ANNUAL REPORT - russaquaculture.ru€¦ · 4 Annual report 2016 / PJSC «Russian Aquaculture»...

2016

ANNUAL REPORT

CONTENTS

Chairman reportAbout Company

Market overview The 2016 performance

2

12 22

10

34 44Financial review Corporate Governance

10294 AppendicesCompany and structure

84 88Risk factorsPersonnel and social responsibility

ANNUAL REPORT 2016PJSC «RUSSIAN AQUACULTURE»

ABOUT COMPANY

PJSC «RUSSIAN AQUACULTURE»

ANNUAL REPORT 2016

Key events 2016

The Company’s history and the Company today

Address by the Chairman of the Board of Directors

5

8

10

4 Annual report 2016 / PJSC «Russian Aquaculture» Annual report 2016 / PJSC «Russian Aquaculture» 5

Sales

5 313,4 thousand tons

+97,5%

Proceeds

2 475,5 mln rubles

2,9х

Capex

150,1 mln rubles

-82,2%

Closing debit

3 200 mln rubles

-46,2%

KEY EVENTS

PJSC «Russian Aquaculture» is the only commercial marine aquaculture company in the Russian Federation

Over the year ending on December 31,

Mln rubles 2016 2015 Change

Sales, thousand tons 5 313,4 2 690,2 97,5%

Proceeds 2 475,5 864,8 2,9х

OPERATING PROFIT 1 094,3 -66,9 -

Profit from revaluation of biological assets to fair value 1 738,7 -155,0 -

Other operating income/(expenses) 38,4 -1 119,6 -

OPERATING EBIT 876,9 -1 312,6 -

EBIT/kg 165,0 -487,9 -

Profit from sale of the distribution segment 1 457,2 0,0 -

OPERATING EBITDA 1 014,6 -972,1 -

Financial expenses -434,5 -454,2 -4,3%

Profit from the retired segment 295,3 522,3 -43,5%

TOTAL NET PROFIT 3 885,6 -1 338,8 -

CAPEX 150,1 843,9 -82,2%

CLOSING DEBT 3 200,0 5 952,6 -46,2%

DEBT/EBITDA 3,1 -6,1 -

Information source: IFRS financial statements


Increased the Atlantic salmon biomass

>10 thousand tons

Increased the rainbow trout biomass

>1,4 thousand tons

indicator generally accepted EBIT/kg of the products sold

165rub./kg

The Company’s key financial results

The Company’s key financial indicators

In 2016, the Company increased the Atlantic salmon biomass by over 10 thousand tons and the rainbow trout by over 1.4 thousand tons. In late August 2016, the capture and sales of the cultivated fish was commenced which gave 5.3 thousand tons in terms of sales volumes and 2.5 bln rubles of proceeds at year-end 2016 against 2.7 thousand ton sales and 0.9 bln ruble proceeds over the same period in 2015.

As of December 31, 2016, the total fish biomass in water in Murmansk reached a commercial weight which allowed us to obtain profit from revaluation of biological assets of over 1.7 bln rubles, in the context of high market prices for the Company’s products, against a 155 mln ruble loss a year earlier.

In terms of the performance assessment indicator generally accepted in the aquaculture industry, EBIT/kg of the products sold, at year-end 2016, the Company achieved the results comparable to the global industry leaders, 165 rub./kg.

As a result, the Company’s 2016 total profit amounted to 3.9 bln rubles with net assets of over 2.3 bln rubles against a 1.3 bln rubles loss and negative net assets of 1.5 bln rubles at year-end 2015.

The majority of the most significant changes in the Company’s 2016 financial position indicators against 2015 is connected with the closing of the transaction of sale of 100 percent of CJSC «Russian Fish Company» shares in August 2016:

• The 650 mln ruble dividends accrued according to the 2015 results were received by the Company in full in 2016.

• The bills of exchange and loans for 1,128 mln rubles recorded on the Company’s balance sheet were fully repaid in 2016.

• The cumulative financial result of this transaction exceeded 1.45 bln rubles.

The major portion of the receipts from the transaction as well as the 2016 proceeds were spent to reduce the Company’s debt load. As of December 31, 2016, the Bank indebtedness was 3.2 bln rubles against 4.8 bln rubles on December 31, 2015.

Between early 2017 and the publishing date of this Report, the Company has already sold over 5 thousand tons of Atlantic salmon and rainbow trout; the debt load has been reduced to 1.7 bln rubles with over 4 thousand tons of commercial biomass still in water.


About Company

THE COMPANY’S HISTORY

1997

Foundation of the Company. Development of the distribution segment.

2007

Starting to develop the aquaculture segment: a trout farm on Lake Segozero in Karelia was purchased.

2015

A high biohazard level in the aquaculture was confirmed by diagnosing critical diseases in the Atlantic salmon population at the Company’s farms in the Titovka bay of the Barents Sea. Due to that disease, over 70 percent of the fish to be harvested and sold in 2015-2016 was lost.

2010

JSC “Russian Sea” Group ordinary shares were placed on the MICEX and RTS stock exchange. It was the first international initial public offering of a Russian company in the Russian stock market since 2007.

2012

The Company’s first farm for Atlantic salmon cultivation in the Barents Sea area of the Murmansk region was put into operation. The right to develop as much as 18 fishing areas in the Murmansk region near the Rybachy peninsula with a total cultivation potential of over 30 thousand tons was obtained.

2016On August 04, 2016, the sale of the distribution segment – CJSC “Russian Fish Company” – was closed. The transaction cost amounted to nearly 1.8 bln rubles (exclusive of 650 mln rubles that PJSC “Russian Aquaculture” received from CJSC “Russian Fish Company” in 2016 as dividends). Besides, PJSC “Russian Aquaculture” group’s debt load dropped by 2.3 bln rubles after the deal as the “Russian Fish Company” business was sold together with the current debt of the company.

Today, the Company has:

2,5 bln rubles of the consolidated proceeds in 2016

5 313 tons of products sold in 2016

278 employees

4 Atlantic salmon farms in the Barents Sea

5 rainbow trout cultivation sites on Lake Segozero

1999

Opening a state-of-the-art plant in Noginsk, Moscow region, and starting to produce under the “Russian Sea” brand.

2013

On February 28, 2013, a sale of 100 percent of CJSC “Russian Sea” shares (manufacturing of finished fish products segment) to a group of strategic investors was closed.

2014

In September and October 2014, the “AK&M” rating agency and the “Expert RA” rating agency (RAEX) assigned “А” credit rating according to the national scale to JSC “Russian Sea” Group.

2000

The “Russian Sea” brand was named the most recognizable brand in the segment, according to TNS Gallup Media.

2006

Expansion of sales geography for the distribution and finished products segments: at year-end 2006, the distribution branch network consisted of 40 branches and representative offices in big cities in the Russian Federation.


Chairman report

ADDRESS BY THE CHAIRMAN OF THE BOARD OF DIRECTORSDear shareholders, colleagues, partners,

Over the past several years, our Company has been consistently implementing the strategy of concentrating on the aquaculture segment as the most promising area.

Within this framework, the Company sold its low-margin fish processing and finished fish products manufacturing business in the Moscow region in 2013 and successfully quitted the distribution segment in 2016 («Russian Fish Company» sold).

When we decided to start up commercial salmon cultivation in Russia from zero, we understood that it is a time-consuming and complicated process that took decades in other countries. It was clear from the start that this is essentially a venture business for Russia and that there would inevitably be mistakes and falls that are part and parcel of the learning curve. We are aware of these risks but we also see huge prospects and development opportunities in aquaculture.

The current market trends fully confirm that we made the right choice:

• increasing global demand for Atlantic salmon;

• leading global manufacturers (Norway and Chile) have reached the maximum of their production capacities due to unavailability of free acreage;

• salmon prices in the global market hit an all-time high of 9 euro/kg in 2016 and analysts expect them to remain at 6.5-7.0 euro/kg which is also a high price for the industry;

• inevitable recovery of the Russian economy on a mid-term horizon will also result in the domestic consumption growth. Our Company is so far the only one in Russia that cultivates salmon on an industrial scale.

Maxim VorobyevChairman of the Board of Directors,

PJSC «Russian Aquaculture»

I am convinced that our Company has everything it needs for successful development:

1. licenses for the areas where up to 50 thousand tons of commercial products can be cultivated;

2. personnel whose qualification is confirmed by this year’s results;

3. extremely favourable market environment.

PJSC «Russian Aquaculture» has worked its own way up, gained a valuable experience from the trials it faced and managed to achieve impressive results. In 2016, we cultivated and sold 5.3 thousand tons of delicatessen red fish for the first time, while the capture of the existing biomass in water will allow us to double this figure by year-end 2017.

It would be impossible unless all of the Company’s employees make their concerted efforts I really appreciate. Over the five years after our first fish stocking in the Murmansk region in 2012, we have managed to build a team of professionals that use their accumulated experience, including the negative one, to solve the most sophisticated tasks and response to any challenges that occur as we cultivate the salmon.

Currently, the Company feels confident about the future and sets itself an ambitious, yet achievable, goal to increase the Atlantic salmon cultivation volume up to 30-35 thousand tons/year over the 5 years to come. At the same time, we develop the cultivation of other biological species, such as mussel, scallop, seeweed, and manufacture of feed supplements.

To achieve this goal, we plan to bring new farms in the Murmansk region into production every year and already this year the Company is switching to a new operating principle - one new fish stocking per year - which will ensure a stable growth and a constant cash flow.

The implementation of this strategy will allow us to enter the top 10 global salmon manufacturers both in terms of cultivation volumes and profitability per kilo.

The 2016 results

Sales

Biomass at year-end

Proceeds

EBITDA

Net profit

The debt reduced to

5,3 thousand tons

10,5 thousand tons

2,5 bln rub.

1 bln rub.

3,9 bln rub.

3,2 bln rub.

MARKET OVERVIEW


ANNUAL REPORT 2016

Global Red Fish Market

The Russian Market and Fish Consumption

14

18


Market overview

GLOBAL RED FISH MARKET

Currently, 56 mln people are directly employed in the fishing industry and aquaculture. Apart from that, much more people are involved in the follow-up activities, such as handling and shipping, processing and sale. The fishery and fish farming together provide means of subsistence and win bread for the families of 660 to 880 mln people which is 12 percent of the world’s population.

In 2016, the fish industry development somewhat slowed down and demonstrated a minor increase in the production volumes, demand, sales turnover and prices.According to FAO, the 2016 global fish production amounted to nearly 170.8 mln tons which is 0.15 percent higher than in 2015. Among them, 93.1 mln tons of fish were captured and 77.7 mln tons were cultivated.

Globally, aquaculture remains one of the most rapid-growing industries in animal origin food stuff manufacturing. The

aquaculture share in the global fish production goes up from year to year: It was 43.7 percent in 2014 and amounted to 45.5 percent in 2016.

According to the FAO forecasts, the global fish production will reach 196 mln tons by 2025, which will exceed the 2016 production volumes by 14.7%. Aquaculture is expected to account for the total incremental fish production: The cultivated fish share will reach 51.9 percent in the total production volume by 2023. In this case, the household aquaculture products consumption share in the fish consumption volume will grow from 51.3 percent in 2016 to 57.3 percent in 2025.

The 2016 global fish consumption per capita slightly went down and reached 20.4 kg, according to FAO, which is 0.1 percent less than in 2015. The global fish consumption is forecast to reach 21.8 kg per capita in 2025.

Global fish production performance, mln tons

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Commercial captureAquaculture

78

95

76

93

74

93

80

93 9488

94 92 94 94 92 95 93 97 9499

94102

9484

Information source: OECD-FAO Agricultural Outlook 2016-2025

Oceans are an important source of food supplies. According to FAO1, they contain 80 percent of the planet’s biodiversity, and it is the largest ecosystem of the Earth. The fish provides 20 percent of animal protein for almost 3 billion people. Just ten species account for almost 30 percent of the marine catch and nearly 50 percent of the aquaculture production consist of ten species.

1 FAO - Food and Agriculture Organization of the United Nations

The global fish and seafood prices slightly went down in 2016 against 2015. It maintains a declining food pricing trend observed over the past 5 years due to the incremental production which is faster than the consumption growth.

The average face value fish price in 2016 was estimated at 2,722 USD per ton and the OECD and FAO forecast it to reach 2,719 USD per ton by 2025. However, the real terms prices are even expected to decline slightly due to the aquaculture production rate growth outrunning the consumption growth rates.

Global fish and seafood consumption performance per capita, kg/year

Global fish and seafood prices, thousand usd per ton

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Aquaculture Commercial capture

2,1

1,5

2,1

1,6

2,2

1,5

2,0

1,5 1,5 1,5 1,5 1,5

1,8

1,4 1,4

1,8 1,82,0 2,0 2,1

1,6

2,2

1,6

1,9


2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

20,3 20,4 20,4 21,0 21,0 21,0 21,0 22,0 22,0 22,0 22,0 21,8



Market overview

In terms of the industrialization level and risks intrinsic to fish cultivation, salmon cultivation is the most industrially developed industry and the risks inherent to aquaculture are the lowest here. However, significant salmon production growth is constrained by the limitations associated with a small number of fit-for-purpose water bodies.

In 2016, the salmon industry faced a nearly unprecedented price level. The salmon prices soared as high as they last did in the 1980s due to an increased demand for salmon in the global market and a decreased global salmon supply in 2016 (license restrictions and problems caused by salmon louse in Norway and kill of around 25 percent of fish in Chile because of the oxygen starvation during the algal bloom season).

Global fish and seafood prices performance, usd/ton

Salmon prices fluctuations, according to fishpool, euro/kg

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

2 9662 740 2 722 2 624 2 540 2 412 2 370 2 428 2 539 2 595 2 661 2 719


Information source: Fish Pool Index™ (FPI)

0

1

2

3

4

5

6

7

8

9

2010 2011 2012 2013 2014 2015 2016

Juanuary February March April May June July August September October November December

Atlantic salmon cultivation per country, thousand tons

The largest salmon producers (capture volume in thousand tons of live weight), 2016

Information source: Bakkafrost Annual Report 2016, Kontali Analyse

Information source: Bakkafrost Annual Report 2016, Kontali Analyse

Thousand tons 2013 2014 2015 2016ENorway 1 143,6 1 199 1 234,2 1 171,1

Chile 468,1 582,9 598,2 504,4

Great Britain 157,8 170,5 166,3 160,1

Canada 115,1 95 135,2 142,5

Faroes Islands 72,6 82,7 76,9 75,9

Australia 39 42 55 54

USA 20,3 24 20,2 22

Others 14,6 19,6 17,2 19

Ireland 10,6 12,3 15,7 14,9

TOTAL 2 041,7 2 228 2 318,9 2 163,9INCREMENTAL GROWTH 2% 9% 4% -7%

The capture of the top 15 salmon cultivation companies amounted to 1.7 mln tons in 2015, which accounted for 61 percent of the global capture volume. Taking into account the Company’s long-term strategy for increasing the capture volume up to 40 thousand tons of live fish per year, the Company claims to enter the world’s top 10 salmon producers.

40,0

41,6

43,0

43,3

50,0

56,2

60,1

63,7

72,7

95,2

108,9

166,6

185,0

190,2

466,8

SALMONES AUSTRAL (PACIFIC STAR + TRUSAL)

NOVA SEA

NORDLAKS HOLDING

PESQUERA CAMANCHACA

PESQUERA LOS FIORDOS

BAKKAFROST

AUSTRALIS SEAFOOD

SALMONES MULTIEXPORT

GRIEG SEAFOOD

COOKE AQUACULTURE

EMPRESAS AQUACHILE

SALMAR (incl. Norskott Havbruk)

MITSUBISHI / CERMAQ

LERØY SEAFOOD GROUP (incl. Norskott Havbruk)

MARINE HARVEST GROUP


Market overview

THE RUSSIAN MARKET AND FISH CONSUMPTION

According to the preliminary data of the Russian Federal State Statistics Service, the 2016 volume of produced fish and processed fish products amounted to 3,936.2 thousand tons, which is 106.9 thousand tons (2.8%) more than in 2015. The volume of fish, fish products and seafood supplied outside the Russian Federation amounted to 1,911.6 thousand tons in 2016, which is 109.2 thousand tons (6.1%) more than in 2015. Frozen fish accounts for 87.7 percent in the export commodity structure. At the same time, the volume of fish products imported into the Russian Federation in 2016 went down by 8.6 percent against 2015 and amounted to 512.0 thousand tons. Frozen fish accounts for 52.8 percent in the import commodity structure.

The annual fish consumption amounted to 19-20 kg per person in 2016 (against 22 kg in 2014, for example). The consumption decline is mainly accounted for by the currency exchange rate growth rather than by a fish amount decline or retaliatory actions imposed by the Russian Federation. Since fish is also an export-oriented product, the dollar exchange rate growth caused a proportional price increase in the

Volume of production (capture) of aquatic bioresources in 2011-2016 (thousand tons)

According to the current data of the Centre of Fishery Monitoring and Communications, the total production (capture) volume of aquatic biological resources amounted to 4,657.6 thousand tons in 2016, which is 200.6 thousand tons more, or 4.5% higher, than in 2015.

* Not including commercial aquaculture (commercial fishery) products amounting to 35.5 thousand tons.** Operational data.

domestic market and consumption redistribution in favour of cheaper protein analogues.

According to the current data of the Federal Agency for Fishery, the country’s 2016 aquaculture fish production amounted to 174 thousand tons, while fish seed production amounted to 31.3 thousand tons. Therefore, the total production volume amounted to 205.3 thousand tons.

The red fish market share is minor both in the Russian fish production and consumption profiles. It is, first of all, accounted for by high prices for these products due to high nutritive properties.

At the same time, the Russian aquaculture red fish market was drifting down as the global prices kept growing.

However, an increase in the industry’s marginality encouraged the domestic production to grow. The share of the products made in Russia went up to 34.0% in 2016 against 24.3% in 2015.

2014201320122011 2015* 2016**

4 264,8 4 269,8 4 296,84 235,1

4 457,0 4 667,6

Despite the domestic production growth, the dependence on imported fish products is still strong which instigates the prices to go up as the global prices rise. The average salmon sale prices grew by 100 rub./kg for fresh frozen products and by over 130 rub./kg for chilled fish.

In 1H 2017, the global prices are expected to stabilize and then return to mid-term average values. It must help stop

the aquaculture red fish consumption drop in Russia that started back in 2014.

PJSC «Russian Aquaculture» products made in the Murmansk region that that we brought into the market also contributed to increased competition in the chilled products segment and adjustment of domestic prices in Russia to the average global prices.

Import and domestic production volumes1, thousand tons

Average prices2, rub./kg

16,52015

107,1-18,5%

2016

87,3

1,2

1,5

3,1

2,122,8

23,52,0

4,720,3

16,5

57,8

39,1

2015 2016

414,7

547,5

315,5

500,9

305,6

369,0

261,8

381,3

288,9219,3

1 Information sources: Federal Agency for Fishery, Federal Service for National Statistics, the Company’s data;2 Information sources: Federal Agency for Fishery, fishpool.eu, Company’s data.

Salmon, fresh frozen imported

Salmon, fresh frozen imported

Salmon, chilled imported

Salmon, chilled imported

Salmon, Russian Aquaculture

Salmon, Russian Aquaculture

Trout, Russian Federation

Trout, imported

Trout, imported

Trout, Russian Aquaculture

Trout, Russian Aquaculture


Import and Domestic Production Volumes1, thousand tons

3,4 3,74,8

3,72,2 1,9

2,9 2,8 3,1 2,7

4,83,2

1,01,3

1,0

1,1

1,31,0

1,3 1,12,2

2,0

1,4

1,90,1

0,4 1,0

1,2

1,24,4

5,05,9

5,0

3,52,8

4,1 3,8

5,6 5,6

7,4

6,3

Salmon, fresh frozen imported Salmon, chilled imported Salmon, Russian Aquaculture

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

The 2016 monthly Atlantic salmon import and sales performance corresponds to the long-term market surveillance: Significant import and sales volumes are normally observed early in the year with a decline to follow from May to August and peak volumes reached by the New Year holidays.

The barriers for purchasing chilled products from Norwegian producers allowed the Faroes farms to enjoy exclusivity in the Russian market and sell with a premium to the average global price

On the background of a limited supply in global markets in 2016, prices for chilled fish from Chile approached prices of the chilled salmon imported from the Faroes Islands and cultivated by PJSC «Russian Aquaculture» in the Murmansk region.

Average prices, rub/kg

497,9 511,5 519,3478,8

507,4564,4

524,4 458,0495,4

497,2

548,6550,6 543,5 549,1

510,6 526,4

598,9 609,2558,6

503,5541,1 551,8 564,9

343,0 342,3 318,4291,9

326,5373,0 392,7

429,7 448,2413,8

455,3 455,7

464,6486,3

503,8 539,5

200,0

300,0

400,0

500,0

600,0

700,0

1 Information sources: Federal Agency for Fishery, Federal Service for National Statistics, the Company’s data;2 Information sources: Federal Agency for Fishery, fishpool.eu, Company’s data.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Imported chilledImported fresh frozenfishpool.eu Russian Aquaculture chilled

THE 2016 PERFORMANCE


ANNUAL REPORT 2016

Our business today

Aquaculture segment

Cultivation technology

The Company’s performance in Murmansk

The Company’s performance in Karelia

24

27

28

31

33


The 2016 performance

3

7

4

8

OUR BUSINESS TODAY

The decision to sell the asset in the distribution segment - CJSC «Russian Fish Company» - allowed the Company to fully concentrated on solving this task.

Following the transaction closed on August 04, 2016, 650 mln rubles of dividends accrued based on the 2015 performance were received in full; the 1.128 mln ruble bills of exchange and loans recorded on the Company’s balance sheet, as of the 2015 year-end, were fully repaid as well as the IFRS-based cumulative financial result of over 1.45 bln rubles was achieved.

The Company aims to become completely independent in terms of juvenilles supplies, to have sufficient primary processing and product packaging capacities as well as to sign its own long-term contracts with the largest customers.

The commercial Atlantic salmon cultivation plots that the Company has in the Barents Sea must help reach production volumes of over 30 thousand tons of finished products and enter the world’s top 10 red fish producers.

Cage culture fishery

Stocking in marine cages and cultivating to a commercial weight of 4+ kg

Packaging

Packaging gutted fish with heads in branded boxes and forming B2B trucks

Feeds and equipment

Production of feeds and equipment for aquaculture

Skrertting, AkvaGroup

Sales

Large wholesale

Russian Fish Company

PJSC «Russian Aquaculture» is now building a vertically integrated holding operating in the aquaculture red fish segment from juvenile fish cultivation to direct sales of products to the largest customers, retail chains and fish processing companies.

12 - 24 months

1

5

9

2

6

10

Replacement and brood stock

Genetic studies and livestock for roe production

Capture

Capturing fish with a weight of 4-6 kg and delivery with a live fish carrier to the processing department

Logistics

Delivering chilled products to customers from Murmansk to West Siberia

Russian Fish Company

Smolt in a recirculating aquaculture system

Nursery in fresh water tanks up to 100-150 grams

Namdal, Olden, Smola, Vik

Fish processing

Primary: killing, bleeding, gutting

Murmanrybprom-1

Customers

Unbranded chilled gutted fish with heads

X-5, Auchan, Metro

The present and the future – Aquaculture

9 months


The current status of operations in Murmansk:

The current status of operations in Karelia:

2farms

placed in operation in Ura-Guba in 2015

5operating fishery plots

in 2016

>9thousand tons

of commercial biomass in water as of December 31, 2016

>100tons per day

of the primary processing capacity

>25tons/day

is the production capacity of the in-house primary fish

processing department

1new farm

placed in operation in Ura-Guba in 2016

>1,3thousand tons

of fish biomass in water as of December 31, 2016

In-house department for production of the best-quality trout roe

AQUACULTURE SEGMENTThe Company engages in commercial red fish cultivation (aquaculture) in two regions: the Murmansk region and the Republic of Karelia.

• In the Murmansk region, the Company engages in commercial Atlantic salmon cultivation in the Barents Sea.

• In the Republic of Karelia, the Company cultivates rainbow trout on Lake Segozero.

Development plans for Murmansk:

Development plans for Karelia:

in 2017:

• stocking of at least 1.7 mln pcs. of salmon and 1.7 mln pcs. of trout

• placing into operation and fitting up a new farm in Dolgaya Bay

• capture and sales of at least 10 thousand tons of commercial biomass

in 2017:

• stocking with at least 1 mln pcs. of juvenile rainbow trout

• capture and sales of at least 1 thousand tons of commercial biomass and production of 25 tons of roe

• start of implementation of the HACCP system at production sites


The 2016 performance

CULTIVATION TECHNOLOGY

• The optimum water temperature should be no more than 17 degrees Celsius. The water temperature at the Company’s farms in the Barents Sea is no more than 14 degrees Celsius.

• The feed conversion ratio is no more than 1.3 per cycle.

• The mortality rate is no more than 30% from stocking to capture.

• The full cultivation cycle lasts 17 to 27 months.

• The finished product yield is 86 percent of gutted fish with heads

The Company uses the Atlantic salmon and trout hatchery technology, applying the best global practices and using the equipment made by the leading Norwegian manufacturers.

Key factors for fish growth and production:

A tried and tested model of the red fish cultivation:

Actual feed conversion:

0 29June

Juvenile fish planting

0.12 kg

September

End of -year cycle

Live fish weight

12June

~1.5 kg

17November

Start of capture

~3.1 kg

23March

End of 2-year cycle

4.5 kg

Month

FC 1.1 2.2 3.0 4-10

Moscow

Karelia

Murmansk

Area suitable for marine red fish cultivation

Location: Russia, Murmansk region, Karelia

• The tried and tested business model of fish nursery from 80-120 grams to 5-6 kilograms and plans for in-house production of fish feeds and deep processing in the finished product segment.

• The maximum cultivation potential in Russia is up to 40 to 50 thousand tons per year. The Company can already produce over 10 thousand tons per year and it is ready to implement the task of developing 100 percent of the areas suitable for commercial aquaculture.

• The red fish has the lowest feed conversion ratio among all protein-containing products. To gain one kilo, the salmon biomass requires just 1.1 kg of the feed while chicken needs 2.2 kg and beef requires up to 10 kg.

• The accumulated experience, including the negative one, allowed the Company to formulate strict biological safety policies in accordance with the best global practices which prove to be effective on an ongoing basis.


Sales in Murmansk, tons

4 464,2

1 629,7

4 018,5

2014

2015

2016

-996,1

113,5

870,2

Operating EBITDA in Murmansk, mln rub.

2015

2016

2014

Proceeds in Murmansk, mln rub.

2015

2016

2014 1 350,5

514,2

2 012,7

Information source: the Company’s management accounting

THE COMPANY’S PERFORMANCE IN MURMANSKIn 2016, the Company carried out a set of activities in Murmansk, such as:

The plans for 2017:

• To ensure complete capture of all commercial fish from the Company’s farms in Ura Guba in the amount of no less than 9 thousand tons.

• To ensure stocking of two farms in Murmansk with juvenile salmon and trout smolt using the Company’s own live fish carrier.

• Start to develop and implement the HACCP system in fish processing.

• To improve biological safety by implementing the salmon louse control strategy, improving in-house laboratory studies, preventing essential damage caused by other parasites and fish diseases.

• To prepare for signing long-term contracts for supply of feed seeds and equipment upon mutually beneficial terms and conditions.

• To interact with the governmental authorities concerning prolongation of subsidizing of interest rates as well as development of additional supportive measures for aquaculture.

Early in 2016, the Company finished the lifting and removal of wastes from the Titovka bay exposed to the disease in 2015. All the wastes were disposed of; cages and barges were cleaned and used for fish planting at other farms of the Company.

The biological safety control system was enhanced: The Company implemented biological safety regulations, according to which it regularly takes fish samples to diagnose them for diseases and sends them for analysis to the best world’s laboratories in Russia and Norway as well as performs in-house analysis in the laboratory fitted out in 2016.

In June 2016, the Company planted out fish at the Company’s farms in Ura Guba. As result, a new farm, Chervyanoe Ozerko-2, was placed into operation and the fish nursery conditions substantially improved.

In late August 2016, capture and sales of commercial products from the Company’s farms in Ura Guba began. It helped ensure a cumulative harvest of over 4.5 thousand tons before the end of 2016. The cumulative volume of commercial harvesting in this cycle must exceed 13 thousand tons, with the major portion to be harvested in 2017.



Sales in Karelia, tons

666,9

1 060,5

1 294,8

2014

-3,8

-1,3

90,6

Operating EBITDAin Karelia, mln rub.

2015

2016

2014

Proceeds in Karelia, mln rub.

2015

2016

2014 166,1

348,2

461,0

2015

2016

Information source: the Company’s management accounting

THE COMPANY’S PERFORMANCE IN KARELIA

In 2016, the Company carried out a set of activities in Karelia, such as:

The plans for 2017:

• To capture one thousand ton of commercial products and stock at least one mln units of juvenile rainbow trout.

• Start to develop and implement the HACCP system in fish processing.

• To improve biological safety and prevent significant damage from other parasites and fish diseases.

• To prepare for signing long-term contracts for supply of feed seeds and equipment upon mutually beneficial terms and conditions.

• To interact with the governmental authorities concerning prolongation of subsidizing of interest rates as well as development of additional supportive measures for aquaculture.

In spring and summer 2016, over 600 thousand juvenile rainbow trout was stocked in RPU-6 (Fishery Plot-6).

In accordance with the biological safety strategy, the fish of various generations was placed to separate fishery plots. By autumn 2016, all the commercial fish was concentrated in RPU1- and RPU-2 (fishery plots) which are the closest to the onshore base and the processing department in order to ensure comfortable capture and sales during the 2016 autumn and winter season.

