COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION SOLLERS: RESPONSIBILITY SECURITIES THE TEAM IN FRONT

SOLLERS is one of the leading Russian automotive companies UAZ ZMZ and works in partnership with global automotive producers Russian UAZ off-road vehicles ZMZ petrol and diesel engines and parts such as Ford, SsangYong, Toyota, Mazda and Isuzu. In 2012, our consolidated turnover was in excess of RUB 65.5billion. SOLLERS owns production facilities which produce Russian 2 UAZ off-road vehicles, Japanese ISUZU trucks, and both petrol 3 and diesel ZMZ engines.In 2011, we set up a joint venture, Ford Sollers, the exclusive producer and distributor of a broad SsangYong ISUZU range of Ford vehicles in Russia. In 2012, production of the Mazda Korean SsangYong SUVs Japanese ISUZU trucks CX-5 began at the MAZDA SOLLERS joint venture, and at the very beginning of 2013, the SOLLERS-BUSSAN joint venture launched Toyota Prado production in Vladivostok, in the far east of Russia. SOLLERS holds leading positions on the Russian automotive market, having introduced – along with its partners – more than fifteen new products to the market and jointly created the capacity to produce around 550,000 vehicles annually. SOLLERS-BUSSAN Ford Sollers Production of Toyota Prado Exclusive production and distribution of Ford vehicles in Russia

MAZDA SOLLERS SOLLERS-FINANCE Production of Mazda vehicles Full range of car leasing services COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Executive Summary

FINANCIAL HIGHLIGHTS COMPANY OVERVIEW: KEY MILESTONES BUSINESS AND STRATEGY CORPORATE SOCIAL RESPONSIBILITY

SOLLERS performed well in 2012, with key To achieve leadership positions in the Russian indicators showing robust progress over the previous MAZDA SOLLERS automotive market through partnerships with RUB 43 mln year. Start of operations in the Russian Far East with launch international automakers. SOLLERS’ policies are aimed at fostering social of Mazda CX-5 production in Vladivostok. To implement partnership projects that include all and economic development. With this in view, the significant elements of the automotive industry value Company carried out charitable programmes worth chain and are based on: RUB 43 million in 2012. Through the SOLLERS 4 up 22% • growth through equally-shared partnerships with Occupational Health and Safety (OHS) programme, 5 EBITDA SOLLERS-ISUZU global OEMs we have significantly reduced the risk of work-related up from RUB 6,269 million to RUB 7,652 million. Relaunch of truck production at Ulyanovsk production • development of local production facilities and accidents and health problems. Our environmental site. ISUZU MOTORS LIMITED increased its components’ manufacturing to ensure high levels of policy is designed to ensure conservation of energy shareholding in the JV to 45%. localisation and resources, reduction of carbon emissions, and • launching new car models in the fastest-growing efficient solid-waste management. RUB 5,881 mln market segments: SUVs and LCVs. NET PROFIT Ford Sollers Start of production of Kuga, Explorer, Galaxy, The Russian automotive market experienced and S-Max at the Elabuga plant, in the Republic growth in 2012: down to of Tatarstan, Russia. RUB 7,880 mln NET DEBT CORPORATE GOVERNANCE 2.9 mln sales SHAREHOLDERS’ EQUITY Sales of passenger cars and light commercial vehicles AND SECURITIES reached 2.9 mln units, up 11% year-on-year. Foreign The Company has formed a number of committees brands assembled in Russia achieved market share of RUB 5,747 mln to support the Board of Directors in exercising control 43%. FREE CASH FLOW over all business lines. All Committees comprise RUB 428 mln members of the Company’s Board of Directors. Subscribed share capital of RUB 428 million with In 2012, the Company supplemented the existing 34,270,159 ordinary shares of RUB 12.50. committees with the creation of a Nomination and Corporate Governance Committee. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

We create first-class solutions P. 58-73 P. 74-89 P. 90-96 P. 98-155 P. 156-161 P. P. 8-27 P. 28-57 P. in everything related to automotive vehicles: launching new models, building plants, opening dealerships, and coming up with the great ideas which inspire our customers to move forward.

11 About us 31 Strategy 61 Board of 77 Regional 93 Share Capital 103 Independent 159 Disclosure 6 12 Financial & 32 Business Model Directors Development 94 Major Auditor’s Report Calendar Operating Highlights 34 Market Overview 64 Committees 78 Industrial & Shareholders 104 Sollers Group 160 Annual General 7 15 Business 40 Our Products 68 Management Occupational Safety 95 Market Share Consolidated Meeting Structure & 47 Business Projects 70 Code of Conduct 80 Environment Price & GDR Financial Statements 161 Contacts Project Mapping & Key Assets 71 Information 82 Employee 96 Bonds 110 Sollers Group 20 Milestones Policy Development & Social Notes to the in 2012 73 Risk Programmes Consolidated Financial 22 Chairman’s Management 85 Education Statements at Statement 86 National 31 December 2012 23 CEO’s Statement Occupational 26 SOLLERS’ Standards & History in Brief Qualifications

ON THE COVER: SsangYong Actyon

Contents BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES P. 8-27 P.

8 9 COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ IFRS FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & STATEMENTS INFORMATION RESPONSIBILITY SECURITIES 2011

At SOLLERS, we are committed About Us to ensuring the best for all

SOLLERS is one of the leading Russian auto- our stakeholders: employees, motive companies and works in partnership with global automotive producers such as Ford, SsangYong, Toyota, Mazda and Isuzu. In 2012, investors, customers and our consolidated turnover was in excess of RUB 65.5 billion. SOLLERS owns production facili- ties which produce Russian UAZ off-road ve- hicles, Japanese ISUZU trucks, and both petrol suppliers. This leads to a win-win · About Us and diesel ZMZ engines. 10 · Financial & Operating In 2011, we set up a joint venture, Ford Sol- 11 Highlights lers, the exclusive producer and distributor of a · Business situationStructure & all round and promotes broad range of Ford vehicles in Russia. In 2012, Project Mapping · Milestones 2011 production of the Mazda CX-5 began at the · Chairman’sorganic Statement growth. MAZDA SOLLERS joint venture, and at the very · CEO’s Statement beginning of 2013 the SOLLERS-BUSSAN joint · SOLLERS’ History venture launched production of the Toyota in Brief Prado. Both industrial joint ventures with Japa- nese partners are based in the Russian Far East. Founded in 2002, SOLLERS has created partnerships with global automakers for the growing Russian market, meeting customers’ demand and preferences in automotive prod- ucts. We have managed to take leading posi- tions across multiple categories of the Russian automotive market, to bring – along with our partners – more than fifteen new products to market, to create a manufacturing capacity of around 550,000 cars a year, and to become one of the most efficient companies in the industry. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Financial & Operating Highlights1

NOTES TO 2012 FINANCIAL RESULTS SOLLERS’ Consolidated Wholesales2, thousand units

2012 2011 CHANGE % down 5.7% RUB 7,245 mln UAZ 70.3 63.7 6.6 10% UAZ Patriot 22.0 17.9 4.1 23% Other SUVs 10.1 12.3 -2.2 -18% SALES OPERATING PROFIT LCVs, MPVs 38.2 33.5 4.7 14% Based on the 2012 results, SOLLERS revenue Operating profit totalled RUB 7,245 million in 2012, SY SUVs 32.8 24.8 8.0 32%

· About Us decreased by 5.7% year-on-year. This deterioration up 59% over the result of 2011. ROCE was up from Rexton 1.8 1.9 -0.1 -5% 12 · Financial & Operating was driven by discontinuation of FIAT business and 23% in 2011 to 31% in 2012 (operating profit vero Kyron 11.6 10.8 0.8 7% Highlights 13 restructuring of SOLLERS-ISUZU joint venture in long-term borrowings plus total equity). Actyon & Actyon Sports 19.4 12.1 7.3 60% · Business Structure & September 2012 (SOLLERS-ISUZU is equity-accounted Project Mapping ISUZU 0.8 1.8 -1.0 -56% · Milestones in 2012 starting from September 2012). N-series 0.8 1.3 -0.5 -38% · Chairman’s Statement C, E-series ‒ 0.5 -0.5 -100% · CEO’s Statement FIAT Ducato3 2.4 13.2 -10.8 -82% · SOLLERS’ History FIAT PC3 2.7 16.6 -13.9 -84% in Brief up 22% RUB 5,881 mln TOTAL 109.0 120.1 -11.1 -9%

EBITDA NET PROFIT FOR THE PERIOD The increase of EBITDA was the result of improved (before non-controlling interest) sales mix and ongoing cost cutting. With growing Strong operating results (RUB 7,245 million), sales of SsangYong and UAZ vehicles, effective cost a decrease in financing costs of nearly 64% due to controls ensured an EBITDA margin of 12%. Factors a reduced debt burden resulted in net profits of that have impacted the Company’s costs include: RUB 5,881 million. The launch of new products and deconsolidation of SOLLERS-ISUZU business (from effective marketing policy took SOLLERS’ financial September 2012), transfer of assets to Ford Sollers results to the pre-crisis level. joint venture, growth of transportation tariffs (in line SOLLERS financial results2, RUB mln with the market). 2012 2011 GROWTH Sales 65,549 69,531 (3,982) EBITDA 7,652 6,269 1,383 down to DEBT UPDATE EBITDA margin 12% 9% 3% At the end of the period Group’s Debt totalled RUB Operating profit4 7,245 4,549 2,696 10,440 million. 64% of the Group’s debt is represented Net profit/(loss) for the year 5,881 4,694 1,187 RUB 7,880 mln by short-term borrowings. As of 31 December 2012 (before non-controlling interest) NET DEBT committed credit lines cover all refinancing needs of Net debt 7,880 13,877 (5,997) Net debt was down from RUB 13,877 mln in 2011 the Group. The average interest rate for bank loans Free cash flow 5,747 7,903 (2,156) to RUB 7,880 mln in 2012 due mostly to strong cash was 9.8%. All debt is rouble denominated, no foreign flow from operating activities. currency risk related to debt. SOLLERS’ interest cover The Net debt/EBITDA ratio was down from 2.2 (operating profit over finance costs) was up from 2.0 in 2011 to 1.0 in 2012, below the pre-crisis level. in 2011 to 8.9 in 2012.

2 Company source. 3 Discontinuation of FIAT business. 4 In 2011 the operating ptofit was adjusted for one-off 1 Hereinafter point (.) refers to decimal and comma (,) transactions (including the net result from the formation is used as separating element for thousands. of a joint venture totaling RUB 4,007 million). COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

KEY PERFORMANCE INDICATORS 2008-2012 Business Structure Consolidated Wholesales by Brand 5, Thousand Units

122.4 120.1 120 & Project Mapping 109.0 98.1 100 Business structure as of 31 December 20126

80

58.8 60

SOLLERS 40

20 · About Us 14 · Financial & Operating Highlights 0 FULLY CONTROLLED PARTNERSHIPS8 15 · Business Structure & 2008 2009 2010 2011 2012 Project Mapping · Milestones in 2012 UAZ 70.8 35.1 57.0 63.7 70.3 · Chairman’s Statement SYMC 15.8 7.9 14.3 24.8 32.8 FORD SOLLERS MAZDA SOLLERS- SOLLERS- SOLLERS- · CEO’s Statement FIAT 31.2 14.4 23.7 29.8 5.1 SSANGYONG UAZ (50/50 JV) SOLLERS BUSSAN ISUZU FINANCE (50/50 JV) (50/50 JV) (50/50 JV) (50/50 JV) · SOLLERS’ History ISUZU 4.6 1.4 3.1 1.8 0.8 in Brief 122.4 58.8 98.1 120.1 109.0 TOTAL PRODUCTION7 & PRODUCTION & PRODUCTION & PRODUCTION PRODUCTION PRODUCTION & JV WITH DISTRIBUTION DISTRIBUTION DISTRIBUTION OF MAZDA OF TOYOTA DISTRIBUTION SOVKOMBANK OF SSANGYONG OF UAZ OF FORD VEHICLES VEHICLES OF ISUZU OFFERS A FULL VEHICLES VEHICLES & VEHICLES TRUCKS RANGE OF CAR Total Sales 5, RUB mln Net Profit / Loss 5, RUB mln PARTS Production site: Production site: LEASING Production Site: Production sites: Vladivostok Vladivostok Production site: SERVICES 80,000 6,000 Vladivostok Production sites: Vsevolozhsk, Ulyanovsk 5,881 4,000 ZMZ & UAZ Naberezhnye 69,531 60,000 4,694 61,630 65,549 2,000 Chelny, 55,266 49,136 40,000 0 Elabuga -376 34,743 -1,241 -2,000 20,000 -5,011 -4,000 0 -6,000 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012

Net Debt 5, RUB mln Free Cash Flow 5, RUB mln

25,000 10,000

23,205 20,000 7,903 5,000 22,286 21,442 2,277 5,747 15,000 0 -13,424 -494 13,877 10,000 -5,000

6,607 7,880 5,000 -10,000 0 -15,000 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012

6 Company source. 7 In 2013 the production of SsangYong vehicles was transferred from SOLLERS-Far East to MAZDA SOLLERS JV. 5 Company source. 8 Partnerships are equity-accounted under IFRS. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Project mapping9 Key PROJECTS SOLLERS-ISUZU JV was established in 2007 as the first Russian-Japanese joint venture for Key Projects as of 31/12/2012 Our strategic partnership with Korean the production and distribution of ISUZU com- SsangYong was established in 2005. Since then, mercial vehicles. In June 2012, the production CITY PASSENGER SPORTS LIGHT TRUCKS MINIVANS OTHER SOLLERS has been an exclusive producer and of ISUZU trucks was transferred to the Uly- CARS UTILITY COMMERCIAL BUSINESSES distributor of SsangYong vehicles in Russia, has anovsk production facility. VEHICLES VEHICLES developed production facilities in Vladivostok, SOLLERS-BUSSAN JV is a joint venture MOSCOW • Head Office and achieved one of the leading positions on established by Mitsui & Co. (Japan) and SOL- • Finance the Russian SUV market with over 32 thousand LERS in 2011. The industrial joint venture Services vehicles sold in 2012. produces Toyota Prado SUVs at the production ST. PETERS- Ford Retail outlet UAZ Holding manufactures SUVs and com- site in Vladivostok. BURG mercial vehicles. Since 1942 UAZ has been a MAZDA SOLLERS JV is a joint venture estab- traditional Russian OEM developing large-scale lished by Mazda Motor Corporation and SOL- production facilities, including production of LERS. Since September 2012, the joint venture engines and automotive components, forging has been engaged in the production of Mazda

· About Us ELABUGA Ford Ford Ford and aluminium casting. CX-5 crossovers in Vladivostok. The joint 16 · Financial & Operating Ford Sollers JV was established by Ford Mo- venture plans to launch new Mazda6 sedan. At 17 Highlights tor Company and SOLLERS. Since October the very beginning of 2013, SOLLERS trans- · Business Structure & the Ford Sollers JV has been an exclusive ferred the production of SsangYong vehicles to Project Mapping 2011, · Milestones in 2012 producer, distributor and provider of automo- MAZDA SOLLERS JV. · Chairman’s Statement NABEREZHNYE New Ford New Ford tive components for all Ford cars in Russia. SOLLERS-FINANCE is a financial company · CEO’s Statement CHELNY models due models due to be launched to be launched The three production facilities contributed specialising in leasing services initially found- · SOLLERS’ History soon soon by partners to the joint venture have a total ed by SOLLERS in 2008. In December 2010, in Brief production capacity of 350,000 vehicles it was transformed into a 50/50 joint venture ZAVOLZHYE • ZMZ Engines per year. between Sovkombank and SOLLERS. • Aluminium Foundry • Special instruments • Components

ULYANOVSK UAZ UAZ ISUZU • Iron Foundry • Special instruments • Components

VLADIVOSTOK SsangYong Industrial joint ventures for production of Mazda and Toyota vehicles10

SOLLERS Group‘s international partnerships enable us to provide a broad product and service line while achieving an ideally balanced investment portfolio.

9 Company source. 10 SOLLERS Group is not involved into the distribution of Mazda and Toyota vehicles. At the beginning of 2013, the production of SsangYong vehicles was transferred from SOLLERS-Far East to MAZDA SOLLERS JV for investment- sharing purposes. The distribution of SsangYong vehicles remains under SOLLERS’ control. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

FORD SOLLERS VSEVOLOZHSK Key Projects11 SOLLERS’ overall capacity Product line: Ford Focus, Ford Mondeo. (directly owned or through JVs) Capacity: up to 160 K units p.a. exceeds 550,000 units per annum.

Vsevolozhsk ZMZ Moscow

Product line: Zavolzhye Fully Controlled Assets petrol and diesel engines. Joint Ventures Capacity: up to 300 K units p.a. Naberezhnye Chelny Ulyanovsk Elabuga

· About Us Vladivostok 18 · Financial & Operating Highlights 19 · Business Structure & UAZ Project Mapping · Milestones in 2012 Product line: SOLLERS-ISUZU FAR EAST · Chairman’s Statement UAZ SUVs and LCVs. PRODUCTION SITE · CEO’s Statement Capacity: Product line: · SOLLERS’ History FORD SOLLERS FORD SOLLERS up to 110 K units p.a. ISUZU trucks, N-series. Product line: in Brief ELABUGA NABEREZHNYE Capacity: SsangYong, Mazda CX-5, CHELNY up to 5 K units p.a. Mazda6, Toyota Prado Relaunch: June, 2012 Product line: Capacity: Transit, Explorer, Kuga, To be launched soon. approx. 100 K units p.a. S-MAX, Galaxy. Capacity: Capacity: up to 115 K units p.a. up to 75 K units p.a.

11 Company source. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Milestones in 2012

March 27 April 5 Start of SsangYong Actyon Sports sales, an all Russian launch of SsangYong Actyon restyled version new-generation pickup. New exterior design, more with new petrol engine and functional features. options and reasonable pricing made it one of the most attractive offers on the market.

· About Us 20 · Financial & Operating Highlights 21 · Business Structure & Project Mapping · Milestones in 2012 · Chairman’s Statement · CEO’s Statement · SOLLERS’ History in Brief May 22 May 31 Start of production and sales of the new versions New agreement on SOLLERS-ISUZU JV and relaunch of the Patriot and Pickup. Redesigned interior and at UAZ production site. Isuzu increased its share in new functions make these off-road vehicles safer the joint venture to 45%, while SOLLERS retained and more comfortable. 50%. Production started in June 2012.

July 24 September 6 Ford Sollers launches the production of Kuga, Mazda Sollers Manufacturing Rus starts operations Explorer, Galaxy, and S-Max at the Elabuga plant. in the Russian Far East following an agreement between SOLLERS and Mazda Corporation signed the same year on April 27. The joint venture manufactures CX-5 and plans to launch new Mazda6. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ IFRS FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & STATEMENTS INFORMATION RESPONSIBILITY SECURITIES 2011

Chairman’s Statement CEO’s Statement

The excitement generated by the automobile SOLLERS is in good economic health, has a For SOLLERS, 2012 saw the successful imple- strengthened its financial position, the Com- industry continues to captivate all of us. This debt/equity ratio of 0.5 and secure financing mentation of a strategic idea that the Company pany has reduced its net debt thanks to robust is not only because it reflects our desire for for its development projects. Most of its plants formulated as the key driver of its develop- cash flows from operating activities. individual mobility and expresses the self- are modern and have been built to internation- ment. This idea calls for achieving growth and 2012 was a make-or-break year for us in image we wish to project, but also because it al standards, and we are committed to bringing a leadership position in the Russian automo- terms of a totally new business configuration. is an essential element of economic life, repre- all our production sites up to this standard. tive market through full-scale partnerships Our joint venture showed first full year results senting up to one-fifth of total employment Over my nearly 40 years of involvement in with leading international automakers to and our Far East joint ventures started opera- in industrialised countries. the Russian market, I have been a firm be- manufacture new and competitive products tions. In April, SOLLERS and Mazda signed an

· About Us Russia is now the second-largest market in liever in the global nature of the automotive and to localise their production in Russia. agreement to establish a joint venture to man- 22 · Financial & Operating Europe, and is the focus of an explosion of business. The global auto sector’s similarities In following through on this strategy, we have ufacture Mazda CX-5 and Mazda6 in Vladiv- 23 Highlights investment and development by all major transcend all manner of political and social dif- continued our growth over the past year by ostok and later in October the new JV produced · Business Structure & manufacturers; the Russian government views ferences. That fact, combined with the integrity establishing new joint ventures, launching X-5. July saw the widening of Project Mapping its first Mazda C · Milestones in 2011 the industry as an important strategic element and skill of SOLLERS management and work- new models, and fostering sales and enhancing the Ford model range produced in the Republic · Chairman’s Statement in efforts to diversify Russia‘s economy. force, means that I can state with confidence business efficiency. We firmly believe that our of Tatarstan with the launch of production of · CEO’s Statement SOLLERS is one of Russia’s leading automo- that SOLLERS’ increasing success will continue work will result in greater benefits for all our Kuga, Explorer, Galaxy and S-Max. · SOLLERS’ History tive groups, having charted a course of inde- to reward its investors, and provide secure, stakeholders. The results of the first full year activity of the in Brief pendent development in the interests well-paying jobs for its employees. Russia’s economic recovery in recent years Ford Sollers joint venture have a very important of its investors. It has created partnerships has opened up new opportunities for further impact on the whole Russian automotive mar- with recognised technology sources to supple- David J. Herman growth in the automotive sector, while gov- ket. This is the first 50/50 partnership between ment its record of leadership in SUV and other Chairman ernmental support has given an incentive for a Russian company and a global automotive 4x4 vehicles (UAZ), most notably through the the renewal of Russia’s car fleet. The growth industry leader which covers the entire auto Ford Sollers joint venture and agreements with of Russia’s automotive market has highlighted industry value chain, including: developing SsangYong, Mitsui, Mazda and Isuzu. SOLLERS the need for new multi-purpose products that R&D competencies, producing a wide range of works closely with international partners to meet the needs of consumers with modern, dy- products for the most popular segments of the develop its component sector, auto dealerships namic lifestyles. That is what SOLLERS brings passenger car and LCV markets, localising the and wide range of local service providers. Its to the Russian market, and our success directly component base, and developing a distribution Board of Directors – a majority of whose mem- hinges on the success of our products. chain. Strong sales, products that are ideally bers, both Russian and foreign, serve as inde- In 2012, the Company sold a total of 100,196 adapted to the Russian market, an extensive pendent, non-executive directors – supports a motor vehicles (retail sales of UAZ, SsangYong dealership network, and Ford’s readiness to ex- skilled management team and a workforce of and ISUZU), representing 14.5 % year-on-year pand its presence in Russia through increasing more than 19,000 throughout the Russian Fed- sales growth. SOLLERS has significantly rein- production capacity, launching new car models eration. The Board wishes to express its sincere forced its position in the Russian SUV market, and establishing a local supplier base were the thanks to every one of them, as well as to our which was facilitated by bringing a new petrol key factors that enabled us to establish this investors, suppliers, and other stakeholders. modification of the SsangYong Actyon crosso- long-term partnership – one with significant The Russian government has created a frame- ver to market and the launch of restyled ver- promise for future business development. work to encourage the development of the sions of SsangYong flagman Rexton and stylish During the first year of our cooperation, the automotive industry by establishing rules that pickup Actyon Sports. In 2012, UAZ Pickup joint venture demonstrated sales of 130,809 assure investors a stable environment condu- showed the best ever sales, resulting in 46% motor vehicles in 2012, up 11% on sales posted cive for business in line with Russia’s recent year-on-year sales growth. SOLLERS’ sales of in 2011. The full year net profit of Ford Sollers accession to the World Trade Organisation SUVs exceeded 65,000 (including UAZ exports). joint venture totalled RUB 1,983 million in 2012. (WTO). Year-on-year sales growth of over 30% The Company has significantly diversified its Joint industrial projects in the Russian Far over 2009-2011 and 11% in 2012 has made Rus- business and launched five new products in the East with such giants as Mazda and Mitsui sia the world’s most important growth market, SsangYong and UAZ model ranges which re- started operations in 2012. Full scale pro- and demonstrates the resilience of the Rus- sulted in posting a net profit of 5,881. EBITDA duction will be launched in the early 2013, sian economy in the uncertain economic times growth of nearly 22% was driven by strong UAZ enabling the Company not only to enjoy the which have had such a devastating effect on and SsangYong sales in tandem with an effi- benefits of greater production volumes, but both the European Union and the United States. cient cost-control system. Having significantly also bolster more vigorous localisation of both COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Japanese car models and SsangYong SUVs pro- growth projections for the automotive market, duced in the Far East. we expect to generate significant operating We strongly believe that our sector devel- cash flow from our own vehicle brands and opment and social responsibility goals will increased earnings from our joint ventures, benefit society at large and create value for our which we are confident will represent the shareholders. In 2012, we helped initiate and greatest value in future for our shareholders. actively participated in a project aimed Of course, in the context of global economic at developing National Occupational Standards volatility and high growth rates for our busi- and Qualifications orf the automotive industry. ness, we may face serious challenges. But Such new standards will help ensure a pool of experience indicates that we should be opti- qualified personnel for automotive sector com- mistic about new business opportunities. We panies which, in turn, will significantly improve are excited by the new scale of our business product and service quality, enhance business which allows SOLLERS to take part in develop- efficiency, and ensure optimum resource usage ing new products for the Russian market and by car-makers. further unlock the localisation potential of our

· About Us In 2013, we will pursue our partnership poli- traditional products since we see this as a core 24 · Financial & Operating cy by expanding existing projects and initiating driver to the Company’s contributed profitable 25 Highlights new ones. The launch of new marketable prod- growth. · Business Structure & ucts, both our own and those manufactured by - Project Mapping As always, we would like to thank our part · Milestones in 2011 joint ventures, will be a driver for expanding ners and staff for their devotion and confi- · Chairman’s Statement our presence in the Russian automotive mar- dence, as well as the Board of Directors for · CEO’s Statement ket. We are also planning to renew our existing their professionalism and readiness to take · SOLLERS’ History product line and improve the quality of our on challenging tasks, and our shareholders for in Brief products. their support for our initiatives. Moving forward, one of the core focus areas for the Company will be improving its opera- Vadim Shvetsov tional efficiency. In the context of moderate- CEO COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

SOLLERS’ History in Brief

2002 2003 2009 2010 Establishment of OAO Severstal-auto as an automotive First-ever publication of Company’s Consolidated Expansion of production of Fiat Ducato-based special Launch of production of SsangYong Actyon arm of Severstal Group, comprising OAO UAZ and Financial Statements, for year ended 31 December versions: ambulances (class A, B and C), minibus and Actyon Sports cars at SOLLERS-Far East plant. OAO ZMZ production sites. 2002. taxies, and emergency service vehicles. Launch of new product manufacture at UAZ: limited Launch of first automotive factory in edition of UAZ Patriot Sports cars and new generation Primorye Region: SOLLERS-Far East (Vladivostok). of UAZ 469 with a biofuel feed system (petrol and

· About Us 2005 2006 gas). 26 · Financial & Operating The Company conducts an IPO. Launch of SsangYong Kyron and Fiat Albea 27 Highlights production at SOLLERS-Naberezhnye Chelny. Certification of UAZ Patriot and UAZ Pickup · Business Structure & Signing of first licence agreement with SsangYong with ZMZ petrol engine under Euro 4 emission Project Mapping · Milestones in 2012 Motor Company for production of SUVs in Russia. Start of ISUZU truck assembly at UAZ standards. · Chairman’s Statement production site. · CEO’s Statement Acquisition of SOLLERS-Naberezhnye Chelny · SOLLERS’ History production site (previously OAO ZMA) and launch of in Brief SsangYong Rexton SUV assembly line.

Launch of UAZ Patriot production. 2011 2012 Launch of manufacture of SsangYong New Actyon SsangYong model range renewal: Rexton, Actyon Signing of licence agreements with both Fiat and model at SOLLERS-Far East plant. Sports, restyled Actyon and its production launch ISUZU to manufacture cars in Russia. in the Russian Far East. Signing of the Agreement with Ford establishing a joint venture, and start of Ford Sollers joint venture Start of Mazda Sollers Manufacturing Rus operations operations. and production launch of the new crossover 2007 2008 Mazda CX-5. Change in shareholding structure of Severstal-auto Launch of new brand: SOLLERS; headquarters, Signing of Agreement with Mitsui & Co. (Japan) (now SOLLERS); acquisition of a controlling interest subsidiaries and production sites renamed. establishing SOLLERS-BUSSAN joint venture Market launch and production start of the restyled by Vadim Shvetsov, CEO; the Company splits from to manufacture Toyota cars in Vladivostok. versions of UAZ Patriot and UAZ Pickup with all new Severstal Group. Opening of SOLLERS-Elabuga car factory in Elabuga interior and new features. Special Economic Zone; production starts of Fiat 70th anniversary of Ulyanovsk Automobile Plant Election of new independent Board of Directors. Ducato commercial vehicles and ISUZU trucks. (UAZ). Approval of a new development plan for Zavolzhsky Engine Plant (ZMZ) to become the basis for an auto Launch of Fiat Doblo production at Establishment of leasing company SOLLERS-FINANCE. Signing of Memorandum of Intent with Mazda Motor components industrial park. SOLLERS-Naberezhnye Chelny. Corporation to launch new joint venture based at Launch of UAZ Cargo, UAZ Pickup and UAZ Patriot SOLLERS-Far East production site. Establishment of joint venture with ISUZU diesel models. to manufacture trucks in Russia. COMPANY CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES P. 28-57 P.

