PJSC “Transcontainer” Management Report and Consolidated Financial

PJSC “TransContainer”

Management report and consolidated financial statements for the year ended 31 December 2014

PJSC "TransContainer" ("TransContainer" or the "Company" together with its consolidated subsidiaries) today publishes its management report together with the audited consolidated financial statements for the full year ended 31 December 2014. The financial statements presented in this announcement have been prepared in accordance with the International Financial Reporting Standards ("IFRS").

OPERATING AND FINANCIAL REVIEW

Summary

TransContainer is the leading intermodal container transportation company in Russia. As at 31 December 2014, the Company accounted for approximately 45.6% of Russia's rail container transportation market. It owns and operates 26,923 flatcars and 64,212 ISO containers. TransContainer also owns a network of rail-side container terminals, located at 46 railway stations across Russia and operates one terminal in Slovakia under a long-term lease agreement. The Company's joint venture JSC KedenTransService ("KedenTransService", or "KDTS") also operates 19 inland rail-side terminals in Kazakhstan. The Company's sales network comprises about 130 sales outlets in Russia, along with additional outlets across the CIS, Europe and Asia.

On 24 November 2014 Russian Railways, TransContainer's majority shareholder, transferred its full shareholding of 50%+2 shares in the Company to the share capital of the newly established United Transportation and Logistics Company ("UTLC"). Upon its establishment, Russian Railways holds 99.8% of the share capital of UTLC, with other shareholders - Belorussian Railway and JSC Kazakhstan Temir Zholy each holding about 0.1%. Russian Railways may decrease its stake in the share capital of UTLC in the future to 70% following the issue of new shares to JSC Kazakhstan Temir Zholy and Belarusian Railway. The key purpose of the establishment of UTLC is to facilitate the unlocking the three countries' land transit potential. It is expected to have a positive impact on rail container transportation volumes and asset utilisation of all the local operators involved.

For the year 2014, Russia's rail container transportation market grew by 3.8% year on year, posting the fourth consecutive year of decelerating growth rates. Furthermore, the market showed signs of shrinkage in the fourth quarter of 2014 amid increased macroeconomic and political challenges. Domestic rail container transportation, which increased by 9.1% year on year, was the main contributor to the market growth. International transportation was down by 0.4% as a decrease in import transportation of 9.9% year on year offset an increase in export and transit transportation by 5.4% and 7.2% respectively. Given this market environment, the Company's management is seeking to find or create new growth opportunities in the Russian container market as a key potential driver to business success.

The Company's rail container transportation volumes in Russia increased by 0.9% year on year to 1,467 thousand twenty-foot equivalent units ("TEU") for the twelve months ended 31 December 2014, compared to 1,454 thousand TEU in 2013. Revenue-generating transportation1 volumes grew by 1.7% year on year to 1,131 thousand TEU. Terminal handling volumes in Russia increased also by 0.9% year on year to 1,331 thousand TEU in the reporting period.

The pricing environment continued to be challenging amid increased market competition and deteriorating economic environment, resulting in a decrease in average transportation tariffs during the reporting period.

The Company's results in 2014 were also impacted by the deconsolidation of KedenTransService in December 2013, as a result of the disposal of a 17% stake in the entity. Following this transaction, KedenTransService's assets, liabilities, operating results and cash flow statements are excluded from TransContainer's consolidated results for the reporting period, while they were consolidated for the period from 1 January to 23 December 2013.

During the twelve months ended 31 December 2014, the Company's total revenue was down 6.6% year on year to RUB 36,565 million and the adjusted revenue decreased by 18.9% year on year to RUB 20,538 million. EBITDA fell by 22.4% year on year to RUB 7,817 million from RUB 10,074 million in the corresponding period of 2013. Profit for the period was down 38.8% year on year to RUB 3,658 million from RUB 5,974 million in the corresponding period last year.

In terms of profitability, the adjusted EBITDA margin in 2014 decreased to 38.1% from 39.8% in 2013, while the net income margin decreased from 23.6% to 17.8%.

As at 31 December 2014, the Company's total debt was RUB 6,777 million with net debt of only RUB 4,865 million. As a result, the Net Debt/LTM EBITDA ratio remained at a comfortable level of 62%.

Capital expenditure for the twelve months ended 31 December 2014 decreased by 36.5% year on year to RUB 4,212 million. In accordance with the Company's policy, all capital expenditure during the reporting period was financed by the Company's own cash flow.

1 Transportation of clients’ containers and own loaded containers

Recent developments and outlook

In the fourth quarter of 2014, the Russian economy entered into recession. As a result the rail container transportation market in the last three month of 2014 decreased by 2.2% year on year. During the first quarter of 2015, the market is expected to decline by 5%-6% year on year due to the rouble depreciation, weak domestic manufacturing output and deteriorating consumer confidence. On the positive side, in the first quarter of 2015, the domestic container transportation segment continues to demonstrate a sustainable, though moderate, growth driven by positive dynamics on the cargo containerisation level. Another factor potentially supporting Russian container market is the growth in the global economy, which marks a positive difference compared to the 2009 crisis period.

Against this backdrop, Company's management expects the market in 2015 to show a moderate decline at an upper single-digit rate. At the same time, the management notes that both the economic and political situations demonstrate a high level of uncertainty, which may affect any forward-looking expectations.

The challenging operating environment and increasing competition in the container segment continues to impose the downward pressure on operators' tariffs. With that in mind, the Company's management will focus on business optimisation, as well as further improving management efficiency and the quality of customer service.

In the current economic and market conditions, the Company's management will make thorough decisions relating to its investments and divestments with an aim to improve the return on invested capital and optimise its business portfolio. In particular, on 18 February 2015, the Board of Directors of the Company approved in principle the disposal of the Company's entire indirect 50% equity stake in KedenTransService to JSC National Company Kazakhstan Temir Zholy ("KTZ"), subject to KTZ receiving all necessary corporate and government approvals. At the same time, the Company may conduct acquisitions in other core markets when and if such opportunities arise.

Despite the current challenges, the Company believes that the Russian container transportation market is fundamentally attractive and retains significant long-term growth potential, driven by industrial production, consumer demand and scope for further growth in cargo containerisation.

Key operating results

Rail container transportation volumes in Russia

The Company's rail container transportation volumes in Russia for the full year 2014 grew by 0.9% year on year to 1,467 thousand TEU. The increase in domestic (+5.2%), export (+3.1%) and transit transportation volumes (+17.2%) fully offset a 19.7% year on year decline in imports.

Transportation of containers by TransContainer's fleet in 12M 2014 (ISO Loaded + Empty), 000' TEU

12M 2014 12M 2013 Change 000' TEU Percent Domestic Routes 764.9 727.4 +37.5 +5.2% Export 371.0 360.0 +11.0 +3.1% Import 214.2 266.9 -52.7 -19.7% Transit 117.3 100.1 +17.2 +17.2% All Routes 1,467.3 1,454.3 +13.0 +0.9%

The drop in container imports was largely due to the rouble devaluating against the US dollar and Euro, as well as the slump in consumer confidence on the back of deteriorating economic conditions throughout the year.

For the full year 2014, the Company's revenue-generating container transportation2 volumes in Russia amounted to 1,131 thousand TEU, up 1.7% year on year.

TransContainer's estimated share of Russia's rail container transportation market in 2014 decreased to 45.6% compared to 47.0% in 2013.

2 Transportation of clients’ containers and own loaded containers

Rail container transportation volumes in Kazakhstan

Rail container transportation volumes carried out by KDTS, the joint venture between the Company and Kazakhstan Temir Zholy in Kazakhstan, grew by 8.6% year on year to 253.0 thousand TEU. This was mainly a result of the expansion of the operational flatcar fleet.

Terminal handling in Russia

Throughput of the Company's rail container terminal network in Russia amounted to 1,331 thousand TEU in the full year 2014, representing a 0.9% year on year increase. Medium-duty (MDC) containers handling volumes dropped 80.3% year on year during the same period.

Terminal handling in Kazakhstan

For the full year 2014 container handling by KDTS at the cross-border rail-side terminals Dostyk and Altynkol amounted to 206.7 thousand TEU, representing 80.7% year on year growth. This was a result of higher cross-border handling volumes and new container handling yards at the Altynkol rail station becoming operational.

For the reporting period, non-container throughput at KDTS' terminals decreased by 1.8% year on year to 3.4 million tonnes. This was mainly due to a fall in import transportation volumes.

Asset utilisation

During the full year 2014, the empty run ratio for containers reached a historical low of 28.8%. Growth in flatcar and container turnover primarily reflects weaker customer demand and greater average distances travelled by the Company's containers.

12M 2014 12M 2013 Turnover of containers, days 31.6 27.1 Turnover of flatcars, days 14.1 13.7

Empty run3 for containers, % 28.8% 30.5% Empty run for flatcars, % 7.2% 6.7% 3 The Empty run ratio is calculated as an average empty run in kilometers divided by an average total run in kilometres

Description of Key Consolidated Statement of Comprehensive Income Items

The following table sets out the Company's results for the twelve months ended 31 December 2014 and 2013.

Year on year change

RUB million 12m 2014 12m 2013 RUB mln % Revenue 36,565 39,164 -2,599 -6.6%

Other operating income 715 747 -32 -4.3% Operating expenses -33,197 -32,859 -338 +1.0% Operating profit 4,083 7,052 -2,969 -42.1% Interest expense -648 -782 +134 -17.1% Interest income 151 223 -72 -32.3%

Foreign exchange gain, net 938 65 +873 +1343.1% Share of result of associates and JVs 165 2 +163 +8150.0%

Other financial results, net 18 789 -771 -97.7%

Profit before income tax 4,707 7,349 -2,642 -36.0% Income tax expense -1,049 -1,375 +326 -23.7% Profit for the period 3,658 5,974 -2,316 -38.8% Attributable to:

Equity holders of the parent 3,658 5,865 -2,207 -37.6%

Non-controlling interest 0 109 -109 -100.0%

Other comprehensive income 1,215 178 +1,037 +582.6%

Remeasurements and other reserves for post-employment benefit plans 144 169 -25 -14.8%

Exchange differences on translating foreign operations (TRCN) 101 21 +80 +381.0% Exchange differences on translating foreign operations (Associates & JV) 970 -12 +982 -8183.3% Other effects 0 0 +0 Total comprehensive income for the period 4,873 6,152 -1,279 -20.8% Attributable to: Equity holders of the parent 3,802 5,995 -2,193 -36.6% Non-controlling interest 0 157 -157 -100.0%

The Company's financial results for the twelve months ended 31 December 2014 reflect the challenging pricing environment in the Russian rail container market amid the deteriorating economic conditions and toughening competition, as well as the deconsolidation of KDTS.

In 2014, the Company's total revenue was down 6.6% year on year to RUB 36,565 million and adjusted revenue fell by 18.9% year on year to RUB 20,538 million. This decrease caused a 22.4% year on year decline in EBITDA to RUB 7,817 million, from RUB 10,074 million in 2013. Profit for the period fell by 38.8% year on year to RUB 3,658 million in 2014, from RUB 5,974 million in 2013.

Additional financial information

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

Year on year change

RUB million 12M 2014 12M 2013 RUB mln %

Adjusted Revenue1 20,538 25,328 -4,790 -18.9%

Adjusted operating expenses2 17,170 19,023 -1,853 -9.7% EBITDA3 7,817 10,074 -2,257 -22.4%

Adjusted EBITDA margin4 38.1% 39.8% Total debt 6,777 8,438 -1,661 -19.7% Net debt5 4,865 6,554 -1,689 -25.8% 1 Adjusted Revenue is calculated as total revenue less cost of integrated freight forwarding and logistics services. 2 Adjusted Operating Expenses are calculated as operating expenses less cost of integrated freight forwarding and logistics services. 3 EBITDA is defined as profit for the period before income tax, interest expense and depreciation and amortisation. 4 Adjusted EBITDA Margin is defined as EBITDA divided by Adjusted Revenue. 5 Net Debt is calculated as long-term debt, finance lease obligations, short-term debt and current portion of long-term debt less cash and cash equivalents and short-term investments.

Revenue

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

Year on year change

RUB million 12M 2014 12M 2013 RUB mln %

Integrated freight forwarding and logistics services 27,379 24,273 +3,106 +12.8% Rail-based container shipping services 5,405 8,154 -2,749 -33.7% Terminal services and agency fees 2,167 4,181 -2,014 -48.2% Truck deliveries 978 1,367 -389 -28.5% Other freight forwarding services 283 571 -288 -50.4%

Bonded warehousing services 234 317 -83 -26.2% Other 119 301 -182 -60.5%

Total revenue 36,565 39,164 -2,599 -6.6%

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

Adjusted Revenue

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

Year on year change

RUB million 12M 2014 12M 2013 RUB mln % Total revenue 36,565 39,164 -2,599 -6.6%

Cost of integrated freight forwarding and logistics services 16,027 13,836 +2,191 +15.8% Adjusted revenue 20,538 25,328 -4,790 -18.9%

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

7 have decreased by RUB 1,176 million, or 5.4% year on year, driven mainly by lower Company's average tariffs.

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

12M 2014 12M 2013 Year on year change RUB mln share, % RUB mln share, % RUB mln Percent Rail -based container shipping services 5,405 26.3% 8,154 32.2% -2,749 -33.7% Adjusted integrated freight forwarding and logistics services 11,352 55.3% 10,437 41.2% +915 +8.8% Terminal services and agency fees 2,167 10.6% 4,181 16.5% -2,014 -48.2% Truck deliveries 978 4.8% 1,367 5.4% -389 -28.5% Other freight forwarding services 283 1.4% 571 2.3% -288 -50.4% Bonded warehousing services 234 1.1% 317 1.3% -83 -26.2% Other 119 0.6% 301 1.2% -182 -60.5% Total adjusted revenue 20,538 100% 25,328 100% -4,790 -18.9%

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

Integrated freight forwarding and logistics services

Revenue from integrated freight forwarding and logistics services increased by 12.8% year on year to RUB 27,379 million in 2014.

The following table sets out adjusted integrated freight forwarding and logistics services calculations for the twelve months ended 31 December 2014 and 2013, respectively.

Year on year change

RUB million 12M 2014 12M 2013 RUB mln % Integrated freight forwarding and logistics services 27,379 24,273 +3,106 +12.8% Cost of integrated freight forwarding and logistics services 16,027 13,836 +2,191 +15.8% Adjusted revenue from integrated freight forwarding and logistics services 11,352 10,437 +915 +8.8%

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

Rail-based container transportation services

Revenue from rail-based container transportation fell by 33.7% to RUB 5,405 million in 2014 from RUB 8,154 million in 2013. This decline resulted from a change in the mix of services shifting towards transportation performed as part of integrated logistics contracts, as well as from lower average Company's tariffs.

Terminal services and agency fees

Revenue from terminal services, including agency fees, decreased by 48.2% year on year to RUB 2,167 million in the twelve months ended 31 December 2014, from RUB 4,181 million in 2013. This decrease was primarily due to the deconsolidation of KDTS' terminal business.

On a stand-alone basis, the revenue from terminal services and agency fees would have increased by 1.5% year on year in the twelve months of 2014, along with 0.9% increase in terminal handling volumes.

Agency fees, which are charged for services the Company renders as an agent of Russian Railways, decreased by 1.9% year on year to RUB 1,685 million for the twelve months ended 31 December 2014, compared to RUB 1,717 million for the corresponding period of 2013. This decrease was primarily due to the changes in the structure of terminal services.

Truck deliveries

Revenue from truck deliveries decreased by RUB 389 million, or 28.5% year on year, to RUB 978 million for the twelve months ended 31 December 2014, compared to RUB 1,367 million for the year 2013. This was due to a 23.8% year on year reduction in container transportation volumes by the Company's own and outsourced truck fleet to 415 thousand TEU in 2014 from 545 thousand TEU in 2013. The deconsolidation of KDTS' trucking business also contributed to this decrease.

Other freight forwarding and logistics services

Revenue from other freight forwarding and logistics services, which are freight forwarding and logistics services of a non-integrated nature, fell by 60.5% year on year to RUB 119 million in the twelve months of 2014, compared to RUB 301 million for the year 2013. This decrease was primarily due to the Company's business shifting towards providing integrated freight forwarding and logistics services.

Bonded warehousing services

Revenue from bonded warehousing services fell by 26.2% year on year, or by RUB 83 million, to RUB 234 million for the twelve months ended 31 December 2014, compared to RUB 317 million for the year 2013. This reduction is largely attributed to the deconsolidation of the results of KDTS bonded warehousing business and a decrease in import transportation volumes.

Operating expenses

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

Year on year change

RUB million 12M 2014 12M 2013 RUB mln %

Cost of integrated freight forwarding and logistics services 16,027 13,836 +2,191 +15.8%

Freight and transportation services 4,979 4,315 +664 +15.4%

Payroll and related charges 4,609 5,048 -439 -8.7%

Depreciation and amortisation 2,462 1,943 +519 +26.7%

Materials, repair and maintenance 2,419 2,985 -566 -19.0%

Taxes other than income tax 631 724 -93 -12.8% Rent 443 1,869 -1,426 -76.3%

Other operating expenses 1,627 2,139 -512 -23.9%

Total operating expenses 33,197 32,859 +338 +1.0%

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

Cost of integrated freight forwarding and logistics services

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

Adjusted operating expenses

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

Year on year change

RUB million 12M 2014 12M 2013 RUB mln %

Total operating expenses 33,197 32,859 +338 +1.0%

Cost of integrated freight forwarding and logistics services 16,027 13,836 +2,191 +15.8% Adjusted operating expenses 17,170 19,023 -1,853 -9.7%

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

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

RUB million 12M 2014 12M 2013

RUB mln Share RUB mln Share

Freight and transportation services 4,979 29.0% 4,315 22.7%

Payroll and related charges 4,609 26.8% 5,048 26.5%

Depreciation and amortisation 2,462 14.3% 1,943 10.2%

Materials, repair and maintenance 2,419 14.1% 2,985 15.7%

Taxes other than income tax 631 3.7% 724 3.8% Rent 443 2.6% 1,869 9.8% Other expenses 1,627 9.5% 2,139 11.2%

Adjusted operating expenses 17,170 100.0% 19,023 100.0%

Freight and transportation services

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

Payroll and related charges

Payroll and related charges decreased by 8.7% year on year, or by RUB 439 million, to RUB 4,609 million for the twelve months ended 31 December 2014, compared to RUB 5,048 million in 2013. This reduction was primarily due to the deconsolidation of KDTS' results. If the deconsolidation effect is eliminated, payroll and related charges would have increased by 7.1% year on year, mainly due to base salary indexing and a year on year rise in payments of performance-related bonuses in the first half of 2014. This increase, however, was partially offset by an 11.4% decrease in TransContainer's average headcount from 4,591 to 4,069 employees.

Depreciation and amortisation

Depreciation and amortisation increased by RUB 519 million, or 26.7% year on year, to RUB 2,462 million in the twelve months of 2014, from RUB 1,943 million for the year 2013. This was mainly due to an increase in non-current assets resulting from acquisitions of fixed assets in 2014, partly offset by the deconsolidation of KDTS. The revision of the useful life of Company's rolling stock was a factor that contributed RUB 462 million to depreciation charges increase.

Materials, repair and maintenance

Expenses related to materials, repair and maintenance fell by 19.0% year on year to RUB 2,419 million for the twelve months of 2014, compared to RUB 2,985 million for the year 2013, due to the deconsolidation of KDTS, as well as to the reduction in the average repair price and the share of expensive overhaul and depot repairs of flatcars.

Тахes other than income tax

Taxes other than income tax decreased by 12.8% year on year to RUB 631 million in 2014, from RUB 724 million in 2013, primarily due to the deconsolidation of KDTS.

Rent

Rent expenses fell by RUB 1,426 million, or by 74.3% year on year, to RUB 443 million for the twelve months ended 31 December 2014 from RUB 1,869 million in 2013, mainly due to the effect of the deconsolidation of KDTS. On a stand-alone basis, the Company's rent expenses would have grown by RUB 101 million, or 29.6% year on year, primarily due to the average number of flatcars rented by the Company under operating lease contracts in 2014, as compared to 2013.

Other operating expenses

Other operating expenses are an aggregate of various expense items such as security, consulting expenses, fuel and energy, licences and software, communication services, loss of sale of fixed assets, etc. Other expenses fell by 23.9% year on year to RUB 1,627 million for the twelve months of 2014 from RUB 2,139 million in the corresponding period of 2013, primarily due to the deconsolidation of KDTS. If the deconsolidation effect is eliminated, other operating expenses would have decreased by 10.1% year on year, reflecting improved cost control.

Interest expenses

Interest expenses decreased by RUB 134 million, or 17.1% year on year, to RUB 648 million for the twelve months of 2014 from RUB 782 million for the year 2013, mainly due to the scheduled amortisation of series 2 bonds in the total amount of RUB 1,500 million in June 2014 and in December 2014.

Interest income

Interest income decreased by RUB 72 million, or 32.3% year on year, to RUB 151 million in the twelve months of 2014 from RUB 223 million for the year 2013, due to a decrease in cash balances on the Company's deposit accounts with banks.

Profit before income tax

Due to the factors described above, the Company's profit before income tax for the twelve months ended 31 December 2014 decreased by RUB 2,642 million, or by 36.0% year on year, to RUB 4,707 million from RUB 7,349 million for the twelve months ended 31 December 2013.

Income tax expenses

Income tax expenses decreased by RUB 326 million, or 23.7% year on year, to RUB 1,049 million in the twelve months of 2014 from RUB 1,375 million for the year 2013, due to a decrease in taxable profit.

The effective tax rate for the twelve months ended 31 December 2014 increased to 22.3% from 18.7% in 2013.

Total profit and comprehensive income for the period

As a result of the factors discussed above, the profit for the twelve months ended 31 December 2014 decreased by RUB 2,316 million, or 38.8% year on year, to RUB 3,658 million compared to RUB 5,974 million for the year 2013. Taking into account the exchange rate differences relating to foreign operations and other effects, the total comprehensive income for the reporting period was down 20.8% year on year and totalled RUB 4,873 million, compared to RUB 6,152 million for the twelve months of 2013.

Liquidity and Capital Resources

As of 31 December 2014, the Company's net cash and cash equivalents amounted to RUB 1,904 million and the Company's current liabilities exceeded current assets by RUB 1,384 million.

The Company's business is asset and capital-intensive and requires substantial capital expenditure for the purchase of flatcars and containers, for the development of rail-side terminals and for modernising its lifting equipment and truck fleet and other purposes. During the reporting period, the Company's operations and its capital expenditures were financed from internally generated cash flows.

Cash flows

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

RUB million 12M 2014 12M 2013 Net cash provided by operating activities 6,027 7,225 Net cash used in investing activities -3,943 -4,775 Net cash used in/ provided by financing activities -2,752 -1,974 Net increase in cash and cash equivalents -668 476 Foreign exchange effect on cash and cash equivalents 689 89 Net cash and cash equivalents at the end of the period 1,904 1,883

Cash flow generated by operating activities

Cash flow generated by operating activities decreased by RUB 1,198 million, or 16.6% year on year, to RUB 6,027 million for the twelve months ended 31 December 2014 from RUB 7,225 million for the year 2013. Operating profit before working capital decreased by RUB 2,886 million, or 31.3% year on year, and this decrease was offset by changes in working capital (primarily by a decrease in trade receivables) and a decrease in income tax expense.

Cash flow used in investing activities

Cash flow used in investing activities decreased by RUB 832 million, or 17.4% year on year, to RUB 3,943 million for the twelve months ended 31 December 2014 from RUB 4,775 million in 2013. This was primarily due to capital expenditures falling by RUB 2,420 million, or 36.5% year on year, to RUB 4,212 million from RUB 6,632 million in the last year.

Cash flow used in financing activities

Cash flow used in financing activities decreased by 39.4% year on year, or by RUB 778 million, to negative RUB 2,752 million in 2014 from negative RUB 1,974 million in 2013. This was primarily due to the two scheduled amortisation repayments of series 2 RUB-denominated bonds in total amount of RUB 1,500 million instead of sole one in 2013 in amount of RUB 750 million.

Capital Expenditure

Capital expenditure decreased by RUB 2,420 million, or by 39.5% year on year, to RUB 4,212 million in the twelve months of 2014 from RUB 6,632 million in 2013. The majority of the capital expenditure was spent on acquiring new flatcars and ISO containers, as well as on construction and other investments. In particular, during the reporting period, the Company acquired 5,097 ISO containers, 1,316 units of 80 foot flatcars and 200 units of 40 foot flatcars. There was a shortfall of approximately RUB 1 billion of capital expenditures made in the reporting year to the 2014 capital expenditure programme, due to the changed market conditions, as well as new challenges faced by the Company.

Capital resources

The Company's operations and capital expenditure have historically been financed from internally generated cash flow and proceeds from issuing domestic debt. As at 31 December 2014, the Company's financial indebtedness consisted of two outstanding bond issues, financial lease obligations and other borrowings in an aggregate amount of RUB 6,777 million, compared to RUB 8,438 million as at 31 December 2013. As at 31 December 2014, the Company's net debt was RUB 4,865 million.

As at 31 December 2014, the major portion of the Company's financial indebtedness was unsecured, except for the obligations under finance leases, which were secured by the lessors' title to the lease assets. The Company's debt is rouble-denominated with a fixed interest rate.

RUB-denominated bonds series 2

On 10 June 2010, the Company issued non-convertible five-year amortising bonds for a total amount of RUB 3,000 million at a par value of RUB 1,000 each. Net proceeds from the issuance after the deduction of related offering costs amounted to RUB 2,975 million. The annual coupon on the five-year bonds is 8.8%, with interest paid semi-annually. The series 2 bonds is to be redeemed in four equal semi-annual instalments during the fourth and fifth year.

As at 31 December 2014, the carrying value of the bonds amounted to RUB 740 million (RUB 2,236 million as at 31 December 2013), and this amount was included as short-term debt in the consolidated statement of financial position. The amount of accrued interest is RUB 5 million (RUB 18 million as at 31 December 2013), and was included as short-term debt in the consolidated statement of financial position.

RUB-denominated bonds series 4

On 1 February 2013, the Company issued non-convertible five-year bonds for a total amount of RUB 5,000 million at a par value of RUB 1,000 each. Net proceeds from the issuance after the deduction of related offering costs amounted to RUB 4,988 million. The annual coupon rate on the five-year bonds is 8.35%, with interest paid semi-annually.

The series 4 bonds will be redeemed in four equal semi-annual instalments within the fourth and fifth years. As a result, these bonds are classified as long-term borrowings as at the reporting date. As at 31

December 2014, the carrying value of the bonds amounted to RUB 4,990 million (RUB 4,988 million as at 31 December 2013).

The amount of accrued interest is RUB 174 million (RUB 175 million as at 31 December 2013) and has been included as short-term debt in the consolidated statement of financial position.

Other borrowings

On 23 May 2011, the Company borrowed funds from LLC TrustUnion AM for the principal amount of RUB 514 million at an interest rate of 9.5% per annum with a five year maturity to finance the acquisition of the Company's ordinary shares for a share option plan for the Company's management. The outstanding debt was RUB 468 million as at 31 December 2014.

Working Capital

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

RUB million 31 December 2014 31 December 2013 Current assets Inventory 340 358 Trade and other receivables 1,542 1,621 Prepayments and other current assets 2,958 3,435 Prepaid income tax 113 114 Short-term investments 8 1 Cash and cash equivalents 1,904 1,883 Non-current Assets classified as held for sale 100 0 Total current assets 6,965 7,412 Current liabilities Trade and other payables 3,084 3,216 Short-term debt and current portion of long-term debt 919 1,693 Income tax payable 189 77 Taxes other than income tax payable 401 372 Provisions 16 19 Finance lease obligations, current maturities 60 66 Dividends payable 0 0 Accrued and other current liabilities 912 834 Deffered income 0 0 Total current liabilities 5,581 6,277 Working capital 1,384 1,135

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

RISK MANAGEMENT Description of the risk management system Since 2010, the Company has worked tirelessly to adopt a world-class corporate risk management system that ensures the stability of its operations.

TransContainer views the risk management system as an essential aspect of corporate governance.

The Company believes that an effective risk management system, applied on an integrated basis and consistently used, offers a reasonable degree of confidence in:

 achieving strategic and operational goals, factoring in the risks and risk degree that the Company is ready to assume in order to achieve its operational targets by managing multiple risks as a whole;  adequate risk-taking in line with the Company’s scope of operations;  compliance with laws and regulations as well as corporate governance requirements and standards;  timely responses to changes in the external environment;  an enhanced decision-making process, transparency of operations and maintaining optimum control over the environment;  finely-tuned costs control and improved operational performance;  early identification of and capitalisation on new opportunities.

The Company employs a Risk Management Policy and Framework, designed in line with widely-accepted risk management standards (COSO ERM, 2004 and ISO 31000:2009), the recommendations of Ernst & Young (CIS) B.V. as the Company’s external advisor and the risk management experience gained by the Company over the period of development of the corporate risk management system.

