality In order to improve the efficiency of the employees of the Corporation, taking and comprehensive security of rented risk management system, an internal audit Contribution to improving the quality (Rosstandart), the Russian Union of into account the expansion of social retail spaces and store visitors; was conducted in Sistema in 2017, which of risk management in Russia Industrialists and Entrepreneurs and the obligations (such as personnel suggested measures to improve the system Chamber of Commerce and Industry insurance against accidents); Agriculture – crop losses as a result in the Corporation and its portfolio companies Sistema has gained vast experience in of the Russian Federation, they actively For more information about management of adverse climate and environmental and developed a plan for organisational of specific ESG risks of the assets, see building an effectively functioning risk participate in the working groups Holding internal training workshops conditions; improvements. The next independent Sistema’s Sustainable Development Report management system across the entire on risk management of the International on risk management for financial assessment of the risk management system for 2016, pp. 91-93, Corporation. Sistema’s risk managers, Organisation for Standardisation for managers and risk managers of the Hospitality – security of infrastructure is planned to be held in 2019 with the and the chapter “Risk management as highly skilled professionals, share their adaptation of international standards Corporation; facilities and hotel guests; engagement of external experts. in portfolio companies” in this Report experience with colleagues and make on risk management in Russia and significant contributions to improving the regularly take part in forums, seminars Preparing risk managers for the Timber industry – shortage of quality of risk management in Russia by and conferences on risk management. national risk management certification high-quality raw materials due to the participating in the activities of relevant The Corporation’s risk managers and European FERMA RIMAP inefficient use of forest resources and organisations. take part in the commission for certification (voluntary). negative impact on the environment professional qualifications in the field due to a significant amount of water Sistema’s representatives are included of risk management of the Council consumption and air emissions. in the Supervisory Board and the for Professional Qualifications Executive Board of the Russian Risk of the Financial Market of the Russian For each of these areas, portfolio Management Society (RusRisk), Federation. companies implement relevant a professional association whose programmes, projects and measures that activities are aimed at increasing the In 2017, the Corporation’s risk managers reduce the likelihood and possible negative efficiency and sustainability of business acted as speakers and moderators consequences of their industry risks. in Russia through risk reduction, and are at various risk management events, also involved in the work of the National conferences, round table discussions Technical Committee for risk management and business breakfasts organised by and the Technical Committee ISO/TC RusRisk, PwC, EY, CFO Russia, Thomson 262 “Risk Management”: together with Reuters and other companies with which representatives of the Federal Agency the Corporation actively cooperates on Technical Regulating and Metrology in this field.
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GRI 102-16 GRI 103-2 Business ethics A new ethics declaration campaign GRI 102-17 scheduled for 2018 is designed to reach Sistema's Code of Ethics reflects the views out to a broader range of employees across Hotline Ethical conduct of business, the Corporation's management hold with the Group. prevention of corruption and respect to fundamental values of corporate The Corporation has a whistleblowing culture and social responsibility that are No violations of the Code of Ethics were Hotline programme in which all Sistema unlawful disclosure or use meant to ensure transparent, fair, and ethical identified in Sistema in the reporting executives and employees as well as business practices. period. Several non-material cases of third parties are invited to share (openly of inside information, and non-compliance with the Codes of Ethics or anonymously) any information they observance of human rights All Sistema employees are under an were detected in several assets of Sistema might have about any abuse, corrupt obligation to comply with the Code of Ethics, Group. All of these cases were reviewed practices, omissions, and deficiencies are among Sistema's essential as stated in their job descriptions. Every new in due time by such companies' Discipline within the corporation. In the interests staff member has to complete a mandatory Committees. The persons found in violation of independence of judgment, all hotline principles of operation online training on ethics. of the ethical standards were subjected reports are reviewed by Sistema's Internal and elements of its risk to disciplinary action. Control and Audit Department. Sistema promotes implementation of management system. the corporate principles of responsible All of the Group's operating companies business conduct across the Group. All Prevention of disclosure have their own Hotlines. In 2017 their of the company's core assets have their of inside information activities were reorganised so as to enable own Codes of Ethics that are scrupulously users to insist on follow-up investigations maintained and updated. As a public company, Sistema is very should they be unsatisfied with the quality exacting in ensuring compliance with of probes made on the basis of their initial All matters of business ethics and applicable laws and regulations that reports responsible conduct are supervised by govern the handling of inside information. Sistema's Ethics and Control Committee and The Corporation makes it a point to Management Board. provide its employees with the maximum Number of messages received through amount of information on such laws and the Hotline in 2017, by subjects Sistema's Ethics and Control Committee had regulations as well as requirements of stock The Ethics six meetings in 2017, discussing the results of market regulators of Russia and the UK The Management Board 3 1 3 and Control Committee an ethics declaration campaign, the functional (Compliance). 4 strategy of the Internal Control and Audit Department for 2017-2018, the current status Sistema keeps and regularly updates the list 30 13 Internal regulatory documents organisation and monitoring control of staff’s compliance of anti-corruption measures being implemented of persons with access to inside information for business ethics: of internal control and audit with employment law, internal in specific companies of the Group, and findings and imposes a moratorium on transactions activities; regulations, and decisions of probes based on Hotline reports. with the Corporation's securities for its 15 of governance bodies; employees before disclosing financial Code of Ethics, assessment of the efficiency Since 2016, Sistema has been performing statements or any other material events. 26 of internal control and judgments on whether ethics declaration campaigns in which all of its governance systems; disciplinary action is in order middle and senior managers submit annual The employees planning a transaction Personnel management Internal Rules of Conduct, in response to specific instances Ethics and Conflict of Interest Declarations. involving securities issued by Sistema or its Retail sales & customer service support of corporate security; of violation of human rights, The procedure makes it possible to quickly public assets must in good time inform the Procurement ethical, and anti-corruption identify potential conflicts of interest and Corporate Secretary of such plans. HR Management Code. monitoring of compliance with requirements. address them. In 2017 declarations were Property and asset management the Code of Ethics; submitted by 118 members, or 100%, of In 2017 Sistema carried on raising general Implementation of contracts management. The conflicts of interest thus awareness among employees about such HSE control of the efficiency detected in 2017 were ruled to be immaterial disclosure restrictions by holding relevant of the Hotline; and requiring no further resolution as trainings for Corporate Centre employees Corporate sales & customer service declarants were judged to have no influence and specifically for new hires. Other organisation and support on decisions made regarding compensations of corruption control systems and other payments to their immediate family in specific Group companies members employed within the Group, or due to no actual competition with the Corporation (in cases when declarants owned other businesses).
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The Hotline exists in telephone and Observance of human rights Sistema strictly adheres to the Management approach refrains from any payments in furtherance electronic forms, the latter being by far principles of privacy and ensures of political objectives. Any and all more popular with whistleblowers (being Sistema and its S/As seek to fully observe protection of the personal data that Sistema's cornerstone regulations M&A deals are preceded by careful the channel through which 95% of the the human rights and liberties outlined in it keeps. The Corporation's Policy governing anti-corruption activities anti-corruption due diligence and reports were filed in 2017). Among the the key relevant international and national on Processing and Protection extend far beyond the Code of Ethics that assessments of corruption risks. most popular subjects of the Hotline regulations. of Personal Data is in full compliance Key anti-corruption principles guarantees "zero tolerance" to corrupt reports made in 2017 were personnel with Russian law. There have been no of Sistema: practices. The Corporation also has Procurement and price management management (30%) and sales & customer The Corporation adheres to the principles personal data leaks identified in 2017. an Anticorruption Policy and a Corruption are understandably in the company's service in retail facilities (26%). of tolerant and respectful attitude to racial, Prevention Concept (approved by the spotlight as activity areas that are highly religious, physical and other differences of its executives set personal Board and the President, respectively) susceptible to corrupt practices. Clauses In 2017 the Group's hotlines received employees and views child and forced labour examples of ethical conduct; setting out the principal requirements declaring zero tolerance to corruption are a total of 865 relevant reports, 357 (41%) as unacceptable. Provisions on prevention of GRI 102-17 of Russian and international anti-corruption included in all procurement documents, of which were confirmed in full or in part. discrimination and violation of human rights risks of corruption are assessed law, including the UK Bribery Act 2010 and and all supply contracts contain anti- After the investigations, 89 staff members are included in the Code of Ethics and the Anti-corruption efforts on a regular basis; other applicable acts and best practices. corruption clauses with references to the were subjected to disciplinary action. HR Management Code, as well as relevant Corporation's anti-corruption regulations internal regulations of the Group's companies. Sistema has zero tolerance Sistema's anti-corruption regulations binding on all parties. Economic security to corruption at any level, in any anti-corruption procedures are are mandatory for all of its employees. teams of assets sit on procurement Any complaints that have to do with the form and in any activity, including implemented, observed, and The company's assets have their own internal commissions and directly monitor infringement of human rights may be interactions with shareholders, continuously honed in all assets anti-corruption regulations and regulations procurement activities through electronic made through the Hotline. No cases of investors, counterparties, governmental of the Group; on identification of conflicts of interest. tender platforms in order to make sure discrimination or violation of human rights authorities, political parties, that such activities are truly competitive, were identified in the Corporation in 2017. and nonprofits. The most fundamental measures to transparent, and cost-effective. all counterparties are carefully counter corruption are the responsibility vetted and well-informed about of Sistema's Security Department and the company's zero tolerance economic security units of specific The Hotline is not Sistema's only to corruption; assets. Comprehensive anti-corruption avenue for handling complaints and Sistema Group assets are among leaders programmes are developed in close abuse reports. E.g., the power grid of corporate transparency cooperation with the Legal Department company BPGC has a direct online all staff members are trained to counter corruption; and the Internal Control and Audit channel for communications with According to the 2017 Transparency the disclosure of key financial Department and include anti-corruption Representation of Sistema's interests the company's CEO. First launched in Corporate Reporting, a study conducted information on a country-by-country monitoring and control of costs in areas and corruption control is not just in 2013, the channel thrived and by Transparency International-Russia, basis. all of the above are carefully of activity associated with high corruption the job of the security department, received about Sistema's assets MTS, RTI Systems, and monitored and controlled. risks, such as business gifts, entertainment but a duty of each and every staff Detsky Mir score high in anti-corruption MTS made it to the top 10 companies expenses, charity donations, and payments member. reports transparency. in the study's ranking and proved to be the to outside consultants. Sistema always transparency leader among Russian 200 The study evaluates the transparency telecom companies. in 2017, out of which of companies in three areas: 58.3% their anti-corruption programmes; Core internal documents governing anti-corruption activities are complaints, organisational transparency of company holdings; The Corruption Prevention The Anticorruption Policy The Code of Ethics 22.1% Concept requests, 10 6,3 5,1 3,8 2,6
sets out the basic principles and a basic internal regulation for the stipulates the principles requirements to prevent bribery purposes of preventing corruption; of ethical behaviour as applied 19.6% – to fundamental business and other corrupt practices. questions contains basic methods, tactics processes; and measures to counter corruption within the Corporation; describes the most typical conflicts of interest; covers all business processes, Maximum score MTS RTI Systems Detsky Mir Average score especially those related gives an algorithm for their to investment, procurement identification and resolution. and contracting.
These include: the Universal Declaration of Human Rights; the International Covenant on Economic, Social and Cultural Rights; the International Covenant on Civil and Political Rights; and chapter 2 of the Russian Constitution titled Human and Civil Rights and Liberties.
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In 2017 the efforts of the Group's various Interventions from Sistema's Security Corruption control trainings GRI 205-3 GRI 205-2 security teams that went into all types of Department in 2017 identified 218 incidents procurement activities and the vetting of Key anti-corruption achievements of foul play (fraud, misappropriation, Communications to staff supply contracts saved more than 3.6bn embezzlement, forgery, and abuse of power) and business partners Number of employees that received training on Total across the Group roubles in costs of the products and An important anti-corruption practice is vetting on the part of both Group assets and third anti-corruption procedures in 2017 services procured and brought over 1.6bn potential business partners for signs of parties that damaged the Corporation's Staff awareness of the policies and roubles in additional revenues. affiliation. The efforts of Sistema Group's interests. methods for prevention of corruption Senior management 105 companies in this vein that were made in 2017 reduces the probability of fraud and Middle management 682 Another important initiative in the area of identified 48 potential conflicts of interest, There were no corruption-related fines minimises the risk of the Corporation corruption control that was taken in 2017 which were investigated and resulted in 4 staff or penalties imposed on Sistema in 2017. being held liable for failure to comply with Junior management 1460 was a careful study of the efficiency of members fired and 16 withdrawing from such Two of its assets, however, were fined anti-corruption laws. This is why all new Grass roots 28,907 anti-corruption procedures across the affiliated establishments. The company also to a total of less than 1 million roubles, employees must complete introductory Group, conducted by Sistema's Internal turned down 105 bids from counterparties an immaterial sum considering their trainings where such rules and procedures Total 31,154 Control and Audit Department. The and about 50% of job candidates that failed business scales. are explained. Similar trainings are procedures were found efficient, with to meet the strict no-affiliation requirements. regularly launched for all staff of Sistema no material infractions identified. Detsky Last but not least, security interventions on and its assets. In 2017 all employees Mir, Leader Invest, Segezha Group, and the same grounds caused the cancellation of Sistema and over 30,000 employees Steppe AgroHolding underwent expert of results of 46 procurement tenders. of its assets received anti-corruption anti-corruption assessments by KPMG. awareness communications in one of the Their findings and recommendations Most corrupt activities are routinely detected Identification of signs of affiliation, following forms: Plans for 2018 were used to refine the applicable among the grass roots (shop assistants, number of persons vetted internal regulations and implement cashiers, sales officers, car drivers, doctors, inks to publications about the existing Sistema's anti-corruption plan for 2018 effective measures to make sure etc.) and middle management. Although the 12,000 30,000 9,900 anti-corruption policies and methods on comprises: that business processes are free incidents are quite numerous, their in-depth corporate websites and/or portals; of corruption, including modifications evaluation testifies to the immateriality of the 19,700 33,000 12, 000 a classroom seminar on corruption control preventing corruption by involving to internal regulations governing damage they caused. Among the areas presentation of anti-corruption policies for the Group's senior executives; employees at all levels in direct anti- fundamental business processes. of activity that are especially susceptible and Codes of Ethics to new hires; corruption activities and fostering zero to corruption are property development, monitoring of modifications to anti- tolerance to corrupt practices, whatever big investment projects, and large-scale classroom or online trainings about the corruption laws of Russia and other relevant their guise; procurement campaigns, including those Corporation's anti-corruption policy. jurisdictions and updating corporate
made in the IT business. Sta members Counterparties Job applicants regulations where necessary; methodological support of asset companies The Corporation also informs 100% of its as they refine their internal regulations. counterparties of its policies and methods proactive corruption control during Damage prevented 2016 2017 for prevention of corruption and includes procurement, contractual and investment anti-corruption provisions in all of its activities; Parameter 2015 2016 2017 contracts. Damages prevented, RUB m 15.8 80.3 0.011
Damages recovered, RUB m 8.5 2.1 2.06
Results of anti-corruption measures
136 259 169 100 К 218 333 227 91 >30 employees of its assets received anti-corruption awareness communications
In 2017 anti-corruption Detected incidents Persons found in breach Disciplinary sanctions imposed Persons red trainings were completed by
members of staff 2016 2017 78 I.e., 70 to 100% of each of the assets' staff have been duly notified on the regulations and procedures in place.
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Sistema seeks to establish Sistema, MTS and RUIE had a public discussion on responsible a professional, responsible procurement and supply chains and transparent The Corporation's procurement On 6 June 2017, the event gathered chains taking into account social and procurement and supply principles about 100 representatives of the environmental factors. In particular, business and expert community, Detsky Mir presented a successful case chain management including from relevant departments of increasing the production of school system in the Corporation Reasonable competition among of Sistema Group's companies – MTS, uniforms and clothes/footwear for potential suppliers Detsky Mir, Medsi, Segezha Group, infants in Russia thanks to the strategy and its assets. A proper Binnopharm, MTS Bank, etc – as well aimed at expanding the share of as the biggest business partners and affordable and high-quality domestic procurement function Equality of all bidders suppliers of MTS Group, such as Huawei, goods in the chain's product mix, which can significantly increase Samsung Electronics and Major Cargo was 25% in 2016 (20% in 2017; about Service. Representatives of Russian 40% for clothes, footwear and school the operating efficiency Economic feasibility and international companies operating uniforms). in Russia and having a significant impact and create additional on market development shared their The participants were very excited by this value for shareholders. Openness with suppliers experience in managing responsibilities, discussion and agreed to further promote risks and opportunities in supply best practices in this area.
Transparency of procurement procedures
Compliance with anti-corruption ESG requirements in supply chains policies and business ethics MTS, which is the leader in terms Responsible suppliers undertake, among of procurement volume in the Group other things, to protect confidential RUB bn (more than 50%), adopted its Supplier information, ensure equal opportunities Code of Conduct containing a set for employees regardless of their >181.4 >25,000 of standards that are expected to be skin colour, race, sex, gender identity, met by counterparties. In addition to the age, ethnicity, national origin, sexual the Group's procurement suppliers volume in 2017 GRI 103-2 requirements of integrity and honesty, orientation, marital status, religion, the company welcomes the integration disability or other characteristics, Main categories of services purchased Breakdown of Sistema Group's As an investment company, Sistema has of ESG principles into the activities respect the freedom of association and by the Corporate Centre procurement in 2017 to implement uniform procurement standards, of suppliers and provides feedback and the right to collective bargaining, comply For more information on the principles, which includes interacting with suppliers, objectives and system of procurement control mechanisms. with personnel health standards and 3% 1% building sustainable supply chains, developing management at Sistema, see the 2016 create safe working conditions, promote organisational potential and implementing Sustainability Report, pp. 94-101. Supplier social responsibility implies the protection of human rights and not 12% 16% independent controls. transparent and ethical behaviour that use child labour and forced labour. 4% contributes to sustainable development 5% GRI 102-9 To move to a new level of procurement in a number of areas: The questionnaire compulsory for 27% 57% 58% 8% The bulk (99%) of procurement in monetary development, a large-scale project all participants in MTS procurement terms was done by the assets of the was implemented in 2017 to transform The environment; procedures includes a section on 9% Corporation, with the Corporate Centre's the procurement and supply chain CSR, which was automated in 2017 for procurement amounting to less than 1%. management functions in the Group's Decent work; registration of all new suppliers in the Consulting services MTS Group companies. company's electronic procurement Human rights; system. If the screening reveals any Administrative expenses Segezha Group Sistema established the Procurement significant symptoms of a potential ESG Insurance RTI Group Management Department to implement Charity; risk and this is subsequently confirmed Other Detsky Mir Group all organisational and process changes as the supplier is checked, MTS may required to create an effective supply Transparency and reporting. stop working with such supplier. BPGC system in portfolio assets. The department Other assets served as the project office. Sistema Corporate Centre approved the functional strategy for procurement, which identified three key areas of work.
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Development 1 of organisational potential in the Group's companies Implementing category management
Category management is the STEPPE AGROHOLDING: MEDSI: organisation of procurement activities working directly with producers purchasing medical equipment Organisational structure HR policy Goal setting where the rules and principles of managing certain categories To improve the efficiency and transparency In the course of restructuring of the of goods and services are formalised of supply chain management, Steppe procurement activities, Medsi Group as category strategies describing the AgroHolding established the Procurement formed a category team for medical in 5 companies, specialised new heads of procurement 14 companies have approved most effective approach to purchasing Department and introduced category equipment and standardised procured procurement units have been functions have been appointed in their functional strategies for in a given category. Category strategy management in 2017. As a result of equipment. The level of centralisation created from scratch 8 companies procurement normally includes not only pricing transformations, the level of centralisation of procurement activities increased from and cost reduction issues, but also of procurement activities in the company 28% to 45%. timeliness, reliability and quality reached 83%, and direct cooperation with of supplies, turnover and availability leading manufacturers began in a number Equipment is now being purchased of stock for production, etc. of key areas. directly from manufacturers. In addition, Introduction of category management as the main approach Medsi introduced assessment of the 2 For example, agricultural enterprises total cost of ownership of equipment for to the organisation of procurement that are included in Steppe AgroHolding 5 years and implemented a transition from historically purchased fertilisers through service contracts to full hull insurance. middlemen. The company formed The main innovation of Sistema in a category team, which conducted organising procurement activities was the market analysis and developed The economic effect Regulatory framework Training Consolidated Electronic trading and development purchasing platforms the use of the principle of strategic a procurement strategy for this category. for the year was management of procurement categories, As a result of an open tender, an agreement or category management, as the main was concluded with a direct supplier of approach to the organisation of purchasing one of the largest producers of mineral 29% A new version of the Tender 14 training sessions were consolidation of procurement: most companies use electronic within the supply chain. fertilisers in Russia, the CIS and Eastern Procedures and Procurement conducted in 4 cities (Moscow, stationery, water, computers, trading platform Sberbank AST Europe, which, in addition to obvious price Code has been approved; the Segezha, Rostov-on-Don and voluntary health insurance, motor (purchasing) or MTS electronic Any changes involve not only the and logistical advantages, increases the Regulation on Procurement Kirov) for more than 230 persons hull insurance (KASKO) and trading platform (sourcing) improvement of business processes, degree of business sustainability due Procedures in Major Construction marketing regulatory documents and procedures, but quality assurance and reduced corruption Projects has been developed also the preparation and selection of highly risks in the supply chain. qualified employees. To create a community of procurement function professionals, the . The main regulatory document of Sistema that Group developed a training programme with The economic effect governs procurement activities is the Tender Category management Procurement various training options. for the year was Procedures and Procurement Code. The Code was updated in April 2017 to implement Lists of materials, works Terms of Reference the functional strategy, and it was used as and services of the collective body 22% a basis by the Group's companies for adapting on procurement the regulatory documents on procurement Category teams activities, taking into account their industry Calculation of the specifics. This resulted in the introduction Category analysis economic efficiency of category management as the main tool for ofprocurement managing procurement and supply chains. Market analysis NEW IN THE CODE Separate regulation Preparation and approval on procurement of category strategies procedures in major construction projects Analysis and revision of category strategies
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Workflow of the Dispute Resolution Commission Procurement is for professionals: strategy session on procurement
In January 2017, the first strategy reduction of the number of participants Breakthrough of the Year” (Steppe Dispute resolution session on procurement was held for in procurement procedures, sham AgroHolding), “Automation of the Year” Selection of counterparty Counterparty's complaint commission representatives of relevant departments tenders, etc. (LLC Shared Service Centre), “Category of Sistema Group companies. Management” (Medsi) and “Best At the second strategy session Functional Strategy 2018” (Medsi again). Closed and competitive The participants shared best Russian in December, representatives of and global practices and developed the Group's companies shared the the basic principles aimed at improving achieved results of the implementation the efficiency and transparency of functional procurement strategies No process deficiencies Open and competitive Process is deficient Process is not optimum of procurement. These principles define in 2017 and discussed plans for 2018. identified responsible approaches to planning and conducting procurement procedures During the session, the participants and help avoid common issues and voted to choose the Best Purchasing pitfalls, such as collusion of contractors, Director and the winners in a number Non-competitive manipulation of evaluation criteria, of categories: “Organisational
Explanations to Single bidder Action plan Changes to process counterparty 3 Implementing independent controls
Dispute Resolution Results of the work of Results of procurement BPGC, and their aggregate share accounts Commission Internal control and audit Operating control the Procurement Dispute development in 2017 for over 88% of the Corporation's total Resolution Commission in 2017: purchasing in monetary terms. The declared strategic initiatives were established in the Corporation new tasks related to procurement control participation of representatives implemented in full during the reporting Sistema Group has more than 25,000 in March 2017 were added to the Internal Control of Sistema's procurement unit complaints were received; period. Operations in the field of procurement suppliers in total, most of them working and Audit Code in Tender Committees and category were transferred to the management level with MTS, RTI Group, MTS Bank, Segezha teams of the Group's companies 30 of portfolio companies, and the Corporate Group and Binnopharm. the total amount of contested Centre performs the function of independent GRI 204-1 procedures was control and methodological support. Sistema seeks to strengthen partnerships The fact that suppliers can give feedback disagreement. In case of failures to meet By purchasing products and services from with its counterparties. To create an on the organisation of procurement deadlines or non-compliance with decisions, RUB bn The development of organisational Russian suppliers, the Group's companies open and transparent environment activities in the Group increases their the issue may be submitted for consideration potential in Sistema's assets has contribute to the economic development for communication with counterparties, loyalty, which helps significantly reduce to the Corporation's senior management. 1.7 significantly improved the economic of domestic producers and entire regions the Dispute Resolution Commission financial and reputational risks and form efficiency. The savings in procurement of operations. For instance, the share was established. a sustainable supply chain. procedures of the Group's companies of purchases from local (Russian) suppliers Resolutions: averaged 7.6% in 2017. As a result of the reaches 64% in BPGC, 66% in Segezha The Dispute Resolution Commission The key function of the Dispute Resolution Uphold fully or partially – implementation of the functional strategy Group and 85% in MTS. is a collective body consisting of Commission is the independent control Any counterparty, including potential for procurement, Sistema Group's total representatives of procurement, internal of compliance of portfolio companies with counterparties, can contact the Dispute economic effect amounted to RUB 13.9bn. control, legal, corporate governance and the procurement procedures. The Dispute Resolution Commission, regardless of which 10 Sistema Group company they work with economic security units. Resolution Commission has the right Reject – The Corporation, as a diversified holding to request from the Group's subsidiaries or intend to work with. company, is one of the major consumers The Dispute Resolution Commission any documents and information The format of complaints to the Dispute of goods and services in Russia in almost The savings in procurement was established to settle potential necessary to review complaints received Resolution Commission is available on the all sectors and has a significant impact on the procedures of the Group's Corporation’s website in the “Procurement” 17 procurement conflicts and review claims from counterparties. Decisions of the development of various consumer markets. companies averaged section: from the counterparties of Sistema Dispute Resolution Commission serve Take note Group concerning the organisation and as recommendations: subsidiaries either http://www.sistema.ru/zakupki/konfliktnaja- The largest consumers among Sistema's komissija/ application of procurement procedures. comply with them or substantiate their assets are MTS, Segezha Group, RTI 7. 6 % 3 Group, Detsky Mir, Leader Invest and in 2017
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Breakdown of suppliers of Sistema In 2017, the average share of procurement purchase of office equipment was carried BPGC: Group companies in 2017 procedures using electronic trading out on the basis of MTS. The expected pre-qualification of suppliers platforms remained at the level of last economic effect from the deal concluded year – about 70%. At the same time, for 2 years is 22% of the purchase budget. One of the main activities of Bashkir In 2017, BPGC formed a category team for In this regard, it was decided to abandon 13% the share of e-procurement out of the Power Grid Company is the transmission purchasing these products. The analysis the standard approach of a one-stage total number of open tender procedures Since 2016, the Corporation has been of electricity and its distribution to end of the SSIW fitting market showed that procurement procedure and carry out the 11% 34% in Sistema reached 97% (which amounted organising consolidated tenders for users via overhead power lines. For reliable there are a lot of counterfeit and low- procedure of pre-qualification of suppliers, to RUB 82.72m). Among the portfolio voluntary health insurance. Initially, about fastening of wires on poles and building quality products that cannot be properly which ensured the supplies of quality 8% companies, the leaders in terms of the 1,300 employees of the Group were façades and for connecting subscribers checked during standard procurement products to the facilities of LLC Bashkirenergo implementation of e-procurement are MTS, insured. After successful experience, the to the network, the company uses fittings procedures, which can lead to safety risks (a subsidiary of BPGC), minimised the risk 10% 24% BPGC and Detsky Mir. Group insured about 3,100 employees for self-supporting insulated wires (SSIW). and accidents. of accidents and, as a result, excluded in 2017, while standardising the package, additional costs for the company. MTS In 2017, Sistema continued to hold expanding the scope of services and consolidated purchases for the Group's reducing the costs by increasing the Segezha Group companies in certain categories of goods number of insured persons. The expected RTI Group and services. For example, a consolidated economic effect is 35%. Anatoly Piskunov
Binnopharm Management board MTS Bank member and director for Other procurement and logistics at BPGC
The Corporation also has a positive impact Leaders in e-procurement in Sistema Group in 2017, % “In the five years that have passed on the development of small and medium- since the establishment of BPGC, the sized enterprises (SMEs) in Russia. In 2017, procurement and supply system of the the aggregate share of purchases from group of companies has undergone SMEs made by Sistema's infrastructure 100.0% 82.4% 79.2% 68.7% 68.2% a significant transformation. The function companies – MTS and BPGC – accounted has been almost completely centralised for approximately 15% of the total volume of and automated as much as possible, the category approach to procurement purchasing in the Corporation. In case of MTS, management has been introduced, the small and medium businesses account for transparency and competitiveness of about a quarter of all services and products procedures have been improved, and purchased by the company. the level of competence of employees MTS BPGC Detsky Mir RTI Group MTS Bank has increased. Thanks to these changes, today BPGC has one of the industry's most advanced procurement systems, which allows us to achieve solid results and also makes a significant contribution to the company's economic efficiency.”
Plans for 2018 Expansion of the regulatory framework At the same time, the Group's companies Successful experience in the in the field of procurement (inventory will also continue the work aimed at transformation of procurement activities management and sales of unclaimed and increasing the competences of procurement that began in the reporting period illiquid equipment) in order to improve specialists, as the upcoming transformations determined the trends in the development the quality of supply chain management require a high level of training, motivation of procurement activities in 2018: in the assets. and knowledge based on best practices.
Expansion of categories for strategic The Corporation also seeks to further management and their further replication increase the share of purchases using in other companies of the Group; the electronic trading platforms. A number of portfolio assets plan to expand the Improvement of the system of independent automation of procurement processes, which industry-specific controls for the assets in will ensure transparency, equal access and order to increase their operating efficiency; uniform rules for potential suppliers.
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Human capital is a crucial factor As a responsible employer, Sistema fully Average headcount at Sistema Group, GRI 103-2 complies with all norms of the labour persons of the Corporation's success. legislation of Russia and other countries The personnel structure is fairly balanced Development of a business of operations. In HR relations, the Corporation +13.8% in terms of experience: the shares of young is guided by the basic principles of the 321 specialists and employees with a long is heavily dependent on the International Labour Organisation, the United 295 employment history are almost equal. 282 Nations Guiding Principles on Human Almost 40% of employees have been with professionalism, responsibility Rights and best HR management practices, the Group's companies for 5 years or more. and scrupulousness of its setting similar requirements for its portfolio companies, guaranteeing its employees employees. Sistema's HR policy freedom of association and collective Breakdown of Sistema Group's is designed to recruit and negotiations, opportunities for learning and employees by gender in 2017, % development in the workplace, competitive 2015 2016 2017 retain the best managers and remuneration, and health and safety protection. Breakdown of Sistema Group's industry experts, to improve headcount by companies, % 48.4% employment relations on The key focus areas for the HR management system in 2017 were building an efficient 6.3% 51.6% 4.6% an ongoing basis, creating talent pool and a succession and rotation system, increasing employee engagement, conditions for effective and safe and organising quality and timely training for all 8.9% management levels at the Corporation. work, ensuring career growth, 10.6% 51.5% Men Women adequate standards of living and 4.6% Staff composition 8.1% social well-being of employees 5.4% GRI 102-7 GRI 102-8 Breakdown of the Group's new hires of all assets of the Group. The average number of Sistema Group's MTS in 2017, % employees in 2017 was 141,007, an increase BPGC of 4% from 2016. This was mostly due to the Detsky Mir expansion of the real estate and agricultural businesses, where the average headcount Medsi increase was about 30%. RTI
Segezha Group 48.4% 51.6% Average headcount at Sistema, persons Agricultural assets Other +2.4% The absolute majority of the Corporation's GRI 103-2 GRI 402-1 GRI 407-1 144,362 142,781 Men 139,426 employees (96.5%) have permanent In 2017, Sistema Group companies Share of staff and non-staff employees The key goals of HR management at Sistema employment agreements and work full time. Women employed at Sistema Group in 2017 are ensuring a steady increase of productivity, At some companies of the Group, due to the maintaining the balance of interests of specifics of their respective industries, the employees and the employer, and efficiently share of employees working under fixed-term th people 6.9% utilising employees' professional and contracts or part time may reach up to 10%. For managerial potential in accordance with the example, part-time employment is traditionally >150 Corporation's long-term development strategy. high in healthcare. 2015 2016 2017 in various regions of Russia and abroad The Corporation ensures a gender balance and absence of discrimination. Appointment 93.1% on executive positions does not depend on the gender, age, ethnicity and other characteristics Sta not related to an employee's professional qualities.. Non-sta
Key internal regulations related to employment relations: Internal Rules of Conduct, the Policy on Short- and Long-term Incentives, collective bargaining agreements and other Incl. staff and non-staff employees. Staff employees account for 93.1% out of this number and non-staff employees for 6.9%. documents regulating HR matters.
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GRI 401-1 Average employee turnover at Sistema When recruiting, the Corporation ensures Incentives and remuneration Salaries at Sistema Group companies compared to average industry wages in 2017, Breakdown of Sistema Group's Group, % equal opportunities for all candidates RUB employees by employment history (excluding retail) irrespective of their nationality or religion, GRI 103-3 political views or personal convictions, The incentive and remuneration system Average salary at Average salary across gender, way of life or health conditions. of the Corporation aims at maintaining Sector Sistema Group Russia The Corporation creates jobs for people with a competitive level of salaries for all 21.8% 22.9% Real estate 100,000 30,208 19 disabilities. In 2017, the Group's companies categories of employees both in terms 18 - 2 p.p. had over 1,000 employees with disabilities of region and industry. The incentives and Consumer sector 42,893 32,093 (0.7% of the average staff number), out remuneration of Sistema's employees and 17.2% 16 Telecoms and digital services 71,000 58,811 23.6% of whom 586 were women and 429 men. the management of its portfolio companies Forest industry 36,500 32,399 is linked to the investment strategy and 14.5% Sistema's portfolio companies cooperate is continuously improved taking into account Venture and PE investments 200,000 84,904
Less than 1 year with employment centres: they participate the Corporation's business goals. in job fairs for people with disabilities, 1-3 years 2015 2016 2017 provide information on vacancies to the Financial incentives 3-5 years quota allocation units of employment
5-10 years centres and make them available to the The remuneration principles, procedure Incentive programme for top public on a monthly basis, and also use the and calculation methodology are outlined management over 10 years Breakdown of the Group's staff assistance of the disabled employment units in the relevant internal regulations of the employees by region and employment centres to find candidates Corporation. The remuneration system In 2016-2017, Sistema's Board of Directors During the two years of the GRI 401-1 with disabilities, etc. of Sistema and most of its S/As is based approved two-year incentive programmes programme (2016-2017), 4.4% Offering unique opportunities for building on grades (job levels). for top and middle management. Under the Sistema's top managers bought a career in various industries, the Corporation To create a comfortable environment for programme, the Corporation's top managers GRI 202-1 is an attractive employer for young people. 29.6% disabled employees, special parking stalls are who are directly responsible for building RUB m, Employees aged under 35 account for over allocated for them; some offices (e.g. MTS's In 2017, Sistema Group's companies its portfolio and implementing investment 50% of the headcount. Out of 56,700 people offices in St Petersburg) have help buttons for allocated over RUB 132bn for payment projects must co-invest a certain share of 650 hired by Sistema Group's companies in 2017, mobility- and vision-impaired employees. of salaries and bonuses to employees. their total annual income, which includes the 66.0% worth of its shares, which on young people under 25 accounted for 41%. The Corporation's consolidated expenses fixed and variable parts (the salary and the average equals up to The total number of new hires increased by on salaries, bonuses and social security bonus), in portfolio companies. The heads of 9% vs. the previous year. contributions account for 0.30% of Russia's departments who are in charge of management Moscow total employee payroll. of the Corporation and directly involved in the The average employee turnover at Sistema investment decision-making, in their turn, must 30% Russian regions Group went down to 16% in the reporting Доля консолидированных расходов Кор- purchase the shares of Sistema. Under the of their total remuneration. period, excluding the retail segment, where Foreign countries порации по заработной плате, бонусам programme, top manages also receive options turnover is traditionally high. The reason for и социальным взносам от общей оплаты that provide them with additional opportunities this trend is that most employees at retail труда наемных работников в России to participate in the growth of the assets' businesses are millennials (students), who Сотрудники с ОВЗ, работающие в Корпорации, чел. составляет 0,30%. values. The co-investment process consists often take up temporary jobs during school of an uninterrupted cycle of programmes for breaks. The entry-level wage at Sistema is each calendar year that are launched and +32.2% approximately 2.5 times above the implemented in parallel. GRI 103-2 768 944 1,015 minimum salary stipulated by law, while The Group's companies have a significant the average level is more than two times The president and heads of investment MTS impact on the labour market in various regions higher than the average salary in the portfolios and functional departments of of Russia. Sistema mostly hires employees from RTI financial sector and almost three times Sistema became the first participants of the 439 local communities, recruiting specialists from 367 Agricultural assets higher than the average salary in Moscow co-investment programme. In 2017, the list of other regions only if there are no professionals in general. The average salary at the participants was extended to include lower-level Medsi For more information on the top with required skills in the local labour market. 348 Group was RUB 49,441, which is 26% managers. The Corporation also carries out programmes BPGC above the average monthly wage in Russia management's short- and long-term incentive programmes, see the Annual Report for 2017, designed to train local specialists. 243 257 in 2017. Segezha Group page 90. 244 Other 136 109 21 70 46 47 34 35 42 97 26 38 Excluding top managers, employees on parental leave, interns and part-timers. 47 48 33 According to the Russian Federal Statistics Service (Rosstat), the average salary in Moscow in 2017 was RUB 73,153, in the finance and insurance sector in Russia it was RUB 84,904. 2015 2016 2017 RUB 39,167 according to Rosstat. Excluding top management. According to Rosstat.