1.3 thousand tons of commercial fish was captured and 460 mln rubles of proceeds were earned.

The 2016 Karelia subdivision’s EBITDA amounted to over 90 mln rubles against a 4 mln rubles loss at year-end 2015.

FINANCIAL REVIEW


ANNUAL REPORT 2016

37

41Consolidated Financial Results

The 2016 CAPEX and Investment Program


Consolidated proceeds, mln rub.

1 517

865

2 476

2014

(785)

120

1 015

Operating EBITDA, mln rub.

2015

2016

2014

Sales, thousand tons

EBITDA margin, %

2015

2015

2016

2016

2014

2014

5,1

7,9%

2,7

-87,6%

5,3

41,0%

2016

2015

CONSOLIDATED FINANCIAL RESULTS

In 2016, the Company’s consolidated proceeds increased by 2.87 times and amounted to 2,475.5 mln rubles.

The operating gross profit amounted to 1,094.3 mln rubles, while the operating gross profit margin reached 44.2%.

As of December 31, 2016, all the fish biomass in water in Murmansk reached the commercial weight that allowed the company to obtain profit from revaluation of biological assets in the amount of over 1.7 bln rubles in the context of high market prices for the Company’s products against a loss of 155 mln rubles a year earlier.

In 2016, business expenses increased by 3,8 times, first of all, due to increased sales volumes. General and administrative expenses grew by 80.7% and it is, first of all, associated with awarding the 2016 performance bonus payments to the company’s management.

At the same time, the main operational performance indicators of the Company (operating EBIT and EBITDA) more than doubled against 2015. In 2016, the Company’s operating EBITDA amounted to over 1 bln rubles, and the operating EBITDA margin was 42%, which is a record-high value for the Company.


The Company’s total profit in 2016 amounted to 3.9 bln rubles with net assets of over 2.3 bln rubles against a loss of 1.3 bln rubles and 1.5 bln rubles of negative net assets at year-end 2015.


Financial review

Mln rubles 2016 2015 Change, %

Proceeds 2 475,5 864,8 2,87х

Cost of goods sold (1 381,3) (931,7) 48,3%

Operating Gross Profit 1 094,3 (66,9) -

Operating gross profit margin 44,2% -7,7%

Change of fair value of biological assets 1 738,7 (155,0) -

Gross Profit 2 833,0 (221,8) -

Gross profit margin 114,4% -25,6%

Business expenses (53,6) (14,2) 3,79х

General and administrative expenses (202,2) (111,9) 80,7%

Other operating income/(expenses), net 38,4 (1 119,6) -

Operating EBIT 876,9 (1 312,6) -

Interest costs, net (434,5) (454,2) -4,3%

(Loss) / income from exchange rate differences 9,5 59,1 -83,9%

Profit/loss before profit tax 2 190,6 (1 862,6) -

Profit tax expense (57,6) 1,4 -

Net profit/(loss) over continuing operations period 2 133,1 (1 861,2) -

Net profit margin 86,2% -215,2%

Operating EBITDA2 1 014,7 (-972,1) -

Operating EBITDA margin 41,0% -112,4%

Debt/Operating EBITDA3 3,1 (6,1) -

Income from the subsidiary retiring 1 457,2 - -

Net profit from the retired segment before the retirement date 295,3 522,3 -43,5%

EBITDA including the retired segment 1 510,8 163,2 9,26х

Operating EBITDA margin 61,0% 18,9%

Gross net profit/(loss) for the period 3 885,6 (1 338,8) -

Net profit margin 157,0% -154,8%

The 2016 consolidated financial indicators1

1 According to the audited financial statements prepared in accordance with the International Financial Reporting Standards (IFRS).2 EBITDA for the core business of red fish commercial cultivation (aquaculture).3 This indicator is used as the principal covenant established by the lending bank.

Mln rubles 2016 2015 года Change, %

Non-current assets 1 735,6 1 872,0 -7%

Provisions 143,8 118,2 22%

Biological assets 3 353,8 946,9 3,55х

Accounts receivable, incl. 314,5 859,6 -63%

Settlements in respect of dividends 0,0 650,0 -

Advances paid 348,5 93,9 3,72х

Cash flow 33,9 458,1 -93%

Assets to be sold 0,0 3 915,3 -

Current assets 4 209,4 6 583,8 -36%

BALANCE 5 944,9 8 455,8 -30%

Equity capital 7 953,8 7 953,8 0%

Capital surplus 654,0 654,0 0%

Uncovered loss -6 241,1 -10 126,6 38%

Capital and provision 2 366,7 -1 518,8 -

Borrowings 346,9 894,2 -61%

Long-term liabilities 346,9 894,2 -61%

Borrowings 2 853,1 5 058,4 -44%

VAT payable 240,9 42,0 5,74х

Commitments connected with the assets to be sold 0,0 3 830,6 -

Short-term liabilities 3 231,3 9 080,4 -64%

BALANCE 5 944,9 8 455,8 -30%

Key indicators of the company’s balance sheetDecember 31,

The majority of the most significant changes in the Company’s 2016 financial position indicators against 2015 is connected with the closing of the transaction of sale of 100 percent of CJSC «Russian Fish Company» shares in August 2016:

• The dividends accrued based on the 2015 performance in the amount of 650 mln rubles were received by the Company in full in 2016.

• Bills of exchange and loans in the amount of 1,128 mln rubles recorded on the Company’s balance sheet were fully repaid during 2016.

• The cumulative financial result of the transaction was 1.45 bln rubles.

The major portion of the receipts for the transaction as well as the 2016 proceeds were spent to reduce the Company’s debt load. As of December 31, 2016, the Bank indebtedness was 3.2 bln rubles against 4.8 bln rubles on December 31, 2015.

Between early 2017 and the publishing date of this Report, the Company has already sold over 6,5 thousand tons of Atlantic salmon and rainbow trout; the debt load has been reduced below 1.4 bln rubles with over 3 thousand tons of commercial biomass still in water.

The Company complies with all the covenants established by the lending bank. The principal financial ratio, Debt/EBITDA, was 3.2, as of December 31, 2016, with a standard established by the bank being no more than 3.5.

40 Annual report 2016 / PJSC «Russian Aquaculture» ГAnnual report 2016 / PJSC «Russian Aquaculture» 41

Structure of the company’s 2016 expenses1, mln rubles

170,1

30,4

23,666,8

49,3

Upgrading the processing department

Repairing and upgrading register vessels

Maintaining existing capacities

Equipping new farms

1 управленческие данные Компании

THE 2016 CAPEX AND INVESTMENT PROGRAM

The major expenses were incurred for equipping the existing farms and a new farm in Ura Guba at the Barents Sea and upgrading of the processing department in order to increase production capacities.

In 2017, the Company plans to continue developing actively in the aquaculture segment. In order to ensure trout and salmon stocking, a twin-hilled vessel, a cargo and passenger vessel, an anchor system, and additional netting and cages were already purchased by the date of publication of this report.

In 2016, the Company significantly reduced (by 34%) its debt load. Both as of December 31, 2016 and December 31, 2015, the Company had a liability owed to the only creditor, Gazprombank (Joint-Stock Company). As of December 31, 2016, the debt was 3,200 mln rubles against 4,824 mln rubles on the previous reporting date.

The interest payment expenses in 2016 amounted to 638 mln rubles which is only slightly different from the 2015 interest expenses. The effective interest rate adjusted

for the effect of the government subsidies was 9.02%. Besides, at year-end 2016, the Company’s loan portfolio had only purpose loans that imply an opportunity to obtain government subsidies for partial compensation of the interest expenses. The amount of the government subsidies obtained in 2016 to partially compensate for the interest payments under the loan agreements with the GPB (JSC) Bank was 186 mln rubles. The amount of the interest expenses including the subsidies received was 452 mln rubles.

The 2016 Debt Load

In 2016, the Company’s CAPEX amounted to 150 mln rubles, reducing by 82% as compared to the same indicator in 2015.

Mln rubles 2016 2015 Change, %

End-of-period debt 3 200 4 824 -34%

Interest income 18 17 3%

Interest expenses (638) (668) -4%

Government subsidies 186 196 -5%

Debt and Interest Payments (for continuing operations)


Mln rubles 2016 2015

Net cash received from / (used in) continuing operations (161) (1 517)

Net cash received from / (used in) continuing investment activities 2 131 (397)

Net cash received from / (used in) continuing financial activities (2 470) 1 319

Net cash received from / (used in) discontinuing operations (48) 203

Net increase/(decrease) in cash and cash equivalents (547) (391)

Influence of the exchange rate fluctuations on cash and cash equivalents 45 132

Retirement of CJSC “Russian Fish Company” 78 0

Reclassification to assets to be sold 0 (78)

Opening cash and cash equivalents 458 795

Closing cash and cash equivalents 34 458

Consolidated cash flow statement

The 2016 net cash used in continuing operations amounted to 161 mln rubles against 1,517 mln rubles over the preceding period.

The significant indicator of the net cash received from continuing investment activities is mainly composed of the funds obtained from the transaction of sale of CJSC “Russian Fish Company” (1.837 mln rubles) closed on August 04, 2016.

Besides, dividends in the amount of 650 mln rubles were received from CJSC “Russian Fish Company” in 2016.

In 2016, unlike the preceding period, we could see a negative indicator of the net cash used in continuing financial operations. In 2016, the Company significantly reduced its debt load, as mentioned above.

The 2016 cash flow

The Company receives government subsidies that partially compensate for the interests paid under the loan agreements signed to fund investments, feed and fish seed purchases. The amount of the subsidies received in 2016 was 185.7 mln rubles.

The subsidies are provided under the Resolution of the Government of the Russian Federation No. 319 dated April

03, 2015 «On Amending the State Program of the Russian Federation “The Development of the Fishery Industry”.

Besides, the Company obtained funds under the program of the Ministry of Agriculture of the Russian Federation in order to compensate for the expenses for animal disease control in the amount of 12.6 mln rubles.

Governmental Support

Description Unit Quantity Sum, thousand rub.

Electric energy Thousand kW/h 1 042 6 992

Diesel fuel Thousand litres 818 26 343

Gasoline Thousand litres 205 5 973

Fuel and Energy Consumption by the Company and its Subsidiaries

No other type of energy resources, except for those specified in the table, were used during the reporting year.

2016

CORPORATE GOVERNANCE


ANNUAL REPORT 2016

Corporate Governance

Information on the Inspecting Commission of the Company

Executive Bodies of the Company

Information disclosure policy

46

79

80

82



CORPORATE GOVERNANCECorporate Governance Principles

The efficient corporate governance system helps ensure balance between interests of the parties involved in implementing the Company’s principal goals, improve the Company’s performance, and strengthen its reputation.

The development of the corporate governance practice is one of the key objectives of the Сompany’s management. The corporate governance efficiency is ensured by maintaining a stable system of relationships in the Company which allows balancing economic and social goals, interests of the Company, of the shareholders, and of other parties involved.

The observance of high corporate governance standards in the Company contributes to the atmosphere of trust and confidence between participants of corporate governance and may improve managerial decision-making efficiency which results in a long-term improvement of the Company’s investment prospects.

In 2014, the Bank of Russia advised the joint-stock companies which securities are accepted for on-exchange trading to apply the Corporate Governance Code (hereinafter referred to as ‘CGC’).

The Company’s current corporate governance practice already conforms to the CGC requirements in most of the aspects.

PJSC «Russian Aquaculture» corporate governance system relies on the corporate governance principles enshrined in CGC:

• ACCOUNTABILITY (accountability of the Board of Directors to shareholders and of the executive bodies to the General Meeting of Shareholders and to the Board of Directors);

• JUSTICE (equality of all groups of shareholders in managing the Company and providing shareholders with an opportunity to obtain effective protection in case their rights are violated);

• TRANSPARENCY (timely, complete and reliable disclosure of information on the Company’s business as well as free access to such information for all parties concerned);

• RESPONSIBILITY (management of the Company’s operations reasonably and in good faith and in the sole interests of the Company).

Detailed information on the Company’s compliance with the CGC principles is given in Appendix 2 to the annual report.

The Company’s compliance with the corporate governance principles enshrined in the CGC was assessed based on the actual review of the Company’s corporate governance system and effective internal documents in accordance with the form suggested in recommendations on reporting on compliance with the principles and recommendations of the Corporate Governance Code (Letter of the Bank of Russia dated February 17, 2016 No. ИН-06-52/8).

The Company observes provisions of the CGC, of the Charter, and of other internal documents to confirm its intention to contribute to the development and improvement of the appropriate corporate governance practice.

Thus, in 2016, taking into consideration the CGC recommendations, requirements of the Provision of the Bank of Russia «On Listing of Securities” and PJSC Moscow Stock Exchange Listing Rules, the Company brought its corporate governance into compliance with the CGC recommendations. In particular, PJSC «Russian Aquaculture» amended its documents that govern activities of the corporate bodies of the Company, established the Internal Audit Subdivision, appointed its chief, approved the documents that regulate activities of the above Subdivision, amended the documents that regulate the procedure for nomination and activities of the Corporate Secretary, his/her status, authorities, competence etc.

The Company understands corporate governance as a system of relationships between the executive body, the board of directors, shareholders, and other parties concerned. Corporate governance is a tool for defining the Company’s goals and means for achieving these goals as well as for ensuring efficient control over the Company’s business on part of shareholders and other parties concerned.

Enforcement of the Rights of ShareholdersThe Company’s corporate governance is based on respect for the rights and legitimate interests of the shareholders, investors and other parties concerned and it is executed in accordance with the effective legislation of the Russian Federation, the Charter and internal documents of the Company as well as the Company’s liabilities associated with circulation of its securities in the stock market.

The efficient and transparent system of relationships between the corporate bodies of the Company and shareholders, investors and parties concerned shall be a prerequisite to successful delivery of the Company’s plans and the key factor for its business.

The shareholders participate in governing PJSC «Russian Aquaculture» by way of making appropriate resolutions; representatives of the shareholders hold positions in corporate bodies.

The Company duly provides the shareholders and investors with information on the events taking place in the Company which is necessary for making necessary decisions in respect of the securities.

In order to ensure reliable registration and recording of titles to shares, the maintenance of the register of the shareholders has been transferred to an independent registrar, АО “NRK”. The Registrar has an unblemished reputation, necessary technological infrastructure, and a team of professionals.

The principal goals and objectives of PJSC «Russian Aquaculture» corporate governance include:

• ensuring unconditional, timely and full implementation of legitimate rights and interests of all shareholders of the Company;

• increasing the market value of PJSC «Russian Aquaculture» securities;

• improving transparency of decision-making by the Company’s corporate bodies in general;

• improving PJSC «Russian Aquaculture» corporate governance;

• ongoing improvement of the Company’s mechanisms for interaction with shareholders that facilitate execution of their rights.

Information on the Company’s operations is publicly available and disclosed on a regular basis on the Company’s website at http://russaquaculture.ru/

Apart from publications on the Company’s website, PJSC «Russian Aquaculture» discloses the information on the web page of the information agency accredited by the Bank of Russia for information disclosure at

http://www.e-disclosure.ru/portal/company. aspx?id=17531



Statement of the Board of Directors on Compliance with the Principles and Recommendations of the Corporate Governance Code (CGC)PJSC «Russian Aquaculture» is a public company which shares are accepted for on-exchange trading at the Moscow Stock Exchange. In this respect, the Company places special emphasis on the corporate governance quality issues. In the course of its business, PJSC «Russian Aquaculture» strives to follow, to the extent possible, the principles and recommendations of the Corporate Governance Code approved by the resolution of the Board of Directors of the Bank of Russia on March 21, 2014 and recommended for application by the Bank of Russia in Letter No. 06-52/2463 dated April 10, 2014 to the joint-stock companies which shares are accepted for on-exchange trading. Detailed information on the Company’s corporate governance is also given in the «Corporate Governance» section of this annual report of PJSC «Russian Aquaculture”.

PJSC «Russian Aquaculture» uses a corporate governance model that meets the requirements of the Russian legislation and requirements applicable to the securities issuers whose shares are included in the «Second Tier» section of the list of securities accepted for trading in PJSC Moscow Stock Exchange.

PJSC «Russian Aquaculture» corporate governance model is aimed at safeguarding the interests of shareholders, which also implies maintaining high standards of disclosure of information on the Company’s operations. The model also provides for establishment and sustainable functioning of the internal control system. The activities of the corporate bodies and control bodies of the Company are regulated; the interaction between all the participants of the corporate governance system has been established. Every year the Company approves a business plan which is an indispensable tool for planning the Company’s operations and assessing its performance. Business plans and fulfillment reports shall be approved by resolutions of the Board of Directors of the Company.

The professional Board of Directors is a key element of PJSC «Russian Aquaculture» corporate governance system that influences the Сompany’s performance and executes strategic management and control over the activities of the corporate bodies for the benefit of the shareholders and the company itself.

The Board of Directors of PJSC «Russian Aquaculture» hereby confirms that the information contained in the Report on Compliance with the Principles and Recommendations of the Corporate Governance Code is complete and trustworthy.

The report on the Company’s Compliance with the Principles and Recommendations of the Code of Corporate Governance (‘the Code’) is given in Appendix 2 to the annual report.

The PJSC «Russian Aquaculture” compliance with the principles and recommendations of the Code was assessed in accordance with recommendations of the Bank of Russia (Letter No. ИН-06-52/8 dated February 17, 2016).

The explanation of the key reasons, factors and (or circumstances why the Company does not comply, or complies only partially, with the Code principles.

One of the key factors of the Company’s non-compliance or partial compliance with the Code principles is the necessity of preparation and approval of a large number of internal documents of the Company.

It is necessary to mention that a deterrent is also the lack of practice in application of certain principles and recommendations of the Code.

The description of corporate governance mechanisms and tools that the Company uses instead of those recommended by the Code.

The Company does not use any corporate governance mechanisms and tools instead of those recommended by the Code.

Planned actions and activities to upgrade the corporate governance model and practice.

Since the date of acceptance of the shares for on-exchange trading, the Company consistently works on implementation of the best corporate government practices. For this purpose, in 2016, the resolution of the Board of Directors approved the following internal documents: the Internal Audit Policy, Provision on the Internal Audit Service, Provision on the Corporate Secretary, and Provision on the Audit Committee as amended. We are going to develop and approve the Company’s Dividend Policy, Provision on Insider Information, as amended by incorporating legislative amendments and recommendations of the Corporate Governance Code, Methodology for Self-Assessment of the Board of Directors to be used as guidance for self-assessment of the performance of the Board of Directors and its Committees during the next reporting year. We also plan to perform actions aimed at ensuring there is a required number of independent directors in the Board of Directors to maintain the Company’s shares in the second tier of the PJSC Moscow Stock Exchange quotation list; to entitle independent directors to elect the senior independent director as well as develop the methodology for self-assessment of the Company’s corporate governance level.

In the mid-term perspective (over the next 7 years), the Company plans to continue annual reviewing of the corporate governance system for compliance with the Code recommendations as well as to continue the work aimed at bringing the operations into compliance with recommendations of the Corporate Governance Code; to ensure regular updating of the current local documents, including those regulating information provision to the shareholders and investors.

At year-end 2016, PJSC «Russian Aquaculture» did not perform self-assessment of the corporate governance level.

After the reporting date, the Company developed the Methodology for Evaluation of the Corporate Governance Efficiency in PJSC «Russian Aquaculture”.

The corporate governance assessment according to this methodology will be performed by way of establishing correspondence between the components of the Company’s corporate governance and the criteria defined in this Methodology. The criteria will be disclosed through answers to the questions concerning each of the corporate governance components

according to the approved Methodology, including:

• The rights of shareholders;• The Board of Directors;• Executive management;• Transparency and information disclosure;• Risk management, internal control, and internal audit;• Corporate social responsibility, business ethics, compliance

In addition, after the reporting date, the Company developed the Methodology for Self-Assessment of the Performance of the Board of Directors and its Committees which is currently going through the approval procedure.

Self-assessment of the Corporate Governance Level and Assessment of Performance of the Board of Directors



The Approval Policy for the Company’ Transactions

In 2016, major transactions and interested party transactions in PJSC «Russian Aquaculture» went through the procedure of approval by the corporate bodies of the Company in accordance with the provisions of the Federal Law «On Joint-Stock Companies» and the Charter of the Company.

In order to reduce the risk of improper asset management, the Charter broadens the competence of the Board of Directors as regards preliminary approval of a number of transactions involving the Company’s property.

The transactions to be additionally approved by the Board of Directors include:

1) approval of transactions, contracts (several related contracts) or framework agreements:

• for the Company - for amounts over 150,000,000 (One hundred fifty million) rubles per each transaction or several related transactions or if this amount ranges from 25% to 50% of the book value of the Company’s assets;

• for controlled companies and/or the Group companies – for the amount established for approval by the general meeting of shareholders/participants of the respective subsidiary and/or controlled company, but in any case, for amounts over 150,000,000 (one hundred fifty million) rubles for each transaction or several related transactions;

• performing actions as a result of which the Group alienates or may alienate the property which book and/or market value exceeds 150,000,000 (One hundred fifty million) rubles per each transaction or several related transactions (except for the assets alienated as part of the normal course of business);

• the Group’s purchase of assets or property, the market value of which exceeds 150,000,000 (One hundred fifty million) rubles per each transaction or several related transactions (except for the assets purchased as part of the normal course of business);

• signing of contracts by the Group as part of the normal course of business of the company on the terms and conditions worse than the market conditions;

• terms and conditions of the Company’s contracts (essential terms and conditions of the sale and purchase agreements as well as other contracts having a similar subject or similar nature in terms of contract performance), if the value of the contract or several related transactions (including transactions with the same contractor) exceeds 150,000,000 (One hundred fifty million) rubles;

2) approval of major transactions, contracts (several related contracts) or framework agreements before presenting them for approval to the general meeting of shareholders of the Company, if the transaction value amounts to or exceeds 50% of the book value of the Company’s assets;

3) approval of investment projects:

• for the Company - for amounts over 15,000,000 (Fifteen million) rubles;

• for controlled companies - for the amount established for approval by the general meeting of shareholders/participants of the respective controlled company;

4) agreeing of investment projects before presenting them for approval to the general meeting of shareholders of the Company for the amount equal to or exceeding 50% of the book value of the Company’s assets;

5) approval of loan agreements (and/or their essential terms and conditions), loans, contracts associated with securing obligations of the Company or of the third party (pledges, suretyship, guarantees etc.): • for the Company - if the value of the contract (several

related contracts) amounts to 50% of the book value of the Company’s assets;

• for subsidiaries and/or controlled companies – for amounts over those established for approval by the general meeting of shareholders/participants of the respective subsidiary and/or controlled company;

6) agreeing of essential terms and conditions of the contracts associated with securing obligations of the third party (pledges, suretyship, guarantees etc.) before presenting for approval to the general meeting of shareholders of the Company - if the value of the contract (of a series of related contracts) amounts to over 50% of the book value of the Company’s assets;

7) approval of interested party transactions where provided for in Chapter 11 of the Federal Law;

8) approval of any transactions with shares, interests, other securities, items of intellectual property of the Company, relating to alienation of real estate items and other assets owned by the Company, irrespective of the transaction value.

9) possibility and conditions of granting loans by the Company to the Group companies, as well as essential conditions (including term, value, intended purpose) of the loans borrowed by the Company from the Group companies and/or controlled companies.

The Company is currently developing amendments to the charter relating to approval of major transactions and interested party transactions in accordance with Federal Law No. 208-FZ dated December 26, 1995 (as amended on July 03, 2016) «On Joint-Stock Companies» (as amended, effective January 01, 2017).

Corporate Bodies

PJSC «Russian Aquaculture» corporate governance system includes the following corporate bodies:

• The general meeting of shareholders is the supreme governing body which the shareholders use to exercise their right to take part in managing the Company;

• The Board of Directors is the corporate body responsible for formulation of the Company’s strategy, overall management of the operations and control over the operation of the executive bodies of the Company;

• The committees of the Board of Directors - in 2016, the Audit Committee of the Board of Directors, the Nomination and Remuneration Committee of the Board of Directors, and the Strategy Committee of the Board of Directors operated;

• General Director of the Company is the sole executive body who manages the ongoing operations of the Company and also implements the strategy formulated by the Board of Directors and the shareholders;

• Corporate bodies of subsidiaries and controlled companies are the governing bodies stipulated in the charters and other internal documents of these companies;

• The inspector of the Company who exercises control over the financial and economic activities of the Company;

• Internal Audit Service for systematic independent assessment of reliability and efficiency of the risk management and internal control system;

• External auditor of the Company that audits the Company’s reports (RAS, IFRS).

Besides, PJSC «Russian Aquaculture» has a system of internal control over financial and economic activities (Provision on Internal Control over Financial and Economic Activities of JSC «Russian Sea» Group approved by the Board of Directors of the Company in 2013).

The internal control system is a component of the general management system of the Company which covers the main areas of the Company’s business; control procedures are carried out on an ongoing basis in all the processes (areas of activity) of the Company at all levels of management and are aimed at ensuring reasonable guarantees in achieving the goals set forth to the Company.

The internal control system is targeted at:

• the Company’s efficiency and performance, preservation of the Company’s assets;

• compliance with legislative requirements and local regulatory legal acts applicable to the Company, including those related to business events and accounting;

• ensuring reliability and timely presentation of accounting (financial) statements and other reports.

Particular structures, procedures and corporate governance practice shall be governed by the Charter and internal documents of the Company published on the «For Shareholders and Investors» page of the Company’s website on the Internet at

http://russaquaculture.ru/



Structure of corporate bodies and control bodies of PJSC «Russian Aquaculture» as of december 31, 2016

The general meeting of shareholdersThe general meeting of shareholders is the supreme governing body of the Company that takes decisions on the most important issues of the Company’s business. The shareholders exercise their right to manage the Company by proposing items to include in the agenda of the meeting, nominating candidates to the corporate bodies and control bodies, participating in the general meeting.

The procedure for preparing and holding general meetings of shareholders of PJSC «Russian Aquaculture» is established by Federal Law «On Joint-Stock Companies» and other legal acts of the Russian Federation, the Charter, the Provision on the General Meeting of Shareholders.

The shareholders exercise their right to manage the Company by participating in voting, proposing items to include in the agenda of the meeting, nominating candidates to the corporate bodies and control bodies.

The competence of the General Meeting of Shareholders includes the most important issues of the Company’s business, the resolution of which cannot be transferred to other corporate bodies of the Company.

The prerequisite for observance of the rights and legitimate interests of the shareholders is establishing procedures for preparing and holding the General Meeting of Shareholders.

General Meeting of Shareholders

Inspecting Commission Board of Directors General Director

Independent External Auditor

Internal Audit Service

Committees of the Board of Directors

Audit Committee of the Board of Directors

Strategy Committee of the Board of Directors

Nomination and Remuneration Committee of the Board of Directors

controlelection

controlelection

controlelection

election

election

reportsrecommendations

reports

reportsrecommendations

election

General meetings of shareholders of PJSC «Russian Aquaculture» are held from time to time as may be necessary but at least once a year (Annual General Meeting of Shareholders).

The resolutions of the General Meeting of Shareholders are published on the Company’s official website, on the «For Shareholders and Investors/The General Meeting of Shareholders» page at http://russaquaculture.ru/shareholders-and-investors/ information-disclosure/reports-of-material-facts/

Competence

The competence of the General Meeting of Shareholders is defined by Federal Law «On Joint-Stock Companies» and it includes decision-making on the most important issues of the Company’s business:

• the Company’s restructuring and winding up;• decision on the number of members of the Board of

Directors and electing its members, early termination of their powers, establishing amounts of remunerations and compensations to the members of the Board of Directors;

• electing the Company’s inspector and approval of the Company’s auditor;

• decision-making on dividend payment;• approval of annual reports, annual accounting

statements, allocation of profits and losses according to the financial year performance;

Special aspects of convening and preparing the meetings

The shareholders may propose their items to include in the agenda of the annual General Meeting of Shareholders within 60 days after the end of the calendar year.

When preparing the meeting, PJSC «Russian Aquaculture» timely informs the shareholders and their representatives on the date, venue and time of the meeting – notice of convening of the meeting and the agenda.

The convening notice of an extraordinary General Meeting of Shareholders shall be sent at least 20 days before the date of the meeting while the notice of the annual General Meeting of Shareholders shall be sent at least 30 days before the meeting.

The convening notice of the General Meeting of Shareholders shall be sent to each person on the list of the persons entitled to participate in the General Meeting of Shareholders by registered mail.

• approval of major transactions and interested party transactions and others.

• introducing amendments to the Company’s Charter or approval of the amended Charter of the Company;

• increasing the Company’s equity capital by increasing the par value of the shares or by allotment of additional shares;

• reduction of the Company’s equity capital by reducing the par value of the shares, by purchasing a portion of the shares by the Company in order to reduce their total number as well as by redeeming the shares purchased or repurchased by the Company;

• establishing the procedure for holding the General Meeting of Shareholders;

• decision-making on participation in financial and industrial groups, associations, and other unions of commercial organizations;

• approval of internal documents regulating activities of the corporate bodies of the Company.

Information on the date of making a list of the persons entitled to participate in the meeting shall be disclosed at least 7 days before this date.

The Company allows the shareholders to familiarize themselves beforehand with hard-copy informational materials for the meeting in the PJSC «Russian Aquaculture» office.

The company additionally informs the shareholders about the General Meeting of Shareholders to be held by publishing the information about this meeting on the Company’s website, with all the disclosed information being published in the Russian language.

PJSC «Russian Aquaculture» annually invites the members of the Board of Directors and of the committees of the Board of Directors, the Inspector of the Company, and auditors to take part in the meeting.

The voting results and resolutions made are announced at the General Meeting of Shareholders.



Information on the general meetings of shareholders held in 2016

The Annual General Meeting of Shareholders in the reporting year was held on June 30, 2016, Minutes No.47 dated July 04, 2016.