The current Risk Management Framework is based on the following core principles:

Principle Description How risk management works . Consistency The risk management framework is The risk management system involves to be implemented at all levels of the Board of Directors, the BoD’s Audit the Company. Committee, CEO, Deputy CEOs and the Risk Committee composed of the Company’s senior executives. The risk prevention plan is mandatory for all employees of the Company. . Continuity The continuity principle implies The Company updates its risk map that the measures required to annually to factor in the changes in the identify, assess, prevent and external environment. monitor risks are to be carried out The Board of Directors, BoD’s Audit on a regular and continuous basis. Committee and Risk Committee review the reports on implemented risk management initiatives and materialised risks (within the scope of their reference) at least once a quarter. The Company’s employees continuously monitor risks and report materialised risks to the risk management business unit. These are

analysed on a case-by-case basis to identify causes of losses and take measures to prevent such risks in the future (loss recording). . Integrity A set of measures implemented to All identified risks are consolidated manage risks that may impact the annually in the uniform risk register Company’s value and reputation (summarised risk list), with and address all the risks inherent contributions from all business units. in the Company’s operations and business processes.

. Balance The Company’s risk management As part of building the risk map, each system aims to achieve a risk is assessed by severity based on its reasonable balance between the probability and potential damage. risk management costs and the potential damage brought about by materialised risks. . Division of powers The Company’s decision-making Depending on the risk severity, rests on distributing risk response measures and the preventive management responsibilities action plan, risk-related decisions are across various management levels. considered and adopted at the following levels of the Company (subject to the decision threshold):  line management (heads of business units and branches, business process owners);  the Risk Committee;  the BoD’s Audit Committee;  the Board of Directors.

. Integration with the The Company’s risk management The efficiency of measures taken with internal control system processes are supervised respect to particular risks is evaluated (monitored) on a comprehensive by the Company’s Risk Committee scale and a multi-level basis that together with the Internal Audit involves all parties in charge of Service as well as the Board of internal control, within their terms Director’s Audit Committee. of reference. The Service is in charge of risk-based internal audit planning and assessing the adequacy and efficiency of risk management.

Organisational structure of risk management, including determining responsible business units and describing the approach to risk management Board of Directors:

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

Audit Committee under the Board of Directors:

 Exercises overall control of the risk management process (evaluates the effectiveness of the CRMS and issues recommendations on improving the system);  Reviews critical and acceptable risks and determines steps to be taken to manage acceptable risks (reviews a list of risk management measures prepared by the Risk Committee and adjusts the measures, if necessary);  Reviews the draft Corporate Risk Map and advises the Board of Directors on its approval.

CEO:

 Responsible for the effectiveness of the Company’s risk management system;  Distributes risk management rights and responsibilities and, inter alia, appoints risk owners from the Company’s business unit managers;  Approves the Company’s internal risk management regulations other than those which are reserved for the Board’s approval.

Risk Committee:

 Prepares draft regulatory documents on risk management;  Reviews and analyses risks in order to build the Corporate Risk Map;  Ranks the risks based on the Company’s risk severity criteria and approves the final draft of the Corporate Risk Map;  Approves a summarised preventive action plan for risks ranked as “insignificant”;  Decides on submitting the Corporate Risk Map and the summarised preventive action plan for critical and acceptable risks for further review by the Audit Committee under the Board of Directors;  Ensures communication with the Company’s business units on risk management matters.

Chief Financial Officer

 The Chief Financial Officer is the owner of the Risk Management process;  Ensures coordination of the Company’s risk management processes (including interaction between different business units as part of the CRMS and coordinating interaction between the Company’s Head Office, branches and subsidiaries).

Corporate finance and risk management/risk manager division

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

Risk management process 01 02 03 04

Risk identification Risk probability and impact Risk management Risk status monitoring assessment measures

Risk identification is Risks are assessed in terms Actions plans are Risk management carried out on a of probability, severity and developed to prevent measures are

18 continuous basis and potential impact on the risks by the time a monitored for may be initiated by all Company’s performance newly identified risk efficiency and Company employees. and its strategic targets set is included in the timeliness by each by the development Corporate Risk Map. individual risk on a strategy. Risks are ranked quarterly basis. by severity based on their assessed probability and potential damage.

When choosing its risk management strategy, the Company is guided by a risk management cost-benefit analysis. In line with standard practices, the following risk management strategies were used by the Company in 2014:

Strategy Description Example Risk avoidance Risk avoidance implies The Company implements a foreign avoidance of decisions that exchange risk avoidance policy by involve high risks. avoiding borrowing in foreign currencies, given its predominantly rouble-denominated operating cash flow. Risk control and prevention Risk control and prevention The Company controls and seeks to imply that the risk is being prevent the risk of a negative actively managed by the environmental impact by using Company. state-of-the-art equipment with a lower environmental impact and by complying with environmental laws. Risk-taking Risks are taken when they are at The Company assumes the risk of a level acceptable for the economic downturn because it Company and where cannot influence the implementation of risk macroeconomic environment. treatment measures is not possible or cost efficient. Risk transfer Risks are transferred when it is The Company insures motor vehicles not possible and/or cost and cargo-lifting equipment against efficient for the Company to destruction, loss or damage treat the risk, while the risk resulting from insurance events. exceeds the acceptable level.

Risk categorisation

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

Strategic risks Operational risks S.01 Corporate governance O.07 Procurements S.02 Strategy O.08 Transportation management S.03 Investment project management O.09 Sales O.10 Marketing S.04 Mergers, acquisitions and divestments O.11 Repairs and technical maintenance S.05 Macroeconomic environment O.12 Personnel S.06 Corporate communications O.13 Information technologies O.14 Economic security Regulatory risks O.15 Production safety O.16 Records and document management R.18 Legal support of activities O.17 External threats (force majeure) R.19 Regulation of activities

Financial risks

F.20 Capital market and liquidity

F.21 Management accounting and reporting

F.22 Accounting and reporting

This classification makes it possible to structure the system and objectively determine areas of responsibility for each risk.

Map of the most significant risks Company risks characterised by high degrees of probability and/or damages if they materialise are included in the group of “critical” risks. In 2014, the Company singled out the following “critical” level risks:

Risk name Degree of Event materialisation  Departure of key Not materialised management (CEO and senior executives)  Share liquidity risk Materialised Market maker appointed on Moscow Exchange

 Failure to achieve strategic Materialised Analysis of reasons and goals work initiated to update the strategy taking into account changes to external environment  Low level of efficiency of Not materialised integration processes  Deterioration in market Materialised Improved quality of work conditions with customers, changes in pricing policy and cost optimisation  Company’s diminished Not materialised competitiveness due to the inability to timely respond to changes in customer structure, customer needs and demand intensity  Inefficient organisation of Not materialised transportation (including an increase in empty runs)  Ineffective customer service Not materialised  Occupational injuries Materialised Investigation conducted into accident and additional briefing held for vehicle drivers

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

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

CORPORATE GOVERNANCE COMPANY BOARD OF DIRECTORS.

Zhanar Rymzhanova Chairman of the Board of Directors Year of birth: 1968 Year elected to Board of Directors: 2008 – 2011, 2013 Key skills and work experience: From 1998 to 2012, Ms Rymzhanova held management positions at the European Bank for Reconstruction and Development (EBRD) where she was responsible for relations with strategic clients in the infrastructure and transport sectors, including global projects. Since 2008, Zhanar has represented the EBRD as a member of the Board of Directors of TransContainer. Appointed as Advisor to the President of Russian Railways in 2012, her focus was on logistics and integration within the Common Economic Space for Russia, Belarus and Kazakhstan. Education: Ms Rymzhanova majored in economics at the Academy of Public Administration under the President of the Republic of Kazakhstan in 1989. In 1997, she received her degree from Georgetown University. In 2012, Ms Rymzhanova completed an Executive MBA with HSA (Paris), London School of Economics, and New-York University. Other positions currently held: Chairman of the Board of Directors at UTLC and Russkaya Troyka, member of the Board of Directors at Kedentransservice, member of the Supervisory Board at GEFCO S.A. Membership on committees: Not on any committees.

Petr Baskakov CEO and Chairman of the Management Board Year of birth: 1961 Year elected to Board of Directors: 2006 Key skills and work experience: CEO of TransContainer and a member of its Board of Directors since 2006, Petr holds over 25 years of management experience in the railway transportation industry and possesses expertise in strategic planning and strong business management skills. In 2009, Mr Baskakov was also a member of the TransСontainer-Slovakia, a.s. Supervisory Board. From 2010 to 2012, he served on the Presidium of the Council of Rolling Stock Operators. Education: Mr Baskakov is a graduate of the Moscow Institute of Railway Engineers and holds a degree in railway haulage management and a Ph.D. in Engineering. Other positions currently held: President, Chairman of the Management Board and a member of the Board of Directors of UTLC; member of the Supervisory Board of GEFCO S.A.; member of the Board of Directors of Kedentransservice; Chairman of the Board of Directors of Oy ContainerTrans Scandinavia, Ltd and RZD Logistics; member of the Shareholders’ Committee of Trans Eurasia Logistics GmbH; board member with the TRANSSOYUZ Charity Foundation, the All-Russian Association of Rail Transport Employers, the Russian Union of Industrialists and Entrepreneurs and the Association of Russian Freight Forwarders. Membership on committees: member of the Strategy Committee.

Alexander Vinokurov Member of the Board of Directors Year of birth: 1982 Year elected to Board of Directors: 2014 Key skills and work experience: Mr Vinokurov has experience in management as well as finance and economics. In 2007, he worked at the TPG Capital Russia investment fund, from 2010-2011 he was vice president of TPG Capital Russia and from 2011-2014 he was first vice president and president of the Summa Group.

Education: Mr Vinokurov graduated from Cambridge University (UK) in 2004 with a bachelor’s and master’s degrees in economics. Other positions currently held: Member of the Board of Directors of Summa Group, Summa Telecom, Novorossiysk Sea Commercial Port, Soyuz Petroleum SA, Far East Shipping, GlobalElectroService, United Grain Company, Summa Sport and Transengineering. Membership on committees: member of the Personnel and Remuneration Committee.

David Hexter Member of the Board of Directors, Independent Director1 Year of birth: 1949 Year elected to Board of Directors: 2008 Key skills and work experience: Mr Hexter has a wealth of experience at the international level and possesses strong skills and expertise in areas such as business strategy, corporate finance, financial risks, investment, financial modelling and corporate governance. From 1970 to 1992, he held a number of positions with Citibank. From 1992 to 2004, Mr Hexter worked with the European Bank for Reconstruction and Development and from 2002 to 2004 was a member of the Board of Directors at Small Business Bank. From 2005 to 2010, Mr Hexter acted in an advisory capacity with Denholm Hall Investment Management. From 2011 to 2013, David was a member of INTER RAO’s Strategy Committee. Education: Mr Hexter graduated from Oxford University with a degree in philosophy, politics and economics in 1979. In 1974, he received his MBA from the Cranfield Management School and in 2007 graduated from the London University with a degree in philosophy. In 2008, he received a degree in legal and political theory from University College London. Other positions currently held: Board member of Kaspi Bank (Caspian Bank), TransTeleCom (Kazakhstan); Chairman of the Supervisory Board of Private Equity New Markets; member of the Supervisory Board of Bank Zachodni WBK, member of the Board of Directors of UTLC, senior advisor to the MacQuarie Infrastructure Fund for Russia and Central Asia and an international advisor to XENON Capital Partners. Membership on committees: Chairman of the Audit Committee and member of the Strategy Committee.

Irina Shytkina Member of the Board of Directors, Independent Director 2 Year of birth: 1965 Year elected to Board of Directors: 2010 Key skills and work experience: Ms Shytkina holds a J.D. and is a Professor at the Business Law Faculty of the Moscow State University. She is an MBA lecturer, visiting professor of the Stockholm School of Economics, author and moderator of consulting and practical workshops, possessing in-depth knowledge in various business areas, including management and corporate governance. Along with her academic and teaching engagements, Ms Shytkina is a practising lawyer and a business professional with broad management experience. From 2009 to 2011, she was Deputy CEO for Corporate Governance at Elinar Holding Company.

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

2 See previous item.

Education: Ms Shytkina graduated from the Moscow State University in 1998 with a degree in law and subsequently completed postgraduate and doctoral programmes at the Moscow State University. Other positions currently held: Chairman of the Board of Directors at Elinar Holding Company, Chairman of the Board of Directors at NarPromRazvitie, independent director at VRK-1, VRK-2, RZD Health, TransTelecom, FPK, Remputmash Kaluga Plant, High-Speed Rail Lines and UTLC. Membership on committees: Chairman of the Personnel and Remuneration Committee.

Yury Novozhilov Deputy Chairman of the Board of Directors Year of birth: 1974 Year elected to Board of Directors: 2007 – 2009 and 2012 Key skills and work experience: Mr Novozhilov has extensive experience, expertise and skills in finance, economics and investment management and holds senior positions at large financial companies. Yuri has a demonstrable track record in the railway industry and served as First Deputy Head of Corporate Finance with Russian Railways from 2004 to 2009. He currently works as an executive director and board member of the BLAGOSOSTOYANIE Private Pension Fund. Education: Mr Novozhilov graduated from Saint Petersburg State University with a degree in theoretical economics in 1996. Other positions currently held: Chairman of the Board of Directors at Absolut Bank, Military and Memorial Company, KIT Finance NPF, Executive Director of BLAGOSOSTOYANIE Insurance Company, a member of the Board of Trustees for the Spread Your Wings children’s charity, Deputy Chairman of the Board at RusRailLeasing and TransFin-M and a member of the Board at MOSTOTREST, SPA and TKB BNP Paribas Investment Partners Holding B.V. Membership on committees: not on any committees.

Alexander Panchenko Member of the Board of Directors Year of birth: 1989 Year elected to Board of Directors: 2014 Key skills and work experience: Mr Panchenko has experience working in the transportation industry, including experience with strategic planning and managing business processes in maritime and railway transportation. From 2012 to 2014, he served as manager of investment projects. He is currently an advisor to the President of the Summa Group and an advisor to the head of the representative office of Baronetta Investments Limited. Education: Mr Panchenko graduated from Moscow State University in 2011 with a degree in journalism. Other positions currently held: Member of the Board of Directors of Russkaya Troyka. Membership on committees: Deputy Chairman of the Audit Committee and member of the Strategy Committee.

Alexey Davydov Member of the Board of Directors Year of birth: 1971 Year elected to Board of Directors: 2010 Key skills and work experience: Mr Davydov has extensive experience and demonstrable skills in strategic planning, economics, finance and corporate governance sharpened from 2006 in various leadership roles with Russian Railways, including Head of the Treasury. He is currently Head of the Subsidiaries and Affiliates Management Department. From 2008 to 2013, Davydov served on the Board of Directors at Vagonremmash, Remputmash Kaluga Plant, Zheldorremmash, FPC and Freight One and was also Chairman of the Board of Directors at High-Speed Rail Lines.

Education: Mr Davydov graduated from Saint Petersburg Engineering and Economics Institute with a degree in engineering and economics in 1993 and Saint Petersburg University with a degree in law in 1999. Other positions currently held: Chairman of the Board of Directors at Roszheldorproject, BetElTrans, VRK-1, RZD Trading Company and RZDstroy, and a member of the Board of Directors of ELTEZA, Transmashholding, TTK and Federal Freight. Membership on committees: Chairman of the Strategy Committee.

Pavel Ivanov Member of the Board of Directors Year of birth: 1964 Year elected to Board of Directors: 2013 Key skills and work experience: Mr Ivanov has an impressive track record in railroad transportation. From 2007 to 2008, Pavel headed the Kursk Branch of the Moscow Railway (branch of Russian Railways). From 2008 to 2009, Pavel held the post of Deputy Head of the Transportation Management Department at Russian Railways and, from 2009 to 2011, the First Deputy to the Head of Central Operations for Traffic Control (branch of Russian Railways). Education: Mr Ivanov graduated from the Moscow Institute of Railway Engineers with a degree in railway haulage management in 1986. Other positions currently held: Head of Central Operations for Traffic Control (branch of Russian Railways). Membership on committees: Member of the Audit Committee.

Pavel Ilyichev Member of the Board of Directors Year of birth: 1974 Year elected to Board of Directors: 2011 Key skills and work experience: Mr Ilyichev has been a member of TransContainer’s Board of Directors since 2011, including his stint as Chairman of the Board until July 2013. Pavel has a wealth of experience in finance, economics and corporate governance, including audit and financial statements analysis. From 2003 to 2009, Mr Ilyichev headed the Treasury and later on Corporate Finance at Eurosib and has been Deputy Head of Corporate Finance at Russian Railways since 2009. Throughout 2010 and 2013, Pavel Ilyichev was on the Board of Directors with Russkaya Troyka, also serving as Chairman. He was on the Board of RZD Logistics and TransCreditBank and a member of the Supervisory Board of TLC Bely Rast, Zheldorremmash and Vagonremmash. Education: Pavel graduated from Saint Petersburg State Academy of Aerospace Instrumentation with a degree in research engineering in 1997. He also holds a degree in economics from the Higher School of Economics at St. Petersburg State University of Economics and Finance. Other positions currently held: Member of the Board of Directors of SKB-bank and ZHASO, and a member of the Supervisory Board of GEFCO S.A. Membership on committees: Member of the Audit Committee.

Irina Kostenets Member of the Board of Directors Year of birth: 1961 Year elected to Board of Directors: 2013 Key skills and work experience: A member of the Personnel and Remuneration Committee since 2010, Ms Kostenets joined TransContainer’s Board of Directors in 2013. Irina possesses extensive experience in finance, personnel management and incentives, in the transport industry and beyond. Since 1998,

Irina has held various positions such as the Head of the Economic Function and Deputy Head of Operations for Economic Matters at Krasnoyarsk Railways. From 2003 to 2005, Irina worked as Deputy Head of the Planning and Budgeting Department and from 2005 to 2012 headed the Department for Administrative and Personnel Matters at Russian Railways. Presently, Ms Kostenets heads the Economics Department at Russian Railways. Education: Irina graduated from the Irkutsk Institute of Railway Engineers in 1984 with a degree in railroad construction and railroad facilities and received a degree from the Russian Presidential Academy of National Economy in 1988, majoring in state management of railway transport economics and finance. Other positions currently held: Member of the Board of Directors with South Caucasus Railways, ZHASO and FPC. Membership on committees: Deputy Chairman of the Personnel and Remuneration Committee.

Corporate governance model of TransContainer

• Monitoring the activities of the executive bodies • Information disclosure • Risk management and internal control system • Internal Audit Service • Auditor Role of the Board of Directors • Revision Commission Chairman of the Board of Directors Independent directors Mission, strategy and strategic goals.

• Balanced Board of • Dialogue with shareholders and Directors and committees BOARD OF • Induction of members of investors the Board of Directors DIRECTORS • General Meeting of • Evaluation of the Board of Shareholders Directors • Dividend policy • Corporate governance • Investor relations evaluation system • Exchange relations • Corporate secretary • Independent registrar • D&O insurance.

• Remuneration system for members of the Board of Directors and committees • Remuneration system for the CEO and management • KPI system - the basis for remuneration payments • Remuneration procedure.

The Board of Directors of TransContainer is the key component of the Company’s corporate governance system. The activities of the Board of Directors and its committees ensure the realisation of the basic principles of corporation governance:

 Leadership of the Board of Directors  Effectiveness of the Board of Directors  Supervision and accountability of the Company’s management bodies  Effective interaction with the Company’s shareholders and investors  Transparent remuneration system for the Company’s Board of Directors and management

Structure of management and supervisory bodies of Transcontainer

Auditor

General Meeting of Shareholder

Revision Commission

Audit Committee

Strategy Committee

Corporate Board of Directors Secretary Personnel and Remuneration Committee

Internal Audit Service

Management Board

CEO

management and supervisory bodies of the Company

committees of the Company’s Board of Directors

officials and divisions that are functionally subordinate to the Company’s Board of Directors

not a Company body

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

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

29 implementation of resolutions adopted by the Board of Directors and the General Meeting of Shareholders.

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

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

EFFECTIVENESS OF THE BOARD OF DIRECTORS Members of the Board of Directors and its committees

The members of the Company’s Board of Directors are balanced in terms of their skills, experience, independence and knowledge of the Company, thus enabling the Board of Directors to effectively perform its duties. The Board of Directors includes independent directors who facilitate the introduction of best corporate governance practices, non-executive directors who bring a broad outside view to the Company’s activities and the executive director who is well versed in the Company’s activities. Over the period from 1 January 2014 to 24 June 2014, the Board of Directors included three independent directors3, seven non-executive directors and one executive director. Over the period from 24 January 2014 to 31 December 2014, there were two independent directors, eight non-executive directors and one executive director.

Members of the Board of Directors have the necessary knowledge and skills as well as considerable business experience, including in matters of financial, investment and strategic management, financial and management accounting, risk management, corporate governance and railway transportation. All members of the Company’s Board of Directors make a significant contribution to ensuring that the Company achieves positive performance results.

Education of members of the Board of Directors4

Members of the Board of Directors place a high value on socio-cultural diversity as a factor that improves the effectiveness of the Board of Directors. The members of the Board of Directors are balanced in terms of their age, gender and ethnicity. Over the period from 1 January 2014 to 24 June 2014, the Company’s Board of Directors included four women and seven men representing different age groups. Over the period from 24 January 2014 to 31 December 2013, it included three women and eight men also representing different age groups.

Members of the Board of Directors shall exercise their rights and perform their duties reasonably and in good faith and act on behalf of the Company and all its shareholders while taking into account the interests of workers, clients, partners and other stakeholders. Members of the Board of Directors devote sufficient time to performing their duties. In 2014, members of the Board of Directors were actively involved in the main events of the Company and held meetings with the Company’s shareholders, management, auditors and other stakeholders in order to find solutions to problems encountered by the Board when performing its activities. Induction of new members to the Board of Directors In order to ensure the effective operation of the Board of Directors, the Programme for Orientation of New Members of the Board of Directors (hereinafter the Programme) was approved in November 2013.

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

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

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

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

Evaluation of the Board of Directors

Performance evaluation of the Board of Directors and its committees In order to improve the effectiveness of the Board of Directors, the Company has conducted an evaluation of the performance of the Board of Directors and activities of the committees under the Board of Directors each year since 2009. The Personnel and Remuneration Committee monitors regular performance evaluations of the Board of Directors and its committees.

In November 2014, the Board of Directors reviewed the results of a self-assessment of the work performed by the Board and its committees in the 2013/2014 corporate year. The self-assessment of the work of the TransContainer Board of Directors for the 2013/2014 corporate year involved eight Board members as well as one director who was a member of the Company’s Board of Directors in the 2013/2014 corporate year.

Three of five Strategy Committee members took part in a self-assessment of the Strategy Committee’s work for the 2013/2014 corporate year. Two of four Audit Committee members as well as one director who was a member of the Audit Committee in the 2013/2014 corporate year took part in a self-assessment of the Audit Committee’s work for the 2013/2014 corporate year. All three members of the Personnel and Remuneration Committee took part in a self- assessment of the Personnel and Remuneration Committee’s work over the 2013/2014 corporate year. Participation by members of the Board of Directors in the self-assessment of the performance of the Board of Directors and its committees.

The activities of the Board of Directors and its committees during the 2013/2014 corporate year were recognised as satisfactory based on the evaluation results. Following a discussion of the self- assessment results of the performance of the Board of Directors and its committees, the following resolutions were made:  to increase the active personal participation of members of the Board of Directors in the meetings of the Board of Directors and its committees;  if the Board of Directors adopts a resolution that is inconsistent with the recommendation of a committee and/or independent director, a justification for the reasons why the recommendation was not taken into consideration shall be reflected in the minutes of the meeting of the Board of Directors;  designate the members of the Board of Directors to allow for a comprehensive discussion of the matters under consideration taking into consideration various opinions and competencies and also to take into account the personal motivation and responsibility of the committee members for the results of the committee’s work.

Evaluation of the Board of Directors by an independent consultant

Adhering to best corporate governance practices, the Company hires an independent consultant to conduct an evaluation of the work performed by the Board of Directors once every three years. The most recent evaluation involving an independent consultant – Board Solutions – was conducted in 2012.

Report on the activities of the Board of Directors and its committees

In 2014, the Company’s Board of Directors held 13 meetings, including eleven in person, which contributed to the adoption of informed and effective resolutions on the basis of a constructive dialogue. The key functions of the Board of Directors are to determine the main milestones of the Company’s activities for the long term, approve the Company’s Development Strategy as well as the annual approval of the budget and the review of key performance indicators. In performing these functions, the Board of Directors in 2014 considered information about the implementation of the Development Strategy in 2013, adjustments to the Budget for 2014, the targeted performance indicators and main parameters of the investment programme for 2015 and the Budget for 2015. The Board of Directors monitors the performance of its executive bodies and management as a whole. In 2014, the Board of Directors approved reports of the CEO on the Company’s performance results for 2013 and the first nine months of 2014, tentatively approved the annual report for 2013, considered forecasts for the Company’s performance results in the first quarter of 2014 and 2014, reports on the execution of the credit policy for the fourth quarter of 2013 through the third quarter of 2014, reports on the implementation of resolutions by the Board of Directors from the fourth quarter of 2013 through the third quarter of 2014 and the resolutions of the Annual General Meeting of

Shareholders, a report on the fulfilment of the recommendations of the Revision Commission based on the results of an audit of the Company’s performance for 2012, agreed to the CEO serving concurrently as a member of the Board of Directors and President of UTLC, determined the terms of the employment contract with the CEO as regards the indexation of salary and reviewed the performance results of Kedentransservice for 2013 and the first half of 2014. The Board of Directors determines the principles and approaches used to organise the risk management and internal control system at the Company. As part of this function, the Board of Directors in 2014 approved the Corporate Risk Map (Register), the parameters for ranking risks and the maximum criticality level (retention ability) of possible losses from risk in 2015, considered a report on the implementation of an action plan for critical risks from the fourth quarter of 2013 through the third quarter of 2014, reviewed the information on risk management “Deteriorating market conditions” and the effectiveness of the internal control and risk management system in 2013 and also approved the Work Plan and Budget of the Internal Audit Service for 2014. The Board of Directors also determines the Company’s remuneration policy for members of the Board of Directors, the CEO and key senior employees. In particular, the Board of Directors in 2014 prepared recommendations for the General Meeting of Shareholders on payment of remuneration to members of the Board of Directors, members of the committees of the Board of Directors and members of the Revision Commission, adopted a resolution on a bonus for the CEO for the fourth quarter of 2013 through the third quarter of 2014 and on a bonus for the CEO and management for 2013, reviewed monitoring of the remuneration system for the CEO and management for 2013 and approved a new version of the list of participants in the Long-term Employee Incentive Programme, amendments to the Regulation on Incentives for Company Management and amendments to the Regulation on the Company’s Long-term Employee Incentive Programme. As part of the oversight of corporate governance practices at the Company, the Board of Directors in 2014 approved a schedule of activities to prepare for and hold the Annual General Meeting of Shareholders for 2013, considered a report on the assessment of corporate governance at the Company and the results of the self-assessment of the work of the Board of Directors and its committees for the 2013/2014 corporate year, reviewed information about the lack of compliance of the list of requirements for the corporate governance of an issuer, which must be observed as a condition for the inclusion of shares in the First Level Listing Rules of the MICEX Stock Exchange, approved a new version of the Regulation on the Dividend Policy and determined the members and term of office of the Management Board. The Board of Directors considered a total of 136 matters in 2014. A sufficient amount of time was allotted for the consideration of each agenda item at meetings of the Board of Directors. The Board of Directors devoted the bulk of its time to the most important items, including matters of a strategic nature that are significant for the Company. Overall, the time spent by the Board of Directors on the consideration of agenda items was distributed as follows:

The Company also has an Audit Committee, Personnel and Remuneration Committee and Strategy Committee. The committees tentatively consider and prepare recommendations on the most important matters falling within the purview of the Board of Directors.

Activities of the Strategy Committee in 2014

The Strategy Committee considered a number of significant matters within its purview, including:

determining the priority areas of the Company’s activities: information on the implementation of the Development Strategy in 2013; adjustments to the targeted parameters of the Development Strategy through 2020; a project for the integrated reconstruction of the Kuntsevo-II freight yard and station;

a project for the development of terminal facilities at the Saint Petersburg Transport Hub; a project for the construction of a local container terminal at the Lyublino station (Moscow); a project to establish a joint venture in the Republic of Belarus between the Company and the Brest Branch of Belarusian Railway for integrated terminal and logistics services. compiling the Company’s budget and monitoring reports on budget execution results: reports on the Company’s results for 2013, Q1 2014, H1 2014 and the first nine months of 2014; a report on the implementation of measures to reduce spending on the procurement of goods, work and services in 2013; a forecast of the Company’s performance results for Q1 2014; adjustments to the Budget for 2014; targeted performance indicators and main parameters of the Company’s investment programme for 2015; the draft Budget for 2015; an increase in the amount of funding for the purchase of new large-tonnage containers in 2014; the procurement of specialised large-tonnage containers by the Company. determining the Company’s dividend policy: a draft of the new version of the Regulation on the Dividend Policy. the Company’s interaction with subsidiaries and affiliates: the performance results of Kedentransservice for 2013 and the first half of 2014; information on the early repayment of a loan provided to TransContainer Finance by TrustUnion. supporting the Company’s participation in other organisations: the Company’s participation in the Organisation for Co-operation Between Railways (OSJD); the Company’s participation in a competition to acquire a stake in ZSSK Cargo Intermodal a.s. other matters: results of the activities of the Strategy Committee in the 2013/2014 corporate year; the work plan of the Strategy Committee for the period prior to the Annual General Meeting of Shareholders (Q3 2014 – Q2 2015); the draft budget of the Strategy Committee for the 2014/2015 corporate year; a draft of the new version of the Regulation on the Strategy Committee.