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Non-financial incentives In 2018, the range of services covered by Collective bargaining agreements Number of the Corporation's employees VMI will be expanded to include cancer covered by collective bargaining GRI 401-2 GRI 102-41 treatment and accident insurance. The GRI 403-4 GRI 103-2 GRI 102-43 agreements in 2017 The system of non-financial incentives at the new assets of Sistema will join the VMI Sistema pays significant attention to the Corporation seeks to motivate employees to programme. Therefore, the insurance on well-being of its employees and builds +48.6% grow professionally, improve their productivity, corporate terms will be available to about employment relations with them on the achieve goals, demonstrate their best 3,000 people. basis of social partnership, which implies 51,669 performance, improve quality of work and be equality, respect to and consideration 37,643 innovative. All employees of the Group are participants of interests of both employees and 34,763 of the mandatory retirement pension employers, and also compliance with In addition to benefits envisaged by the national insurance programme and may also choose applicable laws and regulations by legislation, Sistema offers its employees a state retirement co-financing programme. all parties. At some companies of the additional benefits, including voluntary medical The Corporation also offers non-government Group, terms of such social partnership insurance, sick leave payments above the retirement schemes for the employees. are set down in collective bargaining minimum established by law, and financial These programmes are carried out by the agreements, which stipulate benefits and 2015 2016 2017 aid in case of difficult circumstances. At some Bolshoy non-government pension fund, compensations for employees above the companies, benefits also include life insurance, which is among leaders for cumulative amounts required by labour laws, including discounts on rehabilitation treatment, free returns and a participant of the state voluntary medical insurance, retirement Employee engagement Number of the Corporation's meals, partial compensation of rent payments pension security system. schemes, additional paid leaves, higher employees covered by collective The collective bargaining agreement of for employees from other cities, etc. The exact sick leave payments, etc. Employees' interest in the Corporation's bargaining agreements in 2017 the Saransk TV Factory (part of RTI Group) set of additional benefits depends on the work The total amount of pension reserves in the success has a direct impact on the results was declared the best in the Republic of specifics and the needs of employees at different Bolshoy Pension Fund accumulated through and efficiency of the business. Sistema 4,088 Mordovia in 2017 following a contest of portfolio companies. In a number of cases, Sistema Group companies' contributions was regularly holds a comprehensive personnel collective bargaining agreements under 6,880 it is included in collective agreements. Also, the about RUB 190m as of the end of 2017. The total engagement survey across all companies of the auspices of the republic's president. Corporation's employees receive discounts and number of participants of the non-state retirement the Group. Such surveys help it to assess the 7,852
special offers from the Group's companies, e.g. programme is over 14,000 people, including 144 team's attitudes on a number of parameters 11,562 724 for banking services, children's goods, housing, already receiving pension payments. and measure changes in people's satisfaction hotel accommodation and healthcare services with their employment conditions. 10,145 not covered by VMI. Performance of the Bolshoy Pension 233 10,195 Fund in 2016-2017 In 2017, the annual engagement survey Spending of the Group's companies covered 73% of the Group's average staff Steppe AgroHolding Training and professional on VMI and social programmes for numbers, including the Corporate Centre and 140.26 187.31 development of employees employees, RUB m assets of the healthcare and pharmaceutical BPGC sectors, high technology, agriculture and Cosmos Group GRI 103-2 14,260 +13.7% RUB m consumer sector. Engagement surveys at People are an important asset for Sistema, MGTS 1,203 1,304 1,368 Segezha Group and BPGC are conducted ensuring the efficiency and internal stability 1,368 biannually and cover additional 14.5% from MTS Group of the business. This is why training and Reserve amount, RUB m the Group's average staff numbers. In 2018, RZ Agro development of personnel is one of the 468 3,059 Spending of the Group's companies 437 the CorporationNumber of participants plans under to conduct agreement, the pers. survey permanent priorities for the Corporation. 354 on VMI and social programmes for RTI 94 employees in 2017 at MTS's um er retail o chain participants as well. already recei ing payments 144 Segezha Group The level of employees' education differs at 2017 849 867 900 2016 various companies of the Group depending Reserve amount, RUB m on their segment (employees with higher education prevail at the Corporate Centre), but Number of participants under agreement, pers. significant attention is paid across the Group 2015 2016 2017 As of the end of 2017, um er o participants already recei ing payments Collective bargaining agreements In 2017, new collective agreements were to develop the necessary competences and Spending on social programmes cover employees signed at Segezha PPM, Sokol PPM enhance professional skills. Spending on VMI and Vologda Paper Mill, which are part people, >1,000 of Segezha Group. The documents not only preserved all social guarantees and from about 51,669 Current programmes of voluntary medical In 2017, Bolshoy's returns were 9.77%, compensations, but also introduced insurance include treatment at in-patient according to the Russian Central Bank, up or additional benefits for the personnel, and out-patient clinics and ambulance from 9.6% in 2016. companies including those related to financial aid services; in cities where Medsi operates, and working conditions. The trade unions these services are provided by its clinics. VMI The RAEX (Expert RA) rating agency in 20 and the employer agreed to hold regular policies for Sistema employees include a 2017 confirmed the Fund's reliability rating of Sistema Group had VMI policies. 36.6% meetings and to cooperate on matters global travel policy; employees may also buy at AA. of the total number of the of occupational and industrial safety. health insurance for their family members at Corporation's employees. corporate tariffs.
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Expenses of Sistema Group on Breakdown of spending on employee training by type of training programme, Results of the engagement and loyalty survey in 2017 employee training, RUB m RUB K
161,697 A total of 7,556 employees from According to expert estimates, TSR* of these At the same time, the survey made it clear +78.6% 20 companies of the Corporation companies is 50% above the Group's average. that there was potential for increasing External (on-site and distance learning) 160,918 343 participated in the survey. the average engagement level at the Internal (on-site and distance learning) 779 270 The key motivating factors identified in Group, including by increasing employees' Including courses organised by Sistema Academy 636 The top 5 companies for employee the course of the engagement and loyalty awareness about the Corporation's 192 engagement were: Steppe, MTS Russia, survey include confidence in the top strategy and developing corporate Leader Invest, Sistema PJSFC and Business management and feeling of own value for recognition programmes. Spending on corporate training of Sistema Group employees, by personnel Nedvizhimost. The aggregate headcount the company, contents of work, and also categories, RUB of these companies exceeds 40% of the culture, values and mission of the company, Costs per employee in 2017 Group's total staff numbers in 2017. its development prospects and speed. 2015 2016 2017 Senior management 3,000
* Total Shareholder Return. Calculated according to the formula: total shareholder income (growth of share price + dividends paid) divided by the share price of the previous year. TSR is Middle management 58,383 expressed in %. Expenses of Sistema Group on Junior management 4,787 employee training in 2017, by employee categories Specialists 15,889 Sistema's training programmes are designed for employees of the Corporate Centre and Sistema Academy 8.2% Building a management team portfolio companies and are usually carried out For the second successive year, the through in-house corporate universities and Sistema Academy is a corporate education Extensive use of corporate capabilities Sistema pays significant attention to the discussion platforms established on the 11.3% training centres, including the MTS Corporate project launched in 2014 that has the and internal expertise ensure a high development of its managers, because its basis of Sistema Academy brought together University. The Corporation uses various best coaches and invited experts train quality of education and at the same time performance as an investment company employees from various industries seeking
formats of on-site and distance learning: the management and employees of the significantly reduce expenses – up to 70 % 59.5% 21.0% depends heavily on the professionalism and to improve their skills, learn something new, Group. The project's purpose is not only compared to the market price of business skills of the management team. share their practical experience and find practical workshops, lectures; personal and professional development education services. out-of-the-box business solutions. 20 club of employees, but also resolution of daily The key goal of the HR policy in this area is meetings were held in 2017, attended by over training courses of Sistema Academy; business issues and creation of additional to build efficient, highly professional senior 250 people from 20 companies of the Group. incentives for the personnel. Top management management teams, and improve the process
distance learning (webinars and video Middle management of recruitment, appointment and development courses); of top managers on an ongoing basis. In December 2017, Sistema introduced Knowledge Week Junior management Knowledge Days. These are short discussion clubs; Specialists master classes on topics relevant for the On 8 September 2017, Sistema held its 3rd methodology for holding meetings, which is Corporation's employees: change, team programmes for advanced training, annual Knowledge Week. Over 600 employees used by major international companies and Number of employees participating and time management, EQ, etc. professional training and re-training. of the Corporation took part in workshops, helps to quickly change interaction dynamics in at least one training course/session master classes and interactive lectures within a team through play. per year The Corporation's investment in personnel provided by leading experts. This year, the development and training totalled RUB 342.5m programme for the first time included a +201.4% in 2017, an increase of 32% from the previous Leadership Saturday – a series of meetings 141,682 year. The bulk of the amount (about 60%) was with experts on leadership. The participants 116,293 allocated for training of employees included in listened to speakers from the Skolkovo the talent pool of Sistema Group (about 86%). Moscow School of Management, the British Higher School of Art and Design, etc. At a 47,601 practical workshop, Sistema employees learned about LEGO Serious Play, a new
2015 2016 2017
K people Over 140,000 employees of Sistema Group attended at least one training course/session 97% >140 in 2017, which is 21.8% above the previous of Sistema's employees were employees of Sistema Group year's results. The number of various training people with higher education attended at least one training course/ programmes for employees grew by 25% vs. in 2017. session in 2017 2016 to 5,165.
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Cosmos Group
MGTS
MTS Group
RZ Agro
RTI Sistema has a comprehensive procedure Headcount of Sistema's talent pool Number of health and safety joint Breakdown of accidents Segezha Group in place for selection and recruitment of committees at Sistema Group Number of the Group's Number of talent pool candidates for senior positions and an companies 0.9% employees included in members promoted in the 1.7% 0.9% efficient competence model for top executives the talent pool as of the reporting period, persons 3.5% of portfolio companies. The candidates for beginning of 2017 +22.3.5% 3.5% Segezha Group Medsi 4.4% senior executive positions are mainly selected Руководители высшего звена 47 12 55 4.4% Detsky Mir RTI using Sistema's own resources. Notably, in MTS Group Concept Group 2017, Sistema's recruitment divisions recruited Руководители среднего звена 1,325 100 7.9% 50.0% employees for 99% of such vacancies across Руководители младшего звена 928 324 RTC Steppe AgroHolding the Corporation. 10.5% Специалисты 2,245 789 20 BPGC Cosmos Group 17 12.3% The management's talent pool is built Всего 4,545 1,225 MGTS mostly using internal candidates to ensure succession, since they usually have a good Sistema Group's employees that participated in assessment, by categories 2015 2016 2017 knowledge of the Corporation's business; and gender, persons The volunteer movement at Sistema is gaining Sistema also makes a broad use of the support from employees and their families, Men Women Total mechanism of rotating best top managers In the reporting period, there were no cases having a visible impact on local communities among portfolio companies. Senior management 36 17 53 of professional diseases at the Group's and reaching the national level. The total Middle management 160 86 246 companies, except for some isolated episodes For more information about the Corporation's number of Sistema employees that participate The following companies of Sistema Group Junior management 1,265 1,758 3,023 at Segezha Group and RTI. The number of charitable projects, see section "Social in volunteering is about 13,000 people, about have created their talent pools: MTS, Detsky occupational accidents registered in 2017 was Investment" of the Report, page 117 50% out of whom work for MTS Group. Own Specialists 8,946 10,187 19,133 Mir, Segezha Group, RTI, Medsi, Cosmos 114. Traditionally, about half of such accidents big volunteering movements have emerged at Group, BPGC. Total 10,407 12,048 22,455 happen in the forest assets due to the Detsky Mir (15% of the headcount) and Medsi industry's specifics. The number of accidents Sistema develops corporate sports and (over 300 participants). By the end of 2017, the Corporation's at Segezha Group fell by 11% in 2017, while implements a large number of social projects talent pool grew by 1,402 persons K people Sistema Group companies' expenses the number of severe injuries dropped by 47%. covering all key areas of life – health, creativity, Further plans of the volunteering movement to 4,811 employees (3.4% of the total on occupational health culture, environment – with active involvement development at the Corporation include headcount). ≈5 of the Group's employees. The Corporation's systematising management of volunteer The Corporation's talent pool +30.4% employees are involved in volunteering projects, organising new large-scale Personnel assessment is the key tool for efforts and charity, with a focus on helping campaigns, involving both employees 613.8 building the talent pool. A project of integral 524.8 underprivileged children, large families, war and external social partners, and also assessment of professional and personal 470.6 For more about Segezha Group's veterans and the disabled. implementing a mechanism to encourage competences, which was launched in 2016 Occupational health and safety occupational health policy, see section and support corporate volunteer initiatives. for the key supporting functions of the "Forest Industry" in this Report., pages 67-69. Overall, the Group's companies participated in Corporation, helps to identify candidates GRI 403-4 GRI 103-2 GRI 403-1 252 social and charitable events in 2017. for further development and promotion (for Ensuring a comfortable and safe working details, see the Sustainability Report for environment is a top priority for Sistema Group Most accidents did not have any serious Sistema views corporate volunteering as 2016, pages 67-69). and, especially, its manufacturing assets. consequences, and only three road accidents an effective tool for developing soft skills The goals of the Group's companies related 2015 2016 2017 resulted in deaths. and enhancing employee engagement and A total of 22,455 employees underwent to occupational health and safety are updated motivation. Voluntary participation of Sistema assessment in 2017. BPGC and Detsky annually, with special assessment performed A number of assets have joint committees Group's employees in charitable events Mir were the Group's leaders for the share and working conditions improved. Compliance for health and safety, comprising both Corporate culture and volunteer has become an important element of our of employees participating in assessment, with workplace safety rules at the Group's managers and employees. Their number grew work corporate culture. Volunteering efforts are 90.1% and 78.2% of the headcount, companies is regulated by internal documents more than 2.5-fold in 2017. coordinated and promoted by the volunteer respectively. The assessment helped and collective bargaining agreements, taking Responsibility, results, team work and centre of Sistema Charitable Foundation, to identify areas for training and career into account industry specifics. integrity are the main values that unite the which initiates and organises corporate social development for talent pool members Corporation's employees alongside healthy and charitable projects, consolidates the best from among senior, middle and junior Sistema Group companies take regular life style, the desire to make the world a better volunteering practices and volunteers from management. preventive measures in order to reduce the place and to help those in need. about 20 companies of the Group. The total risk of occupational injuries and diseases and number of volunteers that took part in at least In 2017, Sistema conducted a 360 degrees enhance industrial safety. The Corporation's The Corporation welcomes employees' one event of Sistema Charitable Foundation assessment for over 90 top managers aggregate spending for this purpose grew proactive stance, desire to improve and in 2017 was 675 people. For more about Social and Charitable projects of the Corporation, see section "Social of the Corporation and its portfolio by 17% in 2017 to RUB 613.8m, or about RUB develop the necessary skills. An important Investment" in this Report., companies, and also for 100 employees 4,400 per employee. part of corporate culture at the Group's page 37-43. of finance, control and audit units, including industrial assets is employees' participation in 12 executives of the Corporate Centre. professional skills contests.
Segezha Group, BPGC, RTI Group and some others.
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Key results of the corporate volunteer Corporate Sport centre Volunteer puppet show
On 2 September 2017, Sistema held its 15th On 18 February 2017, the Izumrudny Les Number of active members of the volunteer centre, pers. The shows are performed by MTS Building on MTS's successful experience, Annual Summer Sports Games at the Yantar eco hotel hosted Sistema's 1st ski race. employees for children from orphanages Detsky Mir established its own puppet stadium in Moscow, which brought together Participants competed in three events: supported by the company, children show in 2014. Its company includes both about 4,000 employees from the Group's individual freestyle race for men, individual 664 675 from large families, young patients of employees and other volunteers who believe companies. During the event, 17 teams freestyle race for women, and a mixed 524 rehabilitation and cancer treatment in the idea of a non-professional theatre and competed in 15 sports. Sports competitions, relay race. Teams from Sistema and 11 centres, and numerous guests of socially want to help those in need – orphans and a lottery and creative workshops were portfolio companies competed for the important events. disabled children. organised for the audience, including champion's title. children. In 2017, theatre's company included about Detsky Mir's theatre has given over 40 60 people, who held 50 shows for a total of shows since establishment. It toured the 2015 2016 2017 The Group's companies develop various 40,500 people in 11 regions of Russia. Tula, Tver, Ryazan, Vladimir, Smolensk social projects, some of which are unique for and Moscow regions, and also Kaluga, Number of events the Russian market. They include volunteer This unique format of volunteering gives Suzdal, Yaroslavl, Khimki, Orekhovo- 252 puppet shows that were established at MTS children new knowledge, positive emotions Zuyevo, Kolomna, Krasnoarmeysk, Sofrino, and Detsky Mir. and a tool for socialisation, while the Ivanteyevka, Filimonki and Moscow. employees of MTS get an opportunity for MTS was the first to found its Mobile Theatre creative self-actualisation. The popularity of Fairy Tales in 2012. Its repertoire now of such projects increases personnel 64 includes 11 shows on different themes: New engagement and loyalty, an employee's 55 Year, education, environment. period of work at the company and labour productivity.
2015 2016 2017
Number of events 17,000 15,000
A good deeds digital-platform A good deeds platform for MTS employees
8,200 MTS has implemented a Good Deeds digital platform on the basis of the Dobro Volunteers account foк about Mail.Ru project. The service helped HELPING PEOPLE TOGETHER AT DOBRO MAIL.RU to systematise management of volunteer employees 2015 2016 2017 projects within the company and provided ≈700 10% the necessary tools for coordinating a mass volunteer movement in various volunteered at the Corporation's of the Corporation's total Hours worked by volunteers regions of the company's operations. Safe Help with good deeds A gift for volunteers projects in 2017 staff numbers 3,287 Dobro Mail.Ru aggregates We can changes the lives A badge will appear 2,700 projects of only reliable of many people for the in your Dobro profile. Share 2,406 charities better through volunteering it in social networks, and many friends will follow your example
2015 2016 2017
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Sistema and its assets set great GRI 103-2 Conservation of biological diversity Amur leopards, snow leopards, beluga whales, Environmental protection expenditures, and interactions with environmental Persian leopards, polar bears); exploration store by ecological sustainability RUB K companies of natural medicinal waters in the Northeastern and so place special emphasis and Eastern Tuva; determination of Russia's GRI 304-1 406,219 326,017 383,096 place in the global environmental landscape; on activities aiming at the exploration of the effect of regional and global istema and its portfolio companies are actively changes on the nature and economical improvement of environmental involved in environmental efforts in the regions potential of the mountains of the Inner and safety, rational use of natural 60.1% 63.4% where they operate, working to gradually reduce Central Asia; comprehensive assessment of 77.3% their environmental impact and raise people's the impact of the Selenga river basin on Lake resources, and promotion awareness about environmental issues. As part Baikal and of the current rate of melting of the of this work Sistema cooperates with non- Antarctic ice sheet; mapping of the "Atlas of of environmental consciousness. 39.9% 36.6% 22.7% profit environmental organisations to preserve Conservation Areas of the Far Eastern Federal biodiversity and contribute to environmental District"; establishment of the cartographic & 2015 2016 2017 education. geoinformatic system "Rivers and river basins Expenses on an environmental management of the Arctic Drainage Basin in the Asian part system and on preventing environmental impact Since 2010, Sistema has been helping the of Russia" and a database (electronic cadastre) Expenses on waste treatment, atmospheric Russian Geographical Society (RGS) in its of Russian caves and major caves in the CIS; emissions purication, and environmental research and education projects relating to composition of the reference book "Mineral remedial action the exploration and conservation of natural Springs and Plants of Russia", as well as the resources. In 2017 alone, Sistema financed encyclopaedia "Open Chuvashia" for the blind The largest investments in some 20 initiatives covered by the RGS's new and visually impaired. Sistema also sponsored GRI 103-2 environmental causes among the grant programme, including the preservation the making of a series of documentaries about As an investment company, Sistema has In general, the main environmental efforts of Another important aspect of environmental Group's companies in 2017 were and restoration of populations of Siberian Russian and Arctic nature and geography; the no material direct environmental footprint. the Group's companies address the following consciousness is the environmental made by Segezha Group, Steppe tigers in the Outer Manchuria (in Bastak natural RGS's expedition marking the 100th anniversary The Corporation's primary responsibility tasks: impact of supply chains throughout AgroHolding, RTI Group, and MTS. reserve) and Persian leopards in the Russian of Russian reserve management and studies, is determining environmental management a product's lifecycle. Some companies Eastern Caucausus; preservation of rare and and numerous school expeditions. 5% priorities within portfolio companies and of the Group (Segezha Group, Binnopharm, 4% endangered species in Russia (Siberian tigers, 5% monitoring their activities to evaluate Detsky Mir, certain subsidiaries of RTI) their environmental footprints and reduce apply special practices to analyse this 11% potential risks. All companies of the Group greening of production; aspect. must strictly abide by environmental standards as set out in Sistema's Code The Group's total investment in 15% 60% of Ethics and internal policies of specific environmental safety in 2017 is up 17.5% asset companies that directly manage their environmental improvements in year-on-year and exceeds 380 million Segezha Group: in the eco transparency rating of Russian forest environmental responsibility depending specific regions where the business roubles. Almost 80% of this amount is companies Segezha Group on specific realities of the industries they operates; represented by expenses on preventing operate in. adverse environmental impact and on STEPPE AgroHolding In 2016 Segezha Group along with other the environmental footprint of production, environmental management (including participants of the Boreal Forest Platform and eco management (transparency and RTI group the adoption of international standards). initiated the preparation of an ecological reporting). Segezha Group was ranked These cost items saw a 14% rise year-on- MTS rating of Russia's pulp & paper companies second among the ten industry giants. year. Among other results, the effort in this Cosmos Group to lay the groundwork for reducing the conservation of biological diversity; area made in 2017 led to a reduction environmental footprint and raising the Others both in the number and in the monetary efficiency of use of forest resources, value of complaints against the Group environmental consciousness, and eco- companies as regards the observance GRI 307-1 impact transparency of players of the national of environmental legislation (down 77% pulp & paper market. support for public environmental from 2015). The number of financial sanctions imposed initiatives; on Sistema's portfolio companies due to In 2017 the WWF of Russia conducted its The average Sistema Group company environmental violations went down by 45% first independent survey of the Russian paper spends year-on-year, to 6 sanctions. Besides, the market with the support of the National amount of fines charged in 2017 fell down to a Rating Agency. The foundation evaluated million roubles each year negligible 0.0001% of revenue. the environmental consciousness of the subject companies by such parameters as >350 development of environmental the sustainability of raw materials sources, volunteering and raising of awareness. on environmental protection. Consolidated data includes: MTS, Steppe AgroHolding, BPGC, Kronshtadt Group, Sitronics, Business Nedvizhimost, RTI Group, Segezha Group, and Cosmos Group. "Others" include: Kronshtadt Group, BPGC, Sitronics, Business Nedvizhimost.
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Raising a sustainable generation Caring for regional ecology
In June 2017, Sistema Charitable as well as outstanding forest scientists and More than 12 thousand teachers all over Sistema Charitable Foundation and Sistema Foundation, Segezha Group and MTS their theories. the country joined the project Mobile Group companies celebrated the Year organised a children's eco fest at the Russian Technologies for Ecology to conduct of Ecology by a series of events in the Forest Museum in Moscow. Segezha Group The volunteers of the "Fairytale Mobile interactive classes in environmental Republics of Altay and Karelia to address assumed patronage over the museum Theatre" regaled the children with an awareness that taught students how to use environmental tasks of local relevance. as part of the nationwide Year of Ecology exciting puppet show about how one can the latest mobile technology to preserve Urban façades of Gorno-Altaysk and project and financed the acquisition of state- help nature by using modern-day mobile nature, save human lives, put out forest fires, Petrozavodsk were painted with colourful of-the-art soft- and hardware required devices, apps, and online technology. and care about birds and animals. graffiti of local landscapes and animals to maintain the database of exhibit items. chosen as the festival's symbols. The The show was followed by the giving streets of the two cities were transformed The festival (arranged to celebrate both the of awards to the winners of the children's into open-air art galleries displaying the Children's Day and the Environmentalists' drawing contest Mobile Technologies for best photos from the Russian nature festival Day) comprised an educational tour for Ecology organised by MTS and the EKA Pristine Russia. children from underprivileged families and Green Movement of Russia. More than 1,000 orphanages. The young guests learned children had registered at the Ecoclass On 25-26 June 2017 Gorno-Altaysk interesting facts about forests, forest web portal, and 500 of them sent in their University in association with the Altay husbandry, professions in the forest care drawings. The jury then selected 46 winners Republic Ministry for Natural Resources, sphere and colleges one can acquire them, from 17 regions of Russia. Environment and Property Relations hosted the regional environmental forum titled 100 Years of Russia's Wildlife Sanctuaries organised by Sistema The teachers humbly sat down at student four truckloads of trash. The scavenge Charitable Foundation. The initiative was desks to analyse specially designed cards campaigns set the tone for the foundation's enthusiastically welcomed by the nation- and discuss the fundamental aspects of work at its next destination, the Republic MGTS and WWF save forests Russia's first FSC forum wide association of wildlife preservation environmental education. of Karelia. professionals Wildnet. Scientists, MTS's arm MGTS and the World Wide In May 2017, Sistema helped organise Andrey Ptichnikov environmentalists, and representatives Another campaign of the festival focused An eco festival that took place on 19 August Fund for Nature have been studiously Russia's first forum for the holders of of nature reserves of the Republic of Altay on the protection of musk deer, the on the Onega embankment in Petrozavodsk Director of FSC Russia working together since 2015 to preserve certificates of the Forest Stewardship and other federal reservations discussed world's smallest antleless deer. During the surprised visitors with an exotic flower bed Russia's forest resources, encouraging Council (FSC), a nonprofit promoting the the prospects of implementation of large- campaign, all schools of Gorno-Altaysk in the form of an open book. The guests Muscovites to cut down paper responsible management of the world's scale infrastructure projects aiming to collected plastic waste for recycling. The were invited to take part in the freshening consumption by using electronic phone forests. promote ecotourism. proceeds were then used to acquire trail up of their city's public areas and attend bills. By the end of 2017, the programme cameras to record the number of deer in environmental workshops where they was joined by some 500,000 MGTS The certification system that first gained "This was our first experience of setting up The money will go towards building their habitat, study their behaviour, and were taught to turn old wooden boxes subscribers, allowing the company to traction in Russia in the end of 1990s now a special platform to help FSC certificate visit centres and checkpoints near the protect them from poachers. into glorious flowerbeds with perennial reduce its billing expenses by 10% while covers above 46 million ha of Russian holders share their expertise and insights. Dzhumalinskiye thermal springs and in plants, true works of art that will please saving the lives of over 400 trees. forests (more than a fourth of all of the We also hope that the forum will be of the Uch-Enmek park and making walkable More than just a symbolic gesture, the the eyes of Petrazavodsk's residents for great help to all our members in the future, country's woodland), of which Segezha pathways that will lead to the Belukha festival began and ended with large many seasons to come. The festival's as a means of both peer-to-peer interaction Group manages 12.6%. park through the Akkem Lake and to the cleaning campaigns. The programmes participants planted a total of some 500 and of reaching out to other stakeholders." Kamennyye Griby rocks through the Ak kicked off with a group of volunteers ornamental plants. More than 100 participants of the Chelushpa park. Segezha Group as the cleaning up the banks of the 19-km event gathered at The Cosmos Hotel festival's partner donated 10 wooden Ulalushka river near the Komsomolskaya to discuss the practices of voluntary benches to install in these two parks. mountain. Once the festival came to a close, FSC certification, supply chains, an even larger scavenge campaign was timber consumption controls, forest The forum also included an educational organised at the shores of the Teletskoye Sistema Charitable Foundation management, and supplier relations. seminar for employees of natural Lake, one of the most visited sights in issued Segezha Group experts took part reserves, Partnership for Preservation the Republic of Altay. The volunteer K roubles in a discussion of FSC practices used and Development, which focused on campaigns brought together more than in the promotion of products and interaction with the local population and 170 residents of Gorno-Altaysk, students showcased the competitive advantages tourists, while teachers of local schools of the Chulyshmanskaya Secondary School, 600 of FSC certification as a sustainability attended a special lesson for education and residents of Balykcha (a settlement in grants to develop 4 natural marketing tool. professionals in protected natural areas. in the Ulagansky district) and collected reserves in the Republic of Altay
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Sustainable production Water and consumption models GRI 103-2 There is a general trend across the Group towards reducing the consumption of The Corporation uses a systematic water for production purposes. The biggest approach to minimising the environmental consumers of water within the portfolio are footprint of its assets, including Segezha Group (32.1%) and Cosmos Group a focus on reasonable reductions in the (43.4%), with most of the water used (73.6%) consumption of natural resources, toxic and coming from water service companies. At the contaminating emissions, and production/ same time, another trend is towards water consumption waste. reuse (primarily practised by Segezha Group).
Energy GRI 303-1 Water withdrawal by source, K cu m With a view to improving the operating efficiency and sustainability of the group's 192,125 190,415 187,049 business, all companies of Sistema Group work hard to reduce the energy intensity of production by introducing energy-saving GRI 302-3 Steppe AgroHolding and Segezha Group are GRI 303-3 technology and adopting more economical Energy intensity, GJ/million roubles of companies that inevitably lead the portfolio by GRI 306-1 and eco-friendly fuels. consolidated revenue fuel consumption due to specific realities of 144,502 142,489 137,674 Water reuse, K cu m Water reuse, K cu m their respective industries, growing business In 2017 the total consumption of energy scale, and the fact that they operate their 242.1 193,092 184,914 184,628 across the group decreased by 5.8%, and 238.0 own boiler plants that supply heat and hot 51,162 47,027 47,507 48,970 energy intensity by 6.7%. water beyond the production facilities to -8.3% local communities. It is also the reason why 298 209 202 222.1 the Group's energy consumption structure 2015 2016 2017 GRI 302-1 GRI 302-3 50,126 is dominated by fuel. From water service companies 50,017 118,954 114,974 111,577 Consumption of fuel and energy From natural sources resources at Sistema Group, GJ Fuel consumption within Sistema From other sources 2015 2016 2017 67,147 64,814 68,006 Group in 2017, by types 166,052,094 Water withdrawal by Sistema assets 6,991 5,126 5,045 164,352,893 2015 2016 2017 2015 2016 2017 The Group's companies are using various types 0.6% in 2017 - 4.8% of fuel and energy, with electrical power 9.3% Transferred to water service companies accounting for some 23.8% of the total 1.8% Sistema Group companies get most (60.4%) 156,468,588 Treated water consumption, thermal energy for 0.3%, and fuels 7.7% of their wastewater reclaimed at special (of boiler, furnace, and motor types) for 75.9%. treatment plants. At the same time, some Discarded into water bodies w/o treatment of the wastewater is treated within the 43.4% 32.1% companies. The share of self-treated water 2015 2016 2017 90.1% in the overall reuse structure is 4.9% up from 2016, with more than half of the water reclaimed and used by Segezha Group. Diesel fuel and fuel oil 15.0%
Gasoline Kronshtadt Group Other fuels Segezha Group
RTI Group
Cosmos Group
Other
Consolidated data includes: MTS, MTS Bank, RTI Group, Sitronics, Detsky Mir, Steppe AgroHolding, Segezha Group, Medsi, Cosmos Group, BPGC, Kronshtadt Group, and Concept Group. "Others" include: Steppe AgroHolding, BPGC, Sitronics, MTS, and MTS Bank.
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Emissions GRI 103-2 Material emissions of NOx, SOx, and other significant pollutants, tonnes Segezha Group controls its carbon footprint in Europe Aiming to ensure efficient management Since Sistema's assets operate in different of climatic impact, Segezha Group runs an -46.6% industries, their climatic impacts also vary inventory of emission sources to come up NO 184,710 212,018 98,568 x greatly. First and foremost, greenhouse gas with the best programmes to address each SOx emissions and other atmospheric emissions of them. 2.5% 4.2% 8.3% are the inevitable underside of production 3.3% 2.9% Volatile organic 9.9% 9.1% 5.8% compounds (VOC) in such industries as wood processing and Carbon accounting is performed even at 63.3% 64.2% 20.2% agriculture. businesses with no significant greenhouse gas Particulate pollutants emissions. E.g., MTS designs plans of maximum 18.6% Other The growth of the Corporation's business permissible emissions for each of its business 46.1% scale in these industries has served to drive establishments with stationary emission sources up the total volume of direct greenhouse gas (diesel generators etc.). emissions in the Group by 9% in 2017. The volume of other significant emissions also 20.9% 19.5% substantially decreased in 2017. A sizeable GRI 305-1 reduction in sulfur dioxide emissions (by 2015 2016 2017 Direct GHG emissions, tonnes 45.6% vs. 2016) is a result of a combination of Segezha Group abides by the EC's of the emissions coming directly from efforts, including the migration of one of RTI's energy efficiency directives that the companies' sources (vehicles and subsidiaries from residual fuel oil to gas fuel. 1,205,650 encourage companies to drive down heating) and 76% produced when the energy component of product costs, consuming energy received from GRI 306-2 1,154,074 stimulate the production of bioenergy, elsewhere, which is well in line with the Waste and care about environmental safety existing environmental safety standards. Total waste by disposal method in 2017 1,106,336 and compliance when exploiting forests. The greater share of Sistema's production Segezha Group enlisted the support In a bid to reduce its environmental waste is classified as either low-hazard or non- of the German Institute for Energy, footprint, the company takes hazardous (classes IV and V). 21.3% Ecology and Economy to evaluate the technological measures to cut the 35.3% 0.9% carbon footprint of the company's consumption of energy, water, and Total waste, tonnes European arms producing paper other natural resources; organises the 10.7% 2015 2016 2017 packaging. The evaluation extended to recycling of its production waste and -6.1% Direct GHG emissions in 2017, by both direct greenhouse gas emissions treatment of waste water, increasingly 12.2% 8.1% 1,298,075 1,323,487 1,219,213 11.5% group companies, % and indirect emissions resulting from moving towards waste-free production Sistema's portfolio companies apply different the consumption of external energy technologies; limits the emission of methods of waste management. Overall, Recycling 1.5% 0.3% sources. According to the careful pollutants destroying the ozone layer, the structure of waste across the group by assessment made, the European greenhouse gases, chemicals, and other 43.0% 47.6% 42.9% disposal method has been steady for the Composting companies of Segezha Group produced harmful emissions. last 3 years. Almost half of the total waste Extraction of usable components or energy 7,500 tonnes of СО in 2017, with 24% volume is recycled or used to extract usable 2 Bulk incineration 44.8% 56.9% 52.3% 57.0% components and generate energy. 53.4% Landll depositing
Storage on enerprise’s site 0.1% 0.1% 0.1% 2015 2016 2017 Other disposal methods
Segezha Group V virtually non-hazardous
STEPPE AgroHolding IV low-hazard
RTI Group I-III (externely, highly, and moderately hazardous)
Other Segezha Group generates the most (94%) waste in the portfolio, in such forms as tree bark, shavings, saw dust, and daily waste. The company aims to cut wastage by various methods, including recycling (about 39% in 2017).