Over 50% of the major shareholders of the Company and their representatives were present at the meeting.

The shareholders who jointly have a total of 66,287,911 votes participated in voting on the items of the agenda.

In the course of the meeting, the shareholders took part in discussion and voting on nine items of the agenda.

The agenda included the following items:

• On approval of the Company’s 2015 annual report.• On approval of the Company’s 2015 annual accounting

statements.• On appropriation of the Company’s 2015 profit.• On approval of the Company’s auditor to audit the

Company’s 2016 Russian standard accounting statements.• On approval of the Company’s auditor to audit the

Company’s 2016 consolidated statements, in accordance with the requirements of the International Financial Reporting Standards.

• On election of members of the Board of Directors of the Company.

• On payment of remuneration and compensations to the members of the Board of Directors of the Company.

• On election of the Inspector of the Company.On payment of remuneration to the Inspector of the Company.

During the reporting year, 5 (five) extraordinary meetings of shareholders were held:

1) At the extraordinary general meeting of shareholders held on January 12, 2016, Minutes No. 45 dated January 13, 2016, the following items were included in the agenda:

• Early termination of powers of the members of the Board of Directors of PJSC «Russian Aquaculture”.

• Electing members of the Board of Directors of PJSC «Russian Aquaculture”.

At the end of the meeting, the shareholders made the following resolutions:

• the 2015 annual report and annual accounting statements were approved;

• a decision was made not to appropriate the 2015 net profit, not to pay the 2015 annual dividends on ordinary shares of the Company.

• a new composition of the Board of Directors and the Inspector of the Company were elected as follows:1. Maxim Yu. Vorobyev2. Gleb S. Frank3. Ekaterina V. Azimina4. Ekaterina A. Chernova5. Alexander B. Garankin6. Arne Geirulv7. Ludmila I. Mikhaylova8. Ilya G. Sosnov9. Andrey G. Plugar10. Vardan N. Avakyan

• the auditor for the RAS and IFRS accounting statements of PJSC «Russian Aquaculture» was approved;

• amounts of remuneration and compensations to the above persons were approved

The report on the voting results is published on the Company’s corporate website at:

http://russaquaculture.ru/shareholders-and-investors/information-disclosure/reports/


• The powers of the Board of Directors of PJSC «Russian Aquaculture» were terminated ahead of time

• The new composition of the Board of Directors was elected as follows:1. Ekaterina V. Azimina2. Vardan N. Avakyan3. Maxim Yu. Vorobyev4. Alexander B. Garankin

Six General Meetings of Shareholders were held during the reporting period.

The 2016 extraordinary general meetings of shareholders

The Annual General Meeting of Shareholders

5. Ilya O. Gusarov6. Vyacheslav G. Krylov7. Ilya G. Sosnov8. Ludmila I. Mikhaylova9. Ekaterina A. Chernova10. Gleb S. Frank

2) At the extraordinary general meeting of shareholders held on January 12, 2016, Minutes No. 46 dated January 13, 2016, the agenda included the issues of approval of transactions.


• Signing of the suretyship agreement between the GPB Bank (JSC) and PJSC «Russian Aquaculture» was approved;

• Signing of Supplementary Agreement No.2 to the Suretyship Agreement No. 2814-118-п2 dated October 02, 2014 between Public Joint-Stock Company «Russian Aquaculture» and the GPB Bank (JSC) was approved;

• Signing of Supplementary Agreement No.2 to the Share Pledge Agreement No. 2814-118-з4 dated October 31, 2014 between PJSC «Russian Aquaculture» and the GPB Bank (JSC) was approved.

3) At the extraordinary general meeting of shareholders held on July 06, 2016, Minutes No. 48 dated July 08, 2016, the agenda included the issues of approval of transactions.

At the end of the meeting, the shareholders made the following resolution:

• Termination of Share Pledge Agreement No. 2814-118-з4 dated October 31, 2014, entered into by PJSC «Russian Aquaculture» and Gazprombank (joint-stock company), acting as security for obligations of «Russian Sea-Aquaculture» LLC to Gazprombank (joint-stock company) was approved;

• Signing of Supplementary Agreement No. 3 to Suretyship Agreement No. 2814-118-п2 dated October 02, 2014, entered into by PJSC «Russian Aquaculture» and Gazprombank (joint-stock company), acting as security for obligations of «Russian Sea-Aquaculture» LLC to Gazprombank (joint-stock company) was approved.

4) At the extraordinary general meeting of shareholders held on September 30, 2016, Minutes No.49 dated October 04, 2016, the agenda included the issue of amending the Charter of PJSC «Russian Aquaculture».

At the end of the meeting, the shareholders made the following resolution:

• To approve the text of amendments No. 2 to the Charter of PJSC «Russian Aquaculture».

• P. 10.7 of Chapter 10 of the Charter was amended. The Board of Directors was reduced to 6 (Six) members..

5) At the extraordinary general meeting of shareholders held on November 14, 2016, Minutes No. 50 dated November 16, 2016, the agenda included the following items:

• Early termination of powers of the members of the Board of Directors of PJSC «Russian Aquaculture».

• Election of members of the Board of Directors of PJSC «Russian Aquaculture».


• The powers of the Board of Directors of PJSC «Russian Aquaculture» were terminated ahead of time

• The new composition of the Board of Directors was elected as follows:1. Maxim Yu. Vorobyev2. Ludmila I. Mikhaylova3. Ekaterina A. Chernova4. Sergey P. Sirotenko5. Alexander B. Garankin6. Arne Geirulv

The reports on the voting results are published on the Company’s corporate website at:

http://russaquaculture.ru/shareholders-and-investors/information-disclosure/reports/



Dividend PolicyIn the context of substantial regulatory restrictions and unstable economic factors, the dividend yield becomes a key factors of the company’s investment attractiveness.

The Company’s dividend policy was designed to provide the utmost clarity about the Company’s strategy in net profit appropriation and disposition to the shareholders and all the parties concerned.

Dividends shall be understood as a portion of the Company’s net profit appropriated between the shareholders proportionally to the number of the shares they hold.

The dividend policy is aimed at increasing the fundamental value of the Company with annual dividend payment based on the profit amount and the funds required for further development of the Company.

• the Company having net profit according to the reporting period results which is determined in accordance with paragraphs 3.1 and 3.2 hereof;

• no restrictions on dividend payment stipulated in Article 43 of Federal Law «On Joint-Stock Companies»;

Dividend amount assessmentIn accordance with requirements of the legislation of the Russian Federation, the dividends to the Company’s shareholders are paid out of the Company’s net profit determined according to the accounting (financial) statements made in accordance with the requirements of the Russian legislation.

When the Board of Directors of the Company determines the dividend amount (assessed per one share) to recommend to the General Meeting of Shareholders and the respective ratio of the Company’s net profit to spend to pay dividends, they assume that the amount of funds to be spent to pay dividends must be equal to at least 10% of the net profit determined based on the Company’s consolidated financial statements made in accordance with the International Financial Reporting Statements (IFRS) and converted to rubles at the exchange rate of the Bank of Russia at the end of the reporting period.

The purpose of the Dividend Policy is to ensure stable dividend payment to the Company’s shareholders.

The dividend policy has been developed in accordance with the effective legislation of the Russian Federation, the Company’s Charter and its internal documents.

The Board of Directors of the Company shall be guided by provisions of the Dividend Policy as they develop recommendations on dividend payment for the General Meeting of Shareholders.

The general meeting of shareholders has the right to disagree with recommendations of the Board of Directors on the dividend amount and may resolve either to pay smaller dividends than advised by the Board of Directors or not to pay dividends at all.

• recommendation of the Board of Directors of the Company on the amount of dividends on shares and payment procedure as well as setting of the date on which the persons entitled to collect dividends are determined;

• resolution of the General Meeting of Shareholders.

The recommended dividend amount (per one share of the Company) is determined based on the amount of funds to be spent to pay dividends.

In such case, the Board of Directors of the Company takes into consideration the fact that net profit from financial investments in equity securities that do not provide significant influence or control over the issuer may be spent in full to pay dividends unless required to raise funds for investments.

The recommendations of the Board of Directors of the Company on the dividend amount are submitted to the shareholders who make their final decision. The resolution on dividend payment and its amount shall be made by the General Meeting of Shareholders. The dividend amount may not exceed the amount advised by the Board of Directors.

The principal dividend payment conditions include:

Dividend Payment The declared dividend shall be paid in monetary funds.

Dividends are paid to the persons who owned shares of the respective class (type) or the persons exercising rights in respect of these shares in accordance with federal laws, as at the close of business of the date on which the persons entitled to collect dividends are determined in accordance with the resolution on dividend payment.

Monetary dividend payment to natural persons whose share rights are recorded in the register of the Company’s shareholders shall be performed either by mail payment remittance or, provided that the system of the register of shareholders contains respective bank details of those persons, by bank transfer of the money to their bank accounts.

Non-distributed profit The Company’s Dividend Policy should not constrain the development of the Company’s production and investment activities.

A portion of the net profit remaining after dividend distribution shall be allocated within the non-distributed profits to be used

Other persons whose share rights are recorded in the register of the Company’s shareholders are paid dividends by money transfer to their bank accounts. The term of dividend payment to a nominee shareholder and to a trustee being a professional securities market player who are recorded in the register of the Company’s shareholders shall be established by the legislation of the Russian Federation.

The General Meeting of Shareholders may decide to pay interim dividends if the Company’s condition allows to pay them without detriment to the current operations and implementation of the further development programs of PJSC «Russian Aquaculture».

for the purposes of retrofitting and upgrading, implementation of investment programs, adding funds to the current assets, and other areas which influence the success of the Company’s operations.



Information on the Board of Directors of the Joint-Stock Company

Composition of the Board of DirectorsThe Board of Directors is a collective body that provides strategic management and exercises overall control over the Company’s operations, except for the issues that the legislation of the Russian Federation and the Charter of the Company refer to the competence of the General Meeting of Shareholders.

The Board of Directors of PJSC «Russian Aquaculture» carries out its activities in accordance with Federal Law «On Joint-Stock Companies» and other legal acts of the Russian Federation, the Charter, the Provision on the Board of Directors approved by the resolution of the extraordinary general meeting of shareholders of the Company (Minutes No. 42 dated April 17, 2015).

A member of the Board of Directors can only be a natural person. The Board of Directors of PJSC «Russian Aquaculture» in accordance with the Charter of the Company (amendments to the Company’s Charter of November 14, 2016 (approved by Minutes No.50 dated November 16, 2016)) includes 6 (six) members.

The procedure for nomination of candidates to the Board of Directors of the Company is established by the effective legislation of the Russian Federation and the Company’s Charter. The members of the Board of Directors shall be

The Company’s management is committed to the most efficient operation of the Board of Directors and positive interaction between the members of the Board of Directors and the Company’s management.

The Company’s management familiarizes newly elected members of the Board of Directors with the Company’s production and financial and economic activities, specific features of the business model, and the corporate governance practice.

Within one month after being elected, the Corporate Secretary shall familiarize the members of the Board of Directors with internal documents of the Company, resolutions of the preceding Board of Directors and committees and send necessary contact data, as instructed by the Company’s General Director. The common practice is to have personal meetings of the members of the Board of Directors with the management representatives.

elected by the general meeting of shareholders as suggested by the shareholders who hold at least 2 percent of voting shares. The members of the Board of Directors of the Company shall be elected by cumulative voting. It means that the number of votes owned by each of the shareholders shall be multiplied by a number of the persons to be elected to the Board of Directors, and the shareholder may either fully cast them all for one nominee or distribute them between two or more nominees. Upon decision of the general meeting of shareholders of the Company, the powers of the members of the Board of Directors may be terminated ahead of time. The resolution on early termination of powers may only be made in respect of all the members of the Board of Directors. The persons elected to the Board of Directors of the Company may be re-elected for an unlimited number of times.

The current composition of the Board of Directors includes two independent directors. In accordance with international corporate governance principles, irrespective of the groups that nominated independent directors, they act exclusively for the benefit of the Company and all of its shareholders.The Board of Directors of PJSC “Russian Aquaculture” carries out overall management of the Company’s operations within its competence and reports to the General Meeting of Shareholders in the course of its operation.

The members of the Board of Directors are also notified of their major duties, responsibility, rules and procedures whereby they will carry out their activities.

Along with the induction, the members of the Board of Directors are either sent information materials by e-mail or given a data storage device containing the above information.

The same induction procedure also applies to the members of the committees of the Board of Directors of PJSC «Russian Aquaculture».

Besides, the Company’s official website fully discloses the information about the Company on the “About Company», «Information Disclosure», «For Shareholders and Investors» pages. The newly elected members of the Board of Directors can use this information to get an insight into the Company.

Inauguration of Members of the Board of Directors

Maxim Yu. Vorobyev

Chairman of the Board of DirectorsNon-executive directorMajority shareholder

Businessman

Born in 1976, citizen of Russia.

In 1998, he graduated from the Faculty of Economics, Moscow State Institute of International Relations (MGIMO) (RF), with a degree in International Economic Relations and foreign language skills.

Executive MBA IESE, Spain. He has been awarded with the Federal Financial Markets Service certificates.

During the past 5 years, Mr. Vorobyev has held positions in corporate bodies of the following companies:October 2011 to December 2013 – Member of the Board of Directors, “Aquanica” LLC;December 2011 till reporting date – Chairman of the Nomination and Remuneration Committee, PJSC “Russian Aquaculture” (formerly known as JSC “Russian Sea” Group);March 2012 to December 2012 – Member of the Board of Directors, JSC “Stroytransgaz”;

As of the reporting date, he is Chairman of the Board of Directors of PJSC “Russian Aquaculture”, member of the Nomination and Remuneration Committee of the Board of Directors of PJSC “Russian Aquaculture”, member of the Strategy Committee of the Board of Directors of PJSC “Russian Aquaculture”.

First elected to the Board of Directors of the Company in 2009.

The equity stake in the Company (ordinary shares of PJSC “Russian Aquaculture”): 47.85%

Composition of the Board of Directors

In 2016, the Company was governed by the Board of Directors in three compositions. The current Board of Directors, as of December 31, 2016, was elected on November 14, 2016 at the extraordinary General Meeting of Shareholders (positions specified as of the time of nomination):

The composition of the Board of Directors of PJSC “Russian Aquaculture” is balanced with regard to the interests of all the parties involved. Between January 12, 2016 and November 14, 2016, the Board of Directors of PJSC «Russian Aquaculture» comprised 3 (three) independent directors (V. N. Avakyan, E. V. Azimina, L.I. Mikhaylova) who fully comply with the independence criteria of the Corporate Governance Code of the Bank of Russia and CJSC “MICEX SE” listing rules.



Ludmila I. Mikhaylova

Member of the Board of DirectorsIndependent Director

Alexander B. Garankin

Non-executive directorGPB Bank (JSC) representative

Chief Financial Officer, PJSC “Cherkizovo Group”

Mrs. Ludmila Mikhaylova was born in 1976, citizen of Russia.In 1998, Mrs. Mikhaylova graduated from the Finance Academy under the Government of the Russian Federation with a degree in Finance and Credit.

As of reporting date, she is a member of the Board of Directors of PJSC “Russian Aquaculture” (Independent Director), Chairman of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture», member of the Strategy Committee of PJSC “Russian Aquaculture”, member of the Nomination and Remuneration Committee of the Board of Directors of PJSC “Russian Aquaculture”.


She has neither shares of PJSC “Russian Aquaculture” nor stakes in the equity capital of the Company’s subsidiaries and controlled companies.

Managing Director, Direct Investment Department, Gazprombank (Joint Stock Company)

Mr. Alexander Garankin was born in 1970. In 1996, he graduated from the Plekhanov Russian Economic Academy with a degree in Finance and Credit.

Background:In 2003–2004 - Director, Investment Banking Department, “Sovlink” (LLC) Investment Company;2004 to 2007 – Director, Corporate Financing Department, Gazprombank (Open Joint Stock Company);Since 2007 – Managing Director, Direct Investment Department, Gazprombank (Open Joint Stock Company).

During the past 5 years, Mr. Garankin has held positions in the corporate bodies of the following companies: since 2013 till reporting date – Member of the Board of Directors, “Northern Capital Highway” (MSS) LLC;since 2015 till present - Member of the Board of Directors, “Russian Fishing Company” LLC;since 2015 till reporting date - Member of the Board of Directors, JSC “Bionet”.

As of reporting date, he is a member of the Board of Directors of PJSC «Russian Aquaculture», member of the Audit Committee of PJSC “Russian Aquaculture”.


He has neither shares of PJSC “Russian Aquaculture” nor stakes in the equity capital of the Company’s subsidiaries and controlled companies.

Ekaterina A. Chernova

Member of the Board of DirectorsNon-executive directorA majority shareholder representative

Sergey P. Sirotenko

Member of the Board of DirectorsIndependent Director

Chief Financial Officer, CFC Management

Mrs. Ekaterina Chernova was born in 1980. In 2002, she graduated from the Finance Academy under the Government of the Russian Federation qualified as Economist with a degree in Global Economics. Graduated the Executive Program at the Harvard Business School in 2012.

Background:2010 to 2015 - Chief Financial Officer, «Linvest» Investment Group, LLC;Since 2015 - Chief Financial Officer, CFC Management, LLC.

As of the reporting date, she is a member of the Board of Directors of PJSC “Russian Aquaculture”, member of the Audit Committee, member of the Nomination and Remuneration Committee of the Board of Directors of PJSC “Russian Aquaculture”.


She has neither shares of PJSC “Russian Aquaculture” nor stakes in the equity capital of the Company’s subsidiaries and controlled companies.

Consultant, JSC «Leadership Vector» (Ward Howell) Mr. Sergey Sirotenko was born in 1981. In 2003, he graduated from the Russian State Tax Academy (Finance Academy under the Government of the Russian Federation) with a degree in Law. In 2011, he was awarded a candidate degree in Law at the Saint Petersburg Law Institute.

Background:2003 to 2016 - Senior Manager, PricewaterhouseCoopers Russia B.V.;since 2016 - Consultant for Human Capital Asset Development, JSC «Leadership Vector» (Ward Howell).

As of the reporting date, he is a member of the Board of Directors of PJSC “Russian Aquaculture” (Independent Director), member of the Audit Committee of PJSC «Russian Aquaculture», member of the Nomination and Remuneration Committee of the Board of Directors of PJSC “Russian Aquaculture”.





Arne Geirulv

Member of the Board of DirectorsNon-executive director

Gleb S. Frank

General Director, Aquaculture & Environmental Consulting AS (Consultant)

Mr. Arne Geirulv was born in 1959. In 1986, he graduated from the University of Bergen (Norway) with a degree in Biology - Aquaculture (Candidatus magisterii).

Background:2008 to 2010 - Chief Executive Officer, Stranda Prolog AS;2010 to 2012 - Chief Executive Officer, Preplast Industries AS;since 2012 - Chief Executive Officer, (Aquaculture & Environmental Consulting AS).

As of reporting date, he is a member of the Board of Directors of PJSC «Russian Aquaculture», member of the Strategy Committee of PJSC “Russian Aquaculture”.



Businessman

Mr. Gleb Frank was born in 1982, citizen of Russia.

In 1997, he graduated from the Moscow State for International Relations of the Ministry of Foreign Affairs of the Russian Federation (Bachelor, Legal Studies, a degree in International Law with foreign language skills). INSEAD (France), MBA (Master of Business Administration).Over the past 5 years, Mr. Gleb Frank has held positions in corporate bodies of the following companies:March 2012 to January 2013 - Member of the Board of Directors, OOO «SPb RENOVATION»;March 2012 to February 2013 - Member of the Board of Directors, JSC «ROSNEFTBUNKER»;September 2012 to 2015 - Member of the Board of Directors, «IFSK «ARKS» LLC;September 2012 to 2015 - Member of the Board of Directors, JSC «USK MOST»;March 2014 till reporting date - Chairman of the Board of Directors, CJSC «Stroytransgaz»;July 2014 to reporting date - Member of the Board of Directors, «SAKHATRANS» LLC;July 2014 to reporting date - Member of the Board of Directors, «UK KOLMAR» LLC;August 2014 to 2015 - Member of the Board of Directors, «STGM» LLC.

Mr. Frank was a member of the Board of Directors of PJSC “Russian Aquaculture”, member of the Strategy Committee of the Board of Directors of PJSC «Russian Aquaculture», member of the Nomination and Remuneration Committee of the Board of Directors of PJSC “Russian Aquaculture”.



In 2016, the following directors worked in the Board of Directors of PJSC «Russian Aquaculture» until June 29, 2016 (positions are specified at the time of nomination):

Ekaterina V. Azimina

Professor at the Saint Petersburg State Economic University (FGBOUVO)

Mrs. Ekaterina Azimova was born in 1967, citizen of Russia.In 1990, she graduated from the Palmiro Togliatti Leningrad Institute of Engineering Economics with a degree in Engineering Economics.

Background:May 2006 to November 2011 - Vice President, Finance and Economics, JSC «Baltika Breweries»;November 2011 to April 2014 - Senior Vice President, Finance and Economics, JSC «Baltika Breweries»;April 2014 till reporting date - Professor at the Saint Petersburg State Economic University.

Mrs. Azimova was a member of the Board of Directors of PJSC «Russian Aquaculture» (independent director), Chairman of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture».


The equity stake in the Company (PJSC “Russian Aquaculture” ordinary shares): 0.0055%

Ilya O. Gusarov

Генеральный директор ООО «Роквелл Капитал».

General Director, «Rockwell Capital» LLC.

Mr. Ilya Gusarov was born in 1979, citizen of Russia.In 2002, he graduated from the Bauman Moscow State Technical University.

He has an extensive experience of participation in the Boards of Directors of energy and pipeline companies.

Background:From 2010 to 2011 - INSEAD, n/a2011 to 2013 – The Boston Consulting Group, Acting Project LeaderFrom 2013 till reporting date - General Director, «Rockwell Capital» LLC

Mr. Gusarov was a member of the Board of Directors of PJSC «Russian Aquaculture», member of the Audit Committee of PJSC “Russian Aquaculture”.





Andrey G. Plugar

Managing Director, «Rockwell Capital» LLC.

Mr. Andrey Plugar was born in 1970, citizen of Russia.In 1993, he graduated from the Moscow State Institute of International Relations of the Ministry of the Foreign Affairs of the Russian Federation with a degree in International Law.

Background:2009 to 2012 - Deputy General Director for Legal Issues, «ESN Corporation» LLC.2012 to 2014 - Managing Director for Public Private Partnership, JSC «Stroytransgaz».2014 to 2015 - Head of the Representative Office of «Alini Investments B.V.» in Russia.From 2016 till reporting date - Managing Director, «Rockwell Capital» LLC

Mr.Plugar was a member of the Board of Directors of PJSC «Russian Aquaculture», member of the Audit Committee of PJSC “Russian Aquaculture”.



Vardan N. Avakyan

CEO OJSC «Moslift»

Mr. Vardan Avakyan was born in 1968, citizen of Russia.In 1993, he graduated with honors from the Sechenov Moscow Medical Academy with a degree in Medical Care.In 1997 he obtained a degree of candidate of medical science.

Background:Chairman of the Board, OTIS Eastern Europe;CEO, OTIS Russia;CEO, OTIS Russia, CIS and Baltic;Vice President, UTC / Utilities of Buildings and Installations, Eastern Europe;2015-2016 – Chairman of the Board of Directors of PJSC «Russian Aquaculture»In 2017 appointed as CEO, OJSC «Moslift».

Government honors:2007 – gratitude from the Governor of Moscow region.2011 – honorary diploma from the President of the Russian Federation.2012 – title of the «Honorary worker of communal services in Russia».

Mr. Avakyan was a member of the Board of Directors of PJSC “Russian Aquaculture”, member of the Strategy Committee of the Board of Directors of PJSC «Russian Aquaculture», member of the Nomination and Remuneration Committee of the Board ofDirectors of PJSC “Russian Aquaculture”, member of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture».



Vyacheslav G. Krylov

Project management

Mr. Vyacheslav Krylov was born in 1967, citizen of Russia. In 1993, he graduated from the Moscow Power Engineering Institute (Technical University) with a degree in Electronic Instruments and Devices.

Background:2009 to 2011 - Executive Director, CEAC SHARED SERVICES;2011 to 2014 - Department Director, RUSAL Global Management V.V., Aluminium Division West;September 2014 to October 2014 - General Director, CJSC «Novoeniseysky Timber and Chemical Complex»;September 2014 to April 2015 - General Director, «Novoeniseysky Timber and Chemical Complex» Management Company» LLC;Since 2015 till reporting date, he has been involved in project management for a number of Russia’s leading companies.

He was a member of the Board of Directors of PJSC «Russian Aquaculture».



Ilya G. Sosnov

General Director, PJSC «Russian Aquaculture»

In 1999, he graduated from the M.V. Lomonosov Moscow State University, Faculty of Economics, with a degree in Economics.

Background:2011 to 2012 - Deputy General Director, Organisational Issues, JSC «SIBUR - Russian Tyres».2012 to 2013 - Chief Financial Officer, Financial Department, Moscow Branch, JSC «Russian Sea Group»April 2013 to October 2013 - Financial Officer, «Russian Sea-Production» LLC2013 to 2015 - Deputy General Director, Operations, «Russian Sea-Production» LLC, since October 13, 2014, it was renamed «Russian Fishing Company» LLCSince 2015 - General Director, PJSC «Russian Aquaculture», General Director, «Russian Sea-Aquaculture».Since 2016 - General Director, «Russian Sea-Delivery» LLC.

He was a member of the Board of Directors of PJSC «Russian Aquaculture».


The share in the Company’s equity capital as of the reporting date was 0.2601%.



The information on the natural persons contained in this Annual Report is disclosed with observance of the requirements of the legislation of the Russian Federation pertaining to personal data. The Company has obtained the consent of the natural persons whose personal data is contained in this Annual Report for the disclosure of such data.

Prior to the election of the Board of Directors at the extraordinary general meeting of shareholders held on October 14, 2016, the following compositions of the Board of Directors acted:

• formed by a resolution of the annual general meeting of shareholders held on June 29, 2015, which included the following persons: Ekaterina V. Azimina, Alexander S. Belichev, Ludmila I. Vorobyeva, Maxim Yu. Vorobyev, Alexander B. Garankin, Ilya O. Gusarov, Dmitry S. Dangauer, Mikhail B. Kenin, Ludmila I. Mikhaylova, Gleb S. Frank

(information on the members of this composition of the Board of Directors was disclosed in the Company’s 2015 Annual Report).

• formed by a resolution of the annual general meeting of shareholders held on January 12, 2016, which included the following persons: Ekaterina V. Azimina, Vardan N. Avakyan, Maxim Yu. Vorobyev, Alexander B. Garankin, Ilya O. Gusarov, Vyacheslav G. Krylov, Ilya G. Sosnov, Ludmila I. Mikhaylova, Ekaterina A. Chernova, Gleb S. Frank.

• formed by a resolution of the annual general meeting of shareholders held on June 30, 2016, which included the following persons: Maxim Yu. Vorobyev, Gleb S. Frank, Ekaterina V. Azimina, Ekaterina A. Chernova, Alexander B. Garankin, Arne Geirulv, Ludmila I. Mikhaylova, Ilya G. Sosnov, Andrey G. Plugar, Vardan N. Avakyan.

Transaction with the Company’s shares effected by the members of the Board of Directors during the reporting yearDuring 2016, the members of the Board of Directors carried out the following transactions with the Company’s shares:

Additional information on the members of the Board of Directors of the Company in 2016

Transactions involving the Company's shares in 2016 Effected

Participation in the equity capital of subsidiaries Not participated

Transactions between the members of the Board of Directors during 2016 Effected

Legal action against the members of the Boards of Directors Not brought

Company-sponsored training for the members of the Board of Directors Not performed

Work for or participation in corporate bodies of competing companies

The members of the Board of Directors neither worked for nor participated in corporate bodies of competing companies

Full name of a member of the Board of Directors Transaction date

Description of the transaction effected with the Company’s

shares (purchase/sale/gift/other)

Class (type) and number of the shares

being the subject of the transaction

Ilya G. Sosnov October 2016 purchase 0.188 %

Maxim Yu. Vorobyev December 2016 sale 0.0716%

Ilya G. Sosnov December 2016 purchase 0.0716%

The main provisions of the policy of the joint-stock company concerning remuneration and compensation of expenses as well as criteria for determination and amount of remuneration and compensation of expenses paid to the members of the Board of Directors of the Company in 2016The remuneration of the members of the Board of Directors conforms to the market environment and is established in such a way as to ensure the recruitment and participation in the Company’s operations of highly-qualified specialists and motivate them for honest and effective activity.

The internal document establishing criteria for determination, amount and procedure for payment of remuneration to the members of the Board of Directors of the Company has notbeen adopted.

The main provisions of the policy of the joint-stock company concerning remuneration and compensation of expenses to the members of the Board of Directors are as follows: remuneration is paid to independent directors of the Company.

The member of the Board of Directors is reimbursed for the expenses connected with his / her participation in the meeting of the Board of Directors according to the rates of compensation of business travel expenses established in the company effective on the date of the meeting. The compensation is paid based on the supporting documents provided by the members of the Board of Directors.

In 2016, the total amount of remuneration for the Board of Directors (including salaries of the members of the corporate

The procedure and amount of remuneration shall be determined by the General Meeting of Shareholders.

During the reporting period, the members of the Board of Directors were paid the remuneration for participating in the Board of Directors in the following amount:

bodies of the joint-stock company then being its employees, including those working on a part-time basis, bonuses, commission charges, remunerations specifically paid for participation in the respective corporate body as well as other types of remunerations that were paid by the joint-stock company during the reporting year) amounted to 18,830,613 (Eighteen million eight hundred thirty thousand six hundred thirteen) rubles.