28 29 COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

SOLLER’ strategy is aimed Strategy at achieving leadership positions

The Company’s strategic priority is to achieve the manufacturing of the Toyota Land Cruiser in the Russian automotive and maintain a strong leadership position in Prado and, in 2012, SOLLERS launched a joint Russia and the countries of the Customs Union venture with Mazda Motors Corporation, Japan, in the manufacture and distribution of pas- to produce CX-5 and the new generation of market through partnerships senger vehicles and light commercial vehicles. Mazda6. Both joint ventures are industrial In 2012, the Company continued to follow the partnerships that will develop their own pro- fundamental principles of its strategy which duction facilities in Vladivostok. This imple- are to: mentation will not only provide SOLLERS with with leading international · Strategy • build sustainable growth through partner- the benefit of increased car manufacturing 30 · Business Model ships volumes, but will also help it to promote more 31 · Market Overview • focus on the most dynamic market seg- vigorous localisation of both Japanese brands · Great Productsautomakers. ments with products “made for Russians” · Business Projects & and the existing model range of SsangYong Key Assets • increase the level of locally-produced parts sports utility vehicles produced in the Far East. and components to 60% • implement modern technologies in prod- ucts and production to maintain the highest quality • offer technical and financial services on a 24/7 basis • improve the value proposition for clients, partners, suppliers, employees and shareholders. Our fundamental principles - which we also share with our partners - are built around mutual trust, market- and customer-focus, and a corporate culture which awards initiative, creativity and quality in all fields of operations. The Ford Sollers joint venture, which started operations in October 2011, was the most important milestone of SOLLERS’ strategy implementation. The JV is expected to become SOLLERS’ Group largest project in the near future, with a total production capacity of at least 350,000 motor vehicles per year, and of- fering a wide range of models to the market, including Ford Transit, Ford Explorer, Ford Kuga, Ford Mondeo and Ford Focus III. The plan is to launch new Ford models that will be made in Russia for the first time ever. In addition, its business plan calls for creating an engine-manufacturing and in-house R&D cen- tre which will be integrated into Ford’s global network of product development centres, as well as achieving an average localisation level of at least 60%. In line with its growth strategy through part- nership, SOLLERS established a joint venture with Mitsui Corporation, Japan, dedicated to COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Business Model

Success trough requirements and represents an attractive SOLLERS produces components and engines combination of modern design, reliability and which are sold to the Group’s subsidiaries as continuous growth. affordability. well as to external clients. Founded in 1916, Isuzu Motors has a long history of vehicle and engine manufacture. Flexible and competitive organisation The brand has always focused on what it calls in Russia “creation without compromise”. Today, the In-depth market knowledge, a unique prod- company is confidently responding to the chal- uct line, a strong customer base and financial

· Strategy LONG-TERM INTERNATIONAL lenge of global leadership in light-duty truck stability all make SOLLERS an attractive global 32 · Business Model PARTNERSHIPS building (ISUZU N-series) while maintaining business partner. 33 · Market Overview a tradition of excellent quality. ISUZU trucks SOLLERS’ partners enjoy the benefits of the · Our Products From day one, SOLLERS has successfully im- - · Business Projects & are well adapted to challenging climates and Company’s expertise in the Russian car mar Key Assets plemented a partnership-focused strategy to tough operating conditions, which explains the ket, as well as its logistics, infrastructure and generate synergies by combining key com- brand’s popularity in Russia. production activities. And its efficient funding petencies into a single, complex mechanism, It is a little known fact that Ford Motor mechanisms for investment purposes make the enabling the Company to offer great products Company first entered the Russian market in Company’s financial position stable. and services to its customers. The comple- 1907, only four years after it was founded in With a unique range of products for nearly mentary nature of the Company’s partners’ the United States. The company is a legend of any transportation purpose, SOLLERS is competencies is in direct relation to the value world auto manufacture and enjoys exceptional represented in a broad spectrum of market generated by its partnerships. When embark- respect among Russian motorists. In 2008, segments and price classes. This helps im- ing on a new business partnership, SOLLERS Russia became Ford’s fifth-largest market in prove the Company’s flexibility under diverse always seeks to foster an atmosphere of mu- Europe after posting sales of nearly 176,000 market conditions. And new partnerships tual trust and respect. This helps to make the units in 2007. The Ford Focus has been the will enhance SOLLERS’ market presence even Company’s business partnerships strong and highest-selling model among foreign brands in further. enduring. Russia for the past five years. Large distribution and after-sales network Well-known brands Focus on core value chain elements with strong growth potential All brands represented by SOLLERS Group in large-scale investments SOLLERS’ distribution chain encompasses are well-known and respected worldwide. As of the end of 2012, SOLLERS’ overall over 120 UAZ dealers and 110 SsangYong UAZ is at the forefront of Russian SUV manu- capacity (directly owned or through joint ven- dealers. The Company’s distribution network facturing. The model range includes traditional tures) exceeded 550,000 units per annum, mak- stretches from Kaliningrad in the westernmost off-road vehicles of well-known domestic ing SOLLERS the second-largest automaker in part of European Russia to Vladivostok in brands. Russia. Russia’s Far East – a distance of almost 10,300 Since its establishment in 1954, SsangYong Large-scale investments in the Company’s km. All dealers and service centres are obliged has grown into a progressive and innova- Far East-based production partnerships will to meet strict requirements developed by the tive automaker that creates ground-breaking help improve the efficiency of SsangYong’s SOLLERS’ sales headquarters to ensure deliv- products at reasonable prices. Its SUV model assembly operations and create localisation ery of the very best products and services to range has been adapted for Russian market opportunities. customers. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Market Overview

MAJOR MACRO TRENDS 12 sia’s automobile factories produced 1,984,17015 This moderate growth signalled organic de- Passenger cars cars – a record for the industry. However, the velopment for the sector, as at the end of 2011 • Based on 2012 results, the Russian market In 2012, Russian industrial production was production of traditional domestic car models two government programmes ceased: “cash for remains the second in Europe (following Ger- up 3.2%13 year-on-year. Over the year, the showed a modest decline (down 3% to 643,058 clunkers” and subsidised interest rates on car many) in terms of new passenger car unit sales, manufacturing sector among all industrial units) while foreign models production contin- loans. These supportive measures, low inter- whereas in 2010 Russia placed fifth. production sectors demonstrated 4.1%14 annual ued to grow (up 24% to 1,341,112 units). est rates combined with the market tendency • Foreign models assembled in Russia demon- growth, outpacing other sectors. The mechani- Output of trucks in 2012 was flat (-0.4% vs. for rapid recovery after the economic downturn, strated the highest growth in sales (+19%) in 2012 cal engineering industry was the growth leader, 2011 at 206,208 vehicles). provided for abnormal sales growth (+77% in 2011 vs. 2010); this segment has

· Strategy mainly driven by rapid growth in transporta- 2012 was a successful year for the Russian in 2011 (39% year-on-year). dominated the market since 2011 (45% in 2012; 34 · Business Model tion and equipment manufacturing (annual automotive market with the market continuing Key drivers of the market growth in 2012 42% in 2011). 35 · Market Overview growth rate of 12.67%). to recover. One indicator of this is that sales of were: • In 2012, the highest growth rates were dem- · Our Products Passenger car production volumes (including onstrated by such car segments as SUVs, pick- · Business Projects & new passenger cars and LCVs during the year • Moderate interest rates 15 Key Assets LCV and MPV) grew in 2012 by 14.1% . Rus- reached 2,935,946 units, up 11% year-on-year. • Relatively favourable macroeconomic ups, E, and minivans. conditions resulting in slight growth of real • Russian customers are beginning to buy cars disposable income with more expensive option packages; in 2012, Sales of passenger cars and commercial vehicles with a gross weight of up to six tons in the Russian Federation • Sales promotion activities of dealers sales were up 11% and revenues grew 19% and by key segment, thousand units (Source: AEB, Association of European Businesses) and distributors the average purchase price of a car in Russia in- • Deferred demand on new cars formed creased from USD 25,661 to USD 27,822 (Source: 2,916 2,936 3,000 during last years. Autostat). 2,646 +11%

2,500 +39% Sales of passenger cars in the Russian Federation by origin, thousand units 2,000 1,909 (Source: AEB, Association of European Businesses)

1,461 3,000 1,500 2,712 2,745 2,463 +11% 2,500 1,000 +39% 2,000 500 1,767

1,500 0 1,356 2008 2009 2010 2011 2012 1,000 B 284 150 210 283 266

B+ 571 273 383 547 553 500 C 923 438 556 711 769

D 141 68 67 84 92 0 SUV+Pickup 529 320 432 670 875 2008 2009 2010 2011 2012 LCV+MPV 203 104 141 183 191 Others 265 108 120 168 190 Russian brands 685 377 560 618 577 TOTAL 2,916 1,461 1,909 2,646 2,936 Foreign brands 567 331 585 1,034 1,227 assembled in Russia New import 1,460 648 622 811 941 12 The main source for market data in the paragraph is AEB, TOTAL 2,712 1,356 1,767 2,463 2,745 Association of European Businesses, unless otherwise mentioned. 13 Estimated by Ministry of Economic Development, December 2012. 14 Jan-Dec 2012 status. 15 Estimated by ASM-Holding, December 2012. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Commercial vehicles (CVs) a payload of up to 2,500 kg, LCV (light com- nomic growth in Russia and growth in specific SOLLERS’ POSITION with a gross weight of up to six tons mercial vehicles) or light trucks with a payload industries using commercial vehicles such as IN THE RUSSIAN AUTOMOTIVE The market of commercial vehicles with of 2,500 kg to 3,500 kg, and multi-purpose retail and small-scale wholesale trade, trans- MARKET IN 201220 a gross weight of up to six tons comprises three vehicles (MPV), mainly minibuses. port, food production and basic goods manu- major segments: car-derived vans (CDV) or • In 2012, sales growth in the CV market was facturing. SUV segment box carriers based on light motor vehicles with 4%. This was strengthened by both overall eco- • In 2012, LCV remains the largest segment • In recent years, SUV has been the most in the group with a growth rate of 5%. The LCV dynamically growing segment of the Rus- market growth that began in 2010 is expected sian automotive market, with the growth rate Sales of CVs with a gross weight of up to six tons in the Russian Federation by segment, to continue. According to forecasts, the market outpacing the overall growth of passenger car thousand units (Source: AEB, Association of European Businesses) will fully recover and reach its pre-crisis level in sales (31% vs. 11%); it is the highest growth 250 2013-2014. rate among all car classes. • The market of foreign brands assembled in • In 2012 SUV became the largest car seg- 204 Russia is represented mostly by Ford Transit. ment on the Russian market. 200 184 191 +4% Ford Sollers is the only producer of foreign • SUV is one of few segments in the Russian +31% branded LCVs and MPVs in Russia. In 2012, the passenger car market (along with pickups, E and 150 140 · Strategy sales of Transit almost substituted the sales of F+S) where sales in 2012 exceeded the pre-crisis 36 · Business Model Fiat Ducato the production of which was dis- level of 2008; it is forecast that sales of SUVs will 104 37 · Market Overview continued at the end of 2011. grow steadily with the overall market over the · Our Products 100 · Business Projects & mid-term with an average market share of 40%. Key Assets Key long-term growth factors • The main growth in the SUV segment is 50 • Russian automobile penetration rate pro- driven by higher demand for cars that repre- vides for robust growth potential; currently, the sent a “universal solution” for driving during 0 number of cars per 1,000 inhabitants in Rus- winter conditions in cities and all year round 2008 2009 2010 2011 2012 sia is 265, whereas in developed countries this outside the cities, higher sales were also driven indicator exceeds 500.16 by the popularity of affordable foreign brand LCV 137 60 89 120 126 • An old car fleet and the increasing rate SUVs assembled in Russia (2012 sales of such MPV 40 27 30 31 34 of replacement (the average age of the existing cars were up 49%). CDV 27 17 21 33 31 domestic car fleet is currently 12 years, with • The share of foreign brands assembled TOTAL 204 104 140 184 191 two thirds over 15 years old17); despite the in Russia in the SUV segment grew from 23% successful implementation of an old-vehicle in 2009 to 40% in 2012. scrappage programme, many Russian car own- • In the SUV segment, SOLLERS and Ford Sol- Sales of CVs with a gross weight of up to six tons in the Russian Federation by origin, ers still have old vehicles that soon will be lers are represented by several brands: Russian thousand units (Source: AEB, Association of European Businesses) unfit orf use. UAZ, Korean SsangYong and American Ford. • Foreign automakers’ investments in facility • In 2012, SOLLERS’ sales in the Russian 250 management in Russia. market for new SUVs were up 23% year-on-year 204 • New industrial assembly aimed at support- from 49,479 to 60,660 vehicles (incl. sales of 200 184 191 ing localisation of foreign brands which will Ford SUVs assembled in Russia in 2012); SOL- +4% enable manufacturers to increase their operat- LERS’s total market share in the SUV segment is +31% 150 140 ing margins. 7.1%. • Growth of credit sales from • UAZ sales grew by 3% from 28,229 to 29,129 104 25% in 200918 to 42-45%19 in 2012. vehicles; UAZ’s market share in the SUV seg- 100 • Joint loan programmes by automakers ment reached 3.5% at the end of 2012. and banks along with the operations of several • Year-on-year, the Company increased its 50 captive banks. sales of SsangYong SUVs by 38%, thus increasing SsangYong’s presence in the SUV market from 3.3% in 2011 to 3.4% in 2012; such success was 0 mainly driven by sales of SsangYong Actyon in 2008 2009 2010 2011 2012 the fastest-growing market segment. Russian brands 146 62 89 111 114 • Ford SUV production in Russia started at 16 Estimated by Avtostat. Foreign brands 14 12 17 22 22 17 Estimated by the Company. Q4 of 2012 with Explorer and Kuga assembly assembled 18 Estimated by the Ministry of Industry and Trade. in Elabuga; in 2012, Ford SUV sales in 19 in Russia Estimated by Rosgosstrakh. combination with imported cars grew by 84% New import 44 30 34 51 55 20 SOLLERS’ Group sales in the current paragraph are represented by retail domestic sales of SsangYong, from 3,400 to 6,250 units; 2,267 SUVs (36%) 204 104 140 184 191 TOTAL UAZ, Ford and ISUZU. sold in 2012 were produced in Russia. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Sales of SUVs in the Russian Federation by origin, thousand units C and D segments Trucks (Source: AEB, Association of European Businesses) • Since the 2008 crisis, the Russian pas- • This section looks at the market for trucks senger car market has been steadily growing; with a gross weight over 3.5 tons; the market is 900 850 C is the second largest segments of Russian divided into three payload classes: light-duty PC market after SUV and also the most com- trucks (LDT) with a payload of 2 to 5 tons, 750 +31% 651 petitive; in 2012, this segment accounted for medium-duty trucks (MDT) with a payload of 5 28% of passenger car sales; D segment is in the to 15 tons, and heavy-duty trucks (HDT) with a 600 5th place in terms of size in the PC market with payload of over 15 tons. 510 +54% a share of 3% in 2012. • The Russian truck market did not move in 450 422 • For the third consecutive year the highest 2012 (-1.1% vs. 2011). 310 sales in these segments were found among for- • The HDT class made a major contribution 300 eign brands assembled in Russia; these sales grew to overall market performance after suffering 10% against 2011, with over 47% of total sales. the most from the downturn with sales in 2009 150 • Ford has kept its leading position in D seg- dropping by 74%; at present, the market is ment since 2010; in 2012, Ford Sollers’ market recovering rapidly along with growth in those 0 · Strategy share in this segment was 16%. sectors that rely heavily on HDT vehicles such 2008 2009 2010 2011 2012 38 · Business Model as construction and public utilities. 39 · Market Overview Russian brands 49 43 68 89 84 Commercial vehicles with a gross weight • Sales of foreign LDT vehicles assembled · Our Products Foreign brands 101 71 129 226 336 · Business Projects & of up to six tons (LCV+MPV incl. CDV) in Russia grew by 20% in 2012 while sales of Key Assets assembled • In 2012, SOLLERS and Ford Sollers were repre- domestic LDTs fell by 18%. in Russia sented in the commercial vehicle segment by UAZ • SOLLERS’ truck segment is represented by New import 360 196 225 336 430 and Ford (Transit); the sales of these two brands ISUZU, a Japanese brand and global leader in TOTAL 510 310 422 651 850 in the Russian LCV and MPV market was up 16% LDT segment; ISUZU’s share of the LDT market from 34,554 to 40,064, mainly due to the increase was 2% in 2006, 7% in 2007, and levelled off at in Transit sales, which was driven by the local 13% between 2008-2010; in 2009, despite the production launch at the end of 2011. crisis, ISUZU managed to maintain its market Sales of C– and D– class passenger cars in the Russian Federation by origin, • UAZ commercial vehicles took second place share. thousand units (Source: AEB, Association of European Businesses) in sales in Russia, with a market share around • In 2011, ISUZU’s share in the LDT segment 15%; in 2012, sales increased by 6%; while UAZ declined to 4%; in 2012, SOLLERS – along with 1200 1,064 sales in LCV segment were down by 11%, its its Japanese joint venture partners – decided sales in MPV segment grew by 40%. to re-launch the project and move production • Sales of Ford Transit increased by 56% from to the Ulyanovsk production site; as a result 900 861 794 +8% 7,363 in 2011 to 11,475 units in 2012 (incl. of this production facilities change and the 11,314 locally assembled vehicles); this growth temporary discontinuation of production the +27% 623 is explained by the launch of local production in sales of ISUZU in LDT segment were quite 600 507 Q4 2011; Ford Sollers’ total share of the com- moderate resulting in 2% market share by the mercial vehicle market reached 6% in 2012. end of 2012.

300

0 2008 2009 2010 2011 2012

Russian brands 169 107 138 147 148 Foreign brands 290 164 264 368 405 assembled in Russia New import 605 236 221 279 308 TOTAL 1,064 507 623 794 861 COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Our Products21

SSANGYONG The bestseller in SsangYong’s SUV product line entered the Russian market in early 2011. The The SsangYong Kyron Actyon Actyon is the first SsangYong crossover vehicle offers a wider range Kyron with an integrated body and all-wheel drive and is designed to bring this Korean brand into of equipment for less the fastest-growing segment of compact urban money. crossovers. The launch of this model, featuring a powerful engine (up to 175 hp), a wide range

· Strategy of options, and an attractive-yet-quiet design, 40 · Business Model helped SsangYong to significantly increase its 41 · Market Overview market share in 2012 and attract the attention · Our Products · Business Projects & of younger consumers. Key Assets In 2012, the Company launched a restyled The SsangYong Kyron is an affordable SUV Kyron’s basic option package includes: TOD The New Actyon is the first version of the Actyon equipped with a new designed for both city and off-road driving. Its 4-wheel drive, ABS, two airbags, air-conditioner, 4-cylinder, 2-litre petrol engine, a high- frame build, comfortable passenger section, heated front seats and remote central locking. SsangYong crossover vehicle contrast Supervision dashboard, and some new 4-wheel drive and competitive price make Kyron In 2012, the Kyron was launched with ex- with an integrated body fitting elements. attractive for those drivers who want to access panded equipment options that were upgraded In 2012, the retail sales of SsangYong Actyon to any type of terrain. The SsangYong Kyron of- with heated back seats, parking sensors, cruise and all-wheel drive. SUVs were up 103% year-on-year. fers a wider range of equipment for less money. control and electric sun-roof.

The towed trailer weighs 2,300 kg, the cargo The Rexton is the flagman bed area is over 2 m2 and, thanks to a drop- Rexton SsangYong off-roader and boasts Actyon down side, the pickup can be used to haul non-standard-size objects. The Actyon Sports great passing abilities in a wide has a 141-hp diesel engine. The Actyon Sports’ range of road conditions combined Sports advanced Common Rail multi-point injec- tion system and noise and vibration-reduction with a high level of driver and technologies offer motorists an unprecedented passenger comfort. level of comfort and quietness in the passenger section. In 2012, we launched the new Actyon Sports. The car’s key distinctive features are its upgraded body design and new e-XDi diesel The SsangYong Rexton, a comfortable Korean gency protection, including airbags, alarm, and engine, thanks to which the vehicle is more SUV, has been made in Russia for seven years active safety systems. The Rexton’s passenger The Actyon Sports is a pickup economical, powerful and comfortable, thus and has a proven record of reliability and high compartment is spacious, with high-quality that combines the comfort meeting the needs of a wide range of consum- cross-country performance. The Rexton is tar- finishing, an ergonomic and interactive dash- ers. The vehicle is also equipped with a trip geted at an older generation of customers and board, comfortable seats, and superb look. of a passenger car, the cross- computer, ESP and modernised audio system, offers excellent off-road capability, remarkable In 2012, the Company started manufacturing country agility of an SUV, which contributed to higher demand for the exterior design and generous passenger space a new Rexton model with expanded equipment vehicles of the 2012 model range and resulted for a reasonable price. It boasts excellent emer- options and a whole new exterior. and the load capacity of a truck. in 34% retail sales growth year-on-year.

21 The section does not consider Fiat cars, as since as of 1 January 2012, SOLLERS has been assigning the rights to the distribution of Fiat in Russia directly to FIAT GROUP AUTOMOBILES S.p.A. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

UAZ The UAZ Patriot is a powerful and reliable SUV A legendary vehicle. that can be driven comfortably in both urban UAZ traffic and rough off-road terrain. In terms of The Hunter has unique UAZ performance characteristics, the UAZ Patriot off-road capabilities. Patriot is second to none on the Russian market. The Hunter UAZ Patriot’s cross-country characteristics and reliability have been recognised both in Russia and abroad. In 2012, the model was exported to 14 countries, primarily Kazakhstan, Ukraine and Belarus. In May 2012, SOLLERS launched the produc- tion of a restyled version of the UAZ Patriot, equipped with new diesel engine and improved climate-control system. Its restyled interior of- fers more ergonomic configuration, significantly

· Strategy Winner of the nationwide increasing the consumer appeal of the vehicle. 42 · Business Model Since its launch in 2005, the UAZ Patriot 43 · Market Overview RuNet’s Best Auto Award has won a large number of automotive com- · Our Products petitions. In 2012, the UAZ Patriot again took · Business Projects & in the Domestic Automobile Key Assets the first place in the Domestic Automobile category. category of the “RuNet’s Best Auto” National Automotive Award. In 2012, retail domestic sales of UAZ Patriot SUVs were up 17% year-on-year. The UAZ Hunter is a legendary off-road vehicle the model’s sales since its launch in 2004. The in Russia, uniquely combining the off-road capa- Hunter, like most UAZ models, is widely used bilities of a combat tank with both maintainabil- in the public sector and by security agencies. In 2008, the Ulyanovsk Automobile Plant ity and ease of service. Its fuel-efficient engine, Leading customers include the Russian minis- started production of a five-passenger off-road high payload and low operating costs have driven tries of Internal Affairs, Health and Education. UAZ UAZ Pickup, whose retail price is one of the most attractive in the market. The UAZ Pickup Pickup offers the exclusive reliability of 4-wheel drive The UAZ product line of commercial vehicles and the strength of a durable frame struc- combines the seemingly incompatible char- ture. Its spacious boot, roomy interior and UAZ acteristics of commercial and off-road vehi- outstanding cross-country features make this commercial cles. These reliable cars are designed both for model the perfect vehicle for hunting and fish- carrying both passengers and cargo on roads ing enthusiasts. vehicles of all surface types as well as off-road. Their In 2012, SOLLERS launched production of a durable frame structure, easy maintenance, restyled version of UAZ Pickup equipped with simplicity of design and amazing working new diesel engine, improved climate control capacity have been tested by generations of system and ergonomic interior. In November Its durable frame structure consumers both in Russia and abroad. The UAZ Pickup offers the 2012, the UAZ Patriot was a prize winner in and easy maintenance have been By 2011, all UAZ commercial vehicle types the nationwide Russia’s 100 Top Products were brought into compliance with the Euro exclusive reliability of 4-wheel competition. tested by generations 4 standard. In 2012, UAZ adopted a five-speed drive and the strength of a In 2012, SOLLERS succeeded in increasing its of consumers both in Russia gearbox for the whole commercial model retail domestic sales of UAZ Pickup vehicles by range. In 2012, UAZ retail domestic sales of durable frame structure. almost 46% as against 2011. and abroad. commercial vehicles were up 5% year-on-year. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

ISUZU N-series22

· Strategy 44 · Business Model · Market Overview 45 · Our Products Easy maintenance and extremely high reliability · Business Projects & Key Assets are confirmed by warranty statistics and numerous positive reviews from ISUZU customers.

The ISUZU NPR75 is a relatively new truck In 2012, ISUZU NPR75 specifications were from the SOLLERS-ISUZU joint venture which added with an extra-long wheelbase up to replaced the NQR75 in 2011. A full-sized 4,475 mm. Also, service interval mileage for the light chassis with a 5-ton capacity reinforc- NPR75 was increased to 15,000 km. ing ISUZU’s 700P new-generation vehicles, The lightest chassis of ISUZU model range enhances the comfort and safety of LDT trucks. NLR85 and NMR85 made their debut on the The ISUZU NPR75 has numerous technologi- Russian market in 2008-2009. Designed for cal innovations that distinguish it from its harsh climate conditions and adapted to the predecessor. The use of advanced solutions and demands of Russian roads, the trucks have innovative digital technology in the truck’s de- a highly durable frame, a fully rust-proofed sign has considerably enhanced both comfort cabin, and suspension that can withstand and safety. The exterior features highly aero- heavy loads. The functional design of the dynamic properties and provides easy main- compartment’s front stands and side panels tenance access to components. The model is ensure high aerodynamic characteristics and wider than its predecessor with doors opening efficient use of interior space. Their high at 90 degrees, and has become a spacious mo- manoeuvrability makes them the perfect city bile office where each detail meets ergonomic delivery truck. and comfort requirements. A wide range of Easy maintenance and extremely high reli- body superstructures allows for multiple appli- ability are confirmed by warranty statistics and cations from simple delivery truck to garbage numerous positive reviews from ISUZU cus- compactor and even car carrier truck. tomers.

22 ISUZU C and E-­series are not presented in the report as they are directly imported from Japan. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ IFRS FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & STATEMENTS INFORMATION RESPONSIBILITY SECURITIES 2011

Business Projects & Key Assets

Ulyanovsk Automobile Plant UAZ (UAZ) Significant events in 2012 • In May, as part of its investment in mod- ernising the UAZ model range, the Company launched production and sales of restyled version of its popular off-roaders UAZ Patriot and UAZ Pickup; the main changes relate to

· Strategy OAO Ulyanovsk Automobile Plant (UAZ) is a leading Russian the vehicle interior: new dashboard, steering 46 · Business Model wheel, more ergonomic layout. 47 · Market Overview manufacturer of SUVs, commercial vehicles and spare parts. • June saw the relaunch of SOLLERS-ISUZU · Our Products · Business Projects & joint venture; the production of ISUZU N-series Key Assets In 2012, UAZ sold 60,700 cars in Russia and exported was transferred to the UAZ production facility. • September saw the introduction of a project 7,600 vehicles. Since its foundation in 1941, UAZ has produced aimed at improving the assembly pace of UAZ SUVs; as part of this project, the Company’s as- approximately 4,700,000 vehicles. UAZ SUVs and LCVs are currently sembly line increased output of Patriot vehicles by integrating the manipulating device for exported to more than 30 countries worldwide. In 2012, dashboard insertion. • In September, the Ulyanovsk Automobile UAZ produced 70,500 cars, up 10% year-on-year. Plant and its subsidiaries successfully passed a re-certification audit and confirmed their quality management compliance with the ISO 9001: 2008 international standard. • In December, the plant adopted the in-house education scheme for the suppliers of automotive components and parts; the course covers the main aspects of lean manu- facturing and the requirements of ISO/TS 16949 standard. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ IFRS FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & STATEMENTS INFORMATION RESPONSIBILITY SECURITIES 2011

ZMZ

Significant events in 2012 • April saw the launch of mass production of ZMZ diesel engines with Common Rail fuel supply system certified to Euro-4 standard; the engines are installed into UAZ Patriot, UAZ Zavolzhsky Engine Plant Hunter and UAZ Cargo models. (ZMZ) • October saw approval of a new development plan for ZMZ; Zavolzhsky engine plant will be- come a base for the creation of an auto compo- nents industrial park; such companies as Daido Metal Russia, Trelleborg Automotive, LEONI, Flaig+Hommel have already taken up residency at the industrial park. st · Strategy OAO Zavolzhsky Engine Plant (ZMZ) is one of Russia’s largest • On November 1 , a new 100% subsidiary of 48 · Business Model the plant, ZMZ-Autocomponent, started opera- 49 · Market Overview production facilities manufacturing internal combustion engines. tions; the branch inherited all operations re- · Our Products · Business Projects & garding production of automotive components Key Assets The plant owns 83 patents for models and production on the request of Russian and foreign OEMs. • In November, ZMZ successfully passed an prototypes, and 18 trademarks. Since its foundation in 1958, ISO inspection management system audit con- firming its right to obtain new ISO/TS 16 949: ZMZ has produced over 14,000,000 engines. In 2012, 2009 conformity certificates valid for the next 3 years. ZMZ produced 93,700 engines, up 16% year-on-year. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ IFRS FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & STATEMENTS INFORMATION RESPONSIBILITY SECURITIES 2011

Far East production facility PROJECTS IN THE FAR EAST

Significant events in 2012 SOLLERS-BUSSAN • In early 2012, SOLLERS-Far East launched In 2011, SOLLERS announced a joint venture SsangYong Kyron with expanded equipment with Mitsui & Co. (Japan) to produce Toyota options: upgraded with heated back seats, vehicles. SOP of Toyota LC Prado: February 18, parking sensors, cruise control and electric 2013. Far East production facility sun-roof. Project Highlights: • In March, the first petrol engine • 50/50 joint venture SsangYong Actyon was assembled at the Far • Activity: production of Toyota SUVs in Russia East production plant. • Key model: Toyota Land Cruiser Prado • April marked the launch of new • Location: Vladivostok SsangYong Actyon Sports with upgraded body • Start of production: February 2013 design and new e-XDi diesel engine. • Industrial cooperation with a global automo- • June saw the launch of the mass-produc- tive leader; share Toyota’s production experi-

· Strategy The plant currently assembles several types of SsangYong SUVs, tion of a restyled version of the SsangYong ence 50 · Business Model flagman SUV Rexton W with expanded equip- • Initial investment up to RUB 1bln 51 · Market Overview Mazda CX-5 and plans to launch the new Mazda6 in 2013. ment options and whole new exterior. • Funding: project financing provided by VEB · Our Products tember, the MAZDA SOLLERS joint · Business Projects & • In Sep on non-recourse basis at a subsidised interest Key Assets Production is organised under the MAZDA SOLLERS joint venture. venture started operations with a pilot as- rate. sembly of the Mazda CX-5; in October, mass- At the very beginning of 2013 SOLLERS-BUSSAN began production of this crossover was launched in Vladivostok. mass-production of the Toyota LC Prado at a new assembly line. • In October, SOLLERS-Far East produced the first petrol engine SsangYong Actyon with automatic gearbox.