Consolidated data includes: MTS, Steppe AgroHolding, BPGC, RTI Group, Segezha Group, and Cosmos Group. Consolidated data includes: Steppe AgroHolding, BPGC, RTI Group, and Cosmos Group. "Others" include: MTS, BPGC, and Cosmos Group. Consolidated data includes: MTS, RTI Group, Sitronics, Detsky Mir, Steppe AgroHolding, Segezha Group, Cosmos Group, BPGC, and Kronshtadt Group.
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Paper Segezha Group: recycling and biofuel production Participation in the environmental campaign I CHOOSE FOREST Like any other product, paper has multiple In 2018 Segezha PPM also plans to install In 2017 Segezha PPM signed a contract impacts on the environment during its For years now, Sistema Group companies MTS and RTI won the 2nd and the 4th a latest-technology boiler plant running on to install a new production line in the lifecycle (extraction of raw materials, have been permanent participants of FSC's places in the competition, respectively. bio fuel. This will make it possible to cut company's Woodworking Plant No.1 production, processing, distribution, use, and initiatives designed to preserve forests Sistema as a group collected about 10% fuel oil consumption by about 30% and in Lesosibirsk that will make it possible to waste disposal). Sistema aims both at rational and other natural resources by means of the aggregate waste paper amount, or atmospheric emissions by up to 40%. Once produce some 100,000 tonnes of pellets consumption of paper products for its of collection and recycling of waste paper more than 25% of the amount collected by the investment project is implemented, per year. The holding plans a series of new needs and at implementation of responsible as well as promotion of ecological values the corporate participants of the campaign Segezha Pulp & Paper Mill's total generating energy-efficiency projects across its many procurement policies within the Group's and responsible forest management. (15.5 tonnes). This means saving the lives capacity will reach 400 tonnes of steam production sites. companies. of 68 trees and cutting wastage by almost per hour and will be enough to boost MTS, MTS Bank, RTI, Segezha Group, 28 tonnes of water and 16,000 kW/h the production of sack paper by another A careful analysis of paper consumption and Leader Invest collected a total of of electric power. 110,000 tonnes a year. and sources of paper used across the group some 4 tonnes of waste paper in 2017 Mikhail Shamolin, of companies shows a total consumption in a campaign organised to celebrate the Development of bio fuel production and Another high-potential avenue for President of Segezha Group volume of roughly 890.3 tonnes, with about International Day of Forests on 21 March. waste recycling in fuel boilers is among diversification and greater sustainability 20% being FSC-certified paper. the strategic priorities of Segezha Group's of Sistema's forest business based on environmental policy and an instrument the principles of circular economy is the of improvement of energy efficiency. recycling of waste wood into fuel granules "The new equipment will enable us to Paper consumption, tonnes The construction of state-of-the-art power (pellets) with a density twice as great and create a comprehensive approach to generation facilities that use the advantages a heat output 3-4 times as high as those forest use and to handle waste by means 942 of cyclical added-value wood conversion of traditional firewood. The combustion of conversion to biofuel granules and heat becomes an indispensable component of this new type of biofuel produces orders energy. By implementing clean biofuel 890 production technologies, we reduce the of the company's investment programmes. of magnitude less CO2 than the combustion emissions of greenhouse gases, which of fossil fuels (coke, coal, and natural gas). are recognised as one of the most critical Segezha Group's arm in the Arkhangelsk Segezha Group produced its first batch of factors causing adverse climatic changes. region supplying heat energy to the city sawdust fuel bricks back in 2015 at Sokol The fuel bricks are produced under high of Onega now generates 100% of the Wood Working Plant in the Vologda region, pressure without any chemical binders. power by burning wooden waste, not coal. whose full-cycle biomass processing line They are totally safe and eco-friendly.” 2016 2017 Another company of the group, JSC Onega now produces many tonnes of pellets. Woodworking Plant, also abandoned fuel oil back in 2015, now producing heat power Companies of Sistema Group adopt special solely from by-products of lumbering. rules for printing work papers so as to reduce paper consumption along with practices of collecting waste paper for recycling at specialised plants. 1,241 kilos Technopark Sarov: the launch of a new production line using recycled waste of paper was collected and sent off for The international FSC certification recycling in 2017 within Sistema alone. is a recognised eco-quality system used In April 2017 Technopark Sarov (for more The company makes a highly sought-after in the forest and paper industries in 109 details see the "Hi-tech" section of the product with a high resistance to wear countries of the world. FSC certificates industrial overview) welcomed a new and excellent safety characteristics. The are issued and renewed by independent resident, LLC Ecotech, that produces company has a wide portfolio of tiles that auditors based on careful annual analysis injury-proof surfacing tiles from used can be used in sports grounds, staircases, of processes at felling sites. An FSC car tyres. The production technology is inside courtyards, garages, gardens, certificate confirms that the related product both wholesome and up-to-date, with a and a variety of indoors applications. comes from an environmentally and socially maximum degree of process automation. sustainable forest.
Consolidated data includes: MTS, Steppe AgroHolding, BPGC, RTI Group, and Cosmos Group.
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Telecoms and digital services 100
High technology 108
Forest industry 116
Healthcare and pharmaceuticals 122
Consumer sector 129
Agriculture 134
Real estate 139
Electric power 143
Hospitality business 150
Banking and finance 154
The companies of Sistema Group operate in many sectors of the economy and have significant impact on social and natural environments and various aspects of sustainable development. The Corporation is aware of its responsibility to stakeholders for effective management of ESG risks as part of sustainable development and makes a substantial contribution to addressing global and national priorities in this area.
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Accessible high-quality Accessibility of services As a technology leader, MTS takes a comprehensive approach to choosing communications and digitisation. Easily accessible, reliable and safe an optimum solution to develop the concept communication is an important aspect of MTS' of "Internet of Things", or infrastructure Traditional telecom: social agenda addressing an objective of vast for "smart" and sustainable cities and MTS Group is a leading telecom social importance: good communications companies. In 2016 MTS teamed up with mobile and fixed mean equal opportunities for people living Nokia to test the new NB-IoT technology, company in Russia and the CIS that communications in different locations. Flexible tariffs, the internet, and in 2017 opened a first IoT laboratory operates in 83 regions of Russia information technology, satellite TV, and mobile offering pilot solutions for customers and internet apps serve to dampen social inequality. partners to use around the house, in security as well as Ukraine, Armenia, systems, urban infrastructure, and in the area cable and satellite TV Development of a state-of-the-art telecom of housing and utilities. and Belarus. The total population infrastructure across Russia lays the of the licence area is over 200 million, retail chain groundwork for overcoming digital inequality MTS is Russia's only operator of satellite and improving the standards of human life and TV that steadily operates across the entire 53% of which use MTS services. online store the efficiency of various industries. In 2017 country, from Kaliningrad to Vladivostok. MTS carried on the construction of telecom In 2017 the company put a lot of effort into networks, mostly 4G. As a result, wireless developing its "agent sales channel" with LTE networks were launched all across the agents directly visiting potential customers, operator's licence area in Russia. For example, which brought satellite TV to faraway and in 2017 only the company built 8 times as small communities. many LTE base stations as it had before, bringing high-speed mobile internet to more Last but not least, the company is a national Digital business: than 60 communities in the Yaroslavl region, leader by the number of brand retail stores and improved 4G coverage in cities forming (5,700), which adds to the convenience Internet of Things (IoT) and what's known as "The Golden Ring" of Russia: of telephony & internet hookups and Machine-to-Machine (M2M) Yaroslavl, Rostov, Pereslavl Zalessky, Rybinsk, additional services, financial and otherwise. Uglich, Danilov, etc. MTS also doubled the Big Data number of LTE base stations in the Tomsk region, bringing the 4G technology to over financial services 80,000 people in 20 communities. By launching a vast LTE network in the sunny Krasnodar mobile apps region, the company made sure that some 4 million residents of its 350 big and small Alexey Kornya, E-commerce communities will get equal access to high- speed 4G internet in the next two years. President of MTS cloud computing Other achievements made in 2017 include broadened coverage of an LTE Advanced system integration network in the Belgorod region; a brand-new m RUB m LTE network in Belomorsk and Pryazha (two "The recent years have brought huge Karelian communities with an aggregate changes: your bank now fits in your phone, along with online shopping, transport 106.5 612.7 population of roughly 13,500) that, in addition to services, GPS, movies, learning, public subscribers invested in charity and social previously built networks, boosted 4G coverage services you name it. Digitisation is coming projects in Karelia to over 70%; improved quality of signal even to the major traditional industries like K in eight faraway communities of the Kamchatka agriculture and healthcare. Peninsula; broadened 3G coverage area in 6.5 Karachaevo-Cherkessia, etc. Innovation spread all the way to everyday life feeds into a special novel style of Be it the traditional telecom business, where those obtained from R&D partnerships with corporate volunteers thinking, which in its turn fuels social and MTS is a long-standing recognised leader, world leading vendors and ecosystem projects This new paradigm of the telecom In a bid to modernise its infrastructure for economic development and works towards or the burgeoning new digital markets loaded with startups designed to search for and business combined with the UN's the 5G technology and the internet of things, a sustainable future. with heavy growth prospects, the company implement new solutions and services. sustainable development goals form MTS signed a new agreement with Ericsson, provides safe and affordable services that the basis for MTS' approved strategy a leading supplier of telecom equipment. It's only natural for MTS as an infrastructure improve both the quality of human life and the 2017 is the first full year of the company's brand- in corporate social responsibility seeking By the end of 2020, MTS will buy a more than provider to take part in developing digital
efficiency of private and corporate businesses. new business strategy dubbed 3D: Data. Digital. to improve the standards of life and safety EUR 400m worth of equipment and software solutions. We aim to do our best to make each subscriber's life easier and the MTS' leadership is achieved through non-stop Dividends, drawing from the most promising of individual people as well as society for the backbone radio access networks For more details see MTS Group's 2017 business of our corporate customers more Sustainability Report infrastructure upgrades, widening of the retail recent hi-tech trends. MTS' most important D as a whole by means of innovations in the Volga, Northwestern, Siberian, Ural, efficient." chain, and heavy use of innovations, including now is Digital. and a broad spectrum of services. and Southern Federal Districts.
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MTS to supply emergency communications to a major transport hub New technology to put out forest fires in the Far East The rapid development of MTS' network CCTV cameras on top of cell towers and Fire monitoring systems using MTS' In the summer of 2017 MTS, the Khabarovsk The new emergency network will provide means not only high quality of online and transmit signal from the cameras by infrastructure are also deployed in Nizhny Region government, and Pacific National the maximum possible signal coverage of voice services, but also new opportunities protected dedicated channels at speeds Novgorod, Belgorod, Bryansk, and Pskov. University (PNU) signed a tripartite the highway that runs between 6 Far Eastern in the areas of security and environmental of up to 4 Mbit/sec. The project employs agreement to organise emergency territories, which will make travelling safer protection. a total of 115 MTS base stations. communications along the rough Lidoga- and will allow travellers to call emergency Vanino highway with no access to electrical services when needed and save the precious Having previously subscribed to the The solution serves to optimise the power supply and no feasible way of building lives of drivers and passengers caught up 2017-2026 programme The Moscow costs of ground and aerial surveillance. such access. To bypass the problem, in stormy weather or traffic accidents. Region's Ecology and Environment A regional service desk uses the real-time by 2020 MTS will install 8 mobile base launched by the region's government, high-quality video image to monitor fire stations running on solar batteries and wind What makes the project so special is Innovation and contribution in 2017 MTS decided to go a step further safety and promptly calls fire-fighters turbines. The first three of the stations were enthusiastic involvement of PNU's scientists to digital economy and provided a whole of 85 sites to install when necessary. commissioned in 2017, bringing signal and students. The young people take part coverage to 49 km of the highway, or some in every phase of the project, from R&D all New digital economy in which data serves as 30% of its entire length. By 2020, emergency the way to commissioning. This valuable a linchpin driver of social and economic growth, communications will be made possible on experience will surely make them desired business competitiveness, and standards of up to 70% of the highway, the emergency candidates for future jobs. Other territories in living requires innovative products and non- MTS is one of the co-founders of Digital Taking on board the latest trends of the Alexey Kornya, phone number 112 to be accessible to all the Far East are impressed by the project and stop search for new fields of application of Economy, a non-profit set up to coordinate FinTech market, the company presents phone users, whatever their mobile operator. wish to adopt some of the solutions found. digital services using telecom infrastructure. interactions between the business MTS Money Wallet, the first-ever financial President of MTS MTS is a passionate follower of the national community, academic institutions, and marketplace to be provided by a mobile programme Russia's Digital Economy approved public authorities. The company is heavily operator in Russia, which brings together in July of 2017, designed as a systematic involved in ongoing improvements of the MTS' technical capabilities as a mobile approach to developing and implementing regulations and legislation in the sphere, operator and MTS Bank's financial services, "Big Data brought us a total of RUB 1.6bn digital technology in all spheres of life. including regulations of Big Data, artificial enabling users to pay water/electricity bills, in 2017, a triple of what it earned in 2016. intelligence, block chain, and anti-cyber- fines, and loans from their phone screens. This technology for storing and processing crime efforts. More than 50 legislative acts data helps us choose locations and formats are up for amendment in 2018-2019 in order for new retail stores, and also provide to crush barriers to the development of digital cloud computing services to corporate economy. clients. In the longer term, once we launch the platforms we're currently developing together with leading global vendors, each Relying on its own experience of developing Big Data brought us a total of of our clients will be able to get an individual innovative digital products and services IT solutions addressing their specific (including more than 25 apps as well RUB m needs." as cloud computing and IoT solutions),
the company offers digital solutions that 1.6 address existing demands of society and K in 2017, a triple of what it earned the business community. E.g., MTS' new in 2016 ≈50 Telemetering solution for monitoring remote country residents received access facilities, metering power consumption, and to state-of-the-art digital TV controlling remote industrial equipment is widely used at production enterprises, agricultural companies, retailers, and providers of housing and utilities to prevent emergencies, cut maintenance costs, and control the quality of services. Smart Insurance, a programme MTS designed for automobile users, runs on the principle Pay How You Drive and serves to improve driver behaviour and traffic safety.
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Last but not least, Big Data analysis is not MTS' innovation ecosystem in 2017 Training and learning only something our customers can use A Telecom Idea winner attracts investor attention to configure their brand-new products, but MTS works hard to provide training and also a tool for improvement of long-existing NFWare, a company that won Telecom designed to underpin the next generation development opportunities for its employees business processes. TELECOM IDEA INNOVATION CENTRE Idea in the TechTech category in 2016, of communication networks (5G and as well as current and potential customers an "accelerator" for projects. the company's arm that designs, raised $2m from a group of investors the "Internet of Things"). The company and enhance digital literacy of society. Vladimir Khrenkov A programme for curating develops, tests and launches including Sistema VC (a venture capital arm is working on software that will make innovative IT and telecom breakthrough tech solutions. of Sistema PJSFC), Maxfield Capital, and it possible to transfer some network Career growth at MTS is conditional on Director of MTS Innovation projects designed by young Almaz Capital. The money will go towards infrastructure functions from costly staff training that is both sound and up-to- Centre contestants. broadening the company's footprint hardware to the virtual environment, date. The body that sets standards and in Europe and building access to the US meaning great savings for telecom coordinates measures in the field of training market. companies, internet providers, and data and professional development of the staff is "Big Data is no longer the exclusive #CloudMTC centres along with higher traffic processing the MTS Corporate University that employs province of IT companies and large NFWare specialises in the "network speeds. All of the major IT & telecom over 300 business coaches across Russia (cloud computing) corporations. MTS' cloud services will make 660+ functions virtualisation" (NFV), a solution operators of today have NFV as an important and offers mandatory and optional courses Big Data processing available for small and projects point of their network development as well as informative documents available medium-sized businesses, increasing their Smart Education competitiveness." strategies. for readers seeking professional and personal development. Specific goals and objectives e-Health What makes the solution top of everyone's that are relevant in each case define forms MTS has established a whole new innovation 60 agenda is that the number of network- and methods of education, including distance ecosystem to look for promising areas for cities e-Sports connected devices grows exponentially, learning through the corporate Virtual business development and implementation traffic structure is shifting towards Academy, which in 2017 spanned over 70 of its technology. To this end, the company multimedia content, and all business video courses and 300 webinars and drew (artificial intelligence) set up Telecom Idea, an open-access AI aspects become increasingly digitised more than 470,000 visitors. launching pad for startups that has been 14 (people, processes, things, data: internet working for 7 years now, and MTS Innovation countries of everything). Over the 11 years since it was founded, the Centre, which was founded in 2016. Corporate University has gained enough ACCELERATOR MTS experience to provide quality services not just to Sistema Group companies, but also to third Working practices An employee survey has shown that 70% parties, such as major corporations and public of staff would prefer to work from home universities. In 2017 MTS became a licenced Business digitisation obviously requires once or twice a week. It's up to employees provider of career broadening education and significant intellectual and human resources. and their immediate management to decide got the Corporate University registered as MTS & Moscow Polytech to train telemedicine Andrey Filippovich To develop the new services, MTS is planning how many days a week they can actually a standalone entity. professionals to hire some 1,500 new IT specialists before spend away from their office desks, with Dean of the Faculty of Information Technologies the end of 2018. The new talents will work on careful consideration of scheduled meetings at Moscow Polytech business solutions, including cloud computing they are expected to attend. An average Telemedicine is yet another industry that the work on ongoing projects of MTS and bid data services. MTS always aims to of 10-15% of MTS staff across Russia are comes with great prospects in Russia. MTS Innovation Centre in order to create their create equal opportunities for unlocking the users of the distance work privilege, which has been developing digital healthcare very own projects addressing specific "When creating truly promising and potential of each employee, stimulating their proves especially popular with IT specialists services and working on a telemedicine demands of digital healthcare. The disruptive technologies, one needs not only career growth, social well-being, and better and product managers. The company's An average of platform in close cooperation with Medsi. students will be trained in the fields of dependable and fundamental research workplace relationships. further plans envision a new office space computer vision, database administration, to rely on, but also a clear vision of future format with no fixed individual workstations In a bid to train professionals in this new programming, and biomedical technology products and of how to "package" ideas and An employer of more than 65,000 and a network of corporate coworkings in bring them to the end user. I'm positive that 10-15% promising sphere, MTS teamed up with and systems. The valuable knowledge will professionals, MTS has long started offering Moscow and other cities. the combined efforts of Moscow Polytech Moscow Polytechnical University to serve to form "second opinions", analyse and MTS that have gone in the new master its staff the option of schedule-based distance of MTS staff across Russia are users launch Russia's first master programme medical images and patient data from course will be an excellent platform for work. A new step in this area is a pilot project Social HR is an MTS project designed to of the distance work privilege. in the field dubbed Medical Intellectual mobile devices, and create other cutting- creating new technology and training IT the company launched in 2017 to organise hire young specialists with disabilities into Systems, a two-year course that premiered edge products that will revolutionise professionals knowledgeable about the remote work stations for MTS employees in comfortable working conditions. Another K in 2017. The course will enable students healthcare and add to the accuracy needs of the burgeoning digital economy". a way that will optimise operating processes, initiative in the same vein is the new project to study the international experience of medical decisions and comfort conserve resources, and serve as a soft MTS: a Company for Every Age, which was 470 gained in the sphere so far and join of patients' lives. incentive for distance workers. Each MTS launched in the second half of 2017 to hire employee (unless he/she has access to and train senior citizens to work in retail visitors learned through the subscribers' personal data) may opt to work offices, sell satellite TV and fixed telephony, corporate Virtual Academy in 2017 from home several days per week if approved and work at call centres. by his/her immediate superior.
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Corporate volunteer work Charity Digital literacy and education It's been over seven years that MTS launched In a bid to engage a broader audience in competitions. MTS converts all activities made The company has been engaged in The 2016-2017 audience of the programme From inception to date, the project its corporate volunteer movement A Gift of the consumption of digital services and on Generation M pages (competition bids, efforts to enhance digital literacy of senior exceeded 2,000 students, with new "mobile has reached out to more than 40,000 Kindness that now unites over 6,500 MTS improve brand trust, the company launched likes, and reposts) into cash at the rate of 1 citizens since 2012, notably through classrooms" set up in 24 regions of Russia. elementary school students in over 40 employees with pro-active attitudes, a desire Generation M, a mass-scale charity project action=1 rouble and donates the resultant its programme All Ages are Online regions of Russia. to help others, and a passion for making the supported by Russia's Ministry of Culture. amount of money to children that need urgent teaching the elderly the basic practical MTS especially prioritises teaching children world a better place. It uses social media (VKontakte, Instagram) surgical care. By doing creative work, children skills of using desktops. A new step in the basic digital skills and safe use of modern MTS is heavily involved with college as forums where children can learn from not only unlock their own talents, but also save direction is the training course dubbed technology. The signature project Children communities by supporting a variety In 2017 MTS volunteers organised more master classes and interactive workshops lives of other children. «Мобильная академия МТС», The and the Internet first launched in 2011 of hackathons, meetups, master classes than 600 campaigns across Russia. They run by celebrities as well as join exciting Mobile Academy, which targets new users aims to inform children, their parents, and and science conferences. The company help underprivileged children in orphanages of smart phones and tablets and makes teachers of potential risks associated with is especially active with colleges that as well as veterans of the Great Patriotic War sure that people aged 50+ can easily adapt online activities, means of protection from train future telecom professionals, where and labour veterans in the communications to the new pace of life by learning how to internet-related threats, and opportunities whole "MTS labs" are arranged to teach sphere and take part in special campaigns MTS leads the telecom market by NPS use devices to shop online, make doctor the net provides in terms of education, students new communications standards celebrating major anniversaries and appointments, pay bills, and keep in touch personal development, social interaction, and advanced IT solutions. After building holidays, such as Victory Day, Children's Day, By giving teenagers across the country a The project had an enormous social with friends and family. and entertainment. three new college labs in 2017, the New Year, etc. creative floodgate promoted by country's effect, with RUB 15.5m having been company plans to move on to upscaling top celebrities, MTS took the lead in NPS used so far to pay for 42 surgeries. More its R&D activities, supporting student (net promoter score) among the Russian than just a fundraiser, Generation M is projects with its expertise and resources, Areas of focus of MTS' volunteer Big Three telecom operators. a creative trampoline for contestants and making sure MTS Labs are integrated movement: that opens up a range of breathtaking into college curricula across the country. The digitalised charity programme opportunities from internships at attracted a huge audience, with more Russia's major cartoon and movie In the run-up to the World Cup, MTS than 30,000 creative works published studios to sharing the stage with pop launched A Virtual Walk around the city Education on the campaign's website and over idols to getting admitted to Moscow's of Samara, a pilot interactive guide of the 500,000 people visiting more than 150 arts colleges. city's main cultural and historical sites. events in 2017 alone.
Donorship
he 2016-2017 audience From inception to date, of the programme exceeded the project has reached out to From the end of 2016 on, MTS has been In 2017 MTS conducted Sport focusing on a new style of charity work by students, direct relations with local communities. local community projects in Looking deeply into the actual life needs >2,000 >40,000 of common people has proven to be a proper 290 way of finding ready response and gratitude. new "mobile classrooms" elementary school students Ecology regions of Russia High degree of involvement in activities set up in in over initiated by MTS is indicative that people are 33 regions of Russia regions of Russia willing to join a good cause if it really appeals to the urges of their soul. MTS employees 24 40 ART have been purchasing groceries and В 2017 году волонтеры МТС stationery for children from underprivileged провели более or large families and helping to install акций backyard playgrounds, build bicycle tracks, Pro-bono restore local parks, procure much-needed 600 equipment for volunteer search parties, and organise outfits and trips to tournaments for в разных регионах России. young athletes. Intellectual volunteering
According to a survey done by Magram Market Research in 2017.
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High tech and digitalisation Public-private partnership aimed at establishing an innovative development are the basis of an efficient and sustainable economy of the future. Energy efficiency Inhalation of nitrogen oxide (NO) is used in medical practice for the treatment Energy efficiency is of great importance for of pulmonary circulation disorders. NO improving competitiveness, financial stability is produced chemically at special stations Sistema’s high-tech assets, including and energy/environmental security of the and delivered to hospitals in cylinders. RTI Group (which comprises Sarov Technopark in the Nizhny Novgorod Russian economy. The energy-efficient The device synthesises NO in a gas region is a centre for the development and technologies is being developed by a number discharge from the air directly during a number of large research and implementation of innovative projects for of Sarov Technopark residents. For instance, therapy. It makes it possible to abandon the benefit of Russian economy. Sistema the Half-Wave Transmission project cylinders and significantly increase the production enterprises such is a shareholder of Sarov Technopark developed a device for the transmission availability of NO therapy, including as Research Institute of Molecular along with Rosatom, Rusnano Fund for of electricity over a single wire for powering at autonomous transport complexes. Infrastructure and Educational Programmes terminal equipment in wide areas. The project The device has passed the final stages Electronics (NIIME) and Mikron and the Russian National Research Institute will enable the transmission of electricity of clinical trials. of Experimental Physics (VNIIEF). The total from power substations to remote cellular plant in Zelenograd), Kronstadt investment of partners in the technology park base stations, scattered consumers in the LLC Implant Engineering is developing Group, Sitronics and Sarov amounted to RUB 2.2bn. mountains, and separate buildings and a biocompatible polymer for the structures. In 2017, a pilot line of the system production of intraocular implants Technopark, make a significant Since 2014, Sarov Technopark has been was developed and implemented: the project with characteristics similar to foreign developing a venture capital segment for is being tested on the territory of Sarov equivalents and a lower price. In 2016- contribution to the development selection of innovative projects at the seed Technopark. Mass production is scheduled 2017, a trial implant manufacturing of several innovative areas stage. More than 100 applications have for 2018. technology was created, and control tests been reviewed during this time. In addition, of the sample line were carried out. The of the Russian economy. 16 science and technology projects product certification is underway, and in the field of biomedicine, instrument Health production is scheduled for 2018. engineering, industrial technologies and energy efficiency worth over RUB 2.5bn are Project companies of Sarov Technopark Sarov Technopark is actively cooperating being implemented in the technology park contribute to the improvement of healthcare with other innovation and research under the programme of the research and and growth of average life expectancy centres, and conducts educational production cluster of Sistema and Rosatom through the development of innovative activities. In 2017, four new cooperation aimed at creating jobs and commercialising medical technologies. The VNIIEF and the and partnership agreements were signed, breakthrough technologies. The programme Centre for Gas Discharge Technologies and more than 90 events were held enables using public funds for capital have developed a unique medical device for with over 3,000 participants, including expenditures provided that a resident nitrogen therapy. park residents, school and college company co-finances the same project. students, and the general public. For example, the 10th Summer School of Parallel Programming was held at Sarov Technopark in the summer of 2017. The residents had a total Its best students became members of K museums Sarov Technopark is home to turnover of the Lift to the Future engineering school ≈ > of Sistema Charitable Foundation. The 17 40 RUB m resident companies, school is designed for students of grades researchers, engineers, designers in Russia and abroad equipped 7-10 and is held for two weeks. The and other highly qualified with interactive solutions 1.3 44 programming skills for children are taught specialists by Kronstadt Group by leading experts – software engineers paid in taxes – including of the VNIIEF. Participants learn about advanced technologies and programming RUB m via games of varying complexity, and also acquire the skills and competences 170 startups The Group’s companies conduct diverse employed – required for most professions of the future: m research & development, production 12 teamwork and systems thinking. and educational activities, helping create people 900 advanced technological solutions for various microchips produced by Mikron industries. 668 in 2017
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RTI is a major Russian developer and Unmanned monitoring systems In 2017, Kronstadt Group and BPGC The Internet of Things manufacturer of high-tech products and signed a cooperation agreement to create infrastructure solutions using radars and Sistema Group companies are actively a facility-monitoring solution for electric High-tech companies of Sistema Group, microelectronics. The product portfolio using synergies by applying innovations power industry, including with the use of along with MTS, are actively involved of RTI includes solutions in the field of of one enterprise to increase the efficiency drones. Industrial UAVs will be manufactured in the development of the Internet >300 comprehensive communication and security of another. A good example of that In 2018, Kronstadt Group received a patent specifically for the needs of power industry of Things (IoT), one of the most promising systems, IT infrastructure, automation and is the project for the use of unmanned for a system with an unmanned device with the development of software for the use cases of which is connection and employees of Mikron Group optimisation of business processes, as well monitoring systems in the electric power designed to detect and determine the automation of the collection of necessary remote monitoring of “smart” devices, are engaged in research and as large civil projects of national importance, and the forest industries, which was coordinates of corona discharges that information. The drones will be tested as well as creation of effective supply development in collaboration with while Mikron, the largest manufacturer launched in 2017. occur when there is a malfunction on high using the infrastructure of BPGC. The chain management solutions for logistics the Russian academic community and exporter of microelectronics in voltage power lines and lead to electric cooperation will result in a higher efficiency companies. Russia and the CIS, is among the top five Kronstadt Group is one of Russia’s power losses. of infrastructure facility monitoring. microelectronics companies in Europe. leading enterprises in the field of Companies of RTI Group have unmanned technology and robotics. With Another cooperation agreement in the field competences in manufacturing a wide >15 % Kronstadt Group develops unmanned its significant intellectual and engineering of integrated solutions using unmanned range of electronic components: not the company annually invests aircraft systems and manufactures potential, necessary technologies and aerial vehicles was signed between only microprocessors, but also its own in R&D of its annual turnover knowledge-intensive products and solutions competences, as well as in-house Kronstadt Group and Segezha Group. microelectronic systems, as well as integrated for the production, deployment and safe use production resources, the company The companies will create solutions for the solutions using RFID tags, which can store of sophisticated air-, sea- and land-based addresses the challenge of developing forest industry that ensure accurate forest all the necessary identification information systems, as well as IT solutions for museums. civilian use of unmanned aerial vehicles management, prompt and efficient internal about a product. Automatic identification (UAVs) through the creation of a system for planning, and performance of calculations systems reduce time for logistics sorting The main segments of Sitronics include industrial monitoring in close cooperation of any complexity for timber companies. and conveyor belt operations. The industrial comprehensive security systems, intelligent with potential consumers. For these purposes, they will use the new Internet will also make it possible to automate control systems and telecommunications complex data analysis and processing the process of timely decision-making, e.g., solutions. system developed by Kronstadt Group. on equipment repairs. Solutions developed The solution will be developed and tested by the Corporation’s companies are already New technology for production of UAVs from composite materials on Segezha Group’s forest plots. widely used. Technology innovations and synergies Such solutions can be widely used not only Modern aviation industry uses composite The technology provides for: in Russia but also abroad, and will help Chip modules for National Payment Card System The basis of the modern digital world materials such as on fibreglass and carbon increase the stability of the power grid is software, electronic devices and fibre to reduce the weight of aircraft. Reduction of time required for design/ and the forestry industries. In the sectors that are critical for the microelectronics in 2016-2017 and certified systems that can effectively solve day- However, the technologies used in the technological preparation and labour country's security such as transport, by the Ministry of Industry and Trade of Russia to-day tasks with minimum human Russian aviation industry, developed for intensity of manufacturing parts, as well Another promising area for the use of communications and finance, it is as 1st category domestic product. This status involvement. Therefore, the ability of both high-speed jets, cannot be used to create as high geometrical accuracy of airframe unmanned aerial vehicles may be the especially important to use domestically confirms that no foreign circuit engineering individual companies and the national thin-walled ultralight structures required for units; Arctic, where it is advisable to use robotic produced chips which are guaranteed solutions were used for its design and economy to produce, create, reproduce low-speed long endurance UAVs. technology due to harsh climate. Kronstadt not to have undocumented features and development. The product is manufactured and introduce such technologies Obtaining a composite material with low Group has made a proposal to create provide high information security, both and assembled in Russia. In the reporting is of particular importance. Their To solve this important task, Kronstadt porosity (under 3%); a consortium of the largest federal, regional in hardware and software. Therefore, period, Mikron produced and supplied more sustainability and global competitiveness Group has developed a unique end-to- and sectoral stakeholders to study this it is a priority for Mikron to develop than 2m chip modules for the bank cards depend on it. One of the main trends end technology for the production of Reducing the likelihood of errors in design project. According to the company’s experts, solutions for the financial sector. of the national payment system Mir. of the global electronics industry is the all-composite unmanned aerial vehicles, and manufacture; the use of unmanned aircraft will reduce creation of universal platform solutions including all processes from design to the cost per flight hour by 30%. In 2017, NIIME completed the development At the end of 2017, a new sealing line that can be used in various industries and manufacturing, and implemented it in Design optimisation and weight reduction of a microcircuit which was recognised for chip modules was launched, which economic sectors, including precision its design and production departments. for UAVs; as the best domestic product in increased output 10x. engineering using new materials. Composite airframes are manufactured Sistema’s high-tech assets develop in line from carbon fibre with high physical and Increase in material utilisation to 90% and with these trends. mechanical properties, which is made reduced cost of design and manufacture. using vacuum infusion. An additional economic effect is achieved through the manufacture of parts from a composite material without the use of m expensive equipment (autoclaves). >2 chip modules for the bank cards was produced in 2017
See the “Telecommunications” section of the chapter Sustainable development practices of portfolio companies.