In 2016, a total amount of compensation to the members of the Board of Directors for the expenses associated with execution of their functions as members of the Board of Directors was equal to 4,166,668 (Four million one hundred sixty six thousand six hundred sixty eight) rubles.

Full name of a member of the Board of Directors The amount of remuneration paid in 2016

Ekaterina V. Azimina 1 666 668,00 руб.

Vardan N. Avakyan 0

Arne Geirulv 0

Maxim Yu. Vorobyev 0

Alexander B. Garankin 0

Ilya O. Gusarov 0

Vyacheslav G. Krylov 0

Ludmila I. Mikhaylova 2 500 000,00 руб.

Sergey P. Sirotenko 0

Ilya G. Sosnov 0

Andrey G. Plugar 0

Ekaterina A. Chernova 0

Gleb S. Frank 0



Information on Holding the Meetings of the Board of Directors

• On approval of the Company’s strategy;• On election of the Chairman of the Board of Directors of the

Company and approval of compositions of the Committees of the Board of Directors of the Company;

• On approval of a schedule of in-person meetings of the Board of Directors of the Company and of the Committees of the Board of Directors of the Company for the corporate year;

• On approval of the Company’s 2016 business plan;• On approval of the updated organizational structure of the

Company;• On approval of transactions of the Company’s subsidiaries

and controlled companies, on approval of directives on voting at general meetings of shareholders of the companies which shares the Company holds.

• On establishment of executive bodies of subsidiaries and controlled companies and termination of their powers.

• On approval of the Company’s 2015 RAS and IFRS accounting statements;

• On approval of the Group’s 6M 2016 accounting statements prepared according to the International Financial Reporting Standards (IFRS);

• On consideration of the issues pertaining to the competence of the Board of Directors of the Company in accordance with the legislation of the Russian Federation and connected with the arrangement and holding of the General Meetings of Shareholders, including the preliminary approval of the Company’s 2015 annual report and recommendations concerning payment of remuneration and

compensation to the members of the Board of Directors, recommendations concerning the 2015 profit appropriation;

• On preliminary approval of resolutions on effecting major transactions and interested party transactions by the Company;

• On appointment of the Corporate Secretary of the Company, on dismissal of the Corporate Secretary of the Company;

• On approval of transaction of disposal of the Group’s assets (the Groups distribution segment - CJSC «RFC»);

• On approval of obtainment of credits and/or loans by the Group and/or controlled companies;

• On approval of loan agreements (and/or their essential terms and conditions), loans, contracts connected with securing obligations of the Company or the third party (pledges, suretyship, guarantees etc.)

• On approval of the Activity Plan for bringing the corporate governance into compliance with the PJSC Moscow Stock Exchange Listing Rules;

• On approval of internal documents of the Company that conform to the requirements of the PJSC Moscow Stock Exchange Listing Rules in accordance with the above Activity Plan;

• On consideration of the Group’s performance (on a quarterly basis);

• On approval of the Motivation System for the Company’s management;

• On consideration of reports on execution of assignments of the Board of Directors of the Company.

In the reporting year, 23 meetings of the Board of Directors were held, among them 19 absentee votes and 4 meetings by personal attendance (joint attendance). In total, 88 issues pertaining to the competence of the Board of Directors concerning the overall management of the Company’s business were reviewed.

The following issues reviewed and approved by the Board of Directors should be noted as the most important:

Minutes of the meetings held in 2016 by personal attendance (joint attendance)

Minutes No.177 dd. February 17, 2016

Agenda items:

• On approval of the budget of the PJSC «Russian Aquaculture» Group for 2016.

• On approval of the organizational structure of PJSC «Russian Aquaculture».

• On consideration of the status of execution of assignments of the Board of Directors.

Minutes No.189 dated July 22, 2016

Agenda items:

• On PJSC «Russian Aquaculture» Performance for 5M (five) 2016.

• On approval of the updated strategy of PJSC «Russian Aquaculture».

• On approval of the transaction of sale of the PJSC «Russian Aquaculture» Group distribution segment - CJSC «RFC».

• On approval of purchase and sale of a share in the equity stake of «Aquaculture Barents» LLC to the ownership of the Company-controlled subsidiary.

• On dismissal of the Corporate Secretary of the Company. • On appointment of the Corporate Secretary of the Company.• On consideration of the status of execution of assignments

of the Board of Directors of PJSC «Russian Aquaculture».

Resolutions:

• Send the presented PJSC «Russian Aquaculture» 2016 Business Plan for reworking to incorporate the comments made by the members of the Board of Directors. Present the reworked Business Plan for re-consideration to the Board of Directors of the Company.

• Approve the organizational structure presented by the management that incorporated the comments made by the members of the Boards of Directors. Report on the comments addressing to the members of the Nomination and Remuneration Committee and the members of the Board of Directors.

• Take into consideration the Report on Execution of Assignments of the Board of Directors.

Resolutions:

• Take into consideration the PJSC «Russian Aquaculture» 5M 2016 performance report.

• Approve the updated development strategy of PJSC «Russian Aquaculture» with incorporated assignments of the members of the Board of Directors.

• Approve the transaction of sale of the Group’s distribution segment - CJSC «RFC».

• Approve the purchase of 100% (One hundred percent) of the shares in the equity capital of «Aquaculture Barents» LLC by the Company-controlled subsidiary at a price recommended by the Board of Directors. Instruct the Company’s management to perform a preliminary approval procedure for a possible transaction with the GPB Bank (JSC) on the proposed terms.

• Dismiss the Corporate Secretary of the Company. Appoint Mr. Alexander A. Kalinin as Corporate Secretary of the Company.

• Take into consideration the Report of Execution of Assignments of the Board of Directors of PJSC «Russian Aquaculture» presented by the management. Update the status of the assignments, report on execution of the assignments to the members of the Board of Directors.



Minutes No. 195 dated November 23, 2016

Agenda items:

• On election of the Chairman of the Board of Directors of PJSC «Russian Aquaculture».

• On election of a new composition of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture».

• On election of a new composition of the Nomination and Remuneration Committee of the Board of Directors of PJSC «Russian Aquaculture».

• On election of a new composition of the Strategy Committee of the Board of Directors of PJSC «Russian Aquaculture».

• On consideration of the PJSC «Russian Aquaculture» Group 9M 2016 performance.

• On approval of the motivation program of the PJSC «Russian Aquaculture» Group.

• On approval of the schedule of meetings of the Board of Directors and of the Committees of the Board of Directors of PJSC «Russian Aquaculture» for 2017.

• On the status of execution of assignments of the Board of Directors of PJSC «Russian Aquaculture».

Resolutions:

• Elect Mr. Maxim Yu. Vorobyev as Chairman of the Board of Directors of PJSC «Russian Aquaculture».

• Elect the Audit Committee of the Board of Directors consisting of 4 (four) members as follows: Ludmila I. Mikhaylova (independent member of the Board of Directors of PJSC «Russian Aquaculture»); Ekaterina A. Chernova (member of the Board of Directors of PJSC «Russian Aquaculture»); Alexander B. Garankin (member of the Board of Directors of PJSC «Russian Aquaculture»); Sergey P. Sirotenko (independent member of the Board of Directors of PJSC «Russian Aquaculture»).

• Elect the Nomination and Remuneration Committee of the Board of Directors consisting of 3 (three) members as follows: Maxim Yu. Vorobyev (member of the Board of Directors of PJSC «Russian Aquaculture»); Sergey P. Sirotenko (independent member of the Board of Directors of PJSC «Russian Aquaculture»); Ludmila I. Mikhaylova (independent member of the Board of Directors of PJSC «Russian Aquaculture»).

• Elect the Strategy Committee of the Board of Directors consisting of 3 (three) members as follows: Maxim Yu. Vorobyev (member of the Board of Directors of PJSC «Russian Aquaculture»); Ludmila I. Mikhaylova (independent member of the Board of Directors of PJSC «Russian Aquaculture»); Arne Geirulv (member of the Board of Directors of PJSC «Russian Aquaculture»)

• Take into consideration the report on PJSC «Russian Aquaculture» 9M 2016 performance. Instruct the Company’s management to prepare the PJSC «Russian Aquaculture» 2017 Business Plan. Instruct the Company’s management to send a summary report on the Company’s condition and main events for the preceding month (CEO Letter) to the members of the Board of Directors on a monthly basis.

• Approve the Motivation System presented by the Company which relates to the operational and supporting as well as administrative personnel. Submit the Motivation System presented by the Company that relates to the Company’s top management for consideration of the Nomination and Remuneration Committee of the Board of Directors with subsequent submission for consideration to the Board of Directors of the Company.

• Take into consideration the PJSC «Russian Aquaculture» 2017 Schedule of Meetings of the Board of Directors and of Committees of the Board of Directors. Instruct the PJSC «Russian Aquaculture» management to prepare detailed proposals concerning dates for meetings of the Board of Directors of PJSC «Russian Aquaculture» and send them for approval to the members of the Board of Directors.

• Take into consideration the Report on Execution of Assignments of the Board of Directors of PJSC «Russian Aquaculture». Instruct the Company’s management to update a list of assignments and resolutions of the Board of Directors of PJSC «Russian Aquaculture».

Minutes No. 197 dated December 15, 2016

Agenda items:

• On approval of the PJSC «Russian Aquaculture» 2017 budget.

• On approval of the motivation system for the PJSC «Russian Aquaculture» top management.

• On consideration of the status of execution of assignments of the Board of Directors.

• On election of Chairmen of the Committees of the Board of Directors of PJSC «Russian Aquaculture» (additional item).

Resolutions:

• Approve the PJSC «Russian Aquaculture» Group 2017 budget.

• Approve key terms of the annual motivation system (annual bonus) for the PJSC «Russian Aquaculture» top management. Consider the approval of the stock option plan at the following in-person meeting of the Board of Directors of PJSC «Russian Aquaculture» in February 2017.

• Take into consideration the Report of Execution of Assignments of the Board of Directors of PJSC «Russian Aquaculture».

• Elect Mrs. Ludmila I. Mikhaylova as the Chairman of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture». Elect Mr. Sergey P. Sirotenko as the Chairman of the HR Committee of the Board of Directors of PJSC «Russian Aquaculture». Elect Mr. Maxim Yu. Vorobyev as the Chairman of the Strategy Committee of the Board of Directors of PJSC «Russian Aquaculture».

Participation of the members of the Board of Directors of PJSC «Russian Aquaculture» in the 2016 meetings

Full Name Number of the meetings attended

Number of the meetings he/she was

entitled to attend

Percentage of participation of members of the

Board of Directors in its operation, %

Ekaterina V. Azimina 19 19 100

Vardan N. Avakyan 19 19 100

Arne Geirulv 12 12 100

Maxim Yu. Vorobyev 23 23 100

Alexander B. Garankin 23 23 100

Ilya O. Gusarov 12 12 100

Vyacheslav G. Krylov 12 12 100

Ludmila I. Mikhaylova 23 23 100

Sergey P. Sirotenko 4 4 100

Ilya G. Sosnov 19 19 100

Andrey G. Plugar 7 7 100

Ekaterina A. Chernova 12 12 100

100 % is the percentage of participation of members of the Board of Directors in the meetings.



The Nomination and Remuneration Committee

The functions of the committees of the Board of Directors of PJSC «Russian Aquaculture» include decision-making on the issues within their competence as well as a detailed review of a number of key issues before the Board of Directors makes a final decision on them. The members of the committees analyze the information that they receive from the management, assess its completeness and formulate recommendations to the Board of Directors of the Company.

The Committees include representatives of the shareholders of the Company which guarantees efficient work of the committees and unbiased and balanced decisions.

The committees are formed every time a new composition of the Board of Directors is elected. The resolution of the Board

The Nomination and Remuneration Committee of PJSC «Russian Aquaculture» is responsible for development and presentation of recommendations to the Board of Directors concerning the most important issues related to the corporate HR policy, definition of

Some tasks that the Committee performs include:

• definition of criteria for selection of nominees for top managerial positions in the Company with regard both to the current tasks and capabilities of the Company and the level of qualification and expertise that the Company requires;

• approval of the organizational structure of the Company, subsidiaries and controlled companies;

• development of the Company’s remuneration policy;• provision of recommendations to the General Meeting

The composition of the Nomination and Remuneration Committee as of December 31, 2016 was as follows:

1) Maxim Yu. Vorobyev (member of the Board of Directors of PJSC «Russian Aquaculture»);2) Sergey P. Sirotenko (independent member of the Board of Directors of PJSC «Russian Aquaculture», Chairman of the Committee);3) Ludmila I. Mikhaylova (independent member of the Board of Directors of PJSC «Russian Aquaculture»).

Special committees of the Board of DirectorsCurrently, 3 (three) Committees of the Board of Directors operate:

1. The Audit Committee, acting on the basis of the Provision on the Audit Committee of PJSC «Russian Aquaculture» approved by the resolution of the Board of Directors as amended on December 23, 2016 (Minutes No. 199 dated December 23, 2016);

2. The Strategy Committee, acting on the basis of the Provision on the Strategy Committee of PJSC «Russian Aquaculture» approved by the resolution of the Board of Directors as amended on September 07, 2015 (Minutes No. 164 dated September 08, 2015);

3. The Nomination and Remuneration Committee, acting on the basis of the Provision on the Nomination and Remuneration Committee approved by the resolution of the Board of Directors of JSC «Russian Sea» Group» on September 16, 2011 (Minutes No. 82 dated December 16, 2011).

of Directors determines the persons to become members of the committees based on proposals of the members of the Board of Directors. The powers of all or some of the members of the committee may be terminated earlier by a resolution of the Board of Directors of the Company. In 2016, each Committee operated in three compositions.

The members, competence and proceedings of the Committees are established by resolutions of the Board of Directors as well as by Provisions on the Committees approved by the Board of Directors of the Company. In the course of their operations, the Committees shall be governed by federal laws, other regulatory legal acts of the Russian Federation, the Charter of the Company, the Provision on the Board of Directors of the Company as well as resolutions of the Board of Directors of the Company.

the Company’s policies and standards for selection of candidates to the corporate bodies of the Company as well as recruitment of the most highly-qualified specialists for managing subsidiaries and controlled companies.

of Shareholders concerning remuneration of the members of the Board of Directors as well as provision of recommendations to the Board of Directors concerning remuneration of the persons holding top managerial positions in the Company;

• approval, control and submission of reports to the Board of Directors concerning the HR policy and motivation system of the Company.

Audit Committee In order to ensure preliminary consideration of the issues pertaining to financial and economic activities of the Company, reliability and efficiency of functioning of the internal control system, external auditing and auditor selection, conducting independent and unbiased internal audit, the Audit Committee of the Board of Directors of the Company was established. The competence of the Committee also includes other issues as assigned by the Board of Directors of the Company.

The competence of the Audit Committee includes the following issues of the business of the Company and its subsidiaries and controlled companies:

• control over completeness, accuracy and reliability of the Company’s financial statements;

• control over reliability and effectiveness of operation of the risk management and internal control system;

• ensuring independent and unbiased execution of the internal and external audit functions;

• control over the efficiency of functioning of the system of notification of potential unfair acts of the Company’s employees (including unfair use of insider or confidential information) and third parties, as well as other violations in the issuer’s activities and control over the implementation of the measures taken by the issuer’s executive management as part of such system.

• preparing recommendations concerning a nominee to the Company’s Auditor to audit financial (accounting) or other statements made in accordance with the requirements of the Russian legislation and of consolidated financial statements made according IFRS for the Board of Directors, for subsequent approval of this nominee by the General Meeting of Shareholders of the Company;

The Audit Committee of PJSC «Russian Aquaculture» exercises control over the Company’s financial activities, reviews the Company’s financial statements (including interim statements), provides recommendations to ensure that the Company strictly abides by the effective legislation of the Russian Federation.

• reviewing and discussing with the Company’s Auditor the substantial issues resulting from the independent external auditing of the Company. The Committee brings their opinion on these issues to notice of the Board of Directors, with recommendations included;

• preparing recommendations for the Board of Directors on the maximum amount of the Company’s Auditor’s fee, type and scope of its services;

• discussing plans and scope of the audit of the financial statements with the Company’s Auditor, organizational issues concerning the Auditor’s job;

• reviewing the Company’s Auditor’s report before presenting it to the General Meeting of Shareholders of the company;

• reviewing a list of the most substantial, in the Auditor’s opinion, corrections to the Company’s accounts following the audit;

• preparing proposals concerning improvement of internal control and other procedures.

The composition of the Audit Committee as of December 31, 2016 was as follows:

1) Ludmila I. Mikhaylova (independent member of the Board of Directors of PJSC «Russian Aquaculture», Chairman of the Committee);2) Ekaterina A. Chernova (member of the Board of Directors of PJSC «Russian Aquaculture»);3) Alexander B. Garankin (member of the Board of Directors of PJSC «Russian Aquaculture»);4) Sergey P. Sirotenko (independent member of the Board of Directors of PJSC «Russian Aquaculture»).



Strategy CommitteeThe Committees activity is aimed at definition of strategic goals of the Company’s business, identification of top-priority areas and their development strategy, control over organization and

The objectives of the Strategy Committee are as follows:

• preliminary consideration and preparation of recommendations to the Board of Directors of the Company concerning the issues of strategic development of the Company submitted for approval by the Board of Directors;

• preparing recommendations to the Board of Directors of the Company following the consideration of investment projects proposed for implementation by the executive bodies of the Company;

• agreeing terms of purchase of shares/interests of commercial organizations by the Company, terms of the Company’s participation in non-commercial partnerships,

functioning of the risk management system and generation of recommendations to the Board of Directors in these areas.

associations and unions when required to approve such terms by the Board of Directors of the Company;

• assessment of the Company’s long-term efficiency in accordance with top-priority development areas for the Company approved by the Board of Directors and generation of recommendations to the Board of Directors concerning the current development strategy of the Company;

• control over execution of resolutions of the Board of Directors relating to the Company’s long-term strategic planning and business;

The composition of the Audit Committee as of December 31, 2016 was as follows:

1) Maxim Yu. Vorobyev (member of the Board of Directors of PJSC «Russian Aquaculture», Chairman of the Committee);2) Ludmila I. Mikhaylova (independent member of the Board of Directors of PJSC «Russian Aquaculture»);3) Arne Geirulv (member of the Board of Directors of PJSC «Russian Aquaculture»).

In 2016, the Committees of the Board of Directors considered the issues and made decisions within their competence. In 2016, the degree of participation in the meetings of Committees of the Board of Directors was 100%. All members attended all intra- and extramural meetings scheduled.

Minutes No.30 dated February 12, 2016

Agenda items:

• On election of the Chairman of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture».

• On recommendations to the Board of Directors concerning approval of the PJSC «Russian Aquaculture» 2016 budget.

Resolutions:

• Elect Mrs. Ekaterina V. Azimina as the Chairman of the Committee.

• Recommend the Board of Directors to approve the PJSC «Russian Aquaculture» 2016 Business Plan with the comments of the members of the Audit Committee of the Board of Directors incorporated.

The Audit Committee of PJSC «Russian Aquaculture»

Minutes No.31 dated March 03, 2016

Agenda items:

• On consideration of the Company’s 2015 performance and current issues pertaining to the competence of the Board of Directors, including the review of the Group’s accounting statements.

• On recommendations to the Board of Directors concerning the approval of the Company’s RAS accounting statements.

• On recommendations to the Board of Directors concerning the approval of the Provision on the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture» as amended.

• Committee of the Board of Directors of PJSC «Russian Aquaculture».

Minutes No.32 dated April 19, 2016

Agenda items:

• On preliminary consideration of the Company’s 4M (four) 2016 performance.

• On recommendations concerning approval of the Group’s IFRS accounting statements.

• On the status of execution of assignments of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture».

Resolutions:

• Take into consideration the information presented in the General Director’s report on implementation of the approved budget of the Company and advise the Board of Directors of the Company to approve the General Director’s report on implementation of the approved budget of the Company.

• Postpone the reviewing (for subsequent development of recommendations concerning their approval for the Board of Directors of the Company) of the Company’s IFRS statements as well as of the 2015 auditor’s report.

• Recommend to the Board of Directors of the Company to approve the 2015 RAS statements.

• Recommend to the Board of Directors to approve the Provision on the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture» as amended (Appendix No. 1 to this resolution).

• Take into consideration the Report on Execution of Assignments of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture».

Resolutions:

• Take into consideration the preliminary report of the Company’s management on the 4M 2016 performance.

• Recommend to the Board of Directors of the Company to approve the 2015 IFRS statements.

• Take into consideration the Report of Execution of Assignments of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture».

Minutes No.33 dated May 11, 2016

Agenda items:

• On recommendations to the Board of Directors of PJSC «Russian Aquaculture» concerning proposals to the annual General Meeting of Shareholders about a nominee to the Company’s Inspector position and his / her fee.

• On recommendations to the Board of Directors of PJSC «Russian Aquaculture» concerning proposals to the annual General Meeting of Shareholders about a nominee to the Company’s auditor.

Resolutions:

• Recommend to the annual General Meeting of Shareholders of PJSC «Russian Aquaculture» to impose the functions of the Company’s Inspector on Director of Economics, «Russian Sea-Aquaculture» LLC, Denis V. Zub, for a period of one year.

• Recommend to the annual General Meeting of Shareholders of PJSC «Russian Aquaculture» not to pay a fee to the Company’s Inspector.

• Recommend to the Board of Directors of the Company to elect Deloitte & Touche LLP as the Company’s auditor.



Minutes No.34 dated September 02, 2016

Agenda items:

• On preliminary consideration of the PJSC «Russian Aquaculture» Group 6M 2016 accounting statements prepared according to the international financial reporting standards (IFRS) and recommendations to the Board of Directors concerning its approval.

• On recommendations to the Board of Directors concerning establishment of the Internal Audit Service in the Company, approval of the Provision on the Internal Audit Service of PJSC «Russian Aquaculture” and the Internal Audit Policy of PJSC «Russian Aquaculture». On recommendations to the Board of Directors concerning appointment to the position of the Chief of Internal Audit Service of PJSC «Russian Aquaculture».

Minutes No.35 dated December 13, 2016

Agenda items:

• On recommendations to the Board of Directors of PJSC «Russian Aquaculture» concerning election of the Chairman of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture».

• On recommendations to the Board of Directors of PJSC «Russian Aquaculture» concerning approval of the PJSC «Russian Aquaculture» 2017 budget.

• On approval of the schedule of meetings of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture» for 2017.

• On reviewing of the status of execution of assignments of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture».

Resolutions:

• Recommend to the Board of Directors of the Company to approve the PJSC «Russian Aquaculture» Group 6M 2016 accounting statements prepared according to the international financial reporting standards (IFRS).

• Recommend to the Board of Directors of the Company to establish a structural subdivision within the Company, the Internal Audit Service. Approve the Provision on the Internal Audit Service of Public Joint-Stock Company «Russian Aquaculture». Approve the Internal Audit Policy of Public Joint-Stock Company «Russian Aquaculture». Appoint Mrs. Nadezhda V. Dopina as the Chief of the Internal Audit Service.

Resolutions:

• Recommend to the Board of Directors of the Company to elect Mrs. Ludmila I. Mikhaylova as the Chairman of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture».

• Recommend to the members of the Board of Directors of the Company to approve the PJSC «Russian Aquaculture» Group 2017 budget with the comments of the members of the Audit Committee of the Board of Directors incorporated.

• Approve the submitted schedule of meetings of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture» for 2017.

• Take into consideration the Report on Execution of Assignments of the Audit Committee of the Board of Directors of PJSC «Russian Aquaculture».

Minutes No.24 dated February 11, 2016

Agenda items:

• On recommendations concerning approval of the organizational structure of PJSC «Russian Aquaculture».

Resolutions:

• Recommend to the Board of Directors of the Company to approve the company’s organizational structure as of January 2016. To approve the target structure as of August 2016;

• To instruct the management to perform further analysis and re-engineering of business processes which can be used as a basis for presenting the optimized group’s structure by August 01, 2016.

The Nomination and Remuneration Committee of PJSC «Russian Aquaculture» Minutes No.1 dated June 24, 2016

Agenda items:

• On recommendations concerning approval of the updated strategy of PJSC «Russian Aquaculture».

• 2. On recommendations concerning approval of the transaction of purchase and sale of a share in the equity stake of «Aquaculture Barents» LLC.

• 3. On recommendations concerning approval of the transaction of sale of the PJSC «Russian Aquaculture» Group distribution segment - CJSC «RFC».

Minutes No.25 dated March 03, 2016

Agenda items:

• On consideration of the Company’s General Director’s Report on the status of searching for a foreign fish farming expert.

Minutes No.26 dated June 24, 2016

Agenda items:

• On recommendations concerning approval of General Director’s personal goals for 2016.

• On revision of salaries and wages and the 2015 bonus payment to the employees of CJSC «Russian Fish Company».

Minutes No.27 dated December 12, 2016 Agenda items:

• On recommendations concerning approval of the motivation system for the top management of PJSC «Russian Aquaculture».

Resolutions:

• Recommend to the Board of Directors to approve the updated development strategy for PJSC «Russian Aquaculture».

• Recommend to the Board of Directors to approve the transaction of purchase and sale of a share in the equity capital of «Aquaculture Barents» LLC upon the terms recommended by the Strategy Committee of the Board of Directors.

• Recommend to the Board of Directors to approve the transaction of sale of the Group’s distribution segment, CJSC «RFC», upon the terms recommended by the Strategy Committee of the Board of Directors.

Resolutions:

• Take into consideration the information presented by the Company’s General Director concerning the status of searching for a foreign fish farming expert.

Resolutions:

• Recommend to the Board of Directors to approve General Director’s personal goals for 2016.

• Take into consideration the management’s report on revision of salaries and wages and the 2015 bonus payment to the employees of CJSC «Russian Fish Company».

Resolutions:

• Recommend to the Board of Directors of the Company to approve key terms of the annual motivation system (annual bonus) for the top management of PJSC «Russian Aquaculture».

• Recommend to the Board of Directors to consider the approval of the stock option plan at the following in-person meeting of the Board of Directors of PJSC «Russian Aquaculture» with preliminary consideration by the Nomination and Remuneration Committee.

The Strategy Committee of PJSC «Russian Aquaculture»

During the reporting year, one meeting of the Strategy Committee took place in June 2016.



The key objective of the corporate secretary is to ensure the Company’s compliance with the effective legislation, the Charter and internal documents of the Company that guarantee the execution of the rights and legitimate interests of the Company’s shareholders.

The corporate secretary organizes and ensures the Company’s interaction with its shareholders and the Board of Directors of the Company.

The following functions are imposed on the corporate secretary of PJSC «Russian Aquaculture»:

• ensuring the Company’s interaction with regulatory authorities, securities market operators, the registrar, other professional players in the securities market within the powers assigned to the Corporate Secretary;

• immediate informing the Board of Directors of the Company on all discovered violations of the legislation of the Russian Federation as well as of the provisions of internal documents of the Company, compliance with which should belong to the functions of the Corporate Secretary of the Company;

• ensuring the Company’s interaction with its shareholders and involvement in prevention of corporate conflicts;

• ensuring implementation of the procedures established by the legislation and internal documents of the Company that ensure enforcement of the rights and legitimate interests of the shareholders and control over their execution;

• participation in preparing and holding General Meetings of Shareholders of the Company according to the procedure established by internal documents of the Company, including arrangements for the annual and extraordinary general meetings of shareholders in accordance with the requirements of the Charter and other internal documents of the Company as well as other functions imposed on the

Corporate Secretary in accordance with internal documents of the Company.

The Corporate Secretary of PJSC «Russian Aquaculture» carries out his / her activities in accordance with the Charter, Provision on the Board of Directors and Provision on the Corporate Secretary of the Company (approved by the resolution of the Board of Directors, Minutes No. 194 dated September 30, 2016).

The provision of the corporate secretary is published on the Company’s website at:

http://russaquaculture.ru/upload/iblock/e32/e32fe9775c7771960b1aa9bbc7f177c2.pdf

The Company’s corporate secretary is appointed and dismissed by General Director of the Company based on the resolution of the Board of Directors of the Company.

The Board of Directors of the Company shall determine the amount and procedure for payment of the remuneration, principles (conditions, procedure) of bonus payment to the Corporate Secretary of the Company.

The Corporate Secretary works under the employment agreement which is signed by the Company’s General Director on behalf of the Company.

Functionally, the Corporate Secretary directly reports to the Board of Directors, whereas administratively he / she reports to General Director of the Company.

The Corporate Secretary shall be dismissed by an order of the sole executive body based on the resolution of the Board of Directors of the Company.

Corporate Secretary

Education, names of educational institutions and graduation dates, qualification, specialization, scientific degree

In 2000, he graduated from the Faculty of Law of the Moscow State Institute (University) for International Relations of the Ministry of Foreign Affairs of the Russian Federation with a degree in International Law.In 2003, he completed the post-graduated course at the Russian Tax Service with a degree in Taxation.

Positions during the past 5 (five) years

November 2001 to October 2015 -Head of the Legal Department, CJSC «MinVata»;February 2016 to May 2016 -Legal Advisor, «Euroetalon» LLC.May 2016 to reporting date - Corporate Secretary, PJSC «Russian Aquaculture».

Information on a nominee’s affiliation (absence of affiliation) with members of the Company’s management, the Company’s shareholders

No affiliated

The corporate secretary of PJSC «Russian Aquaculture», as of December 31, 2016, was Mr. Alexander A. Kalinin (resolution of the Board of Directors, Minutes No. 189 dated July 22, 2016).

Mr. A. A. Kalinin was born in 1978, citizen of Russia.

Mr. A.A. Kalinin does not hold any shares of the Company and of its subsidiaries. No claims against the Corporate Secretary have been brought.