Toyota Market Performance, Thousand Units (Source: AEB, Association of European Businesses)

35 14% 13% 12% 30 12% Toyota SUV 12% market 25 10% 10% 10% share 20 8%

15 6%

10 4%

5 2%

0 0% 2008 2009 2010 2011 2012

Toyota SUV sales 29 13 21 25 33 COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

MAZDA SOLLERS On 27 April 2012, SOLLERS OJSC and Mazda Motor Corporation signed an agreement to establish the JV. SOP of Mazda CX-5: Septem- ber 06, 2012. Project Highlights: • 50/50 joint venture with Mazda • Activity: production of Mazda and SsangYong vehicles • Key models: Mazda CX-5, Mazda6, SsangYong SUVs23 • Location: Vladivostok • Investment sharing will improve the efficiency of Mazda and SsangYong assembly at the Far East production site

· Strategy • Total investments through 2020: 52 · Business Model RUB 10 billion 53 · Market Overview • Funding: project financing provided on · Our Products · Business Projects & a non-recourse basis at a subsidised interest Key Assets rate totalling RUB 6 billion.

Mazda Market Performance, thousand units (Source: AEB, Association of European Businesses)

35 16% 14% 14% 30 13% 14% 12% 13% 25 11% Mazda 10% D-class 20 8% market share 15 6% 10 4% 2% 5 2% 2% 1% Mazda SUV 2% 1% market share 0 0% 2008 2009 2010 2011 2012

Mazda SUV 9 7 4 9 19 sales Mazda D-class 18 9 9 12 10 sales

23 In 2013 the production of SsangYong vehicles was transferred to MAZDA SOLLERS JV. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ IFRS FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & STATEMENTS INFORMATION RESPONSIBILITY SECURITIES 2011

Ford SOLLERS Joint Venture in September 2011 between Ford Sollers and VEB; raised funds cover the investment On 1 October 2011, the Ford Sollers joint ven- • Project target: to become one of the leaders ture started operations. in the Russian passenger car market Project Highlights: • Production capacity: over 350,000 units • 50/50 joint venture with Ford per year • Scope: exclusive production and distribu- • Level of localisation: over 60% Ford Sollers tion of Ford-branded vehicles in Russia • Development of R&D competences • Funding: 10-year project financing of RUB • The project is fully in compliance 39 billion at a subsidised interest rate signed with the revised Regulation 166.

PRODUCTION ASSETS

FORD SOLLERS FORD SOLLERS FORD SOLLERS

· Strategy In October 2011, the Ford Sollers joint venture started ELABUGA NABEREZHNYE CHELNY VSEVOLOZHSK 54 · Business Model · Market Overview operations. Ford Sollers is the first full-scale 50/50 automotive 55 · Our Products LOCATION: TATARSTAN LOCATION: TATARSTAN LOCATION: LENINGRAD REGION · Business Projects & CAPACITY: UP TO 75,000 UNITS/YEAR CAPACITY: UP TO 115,000 UNITS/YEAR (NEAR ST. PETERSBURG) Key Assets joint venture between a Russian and global OEM. Ford Sollers CAPACITY: UP TO 160,000 UNITS/YEAR production sites include the Ford manufacturing plant in Vsevolozhsk, near St. Petersburg, which currently builds PRODUCT LINE: PRODUCT LINE: New PCs/SUVs PRODUCT LINE: the Ford Focus and Ford Mondeo. It also operates two SOLLERS’ production facilities in the Republic of Tatarstan. Together, these

three plants manufacture a wide range of Ford passenger cars Ford Transit LCVs Ford Mondeo and light commercial vehicles. The projected manufacturing capacity of the Ford Sollers joint venture exceeds 350,000 units

per year with a localisation level of 60%. The Ford Sollers JV was Ford Explorer SUVs Ford Focus III approved for participation in the new industrial assembly regime and enjoys all the benefits of 166 Regulation.

Ford Kuga SUVs

Ford S-MAX minivans

Ford Galaxy minivans COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Ford and Ford Sollers Market Performance24, thousand units (Source: AEB, Association of European Businesses)

200 187

150 +11% 131 118 91 100 82

50

0 2008 2009 2010 2011 2012 C-class 94 52 67 83 92 · Strategy 56 · Business Model D-class 13 7 11 15 12 · Market Overview LCV 10 6 5 8 15 57 · Our Products Other 70 17 8 12 12 · Business Projects & TOTAL 187 82 91 118 131 Key Assets

Ford and Ford Sollers Market Share (Source: AEB, Association of European Businesses)

Segment 2008 2009 2010 2011 2012 C-class 10% 12% 12% 12% 12% D-class 10% 11% 16% 18% 16% LCVs, MPVs 4% 5% 3% 5% 7% SUVs 1% 1% 0% 1% 1%

• The second largest market player on the Russian C-class car segment with 12% market share • The leader in the Russian D-class car segment with 16% market share • The overall market share to grow with the launch of new vehicles • The launch of local assembly in 2012 resulted in record sales of Ford SUVs: - Kuga sales up 45% - Explorer sales up by a factor of 4.

Ford Sollers Sales, thousand units (Source: AEB, Association of European Businesses)

2011 2012 CHANGE % Explorer 0.5 2.1 1.6 320% Kuga 2.9 4.2 1.3 45% Transit 7.4 11.5 4.1 55% Mondeo 15.1 15 -0.1 -1% Focus 82.5 92.2 9.7 12% Others 9.7 5.9 -3.8 -39% Total 118.1 130.9 12.8 11%

24 2008 other sales include Ford Fusion, a compact minivan based on B-class platform. COMPANY BUSINESS & CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES P. 58-73 P.

58 59 COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

SOLLERS is consistently focused Board of Directors of Directors on increasing the efficiency of its

We own manufacturing facilities to pro- creating the ideas which provide new oppor- corporateduce Russian UAZ off-roadgovernance, vehicles, Korean tunities protecting for our consumers and inspire them to SsangYong vehicles, FIAT light and commercial move forward. vehicles, Japanese ISUZU cargo trucks, as well During the course of our activities we took the asrights ZMZ petrol and dieseland engines. legal Besides, our interestsleading position in Russian automobile mar- company is developing a car dealership net- ket, brought more than ten new products to work and owns a leasing division. the market, developed manufacturing facilities of stakeholders,Since its establishment in 2002 the Companyensuring with annual capacity around 300,000 auto- has put its efforts in developing the first-class mobiles and became one of the most efficient David J. Herman Richard Broyd Patrick T. Gallagher 60 solutions for customers in everything related companies in the industry. Our current annual (Chairman) (Member) (Member) 61 the tohigh automobiles. ethical It drives us in launching standard new turnover exceeds of $1.8 itsbillion. models and constructing plants, opening new The unique combination of the production ‘Over my nearly 40 years of involve- ‘In recent years, we’ve seen the Com- ‘SOLLERS is a company with a true ment in the Russian market, I have international spirit, appeal and capa- dealerships, developing customer services and capacity and developing retail sector allows pany’s rapid growth and develop- been a firm believer in the global ment. Considering the success we’ve bility, and its excellence in building creating the ideas which provide new oppor- us to fully implement the service-oriented executive bodies, and making sure nature of the automotive business. achieved, our sound strategy, and an global partnerships reflects that.’ tunities for our consumers and inspire them to company strategy, not only proposing vehicles The global auto sector’s similarities ambitious and capable management, move forward. to our customers, but also creating the best transcend all manner of political I strongly believe that SOLLERS is on During the course of our activities we took motion formula. and social differences. That fact, course for further success.’ Patrick T. Gallagher has been a informationleading position in Russian and automobile decision-making mar- SOLLERS is the Russian automobile company combined with the integrity and skill Member of the SOLLERS Board of SOLLERS management and work- since 2008. Patrick has over 30 ket, brought more than ten new products to which provides a full scope of automobile ser- force, means that I can state with Richard Broyd has been a Mem- years’ experience in international the market, developed manufacturing facilities vices comprising all stages from manufacturing confidence that SOLLERS’ increasing ber of the SOLLERS Board since business, including 17 years with are transparent.with annual capacity around 300,000 auto- up to sales and maintenance services. success will continue to reward its 2007. Richard has a diversified British Telecommunications Plc mobiles and became one of the most efficient We own manufacturing facilities to pro- investors, and provide secure, well- background including Corporate (BT). He also serves on the boards companies in the industry. Our current annual duce Russian UAZ off-road vehicles, Korean paying jobs for its employees.’ Development and Finance, Prin- of Ciena Corp., a global telecoms network specialist, and Harmonics turnover exceeds $1.8 billion. SsangYong vehicles, FIAT light and commercial cipal Investing and Philanthropy. Richard is a Director of Waypoint Inc., a global provider of high-per- The unique combination of the production vehicles, Japanese ISUZU cargo trucks, as well David J. Herman has been a Member Capital, and Chairman of Reach- formance video solutions. Patrick capacity and developing retail sector allows as ZMZ petrol and diesel engines. Besides, our of the SOLLERS Board since 2004, to-Teach. was chairman of Macro4 Plc, a us to fully implement the service-oriented company is developing a car dealership net- serving as Chairman since 2007. Prior to that, Richard was Chief FTSE-listed global software solu- company strategy, not only proposing vehicles work and owns a leasing division. David was with General Motors for Executive of a substantial private tions provider with wholly-owned to our customers, but also creating the best Since its establishment in 2002 the Company 29 years, including 10 years in the investment fund based in Geneva subsidiaries across Europe and the position of Vice President. Current- United States. He led the sale of motion formula. has put its efforts in developing the first-class and Brussels that made leveraged ly, he is a member of the US-Russia investments and had a portfolio the company to an American buyer. SOLLERS is the Russian automobile company solutions for customers in everything related Council and the American Chamber of marketable securities, held a He was also a vice chairman of which provides a full scope of automobile ser- to automobiles. It drives us in launching new of Commerce (Russia), and an inde- number of positions in the Monte- Golden Telecom Inc., leading the vices comprising all stages from manufacturing models and constructing plants, opening new pendent director of Magnitogorsk dison Group, Milan, Italy including company’s sale to Vimpelcom in up to sales and maintenance services. dealerships, developing customer services and Iron and Steel Works, Strategic Managing Director of SIR SpA, a April 2008. Patrick is a graduate of Initiatives and New Health Sci- Warwick University with a degree We own manufacturing facilities to pro- creating the ideas which provide new oppor- specialty chemical company, and ences. In addition to establishing Director of Corporate Develop- in Economics and Industry. duce Russian UAZ off-road vehicles, Korean tunities for our consumers and inspire them to GM-AVTOVAZ, the largest Russian ment, Strategy and was Controller SsangYong vehicles, FIAT light and commercial move forward. automobile joint venture, he was of the Montedison Group during vehicles, Japanese ISUZU cargo trucks, as well During the course of our activities we took chairman of the board of Adam a major portfolio restructuring as ZMZ petrol and diesel engines. Besides, our leading position in Russian automobile mar- Opel AG, CEO of SAAB Automobile, and hostile takeover; he was also company is developing a car dealership net- ket, brought more than ten new products to and represented General Motors a partner of The Monitor Group. in a number of countries. He is a work and owns a leasing division. the market, developed manufacturing facilities Richard holds a PhD from Cornell graduate of New York University, University. Since its establishment in 2002 the Company with annual capacity around 300,000 auto- holds a Master’s degree from Har- has put its efforts in developing the first-class mobiles and became one of the most efficient vard Graduate School and a Juris solutions for customers in everything related companies in the industry. Our current annual Doctor degree from Harvard Law to automobiles. It drives us in launching new turnover exceeds $1.8 billion. School. David has been awarded the German Bundesverdienstkreuz and models and constructing plants, opening new The unique combination of the production ca the Belgian Order of Leopold. dealerships, developing customer services and COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

· Board of Directors Seppo Remes Evgeny Yasin Alexander Ikonnikov Vadim Shvetsov Nikolay Sobolev Victor Khvesenya 62 · Committees (Member) (Member) (Member) (Member, CEO) (Member, First Deputy CEO, (Member, Director of Legal · Management CFO) Affairs) 63 · Code of Conduct ‘SOLLERS has real prospects of ‘I have been following SOLLERS’ de- ‘SOLLERS’ success has been built on ‘The idea of growth and achieving · Information Policy becoming one of the leading partners velopment for several years and can the success of its international and leadership on the Russian car market ‘We are inspired by the new magni- ‘The essence of SOLLERS is its · Risk Management for foreign automobile companies en- say that this is an excellent example Russian partnerships. This phi- through full-scale partnerships with tude of our business and are confi- team’s in-depth knowledge of the tering Russia because of its position of a new growing business with an losophy both helps global partners leading international OEMs has dent that we can become a leader local market and its cross-border in the market, its in-depth knowledge interesting strategic approach, develop their business in Russia and been defined as the key driver for in the Russian automotive market expertise combined with ambition, of Russian markets, and its great a promising future and, even more helps SOLLERS attract technology SOLLERS’ development. We believe on a partnership basis, increase experience, strategic thinking and management capabilities.’ importantly, the capability to achieve and acquire best business practices.’ that the result of our work will be a the level of localisation, and build a hard work.’ its goals.’ generation of benefits for all of our technological base which will posi- stakeholders.’ tively affect performance and take Seppo Remes has been a Member Alexander Ikonnikov became a the Russian automotive industry Victor Khvesenya has been Direc- of the SOLLERS Board since 2004. Evgeny Yasin has been a Member Member of the SOLLERS Board in to a whole new level.’ tor of Legal Affairs since 2009. Seppo took part in the fundamental of the SOLLERS Board since 2005. 2011. Alexander has more than 10 Vadim Shvetsov has exercised From 2005 to 2009, he was Vice- reform of Russia‘s electric power He is a professor, one of the best- years’ experience serving on the operational management of the President of Legal Affairs in AME- sector as a board member of RAO known economists in Russia, and boards of leading Russian compa- Company and its subsidiaries since Nikolay Sobolev has been Chief DIA Group. From 1995 to 2005, he UES. Concurrently, he created one was one of the intellectual found- nies in the telecommunications, 2002. He serves as Chairman of Financial Officer since 2005 and served as Senior Attorney in the of Russia’s first corporate audit ers of Russia’s economic reforms financial services and brewing the boards of directors of UAZ First Deputy CEO since 2009. Moscow office of the international committees under the UES board. in the 1990s. Currently, Evgeny is industries. Currently, he is Chair- OJSC and ZMZ OJSC. From 2001 In 2002, he was appointed Direc- law firm of White & Case. Victor Presently, Seppo is Chairman of the Academic Supervisor of National man of the Advisory Board of the to 2002, Vadim held the position tor for Financial and Economic graduated from the Law Faculty of Board at EOS Russia (an investment Research University at the Higher Independent Directors Association, of First Deputy General Director Affairs and Member of the Board Belarusian State University (Minsk) company focusing on the Russian School of Economics, and Direc- an Independent Director at Swed- of Severstal OJSC. From 1993 to of Directors of UAZ OJSC. Nikolay in 1984 and earned a Master’s power sector), and serves on the tor of the Expert Institute. He also ish investment fund East Capital 2001 he was Commercial Director has been on the Board of Russian degree from the Case Western boards of several major energy serves on the boards of Wimm- Explorer Plc, and a Member of the and then CEO of Severstal-Invest. Railways since 2012. From 1997 Reserve University School of Law companies, including IDGC Hold- Bill-Dann and Echo Moskvy CJSC, Supervisory Board of the National He graduated in 1992 from the to 2002, he served as First Deputy (Cleveland, USA) in 1993. ing, RAO ES of East and Lenenergo. an independent radio station. Settlement Depository. Prior to Moscow Institute of Steel and Al- General Director and Vice Presi- He was vice president for Russian Evgeny was appointed Minister of that, he was CEO of the Russian loys, specialising in Electric Drives dent of Holding Yuzhuralmash Affairs of Neste-Fortum, an OMX- Economic Affairs of the Russian Investor Protection Association. and Automation of Industrial JSC, and Member of the Board of listed global energy company. He Federation in 1994. Prior to that, Alexander also served as an inde- Installations and Technological Directors of Yuzhuralmash OJSC. also founded the board of a major he was director of the Presidential pendent director of North-West Complexes. Nikolay graduated from Lomono- foreign business association, the Analytical Centre and actively Telecom OJSC and Baltika OJSC. In 2001, he received an MBA sov Moscow State University and European Business Club (now the involved in developing economic Alexander is a graduate of the from Northumbria University Busi- the Russian Presidential Academy Association of European Busi- policies and programmes. He is a Gubkin Russian State University ness School (UK). of National Economy and Public nesses). Seppo Remes is a graduate graduate of the Odessa Engineer- of Oil and Gas. He holds a PhD in Administration. He holds a PhD in of Oulu University and holds a PhD ing Institute and the Department Economics, and a Certificate and Economics from Lomonosov Mos- from the Turku School of Econom- of Economics of Moscow State Diploma in Company Direction (In- cow State University and an MBA ics and Business Administration University. He holds a doctorate in stitute of Directors, UK). In 2010, from Kingston University Business in Finland. Seppo has twice been Economics. the Yale School of Management School (UK). named Best Independent Director recognised him as a “rising star of of the Year by the Investor Protec- corporate governance”. tion Association, Russia (2006, 2008). Seppo is Honorary Doctor at Plekhanov Russian Academy of Economics. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Committees

To ensure the fulfilment of special functions, The role of the Strategy Committee garding the Company’s strategic development. The Strategy Committee’s main areas of At the Board of Directors’ request, or on its the Company has formed a number of committees to support activities include: own initiative, the Committee prepares oral or the Board of Directors in exercising control over different 1. reviewing the goals, development con- written recommendations on specific issues cepts, and strategic plans developed by top within its competence, and at the year-end lines of operations. management, as well as coordinating strategic issues a report on its work for the year for con- plans in accordance with the Company’s per- sideration by the Board of Directors. formance and prospects and transmitting them SOLLERS is a fast-growing company, adapt-

· Board of Directors BOARD OF DIRECTORS AUDIT COMMITTEE tial condition in selecting members to the Audit to the Company’s units ing to changing macro- and microeconomic 64 · Committees Committee. A membership with strong profes- 2. preparing recommendations for the Board factors. The year 2012 was an eventful period 65 · Management The Audit Committee was established in 2005. sional qualifications in finance enables the Com- of Directors concerning investment decisions, for the Company which included the forma- · Code of Conduct Its mission is to support the Board of Directors tion of strategic priorities for a joint project · Information Policy mittee to operate with maximum efficiency. including: · Risk Management in exercising control over the Company’s busi- • participation in the capital of other compa- with Ford, and the signing of key documents ness activities. The Committee reports to the Audit Committee reports nies, holding companies, and associations outlining the framework for cooperation with Company’s Board of Directors. The Audit Committee meets regularly to en- • analysis of investment projects and review Mitsui & Co., Ltd (Toyota production) and sure prompt monitoring of the Company’s inter- of their compliance with the development Mazda Motor Corporation. The Strategy Com- The role of the Audit Committee nal control and audit systems and risk manage- strategy (at the project acceptance stage) mittee played a significant role in defining the The Audit Committee’s main areas of activi- ment procedures, and to summarise the interim • analysis of top-level organisational projects Company’s development strategy, particularly ties include control over the following: and annual results of the Company’s business and assessment of their compliance with the the emphasis on joint projects in Russia with 1. completeness and fairness of financial operations. development strategy (at the project develop- international automotive leaders as a priority statements, and the process of their prepara- Meetings are attended by Committee members ment stage) development area. tion and presentation who are invited to deliver presentations, and 3. preparing recommendations for the Board 2. operation of internal control, internal other stakeholders (heads of corporate reporting, of Directors regarding potential restructuring, audit and risk management systems internal audit and control, risk management, and including utilisation of non-core assets. BOARD OF DIRECTORS PERSONNEL 3. compliance with current Russian legisla- representatives of ZAO PricewaterhouseCoopers & REMUNERATION COMMITTEE tion and the Company’s internal regulations. Audit, the Company’s external auditor). Committee structure The Board of Directors’ exclusive functions The following documents were approved at The Strategy Committee includes the The Personnel and Remuneration Committee include: Committee meetings in 2012: Chairman and at least three Members of the was established in 2005. Among the Commit- • evaluating candidates for Company audi- • Consolidated Financial Statements of SOL- Company’s Board of Directors. During 2012 tee’s responsibilities is the implementation of tors and presenting their conclusions to the LERS Group for 2011 and as of 31 December 2012, the Committee a project to recruit qualified top managers and Board of Directors • Consolidated Financial Statements for H1 2012 included the following Members of the Board establish fair compensation packages for them. • assessing the auditors’ opinion • action plans for assessing the efficiency of Directors: The Committee reports to the Company’s • evaluating the efficiency of current internal of current internal control and management • Richard Broyd (Chairman, non-executive Board of Directors. control and risk management procedures, and procedures presented by the internal audit and director) making recommendations for improving them. risk-management departments • Patrick T. Gallagher (non-executive director) The role of the Personnel • approval of PricewaterhouseCoopers Audit, • David J. Herman (non-executive director, and Remuneration Committee Committee structure as the external auditor of SOLLERS Group’s Chairman of the Board of Directors) The Personnel and Remuneration Commit- The Audit Committee consists of the Chair- Financial Statements for 2012. • Vadim Shvetsov (CEO) tee’s main areas of activity are: man and three Members who are not executive • Nikolay Sobolev (First Deputy CEO, CFO). 1. defining criteria for selecting candidates directors of the Company. During 2012 and as of for the Company’s Board of Directors and top 31 December 2012, the Committee included the BOARD OF DIRECTORS STRATEGY COMMITTEE Strategy Committee reports management, and the preliminary evaluation of following Members of the Board of Directors: The Strategy Committee meets on a regu- candidates • Seppo Remes (Chairman, non-executive The Strategy Committee was established in 2005. lar basis, at least twice per year. Committee 2. developing proposals for determining es- director) Its task is to present recommendations on devel- meetings are attended by the Company’s First sential terms of contracts with members of the • Patrick T. Gallagher (non-executive director) opment of the Company’s strategy and to deter- Deputy CEO or CEO. The Committee presents Company’s Board of Directors and top man- • Evgeny Yasin (non-executive director) mine its priority development areas. The Commit- opinions to the Board of Directors on docu- agement, including principles and criteria for The independence of candidates is an essen- tee reports to the Company’s Board of Directors. ments drawn up by the Strategy Directorate re- determining their remuneration COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

3. assessing the performance of the Company’s 3. review and develop the Company’s standard management on a regular basis. for director independence and recommend to the Board of Directors any modifications to that Committee structure standard The Personnel and Remuneration Commit- 4. monitor emerging corporate governance tee includes the Chairman and at least three trends, evaluate corporate governance policies Members of the Company’s Board of Directors. and Company programs and recommend to the During 2012 and as of 31 December 2012, the Board of Directors any actions as the Committee Committee included the following Members of may consider appropriate the Board of Directors: 5. consider policies relating to the preparation, • Patrick T. Gallagher (Chairman, non-execu- convocation and holding of general meetings of tive director) shareholders and meetings of the Board of Direc- • David J. Herman (non-executive director, tors Chairman of the Board of Directors) 6. make recommendations to the Board of • Alexander Ikonnikov (non-executive director) Directors with respect to the approval of and

· Board of Directors • Nikolay Sobolev (First Deputy CEO, CFO). amendments to the Company’s internal corporate 66 · Committees rules and policies relating to confidential infor- 67 · Management Personnel and Remuneration Committee reports mation and Company secrets, as well as regarding · Code of Conduct The Committee meets as required. Based on the procedure relating to the use of information · Information Policy · Risk Management the results of the Committee’s work, the Board about the Company’s operations, securities and of Directors makes recommendations to the transactions which is not in the public domain Annual General Shareholders Meeting regard- 7. handle any other matters relating to cor- ing the amount of remuneration and compen- porate governance as may be requested by the sation for members of the Company’s Board of Board of Directors or deemed necessary or desir- Directors. able by the Committee.

Committee structure BOARD OF DIRECTORS NOMINATION The Nomination and Corporate Governance AND CORPORATE GOVERNANCE Committee includes the Chairman and at least COMMITTEE three Members of the Company’s Board of Direc- tors. During 2012 and as of 31 December 2012, The Committee was established in 2012. The the Committee included the following Members main purposes of the Committee are to develop of the Board of Directors: and enhance the corporate governance of the • David J. Herman (Chairman, Chairman of the Company, to carry out preliminary reviews of Board of Directors) matters regarding the corporate governance • Alexander Ikonnikov (non-executive director) and corporate culture of the Company and to • Vadim Shvetsov (CEO) make recommendations to the Board of Direc- • Victor Khvesenya (director of Legal tors on such matters. The Committee reports to Affairs). Company’s Board of Directors. Nomination and Corporate Governance The role of the Nomination and Corporate Committee reports Governance Committee The Committee meets as required. The Com- Nomination and Corporate Governance Com- mittee presents opinions and recommendations mittee’s main areas of activity are to: to the Board of Directors on the Company’s 1. develop general recommendations regard- corporate governance and corporate culture. At ing the desired composition and size of the the Board of Directors’ request or on its own ini- Board of Directors tiative, the Committee prepares oral or written 2. conduct preliminary evaluation of candi- recommendations on specific issues within its dates proposed for election to the Board of Di- competence, and at the year-end issues a report rectors and provide the Board of Directors with on its work for the year for consideration by the recommendations regarding such candidates Board of Directors. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Management

· Board of Directors 68 · Committees Vadim Shvetsov25 Nikolay Sobolev25 Victor Khvesenya25 Irina Likhova Olga Tyryshkina Zoya Kaika · Management (CEO) (First Deputy CEO, CFO) (Director of Legal Affairs) (Director of Human (Director of Risk Management (Director of Public 69 · Code of Conduct · Information Policy Resources) and Internal Audit) and Government Relations) · Risk Management Irina Likhova joined SOLLERS’ Since 2010, Olga Tyryshkina has Zoya Kaika has held this posi- management team in 2012. For been Director of Risk Management tion since 2003. Prior to joining almost nine years prior to this she and Internal Audit. From 2004, she the Company, she was Deputy was HR Director at MegaFon OJSC, was Chief Accountant of SOLLERS Editor of the economics section of one of Russian leading telecommu- OJSC. From 1993, she worked as Vedomosti, one of Russia‘s leading nication enterprises. From 1994, Deputy Chief Accountant at ZAO business publications. Zoya holds she worked at Unilever Russia Raspadskaya. Olga graduated in a Journalism degree from Lomon- & Ukraine and occupied key HR Economics from Kuzbass State osov Moscow State University. positions including that of Per- Technical University. formance Development Manager, building the managerial capability Gerhard F. Hilgert Alexander Korneychuk Andrey Matyushin of the company. Irina graduated (Director of Business (General Director, (General Director, ZMZ OJSC) from Leningrad State University with a degree in Applied Math- Development) MAZDA SOLLERS Since 2012, Andrey Matyushin ematics and Process of Control and Manufacturing Rus LLC, Gerhard F. Hilgert has been Busi- has been General Director of ZMZ also holds an MBA from Leuven ness Development Director at SOLLERS-BUSSAN LLC) OJSC. Andrey began his career at University (Belgium). Irina was SOLLERS since January 2010. In ZMZ OJSC in 1997 as a technolo- included in the Top 1000 Russian Since 2011, Alexander Korney- October 2008, Gerhard was ap- gist and for the past five years has Managers by the Russian Associa- chuk has been General Director of pointed General Director of ZAO headed the technical department tion of Managers (AMR). SOLLERS-BUSSAN LLC and since Severstalavto-ISUZU. In 2007, he of the enterprise. In February 2012 has combined this position Alexei Volodin Anton Karpov joined the SOLLERS team as leader 2012, he was also appointed head with post of General Director of of a project to develop the Com- of RosALit Foundry LLC (ZMZ sub- (General Director, (General Director, MAZDA SOLLERS Manufacturing pany’s own dealership network. sidiary). Andrey is a graduate SsangYong Distribution Centre) UAZ Distribution Centre) Rus LLC. From 2009, Alexander was From 2002 to 2006, he was Chief of Nizhny Novgorod State Techni- General Director of SOLLERS-Far Alexei Volodin has been General Anton Karpov has been General Representative of Daimler Chrysler cal University where Andrey is East. From 2005 to 2009, he was Director of the SsangYong Distribu- Director of the UAZ Distribution AG in Russia and the CIS and from currently also doing his MBA. Executive Director of SOLLERS-Na- tion Centre, the exclusive distribu- Centre since 2010. From 2005, he 1998 to 2004 he was President of berezhnye Chelny (formerly, OAO tor of SsangYong cars in Russia was Head of the UAZ Sales Depart- the Russian subsidiary of Daimler ZMA). From 2002 to 2005, he was since 2009. From 2008, he was head ment. From 2003, he was Head of Chrysler Automotive RUS. Gerhard Director of Strategic Development of the corporate fleet at General the Marketing Department at OAO holds a degree in Economics from Projects at SOLLERS. In 2000-2001, Motors Europe. From 2005 to 2008, UAZ (Ulyanovsk). Anton holds a de- Darmstadt-Eberstadt University, he was Acquisition Manager at he was Business Development gree in Journalism from the Moscow and is a graduate of the Interna- Ford Motor Company. Alexander is Manager at General Motors CIS. State Social University, and com- tional Management Development a graduate of the Moscow Aviation Alexei holds a diploma from the pleted postgraduate studies at the Institute in Lausanne, Switzerland. Institute. Legal Institute of the Russian Fed- Higher School of Economics with eration Ministry of Internal Affairs. a degree in Economics and Manage- ment of the Domestic Economy.