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The market for IoT and related RFID RTI also develops its own solutions in the In the spring of 2017, Sitronics Maxim Kuzyuk technologies is one of the priorities in RFID wood marking field of “safe city” and “safe region”. The signed a concession agreement for Mikron’s strategy, which participates in the experimental automation system Region the development of a hardware and CEO of RTI pilot project of the Eurasian Economic Union Illegal logging is a serious threat not 2020 was unveiled during the 12th software complex Safe City in the to create a unified system of labelling with only to the economy but also to the international forum InterSecurityForum Republic of Ingushetia. The project will identification marks. In 2017, the company environment. However, existing methods 2017. It is designed to optimise the work be implemented in two stages: first, delivered the first lots of RFID tags to the of dealing with this problem do not of specialists from the control bodies of it is planned to create a technical project, customers. In the reporting period, Mikron provide adequate results. regional and municipal subsystems of the roll out a traffic enforcement system with "Governors can use this automated system also completed the modelling and calculation Russian Unified System for Prevention photo and video cameras and install all to get a comprehensive and up-to-date of the critical characteristics of a future chip In 2017, Mikron proposed a solution and Response to Emergency Situations. the necessary equipment in the capital understanding of the situation. Thus, for systems of wireless collection of data from in a pilot project in the Irkutsk region, The system can effectively analyse all of the Republic; during the second stage, they are able to objectively assess the utility meters as part of a joint project with where all shipments of legally logged the vital processes of a Russian region the Safe City systems will be installed events and coordinate the work of special the Russian Association of the Internet of wood had an RFID card containing and promptly, in real time, help make in other municipalities of the region. services in the best way possible. Most Things. In 2017, prototypes of RFID bracelets information about the permit and the management decisions. importantly, this is an integrated security system, i.e. it can be enhanced with new for patients developed by the company were logging volume. Additionally, a mobile technical solutions. For example, we tested in one of the Moscow region’s clinics. app was developed for inspectors to can add subsystems that monitor and This system ensures the safety of a patient’s read all the necessary information analyse the utilities sector, the state of law stay in a hospital and significantly simplifies using an NFC-enabled smartphone. and order, or the efficiency of road traffic the procedure for patient identification and It is impossible to submit wood for management." establishing the correspondence between processing without such accompanying the list of assigned tests and drug treatment. documents. Over the three months of Every year, the company launches more than the pilot project, the volume of illegal 20 high-tech products for the mass market logging decreased by 53% year-on-year. and industrial electronics products, including transport cards, SIM cards, bank cards, social The positive results will make it possible Similar solutions based on RFID can be RTI to support innovative startups in Moscow cards, ID cards and other smart cards. to expand the wood marking project applied in various industries, including to neighbouring regions and increase retail, logistics and healthcare. Mikron's In 2017, RTI and the Moscow Smart Transport (technologies for RTI will provide expert, mentoring and the efficiency of business processes by RFID lab established in 2010 has already Agency of Innovations have signed management of urban transport and financial support to innovative projects Safe City automating logging, transport tracking developed more than 100 different an agreement on cooperation in transport infrastructure); that can be complementary to existing and sorting. In addition, RFID tags can products. organisation of the city contest of and prospective business areas of the Ensuring public safety is among the national contain information about wood species, innovative technologies Mosgortech. Smart Security (technologies company. priorities; it is an important element of place and date of logging, technical The contest was initiated by the for improving the safety of the sustainable socioeconomic development parameters and purpose of wood, Department of Science, Industrial Policy environment). and growth of investment appeal of Russia’s consumer, etc. and Entrepreneurship of Moscow with regions and cities. At the end of 2014, Russia the aim of forming innovative businesses launched a programme to introduce the in the field of urban technologies. newest automated street surveillance, control and management systems designed for the RTI has become a partner in the needs of emergency services. The Safe City This results in a delayed reaction to events. Thus, security operators do not need to segment "Smart City Technologies", programme is planned to be implemented Innovation Technology Centre Sistema constantly monitor the situation and can which includes the following areas: in all Russian municipalities by 2020, and Sarov, a resident of Sarov Technopark respond only to alarm signals. The pilot a number of Sistema Group companies are established a few years ago as a result of the project has already been successfully tested Smart Trade (technologies to increase actively involved in it. restructuring of Sistema’s high-tech assets, in the Kostroma and Voronezh regions. the efficiency of trade processes); is developing audio and video analytics The company is now participating in the Video surveillance plays a major role in the systems that add “hearing” to cameras' implementation of the “Smart City” segment Smart Management (technologies for organisation of the public security system. “vision”. The audio surveillance system within the framework of the “Digital Sarov” city, home and office management); However, the constantly growing number detects the signs of alarming events in project aiming to make the life of citizens of video cameras makes it impossible for the sound signal, determines the position safer and more comfortable. Smart Information (technologies operators to effectively monitor the situation of the sound source and gives a camera for data collection, analysis and in real time. a command to position itself in the area of application); the alarming event.
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Training and education The Department of Physical and New approach to STEM education Quantum Electronics of the Moscow Renovation of the branch of the Central Naval Museum Digital and multimedia technologies are Institute of Physics and Technology used in all spheres, including culture At the end of 2017, Sistema_VC and Vasily Filippov (MIPT) for the past six years has had In January 2017, the Road of Life museum in residents and provision of aid to the city and education; they not only change the its partners invested USD 2.2m in MEL a specialised subdepartment of Micro- and the Vsevolozhsk district of the St Petersburg using the Road of Life. Historical events were educational process itself, increasing the Science, an international company with Founder and CEO Nanoelectronics established by NIIME. region opened after renovation. During the reconstructed in detail using 3D graphics of MEL Science interest of young people in knowledge, Russian roots offering next-generation The purpose of the subdepartment is the large-scale renovation that took several years and supplemented with archival photos and history and cultural heritage, but also educational products based on VR/AR training of highly qualified specialists, Kronstadt Group equipped the museum with videos. Important figures and facts as well become one of the key competences technologies. including PhDs, for staffing enterprises its own advanced multimedia solutions. as quiz questions are displayed on special for a modern specialist. of Mikron Group and other organisations monitors. The museum's centre for military The company's flagship product is MEL "VR does something incredible in in the field of micro- and nanoelectronics. This work included creation of a unique and patriotic education is equipped with Kronstadt Group’s vast experience in Chemistry, a subscription service for education. In virtual reality, I can show the In September 2017, 36 students began interactive programme about the days of modern interactive simulators developed by kid what cannot be seen in any other way. the development of professional training chemistry experiments kits for children Bachelor’s and Master’s studies at the the Siege of Leningrad, evacuation of its Kronstadt Group. The kid will never be able to look inside a systems and specialised aviation, maritime aged 9-14; the kits contain all the necessary cell and get inside chemical reactions. Now subdepartment; another 13 students and military equipment allows it to create equipment, including the Molecular Viewer we have a new language, and we have to study in graduate school. Students of unique solutions for education and culture. virtual reality headset inspired by Google use it because this is a real chance to make the subdepartment successfully combine The company successfully cooperates with Cardboard. The visualisation of chemical education easier and better." the educational process at MIPT with centres for military and patriotic education, processes drastically changes the way kids research and practice at NIIME. The “parks of professions”, cadet corps, study chemistry. subdepartment’s alumni participate in vocational schools and major Russian and the company’s R&D, including work foreign museums. The company’s solutions Every month MEL Science subscribers under government contracts. are used by museums in Spain, China, get two new kits for chemistry experiments. Finland, Sweden, South Korea and Japan. There are 38 such kits in total. Since the end of 2015, MEL Chemistry kits could be USD m Similar technologies are used in the ordered in Russia, the UK and the US. Today educational process as well. In 2017, the product is available in more than 35 2.2 Kronstadt Group established a multimedia countries. In 2017, MEL Science launched students, classroom in one of Rostov’s schools VR lessons and tests covering the school was invested in 2017 supported by a Russian Helicopters chemistry curriculum. by Sistema_VC 36 enterprise. A unique simulator of oil field development created by Kronshtadt Group began Bachelor’s and Master’s was put into operation at Gazprom Neft’s studies at the subdepartment in corporate training centre set up at the Septmber 2017 and another 13 Muravlenkovsky vocational school in the students study in graduate school Yamalo-Nenets region in early 2017. Military historical museum
Mintz Radio Technology Institute (RTI In November 2017, a new exposition was The simulator of armoured personnel Group) has supported the Popovich opened at the military historical museum The carrier gives a chance to experience all the Engineering and Tech School in Moscow Field of Prokhorovka in the Belgorod Region, difficulties of driving this vehicle in various for more than a decade. The main located on the site of the legendary Battle of weather conditions. goal of the project is early vocational Kursk. The museum has a centre for military guidance to help school students and patriotic education equipped with consciously choose a university and cutting-edge multimedia solutions provided become competent specialists in radio by Kronshtadt Group. The centre's interactive engineering enterprises. With the support class has three simulators of the T 90 tank, of RTI, three classes with in-depth study an auditorium with a panoramic screen and of physics, mathematics and computer interactive programmes for participating science opened in 2017/2018 academic in a virtual battle. There are also shooting year. Thanks to the engagement of highly simulators of the Kalashnikov machine gun qualified teachers, the level of teaching is and the Dragunov sniper rifle. Visitors can on a par with leading lyceums. Young and compete in accuracy or carry out complex pro-active employees of RTI Group are also missions as part of a team. directly involved in the educational process.
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Responsible forest management Sustainable forest management Mikhail Shamolin Regional development and manufacturing of Segezha Group takes a responsible approach President of Segezha Segezha Group has established an open and environmentally friendly to forest management. The Group's total area Group constructive dialogue with all the regions of woodland in leasehold is 6.4m ha, with where it operates. As a strategic investor products made from 95% of wood certified according to the FSC Our aim is to ensure that our enterprises the company is interested in the long-term standard of responsible forest management. comply with international standards and to and sustainable development of Russia's renewable wood resources promote sustainable forest management regions and, in addition to economic and In addition to preservation of biodiversity, practices on the basis of international rules environmental aspects, it also takes into and regulations by implementing such compliance with the FSC standard means account relevant social issues. Segezha practices across the entire supply chain. Segezha Group is a vertically that the certified company: Group signed cooperation agreements with local governments in all the regions where the integrated forest holding comprising observes legislation in the area of forest The company uses high-quality planting company is present. In order to facilitate the about 30 logging enterprises and management; material to restore target forest species, development of 7 company towns Segezha improve forest productivity and composition. Group entered into a cooperation agreement Russian and European production observes employee rights and ensures In its logging activities Segezha Group with the Fund for Development of Company good working conditions; follows the principles of sustainable forest Towns. The parties agreed on development facilities that manufacture use and complies with forest protection and of partner relations aimed at diversifying unbleached sack paper, paper observes the rights of indigenous people management requirements by implementing the towns' economies, creating new jobs, and interacts with local communities; intensive forest management practices. improving the quality of urban environment sacks, birch plywood, sawn timber Due to the support and investments of the and raising additional investment. rationally manages forest resources, company the Republic of Karelia made it to and pre-fabricated glulam houses. conducts monitoring and assessment. the list of top five pilot regions of Russia where The key mechanisms for improving the quality the model of intensive forest management of life in the regions include: creating jobs for The company keeps increasing its efforts in is being tested. This model implies taking local communities, paying taxes, implementing the area of reforestation, forest management regular care of the growing forests in order to investment projects and umbrella social and protection of forests from illegal logging ensure maximum growth of forest stand and programmes (independently or jointly with and fires in the Arkhangelsk, Vologda, Kirov, drastically improve the quality and commodity Sistema Charitable Foundation), providing Krasnoyarsk regions, and the Republic of composition of forests. The norms of intensive utility services to the local people (heating), Karelia, thus facilitating the preservation forest management are developed by the St building roads and developing public of woodland of high natural value. Petersburg Forestry Research Institute. infrastructure.
Volume of reforestation works, ha Investments in reforestation, forest management and fire prevention, RUB m
+51% +40%
18.6 74 77 15.3 Segezha Group (operating in more than 10 55 12.3 countries and 6 Russian regions) is a leader in these product categories in Russia, Europe and across the world. Being a responsible 95 % forest user and timber producer, the company takes care about preservation of of forest is FSC-certified the environment, creates comfortable living 2015 2016 2017 2015 2016 2017 and working conditions in the regions of operations and makes goods that meet the №2 highest quality and environmental standards. ha 84% >30 Segezha Group's place in the WWF rating of fires decreased as a result of fire charity projects in 5 regions was ≈15 Segezha Group's annual and sustainability prevention efforts the area of forest implemented by Segezha Group environmental openness of the reports are available on the website https:// of the company's presence in 2017 pulp and paper enterprises of the of forests are annually segezha-group.com in 2017 Russian forest industry in 2017 restored by Segezha Group
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Segezha Group's enterprises have Promotion of amateur and professional sports occupational health and safety committees A unique occupational safety classroom comprised of representatives of the employer, Segezha Group aims to implement advanced In March 2017, Segezha Group supported school of boxing. In December, Segezha trade unions and employees. There are also Lesosibirsk Woodworking Plant No.1, They also demonstrate the effectiveness production technologies and best charity the children's ice hockey tournament Group completed the comprehensive employees who received special training in the largest woodworking plant of the of special protective footwear and practices in the regions where it operates Fathers and Sons that was held for the renovation of the Sports Palace in Segezha, the area of occupational health and safety Krasnoyarsk region, opened a unique clothing, the importance of protective in order to ensure the company's positive second time in Kondopoga (the Republic having invested about RUB 9m and making it and who are in charge of promotion of classroom to provide occupational health fencing, teach personnel to avoid breaches impact on the social and psychological of Karelia), and in October 2017, it organised the most expensive and large-scale overhaul safety standards at production facilities. The and safety training for the employees. of safety rules resulting in various injuries well-being of local people. One of Segezha a hockey tournament dedicated to the of the facility over its entire 36-year history. measures implemented by the company in The classroom is equipped with training (having their fingers caught between lifting Group's priority objectives is to create Forest Professionals Day. In December, This was an important contribution to the 2017 made it possible to drastically decrease simulators designed on the basis of the straps and a cargo, spinal cord injuries a comfortable urban environment for local the company supported an open boxing quality of recreation and fitness activities the number of occupational injuries and plant's own drawings in order to show and after a fall from height, etc.). residents, facilitate the promotion of sports tournament in the town of Segezha. Segezha organised for the employees of the Segezha completely rule out fatal accidents. analyse standard emergency situations. and a healthy lifestyle among company Group purchased training equipment and a Pulp and Paper Mill and other residents of The room includes a big training area employees and their families. The company full set of protective gear for Segezha's Ring the town. with devices and simulators designed promotes hockey, yachting, swimming and to illustrate the potential consequences boxing by organising sporting events for of violations of safety rules. 5 types of people of all ages and providing support In 2017, the number of accidents training simulators help employees learn to sport schools and facilities. at Segezha Group fell by 11%, the algorithm of correct conduct at the while the number of severe injuries production site and avoid the most typical In 2017, Segezha Group hosted corporate dropped by injuries. games in Kirov. The games were organised in the following sports: futsal, volleyball, streetball, tug-of-war, track and field athletics. The event attracted more than 200 47% participants from 6 regions of Russia: Karelia, Arkhangelsk, Vologda, Kirov, Krasnoyarsk and Moscow.
Occupational health and safety The occupational health and safety Building a succession pool In each region of its operations Segezha management system includes the International standards for Group cooperates with colleges and university Due to the particular nature of Segezha following: security risk management, occupational health and safety The shortage of qualified personnel holding departments providing training in the relevant Professional skills competitions Group's business, which includes many training and development of personnel, management systems college and university degrees in forest fields. technological processes, the company is emergency action plans and mitigation management in Russia makes it necessary Segezha Group facilitates the professional paying special attention to the health and measures, emergency alert systems, Segezha Group is developing and for Segezha Group to increase the popularity Examples of joint training initiatives: development of its workers. Every year the safety of its employees. The occupational ranking of subdivisions. The company improving its occupational health and safety of forest-related jobs and prepare good company holds "Best Worker" competitions health and safety policy adopted by conducts regular analysis of the efficiency management system in accordance with the professionals for the future. High manufacturing Segezha Group opened a specialised for forest logging and haulage crews. Based Segezha Group fully complies with Russian of the existing management system. requirements of the international standard standards, new technologies and equipment department in the Sokol Forestry Technical on the year-end logging results the company laws and meets the requirements of the OHSAS 18000. In 2017, all the paper and installed at the holding's production facilities School in order to build a succession pool determines the best drivers of logging and Convention on basic occupational health packaging production facilities of Segezha require cooperation with educational for the enterprises of Segezha Group, an other vehicles among the employees of the and safety norms, as well as the guidelines Group obtained certificates of compliance institutions in order to develop joint training unprecedented event and an important Forest Resources Division in the Republic of of the International Labour Organisation. with the standard. In 2018, certification will programmes for students. milestone in Russia's forest industry. The Karelia, the Arkhangelsk and Vologda regions. Segezha Group is also guided by the be conducted for production of sawn timber, decision to establish this department was agreement on Russia's forest industry plywood and wood boards, laminated wood set out in the cooperation agreement for The best logging crews represent Segezha for 2015-2017. structures and prefabricated glulam houses. personnel training until 2020, which was Group at the national championship signed by the company and the governor Lumberman of the 21st Century, where the Segezha Group entered into of the Vologda region in 2017. company is an official partner. More than 40 partnerships with teams from the largest forest companies from Under an Agreement signed between 10 Russia's regions took part in the event in Severny College, the Education Ministry of 2017. the Republic of Karelia and Segezha PPM 15 over 100 specialists completed a two-year course enabling them to work in the pulp universities and colleges across and paper industry. Russia
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Responsible supplies and consumption Innovative packaging solutions for the manufacturing sector Initiative for replacement of plastic packaging in Russia
Segezha Group's responsible supply chain In 2017, Segezha Group launched the The problem of plastic waste has reached Therefore, in 2017 Segezha Group The proposed legislative initiatives will includes two key components: cooperation production of smart sacks with RFID tags a global scale. The main characteristics launched a public campaign in Russia stimulate the manufacturing of value- with suppliers and contractors on the one that carry information about the product of plastic (resistance to chemical agents, to create conditions for decreasing the added timber and pulp and paper products hand and product quality assurance for the at its plant in Germany. This new type of durability) resulted in making plastic waste consumption of single-use plastic bags and help achieve the goals of the Russian purpose of sustainable development on the packaging was developed jointly with a major pollutant of the environment. and replacing them with biodegradable Forest Sector Development Strategy until other hand. The company acts as a driver one of the company's major customers, Plastic can take up to 400 years to paper consumer packaging. In cooperation 2030. of the green market in Russia by promoting the a leading producer of seeds. A built-in chip biodegrade. As plastic decomposes, with government authorities, leading use of biodegradable paper packaging among will help identify a product, protect it from it releases hazardous chemicals (styrene, experts in the area of environmental In order to raise public awareness of the its customers, including big retail chains counterfeiting, simplify logistics and keep formaldehyde, dioxin, bisphenol A) that protection and preservation of forests, problem of plastic waste Segezha Group and mass consumers, and the principles track of the product's location at all stages contaminate soil and ground water. members of non-profit and research took part in the annual environmental of responsible business among its suppliers of delivery. organisations the company is raising festival Ecofest and the Russian Ecology by assessing their compliance with a set Today, plastic bags account for 9% of public awareness of the problems related Week held in the centre of Moscow. of requirements. the entire volume of waste on the planet. to excessive amounts of accumulated In partnership with the Russian Office Every year Russia's retail chains distribute plastic waste and the need to restrict of the Forest Stewardship Council Segezha Group does not only make products The company is consistently working toward 65 billion plastic bags. Moscow residents consumption of single-use plastic bags. (FSC) Segezha held a conference titled from own certified raw material, which increasing the level of customer satisfaction. use 4 billion plastic bags a year and in 100 As a result of this initiative a set of "Ecology and Shaping the Responsible accounts for 60% of the total production, years’ time the accumulated plastic waste potential measures has been developed Consumption Culture in Russia". The but also keeps track of the sources of the will be enough to cover the entire area of that will make it possible to regulate the event was dedicated to the Russian purchased wood, checks the reliability of Segezha Group's enterprises certified the capital 56 times. use of plastic packaging (a ban on free Year of Ecology and brought together suppliers and contractors, their potential to ISO 9001 >30 distribution of plastic bags, an increase in representatives of major businesses involvement in corruption and compliance with Plastic bags have environmentally environmental taxes, introduction of excise and the state, environmentalists and occupational safety rules. Segezha Group has of various certificates were held friendly alternatives which are made duties, a ban on import and sales of plastic journalists, offering a new format for +63% implemented a due diligence system which by Russian and foreign enterprises from renewable wood material and are bin bags, etc). discussing relevant topics with customers. includes a set of measures and procedures 13 of Segezha Group as of the end easy to collect and recycle. Such bags aimed at minimising the risk of getting raw of 2017 biodegrade in several weeks without materials from unacceptable sources and 8 damaging peoples' health and polluting developed in accordance with requirements the environment. They can also be used to the sources of FSC-controlled timber. as a fertiliser to improve the quality of soil. Unacceptable sources of material include The use of paper bags has a lower impact illegally harvested wood, wood harvested in on the climate: the carbon footprint from violation of traditional and human rights, wood their production is much less compared harvested in forests in which high conservation 2016 2017 to that of plastic bags. values are threatened by management +10 % activities, wood from forests in which A ban or restrictions on the use of plastic genetically modified trees are planted, etc. Certificates held by Segezha Group's NPS (customer satisfaction packaging are currently in place in more enterprises (No and %) index) in 2017 than 75 countries which account for about Segezha Group is supporting the trend of 80% of the entire world population. responsible consumption in Russia and across the world. The value-added products made by the company from renewable sources of 16; 47% material make it possible to replace other goods, which are less environmentally friendly.
18; 53% Advanced standards of production and high quality of the Group's products have been certified by the leading international certifying organisations. In just one year the number of
Segezha Group's enterprises certified under ISO 9001 increased by more than 50%.
Standard FSC-STD-40-005. т Annual report of positive emotions. 365 days of growth.
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The introduction of new Medsi Group in Moscow and the region and 12 more Elena Brusilova medical technologies and clinics in 7 other Russian regions with a total clinical of more than 2,000 doctors and almost President the development of next 8m visits per year. The number of services of Medsi Group 19 provided in the reporting period increased generation drugs contribute in Moscow and the Moscow region by 7.6% to 12.4m services. to ensuring the health of plus 12 clinics in other regions “We see Medsi as a chain Since 2016, Medsi has been integrated into of multidisciplinary medical facilities clinical and diagnostic centres the system of obligatory health insurance in combining three main components: the nation and the country’s healthcare, training and research. (CDCs) the areas of specialised and high-tech care. 3 We focus on innovative diagnostics drug safety, and to increasing Unique surgeries are carried out in Medsi’s at the outpatient stage and creation the level of medical care specialised children’s clinics inpatient facilities, including with the Da of centres of excellence implementing 2 and 10 pediatric departments Vinci robotic surgical system (there are only hospital substitution technologies. 28 such systems in Russia). We also continue to develop the segment of high-tech inpatient medical care and hospitals All clinics have adopted uniform standards in this segment we actively cooperate
2 of care, which comply with the latest with the state, as we were included in the programme of state guarantees international treatment protocols. Medsi sanatoriums and a medical of free medical care. Furthermore, Medsi uses the most advanced diagnosis and wellness centre Medical Academy will open up great 2 treatment methods, equipment and opportunities for obtaining the most up- medications. to-date post-graduate medical education infirmaries in companies in a wide range of specialities.” 70 The biotechnology company Binnopharm, which produces pulmonology, neurology, centres of excellence antiviral and immunomodulating drugs, The number of high-tech surgeries >40 has developed and produces a vaccine for in inpatient facilities children and adults that prevents hepatitis Ambulance service B virus serotype ayw, which is specific biopharmaceutical companies with an in-house to Russia. A unique technology makes +327% Family Care Department R&D centre – introduce the latest achievements it possible to manufacture a vaccine without 2,110 of modern medical science and pharmaceutical preservatives containing mercury and industry into real clinical practice. Medsi and to ensure quality in line with international >2,100 Binnopharm provide the nation with high-quality standards. Binnopharm has been covering medical care and effective drugs, developing the bulk of the state’s demand for hepatitis high-tech surgeries the competence of doctors and promoting B vaccine since 2009, making a significant in Medsi clinics 494 a responsible attitude to health. High-quality and affordable contribution to the treatment of socially
medical services and drugs sensitive diseases in both children and
company of JSFC Sistema The main social objectives of Sistema adults. The company not only provides its 2016 2017 Group companies in the Healthcare and Medsi Group, which accounted for about products for the hospital segment, which Pharmaceuticals sector: 10% of the total revenues of Russia’s 100 in 2017 accounted for a quarter of its largest privately owned multidisciplinary revenues (including 13% of revenues from K RUB m Higher quality and availability of services clinics in 2017 , has been contributing to hepatitis B vaccine), but also contributes to based on the principles of P4 medicine; the development of the national healthcare the introduction of new foreign drugs to the >14 system for more than 20 years. The modern Russian market, both through development 525 patients received high-quality care Development, clinical trials and launch medical infrastructure created by the Binnopharm’s investments in R&D and production of generic drugs and in Medsi’s inpatient facilities under RUB bn of new effective drugs; Corporation includes 22 clinics of different through partner channels for commercial the obligatory medical insurance formats (including family and office clinics) distribution. (OMI) programme in 2017. 1,2 Professional development of medical staff revenue from high-tech Sistema’s assets in the healthcare sector – and introduction of advanced treatment medical services, a more represented by Russia’s leading private chain methods; than 5.2x growth in 2017 of medical facilities providing a full range of preventive, diagnostic, treatment and Implementation of projects promoting rehabilitation services for children and adults, healthy lifestyles and development of as well as one of the largest Russian full-cycle inclusive environment.
According to the annual ranking of top 100 private multidisciplinary clinics of Russia compiled by Vademecum.
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Medsi Medical Academy organised 12 Cancer prevention and treatment programme Training of medical Development programme of Medsi Medical Academy academic conferences and 2 training representatives and exchange programmes for Medsi’s doctors (“Nursing According to expert estimates, Russia is Mikhail Davydov of experience in Binnopharm The development programme of Medsi Improving the conditions for in Surgery” and “Latest Development in ranked 5th in the world by the number Medical Academy for 2018-2020 approved the educational process; Vaccination”) in 2017. In 2017, doctors from of cancer deaths. According to official Chief Oncologist On 17 March, Binnopharm’s first in 2017 is aimed at creating a set of 47 third-party medical institutions also statistics, more than 294,000 people of Medsi, Doctor of production conference took place organisational, legal, economic and social Developing the teaching staff; trained at the Academy, including doctors died from malignant tumours in Russia in Medicine in Moscow, which was attended by more conditions that ensure the development from the following cities: Zhukovsky, Kazan, 2017, and 39% of new malignant tumours than 60 employees of the production of an innovative educational environment Creating conditions for continuing Krasnogorsk, Naro-Fominsk, Perm, Pskov, were detected at late stages (III and IV). unit. The company’s executives told the and the highly professional training medical education; Rostov-on-Don and Samara. A webinar on One of the important factors for reducing “The establishment of the Oncology audience about plans and prospects of medical personnel. lipidology was also held with the participation cancer mortality is the identification of Cluster makes a significant contribution regarding production and improvement Developing cooperation with medical of specialists from Karelia, Kemerovo, risk factors and tumours at early stages. to the implementation of the National of product quality, and about expectations The programme provides for: institutions of Moscow’s Department Krasnoyarsk, Nizhny Novgorod, Perm, Podolsk, Cancer Control Strategy, and allows from research and development. of Health; Samara and Saratov. In April 2017, Medsi established the Medsi to strengthen the oncology Meeting the demand of the labour market Oncology Cluster on the basis of its segment and expand opportunities for In mid-May 2017, a training course was in Moscow; Developing infrastructure. Medsi’s Academic Council has been providing a full range of medical services hospitals in Botkinsky Proyezd and held for medical representatives and working for eight years now, uniting in this area. The effectiveness of Pyatnitskoye Shosse. It consists of 6 treatment and subsequent rehabilitation regional managers from all parts of the elite of Russian medicine – leading polyclinics used for the programme of early is ensured by early diagnosis and Russia who joined Binnopharm in the scientists, including 46 academicians and detection of malignant tumours (cancer targeted screening to identify reporting year. The participants of the professors from six countries, including screening). Medsi’s clinics offer diagnostics pathologies at early stages, experience course analysed marketing campaigns Germany, Switzerland, France, Greece and treatment such as chemotherapy, of leading oncologists, and the use of and learned to use the CRM system and and the US. The Council had 6 meetings cancer surgeries and rehabilitation, the most modern technologies and to work with clients. Following the training, in 2017, discussing pressing issues in including free services as part of the brand-name drugs.” each medical representative passed a test. various areas of medicine. Twelve training obligatory health insurance system. Thus, new employees quickly gained the schools were organised for doctors in such necessary knowledge for successful work areas as lipidology, rheumatology, diabetes, and development in the company. dermatology, medical ultrasound, neurology and gastroenterology, which highlighted the latest developments in medicine and the results of recent clinical trials. Medsi’s Development of medical staff Key activities of Medsi Medical To achieve these goals, the Academy professors and doctors were trained in new and education Academy: started creating training programmes and technologies in European countries, and forming teaching staff and the structure, also participated in foreign professional In 2017, Medsi launched its Medical Continuing professional development and which includes 6 departments: Medsi and Philips opened a joint training centre for doctors events, including in Austria, Spain, Academy whose purpose is to prepare retraining of medical staff; Kazakhstan, Kyrgyzstan, the US, Czech highly qualified doctors familiar with General practice; In May 2017, Medsi and Philips, the global focused on radiology (MRI and CT) Republic and Switzerland. The results the latest professional techniques. Research and expert activities (including leader in healthcare solutions, created and such areas as medical ultrasound, of the research, in which the company’s The Academy implements programmes commissioned by third parties); Nursing; a unique training centre for medical vascular and interventional radiology, and specialists take part, are regularly published, of additional medical education to improve specialists at Medsi’s CDC Krasnaya IT in healthcare. Cardiology and oncology, including in the scientific journal for medical the qualification and competences of both Medical advisory activities; Gynecology; Presnya. It is expected that up to 1,000 as well as neurosurgery and obstetrics/ practitioners Medsi’s Bulletin. Medsi’s staff and specialists from other people will be trained there annually gynecology will be priority areas for medical institutions. Publishing (research monographs, Gastroenterology; by 2019. The training programmes are training. textbooks and other types of professional literature); Dentistry;
Organisation of internships and advanced Oncology training in leading Russian and foreign тыс. Medsi Medical Academy organised educational institutions; ≈1 academic conferences Organisation conferences, symposiums, people will be trained there 12 congresses, seminars and other events for annually by 2019 doctors. and 2 training programmes for Medsi’s doctors
According to GLOBOCAN 2018, a study by the International Agency for Research on Cancer (IARC). According to the Russian Statistic Service and the Ministry of Healthcare. Licence to conduct educational activities No 038206 of 03.02.2017 issued by the Department of Education of the City of Moscow.. Opened in 2018.
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Effective and safe drugs Social projects Innovative partnership to develop a new vaccine Be Healthy With Medsi, a comprehensive programme promoting To strengthen the area of research and Medsi and Binnopharm are striving to create healthy lifestyles development, Binnopharm improves Alexey Chupin an effective social partnership with local cooperation with universities. In 2017, 22 communities and specialised non-profit students of the Faculty of Chemistry of the CEO of Binnopharm organisations that provide medical care Lomonosov Moscow State University had to people in need, including children with introductory training in Binnopharm, four of serious illnesses, their families and the elderly. whom were later offered internships at the For a number of years, Medsi has been company’s production site in Zelenograd: QA “Our company has been working with working on an ongoing basis with such well- department, biotech lab and R&D centre. Nacimbio for several years now as part of known charitable foundations as Galchonok, the model of industrial cooperation for the Downside Up and Arithmetic of Goodness, The company is developing fully original fixed implementation of the National Vaccination and has been supporting the contest for Schedule. Binnopharm has extensive combinations and biosimilar drugs of different In May 2017, JSC National Immunobiological subsidies among non-profits organised competences and a decade’s worth of treatment groups. In 2017, Binnopharm’s Company (Nacimbio) and Binnopharm experience in biotechnology research, by the PR Committee of the Moscow City R&D Department developed and registered signed a cooperation agreement to start joint which we will gladly use in the course Government. An important part of the 3 generic drugs and 5 original fixed development and production of drugs. As of this cooperation. I am confident that company’s social projects is promotion of combinations, including: part of the partnership, the companies are this partnership will ensure the highest healthy lifestyles and social inclusion. planning to start production of a new multi- level of safety and effectiveness of jointly Binnoferon – next-generation interferon- component vaccine using the anti-hepatitis developed vaccines.” The participants of the corporate volunteer based immunomodulator; component developed by Binnopharm. movement From Heart to Heart, which includes more than 300 employees of Medsi, Be Healthy with Medsi is the company’s Leflox Alium – a drug for the treatment took part in 200 social initiatives in 2017, key CSR project that it has been of infections of varying severity caused by certificate for Neurocholine (citicoline), including within the framework of the second implementing for more than three years. bacteria sensitive to levofloxacin; the only neuroprotective drug approved in year of cooperation with the charitable Europe and the United States for treating foundation Ageing Gracefully. In 2017, The main goals of the project are A total of Ciflox Alium – an antibacterial agent for patients following a stroke. This drug helps Medsi’s employees collected and transferred promoting healthy lifestyles, training systemic use; patients quickly restore speech and motor essential items for assisted living facilities in disease prevention and health events functions. Its addition to the neurological An integral part of the process of and took part in volunteer trips to nursing improvement, and raising public Linezolid – a drug used for the treatment portfolio significantly increases the value of developing new drugs are clinical trials homes in the Ryazan and Tula regions, where awareness of the main risks and ways 125 of infections caused by gram-positive Binnopharm as an expert in the treatment that examine the efficacy and safety of doctors conducted free off-site consultations to preserve one’s health. The programme was organised in 2017: bacteria; of neurological diseases. About 15 more drugs. for more than 200 people. of the project includes a series of public drugs are under development. lectures, workshops, master classes, Inspirax – an aerosol for the prevention In 2017, the first clinical trials of consultations and newsletters, as well lectures, consultations and and symptomatic treatment of obstructive Moscow has about 30 innovation hubs medicines and medical products as preventive and diagnostic activities MTS Group other events in the offices of lung diseases. with various specialisations called started at Medsi’s hospital in Botkinsky in pressing medical areas, including free partner companies or during Segezha Group technoparks. Binnopharm’s production Proezd, which received the relevant “Health Schools” which form a system of city holidays – In December 2017, the company’s portfolio site in Zelenograd with its own research accreditation from the Ministry of knowledgeRTI Group and a culture of responsible added an important broad-spectrum and development department received Health of the Russian Federation. attitude to one’s health. About 50 Detsky Mir Group events antibiotic, Moxifloxacin, which has been the status of an industrial complex, thus Medsi plans to have clinical trials in volunteers from the company’s staff BPGC used in clinical practice since the early becoming the 31st technopark. This other medical institutions within its participate in the project on a regular 82 2000s and has established itself as a status will allow it to get lower income chain in the future. The company basis.Other assets highly effective treatment for infectious and tax rates, reduced land lease rates and aims to integrate into the international Corporate Centre inflammatory diseases such as community- other benefits. Binnopharm will reinvest system in order to become a platform Number of events promoting healthy large-scale sporting events, acquired pneumonia, complicated the money saved due to the new status for testing innovative diagnostic and lifestyles in 2017 including with the participation skin and soft tissue infections, etc. The to upgrade its production facilities and medicinal strategies. of non-profit organisations, company also received a registration improve the quality of drugs. charity events, festivals and employees fairs with the participation 43 of Medsi’s doctors and >300 ambulance teams – employees of Medsi, took part in 200 social initiatives in 2017 82 events. 43 Lectures and consultations
Sporting events
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Quality and safe goods Support for the Women’s Health programme for children and adults Breast cancer is the most common type programmes for women taking into at affordable prices of malignant tumours in women. One account their health, and Otradnoye in seven women may be diagnosed with Sanatorium organises training and breast cancer in her lifetime. However, lectures for doctors and coordinators who early detection of breast cancer leads to work with the participants in the Women’s people – complete recovery in 94% of cases. That Health programme. is why Medsi is a regular organiser and >500 participant of social initiatives aimed at Medsi, together with Philips, supports the participants of Medsi’s joint fighting breast cancer. national social initiative dubbed #япро- initiatives with the Women’s шла (“I've taken [mammography]”) as part Health programme. As part of cooperation with Volnoe Delo of the Breast Cancer Awareness Month. Foundation’s charitable programme As part of the social partnership with the Women’s Health, which began in 2016, footwear retailer Econika, Medsi’s leading Medsi provides its competences and mammologists held free consultations for resources to help women diagnosed the female visitors of the chain’s outlets with breast cancer. For the second in central Moscow. consecutive year, over 200 participants in the programme and their relatives identified as most-at-risk, were offered free mammograms as part of #GivingTuesday.