Activities of the Audit Committee in 2014

The Audit Committee considered the following matters within its purview: monitoring the accuracy and completeness of the Company’s financial statements: annual financial statements prepared in accordance with RAS for 2013; financial statements prepared in accordance with IFRS for 2013; the annual report for 2013; interim IFRS consolidated financial statements of the Group for the first half of 2014; the accounting policy for 2015; effects from the de-mothballing of fixed assets; the action plan for the disclosure of information on operating segments in the Company’s IFRS and RAS financial statements; progress on the action plan for the disclosure of information on operating segments in the Company’s IFRS and RAS financial statements. evaluating the effectiveness of the internal control system: reports of the Internal Audit Service on the results of its activities for Q4 2013 and Q1 2014 – Q3 2014; a report on the implementation of the work plan by the Internal Audit Service for 2013; the level and structure of remuneration for the head of the Internal Audit Service; the draft work plan of the Internal Audit Service for 2015; the draft budget of the Internal Audit Service for 2015; a draft of the new version of the Regulation on the Internal Audit Service;

information on the effectiveness of the internal control and risk management system in 2013; information on the fulfilment of the recommendations of the Internal Audit Service as regards the accounting of the services provided by the co-contractor Eastern Stevedore Company for the handling of container cargo at the Vostochny port. evaluating the effectiveness of the risk management system: a report on the implementation of an action plan to improve the corporate risk management system in 2013; a diagnostics report by Ernst & Young of the corporate risk management system; an action plan to improve the corporate risk management system for 2014; reports on the implementation of an action plan on acceptable and critical risks for Q4 2013 and Q1 2014 – Q3 2014; risks that materialised in 2013; the management of certain critical and acceptable risks for the Company; the draft Corporate Risk Map (Register) for 2015; the maximum criticality level of possible losses from risks in 2015 (Company’s retention ability); the parameters of risk ranking for 2015; information about improvements to the customer relations system; information about the lack of compliance of the list of requirements for the corporate governance of an issuer, which must be observed as a condition for the inclusion of shares in the First Level Listing Rules of the MICEX Stock Exchange; on the Company’s liquidity. the Company’s interaction with the external auditor: the evaluation of the auditor’s report on the Company’s financial statements for 2013; progress of the IFRS audit of financial statements for 2013; results of the IFRS audit of financial statements for 2013; payment for the auditor’s services in 2014; candidacy of the auditor for 2014; letter from the Company’s auditor to management on the audit results of the financial statements for 2013; a report on measures adopted to address observations made during the audit of the financial statements for 2013; findings of the auditor on the audit results of the Group’s interim IFRS consolidated financial statements of the Group for the first half of 2014; information about the fulfilment of recommendations by the auditor on the audit results of the Company’s financial statements concerning the IT system; a schedule for closed meetings of the Audit Committee with representatives of the external auditor and the head of the Internal Audit Service in the 2014/2015 corporate year; a schedule for a closed competition to select an auditor for the financial statements in 2015. the Company’s interaction with the Revision Commission: a report by management and the Internal Audit Service on the implementation of an action plan to eliminate violations identified by the Revision Commission based on the results of an audit of the Company’s activities in 2012; a report by the Revision Commission on the audit results of the Company’s activities in 2013; a report form on the implementation of an action plan to eliminate violations identified by the Revision Commission based on the results of an audit of the Company’s activities during the reporting period; an action plan to eliminate violations identified by the Revision Commission based on the audit results of the Company’s activities in 2013. counteracting unethical practices by Company employees and third parties: violations of the Company’s Code of Conduct in 2013; complaints (grievances) received via the hotline in 2012; a draft corporate anti-fraud programme; a report by EY on the results of an assessment of the anti-corporate fraud and anti-corruption system

36 at the Company; information on anti-corporate fraud and anti-corruption measures at the Company; results of implementing the Regulation on the Procedure for the Procurement of Goods, Work and Services for the Company’s core businesses; a report on the placement of orders for the purchase of goods, work and services to support the Company’s activities in 2013; the monitoring procedure for the Company’s funds and bank accounts. other matters: results of the introduction of the Company’s process management system; results of the activities of the Audit Committee of Kedentransservice in 2013 and key objectives for the 2014/2015 corporate year; an additional agreement to Debt Transfer Contract No. TKd/12/06/0027 dated 3 July 2012 between the Company and RZD Logistics and Far East Lend Bridge Ltd; a draft of the new version of the Regulation on the Audit Committee; results of the Audit Committee’s activities in the 2013/2014 corporate year; the Audit Committee’s work plan for the period prior to the Annual General Meeting of Shareholders (Q3 2014 – Q2 2015); the draft budget of the Audit Committee under the Board of Directors for the 2014/2015 corporate year.

Activities of the Personnel and Remuneration Committee in 2014

The Personnel and Remuneration Committee considered the following matters within its purview: establishing an effective and transparent remuneration practice at the Company for members of the Board of Directors, executive bodies, Revision Commission and management: a bonus for the Company’s CEO for Q4 2013 and Q1 2014 – Q3 2014; a bonus for the Company’s CEO and management for results of work in 2013; information on remuneration payment to members of the Board of Directors and its committees and members of the Revision Commission; monitoring the remuneration system for the CEO and management; a draft of the new version of the list of participants in the Long-term Employee Incentive Programme; the effectiveness of the Long-term Employee Incentive Programme and areas for improvement; draft amendments to the Regulation on the Long-term Employee Incentive Programme and the Regulation on Incentives for Company Management; the terms of the employment contract with the CEO. personnel planning (succession planning), the professional staff and effectiveness of the Board of Directors: self-assessment results by members of the Board of Directors and committees for the 2013/2014 corporate year; compliance of members of the Board of Directors with independence criteria; the members of the committees under the Board of Directors in the 2014/2015 corporate year; the nominee for director of the Company’s branch on the Zabaykalsk Railway; the nominee for director of the Company’s branch on the West Siberian Railway; the nominee for director of the Company’s representative office in Shanghai, China; the nominee for election as director and representative of TransContainer Asia Pacific Ltd. Co; the nominee for election as the Company’s corporate secretary; the nominee for director of the Company’s branch on the Kuybyshev Railway; the number of members, term of office and nominees for Management Board members; the nominee for election as CEO. improvements to the corporate governance system and practices at the Company: a report by EY on the assessment of corporate governance at the Company;

an action plan to improve corporate governance at the Company in 2014; draft amendments and additions to the Charter; a draft of the new versions of the Charter, Regulation on the Management Board and the Regulation on the CEO; information on the Programme for the Orientation of New Members of the Board of Directors; draft documentation on procurements (invitations to take part in a request for proposals for the liability insurance of the Company, its companies and their directors and officers); results of a competition via a request for proposals for the liability insurance of the Company, its companies and their directors and officers. determining priority areas of the Company’s activities in personnel management: the draft Personnel Management Policy of the Company; draft amendments to the Regulation on Private Pension Provision. other matters: results of the activities of the Personnel and Remuneration Committee in the 2013/2014 corporate year; the Personnel and Remuneration Committee’s work plan for the period prior to the Annual General Meeting of Shareholders; the draft budget of the Personnel and Remuneration Committee for the 2014/2015 corporate year; a draft of the new version of the Regulation on the Personnel and Remuneration Committee.

Changes to members of the Board of Directors in 2014

From January to June 2014, the Board of At the Annual General Meeting of Shareholders of Directors acted based on the resolution of the TransContainer held on 24 June 2014, the following Annual General Meeting of Shareholders dated persons were elected to the Board of Directors: 26 June 2013 with the following members: 1. Petr Baskakov. 1. Petr Baskakov. 2. Anna Belova. 2. Alexander Vinokurov. 3. Alexey Grom. 3. Alexey Davydov. 4. Alexey Davydov. 4. Pavel Ivanov. 5. Pavel Ivanov. 5. Pavel Ilyichev. 6. Pavel Ilyichev. 6. Irina Kostenets. 7. Irina Kostenets. 7. Yury Novozhilov. 8. Yury Novozhilov. 8. Alexander Panchenko. 9. Zhanar Rymzhanova. 9. Zhanar Rymzhanova. 10. David Hexter. 10. David Hexter. 11. Irina Shytkina. 11. Irina Shytkina. During this period, this version of the Board of From July to December 2014, the Board of Directors Directors held seven meetings: six meetings in held six meetings: five meetings in person and one person and one meeting in absentia. meeting in the form of absentee voting.

Changes to Strategy Committee members in 2014 Committee members from January to June Committee members from June to December 2014 2014 Alexey Davydov – Chairman. Alexey Davydov – Chairman. Alexey Grom – Deputy Chairman. A. Ryshkov5 – Deputy Chairman. Petr Baskakov Petr Baskakov

5 Head of the Economic Forecasting and Strategic Planning Department of Russian Railways.

David Hexter, Independent Director. Alexander Panchenko David Hexter, Independent Director. Kristina Galkina – Secretary. Four Committee meetings held in person. Five Committee meetings held in person.

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

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

David Hexter – Chairman, Independent Director. David Hexter – Chairman, Independent Director. Anna Belova – Deputy Chairman, Independent Alexander Panchenko – Deputy Chairman. Director. Pavel Ivanov Irina Kostenets Pavel Ilyichev Pavel Ivanov Pavel Ilyichev Yulia Gelfer – Secretary. Yulia Gelfer, Olga Miller – Secretary.

Five Committee meetings held in person. Five Committee meetings held in person.

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

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

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

Yulia Gelfer – Secretary. Yulia Gelfer, Olga Miller – Secretary.

Five Committee meetings held in person. Five Committee meetings held in person.

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

Information on meeting attendance by members of the Board of Directors and its committees in 2014 Audit Strategy Personnel and Board of Name Committee Committee Remuneration Directors Committee

Zhanar Rymzhanova 13/13

Yury Novozhilov 13/13 4/5

Anna Belova 7/7 5/5

David Hexter 13/13 10/10 9/9

Irina Shytkina 13/13 10/10

Petr Baskakov 13/13 9/9

Alexey Grom 7/7 4/4

Alexey Davydov 12/13 9/9

Pavel Ivanov 11/13 9/10

Pavel Ilyichev 13/13 10/10

Irina Kostenets 13/13 5/5 10/10

Alexander Vinokurov 6/6 2/5

Alexander Panchenko 6/6 5/5 5/5

A. Ryshkov 5/5

Corporate Secretary

In order to ensure independence, the Company’s Corporate Secretary is accountable in his/her activities to the Board of Directors. The main objectives of the Corporate Secretary are: to ensure compliance by the Company’s bodies and officers with the requirements of legislation and the Charter and internal documents governing the safeguarding and protection of the rights and legitimate interests of the Company’s shareholders, to prepare for and hold the General Meeting of Shareholders and meetings of the Board of Directors and its committees, to disclose information about the Company and also to improve the existing corporate governance practices at the Company. The main functions of the Corporate Security include:  organisational and information support for the work of the Board of Directors and its committees;  preparing for and holding the General Meeting of Shareholders;  interaction with members of the Board of Directors and consultations with members of the Board of Directors on corporate governance matters;  organising interaction between the Company and its shareholders;  organising archiving of the Company’s documents on corporate governance matters;

 ensuring the disclosure of information about the Company. The working arrangements of the Corporate Secretary are governed by the Regulation on the Corporate Secretary of TransContainer6. From January to November 2014, the functions of Corporate Secretary were performed by Deputy Director of Corporate Governance Yulia Gelfer. In December 2014, Corporate Governance Director Olga Miller was elected Corporate Secretary.

Olga Miller Corporate Secretary Year of birth: 1976. Year appointed Corporate Secretary: 2008-2012, 2014. Education: Chelyabinsk State University, Department of Law (graduated with honours), 1999. In 2007, Miller underwent a “Corporate Director” training course at the Higher School of Economics State University.

Key skills and experience:

November 2014 – Director, Corporate Governance Department, UTLC present November 2007 – Director, Corporate Governance, TransContainer present 2004 – November Head, Subsidiary and Affiliate Management Department, Russian Railways 2007 2001 – 2004 Division Head, Corporate Policy Department, RAO UES of Russia 1998 – 2001 Specialist/Head of Legal Division, Chelyabinsk regional branch of the Russian Federal Securities Market Commission

2009 – Winner of the “Director of the Year” prize given by the Association of Independent Directors and the Russian Union of Industrialists and Entrepreneurs in the category “Corporate Governance Director – Corporate Secretary”. 2010 and 2011 – Winner of the “Top 1000 Russian Managers” rating in the category “Corporate Governance Director”. 2012 – Nominee for the “Director of the Year” prize in the category “25 Best Directors/Corporate Secretaries”. 2012 and 2013 – First place in the category “Corporate Governance Director in the Transportation Industry – Top 1000 Russian Managers Rating”.

Other positions currently held: member of the Board of the National Association of Corporate Secretaries and a member of the Board of Directors of DETGIZ.

6 Regulation posted on the Company’s website at the address: http://www.trcont.ru/ru/investoram/ustav-i-vnutrennie- dokumenty/vnutrennie-dokumenty/

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

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

Audit Committee and its role The goal of the Audit Committee is to ensure the effective work of the Company’s Board of Directors as regards monitoring the Company’s financial and economic activities. The Audit Committee prepares recommendations on the following matters falling within the purview of the Board of Directors: 1. monitoring the accuracy and completeness of the Company’s financial statements; 2. evaluating the effectiveness of the internal control system; 3. evaluating the effectiveness of the risk management system; 4. the Company’s interaction with the external auditor; 5. the Company’s interaction with the Revision Commission; 6. countering unethical practices by the Company’s employees and third parties. Meetings of the Audit Committee are regularly attended by representatives of the Company’s auditor, the head of the Internal Audit Service and the chief accountant. In addition, the CEO and representatives of the Company’s Revision Commission also took part in meetings on certain agenda items in 2014 under instructions from the Audit Committee. At the same time, members of the Audit Committee hold meetings at least once a quarter with representatives of the Company’s auditor and the head of the Internal Audit Service in a confidential format in the absence of management.

According to the approved schedule for closed meetings of the Audit Committee with representatives of the external auditor and the head of the Internal Audit Service, the Committee held four meetings in 2014 with external auditor PricewaterhouseCoopers Audit and four meetings with the head of the Internal Audit Service.

Internal control and risk management system

The Board of Directors purposefully introduces a culture of risk control and management throughout the entire Company. The risk management and internal control system set up at the Company is shaped and based on generally accepted international standards. The Board of Directors

42 appropriately monitors the operation and effectiveness of the internal control and risk management system on a continuous basis while delegating day-to-day risk control to Company management.

Internal Audit Service The Internal Audit Service was established to provide assistance to the Board of Directors and executive bodies in enhancing the Company’s effective management, improving its financial and economic performance via a systematic and consistent approach to the analysis and assessment of the risk management and internal control system as well as corporate governance as tools for ensuring reasonable confidence that the Company will achieve the goals it has set. The Internal Audit Service is guided in its activities by the principles of independence and objectivity as well as the Regulation on the Internal Audit Service of TransContainer, the legislation of the Russian Federation, the Regulation on the Audit Committee of TransContainer, the resolutions of the General Meeting of Shareholders and Board of Directors, internal regulatory documents and the standards of external auditors specified by the International Professional Internal Audit Standards and the Code of Conduct of the Institute of Internal Auditors.

Main functions of the Service:  To assess the effectiveness of the internal control system of the Company and its subsidiaries and develop appropriate recommendations based on the assessment results. The assessment is conducted in the following areas: o the efficiency and effectiveness of the Company’s financial and economic activities; o the safeguarding of the Company’s assets; o the accuracy of the Company’s financial statements; o the compliance of the Company’s activities with the provisions of the legislation of the Russian Federation and internal organisational and administrative documents and standards.  To assess the effectiveness of the risk management system of the Company and its subsidiaries and develop appropriate recommendations based on the assessment results;  To assess the Company’s corporate governance;  To provide assistance to the Company’s executive bodies and workers in developing and monitoring the implementation of procedures and measures to improve the risk management and internal control system as well as the corporate governance system;  To coordinate activities with the external auditor as well as entities that provide consulting services in risk management, internal control and corporate governance;  To prepare and submit reports to the Board of Directors and executive bodies on the Service’s performance results (including information about significant risks, shortcomings, the results and effectiveness of measures to eliminate shortcomings, results on the implementation of the Service’s plan and the assessment results of the actual condition, reliability and effectiveness of the risk management, internal control and corporate governance systems);  To prepare and submit proposals for consideration by the CEO on the elimination and prevention of shortcomings identified in the Company’s production, financial and economic activities as well as proposals on the disciplinary, financial and other liability of responsible persons in the manner prescribed by the legislation of the Russian Federation and the Company’s internal regulatory documents;  To prepare a draft work plan for the Service for the year that contains, among other things, a plan for audits of the Company’s production, financial and economic activities (taking into proposals by the CEO) and submit it to the Audit Committee for coordination and the Board of Directors for approval.

In order to ensure the principle of independence and objectivity, the Service is accountable to the Audit Committee and the Board of Directors with administrative subordination to the CEO. The decision to appoint and terminate the powers of the Service head is adopted by the Board of Directors with a majority of votes by the members of the Board of Directors taking part in the meeting based on

43 the recommendation of the Audit Committee. The employment contract with the Service head is signed by the CEO on the terms specified by the Audit Committee. The Service head reports to the Audit Committee on a quarterly basis about the results of its activities during the reporting period and the condition of the internal control and risk management system at the Company. The head of the Internal Audit Serviced is Yelena Ustinova.

Yelena Ustinova Head of the Internal Audit Service. Year of birth: 1977. Year appointed to position: 2009-present Education: Institute for the Protection of Entrepreneurs, Jurisprudence (1999) Auditor’s qualification certificate dated 25 January 2001

Work experience:

1995- 1997 Paralegal, UM

1997 - 1999 Tax lawyer, Business Qualitet

2000 - 2001 Tax lawyer, Stanford Capital

2001 -2006 CEO, Bernstein and Drucker Audit

2006 - 2007 Deputy Head, Control and Internal Audit Division, TransContainer

2007 -2009 Head, Control and Internal Audit Division, TransContainer

2009 - present Head, Internal Audit Service, TransContainer

External auditor In order to ensure the independence and objectivity of the audit of the financial statements, the Company has approved the Policy on the Rotation of the External Auditor and Interaction with the External Auditor Regarding the Provision of Non-audit Services7 (hereinafter the Auditor Rotation Policy). The nominee for the external auditor of the financial statements of TransContainer according to RAS and IFRS shall be approved by the General Meeting of Shareholders based on the recommendation of the Board of Directors and the results of a competitive selection that shall be conducted by the Audit Committee at least once every five years among the “big four” auditors. The Company also considers it appropriate to select a single auditor for the Company’s financial statements under both RAS and IFRS. In April 2011, the Audit Committee held a competitive selection for TransContainer’s external auditor. Upon completing the review of the proposals of audit firms, the Audit Committee announced PricewaterhouseCoopers Audit as the winner of the selection process. To prepare recommendations on the reappointment of the external auditor, the Audit Committee reviewed the external auditor’s reports and statements from management, assessed the quality of the Company’s external audit and the auditor’s compliance with the independence requirements and proposed PricewaterhouseCoopers Audit to be recommended by the Board of

7 Policy posted on the Company’s website at the address: http://www.trcont.ru/ru/investoram/ustav-i-vnutrennie- dokumenty/vnutrennie-dokumenty/

Directors for re-election at the Annual General Meeting of Shareholders as the Company’s external auditor. In June 2014, the Annual General Meeting of Shareholders of TransContainer reappointed PricewaterhouseCoopers Audit as the Company’s auditor. In July 2014, the Board of Directors determined the amount of payment for the auditor’s services as RUB 16,800,000 excluding VAT and overhead. According to the contract on the provision of audit services, the auditor performed the following types of work:  an assessment review of the Company’s interim condensed consolidated IFRS financial statements for the first half of 2014;  an assessment review of the Company’s special financial statements for the first half of 2014 prepared in accordance with the instructions and accounting policy of the Russian Railways group;  an assessment review of the Company’s special financial statements for the first half of 2014 prepared in accordance with the accounting policy of the TransContainer group for inclusion in the consolidated financial information of the FESCO Group;  an audit of the Company’s consolidated IFRS financial statements for 2014;  an audit of the Company’s special financial statements for 2014 prepared in accordance with the instructions and accounting policy of the Russian Railways group;  an audit of the Company’s special financial statements for 2014 prepared in accordance with the accounting policy of the TransContainer group for inclusion in the consolidated financial information of the FESCO Group;  an audit of the Company’s RAS financial statements for 2014. According to the Auditor Rotation Policy, in order to ensure the external auditor’s independence, the remuneration to be received by the audit firm for providing non-audit services must not exceed 10% of the cost of services charged by the auditor of the Company’s financial statements. The Audit Committee tentatively considers the feasibility of the audit firm providing any services, the volume of non-audit services and the remuneration paid by the Company for such services. PricewaterhouseCoopers Audit did not provide any non-audit services to TransContainer in 2013. PricewaterhouseCoopers Audit, as the Company’s Auditor, was paid the following remuneration in 2014:

Type of service Remuneration (including VAT), RUB

Audit of the RAS financial statements for 2013 4,786,080.00 Audit of the consolidated IFRS financial statements for 2013 3,233,200.00 Assessment review of the interim condensed consolidated 1,534,000.00 IFRS financial statements for H1 2014 Advance for the audit of the consolidated IFRS financial 5,310,000.00 statements for 2014

Advance for the audit of the consolidated RAS financial 5,664,000.00 statements for 2014 TOTAL 20,527,280.00

Revision Commission The Revision Commission is a permanent internal control body that monitors the Company’s financial and business activities, including those of the Company’s branches and representative offices, to ensure compliance with the legislation of the Russian Federation, the Charter and internal documents.

The Revision Commission acts in the interests of the Company’s shareholders and is accountable to the General Meeting of Shareholders. In its activities, the Revision Commission is not dependent on any officers in the Company’s management bodies. Members of the Revision Commission are neither Company officers nor employees. On 24 June 2014, the following members were elected to the Revision Commission at the Annual General Meeting of Shareholders: Oleg Ivanov – Chairman of the Revision Commission; Sergey Davydov; Maria Kalvarskaya; Alexey Kostylev; Natalia Lem. Revision Commission members are entitled to remuneration as set forth in the Company’s Regulation on Remuneration and Compensation Payable to Members of the Revision Commission8. The annual remuneration paid to the Revision Commission in 2013 totalled RUB 825,000.00.

No. Position Name Remuneration, RUB* 1 Chairman of the Revision Oleg Ivanov 225,000.00 Commission 2 Member of the Revision Sergey Davydov 150,000.00 Commission 3 Member of the Revision Maria Kalvarskaya 150,000.00 Commission 4 Member of the Revision Fyodor Kuzin 150,000.00 Commission 5 Member of the Revision Natalia Lem 150,000.00 Commission TOTAL 825,000.00

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

8 Regulation posted on the Company’s website at the address: http://www.trcont.ru/ru/investoram/ustav-i-vnutrennie- dokumenty/vnutrennie-dokumenty/

REMUNERATION FOR THE BOARD OF DIRECTORS AND MANAGEMENT

Personnel and Remuneration Committee and its role The key goal of the Personnel and Remuneration Committee is to ensure the effective work of the Board of Directors by establishing an efficient and transparent practice for remuneration payable to members of the Board of Directors, CEO and other senior employees. The main objective of the Personnel and Remuneration Committee is to preview and issue recommendations on the following matters reserved for the Board of Directors: establishing an efficient and transparent practice for remuneration payable to members of the Board of Directors, executive bodies, the Revision Commission and Company management; considering matters related to personnel planning (succession planning) as well as the professional structure and effectiveness of the Board of Directors; improving corporate governance system and practices at the Company; identifying priority areas of the Company’s activities in personnel management.

Remuneration system for members of the Board of Directors Remuneration to members of the Board of Directors and committees under the Board of Directors is paid in accordance with the Regulation on Remuneration and Compensation Payable to Members of the Board of Directors9 as well as the Regulations on Remuneration and Compensation Payable to Members of Committees under the Board of Directors10. Remuneration payable to members of the Board of Directors consists of two components: remuneration for attending meetings of the Board of Directors and annual remuneration. Remuneration payable to members of the committee under the Board of Directors consists of two components: remuneration for attending meetings of the committee under the Board of Directors and annual remuneration11. Apart from the CEO, members of the Board of Directors do not own shares in the Company and did not conclude any transactions with such shares in the reporting year.

9 Regulation posted on the Company’s website at the address: http://www.trcont.ru/ru/investoram/ustav-i-vnutrennie- dokumenty/vnutrennie-dokumenty/ 10 Regulation posted on the Company’s website at the address: http://www.trcont.ru/ru/investoram/ustav-i-vnutrennie- dokumenty/vnutrennie-dokumenty/ 11Only members of the Board of Directors shall be members of the committees under the Board of Directors

For participating in For participating in Annual remuneration Compensation BoD meetings BoD committee For serving on the BoD For serving on a BoD meetings Fixed pay Variable pay committee Policy and A competitive incentive package to attract and retain skilled A package which incentivises A competitive incentive Reimbursement of objectives professionals on the BoD. directors to implement the package which attracts costs related to Company’s strategy. and retains skilled participating in BoD Encouraging participation in the BoD or BoD committee meetings in professionals. and BoD committee person. meetings. Encouraging participation in committee meetings in person. Description A BoD member is A BoD committee The fixed annual The variable annual If approved by the Payments are made paid: member is paid: remuneration of each remuneration of each BoD Annual General Meeting in line with the actual BoD member is member is calculated as of Shareholders, BoD costs incurred and RUB 30,000 when RUB 20,000 when calculated as follows: follows: committee members supported by the participating in a participating in a may be paid annual source accounting meeting in person; meeting in person; Sfix = 1,800,000 * M, S = remuneration calculated documents, including RUB 15,000 when RUB 12,000 when where (0.45*Mebitda+0.45*Mnp+0. as follows: travel costs to attend providing a written providing a written 1* Mspp)*Bfix * M, where AR = the BoD meeting, VIP opinion or opinion Sfix is fixed annual 2*(20,000*m+12,000*n), lounge services in participating in a remuneration of the BoD Mebitda is the multiplier that where airports and railway meeting in member reflects the delivery of the AR is the annual stations, hotel absentia. RUB 1,800,000 is the EBITDA target as per the remuneration amount; accommodation base for calculating total Company’s approved budget m is the number of the costs,

annual remuneration for the respective period. meetings during the communication, M is the multiplier Mnp is the multiplier that reporting period where telephone and reflecting participation reflects the delivery of the net the committee member Internet costs and in the BoD meetings in profit target as per the participated in person; other expenses person Company’s approved budget n is the number of associated with the M is calculated according for the respective period. meetings during the BoD member’s to the following formula: Mspp is the multiplier reporting period where participation in the showing the Company’s share the committee member BoD and BoD M is the number of price performance. provided a written committee meetings. meetings attended by The Company’s share price opinion statement.

the BoD member divided performance is the difference by the total number of between the relative change BoD meetings held in the price of the Company’s during the reporting GDR on the LSE and the period. relative change in FTSE Russia The maximum value of IOB Index for the Period. the multiplier is one. Bfix is the base for calculating the fixed annual remuneration and is equal to RUB 1,800,000. M is the multiplier reflecting participation in the BoD meetings in person. M is calculated according to the following formula: M is the number of meetings attended by the BoD member divided by the total number of BoD meetings held during the reporting period.

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

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

The variable annual remuneration is not paid to any Executive Directors. Additional Additional 50% Additional 25% (25%) Additional 50% (25%) of remuneration Additional 25% (25%) - remuneration for (25%) of of remuneration remuneration acting as remuneration 49

Chairman (Deputy Chairman) of the BoD or BoD committee Maximum For participating in For participating in Chairman of the BoD – RUB If 150% or more of the Depends on the number - possible one meeting in one committee 2,700,000; target is reached: of committee meetings payments person (by letter meeting (providing a held. ballot or providing written opinion Deputy Chairman of the BoD – Chairman of the BoD – a written opinion statement): RUB 2,250,000; RUB 5,130,000; statement): Chairman and Chairman – RUB Deputy Chairman – BoD member – RUB Deputy Chairman of the 45,000 (22,500); RUB 25,000 (15,000). 1,800,000. BoD – RUB 4,275,000; Deputy Chairman – Committee member RUB 37,500 – RUB 20,000 BoD member – RUB (18,750). (12,000). 3,420,000. Committee member – RUB 30,000 (15,000). Payment Paid within one month of a BoD Paid within one month of the Annual General Meeting of Shareholders. Paid within one schedule (committee) meeting. month of submitting documents confirming costs incurred. Remuneration RUB 21,455,357.14 paid for 2014 RUB 3,543,750.00 RUB 2,331,000.00 RUB 20,507,142.86 RUB 4,264,000.00 RUB 3,130,096.50

Remuneration system for the CEO and management Remuneration for the Company’s CEO and management is paid in the manner prescribed by the Regulation on Incentives for Company Management and the Regulation on the Long-term Employee Incentive Programme. The Regulations set forth the amounts and procedures for remuneration payments to the CEO, first deputy CEOs, deputy CEOs, administrative directors in functional areas, the chief accountant and the chief engineer (hereafter management or manager). Incentive for management aims to improve the effectiveness of the Company’s governance, achieve the Company’s strategic goals and also retain skilled staff at the Company based on the following core principles:

 procedural transparency when determining total remuneration amount and structure;  a simple formula for calculating total remuneration;  competitive amounts and structures for remuneration;  balanced interests between the Company shareholders and management.