25 For a full biography, please see the Board of Directors section above. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Code of Conduct Information Policy

SOLLERS’ Corporate Code The fundamental principles of corporate con- The Company’s information policy is set forth tions media, and provides necessary informa- duct include: in a regulation approved by the Board of Direc- tion in a form that best meets the needs of of Conduct has remained highly 1. compliance with current Russian legisla- tors in 2005. users while meeting all legal requirements. relevant for the Company since tion and the Company’s internal regulations SOLLERS’ management has made the provi- 2. equal treatment for all shareholders, sion of complete and reliable information to Insider information its approval by the General including minority and foreign shareholders, shareholders, investors and other stakeholders The Company treats the following as insider Shareholders Meeting in 2005. which is ensured through prompt and accurate a priority area for corporate management. information: information disclosure, reports to shareholders 1. information that constitutes a commercial

· Board of Directors The Code defines the Company’s by the Board of Directors (which must include The regulation sets forth the following secret 70 · Committees independent non-executive directors), and General principles of information policies: 2. information to be disclosed in compliance corporate governance framework 71 · Management maintenance of an efficient internal control 1. compliance with Russian legislation with current legislation prior to mandatory · Code of Conduct and safeguards the interests 2. regularity, promptness, availability, re- · Information Policy and audit system publication · Risk Management of both majority and minority 3. managing the Company exclusively for the liability and completeness of information 3. other information on the Company’s benefit of its shareholders through strategic provided activities that is not publicly available, the shareholders. The Code also management and effective Board of Directors 3. maintaining a balance between transpar- disclosure of which could materially affect the ensures informational and supervision of management activity ency in providing information and safeguarding value of the Company’s securities. 4. social responsibility of the Company’s the Company’s commercial interests. Compliance with the procedures for using decision-making transparency management, and its engagement with em- Disclosures: insider information (including prevention of as well as the professional ployees to resolve social issues and maintain Disclosure is understood to mean ensur- unauthorised access to such information or proper working conditions ing access to information for all stakeholders using it for purposes not in the Company’s and ethical responsibility of all 5. compliance with standards of business regardless of their purpose in obtaining it. interest) is ensured by the implementation of ethics, honesty, fairness, professionalism and Information disclosure rules and approach: mandatory procedures: SOLLERS Board of Directors responsibility by members of the Company’s The Company’s management is aware that 1. establishing access controls at the Com- members, top management Board of Directors and all employees in carry- external users may need to access information pany’s premises (including authorised access ing out their professional duties. in a form other than that required by law. Thus, to insider information for management and and employees. the Company has a special department that specific employees) Settlement of corporate conflicts publishes relevant information, including news 2. timely destruction of documents not to be The management places great emphasis on and data on the Company’s strategic goals, retained which may contain insider informa- the prevention and fair settlement of corporate development areas and social policy, etc. tion conflicts. In the event of a conflict, the Com- 3. using security systems to prevent loss of pany’s position is based on its internal regula- Information disclosure methods information or unauthorised access through tions, Charter and current contracts. The Company uses the most relevant meth- communications channels In meeting the requirements for securities ods for disclosing information to stakeholders, 4. appointment of a person in charge of com- trade organisers, the Company regularly pro- including: pliance with insider information procedures. vides reports on its compliance with standards 1. publication via information agencies’ news The Company has developed a regulation on of corporate conduct. bulletins the use of insider information which covers Throughout 2012, all requirements for secu- 2. Internet resources (the Company’s own in particular: access to insider information, rities trade organisers were fully met. website) protection of confidentiality of insider in- 3. public appearances, press briefings and formation, and control over compliance with participation in third-party conferences for the provisions of the regulation. The regula- potential and existing investors tion also determines those groups of persons 4. the issuing of press releases deemed insiders and issues a list of such 5. providing information in hard copy upon persons. request. The Regulation on Information Policy and The Company has a flexible system for keep- the Regulation on the Use of Insider Informa- ing up with new developments in communica- tion are available on the Company’s website. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Risk Management

Organisational Structure of Risk Management General information KEY AREAS OF THE COMPANY'S on risk management RISK MANAGEMENT

One of the most important elements of SOL- The Company is exposed to a variety of risks SHAREHOLDERS AUDIT COMMITTEE LERS’ corporate governance is a risk manage- including, but not limited to currency risks, ment system that enables the Company’s environmental risks, market risks and other risks management to identify current strategic, op- inherent to the automotive industry. Regular BOARD OF DIRECTORS erational and regulatory risks, as well as risks monitoring and risk management activities are

· Board of Directors RISK MANAGEMENT related to financial statements, in a timely undertaken as an integral part of our overall risk 72 · Committees DEPARTMENT INTERNAL AUDIT manner. management programme, which includes regu- · Management 73 MANAGEMENT DEPARTMENT The system increases the Company’s value lar reports to the Audit committee. As a result · Code of Conduct of this policy, the Company believes that its risk · Information Policy and improves its manageability by means of · Risk Management identifying potentially negative factors affect- exposure is manageable and insignificant. ing achievement of the Company’s goals. Risk management is integrated into the SOLLERS' risk management framework decision-making process for investment and The Company uses a balanced approach to strategic projects, and automation projects. risk management with a focus on mitigating Risk Management and Internal Audit Directorate risks through minimising their implications Functional aspects and/or likelihood of materialising. In-depth of risk management analyses of operational and transaction risks are performed regularly, as well as of market risks The Risk Management and Internal Audit and risks inherent in pricing, financial reporting Directorate is a structural unit in charge of risk and taxation. management activities and efficient operation of the Company’s business processes. The functions of the Risk Management and Internal Audit Directorate include: • systematisation, coordination and centrali- sation of risk management processes • identification, review and classification of risks • development of a risk management system for corporate processes and processes used by the Company’s subsidiaries and associates • risk-based approach to conducting internal audits • methodological support for organising inter- nal control and corporate governance systems • interaction with external auditors. COMPANY BUSINESS & CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE EQUITY & reporting INFORMATION SECURITIES P. 74-89 P.

74 75 COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Corporate responsibility permeates Regional Development all aspects of our activities and

As part of implementing SOLLERS’ social pro- is based on the following principles: grammes at both the municipal and regional level, we actively participate in sports and cultural events, and support vulnerable seg- increasing Company shareholder ments of the population. In total, the Company carried out charitable programmes worth RUB 43 million in 2012. In cooperation with the Ruki Pomoschi value, achieving growth through · Regional Development (trans: Helping Hands) charitable foundation, 76 · Industrial & Far East production sites regularly arrange 77 Occupational Safety guided tours of production facilities for or- · Environmentlong-term, mutually beneficial phans and disadvantaged children. Company · Employee Development & Social Programmes employees also provide orphanages with mate- · Education rial assistance and New Year presents. · National Occupationalpartnerships, continuous In 2012, in cooperation with the Ulyanovsk Standards & Region government, UAZ sponsored the con- Qualifications struction of sports and recreation facilities at development, quality improvement a local infant school and contributed to the city architecture by establishing a monument dedicated to Alexander Ablukov, a World War II of our products and services, hero. The enterprise contributes to the Uly- anovsk Sports Support Foundation, local medi- cal and social authorities on a regular basis. improving Company employees’ ZMZ took part in the federal charity cam- paign Pod Flagom Dobra (trans: Under the Flag of Kindness) and provided financial support to the Nizhny Novgorod Children’s Hospital by skills, boosting social and economic sponsoring medical care for children in need of expensive medical treatment. The plant spon- sors the Centre of Social Services for Disabled development in the regions where and Senior citizens in Zavolzhye. In 2012, ZMZ provided this social institution with comput- ers and other technical equipment. As a part we operate, improving operational of its professional development and academic cooperation with regional institutions, ZMZ sponsors a local youth club for technical crea- safety, and control of business tivity and a state vocational school through providing computer equipment, software and technical assistance. The plant contributes to processes. local sports initiatives by providing financial support to a women’s hockey team. In 2012 the enterprise sponsored a volleyball tournament dedicated to the celebration of Mechanical Engineers’ Day. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Industrial & Industrial & Occupational Safety Occupational Safety

Employee health and safety is one of the Com- Number of work-related accidents 2011 – 2012 26 pany’s strategic priorities. Through the SOL- LERS Occupational Health and Safety (OHS) 35 30 programme, we have significantly reduced the 30 risk of work-related accidents and health prob- -37% lems by providing conditions for our employ- 25 19 ees to work both safely and productively. Our 20

OHS programme is compliant with Russian 15 · Regional Development law and aims to ensure the continuous im- 5 78 · Industrial & provement of working conditions and reduce 79 Occupational Safety both industrial injuries and occupational ill- 0 · Environment nesses. According to our regulations, Company 2011 2012 · Employee Development & Social Programmes employees must increase their awareness of · Education OHS standards and comply with their require- ments in order to prevent epidemiological · National Occupational ments, as well as take part in developing and situations Standards & improving OHS standards, while management • monitored OHS arrangements and injury Qualifications is responsible for encouraging and motivating risks in the workplace, adopted the CCAR our people to observe OHS standards. (Concern and Corrective Action Report) ap- In 2012, the management of UAZ and ZMZ proach; made weekly reports on the findings implemented the following improvements: of OHS inspections and imposed tough • detailed identification of hazardous produc- deadlines for corrective actions, significantly tion facilities, all of which were registered and improving our work efficiency and effective- insured in compliance with current regulations, ness in this area no industrial accidents or injuries registered • performed medical examination of new while running or repairing hazardous produc- employees and regular health examinations for tion facilities categories of employees deemed to be at higher • expert appraisal of industrial safety of risk, both funded by the employer production equipment and auxiliaries where all • organised training and tests of employees examined objects were approved for safe use to increase their awareness of OHS standards • investment project to substitute worn-out • developed a programme of operational con- technological devices and equipment with new trol over OHS compliance at hazardous produc- facilities, and carried out an expert industrial- tion facilities safety appraisal of newly installed objects • monitored working conditions on a daily • approved an expert committee to examine basis, conducted investigations of injuries and safety equipment and protective clothing sup- accidents. plied to the production facilities In 2012, SOLLERS decreased the number of • performed OHS assessment of individual work-related accidents by 37% year-on-year. workplaces and amended working environment The 2013 plan provides for further assess- • organised training for 2,361 employees to ment of workplaces, improvement of working increase their awareness of OHS standards. conditions, upgrading of technical devices and In 2012, our production facilities in Vladiv- personal protective equipment and treatments, ostok (the Far East Region) took the following personnel training in OHS, repair and con- steps to improve OHS functions: struction of indoor courses on industrial prem- • performed OHS assessment of 116 work- ises, and installation of safety labels/plates. places and improved the working environment • worked out a programme of industrial control over the execution of sanitary arrange- 26 Company source. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ IFRS FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & STATEMENTS INFORMATION RESPONSIBILITY SECURITIES 2011

Environment

Our environmental policy is designed to • control and monitoring of hazardous painting shop of the flow-coating section” SOLLERS’ environmental ensure conservation of energy and resources, waste-management rules project. The environmental effect from reduction of carbon emissions, and efficient • control and monitoring of the consistency this project’s implementation was a consider- protection initiatives solid-waste management. The Company’s envi- and operational efficiency of environmental able reduction in air pollution. Work on and responsible environmental ronmental protection and management policy protection equipment and facilities this project will continue in 2013. The plant calls for strict compliance with Russian law and • analytical control of waste streams and air has conducted major repairs on environmen- management have been assessed regulations as well as continuous improvement emissions tal protection equipment. under a range of environmental of environmental management and the reduc- • environmental monitoring of water reposi- Consistent efforts to implement the re-

· Regional Development tion of our environmental footprint. Manage- tories. quirements of ZMZ’s environmental policies competitions and certification 80 · Industrial & ment seeks to foster a culture of efficient and SOLLERS’ environmental protection initia- helped decrease water consumption per unit 81 Occupational Safety responsible environmental management and tives and responsible environmental manage- produced by 28% as against 2011. In 2012, processes. · Environment tection. · Employee Development pro ment have been assessed under a range of gross emissions into the atmosphere per unit & Social Programmes Key areas of SOLLERS’ environmental policy environmental competitions and certification produced were down 13% year-on-year. · Education are as follows: processes. Electric power consumption per unit produced · National Occupational • energy conservation and sustainable use of For example, in 2008, UAZ took part in decreased by 12% year-on-year. Standards & natural resources, reduction of GHG emissions, a European Quality Gold Medal Contest in In 2012, SOLLERS-Far East reduced its Qualifications efficient solid waste management the category of Russia’s Top-100 Entities: water and electricity consumption per car • verifying and ensuring compliance of pro- Environmental Protection and Management. produced by 14% and 11%, respectively, and jected economic operations and other activities As a result, UAZ’s Executive Director was discharges into water per cubic meter by with environmental regulations awarded the honorary title of Environmentalist 11% year-on-year. The plant bought new • assessing our environmental footprint and of The Year. In 2011, UAZ won a prize in equipment for its container terminal, which prompt response to any irregularities Russia’s Top-100 Entities: Environmental contributed to reducing exhaust emissions. • environmental safety of both our personnel Protection and Management. ZMZ has been The newly installed modern ventilation sys-

and local communities in the Company’s areas included in a Greenpeace White List, which tem fully eliminates CO2 emissions. The plant of operation lists those entities that promote environmental is constructing heat-transfer agents, includ- • continuous improvement of personnel transparency. In 2009, based on an annual ing a liquid-gas operated boiler house, which environmental awareness. evaluation of businesses’ environmental will save the city 11 megawatts of power. efficiency, OAO ZMZ shares were included Four sub-stations are being renovated, and in the NERAX-Eco investment portfolio for the replacement of electric transformers Environmental management 2010. The entity’s environmental management is underway, which should result in consump- system system has been certified as complying with tion savings. The plant uses energy-saving ISO 14001. lamps and equipment. SOLLERS-Far East has As part of our environmental management sys- furnished its territory with VEKSA advanced tem, the Company regularly takes the following treatment system designed for purifying steps: Environmental emissions storm water, snowmelt, industrial and street • accounting for the mix and volumes of pol- and management sprinkler water polluted with oil products and luting substances discharged into the natural suspended substances. environment In 2012, implementation of the “Renovation The 2013 plan provides for further major re- • timely development of environmental-im- of storm water drainage in the north-east and pairs of environmental protection equipment, pact standards and monitoring of compliance southwest sections of UAZ” project resulted in working out the project documentation for • control and monitoring of the implementa- zero wastewater discharge to the River Sviyaga. purifying industrial emissions, and searching tion of environmental plans, activities, direc- In addition, UAZ launched the “Installation of for an appropriate method of thermal disposal tives and recommendations dust and gas collecting equipment in the body- of combustible refuse. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Employee Development & Social Programmes

Under its social responsibility programme, Average number of employees in 2012 totalled 19,722 SOLLERS focuses on enhancing the quality with the following distribution: of employee healthcare, family support, recrea- tion and work-life balance, motivation and 3% 1% assistance for young people, social support for retired people, training and development for staff, and incentivising talent. All Company en- tities have successfully implemented a system 96%

· Regional Development of in-kind incentives 82 · Industrial & in addition to bonuses and other performance- UAZ Holding (including ZMZ) 83 Occupational Safety based motivational benefits. · Environment Corporate Centre UAZ and ZMZ independently carry out an- · Employee Development SsangYong & Social Programmes nual youth and family social programmes and a · Education series of corporate events aimed at team-build- · National Occupational ing, enhancing employee loyalty and helping Standards & staff to understand the importance of their role Qualifications for the Company.

The Family Programme The Family Programme is aimed at strength- ening the family, supporting personnel and en- couraging them to act as a team, and resuming the tradition of family celebrations. Its princi- pal goal is to support and develop positive so- cial initiatives among employees. Programme events include theme parties, art exhibitions, children’s drawing contests and performances, sports activities, children’s festivals and visits to theatres. Every year, ZMZ publishes a prose and po- etry collection titled “Rodniki” (trans: Spring Brooks). The Company also offers legal support for women facing challenging life situations, and sponsors a women’s club at the plant. Children’s recreation is one of the key themes of UAZ’s corporate responsibility policy. All employees who apply for a tour are provided with vouchers for children’s recreation camps and health resorts, enabling the children of employees to enjoy a high-quality summer holiday on attractive terms.

The Youth Programme The aim of the Youth Programme is to foster the development of younger employees’ crea- tive and intellectual potential, and promote a healthy lifestyle. The main objectives of the COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Programme include: further training, the fos- tering of discipline and responsibility, and the Education promotion of a healthy lifestyle and innovation among young staff. The Programme is open to all Company employees and its subsidiaries under 35 years old. Programme events include intellectual games, professional contests, sports functions, tourism trips, comedy festi- Personnel development contributes to business development vals, youth balls, and environmental events. In 2012, for the first time UAZ held its very own and results in higher productivity, higher quality of goods Olympics featuring 14 different sports. and services, lower personnel turnover, lower injury rates, increased In addition to the social guarantees provided for under Russian Law, UAZ and ZMZ offer consumer demand, better morale and psychological environment, health programmes to their employees and improved satisfaction overall. at health centres and other medical and pre-

· Regional Development ventative treatment institutions. Costs related 84 · Industrial & to treatment, accommodation and food are cov- The aim of personnel training and development 85 Occupational Safety ered only partially by the employee. The plants is to enhance competencies and qualifications · Environment vide employees with rehabilitation facili- in line with the Company’s business needs. · Employee Development pro & Social Programmes ties, spa resort and medical services out In 2012, SOLLERS’s training costs were almost · Education of their own funds under voluntary medical RUB 19 million. Training covered the following · National Occupational insurance agreements. areas: Standards & Both companies also offer their employees • mandatory training Qualifications assistance with costs associated with funer- • further education for employees and man- als, childbirth, maternity leave and childcare, agement and make sure that all children have New Year • corporate (internal training) presents. • induction and adjustment programmes SOLLERS-Far East has a well-developed sys- • technical training in the plants’ Training tem of non-financial incentives. Employees can Centres and Corporate Training Centre. visit the plant with their families on various SOLLERS entities offer learning and develop- national holidays. On Family Day, for example, ment opportunities through four licensed they can come to enjoy excursions, and various training centres. In addition to company em- master classes and concerts. On Mechanical ployees, training is provided to dealer centres Engineers’ Day, representatives of the munici- and other companies outside the SOLLERS pal and regional administrations hold award Group. In 2012, training activity for third-party ceremonies which recognise employees’ profes- employees was extended with the SOLLERS sional achievements. Sports events include the Corporate Training Centre becoming a sepa- Primorye Business Olympics and rowing races. rate business entity under the name Frontline. The plant’s team took fourth place at the 2012 Frontline develops tailor-made education pro- Winter Business Olympics and first place in the grammes that meet specific Company needs. men’s Dragon-class rowing race at the Summer Company personnel have the opportunity Business Olympics. to choose a training provider which best meets their particular business needs. Among the Company’s educational partners are Ernst & Young, and PricewaterhouseCoopers. In 2012, the most relevant topics for Company professional training were: financial manage- ment, changes in law and professional stand- ards, lean manufacturing, and quality manage- ment. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Educational Programmes vs Occupational Standards. National Occupational The Way To Convergence

Standards & Qualifications EDUCATIONAL PROGRAMMES

The Russian government has tasked the do- • a scheme demonstrating competency PLANNING DESIGNING IMPLEMENTING FINALISING mestic automotive industry with developing models of specialists/graduates from specific competitive products that meet international educational institutions vis-à-vis occupational standards. This requires providing the industry standard requirements with qualified personnel capable of meeting • development of a framework matching oc- 1. MARKETING 1. DETERMINATION 1. EDUCATIONAL 1. PROPER business, scientific, technical, social, and other cupational standard requirements with educa- OF EDUCATIONAL OF GOALS, RESULTS, PROCESS ORGANISATIONAL challenges. tional programmes at all levels. SERVICES CONTENTS 2. EDUCATIONAL ARRANGEMENTS Russia‘s automotive industry leaders are 2. DETERMINATION AND EDUCATIONAL QUALITY MONITORING OF SOCIAL MISSION TECHNIQUES 3. PROGRAMME · Regional Development committed to recruiting and developing human 2011 - 2012 project results 2. DEVELOPMENT UPGRADING · Industrial & resources. In 2011, the SOLLERS Engineering Twenty-one industry occupational standards OF REGULATORY 86 Occupational Safety Academy started developing a set of occupa- were developed, namely: DOCUMENTS · Environment 87 tional standards for the sector. The Russian • paint-spray processing specialist AND EDUCATIONAL · Employee Development MATERIALS & Social Programmes Federation Ministry of Trade and Industry is • units and car-assembly specialist · Education working on this with SOLLERS, AVTOVAZ, GAZ, • automobile design engineer · National Occupational KAMAZ and VOLKSWAGEN. Their overall share • process manager for metalwork mechanical Standards & of the Russian auto market is about 80%. The engineering Qualifications EMPLOYERS project’s total budget for 2011 and 2012 was • metalwork specialist RUB 16.4 million and RUB 6.4 million respec- • steelwork specialist tively. • tooling specialist • automotive industry logistics specialist OCCUPATIONAL STANDARDS Organisers • automotive industry designer • Russian Presidential Academy of National • mechatronics specialist 1. Objectives of professional activities, compliance with employment Economy and Public Administration • automobile mechatronics specialist duties corresponding to vocational qualification level 2. Requirments for the level of competences' maturity • National Research University Centre for • industrial engineering specialist 3. Requirments for quality criteria of graduates' education and training Qualifications Development, Higher School of • foundry specialist 4. The goal is to determine new cases, where new professionals are needed Economics • automotive market analyst • International Association of Corporate • equipment adjusting specialist Education. • automotive industry sales specialist • presswork specialist Project participants • welding specialist Competency Model Formation Eighty experts and 756 respondents repre- • preproduction planning specialist senting five car manufacturers took part in this • heat-processing specialist project, initiated and led by SOLLERS. Based • mechanical engineering chemist-technol- MANAGERIAL OCCUPATIONAL on 2011 results, the Association of Russian Au- ogist. PERSONNEL COMPETENCIES COMPETENCIES COMPETENCIES tomakers set up a Professional Qualifications Committee. The result is an absolute first across all sectors of the economy. Project goals 1. For the first time, Russia has an occupa- • analysis of the human-resources pool for tional and qualification industry framework EDUCATIONAL ACTIVVITY CMG COMPETENCIES CMS OCCUPATIONAL ACTIVITY the automotive industry covering the entire product life cycle in place to • development of general industry projects help develop human resources. The framework for key categories of personnel is based on interaction between the labour • development of communications between qualification system and the educational quali- COMPETENCY COMPETENCY automotive companies, industry-related fication system. Universities, colleges MODEL MODEL Employers educational and scientific institutions, and 2. This is also the first time that a develop- OF GRADUATE OF SPECIALIST government authorities in relation to human ment forecast for the automotive industry has resources been drafted covering the period up to 2020 COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

The Effect Produced by Occupational Standards and based on Rapid Foresight methods. The project up to 2020 and to issue recommendations on Qualification Framework on Labour Quality participants received a road map, a visual im- the further elaboration of occupational standards age of a joint future comprising key trends, and their application. Experts worked out a events, technology, strategic options and schedule of seminars for 2013 entitled:

Control decision-making points, a plan of legislative “Occupational standards: practical implications of personnel competencies and lobbying steps, and a forecast for develop- for the Company’s employee development”, Audit of Qualification when recruited ing technology and critical markets. The result and “The application of occupational standards Framework can be regarded as a prototype for an acting within the framework of professional education and introduction Identification and of missing occupational development of personnel organisational solution for managing industry and training”. competencies competencies development, and specifically as a prototype The occupational standards and occupational/ communication tool for auto-market players qualification framework designed by the auto- at all levels (human resource providers, plants, motive manufacturers forms part of the docu- Cooperation management structures). mentation pertaining to the labour-regulation with educational institutions Interrelation to bring educational OCCUPATIONAL of incentive scheme and 3. An adapted international expert evalua- framework. In addition, such materials help to programmes into conformity STANDARDS occupational standards' tion of industry occupational standards and its draft the occupational competencies required with occupational standard's AND QUALIFICATION requirements · Regional Development human resource development framework has for implementing new techniques and technol- 88 requirements FRAMEWORK AS KEY DRIVERS · Industrial & been conducted. ogy, to master skills on an on-going basis, and OF LABOUR QUALITY 89 Occupational Safety 4. A framework which matches occupational to reduce the use of non-qualified labour. · Environment IMPROVEMENT - It is important to note that occupational · Employee standard requirements with educational pro Development & Social Interrelation Intercompany training grammes at all levels (at the design and imple- standards and the occupational/qualification Programmes of technological changes and improvement of mentation stages) has been developed. framework are designed together with the and occupational personnel qualifications · Education 5. In accordance with occupational standard establishment of their period of validity and standards' requirements · National Occupational requirements, competency models for both level of methods and technology develop- Standards & specialists and graduates have been devel- ment in the sector. For example, occupational Qualifications Interrelation oped. In education, a competency approach standards are normally valid for two to three of regulatory documents Personnel and occupational means implementing occupational educational years. The occupational/ qualification frame- certification standards' requirements programmes that develop the student’s ability work should also be regularly reviewed in line to independently apply to a certain context the with the emergence of new professions and knowledge and skills acquired in training. the disappearance of old ones. To comply with 6. Recommendations have been developed for these principles the expert group worked out further the elaboration of occupational stand- a mechanism for replacing and updating the ards and their application. The final stage of occupational/ qualification framework which the project was to draft and approve the Regu- takes into account low indicators of the new lation on the Framework for Human Resourcing profession emergence and the need to update for the Russian Automotive Industry Strategy certain requirements. COMPANY BUSINESS & CORPORATE CORPORATE financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL reporting INFORMATION RESPONSIBILITY P. 90-96 P.

COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

SOLLERS works hard for its Share Capital share capital investors. SOLLERS

The Company’s subscribed share capital totals performed well in 2012 with RUB 428 million, represented by 34,270,159 ordinary shares at a value of RUB 12.50 each. The Company has the right to allocate an key indicators showing robust additional 47,804 ordinary shares at a value of RUB 12.50 each. These ordinary shares would carry voting rights in the same propor- tion as other ordinary shares. progress over the previous year. · Share Capital In 2007, SOLLERS implemented a stock-op- 92 · Major Shareholders tion programme for key management members 93 · Market Share Price for the first time. & GDR We look forward to continued The programme was renewed in 2009, and · Bonds the options are still available for execution. growth in the years to come. Additional information on SOLLERS’ optional plan is published in the Notes to the IFRS Statements. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Major Shareholders Market Share Price & GDR

The immediate parent company is Newdeal The Company’s shares are listed on the MICEX-RTS Investments Limited. The Group’s ultimate stock exchange under the ticker SVAV. controlling party is Vadim Shvetsov, who is the Company’s principal shareholder. 25 1900 1800

20 1700 Shareholder Structure as of 31.12.2012 1600 15 USD 1500 · Share Capital 94 · Major Shareholders 1400 10 · Market Share Price 95 1300 & GDR · Bonds 5 1200 46% 1100

0 1000 V.Shvetsov 3/01/2012 14/02/2012 29/03/2012 11/50/2012 22/06/2012 3/08/2012 14/09/2012 26/10/2012 10/12/2012 Free-float

54% SVAV RTS RTS

In August 2005, SOLLERS established a spon- sored Global Depositary Receipt (GDR) program. The GDRs are unlisted and 1 DR includes 1 ordi- nary share. The custodian for the program is Deutsche Bank Moscow.

DR Ratio: 1:1 DR ISIN: US8342581050 CUSIP: 834258105 DR Type: Reg S / Sponsored COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Bonds27

As of 31 December 2012, SOLLERS OJSC had two bond issues outstanding.