In accordance with Art. 13.1. of the Charter of the Company, the Inspector of the Company exercises control over financial and economic activities of the Company.

The Inspector of the Company was appointed by the General Meeting of Shareholders of PJSC «Russian Aquaculture» on June 30, 2016, Minutes No. 47 dated July 04, 2016.

The appointed Company’s Inspector is Denis V. Zub, born in1986, citizen of Russia.

Before June 29, 2015, in accordance with the resolution of the general meeting of shareholders dated June 29, 2015, Minutes No. 44 dated June 30, 2015, the Company’s inspector was Mrs. Ekaterina Yu. Astakhova, born in 1980, citizen of Russia.

The amount of remuneration to the members of the Inspecting Commission of the Company was not established in the reporting period; the remuneration was not paid.


Higher education. Mr. Zub graduated from the Finance Academy under the Government of the Russian Federation in 2008. He received a qualification of economist with a degree in Banking and Finance.


November 2009 - July 2011 - chief economist, Methodological Support and Analysis Section, JSC «Gazprom»July 2011 - February 2013 - Head of the Key Performance Indicators Analysis Section, JSC «Gazprom»May 2013 - October 2013 – Senior Consultant, Management Consulting Department, KPMG LLPOctober 2013 - February 2014 - Manager, Management Consulting Department, KPMG LLPFebruary 2014 - December 2015 - Business Analyst, CJSC «Russian Fish Company»December 2015 - March 2016 - Business Analyst, «Russian Sea-Aquaculture» LLCMarch 2016 - present - Director of Economics, «Russian Sea - Aquaculture» LLC


In 2005, she graduated from the M. V. Lomonosov Moscow State University with a degree in Economics.In 2005, she received the ACCA diploma in International Financial Reporting.In 2008, she was awarded a certificate of the Russian Presidential Academy of Public Administration (Chartered Accountant, Institute of Chartered Accountants).


2008 to 2011 - Head of the Transactions Accounting Department, JSC «Russian Sea» Group;2011 to 2013 - Chief Accountant, JSC «Russian Sea» Group;2013 to 2015 - Deputy Chief Financial Officer, PJSC «Russian Aquaculture».

INFORMATION ON THE INSPECTING COMMISSION (THE INSPECTOR) OF THE COMPANY



Information on the person being the sole executive body of the Company as of December 31, 2016:

According to the Charter, the sole executive body of the Company is the General Director.

The competence of the General Director of the Company includes all the issues of management of the current operations of the Company, except for the issues belonging to the competence of the General Meeting of Shareholders or of the Board of Directors.

The General Director reports both to the General Meeting of Shareholders (annual reporting to the Meeting on the financial and economic performance) and to the Board of Directors of the Company: He / she submits, on a regular basis, reports on fulfillment of the Company’s key performance indicators, on execution of programs and policies approved in the Company

as well as other issues connected with the current operations of the Company for consideration of the Board of Directors of the Company.

The General Director shall be elected by the Board of Directors of the Company.

The terms of the employment agreement are determined by the Board of Directors of the Company or a person authorized by the Board of Directors of the Company to sign the employment agreement in accordance with the Charter of the Company.

The Board of Directors may at any time decide to terminate the powers of the General Director of the Company.

Sole Executive Body of the Joint-Stock Company

EXECUTIVE BODIES OF THE COMPANY

Ilya G. Sosnov

General Director,PJSC «Russian Aquaculture»

General Director, PJSC «Russian Aquaculture

Mr. Sosnov was born in 1978, citizen of Russia. In 1999, he graduated from the M.V. Lomonosov Moscow State University, Faculty of Economics, with a degree in Economics.

Over the past 5 years, Mr. Sosnov has held the following positions:2011 to 2012 - Deputy General Director, Organisational Issues, JSC «SIBUR - Russian Tyres»;2012 to 2013 - Chief Financial Officer, Financial Department, Moscow Branch, JSC «Russian Sea Group»;April 2013 to October 2013 - Financial Officer, «Russian Sea - Production» LLC;2013 to 2015 - Deputy General Director, Operations, «Russian Sea-Production» LLC, since October 13, 2014, it was renamed «Russian Fishing Company» LLC;Since 2015 - General Director, PJSC «Russian Aquaculture», General Director «Russian Sea-Aquaculture»;Since 2016 - General Director, «Russian Sea-Delivery» LLC.

From January 2016 to November 2016 - Member of the Board of Directors of PJSC «Russian Aquaculture».

The person’s share in the Company’s equity capital as of the reporting date is 0.2601%.

Date of taking office: July 17, 2015, term of office: 3 years, in accordance with the resolution of the Board of Directors of the Company (Minutes of the In-Absentia Meeting of the Board of Directors No. 161 dated July 17, 2015).

The General Director’s remuneration system shall be determined by the Board of Directors. The remuneration consists of fixed and variable portions, with the latter depending on fulfillment of a certain system of key performance indicators and being linked to the personal contribution to ensuring a long-term development of the Company for the benefit of its shareholders. The key performance indicators are understood as a system of financial

The internal document that establishes criteria of determination, amount and procedure for payment of remuneration to the members of the executive bodies of the Company has not been adopted.

The PJSC «Russian Aquaculture» Charter does not provide for a collective executive body of the joint-stock company.

Transactions with the Company’s shares effected by the members of the executive bodies during the reporting year

and non-financial indicators that influence quantitative or qualitative changes of the results in respect of the Company’s strategic goal.

A bonus shall be paid to the General Director based on the PJSC «Russian Aquaculture» Group Top Management Motivation Program approved by the Board of Directors on an annual basis.

General Director’s Remuneration

The main provisions of the policy of the joint-stock company concerning remuneration and compensation of expenses as well as criteria for determination and amount of remuneration and compensation of expenses paid to the members of the executive bodies of the Company in 2016

Full name Transaction date

Description of the transaction effected with the Company's

shares (purchase/sale/gift/other)

Class (type) and number of the shares

being the subject of the transaction

Ilya G. Sosnov October 2016 purchase 0.188 %

Ilya G. Sosnov December 2016 purchase 0.0716%



Information DisclosurePJSC «Russian Aquaculture» treats information disclosure as one of the tools for communication with the shareholders, prospective investors, customers, regulatory authorities, and other groups of stakeholders.

The well-tuned and efficient information disclosure system contributes to correct positioning and shapes the Company’s image. Information on the Company’s operations is publicly available and is disclosed on a regular basis in the Russian language.

Certain requirements to the information being disclosed are governed by the legislation of the Russian Federation: The Company publishes the information as a joint-stock company, an issuer of issue-grade securities which securities are accepted for trading at the Moscow Stock Exchange.

PJSC «Russian Aquaculture» strives to comply, to the maximum extent possible, with the recommendations of the Corporate

Insider Information Protection PJSC «Russian Aquaculture» handles a large amount of insider information and the Company’s task is to prevent its unauthorized use.

In order to prevent unauthorized use of the information, the Company uses the Provision on Insider Information (approved by Minutes of the Board of Directors No.64 dated February 16, 2011) as well as the List of Insider Information (approved by Minutes of the Board of Directors No.80 dated November 25, 2011).

PJSC «Russian Aquaculture» has implemented internal procedures for this area that contribute to compliance with legislative norms and internal regulations:

Governance Code of the Bank of Russia concerning the disclosure of the information on the website and in annual reports.

The Company plans to develop and approve the PJSC «Russian Aquaculture» Information Policy which norms will be targeted at ensuring efficient interaction between the Company and the shareholders, investors, and other parties concerned.

The main information disclosure channel is the corporate website:

http://russaquaculture.ru/

Besides, we also use the web page of the information agency accredited by the Bank of Russia for disclosure of information at:

http://www.e-disclosure.ru/portal/company.aspx?id=17531

• a list of the Company’s insiders has been made, each of them being informed on being included in that list and on his / her obligations. The monitoring is carried out, information on any changes in the list of insiders is updated on a quarterly basis and send to the Exchange upon request.

• The Company’s corporate website discloses the insider information according to the established procedure in a timely manner.

The provision on insider information is available on the Company’s corporate website at:

https://russaquaculture.ru/index.php?id=75&L=2%27A%3D0

INFORMATION DISCLOSURE POLICY

Environmental ResponsibilityPJSC “Russian Aquaculture” recognizes the scale, the nature of the impact of its operations on the environment, and the extent of responsibility for ensuring environmental safety. In this connection, the main goals were defined:

• compliance with the requirements of the effective normative and legal acts of the Russian Federation, rules of natural resources management, environmental protection, environmental safety;

• minimization of the environmental impact; • prevention of environmental pollution.

In the Group’s companies:

• ongoing monitoring of environmental parameters near the production sites is carried out;

• the results obtained are analyzed and the impact on the environment is assessed.

The management system in environmental protection implemented by all the Group’s companies allows us to ensure compliance with the effective standards and rules. The Company’s enterprises possesses the permits that define permissible parameters of the impact on the environmental objects in accordance with the requirements of the effective environmental legislation. The production environmental control allows us not only to assess the level of the man-induced load but also to organize preventive actions, if required.

The environmental activities of the Group’s companies are confirmed by duly submitted periodic reports. The forward planning of the companies’ activities is targeted at prevention and minimization of possible risks connected with the environmental impact.

PERSONNEL AND SOCIAL RESPONSIBILITY


ANNUAL REPORT 2016

Personnel and social responsibility 86


Personnel and social responsibility

The Company’s average headcount in 2016 comprised 278 employees. The total Group’s headcount went down by 50.5%. It resulted from the sale of the distributorship business, JSC «Russian Fish Company» (38% of the 2015 headcount), as well as from re-arrangement of the organizational structure of the Companies (12,5% of the 2015 headcount). All organizational changes were aimed at improving the Company’s performance efficiency and manageability.

Currently, the Company provides a competitive labour remuneration system that includes fixed and motivational portions. The Company’s employees are given compensations and benefit packages that conform to the market conditions and the region of operations.

The amount of a fixed salary portion (basic salary) is determined with regard to salary ranges established for each level of the position based on the labour market analysis in the region of operations and the Company’s Policy on the labour payment market.

The variable salary portion in the Company is a component of the motivation program.

The Company treats social programs as an important component of the HR policy that contributes to PJSC «Russian Aquaculture» attractiveness in the labour market, recruitment, and retention of highly-qualified personnel and strengthening the Company’s competitive advantages in the market.

In 2016, we provided our employees with the following social benefits:

The Company’s has three types of the motivation programs:

• monthly, • annual, • project-based.

The motivation system provides clear key performance indicators and transparent calculation principles.

The Company also applies additional stimulating remuneration systems for key employees at all levels that allow us to motivate the most talented and promising employees.

• Company-provided vehicles and car parks;• Company-provided housing for key employees;• Financial aid to employees;• Sports events and corporate holidays;• Valuable gifts for holidays;• Voluntary medical insurance in Russia’s leading clinics

Payroll, personnel motivation, and rewarding system

Social programs for employees

PERSONNEL AND SOCIAL RESPONSIBILITY The Company pays much attention to personnel development

and invests at least 9 mln rubles per year into the personnel training, which on average amounts to 32,374 rubles per person.

Every year training plans for the following areas are developed:

• professional training• mandatory training• employees’ potential and leadership development.

Much attention is also paid to training of the personnel involved in fish cultivation (fish farming experts) and servicing cage units (servicing department). Every year we send our employees to theoretical and practical courses in the leading Norwegian colleges that focus on Aquaculture.

Yet, the Company also pays much attention to managers of various levels. In 2016, our management attended short-term training at the School of Skolkovo.

In 2016, much attention was paid to industrial safety. A number of processes were re-engineered that also turned out positive. The injury percentage was equal to zero.

However, we deem it important to:

• save lives and health of our employees during their labor activities;

• improve the industrial safety management system;

In 2016, the Company focused on improvement of processes; standardization training was conducted. In 2016, a set of TWI on-the-job courses was carried out in the Murmansk region.

Surely, the Company also provides in-house training. Each new employee attends an adaptation course.

A very important factor for the company is ecology and biosafety. In accordance with the established training plan, every employee attends biosafety trainings several times a year.

The training policy is our priority and it gives our employees an opportunity to develop and grow inside the company.

Currently, our employees involved in fish cultivation have unique knowledge and we are proud to say that it is us who taught them and they are unique highly-qualified specialists both in the domestic and global markets.

• timely perform safety trainings for the employees;• arrange preliminary and periodical medical examinations

for the employees;• timely provide the employees with special clothing,

footwear and other personal protective equipment;• ensure safety of the production equipment and processes;• record and review on-the-job injury rates, organize

investigation of accidents and prevent on-the-job injuries and occupational diseases.

Personnel training

Health, safety, and biosafety

RISK FACTORS


ANNUAL REPORT 2016

Major risk factors associated with the joint-stock company business 90


Risk factors

MAJOR RISK FACTORS ASSOCIATED WITH THE JOINT-STOCK COMPANY BUSINESSOperational risks

Pathogenic risks, epizootic outbreaks

Risk description Minimization method

Lack of planning • Analysis and consideration of the historic experience when planning; • Consideration of alternative options when planning.

Lack of design • Careful consideration of all possible options of the project, identification of

upsides and downsides;• Allowance for making corrections in the project.

The risk of not reaching the planned capacities and low production efficiency

• Personnel training in hatchery farms in Norway; • Focus on optimizing the process using best practices; • Regulations and normative standards for main production processes; • Bidding procedures for all major purchases; • Planning production volumes with regard to all the factors that influence

the result, timely update of the plans, informing customers on changes in production volumes.

Fish killing by predators • Installation of anti-seal equipment.

Risk of potential spoilage or failure of main equipment that may significantly affect the production process

• Admission to work for trained personnel only;• Equipment insurance, purchase of the equipment with long-term warranty

periods only;• Mandatory availability of a spare parts kit, especially of components of

bearing structures and fasteners, in the company.


Pathogenic risks, epizootic outbreaks

• Compliance with total recommended volumes of cultivation, location of areas at sufficient distances from one another, concentration of big biomass volumes in large depth areas;

• Regular internal and external veterinary inspections in the farms; • Stocking volumes and densities are justified by research institutions; • The neighbouring farms in the same fiord – fish of the same generation; • Farm resting after killing each generation of the fish; • Insurance covering fish transportation and fish in cages.

Biological risks

Environmental impact risks

Financial risks


Risk of communication of diseases from wildlife fish

Risk of intrusion of foreign pathogenic organisms

Risk of genetic modifications in fish populations naturally inhabiting the water due to aquaculture salmon leaking out of cages

• Ongoing production control; • Analysis of standard indicators of water quality, natural waste amounts; • Installation of a perfect purification system; • Using special protection nets and anti-seal ultrasound repelling devices on

all the hatcheries.


Risk of abnormal weather phenomena in winter or summer

Risk of change in oceanic currents

The probability of such risk is very low. The existing changes in climatic conditions and oceanic currents present no threat. In case of significant changes in water temperature and routes of the undercurrents, the existence of not only of а separate aquaculture farm, but of the whole fishery industry of the region will be unlikely.


Change in the market environment A slump in the selling price of the products due to the prevailing market position of a foreign salmon supplier in the Russian market

Inadequate funding

Currency exchange rate fluctuations

• It is possible to secure against the risks of this group by reducing dependence on foreign suppliers;

• Considering a Russian feed producer as an alternative option; • Planning the budget with regard to a possible increase in costs of basic

materials as well as with regard to forecasts of currencies exchange rates fluctuations.


Risk factors

Social risks

Marketing risks


Lack of competence of the employees

Enticement of the key employees by competitors

Absence of the personnel from work after holiday leaves

• Performance incentives for the most responsible and distinguished employees;

• Extending duration of employment agreements and increasing salaries for the well-performing employees;

• Considering the possibility of recruiting them to the permanent staff.

On-the-job injuries

• Training all the personnel on safety and compliance with safety; • Strict control to ensure than only well-trained employees aware of the

technology are authorized to work on the production sites, as well as denial of access to the production site and to the workplace for employees being in alcoholic intoxication;

• Production design with account for safety for the personnel.

The risk of stealing of the products by local inhabitants, poaching, deliberate spoilage of cages

• Establishing a staff of security service; • 24/7 monitoring in all areas; • Installing video surveillance equipment; • Working and talking with the Company’s employees on liability for theft

and aiding in theft.


Absence of expected or forecast demand• Signing long-term contracts with customers for delivery of the products.

Therefore, it facilitates planning of production volumes and minimizes the risks related to sales of finished products.

Risks connected with underestimation of the competition level (dissemination of false or distorted information that can cause damage to the company or harm its business reputation as well as misleading in respect of the nature, method and site of manufacture, customer performance and quality of the company’s products).

• Establishing and maintaining the most friendly or partnership relations with other companies in the industry.

Negative image

• Promoting the importance of aquaculture and technologies it uses; • Paying special attention to the environmental friendliness of the

production; • Actively cooperating with local farmers and principal companies in the

region; determining common problems and issues; • Initiating and participating in conferences on the importance and necessity

of the aquaculture development.

Legal risks

Commercial risks


Legislative amendments (including changes in tax rates, increase in various duties and levies)

• Increasing financial strength reserve.


Violation of obligations or failure to perform the obligations on part of raw materials and stock suppliers

• Stipulating penalties in contracts with suppliers; • Making up an alternative list of suppliers made up in advance.

Project risk assessment Name of the risk Probability of occurrence

Significance for the

company Assessment Rank

Operational risks 0,2 0,7 0,14 4

Pathogenic risks 0,2 0,8 0,16 2

Biological risks 0,1 0,5 0,05 6

Environmental risks 0,05 0,8 0,04 7

Financial risks 0,3 0,6 0,18 1

Commercial risks 0,3 0,5 0,15 3

Social risks 0,2 0,4 0,08 5

Legal risks 0,4 0,4 0,16 2

Marketing risks 0,05 0,3 0,015 8

It can be concluded that the most probable and serious risks, in terms of amount of consequences, for an aquaculture company are financial and pathogenic risks. First of all, attention should be paid to the quality of work with suppliers in order to exclude disruption of supplies as well as to perform careful planning and budgeting with regard to all possible financial market fluctuations and price increases.

The major threatening risk for the entire commercial Atlantic salmon cultivation industry is epizootic development. This is the main point to which much attention is paid in this area. Therefore, every year more efficient and, at the same time, cost-effective disease control methods are developed. It helps prevent the risk of diseases and excludes the application of chemicals which produces less impact on the environment.

Special attention is also paid to operational risks. It is important to comply with the rules and methods of execution of all production operations and apply the practices of the leading companies in the industry. Designing requires special attention which should be paid to forecasting based on the experience available as well as on experience of co-producers, including foreign counterparts. It is required to ensure high-quality preparation and training for the personnel on how to work in cages and with the fish. These types of job simultaneously require high endurance and scrupulosity in operations.

Social, marketing and legal risks may cause less damage for the company. However, they are more likely to occur as they are connected with external factors difficult to foresee.

Results of the risk assessment and prioritization are as follows:

COMPANY AND STRUCTURE


ANNUAL REPORT 2016

96Information on the company and its structure


Company and structure

INFORMATION ON THE COMPANY AND ITS STRUCTUREGeneral Information

Full name of the company: Public Joint-Stock Company «Russian Aquaculture»

Abbreviated company name: PJSC «Russian Aquaculture»

The constituent entity of the Russian Federation in which territory the company is registered: city of Moscow

Place of business: Russian Federation, 121353, Moscow, Belovezhskaya str., bldg. 4

Registered address: Russian Federation, 121353, Moscow, Belovezhskaya str., bldg. 4 Contact phone number: +7 (495) 258-99-28

Fax: +7 (495) 258-99-28

E-mail address: [email protected]

Website: http://russaquaculture.ru/

The Company was registered on December 10, 2007, OGRN (Primary State Registration Number)1079847122332, certificate of state registration series 78 No. 006024638, date of issue December 10, 2007.

Information on inclusion into the list of strategic enterprises and strategic joint-stock companies: not included.

Average headcount: 278 employees

PJSC «Russian Aquaculture» (hereinafter also named as Russian Aquaculture, the Company) is one of the leading companies in the Russian commercial fish cultivation market.

The executive body is situated in Moscow. The Company’s branches operate in Murmansk and Karelia.

In 2016, the Company was present in two fish market segments: distribution of chilled and frozen fish (until August 2016) and aquaculture. Commercial red fish cultivation - this segment is represented by «Russian Sea-Aquaculture» LLC.

The Company’s customers are federal and regional retail chains.

Report Limitations

Limitation of Liability

Core Business

The information presented in the annual report, including the financial and economic performance indicators estimated based on the IFRS and RAS accounting statements, includes the data on PJSC «Russian Aquaculture» operations.

The annual report contains information on the Company’s 2016 performance available to the Company at the time of report generation. In order to track the performance trends, the 2014-2015 data are also provided.

All the information about the members of the Company’s corporate bodies and control bodies, the members of the

The annual report contains the information on the Company’s 2016 performance and forward-looking data, statements concerning intentions, opinions and current expectations of the Company that relate to the result of its operations, financial standing, liquidity, growth prospects, strategy as well as development of the industry in which PJSC «Russian Aquaculture» operates. Such forward-looking statements are inherently characterized by risks and uncertainty factors since they belong to events and depend on the circumstances that may not happen in the future.

The words “intends», «strives», «expects», «evaluates», «plans», «considers», «may/can», «must», «will», «continue» and other similar expressions generally point at the forward-looking nature of the statement and assume the risk of non-occurrence of these events and actions depending on various factors.

The Company warns that forward-looking statements do not guarantee future performance indicators. The actual performance of the Company, its financial state and liquidity as well as the development of the industry it operates in may

committees of the Board of Directors and the corporate secretary as well as amounts of personal remuneration is given in this report with regard to the requirements of the legislation of the Russian Federation relating to personal data. Information about employers of the members of the Board of Directors and the positions they hold are given in accordance with the information they submitted to the Company as of the end of the reporting year. In this case, the Company understands «currently» as December 31, 2016.

substantially differ from the performance given in forward-looking statements contained in this document. Besides, even if the performance indicators given correspond to the forward-looking statements presented in this report, these indicators and events do not mean that similar performance indicators and events will be reached in the future.

The Company neither provide any direct or implied assurances or guarantees nor bears any responsibility in case of losses that natural or legal persons may incur as a result of using the forward-looking statements given in this annual report, for whatever reason, whether expressly or by implication. These persons should not fully rely on the forward-looking statements contained herein as they are not the only possible scenarios.

Except as required by the legislation of the Russian Federation, the Company does not undertake to revise or confirm the expectations or evaluations as well as to publish updates or changes in the forward-looking statements presented herein in connection with the event to follow or receipt of new information.

The core business of the Company is Accounting and Auditing (OKVED (Russian Standard Industrial Classification of Economic Activities Code) 74.12).

In 2016, no alteration/extension of types of business was performed.



Size, Structure and Information on the Shareholder Equity and the Shares

The Company’s equity capital is equal to 7,953,765,100 (Seven billion nine hundred fifty three million seven hundred sixty five thousand one hundred) rubles.

The Company’s equity capital is divided into 79,537,651 (Seventy nine million five hundred thirty seven thousand six hundred fifty one) shares purchased by the shareholders (allotted shares) with a par value of 100 (One hundred) rubles each.

State registration number of the issue of ordinary shares: 1-01-04461-D

Date of state registration of the issue of ordinary shares: March 03, 2008

Listing: Tier 2 (the Moscow Stock Exchange list)

Stock market index: AQUA

Capitalization (as of December 31, 2016): 6,299,381,959.20

The shareholders who own over 2% of the Company’s equity, as of December 31, 2016:

Equity capital structure, as of December 31, 2016

Maxim Yu. Vorobyev

The person’s share in the issuer’s equity stake, 47.85%Share of the issuer’s ordinary shares that the person owns, 47.85%Share of the issuer’s preferred shares that the person owns, 0%

«Svinyin and Partners Management Company» LLC

The person’s share in the issuer’s equity stake, 23.39%Share of the issuer’s ordinary shares that the person owns, 23.39%Share of the issuer’s preferred shares that the person owns, 0%

Mikhail B. Kenin

The person’s share in the issuer’s equity stake, 23.52%Share of the issuer’s ordinary shares that the person owns, 23.52%Share of the issuer’s preferred shares that the person owns, 0% 5+48+24+23+F 47,85%

M.Yu. Vorobyev

5,24%Others

23,39%“Svinyin and Partners Management Company” LLC

23,52%M.B. Kenin

Special right of the Russian Federation to participate in the company’s governance («the gold share»): not available

Information on the Registrar

Information on the Auditor

Name Joint Stock Company "Independent Registrar Company" (AO "NRK")

Address 18, Stromynka, bldg. 5Б, 107076, Moscow

Phone/Fax +7 (495) 926-81-60+7 (495) 926-81-78

Website http://nrcreg.ru/default.aspx

E-mail address [email protected]

License

License for carrying out registrar activitiesThe license was first granted in 1996. In September 2002, a new perpetual license was granted. The details of the effective license: Date of issue: September 06, 2002 Registration number: 045-13954-000001Expiry date: Perpetual Issued by: Federal Commission for the Securities Market of RussiaSigned by: Deputy Chairman of the Bank of RussiaV.V. Chistyukhin

Name Deloitte & Touche LLP

Address 5 Lesnaya str., Moscow, 125047, Russia

Phone/fax +7 (495) 787 06 00+7 (495) 787 06 01

Website https://www2.deloitte.com/ru/ru.html

E-mail address [email protected]

Membership in self-regulated organisations

Member of self-regulatory auditors’ organization «Russian Audit Union (Association)».Address: 8, Petrovsky lane, bldg. 2, 103426, Moscow, RussiaORNZ (Principal Number of Registration Entry) 11603080484

The annual General Meeting of Shareholders held on June 30, 2016 approved Deloitte & Touche CIS as an auditor to audit the Company’s 2016 Russian standards accounting statements as well as to audit the Company’s 2016 consolidated financial statements prepared in accordance with the requirements of the International Financial Reporting Standards.

Type of the issuer’s statements in respect of which the auditor carried out independent audit: Russian standards accounting statements and consolidated financial statements for 2016.



Depository

Name Non-bank Credit Organization Limited Liability Company "National Settlement Depository" (NSD)

Address 12, Spartakovskaya str., 105066, Moscow

Phone/Fax +7 (495) 234-48-27+7 (495) 956-09-38

Website https://www.nsd.ru/ru/

License License for carrying out registrar activities No.177-12042-000100, issued by the Federal Service for Financial Markets of Russia on February 19, 2009, non-expiry license.

Structure of the Joint-Stock Company This section provides information about all forms of the company’s participation in commercial and non-profit organizations, including the purpose of participation, form and financial parameters of participation, basic information on respective organizations, indicators of economic efficiency of participation, particularly the amount of the dividends received during the reporting year on the shares that the company holds:

The Company does not participate in non-commercial organizations (associations, non-commercial partnerships)

The information on business entities with the Company’s share in the equity capital ranging between 2 and 20 percent: n/a

The information on controlled companies with the Company’s share in the equity capital ranging between 20 and 50 percent.: n/a

The information on subsidiaries with the Company’s share in the equity capital ranging between 50 percent + 1 share and 100 percent• Full name of the company: «Russian Sea-Delivery» limited liability company

Address: 4, Belovezhskaya str., 121353, Moscow, Russia;OGRN (Primary State Registration Number) (if available): 1027700107423;wholesale, retail sale, commission trade, foodstuff trade and others;The 2016 proceeds amount: 0The 2016 profit amount: (365,402) thousand rubles.The purpose of participation: profit-makingForm and other financial parameters of participation: Share in the equity (contributed) capital of the Company;Share in the equity capital of the business entity: 100%, which amounts to 50 thousand rub.Indicators of economic efficiency of participation (amount of dividend received in the reporting year): The income from the financial investment object was not paid.

• Full name of the company: «Aquaculture» limited liability companyAddress: 4, Belovezhskaya str., 121353, Moscow, RussiaOGRN (Primary State Registration Number) (if available): 1147748007516;Core business: fishery in rivers, lakes, water storage reservoirs and ponds;The 2016 proceeds amount: 0The 2016 profit amount: (704) thousand rublesThe purpose of participation: profit-makingForm and other financial parameters of participation: Share in the equity (contributed) capital of the Company;Share in the equity capital of the business entity: 99.99 %, which amounts to 2,400,000 thousand rub.;Indicators of economic efficiency of participation (amount of dividend received in the reporting year): The income from the financial investment object was not paid.

Information on the Company’s affiliation with a holding structure: n/a

Information on signed purchase and sale agreements for equity, shares, equity units of business partnerships and companiesInformation on signed purchase and sale agreements for equity, shares, equity units of business partnerships and companies, including the information on the parties, subject matter, price and other terms and conditions of these agreements: not signed by the Company during the reporting year.

Information on appropriation of the Company’s profit

Dividends were not paid during the reporting year.

Information on appropriation of the Company’s profit obtained in the reporting yearThe 2016 profit was not appropriated.

Information on appropriation of the Company’s profit obtained during the preceding reporting year:The 2015 profit was not appropriated.

APPENDICES


ANNUAL REPORT 2016

Statement of management’s responsibilities

Consolidated financial statements

Consolidated financial statements

Notes to the consolidated financial statements

Report on compliance with the principles and recommendations of the corporate governance code

104

105

110

118

163


Appendices

STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016

Management is responsible for the preparation and fair presentation of the consolidated statement of financial position of PJSC Russian Aquaculture (the “Company”) and its subsidiaries (collectively – the “Group”) as at 31 December 2016 and the related consolidated statements of comprehensive income, cash flows and changes in shareholders’ equity/ (deficit) for the year ended 31 December 2016 in accordance with International Financial Reporting Standards.