The total remuneration (incentive package) for management consists of fixed pay (base or fixed salary) as established in the employment contract and variable pay, including bonuses and long-term incentives (equity-based compensation programme), as well as other payments stipulated by the labour legislation of the Russian Federation, collective bargaining agreement or local regulations. The management’s remuneration is determined by taking into account the remuneration prevailing in the labour market for positions comparable to those of the Company’s management. No remuneration is provided for membership on the Management Board.

Remuneration Fixed remuneration Variable remuneration component component component Base or fixed salary Quarterly bonus Annual bonus One-off bonus Long-term incentive program Policy and A fixed remuneration Aims to encourage Aims to encourage management to meet Aims to meet strategic Ensuring alignment of objectives component establishes a management to meet financial corporate and individual key objectives as defined by the management’s motivation competitive base incentive and economic targets as well as performance indicators (KPIs). BoD, as well as individual with the shareholders’ package to attract and retain targets related to specific projects and/or non- interests, attracting and skilled managers. production and business systematic critical activities. retaining skilled staff, operations improving the quality and stability of Company governance and ensuring compliance of remuneration paid to the Company’s employees with international practice and standards. Description The fixed remuneration Bonuses are based for The annual bonus is paid based upon the The amount of a one-off The programme participants component is defined based on Company performance and the achievement of KPIs. bonus is linked to the are entitled to purchase the manager’s expertise, individual performance of each significance, complexity and shares at the IPO price (RUB experience and role in the manager during the reporting Annual bonus amounts for each manager execution of the strategic 2,464.23) plus 50% of the Company as well as quarter. are the product of the fixed objective. programme service costs. comparable remuneration in remuneration component and the sum of The programme allows for the labour market. Quarterly bonus amounts are a multipliers assessing the manager’s The calculation and approval either the purchase of the product of the fixed performance according to the following procedure for one-off entire share package The management remuneration component and formula: bonuses is established: available to the programme remuneration is benchmarked the sum of multipliers assessing B = (Mcorp + Mind) x Sann, where for the CEO by the Board of participant at the option against the market by the the manager’s performance: B is the manager’s annual bonus, RUB; Directors; strike price or for the receipt Personnel and Remuneration Vqurarter = (Mgen + Mspec) *, Mcorp is the multiple of the manager’s for management by the of the shares as a set-off of Committee based on the where Mgen is the sum of the delivery of the corporate KPIs; Board of Directors as advised counterclaims to the monitoring of management multipliers assessing the Mind is the multiple of the manager’s by the CEO based on Operator based on the remuneration in entities manager’s delivery of the delivery of the individual KPIs; recommendations from the difference between the comparable to the Company in following budgeted financial Sann is the fixed remuneration Personnel and Remuneration option strike price and the terms of revenue and/or and economic targets (general component amount (base or fixed Committee. current market price. market capitalisation and the indicators): net revenue, sales salary). For new participants within Company’s sector of operation. profit, net profit margin, labour the second and subsequent productivity; In the event the actual net profit exceeds stages, the initial price is

A manager’s remuneration is Mspec is the multiplier assessing the target in the reporting period, the determined as follows: specified in the employment the manager’s delivery of the Company’s management may be paid an - for participants in contract as a base or fixed following budgeted specific additional annual bonus in line with the the first stage of the salary. targets associated with the following terms: Programme and new Company’s operating activities if up to 105% of the net profit target is participants who are The base or fixed salary amount (special indicator): loaded achieved, no additional bonus is paid; Company employees as of is based on the amount of containers transported by the if more than 105% of the net profit target the IPO date – the price actual time worked. rolling stock of the Company; is achieved, an additional bonus of 15% prevailing in the IPO process S quart is the fixed of the amount in excess of the target is + 50% of the actual interest In accordance with the remuneration component paid. paid by the operator for the procedure stipulated by local amount (base or fixed salary). The additional annual bonus paid is in loan raised to finance the regulations of the Company proportion to the share of the annual Programme, per 1 share; and based on Federal State The Regulation also stipulates bonus of the manager in question to the - for other new Statistics Service data, the base grounds for non-payment or total annual bonus paid to the participants – the highest of or fixed salary is indexed semi- reductions of the quarterly management. the following amounts: annually. bonus. - the weighted average price The Regulation also stipulates grounds (exchange rate) of one share for non-payment or reductions of the for transactions concluded annual bonus. with shares on the Exchange as of the date on which the relevant share sales contract was concluded with the new participant market price or - the price prevailing in the IPO process + 50% of the actual interest paid by the operator for the loan raised to finance the Programme as of the conclusion date of the sales contract, per 1 share.

Payment schedule Payable monthly. Remuneration is paid: Remuneration is paid after the BoD’s Remuneration is paid after The Programme may be review of the CEO’s report on the consideration of the one-off implemented in several to the CEO upon review of the Company’s financial and operating bonus payment by the BoD. stages. The number of CEO’s report on the Company’s shares to be distributed performance in the reporting year. financial and operating among participants as part activities in the reporting of the first stage quarter, corresponds to the amount of the share ownership fund. to management upon provision The number of shares to be 53

of reporting for the relevant distributed among quarter. participants of the first instalment of this stage may not exceed the number of shares transferred to the Reserve Fund based on the results of the first instalment of the stage, etc. Thus, the amount of each instalment of the subsequent stage may not exceed the number of shares transferred to the Reserve Fund based on the results of the fulfilment of the corresponding instalment of the previous stage. Maximum possible Stipulated in the employment For the CEO – 3.5 quarterly Annual bonus for the amount of 100% of The one-off bonus amount Within one instalment, the payments contract with the manager. fixed remuneration the fixed annual remuneration cannot exceed three times programme participant is components; component. the fixed remuneration entitled to purchase 1/4 component of the manager in (one fourth) of the total For management – 1.5 The maximum percentage of the net question. number of shares the quarterly fixed remuneration profit target delivery used to calculate an participant is entitled to by components. additional annual bonus is 150%. the programme stage. The maximum amount of shares that may be acquired with the right granted to each new programme participant is determined by the BoD and may not exceed the number of shares in the Reserve Fund. Amount of 72,828,325.36 28,831,511.07 70,210,918.70 - 4,947,966.2913 payments12 and

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

13 Remuneration with options to acquire Company shares. 54

remuneration to members of the Company’s Management Board in 2014 Amount of 153,705,175.90 64,210,846.44 150,787,574.02 70,000.00 18,915,167.7215 payments14 and remuneration to Company management in 2014

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

15 Remuneration with options to acquire Company shares.

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

KPI KPI weight

Net profit 0.45

EBITDA 0.45

Company share market value dynamics 0.1 (SMVD)

The Board of Directors – with respect to the CEO, and the CEO with respect to managers except the CEO – may decide to reduce or not pay an annual bonus to a specific manager if disciplinary punishment took place or there were critical risks during the reporting year that resulted in severe consequences (including death or serious bodily injury) or significant material damage to the Company for which the respective manager is responsible.

Remuneration procedure The decision to pay bonuses to the CEO is taken by the Board of Directors based on the recommendation of the Personnel and Remuneration Committee after reviewing the CEO’s report on the Company’s financial and economic performance for the corresponding quarter or year. The decision to pay bonuses to managers, except for the CEO, is taken by the CEO based on proposals from the Company’s Bonus Commission after compiling reporting for the corresponding quarter or year.

SHAREHOLDER RELATIONS Share capital structure

Name Share of authorised capital, % UTLC* 50.00% + 2 shares FESCO Transportation Group** 24.12% European Bank for Reconstruction and Development (EBRD) 9.25% TRANSFINGROUP Asset Management as manager of pension 7.32% assets of BLAGOSOSTOYANIE Non-State Pension Fund Other 9.32% Total 100.00% * On 24 November 2014, Russian Railways contributed shares in TransContainer to the authorised capital of UTLC (transferred the ownership right of TransContainer shares as payment for the acquired share of UTLC) during the establishment of UTLC.

** Encumbered shareholding with a claim held by VTB Austria.

This data reflects information available to the Company based on the shareholder register compiled by the Company’s registrar as well as publicly disclosed information by shareholders.

Ordinary registered shares

TransContainer’s authorised capital amounts to RUB 13,894,778,000 and consists of 13,894,778 ordinary registered shares with par value of RUB 1,000 each.

Information about each share category (type) Share type and category Ordinary registered

Issue form uncertificated

Issue volume, shares 13,894,778

Par value of 1 (one) security (RUB) 1,000

Information about the state registration of an issue of 1-01-55194-Е dated 11 May 2006 securities

As of 31 December 2014, the Company’s ordinary registered shares had been admitted to trading on the MICEX Stock Exchange in the First Level quotation list.

Global Depository Receipts (GDR)

Global Depositary Receipts have been issued for TransContainer’s shares at a rate of 10 GDRs per one (1) share. The depositary bank is The Bank of New York Mellon.

As of 31 December 2013, depositary receipts had been issued for 20.4% of the Company’s authorised capital.

The number of securities traded on stock exchanges is not constant. GDR owners may convert them into shares and vice versa.

The GDR are traded on the main market of the London Stock Exchange (LSE). In addition, GDR for the Company’s shares were included in the Unlisted Securities section of the List of securities permitted to trade on the MICEX Stock Exchange on 5 May 2014 by the decree of the MICEX Stock Exchange.

Dialogue with shareholders, investors and other market participants

The full, timely and accurate disclosure of information to our shareholders and investors as well as to the entire investment community is one of the Company’s main priorities. The Company devotes particular attention to ensuring that significant information is simultaneously made available to all shareholders, investors and analysts, both Russian and foreign.

The Company complies with the requirements of the Federal Law “On Joint-Stock Companies”, the requirements of the Russian Federal Financial Markets Service, the applicable rules of the UK Financial Supervisory Authority and all relevant requirements of the Russian and UK stock exchanges. The Company is also guided in its information disclosure by the principles of the Corporate Governance Code approved by the Bank of Russia on 21 March 2014.

Since 2011, the Company has published its key operational metrics as well as RAS and IFRS financial statements on a quarterly basis. The financial disclosures are followed by conference calls with research analysts and investors held on a regular basis. In addition, the Company holds special conference calls or webcasts to provide the market with the required information and comments in case of material events affecting the Company or its investment case.

The Company uses electronic disclosure systems in Russia (www.e-disclosure.ru) and the UK (www.hemscott.com/nsm.do). In addition, corporate information is increasingly distributed through our website (www.trcont.ru), including investor presentations and news releases on operating and financial results or important corporate events. The Company provides regular updates on its business. Our corporate website offers prompt updates for investors and additional information to reach out to all stakeholders.

Along with transparency, the Company is focused on maintaining an ongoing dialogue with institutional investors and financial analysts to obtain feedback from the investment community.

The Company is also closely involved in fostering further development of the Russian stock market. In 2014, Company representatives took part in the activities of the Moscow Exchange Issuers’ Committee and OECD Corporate Governance Roundtable on matters involving corporate governance and the discussion of a draft of the new corporate governance code.

General Meeting of Shareholders and communication with shareholders

The General Meeting of Shareholders is the supreme executive body of the Company. The procedures for preparing, convening and conducting general meetings of shareholders are stipulated by TransContainer’s Regulation on Preparing and Conducting the General Meeting of Shareholders16.

16 Regulation posted on the Company’s website at the address: http://www.trcont.ru/ru/investoram/ustav-i-vnutrennie- dokumenty/vnutrennie-dokumenty/

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

In 2014, two General Meetings of Shareholders were held:

Annual General Meetings The following documents were approved: Company’s annual report for of Shareholders 2013; annual financial statements for 2013 and amendments to the TransContainer Charter. 24 June 2014 Resolutions were adopted to distribute profit, pay dividends and pay remuneration to members of the Board of Directors and Revision Commission.

Members of the Board of Directors and Revision Commission were elected and the Company’s auditor was approved.

A resolution was adopted to approve related party transactions, including transactions that may be concluded in the future.

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

Dividend policy According to the TransContainer Regulation on the Dividend Policy17, the target for the Company’s net profit payable as dividends is 25%, as calculated in accordance with Russian Accounting Standards (excluding any positive results from the revaluation of financial investments). However, the actual share of the Company’s net profit payable as dividends may be above or below 25% depending on the Company’s financial and business plans and recommendations from the Board of Directors.

The Company’s dividend policy is based on the following principles: − if there is net profit, the Company uses part of the profit to pay dividends on an annual basis, while using the majority of the retained profit to implement its investment program and repay financial liabilities maturing in the next financial period; − the Company balances its own interests with those of its shareholders; − the Company seeks to increase its capitalisation and promote its investment appeal; − the Company respects shareholder rights in accordance with Russian law and best corporate governance practices; − the Company uses transparent procedures to determine the amount of dividends and their payment.

Dividends accrued and paid by the Company from 2009 to 2014

Dividends 2009 (for 2010 (for 2011 (for 2012 (for 2013 (for 2014 (for 2008) 2009) 2010) 2011) 2012) 2013)

Total dividends, RUB mln 268.0 2.2 40.434 1,218.3 1,204.3 1,132.0

Dividend per share, RUB 19.29 0.16 2.91 87.68 86.67 81.47

Dividends (% of net 10% 10% 10% 35.0% 25.0% 25.0% profit)

Announcement date 23/06/2009 23/06/2010 28/06/2011 26/06/2012 26/06/2013 24/06/2014

Actual payment date 20/08/2009 10/08/2010 18/08/2011 25/07/2012 07/08/2013 22/07/2014

Exchanges and share performance

Despite the negative trends of 2014, the Company’s shares continue to outpace the dynamics of stock indices and prices of comparable companies in the transportation sector in the medium-term. TransContainer shares were admitted for trading on the MICEX Stock Exchange, which is part of the Moscow Exchange, as of 12 November 2010. GDRs for the Company’s shares trade on the main market of the London Stock Exchange (LSE).

17 Regulation posted on the Company’s website at the address: http://www.trcont.ru/ru/investoram/ustav-i-vnutrennie- dokumenty/vnutrennie-dokumenty/. The Company also posts on its website the resolutions of the General Meeting of Shareholders on the payment of dividends, information about the amount, date and form of dividend payments and information about the announcement and payment of dividends in the form of a corporate action notice.

Share and GDR price performance

In 2014, the Company’s share and GDR prices continued to decline: prices tumbled 27.6% on the Moscow Exchange for the year as the MICEX index edged down 4.7%. Prices fell 51.1% on the LSE, while the RTS index shed 45.2%. Consequently, the cumulative return for holders of ordinary shares and GDR declined 22.5% and 49.1%, respectively, in 2014.

The diminished investment appeal of the Russian transportation sector as a whole combined with the deteriorating macroeconomic situation throughout 2014 had a significant effect on the price dynamics of the Company’s securities. In particular, the MICEX transportation index declined by 53.2% in 2014, while the GDR prices of the Russian transportation companies Globaltrans, Globalports and Novorossiysk Commercial Sea Port tumbled 68.0%, 82.4% and 68.2%, respectively.

Another factor that had a substantial negative effect on share prices was the low volume of the Company’s securities in free float following the consolidation of stakes by several prominent shareholders, which affected the liquidity of the Company’s shares due to a reduction in volume. Reduced liquidity was a major factor behind the diminished appeal of securities to institutional investors and contributed to the unstable nature of prices and their high volatility.

GDR (TRCN GDR) performance on London Stock Exchange (LSE) in 2014

1.2

1.0

0.8

0.6

0.4

0.2 02.01.2014 03.05.2014 01.09.2014 31.12.2014

TRCN: -51.1% GLTR: -68.0% RTS Index: -45.2%

Local share (TICKER: TRCN) performance on the Moscow Exchange in 2014

1.1

1.0

0.9

0.8

0.7

0.6

0.5 06.01.2014 05.05.2014 01.09.2014 29.12.2014 TRCN: -27.6% MICEX Index: -4.7% FESH: -27.6%

Even though the main factor behind the decline in the liquidity of its securities is beyond the Company’s control, a series of measures was nevertheless adopted in 2014 to increase the level of liquidity and trading turnover of the Company’s shares.

In particular, TransContainer ordinary shares were transferred from the B quote list to the A quote list on 30 January 2014 and to the First Level of the List of securities permitted to trade on the MICEX Stock Exchange on 9 June 2014, which made it possible to expand the range of potential investors to pension funds and insurance companies.

In addition, BKS, one of the leading brokers in terms of turnover on the organised stock market, was selected as a market maker for the Company’s shares on the Moscow Exchange as part of an open competition in November 2014.

As a result, the average daily trading volume of the Company’s shares on the Moscow Exchange soared by 59.8% in 2014 compared with the same period of the previous year.

At present, the Company along with the LSE and professional securities market participants are studying the feasibility of resuming trading on the LSE.

However, in the medium-term the Company’s securities will follow the trends on the Russian stock market as a whole and stay out in front of the prices of comparable companies in the transportation sector.

GDR (TRCN GDR) performance on London Stock Exchange (LSE) since the IPO date to 31 December 2014

2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 09.11.2010 27.03.2012 13.08.2013 30.12.2014

TRCN: -43.2% GLTR: -67.6% RTS Index: -54.1%

Local share (TICKER: TRCN) performance on the Moscow Exchange in 2014 since IPO date to 30 December 2014

1.7

1.5

1.3

1.1

0.9

0.7

0.5

0.3

0.1 12.11.2010 29.03.2012 14.08.2013 30.12.2014 TRCN: -5.5% MICEX Index: -9.4% FESH: -79.5%

LSE Moscow Exchange

Price at end of previous year Price at end of previous year (31/12/2013) 9.00 (31/12/2013) 3,210.10

Year’s low (25/12/2014) 3.00 Year’s low (17/12/2014) 1,920.00

Year’s high (02/01/2014) 9.00 Year’s high (26/02/2014) 3,699.00

Price at end of year (31/12/2014) 4.40 Price at end of year (30/12/2014) 2,410.00

Registrar

As of 27 December 2010, TransContainer’s registrar holder is STATUS Registrar Company.

Website: http://rostatus.ru

EXECUTIVE BODIES

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

CEO The CEO shall act on behalf of the Company without power of attorney subject to the restrictions specified by the legislation of the Russian Federation, the Charter and the resolutions of the Company’s Board of Directors. Petr Baskakov has been the Company’s CEO since 2006. TransContainer CEO Petr Baskakov acquired 1,700 shares in the Company in 2010. The number of ordinary Company shares owned by Petr Baskakov did not change in 2014 and amounts to 0.012% of the Company’s authorised capital. The Company’s CEO performs the functions of Management Board Chairman.

Management Board The Management Board is the Company’s collective executive body that acts within the purview specified in the Company’s Charter and is accountable to the Board of Directors and the General Meeting of Shareholders. The work of the Management Board is covered in the Regulation on the Management Board. The first members of the TransContainer Management Board were elected at a meeting of the Board of Directors on 23 December 2014. The Management Board held one meeting in 2014 at which it elected a secretary and considered matters related to the approval of bank guarantee transactions and the Company’s accounting policy.

Members of the Management Board:

Petr Baskakov CEO and Chairman of the Management Board Year of birth: 1961 Year elected to the Management Board: 2014 Key skills and work experience: CEO of TransContainer and a member of its Board of Directors since 2006, Petr holds over 25 years of management experience in the railway transportation industry and possesses expertise in strategic planning and strong business management skills. In 2009, Mr Baskakov was also a member of the TransСontainer-Slovakia, a.s. Supervisory Board. From 2010 to 2012, he served on the Presidium of the Council of Rolling Stock Operators. Education: Mr Baskakov is a graduate of the Moscow Institute of Railway Engineers and holds a degree in railway haulage management and a Ph.D. in Engineering. Other positions currently held: President, Chairman of the Management Board and a member of the Board of Directors of UTLC; member of the Supervisory Board of GEFCO S.A.; member of the Board of Directors of Kedentransservice; Chairman of the Board of Directors of Oy ContainerTrans Scandinavia, Ltd and RZD Logistics; member of the Shareholders’ Committee of Trans Eurasia Logistics GmbH; board member with the TRANSSOYUZ Charity Foundation, the All-Russian Association of Rail Transport Employers, the Russian Union of Industrialists and Entrepreneurs and the Association of Russian Freight Forwarders.

Vladimir Drachev Member of the Management Board Year of birth: 1951 Year appointed to the Management Board: 2014 Key skills and work experience: Mr Drachev has a long track record in the railway transportation industry. He was Head of the Transportation Management Department at the Russian Ministry of Railways from 2002 to 2003 and Head of the Transportation Management Department at Russian Railways from 2003 to 2005. Drachev was First Deputy Head of Sverdlovsk Railways from 2005 to 2006 and TransContainer Deputy CEO for Production from 2006 to 2008. Education: Mr Drachev graduated in 1982 from the Irkutsk Institute of Railway Engineers with a degree in railway operations. Other positions currently held: First Deputy CEO of TransContainer.

Vladimir Chisnakov Member of the Management Board Year of birth: 1969 Year appointed to the Management Board: 2014 Key skills and work experience: Mr Chisnakov served as First Deputy Head of the Main Economic Development and Planning Department of the Krasnoyarsk Territory Administration from 2002 to 2003 and Deputy CEO and a Department Director at Far East Shipping Company from 2003 to 2004. He was CEO of Russkaya Troyka from 2004 to 2010. Education: Mr Chisnakov graduated from Krasnoyarsk State University. In 2002, he completed studies at the Institute of Professional Accountants of Russia with a degree in financial management. Other positions currently held: First Deputy CEO of TransContainer.

Anton Lopatin Member of the Management Board Year of birth: 1975 Year appointed to the Management Board: 2014 Key skills and work experience: Mr Lopatin held the positions of Deputy Director for Corporate Reporting of the Finance Department and Head of the Corporate Reporting Department at Protek from 2003 to 2004 and Chief Financial Officer and Deputy CEO for Finances at Protek Adaption Centre from 2004 to 2006. Anton served as TransContainer Deputy CEO for Economics and Finance from 2008 to 2011. Education: Mr Lopatin graduated from Krasnoyarsk State Agrarian University (with honours) and State University of New York and also completed the MBA programme at Insead Business School in France. Other positions currently held: First Deputy CEO of TransContainer and Chief Financial Officer.

Pavel Chichagov Member of the Management Board Year of birth: 1953 Year appointed to the Management Board: 2014 Key skills and work experience: Mr Chichagov served as Head of the Railway Transportation Reform Department at the Russian Ministry of Railways from 1998 to 2003 and Head of the Corporate Construction and Reform Department at Russian Railways from 2003 to 2006. He was First Deputy Head of Sverdlovsk Railways in 2006, TransContainer Deputy CEO for Strategic Development from 2006 to 2008 and TransContainer Deputy CEO for Business Development from 2008 to 2011. Education: Mr Chichagov graduated from Gorky State University, the Finance Academy under the Government of the Russian Federation with a degree in banking and the Plekhanov Russian Academy of Economics with a degree in corporate management and business process reengineering and also

completed advanced training at the Higher School of Economics in the Corporate Director programme. He is a candidate of economic sciences. Other positions currently held: Deputy CEO of TransContainer.

Viktor Shekshuev Member of the Management Board Year of birth: 1961 Year appointed to the Management Board: 2014 Key skills and work experience: Mr Shekshuev worked as Deputy Director of the Containerised Cargo Transportation Centre at TransContainer (then a branch of Russian Railways) from 2004 to 2006 and TransContainer Deputy CEO for Economics from 2006 to 2008. He was TransContainer Deputy CEO for Production from 2008 to 2011. Education: Mr Shekshuev graduated from Moscow State University of Railway Engineering, completed advanced training at the Russian Railway Academy of the Moscow State University of Railway Engineering (production department) and upgraded his skills at the Institute of Economic and Mathematical Business Support as part of the Accounting, Finances and Market Economic programme. Other positions currently held: Deputy CEO of TransContainer.

Viktor Markov Member of the Management Board Year of birth: 1976 Year appointed to the Management Board: 2014 Key skills and work experience: Mr Markov held the positions of Deputy Head of the Legal Department at the Russian Ministry of Railways and Head of the Division of Legal Support for Interaction with the Federal Assembly and Railway Transportation Reform in 2002, Deputy Head of the Legal Department at the Russian Ministry of Railways and Head of the Division of Legal Support for Railway Transportation Reform from 2002 to 2003, First Deputy Head of the Legal Department at Russian Railways from 2003 to 2006 and TransContainer Director for Legal Affairs from 2006 to 2008. Education: Mr Markov graduated from the Gubkin State Academy of Oil and Gas with a degree in law. Other positions currently held: Director for Legal Affairs and Property Management of TransContainer.

ASSESSMENT OF CORPORATE GOVERNANCE SYSTEM Company’s corporate governance ratings In order to obtain an external assessment of the quality of corporate governance, the Company has supported Russian and international corporate governance ratings since 2008.

The international rating of TransContainer was affirmed by the Standard & Poor’s Corporate Governance Rating Service at GAMMA-6 in September 2011 with the simultaneous withdrawal of the rating due to the decision of Standard & Poor’s to discontinue corporate governance assessment services using GAMMA methodology. In November 2014, TransContainer was assigned National Corporate Governance Rating (NCGR) Level 8 “Best Corporate Governance Practice”. This rating means that the Company complies with the requirements of Russian legislation for corporate governance, follows most of the recommendations of the Russian Corporate Governance Code and observes a significant number of the recommendations of global best corporate governance practices with negligible risks of the loss of owners due to corporate governance quality.

Corporate governance ratings of TransContainer 2009 2010 2011 2012 2013 2014

GAMMA rating (Standard & Poor’s) 6 6 6 - - -

National Corporate Governance Rating 6+ 7 7+ 7+ 7+ 8

Given the discontinuation by Standard & Poor's of services to assign international corporate governance ratings, the Company is hiring one of the Big Four audit firms to provide a corporate governance rating for the Company. Information on the corporate governance assessment is posted on the Company’s website at the address: http://www.trcont.ru/ru/investoram/dopolnitelnaja-informacija/reitingi/

Rating of the Russian Institute of Directors in 2014 “The Company’s corporate governance practices are rated as high in terms of the protection of shareholder rights. The Company has established corporate governance institutions that protect shareholder rights against abuse by management and also properly take into consideration the rights of minority shareholders. Experts made particular note of the existence of the Company’s Policy on the Rotation of the External Auditor and Interaction with the External Auditor Regarding the Provision of Non-audit Services, which provides for the competitive selection of an external auditor at least once every five years. One shortcoming noted is the fact that the Board of Directors focuses on net profit figures determined using the data of financial statements prepared in accordance with RAS instead of IFRS when determining the amount of dividends recommended for the General Meeting of Shareholders in accordance with the Regulation on the Dividend Policy. “The Company’s corporate governance practices are rated as high in terms of the activities of management and control bodies. The Company has established institutions that are characteristic of an effective corporate governance system: an actively functioning Board of Directors and committees under the Board of Directors, the existence of liability insurance practices for members of the Board of Directors, assessments of the work performed by the Board of Directors and its individual members, detailed systems of internal control, audit and risk management as well as a corporate secretary who arranges interaction with shareholders and ensures the effective work of the Board of Directors. “The Company’s corporate governance practices are rated as good in terms of information disclosure about its activities. The Company has undertaken a number of substantial steps to ensure the transparency of its activities and the continuation of these practices in the future. One shortcoming in

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

Assessment of corporate governance by EY – 2014

In order to analyse the compliance of TransContainer’s corporate governance with the requirements of Russian regulators and best corporate governance practices, Ernst & Young (CIS) B.V., Moscow branch, conducted an assessment in 2013-2014 of corporate governance at TransContainer and found that the Company employs sustainable corporate governance processes and practices, complies with the requirements of Russian regulators in matters of corporate governance (including meeting the requirements of the Federal Law “On Joint-Stock Companies”, most of the recommendations of the Code of Corporate Conduct of the Russian Federal Securities Market Commission and the requirements of the Listing Rules of the MICEX Stock Exchange) and also utilises certain standards of best corporate governance practices (in particular, the UK Corporate Governance Code, the Corporate Governance Principles of the Organisation for Economic Co-operation and Development (OECD), the Corporate Governance Principles of the International Corporate Governance Network (ICGN) and the draft Code of Corporate Governance of the Bank of Russia18).

Effectiveness of Board of Directors

Information disclosure Executive bodies

Ownership structure and Audit, risk management influence of shareholders and internal control

Shareholder rights

Final score – 3.45, which correlates to a sustainable level of corporate governance and reflects sustainable corporate governance processes and practices. The Company utilises standards of best corporate governance practices.

Assessment of information disclosure in annual report

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

18 Approved by the Board of Directors of the Bank of Russia on 21 March 2014. 69

STATEMENT ON COMPLIANCE OF CORPORATE GOVERNANCE CODES

TransContainer, as a public company whose securities are publicly traded on the Moscow and London exchanges, in 2014 observed the principles and recommendations set forth in the corporate governance does of the Bank of Russia and the United Kingdom. In addition, in the event the provisions of the codes do match, the Company deems it necessary to observe the provisions that set more stringent requirements for the Company’s corporate governance system. The Company also has a Corporate Governance Code, which establishes corporate governance standards and principles that supplement the requirements of legislation and the Company’s internal documents.