Issue BO-2

Name SOLLERS OJSC, certified unregistered interest-bearing exchange bonds, issue BO-2 96 · Share Capital State registration details: No. 4B02-02-02461-D of 29.08.2008, MICEX · Major Shareholders ISIN code: RU000A0JQUW3 97 · Market Share Price Par value: RUB 1,000 & GDR Emission volume, items: 2,000,000 · Bonds Traded volume, items: 2,000,000 Trading period, days: 1,092 Commencement date of placement: 05.05.2010 Expiration date: 05.05.2010 Maturity date: 01.05.2013 Frequency of payments per year: 2 % per annum: 9.25

Issue 02

Name: SOLLERS OJSC, interest-bearing certified unregistered bonds State registration details: No. 4-02-02461-D of 22.06.2007, FSFM ISIN code: RU000A0JPCB7 Par value: RUB 1,000 Emission volume, items: 3,000,000 Traded volume, items: 3,000,000 Trading period, days: 2184 Commencement date of placement: 25.07.2007 Expiration date: 25.07.2007 Maturity date: 17.07.2013 Frequency of payments per year: 2 % per annum: 12.5

27 As of the report issue date. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & INFORMATION RESPONSIBILITY SECURITIES P. 98-155 P. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

SOLLERS accounting FINANCIAL REPORTING SOLLERS GROUP procedures equal or exceed INTERNATIONAL FINANCIAL REPORTING STANDARDS all local and international CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT requirements. 31 DECEMBER 2012

· Independent Auditor’s Report · Sollers Group Consolidated Financial Statements · Sollers Group Notes to the Consolidated Financial Statements at 31 December 2012 (in millions of Russian Roubles – RR) COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

Independent Auditor’s Report

103 INDEPENDENT 104 Sollers Group 110 Sollers To the Shareholders and Board of Directors of Open Joint Stock Company Sollers: AUDITOR’S REPORT Consolidated Group Notes to We have audited the accompanying consolidated financial statements of Open Joint Stock Financial the Consolidated Company Sollers and its subsidiaries (the “Group”) which comprise the consolidated statement Statements Financial of financial position as of 31 December 2012 and the consolidated statements of comprehensive Statements income, changes in equity and cash flows for the year then ended and notes comprising a summary of significant accounting policies and other explanatory information. 104 Sollers Group 110 1 The Sollers 138 15 Cash Consolidated Group and its and cash equivalents Statement of operations 139 16 Shareholders’ Management’s Responsibility for the Consolidated Financial Statements Financial Position at 111 2 Basis of equity 102 31 December 2012 preparation and 140 17 Borrowings 103 105 Sollers Group significant accounting 141 18 Advances Management is responsible for the preparation and fair presentation of these consolidated Consolidated policies received and other financial statements in accordance with International Financial Reporting Standards, and for such Statement 124 3 Critical payables internal control as management determines is necessary to enable the preparation of consolidated of Comprehensive accounting estimates 142 19 Taxes financial statements that are free from material misstatement, whether due to fraud or error. Income for the year and judgements payable ended 31 December in applying accounting 142 20 Warranty 2012 policies and other provisions 106 Sollers Group 126 4 Adoption 142 21 Sales Auditor’s Responsibility Consolidated of new or revised 143 22 Cost of sales Statement of Cash standards and 143 23 Distribution Our responsibility is to express an opinion on these consolidated financial statements based on Flows for the year interpretations costs our audit. We conducted our audit in accordance with International Standards on Auditing. Those ended 31 December 127 5 New 143 24 General 2012 accounting and administrative standards require that we comply with ethical requirements and plan and perform the audit to 108 Sollers Group pronouncements expenses obtain reasonable assurance about whether the consolidated financial statements are free from Consolidated 129 6 Balances and 144 25 Other material misstatement. Statement of Changes transactions with operating (income) / An audit involves performing procedures to obtain audit evidence about the amounts and in Equity for the year related parties expenses – net disclosures in the consolidated financial statements. The procedures selected depend on the ended 31 December 130 7 Property, plant 144 26 Finance auditor’s judgment, including the assessment of the risks of material misstatement of the 2012 and equipment costs, net 131 8 Goodwill 144 27 Income tax consolidated financial statements, whether due to fraud or error. In making those risk assessments, 131 9 Development expense the auditor considers internal control relevant to the entity’s preparation and fair presentation costs 146 28 Earning of the consolidated financial statements in order to design audit procedures that are appropriate 132 10 Other per share in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of intangible assets 147 29 Segment the entity’s internal control. An audit also includes evaluating the appropriateness of accounting 133 11 Investments information in joint ventures 147 30 Financial risk policies used and the reasonableness of accounting estimates made by management, as well as and associates management evaluating the overall presentation of the consolidated financial statements. 135 12 Other 152 31 Contingencies, We believe that the audit evidence we have obtained is sufficient and appropriate to provide non-current assets commitments a basis for our audit opinion. 135 13 Inventories and operating risks 136 14 Trade and 154 32 Principal other receivables subsidiaries Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2012, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

8 April 2013 Contents Moscow, Russian Federation COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

Sollers Group Consolidated Financial Statements

Sollers Group Consolidated Statement of Financial Position Sollers Group Consolidated Statement of Comprehensive Income at 31 December 2012* for the year ended 31 December 2012*

RR million Supplementary information RR million Supplementary information US$ million (Note 2) US$ million (Note 2) Note At 31 December At 31 December At 31 December At 31 December Note Year ended 31 December Year ended 31 December 2012 2011 2012 2011 2012 2011 2012 2011

ASSETS Sales 21 65,549 69,531 2,108 2,365 Cost of sales 22 (51,475) (57,319) (1,656) (1,949) Non-current assets · Independent Gross profit 14,074 12,212 452 416 Property, plant and equipment 7 11,539 12,527 380 389 104 Auditor’s Report Goodwill 8 1,484 1,484 49 46 Distribution costs 23 (2,551) (2,578) (82) (88) · Sollers Group Development costs 9 393 524 13 16 General and administrative expenses 24 (5,205) (4,982) (167) (170) 105 Consolidated Other intangible assets 10 182 199 6 6 Net result on formation of joint venture 11 922 4,007 30 136 Financial Statements Deferred income tax assets 27 276 874 9 27 Other operating income/(expenses), net 25 5 (150) – (4) · Sollers Group Notes Investments in associates and joint ventures 11 14,492 11,921 477 370 Operating profit 7,245 8,509 233 290 Other financial assets 20 22 1 1 to the Consolidated Finance costs, net 26 (810) (2,281) (26) (77) Other non-current assets 12 677 596 22 19 Share of result of joint ventures and associates 11 1,149 47 37 1 Financial Statements Total non-current assets 29,063 28,147 957 874 Profit before income tax 7,584 6,275 244 214 at 31 December 2012 Current assets (in millions of Russian Inventories 13 4,503 6,700 148 208 Income tax expense 27 (1,703) (1,581) (55) (54) Roubles – RR) Trade and other receivables 14 9,816 11,034 323 343 Profit for the year 5,881 4,694 189 160 Other current assets 231 256 8 8 Total comprehensive income for the year 5,881 4,694 189 160 Cash and cash equivalents 15 2,560 2,957 84 92 Total current assets 17,110 20,947 563 651 Profit is attributable to: TOTAL ASSETS 46,173 49,094 1,520 1,525 Owners of the Company 5,843 4,594 188 156 Non-controlling interest 38 100 1 4 LIABILITIES AND EQUITY Profit for the year 5,881 4,694 189 160 Equity Total comprehensive income is attributable to: Share capital 16 530 530 17 16 Owners of the Company 5,843 4,594 188 156 Treasury shares 16 – (653) – (20) Non-controlling interest 38 100 1 4 Share options 16 50 77 2 2 Total comprehensive income for the year 5,881 4,694 189 160 Share premium 16 4,480 4,893 148 152 Additional paid-in capital 16 1,438 1,438 47 45 Weighted average number of shares outstanding 28 34,152 33,472 34,152 33,472 Retained earnings 16 6,340 1,092 209 34 during the period (in thousands of shares) – Equity attributable to the Company's owners 12,838 7,377 423 229 basic Non-controlling interest 7,042 6,177 232 192 Weighted average number of shares outstanding 28 34,275 33,907 34,275 33,907 Total equity 19,880 13,554 655 421 during the period (thousands) − diluted Profit per share Liabilities (in RR and US$) – basic 28 171.1 137.2 5.50 4.67 Non-current liabilities Profit per share Long-term borrowings 17 3,742 5,851 123 182 Deferred income tax liabilities 27 854 1,208 28 38 (in RR and US$) – diluted 28 170.5 135.5 5.48 4.61 Other long term liabilities 31 48 1 1 Total non-current liabilities 4,627 7,107 152 221 Other than as presented above, the Group did not have any items to be recorded as other Current liabilities Trade accounts payable 10,454 13,104 344 407 comprehensive income in the statement of comprehensive income (2011: no items). Advances received and other payables 18 2,865 1,680 94 52 Taxes payable 19 1,045 2,321 34 72 Warranty and other provisions 20 604 345 20 11 Short-term borrowings 17 6,698 10,983 221 341 Total current liabilities 21,666 28,433 713 883 Total liabilities 26,293 35,540 865 1,104 TOTAL LIABILITIES AND EQUITY 46,173 49,094 1,520 1,525

Approved for issue and signed on behalf of the Board of Directors on 8 April 2013. The accompanying notes on pages 110 to 155 are an integral part

General Director Chief Financial Officer of these consolidated financial statements. V.A. Shvetsov N.A. Sobolev

* In millions of Russian Roubles. Amounts translated into US Dollars for convenience purposes, Note 2 * In millions of Russian Roubles. Amounts translated into US Dollars for convenience purposes, Note 2 COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

SOLLERS GROUP Consolidated Statement of Cash Flows SOLLERS GROUP Consolidated Statement of Cash Flows for the year ended 31 December 2012* for the year ended 31 December 2012 (continued)*

RR million Supplementary information RR million Supplementary information US$ million (Note 2) US$ million (Note 2) Note Year ended 31 December Year ended 31 December Note Year ended 31 December Year ended 31 December 2012 2011 2012 2011 2012 2011 2012 2011

Cash flows from operating activities Income taxes paid (1,755) (640) (56) (22) Interest paid (1,424) (2,304) (46) (78) Profit/(loss) before income tax 7,584 6,275 244 214 Net cash from operating activities 6,434 4,017 207 137 Adjustments for: Depreciation 839 1,406 27 48 Cash flows from investing activities Amortisation 274 215 9 7 Purchase of property, plant and equipment (917) (1,148) (30) (39) Share options 18 28 1 1 Proceeds from the sale of property, plant 1,626 5,593 53 190 Provision and write-off for impairment 172 71 6 2 and equipment and advances received of receivables Development costs 9 (86) (157) (3) (5) Provision for inventories 13 71 (2) 2 – Purchase of other non-current assets (52) (72) (2) (2) Other provision movements 439 477 14 16 Investment in joint venture 11 (951) (330) (30) (11) Loss on disposal of other non-current assets 28 67 1 2 · Independent Dividends received from participation in joint 13 – – – Amortisation of Government grants (16) (20) (1) (1) venture 106 Auditor’s Report Development costs write-off 7 5 – – Proceeds from sale of subsidiary net of cash (320) – (10) – · Sollers Group Net losses/(gain) on disposal of property, plant 220 144 7 5 disposed 107 and equipment Consolidated Net cash (used in)/from investing activities (687) 3,886 (22) 133 Financial Statements Net result on formation of joint venture 11 (922) (4,007) (30) (136) Share of result of JV and associates 11 (1,149) (47) (37) (1) · Sollers Group Notes Cash flows from financing activities Finance costs, net 1,438 3,031 47 103 to the Consolidated Proceeds from borrowings 6,995 13,521 225 460 Operating cash flows before working capital 9,003 7,643 290 260 Repayment of borrowings (13,305) (21,414) (428) (729) Financial Statements changes Dividends paid to the Group’s shareholders (16) (22) (1) (1) at 31 December 2012 Decrease in inventories 1,424 5,431 46 185 Change in treasury shares 182 (120) 6 (4) (in millions of Russian Decrease/(increase) in trade and other 945 (4,260) 30 (145) Net cash used in financing activities (6,144) (8,035) (198) (274) Roubles – RR) receivables Decrease/(increase) in other current assets 25 (212) 1 (7) Net decrease in cash and cash equivalents (397) (132) (13) (4) (Decrease) in trade accounts payable, advances (584) (3,806) (19) (130) Effect of exchange rate changes on cash – – 5 (5) received and other payables and cash equivalents (Decrease)/increase in taxes payable (1,200) 2,165 (39) 74 Cash and cash equivalents at the beginning 2,957 3,089 92 101 of the year Cash provided from operations 9,613 6,961 309 237 Cash and cash equivalents at the end of the year 2,560 2,957 84 92

The accompanying notes on pages 110 to 155 are an integral part The accompanying notes on pages 110 to 155 are an integral part of these consolidated financial statements. of these consolidated financial statements.

* In millions of Russian Roubles. Amounts translated into US Dollars for convenience purposes, Note 2 * In millions of Russian Roubles. Amounts translated into US Dollars for convenience purposes, Note 2 COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

SOLLERS GROUP Consolidated Statement of Changes in Equity for the year ended 31 December 2012*

Note Share Treasury Share Share Additional Retained Total Attributable Non-controlling Total capital shares options premium paid-in-capital earnings to equity holders of interest equity the Group

Balance at 1 January 2011 530 (724) 77 5,062 1,438 (3,144) 3,239 5,719 8,958 Profit for the year – – – – – 4,594 4,594 100 4,694 Total comprehensive income for 2011 – – – – – 4,594 4,594 100 4,694 Change of interest in subsidiary 32 – – – – – (358) (358) 358 – Treasury shares acquisition – (135) – – – – (135) – (135) Share options 6, 16 – 206 – (169) – – 37 – 37 Balance at 31 December 2011 530 (653) 77 4,893 1,438 1,092 7,377 6,177 13,554 Profit for the year – – – – – 5,843 5,843 38 5,881 Total comprehensive income for 2012 – – – – – 5,843 5,843 38 5,881 Change of interest in subsidiary 32 – – – – – (595) (595) 595 –

· Independent Disposal of subsidiary 11 – – – – – – – 232 232 108 Auditor’s Report Treasury shares disposal – 559 – (312) – – 247 – 247 · Sollers Group Treasury shares acquisition – (80) – – – – (80) – (80) 109 Share options 6, 16 – 174 (27) (101) – – 46 – 46 Consolidated Financial Statements Balance at 31 December 2012 530 – 50 4,480 1,438 6,340 12,838 7,042 19,880 · Sollers Group Notes to the Consolidated Financial Statements at 31 December 2012 (in millions of Russian Roubles – RR)

The accompanying notes on pages 110 to 155 are an integral part of these consolidated financial statements.

* In millions of Russian Roubles. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

Sollers Group Notes to the Consolidated Financial Statements at 31 December 2012

· Independent 1 The Sollers Group and its operations corporate sectors significantly deteriorated since mid-2008. Starting from 2011 the Russian 110 Auditor’s Report economy demonstrated a moderate recovery of economic growth. The recovery was accompanied 111 · Sollers Group These consolidated financial statements have been prepared in accordance with International by a gradual increase of household incomes, lower refinancing rates, stabilisation of the exchange Consolidated Financial Reporting Standards for the year ended 31 December 2012 for Sollers OJSC, previously Financial Statements rate of the Russian Rouble against major foreign currencies, and increased liquidity levels in the · Sollers Group Notes called OAO “Severstal-auto”, (the “Company”) and its subsidiaries (the “Group”). The Group banking sector. In particular, a number of these factors have helped the automotive industry in to the Consolidated adopted its new name “Sollers” in 2008. general to recover and sales of new vehicles in Russia have significantly increased during the years Financial Statements The Company and the Group’s principal activity is the manufacture and sale of vehicles, ended 31 December 2011 and 2012 to date compared to the previous periods and in the most of at 31 December 2012 including automotive components, assembly kits, and engines. The Group’s manufacturing market segments achieved the pre-crisis peak levels. (in millions of Russian facilities are primarily based in Ulyanovsk, the Nizhniy Novgorod region, and Vladivostok in the Further to the negotiations of the Cyprus government with the European Commission, the Roubles – RR) Russian Federation. European Central Bank and the International Monetary Fund for the purpose of obtaining On 1 October 2011 the Group established the joint venture with Ford with production assets financing, on 25 March 2013 it was agreed that financial assistance will be provided to Cyprus in located in Vsevolozhsk in the St. Petersburg region, Naberezhnye Chelny and Elabuga in the conjunction with a package of measures to be implemented including the split of Laiki Bank into Republic of Tatarstan. Ford-Sollers joint venture is intended for exclusive production and depositors with amounts up to €100 thousand and depositors with amounts over €100 thousand; distribution of Ford branded vehicles in Russia. By the end of 2011 the Group established the and a substantial haircut on Bank of Cyprus deposits with amounts over €100 thousand. As at 31 joint venture with Japanese Mitsui&Co., Ltd located in Vladivostok, where Toyota vehicles are December 2012 the Group did not hold any bank balances or deposits in the Cypriot banks. planned to be produced. During the second half 2012 the Group finalized the foundation of the The tax, currency and customs legislation within the Russian Federation is subject to varying joint venture with Mazda Motor Corporation in Vladivostok also (Note 11) and launched the interpretations and frequent changes, and other legal and fiscal impediments contribute to the production of Mazda SUVs in September 2012. In August 2012 the Group disposed 16% stake in challenges faced by entities currently operating in the Russian Federation. The future economic joint venture Sollers-Isuzu and recognised the remained investment as 50%-50% joint venture. direction of the Russian Federation is largely dependent upon the effectiveness of economic, The Sollers-Isuzu production of light-duty trucks is located in Ulyanovsk (Note 11). financial and monetary measures undertaken by the Government, together with tax, legal, In February 2013 the Group relocated SsangYong SUVs’ production from the Group’s subsidiary regulatory, and political developments. site to JV Mazda-Sollers’ production facilities. The Group will continue exclusive distribution of Management is unable to predict all developments which could have an impact on the Russian the SUVs in future. economy and consequently what effect, if any, they could have on the future financial position The Company was incorporated as an open joint stock company in the Russian Federation of the Group. Management believes it is taking all the necessary measures to support the in March 2002 by OAO “Severstal” (the predecessor) by contributing its controlling interests in sustainability and development of the Group’s business. OAO “Ulyanovsky Avtomobilny Zavod” (OAO “UAZ”) and OAO “Zavolzhskiy Motor Works” (OAO “ZMZ”), which were acquired through purchases close to the end of 2000, in exchange for the Company’s share capital. 2 Basis of preparation and significant accounting policies The immediate parent company is Newdeal Investments Limited. The ultimate controlling party of the Group is Vadim Shvetsov who is the principal shareholder of the Company. Basis of preparation The Company’s shares are listed on MICEX-RTS. These consolidated financial statements have been prepared in accordance with International The registered office of the Company is Testovskaya street, 10, Moscow, Russian Federation. Financial Reporting Standards (“IFRS”) under the historical cost convention, as modified by These consolidated financial statements were approved for issue by the General Director and the initial recognition of financial instruments based on fair value and by the revaluation of Chief Financial Officer on 8 April 2013 available for sale securities. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied Operating Environment of the Group to all the periods presented, unless otherwise stated (refer to Note 4, Adoption of New or Revised The Russian Federation displays certain characteristics of an emerging market, including Standards and Interpretations). These financial statements are prepared on a going concern basis. relatively high inflation and high interest rates. The recent global financial crisis has had a The Group companies maintain their accounting records in Russian Roubles (“RR”) and prepare severe effect on the Russian economy and the financial situation in the Russian financial and their statutory financial statements in accordance with the Federal Law on Accounting of the COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

2 Basis of preparation and significant accounting policies 2 Basis of preparation and significant accounting policies

Russian Federation. The consolidated financial statements are based on the statutory records, with ered. The Company and all of its subsidiaries use uniform accounting policies consistent with adjustments and reclassifications recorded for the purpose of fair presentation in accordance with the Group’s policies. IFRS. Non-controlling interest is that part of the net results and of the equity of a subsidiary attrib- utable to interests which are not owned, directly or indirectly, by the Company. Non-controlling 2.1 Presentation currency interest forms a separate component of the Group’s equity. All amounts in these consolidated financial statements are presented in millions of Russian Rou- bles (“RR millions”), unless otherwise stated. 2.4 Purchases and sales of non-controlling interests The Group applies the economic entity model to account for transactions with owners of non- 2.2 Supplementary information controlling interest. Any difference between the purchase consideration and the carrying amount US Dollar (“US$”) amounts shown in the consolidated financial statements are translated from of non-controlling interest acquired is recorded as a capital transaction directly in equity. The the Russian Rouble (“RR”) amounts as a matter of arithmetic computation only, at the official Group recognises the difference between sales consideration and the carrying amount of non-

· Independent rate of the Central Bank of the Russian Federation at 31 December 2012 of RR 30.3727 = US$1 controlling interest sold as a capital transaction in the statement of changes in equity. 112 Auditor’s Report (31 December 2011: RR 32.1961 = US$1). The consolidated income statement and consolidated 113 · Sollers Group statement of cash flows have been translated at the average exchange rates during the years 2.5 Purchases of subsidiaries from parties under common control Consolidated Purchases of subsidiaries from parties under common control are accounted for using the Financial Statements ended 31 December 2012 of RR 31.0930 = US$1 (2011: RR 29.3948 = US$1). The US$ amounts are · Sollers Group Notes presented solely for the convenience of the reader, and should not be construed as pooling of interest method. Under this method the consolidated financial statements of the to the Consolidated a representation that RR amounts have been or could have been converted to the US$ at this rate, combined entity are presented as if the businesses had been combined from the beginning of the Financial Statements nor that the US$ amounts present fairly the financial position and results of operations and cash earliest period presented or, if later, the date when the combining entities were first brought under at 31 December 2012 flows of the Group. common control. The assets and liabilities of the subsidiary transferred under common control (in millions of Russian are at the predecessor entity’s carrying amounts. The predecessor entity is considered to be the Roubles – RR) 2.3 Consolidated financial statements highest reporting entity in which the subsidiary’s IFRS financial information was consolidated. Subsidiaries are those companies and other entities (including special purpose entities) in Related goodwill inherent in the predecessor entity’s original acquisitions is also recorded in these which the Group, directly or indirectly, has an interest of more than one half of the voting rights consolidated financial statements. Any difference between the carrying amount of net assets, or otherwise has power to govern the financial and operating policies so as to obtain benefits. The including the predecessor entity’s goodwill, and the consideration for the acquisition is accounted existence and effect of potential voting rights that are presently exercisable or presently convert- for in these consolidated financial statements as an adjustment to other reserves within equity. ible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are 2.6 Associates and jointly controlled entities deconsolidated from the date that control ceases. Associates are entities over which the Group has significant influence (directly or indirectly), The purchase method of accounting is used to account for the acquisition of subsidiaries other but not control, generally accompanying a shareholding of between 20 and 50 percent of the than those acquired from parties under common control. Identifiable assets acquired and liabili- voting rights. Investments in associates are accounted for using the equity method of accounting ties and contingent liabilities assumed in a business combination are measured at their fair values and are initially recognised at cost. Dividends received from associates reduce the carrying value at the acquisition date, irrespective of the extent of any non-controlling interest. of the investment in associates. Other post-acquisition changes in the Group’s share of net assets The Group measures non-controlling interest on a transaction by transaction basis, either at: of an associate are recognised as follows: (i) the Group’s share of profits or losses of associates (a) fair value, or (b) the non-controlling interest’s proportionate share of net assets of the ac- is recorded in the consolidated profit or loss for the year as share of result of associates, (ii) the quiree. Group’s share of other comprehensive income is recognised in other comprehensive income and Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the con- presented separately, (iii) all other changes in the Group’s share of the carrying value of net assets sideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and of associates are recognised in profit or loss within the share of result of associates. When the fair value of an interest in the acquiree held immediately before the acquisition date. Any nega- Group’s share of losses in an associate equals or exceeds its interest in the associate, including any tive amount (“negative goodwill”) is recognised in profit or loss, after management reassesses other unsecured receivables, the Group does not recognise further losses, unless it has incurred whether it identified all the assets acquired and all liabilities and contingent liabilities assumed obligations or made payments on behalf of the associate. and reviews appropriateness of their measurement. Jointly controlled entities are those enterprises over whose activities the Group has joint The consideration transferred for the acquiree is measured at the fair value of the assets given control, established by contractual agreement. When a jointly controlled entity is created through up, equity instruments issued and liabilities incurred or assumed, including fair value of assets loss of control of a subsidiary, the initial carrying amount is recognised at fair value. Subsequently, or liabilities from contingent consideration arrangements but excludes acquisition related costs they are accounted for using the equity method of accounting. The share of jointly controlled such as advisory, legal, valuation and similar professional services. Transaction costs related to entities’ results is recognised in the consolidated financial statements from the date that joint the acquisition and incurred for issuing equity instruments are deducted from equity; transaction control commences until the date at which it ceases. costs incurred for issuing debt as part of the business combination are deducted from the carrying Unrealised gains on transactions between the Group, its associates and jointly controlled amount of the debt and all other transaction costs associated with the acquisition are expensed. entities are eliminated to the extent of the Group’s interest in the associates; unrealised Intercompany transactions, balances and unrealised gains on transactions between Group losses are also eliminated unless the transaction provides evidence of an impairment of the companies are eliminated; unrealised losses are also eliminated unless the cost cannot be recov- asset transferred. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

2 Basis of preparation and significant accounting policies 2 Basis of preparation and significant accounting policies

2.7 Disposals of subsidiaries, associates or joint ventures life of the financial instrument or a shorter period, if appropriate, to the net carrying amount When the Group ceases to have control or significant influence, any retained interest in the of the financial instrument. The effective interest rate discounts cash flows of variable interest entity is remeasured to its fair value, with the change in carrying amount recognised in profit or instruments to the next interest repricing date except for the premium or discount which reflects loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the credit spread over the floating rate specified in the instrument, or other variables that are not the retained interest as an associate, joint venture or financial asset. In addition, any amounts reset to market rates. Such premiums or discounts are amortised over the whole expected life of previously recognised in other comprehensive income in respect of that entity are accounted for as the instrument. The present value calculation includes all fees paid or received between parties if the Group had directly disposed of the related assets or liabilities. This may mean that amounts to the contract that are an integral part of the effective interest rate (refer to income and expense previously recognised in other comprehensive income are recycled to profit or loss. recognition policy). If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are 2.9 Classification of financial assets reclassified to profit or loss where appropriate. The Group classifies its financial assets into the following measurement categories: (a) loans

· Independent and receivables; (b) available-for-sale financial assets; (c) financial assets held to maturity and (d) 114 Auditor’s Report 2.8 Financial instruments – key measurement terms financial assets at fair value through profit and loss. Financial assets at fair value through profit 115 · Sollers Group Depending on their classification financial instruments are carried at fair value or amortised and loss have two subcategories: (i) assets designated as such upon initial recognition, and (ii) Consolidated cost as described below. Financial Statements those classified as held for trading. · Sollers Group Notes Fair value is the amount for which an asset could be exchanged, or a liability settled, between Certain derivative instruments embedded in other financial instruments are treated as separate to the Consolidated knowledgeable, willing parties in an arm’s length transaction. Fair value is the current bid price derivative instruments when their risks and characteristics are not closely related to those of the Financial Statements for financial assets and current asking price for financial liabilities which are quoted in an active host contract. at 31 December 2012 market. For assets and liabilities with offsetting market risks, the Group may use mid-market Other financial assets at fair value through profit and loss are financial assets designated (in millions of Russian prices as a basis for establishing fair values for the offsetting risk positions and apply the bid or irrevocably, at initial recognition, into this category. Management designates financial assets Roubles – RR) asking price to the net open position as appropriate. A financial instrument is regarded as quoted into this category only if (a) such classification eliminates or significantly reduces an accounting in an active market if quoted prices are readily and regularly available from an exchange or other mismatch that would otherwise arise from measuring assets or liabilities or recognising the institution and those prices represent actual and regularly occurring market transactions on an gains and losses on them on different bases; or (b) a group of financial assets, financial liabilities arm’s length basis. or both is managed and its performance is evaluated on a fair value basis, in accordance with Valuation techniques such as discounted cash flows models or models based on recent a documented risk management or investment strategy, and information on that basis is arm’s length transactions or consideration of financial data of the investees are used to fair regularly provided to and reviewed by the Group’s key management personnel. Recognition and value certain financial instruments for which external market pricing information is not measurement of this category of financial assets is consistent with the accounting policy for available. Valuation techniques may require assumptions not supported by observable market trading investments. data. Disclosures are made in these consolidated financial statements if changing any such Trading investments are financial assets which are either acquired for generating a profit from assumptions to a reasonably possible alternative would result in significantly different profit or short-term fluctuations in price or trader’s margin, or are securities included in a portfolio loss, sales, total assets or total liabilities. in which a pattern of short-term trading exists. The Group classifies securities into trading Transaction costs are incremental costs that are directly attributable to the acquisition, issue or investments if it has an intention to sell them within a short period after purchase, i.e. within 12 disposal of a financial instrument. An incremental cost is one that would not have been incurred months The Group may choose to reclassify a non-derivative trading financial asset out of the fair if the transaction had not taken place. Transaction costs include fees and commissions paid to value through profit and loss category if the asset is no longer held for the purpose of selling it in agents (including employees acting as selling agents), advisors, brokers and dealers, levies by the near term. Financial assets other than loans and receivables are permitted to be reclassified regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs out of the fair value through profit and loss category only in rare circumstances arising from do not include debt premiums or discounts, financing costs or internal administrative or holding a single event that is unusual and highly unlikely to reoccur in the near term. Financial assets costs. that would meet the definition of loans and receivables may be reclassified if the Group has the Amortised cost is the amount at which the financial instrument was recognised at initial intention and ability to hold these financial assets for the foreseeable future or until maturity. recognition less any principal repayments, plus accrued interest, and for financial assets less any Loans and receivables are unquoted non-derivative financial assets with fixed or determinable write-down for incurred impairment losses. Accrued interest includes amortisation of transaction payments other than those that the Group intends to sell in the near term. costs deferred at initial recognition and of any premium or discount to maturity amount using the Held-to-maturity assets include quoted non-derivative financial assets with fixed or effective interest method. Accrued interest income and accrued interest expense, including both determinable payments and fixed maturities that the Group has both the intention and ability accrued coupon and amortised discount or premium (including fees deferred at origination, if to hold to maturity. Management determines the classification of investment securities held any), are not presented separately and are included in the carrying values of related consolidated to maturity at their initial recognition and reassesses the appropriateness of that classification balance sheet items. at each reporting date. The effective interest method is a method of allocating interest income or interest expense All other financial assets are included in the available-for-sale category, which includes over the relevant period so as to achieve a constant periodic rate of interest (effective interest investment securities which the Group intends to hold for an indefinite period of time rate) on the carrying amount. The effective interest rate is the rate that exactly discounts and which may be sold in response to needs for liquidity or changes in interest rates, exchange estimated future cash payments or receipts (excluding future credit losses) through the expected rates or equity prices. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

2 Basis of preparation and significant accounting policies 2 Basis of preparation and significant accounting policies

2.10 Classification of financial liabilities profit or loss for the year. If, in a subsequent period, the fair value of a debt instrument classified Financial liabilities have the following measurement categories: (a) held for trading which also as available for sale increases and the increase can be objectively related to an event occurring af- includes financial derivatives and (b) other financial liabilities. Liabilities held for trading are ter the impairment loss was recognised in profit and loss, the impairment loss is reversed through carried at fair value with changes in value recognised in the income statement in the period in current period’s profit and loss. which they arise. Other financial liabilities are carried at amortised cost. Held-to-maturity investments Held-to-maturity investments are carried at amortised cost using the effective interest 2.11 Initial recognition of financial instruments method, net of a provision for incurred impairment losses. Trading investments, derivatives and other financial instruments at fair value through profit Trading investments and loss are initially recorded at fair value. All other financial assets and liabilities are initially Trading investments are carried at fair value. Interest earned on trading investments recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by calculated using the effective interest method is presented in the consolidated income statement the transaction price. A gain or loss on initial recognition is only recorded if there is a difference as finance income. Dividends are included in dividend income within other operating income