Medsi medical centres organise charity exhibitions and fairs where people can see the works of the participants of the Women’s Health programme who countries RUB m have undergone art therapy as part of rehabilitation. Professional coaches 6 > 400 and instructors at the Olympic Star retail chains operating of charitable donations fitness centre develop individual training
Sistema's assets in the consumer sector Accessibility of goods and include Detsky Mir, Concept Group and customer orientation Support for foster families the online hypermarket OZON. These companies have a large chain of retail Sistema's companies operating in the Russian laws require health screening health screening at Medsi’s children’s award Stork’s Wings. It is awarded outlets selling children's goods and clothes consumer sector are actively investing of orphans and children in foster families clinics on special terms, including all annually to citizens and organisations both in Moscow and across Russia. Their in expansion of retail chains and logistical at least twice a year. necessary check-ups, clinical analyses, that have made a contribution to well-developed delivery and pick-up infrastructure to meet mass consumer ECG, etc, as well as doctor’s visits. the development of foster families services ensure immediate availability demand. The geographical footprint of the In the framework of the partnership The company also introduced social in Moscow. Three families received of socially important goods to the Russian companies keeps growing. By the end of with the Centre for Social Projects discounts for all medical services in certificates for family healthcare households. 2017, Detsky Mir stores were present in Development, Medsi launched primary care clinics and CDCs to all programmes at Medsi clinics. 219 cities, while Concept Group operated a programme to support foster families members of families with foster children, Retail chains follow the principles of fair in more than 120 cities of Russia and in in the summer of 2017, offering them and also supported the Moscow city pricing and uniform product range in all 5 other countries (Belarus, Kazakhstan, stores of the same format irrespective Armenia, Azerbaijan and India). of their location.
stores
For more information on sustainable >1,000 development see the Annual Report of PJSC in the consumer sector Detsky Mir for 2017
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Customer satisfaction and loyalty, as Improvement of customer support mechanisms well as their confidence in the brand are The online hypermarket OZON is actively Alexander Shulgin fundamental components of a successful developing courier delivery and a network of retail company. In order to improve their pick-up points. In March 2017, the company OZON CEO In order to integrate all channels of All customer queries are split into Moreover, the Usedesk system allows customer-oriented business model launched next-day delivery for the residents customer support and scale up customer categories: one group of call centre monitoring the average handle time and the portfolio companies of Sistema are of the Moscow region. Besides, the company service Detsky Mir adopted a "one-stop operators handles calls related to the oversees the productivity of staff working implementing an omni-channel approach is planning to install 1,500 own parcel locker shop" approach in 2017. work of retail outlets, another one deals at the Customer Support Centre. by integrating all customer platforms and terminals OZON Box, where orders made In 2017, the product range of our online with deliveries, while the third group is devices to ensure easy interaction with through the online hypermarket and its store increased from 4.2m to 4.9 items. The company established a Customer responsible for sales and promo codes, These new solutions produced the first the company. The key component of this partner companies weighing up to 24 kg may Growth was particularly strong in such Support Centre and introduced a uniform etc. This solution gives the company results in 2017: each customer call is approach is development of e-commerce. be kept during 3 days. categories as Food (114%), Pet Products system for handling orders (Usedesk). flexibility during the high season, when the successfully handled and the average Detsky Mir's online segment is the fastest (94%) and Electronics (81%). We will In this way Detsky Mir consolidated number of calls per month is drastically handle time for queries received through growing sales channel: the online store The retailer invests a lot in product range and continue improving our pricing policy, all customer feedback channels and increased, and makes it possible to quickly all channels amounts to 5 hours, while in had more than 133m customer visits and infrastructure and opens new warehouses in expanding the product mix and investing in logistics. Today, 40% of Russian implemented segment data processing. recruit additional staff to promptly respond social media this indicator varies from 15 delivered more than 2.4m online orders in regions (in 2017 – in Tver and Krasnodar, in citizens can place an order on OZON. to customer requests. to 30 minutes. 2017. At the same time, the company aims 2016 – in Kazan and Yekaterinburg), offering ru and have it delivered on the next to enable customers to pick up orders from new products for the market, for example, day. Additional investments will make retail stores within one hour from order fresh food (more than 400 SKUs) and it possible to provide next-day delivery placement. medicines (about 15,000 SKUs). service to 60% of Russian people. Feedback Hotline Messengers Messages form 8 (800) 250-00-00 (planned) from retail Development and optimisation of own detmir.ru stores loyalty programmes provide permanent customers with an opportunity to buy goods at a discount, and convenient stores It is important that children's goods international producers and suppliers, located in modern shopping malls and belong to the category of products that are which guarantees a high quality of goods, densely populated residential districts are expected to meet higher quality and safety and takes an active part in the initiatives Social media Mail External Messages from equipped with interactive play areas for requirements. That is why the companies aimed at curbing the turnover of illegal (VK, FB) shop.detmir.ru feedback transport children to stimulate repeated visits. are focused on identifying counterfeit products. When selling private label goods Youscan companies goods that carry potential health risks for the company has even more opportunities small children. For example, Detsky Mir for ensuring strict compliance with quality Safety and quality of products purchases goods directly from the largest and safety standards.
Ensuring the safety and quality of goods is the main obligation of Detsky Mir and Quality assurance in Concept Group's supply chain Concept Group to their customers and a necessary condition for enhancing Concept Group has implemented brand was recognised as fully meeting all customers' confidence in the brands. internal quality standards which legal requirements and completely safe. Detsky Mir is expanding its product delivery capabilities include requirements to the quality of The companies operate in full compliance fabrics, materials, accessories, clothing If a customer is dissatisfied with As part of its continuous search for new In 2018, 90% of orders will be packaged Due to the low cost of delivery this with the Russian law "On protection of manufacture process and suppliers' a product's quality, they may contact customer support formats Detsky Mir within one hour after placing an order method is particularly convenient for consumer rights" and trade regulations. technical and technological capabilities. Concept Group's call centre. launched the e-commerce platform on the company's website and the some regions. The quality and safety of goods is The standard is communicated to each SAP Hybris which ensures personalised share of timely handled orders will be monitored at all stages of product life new supplier and used when checking the Each customer complaint is analysed, and, interaction with customers through all increased two-fold: from 45% to 90%. cycle: from supplier selection and order quality of new products sold in the retail if necessary, changes are made to the available channels and serves as a foundation For this purpose Detsky Mir introduced placement to shelf layout and customer chain. The standard is then renewed on quality standards to prevent such cases in for improvement of the online store. a customer service indicator (Service feedback. the basis of consumers' feedback. future. Level), which is measured both for The key driver of online sales in 2017 each stage of order processing and The quality of suppliers' products is was expansion of in-store pick-up on a consolidated basis. checked in all countries of manufacture, In 2017, the volume of direct service enabling customers to collect and audit companies are engaged purchases from suppliers their purchase at the check-out points of In 2018, the company will launch the whenever necessary (in India and increased by 6% up to more than In 2017 the number of Detsky retail stores. Last Mile project to ensure courier Bangladesh). Mir's active loyalty card m items, delivery from regional stores and 1,387 holders increased by Moreover, customers may collect their local logistical centres directly to the own and partner pick-up Based on the results of lab tests >20 purchases at the pick-up points of customer on the day of order placement. points as of the end of 2017 conducted in 2017 as part of a random Ozon and Boxberry under partnership independent audit of women's clothes for moreover, the share of agreements. 24% compliance with the Russian state quality procurement from Russian standard, the sample under Concept Club suppliers doubled.
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An important strategic area of Detsky Children's rights and social and clients have a positive impact on the Detsky Mir's charitable activities are Mir's assortment policy is development security quality of life of underprivileged children financed from the company's budget The "Participate!" campaign of its private labels. Due to big production and their families. and from individual donations received volumes, a stable flow of orders, reduction The Corporation and its retail assets by Detsky Mir Charitable Foundation. For more than 13 years Detsky Mir has the entire year. In the reporting year 572 in branding and logistical costs, Detsky operating in the segment of children's By implementing social and charity In 2017, Detsky Mir Charitable been organising collection of necessary retail outlets from 220 cities of Russia Mir offers its customers 29 private label goods are particularly focused on protection projects the company aims to improve Foundation allocated RUB 417m for school and other supplies (stationery, and Kazakhstan joined the campaign. products of high-quality in the clothes and of children in keeping with the basic the quality of care provided to children charity events and children support arts&crafts kits, board games, clothes footwear category at affordable prices, as principles of the Children's Rights and in social and medical facilities (180 projects, of which 92% came from and toys) for children from orphanages, The company collected more than well as children's clothes under Acoola Business Initiative of the UN Children's play rooms for children were opened in donations. social boarding schools, children from 7.8m gifts with the total value of RUB brand developed by Сoncept Group. Fund (UNICEF), including eradication of 2017), to increase the level of children's large families, and disabled children. 352m, and the number of beneficiaries A proprietary chain of branded stores, which child labour, ensuring children's safety social engagement and help them fulfil reached 650. annually produces 9 full collections made in all assets and business segments of the their creative potential. The company's The campaign may be joined by anyone. by an in-house design bureau and 150 new company, fair marketing and advertising, employees are involved in volunteering designs of clothes every month, has more provision of support to local communities activities and take part in performances Detsky Mir's customers may help than 240 points of sale across Russia. in the area of children's rights protection. of puppet theatres, clean-up days in children not only by purchasing gifts and Gifts with the total value of children's homes, charity fairs where leaving them at the shop, but also by Detsky Mir's social activities carried out it is possible to buy crafts made by making a donation via a text message. RUB m through its own charitable foundation children, and other events. Fair marketing practices created in 2004 jointly with suppliers Starting from 2017 Detsky Mir's 352 "Participate!" campaign lasts throughout Sistema's retail assets work in conditions of strong competition, which is characteristic of the consumer sector as a whole, and aim to use all available "A step forward" project opportunities for strengthening their In 2017, Detsky Mir's average NPS K positions while following the principles of (customer satisfaction indicator) One of Detsky Mir's new social For example, a painting and The total cost of the project amounted fair competition and social responsibility increased by >350 initiatives is support of quality additional plastering course was launched at to RUB 208,000. and ensuring strict compliance with education for underprivileged children. the Dukhovshchinskaya school in underprivileged children and advertising regulations, adjusting their The project "A step forward", which Smolensk for orphans and disabled Detsky Mir Charitable Foundation gave commercial policies, marketing activities, 10% was launched in spring 2017, will help children. As part of the project children a carpentry shop to boarding school No and improving the format of stores based for retail outlets and by underprivileged children choose their will be taught the basics of the job by 115 in Samara: the company purchased on customer requirements. 800 future profession, receive occupational experienced teachers. To organise the necessary equipment and furniture: social facilities of Russia training and continue their education in teaching process, Detsky Mir Charitable a carpenter's bench, stools, hand tools, While maintaining high profit margins and Kazakhstan are under professional engineering colleges. Foundation had the class repaired and a saw bench and ten woodburning due to a balanced assortment policy, 22% the patronage of Detsky Mir acquired all necessary furniture and stations. participation of suppliers in marketing for the online store. Charitable Foundation equipment. activities and effective coordination The total project costs exceeded of social media communications and 200,000 roubles. Now, the children targeted messages to customers, Detsky studying at the school will be able to Mir ensures significant growth of sales learn the basics of a carpenter's job. during the period of promo campaigns (Cyber Days, Black Friday), when discounts may reach 90%, resulting in an increase in the number of orders and a 2-3-fold growth of revenue, which has a positive RUB K impact on consumers' confidence in the company. >400 social investments in "A step forward" project»
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Sustainable and productive agriculture is the basis of the country’s food security Растениеводство Dairy farming Fruit growing Vegetable growing
+80 % +30.5 % +44 % +20 % Crop farming increase in milk output increase in gross increase in output apple harvest of cucumbers and tomatoes >10 litres per year – milk yield per cow
Sistema Group’s agricultural assets – Steppe Thanks to the use of advanced agricultural ВаGross crop yield, K tonnes Steppe AgroHolding produced 0.86% of all AgroHolding, including RZ Agro Holding technologies and management methods, raw milk in Russia and about 3% of raw controlled jointly with the Louis-Dreyfus Sistema’s agricultural assets have 754.0 1,041.0 1,355.3 milk produced in the Krasnodar region, one family – make a significant contribution demonstrated high productivity and Winter wheat of the top 5 dairy regions in the country. to providing the Russian population with steady growth in production volumes Most of Steppe’s products are supplied high-quality crops, fruit and dairy products, over the past few years. In 2017, Steppe Winter barley to Korenovsky Milk Canning Plant, one of increasing import substitution and export AgroHolding gathered a record crop of Sugar beet the largest enterprises of the processing 723.6 potential of the sector, and improving food 1.4m t of grain, including almost 724,000 t Sunower industry in the region. The company intends security in Russia in accordance with of wheat, which accounted for 0.7% of all to become one the top 5 milk producers in 485.6 the principles of rational land use and grain and leguminous crops collected in Grain corn Russia, which still has unfilled demand for sustainable development of rural areas. the country and 0.84% of wheat. 269.7 19.2 Other milk . The company’s milk yields per cow 21.9 exceed 10,000 t per year, while the average 17.2 Steppe AgroHolding, which is one Andrey Neduzhko 347.9 yield in Russia is 5,700 t . of the 10 largest owners of agricultural 252.2 339.5 42.7 land in Russia with land holdings totalling CEO of Steppe 29.4 68.9 52.1 40.5 31.9 380,000 ha, includes: AgroHolding 133.4 121.8 153 2015 2016 2017 A number of highly efficient farms in the hectares Rostov, Krasnodar and Stavropol regions, Output of Steppe AgroHolding, K tonnes which grow a wide range of oil crops and "The development strategy of Steppe grains; AgroHolding, which has developed the 380,000 45.8 technology for efficiently building new +19.7% total Area of Land under Sistema's Milk output Modern dairy farms located in the farms and has gained solid experience in 44.9 Management this area, is aimed at becoming one of the Kanevsky and Pavlovsky districts of the +30.5% biggest milk producers in Russia capable 36.2 39.4 Krasnodar region; of ensuring stable supplies of high-quality 37.5 Gross vegetables harvest milk certified according to European +18.4% 776 ha of intensive apple orchards; standards. Yields on our farms are 2x the 30.2 Incl. tomatoes average Russian yield and are close to the 24.5 best international practices. We plan to Yuzhny Agricultural Complex, Russia’s 23.2 increase the number of lactating cows and +21.8% % biggest producer of protected-ground 19.6 Cucumbers ≈1 ТОP- launch new dairy farms". 21.8 10 vegetables, with 144 ha of greenhouses. 21.3 the share of Steppe 17.9 +44.4% largest owners of agricultural AgroHolding in the structure 15.1 Gross apple harvest land in Russia 15.9 of Russian exports
2015 2016 2017
Including RZ Agro. According to the annual list of largest owners of agricultural land in Russia published by the audit and consulting company BEFL. In 2017, domestic production filled 75% of milk demand in Russia, according to the National Union of Dairy Producers. Including RZ Agro's land (106,000 ha). According to the Russian National Union of Dairy Producers.
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Sustainable agriculture The company’s plans for 2018 include Smart livestock production testing no-till farming and holding a contest Support of fair tax practices and competition The level of socioeconomic development of innovative projects among employees. of rural areas is largely determined by the Steppe plans to introduce a special In 2017, Steppe AgroHolding acceded The Charter's signatories share the goals state of the agricultural sector. Efficient monitoring and analytical IT platform by to the Charter on Grain Turnover of establishing and maintaining clear and responsible farming based on the 2020 to further increase efficiency in crop developed by the National Association and transparent rules for resale and principles of sustainable development farming. The goal of this innovative project of Exporters of Agricultural Products, export of Russian agricultural products, helps not only preserve natural resources is to combine the processes of planning, the Russian Union of Oils and Fats and and eliminating unfair competition and (soil, water and climate) for future accounting, monitoring and analysis of farm the Federal Tax Service (FTS) of Russia. illegal VAT refunds for exports, which, generations but also improve the quality works, weather conditions, equipment according to the FTS, reach RUB 65bn of life of local communities. availability, fuel consumption, crop and In line with the principles of the per year. A total of over 1,900 Russian seeds protection, agricultural technologies, Charter, Steppe diligently pays all the producers, processors and traders of Some of Steppe AgroHolding’s enterprises movement of finished products and taxes applicable to its exports of grain agricultural products joined this initiative carry out their activities near protected safekeeping of inventory. products (457,000 t of crops in the as of the end of 2017. natural areas: Lake Manych-Gudilo included reporting period, including 60,000 t in the List of Wetlands of International For RZ Agro, the main strategic task for of third-party products). Importance as defined by the Ramsar the next few years is to increase efficiency Convention and the buffer zones of the through the intensification of production. Miguta River in the Krasnodar region. Such The company has three main areas of areas total 5,430 ha. Therefore, the company work: a sprinkler irrigation project for pays special attention to the preservation 8,000-9,000 ha in the Stavropol region, of ecosystems. Steppe AgroHolding development of seed production and cooperates with the relevant institutes for Steppe AgroHolding is one of the most creating a closed cycle of herd introduction of innovative technologies soil fertility conservation to learn about the efficient farms in Russia by yields per cow. information processing. Due to the including the transition to precision latest academic developments, including The high productivity and milk quality are continuous breeding based on “smart” farming. “biologisation of agriculture”. The company’s achieved through breeding, advanced technologies, Steppe increases its specialists participate in the work of the agricultural technologies, high-quality pedigree livestock while replacing Science and Technology Council of the forage and animal housing, and highly imported herd. Ministry of Agriculture of the Rostov Region. efficient digital herd management. Steppe Responsible supplier AgroHolding has high-tech farms where The ration of cows in Steppe The technologies of sustainable and “smart” technologies are used in every AgroHolding consists of special high- Through its trading house, Steppe “smart” agriculture introduced by Steppe process, including genetics, feeding and quality and well-balanced feed mixtures, AgroHolding supplies its own fresh fruit AgroHolding allow minimising the animal housing. which are made using its own unique and vegetables to the largest retail chains environmental impact and optimising costs recipe. The green crops used for the (Magnit, Pyaterochka, Perekrestok, Lenta, at all stages, including the production of own The company's specialists use AfiFarm mixtures grow on Steppe's own fields. Metro Cash&Carry, O'Key, Billa, etc) all year high-quality seeds, planting material and herd management system to get the round; it also seeks to develop cooperation breeding stock. The company uses predatory most comprehensive and accurate Milking is carried out three times a day. with leading Russian farms and foreign insects (“entomophages”) for pest control real-time view of the herd. Each cow Frequent milking reduces internal udder producers. The company has established instead of chemicals. For drip irrigation, has a special sensor which in real time pressure, which has a positive effect on itself as a reliable and honest partner, it uses clear water from the headwaters transmits to the computer system all the the health of animals and increases milk with impressive experience in wholesale By buying grain from small producers, to supply milk for the production of dairy of the Kuban River, where meltwater from necessary vital signs of animals, where output by 20%. sales, storage and transportation of fresh the company supports SMEs in the products exported to the European Union the glaciers of the Greater Caucasus they are stored in their personal cards. products to almost all regions of Russia. regions where it operates, creating jobs and confirms the high quality of milk. Mountain Range gathers, such water has low Thus, the herd is monitored around the Cows are kept in spacious facilities Own warehouses with refrigeration units, for local communities; through the active mineralisation, which, in combination with clock. Diseases are detected at early with free air circulation. The company equipped with the latest technologies development of grain trading, Steppe In its relations with all its counterparties, underground mineralised water, creates an stages and are quickly cured. uses free-stall housing of cows on sand in accordance with applicable sanitary expects to become one of the five largest Steppe AgroHolding adheres to high ideal nutrient medium. Steppe AgroHolding bedding, which is extremely rare in Russia. and hygienic standards, guarantee that grain exporters in Russia. Steppe’s dairy standards of responsible business practices in uses AfiFarm monitoring systems, which To control the genetics, Steppe Due to this, cows are less susceptible to consumers will receive a fresh and high- farms have been certified and received an line with Sistema’s general corporate policies provide the real-time view of the herd, AgroHolding uses different software, colds and infectious diseases. quality product. EU approval number, which allows them on business ethics and anti-corruption. to preserve the health of its livestock. which is fully integrated with AfiFarm,
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Social infrastructure Housing estates, comfortable development Two tonnes of apples for underprivileged children urban environment, and Yuzhny Agricultural Complex, which In 2017, Steppe AgroHolding in Care, the Voyno-Yasenetsky Specialised sustainable construction employs about 0.5% of the residents partnership with Sistema Charitable Medical Centre for Children, the Morozov of the Republic of Karachay-Cherkessia Foundation took part in #GivingTuesday Children's Hospital, and to children or more than 7% of the population for the first time. As part of this large- patronised by the Martha and Mary of the administrative centre of the Ust- scale campaign, Steppe delivered Convent of Mercy. Dzhegutinsky district, has a cultural and 2 t of premium apples produced by Sady sports centre for its employees, their Kubani to various orphanages and care families and local community. The centre homes in Moscow and Rostov-on-Don. was established more than 15 years ago and offers various sports and hobby In Rostov-on-Don, organic fruits classes, a theatre studio and a choir. harvested in 2017 were given to social It is visited by 600 children, and its sports rehabilitation centres for minors, with clubs have over 300 members. The centre support from the local labour and social has trained three world-class athletes and development ministry. In Moscow, over 65 national champions or athletes apples were given to young patients with a high national ranking. of the Moscow Centre of Palliative
Steppe AgroHolding and RZ Agro provide Vyacheslav Khvan charitable assistance for the construction K sq m of sports grounds in rural areas and deliver CEO of Business targeted aid to nursing homes, orphanages New sports ground in the village of Novotroitskaya 31.6 Nedvizhimost and families with children with disabilities. In June 2017, RZ Agro officially opened social and economic cooperation with the renovation sites in Business a new sports ground for football, administration of the Izobilnensky district Nedvizhimost's portfolio in 2017 "Modern-day apartment hotels represent basketball, volleyball and tennis of the Stavropol region. The company also a new format in Moscow's hospitality in the village of Novotroitskaya. It was installed street lighting at the stadium. The market that has yet to gain traction in Russia equipped by one of RZ Agro's enterprises opening ceremony ended with a friendly million sq m Sistema's two real estate assets Leader and carries great potential as an attractive in accordance with the agreement on football match between children's teams. Invest and Business Nedvizhimost implement alternative to old-school hotels and property In 2017, the volume ≈3.0 state-of-the-art technologies in the spheres for rent, especially in areas where obsolete of charitable aid to local of construction and energy efficiency while housing prevails, due to additional services of floorspace in such as cleaning. This product caters to communities exceeded adhering to high environmental and quality the needs of Russian and foreign business standards of property development and travellers as well as travelling families who RUB m infill development management, thus improving standards would welcome the option of staying all of living, upgrading customer service quality, together and saving money by cooking
>20 45 and optimising logistic chains through their own meals. We estimate the average leveraging efficient electronic tools for investment in each of such projects at interaction with contractors. roughly 350 million roubles".
K sq m Leader Invest's portfolio structure Leader Invest and Business Nedvizhimost 22 are committed to providing society with new of floorspace 520,000 sq m housing, offices, and retail space both by commissioned 42 properties building brand-new properties, often in place of outdated and decommissioned industrial establishments, and by reconstruction and landscaping of such surviving buildings. While Leader Invest aims to complete the
2,435,000 sq m construction of a total of 111,000 sq m 3 estates of floorspace in 2018 only,
Standalone residential and retail properties
Housing estates
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Business Nedvizhimost is intent on Partners and contractors Finding reliable suppliers of construction renovating another 80,000 sq m and GRI 102-13 materials among the motley crew of small creating a chain of mid-price apartment Leader Invest introduces green construction standards When purchasing the required materials businesses is a long and costly process that hotels within walking distance of metro and services, both companies rely on their has frustrated many major developers. On the Leader Invest aims stations (in place of Soviet-era multiple Leader Invest's premium-class Pokrovsky standards and projects is supported by internal procurement policies based on other hand, small and mid-size businesses to complete the construction "automatic telephone stations") by 2020. Boulevard Residence in Moscow the governmental Agency for Strategic Sistema's general corporate procurement are often efficient partners in the areas where of a total of floorspace The first pilot hotel with 157 rooms (which successfully passed the national Green Initiatives, while the GREEN ZOOM City standards. All of their procurement is done they have the most competitive edge, such as in 2018 absorbed about RUB 500m in investment) Zoom certification in the area of energy standard specifically is being coordinated through the electronic tender platform architecture, building information modelling, is due to open in 2018. efficiency and eco-friendliness and by the nonprofit Research Institute for Sberbank-AST and is subject to formal and the construction of niche- and club-class K sq m received the Gold status. It is one of the Sustainable Development in Construction. approval/qualification of contractors based residences. Leader Invest is a vocal advocate few residential projects in Russia with an on their reputation, ISO 9000 certificates, of using a convenient digital marketplace 111 Green building environmental certificate. The GREEN ZOOM initiative represents and sustainability track record. Would-be for efficient communications with smaller a smart system for controlling energy contractors are also carefully vetted for businesses. Keeping up to date with "green" The simulation analysis technology consumption and promotes energy compliance with employment law and construction principles and committed used when designing the building efficiency and environmentally friendly safety standards, such as the use of safety As Leader Invest's project portfolio grows, to sustainable use of buildings as provides for the best planning, solutions in construction. It is in essence riggings to avoid injuries. All contractor the company heavily develops its sale a necessary pre-requisite for a healthy technological, and engineering a Russian counterpart of the American agreements contain specific terms potential, including through cooperation urban environment, Sistema's property solutions that ensure energy efficiency, LEED and the British BREEAM that designed to control construction safety with brokers. Broker loyalty is understood Business Nedvizhimost companies set great store by the both in the shorter term (annual factors in the specific realities of building and accident prevention and perform the to be an important tool in making sales is intent on renovating another energy efficiency of their projects. More operating cycles) and throughout properties in Russia. While all previous technical supervision of works ensuring efficient and so is carefully cultivated. K sq m than half of Leader Invest's projects at the entire life cycle of the residence. criteria and regulations in the industry that all regulations are observed and That's why Leader Invest held a series different design and construction stages The project relies on a whole system mostly addressed one-building projects, deficiencies promptly removed. Leader of meetings and presentations of its premium 80 correspond to energy efficiency class of solutions that feed into an overall GREEN ZOOM City is meant to provide Invest's new project to be completed in projects throughout 2017 and arranged A and up, consuming about half as much comfortable eco-friendly micro climate. the groundwork for systematic control of 2018 is for the automation of contractor a breakfast meeting with Top Brokers energy as their traditional counterparts. These include improved thermal energy consumption in specific buildings relations through a single computer Alliance, an association of professional Business Nedvizhimost's projects are performance of fences, efficient and entire infrastructures of sustainable network solution that will make it easier brokers specialising in high-end properties regularly audited for efficiency and safety tapware, weather-dependent central housing estates, benefiting the end users to control the quality of construction in Moscow, and representatives of other of solutions and rely on a system of heating, radiators with adjustment in that they will live in more comfortable works, speed up contractor feedback, broker companies of high standing. It also carefully designed sustainability standards valves, and energy-saving lighting and healthier environments conducive and minimise miscommunications. organised a Best Broker campaign in which and regulations. solutions in public areas. to a harmonious and happy society. it awarded its most efficient broker partners.
Leader Invest's properties are designed Leader Invest is one of the first Moscow Distinguishing features of GREEN ZOOM in cooperation with top-tier Russian and developer companies whose employees City: international architectural firms. Their were trained in energy efficiency and design documents provide meticulous environmental safety of real estate reliance on state-of-the-art project detail about using eco-certified facilities and became certified experts evaluation solutions to reduce capital construction technology and materials in this area, which allows the company expenditure on building housing approved for residential applications, to heavily promote "green" construction estates; including low-emission solutions for principles. cleaner indoor air. Another sphere of focus on building independent efficient ongoing optimisation of solutions is More than 10 Leader Invest professionals infrastructures for water and energy minimisation of transportation and waste, received the associated GREEN ZOOM supply; which also serves to reduce environmental specialist status and joined the task impact. team of the upcoming GREEN ZOOM commitment to making such City standard that will set out practical infrastructures attractive, accessible, recommendations on how to reduce and safe; energy consumption and improve the environmental friendliness of housing specific criteria to evaluate the quality estate projects with sustainability in of projects (certification component). mind. The preparation of GEEN ZOOM
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Interactions with local communities Upon amassing vast experience in one-building Oleg Mamaev Smart grids for reliable constructions, in 2017 Leader Invest embarked and quality power supply GRI 102-43 upon a new type of business of great potential: President the construction of sustainable housing of Leader Invest to consumers in the When handling projects in established estates in place of former industrial premises residential districts, the two companies in Moscow, such as the car-making giant ZIL, Republic of Bashkortostan lay heavy stress on interacting with a location where the company plans to build local residents. They typically arrange a total of 1.7m square meters of floorspace, community meetings in which the including 1.1m square meters of residential "When designing new projects, we look residents are invited to suggest desired properties. Industrial areas now absorb some for something bigger than just building a residence and making a profit. It's just as landscaping effects and share their 18.8 ha of land in Moscow, or over 17% of the important to ensure the comfort of future comments as regards construction waste "old Moscow" territory. Their conversion into residents and make the building fit the and noise should any inconvenience occur. habitable neighbourhoods is a prerequisite established urban environment. That's why One of the certain competitive advantages for sustainable urban development. Leader we make promenade areas on surrounding of the companies is their ability to complete Invest's portfolio includes a "city within a city" grounds and make it a point that parking projects as prompt as practicable (with estate at 120 Lobachevskogo St., as well as spaces should be arranged away from the the average construction period of 2.5 the housing estates Nagatino i-Land and ZIL- immediate entrance zones". years), shortening the period of inevitable Yug. When carrying out projects of this type, disturbance to local residents. the company makes it a priority to create a comfortable living environment with appealing public areas and social infrastructure.ъ
A housewarming party for the Nagatinskaya Residence
Leader Invest always aims to create a Social projects friendly and stimulating social environment wherever it erects a new residence. In Along with other Sistema companies, the sports events held as part of the festival. June 2017 the company organised an two real estate businesses participate in To carry the festive mood beyond partying, K exciting family event for all buyers of general corporate and volunteer projects the developer offered generous discounts the apartments in its newly constructed and organise their own social initiatives (up to 7%) on its new properties. Another 195 building at Nagatinskaya, inviting adults for their staff and customers and support exciting project done by Leader Invest For more information on the company's К smart power meters and children to get to know each other in important events in the city's life. in 2017 was The Architecture Weekend, sustainable development, see the Annual installed in Bashkortostan an informal setting. In April Leader Invest in which the company's employees ≈20 Report of JSC BPGC for 2017. teamed up with the Moscow Perspective In 2017 Leader Invest became the were invited to bring their children to newspaper and led an event in which official partner of Opera in the Metro, the development sites. In March of 2017 number of new connections per year the residents installed new birdhouses a superb cultural event marking the 82nd the company joined the Earth Hour, an Bashkir Power Grid Company, which regional authorities and power generating near a kindergarten and a school on the anniversary of the Moscow Metro. The international campaign by the WWF, by ensures electricity transit between the companies to effectively plan long-term adjacent grounds of the Nagatinskaya company also co-sponsored the mass switching off electricity on all of its sites central part of Russia and the Urals and business development in the republic, Residence. The event was so much to the celebrations of the 2017 Moscow Birthday for an hour. manages transmission and distribution therefore increasing its investment appeal. liking of all those involved that it's by now by supporting several music, travel, and grids in Bashkortostan, was one of the first declared a new annual tradition. power companies in Russia to introduce In the five years since BPGC's rub bn the Smart Grid concept when designing, establishment following the separation 21.4 building and upgrading power facilities. of grid and generating assets in Introducing advanced technologies, Bashkortostan, the company has become investment in fixed assets including automated metering systems, one of Russia's best power grid operators over 5 years the company builds reliable and efficient for many operational indicators, focusing network infrastructure, which ensures on improvement of the management uninterrupted power supply to households system, automation of business processes, and industrial enterprises. upgrade and technical overhaul. During this time, it built and commissioned rub bn BPGC was also the first Russian energy new substations and power lines with company to switch to a 10-year period of voltage ranging from 35 to 220 kV, and 17.5 regulatory asset base (RAB) tariff regulation reconstructed numerous facilities across taxes and duties paid methodology, which allows consumers, Bashkortostan. in 2013-2017
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which will ensure a higher level of monitoring Number of accidents with 6-110 kV BPGC GROUP of control and process management systems equipment, episodes and reduce the time needed for making decisions in case of emergencies. The total number of smart meters 8 179 - 20,4% connected to the automated 6 571 BASHKIR GRID COMPANY BASHKIRENERGO BPGC ENGINEERING power control and metering BPGC actively shares its experience of 6 512 system exceeded Smart Grid implementation with other companies in the industry in order to spread K km K km Design and construction of K best practices of improving the system power grid infrastructure (power of business processes management and >2 >86 lines and substations), 170 automation, introducing automated power of transmission grids of distribution grids while the total number of metering metering and operating electric equipment. units approached In 2017, Bashkirenergo's Grid Management 2015 2016 2017 Management of facilities under Centre, which is one of Russia's most substations substations construction/reconstruction, advanced ones, was visited by delegations K of companies and authorities from Russia 15 and the CIS, including Rosseti, IDGC Siberia, ≈590 Energy service and audit, 230 Bashenergoneft, the Bishkek city council (220-500 kV) (up to 110 kV) (Kyrgyzstan). The Smart Grid project also includes K Manufacturing of equipment for installation of automatic power meters. new generation of transformer Installation of smart power meters by Reliability and quality In 2017, the number of accidents was >23.3 stations based on localised BPGC progresses much faster than of power supply reduced compared to the growth envisaged by the government programme of power consumption in the energy transformer stations Siemens technolog. "Energy Efficiency and Development Grid companies play an important part system of Bashkortostan, by approx. 1%. of the Energy Sector." As of the end of in ensuring proper functioning and 2017, BPGC's result was 24% vs Russia's development of their territories of operation. average of 14.4%. In the reporting period, Reliable power supply, absence of 11 the company installed an unprecedented accidents, improvement of the technical In the reporting period, the company production units amount of smart meters since the launch state of the power grid infrastructure, continued active construction of power of the programme in 2011 – almost 39,000. timely implementation of the investment facilities in the republic. The biggest amount programme, quality (frequency, voltage) of of its investments in 2017 went to overhaul During 2017, territorial production units of supplied energy, ability to quickly and easily and reconstruction of grid facilities – over Bashkirenergo commissioned fibre optic connect new consumers to grids, increase RUB 1.5bn (36.6% of the investment Introduction of Smart Grids The power system built on the new The company continues installing smart lines for protective relay and automation of awareness and work with consumers' programme), which is 18.2% higher than principles transmits information in addition cells at distribution and transformer systems and technical data exchange queries and complaints – all these topics in 2016. During the year, BPGC built and Intelligent power grids are the core to electricity, and consumers receive substations of the city. In 2015, it replaced systems. In 2018, the company plans to unite are within BPGC's area of responsibility for commissioned big substations in Ufa, component and link in the smart power a number of additional options for basic equipment at 10 substations; all its production units into a single system ensuring availability, reliability and quality of Sterlitamak, Belebey and other towns and system of the future, an important element interacting with the system, such as tariff in 2016, the number of upgraded facilities of telemetric and technical data exchange, its services. reconstructed numerous other facilities. in the development of the Internet flexibility and opportunities to plan their exceeded 70, and in 2017, it grew by of Things (IoT) and smart cities. BPGC power consumption and reduce electricity another 20%. is successfully implementing a crucial costs. Working autonomously, the system Installation of smart power meters Measures taken by BPGC to develop its grid infrastructure have significantly innovative project of the Russian power can increase efficiency and reliability of by BPGC, K pcs enhanced reliability of power supply to consumers in recent years industry: modernisation of power grids in power supply, improve the economics and the city of Ufa using Smart Grid elements. organise steady power generation and +32,4% distribution. Parameter 2015 2016 2017 38,8 cells Start of manufacturing of own innovative 34,1 Average duration of power supply interruptions, hr 1.919 1.487 0.983 equipment for Ufa's distribution ≈900 29,3 substations helped BPGC to reduce the for 88 transformer Number of accidents with 6-110 kV equipment, 8,179 6,571 6,512 Implementation of this project in Ufa will project's capital expenses and to create substations in all 7 districts episodes make it possible to achieve a twofold a centre of excellence to subsequently roll of Bashkortostan assembled decrease in the number of system out smart grid technology to other regions. by BPGC since August 2015 interruptions (SAIFI) and a threefold 2015 2016 2017 decrease of their duration (SAIDI).