REPORT ON COMPLIANCE WITH THE PRINCIPLES AND RECOMMENDATIONS OF THE CORPORATE GOVERNANCE CODE OF THE BANK OF RUSSIA 1. No. Corporate governance principle(s) or key criteria Brief description of which part of principle or Explanation of key reasons, factors and (recommendation) key criteria is not being observed circumstances why the principle or key criteria are not being observed or only partially observed and a description of the alternative mechanisms and tools of corporate governance used

1 2 3 4

I. Rights of shareholders and equal conditions for shareholders when exercising their rights

1.1. The company shall ensure the equitable and fair treatment of all shareholders when they exercise their rights to take part in the company’s management. The corporate governance system and practice shall ensure equal conditions for all shareholders – owners of shares of a single category (type), including minority shareholders and foreign shareholders, and their equitable treatment by the company.

1.1.1. The company shall approve an internal document that The internal documents of PJSC TransContainer According to accepted practice at the Company, the describes the main procedures for preparing, convening and do not envisage an additional list of information information and materials specified in the Code are holding a general meeting of shareholders and meets the and materials on the agenda items of the General provided to persons entitled to take part in the annual General Meeting of Shareholders. recommendations of the Corporate Governance Code, Meeting of Shareholders as required by the Code.

including the company’s duty:

to inform shareholders about a general meeting of shareholders and provide access to materials, including posting a message and materials on the company’s website no less than 30 days prior to the meeting date (unless the legislation of the Russian Federation provides for a longer period);

to disclose information about the compilation date of the list of persons entitled to take part in the general meeting of shareholders no less than 7 days prior to said date;

provide additional information and materials on agenda

items for the general meeting of shareholders in accordance with the recommendations of the Corporate Governance Code.

1.1.2. The company shall assume the duties of granting These duties are not stipulated in the Charter or According to the Corporate Governance Code of OJSC shareholders the opportunity when preparing for and the Company’s internal documents. TransContainer as well as accepted practice, the holding the annual meeting of shareholders to pose Company invites such people to take part in General questions about the company’s activities to the members of Meetings of Shareholders. Shareholders have the management and supervisory bodies, members of the audit unimpeded opportunity to ask questions when preparing committee, the chief accountant, the company’s auditors as for and during the General Meeting of Shareholders. well as candidates for management and supervisory bodies. These duties shall be stipulated in the charter or the company’s internal documents.

1.1.3. The company shall assume the duties of adhering to the These duties are not stipulated in the Charter or PJSC TransContainer adheres to the best global principle of preventing actions that lead to the artificial the Company’s internal documents. practices in corporate governance and even though it is redistribution of corporate control (for example, voting with not directly specified in its internal documents the “quasi-treasury” shares, deciding to pay dividends on Company strives to prevent actions that aim to preferred shares with limited financial capabilities or artificially redistribute corporate control. deciding to not pay dividends specified in the company charter on preferred shares when there are sufficient sources to pay them). These duties shall be stipulated in the charter or the company’s internal documents.

1.2 Shareholders shall be granted the equal and fair opportunity to share the company’s profits by receiving dividends.

1.2.1. The company shall approve an internal document that Observed. describes the company’s dividend policy, meets the recommendations of the Corporate Governance Code and, among other things, establishes: the procedure used to determine the portion of net profit (for companies that compile consolidated financial reporting – the minimum portion (share) of consolidated net profit) that is to be spent on dividend payments and the 72

conditions that must be met for dividends to be announced; the minimum amount of dividends for different categories (types) of the company’s shares; the duty to disclose the document that describes the company’s dividend policy on the company’s website.

II. Company’s board of directors

2.1 The board of directors shall identify the main strategic benchmarks for the company’s activities in the long term and the company’s key performance indicators, handle the company’s strategic management, determine the main principles and approaches for establishing a risk management and internal monitoring system at the company, monitor the activities of the company’s executive bodies, determine the company’s policy for remuneration of members of the board of directors and the executive bodies and also perform other key functions.

2.1.1. The company shall form a Board of Directors which: Observed. identifies the main strategic benchmarks for the company’s activities in the long term and the company’s key performance indicators;

monitors the activities of the company’s executive bodies;

determines the principles and approaches for establishing a risk management and internal monitoring system at the company;

determines the company’s policy for remuneration of members of the board of directors, the executive bodies and other key senior employees of the company.

2.2. The board of directors shall be an effective and professional management body of the company that is capable of passing objective and independent judgments and making decisions that meet the interests of the company and its shareholders. The chairman of the board of directors shall facilitate the most effective performance of the functions assigned to the board of directors. Meetings of the board of directors, preparations for such meetings and the participation in such meetings by members of the board of

directors shall ensure the effectiveness of the board of directors.

2.2.1. The chairman of the board of directors shall be an An independent director is not elected as the Zhanar Rymzhanova has been elected Chairman of the independent director, or a senior independent director shall Chairman of the Company’s Board of Directors. Company’s Board of Directors by the unanimous be determined from among the elected independent No senior independent director is determined decision of members of the Board of Directors. From directors to coordinate the work of independent directors from among the elected independent directors. 2008 to 2012, Zhanar Rymzhanova worked actively as and interact with the chairman of the board of directors. a member of the Company’s Board of Directors.

The Company has established effective communication between the independent directors and the Chairman of the Board of Directors, independent directors and management. Independent directors see no need for the additional coordination of their work.

2.2.2. The company’s internal documents shall formalise the procedure for preparing and holding meetings of the board of directors, which provides members of the board of Observed. directors the opportunity to properly prepare for the meeting and stipulate, in particular:

the deadline for notifying members of the board of directors about an upcoming meeting;

the deadlines for sending voting documents (ballots) and receiving completed documents (ballots) when conducting meetings in absentia;

the ability to send and take into account a written opinion on agenda items for members of the board of directors who are absent from an in-person meeting;

the ability to hold discussions and vote via conference

calls and video conference calls.

2.2.3. The most pressing matters shall be resolved at meetings The Company’s internal documents do not The Company has adopted the practice whereby over of the board of directors held in person. The list of such describe the form for holding a meeting of the 90% of the decisions of the Board of Directors are matters shall correspond to the recommendations of the Board of Directors when considering the matters made in person and all key matters are only considered Corporate Governance Code19. listed in clause 168 of the Code. in person.

2.3. The board of directors shall include a sufficient number of independent directors.

2.3.1. Independent directors shall make up at least one-third of The Company’s Board of Directors includes two Consultations are currently being held with the the elected members of the board of directors. elected independent directors (of 11) – David Company’s shareholders to increase the number of Hexter and Irina Shytkina20. independent directors on the Board of Directors.

2.3.2. Independent directors shall fully meet the independence Observed. criteria recommended by the Corporate Governance Code

2.3.3. The board of directors (nominating committee Observed. (personnel, appointments)) shall assess whether candidates for the board of directors meet the independence criteria.

2.4. The board of directors shall establish committees for the preliminary consideration of the most pressing matters of the company’s activities.

2.4.1. The company’s board of directors shall establish an audit The Audit Committee includes one independent Given that the Company’s Board of Directors includes committee comprised of independent directors whose director who is the committee chairman – David two independent directors, establishing a Committee

19 Indicated in clause 168 of Part B of the Corporate Governance Code

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

functions are stipulated in internal documents and meet the Hexter22. solely from independent directors is not possible. Also recommendations of the Corporate Governance Code21. see item 2.3.1.

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

2.4.2. The company’s board of directors shall establish a The Company has established a Personnel and Given that the Company’s Board of Directors includes remuneration committee (may be combined with the Remuneration Committee that includes one two independent directors, establishing a Committee (nominating committee (personnel, appointments)) independent director who is committee chairman solely from independent directors is not possible. All comprised of independent directors whose functions meet – Irina Shytkina24. see item 2.3.1. the recommendations of the Corporate Governance Code23.

2.4.3. The company’s board of directors shall establish a The Committee’s main functions are stipulated in nominating committee (personnel, appointments) (may be combined with the remuneration committee) on which the the Company Charter and fully meet the issuer’s majority of the members are independent directors whose corporate governance requirements, which must be observed for shares to be included in the First

21 Indicated in clause 172 of Part B of the Corporate Governance Code

22 4 Refer to the footnote to the article 2.3.1.

23 Indicated in clause 180 of Part B of the Corporate Governance Code

24 4 Refer to the footnote to the article 2.3.1.

functions meet the recommendations of the Corporate Level of the Listing Rules of CJSC MICEX SE. Governance Code25.

2.5. The board of directors shall ensure the performance evaluation of the board of directors, its committees and members of the board of directors.

2.5.1. The performance evaluation of the board of directors Observed. shall be conducted on a regular basis at least once a year and once every three years with the involvement of a third- party organisation (consultant).

III. Company’s corporate secretary

3.1 The corporate secretary (a special structural unit headed by the corporate secretary) shall ensure efficient interaction with shareholders and the coordination of the company’s actions to protect the rights and interests of shareholders and support the effective work of the board of directors.

3.1.1. The corporate secretary shall be accountable to the board Observed. of directors and be appointed and dismissed based on the decision or with the consent of the board of directors.

3.1.2. The company shall approve an internal document that Observed. describes the rights and duties of the corporate secretary (Regulation on the Corporate Secretary) whose contents meet the recommendations of the Corporate Governance Code26.

3.1.3. The corporate secretary shall hold a position that cannot Observed. be combined with the performance of any other functions at the company. The corporate secretary shall be assigned

25 Indicated in clause 186 of Part B of the Corporate Governance Code

26 Indicated in clause 217 of Part B of the Corporate Governance Code

functions in accordance with the recommendations of the Corporate Governance Code27. The corporate secretary shall have sufficient resources to perform its functions.

IV. Remuneration system for the members of the board of directors, executive bodies and other key senior employees of the company

4.1. The level of remuneration paid by the company shall be sufficient to hire, motivate and retain people who have the necessary skills and qualifications for the company. Remuneration shall be paid to members of the board of directors, executive bodies and other key senior employees of the company in accordance with the remuneration policy adopted by the company.

4.1.1. All payments, benefits and privileges granted to members Observed. of the board of directors, executive bodies and other key senior employees of the company shall be regulated.

4.2. The remuneration system for members of the board of directors shall ensure a convergence between the financial interests of directors and the long-term financial interests of shareholders.

4.2.1. The company shall not use any other forms of The Company has other forms of remuneration The Company’s General Meeting of Shareholders has remuneration for members of the board of directors except for members of the Board of Directors. approved the Regulation on the Payment of fixed annual remuneration. Remuneration and Compensation to Members of the OJSC TransContainer Board of Directors under which members of the Board of Directors receive annual remuneration and remuneration for participating in meetings of the Board of Directors. Annual remuneration consists of a fixed and variable portion.

4.2.2. Members of the company’s board of directors shall not Observed. be granted the opportunity to take part in option programmes, and the right to sell their company shares shall be conditional upon achieving certain performance indicators.

27 Indicated in clause 218 of Part B of the Corporate Governance Code

4.3. The remuneration system for executive bodies and other key senior employees of the company shall stipulate that remuneration depends on the company’s performance results and their personal contribution to achieving these results.

4.3.1. The company shall introduce a long-term incentive Observed. programme for members of the executive bodies and other key senior employees of the company.

V. Risk management and internal control system

5.1. The company shall have an efficiently functioning system of risk management and internal control that aims to provide reasonable assurance that the company’s goals will be achieved.

5.1.1. The board of directors shall identify principles and Observed. approaches for establishing a risk management and internal control system at the company.

5.1.2. The company shall establish a separate structural unit for Observed. risk management and internal control.

5.1.3. The company shall develop and introduce an anti- The Company does not have an anti-corruption In 2014, the Company conducted an assessment of the corruption policy that identifies measures which aim to policy. corporate fraud and corruption resistance system establish components of corporate culture, the involving EY. Based on the assessment results, work is organisational structure as well as rules and procedures that under way to develop measures aimed at improving the ensure the prevention of corruption. corporate fraud and corruption resistance system at the Company for 2015.

5.2. The company shall organise an internal audit for a systematic and independent assessment of the reliability and effectiveness of the risk management and internal control system and corporate governance practices.

5.2.1. The company shall form a separate structural unit that Observed. performs internal audit functions and is functionally subordinate to the company’s board of directors. The functions of this unit shall meet the recommendations of the Corporate Governance Code and include, in particular:

an assessment of the effectiveness of the internal control system;

an assessment of the effectiveness of the risk management system;

an assessment of corporate governance (in the absence of a corporate governance committee).

5.2.2. The head of the internal audit unit shall report to the Observed. company’s board of directors and be appointed and dismissed based on the decision of the company’s board of directors.

5.2.3. The company shall approve a policy on internal audit Observed. matters (Regulation on Internal Audit) that describes the goals, objectives and functions of an internal audit.

VI. Information disclosure about the company and the company’s information policy

6.1. The company and its activities shall be transparent for shareholders, investors and other stakeholders.

6.1.1. The Company shall approve an internal document that Observed. describes the company’s information policy which meets the recommendations of the Corporate Governance Code. The company’s information policy shall include the following methods of interaction with investors and other stakeholders:

the creation of a special page on the company’s website that provides answers to standard questions posed by shareholders and investors and a regularly updated calendar of the company’s corporate events as well as other useful information for shareholders and investors;

regular meetings by members of the executive bodies and other key senior employees of the company with analysts;

regular presentations (including in the form of teleconferences and webcasts) and meetings attended by members of management bodies and key senior employees of the company, including accompanying publications of the company’s accounting (financial) reporting or publications related to the company’s main investment projects and strategic development plans.

6.1.2. The company’s executive bodies shall handle the Observed. implementation of the information policy. The company’s board of directors shall monitor the proper disclosure of information and compliance with the information policy.

6.1.3. The company shall establish procedures to ensure the Observed. coordination of work by all the company’s services and structural units involved in information disclosure or whose activities may necessitate information disclosure.

6.1.4. Other key criteria (recommendations) of the Corporate Governance Code in the company’s view pertaining to this principle(s) of corporate governance.

6.2. The company shall disclose full, updated and accurate information about itself in a timely manner to provide the opportunity for the company’s shareholders and investors to make informed decisions.

6.2.1. If foreign investors have a significant stake in the Observed. company’s capital, along with the disclosure of information in Russian, the most substantial information about the company (including messages on the general meeting of shareholders and the company’s annual report) shall also be

disclosed simultaneously in the foreign language that is generally accepted on the financial market.

6.2.2. The company shall provide information disclosure not Observed. only about itself but also about legal entities under its control that have significant importance.

6.2.3. The company shall disclose annual and interim (semi- Observed. annual) consolidated or individual financial statements prepared in accordance with International Financial Reporting Standards (IFRS). The annual consolidated or individual financial statement shall be disclosed together with an auditor’s report, while the interim (semi-annual) consolidated or individual financial statement shall be disclosed together with a report on the results of a general audit review or an auditor’s report.

6.2.4. The company shall disclose a special memorandum that The entity that controls the Company does not The Company is planning to inform the shareholder contains plans for the company by the entity that controls disclose plans in the form of a memorandum. about the need to prepare a memorandum with respect the company. This memorandum shall be prepared in to PJSC TransContainer. accordance with the recommendations of the Corporate Governance Code28.

6.2.5. The company shall disclose detailed information about Observed. the biographical data of the members of the board of directors, including information about whether they are independent directors, and also promptly disclose information about the loss of independent director status by a member of the board of directors.

28 Указаны в пункте 279 части Б Кодекса корпоративного управления

6.2.6. The company shall disclose information about the Observed. structure of its capital in accordance with the recommendations of the Corporate Governance Code.

6.2.7. The company’s annual report shall contain the following The amount of individual remuneration for each In accordance with the practice adopted at the additional information recommended by the Corporate member of the Company’s Board of Directors is Company, remuneration for members of the Company’s Governance Code: not disclosed. Board of Directors is disclosed cumulatively by type of remuneration. an overview of the most significant transactions, including related transactions, concluded by the company and legal entities under its control over the previous year;

a report on the work of the board of directors (including the committees of the board of directors) for the year that contains, among other things, information about the number of in-person (in absentia) meetings, about the participation of each member of the board of directors in meetings, a description of the most significant issues and most challenging problems considered at meetings of the board of directors and committees of the board of directors and the main recommendations that the committees gave the board of directors;

information about the direct or indirect ownership of company shares by members of the company’s board of directors and executive bodies;

information about a conflict of interests among members of the board of directors and executive bodies (including related to the involvement of such persons in the management bodies of the company’s competitors);

a description of the remuneration system for members of the board of directors, including the amount of individual remuneration for the year for each member of the board of 83

directors (with a breakdown by basic and additional remuneration for chairmanship on the board of directors and for chairmanship (membership) in committees of the board of directors, the amount of participation in the long-term incentive programme and the amount of participation by each member of the board of directors in the option programme, if any), reimbursement of expenses associated with participation on the board of directors as well as the company’s expenses on the liability insurance of directors as members of management bodies;

information about total remuneration for the year:

a) for a group of at least the top five highest paid members of the executive bodies and other key senior employees of the company with a breakdown by each type of remuneration;

b) for all members of the executive bodies and other key senior employees of the company to whom the company’s remuneration policy extends with a breakdown by each type of remuneration;

information on remuneration for the sole executive body that was received or was to be received from the company (legal entity from a group of organisations that includes the company) with a breakdown by each type of remuneration, both for performing the duties of the sole executive body as well as for other reasons.

6.3. The company shall provide information and documents upon request by shareholders in accordance with the principles of equal access and convenience.

6.3.1. In accordance with the company’s information policy, Observed. company shareholders that own the same number of voting shares in the company shall be provided with equal access 84

to the company’s information and documents.

VII. Significant corporate actions

7.1. Actions that significantly affect or may affect the structure of share capital and the company’s financial condition and consequently the position of shareholders (significant corporate actions) shall be carried out on fair terms that ensure the observance of the rights and interests of shareholders as well as other stakeholders.

7.1.1. The company’s charter shall describe the list (criteria) of Partially observed, with respect to the Matters involving the reorganisation of the Company, transactions and other actions constituting significant competence of the Board of Directors: the acquisition of outstanding shares, an increase or corporate actions whose consideration shall fall within the decrease in charter capital or the listing or delisting of competence of the company’s board of directors, including: the shares fall within the competence of the Company’s General Meeting of Shareholders. the reorganisation of the company, the acquisition of 30 the reorganisation of the company, the or more per cent of the company’s voting shares acquisition of 30 or more per cent of the (absorption), an increase or decrease in the company’s company’s voting shares (absorption), an increase charter capital or the listing or delisting of the company’s or decrease in the company’s charter capital or shares; the listing or delisting of the company’s shares;

transactions to sell shares (stakes) of legal entities controlled by the company that have significant importance the alienation by the company of treasury and for the company as a result of which the company loses “quasi-treasury” shares. control over such legal entities;

transactions, including related transactions, with the property of the company or legal entities under its control whose value exceeds the amount specified in the company’s charter or which has significant importance for the company’s business operations;

the establishment of a legal entity under the company’s control that has significant importance for the company’s operations;

the alienation by the company of treasury and “quasi-

treasury” shares.

7.2. The company shall provide a procedure for carrying out significant corporate actions that enables shareholders to receive complete information about such actions in a timely manner, ensures their ability to affect such actions and guarantees the observance and an appropriate level of protection of their rights when taking such actions.

7.2.1. The company’s internal documents shall stipulate the The Company has not approved a document that When carrying out significant corporate actions, the principle for ensuring equitable treatment for all the formalises these additional measures. Company adheres to the principle of equitable and fear company’s shareholders when carrying out significant treatment of shareholders, which is formalised in the corporate actions that concern the rights and legitimate Corporate Governance Code of OJSC TransContainer, interests of shareholders and also formalise additional and hires independent appraisers in the cases required measures that protect the rights and legitimate interests of by Russian legislation. the company’s shareholders as required by the Corporate Governance Code, including:

the hiring of an independent appraiser with an impeccable reputation on the market and experience with appraisals in the relevant sphere or providing reasons for not hiring an independent appraiser when determining the value of property that is alienated or acquired as part of a major transaction or related party transaction;

the determination of the company’s share price in the event of acquisition or purchase by an independent appraiser with an impeccable reputation on the market and experience with appraisals in the relevant sphere taking into account the weighted average share price over a reasonable period, but excluding the effect associated with the company’s conclusion of the relevant transaction (and excluding changes in the share price with the dissemination of information about the company’s conclusion of the relevant transaction) and also excluding the discount for the alienation of shares within a non-controlling stake;

expansion in the list of grounds for which members of

the company’s board of directors and other persons specified by legislation are recognised as interested parties in the company’s transactions in order to assess the actual relatedness of the relevant persons.

REPORT ON COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE

Information about compliance with the main principles of the UK Corporate Governance Code:

1. Leadership

Every company should be headed by an effective board which is collectively responsible for the long-term success of the 1.1. company. Observed

There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the company’s business. No one individual should have unfettered powers of 1.2. Observed decision.

The chairman is responsible for leadership of the board and ensuring its effectiveness on all aspects of its role. 1.3. Observed

As part of their role as members of a unitary board, non-executive directors should constructively challenge and help 1.4. develop proposals on strategy. Observed

2. Effectiveness

The board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the 2.1. company to enable them to discharge their respective duties and responsibilities effectively. Observed

Partially observed.

The Company has no special procedure There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board. 2.2. for considering candidates for newly appointed members of the Board of Directors. At the same time, the Company adheres to the requirements of Russian 88

legislation that specify the procedure for nominating candidates to the board of directors.

All directors should be able to allocate sufficient time to the company to discharge their responsibilities effectively. 2.3. Observed

All directors should receive induction on joining the board and should regularly update and refresh their skills and 2.4. knowledge. Observed

The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to 2.5. discharge its duties. Observed

The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and 2.6. individual directors. Observed

All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance. 2.7. Observed

3. Accountability

The board should present a fair, balanced and understandable assessment of the company’s position and prospects. 3.1. Observed

The board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives. The board should maintain sound risk management and internal control systems. 3.2. Observed

The board should establish formal and transparent arrangements for considering how they should apply the corporate reporting, risk management and internal control principles and for maintaining an appropriate relationship with the 3.3. Observed company’s auditors.

4. Remuneration

Executive directors’ remuneration should be designed to promote the long-term success of the company. Performance- 4.1. related elements should be transparent, stretching and rigorously applied. Observed

There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the 4.2. remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration. Observed

5. Relations with shareholders

There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has 5.1. responsibility for ensuring that a satisfactory dialogue with shareholders takes place. Observed

The board should use general meetings to communicate with investors and to encourage their participation. 5.2. Observed

Information about partial compliance with supporting principles and provisions of the UK Corporate Governance Code.

№ Supporting principles and provisions of the UK Corporate Governance Code Information on Comments compliance 1. А. 3.1. The chairman should on appointment meet the independence criteria. A Partially observed The Chairman of the Board of Directors is not an independent chief executive should not go on to be chairman of the same company. If director. exceptionally a board decides that a chief executive should become chairman, the board should consult major shareholders in advance and should set out its reasons The Chairman of the Board of Directors does not hold meetings to shareholders at the time of the appointment and in the next annual report. with non-executive directors without the participation of members of the executive bodies, however it is common practice The chairman should hold meetings with the non-executive directors without the for personal meetings to be held with independent directors, executives present. Led by the senior independent director, the non-executive committee chairmen and representatives of minority directors should meet without the chairman present at least annually to appraise shareholders. the chairman’s performance and on such other occasions as are deemed 90

appropriate. 2. A. 4.1. The board should appoint one of the independent non-executive directors Partially observed The Company has not elected a senior independent director, to be the senior independent director to provide a sounding board for the chairman while effective communication has been established between and to serve as an intermediary for the other directors when necessary. The senior independent directors and the Chairman of the Board of independent director should be available to shareholders if they have concerns Directors and independent directors and management. which contact through the normal channels of chairman, chief executive or other Independent directors see no need for additional coordination of executive directors has failed to resolve or for which such contact is inappropriate. their work. 3. B. 1.2. Except for smaller companies, at least half the board, excluding the Partially observed The Company’s Board of Directors includes two independent chairman, should comprise non-executive directors determined by the board to be directors – Irina Shytkina and David Hexter29. The Company’s independent. A smaller company should have at least two independent non- independent directors are actively involved in the work of the executive directors. Board of Directors and its committees.

C. 3.1. The board should establish an audit committee of at least three, or in the Consultations are currently being held with the Company’s case of smaller companies two, independent non-executive directors. In smaller shareholders in order to increase the number of independent companies the company chairman may be a member of, but not chair, the directors on the Board of Directors. committee in addition to the independent non-executive directors, provided he or she was considered independent on appointment as chairman. The board should The Company’s Board of Directors has established the Audit satisfy itself that at least one member of the audit committee has recent and Committee and the Personnel and Remuneration Committee. relevant financial experience. The Audit Committee includes one independent director – the D. 2.1. The board should establish a remuneration committee of at least three, or committee chairman. in the case of smaller companies two, independent non-executive directors. In addition the company chairman may also be a member of, but not chair, the The Personnel and Remuneration Committee includes one committee if he or she was considered independent on appointment as chairman. independent director – the committee chairman. The remuneration committee should make available its terms of reference, explaining its role and the authority delegated to it by the board. Where The Company has an insufficient number of members of the remuneration consultants are appointed, they should be identified in the annual Board of Directors to meet the independence criteria for report and a statement made as to whether they have any other connection with the establishing committees from three independent directors. company. 4. B. 2.4. A separate section of the annual report should describe the work of the Partially observed The Company’s Board of Directors did not seek out the services nomination committee, including the process it has used in relation to board of an external search and consulting agency or public advertising

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

appointments. This section should include a description of the board’s policy on when appointing the Chairman of the Board of Directors or non- diversity, including gender, any measurable objectives that it has set for executive director, and the Personnel and Remuneration implementing the policy, and progress on achieving the objectives. Committee did not prepare any recommendations for the Board of Directors with respect to a search for or appointment of An explanation should be given if neither an external search consultancy nor open members of the Board of Directors. advertising has been used in the appointment of a chairman or a non-executive director. Where an external search consultancy has been used, it should be In accordance with Russian legislation, the right to nominate identified in the annual report and a statement made as to whether it has any other candidates to the Board of Directors belongs to owners of at least connection with the company. 2% of the Company’s voting shares. In the event of the absence or an insufficient number of candidates nominated by shareholders, the Company’s Board of Directors may include candidates in the list of nominations at its own discretion. At the same time, the Company has never had any instances when there was an absence or insufficient number of candidates nominated by shareholders. 5. D. 1.3. Levels of remuneration for non-executive directors should reflect the time Partially observed The existing remuneration system at the Company for members commitment and responsibilities of the role. Remuneration for non-executive of the Board of Directors, in addition to the fixed annual directors should not include share options or other performance-related elements. remuneration, includes a variable portion within the annual If, exceptionally, options are granted, shareholder approval should be sought in remuneration that aims to achieve the Company’s strategic advance and any shares acquired by exercise of the options should be held until at objectives. The remuneration system also provides remuneration least one year after the non-executive director leaves the board. Holding of share for participation in meetings of the Board of Directors. options could be relevant to the determination of a non-executive director’s independence. No option programme is envisaged for members of the Board of Directors.

PUBLIC JOINT STOCK COMPANY TRANSCONTAINER

Consolidated Financial Statements

For the Year Ended 31 December 2014 PJSC TRANSCONTAINER

TABLE OF CONTENTS

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

AUDITORS’ REPORT

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014: Consolidated statement of financial position ...... 1 Consolidated statement of profit or loss and other comprehensive income ...... 2 Consolidated statement of cash flows ...... 3 Consolidated statement of changes in equity ...... 4

Notes to the consolidated financial statements for the year ended 31 December 2014

1. NATURE OF THE BUSINESS 5 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS 6 3. SIGNIFICANT ACCOUNTING POLICIES 6 4. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS 17 5. KEY SOURCES OF ESTIMATION UNCERTAINTY 21 6. CRITICAL ACCOUNTING JUDGEMENTS 22 7. PROPERTY, PLANT AND EQUIPMENT AND ADVANCES FOR ACQUISITION OF NON- CURRENT ASSETS 23 8. INTANGIBLE ASSETS 25 9. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES 26 10. TRADE AND OTHER RECEIVABLES 28 11. PREPAYMENTS AND OTHER CURRENT ASSETS 29 12. CASH 29 13. EQUITY 30 14. LONG-TERM DEBT 31 15. FINANCE LEASE OBLIGATIONS 32 16. EMPLOYEE BENEFIT LIABILITY 32 17. EMPLOYEE SHARE OPTION PLAN 36 18. TRADE AND OTHER PAYABLES 37 19. TAXES OTHER THAN INCOME TAX PAYABLE 37 20. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES 37 21. SEGMENT INFORMATION 38 22. OTHER OPERATING INCOME 38 23. OPERATING EXPENSES 39 24. INTEREST EXPENSE 39 25. INCOME TAX 39 26. BALANCES AND TRANSACTIONS WITH RELATED PARTIES 41 27. COMMITMENTS UNDER OPERATING LEASES 45 28. CONTINGENCIES, COMMITMENTS AND OPERATING RISKS 45 29. RISK MANAGEMENT ACTIVITIES 47 30. SUBSEQUENT EVENTS 52

PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

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

Interest held, % Voting rights, % Name of Entity Type Country Activity 2014 2013 2014 2013

Oy ContainerTrans Scandinavia Joint Container Ltd. (Note 9) venture Finland shipments 50 50 50 50 Container JSC TransContainer-Slovakia Subsidiary Slovakia shipments 100 100 100 100 Chinese-Russian Rail-Container International Freight Forwarding Joint Container (Beijing) Co, Ltd. (Note 9) venture China shipments 49 49 50 50 Container TransContainer Europe GmbH Subsidiary Austria shipments 100 100 100 100 Container ТransContainer Asia Pacific Ltd. Subsidiary Korea shipments 100 100 100 100 Trans-Eurasia Logistics GmbH Container (Note 9) Associate Germany shipments 20 20 20 20 Share option LLC ТransContainer Finance (Note programme 17) Subsidiary Russia operator 100 100 100 100

Joint Container JSC Kedentransservice (Note 9) venture Kazakhstan shipments 50 67 50 67

Helme’s Operation UK Limited Joint Investment (Note 9) venture Great Britain activity 50 100 50 100

Investment Logistic Investment S.a.r.l. Subsidiary Luxemburg activity 100 100 100 100

Logistic System Management B.V. Joint Investment (Note 9) venture Netherlands activity 50 50 50 50

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

5 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS Statement of compliance – These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Basis of preparation – These consolidated financial statements are prepared on the basis of standalone financial statements of the Company and its subsidiaries. The entities of the Group maintain their accounting records in accordance with laws, accounting and reporting regulations of the jurisdictions in which they are incorporated and registered. The Group’s consolidated financial statements have been prepared using the historical cost convention, except for the effects of assets acquired and liabilities assumed at the formation of the Company, which were recorded at the estimated fair value at the date of transfer and initial recognition of financial instruments based on fair value, revaluation of investment properties and available-for-sale financial assets. The accompanying consolidated financial statements differ from the financial statements issued for statutory purposes in that they reflect certain adjustments, not recorded in the statutory books, which are appropriate to present the financial position, results of operations and cash flows of the Group in accordance with IFRS. The consolidated financial statements are presented in millions of Russian Roubles (hereinafter “RUR m”), except where specifically noted otherwise.

3. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of these consolidated financial statements are set out below. The accounting policies have been applied consistently by all consolidated operating entities. Consolidated financial statements. The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) prepared through 31 December each year. Subsidiaries are those investees, including structured entities, that the Group controls because the Group (i) has power to direct relevant activities of the investees that significantly affect their returns, (ii) has exposure, or rights, to variable returns from its involvement with the investees, and (iii) has the ability to use its power over the investees to affect the amount of investor’s returns. The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing whether the Group has power over another entity. For a right to be substantive, the holder must have practical ability to exercise that right when decisions about the direction of the relevant activities of the investee need to be made. The Group may have power over an investee even when it holds less than majority of voting power in an investee. In such a case, the Group assesses the size of its voting rights relative to the size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee. Protective rights of other investors, such as those that relate to fundamental changes of investee’s activities or apply only in exceptional circumstances, do not prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date on which control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries (other than those acquired from parties under common control). Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The Group measures non-controlling interest that represents present ownership interest and entitles the holder to a proportionate share of net assets in the event of liquidation on a transaction by transaction basis, either at: (a) fair value, or (b) the non-controlling interest's proportionate share of net assets of the acquiree. Which principle to apply for measuring non-controlling interest is defined by the Group individually for each particular business combination. Goodwill is measured by deducting the acquiree’s net assets from the aggregate of the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and the fair value of the interest in the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill”) is recognised in profit or loss, after management reassesses whether it identified all the assets

6 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTUNUED) acquired and all liabilities and contingent liabilities assumed and reviews the appropriateness of their measurement. The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed, including the fair value of assets or liabilities from contingent consideration arrangements, but excluding acquisition related costs such as advisory, legal, valuation and similar professional services. Transaction costs related to the acquisition and incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of the business combination are deducted from the carrying amount of the debt; and all other transaction costs associated with the acquisition are expensed. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless the cost cannot be recovered. Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to equity instruments which are not owned, directly or indirectly, by the Company. Non-controlling interest forms a separate component of the Group’s equity. Investments in associates and joint ventures. Joint venture is a joint activity which implies that the parties, that have joint control over the activity, have the rights to the net assets of the activity. Joint control occurs in the case when decisions relating to the relevant activities require the unanimous consent of the parties sharing joint control in accordance with the contract. Associates are entities over which the Group has significant influence (directly or indirectly), but not control, generally accompanying a shareholding of between 20 and 50 percent of the voting rights. Investments in associates and joint ventures are accounted for by the equity method of accounting and are initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. Dividends received from associates (joint ventures) reduce the carrying value of the investment in associates (joint ventures). Other post- acquisition changes in the Group’s share of an associate’s (joint ventures’) net assets are recognised as follows: (i) the Group’s share of profits or losses of associates (joint ventures) is recorded in the consolidated profit or loss for the period as the share of financial result of associates (joint ventures), (ii) the Group’s share of other comprehensive income is recognised in other comprehensive income and presented separately, (iii) all other changes in the Group’s share of the carrying value of net assets of associates (joint ventures) are recognised in consolidated profit or loss within the share of financial result of associates (joint ventures). When the Group’s share of losses in an associate (joint venture) equals or exceeds its interest in the associate (joint venture), including unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate (joint ventures). Unrealised gains on transactions between the Group and its associates (joint ventures) are eliminated to the extent of the Group’s interest in the associates (joint ventures); unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Disposals of subsidiaries, associates or joint ventures. When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity, are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are recycled to profit or loss. If the ownership interest in an associate or joint venture is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. Foreign currency transactions and translation. Functional currency is the currency of the primary economic environment in which the entity operates. The Russian Rouble is the functional currency of the

7 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Company and is also the currency in which these consolidated financial statements are presented. Transactions in currencies other than the functional currency are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies at the balance sheet date are translated into the functional currency at the year-end exchange rate. Exchange differences arising from such translation are included in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Russian Rouble at foreign exchange rates ruling at the dates the fair value was determined. When the functional currency of an entity of the Group is not the presentation currency of the Company’s consolidated financial statements, the results and financial position of the entity are translated into the presentation currency using the following procedures:

 all assets and liabilities are translated at the closing rate at the date of each presented statement of financial position;

 income and expenses for each statement of profit or loss and other comprehensive income are translated at average exchange rates for the period if fluctuation of exchange rates during the period was insignificant. Otherwise exchange rates at the dates of the transactions are used for translation to the presentation currency;

 component of equity and reserves are translated at historical rates;

 all resulting exchange differences are recognised as other comprehensive income;  in the statement of cash flows cash balances at the beginning and at the end of each presented period are translated at exchange rates effective at the corresponding dates. All cash flows are translated at average exchange rates for the presented periods. When control over a foreign operation is lost, the exchange differences recognised previously in other comprehensive income are reclassified to profit or loss for the year as part of the gain or loss on disposal. Property, plant and equipment. Property, plant and equipment are recorded at purchase or construction cost, less accumulated depreciation and accumulated impairment in value. The costs of day to day servicing of property, plant and equipment, including repairs and maintenance expenditure, is expensed as incurred. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Construction in progress Construction in progress includes, principally, capital expenditure incurred in relation to the construction of new container terminals and the reconstruction of existing terminals. Construction in progress is carried at cost, less any recognised impairment loss. Cost includes capital expenditures directly related to the construction of property, plant and equipment including an appropriate allocation of directly attributable variable overheads including capitalised borrowing costs on qualifying assets. Depreciation of these assets, on the same basis as for other property assets, commences when the assets are ready for their intended use. Subsequent costs The cost of replacing a part of property, plant and equipment is recognised in the carrying amount when that cost is incurred, if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. The assets being replaced are written off immediately. All other costs are recognised in the consolidated profit or loss for the year. Depreciation Depreciation is charged to the consolidated profit or loss so as to write off the cost of assets (other than land and construction in progress) less their estimated residual values, using the straight-line method over the estimated useful lives of each part of an item of property, plant and equipment. Owned land plots are not depreciated.

8 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The estimated useful economic lives for property, plant and equipment are as follows: Number of years

Buildings 20-82 Constructions 5-50 Containers 10-20 Flatcars 28-38 Cranes and loaders 5-23 Vehicles 3-15 Other equipment 2-25

The assets’ useful lives and amortisation methods are reviewed and adjusted as appropriate, at each reporting year-end. Leased assets Capitalised leased assets and operating leasehold improvements are depreciated over the shorter of the estimated useful life of the asset and the lease term. Gain or loss on disposal The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the consolidated profit or loss. Investment Property. Investment property is property held by the Group to earn rental income or for capital appreciation, or both and which is not occupied by the Group. Investment property includes assets under construction for future use as investment property. Investment property is initially recognised at cost, including transaction costs, and subsequently remeasured at fair value updated to reflect market conditions at the end of the reporting period. Fair value of investment property is the price that would be received from sale of the asset in an orderly transaction, without deduction of any transaction costs. The best evidence of fair value is given by current prices in an active market for similar property in the same location and condition. Market value of the Group’s investment property is determined based on reports of independent appraisers, who hold recognised and relevant professional qualifications and who have recent experience in the valuation of property in the same location and category. Earned rental income is recorded in profit or loss for the year within other operating income. Gains and losses resulting from changes in the fair value of investment property are recorded in profit or loss for the year and presented separately. If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment, and its carrying amount at the date of reclassification becomes its deemed cost for accounting purposes.] [If an item of owner-occupied property becomes an investment property because its use has changed, any difference resulting between the carrying amount and the fair value of this item at the date of transfer is treated in the same way as a revaluation of property, plant and equipment. Any resulting increase in the carrying amount of the property is recognised in profit or loss for the year to the extent that it reverses a previous impairment loss, with any remaining increase credited directly to other comprehensive income. Any resulting decrease in the carrying amount of the property is initially charged against any revaluation surplus previously recognised in other comprehensive income, with any remaining decrease charged to profit or loss for the year as impairment. Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Group and the cost can be measured reliably. All other repairs and maintenance costs are expensed when incurred.

9 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Intangible assets. Intangible assets that are acquired by the Group represent mainly purchased software and are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the consolidated profit or loss on a straight-line basis over the estimated useful lives of intangible assets. Intangible assets are amortised from the date they are available for use. The estimated useful lives for existing assets range from 1 to 5 years. Useful lives and amortisation methods for intangible assets are reviewed at least at each financial year- end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for as changes in accounting estimates. Impairment of non-current assets. At each balance sheet date, the Group reviews the carrying amounts of its non-current assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in-use. In assessing value in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the consolidated profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the consolidated profit or loss. Non-current assets classified as held for sale. Non-current assets and disposal groups (which may include both non-current and current assets) are classified in the statement of financial position as ‘non- current assets held for sale’ if their carrying amount will be recovered principally through a sale transaction (including loss of control of a subsidiary holding the assets) within twelve months after the reporting period. Assets are reclassified when all of the following conditions are met: (a) the assets are available for immediate sale in their present condition; (b) the Group’s management approved and initiated an active programme to locate a buyer; (c) the assets are actively marketed for sale at a reasonable price; (d) the sale is expected within one year; and (e) it is unlikely that significant changes to the plan to sell will be made or that the plan will be withdrawn. Non-current assets or disposal groups classified as held for sale in the current period’s statement of financial position are not reclassified or re-presented in the comparative statement of financial position to reflect the classification at the end of the current period. A disposal group is a group of assets (current or non-current) to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. Goodwill is included if the disposal group includes an operation within a cash-generating unit to which goodwill has been allocated on acquisition. Non-current assets are assets that include amounts expected to be recovered or collected more than twelve months after the reporting period. If reclassification is required, both the current and non-current portions of an asset are reclassified. Held for sale disposal groups as a whole are measured at the lower of their carrying amount and fair value less costs to sell. Held for sale property, plant and equipment, investment properties and intangible assets are not depreciated or amortised. Reclassified non-current financial instruments, deferred taxes and investment properties held at fair value are not subject to write down to the lower of their carrying amount and fair value less costs to sell. Liabilities directly associated with the disposal group that will be transferred in the disposal transaction are reclassified and presented separately in the consolidated statement of financial position.

10 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Classification of financial assets. Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. As at the reporting date the Group had financial assets classified as loans and receivables only. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in the consolidated profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Interest income is recognised by applying the effective interest rate except for short-term receivables when the recognition of interest would be immaterial. Impairment of financial assets carried at amortised cost. Impairment losses are recognised in consolidated profit or loss when incurred as a result of one or more events that occurred after the initial recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk 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 realisability of related collateral, if any. The following other principal criteria are also used to determine whether there is objective evidence that an impairment loss has occurred:

 any portion or instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems;

 the counterparty experiences a significant financial difficulty as evidenced by its financial information that the Group obtains;

 the counterparty considers bankruptcy or a financial reorganisation;  there is adverse change in the payment status of the counterparty as a result of changes in the national or local economic conditions that impact the counterparty; or

 the value of collateral, if any, significantly decreases as a result of deteriorating market conditions. If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of the counterparty, impairment is measured using the original effective interest rate before the modification of terms. Impairment losses are always recognised through an allowance account to write down the asset’s carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of the asset. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss for the year. Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to recover the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to impairment loss account within the consolidated profit or loss for the year. Financial instruments - key measurement terms. Depending on their classification financial instruments are carried at fair value or amortised cost as described below. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is price

11 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) in an active market. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Valuation techniques such as discounted cash flow models or models based on recent arm’s length transactions or consideration of financial data of the investees are used to measure fair value of certain financial instruments for which external market pricing information is not available. Fair value measurements are analysed by level in the fair value hierarchy as follows:  Level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities;  Level two measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices);  Level three measurements are valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs). For disclosure of information on fair value the Group classified assets and liabilities on the basis of an appropriate level of hierarchy of fair value as it is stated above. Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related items in the consolidated statement of financial position. Effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate. Classification of financial liabilities. Financial liabilities have the following measurement categories: (a) held for trading which also includes financial derivatives and (b) other financial liabilities. Liabilities held for trading are carried at fair value with changes in value recognised in profit or loss for the year (as finance income or finance costs) in the period in which they arise. Other financial liabilities are carried at amortised cost. As at the reporting date the Group had financial liabilities classified as other financial liabilities only. Initial recognition of financial instruments. All financial instruments of the Group are initially recorded at fair value. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets. All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (“regular way” purchases and sales) are recorded at trade date, which is the date on which the Group commits to deliver a financial asset. All other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument. Derecognition of financial assets. The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expire or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership but not retaining control.

12 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale. Offsetting financial instruments. Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously. Such a right of set off (a) must not be contingent on a future event and (b) must be legally enforceable in all of the following circumstances: (i) in the normal course of business, (ii) in the event of default and (iii) in the event of insolvency or bankruptcy. Inventories. Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the weighted average cost principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. Cash and cash equivalents. Cash and cash equivalents comprise cash on hand, balances with banks and short-term interest-bearing deposits with original maturities of not more than three months (not more than 91 days). Employee benefits. Remuneration to employees in respect of services rendered during the reporting period is recognised as an expense in that reporting period. Defined benefit plans The Group operates defined benefit pension plans. The obligation and cost of benefits under the plans are determined separately for each plan using the projected unit credit method. This method considers each year of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. The cost of providing pensions is charged to the consolidated profit or loss, so as to attribute the total pension cost over the service lives of employees in accordance with the benefit formula of the plan. This obligation is measured at the present value of estimated future cash flows using a discount rate that is similar to the interest on government bonds where the currency and terms of these bonds are consistent with the currency and estimated terms of the defined benefit obligation. Remeasurements of the net defined benefit liabilityare recognised in other comprehensive incomein full as they arise. In addition, the Group provides certain retirement benefits, other post-employment and other long-term benefits to its employees. These benefits are not funded. The obligation and cost of benefits for the other long-term benefits are determined using the projected unit credit method. Remeasurements of the net defined benefit liability are recognised in the profit and loss in full as they arise. Upon introduction of a new plan or improvement of an existing plan, past service costs are recognised in full as they arise. Defined contribution plans In addition to the defined benefit plans described above, the Group also sponsors a defined contribution plan for certain of its employees. The Group’s contributions relating to the defined contribution plan are charged to the consolidated profit or loss in the year to which they relate. State Plan In addition, the Group is legally obliged to make contributions to the Pension Fund of the Russian Federation (a multi-employer defined contribution plan). The Group’s only obligation is to pay the contributions as they fall due. As such, the Group has no legal obligation to pay and does not guarantee any future benefits to its Russian employees. The Group’s contributions to the Pension Fund of the Russian Federation, designated as a defined contribution plan, are charged to the consolidated profit or loss in the year to which they relate. Contributions for each employee to the Russian Federation State Pension Fund vary from 10% to 22%, depending on the annual gross remuneration of employee.

13 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Value added tax. Output value added tax (“VAT”) related to revenues is payable to tax authorities upon delivery of the goods or services to customers, as well as upon collection of prepayments from customers. Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice. The tax authorities permit the settlement of VAT on a net basis (except for input VAT related to export services provided which is reclaimable upon confirmation of export). VAT related to sales and purchases is recognised in the consolidated statement of financial position on a gross basis and disclosed separately as an asset and liability. Where provision has been made for impairment of receivables, impairment loss is recorded for the gross amount of the debtor, including VAT. Accounts payable and other financial liabilities. Accounts payable and other financial liabilities are initially recognised at cost, which is the fair value of the consideration received, taking into account transaction costs. After initial recognition, financial liabilities are carried at amortised cost, using the effective interest method, with interest expense recognised on an effecitve yield basis. As normally the expected term of accounts payable is short, the value is stated at the nominal amount without discounting, which corresponds with fair value. Provisions. Provisions are recognised when, and only when, the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the Group expects a provision to be reimbursed (for example under an insurance contract) the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is significant, the amount of a provision is the present value of the cash flows required to settle the obligation. Revenue recognition. Revenue is recognised at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, returns and value added taxes. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenues from sales of inventories are recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. Rail-based container shipping services Rail-based transportation services provided by the Group primarily include arranging the transportation of its own and third-party containers by rail by means of provision of flatcars and/or containers or leasing of flatcars and containers to third parties. For the purposes of recognising revenue, the Group charges its customers for provision of its own rolling stock while rail infrastructure charges are born by the customers directly or passed through to a provider of rail infrastrucutre services. Revenues from these services are recognised in the accounting period in which the services are rendered, net of reinvoiced rail infrastructure charges. Revenues from operating lease of rolling stock are recognised on a straight-line basis over the term of operating lease agreements. Integrated freight forwarding and logistics services Integrated freight forwarding and logistics services are service packages including rail container transportation, terminal handling, truck deliveries, freight forwarding and logistic services. There are two types of integrated freight forwarding and logistic services: through-rate services and compound rate services. If the Company is responsible for the rendering of services throughout the entire logistic chain and such services are rendered under a single contract at a single price, they are treated as through-rate services. If services rendered by the Company at a single price represent only a part of the logistic chain while remaining services are provided on a stand-alone basis separately, the intial services are treated as “compound services”. Revenue from integrated freight forwarding and logistics services is a combination of revenues relating to various services, which, when provided under separate contracts, are shown in the corresponding revenue line items. Revenues from integrated freight forwarding and logistics services are recognised on a gross basis in the accounting period in which the services are rendered.

14 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Terminal services and agency fees Terminal services primarily include arrangements whereby the Group acts as a principal providing container handling services, such as loading and unloading operations, container storage and other terminal operations. The Group acts as an agent on behalf of RZD in providing mandatory railroad services for all railway users at the Group’s terminals, designated as the “sites of common use” by the legislation. In this capacity the Group provides some of its terminal services as a legal intermediary (agent) between clients and RZD and collects a commission. Commission fees collected from RZD for intermediary activities and revenue from other terminal operations are recognised in the accounting period in which the services are provided. Bonded warehousing services Bonded warehousing services are services related to storage of customers’ containers in separate warehouses located at container terminals while pending customs clearance or payment of other applicable duties. Revenue from these services is recognised on the basis of the number of days during which the services are rendered. Truck deliveries Truck delivery services include transporting containers between the container terminals and client- designated sites using the Group’s own truck fleet as well as third parties’ trucks. The Group considers itself the principal in these arrangements, and therefore recognises revenue from truck deliveries on the gross basis in the accounting period in which the services are rendered. Other freight forwarding services The Group provides other freight forwarding services, such as: (i) preparation and ensuring of correctness of shipping documentation required for the delivery process to be effected; (ii) customs clearance brokerage by providing clients with customs documentation and services for Russian customs clearance; (iii) cargo tracking services by providing clients with information about cargo location; (iv) route optimisation and planning; (v) cargo security services, including provision of insurance, special labels for hazardous cargo, special terms for transportation of hazardous cargo, and ensuring proper documentation for the transported cargo. Revenue from other freight forwarding services is recognised in the accounting period in which the services are rendered. Dividend and interest income i. Dividends from investments are recognised in consolidated profit or loss when the shareholder’s right to receive payment has been established; ii. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Leases. The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. Leases are classified as finance leases whenever the terms of the lease transfer substantially all of the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.Finance leases Assets under finance leases are recognised in the consolidated statement of financial position as assets at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum

15 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. The assets acquired under finance leases are depreciated over their useful life or the shorter lease term, if the Group is not reasonably certain that it will obtain ownership by the end of the lease term. Contingent rentals are recognised as expenses in the periods in which they are incurred. Operating leases Payments made under operating leases are recognised in the consolidated profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as a liability and as a reduction in expense on a straight-line basis. Contingent rentals under operating leases are recognised as an expense in the period in which they are incurred. Borrowing costs. For the periods beginning 1 January 2009, borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised and amortised over the useful life of the asset. Other borrowing costs are recognised as an expense in the period in which they are incurred. For periods prior to 1 January 2009 all borrowing costs were expensed in the period in which they were incurred. Income tax. Income taxes have been provided for in the consolidated financial statements in accordance with legislation enacted or substantively enacted by the end of the reporting period. The income tax charge comprises current tax and deferred tax and is recognised in consolidated profit or loss for the year, except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or a different period, in other comprehensive income or directly in equity. Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxable profits or losses are based on estimates if consolidated financial statements are authorised prior to filing relevant tax returns. Taxes other than on income are recorded within operating expenses. Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for consolidated financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not recorded for temporary differences on initial recognition of goodwill. Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of the reporting period, which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that the temporary difference will reverse in the future and there is sufficient future taxable profit available against which the deductions can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Deferred tax assets and liabilities are netted only within the individual companies of the Group. The Group controls the reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or on gains upon their disposal. The Group does not recognise deferred tax liabilities on such temporary differences except to the extent that Management expects the temporary differences to reverse in the foreseeable future.

16 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Uncertain tax positions. The Group's uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the end of the reporting period, and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle the obligations at the end of the reporting period. Adjustments for uncertain income tax positions are recorded within the income tax charge. Share capital and other reserves. Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares (other than on a business combination) are shown as a deduction from the proceeds in equity. The difference between the fair value of consideration received and the par value of shares issued is recognised as other reserves. Treasury shares. Where any Group company purchases the Company’s equity instruments, the consideration paid, including any directly attributable incremental costs (and net of income taxes) is deducted from equity attributable to the Company’s owners until the equity instruments are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, are included in equity attributable to the Company’s owners. Earnings per share. Earnings per share are calculated by dividing the income for the period attributable to equity holders of the parent by the weighted average number of ordinary shares outstanding during the period, except treasury shares. The Group does not have any potentially dilutive equity instruments. Share-based payment transactions. The share option plan allows Group employees to acquire shares of the Company. The fair value of share-based payment awards is measured at the grant date based on the Black-Scholes-Merton model, which takes into account the terms and conditions upon which the instruments were granted. The fair value of the options is then charged off during the period between the option grant date and the option vesting date specified in the option share acquisition contract. Dividends. Dividends are recognised as a liability and deducted from equity at the balance sheet date only if they are declared and approved before or on the balance sheet date by the shareholders at a general meeting. Dividends are disclosed when they are declared after the balance sheet date but before the consolidated financial statements are authorised for issue. Provisions for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount. They are accrued when the Group has a present (legal or constructive) obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Reclassifications. In order to bring the statements data for the previous reporting period in accordance with the data presentation form adopted in the current reporting period, there have been made a number of reclassifications. All reclassifications are immaterial.

4. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS IFRSs and IFRIC interpretations adopted in the current year In the current year, the Group adopted all new and revised standards and interpretations issued by the International Accounting Standards Board (“IASB”) and International Financial Reporting Interpretation Committee (“IFRIC”) of the IASB that are mandatory for adoption in the annual periods beginning on or after 1 January 2014 and applicable for the Group’s activity. The effect from their adoption has not resulted in any significant changes to measurement and presentation of disclosures in the consolidated financial statements of the Group.

17 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

4. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONTINUED) “Offsetting Financial Assets and Financial Liabilities” - Amendments to IAS 32 (issued in December 2011 and effective for annual periods beginning on or after 1 January 2014). The amendment added application guidance to IAS 32 to address inconsistencies identified in applying some of the offsetting criteria. This includes clarifying the meaning of ‘currently has a legally enforceable right of set-off’ and that some gross settlement systems may be considered equivalent to net settlement. The standard clarified that a qualifying right of set off 1) must not be contingent on a future event and 2) must be legally enforceable in all of the following circumstances: (a) in the normal course of business, (b) the event of default and (c) the event of insolvency or bankruptcy. “Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment entities” (issued on 31 October 2012 and effective for annual periods beginning 1 January 2014). The amendment introduced a definition of an investment entity as an entity that (i) obtains funds from investors for the purpose of providing them with investment management services, (ii) commits to its investors that its business purpose is to invest funds solely for capital appreciation or investment income and (iii) measures and evaluates its investments on a fair value basis. An investment entity is required to account for its subsidiaries at fair value through profit or loss, and to consolidate only those subsidiaries that provide services that are related to the entity's investment activities. IFRS 12 was amended to introduce new disclosures, including any significant judgements made in determining whether an entity is an investment entity and information about financial or other support to an unconsolidated subsidiary, whether intended or already provided to the subsidiary. IFRIC 21 – “Levies” (issued on 20 May 2013 and effective for annual periods beginning 1 January 2014). The interpretation clarifies the accounting for an obligation to pay a levy that is not income tax. The obligating event that gives rise to a liability is the event identified by the legislation that triggers the obligation to pay the levy. The fact that an entity is economically compelled to continue operating in a future period, or prepares its financial statements under the going concern assumption, does not create an obligation. The same recognition principles apply in interim and annual financial statements. The application of the interpretation to liabilities arising from emissions trading schemes is optional. Amendments to IAS 36 – “Recoverable amount disclosures for non-financial assets” (issued in May 2013 and effective for annual periods beginning 1 January 2014; earlier application is permitted if IFRS 13 is applied for the same accounting and comparative period). The amendments remove the requirement to disclose the recoverable amount when a CGU contains goodwill or indefinite lived intangible assets but there has been no impairment. Amendments to IAS 39 – “Novation of Derivatives and Continuation of Hedge Accounting” (issued in June 2013 and effective for annual periods beginning 1 January 2014). The amendments allow hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated (i.e parties have agreed to replace their original counterparty with a new one) to effect clearing with a central counterparty as a result of laws or regulation, if specific conditions are met. IFRS and IFRIC interpretations not yet effective New standards and improvements those are mandatory for annual periods beginning on or after 1 January 2015 or later periods that are applicable for the Group’s activity and approved for adoption in the Russian Federation and which the Group has not early adopted (unless stated otherwise), are as follows: IFRS 9 “Financial Instruments” (amended in July 2014 and effective for annual periods beginning on or after 1 January 2018). Key features of the new standard are:

 Financial assets are required to be classified into three measurement categories: those to be measured subsequently at amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be measured subsequently at fair value through profit or loss (FVPL).  Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at

18 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

4. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONTINUED) FVPL (for example, derivatives). Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition.  Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss.Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income.

 IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) model. There is a ‘three stage’ approach which is based on the change in credit quality of financial assets since initial recognition. In practice, the new rules mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where there has been a significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL. The model includes operational simplifications for lease and trade receivables (not approved for adoption in the Russian Federation).  Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging.

The Group is currently assessing the impact of the new standard on its consolidated financial statements. Amendments to IAS 19 – “Defined benefit plans: Employee contributions” (issued in November 2013 and effective for annual periods beginning 1 July 2014). The amendment allows entities to recognise employee contributions as a reduction in the service cost in the period in which the related employee service is rendered, instead of attributing the contributions to the periods of service, if the amount of the employee contributions is independent of the number of years of service. The amendment is not expected to have any material impact on the Group’s financial statements. Annual Improvements to IFRSs 2012 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014, unless otherwise stated below). The improvements consist of changes to seven standards. IFRS 2 was amended to clarify the definition of a ‘vesting condition’ and to define separately ‘performance condition’ and ‘service condition’; The amendment is effective for share-based payment transactions for which the grant date is on or after 1 July 2014. IFRS 3 was amended to clarify that (1) an obligation to pay contingent consideration which meets the definition of a financial instrument is classified as a financial liability or as equity, on the basis of the definitions in IAS 32, and (2) all non-equity contingent consideration, both financial and non-financial, is measured at fair value at each reporting date, with changes in fair value recognised in profit and loss. Amendments to IFRS 3 are effective for business combinations where the acquisition date is on or after 1 July 2014. IFRS 8 was amended to require (1) disclosure of the judgements made by management in aggregating operating segments, including a description of the segments which have been aggregated and the economic indicators which have been assessed in determining that the aggregated segments share similar economic characteristics, and (2) a reconciliation of segment assets to the entity’s assets when segment assets are reported. The basis for conclusions on IFRS 13 was amended to clarify that deletion of certain paragraphs in IAS 39 upon publishing of IFRS 13 was not made with an intention to remove the ability to measure short-term receivables and payables at invoice amount where the impact of discounting is immaterial. IAS 16 and IAS 38 were amended to clarify how the gross carrying amount and the accumulated depreciation are treated where an entity uses the revaluation model. IAS 24 was amended to include, as a related party, an entity that provides key management personnel services to the reporting entity or to the parent of the reporting entity (‘the management entity’), and to require to disclose the amounts charged to the reporting entity by the management entity for services provided. The Group is currently assessing the impact of the amendments on its consolidated financial statements.