· Independent between fair value and transaction price which can be evidenced by other observable current when the Group’s right to receive the dividend payment is established and inflow of benefits is 116 Auditor’s Report market transactions in the same instrument or by a valuation technique whose inputs include probable. All other elements of the changes in the fair value and gains or losses on derecognition 117 · Sollers Group only data from observable markets. are recorded in profit and loss as gains less losses from trading investments in the period in which Consolidated Financial Statements All purchases and sales of financial assets that require delivery within the time frame they arise. · Sollers Group Notes established by regulation or market convention (“regular way” purchases and sales) are recorded Embedded derivatives to the Consolidated at trade date, which is the date that the Group commits to deliver a financial asset. All other Foreign currency forwards embedded into sales-purchase contracts are separated from the Financial Statements purchases are recognised when the entity becomes a party to the contractual provisions of the host contracts and accounted for separately unless the contract is denominated in the functional at 31 December 2012 instrument. currency of any substantial party to the contract or in a currency that is commonly used in the (in millions of Russian The Group uses discounted cash flow valuation techniques to determine the fair value of options economic environment in which the transaction takes place, such as in US Dollars and Euros for Roubles – RR) and bonds that are not traded in an active market. Differences may arise between the fair value at contracts within the Russian Federation. initial recognition which is considered to be the transaction price and the amount determined at initial recognition using the valuation technique. Any such differences are amortised on a straight 2.14 Property, plant and equipment line basis over the term of the options and bonds. Property, plant and equipment are stated at cost, restated to the equivalent purchasing power of the Russian Rouble at 31 December 2002 for assets acquired prior to 1 January 2003, 2.12 Derecognition of financial assets less accumulated depreciation and provision for impairment, where required. Cost includes The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash borrowing costs incurred on specific or general funds borrowed to finance construction of flows from the assets otherwise expired or (b) the Group has transferred the rights to the cash qualifying assets. flows from the financial assets or entered into a qualifying pass-through arrangement while (i) Costs of minor repairs and maintenance are expensed when incurred. Costs of replacing or also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither renewing major parts or components of property, plant and equipment items are capitalised and transferring nor retaining substantially all risks and rewards of ownership but not retaining control. the replaced part is retired. Control is retained if the counterparty does not have the practical ability to sell the asset in its At each reporting date, management assess whether there is any indication of impairment entirety to an unrelated third party without needing to impose additional restrictions on the sale. of property, plant and equipment. If any such indication exists, management estimates the recoverable amount, which is determined as the higher of an asset’s fair value less costs to 2.13 Valuation of investments sell and its value in use. The carrying amount is reduced to the recoverable amount and the Available-for-sale investments impairment loss is recognised in the consolidated income statement. An impairment loss The Group classifies investments as available for sale at the time of purchase. Available-for- recognised for an asset in prior years is reversed if there has been a change in the estimates used sale investments are carried at fair value. Interest income on available-for-sale debt securities to determine the asset’s value in use or fair value less costs to sell. is calculated using the effective interest method and recognised in profit and loss. Dividends on Gains and losses on disposals determined by comparing proceeds with carrying amount are available-for-sale equity instruments are recognised in profit and loss when the Group’s right to recognised in profit and loss. receive payment is established and inflow of benefits is probable. All other elements of changes in the fair value are recognised in other comprehensive income until the investment is derecognised or 2.15 Depreciation impaired at which time the cumulative gain or loss is reclassified from other comprehensive income Land is not depreciated. Depreciation on other items of property, plant and equipment is to finance income in profit or loss for the year. calculated using the straight-line method to allocate their cost amounts to their residual values Impairment losses are recognised in profit and loss when incurred as a result of one or more over their estimated useful lives: events (“loss events”) that occurred after the initial recognition of available-for-sale investments. A significant or prolonged decline in the fair value of an equity security below its cost is an indica- Useful lives in years tor that it is impaired. The cumulative impairment loss – measured as the difference between Buildings 35 to 45 the acquisition cost and the current fair value, less any impairment loss on that asset previously Plant and machinery 15 to 25 Equipment and motor vehicles 5 to 12 recognised in profit and loss – is reclassified from other comprehensive income to finance costs in COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

2 Basis of preparation and significant accounting policies 2 Basis of preparation and significant accounting policies

The residual value of an asset is the estimated amount that the Group would currently become exercisable. It recognises the impact of the revision of original estimates, if any, in obtain from disposal of the asset less the estimated costs of disposal, if the asset were already the consolidated income statement, and with a corresponding adjustment to equity over the of the age and in the condition expected at the end of its useful life. The residual value of an remaining vesting period. asset is nil if the Group expects to use the asset until the end of its physical life. The assets’ The proceeds received net of any directly attributable transaction costs are credited to share residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting capital (nominal value) and share premium when the options are exercised. date. 2.19 Goodwill 2.16 Operating leases Goodwill is carried at cost less accumulated impairment losses, if any. The Group tests Where the Group is a lessee in a lease which does not transfer substantially all the risks and goodwill for impairment at least annually and whenever there are indications that goodwill may rewards incidental to ownership from the lessor to the Group, the total lease payments are be impaired. Goodwill is allocated to the cash-generating units, or groups of cash-generating charged to profit and loss on a straight-line basis over the lease term. The lease term is the units, that are expected to benefit from the synergies of the business combination. Such units

· Independent non-cancellable period for which the lessee has contracted to lease the asset together with any or groups of units represent the lowest level at which the Group monitors goodwill and are not 118 Auditor’s Report further terms for which the lessee has the option to continue to lease the asset, with or without larger than an operating segment. 119 · Sollers Group further payment, when at the inception of the lease it is reasonably certain that the lessee will Gains or losses on disposal of an operation within a cash generating unit to which goodwill Consolidated Financial Statements exercise the option. has been allocated include the carrying amount of goodwill associated with the operation · Sollers Group Notes Leases embedded in other agreements are separated if (a) fulfilment of the arrangement is disposed of, generally measured on the basis of the relative values of the operation disposed of to the Consolidated dependent on the use of a specific asset or assets and (b) the arrangement conveys a right to use and the portion of the cash-generating unit which is retained. Financial Statements the asset. When assets are leased out under an operating lease, the lease payments receivable at 31 December 2012 are recognised as rental income on a straight-line basis over the lease term. 2.20 Other intangible assets (in millions of Russian The Group’s intangible assets other than goodwill have definite useful lives and primarily Roubles – RR) 2.17 Finance lease receivables include capitalised computer software, patents, trademarks, licences and clips. Where the Group is a lessor in a lease which transfers substantially all the risks and rewards Acquired computer software licenses, patents and trademarks are capitalised on the basis of incidental to ownership to the lessee, the assets leased out are presented as a finance lease the costs incurred to acquire and bring them to use. receivable and carried at the present value of the future lease payments. Finance lease Development costs that are directly associated with identifiable and unique software receivables are initially recognised at the date from which the lessee is entitled to exercise controlled by the Group are recorded as intangible assets if the inflow of incremental economic its right to use the leased asset, using a discount rate determined at inception (the earlier of benefits exceeding costs is probable. Capitalised costs include staff costs of the software the date of the lease agreement and the date of commitment by the parties to the principal development team and an appropriate portion of relevant overheads. All other costs associated provisions of the lease). with computer software, e.g. its maintenance, are expensed when incurred. Intangible assets are The difference between the gross receivable and the present value represents unearned amortised using the straight-line method over their useful lives: finance income. This income is recognised over the term of the lease using the net investment method (before tax), which reflects a constant periodic rate of return. Incremental costs directly Useful lives in years attributable to negotiating and arranging the lease are included in the initial measurement of Trademarks 3 to 10 the finance lease receivable and reduce the amount of income recognised over the lease term. Production licences 5 to 10 Computer software licences 3 to 5 Finance income from leases is recorded within sales in the income statement. Impairment losses are recognised in profit and loss when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of finance lease receivables. If impaired, the carrying amount of intangible assets is written down to the higher of value Impairment losses are recognised through an allowance account to write down the receivables’ in use and fair value less costs to sell. net carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the interest rates implicit in the finance 2.21 Inventories leases. The estimated future cash flows reflect the cash flows that may result from obtaining Inventories are recorded at the lower of cost and net realisable value. The cost of inventory and selling the assets subject to the lease. is determined on the weighted average basis. The cost of finished goods and work in progress comprises raw material, direct labour, other direct costs and related production overheads 2.18 Share based compensation (based on normal operating capacity) but excludes borrowing costs. Net realisable value is The Group operates equity-settled, share-based compensation plans. The fair value of the the estimated selling price in the ordinary course of business, less the cost of completion and employee services received in exchange for the grant of the options is recognised as an expense. selling expenses. Inventories at the reporting date include expected sales returns subsequent The total amount to be expensed over the vesting period is determined by reference to the fair to the period end, where the related sales, profit margin and receivables balance are reversed. value of the options granted, excluding the impact of any non-market vesting conditions (for Inventories are initially recognised when the Group has control of the inventory, expects it to example, profitability and sales growth targets). Non-market vesting conditions are included provide future economic benefits and the cost of the inventory can be measured reliably. For in assumptions about the number of options that are expected to become exercisable. At each components imported from outside of the Russian Federation, this is typically at the point of reporting date, the Group revises its estimates of the number of options that are expected to delivery to the Group’s warehouse and accepted by the Group. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

2 Basis of preparation and significant accounting policies 2 Basis of preparation and significant accounting policies

2.22 income taxes • any portion or installment is overdue and the late payment cannot be attributed to a delay Income taxes have been provided for in the consolidated financial statements in accordance caused by the settlement systems; with Russian legislation enacted or substantively enacted by the balance sheet date. The income • the counterparty experiences a significant financial difficulty as evidenced by its financial tax charge comprises current tax and deferred tax and is recognised in the consolidated income information that the Group obtains; statement unless it relates to transactions that are recognised, in the same or a different period, • the counterparty considers bankruptcy or a financial reorganisation; directly in equity. • there is adverse change in the payment status of the counterparty as a result of changes Current tax is the amount expected to be paid to or recovered from the taxation authorities in in the national or local economic conditions that impact the counterparty; or respect of taxable profits or losses for the current and prior periods. Taxes other than on income • the value of collateral, if any, significantly decreases as a result of deteriorating market are recorded within operating expenses. conditions. Deferred income tax is provided using the balance sheet liability method for tax loss carry If the terms of an impaired financial asset held at amortised cost are renegotiated or forwards and temporary differences arising between the tax bases of assets and liabilities and otherwise modified because of financial difficulties of the counterparty, impairment is

· Independent their carrying amounts for financial reporting purposes. In accordance with the initial recogni- measured using the original effective interest rate before the modification of terms. 120 Auditor’s Report tion exemption, deferred taxes are not recorded for temporary differences on initial recognition Impairment losses are always recognised through an allowance account to write down the 121 · Sollers Group of an asset or a liability in a transaction other than a business combination if the transaction, asset’s carrying amount to the present value of expected cash flows (which exclude future Consolidated Financial Statements when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are credit losses that have not been incurred) discounted at the original effective interest rate · Sollers Group Notes not recorded for temporary differences on initial recognition of goodwill and subsequently for of the asset. The calculation of the present value of the estimated future cash flows of a to the Consolidated goodwill which is not deductible for tax purposes. Deferred tax balances are measured at tax collateralised financial asset reflects the cash flows that may result from foreclosure less costs Financial Statements rates enacted or substantively enacted at the reporting date which are expected to apply to the for obtaining and selling the collateral, whether or not foreclosure is probable. at 31 December 2012 period when the temporary differences will reverse or the tax loss carry forwards will be uti- If, in a subsequent period, the amount of the impairment loss decreases and the decrease (in millions of Russian lised. Deferred tax assets and liabilities are netted only within the individual companies of the can be related objectively to an event occurring after the impairment was recognised (such Roubles – RR) Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are as an improvement in the debtor’s credit rating), the previously recognised impairment loss recorded only to the extent that it is probable that future taxable profit will be available against is reversed by adjusting the allowance account through profit and loss. which the deductions can be utilised. Uncollectible assets are written off against the related impairment loss provision after all The Group controls reversal of temporary differences relating to taxes chargeable on divi- the necessary procedures to recover the asset have been completed and the amount of the loss dends from subsidiaries or on gains at their disposal. The Group does not recognise deferred has been determined. Subsequent recoveries of amounts previously written off are credited to tax liabilities on such temporary differences except to the extent that management expects the impairment loss account in the income statement. temporary differences to reverse in the foreseeable future. The Group’s uncertain tax positions are reassessed by management at every reporting date. 2.25 Prepayments Liabilities are recorded for income tax positions that are determined by management as more Prepayments are carried at cost less provision for impairment. A prepayment is classified as likely than not to result in additional taxes being levied if the positions were to be challenged non-current when the goods or services relating to the prepayment are expected to be obtained by the tax authorities. The assessment is based on the interpretation of tax laws that have been after one year, or when the prepayment relates to an asset which will itself be classified as non- enacted or substantively enacted by the reporting date and any known court or other rulings current upon initial recognition. Prepayments to acquire assets are transferred to the carrying on such issues. Liabilities for penalties, interest and taxes other than on income are recognised amount of the asset once the Group has obtained control of the asset and it is probable that based on management’s best estimate of the expenditure required to settle the obligations future economic benefits associated with the asset will flow to the Group. Other prepayments at the reporting date. are written off to profit and loss when the goods or services relating to the prepayments are received. If there is an indication that the assets, goods or services relating to a prepayment 2.23 Trade and other receivables will not be received, the carrying value of the prepayment is written down accordingly and a Trade and other receivables are carried at amortised cost using the effective interest method. corresponding impairment loss is recognised in profit and loss.

2.24 impairment of financial assets carried at amortised cost 2.26 Cash and cash equivalents Impairment losses are recognised in profit and loss when incurred as a result of one or more Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other events (“loss events”) that occurred after the initial recognition of the financial asset and which short-term highly liquid investments with original maturities of three months or less. Cash and have an impact on the amount or timing of the estimated future cash flows of the financial asset cash equivalents are carried at amortised cost using the effective interest method. Restricted or group of financial assets that can be reliably estimated. If the Group determines that no ob- balances are excluded from cash and cash equivalents for the purposes of the consolidated cash jective evidence exists that impairment has incurred for an individually assessed financial asset, flow statement. Balances restricted from being exchanged or used to settle a liability for at whether significant or not, it includes the asset in a group of financial assets with similar credit least twelve months after the reporting date are included in other non-current assets. risk characteristics and collectively assesses them for impairment. The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and 2.27 Share capital realisability of related collateral, if any. The following other principal criteria are also used to Ordinary shares are classified as equity. Incremental costs directly attributable to the issue determine whether there is objective evidence that an impairment loss has occurred: of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

2 Basis of preparation and significant accounting policies 2 Basis of preparation and significant accounting policies

Any excess of the fair value of consideration received over the par value of shares issued in settlement is determined by considering the class of obligations as a whole. A provision is is recorded as share premium in equity. recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Where the Group expects a provision to be reimbursed, for 2.28 Treasury shares example under an insurance contract, the reimbursement is recognised as a separate asset but Where the Company or its subsidiaries purchase the Company’s equity instruments, the only when the reimbursement is virtually certain. The Group recognises the estimated liability consideration paid, including any directly attributable incremental costs, net of income taxes, is to repair or replace products sold still under warranty at the end of each reporting period. This deducted from equity attributable to the Company’s equity holders until the equity instruments provision is calculated based on past history of the level of repairs and replacements and recog- are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any nised in costs of sale. consideration received, net of any directly attributable incremental transaction costs and the re- lated income tax effects, and are included in equity attributable to the Company’s equity holders. 2.35 Foreign currency translation The functional currency of each of the Group’s consolidated entities is the currency of the pri-

· Independent 2.29 Dividends mary economic environment in which the entity operates. The Group’s functional currency and 122 Auditor’s Report Dividends are recorded as a liability and deducted from equity in the period in which they are the Group’s presentation currency is the national currency of the Russian Federation, Russian 123 · Sollers Group declared and approved. Any dividends declared after the reporting date and before the consoli- Roubles. Consolidated dated financial statements are authorised for issue are disclosed in the subsequent events note. Financial Statements Monetary assets and liabilities are translated into each entity’s functional currency at the · Sollers Group Notes official exchange rate of the Central Bank of the Russian Federation (“CBRF”) at the respective to the Consolidated 2.30 Value added tax reporting dates. Foreign exchange gains and losses resulting from the settlement of the transac- Financial Statements Output value added tax related to sales is payable to tax authorities on the earlier of (a) col- tions and from the translation of monetary assets and liabilities into each entity’s functional at 31 December 2012 lection of the receivables from customers or (b) delivery of the goods or services to customers. currency at year-end official exchange rates of the CBRF are recognised in profit and loss. Trans- (in millions of Russian Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice. The tax lation at year-end rates does not apply to non-monetary items that are measured at historical Roubles – RR) authorities permit the settlement of VAT on a net basis. VAT related to sales and purchases is cost. Non-monetary items measured at fair value in a foreign currency, including equity invest- recognised in the balance sheet on a gross basis and disclosed separately as an asset and liabil- ments, are translated using the exchange rates at the date when the fair value was determined. ity. Where provision has been made for impairment of receivables, impairment loss is recorded Effects of exchange rate changes on non-monetary items measured at fair value in a foreign for the gross amount of the debtor, including VAT. currency are recorded as part of the fair value gain or loss. At 31 December 2012, the principal rate of exchange used for translating foreign cur- 2.31 Borrowings rency balances was US$ 1 = RR 30.3727, Euro 1 = RR 40.2286, Japanese yen 100 = RR 35.1516 Borrowings are carried at amortised cost using the effective interest method. Interest costs (2011: US$ 1 = RR 32.1961, Euro 1 = RR 41.6714, Japanese yen 100 = RR 37.3789). The princi- on borrowings to finance the construction of property, plant and equipment are capitalised, pal average rate of exchange used for translating income and expenses was US$ 1 = RR 31.093 during the period of time that is required to complete and prepare the asset for its intended (2011: US$ 1 = RR 29.3948). use. All other borrowing costs are expensed. 2.36 Revenue recognition 2.32 Government grants and subsidies Revenues from sales of vehicles, engines and automotive components are recognised at the Grants from the Government are recognised at their fair value where there is a reasonable as- point of transfer of the major of risks and rewards of ownership of the goods, normally when surance that the grant will be received and the Group will comply with all attached conditions. the goods are shipped. If the Group agrees to transport goods to a specified location, revenue Government grants relating to the purchase of property, plant and equipment are included in is recognised when the goods are passed to the customer at the destination point. The group non-current liabilities as deferred income and are credited to the consolidated income state- generally retains physical possession of the vehicle ownership document (“PTS”) until cash is ment on a straight line basis over the expected lives of the related assets. collected from the dealer, however, it considers that substantially all risks and rewards are trans- Government grants and subsidies relating to costs are deferred and recognised in the consoli- ferred upon shipment. dated income statement over the period necessary to match them with the costs that they are An estimate is made for vehicles that are returned to the Group subsequent to the period end intended to compensate. where a dealer is not able to settle receivables owed to the Group. In such instances, the related sales revenue, profit margin and trade receivable balances are reversed during the period and the 2.33 Trade and other payables vehicles are included as inventories as at the period end date. Trade and other payables are accrued when the counterparty performed its obligations under Sales of services are recognised in the accounting period in which the services are rendered, the contract and are carried at amortised cost using the effective interest method. by reference to the stage of completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. 2.34 Provisions for liabilities and charges Sales are shown net of VAT, excise, discounts and other bonuses to dealers. Provisions for liabilities and charges are recognised when the Group has a present legal or Revenues are measured at the fair value of the consideration received or receivable. When the constructive obligation as a result of past events, and it is probable that an outflow of resources fair value of goods received in a barter transaction cannot be measured reliably, the revenue is will be required to settle the obligation, and a reliable estimate of the amount can be made. measured at the fair value of the goods or service given up. Interest income is recognised on a Where there are a number of similar obligations, the likelihood that an outflow will be required time-proportion basis using the effective interest method. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

2 Basis of preparation and significant accounting policies 3 Critical accounting estimates and judgements in applying accounting policies

2.37 Research and development costs believed to be reasonable under the circumstances. Management also makes certain judge- Research expenditure is recognised as an expense as incurred. Costs incurred on develop- ments, apart from those involving estimations, in the process of applying the accounting ment projects (relating to the design and testing of new or improved products) are recognised policies. Judgements that have the most significant effect on the amounts recognised in the as intangible assets when it is probable that the project will be a success considering its com- consolidated financial statements and estimates that can cause a significant adjustment to mercial and technological feasibility, and costs can be measured reliably. Other development the carrying amount of assets and liabilities within the next financial year include: expenditures are recognised as an expense as incurred. Development costs previously recog- nised as an expense are not recognised as an asset in a subsequent period. Development costs 3.1 Remaining useful life of property, plant and equipment with a finite useful life that have been capitalised are amortised from the commencement of Management has assessed the remaining useful life of property, plant and equipment in the commercial production of the product on a straight-line basis over the period of its ex- accordance with the current technical conditions of assets and estimated period when these pected benefit, on average over ten years. assets will bring economic benefit to the Group. The estimation of the useful lives of items of property, plant and equipment is a matter of judgment based on the experience with simi-

· Independent 2.38 Employee benefits lar assets. The future economic benefits embodied in the assets are consumed principally 124 Auditor’s Report Wages, salaries, contributions to the Russian Federation state pension and social insurance through use. However, other factors, such as technical or commercial obsolescence and wear 125 · Sollers Group funds, paid annual leave and sick leave, bonuses, and non-monetary benefits (such as health and tear, often result in the diminution of the economic benefits embodied in the assets. Consolidated services and kindergarten services) are accrued in the year in which the associated services are Financial Statements Management assesses the remaining useful lives in accordance with the current technical · Sollers Group Notes rendered by the employees of the Group. conditions of the assets and estimated period during which the assets are expected to earn to the Consolidated Labour expenses include state pension contributions of RR 1,670 for the year ended 31 De- benefits for the Group. The following primary factors are considered: (a) expected usage of Financial Statements cember 2012 (2011: RR 1,812). In addition, labour expenses include payments under share the assets; (b) expected physical wear and tear, which depends on operational factors and at 31 December 2012 based compensation of RR 18 (2011: RR 19). maintenance programme; and (c) technical or commercial obsolescence arising from changes (in millions of Russian in market conditions. Roubles – RR) 2.39 Earnings per share Basic earnings per share are calculated by dividing the profit or loss attributable to equity 3.2 impairment of assets (including goodwill) holders of the Company by the weighted average number of ordinary shares in issue during Management have used judgement when evaluating any indicators of potential impairment period. of the Group’s non-current assets (including property, plant and equipment, intangibles and If applicable, diluted earnings per share is calculated adjusting the weighted average num- goodwill), or, when testing for impairment as at 31 December 2012 as required. Management ber of ordinary shares outstanding to assume conversion of dilutive potential ordinary shares have determined that there are three cash-generating units (“CGU”) within the Group: OAO under the share based compensation programme. For the share options used in the share “UAZ”, OAO “ZMZ” and OOO “Sollers-Dal’niy Vostok”. based compensation programme a calculation is done to determine the number of shares that After substantial increase in 2011 supported by government measures the Russian auto- would have been issued at the balance sheet date if this date was the vesting date. motive market continued its growth in 2012: according to independent automotive experts the volume of the Russian automotive market for 2012 is amounted to 2,9 mln. units. Hence, 2.40 Offsetting the market growth in comparison with 2011 is approximately 11%. Major government sup- Financial assets and liabilities are offset and the net amount reported in the balance sheet port measures i.e. cash-for-clunkers programme and interest subsidy for auto-loans ceased only when there is a legally enforceable right to offset the recognised amounts, and there is an in 2011, but still the market continued to grow in 2012. The market growth is explained by intention to either settle on a net basis, or to realise the asset and settle the liability simulta- two main factors: stabilization of economic environment and the natural recovery of demand neously. based on fundamental market factors (i.e. low car density per 1000 capita, outdated car park in Russia and growing level of credit sales which is yet to achieve average global levels). 2.41 Segment reporting Sales of vehicles grew overall and the Group benefited from strong growth in the SUV and Operating segments are reported in a manner consistent with the internal reporting pro- LCV segments in particular. The increase in exchange rate of Russian Rouble to major curren- vided to the Group’s chief operating decision maker. Segments whose revenue, result or assets cies was also a favourable factor for the Group’s results. are ten percent or more of all the segments are reported separately where they do not have Goodwill allocated to OAO “UAZ” and OAO “ZMZ” CGUs have been tested by management similar economic characteristics. for impairment using value-in-use calculations. The calculations use business plans and cash flows projections developed and approved by the management. The discounting rate used for each CGU was estimated based on weighted average cost of capital, which is post-tax and 3 Critical accounting estimates reflects specific risks related to the CGU and time value of money. and judgements in applying accounting policies The cash flow projections cover an initial five-year period. Cash flows beyond five year peri- od are extrapolated using basic assumptions such as potential sales volumes, EBITDA margin The Group makes estimates and assumptions that affect the amounts recognised in the level and discounting rate specific for the particular CGU. Management determined budgeted consolidated financial statements and the carrying amounts of assets and liabilities within EBITDA margin on the basis of the past performance of each CGU and its expectations for the the next financial year. Estimates and judgements are continually evaluated and are based on market development. For the OAO “UAZ” these include continued strong demand for quality management’s experience and other factors, including expectations of future events that are vehicles in the niche markets in which the units operate, and the CGU’s sales price advantage COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

3 Critical accounting estimates and judgements in applying accounting policies 4 Adoption of new or revised standards and interpretations

over its foreign competition in those markets. For the OAO “ZMZ” these include expansion of and a description of the risks and rewards of financial assets that have been transferred to an- its position as a supplier to the Russian market, development further the production of spare other party, yet remain on the entity’s balance sheet. Disclosures are also required to enable a parts and components and ability to upgrade its products in line with expected increases in user to understand the amount of any associated liabilities, and the relationship between the regulations over emission levels. financial assets and associated liabilities. Where financial assets have been derecognised, but Cash flows beyond the five-year period are extrapolated using estimated growth rate of the entity is still exposed to certain risks and rewards associated with the transferred asset, 3.5% for both CGUs (31 December 2011: 2% for both CGUs); these growth rates do not exceed additional disclosure is required to enable the effects of those risks to be understood. The the long-term average growth rate for the automotive business in which CGUs operate. The amendment did not have a material impact on these financial statements. discount rate used of 14.8% for OAO “ZMZ” and 14.9% for OAO “UAZ” (31 December 2011: Other revised standards and interpretations effective for the current period. The amendments 12.9% and 12.4% respectively) are pre-tax and reflect specific risks related to the relevant to IFRS 1 “First-time adoption of IFRS”, relating to severe hyperinflation and eliminating CGU. references to fixed dates for certain exceptions and exemptions, did not have any impact on The inference of no impairment of OAO “UAZ” CGU is sensitive to the level of future reve- these consolidated financial statements. The amendment to IAS 12 “Income taxes”, which

· Independent nues. With all other assumptions held constant, a reduction in revenues of 45% in each future introduced a rebuttable presumption that an investment property carried at fair value is re- 126 Auditor’s Report period would result in a need to reduce the carrying value of goodwill by RR 302. covered entirely through sale, did not have a material impact on these consolidated financial 127 · Sollers Group The inference of no impairment of OAO “ZMZ” CGU is sensitive to the level of future statements. Consolidated Financial Statements revenues. With all other assumptions held constant, a reduction in revenues of 20% in each · Sollers Group Notes future period would result in a need to reduce the carrying amount of goodwill by RR 277 and to the Consolidated other non-current assets in aggregate by RR 438. 5 New accounting pronouncements Financial Statements For each of the CGUs identified for impairment testing, management consider that there at 31 December 2012 have not been any significant changes in any of the businesses during the year. For all CGUs, Certain new standards and interpretations have been issued that are mandatory for the an- (in millions of Russian the recoverable amount in the valuation performed as at 31 December 2012 exceeded the car- nual periods beginning on or after 1 January 2013 or later and which the Group has not early Roubles – RR) rying amount by a substantial margin and based on an analysis of events, the likelihood that adopted. the current recoverable amount would be lower that the carrying amount is remote. IFRS 9 “Financial Instruments Part 1: Classification and Measurement”. IFRS 9, issued in Management believes that any reasonably possible change in the key assumptions de- November 2010, replaces those parts of IAS 39 relating to the classification and measurement scribed above would not cause the carrying amount of goodwill related to OAO “UAZ” and of financial assets. IFRS 9 was further amended in October 2010 to address the classification OAO “ZMZ” to exceed their recoverable amounts. and measurement of financial liabilities and in December 2011 to (i) change its effective date to annual periods beginning on or after 1 January 2015 and (ii) add transition disclosures. 3.3 Tax legislation and deferred income tax recognition Financial assets are required to be classified into two measurement categories: those to be Russian tax, currency and customs legislation is subject to varying interpretations. Re- measured subsequently at fair value, and those to be measured subsequently at amortised lated accounting treatment requires the use of estimates and judgements as further detailed cost. The classification depends on the entity’s business model for managing its financial in Note 31. instruments and the contractual cash flow characteristics of the instrument. All equity Deferred tax assets represent income taxes recoverable through future deductions from tax- instruments are to be measured subsequently at fair value. Equity instruments that are held able profits and are recorded on the balance sheet. Deferred income tax assets are recorded to for trading will be measured at fair value through profit or loss. For all other equity invest- the extent that realisation of the tax benefit is probable. In determining future taxable profits ments, an irrevocable election can be made at initial recognition, to recognise unrealised and and the amount of tax benefits that are probable in the future, management makes judgements realised fair value gains and losses through other comprehensive income rather than profit and applies estimation based on taxable profits earned in the past three-years; the possibil- or loss. There is to be no recycling of fair value gains and losses to profit or loss. Most of the ity of challenges to the deductibility of expenses; the time period available in order to utilise requirements in IAS 39 for classification and measurement of financial liabilities were carried the losses and expectations of future taxable income that are believed to be reasonable under forward unchanged to IFRS 9. The key change is that an entity will be required to present the the circumstances. For details of the deferred tax assets recognised as at 31 December 2012, effects of changes in own credit risk of financial liabilities designated at fair value through see Note 27. The balance includes RR 276 (2011: RR 874). Management expects these losses profit or loss in other comprehensive income. While adoption of IFRS 9 is mandatory from 1 to be utilised in the next few years based on current profit forecasts. January 2015, earlier adoption is permitted. The Group is considering the implications of the standard, the impact on the Group and the timing of its adoption by the Group. IFRS 11, Joint Arrangements, (issued in May 2011 and effective for annual periods beginning on 4 Adoption of new or revised standards and interpretations or after 1 January 2013), replaces IAS 31 “Interests in Joint Ventures” and SIC-13 “Jointly Con- trolled Entities − Non-Monetary Contributions by Ventures”. Changes in the definitions have The following new standards and interpretations became effective for the Group reduced the number of types of joint arrangements to two: joint operations and joint ven- from 1 January 2012: tures. The existing policy choice of proportionate consolidation for jointly controlled entities “Disclosures − Transfers of Financial Assets” – Amendments to IFRS 7 (issued in October 2010 has been eliminated. Equity accounting is mandatory for participants in joint ventures. The and effective for annual periods beginning on or after 1 July 2011). The amendment requires ad- Group does not expect any material impact of the new standard on its financial statements. ditional disclosures in respect of risk exposures arising from transferred financial assets. The The following other new pronouncements are not expected to have any material impact amendment includes a requirement to disclose by class of asset the nature, carrying amount on the Group when adopted: COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