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The construction of the Alekseyevka In 2017, the company performed complex Regional agreement on uninterrupted power supply to consumers Dmitry Sharovatov Additional power capacity for substation in Belebey, a one-company repairs of over 150 buildings and agriculture development town that has the status of a fast growing structures (substations and distribution In April 2017, BPGC and Bashenergoneft CEO of JSC BPGC territory, gave a powerful impetus for its stations) worth RUB 82.5m; the work signed an agreement on cooperation The Alekseyevsky farm is Bashkortostan's further industrial and social development, included improvement of personnel's in preventing and managing signature agricultural enterprise, which growth of the housing sector, social working conditions: coldproofing and consequences of breakdowns at power produces protected-ground vegetables, infrastructure and small and medium- repairs of roofs, repairs of the lighting facilities, which will bring together the dairy and meat products, flour and bread. sized businesses. The substation will systems, air conditioning, ventilation and efforts of Bashkortostan's two big power BPGC allocated additional power capacity ensure reliable power supply to four new utilities. companies in restoring power supply "A priority for BPGC is ensuring quality to the agricultural producer at the residential areas with over 6,000 residents to consumers in case of interruptions. The and reliable energy supply to consumers, expense of its investment programme (>10% of Belebey's entire population) and BPGC pays significant attention agreement regulates procedures of mutual maintaining a steady trend in reduction to support the project of construction to two villages, Alekseyevka and Ilkino. to enhancing its customer focus, assistance and envisages organisation of the number of supply interruptions and of a new greenhouse facility. BPGC's investments in the construction working to reduce the time required for their duration, increasing the network of joint actions, including a crisis centre of the substation and air and cable power connecting users to the power system capacity and creating conditions for to coordinate steps to prevent and manage connecting new consumers to the power lines amounted to RUB 210m. and make the procedure transparent the consequences of accidents, and work grid infrastructure. For this purpose, in and easy for consumers. The Customer of relevant services. The two companies accordance with the approved investment Major repairs conducted at other Service Centre was opened in Ufa back in undertook to provide their qualified programme, we are reconstructing the substations increased reliability of power December 2014. In 2017, it organised its personnel, technological resources, existing network, building new power supply in numerous towns and villages, first open day, during which visitors could materials and emergency equipment, centres and performing regular repairs including the most remote area of learn about ways of connecting to the and maintenance of grid facilities". if necessary. Bashkortostan, the Khaibullinsky district in system, including via personal accounts the south-eastern part of the republic. on the company's official website, and opportunities offered by new interactive services. The company has enhanced its Projects that have huge social and economic development of the urban agglomeration online customer service: its step-by-step Efficient storm monitoring importance for Bashkortostan's capital that includes the cities of Sterlitamak, guide to connection for individuals and include the construction of the Kustarevskaya Salavat and Ishimbay. Launch of the Partnership with Bashkortostan's Chamber of Commerce and Industry legal entities takes clients through the BPGC has been successfully using power station, which cost over RUB 380m. Spartak substation will ensure the application process and allows tracking its a lightning direction finding system since It will supply power to five districts of Ufa, development of the republic's second In 2017, BPGC joined Bashkortostan's The goal of the campaign is to improve progress on the website. BPGC also offers 2015. It enables the company to monitor including the Yarky residential district, where biggest city by population and industrial Chamber of Commerce and Industry, which the investment climate in the republic, users two online calculators to estimate storms and their activity on the territory active housing development is underway and potential for at least the next 10-15 unites over 1,000 large, medium-sized to create new companies and jobs and power capacity and costs. BPGC's best covered by Bashkirenergo's power grids whose 12 blocks with all the necessary social years, ensuring connection of new and small businesses. The parties signed improve the population's living conditions. practices of customer service also include and notify crews servicing high-voltage infrastructure are expected to accommodate consumers, including large families a partnership agreement under which The document provides for cooperation use of an automated metering system lines about approaching thunderstorms. 25,000 people. The company needs to and families with disabled children BPGC undertook to join an entrepreneurial in a number of areas including consulting that provides information on power This technology significantly reduces provide the necessary power output within who have been allocated land plots campaign titled "100 investment projects potential campaign participants on consumption, capacity of a customer's the risks of crew members being injured a tight timeframe to ensure comfortable living in this area, improving reliability of by Bashkortostan's 100th anniversary" choosing investment project partners or facility and meter readings. by lightning and is used to build medium conditions for new residents. BPGC also power supply to new residents, and launched to celebrate a century since connecting to power grids. density maps of lightning strikes and commissioned the second Gvardeyskaya also social, recreational and utilities the republic's establishment in 2019. The company offers favourable conditions storm hours to identify areas with substation in the Ufa district, having infrastructure in the western part for various categories of customers. increased thunderstorm activity, analyse completed the republic's biggest power grid of Sterlitamak, including 18 high- For example, small and medium-sized and take the necessary measures project since 2010. The new substation, rise buildings, two kindergartens, businesses get a 50% discount on the to thunderproof existing and newly in which BPGC invested over RUB 831m, a shopping mall, etc. The Sterlitamak connection capex, which stimulates designed power lines. ensures quality and reliable power supply area is losing its traditional countryside entrepreneurial activities in the region. to a number of large customers, including look, with apartment buildings and industrial enterprises and an industrial park. cottage communities rising across it. Because of this, BPGC has launched BPGC is carrying out large-scale a comprehensive programme for construction of power facilities and optimising power supply topology with The biggest amount of BPGC's network infrastructure in the Sterlitamak a focus on improving reliability of power investments in 2017 went to overhaul district of Bashkortostan, driven by the supply to consumers. and reconstruction of grid facilities – over RUB 1.5bn (36.6% 50% of the investment programme), of capex is a discount offered an increase of 18.2% vs 2016. for connection of small and medium-sized businesses
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Social projects Safe City project Increasing energy efficiency of enterprises Being a socially responsible company, BPGC makes consistent efforts to Children and teenagers often get electric injuries as they don't know some basic power BPGC carries out its own energy saving Goals of energy audits strengthen its partnerships, improve safety rules. Because of this, BPGC signed an agreement with the Education Ministry programme and helps other companies the motivation and social benefits for its of Bashkortostan, which has been regularly extended since 2014, and implements a set to do this by introducing a single approach employees and prevent electric injuries of measures designed to prevent children's injuries from power facilities and increase to energy saving. BPGC Engineering offers among children. It regularly participates awareness of children, parents and teachers on the subject. services of an energy audit, the goal of Gather objective information Identify the potential for energy saving in various social projects, provides which is to assess all aspects of a company's on the amount of energy resources and increasing energy efficiency financial aid to its retired employees and operations related to consumption of fuel consumed and identify sources of non-rational power consumption and makes donations to hospitals, schools Area of the project Key results and energy, including motor fuel and water. unjustified energy losses and orphanages in Bashkortostan. The company also develops energy saving plans, introduces measures of control, Identify parameters of energy Power safety lessons at >4,000 lessons on power safety with educational videos and efficiency The company organises an annual contest kindergartens and schools visual aids were given by BPGC experts across the republic, monitoring, and automation, works with of children's drawings devoted to power including over 900 lessons in school year 2017/2018. personnel and ensures quality control over safety, "Children and Electricity". The energy consumption under an energy service Develop a targeted comprehensive contest is addressed to children of BPGC "The Adventures of BPGCman", 8 episodes have been produced; they are available contract. During an energy audit, it collects energy saving programme – a list of steps Group's employees and other children an animated superhero series on BPGC's website and YouTube channel and are broadcast and processes information on consumption aimed at saving energy and increasing Sign energy service contracts aimed at aged 5-16, and usually attracts about on regional television. of energy resources, energy efficiency and energy efficiency, including cost achievement of energy efficiency goals 200 young artists from across the republic. the potential for energy saving. All work estimates Theatre performances on basic Shows for children of preschool and elementary school age under the service contract is financed by power safety were given in 15 cities and town BPGC, and the customer pays for the service from subsequently achieved savings. Environmental safety "BPGCman", an educational The company developed a bilingual computer game (in computer game Russian and Bashkir languages), which is also available for mobile devices on iOS and Android. The key components of environmental management and environmental safety An important aspect in reducing the BPGC Ring intellectual High school children from 32 schools of Ufa, Sibay and protection at BPGC are ongoing internal competition Kumertau took part in a competition for knowledge of power Participation in environmental projects environmental impact is replacement of oil industrial control and monitoring safety rules, history of Bashkortostan's power system and PCB -containing equipment, notably, high- of environmental pollution. Following general erudition. During the Year of Ecology, BPGC "Save the Forest", a Russian national voltage circuit breakers, with SF6 breakers. the measures taken to decrease the participated in a number of environmental environmental campaign – employees of Until the 1990s, PCBs, which have low company's negative impact on the projects, including: the Belebey power grids planted 120 pine flammability, no electric conductivity and environment, emissions in 2017 were saplings and 50 birch saplings on an area high chemical stability, were actively used reduced by 9%, water consumption lessons for children on separate waste of 1 ha; in Russia and globally to produce dielectric by 12%, and waste generation by 11%. collection and sorting, saving of natural liquids for transformers and capacitors, Increasing energy efficiency of enterprises resources, attitude of care towards the restoration of a pine forest in the coolants, lubricants, stabilisers, hydraulic environment as part of the "Week of Duvansky district of Bashkiria – volunteers liquids and other substances. BPGC BPGC carries out its own energy saving potential for energy saving. All work under Environmental Literacy", an environmental of the North-Eastern power grids planted consistently replaces outdated equipment, programme and helps other companies the service contract is financed by BPGC, and educational programme in Ufa; over 3,000 saplings in the place of submitting it to specialised firms for to do this by introducing a single approach and the customer pays for the service from destroyed ones on an area of 5 ha; recycling. to energy saving. BPGC Engineering offers subsequently achieved savings. planting of about 30 young cedar pines services of an energy audit, the goal of in the Balanovo park, the Demsky district "Water of Russia", a Russian national which is to assess all aspects of a company's of Ufa; campaign to clean the shores of small operations related to consumption of fuel rivers and lakes – participants cleaned and energy, including motor fuel and water. a Saturday clean-up at the Belaya river – off two unauthorised dumps in the Ufa The company also develops energy saving employees of the Kumertau power grids district. plans, introduces measures of control, collected over 1 tonne of garbage; monitoring, and automation, works with personnel and ensures quality control over -4.2% energy consumption under an energy service contract. During an energy audit, it collects reduction of power consumption and processes information on consumption for economic needs of Bashkirenergo in 2015-2017 of energy resources, energy efficiency and the
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Cosmos Group: responsible Cosmos Group’s portfolio includes standalone hotels and hotels bearing international brands hotel management and high hospitality standards. URBAN BUSINESS HOTELS: RESORT HOTEL
International Standalone Российские Зарубежные Sistema's hospitality business is brands hotels объекты объекты represented by 17 hotels in 10 Russian regions and 3 foreign SAVOY WESTEND countries. Some of the hotels are PARK INN BY COSMOS HOTEL ALTAY RESORT RADISSON Moscow Gorno-Altaysk Karlovy Vary, owned by the Corporation, and Astrakhan Czech Republic some belong to widely known Kazan Izhevsk INTOURIST IZUMRUDNY LES international brands, with Cosmos Klin, Moscow region PRINCIPE FORTE Yaroslavl KOLOMENSKOYE DEI MARMI Group acting as an asset manager. Sochi MOSCOW Toscana, Italy Volgograd LEOPARD LODGE Novosibirsk Namibia, ONEGO PALACE Southern Africa Petrozavodsk Russia Czech HOLIDAY INN Republic Italy EXPRESS Voronezh-Kirova Moscow-Paveletskaya
Namibia
countries 4 Petrozavodsk Christian Meyer Sistema's hotel assets are located in areas that All of the assets in the hospitality President Cosmos Group attract numerous tourists or teem with business portfolio are managed by Cosmos Group Moscow Yaroslavl life, belong to various price categories, and carry 3 established in 2017 to provide both RUB bn to 5 stars, from business hotels in bustling cities to affiliated companies and outside parties Voronezh idyllic recreational retreats. The jewels of Sistema's with a wide spectrum of services from Kazan Izhevsk hospitality portfolio are The Cosmos Hotel (one "Our company's strategic priorities, apart writing hotel concepts and monitoring 4.3 from widening the asset portfolio and of the largest hotels in Russia and Europe), design and construction works all the in annual revenue expanding in Europe, lie in improving Volgograd an essential element in Moscow's hospitality operating efficiency, service level, and way to branding and managing hotels, Sochi infrastructure, and The Altay Resort, a unique an activity that generates some 70% of the Novosibirsk safety of our guests as well as reducing Astrakhan retreat in the South Siberian Altay Republic, the environmental impact. company's revenue. first and only in the republic to receive a Five Star Cosmos Group has taken on board the Gorno-Altaysk rating in full compliance with national regulatory best global practices in hotel management Cosmos Group takes pride in its ability to requirements. The ample facilities of the retreat and strives to apply sustainability standards find individual approach to each facility include the Altay Resort clinic, a branch of the not only in the hotels that carry international under management and build long-term . Tomsk Research Institute for Spa Medicine brands, but also in our own nation-wide trusting relationships with their owners and Physical Therapy, which in turn is an arm hotel chain Cosmos Hotels & More, which aiming to provide them with a profitable > 4,000 we are poised to actively develop from 2018 of Russia's healthcare watchdog The Federal and sustainable business in line with the rooms under management Biomedical Agency. on." world's best hospitality standards. > 10 regions in Russia
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Energy consumption control Value for Communities The Green Key eco-label Responsible business under the brand The Park Inn by Radisson All of the hotels managed by Cosmos Cosmos Group sets itself the goal of Group pay scrupulous attention to The prestigious eco-label signifies the The Green Key has a list of uniform improving standards of living in the Responsibility towards the environment Communities: forming what's known as the "responsible hotel chain's responsible attitude to recommended and imperative criteria communities where it operates. and local communities is among Radisson's consumption culture": switching off the environmental safety. to be applied internationally in the long-standing business principles. Radisson Adding Color to Lives, a programme lights and electrical appliances when not following categories: environmental The company's staff (acting on the Hotel Group has developed a Responsible designed to enhance the lives of at-risk used, using heating and cooling systems The international voluntary eco-label management, staff involvement, guest company's initiative or joining projects of Business programme that relies on three youth, in most efficient ways, making sure that programme for hotels, hostels, guest information, water, washing & cleaning, Sistema Charitable Foundation) take part in principles: equipment receives timely maintenance, houses, business centres, holiday waste, energy, food & beverages, volunteer events such as the Solony festival, training and internship opportunities for and other useful habits that help save parks, and campsites is one of the five administration, green areas, and green the Wishing Tree, Giving Tuesday, Running Think Planet: reduction of local students. energy. programmes designed by the Foundation activities. Establishments that meet the for a Good Cause, Giving the Dream, environmental impact, for Environmental Education (FEE) to imperative criteria are awarded with clean-up events, etc. Green economy: When hotel owners prepare to buy power promote and implement environmental international Green Key certificates. Think People: care for the health and systems, Cosmos Group puts forward friendliness and sustainability in the In particular, all through 2017 The Park Inn safety of guests and staff; waste sorting and recycling, a list of requirements to optimise energy hospitality industry. by Radisson Volgograd has been providing consumption, such as installation of a local medical hospice with paint, brushes, Think Community: respect for social notifying staff about the need to save proximity sensors, twilight switches, and By now, the label has been awarded to and other products needed for renovation and ethical aspects of life within the energy, water, etc., energy-efficient light fittings. By replacing the following assets of Cosmos Group: and helping with renovation works. Another company and community. traditional bulbs with LED or dimmer bulbs, The Park Inn by Radisson Astrakhan, portfolio asset, The Intourist Kolomenskoye, ecolabels. one can save up to 80% of electrical power. The Park Inn by Radisson Sochi, and The joined VERA Hospice Charity Foundation The programme dictates that the The Park Besides, such bulbs last a lot longer (their Park Inn by Radisson Yaroslavl. and Sistema Charitable Foundation in a fund- Inn by Radisson hotel managed by Cosmos Each of the brand's hotels has a service lives reaching 50,000 hours, or 15 raising campaign to procure new medical Group organise their operations according designated Responsible Business years) and are eco-friendly as they contain equipment for hospices. to the following key requirements: coordinator who controls the observance no mercury. of these principles, draws up action plans, As a step in the vein of social adaptation Human rights: and prepares status reports. of underprivileged children, The Park Inn by Radisson Kazan and The Park Inn by observing the UN Global Compact, Radisson Volgograd provided their facilities for New Year theatre productions organised meeting the human rights policy of Safety of guests and accessibility for roughly 260 children in Kazan and 400 Carlson Rezidor Hotel Group, children in Volgograd. The average occupancy rate of the hotels Cosmos Group's comprehensive countering child sexual exploitation under Cosmos Group's management is up approach to guest safety is an optimal mix hotels Cosmos Group puts a lot of effort into career (Living Responsible Business), from 29% in 2016 to 56% in 2017. One of the of organisational, technical, and physical guidance and introduction of the young to drivers of the growth of the occupancy rate measures to prevent and promptly 4 the hospitality business. In 2017 alone, 12 of observance of Radisson Hotel Group's is the 2018 FIFA World Cup (with 4 of the respond to dangerous situations. Its the company's hotels cooperated with local policy against facilitation of prostitution, being in cities where 2018 FIFA portfolio hotels being in cities where it was hotels use metal detection arches, colleges to provide internship opportunities World Cup was held held). When on vacation, people tend to care automated safety control systems, and to students all across the organisational non-financial incentives and promotion less about their safety, which sometimes safety sheets, and hold regular security structure, from reception desks to technical of healthy lifestyles. leads to undesirable consequences. trainings for staff. and financial departments. That's why the management company sets the hotels (as important infrastructure On top of that, the company works hard establishments and places of mass to create a comfortable and accessible gathering) objectives as to the prevention environment for all categories of guests, of any possible harm to the guests' lives both in terms of ergonomic aspects and health. of public spaces (wheelchair ramps, widened doorways, etc.) and in terms of organising specific rooms for guests with ≈4% special needs. E.g., 9 out of 243 rooms of Cosmos Group's hotel rooms hotels in The Holiday Inn Express Moscow – are disabled-friendly Paveletskaya are provided with special solutions for guests with disabilities. 12 cooperated with local colleges to provide internship opportunities to students
The hotel opened in November of 2017 is the Corporation's first hotel to be built from scratch and the second Holiday Inn Express in Russia.
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Sistema's financial assets The availability of MTS Bank offices in the MTS receives an award for processing areas where the Corporation's giant assets customer requests heavily implement digital operate creates financial synergies. E.g., in technology and make financial early 2017 MTS organised a remote work Improving quality of customer The bank is also open to interacting with station in Vologda to carry out a payroll cards service is among MTS Bank's priority customers with official communities in services accessible to programme for Segezha Group. The bank is objectives. An important tool for its social networks: VKontakte, Instagram, now in charge of the full volume of services achievement is effective processing Telegram, Facebook, Odnoklassniki, and individual and corporate clients. relating to the payment of salaries to the forest of customers' requests. The bank's Twitter, as well as through the Friends holding's staff and the maintenance of their staff always take a customer-centric of Banks forum of the national banking payroll card accounts. On top of that, a recent approach to addressing specific portal Banki.ru. integration of an MTS Bank office into an problems/situations. MTS retail outlet in Vologda enables the city's MTS Bank recently received one of the residents (including SME) to access the entire An overwhelming majority of customer Visa Global Service Quality Performance spectrum of the bank's service portfolio. requests are processed within a two Awards 2016––for chargeback days' time. 81% of the (toll-free) calls effectiveness. The payment platform made to the Call Centre are answered recognised the bank's efficient work Insurance programmes within 30 seconds. in handling customers' chargeback requests on operations with Visa cards. MTS Bank and its partners are actively involved in the development of a variety of insurance programmes, from life and health to property and capital.
In conjunction with Ingosstrakh Life, MTS Access to credit records Bank launched a new accident insurance programme titled Protection Today for adults Borrowers actively planning to take out closed loans, payment calls from and children, with coverage sums of 125,000 a mortgage loan or a cash loan need to creditors, suretyships, collaterals) are to 1,000,000 roubles payable in case of injuries, know their credit record status. In July generated automatically from a single incapacitation, or death. The insurance 2017 MTS Bank and the credit reference database of organisations cooperating Accessibility and quality of services also covers surgeries required as a result of agency Equifax launched a new service with Equifax (banks, microlenders, credit accidental injuries, including athletic ones, for individuals enabling them to view consumers' associations, pawn brokers, MTS Bank provides banking services to both even those received in the course of amateur their credit history reports in any office the Federal Bailiff Service, financial m individual and corporate customers, including competitions. of MTS Bank. Reports certified with managers, etc.) and provided directly small businesses. a digital signature and containing the against a customer's application filled 1.5 On teaming up with another insurance same information as that seen by the out at the bank office. active customers Customers can receive banking services not company, MAKS, the bank launched a new bank (loan applications, current and only in the bank's offices, but also in MTS's homeowner's insurance programme Simple retail outlets across Russia. The bank's chain of Solution that requires no on-site inspection offices spans over 50 cities in 30 largest regions and covers damage and losses caused by fire, of Russia. explosion, floods, natural disasters, physical impacts, and crimes. The indemnification sums under the programme range from 270,000 to Affordable mortgage loans RUB bn 1,000,000 roubles. The activities of MTS Bank and Sistema In 2017 MTS Bank reduced its interest Capital Management Company, whose 114.6 In association with Renaissance Life, the bank rates on mortgage loans issued to private equity shares are held by Sistema PJSFC on savings accounts launched an insurance plan dubbed The customers to 9.5% for the entire loan period and MTS, as well as the Corporation's Investor allowing customers to cash in on equity provided that the property is purchased in venture capital investments in FinTech MTS Bank has high financial stability, with price fluctuations while having their investments Leader Invest's new residential projects in startups serve to promote advanced a capital adequacy ratio (CAR) of 15.8%*. fully protected. Moscow (the average mortgage rate in the technologies in the finance sector, The metric reflects a bank's ability to market being 11%*). The offer comes in a develop digital financial services, widen recover possible financial losses at its package with a zero down payment. the spectrum of functional and accessible own expense rather than at the expense services for all categories of users, and of its customers. The regulator-approved foster financial literacy. minimum acceptable value of CAR is 8.0%. TOP-50 * Average annual interest rate on mortgage loans in 2017 (according to the Central Bank). Banks in Russia by assets * As of 01 January 2018
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MTS Bank has integrated some Bespoke service Credit fraud prevention aided by advanced face recognition of its products into MTS's key FinTech Development of charity technology solution, MTS Money Wallet, which allows subscribers to make payments MTS Bank is a regular participant of Sistema's In 2017 the fund Sistema Venture Capital One of the key investment projects of lending agencies in Russia and the CIS. and transfers using electronic money. volunteer initiatives. For instance, in January invested in the British company DataSine, Sistema Venture Capital is VisionLabs. The platform performs full-cycle customer The new solution bundles together of 2017 the bank's volunteers purchased, the developer of an intelligent data analysis Its flagship product is a face recognition identification and verification in just two all payment instruments (an e-wallet delivered and assembled furniture for a platform used for creating personality platform, VisionLabs LUNA, which allows seconds, thus enhancing customer service account, a personal MTS sub account, nursing home and nursing care hospital wards profiles of customers. The solution runs on analysing vast amounts of photo and video and keeping fraudsters at bay. Process and bank cards) for fast and easy access in the village of Tovarkovo (Tula region), as part machine learning and psychometrics. The data in real-time mode to detect people's automation speeds up customer servicing, to a wide spectrum of financial services of the charity campaign #GivingTuesday. service produces personality profiles of faces and run them against existing application processing, and decision- and information on all transactions and users based on records about their financial databases. The technology boasts high making. Apart from that, VisionLabs payment profiles. Not stopping at merely participating in transactions, enabling banks and other accuracy and stability of face recognition LUNA can be used for remote servicing charity programmes, the bank also works financial institutions to personalise product thanks to a database that contains 70 of the bank's customers, authorisations in Going one step further, MTS Bank gave hard to develop user-friendly remote digital offers depending on the current needs of million images. banking systems, and marketing purposes its customers the option of cashing out channels to attract private donations for social specific customers, their consumption style, (informing customers about loyalty their mobile accounts through the bank's programmes, thus propelling the evolution and particular circumstances. The banking sector is one obvious industry programmes and POS lending options, ATMs. The service is also available to the of digital charity infrastructure and bringing where the platform can be of great benefit. searching for the bank's customers in MTS subscribers who are not MTS Bank new money in the non-profit sector. In 2017 It is currently used by over 40 banks and partner stores, etc.). card holders. This is a convenient solution the bank opened 16 new operating accounts In 2017 the bank opened for situations when one needs to buy for charities and foundations, enabling fast something or make a payment and has no and easy target donations and subsidies cash or bank cards on hand. for various social projects. The account of Sistema Charitable Foundation alone received 16 Digitalisation of the banking sector The bank has also launched a user- some 2.5 million in private donations from the new operating accounts for friendly and generally accessible online Corporation's employees and third parties. charities and foundations In 2017 MTS Bank focused on the digital lending service that allows users to transformation of financial services aiming purchase goods from the MTS online store to provide customers with easier access on credit at no extra interest. What makes to the bank's services and products. the service special is that a user can file A key means to achieve this goal is the a loan application directly at the store's Support to small and medium-sized Merchant acquiring for OZON.ru development of remote services. website and receive MTS Bank's resolution businesses as a matter of minutes. In October 2017 MTS Bank and OZON. The bank has launched a user-friendly, In 2017 MTS Bank signed cooperation ru (one of Russia's top retailers) signed intuitive, and generally accessible online Aiming to make an even better customer agreements with the Moscow Regional a merchant acquiring agreement. The lending service that allows users to offer, MTS Bank improved the terms of Guarantee Fund for Support of Lending long-term strategic partnership between purchase goods from the MTS online store instant loans provided to MTS subscribers to Small and Medium Businesses, the the two assets of Sistema will widen MTS on credit at no extra interest. What makes for 1-2 years, with the maximum interest Volgograd Region Guarantee Fund, and Bank's footprint on the acquiring market. the service special is that a user can file rate lowered to 6% p.a. and the maximum the Fund for the Development of Small With the new merchant acquiring service a loan application directly at the store's loan ceiling doubled (to 200,000 roubles). and Medium-Sized Enterprises of the from MTS Bank, online retailers get financial website and receive MTS Bank's resolution To file a loan application, the mobile Novosibirsk region. The agreements will guarantees and a fast-track way to get as a matter of minutes. An online application operator's existing subscribers can fill out enable small and mid-size businesses to money debited to their accounts, while to be filled to apply for a cash loan is Reliable IT infrastructure for digital services an online questionnaire and receive the receive funding and/or bank guarantees shoppers can pay for their purchases online available at the bank's website. The waiting bank's resolution in just two minutes or from MTS Bank under the funds' suretyship. day or night, just in a few clicks. time upon the submission of the application MTS Bank is very active in launching new own IT systems designed for customer simply visit any of the bank's offices. The borrowers do not have to worry about is just two minutes. The bank also improved products and widening sales channels interaction and the management of internal formalities: all one needs to do is apply for its lending offer for MTS subscribers by through digital interfaces (websites, apps, processes, such as CRM solutions; anti- a loan at MTS Bank, and if the bank decides reducing the maximum interest rate by etc), which requires state-of-the-art and fraud, monitoring, online & mobile banking to grant it, it will reach out to the relevant 6% p.a. while doubling the lending ceiling fail-safe IT systems and large and reliable systems; and the corporate portal. This made fund to get the suretyship made. amount (to RUB 200,000). The interest rate computing capacities. it possible to speed up the implementation of on loans issued to small businesses is down new products and services and cut the costs 2%. Last but not least, the bank brought In 2017 MTS Bank started using its own associated with computing capacity. down the average interest rate for loyal protected cloud-based platform #CloudMTS customers to 3% per annum and launched that received a number of the bank's a re-financing plan product.
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In the autumn of 2017 MTS Bank cut Developing Russia's market interest rates on all of its loan products for An investment from Sistema Asia Fund revolutionises lending of collective investments MTS Bank and Sistema Capital acted as Igor Busarov small businesses, which may now take out partners of FINFAIR Financial and Stock up to 80 million roubles for a period up to 60 Sistema Capital is a management company Exchange Services Fair first organised CEO of Sistema Capital months. Interest on working capital facilities In September 2017 Sistema Asia Fund The company uses a lean business model that invests and provides asset management by the Moscow Exchange in the autumn was lowered from 13 to 11% per annum, invested in the Indian fintech startup (with just a handful of staff) to attract clients services on global financial markets for of 2017 in the Museum of Moscow to and the overdraft rate is down to 1% per Lendingkart designed to provide much- and collect debts. Lendingkart offices are individual and corporate customers. enlighten the general public about the annum. needed capital to small and medium- open in three cities of India, with services financial market and its products and share «There are only about 700 thousand size businesses. The solution will allow sold all over the country. The startup that In 2017 Sistema Capital became a full-fledged much-sought-after insights about savings investors in Russia right now, which is In September of 2017 the Russian Ministry entrepreneurs to focus on business instead has already processed over 300 thousand MOEX-listed company with direct access to and investments. The event was a unique less than 1% of all the economically active population. As the continuing downward of Agriculture included MTS Bank in the list of worrying about gaps in their cash flows. loan applications from inception to date is the currency and securities markets and also forum where the representatives of Russia's trend in savings account interest rates of authorised banks to issue preferential now planning to intensify its engagement started offering products in the retail segment in leading financial institutions conducted will inevitably fuel appetite for investment loans to agricultural businesses. The bank's Relying on Big Data analysis and machine with Indian micro businesses that are now close cooperation with MTS. The company sees workshops and master classes and guests products, management companies are participation in the agri lending programme learning, the company developed a lending suffering from near-zero access to credit. its social mission in widening the category of received practical advice on managing now well-equipped to foster a mass- will strengthen its relations with the sector's mechanism capable of analysing 4 thousand retail investors in Russia while offering affordable personal finances. Sistema Capital, which scale culture of savings based on clear, players and benefit the national agriculture parameters to assess the creditworthiness of and user-friendly instruments for investments in was sharing a booth with MTS Bank, transparent, and affordable products. by means of below-market interest rates of SME. It makes processing online applications high-liquidity assets as an alternative to savings provided consultations about its investment Our cooperation with MTS is designed to 5% p.a. or less. for loans an easy procedure that only takes accounts, a "vanilla" personal savings tool. products and presented its mobile mutual produce synergies that will turbocharge our retail business. We plan to gain a up to three days to approve a loan and In the end of 2017 Sistema Capital launched investment funds that sell units online. significant share in the market of collective requires a very small package of documents. a proprietary mobile app allowing users to investments in the mass segment by receive information about their assets, track increasing the percentage of retail investors their investments in real time, and perform in our portfolio to 30%». Financial literacy transactions involving equity instruments (buy, For years now, MTS Bank is the permanent and the Union for the Protection of the sell, or exchange). MTS Bank is on a social mission to raise expert of the annual Russian contest in Rights of Consumers of Financial Services. a new generation of competent banking financial literacy, financial markets and The 2017 contest drew more than 6,500 Sistema Capital regularly participates in social professionals and informed users of protection of rights of financial services high school students, with 118 students initiatives aiming to enhance the financial financial services across all demographics. users among high-school students, the from 45 regions of Russia making the cut for literacy of Russian people: To achieve this goal, the bank makes it largest-scale project in Russia designed to the finals. The winners and runners-up of a point to participate in the annual nation- promote financial literacy of school students the contest were given not only certificates publishing general-audience articles on wide programme Days of Financial Literacy all over Russia, organised by the Institute of of achievement and awards (including managing personal finances and leveraging RUB bn RUB bn at Schools an Colleges. In September of Stock Market and Management, the Federal from MTS Bank), but also preferential terms investment opportunities; 2017 volunteers from among MTS Bank's Service for the Oversight of Consumer for admission to the nation's economics >9 >50 staff taught financial literacy classes to the Protection and Welfare, the National Institute colleges. participating in related events (conferences, in NAV of open-end mutual in assets under management students of two high schools in Moscow. The for Financial Markets and Management, round tables); funds experts talked about global trends in the world banking industry and banking professions conducting regular distribution trainings for and held a quiz on finance whose winners the staff of a partner company in the finance received prizes. sector, upholding adequate standards of knowledge to make sure that advice provided to investors is always competent and exhaustive; №1 preparing educational and customer by yield among major open-end materials to enhance the quality of financial rouble bond mutual funds As part of the #GivingTuesday initiative, advice provided; MTS Bank invited Moscow's educational and social institutions to apply for financial working to raise the awareness of all literacy lectures and quizzes to be stakeholders about risks and opportunities arranged in February-April of 2018, for the associated with investments in securities. bank's volunteers to share their knowledge about current global trends in digital technology and banking.
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Information about the Report 162
Awards and achievements 171
Glossary and acronyms 174
Consolidated indicators 179
GRI index 183
Сompliance with the UN Global Compact 190
Contact details 196
The Corporation follows the requirements of international GRI Standards and principles of the UN Global Compact, engaging stakeholders in the dialog about sustainable development and CSR aspects and providing its non-financial reporting for external assurance.