19 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

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

20 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

4. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONTINUED) regarding discount rate, existence of deep market in high-quality corporate bonds, or which government bonds to use as a basis, should be based on the currency that the liabilities are denominated in, and not the country where they arise. IAS 34 will require a cross reference from the interim financial statements to the location of "information disclosed elsewhere in the interim financial report". The Group is currently assessing the impact of the amendments on its consolidated financial statements. Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on or after 1 January 2016). The Standard was amended to clarify the concept of materiality and explains that an entity need not provide a specific disclosure required by an IFRS if the information resulting from that disclosure is not material, even if the IFRS contains a list of specific requirements or describes them as minimum requirements. The Standard also provides new guidance on subtotals in financial statements, in particular, such subtotals (a) should be comprised of line items made up of amounts recognised and measured in accordance with IFRS; (b) be presented and labelled in a manner that makes the line items that constitute the subtotal clear and understandable; (c) be consistent from period to period; and (d) not be displayed with more prominence than the subtotals and totals required by IFRS standards. Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s financial statements.

5. KEY SOURCES OF ESTIMATION UNCERTAINTY The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting year, are discussed below. Provision for impairment of receivables. Management of the Group maintains a provision for impairment of short-term receivables in the form of an allowance account equal to estimated losses resulting from the inability of customers and other debtors to make required payments. When evaluating the adequacy of this allowance account, management bases its estimates on the ageing of accounts receivable balances and historical write-off experience, customer creditworthiness and changes in customer payment terms. If the financial condition of customers were to deteriorate, actual write-offs might be higher than expected. As at 31 December 2014 and 31 December 2013, the provision for impairment of receivables was recognised in the amount of RUR 336m and RUR 259m, respectively (Note 10). Depreciable lives of property, plant and equipment . The Group assesses the remaining useful lives of items of property, plant and equipment at least at each financial year-end and in accordance with the current technical conditions of the assets and estimated period during which the assets are expected to earn benefits for the Group. If expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate in accordance with IAS 8 “Accounting policies, changes in accounting estimates and errors”. These estimates may have a material impact on the amount of the carrying values of property, plant and equipment and on depreciation expense for the period. As at 31 December 2013 the Group reassessed the remaining useful lives of items of property, plant and equipment (Note 7), the ranges of terms have not changed. Impairment of property, plant and equipment. The Group reviews at each reporting date the carrying amounts of its property, plant and equipment to determine whether there is any indication that assets are impaired. This process involves judgment in evaluating the cause for any possible reduction in value, including a number of factors such as changes in current competitive conditions, expectations of growth in the industry, increased cost of capital, changes in the future availability of financing, technological obsolescence, discontinuance of service, current replacement costs and other changes in circumstances that indicate impairment exists. Whenever such indications exist management makes an estimate of the asset’s recoverable amount to ensure that it is not less than its carrying value. If the asset’s fair value is not readily determinable or is less than asset’s carrying value plus costs to sell, management necessarily applies its judgment in determining the appropriate cash generating unit to be evaluated, estimating the appropriate discount rate and the timing and value of the relevant cash flows for the value-in-use calculation.

21 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

5. KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTUNUED) Current year review of impairment of property, plant and equipment As at 31 December 2014 in connection with the recent economic downturn the Group has carried out a review of recoverable amount of its fixed assets.Key assumptions The following key assumptions were made in carrying out the review:

 The Group represents one cash generating unit;  The Group estimated its future cash flows on a nominal basis for the period from 2015 to 2029;  The discount rate used in the calculations for the period from 2015 to 2016 was equal to 17.3%, for the period from 2017 to 2029 was equal to 14.6%, which is an estimate of the Group’s weighted average cost of capital. Results of the review

 As a result of the review no impairment loss was recognised in the consolidated financial statements, except for certain individually impaired assets as disclosed in Note 7;  No impairment loss would result if the discount rate increased less than by 1.47% in each period. Similarly, the result is not sensitive to decrease in estimated future cash flows within 7.42%. Compliance with tax legislation. Compliance with tax legislation, particularly in the Russian Federation, is subject to significant degree of interpretation and can be routinely challenged by the tax authorities. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods. Management believes that it has accrued all applicable taxes. Management believes that it has adequately provided for tax liabilities based on its interpretations of tax legislation. However, there exists a possibility that relevant tax authorities may have differing interpretations than those of the management, and the effect of such differences could be significant. Pension obligations. The Group uses an actuarial valuation method for measurement of the present value of post-employment benefit obligations and related current service cost. This method involves the use of demographic assumptions about the future characteristics of the current and former employees who are eligible for benefits (mortality, both during and after employment, rates of employee turnover, disability and early retirement, etc.), as well as financial assumptions (discount rate, future salary and benefits levels, etc.). In the event that further changes in the key assumptions are required, the amounts of the pension benefit costs may be materially affected (Note 16). Initial recognition of related party transactions. In the normal course of business the Group enters into transactions with its related parties. IAS 39 requires initial recognition of financial instruments based on their fair values. Judgement is applied in determining if transactions are priced at market or non-market interest rates, where there is no active market for such transactions. The basis for judgement is pricing for similar types of transactions with unrelated parties and effective interest rate analyses. Terms and conditions of related party balances are disclosed in Note 26.

6. CRITICAL ACCOUNTING JUDGEMENTS In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimates, which have the most significant effect on the amounts recognised in the consolidated financial statements: Accounting for leases. A lease is classified as finance lease if it transfers substantially all the risks and rewards incidental to ownership. Otherwise it is classified as operating lease. Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract. In determining the accounting treatment of transactions that involve the legal form of a lease, all aspects and implications of an arrangements are evaluated to determine the substance of such transactions with weight given to those aspects and implications that have an economic effect. If the lease term is for longer than 75% of the economic life of the asset, or at the inception of the lease the present value of the

22 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

6. CRITICAL ACCOUNTING JUDGEMENTS (CONTINUED) minimum lease payments amounts to at least 90% of the fair value of the leased asset, the lease is classified by the Group as a finance lease, unless it is clearly demonstrated otherwise. Functional currencies of different entities of the Group. Different entities within the Group have different functional currencies, based on the underlying economic conditions of their operations. This determination, of what the specific underlying economic conditions are, requires judgement. In making this judgement, the Group evaluates among other factors, the location of activities, the sources of revenue, risks associated with activities and denomination of currencies of operations of different entities. Revenue from integrated freight forwarding and logistics services. There are two types of the Group’s services for which critical accounting judgments are involved in revenue recognition: 1) In case the Group provides integrated freight forwarding and logistic services the customers do not interact with other transportation organisations. A full service is charged by the Group to its customers for its services including rail-based container transportation, terminal handling, trucking, etc. and the full third- party charges, including railway tariff. There are certain characteristics indicating that the Group is acting as an agent, particularly the fact that railway tariffs are available to the public, therefore are known to the customer, and the risk of delivery is borne by the transportation organisations. However, the Group bears the credit risk as it controls the flow of receipts and payments and is independent in its own pricing policy. Management believes that the Group acts as a principal in these arrangements and the Group accounts for receipts from customers as sales revenue. Third-party charges, including the railroad tariff is included in third-party charges relating to integrated freight forwarding and logistics services. Had the railway tariff directly attributable to such services been excluded from revenue and expenses both would have decreased by RUR 16,027m for the year ended 31 December 2014 (RUR 13,836m for the year ended 31 December 2013). 2) In cases where Rail-based container shipping services are provided, the Group agrees with the customer the transport fee as above, excluding the railroad tariff which is paid by the Group and reinvoiced to the client as reimbursement of providing rail infrastructure and locomotive services. Management believes that railroad tariff should not be included in revenue and expenses, as any variation in the tariff will be borne by the client. 7. PROPERTY, PLANT AND EQUIPMENT AND ADVANCES FOR ACQUISITION OF NON- CURRENT ASSETS

Locomotives, Cranes Vehicles Land, buildings containers and and and other Construction and constructions flatcars loaders equipment in-progress Total Cost 1 January 2013 10,464 30,229 1,680 2,917 1,482 46,772

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

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

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

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

23 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

7. PROPERTY, PLANT AND EQUIPMENT AND ADVANCES FOR ACQUISITION OF NON-CURRENT ASSETS (CONTINUED) Land, Locomotives, Cranes Vehicles Constructi buildings and containers and and and other on in- constructions flatcars loaders equipment progress Total Accumulated depreciation

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

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

31 December 2013 (1,731) (8,796) (892) (1,577) - (12,996)

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

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

Net book value

31 December 2013 8,980 24,829 760 965 792 36,326

31 December 2014 9,121 26,399 1,060 805 333 37,718

Included under land, buildings and constructions are the amounts of RUR 109m and RUR 109m, which represent the value of land plots owned by the Group as at 31 December 2014 and 31 December 2013, respectively. During the year ended 31 December 2014 container terminal in Yekaterinburg was put into operation under the group land, buildings and constructions in the amount of RUR 333m. The vehicles and other equipment group includes motor transport used for terminal services and truck deliveries with gross carrying amount of RUR 814m and RUR 845m as at 31 December 2014 and 31 December 2013, respectively. As at 31 December 2013 the Group revised the useful lives of individual fixed assets mainly within a group of flatcars. As a result, the amount of depreciation charges for the year ended 31 December 2014 increased by RUR 462m in comparison with the one that would have been charged under the previous useful life, ranges of economic useful lives for property, plant and equipment groups remain unchanged. The estimation of the effect on further periods is impracticable. The gross carrying amount of fully depreciated property, plant and equipment that is still in use amounted to RUR 1,588m and RUR 1,678m as at 31 December 2014 and 31 December 2013, respectively. The carrying amount of temporarily idle property, plant and equipment as at 31 December 2014 and 31 December 2013 comprised the following:

2014 2013

Cost 224 792 Accumulated deprecation (93) (285)

Net book value 131 507

24 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

7. PROPERTY, PLANT AND EQUIPMENT AND ADVANCES FOR ACQUISITION OF NON-CURRENT ASSETS (CONTINUED) Сonstruction in-progress as at 31 December 2014 consisted mainly of the сapital expenditures incurred for the reconstructions and expansion of container terminals in Yekaterinburg and Irkutsk amounting to RUR 145m and RUR 88m, respectively, and containers aсquired for the amount of RUR 8m. Сonstruction in-progress as at 31 December 2013 consisted mainly of the сapital expenditures incurred for the reconstructions and expansion of container terminals in Yekaterinburg, Khabarovsk and Moscow region amounting to RUR 143m, RUR 56m and RUR 57m, respectively, and containers aсquired for the amount of RUR 367m. Additions of construction in-progress include interest expenses on bonds and other related proceeds from borrowed funds in connection with the construction and reconstructions of property, plant and equipment items. The total amount of interest capitalised for the year ended 31 December 2014 was RUR 20m at a rate of capitalisation of 8.96% and RUR 87m capitalised for the year ended 31 December 2013 at a rate of capitalisation of 9.19%. Leased assets as at 31 December 2014 and 31 December 2013, for which the Group is a lessee under finance leases primarily related to land, buildings and constructions and comprised the following:

2014 2013

Cost 431 575 Accumulated depreciation (15) (12)

Net book value 416 563

During the year ended 31 December 2013 the Group bought out a part of non-residential premises in a Moscow head office building, previously acquired under a finance lease agreement. The cost of the bought out building part was RUR 144m. The remaining premises are owned by the Group and included in the group land, buildings and constructions. See Note 15 for further details regarding finance leases. Advances for acquisition of non-current assets As at 31 December 2014 and 31 December 2013, advances for the acquisition of non-current assets, net of VAT and impairment provisions, consisted of advances for the acquisition of cranes and loaders (RUR 155m and RUR 147m, respectively), advances for the acquisition of containers (RUR 41m and RUR 85m, respectively) and advances for the acquisition of other non-current assets (RUR 10 and RUR 11m, respectively). As at 31 December 2014 and 31 December 2013 provision was recognised for impairment of advances for acquisition of non-current assets in the amount of RUR 43m and RUR 48m, respectively (Note 10).

8. INTANGIBLE ASSETS

Lease agreements Software Total Cost

1 January 2013 613 169 782

Additions - 146 146 Disposals - (28) (28) Disposal of the controlling interest in the subsidiary (664) - (664) Foreign currency translation 51 - 51

31 December 2013 - 287 287

Additions - 100 100 Disposals - (138) (138)

31 December 2014 - 249 249

25 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

8. INTANGIBLE ASSETS (CONTINUED) Lease agreements Software Total

Accumulated amortisation

1 January 2013 (80) (110) (190)

Disposals - 18 18 Amortisation charge for the year (49) (45) (94) Disposal of the controlling interest in the subsidiary 134 - 134 Foreign currency translation (5) - (5)

31 December 2013 - (137) (137)

Disposals - 138 138 Amortisation charge for the year - (40) (40)

31 December 2014 - (39) (39)

Net book value

31 December 2013 - 150 150

31 December 2014 - 210 210

9. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES The table below summarises the movements in the carrying amount of the Group’s investment in associates and joint ventures. Joint Venture Total associates and JSC Other joint Associates joint ventures Kedentransservice ventures

Carrying amount as at 1 January 2013 - 43 11 54

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

Carrying amount as at 31 December 2013 2,270 50 10 2,330

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

Carrying amount as at 31 December 2014 3,246 80 17 3,343

As at 31 December 2012 the Group owned 100% of Logistic System Management B.V., 100% of Helme’s Operation UK Limited and 67% of JSC Kedentransservice. In May 2013 within the frame of additional issue of shares of Logistic System Management B.V. the Group transferred 100% of shares of Helme's Operation UK Limited (which owns 46.9% of shares of JSC Kedentransservice) and 20.1% of the shares of Kedentransservice and JSC National Company Kazakhstan Temir Zholy ("KTZ") transferred 33% of shares of JSC Kedentransservice in exchange for 67% of shares and 33% of shares of Logistic System Management B.V. respectively. As a result of this

26 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

9. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTUNUED) transaction the Group owned 67% of shares of Logistic System Management B.V. and 67% of shares of Kedentransservice. On 23 December 2013 the Group sold KZT 17% of shares of Logistic System Management B.V., which owns only 100% of shares of JSC Kedentransservice (46.9% via Helme's Operation UK Limited and directly 20.1%). As a result of linked transactions described above, the Group has lost control over Logistic System Management B.V., Helme's Operation UK Limited and JSC Kedentransservice and its ownership in these companies accounted for 50%. As the result of losing control over JSC Kedentransservice the Group recognised income in the amount of RUR 757m in the consolidated profit and loss. As at 31 December 2013 the consolidated financial statements present the amount of investment in JSC Kedentransservice at fair value in amount of RUR 2,270m determined on the basis of the independent appraiser’s report, including fair value of net assets in amount of RUR 1,961m and RUR 309m of goodwill (level 3 in the fair value hierarchy). While carrying out the evaluation of investment’s fair value independent appraiser primarily used the income approach, considering the cost method approach results. In accordance with a conservative approach JSC Kedentransservice’s business development plans, that involve high capital investments for business expansion, as well as revenue growth and operating profitability increase, are not included in the forecast. In addition the low capacity utilization rate of Dostyk Station and the terminals allows to increase the volume of cargo handling without providing additional capital investment. JSC Kedentransservice will extend the lease agreements on Dostyk Station’s transshipment locations. During carrying out of the evaluation of fair value of investment in JSC Kedentransservice the following key assumptions were used in the income approach:  The growth rate of gross domestic product in Europe was used as Dostyk Station’s volume growth rates and growth rate of gross domestic product in Kazakhstan was used as terminal activity’s growth rates.  Since the revenue from transshipment at Dostyk Station was formed in Swiss francs, the prices were forecasted under growth rate of producer price index (PPI) for Switzerland.

 Prices on cargo handling at the terminals were forecasted under PPI in Kazakhstan.  The fixed discount rate of 18.1% was used for the all forecast period from 23 December 2013 to 31 December 2018. The discount rate was calculated as weighted average cost of capital (RWACC). Summarised financial information of each associate and joint venture is as follows as at 31 December 2014 and 31 December 2013:

Joint Venture Other joint ventures Associates Total associates JSC Kedentransservice and joint ventures 2014 2013 2014 2013 2014 2013 2014 2013 Current assets 1,526 1,078 243 185 567 210 2,336 1,473 Non-current assets 6,171 4,022 9 7 7 6 6,187 4,035 Current liabilities 1,203 544 92 92 488 163 1,783 799 Non-current liabilities 887 635 - - 1 - 888 635 Net assets 5,607 3,921 160 100 85 53 5,852 4,074 Revenue 9,282 - 137 178 996 909 10,415 1,087 Profit/(loss) 326 - 2 4 3 (2) 331 2

The reconciling difference between the above amounts and the carrying amount of the investments in associates and joint ventures is elimination of the ownership interest held by the other investors and goodwill arising on acquisition of associates and joint ventures. Additional financial information of joint venture JSC Kedentransservice is as follows: 2014 2013 Cash and cash equivalents 347 253 Current financial liabilities (excluding trade and other payables and provisions) 50 7 Non-current financial liabilities (excluding trade and other payables and provisions) 220 -

27 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

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

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

10. TRADE AND OTHER RECEIVABLES Outstanding Provision for Outstanding balance, gross impairment balance, net 31 December 2014

Trade receivables 1,650 (239) 1,411 Other receivables 142 (11) 131

Total trade and other receivables, classified as financial assets 1,792 (250) 1,542

31 December 2013

Trade receivables 1,365 (162) 1,203 Other receivables 427 (9) 418

Total trade and other receivables, classified as financial assets 1,792 (171) 1,621

Included in the Group’s total trade and other receivables are debtors with a carrying amount of RUR 322m and RUR 231m as at 31 December 2014 and 31 December 2013, respectively, whichare past due at the respective reporting date and which the Group considers to be not impaired. The Group does not hold any collateral over these outstanding balances. Long-term receivables are represented mainly by accounts receivable of OJSC RZD Logistics, which is expected to be fully repaid till December 2018. A discount rate of 8.6% has been used for the receivables’ present value determination. As at 31 December 2014 the present value of long-term accounts receivable of OJSC RZD Logistics amounted to RUR 313m (RUR 364m as at 31 December 2013). As at 31 December 2014 a part of trade receivables of OJSC RZD Logistics in the amount of RUR 119m (RUR 207m as at 31 December 2013), was recognised as a part of short-term trade receivables. As at 31 December 2014 long-term accounts receivable of OJSC RZD Logistics under the contract of purchase of Far East Land Bridge Ltd. shares accounted for RUR 40m (RUR 0m as at 31 December 2013). Analysis by credit quality of trade and other receivables is as follows: 31 December 2014 31 December 2013 Trade Other Trade Other receivables receivables receivables receivables

Neither past due nor impaired 1,137 83 1,025 365

Total neither past due nor impaired 1,137 83 1,025 365

Past due but not impaired - less than 90 days 240 12 113 18 - 90-180 days 11 18 37 13 - more than 180 days 23 18 28 22

Total past due but not impaired 274 48 178 53

28 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

10. TRADE AND OTHER RECEIVABLES (CONTINUED) 31 December 2014 31 December 2013 Trade Other Trade Other receivables receivables receivables receivables Individually determined to be impaired - less than 90 days 65 - 3 7 - 90-180 days 22 - 5 - - more than 180 days 152 11 155 2

Total individually impaired 239 11 162 9

Less impairment provision (239) (11) (162) (9)

Total 1,411 131 1,203 418

Movement in the impairment provision for trade and other receivables and prepayments is as follows:

2014 2013

Balance at beginning of the year (259) (184) Additional provision, recognised in the current year (31) (201) Release of provision 9 7 Utilisation of provision 23 17 Disposal of controlling interest in subsidiary - 104 Foreign currency translation (78) (2)

Balance at end of the year (336) (259)

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

11. PREPAYMENTS AND OTHER CURRENT ASSETS 2014 2013

VAT receivable 1,428 1,674 Advances to suppliers 1,383 1,633 Other current assets 147 128

Total prepayments and other current assets 2,958 3,435

12. CASH 2014 2013

Cash and Russian Rouble denominated current accounts with banks 392 742 Foreign currency denominated current accounts with banks 1,512 1,141

Total cash 1,904 1,883

The credit quality of cash balances may be summarised based on Standard and Poor’s long-term ratings as follows as at 31 December 2014 and 31 December 2013: 2014 2013

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

Total 1,904 1,883

29 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

13. EQUITY Share Capital The Company’s authorised, issued and paid share capital as at 31 December 2014 and 31 December 2013 comprises: Number of ordinary shares Value

Ordinary shares (par value: RUR 1,000) 13,894,778 13,895

As at 31 December 2013 RZD was the controlling shareholder of the Company, holding 50%+2 of its ordinary shares. On 24 November 2014 Russian Railways transferred its full shareholding of 50%+2 shares in the Company to the share capital of the JSC United Transportation and Logistics Company (JSC “UTLC”), a newly created subsidiary of OJSC RZD. As a result JSC UTLC became the parent company of PJSC TransContainer. As at 31 December 2014 ownership of JSC UTLK in the Company accounts for 50%+2 shares. During the year ended 31 December 2014 the weighted average number of outstanding ordinary shares, excluding treasury shares and including the number of shares acquired in accordance with the option plan amounted to 13,696,127 shares (13,896,193 during the year ended 31 December 2013). Treasury shares In relation to the Share Option Plan for the Company’s management (Note 17), the Group purchased 208,421 treasury shares in 2011. Their purchase cost was RUR 514m. During the year ended 31 December 2013 exercised options amounted to RUR 6m. During the year ended 31 December 2014 the Group acquired treasury shares in the amount of RUR 9m. Other Reserves, including investment property’s revaluation reserve As discussed in Note 1, the Company was formed as a result of a spin-off by RZD which involved the contribution by RZD of containers, flatcars, buildings and constructions, VAT receivable related to these assets, and cash, in exchange for ordinary shares of the Company. The difference between the fair value of net assets contributed and the nominal value of the shares issued by the Company, as well as differences arising from transactions with shareholders, of RUR 2,221m were recorded as other reserves as at 31 December 2012. Due to the transfer of the part of property, plant and equipment to the investment property during the year ended 31 December 2014 the investment property’s revaluation reserve was recognised for the amount of RUR 9m (RUR 56m during the year ended 31 December 2013). Retained Earnings, Dividends In accordance with the Russian legislation, dividends may only be declared from the Company’s accumulated undistributed and unreserved earnings as shown in the Company’s statutory financial statements, which are prepared in accordance with Russian Accounting Rules and Reporting of the Russian Federation. The Company had RUR 17,499m and RUR 14,678m of undistributed and unreserved earnings as at 31 December 2014 and 31 December 2013, respectively. Dividends of RUR 81.47 per share (RUR 1,117m in total) were approved at the annual shareholders’ meeting on 24 June 2014 relating to the Group’s results for the year ended 31 December 2013. In July 2014 the dividends have been fully paid. Dividends of RUR 86.67 per share (RUR 1,187m in total) were approved at the annual shareholders’ meeting on 26 June 2013 relating to the Group’s results for the year ended 31 December 2012. In August 2013 the dividends have been fully paid. Dividends of KZT 561.31 per share were approved at the annual shareholders’ meeting of JSC Kedentransservice on 27 June 2013 relating to the results for the year ended 31 December 2012. Dividends for the total amount of KZT 233m (RUR 50m at the Central Bank of Russia exchange rate as at 27 June 2013) were accrued to the shareholder of JSC Kedentransservice JSC National Company “Kazakh Temir Zholy". In June 2014 the dividends have been fully paid.

30 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

13. EQUITY (CONTINUED) Reserve Fund According to its charter, the Company is required to establish a legal reserve fund through the allocation of 5 percent of net profit as computed under the Russian Accounting Rules. The total amount of the reserve fund is limited to 5 percent of the nominal registered amount of the Company’s issued share capital. The reserve fund may only be used to offset losses of the Company as well as to redeem issued bonds or purchase treasury shares and cannot be distributed to shareholders. As at 31 December 2014 and 31 December 2013 the Company’s reserve fund was RUR 697m.

14. LONG-TERM DEBT Long-term debt Effective interest rate 2014 2013

Bonds 8.35%-8.8% 4,990 5,724 Other borrowings 9.5% 468 470 Total 5,458 6,194 Long-term borrowings of the Group are denominated in Russian Rubles. During the year ended 31 December 2011 the Group obtained borrowed funds from LLC TrustUnion Asset Management for the amount of RUR 514m to finance the acquisition of ordinary shares in PJSC TransContainer in order to carry out a Share Option Plan for the Company’s management (Note 17). The loan matures in five years. As at 31 December 2014 the amount of loan was RUR 468m (RUR 470m as at 31 December 2013). Five-year RUR bonds, series 2 In accordance with the terms of issue the Company made a partial principal repayment on bonds, series 2 in December 2013, June 2014 and December 2014, respectively, for the total amount of RUR 2,250m. As at 31 December 2014 the carrying value of the bonds amounted to RUR 740m and this amount was included as current portion of long-term debt in the consolidated statement of financial position. As at 31 December 2013 the carrying value of the bonds amounted to RUR 2,236m. Current portion of long- term bonds was RUR 1,500m as at 31 December 2013 and this amount was included as current portion of long-term debt in the consolidated statement of financial position. The amount of accrued interest as at 31 December 2014 was RUR 5m (RUR 18m as at 31 December 2013), and was included as current portion of long-term debtt in the consolidated statement of financial position. Five-year RUR bonds, series 4 On 1 February 2013, the Company issued non-convertible five-year bonds for a total amount of RUR 5,000m at a par value of RUR 1,000 each. Net proceeds from the issuance after deduction of related offering costs amounted to RUR 4,988m. The annual coupon rate of the bonds for five years is 8.35% with interest paid semi-annually. The series 4 bonds will be redeemed in four equal semi-annual installments within the fourth and fifth years. As a result, these bonds are classified as long-term borrowings as at the reporting date. As at 31 December 2014 the carrying value of the bonds amounted to RUR 4,990m (RUR 4,988m as at 31 December 2013). The amount of accrued interest is RUR 174m (RUR 175m as at 31 December 2013) and has been included as current portion of long-term debt in the consolidated statement of financial position. The fair value of Company’s bond is disclosed in Note 29.

31 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

14. LONG-TERM DEBT (CONTINUED) Current portion of long-term debt Effective interest rate 2014 2013

Current portion of long-term bonds 8.8% 919 1,693

Total 919 1,693

15. FINANCE LEASE OBLIGATIONS Minimum Present value of lease payments minimum lease payments 2014 2013 2014 2013

Due within one year 64 69 60 66 Due after one year but not more than five years 463 703 340 485 527 772 400 551 Less future finance charges (127) (221) - -

Present value of minimum lease payments 400 551 400 551

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

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

32 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

16. EMPLOYEE BENEFIT LIABILITY (CONTINUED) Defined contribution plans The total amount recognised as an expense in respect of payments to defined contribution plans for the years ended 31 December 2014 and 31 December 2013 consisted of the following: 2014 2013

Pension Fund of the Russian Federation 573 553 Defined contribution plan “Blagosostoyanie” 19 18

Total expense for defined contribution plans 592 571

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

Post-employment Other long-term benefits Total benefits

2014 2013 2014 2013 2014 2013 Service cost 27 2 115 118 142 120 Net interest on obligation 51 58 14 13 65 71 Remeasurements of the net defined benefit - - 13 9 13 9 Net expense recognised in the consolidated profit or loss 78 60 142 140 220 200

Net income recognised in the other comprehensive income for post-employment benefits related mainly to remeaseruments of the net defined benefit constitute RUR 135m and 113m for the year ended 31 December 2014 and 31 December 2013, respectively. The amounts recognised in the consolidated statement of financial position as at 31 December 2014 and 31 December 2013, respectively, in respect of these defined benefit plans are as follows: Post-employment Other long-term benefits Total benefits

2014 2013 2014 2013 2014 2013 Present value of defined benefit obligation 670 837 328 321 998 1,158 Fair value of plan assets (61) (62) - - (61) (62)

Net employee benefit liability 609 775 328 321 937 1,096

33 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

16. EMPLOYEE BENEFIT LIABILITY (CONTINUED) Movements in the present value of defined benefit obligation are as follows: Post-employment Other long-term benefits benefits Total

Present value of defined benefit obligation as at 1 January 2013 1,013 311 1,324 Service cost: 2 118 120 Current service cost 44 118 162 Past service cost (42) - (42) Interest on the defined benefit liability 62 13 75 Actuarial (gain)/losses: (123) 9 (114) from changes in demographic assumptions 15 - 15 from changes in financial assumptions (54) (13) (67) other (84) 22 (62) Losses arising on transfer of employees* 3 - 3 Settlement of liability (120) (130) (250) Present value of defined benefit obligation as at 31 December 2013 837 321 1,158

Service cost: 28 115 143 Current service cost 36 121 157 Past service cost (9) (6) (15) Interest on the defined benefit liability 56 14 70 Actuarial (gain)/losses: (136) 13 (123) from changes in financial assumptions (196) 2 (194) other 60 11 71 Losses arising on transfer of employees* 1 - 1 Settlement of liability (116) (135) (251) Present value of defined benefit obligation as at 31 December 2014 670 328 998

Movements in the fair value of defined benefit pension plan assets are as follows: 2014 2013

Fair value of plan assets as at 1 January (62) (58)

Income on plan assets: (3) (3) interest on the plan assets (5) (4) the return on plan assets, excluding amounts included in net interest on the net defined benefit liability 2 1 Assets arising on transfer of employees* 1 – Contributions from the employer (funded plans) (80) (76) Settlement of liability (funded plans) 83 75

Fair value of plan assets as at 31 December (61) (62) * The losses arising from transfer of employees represent the transfer of obligations on post-retirement benefits, which originated from the movement of employees from, as well as back to, the parent company. Net losses are the difference between the losses arising from transfer of employees and the assets arising from transfer of employees.