In preparing the consolidated financial statements, management is responsible for:

• Selecting suitable accounting principles and applying them consistently;

• Making judgments and estimates that are reasonable; Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• Making an assessment of the Group’s ability to continue as a going concern.

Management is also responsible for:

• Designing, implementing and maintaining an effective and sound system of internal controls, throughout the Group;

• Maintaining adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose, with reasonable accuracy at any time, the consolidated financial statements of the Group, and which enable them to ensure that the consolidated financial statements of the Group comply with International Financial Reporting Standards;

• Maintaining statutory accounting records in compliance with local legislation and accounting standards in the respective jurisdictions in which the Group operates;

• Taking such steps as are reasonably available to them to safeguard the assets of the Group;

• Preventing and detecting fraud and other irregularities.

On behalf of the Group’s management, the consolidated financial statements for the year ended 31 December 2016 were authorised for issue on 25 April 2017 by:

I. SosnovChief Executive Officer

INDEPENDENT AUDITOR’S REPORT

Basis for Opinion

Key Audit Matters

OpinionWe have audited the consolidated financial statements of PJSC Russian Aquaculture (the “Company”) and its subsidiaries (collectively – the “Group”), which comprise the consolidated statement of financial position as at 31 December 2016, and the consolidated statement of comprehensive income, consolidated statement of changes in shareholders’ equity/ (deficit) and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit

To the Board of Directors and Shareholders of PJSC Russian Aquaculture

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”).

Professional Accountants (the “IESBA Code”) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in the Russian Federation, and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.


Appendices

Why the matter was determined a key audit matter How the matter was addressed in the audit

Valuation of biological assetsAt 31 December 2016 the carrying value of biological assets was RUB 3 353 805 thousand (31 December 2015: RUB 946 895 thousand), represented by salmon and trout.

Biological assets are stated at fair value less estimated costs to sell.

Further details are provided in Note 4 “Critical accounting judgements and key sources of estimation uncertainty” and Note 9 “Biological assets” to the consolidated financial statements.

We focused on this area as a key audit matter because the assessment of the fair value using valuation techniques involves complex and significant judgements about future salmon and trout prices and other assumptions of the valuation model.

Our procedures were focused on verification of management’s assumptions used in valuation models.

The assumptions to which the models are most sensitive and likely to lead to material errors include the following:

• future selling prices; • expected mortality rate; and • deviation of standard fish weight from actual.

We assessed inputs to the models against the actual (after the reporting date) and historical data and available external benchmarks, to ensure that the assumptions remain within an acceptable range.

We considered the adequacy of the Company’s disclosures regarding key unobservable inputs and the related sensitivity analysis.

Existence of biological assetsAs described in the Note 9 “Biological assets” to the consolidated financial statements, the Group had significant volume of live fish at the reporting date.

Past events indicated that the Group’s activities are exposed to climatic, disease and other natural factors affecting fish farming.

Further details are provided in Note 9 “Biological assets” and Note 32 “Financial instruments and financial risk management objectives and policies” to the consolidated financial statements.

We focused on this area as a key audit matter due to significant losses incurred by the Group in the prior years, caused by fish virulent diseases.

The audit procedures addressing the risk of biological assets’ existence included:

• fish farms’ site visits and observation of the fishing process;

• test of controls over the identification and recording of losses from fish mortality, exceeding natural level;

• sample review of fishing reports;• analytical procedures to determine closing balance of

the biological assets; and• review of test results prepared by independent

laboratories on water and fish samples.

Why the matter was determined a key audit matter How the matter was addressed in the audit

Compliance with covenantsAs described in the Note 17 “Short-term borrowings” to the consolidated financial statements, the Group should comply with certain covenants stipulated by the loan agreements with Gazprombank. In the event of non-compliance with the covenants, the bank may demand early repayment of the loans.

Further details are provided in Note 16 “Long-term borrowings” and Note 17 “Short-term borrowings” to the consolidated financial statements.

We consider potential non-compliance with the covenants to be a key audit matter because the Group is highly dependent on external sources of financing and because there had been several cases of breaches in the past.

We assessed completeness of the covenants, analysed by the Group, by:

• reviewing all loan agreements for the purpose of identifying covenants stipulated by those agreements;

• reviewing minutes of board of directors meetings held during the reporting period to identify new loan agreements with the covenants, if any.

We recalculated the covenants for all applicable loans and borrowings and ensured that there was no breach of covenants at 31 December 2016.

Other InformationManagement is responsible for the other information. The other information comprises the information included in the Annual report, but does not include the consolidated financial statements and our auditor’s report thereon. The Annual report is expected to be made available to us after the date of this auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information

identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

When we read the Annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.


Appendices

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for

going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;

• obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control;

• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;

• conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions

are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern;

• evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation;

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated to those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period, which constitute the key audit matters included herein.

Sedov Andrey, partner

25 April 2017

The Entity: PJSC Russian Aquaculture

Certificate of state registration 78 № 006024638, issued on 10.12.2007.

Primary State Registration Number: 1079847122332

Certificate of registration in the Unified State Register №7157746005080 of 24.03.2015, issued by Moscow Inspectorate of the Russian Federal Tax Service № 46.

Address: Russia, 121353, Moscow, Str. Belovezhskaya, 4. Audit Firm: ZAO “Deloitte & Touche CIS”

Certificate of state registration № 018.482, issued by the Moscow Registration Chamber on 30.10.1992.

Primary State Registration Number: 1027700425444

Certificate of registration in the Unified State Register№ 77 004840299 of 13.11.2002, issued by Moscow Interdistrict Inspectorate of the Russian Ministry of Taxation № 39.

Member of Self-regulated organization of auditors “Russian Union of auditors” (Association), ORNZ 11603080484.


Appendices

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAT 31 DECEMBER 2016

In thousands of Russian Roubles Notes 31 December 2016

31 December 2015

ASSETS

Non-current assets

Property, plant and equipment 6 1,722,708 1,777,481

Advances paid to suppliers for property, plant and equipment - 24,280

Intangible assets 7 1,553 2,448

Deferred tax assets 26 11,329 67,789

1,735,590 1,871,998

Current assets

Inventories 8 143,781 118,235

Biological assets 9 3,353,805 946,895

Trade and other receivables, net 10 314,496 859,596

VAT recoverable 5,107 12,851

Advances paid to suppliers, net 11 348,469 93,871

Short-term investments 12 10 168,000

Income tax receivable 9,804 10,923

Cash and cash equivalents 13 33,887 458,112

Assets classified as held for sale 27 - 3,915,290

4,209,359 6,583,773

Total assets 5,944,949 8,455,771

In thousands of Russian Roubles Notes 31 December 2016

31 December 2015

SHAREHOLDERS’ EQUITY/ (DEFICIT) AND LIABILITIES

Shareholders’ equity/ (deficit)

Share capital 28 7,953,765 7,953,765

Share premium 654,035 654,035

Effect from reorganization of the Group under common control 28 - (5,187,469)

Accumulated deficit (6,241,074) (4,939,171)

2,366,726 (1,518,840)

Non-current liabilities

Long-term borrowings 16 346,874 894,217

346,874 894,217

Current liabilities

Short-term borrowings 17 2,853,126 5,058,387

Trade payables 14 77,352 38,281

Other payables 15 56,266 110,993

Advances received from customers 3,707 142

VAT and other taxes payable 18 240,898 42,004

Liabilities directly associated with assets classified as held for sale 27 - 3,830,587

3,231,349 9,080,394

Total liabilities 3,578,223 9,974,611

Total shareholders’ equity/ (deficit) and liabilities 5,944,949 8,455,771



The notes on pages 120 to 164 are an integral part of these consolidated financial statements.


Appendices

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2016

In thousands of Russian Roubles NotesYear ended

31 December 2016

Year ended 31 December

2015

Continuing operations

Revenue 19 2,475,528 864,841

Cost of sales 20 (1,381,260) (931,703)

Gross profit/ (loss) before revaluation of biological assets 1,094,268 (66,862)

Fair value profit/ (loss) on revaluation of biological assets 9 1,738,741 (154,955)

Gross profit/ (loss) 2,833,009 (221,817)

Selling and distribution costs 21 (53,635) (14,187)

General and administrative expenses 22 (202,172) (111,913)

Other operating income 24 167,030 11,054

Other operating expenses 25 (128,618) (1,130,654)

Interest income 17,858 17,349

Interest expense 17 (452,355) (471,504)

Foreign exchange gain 9,529 59,119

Profit/ (loss) before income tax 2,190,646 (1,862,553)

Income tax (expense)/ benefit 26 (57,572) 1,400

Net profit/ (loss) for the year, being total comprehensive profit/ (loss) for the year from continuing operations 2,133,074 (1,861,153)

In thousands of Russian Roubles NotesYear ended

31 December 2016


2015

Discontinued operations

Net profit for the year from discontinued operations 27 1,752,492 522,317

NET PROFIT/ (LOSS) FOR THE YEAR, BEING TOTAL COMPREHENSIVE PROFIT/ (LOSS) FOR THE YEAR 3,885,566 (1,338,836)

Basic and diluted earnings/ (loss) per share (Russian Roubles) from continuing operations 29 26.87 (23.44)

Basic and diluted earnings per share (Russian Roubles) from discontinued operations 29 22.08 6.58

Basic and diluted earnings/ (loss) per share (Russian Roubles) from continuing and discontinued operations 29 48.95 (16.86)





Appendices

In thousands of Russian RoublesYear ended

31 December 2016


2015

Cash flows from continuing operating activities:

Profit/(loss) before income tax 2,190,646 (1,862,553)

Adjustments to reconcile loss before income tax to cash used in operating activities:

Depreciation of property, plant and equipment (Notes 20, 22) 81,201 51,023

Amortisation of intangible assets (Note 7) 1,877 2,377

Interest income (17,858) (17,349)

Interest expense (Note 17) 638,136 667,666

Government subsidies (Note 17) (185,781) (196,162)

Foreign exchange gain (9,529) (59,119)

Loss on disposal of property, plant and equipment 2,896 2,804

Loss on write-off of property, plant and equipment (Note 25) - 111,029

Loss on write-off of intangible assets (Note 25) - 38,738

Stocktake shortages and live fish mortality (Notes 21, 25) 133,208 966,488

Change in allowance for doubtful accounts receivable (Note 21) 3,097 (13,840)

Impairment/ (reversal of impairment) of advances paid (Note 21) 39,293 (5,724)

Fair value (profit)/ loss on revaluation of biological assets (1,738,741) 154,955

Other - (4,455)

Operating profit/ (loss) before working capital changes 1,138,445 (164,122)

Movements in working capital:

Increase in inventory and biological assets (704,901) (692,910)

Increase in trade and other receivables (141,048) (448,526)

Decrease in VAT recoverable 7,744 24,348

(Increase)/ decrease in advances paid to suppliers, net (269,611) 165,411

Increase in trade payables 35,444 11,125

CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2016


31 December 2016


2015

Increase/ (decrease) in other payables 131,687 (14,658)

Increase/ (decrease) in advances received from customers 3,565 (650)

Increase in other taxes payable 12,480 3,218

Cash generated from/ (used in) continuing operations 213,805 (1,116,764)

Income tax paid - (60)

Interest received 37,656 5,153

Interest paid (412,130) (405,338)

Net cash used in continuing operating activities (160,669) (1,517,009)

Net cash generated from discontinued operating activities 323,285 268,726

Net cash generated from/ (used in) continuing and discontinued operating activities 162,616 (1,248,283)

Cash flows from continuing investing activities:

Payments for property, plant and equipment (150,070) (843,921)

Proceeds from disposal of property, plant and equipment (1,276) 92,862

Purchase of intangible assets (982) (1,872)

Loans repaid 168,000 495,448

Loans issued (310,010) (139,149)

Net proceeds from disposal of subsidiary (Note 27) 1,774,980 -

Dividends received 650,042 -

Net cash generated from/ (used in) continuing investing activities 2,130,684 (396,632)

Net cash generated from/ (used in) discontinued investing activities 367,613 (226,884)

Net cash generated from/ (used in) continuing and discontinued investing activities 2,498,297 (623,516)


Appendices


31 December 2016


2015

Cash flows from continuing financing activities:

Repayment of bonds - (629,446)

Proceeds from short-term loans 2,408,388 2,218,193

Repayment of short-term loans (4,877,999) (269,650)

Net cash (used in)/ generated from continuing financing activities (2,469,611) 1,319,097

Net cash (used in)/ generated from discontinued financing activities (738,650) 161,622

Net cash (used in)/ generated from continuing and discontinued financing activities (3,208,261) 1,480,719

Net decrease in cash and cash equivalents (547,348) (391,080)

Effect of exchange rate fluctuations on cash and cash equivalents 45,225 131,715

Disposal of subsidiary 77,898 -

Reclassification to assets held for sale - (77,898)

Cash and cash equivalents at the beginning of the year 458,112 795,375

Cash and cash equivalents at the end of the year 33,887 458,112




CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY/ (DEFICIT)FOR THE YEAR ENDED 31 DECEMBER 2016

In thousands of Russian Roubles Share capital

Share premium

Effect from reorganiza-tion of the

Group under common

control

Accumulated deficit

Total (deficit)/

equity

Balance at 31 December 2014 7,953,765 654,035 (5,187,469) (3,600,335) (180,004)

Total comprehensive loss for the year - - - (1,338,836) (1,338,836)

Balance at 31 December 2015 7,953,765 654,035 (5,187,469) (4,939,171) (1,518,840)

Total comprehensive income for the year - - - 3,885,566 3,885,566

Reclassification of effect from reorganization of the Group under common control to retained earnings (Note 28)

- - 5,187,469 (5,187,469) -

Balance at 31 December 2016 7,953,765 654,035 - (6,241, 074) 2,366,726





Appendices

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(ALL AMOUNTS IN THOUSANDS OF RUSSIAN ROUBLES,

IF NOT OTHERWISE INDICATED)

1. Corporate information

These consolidated financial statements are prepared by Public joint stock company (“PJSC”) Russian Aquaculture. The principal activities of PJSC Russian Aquaculture (“the Company”) and its subsidiaries (collectively referred to as “the Group”) are fish farming and distribution of fish.

The companies of the Group are located in Russia, except for RSEA CYPRUS LIMITED, which is registered in Cyprus.

The Company is registered under the laws of Russia in Moscow. The Company’s headquarter address is: 121353, Russia, Moscow, 4 Belovezhskaya Street, Western gate.

As at 31 December 2016 LLC Svinin and partners (company registered in the Russian Federation), Maxim Vorobiev (Russian citizen) and Mikhail Kenin (Russian citizen) are direct

shareholders of the Group (owing 23.4%, 47.3% and 22.6% of shares respectively). Thus the Group does not have a single ultimate controlling party. 6.7% of shares were in free float.

As at 31 December 2015 the Group was owned by Gleb Frank (37.1%) and Maxim Vorobiev (31.5%); 21.8% were held by individuals (including 10.2% held by Mikhail Kenin) and 9.6% were in free float.

These consolidated financial statements were authorised for issue by the Board of Directors of the Company on 25 April 2017.

The principal activities and entities of the Group as of 31 December 2016 and 31 December 2015 were as follows:

Name Principal activity 31 December 2016

31 December 2015

PJSC Russian Aquaculture Holding/ managing company n/a n/a

LLC Aquaculture Dormant 100 100

LLC Russian Sea Delivery Dormant 100 100

LLC Russian Sea Aquaculture Fish farming 100 100

RSEA CYPRUS LIMITED Distribution/ export - 100

JSC Russian Fish Company Distribution - 100

LLC Russian Sea – Kaliningrad Fish and seafood processing, distribution - 100

On 4 August 2016 the Group closed the sale of its distribution business represented by JSC Russian Fish Company and its two subsidiaries – LLC Russian Sea – Kaliningrad and RSEA CYPRUS LIMITED.

Ownership and voting interest, %

2. Statement of compliance and significant accounting policies

These consolidated financial statements of PJSC Russian Aquaculture for the year ended 31 December 2016 have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

The Company and its subsidiaries maintain their accounting records in Russian Roubles (“RR”) and prepare their statutory financial statements in accordance with the Regulations on Accounting and Reporting of the Russian Federation (“RAS”) and Cyprus. The statutory financial statements have been adjusted to present these consolidated financial statements in accordance with IFRS. These adjustments principally relate to valuation and depreciation of tangible fixed assets, valuation of biological assets, certain valuation reserves, purchase accounting for business combinations and the resulting income tax effects.

The consolidated financial statements have been prepared under the historical cost convention except for the valuation of financial instruments in accordance with International Accounting Standard 39 “Financial Instruments: Recognition and Measurement” (“IAS 39”) and International Financial Reporting Standard 13 “Fair value measurement” (“IFRS 13”) and valuation of biological assets (IAS 41 “Agriculture” (“IAS 41”) and inventory measured at fair value less estimated point-of-sale costs in accordance with International Accounting Standard “Inventories” (“IAS 2”).

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, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

In general, the following conditions must be met for an asset to be classified as held for sale:

• Management is committed to a plan to sell;• The asset is available for immediate sale;• An active programme to locate a buyer is initiated;• The sale is highly probable, within 12 months of

classification as held for sale (subject to limited exceptions);• The asset is being actively marketed for sale at a sales price

reasonable in relation to its fair value;• Actions required to complete the plan indicate that it

is unlikely that plan will be significantly changed or withdrawn.

A discontinued operation is a component of a Group that either has been disposed of or is classified as held for sale, and:

• Represents either a separate major line of business or a geographical area of operations;

• Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or

• Is a subsidiary acquired exclusively with a view to resale and the disposal involves loss of control.

In the consolidated financial statements of the Group for the year ended 31 December 2015 the assets and liabilities of JSC Russian Fish Company were classified as assets held for sale and liabilities directly associated with the assets held for sale. The operations and cash flows relating to JSC Russian Fish Company were classified as discontinued operations in the consolidated statement of comprehensive income and consolidated statement of cash flows for the years ended 31 December 2016 and 2015.

As discussed in the Note 27 the Group closed the sale of JSC Russian Fish Company.

These consolidated financial statements unless expressly indicated otherwise are presented in the national currency of the Russian Federation, RR, which is the functional currency of the Company and its subsidiaries.

2.1. Basis of preparation


Appendices

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company:

• Has power over the investee;• Is exposed, or has rights, to variable returns from its

involvement with the investee;• Has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:

• The size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

• Potential voting rights held by the Company, other vote holders or other parties;

• Rights arising from other contractual arrangements; and • Any additional facts and circumstances that indicate that

the Company has, or does not have, the current ability to

direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Unrealised gains on transactions between Group companies are eliminated, unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

2.2. Subsidiaries

Cash in the consolidated statement of financial position comprises cash at banks and in hand and short-term deposits with an original maturity of three months or less.

2.3. Cash and cash equivalents

Trade receivables, which generally are short term, are carried at original invoice amount less an allowance for doubtful accounts

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial

Financial assets within the scope of IAS 39 are classified as either financial assets at fair value through profit or loss (“FVTPL”), loans and receivables, held to maturity investments, or available for sale financial assets (“AFS”), as appropriate. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the

receivable. Allowance is made when there is objective evidence that the Group will not be able to collect the debts.

liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

All regular way purchases and sales of financial assets are recognised on the trade date, which is the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL.

2.4. Trade and other receivables

2.5. Financial instruments

2.6. Financial assets

2.7. Effective interest method


Appendices

Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL.

A financial asset is classified as held for trading if:

• It has been acquired principally for the purpose of selling it in the near term; or

• On initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

• It is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:

• Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise;

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including trade and other receivables, cash, and others) are measured at amortised cost using the effective interest method, less any impairment.

• The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis;

• It forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘other gains and losses’ line item.

to maturity. Subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method less any impairment.

Interest income is recognised by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial.

2.8. Financial assets at FVTPL

2.9. Held-to-maturity investments

2.10. Loans and receivables

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For certain categories of financial assets, such as trade receivables, assets are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the

Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’. The Group determines the classification of its financial liabilities at initial recognition.

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL.

A financial liability is classified as held for trading if:

• It has been incurred principally for the purpose of repurchasing it in the near term;

• On initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking;

• It is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

• Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise;

portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

The Group’s financial liabilities include trade and other payables, loans and borrowings, bonds payable and held for trading derivatives that are not designated in hedge accounting derivatives.

• The financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis;

• It forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as at FVTPL.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the ‘other gains and losses’ line item.

2.11. Impairment of financial assets

2.12. Financial liabilities

2.13. Financial liabilities at FVTPL


Appendices

Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period.

The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward and option contracts.

Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss

The tax authorities permit the settlement of sales and purchases value added tax (VAT) on a net basis.

VAT is payable upon invoicing and delivery of goods, performing work or rendering services, as well as upon collection of prepayments from customers. VAT on purchases, even if they have not been settled at the end of the reporting period, is

Inventories are recorded at the lower of cost and net realisable value. Cost of inventory is determined on a weighted average basis. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but

The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition

immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

Level 1 approach of the fair value hierarchy was used for the purpose of presentation held for trading derivatives that are not designated in hedge accounting relationships at fair value.

deducted from the amount of VAT payable.Where provision has been made for impairment of receivables, impairment loss is recorded for the gross amount of the debtor, including VAT.

VAT recoverable arises when VAT related to purchases exceeds VAT related to sales.

excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

2.14. Other financial liabilities

2.15. Held for trading derivatives that are not designated in hedge accounting relationships

2.16. Value added tax

2.17. Inventories

Property, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes, are stated at cost or deemed cost at the date of transition to IFRS (herein referred to as cost) less accumulated depreciation and impairment losses. Deemed cost was determined for land and buildings at 1 July 2006 by reference to their fair value through valuation by an independent appraisal company.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, if it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is

The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted as appropriate, at each financial year-end.

Land is not depreciated.

qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is calculated on a straight-line basis. The depreciation periods, which represent the estimated useful economic lives of the respective assets, are as follows:

measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

The cost of repairs and maintenance is expensed as incurred. Major renewals and improvements are capitalised, and the assets replaced are retired. Gains and losses arising from the retirement of property, plant and equipment are included in the statement of comprehensive income as incurred.

2.18. Property, plant and equipment

2.19. Provisions

Number of years

Buildings 7-50

Plant and machinery 2-10

Other 3-7


Appendices

In accordance with Russian legislation, enterprises engaged in agricultural activities receive certain government grants.

Government grants are recognised on cash basis.

The largest of such government grants relate to reimbursement of interest expense on qualifying loans (“interest subsidies”). The

Income tax expense comprises current and deferred tax. Current tax is the expected tax payable on the taxable profit for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred income taxes are provided for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes, except where the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

A deferred tax asset is recorded only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the end of the reporting period.

Intangible assets are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets have a finite life and are amortised on a straight-line basis over the useful economic lives, which is estimated between 1 and 7 years for computer software licenses and 47 years for rights of land rent and assessed for impairment whenever there is an indication that the intangible asset may be impaired. Amortisation periods

Group records interest subsidies as an offset to interest expense during the period to which they relate.

Deferred tax assets and deferred tax liabilities can be offset only if: (a) a Group entity has a legally enforceable right to set off current tax assets against current tax liabilities; and (b) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either: (i) the same taxable entity; or (ii) different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

and methods for intangible assets are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets is recognised in profit or loss in the expense category consistent with the function of the intangible asset.

2.20. Government grants

2.21. Income taxes

2.22. Intangible assets

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 the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation.

The Company’s equity instruments which are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss on the

Revenue from the sale of goods is recognised when all the following conditions are satisfied:

• The Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

• The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

• The amount of revenue can be measured reliably;• It is probable that the economic benefits associated with

the transaction will flow to the Group; and

2.25. DividendsDividends declared are recognised as a liability and deducted from equity at the end of the reporting period only if they are declared before or at the end of the reporting period. Such dividends are disclosed when they are proposed before the end

2.24. Share capitalOrdinary shares are classified as equity.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

purchase, sale, issue or cancellation of the Company’s own equity instruments. Any difference between the carrying amount and the consideration is recognised in equity.

• The costs incurred or to be incurred in respect of the transaction can be measured reliably.

Specifically, revenue from the sale of goods is recognised when goods are dispatched and legal title is passed.

Revenues are measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.

of the reporting period or proposed or declared after the end of the reporting period but before the consolidated financial statements are authorised for issue.

2.23. Leases

2.26. Treasury shares

2.27. Revenue recognition


Appendices

2.28. Expense recognitionExpenses are accounted for at the time the actual flow of related goods and services occurs and transfer of risks and rewards has been completed, regardless of when cash or its equivalent is received or paid, and are reported in the period to which they relate.

Advertising costs are expensed when incurred

2.29. Pension costs

2.30. Foreign currency transactions

2.31. Impairment of non-financial assets

Under provisions of Russian legislation, social contributions are made through a special security tax (“SSC”) calculated by the Group by the application of a regressive rate (from 30% to 10%) to the annual gross remuneration of each employee.

The Group allocates the SSC to three social funds (state pension fund, social and medical insurance funds), where the rate of

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of

At the end of each reporting period, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. The assets subject to such assessment are primarily property, plant and equipment. 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

contributions to the pension fund varies from 22% to 10% depending on the annual gross salary of each employee. The Group’s contributions relating to SSC are expensed in the year to which they relate.

exchange ruling at the end of the reporting period. All resulting differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction.

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 for which the estimates of future cash flows have not been adjusted.

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 (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

2.32. Biological assetsThe accounting treatment of live fish by the companies applying IFRS is regulated by IAS 41 “Agriculture”. The basic principle is that such assets shall be measured at fair value.

Agricultural activity is defined by the management as an activity of the biological transformation of biological assets for sale into agricultural produce or into additional biological assets. Agricultural produce is defined as the harvested product of the Group’s biological assets and a biological asset is defined as a living fish. The Group has determined the groups of its biological assets to be live fish – trout and salmon – and smolt.

In accordance with IAS 41, prior to harvest, biological assets related to agricultural activity are measured at fair value less estimated point-of-sale costs, with any changes in fair value recognized in profit or loss, unless the fair value cannot be measured reliably. Point-of-sale costs include all costs that would be necessary to sell the assets. When little biological transformation has taken place since the initial cost outlay, biological assets are valued on the basis of actual costs, therefore smolt is measured at cost. The cost includes direct costs related to the management of the biological

transformation of biological assets, like costs of smolt, feeds, labour costs of employees directly involved in production process, depreciation and related production overheads.

Live fish is measured at fair value in accordance with IFRS 13.

Agricultural produce harvested from the Group’s biological assets is measured at its fair value less estimated point-of-sale costs at the point of harvest and is subsequently recorded as inventories and measured in accordance IAS 2 (Note 2.17).

A gain or loss arising on initial recognition of a biological asset at fair value less estimated point-of-sale costs and from a subsequent change in fair value less estimated point-of-sale costs of a biological asset is included in profit or loss for the period in which it arises as fair value adjustment on revaluation of biological assets.

For more details on the valuation model refer to Note 4.6.

The biological assets are recorded as current and non-current biological assets based on the operational cycle of the respective biological assets.


Appendices

Adoption of the new standards and interpretations

3. Application of new and revised international financial reporting standards

IFRS and IFRIC interpretations adopted in the current year

IFRS and IFRIC interpretations in issue but not yet effective

The accounting policies applied by the Group is consistent with those of the previous financial year.

The Group has adopted all IFRS and Interpretations that are relevant to its operations and effective for annual reporting periods beginning on 1 January 2016. The adoption did not

At the date of authorization of these consolidated financial statements, the following standards and interpretations have been published that are mandatory for the Group’s accounting

have a material impact on the Group’s consolidated financial statements.

periods beginning on or after 1 January 2016 or later periods and which the entity has not early adopted:

Standards and Interpretations Effective for annual periods beginning on or after

IFRS 9 “Financial Instruments” 1 January 2018

IFRS 15 “Revenue from Contracts with Customers” 1 January 2018

IFRS 16 “Leases” 1 January 2019

Amendments to IAS 7 – Disclosure Initiative 1 January 2017

Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Date to be determined by the IASB

Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017

Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions 1 January 2018

Amendments to IAS 40 – Transfers of Investment Property 1 January 2018

IFRIC 22 Foreign Currency Transactions and Advance Consideration 1 January 2018

Annual Improvements to IFRSs 2014-2016 Cycle 1 January 2018

IFRS 9 “Financial Instruments”IFRS 9 issued in November 2009 introduced new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a “fair value through other comprehensive income” (FVTOCI) measurement category for certain simple debt instruments.

The key requirements of IFRS 9 are:

• Classification and measurement of financial assets. All recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.

• Classification and measurement of financial liabilities. With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss.

• Impairment. In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

• Hedge accounting. The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in IAS 39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an “economic relationship”. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity’s risk management activities have also been introduced.


Appendices

IFRS 15 “Revenue from Contracts with Customers”

IFRS 16 Leases

In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related interpretations when it becomes effective.

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Specifically, the standard provides a single, principles based five-step model to be applied to all contracts with customers.

IFRS 16 Leases brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained.

Under IFRS 16 a lessee recognises a right-of-use asset and the lease liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated accordingly and the liability accrues interest. The lease liability is initially measured at the present value of the lease payments payable over the lease term, discounted at the rate implicit in the lease, or if that cannot be readily determined, the lessee shall use their incremental borrowing rate.

As with IAS 17, lessors classify leases as operating of finance in nature. A lease is classified as a finance lease if it transfers

The five steps in the model are as follows:

• Identify the contract with the customer• Identify the performance obligations in the contract• Determine the transaction price• Allocate the transaction price to the performance

obligations in the contracts• Recognise revenue when (or as) the entity satisfies a

performance obligation.