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GRI 102-50 GRI 102-51 GRI 102-52 Sistema encourages the independent recommendations from the Non-Financial Full list of material topics disclosure of non-financial information by its Reporting Board of the Russian Union of Sistema PJSFC continues key assets: MTS Group, Segezha Group, Detsky Industrialists and Entrepreneurs (RUIE) given GRI 102-47 GRI 103-1 to follow the practice of Mir, BPGC, and Sistema Charitable Foundation as part of public assurance of Sistema's prepare their own non-financial reports in Sustainability Report for 2016. No Topic GRI standard annual disclosure of non- accordance with the most advanced standards ECONOMIC PARAMETERS in this area. In their reports on sustainable financial corporate reports 1. Economic performance and operational efficiency of Sistema and its portfolio companies Economic performance development and in annual reports the Determining material topics for (assets) and presents the fifth companies provide more detailed information disclosure in the Report about approaches to managing sustainable 2. Sistema's contribution to ensuring Russia's technological leadership (R&D, innovations, Economic performance consolidated Sustainability development and CSR, social projects and their GRI 102-21 GRI 102-46 development of high-tech and knowledge-based industries) Local communities results, stakeholder engagement. This report was prepared following a revision of 3. Investments in development of infrastructure and modernisation of production Economic performance Report. The previous report the materiality of the subjects disclosed. The list facilities for 2016 was published in of the subjects was formed on the basis of the 4. Contribution to economic growth and social welfare of the country, including tax Economic performance Key principles of the Report material aspects covered in last year's report and payments and contributions of the Corporation to off-budget funds, involvement in Q3 2017. In the past, starting preparation was extended by adding the topics identified as a addressing the priority tasks in the area of social and economic development of Russia result of benchmarking. (import substitution, technology, medicine and food security, export potential) from 2006, the company GRI 102-54 ENVIRONMENT published CSR reports. The Corporation follows the principles and Being one of Russia's largest public companies, requirements of Sustainability Reporting Sistema is the focus of attention of leading 5. Contribution to development of the "green economy", environmentally responsible General disclosures production and consumption The purpose of this Report Standards of the Global Reporting Initiative global and Russian rating agencies and analysts, (GRI Standards). This Report discloses public and expert organisations that conduct 6. Programmes aimed at preservation of biodiversity in the regions of presence Biodiversity is to inform a broad range of information at the core level. Description of the assessment of the Corporation's ESG policies 7. Total investments of the Corporation in protection of the environment All environmental aspects stakeholders about the key Corporation's business model is also based and practices: FTSE Russell, MSCI, Vigeo rating, on the International Integrated Reporting CDP, ISS, RobecoSAM, Oekom, Bloomberg, 8. Resource and energy efficiency of the Corporation's operations (data on water, fuel, heat Energy, and energy consumption by the companies of Sistema Group, programmes aimed at Water Standard with respect to the capital concept. Sustainaltics; in Russia – Russian Union of business activities and results decreasing environmental impact) Industrialists and Entrepreneurs, Moscow of Sistema and its portfolio The Report is also based on: Exchange, АК&М, RAEX, Russian Regional 9. Impact of the Corporation on climate (data on greenhouse gas and other emissions Emissions companies in the economic, Network for integrated reporting, the Russian of Sistema's portfolio companies, programmes aimed at reduction of emissions) principles of the UN Global Compact; Institute of Directors, etc. Following an analysis of 10. Data on effluents (used water, oil, fuel and chemical spills) and production waste Effluents environmental and social requests received from these organisations the of Sistema's assets, programmes aimed at reducing the impact on the environment provisions of the Social Charter of the Corporation added a number of new important SOCIAL SPHERE fields from the point of view Russian Business; topics in the general list. of sustainable development Labour practices basic efficiency metrics, the indices A survey was conducted in which stakeholders 11. Sistema and its subsidiaries as attractive employers (including the level of wages paid to Market presence of the Corporation, society "Responsibility and Transparency" and were asked to assess the materiality of each the employees in the regions of presence, social programmes for personnel, the share of top managers from the local community) and environment. Moreover, "Sustainable Development Vector" of the proposed 29 topics for disclosure on developed by the the Russian Union of a 5-point scale. The respondents were also 12. Key characteristics of personnel employed by Sistema and its portfolio companies Number of employees preparation of non-financial Industrialists and Entrepreneurs; allowed to make adjustments in the proposed (headcount, age and gender, turnover, succession pool) wordings and recommend additional topics. 13. Health and safety of employees at the workplace (programmes for promotion of Occupational health and safety public reporting is also a tool Russian and global non-financial reporting The total of 109 questionnaires were completed, occupational safety and a healthy lifestyle, prevention of occupational injuries and practices of peers (investment groups with 9% submitted by the management of diseases) used for regular monitoring and conglomerates) and requests the Corporation (including 2 questionnaires from the investment community and completed by the independent members of 14. Training and development of Sistema's personnel (corporate training and development Training and education of the effectiveness of CSR programmes, the duration and focus of employee training) recommendations of ESG analysts the Board of Directors) and 91% - by external activities conducted by the regarding the disclosure of non-financial stakeholders. 15. Programmes implemented by Sistema and its portfolio companies to train young talented Training and education professionals for the innovative sectors of the Russian economy companies of Sistema Group. information about the Corporation; In three years the involvement of interested 16. Relations of employees and management (transparency and quality of internal Labour/management relations annual corporate transparency rating parties in preparation of the Report increased communications, collective agreements, personnel assessment programmes) of Russia's largest companies prepared significantly: the total number of survey HUMAN RIGHTS by the Russian Regional Network for participants increased by 127%. The share of Integrated Accounting; external stakeholders increased more than 17. Observance of human rights, non-discrimination and protection of personal data Non-discrimination; Freedom of association two-fold compared to 2016 due to expanding the and collective bargaining; Diversity and pool of respondents and conducting the survey equal opportunity in a new and convenient online format.
For more information about the Corporation's non-financial reporting please go to http://www.sistema.ru/ustoichivoe-razvitie/socialnye-otchety/ In the table below the new topics disclosed in the 2017 Report are shown in bold type.
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No Topic GRI standard Number of questionnaires completed Materiality matrix by stakeholders that were taken into 18. Conducting corporate training programmes to ensure observance of human rights by Security practices account when establishing materiality 5,00 security and other employees
DEVELOPMENT OF REGIONS AND RELATIONS WITH COMMUNITIES +127%
19. Charitable activity and social investments of the Corporation Indirect economic impacts 48 62 109
20. Contribution to the development of regions of presence and local communities (creating Local communities 99 new jobs, supporting education, health care, culture, comprehensive development of territories) 1 21. Involvement in development and implementation of public policy (development of federal Public policy 42 2 and/or regional laws, participation in pubic projects and programmes) 17 11 23 24 4 25 22. Social partnership and results of Sistema's cooperation with local communities, regional Local communities 31 4,00 20 3 and local authorities 10 20 2015 2016 2017 19 RESPONSIBILITY TOWARDS CUSTOMERS 15 14 5 13 External stakeholders 23. Ensuring health and safety of the consumers of products and services of Sistema's Customer health and safety 17 portfolio companies, including certification and quality assurance Internal stakeholders 27 Importance of disclosure for stakeholders 8 29 10 12 MANAGEMENT SYSTEM 26 7 28 22 9 Based on the survey findings a materiality 16 24. Responsible investment (principles and practice, including assessment of non- General disclosures 6 matrix was developed, with estimates of 21 financial risks) Sistema's impact on material topics shown 18 25. Business ethics, including anti-corruption practices and resolution of conflicts of interest Anti-corruption along the horizontal axis and estimates of the importance of disclosure for stakeholders 26. Implementation of responsible practices in the supply chain of the Group (policies, Supplier environmental assessment; 3,00 400 500 shown along the vertical axis. assessment and development of suppliers, support for small and medium Supplier social assessment Sistema’s impact on the economy, environment and society enterprises, including local businesses) All of the topics shown in the matrix are * Upper three squares – most material topics, ower left square – less material topics 27. Compliance with regulations on labour relations, environmental protection, tax and Socioeconomic compliance; disclosed in this Report in proportion to their other applicable legislation importance determined by the stakeholders: 28. Environmental compliance Общие раскрытия the most material topics have a priority and are covered in greater detail compared to the 29. Certification of management systems, compliance of Sistema Group General disclosures less material topics. companies with national and international standards, including industrial standards
Participation of Sistema Group in implementation of the UN global Sustainable General disclosures Development Goals (integration of Sustainable Development Goals in business strategy and CSR, impact of Sistema and its assets on achievement of the Goals) Defining materiality: key stages
Stage 1. Stage 2. Stage 3. Updating the list of material Establishment of material Building a materiality matrix topics topics by stakeholders
A list of 29 aspects was made on the Проведено онлайн-анкетирование Material topics to be disclosed in the basis of the list of topics disclosed 109 представителей внешних и вну- Report were prioritised in propoprtion in 2016, benchmarking against peer тренних заинтересованных сторон to their degree of importance. companies and analysis of questions Корпорации. from investors and ESG analysts.
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Key stakeholders Rank map of stakeholders Groups of stakeholders of the Corporation GRI 102-42 GRI 102-40
In the course of preparation of this Report Groups of stakeholders Approach to stakeholder engagement the list of groups of stakeholders made by 1. Shareholders and investors 2.2. Business model and asset management Sistema's managers during the previous reporting cycle was recognised as relevant. 12 2. Customers and consumers 3.5. Ethics and anti-corruption 4. Sustainable development practices of portfolio companies The previous assessment of the Corporation's 3. Business partners (including suppliers and 3.6. Procurement and supply chains impact on stakeholders and the impact of contractors) 4. Sustainable development practices of portfolio companies 10 10 stakeholders on Sistema was reviewed and 4. Personnel (including trade unions) 3.7. HR management validated by a working group in the course of 4. Sustainable development practices of portfolio companies preparation of the 2017 Report. 5. Federal authorities 3.2. Implementation of investment programmes 8 6. Regional and municipal authorities 2.1. Responsible investment policy At the same time, new groups of stakeholders 4. Sustainable development practices of portfolio companies 4 1 were included in the list: shareholders and 7. State authorities and regulators 3.2. Implementation of investment programmes investors, business partners, academic 6 3, 6, 11 community, educational institutions, non-profit 8. Professional associations 1.4. Membership in public organisations 4. Sustainable development practices of portfolio companies and environmental organisations and federal 15 2, 8 authorities. 9. Academic community 4. Практики устойчивого развития портфельных компаний 4 9 13 5 10. The Corporation's management 2.2. Business model and asset management 12 Impact of the Corporation’s activities on stakeholders 3.7. HR management 11. Population in the regions of operations 2.1. Responsible investment policy 4. Sustainable development practices of portfolio companies 2 14 7 12. Educational institutions 2.4. Social investment 3.7. HR management 4. Sustainable development practices of portfolio companies
0 13. Media 2. Responsible investment 2 4 6 8 10 12 3.4. Risk management Impact of stakeholders on the Corporation’s activities 14. Environmental non-profits 3.8. Environmental impact 4. Sustainable development practices of portfolio companies 15. Non-profit organisations and charities 2.4. Social investment 4. Sustainable development practices of portfolio companies
Учет Addressing the recommendations of stakeholders given in a survey on the 2017 Sustainability Report GRI 102-44 Recommendation Consideration and fulfilment of recommendations in the 2017 Report: The report should describe the company's regular and In addition to the section "Ethics and anti-corruption" the chapter "Sustainable consistent compliance with the the principles of the Ethics development practices of portfolio companies" now includes a description of Code. specific examples of compliance with ethical practices in the companies of the Group. Include a description of mechanisms used for taking The section "Responsible investment policy" now includes a diagram showing the investment decisions. process of selection of investment projects at Sistema. Extend the "Responsible investment" section, include more The section "Responsible investment" has been significantly extended with regard detailed information. to description of the Corporation's responsible investment policy. Describe the new strategy and business segments of the The section "Responsible investment" provides information about investments Corporation. made through investment funds controlled by the Corporation. Place more emphasis on the topic of innovations; add more The section "Innovations" includes this information. For more information about determining the examples to the section. key stakeholders of Sistema and their ranking see Sustainable Development Report for 2016.
The map shows groups of top-level stakeholders. Sistema's key stakeholders are shown in semi-bold type.
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Report Boundaries Sistema's financial and economic results Some of the information disclosed in previous External assurance for the Report presented in the report are shown in a non-financial reports of the Corporation was GRI 103-1 GRI 102-48 consolidated format on the basis of audited revised due to the retrospective adjustment of The Report covers Sistema and its key IFRS financial statements, if not otherwise data following changes in the reporting policy Sistema's 2017 Sustainability Report has portfolio companies (subsidiaries) and its provided for herein in a number of portfolio companies and in the received external assurance from the Non- boundaries mostly coincide with those of the perimeter of data consolidation, and deletion Financial Reporting Board of the Russian company's consolidated financial statements. of some previous technical inaccuracies (see Union of Industrialists and Entrepreneurs. the table below). The number and share of GRI indicators According to the external assurance the covered by the Group's consolidated Report contains material information reports Disclosed in 2016 2017 Note covering all areas of business activities +18 the report in accordance with the Social Charter Standard 35 45 The key new indicators are related to the of Russian Business and fully discloses 21 39 elements management system. information about the Corporation in these Topics (aspects) 14 25 GRI topics +2 New aspects: areas. +5 p.p. Sistema-specific 75 aspects –– Indirect economic impacts 80 –– Procurement practices The Report describes the implementation –– Biodiversity of the basic principles of responsible –– Labour/management relations investment and the main indicators, –– Local communities reflecting the contribution of the –– Customer health and safety Corporation and its key assets in –– Socioeconomic compliance –– Freedom of association and collective the Sustainable development Goals’ 2016 2017 bargaining achieving, as well as corporate efforts Share of consolidated results for the Group, % –– Diversity and equal opportunity aimed at the enhancement of business –– Public policy processes and management practices in –– Supplier social and environmental assessment Number of disclosed GRI indicators Sistema’s portfolio companies. Indicators 21 36 GRI indicators Indicators specific to the Corporation: indicators We will consider the recommendations +3 Sistema-specific indicators –– Total expenses for charitable and social projects and comments received from the >80% –– Total number of volunteers at the Company assurance provider during the preparation –– The number of volunteer events conducted disclosed by the Group of our future reports. (+5 p.p. vs 2016)
GRI 102-48
Parameter Reasons for revising data for previous periods 102-8 Total number of employees Segezha Group's data for 2016 was revised due to consolidation of the Lesosibirsk Woodworking Plant; Medsi's data for 2015-2016 was adjusted; Уточнение методики расчета и отражения данных за 2015-2016 годы. Data on MGTS's personnel was shown in reports on Осуществление пересчета показателей за 2015-2016 годы в джоулях (Дж). MTS Group for 2016. Данные за 2015-2016 год уточнены за счет включения информации по компаниям «Медси», «СИТРОНИКС», отелям под управлениям Cosmos Group. 201-1 Direct economic value generated and distributed Adjustment of the methodology for estimating and reporting data for 2015-2016. 302-1 Energy consumption within the organisation Indicators for 2015-2016 were recalculated in joules (J). Data for 2015-2016 was revised due to inclusion of Уточнена методика отражения данных по Segezha Group, в контур консолидации information on Medsi, Sitronics and Cosmos Group включены отели под управлениям Cosmos Group. hotels. 305-1 Direct greenhouse gas (GHG) emissions The methodology for reporting data for 2015-2016 was revised; Cosmos Group hotels were included in the consolidation perimeter. 303-1 Water withdrawal by source The methodology for reporting Segezha Group's data was revised; Cosmos Group hotels were included in the consolidation perimeter. 306-1 Water discharge by quality and destination The methodology for reporting Segezha Group's data was revised; Cosmos Group hotels were included in the consolidation perimeter. 306-2 Waste by type and disposal method The methodology for reporting data for 2015-2016 was revised. Spending on charity and social programmes The methodology for reporting data for 2016 was revised. Total environmental spending and investments of The consolidation perimeter was extended by including Cosmos Group hotels and Sistema Group. Sitronics.
168 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 169 INFORMATION ABOUT THE REPORT Annex AWARDS AND ACHIEVEMENTS
GRI 103-3 Implementation of recommendations received from the Non-Financial Reporting Board of the Russian Union of Industrialists Telecoms and digital services The sustainable development report published by MTS and Entrepreneurs regarding Sistema's 2016 Sustainability Report became a winner in three categories of the international annual MTS: report competition organised by the League of American Recommendation of the Non-Financial Reporting Board of the Consideration and fulfilment of recommendations in the 2017 Report: Communications Professionals LLC (LACP). The company was Russian Union of Industrialists and Entrepreneurs (excerpt) made it to the list of 100 most expensive global telecom brands given platinum awards for the quality of disclosures in the telecom according to Brand Finance Telecoms 500 2017; industry and in the category "Best Corporate Report" and also came Providing a more detailed disclosure of compliance with The section "Responsible investment" was included. 3rd in a global ranking of top 50 reports. responsible investment principles in the Corporation's business practices. won in the "Services" category of the annual consumer confidence award "Russian No1 Brand 2017"; MTS Group companies were among the winners of the national Showing real contribution of the Corporation and its key The Report covers the Sustainable Development Goals until 2030 which competition Employee Engagement Awards Russia 2017 for companies to the achievement of the UN global Sustainable are most relevant for the companies of the Group. The Annex to the Report came first in the Leadership Index rating of best employers development of internal brand, corporate culture and enhancing Development Goals until 2030 and performance of the related includes a summary table on implementation of global and national priorities tasks. with figures on each sustainable development goal and objective and results compiled by Rabota.ru and became a top 5 company in the employee engagement. MTS won in the category "Company of the of the reporting year. annual ranking of 100 best employers in Russia made by year in the area of employee engagement/Big business", MGTS won HeadHunter, topping the ranking among telecom companies; in the category "Health". Providing a fuller disclosure on managing sustainable An outline of the mechanisms of Sistema's impact on developing and development, including with regard to the impact on the improving management practices in portfolio companies (sections became a four-time winner of the award in advertising and MGTS won in the 8th annual award "Consumer rights and financial and economic performance of the Corporation. "Responsible investment", "Risk management"). marketing communications Effie Awards Russia 2017, the quality of services" in the category "Retail services"/"Domestic Providing a fuller coverage on managing environmental A summary table on availability of environmental management systems at company's charitable project Generation M received a bronze in the services". impact, availability of environmental management systems subsidiaries was included in the section "Responsible investment". category "Contribution to the general good. Social responsibility and at subsidiaries and the Corporation's ability to influence sustainable development" and also became a finalist in the category development of processes in this area as part of improvement of its investment activities. "Telecommunications. Internet";
In the section "Sustainable development practices of portfolio Большинство показателей по Группе включены в динамике за 3 года. received a Safety Leaders Award for creating a shared centre High technology companies" the topic of specific environmental impacts and Увеличено число раскрываемых показателей GRI и доля среди них тех for monitoring information security events and for a social project their management is covered in the "Agriculture", "Forest показателей, которые раскрываются консолидировано по Группе. По ряду "Children in the Internet"; The integrated microcircuits developed by JSC NIIME and Mikron industry", "Hotel business", "Real estate" and "Energy" sectors. направлений раскрыты планы на 2018 и дальнейшую перспективу. The topic of responsible paper consumption has been covered and designed for use in MIR bank cards, won the first place at the in the Report for the first time. won the first national Women Power Award aimed at finding Golden Chip competition of Russian microelectronic products in the best projects, practices and programmes implemented by the category "Best Microelectronic Product 2016-2017". Including in the Report a set of major comparable indicators Most of the Group's indicators are shown for a 3-year period. The number companies for female employees in the category "The best career for the Group, providing data on their evolution and including of GRI indicators and the share of indicators disclosed in the Group's growth opportunities for women". Kronstadt Group received the Best Innovative Project award at projections and targets for the future period. consolidated reports were increased. Plans for 2018 and onwards were disclosed for some business segments. the annual Aircraft Company of the Year competition for its won the Grand Prix of IR Magazine Russia & CIS Awards for best continuous work on development of innovative unmanned aerial Including in the report not only general but also special The section "Sustainable development practices of portfolio companies" IR work; vehicles. indicators that are material for the industries where Sistema's includes industrial indicators that are relevant for specific industries. companies operate. received an annual Digital Communications AWARD sponsored RTI's HQ was included in the only Russian independent ranking Extending the practice of holding public events in the course In the course of preparation of the Report a new electronic format of by the Russian Association of Directors for Communications and "Green Offices of Russia", which evaluates the offices of of preparation of reports, disclosing information on specific survey of stakeholders was applied, making it possible to significantly Corporate Media for its Generation M project in the category "Digital companies and enterprises using environmental indicators. results of such cooperation, on the proposals received by broaden the audience. The Report includes a summary table including all projects and strategies/CSR communications" and in the category the Corporation from stakeholders and on the Corporation's recommendations received from stakeholders and their representatives. "Digital media and tools/Application for a mobile device" for its My Sarov Technopark was included in the А+ group of technoparks response. MTS application. with the highest level of efficiency (more than 10% above Russian Providing more detailed examples of applying sustainable The section "Telecoms and digital services" includes information on the average) of the 3rd national ranking of Russian technoparks development principles to business partners, and giving more Suppliers' Code of MTS. The industry review also includes detailed information MTS's Corporate University received a prestigious GlobalCCU compiled by the Association of Clusters and Technoparks. The coverage on the topic of supply chain responsibility. on implementation of sustainable development principles in the supply chain Award 2017 in the category "The best innovative corporate ranking covers 33 technoparks from 17 regions. in such sectors as "Real estate", "Agriculture", "Forest industry", "Consumer sector". university".
The full text of the External Assurance Report for 2016 is available at: www.sistema.ru/fileadmin/user_upload/social_reports/zakluchenie_pspp_2016.pdf.pdf
170 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 171 AWARDS AND ACHIEVEMENTS Annex
Forest industry Consumer sector Electric power Banking and finance
Segezha Group: Detsky Mir Group: BPGC MTS Bank
took the second place in the first rating of environmental won in "The Leader of the year" category in the children's goods BPGC received awards in the Russian national Best Power MTS Bank was recognised one of the most effective Russian banks openness of the pulp and paper enterprises of the Russian segment at the Russian Retail Week 2017 forum. Grids contest in two categories: "Socially Responsible Power Grid in 2017 by the Kommersant newspaper, having climbed to the 7th forest industry (WWF); Company" and "The Most Transparent Power Grid Company". place from the 10th place a year earlier. became a winner of the international competition Corporate & received a medal of the International Exhibition Russian Forest Financial Awards in the category "Best communications during Bashkirenergo's environmental policy was highly acclaimed in the Sistema Venture Capital 2017 for implementation of new technologies; an IPO"; prestigious national contest 100 Best Organisations of Russia. Ecology and Environmental Management. The company Sistema Venture Capital won the national award Venture Investor was named the best supplier of softwood timber from Russia for Concept Group was awarded with a diploma of the contest and a special medal 2017 in the category “Discovery of the Year”. the Chinese Corporation Xiamen Beijing National Building Material "100 Best Organisations of Russia", and the CEO of BPGC Dmitry Group (2017 Best Supplier of Russian Lumber). The CEO of Concept Group made it to the top 100 of the most Sharovatov received a lapel pin "Ecologist of the Year – 2017". Sistema Capital Management Company efficient top managers in St. Petersburg and Leningrad region The investment project for modernising the Segezha Pulp and according to the 16th annual award organised by the Delovoy BPGC took part in the environmental initiative Save the demonstrated the highest yields among major open-end rouble Paper Mill won the top prize at the annual Lesprom Awards 2017. Peterburg newspaper. Forest organised by the Committee for Youth Affairs of the bond mutual funds in 2017. Administration of Ufa together with the city's Centre for the LLC Segezha Packaging won the contest of the Pension Fund Promotion of Youth Employment and was awarded a diploma and a Sistema Capital Management Company won the award of Russia in the category "Best compulsory pension insurance winner's cup. "The financial elite of Russia 2017" in the subgroup provider 2017" in the category "Insurance provider employing more "Management Companies" in the category "Development than 500 people". Agriculture dynamics". The company received a commemorative diploma for developing modern services and for becoming a market leader The products of Yuzhny Agricultural Complex received 10 gold by efficiency of investments among the largest management Healthcare and pharmaceuticals medals at the Russian Golden Autumn agricultural exhibition. Hospitality business companies.
Medsi The unique natural resort hotel Altay Resort won in two categories Real estate of the Russian Hospitality Awards: "Best MICE Hotel" and "Best Medsi is among the top 3 companies in the list of the top 100 Family Hotel". The hotel gets the award for the third year in a row. private multi-specialty clinics in Russia by revenue in 2017. Leader Invest Holiday Inn Express Voronezh–Kirova made it to the top 5 best Medsi sanatoriums were awarded gold medals in the category Leader Invest is among the leaders of the Knight Frank ranking hotels of the IHG® chain in Q1 2017 in the category "Customers' "Best health resort treatment technologies" and "Best rehabilitation of luxury real estate developers within the Garden Ring of Moscow. perception of the hotel service" based on a survey of hotel guests facility" at the National Russian Forum Zdravnitsa 2017. conducted by Medallia portal. Leader Invest was ranked second for the number of projects in the Medsi's President Elena Brusilova won the Person of the Year Central administrative district of Moscow according to a ranking Savoy Westend Hotel was included in the list of best luxury Award in the prestigious category "Top manager of the year" compiled by the Est-a-Tet analytical centre. hotels of the Czech Republic compiled by Luxury Travel Guide for following an online vote on the Vademecum industrial web portal. "Excellent Service". The hotel also received an award in the category Leader Invest became a leader among Moscow's developers by the "The best 5-star hotel" from the prestigious Czech Hotel Awards. The "electric eye" developed by Medsi's eye surgeon, professor number of ongoing projects according to Urban Awards 2017 and and doctor of medical sciences D. Davydov, for treatment of optic received a "Leader of Local Development" award (a club format). nerve atrophy was named by Rospatent (the Russian Federal Intellectual Property Service) one of the top 10 most promising The Pokrovsky Boulevard Residence was recognised "Premium innovations registered in 2017. Class Project No 1" according to the Records of the Real Estate Market Award.
Leader Invest's project "Leader at Volgogradsky. Yesenin House" won the Best Comfort Class Property under Construction award at the prestigious residential real estate event RREF AWARDS 2017.
Business Nedvizhimost
Business Nedvizhimost's hotel Holiday Inn Express Moscow- Paveletskaya, which was commissioned in November 2017, became a finalist of the national contest Russian Hospitality Awards in the category "Developer of the Year".
MICE (Meetings, Incentives, Conferences, Exhibitions) is an area in the business tourism industry related to organising and hosting different corporate events.
172 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 173 Annex GLOSSARY AND ACRONYMS
Glossary Compliance A set of measures to shape responsible behaviour of the company and its employees in the market; a system for controlling and managing risks caused by failure to comply with legislation, requirements of regulators, controlling organisations, regulations of self-regulated organisations and other alliances of companies, and also internal documents. 4P healthcare A new healthcare model focused on an individual approach to each patient and based on four underlying principles: Skill-based volunteering Professional work undertaken voluntarily and without payment for the benefit of non-profit organisations or personalisation, prediction, prevention and participation. (pro bono work) individuals. Autoclave A device used for chemical reactions and other processes using high pressures and temperatures Corporate Social A company's responsibility for the impact of its decisions and activities on society and environment through Agency for Strategic A Russian autonomous non-profit organisation established by the government to carry out a number of economic Responsibility (CSR) transparent and ethical behaviour that encourages sustainable development, takes into account stakeholders' Initiatives (ASI) and social initiatives. expectations, complies with applicable legislation and international standards of behaviour; a set of commitments, which is regularly revised and takes into account a company's specifics and development level, designed voluntarily Accelerator A company whose business is to help other companies (residents of the accelerator). together with key stakeholders, including implementation of internal and external social and environmental Russian Managers A Russian business union aiming at professional development of the managers' community, transition to socially programmes. Association responsible methods of doing business and integration into the global economy. Crowdfunding Practice of funding a project or venture by raising small amounts of money from a large number of people, typically Independent Directors A professional union of independent corporate directors, which was established in 2002 with the goal of assisting via the Internet. Association Russian joint-stock companies with growing their value. Marketplace Type of an e-commerce site for business where consumers interact directly with suppliers of goods. Business incubator An organisation that supports young entrepreneurs' projects through all development stages, from idea to its Meetup An informal meeting of like-minded professionals to discuss things and exchange experience. commercialisation. Risk mitigation Reducing the probability of occurrence of a risk and minimising the potential consequences. Biomedicine A branch of medical science that applies biological and physiological principles to clinical practice. Direct investments Investing in medium-sized and large non-public companies. Biofuel Fuel composed of or produced from vegetable or animal raw materials, metabolic byproducts and organic industrial waste. National Association of The first and only self-regulatory organisation in Russia in the field of corporate governance, which unites leading Corporate Directors (NACD) Russian directors, top managers and senior executives of companies. Blockchain A growing list of records, called blocks, which are linked using cryptography. National Association of A public organisation that unites Russian professionals in the area of corporate governance: corporate governance Big Data A number of approaches to processing large amounts data with high complexity to produce results that can be Corporate Secretaries directors, heads of corporate governance departments, corporate secretaries, heads of board secretariats, corporate understood by people. (NACS) lawyers, etc. Boreal Forest Platform A participatory platform which was developed in 2015 to promote open dialogue and the exchange of experience Corporate Lawyers Russia's only professional union of executives and experts of legal departments of over 100 leading Russian and amongst peers and professionals in the field of sustainable forestry. Its participants include major timber companies, Association international companies. research institutes, non-profits and representatives of forest management authorities. Cloud technologies Data processing technologies in which computer resources are provided to an Internet user as an online service. Vacuum infusion Process of introducing the binder into reinforcement materials using vacuum pressure. Omni-channel Mutual integration of separate communication channels into a single system in order to ensure seamless and Vendor A supplier/manufacturer of goods or services under own strong brand. continuous communications with customers. Venture capital investments Investments in new or growing companies with a high or relatively high level of risk. Cancer screening Screening of formally healthy people aiming to detect cancer before symptoms appear. Global depositary receipt A bank certificate issued in more than one country for shares in a foreign company. Specially protected natural Land, water surface and air space with natural systems and objects having special environmental, scientific, cultural, (GDR) areas aesthetic, recreational and health value, which have been withdrawn completely or partially from economic use and UN Global Compact The largest initiative of the United Nations in the field of corporate social responsibility and sustainable development, for which a special protection regime has been established. which brings together 13,000 companies and organisations from 170 countries and 88 national networks that share Pension reserves Funds generated from voluntary pension contributions of legal entities and individuals within the framework of the and implement the ten principles in the field of human rights, labour relations, environment and anti-corruption for non-state pension system and intended sustainable and equitable socio-economic development. for the performance Funds generated from voluntary pension contributions of legal entities and individuals within the framework of the Real estate developer An individual or legal entity whose business is related to activities that range from the renovation and re-lease of by a non-state pension non-state pension system and intended existing buildings to the purchase of raw land and the sale of developed land to others. fund of its obligations in Generic drug A pharmaceutical drug that has the same chemical substance as the drug that was originally developed, patented accordance with pension and innovated. Generic drugs are allowed for sale after the expiry of the patent of the original drugs. agreements. Stakeholders Individuals and legal entities with interests in the Corporation, which affect or can be affected by the Corporation's Substation A part of an electrical generation, transmission and distribution system consisting of transformers or other actions. converters of electric power. The Children's Rights and A comprehensive concept of understanding and resolving the problem of businesses affecting the rights and well- Direct seeding An agricultural technique when soil is not tilled before planting. Business Principles of being of children. Russian Institute of A leading Russian research, consulting and educational centre for corporate governance. UNICEF Directors Inclusive environment An environment that facilitates the full integration of people with disabilities into society. Russian Quality System A non-profit organisation established by the Russian government for independent inspection and control of the IoT (Internet of Things) A concept of equipping physical objects ("things") with built-in technologies to interact with each other or with the (Roskachestvo) quality of the products sold in the Russian Federation. environment in order to reduce or exclude human participation from some of the actions or operations. Russian Union of A Russian public organisation representing the interests of business and uniting the largest Russian companies. Internet acquiring A banking service of accepting payments and transferring funds to sellers by using physical or virtual payment cards. Industrialists and Entrepreneurs (RUIE) Artificial intelligence Science and technology of creating intelligent machines, especially computer software; the ability of intelligent systems to carry out creative functions traditionally believed to be humans' prerogative. Road show A series of marketing events comprised of business meetings and conferences and organised by an issuer of securities (bonds, shares, etc.), incl. ahead of the initial public offering. Cybercrime Crime committed using computers and/or networks or the internet. AfiFarm A livestock management solution for dairy farms of any size; covers milk production, livestock reproduction and Key performance indicator An integrated indicator of activities of a structural unit or an officer, reflecting the achievement of targets set for a health; has a unique set of functions in the form of alerts about feeding problems based on analysis of the contents (KPI) certain period. of the herd's milk. Co-working An approach to workplace management where people of independent professions may work together in one office. Anti-fraud system A system assessing financial transactions in the internet for potential fraud and offering recommendations on their further processing.