34 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

16. EMPLOYEE BENEFIT LIABILITY (CONTINUED) The major categories of plan assets administered by Fund Blagosostoyanie as a percentage of the fair value of total plan assets as at the balance sheet date were as follows: Share in total plan assets 2014 2013

Corporate bonds and stock of Russian legal entities 53% 57% Shares in closed investment funds 22% 26% Bank deposits 16% 14% Other 9% 3%

100% 100%

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

2014 2013

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

As at 31 December 2014 the Group assumed that wage growth in 2015 will be 5% in average and in subsequent periods the growth of salary and benefits will be in line with the growth of consumer prices

The change in the discount rate in general resulted in the recognition of an actuarial gains for the current period.

Results of sensitivity analysis of defined benefit obligation at 31 December 2014 and 31 December 2013:

Change in Change in liabilities assumption 2014 2013

Discount rate -1% 36 65 +1% (32) (56) Rate of employee turnover -1% 14 23 +1% (14) (22) Projected average growth of benefits and -1% (39) (66) +1% 44 74 Average life expectancy after retirement -1 year (1) (3) +1 year 1 3

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

35 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

16. EMPLOYEE BENEFIT LIABILITY (CONTINUED) The maturity profile of the defined benefit obligation as at 31 December 2014: Before year 1 to 2 years 2 to 5 years Post-employment benefits 98 92 266 Other long-term benefits 126 112 143 224 204 409

17. EMPLOYEE SHARE OPTION PLAN In October 2010, the Board of Directors approved a Share Option Plan for the Company’s management (the “Plan”). In general, 1.5% of the Company’s outstanding ordinary shares may be allocated under this Plan, which has been in effect since 20 May 2011. Management participation in the Plan and the number of shares in individual manager’s share option agreements are determined by the Board of Directors. The Plan provides for granting share options to the members of the Group’s management (the “Plan Participants”). The options are to be vested in four annual installments at the end of each of four next years after June 2011. Each Plan Participant obtains the right to a certain quantity of share options for each year of service with the Company. Under certain circumstanses, including breach of specific labour agreement provisions, Plan Participants can forfeit their right to purchase shares. Ordinary shares wiil be allocated from treasury shares purchased by the Group for this purpose on the open market by a special-purpose entity, LLC ТransContainer Finance, which is fully controlled by the Group. Plan participants may be entitled to sell the shares acquired through exercise of options to the Group by market price. Options related to the shares repurchased under the Plan from participants and shares in respect of which the participants forfeited their right to purchase, could be granted to other or new Plan participants. Active Participants of the Plan will have up until June 2016 to exercise their share options. In relation to the Plan, at the date of its recognition the Group had purchased 208,421 treasury shares. Their purchase cost was RUR 514m. The shares were purchased by LLC TransContainer Finance. On 13 May 2014 the Board of Directors amended the list of Plan Participants and the number of share options for some Plan Participants. These changes are disclosed as granted and cancelled options. The following number of share options is outstanding: 2014 2013

Options outstanding at 1 January 165,177 171,873 Options granted during the year 11,708 – Options exercised during the year – (6,696) Options cancelled during the year (1,953) –

Options outstanding at 31 December 174,932 165,177

The fair value of services received in return for share options granted to employees is measured by reference to the fair value of share options granted.

36 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

17. EMPLOYEE SHARE OPTION PLAN (CONTINUED) The Black-Scholes-Merton model is used to estimate the fair value of the share option granted.

Options granted Options granted as at 13 May 2014 as at 20 May 2011

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

Fair value at measurement date (in Russian Roubles) 845-938 1,308 – 1,462

The measure of volatility used in the Black-Scholes-Merton model is the annualised standard deviation of the continuously compounded rates of return on the share over a period of time. Volatility has been determined on the basis of the historical volatility of the share price over the last six months before grant date. During the year ended 31 December 2014, the Group recognised expenses of RUR 19m related to the options. These expenses were included into payroll. During the year ended 31 December 2014 no options were exercised. Movements in the reserve held for Share-based option plan during the year: 2014 2013 Reserve as at 1 January 221 188 Expense recognised for the period 19 41 Exercised options under option plan - (8) Reserve as at 31 December 240 221

18. TRADE AND OTHER PAYABLES 2014 2013 Trade payables 662 505 Amounts payable for the acquisition of property, plant and equipment 34 90 Amounts payable for the intangible assets 17 - Total financial liabilities within trade and other payable 713 595 Liabilities to customers (advances) 2,371 2,621

Total trade and other payables 3,084 3,216

19. TAXES OTHER THAN INCOME TAX PAYABLE 2014 2013 Social insurance contribution 197 171 Property tax 127 148 VAT 42 22 Personal income tax 29 26 Other taxes 6 5

Total taxes other than income tax payable 401 372

20. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES 2014 2013

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

Total accrued expenses and other current liabilities 912 834

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

37 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

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

2014 2013

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

Total revenue 36,565 39,164

Analysis of revenue by location of customers

2014 2013 Revenue from external customers Russia 28,785 28,598 Korea 3,633 1,829 Germany 1,716 1,367 Kazakhstan 898 5,465 Latvia 493 154 China 396 550 Cyprus 105 193 Switzerland 105 99 Other 434 909

Total revenue 36,565 39,164

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

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

38 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

23. OPERATING EXPENSES 2014 2013

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

Total operating expenses 33,197 32,859

24. INTEREST EXPENSE 2014 2013

Interest expense on RUR bonds 555 614 Interest expense on finance lease obligations 48 61 Interest expense on bank loans and borrowings 45 65 Discounting of accounts receivables - 42

Total interest expense 648 782

25. INCOME TAX 2014 2013

Current income tax charge (1,077) (1,317) Deferred income tax benefit/ (expense) 28 (58)

Income tax (1,049) (1,375)

The statutory tax rate effective in the Russian Federation was 20% for the years ended 31 December 2014 and 31 December 2013. Profit before income tax for financial reporting purposes is reconciled to income tax expense for as follows: 2014 2013

Profit before income tax 4,707 7,349

Theoretical tax charge at statutory rate of 20% (941) (1,470)

Tax effect of items which are not deductible or assessable for taxation purposes: Benefits in-kind and other non-deductible payments to employees (19) (39) Non-deductible post-employment benefits (11) (12) Non-deductible charitable donations (39) (24) Income tax adjustments for prior periods - 50 Disposal of controlling interest in subsidiary - 155 Other non-deductible expenses (39) (35)

Income tax (1,049) (1,375)

Total accumulated temporary differences that arise between the Russian statutory tax base of assets and liabilities and their carrying amounts in the accompanying consolidated statements of financial position give rise to the following deferred tax effects:

39 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

25. INCOME TAX (CONTINUED)

Charged to other 1 January Charged to profit or comprehensive 31 December 2014 loss income 2014

Investment property 15 - 2 17 Loans and borrowings 4 - - 4 Intangible assets (3) 1 - (2) Finance lease obligations (110) 30 - (80) Property, plant and equipment 1,914 (43) - 1,871 Employee benefits liability (117) 9 (5) (113) Trade and other receivables (78) 4 - (74) Trade and other payables (153) (46) - (199) Other (27) 17 - (10) Total net deferred tax liability 1,445 (28) (3) 1,414

Charged to Disposal of 1 Charged to other controlling Foreign January profit or comprehensive interest in currency 31 December 2013 loss income subsidiary translation 2013

Investment property - 1 14 - - 15 Loans and borrowings 4 - - - - 4 Intangible assets 105 (19) - (94) 5 (3) Finance lease obligations (150) 40 - - - (110) Property, plant and equipment 2,100 99 - (302) 17 1,914 Employee benefits liability (140) 17 6 - - (117) Trade and other receivables (45) (51) - 19 (1) (78) Trade and other payables (143) (16) - 6 - (153) Other (31) (14) - 18 - (27)

Total net deferred tax liability 1,700 57 20 (353) 21 1,445 Total net deferred tax liability (1) 1 - - - -

The Group did not recognise a deferred tax liability concerning temporary differences of RUR 413m (2013: RUR 113m) in respect of investments in subsidiaries as the Group is able to control the timing of the reversal of these temporary differences and does not intend to reverse them in the foreseeable future. Management has performed an analysis of the dividend policies at the Group’s associates and joint ventures with regards to the Group’s potential deferred tax liabilities where the Group does not control reversal of the temporary difference or expects the reversal to occur in the foreseeable future. For all associates and joint ventures, management expects that the carrying value of the investments would be recovered primarily through a sale and partially through dividends. No deferred taxes related to a future sale are recognised in respect of all associates and joint ventures because any sale would occur in a tax free jurisdiction.

40 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

25. INCOME TAX (CONTINUED) In the context of the Group’s current structure, tax losses and current tax assets of different group companies may not be offset against current tax liabilities and taxable profits of other group companies and, accordingly, taxes may accrue even where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity and there is a legally enforceable right to offset current tax assets against current tax liabilities. Management estimates that deferred tax liabilities of RUR 1,567m (31 December 2013: RUR 1,692m) are recoverable after more than twelve months after the end of the reporting period.

26. BALANCES AND TRANSACTIONS WITH RELATED PARTIES In accordance with IAS 24 “Related party disclosures”, parties are considered to be related if they are under common control or if one party has the ability to control the other party or can exercise significant influence or joint control over the other party in making financial and operational decisions. In considering each possible related-party relationship, attention is directed to the substance of the relationship, not merely the legal form. Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties. The nature of the related-party relationships for those related parties with which the Group has entered into significant transactions, or had significant balances outstanding as at 31 December 2014, are disclosed below: Related party Nature of relationship

OJSC Russian Railways Ultimate controlling company JSC UTLC (Note 13) Parent company JSC Kedentransservice Joint venture of the Company Oy ContainerTrans ScandinaviaLtd Joint venture of the Company Chinese-Russian Rail-Container International Freight Forwarding (Beijing) Co, Ltd. Joint venture of the Company Trans-Eurasia Logistics GmbH Associate of the Company CJSC Torgovy'y dom TMH Associate of the RZD Far East Land Bridge Ltd. Subsidiary of RZD OJSC Wagon Repair Company - 1 Subsidiary of RZD OJSC Wagon Repair Company - 2 Subsidiary of RZD OJSC Wagon Repair Company - 3 Subsidiary of RZD OJSC RZD Logistics Subsidiary of RZD OJSC Bank VTB State-controlled entity Fund Blagosostoyanie Post-employment benefit plan for Company employees FAR-EASTERN SHIPPING COMPANY PLC. Significant shareholder

41 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

26. BALANCES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED) The nature of the related-party relationships for those related parties with which the Group has entered into significant transactions, or had significant balances outstanding as at 31 December 2013, are disclosed below: Related party Nature of relationship

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

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

42 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

26. BALANCES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED) Transactions and outstanding balances with related parties as at and for the year ended 31 December 2014 are shown below: Ultimate controlling Other RZD Group’s Other company group Group’s joint related (RZD) entities associates ventures parties Total

ASSETS Non-current assets Trade receivables - 313 - - - 313

Current assets Cash and cash equivalents - - - - 1,638 1,638 Trade receivables 241 430 26 83 1 781 Other receivables 40 123 - 7 24 193 Advances to suppliers 1,239 10 - - 1 1,250 1,520 563 26 90 1,664 3,862

Total assets 1,520 876 26 90 1,664 4,175

LIABILITIES Current liabilities Trade payables 16 27 3 62 16 124 Liabilities to customers - 32 5 - 47 84 Other payables 1 - - 1 20 22

Total liabilities 17 59 8 63 83 230

Revenue Rail-based container shipping services 131 37 4 88 62 322 Terminal services and agency fees 1,679 6 - - 5 1,690 Integrated freight forwarding and logistics services 3 846 156 328 206 1,539 Other services 19 16 4 3 18 60 1,832 905 164 419 291 3,611

Interest income on deposits - - - - 90 90 Other interest income - - - - 6 6 Other operating income 104 88 - 2 2 196 104 88 - 2 98 292

Total income 1,936 993 164 421 389 3,903

Operating Expenses Freight and transportation services 3,218 1 - 651 14 3,884 Third-party charges relating to integrated freight forwarding and logistics services 12,258 2 23 1,524 73 13,880 Repair services 346 883 - - 3 1,232 Rent of property and equipment 30 1 - - 3 34 Other expenses 93 122 1 2 104 322

Total expenses 15,945 1,009 24 2,177 197 19,352

Purchases of property, plant and equipment 29 861 - - 64 954 Purchases of inventory - 6 - - - 6 Contributions to non-state pension funds - - - 111 111

Total other transactions 29 867 - - 175 1,071

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

43 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

26. BALANCES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED) Transactions and outstanding balances with related parties as at and for the year ended 31 December 2013 are shown below: Parent Other RZD Group’s Other company group Group’s joint related (RZD) entities associates ventures parties Total

ASSETS Non-current assets Trade receivables - 364 - - - 364

Current assets Cash and cash equivalents - - - - 1,811 1,811 Trade receivables 228 400 21 85 2 736 Other receivables 65 94 - 2 96 257 Advances to suppliers 1,475 59 2 - 1 1,537 1,768 553 23 87 1,910 4,341

Total assets 1,768 917 23 87 1,910 4,705

LIABILITIES Current liabilities Trade payables 12 5 1 156 9 183 Liabilities to customers 2 28 1 8 69 108 Other payables - - - - 73 73

Total liabilities 14 33 2 164 151 364

Revenue Rail-based container shipping services 143 136 8 31 120 438 Terminal services and agency fees 1,706 11 2 - 15 1,734 Integrated freight forwarding and logistics services 6 698 133 317 137 1,291 Other services 30 67 21 6 35 159 1,885 912 164 354 307 3,622

Interest income on deposits - - - - 180 180 Other interest income - - - - 14 14 Other operating income 140 27 2 - 3 172 140 27 2 - 197 366

Total income 2,025 939 166 354 504 3,988

Operating Expenses Freight and transportation services 3,113 5 - 5 6 3,129 Third-party charges relating to integrated freight forwarding and logistics services 9,030 4 4 214 34 9,286 Repair services 381 1,059 - - 3 1,443 Rent of property and equipment 39 1 - - 4 44 Other expenses 124 198 - - 182 504

Total expenses 12,687 1,267 4 219 229 14,406

Purchases of property, plant and equipment 6 834 - - 77 917 Contributions to non-state pension funds - - - - 100 100

Total other transactions 6 834 - - 177 1,017

As at 31 December 2013 provision for impairment of accounts receivable of Far East Land Bridge Ltd., associate of RZD, was recognised in respect of trade receivables balance in the amount of RUR 100m. The amounts outstanding to and from related parties are unsecured and expected to be settled by cash or supplies of goods or services (in respect of advances to suppliers and liabilities to customers) in the normal course of business.

44 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

26. BALANCES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED) Dividends Dividends payable to RZD and FAR-EASTERN SHIPPING COMPANY PLC. amounted to RUR 566m and RUR 232m, respectively, and were paid in July 2014. Dividends payable to RZD and FAR-EASTERN SHIPPING COMPANY PLC. amounted to RUR 602m and RUR 270m, respectively, and were paid in August 2013. Compensation of key management personnel Key management personnel consist of members of the Company’s Board of Directors, as well as the General Director and his deputies, and comprised 20 and 20 persons as at 31 December 2014 and 31 December 2013, respectively. Total gross compensation, including insurance contributions and before withholding of personal income tax, to key management personnel amounted to RUR 355m (including total insurance contributions of RUR 38m) and RUR 280m (including total insurance contributions of RUR 22m) for the years ended 31 December 2014 and 31 December 2013, respectively. This compensation is included under payroll and related charges in the consolidated profit and loss and comprises primarily short-term benefits. Major part of compensation for Key management personnel is generally sort-term excluding future payments under pension plans with defined benefits. Defined benefit payments to Key management of the Group are calculated based on the same terms as for the other employees. As stated in Note 17, during the year ended 31 December 2014, the Group recognised expenses of RUR 19m (41m as at 31 December 2013) related to the Share Option Plan approved by the Board of Directors in October 2010. Expenses related to options provided to the General Director and his deputies comprised RUR 7m (22m as at 31 December 2013).

27. COMMITMENTS UNDER OPERATING LEASES As at 31 December 2014, the Group leases container terminal Dobra in Slovakia. The remaining period of agreements validity is 10 years. The Group leases certain production buildings and office premises in Russia. The relevant lease agreements have terms varying from one to five years. Additionally, the Group leases the land on which its container terminals are located. Future minimum lease payments under contracted operating leases, including VAT, are as follows:

2014 2013

Within one year 362 199 Within two to five years 753 195 After five years 259 221

Total minimum lease payments 1,374 615

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

28. CONTINGENCIES, COMMITMENTS AND OPERATING RISKS The Group’s capital commitments as at 31 December 2014 and 31 December 2013 consisted of the following, including VAT: 2014 2013

Acquisition of containers and flatcars 1,453 961 Acquisition of lifting machines and other equipment 317 234 Construction of container terminal complexes and modernisation of existing assets 5 230

Total capital commitments 1,775 1,425

45 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

28. CONTINGENCIES, COMMITMENTS AND OPERATING RISKS (CONTINUED) Operating environment of the Group. The Russian Federation displays certain characteristics of an emerging market. Its economy has a high sensitivity to oil, gas and other raw materials prices. The legal, tax and regulatory frameworks continue to develop and therefore are subject to changes and varying interpretations. During 2014 the Russian economy was negatively impacted by a decline in oil prices and ongoing political tension in the border regions and international sanctions against certain Russian companies and individuals. As a result during 2014:  there was the weakening of the Russian Rouble against major foreign currencies while the CBRF exchange rate fluctuated between RUR 32.7292 and RR 56.2584 per USD as at 31 December 2013 and 31 December 2014, respectively;

 the CBRF key refinancing interest rate was increased from 5.5% p.a. to 17.0% p.a. including an increase from 12.0% p.a. to 17.0% p.a. on 16 December 2014;

 the RTS stock exchange index ranged between 1 445 and 791;

 access to international financial markets to raise funding was limited for certain russian entities; and

 capital outflows from the Russian Federation increased compared to prior years. The financial markets of the Russian Federation continue to be volatile and are characterised by frequent significant price movements on trading operations and increased spreads of quotes. Subsequent to 31 December 2014:

 the CBRF exchange rate fluctuated between RUR 56.2376 per USD and RUR 69.664 per USD;  Russia's credit rating was downgraded by Fitch Ratings in January 2015 to BBB-, whilst Standard & Poor’s cut it to BB+, putting it below investment grade for the first time in a decade. Moody’s Investors Service and Fitch Ratings still have Russia as investment grade. However, these rating agencies indicated a negative outlook, meaning further downgrades are possible.

 the RTS stock exchange index ranged between 733.11 and 929.73;

 bank lending activity decreased as banks are reassessing the creditworthiness of their borrowers due to the increase in lending and exchange rates; and

 the CBRF key refinancing interest rate decreased from 17.0% p.a. to 14.0% p.a. their ability to repay the debt due to increase in loan interest rates and currency exchange rates. These events may have a further significant impact on the Group’s future operations and financial position, the effect of which is difficult to predict. The future economic and regulatory situation and its impact on the Group’s operations may differ from management’s current expectations. Transfer pricing. The Russian transfer pricing legislation is to a large extent aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD). This legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), provided that the transaction price is not arm's length. Management has implemented internal controls to be in compliance with this transfer pricing legislation. Tax liabilities arising from transactions between companies are determined using actual transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group. The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on the assumption that these companies are not subject to Russian profits tax, because they do not have a permanent establishment in Russia. In 2014, the Controlled Foreign Company (CFC) legislation introduced Russian taxation of profits of foreign companies and non-corporate structures (including trusts) controlled by Russian tax residents (controlling parties).

46 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

28. CONTINGENCIES, COMMITMENTS AND OPERATING RISKS (CONTINUED) Starting from 2015, CFC income will be subject to a 20% tax rate. However, due to the preliminary content analysis of relevant foreign companies’ activities and the earnings structure the obligation to pay taxes from CFC's profit to the Russian budget is not revealed. However, due to the preliminary analysis of the relevant foreign companies’ business and the structure of earnings, liability for taxes to the Russian budget out of CFC's profit is not revealed. Environmental matters. The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are determined, they are recognised immediately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated but could be material. In the current enforcement climate under existing legislation, management believes that there are no significant liabilities for environmental damage. Legal proceedings. During the year, the Group was involved in a number of court proceedings (both as a plaintiff and a defendant) arising in the ordinary course of business. In the opinion of management, there are no current legal proceedings or other claims outstanding, which management believes could have a material effect on the result of operations or financial position of the Group, beyond those already recognised in these financial statements. Insurance. The Group holds no insurance policies in relation to its assets, operations, or in respect of public liability or other insurable risks, with the exception of insurance policies that partially cover its vehicles, flatcars and buildings, Directors and Officers liability insurance policy and a carrier’s liability insurance policy. Until the Group obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Group’s operations and financial position.

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

Loans and receivables Cash and cash equivalents 1,904 1,883 Trade and other receivables 1,895 1,986 Short-term investments 8 1 Other non-current assets 5 7

Total financial assets 3,812 3,877

47 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

29. RISK MANAGEMENT ACTIVITIES (CONTINUED) The Group’s principal financial liabilities are trade and other payables, finance lease obligations, and debt (which includes bonds and long-term borrowings). All financial liabilities are carried at amortised cost. 2014 2013

Financial liabilities

Trade and other payables 713 595 Other liabilities 100 94 Long-term debt 5,458 6,194 Current portion of long-term debt 919 1,693 Finance lease obligations 400 551

Total financial liabilities 7,590 9,127

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

Effective Less than 3 months- interest rate 1 month 1-3 months 1 year 1-5 years Total

2014 Non-interest bearing liabilities (including trade and other payables and other liabilities) 364 409 40 - 813 Long-term debt 9.5% 4 7 33 485 529 Bonds 8.35%-8.8% 208 - 783 5,937 6,928 Finance lease liabilities 9.65% 4 9 51 463 527

Total 580 425 907 6,885 8,797

2013 Non-interest bearing liabilities (including trade and other payables and other liabilities) 442 181 66 - 689 Long-term debt 9.5% 4 7 33 532 576 Bonds 8.35%-8.8% 208 - 1,873 6,928 9,009 Finance lease liabilities 9.65% 6 12 52 703 773

Total 660 200 2,024 8,163 11,047

48 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

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

USD EUR Other 2014 2013 2014 2013 2014 2013

Assets Cash and cash equivalents 1,256 981 247 159 8 1 Trade and other receivables 633 162 56 251 1 1

Total assets 1,889 1,143 303 410 9 2

Liabilities Trade and other payables 290 273 33 34 2 2

Total liabilities 290 273 33 34 2 2

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

USD – impact EUR – impact 2014 2013 2014 2013

Total (480) (261) (81) (113)

The weakening of the Russian Rouble in relation to the same currencies by the same percentage will produce an equal and opposite effect on the consolidated financial statements of the Group to that shown above. Interest rate risk Interest rate risk is the risk that movement in interest rates for borrowed funds will have an adverse effect on the Group’s financial performance. Management monitors changes in interest rates and takes steps to mitigate these risks as far as practicable by ensuring the Group has financial liabilities with both floating and fixed interest rates, and maintaining an appropriate mix between debt and equity. As at 31 December 2014 the Group’s borrowed funds consist of long-term debt and current portion of long-term debt (Note 14), long-term debt (Note 14) and finance lease liabilities (Note 15). The annual coupon rate for RUR bonds, series 2 has been set at 8.8% for the entire five-year maturity period of the bonds, with no subsequent changes. The effective interest rate for these bonds is 9.01%.

49 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

29. RISK MANAGEMENT ACTIVITIES (CONTINUED) Interest rate risk (continued) The annual coupon rate of the five-year RUR bonds, series 4 issued on 1 February 2014 was set at 8.35% for five years without any further changes. The effective interest rate of the bonds, series 4 is 8.4%. As at 31 December 2014 and 31 December 2013, loan from LLC TrustUnion Asset Management were recognised by the Group. All bonds and loan were granted at fixed interest rates, therefore the Group did not have an additional interest risk. In 2012, the Group entered into the lease agreement of premises in a Moscow office building for a six-year period. The rent under the agreement includes a fixed fee for the possession and use of leased premises, as well as compensation of utility expenses. The effective interest rate under the agreement is 9.65% (Note 15). As these finance lease obligations are financial instruments bearing a fixed interest rate, therefore, they do not subject the Group to an additional interest risk. Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group does not hedge its credit risk. The Group’s exposure to credit risk arises primarily with respect to receivables in connection with container shipping activities. Credit exposure is managed by establishing credit limits for the most significant customers that are reviewed and approved by management. Deferred payment terms are offered only to the most significant customers of the Group with proven credit history. Sales to other customers are made on a prepayment basis. The carrying amount of accounts receivable, net of provision for impairment of receivables (Note 10), and carrying amount of cash and cash equivalents (Note 12) represents the maximum amount exposed to credit risk. Although collection of receivables could be influenced by economic factors, management believes that there is no significant risk of loss to the Group beyond the provision already recorded. The Group’s concentration of credit risk is dependent on a few large key customers. As at 31 December 2014 83% of the total net amount of trade and other receivables related to the seven largest counterparties of the Group (as at 31 December 2013: 62%). The largest trade and other receivables outstanding as at the balance sheet date are as follows:

Outstanding balance, net 2014 2013 OJSC RZD Logistics 667 638 UNICO LOGISTICS 470 70 RZD 281 294 Rail-Container (Beiging) Go., LTD 69 51 InterRail Services AG 44 - Schenker Rail Automotive GmbH 33 146 LLC Unico Logistics Rus 2 31

Total 1,566 1,230

As at 31 December 2014 and 31 December 2013 no impairment of accounts receivable has been identified for all these customers. Accounts receivable of OJSC RZD Logistics was discounted in accordance with confirmed schedule for the repayment of debts (Note 10).

50 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

29. RISK MANAGEMENT ACTIVITIES (CONTINUED) Credit Risk (continued) Financial assets neither past due nor impaired are the primarily receivables from related parties (Note 26) and receivables from other companies in the transportation and logistics sector. Accounts receivable from related parties are characterised by a high degree of creditworthiness and the likelihood of recovery. Accounts receivable from other companies have similar rates of credit capacity and analysed on a regular basis by the Group for reliability and collectibility. There is no independent rating for the Group’s customers and therefore the Group considers the credit quality of customers at the contract execution stage. The Group considers their financial position and credit history. The Group monitors the existing receivables on a continuous basis and takes actions regularly to ensure collection and to minimize losses. The Group’s management monitors past due balances of receivables and provides ageing analysis as disclosed in Note 10. Credit risk on liquid funds is limited because these funds are placed only with financial institutions well known to the Group. 86% of total cash and cash equivalents as at 31 December 2014 (as at 31 December 2013: 96%) were held with one bank which is related to the Group. The Group’s maximum exposure to credit risk by class of assets is reflected in the carrying amounts of financial assets in the consolidated statement of financial position, described above. Fair value of assets and liabilities Management uses its judgment to the assessment and classification of financial instruments by category using the fair value measurement hierarchy. Fair value of financial assets and liabilities is analysed and distributed by level in the fair value hierarchy as described in Note 3. As at the reporting date the Group had financial assets and liabilities classified as Level 1 and Level 3, and also financia liabilities classified as Level 2. For financial assets and liabilities not measured at fair value but for which fair value is disclosed, management believes that the fair value of the following assets and liabilities approximates their carrying value: trade and other receivables (excluding long-term receivables of OJSC RZD Logistics), other financial assets, trade and other payables. These financial assets and liabilities relate to Level 3 in the fair value hierarchy. As at 31 December 2014 the fair value of long-term accounts receivable of OJSC RZD Logistics accounts for RUR 263m. The calculation is based on the use of a weighted average interest rate established by the Central Bank of Russia for December 2014 on attracted by credit institutions deposits of non-financial entities in rubles for a period from 1 to 3 years. The fair value of long-term debt classified as Level 2 in the fair value measurement hierarchy approximates their carrying value. Company’s bonds are placed on the Moscow Stock Exchange and quoted on the market, thus they refer to the Level 1 in the fair value hierarchy. The following table details the fair value of the Company’s bonds:

2014 2013

Financial liabilities Bonds 5,327 7,308

Total 5,327 7,308

51 PJSC TRANSCONTAINER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 (Amounts in millions of Russian Roubles, unless otherwise stated below)

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

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

 338 containers from Yang Zhou Runyang Logistic Equipment Co.,Ltd for the total amount of RUR 52m (at the Central Bank of Russia exchange rate as at the date of purchase), not subject to VAT;

 501 containers from LLC Con-service for the total amount of RUR 81m (plus VAT in the amount of RUR 15m).