5 New accounting pronouncements 6 Balances and transactions with related parties

• IFRS 10 “Consolidated Financial Statements” (issued in May 2011 and effective for annual 6 Balances and transactions with related parties periods beginning on or after 1 January 2013) which replaces all of the guidance on control and consolidation in IAS 27 “Consolidated and separate financial statements” and SIC-12 Related parties are defined in IAS 24, Related Party Disclosures. Parties are generally considered “Consolidation − special purpose entities”. to be related if one party has the ability to control the other party, is under common control, or • IFRS 12 “Disclosure of Interests in Other Entities”, (issued in May 2011 and effective for can exercise significant influence or joint control over the other party in making financial and annual periods beginning on or after 1 January 2013) which requires new disclosures by entities operational decisions. In considering each possible related party relationship, attention is directed that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated to the substance of the relationship, not merely the legal form. The Group’s immediate parent and structured entity. ultimate controlling party are disclosed in Note 1. • IFRS 13 “Fair Value Measurement”, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), which aims to improve disclosures and achieve 6.1 Balances and transactions with related parties consistency by providing a revised definition of fair value. Balances with related parties of the Group as at 31 December 2012 and 31 December 2011

· Independent • IAS 27 “Separate Financial Statements” and IAS 28 “Investments in Associates and Joint consist of the following: 128 Auditor’s Report Ventures”, (revised in May 2011 and effective for annual periods beginning on or after 1 January 129 · Sollers Group 2013), which were changed by IFRS 10 “Consolidated Financial Statements” and IFRS 11 “Joint Balances Consolidated Parent Other related Associates and Total Financial Statements Arrangements”. Nature of relationship company parties joint ventures · Sollers Group Notes • Amendments to IAS 1 “Presentation of Financial Statements” (issued in June 2011, effective for to the Consolidated annual periods beginning on or after 1 July 2012), which aim to improve the disclosure of items As at 31 December 2012 Financial Statements presented in other comprehensive income. Accounts receivable – – 157 157 at 31 December 2012 • Amended IAS 19 “Employee Benefits” (issued in June 2011, effective for periods beginning on Loans issued – 203 – 203 (in millions of Russian Advances received – – 961 961 or after 1 January 2013), which makes changes to the recognition and measurement of defined Roubles – RR) Trade and other accounts payable – – 553 553 benefit pension expense and termination benefits, and to the disclosures for all employee As at 31 December 2011 benefits. Accounts receivable – – 414 414 • “Disclosures − Offsetting Financial Assets and Financial Liabilities” − Amendments to IFRS 7 Advances received – – 10 10 (issued in December 2011 and effective for annual periods beginning on or after 1 January 2013), Trade and other accounts payable – – 32 32 which requires disclosures that will enable users to better evaluate the effect of netting arrangements, including rights of set-off. • “Offsetting Financial Assets and Financial Liabilities” − Amendments to IAS 32 (issued in Transactions with related parties of the Group for the years ended 31 December 2012 December 2011 and effective for annual periods beginning on or after 1 January 2014), which and 31 December 2011 consist of the following: clarifies the meaning of ‘currently has a legally enforceable right of set-off’. • Improvements to International Financial Reporting Standards (issued in May 2012 and Transactions Parent Other related Associates and Total effective for annual periods beginning 1 January 2013), which consists of improvements to five Nature of relationship company parties joint ventures standards. • Transition Guidance Amendments to IFRS 10, IFRS 11 and IFRS 12 (issued in June 2012 Year ended 31 December 2012 and effective for annual periods beginning 1 January 2013), which clarify the transition Sales of vehicles and components – – 210 210 guidance in IFRS 10 “Consolidated Financial Statements” and provide additional transition Sale of non-current assets and services – – 195 195 Purchases – – 488 488 relief from reporting comparative information under IFRS 10, IFRS 11 “Joint Arrangements” Capital transaction 247 – – 247 and IFRS 12 “Disclosure of Interests in Other Entities”. Year ended 31 December 2011 • Amendments to IFRS 1 “First-time adoption of International Financial Reporting Sales of vehicles and components – – 313 313 Standards − Government Loans” (issued in March 2012 and effective for annual periods Sale of non-current assets – – 5,249 5,249 beginning 1 January 2013), which give first-time adopters of IFRSs relief from full Purchases – – 223 223 retrospective application of accounting for certain government loans on transition. • IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine”, which considers when and how to account for the benefits arising from the stripping activity in mining 6.2 Key management compensation industry. The compensation paid to the nine members of key management (year ended 31 December • Amendments to IFRS 10, IFRS 12 and IAS 27 − Investment entities (issued on 31 October 2011: nine people) for their services in full or part time executive management positions is made 2012 and effective for annual periods beginning 1 January 2014), which introduced a definition up of a contractual salary and a performance bonus depending on operating results. Each director of an investment entity which will be required to carry its investee subsidiaries at fair value receives a fee for serving in that capacity and is reimbursed reasonable expenses in conjunction through profit or loss. with their duties. No additional fees, compensation or allowances are paid. Unless otherwise described above, the new standards and interpretations are not expected Total key management compensation included in expenses in the consolidated income to affect significantly the Group’s financial statements. statement for the year ended 31 December 2012 comprises: COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

6 Balances and transactions with related parties 8 Goodwill

• short-term employee benefits amounting to RR 613 (2011: RR 647); and 8 Goodwill • expenses recognised under equity-settled, share based compensation amounting to RR 16 (2011: RR 14). Goodwill arose first on the original purchase of the controlling stake in OAO “UAZ” For information on the share based compensation, see Note 16. and OAO “ZMZ” and then on the increase of the holding stake in OAO “UAZ” in 2003 During the year ended 31 December 2012, 150,000 options were exercised at an exercise price and OAO “ZMZ” in 2004. of US$ 3 (2011: 138,000 options at an exercise price US$ 3) by members of key management. 31 December 2012 31 December 2011 OAO “UAZ” 1,207 1,207 7 Property, plant and equipment OAO “ZMZ” 277 277 Total goodwill 1,484 1,484

Property, plant and equipment and related accumulated depreciation consist of the following:

· Independent Impairment tests for goodwill 130 Auditor’s Report Land Plant Other Construction Total Management have tested goodwill for impairment at 31 December 2012. Goodwill and buildings and equipment in progress 131 · Sollers Group is allocated Consolidated Cost to two of the Group’s CGUs: OAO “UAZ” and OAO “ZMZ”. See details of impairment testing Financial Statements · Sollers Group Notes Balance at 1 January 2011 9,816 16,077 2,946 2,934 31,773 in Note 3.2. to the Consolidated Additions – – – 1,202 1,202 As a result of the assessment performed by management, no impairment loss has been Financial Statements Disposals (2,926) (8,090) (977) (960) (12,953) identified as at 31 December 2012 (31 December 2011: nil). at 31 December 2012 Transfers 294 713 692 (1,699) – (in millions of Russian Balance at 31 December 2011 7,184 8,700 2,661 1,477 20,022 Roubles – RR) Additions – – – 897 897 9 Development costs Disposals (772) (331) (242) (19) (1,364) Transfers 660 340 265 (1,265) – Balance at 31 December 2012 7,072 8,709 2,684 1,090 19,555 Following an assessment of future economic benefits to the Group for each individual project, as at 31 December 2012, RR 7 of development costs were written off (31 December Accumulated depreciation 2011: RR 298). Management do not consider that the write-off would be materially – Balance at 1 January 2011 (2,082) (4,869) (1,599) (8,550) different in the event of applying reasonable changes to the underlying assumptions used Depreciation expense for year (242) (792) (329) – (1,363) in reaching this conclusion. Disposals 352 1,735 331 – 2,418 Balance at 31 December 2011 (1,972) (3,926) (1,597) – (7,495) 31 December 2012 31 December 2011 Depreciation expense for year (174) (422) (284) – (880) Cost Disposals 77 140 142 – 359 Balance at 31 December 2012 (2,069) (4,208) (1,739) – (8,016) Balance at the beginning of the year 1,401 1,748 Net book value Additions 86 157 Balance at 31 December 2011 5,212 4,774 1,064 1,477 12,527 Write-off (8) (504) Balance at 31 December 2012 5,003 4,501 945 1,090 11,539 Balance at the end of the year 1,479 1,401 Accumulated amortisation Balance at the beginning of the year (877) (973) The significant property, plant and equipment disposal during 2011 were performed through Amortisation charge (210) (110) the transfer of the assets to the joint venture with Ford (Note 11). Write-off 1 206 Balance at the end of the year (1,086) (877) As at 31 December 2012, bank borrowings are secured on land and buildings and plant and equipment. The value of these items of property, plant and equipment included above Net book value is RR 2,845 (31 December 2011: RR 4,773). See Note 17. Balance at the end of the year 393 524 Construction in progress consists mainly of equipment. Upon completion, assets are transferred to plant and equipment. During the year ended 31 December 2012, the Group capitalised borrowing costs of RR 80 (2011: RR 77) as part of the cost of the qualifying assets (see Note 2.14). The annual capitalisation rate was 10.0% (2011: 13.8%). The Group owns the land on which factories and buildings, comprising the principal manufacturing facilities of the Group, are situated. At 31 December 2012, the cost of the land amounted to RR 689 (2011: RR 686). COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

9 Development costs 11 Investments in joint ventures and associates

Breakdown of development costs 11 Investments in joint ventures and associates

31 December 2012 31 December 2011 Investments in joint ventures and associates are presented by the following assets: Completed projects 31 December 2012 31 December 2011 Development of new off-road vehicle (UAZ Patriot) 59 93 Ford-Sollers JV 12,597 11,605 Expenditures related to establishing production of diesel engine – 94 Mazda-Sollers JV 797 – Development of Euro-4 engine for UAZ 67 40 Sollers-Isuzu JV 674 – Development of new light commercial vehicle (UAZ-2360) 3 23 Sollers-Bussan JV 45 – Improvement of selected vehicle component parts 40 13 Sollers-Finance JV 345 282 Improvement of vehicles and engines to satisfy Euro-2 requirements 2 3 DaeWon-SeverstalAuto Elabuga 34 34 Vehicles with ABS 15 23 Total other financial assets 14,492 11,921 Other 77 86 · Independent Total completed projects 263 375 132 Auditor’s Report The table below summarises the movements in the carrying amount of the Group’s investment Projects in progress 133 · Sollers Group in joint ventures and associates. Consolidated Improvement of vehicles and engines to satisfy Euro-4 requirements 130 149 Financial Statements Total projects in progress 130 149 31 December 2012 31 December 2011 · Sollers Group Notes Total development costs 393 524 to the Consolidated Carrying amount at 1 January 11,921 269 Financial Statements Share of profit of joint venture and associates 1,149 47 at 31 December 2012 Fair value of net assets of joint venture and associate acquired 214 11,605 (in millions of Russian 10 Other intangible assets Cash contribution to joint ventures 951 – Roubles – RR) Non-cash contribution in joint venture 257 – Carrying amount at 31 December 14,492 11,921 Other intangible assets mainly comprise of exclusive licences, which were provided for a period of 4 to 10 years: Mazda-Sollers JV 31 December 2012 31 December 2011 In August 2012 the Group paid its contribution to share capital of joint venture with Mazda Cost Motor Co in amount of RR 750 and finalized the foundation of 50%-50% joint venture with Balance at the beginning of the year 573 1,249 Mazda Motor Corporation. The production of Mazda SUVs was launched in September 2012. Additions 52 45 Sollers-Isuzu JV Disposals (66) (721) In May 2012 the Group entered to the agreement with intention of partial shares disposal Balance at the end of the year 559 573 in ZAO Sollers-Isuzu. On 30 August 2012 the deal was finalised and 16% stake of ZAO Sollers- Accumulated amortisation Isuzu was sold to the other venturer for RR 257 and the Group’s share declined to 50%. The Balance at the beginning of the year (374) (462) negative net assets of the subsidiary at the date of disposal amounted to RR 683, including Amortisation charge (64) (105) non-controlling interest of RR 232. Disposals 61 193 The Group recognised the retained investment as 50%-50% joint venture with fair value Balance at the end of the year (377) (374) of RR 214. The portion of the gain related to the remeasurement of the retained non-control- Net book value ling investment to fair value: Balance at the end of the year 182 199 Fair value of recognised share in joint venture 214 The Group's retained share of negative carrying value of subsidiary 342 The Gain on retained non-controlling investment, joint venture 556

The gain from the subsidiary disposal for RR 922 is recognised within operating income in the income statement. After the recognition of 50%-50% joint venture the Group provided additional cash contri- bution to the joint venture for RR 136 and non-cash contribution in the form of debt forgive- ness for RR 257. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

11 Investments in joint ventures and associates 11 Investments in joint ventures and associates

Sollers-Bussan JV At 31 December 2012, the Group held 50% interest in joint ventures Ford-Sollers, Mazda By the end of 2011 the Group established 50%-50% joint venture with Japanese Mitsui&Co., Sollers, Sollers-Isuzu, Sollers-Bussan and Sollers-Finance and also held 30% interest in Ltd located in Vladivostok, where Toyota vehicles are planned to be produced. During 2012 ad- OOO DaeWon-SeverstalAuto Elabuga (31 December 2011: 50% interest in joint ventures ditional RR 65 were contributed to the JV. Ford-Sollers and Sollers-Finance, 30% interest in OOO DaeWon-SeverstalAuto Elabuga). The summarised financial information of the Joint ventures and the associates, including full Ford-Sollers JV amounts of total assets, liabilities, revenues, operating and net profit/ (loss), is as follows: In February 2011, the Group announced cancellation of the alliance with FIAT SPA and the signing of Memorandum of understanding to establish a new joint venture in Russia with Ford. Total assets Total liabilities Revenue Operating Net profit/ profit/ (loss) (loss) Management considered these two transactions to be inter-related and one indispensable from the other. Joint ventures: In May 2011 Sollers and Ford signed an Agreement to establish a joint venture for exclusive Total at 31 December 2012 64,955 35,983 94,468 3,507 2,298

· Independent production and distribution of Ford vehicles in the Russian Federation. Ford-Sollers JV 56,166 30,934 90,960 3,284 1,983 134 Auditor’s Report On 1 October 2011 the Group completed formation of 50%-50% Ford-Sollers JV and the Mazda-Sollers JV 3,731 2,136 2,625 133 95 Sollers-Isuzu JV 2,454 1,056 448 (16) 134 135 · Sollers Group commencement of the joint venture was announced. Ford Sollers JV will manufacture a range Consolidated Sollers-Bussan JV 520 429 – (42) (37) of Ford passenger cars and light commercial vehicles in the St. Petersburg region and in the Financial Statements Sollers-Finance JV 2,084 1,428 435 148 123 · Sollers Group Notes Republic of Tatarstan. The project implies development of large-scale production facilities Total at 31 December 2011 56,389 26,472 23,754 387 94 to the Consolidated with a high level of localization as well as maintaining of R&D activities. The financing for the Ford-Sollers JV 55,133 25,775 23,507 255 (5) Financial Statements new JV has been agreed with Vnesheconombank (VEB). The Group together with Ford Motor Sollers-Finance JV 1,256 697 247 132 99 at 31 December 2012 Company has pledged 100% interest in Ford-Sollers JV with the VEB. Associates: (1,972) (3,926) (1,597) – (7,495) (in millions of Russian In the amount of disposal of property, plant and equipment (Note 7), intangible assets Total at 31 December 2012 120 27 – (16) (12) Roubles – RR) Total at 31 December 2011 134 30 275 (1) (10) (Note 10) and development costs (Note 9) included the assets disposed of that otherwise would have been used if the establishment of the Ford-Sollers JV had not taken place. Disposal of assets to Ford Sollers JV was performed through contribution of two subsidiaries located in Tatarstan and sale of fixed assets to Ford Sollers JV. There was also cash contribution from JSC 12 Other non-current assets Sollers for amount RR 330 into the share capital of the joint venture. 31 December 2012 31 December 2011 Included in the income statement is the gain of RR 4,007 related to the formation of the JV. Advances for construction in progress and equipment 675 590 Details are as follows: Other non-current assets 2 6 Total other non-current assets 677 596 31 December 2011 Fair value of investment in joint venture 11,605 Net assets of subsidiaries contributed to the share capital of the joint venture (4,148) 13 Inventories Disposal of the assets as a consequence of the formation of the joint venture (3,715) Gain on disposal of fixed assets to the joint venture after formation 265 31 December 2012 31 December 2011 Net result 4,007 Raw materials 2,067 2,173 Less: provision (111) (33) Total raw materials 1,956 2,140 Work in progress 709 1,256 Less: provision – – Total work in progress 709 1,256 Finished products 1,891 3,364 Less: provision (53) (60) Total finished products 1,838 3,304 Total 4,503 6,700

At 31 December 2012 there were no pledged inventories. At 31 December 2011 inventories of RR 84 have been pledged as security for borrowings. See Note 17. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

14 Trade and other receivables 14 Trade and other receivables

14 Trade and other receivables The analysis by credit quality of trade receivables outstanding are as follows:

31 December 2012 31 December 2011 31 December 2012 31 December 2011 Trade receivables 8,608 9,336 Current and not impaired – exposure to Less: provision for impairment (60) (151) - Group 1 – large corporate clients 621 407 Total trade receivables 8,548 9,185 - Group 2 – dealers 7,444 7,165 Other receivables 706 575 - Group 3 – other clients 371 1,610 Less: provision for impairment (21) (70) Total current and not impaired 8,436 9,182 Total other receivables 685 505 Past due but not impaired Advances to suppliers, other than for equipment 432 548 Less: provision for impairment (9) (3) - less than 30 days overdue – – Total advances to suppliers, other than for equipment 423 545 - 30 to 90 days overdue 36 1 - 90 to 180 days overdue 65 – · Independent Taxes prepayments 75 94 136 Auditor’s Report - 180 to 360 days overdue 10 2 VAT recoverable, net 68 680 · Sollers Group - over 360 days overdue 1 – 137 Other prepayments 17 25 Consolidated Total past due but not impaired 112 3 Total 9,816 11,034 Financial Statements Individually determined to be impaired (gross) · Sollers Group Notes to the Consolidated At 31 December 2012, trade receivables arising from revenue contracts of RR 5,021 - not overdue – – Financial Statements (31 December 2011: RR 3,923) were pledged as a security for a bill of credit. - less than 30 days overdue – – at 31 December 2012 - 30 to 90 days overdue – – (in millions of Russian - 90 to 180 days overdue – – Trade receivables are represented by currency as follows: Roubles – RR) - 180 to 360 days overdue – – - over 360 days overdue 60 151 Currency 31 December 2012 31 December 2011 Total individually impaired 60 151 Russian Roubles 8,463 8,392 Less impairment provision (60) (151) US Dollars 85 281 Total 8,548 9,185 Euros – 467 Korean Won – 45 Total 8,548 9,185 The Group retains the PTS (vehicle registration certificate representing the certificate of title of a vehicle) as a pledge when other documents are transferred to the dealer in conjunction with a sale. Management considers that this serves as collateral in relation for the trade receivables in Group 2 and Group 3. The fair value of the collateral for the past due but not impaired receivables as at 31 December 2012 was RR 112 (31 December 2011: RR 3) and the fair value of the collateral for the individually determined to be impaired receivables was RR 60 (31 December 2011: RR 151). Movements in the impairment provision for trade and other receivables are as follows:

31 December 2012 31 December 2011

Trade Other Advances Trade Other Advances receivables financial to suppliers receivables financial to suppliers receivables receivables Provision for impairmant 151 70 3 161 26 22 at the start of the year Amounts written off during (71) (54) – (20) – – the year as uncollectible Provision for impairment during (20) 5 6 10 44 (19) the year Provision for impairment 60 21 9 151 70 3 at the end of the year COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

15 Cash and cash equivalents 15 Cash and cash equivalents

15 Cash and cash equivalents The carrying value of cash and cash equivalents as at 31 December 2012 and 31 December 2011 is approximately equal to their fair value. The Group holds cash and cash equivalents 31 December 2012 31 December 2011 in the top-20 Russian banks. Credit ratings of the banks where accounts were held as at the year- Cash on hand and balances with banks 1,436 1,393 end date are set out in the analysis below: Cash deposits 1,124 1,564 Total 2,560 2,957 31 December 2012 31 December 2011 Rating by Fitch Cash and cash equivalents held by the Group earned the following interest rates per annum: - A- 59 24 - A 100 37 <1% 1%–3% 3%–5% 5%–7% non-interest Total - BBB+ 7 85 bearing - BBB 2,138 2,187 - BBB- – 3 · Independent As at 31 December 2012 - BB 23 150 138 Auditor’s Report Cash on hand and balances with 14 243 – – 1,179 1,436 - B+ 16 3 · Sollers Group banks 139 - B 24 1 Consolidated Cash deposits 157 – 69 898 – 1,124 Rating by Moody’s Financial Statements Total 171 243 69 898 1,179 2,560 · Sollers Group Notes – A1 – 23 to the Consolidated As at 31 December 2011 – B2 183 – Financial Statements Cash on hand and balances with 137 337 13 – 906 1,393 – Baa2.ru – 414 at 31 December 2012 banks Other (in millions of Russian Cash deposits 37 104 707 716 – 1,564 Roubles – RR) Total 174 441 720 716 906 2,957 – Unrated 4 25 – Cash on hand 6 5 Total 2,560 2,957 The following cash and cash equivalents held by the Group are denominated in foreign currencies:

Currency 31 December 2012 31 December 2011 16 Shareholders’ equity US Dollars 831 579 Euro 1 2 Korean won 6 75 The value of share capital issued and fully paid up consists of the following amounts: Total 838 656 Number of Number of Share Treasury Share Additional outstanding treasury capital shares premium paid-in ordinary shares capital shares (thousands) (thousands) At 31 December 2012 34,270 – 530 – 4,480 1,438 At 31 December 2011 34,270 799 530 (653) 4,893 1,438

The total authorised number of ordinary shares is 82,074 thousand (31 December 2011: 82,074 thousand). The nominal value of all shares is 12.5 roubles per share. All issued ordinary shares are fully paid. Each ordinary share carries one vote. At 31 December 2012 there were no treasury shares owned by the Group. At 31 December 2011 799 thousand of ordinary shares were owned by wholly-owned subsidiary of the Group. These ordinary shares carried voting rights in the same proportion as other ordinary shares. The voting rights of the ordinary shares of the Group held by entities within the Group were effectively controlled by the management of the Group. Share premium represents the excess of contributions received over the nominal value of shares issued. In accordance with Russian legislation, the Group distributes profits as dividends or trans- fers them to reserves (fund accounts) on the basis of financial statements prepared in accord- ance with Russian Accounting Rules. The statutory accounting reports of the Company are the basis for profit distribution and other appropriations. Russian legislation identifies the basis of COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

16 Shareholders’ equity 17 Borrowings

distribution as the net profit. For the year ended 31 December 2012, the net statutory loss for the The Group’s short-term borrowings are denominated in currencies as follows: Company reported in the published annual statutory reporting financial statements was RR 2,601 (2011: loss RR 3,417) and the closing balance of the accumulated profit including the current 31 December 2012 31 December 2011 reporting period net statutory loss was RR 2,423 (31 December 2011: RR 5,008). However, this Borrowings denominated in: – Russian Roubles 6,698 9,522 legislation and other statutory laws and regulations are open to legal interpretation and accord- – US Dollars – 124 – Euros – 1,337 ingly management believes at present that it would not be appropriate to disclose an amount for Total short-term borrowings 6,698 10,983 the distributable reserves in these consolidated financial statements. By the date of approval of these consolidated financial statements, no dividends were proposed by the Board of Directors for the year ended 31 December 2012 (2011: no dividends were declared At 31 December 2012 the fair value of short-term borrowings amounted to RR 6,737, comprising at the General Shareholders’ Meeting). bonds RR 3,222 and bank loans and interests payable RR 3,513. The carrying amounts of short- During the year ended 31 December 2012, the Group disposed of 1,047 thousand of ordinary term borrowings approximates to their fair values at 31 December 2011.

· Independent shares and acquired an additional 248 thousand shares. Certain of the Group’s borrowings are subject to covenant requirements that the Group 140 Auditor’s Report During the year ended 31 December 2011, the Group disposed of 228 thousand of ordinary is required to comply with, or otherwise could result in an acceleration of the repayment period. 141 · Sollers Group shares and acquired an additional 228 thousand shares. See Note 31. Consolidated Financial Statements Property, plant and equipment and inventories of RR 2,845 (31 December 2011: RR 4,857) · Sollers Group Notes Share based compensation are pledged as collateral for long-term and short-term borrowings. Refer to Note 7 and Note 13. to the Consolidated On 10 March 2009, the Group granted to members of key management and other employees At 31 December 2011 100% shares of the Group’s subsidiary OOO «Sollers-Dal’niy Vostok» were Financial Statements options to acquire 855,000 of the Group’s ordinary shares at an exercise price of US$3 that pledged as collateral for long-term and short-term borrowings. at 31 December 2012 represented the average market share price for the three months preceding the grant date. The As of 31 December 2012 the Group had additional available credit facilities in total amount (in millions of Russian market share price at the grant date was US$3. The vesting period for the options is one year of RR 3,974. Roubles – RR) for 285,000 options; two years for 285,000 options and three years for 285,000 options. These options are exercisable until 1 March 2013 subject to an employee meeting certain conditions, including remaining in employment in the Group up until the date of vesting. 18 Advances received and other payables During the year ended 31 December 2012 248,000 options were exercised at an exercise price of US$ 3 (31 December 2011, 228,000 options were exercised at an exercise price of US$ 3) by 31 December 2012 31 December 2011 members of key management and other employees. For further details please see Note 6.2. Dividends payable 17 34 Liabilities for purchased property, plant and equipment 34 151 Accrued liabilities and other creditors 237 56 Total financial liabilities within other payables 288 241 17 Borrowings Advances received 1,290 352 Accrued employee benefit costs 300 268 The Group’s long-term borrowings consisted of the following: Vacation accrual 266 206 Bonus accrual 721 613 31 December 2012 31 December 2011 Total advances received and other payables 2,865 1,680 Bank loans 3,742 3,497 – Bonds 2,354 There were no overdue payables as at 31 December 2012, including in respect of trade payables Total long-term borrowings 3,742 5,851 (31 December 2011: nil). The bonus accrual relates to performance based on productivity of employees at a subsidiary dur- The Group’s long-term borrowings are denominated in Russian Roubles at 31 December ing the year ended 31 December 2012 of RR 721 (31 December 2011: RR 613). 2012 and 31 December 2011. The carrying amounts of long-term borrowings approximates to their fair values as at 31 De- cember 2012. At 31 December 2011 the fair value of long-term borrowings amounted to RR 5,885, comprising bonds RR 2,388 and bank loans RR 3,497. The Group’s short-term borrowings consisted of the following:

31 December 2012 31 December 2011 Bank loans 3,320 8,943 Bonds 3,185 1,843 Interest payable 193 197 Total short-term borrowings 6,698 10,983 COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

19 Taxes payable 22 Cost of sales

19 Taxes payable 22 Cost of sales

31 December 2012 31 December 2011 Year ended Year ended Value-added tax 557 1,768 31 December 2012 31 December 2011 Payments to the State Pension Fund and other social taxes 156 141 Materials and components 40,877 44,775 Income tax 210 291 Labour costs 5,501 5,131 Property tax 20 32 Other production costs 2,200 2,650 Personal income tax 15 36 Depreciation and amortisation 884 1,220 Tax penalties and interest – – Change in finished goods and work in progress 2,013 3,543 Other taxes 87 53 Total 51,475 57,319 Total 1,045 2,321

· Independent The Group had no tax liabilities past due at 31 December 2012 or 31 December 2011. 142 Auditor’s Report 23 Distribution costs · Sollers Group 143 Consolidated 20 Warranty and other provisions Year ended Year ended Financial Statements 31 December 2012 31 December 2011 · Sollers Group Notes to the Consolidated During the year ended 31 December 2012 and 31 December 2011, the following movements Transportation 1,415 1,200 Advertising 470 534 Financial Statements in warranty and other provisions were recorded: at 31 December 2012 Labour costs 337 506 (in millions of Russian Warranty Tax and other claims Total Check and inspection performed by dealers 113 43 Roubles – RR) Materials 106 160 Balance at 1 January 2011 321 20 341 Other 110 135 Additional provision 298 26 324 Total 2,551 2,578 Utilised in the year (301) (19) (320) Balance at 31 December 2011 318 27 345 Additional provision 426 68 494 Utilised in the year (213) (22) (235) 24 General and administrative expenses Balance at 31 December 2012 531 73 604 Year ended Year ended 31 December 2012 31 December 2011 The Group provides a one-year warranty on most UAZ vehicles, except a two and since second half 2011 three-year warranty on the UAZ Patriot; one and two-year warranty on ZMZ engines; and a Labour costs 3,058 2,843 Services provided by third parties 497 458 three-year warranty period on sport utility vehicles. The Group undertakes to repair or replace items Depreciation and amortisation 192 321 that fail to perform satisfactorily. A provision has also been recognised for SsangYong vehicles based Rent 228 144 on expected costs to be incurred that are not covered by warranties provided by the supplier. Taxes other than income 193 339 All of the above provisions have been classified as current liabilities as the Group does not have an Business travel 155 109 unconditional right to defer settlement beyond one year. Fire brigade and security costs 144 150 Repairs and maintenance 130 98 Transportation 73 66 Materials 72 98 21 Sales Insurance 46 88 Training costs 19 22 Year ended Year ended Movement in the provision for impairment of receivables 172 71 31 December 2012 31 December 2011 Other 226 175 Vehicles 55,071 59,497 Total 5,205 4,982 Automotive components 5,841 5,923 Engines 1,684 1,400 Services 1,788 1,317 Other sales 1,165 1,394 Total 65,549 69,531 COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