174 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 175 GLOSSARY AND ACRONYMS Annex
System integration Development of complex solutions for automation of a company's technological and business processes. Its end List of abbreviations goal is to achieve maximum effectiveness in management of the technological process, manufacturing and the company in general. UAV Unmanned aerial vehicle Creating Shared Value A business concept establishing the link between competitive advantage and corporate social responsibility, which implies the implementation of projects that have a positive impact on both the company and its stakeholders. CF Charitable Foundation Social Charter of Russian A code of basic principles of socially responsible business practices developed by the Russian Union of Industrialists IC&A Internal control and audit Business and Entrepreneurs; it covers the company's interaction with employees, civil society organisations, government CGLD Corporate Governance and Legal Department authorities and local communities, as well as environmental security. FID Finance and Investment Department Startup An innovative entrepreneurial venture which is typically a newly emerged business in the stage of development or research on prospective markets. FIC Finance and Investment Committee Telemedicine Use of telecommunication and information technology to exchange medical information. ILO International Labour Organisation Pellets Biofuel made from compressed peat, wood waste and agricultural waste. It looks like standard-size cylinder-shaped SME Small and medium-sized enterprises pellets. IFRS International financial reporting standards Smart Grids A concept for the development and modernisation of electrical grids, which uses information and communication MFO Micro financial organisation technologies to monitor and account for the transmission and consumption of energy, thereby improving efficiency, reliability, economic benefits and sustainability of electric power distribution. NACS National Association of Corporate Secretaries Sustainable development Development of society/business which ensures that the living conditions improve, the impact on the environment MF Mutual investment fund remains within the economic capacity of the biosphere, and the satisfaction of current needs is carried out without RGO Russian Geographic Society harm for future generations. RusRisk Russian Risk Management Society Fundraising Efforts to raise money from individuals, businesses or the government to the non-profit sector, incl. charity. PPM Pulp and paper mill Financial technologies A segment comprised of companies that use technologies and innovations to compete with traditional financial (fintech) organisations – banks and mediators – on the financial services market. ACM Adaptive Case Management – a system of dynamic management of the company's business processes Hackathon A forum of software developers where professionals from different areas (programmers, designers, managers) work Agile An approach to software development under which requirements and solutions evolve through the together to resolve a problem. collaborative effort of self-organizing and cross-functional teams and their customer(s)/end user(s). UN sustainable A set of 17 global goals in the field of sustainable development approved by the UN in 2015, which are expected to AI Artificial intelligence development goals (SDGs) be the focus of the global community and business until 2030. CLT Cross laminated timber – a wood panel product made from gluing layers of solid-sawn lumber together Russia's “Digital Economy” A programme till 2024 approved by the Russian government in 2017 and setting goals and objectives in the following and used as large element of walls, ceilings and roofs, together with other construction materials: concrete, programme 6 basic areas: legal framework of the digital environment, personnel for the digital economy, digital technologies and brick, steel, glass, stone. projects, information infrastructure, information security, and digital state. CRM Customer relationship management Russia's “Digital Economy” A programme till 2024 approved by the Russian government in 2017 and setting goals and objectives in the following E-commerce E-commerce programme 6 basic areas: legal framework of the digital environment, personnel for the digital economy, digital technologies and projects, information infrastructure, information security, and digital state. ERM Enteprise risk management ESG risks Environmental, social and governance risks FEE Foundation for Environmental Education FSC Forest Stewardship Council FTSE4Good A market index assessing the efficiency of companies complying with international corporate governance standards. IIRC International Integrated Reporting Council IPO Initial public offering ISO 26000: 2010 Guidance on Social Responsibility (international standard). LTE (long term evolution), LTE standards of mobile communications advanced М2М Machine-to-machine, a common name for technologies that allow different devices to exchange information or transfer it from one to another. ML Machine learning MSCI Morgan Stanley Capital International, a stock exchange index that takes into account the MSCI Emerging Markets indices, incl. Brazil, South Africa, Russia, China, etc. NB-IoT Narrow Band Internet of Things, mobile communication standard for telemetric devices with low data transfer volumes. NFC Near field communication, a technology of wireless data transfer within a short radius. NPS (Net Promoter Score) A consumer loyalty index POS (point of sale) lending An area in retail banking where loans for particular goods are issued directly at points of sale. PRI Principles for responsible investment R&D Research and development
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Personnel characteristics RAB Regulatory asset base
RFID Radio Frequency Identification, a method for automated identification of objects, where radio signals are Breakdown of Sistema Group's staff employees by Breakdown of employees by employee category used to read or record data stored on special receiving/transmitting devices that send signals in response to a received signal (the so-called RFID tags). employment type 2015 2016 2017 SAIDI System Average Interruption Duration Index 2015 2016 2017 Sistema SAIFI System Average Interruption Frequency Index Full-time employment 97.2% 97.5% 96.5% Senior management 9.9% TSR Total shareholder return Part-time employment 2.8% 2.5% 3.5% Middle management 32.5%
VR/AR Virtual reality / augmented reality technologies Junior management 21.1%
WWF World Wide Fund for Nature Specialists 36.5% Sistema Group Breakdown of employees by gender Senior management 0.5% 0.4% 0.4% 2015 2016 2017 Middle management 2.7% 2.8% 2.9% Sistema Junior management 11.6% 10.6% 11.2% Women 50.2% 50.7% 48.0% Specialists 85.2% 86.2% 85.5% Men 49.8% 49.3% 52.0%
Sistema Group Women 51.1% 47.9% 48.4% Men 48.9% 52.1% 51.6% Breakdown of employees by age 2015 2016 2017
Sistema <25 years 2.9% 3.6% 3.7% Share of women holding executive positions at Sistema 25-34 years 40.3% 36.1% 33.5% Year Senior Middle Junior 35-44 years 27.6% 31.1% 33.2% management management management 45-54 years 17.5% 16.7% 16.8% 2015 5.5 % 25% 38.1 % > 55 years 11.7% 12.5% 12.8% 2016 9.5 % 23.2 % 35.9 % Sistema Group 2017 5.2 % 22.4 % 36.6 % <25 years 16.3% 3.6% 14.8% 25-34 years 38.0% 36.1% 36.0% 35-44 years 21.1% 31.1% 23.0% GRI 102-43 45-54 years 15.0% 16.7% 16.0% Breakdown of employees by employment contract and gender > 55 years 9.6% 12.5% 10.2% Year Permanent contract Fixed-term contract Men Women Men Women
Sistema 2015 48.6% 48.2% 1.3 % 1.9 % 2016 48.7% 48.4 % 0.9 % 2.0% Breakdown of senior management by age in 2017 2017 51.1% 45.7% 0.9% 2.3% at Sistema Group at Sistema Sistema Group 51.4% 2015 46.9% 49.5% 1.8 % 1.8 % under 45 years 49.0% 2016 47.3 % 49.6 % 1.6 % 1.5% 46-55 years 27.9% 25.7% 2017 48.8% 46.6% 2.7% 1.9% over 55 years 23.1% 22.9%
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GRI 202-2 GRI 404-1 Hires from the local community Education and training of employees, by employee categories
Year Headcount of Sistema's Share of executives hired from the local Headcount of Share of employees hired Employee category Number of Sistema's Number of employees Hours of training Average hours of executives, pers. community (Moscow and Moscow region), % employees, pers. from the local community, % employees that that completed internal provided to employees training per employee 2015 15 88 287 91.1 completed external onsite training, persons per year onsite training, persons 2016 17 89 305 91 Sistema 2017 18 94.7 318 90.3 Senior management 6 266 Middle management 26 868.5 Junior management 20 160 Breakdown of Sistema's employees by level of education FTE turnover at Sistema by gender, % Specialists 4 322 Year Higher Secondary Secondary (basic) Corporate Total personnel Men Women Total 56 1,616.5 education vocational Centre turnover 2015 97.1% 2.5% 0.3% Sistema Group 2015 4.6 % (8.7 %) 4.9 % (10.6%) 9.5 % 2016 97.0% 2.4% 0.6% Senior management 391 54 840,680 17.9 2016 3 % (5.8 %) 4 % (8.5 %) 7.1 % 2017 97.2% 2.3% 0.6% Middle management 1,775 650 10,085 14.1 2017 4.3 % (8.1 %) 4 % (8.6 %) 8.4 % Junior management 3,422 11,483 57,544 18.4 Specialists 19,171 44,285 290,206 10.8 GRI 401-1 Sistema's employees that participated in assessment, by Total 24,759 56,472 1,664,568 11.8 The total number of new employee hires at Sistema in 2017 categories and gender, persons by gender, personsл. Employee category Men Women Total Year Men Women Sistema GRI 401-3 2015 40 30 Senior management 6 2 8 Parental leaves for the employees of Sistema 2016 37 38 Middle management 3 1 4 2017 49 32 Employee category 2015 2016 2017 Total 12 Number of employees that had the 20 19 17 The total number of new employee hires by age group, Sistema Group right to a leave persons Senior management 36 17 53 Number of employees that took leaves 20 19 17 Age group 2015 2016 2017 Middle management 160 86 246 Number of employees that resumed 2 6 4 work after the leave Sistema Junior management 1,265 1,758 3,023 <25 years 8 10 12 Specialists 8,946 10,187 19,133 Ratio of employees that resumed 28.5% 85.7% 28.5% work 25-34 years 20 35 37 Total 22,455 22 455 35-44 years 18 19 17 45-54 years 12 7 8 > 55 years 12 4 7 Total 70 75 81 Sistema Group <25 years 5,219 21,839 23,372 25-34 years 8,726 19,498 19,636 35-44 years 3,244 6,159 7,671 45-54 years 1,310 2,890 4,002 > 55 years 514 1,566 2,024 Total 19,013 51,952 56,705
The first figure is percentage from the total headcount for the year, in brackets – from the total headcount of men/women. Ratio of employees that resumed work = Total number of employees that resumed work after leaves / Total number of employees that were supposed to resume work after leaves x 100.
180 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 181 CONSOLIDATED INDICATORS Annex GRI INDEX
Environment GRI 102-55 Material emissions of NOx, SOx, and other significant Fines for non-compliance with environmental laws and GRI standard Parameter Page in the report and/or link UN SDG pollutants, tonnes regulations in 2017, by assets, %% GRI 101: Foundation 2016 Types of emissions 2015 2016 2017 NOx 38,654.31 41,449.53 45,463.73 STANDARD ELEMENTS Kronstadt SOx 116,901.50 136,213.58 18,311.82 8.3% 18.3% GRI 102: 102-1 Name of the organisation Profile of Sistema / Overview - Detskiy Mir Standard elements Persistent organic 18.3% pollutants 2,592.00 2,592.00 2,592.00 Leader Invest 2016 10.2% Volatile organic pollutants 18,352.16 19,303.01 19,922.92 Steppe 102-2 Activities, brands, products, and services Profile of Sistema / Overview, - 10.2% Responsible Investment Policy Hazardous air pollutants 35.31 2,734.31 2,734.33 10.2% MTS 102-3 Location of headquarters Profile of Sistema / Overview - Particulate pollutants 6,104.60 6,151.49 5,723.71 RTI 24.0% 102-4 Location of operations Profile of Sistema / Overview - Other standard categories Others of air pollutants used in related regulations 2,069.94 3,574.55 3,819.56 102-5 Ownership and legal form Profile of Sistema / Overview - Total 184,709.82 212,018.48 98,568.07 102-6 Markets served Profile of Sistema - 102-7 Scale of the organisation Key performance indicators - 102-8 Information on employees and other workers Personnel Management, Consolidated 8 indicators, Key performance indicators 102-9 Supply chain Procurement and supply chains - 102-10 Significant changes to the organisation and its Profile of Sistema - supply chain 102-11 Precautionary Principle or approach As a precautionary principle, Sistema - aims to avoid any harm to the environment GRI 307-1 and preserve natural resources. The GRI 306-2 corporation performs assessments of Total waste by hazard class, tonnes Fines for non-compliance with environmental laws and environmental risks and takes necessary steps to prevent and mitigate adverse Hazard class according to regulations, RUB K 2015 2016 2017 impact on the ecosystem and potential Russian regulations risks to the Corporation. I Extremely hazardous 46.44 46.04 51.36 6,972 102-12 External initiatives Profile of Sistema / Overview - II Highly hazardous 62.59 98.64 23.59 102-13 Membership of associations Profile of Sistema / Membership of - 4,241 Sistema and its representatives in public III Moderately hazardous 985.32 741.74 1,171.95 organisations, Real estate IV Low-hazard 739,237.10 692,154.54 694,987.34 102-14 Statement from senior decision-maker Chairman’s statement - V Virtually non-hazardous 557,743.77 630,437.17 522,978.93 983 102-15 Key impacts, risks, and opportunities Risk management - Total 1,298,075.22 1,323,478.12 1,219,213.17 102-16 Values, principles, standards, and norms of Profile of Sistema / Mission and values, 16 behavior Ethics and anti-corruption 2015 2016 2017 102-17 Mechanisms for advice and concerns about Ethics and anti-corruption 16 ethics 102-18 Governance structure Sistema's Annual Report for 2017 / - Corporate governance 102-20 Executive-level responsibility for economic, Business model and asset management / - environmental, and social topics Sistema's Annual Report for 2017, Corporate governance 102-21 Consulting stakeholders on economic, About the Report 16 environmental, and social topics 102-22 Composition of the highest governance body Business model and asset management / 5, 16 and its committees Sistema's Annual Report for 2017, Corporate governance
102-23 Chair of the highest governance body Business model and asset management / 16 Sistema's Annual Report for 2017, Corporate governance Consolidated data includes: Steppe AgroHolding, BPGC, RTI Group, and Cosmos Group. 102-24 Nominating and selecting the highest Business model and asset management / 5, 16 Consolidated data includes: MTS, Steppe AgroHolding, BPGC, Kronshtadt Group, Sitronics, RTI Group, and Leader Invest. governance body Sistema's Annual Report for 2017, Consolidated data includes: MTS, RTI Group, Sitronics, Detsky Mir, Steppe AgroHolding, Segezha Group, Cosmos Group, BPGC, and Kronshtadt Group. Corporate governance
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GRI standard Parameter Page in the report and/or link UN SDG GRI standard Parameter Page in the report and/or link UN SDG 102-25 Conflicts of interest Business model and asset management / 16 MARKET PRESENCE Sistema's Annual Report for 2017, GRI 103: 103-1 Explanation of the material topic and its About the Report - Corporate governance Management Boundary 102-26 Role of highest governance body in setting Business model and asset management / - approach 2016 103-2 The management approach and its components HR management 5, 8, 16 purpose, values, and strategy Sistema's Annual Report for 2017, 103-3 Evaluation of the management approach Recognition, HR management, - Corporate governance Risk management, Awards and 102-27 Collective knowledge of highest governance Business model and asset management / 4 achievements body Sistema's Annual Report for 2017, GRI 202: 202-1 Ratios of standard entry level wage by gender HR management 1, 2, 5, 8 Corporate governance Market presence compared to local minimum wage 102-28 Evaluating the highest governance body’s Business model and asset management / - 2016 202-2 Proportion of senior management hired from the Consolidated indicators 8 performance Sistema's Annual Report for 2017, local community Corporate governance INDIRECT ECONOMIC IMPACTS 102-32 Highest governance body’s role in sustainability Business model and asset management / - GRI 103: 103-1 Explanation of the material topic and its About the Report - reporting Sistema's Annual Report for 2017, Management Boundary Corporate governance approach 2016 103-2 The management approach and its components Social investment 16 102-40 List of stakeholder groups About the Report - 103-3 Evaluation of the management approach Recognition, HR management, - 102-41 Collective bargaining agreements HR management 8 Risk management, Awards and 102-42 Identifying and selecting stakeholders About the Report - achievements 102-43 Approach to stakeholder engagement About the Report - GRI 203: 203-1 Infrastructure investments Social investment 2, 5, 7, 9, 11 Indirect economic 203-2 Significant indirect economic impacts Social investment 1, 2, 3, 8, 10, 17 102-44 Key topics and concerns raised About the Report - impacts 102-45 Entities included in the consolidated financial Sistema's annual financial statements - PROCUREMENT PRACTICES statements for 2017 GRI 103: 103-1 Explanation of the material topic and its About the Report - 102-46 Defining report content and topic boundaries About the Report - Management Boundary approach 2016 102-47 List of material topics About the Report - 103-2 The management approach and its components Procurement and supply chains 16 102-48 Restatements of information About the Report - 103-3 Evaluation of the management approach Recognition, HR management, - Risk management, Awards and 102-49 Changes in reporting Information in the Report for 2017 - achievements is disclosed in accordance with the GRI GRI 204: Disclosure 204-1 Proportion of spending on local Procurement and supply chains - Standards. In the previous report, it was Procurement suppliers disclosed in accordance with the GRI practices 2016 G4 guidance. ANTI-CORRUPTION 102-50 Reporting period About the Report - GRI 103: 103-1 Explanation of the material topic and its About the Report - 102-51 Date of most recent report About the Report - Management Boundary 102-52 Reporting cycle About the Report - approach 2016 103-2 The management approach and its components Ethics and anti-corruption 16 102-53 Contact point for questions regarding the report Contact details - 103-3 Evaluation of the management approach Recognition, HR management, - Risk management, Awards and 102-54 Claims of reporting in accordance with the GRI About the Report - achievements Standards GRI 205: 205-2 Communication and training about anti- Ethics and anti-corruption 16 102-55 GRI content index Annex/ GRI index - Anti-corruption 2016 corruption policies and procedures 102-56 External assurance About the Report - 205-3 Confirmed incidents of corruption and actions Ethics and anti-corruption - MATERIAL TOPICS taken ECONOMIC PERFORMANCE ENERGY GRI 103: 103-1 Explanation of the material topic and its About the Report 12, 13, 14, 15 GRI 103: 103-1 Explanation of the material topic and its About the Report - Management Boundary Management Boundary approach 2016 approach 2016 103-2 The management approach and its components Environmental impact 12, 13, 14, 15, 16 103-2 The management approach and its components Economic performance 1, 16 103-3 Evaluation of the management approach Recognition, HR management, 12, 13, 14, 15 103-3 Evaluation of the management approach Recognition, HR management, - Risk management, Awards and Risk management, Awards and achievements achievements GRI 302: 302-1 Energy consumption within the organisation Environmental impact 7, 8, 12, 13 GRI 201: 201-1 Direct economic value generated and distributed Economic performance 5, 7, 8, 9 Energy 2016 302-3 Energy intensity Environmental impact 7, 8, 12, 13 Economic 201-4 Financial assistance received from government Sistema PJSFC did not receive financial - performance 2016 302-4 Reduction of energy consumption Environmental impact 7, 8, 12, 13 assistance from the government in the reporting period
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GRI standard Parameter Page in the report and/or link UN SDG GRI standard Parameter Page in the report and/or link UN SDG WATER EMPLOYMENT GRI 103: 103-1 Explanation of the material topic and its About the Report 12, 13, 14, 15 GRI 103: 103-1 Explanation of the material topic and its About the Report - Management Boundary Management Boundary approach 2016 103-2 The management approach and its components Environmental impact 12, 13, 14, 15, 16 approach 2016 103-2 The management approach and its components HR management 16 103-3 Evaluation of the management approach Recognition, HR management, 12, 13, 14, 15 Risk management, Awards and 103-3 Evaluation of the management approach Recognition, HR management, - achievements Risk management, Awards and achievements GRI 303: 303-1 Water consumption Environmental impact 6, 8 Water 2016 303-3 Water withdrawal by source Environmental impact 6, 8, 12 GRI 401: 401-1 New employee hires and employee turnover Consolidated indicators 5, 8 Employment 2016 BIODIVERSITY 401-2 Benefits provided to full-time employees that are HR management 8 GRI 103: 103-1 Explanation of the material topic and its About the Report 12, 13, 14, 15 not provided to temporary or part-time employees Management Boundary 401-3 Return to work and retention rates after parental Consolidated indicators 5, 8 approach 2016 103-2 The management approach and its components Environmental impact 12, 13, 14, 15, 16 leave, by gender 103-3 Evaluation of the management approach Recognition, HR management, 12, 13, 14, 15 LABOUR/MANAGEMENT RELATIONS Risk management, Awards and achievements GRI 103: 103-1 Explanation of the material topic and its About the Report - Management Boundary GRI 304: 304-1 Operational sites owned, leased, managed Environmental impact 6, 14, 15 approach 2016 Biodiversity 2016 in, or adjacent to, protected areas and areas of high 103-2 The management approach and its components HR management - biodiversity value outside protected areas 103-3 Evaluation of the management approach Recognition, HR management, - EFFLUENTS AND WASTE Risk management, Awards and GRI 103: 103-1 Explanation of the material topic and its About the Report 12, 13, 14, 15 achievements Management Boundary GRI 402: 402-1 Minimum notice periods regarding operational - approach 2016 103-2 The management approach and its components Environmental impact 12, 13, 14, 15, 16 Labour/management changes 103-3 Evaluation of the management approach Recognition, HR management, 12, 13, 14, 15 relations 2016 Risk management, Awards and Occupational safety achievements GRI 306: 306-1 Water discharge by quality and destination Environmental impact 3, 6, 12, 13, 14, 15 GRI 103: 103-1 Explanation of the material topic and its About the Report - Effluents and waste Management Boundary 306-2 Waste by type and disposal method Consolidated indicators 3, 6, 12, 14, 15 approach 2016 2016 103-2 The management approach and its components HR management 16 EMISSIONS 103-3 Evaluation of the management approach Recognition, HR management, - GRI 103: 103-1 Explanation of the material topic and its About the Report 12, 13, 14, 15 Risk management, Awards and Management Boundary achievements approach 2016 103-2 The management approach and its components Environmental impact 12, 13, 14, 15, 16 GRI 403: 403-1 Worker representation in formal joint HR management - 103-3 Evaluation of the management approach Recognition, HR management, 12, 13, 14, 15 Occupational health management-worker health and safety committees Risk management, Awards and and safety 2016 achievements 403-4 Health and safety topics covered in formal HR management - agreements with trade unions GRI 305: 305-1 Direct (Scope 1) GHG emissions Environmental impact 12, 13, 14, 15 Emissions 2016 TRAINING AND EDUCATION ENVIRONMENTAL COMPLIANCE GRI 103: 103-1 Explanation of the material topic and its About the Report - GRI 103: 103-1 Explanation of the material topic and its About the Report 12, 13, 14, 15 Management Boundary Management Boundary approach 2016 103-2 The management approach and its components HR management 16 approach 2016 103-2 The management approach and its components Environmental impact 12, 13, 14, 15, 16 103-3 Evaluation of the management approach Recognition, HR management, - 103-3 Evaluation of the management approach Recognition, HR management, 12, 13, 14, 15 Risk management, Awards and Risk management, Awards and achievements achievements GRI 307: 307-1 Non-compliance with environmental laws and Environmental compliance, 16 GRI 404: 404-1 Average hours of training per year per employee Consolidated indicators 4, 5, 8 Training and Environmental regulations Consolidated indicators 404-3 Percentage of employees receiving regular Consolidated indicators 5, 8 education 2016 compliance 2016 performance and career development reviews Supplier environmental assessment DIVERSITY AND EQUAL OPPORTUNITY GRI 103: 103-1 Explanation of the material topic and its About the Report 12, 13, 14, 15 Management Boundary GRI 103: 103-1 Explanation of the material topic and its About the Report - approach 2016 Management Boundary 103-2 The management approach and its components Procurement and supply chains 12, 13, 14, 15, 16 approach 2016 103-2 The management approach and its components HR management 16 103-3 Evaluation of the management approach Recognition, HR management, 12, 13, 14, 15 Risk management, Awards and 103-3 Evaluation of the management approach Recognition, HR management, - achievements Risk management, Awards and achievements
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GRI standard Parameter Page in the report and/or link UN SDG GRI standard Parameter Page in the report and/or link UN SDG GRI 405: 405-1 Diversity of governance bodies and employees HR management 5, 8 PUBLIC POLICY Diversity and equal Consolidated indicators GRI 103: 103-1 Explanation of the material topic and its About the Report - opportunity 2016 Management Boundary NON-DISCRIMINATION approach 2016 103-2 The management approach and its components Responsible investment 16 GRI 103: 103-1 Explanation of the material topic and its About the Report - Implementation of investment Management Boundary programmes approach 2016 103-2 The management approach and its components HR management 16 103-3 Evaluation of the management approach Recognition, HR management, - Risk management Risk management, Awards and achievements 103-3 Evaluation of the management approach Recognition, HR management, - Risk management, Awards and GRI 415: 415-1 Political contributions None 16 achievements Public policy 2016 GRI 405: 406-1 Incidents of discrimination and corrective None 5, 16 CUSTOMER HEALTH AND SAFETY Non-discrimination actions taken GRI 103: 103-1 Explanation of the material topic and its About the Report - 2016 Management Boundary FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING approach 2016 103-2 The management approach and its components Consumer sector 16 GRI 103: 103-1 Explanation of the material topic and its About the Report - 103-3 Evaluation of the management approach Recognition, HR management, - Management Boundary Risk management, Awards and approach 2016 103-2 The management approach and its components HR management, 16 achievements Risk management GRI 416: 416-2 Incidents of non-compliance concerning the No incidents of non-compliance 16 Customer health health and safety impacts of products and services identified 103-3 Evaluation of the management approach Recognition, HR management, - and safety 2016 Risk management, Awards and achievements SOCIOECONOMIC COMPLIANCE GRI 407: 407-1 Operations and suppliers in which the right to HR management 8 GRI 103: 103-1 Explanation of the material topic and its About the Report - Freedom of freedom of association and collective bargaining may Management Boundary association and be at risk approach 2016 103-2 The management approach and its components Ethics and anti-corruption 16 collective bargaining 103-3 Evaluation of the management approach Recognition, HR management, - 2016 Risk management, Awards and HUMAN RIGHTS ASSESSMENT achievements GRI 103: 103-1 Explanation of the material topic and its About the Report - GRI 419: 419-1 Non-compliance with laws and regulations in the Non-compliance not identified 16 Management Boundary Socioeconomic social and economic area approach 2016 103-2 The management approach and its components Ethics and anti-corruption 16 compliance 2016 103-3 Evaluation of the management approach Recognition, HR management, - CHARITY Risk management, Awards and GRI 103: 103-1 Explanation of the material topic and its About the Report - achievements Management Boundary GRI 412: 412-1 Operations that have been subject to human Risk management - approach 2016 103-2 The management approach and its components Social investment 16 Human rights rights reviews or impact assessments 103-3 Evaluation of the management approach Recognition, HR management, - assessment 2016 Risk management, Awards and LOCAL COMMUNITIES achievements GRI 103: 103-1 Explanation of the material topic and its About the Report - - Total expenses for charitable and social projects Social investment - Management Boundary VOLUNTEERING approach 2016 103-2 The management approach and its components Social investment 16 GRI 103: 103-1 Explanation of the material topic and its About the Report - 103-3 Evaluation of the management approach Recognition, HR management, - Management Boundary approach 2016 Risk management, Awards and 103-2 The management approach and its components Social investment 16 achievements 103-3 Evaluation of the management approach Recognition, HR management, - GRI 413: 413-1 Operations with local community engagement, Social investment - Risk management, Awards and Local communities impact assessments, and development programs achievements 2016 - Total number of volunteers at the Company Social investment 413-2 Operations with significant actual and potential No significant negative impact 1, 2 negative impacts on local communities - Number of volunteering events organised Social investment SUPPLIER AND CONTRACTOR SOCIAL ASSESSMENT GRI 103: 103-1 Explanation of the material topic and its About the Report - Management Boundary approach 2016 103-2 The management approach and its components Procurement and supply chains 16 103-3 Evaluation of the management approach Recognition, HR management, - Risk management, Awards and achievements
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Сompliance with the UN Global Compact Compliance with global and national priorities
Area of UN Sustainable Development Goals Russia's national Role of Sistema Group Indicators of the GRI Standard Principles of the UN Global Compact GRI indicator Disclosed in the report responsibility priority Corporation's contribution Businesses should support and respect the protection of 102-12 Risk management internationally proclaimed human rights 1. No poverty –– Increase of –– Support for the –– The average salary at the Indirect longevity and underprivileged, incl. Corporation equals 6.3 economic Human rights 102-13 Ethics and anti-corruption 1.2. By 2030, reduce at least by half the proportion Businesses should make sure that they are not complicit in improvement children, the elderly minimum monthly wages impacts human rights abuses of men, women and children of all ages living in of quality of life and people with special HR management poverty in all its dimensions according to national –– The amount of social needs investments is RUB 102-41 Risk management definitions Businesses should uphold the freedom of association and the 1.3bn effective recognition of the right to collective bargaining 407-1 HR management 2. Zero hunger –– Рост продол- –– Development of –– Gross grain harvest Economic жительности agriculture: introduction +45% 2017/2016 performance Businesses should uphold the elimination of all forms of 412-1 2.4. By 2030, ensure sustainable food production и качества of latest agricultural –– Gross apple harvest Labor relations forced and compulsory labour systems and implement resilient agricultural жизни technologies and practices that increase productivity and +37% 2017/2016 Businesses should uphold the effective abolition of child 412-1 –– Enhancement growth of crop production, that help maintain ecosystems, that yields and livestock –– Milk yield: approx. labour strengthen capacity for adaptation to climate of the export 11,000 l per cow, potential of the productivity Businesses should uphold the elimination of discrimination in 406-1 change, extreme weather, drought, flooding and which is 92% above the manufacturing respect of employment and occupation other disasters and that progressively improve average Russian yield land and soil quality sector and Businesses should support a precautionary approach to 102-11 Environmental impact agriculture environmental challenges GRI index 3. Good health and well-being –– Increase of –– Development of the –– Number of high-tech Indirect 102-12 longevity and healthcare system; surgeries performed economic Businesses should undertake initiatives to promote greater 3.4. By 2030, reduce by one third premature Environment environmental responsibility improvement introduction of at Medsi more than impacts 102-13 mortality from non-communicable diseases of quality of life advanced technologies tripled in 2017 vs 2016, through prevention and treatment and promote in medicine and reaching 2,110 302-4 mental health and well-being Businesses should encourage the development and diffusion pharmaceutics; –– Number of industrial of environmentally friendly technologies promotion of healthy 307-1 3.9 By 2030, substantially reduce the number accidents at the Group's of deaths and illnesses from hazardous lifestyles companies = 114 205-2 Ethics and anti-corruption chemicals and air, water and soil pollution and contamination Businesses should work against corruption in all its forms, Anti-corruption 205-3 including extortion and bribery 4. Quality education –– Highly qualified –– Development –– Number of employees Training and personnel of innovative that completed training education 419-1 4.3. By 2030, ensure equal access for all women supplementary and men to affordable and quality technical, –– Increase of +21.8% in 2017 vs longevity and education programme, 2016 vocational and tertiary education, including occupational guidance improvement –– Number of participants university for school students, of quality of life of the Lift to the Future cooperation with 4.4. By 2030, substantially increase the number education programme –– Digitalisation universities, support to of youth and adults who have relevant skills, >11,000 people from 46 engineering initiatives including technical and vocational skills, for Russian regions employment, decent jobs and entrepreneurship of youth and student projects 4.7. By 2030, ensure that all learners acquire the knowledge and skills needed to promote sustainable development, including, among others, through education for sustainable development and sustainable lifestyles, human rights, gender equality, promotion of a culture of peace and non-violence, global citizenship and appreciation of cultural diversity and of culture’s contribution to sustainable development
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UN Sustainable Development Goals Russia's national Role of Sistema Group Indicators of the GRI Standard UN Sustainable Development Goals Russia's national Role of Sistema Group Indicators of the GRI Standard priority Corporation's contribution priority Corporation's contribution
5. Gender equality –– Increase of –– Human rights –– Women account Non- 9. Industry, innovation and infrastructure –– Technological –– Development of –– Investment in the fixed Economic longevity and observance, ensuring for 48.3% of the discrimination development mobile and fixed-line assets of the Group RUB performance 5.5. Ensure women’s full and effective improvement gender equality Corporation's employees 9.1. Develop quality, reliable, sustainable and and networks, power 117.7bn participation and equal opportunities for of quality of life in relations with resilient infrastructure, including regional and innovations supply, infrastructure, leadership at all levels of decision-making in –– Women's share Employment transborder infrastructure, to support economic –– Amount of portfolio all stakeholders: among Sistema's top –– Digitalisation innovative solutions for companies' investment political, economic and public life employees, participants development and human well-being, with a focus cities management – 5.2%, Indirect programmes RUB of social projects, on affordable and equitable access for all middle management economic –– High-tech R&D 130.5bn beneficiaries, etc. – 22.4%, junior impacts 9.5. Enhance scientific research, upgrade the –– Upgrade programmes management – 36.6% technological capabilities of industrial sectors in for production assets all countries, in particular developing countries, including, by 2030, encouraging innovation and –– Microelectronics, incl. 6. Clean water and sanitation –– Technological –– Prevention of spills –– No spills Water substantially increasing the number of research RFID solutions for IoT development and development workers per 1 million people 6.3. By 2030, improve water quality by reducing –– Wastewater treatment –– The share of water and treated by the Group's and public and private research and development pollution, eliminating dumping and minimizing innovations spending release of hazardous chemicals and materials, companies on their own halving the proportion of untreated wastewater grew by 4.9% from 2016 10. Reduced inequalities –– Increase of –– Implementation of –– Taxes paid to regional Indirect and substantially increasing recycling and safe longevity and projects for residents budgets RUB 38.8bn economic 10.2 By 2030, empower and promote the reuse globally improvement of rural and remote impacts social, economic and political inclusion of all, –– Number of employees of quality of life areas, the disabled, with disabilities 1,015 7. Affordable and clean energy –– Technological –– Improvements of power –– Average length of Energy irrespective of age, sex, disability, race, ethnicity, low-income families; development grid infrastructure, power transmission origin, religion or economic or other status Market 7.1. By 2030, ensure universal access to employment of local presence and energy efficiency in interruptions at BPGC is population affordable, reliable and modern energy services innovations industrial processes less than an hour 11.Sustainable cities and communities –– Increase of –– Redevelopment, –– Area of projects in Economic 7.2. By 2030, increase substantially the share of –– Increasing and use of alternative –– Power losses in longevity and comprehensive real Leader Invest's portfolio performance renewable energy in the global energy mix energy energy sources. transmission grids 11.3 By 2030, enhance inclusive and sustainable improvement estate development, – 3.0m sq m in 45 efficiency totalled 1.29% (-0.01 p.p. 7.3. By 2030, double the global rate of urbanization and capacity for participatory, of quality of life innovative solutions for in-fill and comprehensive in 2017 vs 2016) integrated and sustainable human settlement improvement in energy efficiency –– Digitalisation smart and safe cities development projects –– Power losses in planning and management in all countries –– Area of projects in distribution grids totalled Business Nedvizhimost's 8.36% (+0.13 p.p. in portfolio – >350,000 sq 2017 vs 2016) m of commercial and 8. Decent work and economic growth –– Technological –– Timely payment of –– Payroll expenses RUB Economic residential real estate development taxes, creation of 132.419bn performance 12. Responsible production and consumption –– Technological –– Improving production –– Waste generation in Energy 8.2. Achieve higher levels of economic and jobs in the regions of productivity through diversification, technological –– Tax payments 2017/2016 development efficiency and 2017 vs 2016 -7.9% innovations operations, motivation 12.5. By 2030, substantially reduce waste upgrading and innovation, including through a +13.6% Employment and environmental footprint and development of generation through prevention, reduction, Water focus on high-value added and labour-intensive –– Growth of –– Share of Sistema's innovations and promoting the the citizens' employees recycling and reuse sectors revenue in the Russia's –– Enhancement culture of responsible income Effluents and gross income is 0.88% 12.6. Encourage companies, especially large and consumption among 8.3. Promote development-oriented policies that of the export waste –– Economic transnational companies, to adopt sustainable customers support productive activities, decent job creation, –– Sisitema's share in the potential of the growth practices and to integrate sustainability manufacturing entrepreneurship, creativity and innovation, and Russian GDP is 0.77% Compliance information into their reporting cycle sector and encourage the formalization and growth of micro-, with agriculture small- and medium-sized enterprises, including 12.8. By 2030, ensure that people everywhere requirements through access to financial services have the relevant information and awareness for sustainable development and lifestyles in 8.8. Protect labour rights and promote safe and harmony with nature secure working environments for all workers, including migrant workers, in particular women 13. Climate action –– Technological –– Reduction of –– Greenhouse gas Emissions migrants, and those in precarious employment development greenhouse gas emissions in 2017 vs 13.1. Strengthen resilience and adaptive capacity and emissions; preservation 2016 +9.0% 8.9. By 2030, devise and implement policies to to climate-related hazards and natural disasters in innovations and restoration of promote sustainable tourism that creates jobs and all countries forests promotes local culture and products 15. Life on land –– Technological –– Responsible forest –– 95% of Segezha Group's Biodiversity development management and forest is FSC-certified 15.2. By 2020, promote the implementation of and sustainable agriculture sustainable management of all types of forests, innovations halt deforestation, restore degraded forests and substantially increase afforestation and reforestation globally
192 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 193 ВЫПОЛНЕНИЕ ГЛОБАЛЬНОГО ДОГОВОРА ООН Annex DISCLAIMER
UN Sustainable Development Goals Russia's national Role of Sistema Group Indicators of the GRI Standard The non-financial report of Sistema PJSFC for Due to changes in Sistema's investment priority Corporation's contribution 2017 is unaudited; it contains consolidated portfolio, accounting policies of some of the data for the Group on the basis of information Group's companies, the changing situation 16. Peace, justice and strong institutions –– Anti-corruption –– Implementation –– No material fines Corporate from the subsidiaries, as well as statements in the markets and various factors and risks of state-of-the-art governance that are only predictions regarding the associated with the activities of Sistema 16.5. Substantially reduce corruption and bribery corporate governance production, financial, economic, social and and its portfolio companies, actual events or in all their forms standards in the Interaction environmental indicators of the Corporation's results disclosed in subsequent reports may Group's practices, with implementation of the stakeholders development. differ materially from those published earlier. anti-corruption policy Ethics and integrity
Anti-corruption
Compliance with requirements 17. Partnerships for the Goals –– Technological –– Cooperation –– Sistema and its Interaction development agreements with companies and officers with 17.17. Encourage and promote effective public, and regions; partnership are members of about stakeholders public-private and civil society partnerships, innovations with the state, 40 major non-profits for building on the experience and resourcing non-profits and development of business strategies of partnerships environmental practices, enhancement organisations of management, CSR and sustainable development.
194 — Sistema — Sustainability report 2017 sistema.ru sistema.ru Sustainability report 2017 — Sistema — 195 CONTACT DETAILS
GRI 102-3 GRI 102-53 For any questions regarding the Report and its content, please contact Dmitry Kolchugin, senior manager for external communications at Sistema PJSFC
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13 Mokhovaya St., Moscow
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A leader оf the Russian Union of Industrialists and Entrepreneurs’ sustainability, corporate responsibility and reporting Indices
196 — Sistema — Sustainability report 2017 sistema.ru