Under IFRS 15, an entity recognises revenue when or as a performance obligation is satisfied, i.e. when “control” of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.

substantially all the risks and rewards incidental to ownership of an underlying asset. Otherwise, a lease is classified as an operating lease. For finance leases a lessor recognises finance income over the lease term, based on a pattern reflecting a constant periodic rate of return on the net investment. A lessor recognises operating lease payments as income on a straight-line basis or, if more representative of the pattern in which benefit from use of the underlying asset is diminished, another systematic basis.

The Group is currently assessing the impact of the new standards on its consolidated financial statements and plans to adopt these pronouncements when they become effective or earlier if early application is permitted and it enhances fair presentation of the consolidated financial statements.

4.1. Going concern

4.2. Impairment of property, plant and equipment

4. Critical accounting judgements and key sources of estimation uncertainty

In 2016 the Group managed to stop the distribution of fish diseases and increased the volume of fish biomass by more than 12,500 tones. The catching and sale of the fish raised, started at the end of August 2016, made it possible to receive the revenues in the amount of 2,475,528 and operating profit of 1,094,268 in the year ended 31 December 2016, compared to 864,841 of revenues and 66,862 of operating losses for the same period of 2015.

On 4 August 2016 the transaction of sale of JSC Russian Fish Company was closed. Proceeds from the transaction amounted to 1,837,194; out of which 836,064 were used to settle the Group’s short-term debt before JSC Russian Fish Company. The profit from sale amounted to 1,457,195; raising Group’s net profit to 3,885,566 (compared to 1,861,153 of loss in the prior year).

The Group overcame the difficulties associated with the violation of the financial covenants, stipulated by the loan agreements with Gazpombank. As of the date of the approval of the accompanying financial statements for issue the Group is compliant with all the bank covenants.

As at 31 December 2016 the Group reduced its total debt to the bank to the amount of 3,200,000, compared to 4,823,787 as at

Management of the Group reviewed property, plant and equipment in fish farming segment for potential impairment where the majority of property, plant and equipment belongs to and concluded that fair value of the assets exceeds its carrying

In the application of the Group’s accounting policies, which are described in Note 2, management has made certain judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision

31 December 2015. Moreover, as at 25 April 2017 the total debt to the bank was reduced to 1,784,654.

The Group is in the process of negotiating with the bank terms of the long-term financing.

In 2017 group is planning to catch and sale more than 9,000 tones of fish from the existing farms, which should enable to accumulate the revenues of at least 4,500,000. Also group plans seeding of atlantic salmon and trout smolt in the Barents Sea and Segozerskoe lake. Contracts for purchase and delivery of smolt have already been concluded and paid for more than 60% as at the reporting date.

Based on the circumstances described above the management of the Group believes in the Group’s ability to continue operating; and these consolidated financial statements are prepared on the assumption that the Group will continue to operate in the foreseeable future, its assets will be realized and liabilities will be repaid in the ordinary course of business.

value, as most of these assets have been purchased in 2013-2016 for Euro, and as such carrying values expressed in Russian Rubles are well below the fair value.

affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the key judgements concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.


Appendices

4.3. Allowance for doubtful accounts receivable

4.4. Litigation

4.5. Current taxes

The Group creates an allowance for doubtful accounts receivable to account for estimated losses resulting from the inability of customers to make required payments. When evaluating the adequacy of an allowance for doubtful accounts, management bases its estimates on the ageing of accounts receivable balances and historical write-off experience, customer credit

The Group exercises considerable judgment in measuring and recognizing provisions and the exposure to contingent liabilities related to pending litigation or other outstanding claims subject to negotiated settlement, mediation, arbitration or government regulation, as well as other contingent liabilities. Judgement is necessary in assessing the likelihood that a pending claim will succeed, or a liability will arise, and to quantify the possible range of the final settlement. Because of the inherent

Russian tax, currency and customs legislation is subject to varying interpretations and changes occurring frequently. Further, the interpretation of tax legislation by tax authorities as applied to the transactions and activity of the Group’s entities may not coincide with that of management. As a result, tax authorities may challenge transactions and the Group’s entities may be assessed additional taxes, penalties and interest, which can be significant. The periods remain open to review by the tax and customs authorities with respect to tax liabilities for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.

Management estimated that the possible risks on tax issues, provided they are implemented, will not exceed 28% of the

worthiness 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 2016 allowances for doubtful accounts receivable and advances paid have been created in the amount of 46,584 (as at 31 December 2015 – 6,096) – Notes 10 and 11.

uncertainties in this evaluation process, actual losses may be different from the originally estimated provision. These estimates are subject to change as new information becomes available, primarily with the support of internal specialists, if available, or with the support of outside consultants, such as actuaries or legal counsel. Revisions to the estimates may significantly affect future operating results.

Group’s net profit after tax. Should the Russian tax authorities decide to issue a claim and prove successful in the court, they would be entitled to recover the amount claimed, together with fines amounting to 20% of such amount and interest at the rate of 1/300 of the Central Bank of Russia rate for each day of delay for late payment of such amount.

Management believes that it is not probable that the ultimate outcome of such matters would result in a liability. Therefore, no provision for these contingencies was recorded in the accompanying consolidated financial statements.

4.6. Biological assets

4.7. Key assumptions of the valuation model

Prior to harvest, biological assets related to agricultural activity are measured at fair value less estimated point-of-sale costs, with any changes in fair value recognized in profit or loss. Point-of-sale costs include all costs that would be necessary to sell the assets.

The fair value of biological assets was calculated for the year ended 31 December 2016 based on the following key assumptions:

• The best estimate of the fair value of smolt, salmon under 1,000 g and trout under 200 g is considered to approximate the accumulated cost;

• The best estimate of the fair value of salmon above 1,000 g and under 2,000 g and trout above 200 g and below 800 g is the accumulated cost adjusted by the proportionate estimated profit;

• The best estimate of the fair value of salmon above 2,000 g and trout above 800 g is considered to be the actual selling price;

• Actual selling prices at the reporting date were used for valuation;

• The prices were adjusted for expected selling expenses which include eviscerating and packing costs;

Fair value of the Group’s live fish is determined by using valuation techniques, as there are no observable market price for live fish.

• The volume was adjusted for actual and expected losses: 1) gutting coefficient of 16% (loss of weight on gutting); 2) coefficient of expected mortality (3% for salmon and 11% for trout) and 3) coefficient of expected shortage (9% for salmon and 2% for trout). Expected mortality for the year ended 31 December 2016 reflects accumulated actual waste calculated starting from the stocking date till the reporting date. Expected shortage reflects accumulated actual shortage revealed on fully finished cages throughout ongoing fish harvesting. The related ratios were equal to 30% for salmon and 2% for trout for the year ended 31 December 2015.

Level 3 approach is used to determine the fair value of live fish.


Appendices

5. Balances and transactions with related parties

Balances with related parties:

Transactions with related parties:

Related parties include shareholders, key management, entities under common ownership and control, and entities over which the Group has significant influence.

The nature of the related party relationships for those related parties with whom the Group entered into transactions for the year ended 31 December 2016 and for the year ended 31 December 2015 or had balances outstanding as of 31 December 2016 and as at 31 December 2015 is detailed below.

Description Trade and other receivables

Short-term borrowings

Long-term borrowings Other payables

31 December 2016

Entities under control of shareholders (A) 2,561 - - -

31 December 2015

Entities under control of shareholders (A) 663,406 - - -

Entities under control of shareholders (B) 153,201 - - -

Entities under control of shareholders (C) - - 894,217 -

Entities under control of shareholders (D) - - - 48,717

Entities under control of shareholders (H) - 234,600 - -

Description RelationshipYear ended

31 December 2016


2015

Other operating income Entity under control of shareholders (A) 25,999 169,278

Other operating expenses Entity under control of shareholders (F) 949 8,623

Interest income Entity under control of shareholders (G) 13,175 15,854

Interest expense Entity under control of shareholders (C) 69,145 112,201

Compensation to key management personnel

Shareholders of the Group

Key management personnel comprised 2 persons as at 31 December 2016 (31 December 2015: 4 persons). Total compensation to key management personnel, all of which represented short-term employee benefits (monthly payroll and

As of 31 December 2016 and as of 31 December 2015 the registered shareholders of PJSC Russian Aquaculture and their respective ownership and voting rights were as follows:

All shares bear equal voting rights.

bonuses), included in general and administrative expenses in the consolidated statement of comprehensive income amounted to 47,214 for the year ended 31 December 2016 (28,792 for the year ended 31 December 2015).

A. Purchases represented by consulting services, rent, as well as dividends receivable;B. Purchases of chilled and frozen fish;C. Loan agreements with interest rates of 11.0-12.0%;D. Interest payable to related parties; E. Purchase of ready-to eat production; F. Purchases represented by rent of office equipment;G. Short-term investment;H. Loan agreement with interest rate of 11.5%.

31 December 2016

31 December 2015

Maxim Vorobiev 47.3% 31.5%

LLC Svinin and partners 23.4% -

Mikhail Kenin 22.6% 10.2%

Gleb Frank - 37.1%

Individuals - 11.6%

Free float 6.7% 9.6%

100.0% 100.0%


Appendices

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

Buildings Plant and machinery Other Assets under

construction Total

Cost

Balance at 1 January 2016 79,792 1,777,785 115,737 99,534 2,072,848

Additions 18,562 110,664 5,788 19,933 154,947

Disposals - (10,127) (1,779) (4,878) (16,784)

Balance at 31 December 2016 98,354 1,878,322 119,746 114,589 2,211,011

Accumulated depreciation

Balance at 1 January 2016 (11,929) (250,570) (32,868) - (295,367)

Depreciation charge (2,663) (189,261) (11,299) - (203,223)

Depreciation on disposals - 9,501 786 - 10,287

Balance at 31 December 2016 (14,592) (430,330) (43,381) - (488,303)

Net Book Value



Cost


Additions 398 970,341 23,143 (89,193) 904,689

Disposals - (253,166) (26,005) - (279,171)

Reclassification to assets heldfor sale - (2,084) (12,138) - (14,222)


Accumulated depreciation

Balance at 1 January 2015 (7,712) (180,039) (47,582) - (235,333)

Depreciation charge (4,217) (124,868) (10,752) - (139,837)

Depreciation on disposals - 52,278 14,439 66,717

Reclassification to assets held for sale - 2,059 11,027 - 13,086

Balance at 31 December 2015 (11,929) (250,570) (32,868) - (295,367)

Net Book Value

Balance at 1 January 2015 71,682 882,655 83,155 188,727 1,226,219


There were no idle or fully depreciated items as at 31 December 2016 and 2015.

Property, plant and equipment of 515,122 were pledged as at 31 December 2016 (2015: nill) to secure borrowings of the Group (Notes 16, 17).

For the year ended 31 December 2016 depreciation charge in the amount of 122,614 was capitalized in biological assets (for the year ended 31 December 2015: 88,814).

7. Intangible assets

Computer software licenses

Tota

Cost

Balance at 1 January 2016 4,298 4,298

Additions 982 982

Disposals (883) (883)

Balance at 31 December 2016 4,397 4,397

Accumulated amortization

Balance at 1 January 2016 (1,850) (1,850)

Amortization charge (1,877) (1,877)

Disposals 883 883

Balance at 31 December 2016 (2,844) (2,844)

Net Book Value

Balance at 1 January 2016 2,448 2,448

Balance at 31 December 2016 1,553 1,553

Land lease rights

Computer software licenses

Tota

Cost

Balance at 1 January 2015 47,139 29,202 76,341

Additions 9,822 9,822

Disposals (47,139) (21,208) (68,347)

Reclassification to assets held for sale - (13,518) (13,518)

Balance at 31 December 2015 - 4,298 4,298

Accumulated amortization

Balance at 1 January 2015 (8,401) (23,112) (31,513)

Amortization charge - (2,377) (2,377)

Disposals 8,401 21,207 29,608

Reclassification to assets held for sale - 2,432 2,432

Balance at 31 December 2015 - (1,850) (1,850)

Net Book Value

Balance at 1 January 2015 38,738 6,090 44,828

Balance at 31 December 2015 - 2,448 2,448


Appendices

No inventories have been pledged as at 31 December 2016 and at 31 December 2015 to secure borrowings of the Group (Notes 16, 17).

Biological assets as at 31 December 2016 comprise 10,561 tones of live fish (2,810 tones as at 31 December 2015) and nil tones of smolt (1,904 tones as at 31 December 2015):

31 December 2016

31 December 2015

Raw materials 133,506 108,078

Finished goods 10,275 10,157

143,781 118,235

TonesYear ended

31 December 2016


2015

Balance at the beginning of the year 4,712 4,948

Increase due to growth 12,590 7,531

Transferred to inventories (6,201) (3,400)

Mortality and shortages (540) (4,367)

10,561 4,712

Thousands of Russian RoublesYear ended

31 December 2016


2015

Balance at the beginning of the year 946,895 1,278,846

Increase due to incurred expenses 2,195,117 1,688,637

Transferred to inventories (1,381,260) (931,703)

Write-off as a result of mortality and shortages (145,688) (933,930)

Fair value gain/ (loss) on revaluation of biological assets 1,738,741 (154,955)

3,353,805 946,895

8. Inventories

9. Biological assets

Details on salmon biological transformation and status at 31 December 2016 are presented below:

Details on salmon biological transformation and status at 31 December 2015 are presented below:

Details on trout (including caviar) biological transformation and status at 31 December 2015 are presented below:

Status of biological assets as at 31 December 2016 Number of fish Biological assets

(tones)Accrued cost of

productionFair value

adjustment Book value

Smolt/salmon, round weight < 1,000 g - - - - -

Salmon with round weight 1,000-2,000 g - - - - -

Salmon with round weight > 2,000 g 1,987,804 9,195 1,517,718 1,472,017 2,989,735

1,987,804 9,195 1,517,718 1,472,017 2,989,735





Smolt/salmon, round weight < 1,000 g 2,483,799 1,862 500,910 (204,622) 296,288

Salmon with round weight 1,000-2,000 g 1,244,461 1,400 317,961 (84,164) 233,797

Salmon with round weight > 2,000 g 3,500 9 3,923 (2,059) 1,864

3,731,760 3,271 822,794 (290,845) 531,949





Smolt/trout, round weight < 200 g 267,432 40 13,222 (2,221) 11,001

Trout with round weight 200-800 g 1,207,659 564 124,571 (3,993) 120,578

Trout with round weight > 800 g 496,956 837 141,179 142,188 283,367

Details on trout (including caviar) biological transformation and status at 31 December 2016 are presented below:





Smolt/trout, round weight < 200 g - - - - -

Trout with round weight 200-800 g 662,766 373 103,873 (14,976) 88,897

Trout with round weight > 800 g 759,103 993 203,050 72,123 275,173

1,421,869 1,366 306,923 57,147 364,070

Thousands of Russian Roubles

ТThousands of Russian Roubles




Appendices

The table below shows the sensitivity to a reasonably possible change in the main variables of the fair value model for biological assets of the Group in 2016:

On 31 December 2016 total amount of commitments for the acquisition of biological assets (smolt) for 2017 amounted to 317,287 (on 31 December 2015: 172,280).

Increase/decrease

in variable

Effect on fair value adjustment

of biological assets, RR

Gutting coefficient +5% (196,403)

Gutting coefficient -5% 196,403

Selling price +5% 170,482

Selling price -5% (171,156)

Coefficient of expected mortality +5% (175,124)

Coefficient of expected mortality -5% 122,406

Coefficient of difference between recorded volume of fish and the actual volume +5% (184,346)

Coefficient of difference between recorded volume of fish and the actual volume -5% 171,115

10. Trade and other receivables, net

31 December 2016

31 December 2015

Trade receivables 308,122 178,872

Other receivables 13,578 3,676

Dividends receivable from JSC Russian Fish Company - 650,042

Interest receivable - 33,015

Less: Allowance for doubtful accounts receivable (7,204) (6,009)

314,496 859,596

No biological assets have been pledged as at 31 December 2016 and at 31 December 2015 to secure borrowings of the Group (Notes 16, 17).

The following table summarises the changes in the allowance for doubtful accounts receivable for the years ended 31 December 2016 and 2015:

Trade receivables are non-interest bearing and are normally settled within 90-120 days.

Short-term investments as at 31 December 2016 were denominated in RR and comprised loan issued in the amount of 10.

11. Advances paid to suppliers, net

12. Short-term investments

31 December 2016

31 December 2015

Advances for feed and smolt 271,478 -

Other 116,371 93,958

Less: Impairment of advances paid (39,380) (87)

348,469 93,871


2016


2015

Balance at the beginning of the year 6,009 41,424

Reversal of allowance - (22,098)

Recognition of allowance for doubtful accounts receivable 1,195 4,215

Reclassification to assets held for sale - (17,532)

Balance at the end of the year 7,204 6,009

Maturity profile of trade and other receivables is summarised in the Note 32.6.

Short-term investments as at 31 December 2015 were denominated in RR and comprised promissory notes issued to the Group by Rosselkhozbank in April 2013 in the amount of 168,000 and pledged for the loans payable to Gazprombank.


Appendices

13. Cash and cash equivalents

14. Trade payables

15. Other payables

31 December 2016

31 December 2015

Russian Roubles denominated cash in banks and on hand 33,237 210,007

Foreign currency denominated cash in banks: 384 248,105

- US dollars 55 247,805

- NOK 13 206

- Euro 316 94

Restricted cash 266 -

33,887 458,112

31 December 2016

31 December 2015

Trade payables for services 77,352 38,281

77,352 38,281

31 December 2016

31 December 2015

Payroll-related payables 56,266 29,900

Interest payable (to JSC Russian Fish Company) - 48,717

Customs payable - 32,376

56,266 110,993

Current accounts in banks carry no interest.

The average credit period approximates 30 days for the year ended 31 December 2016 and 2015. No interest is charged on the outstanding balance of trade payables during or after the credit period.

16. Long-term borrowings

17. Short-term borrowings

Short-term borrowings as at 31 December 2016 and at 31 December 2015 were denominated in RR and comprised the following credit facilities:

Long-term borrowings as at 31 December 2016 and at 31 December 2015 were denominated in RR and comprised the following credit facilities:

Bank

Outstanding balance as at 31 December

2016

Maturity date

Credit facility limit

Gazprombank 346,874March 2018-

December 2018 6,940,000

346,874

Bank/ lender


2016

Maturity date


Gazprombank 2,853,126January 2017-

December 2017 6,940,000

2,853,126

Lender Type


2015

Maturity date


JSC Russian Fish Company promissory note 750,000 Сентябрь 2021 750,000

JSC Russian Fish Company interest 136,767 Сентябрь 2021 136,767

JSC Russian Fish Company loan 7,450 Апрель 2021 7,450

894,217

All long-term borrowings have fixed interest rate. The weighted average interest rate on these borrowings is 12.69% per annum in the range of 12.50% – 13.50% (2015: weighted average interest rate on these borrowings is 13.00% per annum).

Weighted average interest rate, adjusted by the effect of government subsidies, is 9.02% per annum (2015: 7.82%).


Appendices

Bank/ lender


2015

Maturity date Credit facility

limit

Gazprombank 4,823,787 Сентябрь 2016-июнь 2021 8,003,750

JSC Russian Fish Company 234,600 Июнь 2016 288,000

5,058,387

As at 31 December 2016 Gazprombank credit facilities were secured by pledge of:

• 100% interest in LLC Russian Sea – Aquaculture;• Property, plant and equipment in the amount of 515,122;• Guarantee issued by PJSC Russian Aquaculture.

All short-term borrowings have fixed interest rate. The weighted average interest rate on these borrowings is 12.69% per annum

in the range of 12.50% – 13.50% (2015: weighted average interest rate on these borrowings is 13.00% per annum).

Weighted average interest rate, adjusted by the effect of government subsidies, is 9.02% per annum (2015: 7.82%).

Total interest expense net of government grants received was as follows:


2016


2015

Interest expense 638,136 667,666

Government grants (185,781) (196,162)

452,355 471,504

18. Vat and other taxes payable

31 December 2016

31 December 2015

VAT payable 228,078 41,666

Social security contributions payable 12,820 338

240,898 42,004

The amount of cost of sales includes the reclassification of fair value profit/ (loss) on revaluation of fish harveseted in 2016 of 54,623 (2015: 193,839).


2016


2015

Revenue from sale of salmon 2,014,027 516,582

Revenue from sale of trout 398,514 274,838

Revenue from sale of caviar 57,066 73,421

Revenue from sale of other products 5,921 -

2,475,528 864,841


2016


2015

Materials and components used in production 1,116,197 732,220

Production overheads 110,565 85,884

Direct labour costs 73,889 63,999

Depreciation 80,609 49,600

1,381,260 931,703


2016


2015

Impairment of advances paid 39,293 1,742

Inventory write-offs as a result of stock-take, net 4,218 2,354

Transport 3,579 7,978

Change in allowance for doubtful accounts receivable 3,097 (695)

Advertising 1,843 167

Other 1,605 2,641

53,635 14,187

19. Revenue

20. Cost of sales

21. Selling and distribution costs


Appendices


2016


2015

Payroll and related taxes 121,083 74,501

Audit and consulting 22,543 6,935

Rent and maintenance of buildings 13,822 9,082

Travel expenses 11,094 5,912

Communication services 3,783 483

Transport 3,544 815

Office expenses 3,315 2,016

Insurance 2,946 1,502

Bank charges 2,172 684

Taxes other than income tax 1,795 1,732

Depreciation and amortization 1,754 1,270

Other 14,321 6,981

202,172 111,913

22. General and administrative expenses

23. Retirement benefit plans

The statutory retirement age is 55 for women and 60 for men, in accordance with the Russian Federation Labour Code.

The Group does not offer a private pension plan to its employees. In accordance with Russian tax legislation, the Group pays statutory social security contributions (at maximum rate 30.2%). These contributions are regressive and comprise social insurance, contributions to the State Pension Fund and the State Medical Fund. The total contribution paid to the State Pension Fund during the year ended 31 December 2016 and during

the year ended 31 December 2015 was equal to 46,606 and 49,811 respectively. The Group has not reserved or accrued for pension, retirement or similar benefit obligations to directors or senior executives. No directors or senior executives have service contracts with the Group which offers them benefits upon termination of their respective appointments.

Total contributions for social security funds amounted to 68,004 during the year ended 31 December 2016 (for the year ended 31 December 2015: 73,531).


2016


2015

Insurance compensation 125,102 -

Refund from customs 24,666 -

Participation in antiepizootic measures 12,585 -

Income from sub-rent 401 2,214

Other 4,276 8,840

167,030 11,054


2016


2015

Inventory and biological assets write-offs 93,615 964,134

Fines and penalties 12,932 1,574

Charity 4,264 -

Fixed assets disposal and write-off (fire) 2,895 111,029

Intangible assets write-offs - 38,738

Other 14,912 15,179

128,618 1,130,654

24. Other operating income

25. Other operating expenses

Compensation in the amount of 125,102 was received from the insurance company for the partial set off of losses from insured fish mortality.

The amount of other operating expenses for 2015 includes the reclassification of fair value profit/ (loss) on revaluation of fish lost in 2015 of 93,261.

Material losses due to inventory write-offs in 2015 were caused by live fish deseases.


Appendices


2016


2015

Income tax expense – current (1,112) -

Deferred tax expense – origination and reversal of temporary differences (56,460) 1,400

Income tax (expense)/ benefit (57,572) 1,400


2016


2015

Profit/ (loss) before income tax 3,647,841 (1,862,553)

Theoretical tax (expense)/ benefit at statutory rate (20%) (729,568) 372,511

Tax effect of items which are not deductible or assessable for taxation purposes:

Effect of different tax rate of the subsidiaries granted the status of an agricultural producer 429,321 (366,032)

Effect of disposal of subsidiary 291,439 -

Effect of expenses that are not deductible in determining taxable profit (48,298) (4,425)

Other (466) (654)

Income tax benefit/ (expense) (57,572) 1,400

26. Income tax

Companies domiciled in Russia that do not have the status of an agricultural producer are subject to a 20% corporate income tax. Companies domiciled in Russia that do have the status of an agricultural producer are exempt from corporate income tax on profits realized from the sale of agricultural produce. LLC Russian Sea – Aquaculture has the status of agricultural producer and is exempt from corporate income tax.

The reconciliation of theoretical income tax at 20%, effective in the Russian Federation, to the actual tax expense recorded in the Group’s consolidated statement of comprehensive income is as follows:

Movements in deferred tax balances were as follows:

31 December 2014

Continued operations


Reclassi-fication to

assets held for sale

31 December 2015

Differences recognition

and reversal31 December

2016

Tax effects of deductible temporary differences – asset/ (liability):

Accruals 23,034 (4,771) (8,547) (4,859) 4,857 (1,176) 3,681

Trade and other receivables 4,837 (3,134) (1,254) (432) 17 533 550

Intangible assets 4 (3) (1) (1) (1) 84 83

Inventories 2,771 17,573 9,770 (11,856) 18,258 (21,145) (2,887)

Property, plant and equipment (4,889) 3,461 (134) (115) (1,677) (15) (1,692)

Tax losses carried forward 58,061 (11,726) 874 (874) 46,335 (34,741) 11,594

Total net deferred tax asset 83,818 1,400 708 (18,137) 67,789 (56,460) 11,329

Differences recognition and reversal

The recognition and reversals of temporary differences primarily relates to the following:

• Depreciation of property, plant and equipment in excess of depreciation for tax purposes;

• Impairment of trade receivables; • Difference in inventory valuation between accounting and

tax books; and• Tax losses carried forward.

At 31 December 2016 deferred tax assets related to net operating losses incurred amounted to 11,594 (at 31 December 2015: 46,335). The management considers that the full amount of deferred tax assets recognized at 31 December 2016 will be utilized and is confident that any remaining unutilized tax losses will be utilized in the future.


Appendices

27. Discontinued operations

As at 4 August 2016 the Group closed the sale of its distribution business presented by JSC Russian Fish Company and its two subsidiaries – LLC Russian Sea – Kaliningrad and RSEA CYPRUS LIMITED.

The operations relating to JSC Russian Fish Company and its

subsidiaries were classified as discontinued operations in the consolidated statement of comprehensive income for the years ended 31 December 2016 and 2015.

The major classes of assets and liabilities of JSC Russian Fish Company and subsidiaries at the date of sale were as follows:

Date of sale (04/08/2017)

Assets disposed

Property, plant and equipment 784

Intangible assets 9,834

Deferred tax assets 14,987

Long-term investment -

Long-term receivables -

Inventory 1,294,035

Trade and other receivables, net 562,603

VAT recoverable 52,034

Advances paid to suppliers, net 527,694

Short-term investment 760,456

Income tax receivable 27,728

Cash and cash equivalents 62,214

3,312,369

Liabilities disposed

Short-term borrowings 2,311,351

Trade payables 401,470

Other payables 96,132

Advances received 43,935

Other taxes payable 79,482

2,932,370

Net assets disposed 379,999

The components of profit from disposal of JSC Russian Fish Company are presented below:

Net profit for the year from discontinued operations is presented below:


Proceeds from disposal of JSC Russian Fish Company 1,837,194

Net assets of JSC Russian Fish Company 379,999

Profit from disposal of subsidiary 1,457,195

From 01/01/2016

till 04/08/2016

For the year ended

31 December 2015

Revenue* 7,563,927 15,405,235

Cost of sales (6,248,524) (12,712,692)

Gross profit 1,315,403 2,692,543

Selling and distribution costs (624,645) (1,239,891)

General and administrative expenses (222,460) (319,575)

Other operating income 46,586 40,285

Other operating expenses (18,609) (38,110)

Interest income 73,774 122,681

Interest expense (207,871) (386,438)

Foreign exchange profit/ (loss) 820 (130,983)

Profit before income tax 362,998 740,512

Income tax expense (67,701) (218,195)

Net profit earned by JSC Russian Fish Company for the period from 1 January 2016 till 3 August 2016 295,297 522,317

Profit on disposal of subsidiary, the operations of which were shown as discontinued operatoions 1,457,195 -

Net profit for the year from discontinued operations 1,752,492 522,317

* Revenue line above includes the amount of margin earned by JSC Russian Fish Company on the sales of fish produced by the entities of continued operations of 39,741 (2015: 70,635).


Appendices

Net cash proceeds from the sale of JSC Russian Fish Company is shown below:


Proceeds from disposal of JSC Russian Fish Company 1,837,194

Cash and equivalents of JSC Russian Fish Company at the date of sale (62,214)

Net proceeds from disposal of subsidiary 1,774,980

28. Share capital and equity

29. Earnings/ (loss) per share

As at 31 December 2015 and 2016 the share capital of the Group comprised 79,385,617 shares.

Earnings/ (loss) per share is calculated by dividing the net profit/ (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period, excluding treasury shares. The Group has no dilutive potential

Effect from reorganization of the Group under common control of 5,187,469 was reclassified to retained earnings upon disposal of JSC Russian Fish Company (as it was related to the disposed subsidiary).

ordinary shares; therefore, the diluted loss per share equal basic loss per share.

Earnings/ (loss) per share calculated for the periods are as follows:


2016


2015

Continuing operations

Weighted average number of ordinary shares outstanding 79,385,617 79,385,617

Profit/ (loss) for the year from continuing operations attributable to owners of the parent 2,133,074 (1,861,153)

Basic and diluted profit/(loss) per share from continuing operations, RR 26.87 (23.44)



Profit for the year from discontinued operations attributable to owners of the parent 1,752,492 522,317

Basic and diluted earnings per share from discontinued operations, RR 22.08 6.58

Continuing and discontinued operations


Basic and diluted profit/ (loss) per share from continuing and discontinued operations, RR 3,885,566 (1,338,836)

Базовая и разводненная прибыль/ (убыток) на акцию от продолжающейся и прекращающейся деятельности, руб. 48.95 (16.86)

30. Adjusted EBITDA

Dividends

In accordance with Russian legislation, earnings available for dividends are limited to retained earnings of PJSC Russian Aquaculture, calculated in accordance with statutory rules in local currency.