25 Other operating (income) / expenses – net 27 Income tax expense

25 Other operating (income) / expenses – net The income tax rate applicable to the majority of the Group’s income is 20% (2011: 20%). A reconciliation between the expected and the actual taxation charge is provided below: Year ended Year ended 31 December 2012 31 December 2011 Year ended Year ended Net losses on disposals of property, plant, equipment and investments 220 105 31 December 2012 31 December 2011 Accounts payables written-off (197) (18) Profit before income tax 7,584 6,274 Charitable donations 43 45 Theoretical tax charge at statutory rate (2012: 20%; 2011: 20%) 1,480 1,722 Social expenses 36 46 Theoretical tax charge/(benefit) at different statutory rate 36 (467) Loss on disposal of materials 60 67 (2012: 16%; 2011: 16%) Research and development expenses 7 5 Government grant amortisation (16) (20) Tax effect of items which are not deductible or assessable for taxation purposes: Other (158) (80) - Non-deductible expenses/(income) at 20% 50 (16) Total (5) 150 - Non-deductible expenses at 16% 137 342 · Independent 144 Auditor’s Report Income tax expense 1,703 1,581 · Sollers Group 145 Consolidated Differences between IFRS and statutory taxation regulations in Russia give rise to temporary Financial Statements 26 Finance costs, net · Sollers Group Notes differences between the carrying amount of assets and liabilities for financial reporting purposes Year ended Year ended to the Consolidated and their tax bases. The tax effect of the movements in these temporary differences is detailed 31 December 2012 31 December 2011 Financial Statements below and is recorded at the rate of 20% (31 December 2011: 20%). at 31 December 2012 Interest expense 1,574 2,827 The recognised deferred tax asset represents income taxes recoverable through future (in millions of Russian Government subsidy of interest expenses (369) (1,360) deductions from taxable profits and is recorded on the balance sheet. Deferred income tax assets Roubles – RR) Foreign exchange losses/(gain), net (315) 891 Total finance costs, net 890 2,358 are recorded to the extent that realisation of the related tax benefit is probable. The future Less capitalised finance costs (80) (77) taxable profits and the amount of tax benefits that are probable in the future are based on the Total finance costs, net 810 2,281 medium term business plan prepared by management and extrapolated results thereafter. The business plan is based on management’s expectations that are believed to be reasonable under the circumstances. The Group’s capitalised borrowing costs of RR 80 mainly arise from financing attributable In the context of the Group’s current structure, tax losses and current tax assets of the to the construction of property, plant and equipment (2011: RR 77). different companies may not be set off against current tax liabilities and taxable profits of other Interests paid during 2012 and 2011 to State banks were partly compensated under Government companies and, accordingly, taxes may accrue even where there is a net consolidated tax loss. Decrees #640 dated 1 August 2011 and #357 dated 6 June 2005. The compensation was recognised Deferred tax assets may be realised in different periods than the deferred tax liabilities may be within finance costs of the consolidated income statement of the reporting periods to match it settled. Management believes that there will be sufficient taxable profits available at the time the with the costs that they are intended to compensate. temporary differences reverse to utilise the deferred tax assets. See Note 3.3. The deferred tax liability that has been netted off with deferred tax assets at the subsidiary level within the Group amounted to RR 1,316 as of 31 December 2012 (31 December 2011: RR 1,237). 27 Income tax expense The recognised tax losses carried forward generally expire in the period to 2022, being ten years after the end of the fiscal period when the losses were generated. The income tax expense recorded in the consolidated income statement comprises the following:

Year ended Year ended 31 December 2012 31 December 2011 Current income tax expense 1,681 822 Deferred tax charge 22 759 Income tax expense 1,703 1,581 COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

27 Income tax expense 29 Segment information

1 January Movement 31 December Movement 31 December 29 Segment information 2011 in the 2011 in the year 2012 year ended ended 31 December 31 December IFRS 8 requires operating segments to be identified on the basis of internal reports about compo- 2011 2012 nents of the Group which are regularly reviewed by the ‘chief operating decision maker’ in order to Tax effects of deductible temporary differences: allocate resources to segments and to assess their performance. The Group’s operating segments Losses carried forward 1,739 (496) 1,243 (1,182) 61 are reported based on the financial information provided to the Group’s Chief Executive Officer and Accounts payable and provisions 145 117 262 (38) 224 that is used to make strategic decisions. Taxes payable 50 109 159 (85) 74 In 2011 the Group began to restructure its automotive and engine segments after OAO UAZ be- Inventories 414 685 1,099 (21) 1,078 came the major customer of OAO ZMZ. The sales of engine segment became immaterial in terms of Total 2,348 415 2,763 (1,326) 1,437 segment reporting and thus are no longer disclosed separately. As at 31 December 2012 the Group Tax effects of taxable temporary differences: activities are considered as one reporting segment: vehicles.

· Independent Property, plant and equipment (1,429) 402 (1,027) 57 (970) The Group’s production facilities are wholly located within the Russian Federation, and almost 146 Auditor’s Report all sales are domestic. Accounts receivable (428) (904) (1,332) 287 (1,045) 147 · Sollers Group Equity investments - (738) (738) 738 – The Chief Executive Officer reviews financial information prepared on the basis of Russian ac- Consolidated Total (1,857) (1,240) (3,097) 1,082 (2,015) Financial Statements counting standards adjusted to meet the requirements of internal reporting. Such financial in- · Sollers Group Notes Recognised deferred tax asset, net 1,489 (615) 874 (598) 276 formation differs in certain aspects from International Financial Reporting Standards, including to the Consolidated Recognised deferred tax liability, net (998) (210) (1,208) 354 (854) in relation to inventory provisions; receivables provisions and other adjustments. Financial Statements Total net deferred 491 (825) (334) (244) (578) Performance is evaluated on the basis of operating profit or loss. Accordingly, foreign currency tax assets/(liabilities) at 31 December 2012 gains/ losses, interest income/ expenses and income tax charges are excluded. No balance sheet (in millions of Russian information is regularly reviewed and accordingly no information on assets or liabilities is included Roubles – RR) During the year ended 31 December 2012 movement of RR 222 (31 December 2011: RR 66) as part of the segment information presented. was due to disposal of subsidiaries. Revenues from external customers are presented in Note 21. Management considers that across The Group has not recorded a deferred tax liability in respect of temporary differences associ- the range of vehicles and models produced, these are considered as similar products. During the ated with investments in subsidiaries and joint ventures as the Group is able to control the tim- year ended 31 December 2012 and 31 December 2011 the Group did not have transactions with ing of the reversal of these temporary differences and does not intend for them to reverse in the a single external customer that amounted to ten per cent or more of the Group’s revenues. foreseeable future. Un-remitted earnings from subsidiaries were RR 13,776 at 31 December 2012 (31 December 2011: RR 11,566), mostly being subject to tax rate on intergroup divi- dends of 0%. 30 Financial risk management

30.1 Financial risk factors 28 Earning per share The risk management function within the Group is carried out in respect of financial risks (market, currency, price, interest rate, credit and liquidity), operational risks and legal risks. The Basic earning per share is calculated by dividing the profit attributable to owners of the primary objectives of the financial risk management function are to establish risk limits, and then Company by the weighted average number of ordinary shares in issue during the year, excluding ensure that exposure to risks stays within these limits. The operational and legal risk management treasury shares. functions are intended to ensure proper functioning of internal policies and procedures to mini- mise operational and legal risks. Year ended Year ended (a) Market risk 31 December 2012 31 December 2011 The Group takes on exposure to market risks. Market risks arise from open positions in (a) for- Basic earnings per share (in RR per share) 171.1 137.2 eign currencies, (b) interest bearing assets and liabilities and (c) equity investments, all of which Diluted earnings per share (in RR per share) 170.5 135.5 are exposed to general and specific market movements. Management sets limits on the value of Profit attributable to equity holders of the Company 5,843 4,594 Basic weighted average number of shares outstanding (thousands) 34,152 33,472 risk that may be accepted, which is monitored on a daily basis. However, the use of this approach Adjustment for share options (thousands) 123 435 does not prevent losses outside of these limits in the event of more significant market movements. Diluted weighted average number of shares outstanding (thousands) 34,275 33,907 (i) Currency risk The Group was not exposed to currency risk from changes in the exchange rate of the follow- ing currencies: Euro, US Dollars and Korean Won. The risks arise on purchase agreements from delivery of major production components denominated in foreign currencies. Management be- lieves that the nature of its business enables the Group to offset currency risk by changing related Rouble denominated retail prices. The Group was not exposed to currency risk arising from open loan positions denominated in Euros and US Dollars. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

30 Financial risk management 30 Financial risk management

The positions are monitored monthly. The table below summarises the Group’s exposure The exposure was calculated only for monetary assets and liabilities denominated to foreign currency exchange rate risk at 31 December 2012: in currencies other than the functional currency of the respective entity of the Group. (ii) Price risk Monetary financial Monetary financial The Group is not exposed to equity securities price risk because it does not hold a material assets liabilities Cash and cash Accounts Accounts Bonds Net balance portfolio of equity securities. equivalents receivable payable and sheet position (iii) Interest rate risk borrowings The Group takes on exposure to the effects of fluctuations in the prevailing levels of market US Dollars 831 85 (6,389) – (5,473) interest rates on its financial position and cash flows. Management believes the Group will be Euros 1 – (191) – (190) able to swap floating interest rate loans with fixed interest rate loans in case of a significant Korean Won 6 – (61) – (55) adverse change of market conditions. The table below summarises the Group’s exposure to Total foreign currencies 838 85 (6,641) – (5,718) interest rate risks. The table below presents the Group’s financial liabilities at their carrying Russian Roubles 1,722 8,711 (4,101) (10,440) (4,108) · Independent Total 2,560 8,796 (10,742) (10,440) (9,826) amounts, categorised by the earlier contractual interest repricing or maturity dates. 148 Auditor’s Report · Sollers Group Demand and From 3 More than More than Total 149 Consolidated less than to 12 months 1 year 5 years Financial Statements The table below summarises the Group’s exposure to foreign currency exchange rate risk 3 months · Sollers Group Notes at 31 December 2011: 31 December 2012 to the Consolidated Financial Statements Monetary financial Monetary financial Fixed interest rates 800 5,135 3,742 – 9,677 assets liabilities at 31 December 2012 EURIBOR based interest rates – – – – – Cash and cash Accounts Accounts Bonds Net balance (in millions of Russian CB RF refinancing rate based – 570 – – 570 equivalents receivable payable and sheet position Total 800 5,705 3,742 – 10,247 Roubles – RR) borrowings US Dollars 579 281 (4,088) (124) (3,352) 31 December 2011 Euros 2 467 (2,949) (1,337) (3,817) Fixed interest rates 630 8,269 4,358 – 13,257 Korean Won 75 45 (28) – 92 EURIBOR based interest rates 197 1,129 - – 1,326 Japanese Yen – – (1,381) – (1,381) CB RF refinancing rate based 113 448 1,493 – 2,054 Total foreign currencies 656 793 (8,446) (1,461) (8,458) Total 940 9,846 5,851 – 16,637 Russian Roubles 2,301 8,392 (4,899) (15,373) (9,579) Total 2,957 9,185 (13,345) (16,834) (18,037) At 31 December 2012, if interest rates at that date had been 200 basis points lower (31 December 2011: 200 basis points lower) with all other variables held constant, the interest The above analysis includes only monetary assets and liabilities. The Group does not hold any expense for the year would have been RR 270 lower (2011: RR 410 lower). If interest rates at currency derivatives. Investments in equities and non-monetary assets are not considered to give that date had been 100 basis points higher (31 December 2011: 100 basis points higher) with all rise to any material currency risk. over variables held constant, the interest expense for the year would have been RR 135 higher Management monitors exchange rates and market forecasts on foreign exchange rates regu- (31 December 2011: RR 205 higher). larly as well as prepares budgets for long-term, medium-term and short-term periods. The Group monitors interest rates for its financial instruments. The table below summarises The following table presents sensitivities of profit and loss and equity to reasonably possible interest rates based on reports reviewed by key management personnel: changes in exchange rates applied at the reporting date relative to the Group’s functional currency, with all other variables held constant: In % p.a. 2012 2011 RR US$ Euro RR US$ Euro 2012 2011 Assets Impact on profit and loss and on equity of: Cash and cash equivalents 0%-6.4% 0% 0% 0%-6.5% 0%-0.1% 0% US Dollar strengthening by 10% (10% for 2011) (547) (335) Liabilities US Dollar weakening by 10% (10% for 2011) 547 335 Euro strengthening by 10% (10% for 2011) (19) (382) Borrowings 7.5%-12.5%, – – 7.25%-10.0%, 1.0% EURIBOR+ Euro weakening by 10% (10% for 2011) 19 382 CB RF CB RF refi- 0.25% to refinancing nancing rate 0.5% Korean Won strengthening by 10% (10% for 2011) (6) 9 rate + 4% + 4% Korean Won weakening by 10% (10% for 2011) 6 (9) Japanese Yen strengthening by 10% (10% for 2011) – (138) Japanese Yen weakening by 10% (10% for 2011) – 138 COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

30 Financial risk management 30 Financial risk management

(b) Credit risk The Group manages liquidity risk with the objective of ensuring that funds will be available The Group takes on exposure to credit risk, which is the risk that one party to a financial at all times for all cash flow obligations as they become due by preparing long-term, medium- instrument will cause a financial loss for the other party by failing to discharge an obligation. term and short-term budgets, continuously monitoring forecast and actual cash flows. Exposure to credit risk arises as a result of the Group’s sales of products on credit terms The Group monitors the range of financial ratios (net debt/EBITDA, EBIT/Interest expense) and other transactions with counterparties giving rise to financial assets. in order to ensure that the Group maintains sufficient liquidity in order to meet its obligations The Group’s maximum exposure to credit risk by class of assets is as follows: as they fall due. Management review the targeted ratios in order to ensure that targets are in line with the market and take actions to ensure that the Group is able to maintain sufficient 31 December 2012 31 December 2011 liquid resources to ensure that the Group continues to meet its liabilities as they fall due. Cash and cash equivalents 2,560 2,957 Management monitors compliance with covenant requirements on a monthly basis, or more Accounts receivable 8,548 9,185 frequently as appropriate. A schedule of covenant requirements that the Group is subject to is Other receivables 203 250 maintained by the Head of Treasury, and management are proactive to obtain revised agree- Other financial assets 45 256 · Independent Total 11,356 12,648 ments or waivers to the extent that requirements would otherwise not be achieved. 150 Auditor’s Report Management considers the targeted ratios sustainable for the foreseeable future. Manage- 151 · Sollers Group All of the financial assets of the Group, except for RR 20 (31 December 2011: RR 20) in shares, ment believes that the Group has access to additional credit facilities if required. Consolidated Financial Statements categorised as available for sale, are loans and receivables. The analysis below represents management expectations of repayment schedule of mon- · Sollers Group Notes The process of management of credit risk includes assessment of credit reliability of the counter- etary assets and liabilities of the Group as of 31 December 2012 and 31 December 2011. The ta- to the Consolidated parties and reviewing payments received. All the receivables from the Group’s dealers are secured ble below is based on the earliest possible repayment dates and on nominal cash flows includ- Financial Statements through the Group retaining the PTS of vehicles dispatched until payment has been made. ing future interest payments. Foreign currency cash flows are translated using spot exchange at 31 December 2012 Management reviews the ageing analysis of outstanding trade receivables and follows up on past rates as of 31 December 2012 and 31 December 2011. (in millions of Russian due balances. Management therefore considers it appropriate to provide ageing and other informa- Roubles – RR) tion about credit risk as disclosed in Note 14. Demand and From 3 More than More than Total less than to 12 months 1 year 5 years The credit quality of each new customer is analysed before the Group enters into contractual 3 months agreements. The credit quality of customers is assessed taking into account their financial position and past experience. 31 December 2012 Although the collection of receivables could be influenced by economic factors, management be- Total monetary financial assets 11,356 – – – 11,356 lieves that there is no significant risk of loss to the Group beyond the provisions already recorded. Cash and cash equivalents 2,560 – – – 2,560 The Group’s cash and cash equivalents are held with over 18 banks (31 December 2011: 20 banks) Trade receivables 8,548 – – – 8,548 thus there is no significant exposure of the Group to a concentration of credit risk. Management Other receivables 45 – – – 45 Other financial assets 203 – – – 203 monitor both Moody’s and Fitch ratings of the banks used to manage the level of credit risk that Total monetary financial liabilities (11,706) (5,731) (3,745) – (21,182) the Group is exposed to. Management considers that the credit risk associated with these banks is Loans and bonds (993) (5,705) (3,742) – (10,440) negligible. Trade payables (10,425) (26) (3) – (10,454) The Group did not issue any financial guarantees in either of the years ended 31 December Other payables (288) – – – (288) 2012 or 31 December 2011. Future interest payments (270) (536) (357) – (1,163) Credit risks concentration Net monetary financial liabilities (620) (6,267) (4,102) – (10,989) at 31 December 2012 No single debtor of the Group accounts for more than 4.1% (31 December 2011: 3.0%) of the trade accounts receivable of the Group. However, the majority of the Group’s trade receivables 31 December 2011 represent dealers who sell the Group’s vehicles to consumers, and therefore are exposed in Total monetary financial assets 12,535 113 – – 12,648 similar ways to reductions in the demand from consumers for new vehicle sales, and their abil- Cash and cash equivalents 2,957 – – – 2,957 ity to obtain access to credit in the financial markets in order to finance their businesses. As the Trade receivables 9,185 – – – 9,185 Group maintains the PTS registration certificates to each vehicle and has insurance arrangements Other receivables 250 – – – 250 in place covering the vehicles held by the dealers, this mitigates the potential exposure of the Other financial assets 143 113 – – 256 Group in the event that a number of dealers are impacted in similar ways and are not able to repay Total monetary financial liabilities (13,898) (10,429) (5,852) – (30,179) Loans and bonds (1,137) (9,845) (5,852) – (16,834) amounts owed. Trade payables (12,520) (584) – – (13,104) The Group’s cash and cash equivalents are held with 18 banks (31 December 2011: 20 banks) Other payables (241) – – – (241) thus there is no significant exposure of the Group to a concentration of credit risk. Future interest payments (391) (807) (563) – (1,761) Management does not consider any requirement to enter into hedging arrangements in relation Net monetary financial liabilities (1,754) (11,123) (6,415) – (19,292) to the credit risks to which the Group is exposed. at 31 December 2011 (c) Liquidity risk Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obliga- The Group did not have any derivative financial instruments issued/held during the year tions associated with financial liabilities. ended 31 December 2012 or the year ended 31 December 2011. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

30 Financial risk management 31 Contingencies, commitments and operating risks

30.2 Capital risk management challenged in the past may be challenged. The Supreme Arbitration Court issued guidance to lower The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a courts on reviewing tax cases providing a systemic roadmap for anti-avoidance claims, and it is pos- going concern in order to provide returns for shareholders and benefits for other stakeholders and to sible that this will significantly increase the level and frequency of tax authority’s scrutiny. maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods re- capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital main open to review by the authorities in respect of taxes for three calendar years preceding the year to shareholders, issue new shares or sell assets to reduce debt. of review. Under certain circumstances reviews may cover longer periods. Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. Different interpretations and applications of the Russian Tax Code are possible. For example, in The ratio is calculated as net debt divided by a sum of total equity and net debt. The Group considers relation to Russian taxpayers where outstanding loans are controlled by a foreign company owning total capital under management at 31 December 2012 to be RR 27,760 (31 December 2011: RR 27,431). directly or indirectly more than 20% of the charter capital of the Russian entity, thin capitalisation The gearing ratios at 31 December 2012 and 31 December 2011 were as follows: limits could be applied to the respective loan interest under certain circumstances even where loans are with other subsidiaries or Russian banks for the purpose of financing Russian business activities. 31 December 2012 31 December 2011 · Independent As Russian tax legislation does not provide definitive guidance in certain areas, other tax matters 152 Auditor’s Report Long-term borrowings 3,742 5,851 including assessment of tax bases could also have different interpretations. Nonetheless, manage- 153 · Sollers Group Short-term borrowings 6,698 10,983 ment believes that its interpretation of the relevant legislation is appropriate and the Group’s tax, Consolidated Less: cash and cash equivalents (2,560) (2,957) currency legislation and customs positions will be sustained. Financial Statements Net debt 7,880 13,877 · Sollers Group Notes Equity 19,880 13,554 Amended Russian transfer pricing legislation took effect from 1 January 2012. The new transfer to the Consolidated Total net debt and equity 27,760 27,431 pricing rules appear to be more technically elaborate and, to a certain extent, better aligned with the Financial Statements Gearing ratio 28% 50% international transfer pricing principles developed by the Organisation for Economic Cooperation at 31 December 2012 and Development (OECD). The new legislation provides the possibility for tax authorities to make (in millions of Russian Management constantly monitor profitability ratios, market share price and debt/capitalisation transfer pricing adjustments and impose additional tax liabilities in respect of controlled transac- Roubles – RR) ratio. The level of dividends is also monitored by the Board of Directors of the Group. tions (transactions with related parties and some types of transactions with unrelated parties), pro- Fair value of financial instruments vided that the transaction price is not arm’s length. Management has implemented internal controls Fair value is the amount at which a financial instrument could be exchanged in a current transac- to be in compliance with the new transfer pricing legislation. tion between willing parties, other than in a forced sale or liquidation, and is best evidenced by an Management is in process of preparation of the required documentation on the transfer pricing by active quoted market price. the date required by current legislation, which will provide sufficient evidence to support the Group’s The estimated fair values of financial instruments have been determined by the Group using avail- tax positions and related tax returns. Given that the practice of implementation of the new Rus- able market information, where it exists, and appropriate valuation methodologies. However, judge- sian transfer pricing rules has not yet developed, the impact of any challenge of the Group’s transfer ment is necessarily required to interpret market data to determine the estimated fair value. The prices cannot be reliably estimated. However, management do not anticipate any tax exposures will Russian Federation continues to display some characteristics of an emerging market and economic arise in practice. conditions continue to limit the volume of activity in the financial markets. Market quotations may Management estimates that possible exposure in relation to risks referred to above could sub- be outdated or reflect distress sale transactions and therefore not represent fair values of financial stantially reduce recognised losses carried forward. However, management do not anticipate any tax instruments. Management has used all available market information in estimating the fair value of exposures will arise in practice. financial instruments. The fair value of long-term and short-term borrowings is disclosed in Note 17. The carrying value Capital commitments of other financial instruments approximates to their fair value. Contractual obligations to purchase, construct or develop property, plant and equipment totalled RR 185 at 31 December 2012 (31 December 2011: RR 129).

31 Contingencies, commitments and operating risks Covenants For certain borrowing agreements, the Group is subject to covenant requirements. Breaches of Legal proceedings these requirements could give a lender the right to accelerate the repayment period of the borrow- From time to time and in the normal course of business, claims against the Group may be re- ings and demand immediate repayment. ceived. On the basis both of its own estimates and external and internal professional advice, man- Management have validated that the Group was in full compliance with all covenants attached to agement is of the opinion that no material losses will be incurred in respect of claims. contracts entered into, including borrowing agreements with lenders, as at 31 December 2012 (31 December 2011: no exceptions). Tax legislation Russian tax and customs legislation is subject to varying interpretations, and changes, which can Environmental matters occur frequently. Management’s interpretation of such legislation as applied to the transactions and Environmental regulation in the Russian Federation is evolving and the enforcement posture of activity of the Group may be challenged by the relevant authorities. Government authorities is continually being reconsidered. The Group periodically evaluates its obli- The Russian tax authorities may be taking a more assertive position in their interpretation of the gations under environmental regulations. As obligations are determined, they are recognised immedi- legislation and assessments, and it is possible that transactions and activities that have not been ately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litiga- COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ FINANCIAL ADDITIONAL OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & REPORTING INFORMATION RESPONSIBILITY SECURITIES

32 Principal subsidiaries

tion or legislation, cannot be estimated but could be material. In the current climate under existing legislation, management believes that there are no significant liabilities for environmental damage.

32 Principal subsidiaries

The principal subsidiaries consolidated within the Group and the degree of control exercised by the Group are as follows:

Entity Activity 31 December 31 December 2012 2011 % of effective % of effective · Independent interest (total interest (total 154 Auditor’s Report share capital) share capital) · Sollers Group 155 OAO “Sollers-Naberezhnye Chelny Manufacture and sale of passenger – 100 Consolidated (previously OAO “Small Car Plant”) automobiles Financial Statements · Sollers Group Notes OOO “Sollers-Elabuga (previously OOO Manufacture and sale of commercial – 100 to the Consolidated “Severstalavto-Elabuga”) vehicles Financial Statements OOO “DC Sollers” Auto trading – 100 at 31 December 2012 (previously OOO “Severstalavto”) (in millions of Russian OOO “DC SsangYong” Auto trading 100 – Roubles – RR)

OOO “Torgoviy dom Sollers” (previously Auto trading – 100 OOO “Torgoviy dom Severstalauto”) OOO “Torgoviy dom Sollers“ Auto components trading 100 –

OOO “Turin-Auto” Auto trading – 100

OAO “Zavolzhskiy Motor Works” Manufacture and sale of engines for pas- 64 73 senger automobiles, trucks and buses OAO “Ulyanovsky Avtomobilny Zavod” Manufacture and sale of passenger auto- 66 66 mobiles, light trucks and minibuses ZAO “Sollers-Isuzu” (previously Manufacture and sale of commercial – 66 ZAO “Severstalauto-Isuzu”) (Note 11) vehicles OOO “Sollers-Dal’niy Vostok” Vehicle production 100 100 OOO DC UAZ Auto trading 100 100

The table presents the Group’s effective interest in total share capital comprising of ordinary shares and preference shares. Disposed principle subsidiaries, except for the disposal of ZAO Sollers-Isuzu (Note 11), were liquidated. During 2012 the foundation of the new subsidiaries took place. These transactions were performed within restructuring of the Group and did not arise in business combinations. During the year ended 31 December 2012, as part of an internal Group reorganisation, the Group’s effective interest in OAO “Zavolzhskiy Motor Works” was reduced although the Group retained a majority effective interest and there were no changes in voting rights. As a result of this reorganisation, an amount of RR 595 is recognised in the Statement of Changes in Equity. During the year ended 31 December 2011, as part of an internal Group reorganisation, the Group’s effective interest in OAO “Zavolzhskiy Motor Works” was reduced although the Group retained a majority effective interest and there were no changes in voting rights. As a result of this reorganisation, an amount of RR 358 is recognised in the Statement of Changes in Equity. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial OVERVIEW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting RESPONSIBILITY SECURITIES P. 156-161 P.

156 157 COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVEIW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Contact us: Disclosure Calendar 10 Testovskaya Street Moscow International January 15 February 14 Business Centre SOLLERS’ operating highlights SOLLERS OJSC 4th Quarter Report, 2012 April April 15 Northern Tower, Moscow City · Disclosure Calendar SOLLERS Full Year Financial Results, 2012 158 · Annual General (Consolidated IFRS Financial Statements) SOLLERS’ operating highlights Meeting 159 · Contacts Moscow, 123317, Russia May May 15 Tel.: +7 (495) 228 3045 SOLLERS OJSC 1st Quarter Report, 2013 SOLLERS’ Annual Report 2012 Fax: +7 (495) 228 3044 SOLLERS OJSC Full Year Financial Results, 2012 May 16 Email: [email protected] Annual General Shareholders’ Meeting July 15 and SOLLERS OJSC Annual Report 2012 Website: sollers-auto.com City: Moscow SOLLERS’ operating highlights August 14 September SOLLERS Half Year Financial Results, 2013 SOLLERS OJSC 2nd Quarter Report, 2013 (Consolidated IFRS Financial Statements) October 15 November 15

SOLLERS’ operating highlights SOLLERS OJSC 3rd Quarter Report, 2012

In addition to the disclosures required by the Regulator and quarterly releases of operating results we take part in one-on-one meetings at investor conferences of major investment banks in Russia and abroad. For the upcoming events, please see our website. COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVEIW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

Annual General Meeting Contacts

The Annual General Meeting (AGM) is held at Nikolay Sobolev least two months after and no later than six First Deputy CEO, CFO months after the financial year end. SOLLERS OJSC’s next AGM is scheduled for 16 May 2013 Elena Nishanova at 10 a.m. (Moscow time). Head of Corporate Reporting The main issues on the agenda are: and Investor Relations Department • election of members of the Board of Direc- tors 10 Testovskaya Street

· Disclosure Calendar • approval of the SOLLERS OJSC’s Annual Moscow International Business Centre 160 · Annual General Report and Annual Financial Statements, in- Northern Tower, Moscow City 161 Meeting cluding Income Statement, and distribution of Moscow, 123317, Russia · Contacts profits and losses orf the financial year ended Tel.: +7 (495) 228 3045 on 31 December 2012 Fax: +7 (495) 228 3044 • election of members of the Revision Com- mittee Email: [email protected] • approval of SOLLERS OJSC’s external audi- Website: sollers-auto.com tor • determination of the amount of remunera- tion and compensation to be paid to the Board members • approval of Board of Directors’ Code • approval of Code of Corporate Governance. SOLLERS’ shareholders who are eligible to take part in the AGM can request all relevant information and AGM hand-outs from SOL- LERS OJSC. The results of the AGM will be published on the SOLLERS website (www.sollers-auto.com). The Company’s 2011 AGM was held on 29 June 2012. The shareholders approved the Company’s annual report and financial state- ments. The AGM decided not to distribute the profits and not to pay dividends. The AGM elected a new Board of Directors and Revision Committee; OOO AKG Business Krug was approved as SOLLERS OJSC’s external auditor. The AGM established remuneration for each member of the Board for the period during which they performed their duties and ad- dressed other agenda items. All resolutions were passed by a majority vote. The detailed results of the AGM are published on the SOLLERS website (www.sollers-auto.com). COMPANY BUSINESS & CORPORATE CORPORATE SHAREHOLDERS’ financial ADDITIONAL OVERVEIW STRATEGY GOVERNANCE SOCIAL EQUITY & reporting INFORMATION RESPONSIBILITY SECURITIES

· Disclosure Calendar · Annual General Meeting · Contacts