Adjusted EBITDA is calculated based on the Group’s audited consolidated financial statements and is used to assess how profitable is the business of the Group. Management of the Group calculates this indicator as an important additional information characterizing the Group’s operating activities.

Management of the Group determines adjusted EBITDA as the sum of the following indicators:

The adjusted EBITDA indicator has limitations for its use as an analysis tool and should not be considered separately or as a replacement for the analysis of the Group’s operating results presented in accordance with IFRS:

• Adjusted EBITDA does not reflect the impact of financial costs that could be material;

• Adjusted EBITDA does not reflect the impact of income tax on the Group’s operating results;

• Adjusted EBITDA does not reflect the impact of depreciation of fixed assets on the Group’s operating results. Assets of the Group for which amortization is charged will require replacement in the future, and the depreciation amount can approximately equal the cost of replacing these assets

No dividends were declared or paid during the year ended 31 December 2016 and 2015 and subsequent to 31 December 2016 up to the date of authorization of these consolidated financial statements for issue.

• profit/(loss) before tax for the year;• foreign exchange gain/ (loss);• interest income/ (expense), net;• depreciation of fixed assets and amortization of intangible

assets;• fair value profit/ (loss) on revaluation of biological assets;• profit on disposal of subsidiary.

in the future. Because of this exception, EBITDA does not reflect the Group’s need for cash for such substitution;

• Adjusted EBITDA does not reflect the impact of changes in working capital on cash flows from operating activities of the Group.

The Adjusted EBITDA is not a standard calculation in accordance with IFRS, and is not required for disclosure in accordance with IFRS. Adjusted EBITDA is not an indication of the Group’s operating performance in accordance with IFRS and should not be used as an alternative to net profit for the year, gross profit for the year or any other performance indicator under IFRS, or an alternative to net cash provided from operating activities.


2016


2015

Profit/ (loss) before tax for the year 2,553,644 (1,122,041)

Foreign exchange gain/ (loss) (10,349) 71,864

Interest income/ (expense), net 568,594 717,912

Depreciation of fixed assets and amortization of intangible assets 83,078 53,400

Fair value profit/ (loss) on revaluation of biological assets* (1,684,118) 442,055

Adjusted EBITDA 1,510,849 163,190

* The amount of fair value profit/ (loss) on revaluation of biological assets shown above does not include the reclassification of fair value profit/ (loss) on revaluation of fish harvested and lost (Notes 20 and 25).


Appendices

31. Contingencies, commitments and operating risks

31.1. Russian Federation risk

31.2. Taxation

31.4. Capital expenditure commitments

31.3. Operating leases

Emerging markets such as Russia are subject to different risks than more developed markets, including economic, political and social, and legal and legislative risks. Laws and regulations affecting businesses in Russia continue to change rapidly; tax and regulatory frameworks are subject to varying interpretations. The future economic direction of Russia is heavily influenced by the fiscal and monetary policies adopted by the government, together with developments in the legal, regulatory, and political environment.

Because Russia produces and exports large volumes of oil and gas, its economy is particularly sensitive to the price of oil and gas on the world market.

Laws and regulations affecting business in the Russian Federation continue to change rapidly. Management’s interpretation of such legislation as applied to the activity of the Group may be challenged by the relevant regional and federal authorities. Recent events suggest that the tax authorities are taking a more assertive position in their interpretation of the legislation and assessments and as a result, it is possible that transactions and activities that have not been challenged in the past may be challenged. Fiscal periods generally remain open to tax audit by the authorities in respect of taxes for three calendar years proceeding the year of tax audit. Under certain circumstances reviews may cover longer periods. Management believes that it has provided adequately for tax liabilities based

As at 31 December 2016 the Group has contracted 91,992 in respect of acquisition of property, plant and equipment (as at 31 December 2015: 32,076).

The Group had no non-cancellable operating leases as at 31 December 2016 and 31 December 2015.

Starting from 2014, sanctions have been imposed in several packages by the U.S. and the E.U. on certain Russian officials, businessmen and companies. This led to reduced access of the Russian businesses to international capital markets.

The above mentioned events have led to reduced access of the Russian businesses to international capital markets, increased inflation, slackening of the economic growth rates and other negative economic consequences. The impact of further economic developments on future operations and financial position of the Group is difficult to determine at this stage.

on its interpretations of tax legislation. However, the relevant authorities may have differing interpretations, and the effects on the financial statements could be significant.

In 2015, amendments were introduced into the Russian tax legislation in respect of taxation of profit of controlled foreign companies. According to these changes, the 2016 undistributed profits of the Group foreign subsidiaries, recognized as controlled foreign companies, may result in an increase of the tax base of the controlling entities in 2017. The Group is formulating its tax planning strategy with regard to the foreign subsidiaries.

On 31 December 2016 total amount of commitments for the acquisition of biological assets (smolt) for 2017 amounted to 317,287 (on 31 December 2015: 172,280).

31.5. Insurance policies

31.6. Environmental matters

32.1. Fair values

Though the Group holds no formal insurance policies, insurance contracts to secure all biological assets and material items

The Group’s management believes that it is in compliance with applicable legislation and is not aware of any potential environmental claims. Therefore, no liabilities associated

Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial instruments.

The fair value of financial assets and financial liabilities approximates their carrying amounts due to their short maturity.

of property, plant and equipment have been concluded by the Group.

with such costs are recorded as of 31 December 2016 and 31 December 2015.

32. Financial instruments and financial risk management objectives and policies

Fair value Net carrying value Fair value Net carrying

value

Financial assets

Cash and cash equivalents (Note 13) 33,887 33,887 458,112 458,112

Trade and other receivables, net (Note 10) 314,496 314,496 859,596 859,596

Short-term investments (Note 12) 10 10 168,000 168,000

Fair value Net carrying value Fair value Net carrying

value

Financial liabilities

Long-term borrowings (note 16) 346,874 346,874 894,217 894,217

Trade payables (Note 14) 77,352 77,352 38,281 38,281

Other payables (Note 15) 56,266 56,266 110,993 110,993

Short-term borrowings (Note 17) 2,853,126 2,853,126 5,058,387 5,058,387

31 December 2016

31 December 2016

31 December 2015

м


Appendices

32.2. Financial risk management objectives and policies

32.3. Foreign exchange risk

The Group’s principal financial instruments comprise bank borrowings, and cash and cash equivalents. The main purposes of these financial instruments are to raise finance for the Group’s operations.

The Group has various other financial assets and liabilities such as trade receivables, derivative financial assets and liabilities held for trading, short-term and long-term financial assets and

As described below, the Group has substantial US$, Euro and Norwegian krone (“NOK”) denominated trade payables. Therefore, the Group is exposed to foreign exchange risk.

The Group monitors the foreign exchange risk by following changes in exchange rates in the currencies in which its cash, payables and receivables are denominated. The Group enters

trade payables, which relate directly to its operations. During the year the Group did not undertake active trading in financial instruments.

The main risks arising from the Group’s financial instruments are liquidity risk, foreign currency exchange risk and credit risk. Management reviews and agrees policies for managing each of these risks which are summarised below.

into derivative contracts (foreign currency forward contracts) that aim to reduce the foreign currency exchange risk.

The table below shows the sensitivity to a reasonably possible change in US$, Euro and Norwegian krone (“NOK”) exchange rate, with all other variables held constant, of the Group’s profit/ (loss) before tax:

Increase/decrease in US$ rate

Effect on profit/ (loss) before tax, RR

At 31 December 2016

US$/Roubles exchange rate +20% (35)

US$/Roubles exchange rate -20% 35

At 31 December 2015

US$/Roubles exchange rate +20% 49,457

US$/Roubles exchange rate -20% (49,457)

Increase/decrease in EUR rate


At 31 December 2016

Euro/Roubles exchange rate +20% (8,038)

Euro/Roubles exchange rate -20% 8,038

At 31 December 2015

Euro/Roubles exchange rate +20% (155)

Euro/Roubles exchange rate -20% 155

The carrying amount of the Group’s foreign currency denominated monetary assets and liabilities as at the reporting date are as follows:

Increase/decrease in NOK rate


At 31 December 2016

NOK/Roubles exchange rate +20% (412)

NOK/Roubles exchange rate -20% 412

At 31 December 2015

NOK/Roubles exchange rate +20% (433)

NOK/Roubles exchange rate -20% 433

Increase/decrease in interest rate


At 31 December 2016

Interest rate +5% (227,819)

Interest rate -5% 227,819

At 31 December 2015

Interest rate +5% (192,864)

Interest rate -5% 192,864

31 December 2016

31 December 2015

31 December 2016

31 December 2015

31 December 2016

31 December 2015

Assets

Cash and cash equivalents 55 247,805 316 94 13 206

Total assets 55 247,805 316 94 13 206

Liabilities

Trade and other payables (232) (521) (40,504) (867) (2,072) (2,373)

Total liabilities (232) (521) (40,504) (867) (2,072) (2,373)

Total net liabilities (177) 247,284 (40,188) (773) (2,059) (2,167)

US$ Euro NOK

32.4. Interest rate risk

Changes in interest rates impact primarily loans and borrowings by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt). The Group adopts a policy of limiting its exposure to changes in interest rates by borrowing on a fixed rate basis and therefore the interest rate

risk is not considered material to the Group (Notes 16, 17).

The table below shows the sensitivity of the Group’s profit/ (loss) before tax to the chages of interest rates by 5%.


Appendices

32.5. Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group is substantially dependent on external funding of its working capital and therefore its operations may be adversely affected in the case of failure to negotiate with the credit institutions (banks) renewal and/or expansion of short-term credit facilities on a regular basis and such adverse effect may be significant.

The Group’s policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed credit facilities to meet its operating and financial commitments. The Group performs continuous monitoring of cash deficit risks and continuous monitoring of repayment of its financial liabilities on time. The Group performs annual, monthly and daily planning to control cash flows.

The table below summarises the maturity profile of the Group’s non-derivative financial liabilities based on contractual undiscounted payments including interest.

Weighted average effective

interest rateTotal Less than

3 months 3 to 6 months 6 to 12 months

Trade payables - 77,352 77,352 - -

Short-term borrowings 12.69% 3,107,221 610,857 588,848 1,907,516

Total 3,184,573 688,209 588,848 1,907,516Weighted

average effective interest rate

Total 1 to 2 years 2 to 3 years 3 to 7 years

Long-term borrowings 12.69% 368,668 368,668 - -

Total 368,688 368,688 - -

Weighted average effective

interest rateTotal 1 to 2 years 2 to 3 years 3 to 7 years

Long-term borrowings 13.00% 1,319,756 - - 1,319,756

Total 1,319,756 - - 1,319,756

Weighted average

effective interest rate

Total Less than3 months 3 to 6 months 6 to 12

months 1 to 6 years

Trade payables - 38,281 38,281 - -

Short-term borrowings 13.30% 6,952,021 - 261,785 5,006,182 1,684,054

Total 6,990,302 38,281 261,785 5,006,182 1,684,054

31 December 2016

31 December 2015

Amount of long-term, short-term borrowings and bonds disclosed in the table above includes future interest expense on those loans and bonds in accordance with their contractual maturity, regardless of the fact of early repayment.

32.6. Кредитный риск

32.7. Concentration of credit risk

Financial assets, which potentially are subject to credit risk, consist principally of trade receivables and short-term financial assets including loans given to third parties and held for trading derivatives. The Group has policies in place to ensure that sales of products are made to customers with an appropriate credit history. Sales to customers are made in accordance with annually approved Marketing and Credit policy. The Group regularly monitors sales and receivables conditions using effective internal control procedures. Short-term financial assets representing seasonal loans to fishing companies are provided upon investigation by the Group of the vendor solvency and reputation and upon passage of sufficient time since establishment of relations with them.

The carrying amount of accounts receivable, net of allowance for doubtful accounts receivable and the carrying amount of short-

The Group has significant concentrations of credit risk to the largest customer in 2016 – JSC Russian Fish Company. At 31 December 2016 accounts receivable from JSC Russian Fish Company amounted to 292,197 (92.91%); revenue from JSC

term financial assets, represents the maximum amount exposed to credit risk. Although collection of receivables could be affected by economic factors, management believes that there is no significant risk of loss to the Group beyond the allowance already recorded.

The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings and are considered to have minimal risk of default.

The table below summarises the Group’s trade receivables ageing.

Russian Fish Company for the year ended 31 December 2016 amounted to 2,194,113 (88.63%). In 2015 JSC Russian Fish Company was part of the Group and its turnovers were eliminated on consolidation.

TotalNeither

impairednor past due

less 1 month 1-2 months 2-3 months 3 to 6 months > 6 months

31 December 2016 314,496 314,496 - - - - -

31 December 2015 859,596 859,596 - - - - -

TotalNeither

impairednor past due

less 1 month 1-2 months 2-3 months 3 to 6 months > 6 months

31 December 2016 10 10 - - - - -

31 December 2015 168,000 168,000 - - - - -

Not impaired but past due

Not impaired but past due

The table below summarises the ageing of Group’s short-term financial assets.


Appendices

32.8. Capital risk management

32.9. Biological risk

33. Events after the reporting period

Capital represents residual value in the Group’s net assets attributable to its stakeholders after deducting all liabilities. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. The Group manages its

Biological assets of the Group are subject to the biological risk – the risk of live fish mortality as a result of the outbreak of different fish deaseses as well as significant deterioration of weather conditions. In order to reduce the risks, the Group constantly monitors compliance with the internally generated regulations on biological safety and controls the the defined

The Group has evaluated events after the reporting period through 25 April 2017, which is the date of issuance of these consolidated financial statements. As at the date when these consolidated financial statements were authorised for issue, no material events after the reporting period have taken place that would require disclosure in the consolidated financial statements.

capital structure and makes adjustments to it, in light of changes in economic conditions. 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.

water area; the Group also regularly runs water tests in order to timely detect any adverse changes.

Besides, on the regular basis the Group concludes insurance contracts to secure its live fish. So as of 31 December 2016 all Group’s biological assets were insured.



This report on compliance with the principles andrecommendations of the Corporate Governance Code was reviewed by the Board of Directors of PJSC «Russian Aquaculture» at the meeting held on May 31, 2017 (Minutes No.211 dated May 31 2017). Having reviewed it, the Board of Directors confirms that the data provided in this report contain complete and reliable information on the Company’s compliance with the principles and recommendations of the Corporate Governance Code in 2016.

Assessment methodology: The compliance with the principles of corporate governance enshrined in the Corporate Governance Code was assessed in accordance with the form suggested in recommendations on making a report on compliance with the principles and recommendations of the Corporate Governance Code (Letter of the Bank of Russia dated February 17, 2016 No.ИН-06-52/8).

REPORTON COMPLIANCE WITH THE PRINCIPLES AND RECOMMENDATIONS OF THE CORPORATE GOVERNANCE CODE

№ Corporate governance principles

Criteria of assessment of compliance with the corporate governance principle

Status of compliance with the corporate governance principle

Explanation of deviation from the criteria of assessment of compliance with the corporate governance principle

1.1 The Company should ensure equal and fair treatment to all the shareholders as they exercise their right to participate in managing the Company.

1.1.1 The Company provides the most favourable conditions for the shareholders’ participation in the general meeting, conditions for formulation a justified position on the issues of the agenda of the general meeting and coordination of their actions, as well as an opportunity to express their opinions on the issues under consideration.

1. The internal document of the Company approved by the General Meeting of Shareholders which regulates the procedure for holding the general meeting is publicly available. 2. The Company provides easy-to-use means of communication with the Com-pany, such as «hot line», electronic mail or forum on the Internet that allow the shareholders to express their opinions and send the issues relating to the agenda as the general meeting is being prepared. The Company performed these actions before each general meeting held during the re-porting period.

Observed

1.1.2 The procedure for notification of the general meeting and provision of informational materials for the general meeting allows the shareholders to duly prepare for it.

1. Notification of the General Meeting of Shareholders was placed (published) on the website on the Internet not less than 30 days before the date of the general meeting.2. The notification of the meeting specifies the venue of the meeting and documents required for access to the room.3. The shareholders were given access to the information on those persons who proposed issues of the agenda and who nominated candidates to the Board of Directors and the Auditing Commission of the Company.

Observed


Appendices





1.1.3 In the course of preparing and holding the general meeting, the shareholders had an opportunity to receive information about the meeting and information materials for it in an unhindered and timely way; to ask questions to the executive bodies and to the members of the Board of Directors of the Company; to communicate with one another.

1. In the reporting period, the share-holders were given an opportunity to ask questions to the members of the executive bodies and the members of the Board of Directors of the Company be-fore and during the annual general meeting.2. The position of the Board of Directors (including dissenting opinions incorporated into the minutes) on each issue of the agenda of general meetings held during the reporting period was included in the package of information materials for the General Meeting of Shareholders.3. The Company granted access for authorized shareholders to the list of persons entitled to participate in the general meet-ing, starting from the date of its receipt by the Company, in all cases of holding general meetings in the reporting period.

Partially observed

In the reporting year, the active members of the Board of Directors were invited to participate in General Meetings of Shareholders of the Company, but due to pressure of work not all of them managed to take part in the meetings. It should be noted that the functions of the Chairman at all General Meetings were performed by a member of the Board of Directors of the Company. Besides, the General Director of the Company was present at all the meetings of the General meeting. The shareholders could ask questions to those persons both dur-ing and before the meeting (via the Corporate Secretary of the Company).

1.1.4 The exercise of the shareholder's right to demand calling the general meeting, nominate candidates to the corporate bodies and propose items to include in the agenda of the general meeting was not associated with any unreasonable difficulties.

1. In the reporting period, the shareholders could propose items to include in the agenda of the annual general meeting within at least 60 days after the end of the respective calendar year.2. In the reporting period, the Company did not refuse to accept proposals to the agenda or nominees to the bodies of the Company due to misprints or other insignificant faults in the shareholder’s proposal.

Observed

1.1.5 Each shareholder could exercise the right of veto in an unhindered way which is the easiest and most convenient for him / her.

1. The internal document (internal policy) of the Company contains the provisions whereby each participant of the general meeting may demand a copy of his / her ballot certified by the tally commission before completion of the respective meeting.

Partially observed

The document regulating these procedures does not directly point at the possibility of such de-mand in this respect.The Company developed a draft document containing these provisions which is planned to be submitted for consideration of the annual General Meeting of Shareholders at year-end 2016.





1.1.6 The procedure for holding the General Meeting established by the Company provides equal opportunities for all the persons present at the meeting to express their opinions and ask the questions they are interested in.

1. When holding general meetings of shareholders in praesentia (joint attendance of shareholders) in the reporting period, sufficient time was provided for reports on the items of the agenda and for discussing these items. 2. Nominees to the corporate bodies and control bodies of the Company were available to give answers to the questions of the shareholders at the meeting where their candidacies were put to vote. 3. When making decisions connected with preparing and holding general meetings of shareholders, the Board of Directors considered the issue of using telecommunication means for providing remote access to the shareholders for participation in general meetings during the reporting period.

Partially observed

The Company sends invitations to take part in the General Meeting of Shareholders to nominees to corporate bodies and control bodies. However, sometimes the nominees invited cannot be present at the GMS due to a number of business and personal reasons. However, the shareholders may ask any questions to those nominees who are present at the GMS as well as to the absent nominees via the Corporate Secretary of the Company.In the reporting period, the Board of Directors did not consider the issue of using telecommunication means for providing remote access to the shareholders for participating in the GMS. However, during the reporting year, the shareholders could ask questions to the Corporate Secretary by phone or via e-mail (contact information is published on the official website on the «For shareholders and Investors» page).In 2017, the issue of considering the use of telecommunication means for providing remote access for the shareholders to participate in the general meeting at year end 2017 will be included in the agenda of the Board of Directors.

1.2 Shareholders are given equal and fair opportunities to participate in the Company’s profit by collecting dividends

1.2.1 The Company developed and implemented a transparent and clear mechanism for determining the amount of dividend and payment.

1.The Company developed, approved by the Board of Directors and disclosed the dividend policy. 2. If the dividend policy of the Company uses the indicators from the Company’s statements for determining the amount of dividend, then the respective provisions of the dividend policy take into consideration the consolidated indicators from the financial statements.

Partially observed

The dividends are calculated based on the indicators from the RAS accounting statements. The Company plans to change the practice as may be needed from time to time. In 2017, we plan to approve the amended Dividend policy.


Appendices





1.2.2 The Company does not make a decision on dividend payment, if such decision, yet formally not violating the restrictions established by the legislation, is economically unjustified and may result in misrepresenting the Company’s business.

1. The Company’s Dividend Policy con-tains clear indications of the finan-cial/economic circumstances under which the Company should not pay dividends.

Observed

1.2.3 The Company does not allow infringing the dividend rights of the current shareholders.

1. In the reporting period, the Company did not take actions leading to infringement of the dividend rights of the current shareholders.

Observed

1.2.4 The Company strives to prevent the shareholders from using other methods of profit making (income generation) at the expense of the Company, other than dividends and liquidation value.

1. In order to prevent the shareholders from using other means of profit-making (income generation) at the expense of the Company, other than dividends and liquidation value, the internal documents of the Company establish control mechanisms that ensure timely detection and the procedure for approval of transactions with the parties affiliated (associated) with substantial shareholders (persons entitled to manage the votes pertaining to the voting shares), where the law formally does not treat such transactions as interested-party transactions.

Observed

1.3 The corporate governance system and practice ensure equal conditions for all the shareholders who hold shares of the same class (type), including minority (minor) shareholders and foreign shareholders and equal treatment for them on part of the Company.

1.3.1 The Company established conditions for fair attitude to each shareholder on part of the corporate bodies and controlling persons of the Company, including the conditions that ensure inadmissibility of abuse on part of majority shareholders in respect of minority shareholders.

1. During the reporting period, the procedures for managing potential conflicts of interests of substantial shareholders were efficient and the Board of Directors paid due attention to conflicts between the shareholders, if any.

Observed





1.3.2 The Company does not take any steps that result or may result in artificial redistribution of the corporate control.

1. There were no quasitreasury shares or they did not take part in voting during the reporting period.

Observed

1.4 The shareholders are guaranteed reliable and effective methods of recording of share rights as well as possibility of free and unhindered disposal of the shares they hold.

1.4.1 The shareholders are guaranteed reliable and effective methods of recording of share rights as well as possibility of free and unhindered disposal of the shares they hold.

1. The quality and reliability of maintenance of the register of the security holders executed by the Company's registrar conforms to the demands of the Company and its shareholders.

Observed

2.1 The Board of Directors performs strategic management of the Company, determines the main principles and approaches to organizing the risk management and internal control system in the Company, controls the activity of the executive bodies the Company, as well as performs other key functions.

2.1.1 The Board of Directors is responsible for making decisions connected with nomination and dismissal of the executive bodies, inter alia, due to improper execution of their duties. The Board of Directors also exercises control so that the executive bodies of the Company acted in accordance with the approved development strategy and principal areas of the Company’s business.

1. The Board of Directors has the authorities enshrined in the Charter to nominate, dismiss and determine terms and conditions of agreements for the members of the executive bodies. 2. The Board of Directors reviewed the report (reports) of the sole executive body and the members of the collective executive body on the implementation of the Company’s strategy.

Observed

2.1.2 The Board of Directors establishes principal benchmarks for the Company’s long-term business, assesses and approves key performance indicators and main business goals for the Company, assesses and approves the strategy and business plans for the principal areas of the Company’s business.

1. During the reporting period, the meetings of the Board of Directors considered the issues connected with the status of execution and updating of the strategy; approval of the financial and economic plan (budget) of the Company as well as reviewed criteria and indicators (including interim ones) of implementation of the Company’s strategy and business plans.

Observed


Appendices





2.1.3 The Board of Directors determines the principles and approaches to organization of the risk management and internal control system in the Company.

1. The Board of Directors determined the principles and approaches to organization of the risk management and internal control system in the Company. 2. The Board of Directors performed the assessment of the Company’s risk management and internal control sys-tem during the reporting period.

Observed

2.1.4 The Board of Directors determines the Company's policy of remuneration and (or) expense reimbursement (compensation) to the members of the Board of Directors, of the executive bodies, and other key managers of the Company.

1. The Company developed and implemented the policy (policies) approved by the Board of Directors for remuneration and expense reimbursement (compensation) to the members of the Board of Directors, of the executive bodies the Company and other key managers of the Company. 2. During the reporting period the meetings of the Board of Directors reviewed the issues associated with this policy (policies).

Not observed The decisions on remuneration of the members of the Board of Directors are made by the General Meeting of Shareholders as recommended by the Board of Directors.The expenses are reimbursed in accordance with the documents provided by the members of the Board of Directors.The Company plans to modify the current practice in 2017 by adopting a document regulating the criteria of payment of remuneration to the members of the Board of Directors, inter alia, depending on their attendance at the in-person meetings of the Board of Directors.

2.1.5 The Board of Directors plays a key role in preventing, detecting and settling internal conflicts between the bodies of the Company, the shareholders of the Company, and employees of the Company.

1. The Board of Directors plays a key role in preventing, detecting and settling internal conflicts. 2. The Company worked out a system for identification of transactions connected with the conflict of interests and a system of measures aimed at resolution of such conflicts.

Observed

2.1.6 The Board of Directors plays a key role in ensuring transparency of the Company, timely and complete disclosure of the information by the Company, easy access for shareholders to the Company's documents.

1. The Board of Directors approved the provision on the information policy. 2. The Company appointed the persons in charge of implementation of the information policy.

Partially observed

This document is planned to be approved in 2017. The Corporate Secretary of the Company is in charge of implementation of the information policy of the Company in accordance with the Provision on the Corporate Secretary.

2.1.7 The Board of Directors exercises control over the corporate governance practice in the Company and plays a key role in substantial corporate events in the Company.

1. During the reporting period, the Board of Directors considered the issue of the corporate governance practice the Company.

Observed





2.2 The Board of Directors is accountable to the shareholders of the Company.

2.2.1 Information on the operation of the Board of Directors is disclosed and provided to the shareholders.

1. The Company’s annual report for the reporting period includes the information on attendance at the meetings of the Board of Directors and committees by certain directors. 2. The annual report contains the infor-mation on the main results of assessment of the work of the Board of Directors performed in the reporting period.

Partially observed

The information on the main results of assess-ment of the work of the Board of Directors was not included in the scope of the report as the above assessment was not performed in the reporting period.

2.2.2 The Chairman of the Board of Directors is available for communication with the shareholders of the Company.

1. The Company uses a transparent pro-cedure that gives an opportunity to the shareholders to send the issues and their position on them to the Chairman the Board of Directors.

Observed

2.3 The Board of Directors is an efficient and professional corporate body of the Company, capable of making unbiased and independent judgements and decisions that serve the interests of the Company and its shareholders.

2.3.1 Only these persons who have an unblemished business and personal reputation as well as knowledge, skills and expertise, necessary for making decisions pertaining to the competence of the Board of Directors and required for efficient execution of its functions are elected as members of the Board of Directors.

1. The procedure for assessment of the efficiency of the Board of Directors adopted in the Company includes, inter alia, assessment of the professional qualification of the members of the Board of Directors. 2. In the reporting period, the Board of Directors (or its nomination committee) assessed the nominees to the Board of Directors in terms of required expertise, knowledge, business reputation, absence of conflict of interests etc.

Partially observed

The Company does not have a specifically approved procedure for assessment of efficiency of the Board of Directors. The Company plans to approve the methodology of self-assessment of efficiency of the Board of Directors in 2017.In 2017, the Nomination and Remuneration Committee performed assessment of the nominees to the Board of Directors for the first time.The Company has worked out the practice of requesting agreement for nomination from the nominees as well as questionnaires where the nominees provide brief information about themselves, including information about their education and employment history, criteria of affiliation with the Company, ownership of the Company’s shares, positions in other organiza-tions. This information is included in the information package for the shareholders.

2.3.2 The members of the Board of Directors of the Company are elected by a transparent procedure that allows the shareholders to obtain information about the nominees which is sufficient to give an idea of their personal and professional qualities.

1. In all cases of holding the General Meeting of Shareholders in the reporting period, which agenda included the issues of election of the Board of Directors, the Company provided the shareholders with biography data of all the nominees to the members of the Board of Directors, the results of assessment of such nominees performed by the Board of Directors (or its Nomination Committee), as well as information on the nominee’s compliance with the independence criteria, in accordance with recommendations 102 - 107 of the Code, and a written consent of the nominees to be elected to the Board of Directors.

Partially observed

The Nomination and Remuneration Committee performed assessment of the nominees to the members of the Board of Directors for the first time immediately before the annual General Meeting of Shareholders at year-end 2016. The Company will provide the shareholders with the information on the nominees’ compliance with the independence criteria in accordance with recommendations 102 - 107 of the Code in the information materials for the AGMS at year-end 2016.


Appendices





2.3.3 The composition of the Board of Directors is balanced, inter alia, in terms of qualification, expertise, knowledge and business proficiency of its members and enjoys the trust of the shareholders.

1. Within the procedure of assessment of the work of the Board of Directors conducted in the reporting period, the Board of Directors analysed its own needs in terms of professional qualification, expertise, and business proficiency.

Not observed The Board of Directors, as well as the Nomination and Remuneration Committee, did not assess the work of the Board of Directors during the reporting period as the assessment methodology had not been developed.In 2017, the Company has developed a draft methodology for assessment which includes the mechanism for analysing demands in terms of professional qualification, expertiseб and business skills.It should be noted that the composition of the Board of Directors was formed out of qualified specialists who have expertise and knowledge required.

2.3.4 The number of members of the Board of Directors of the Company allows organizing the operation of the Board of Directors in the most efficient way, including the opportunity to form committees of the Board of Directors, as well as provides opportunity for substantial minority shareholders of the Company to elect the nominee they vote for to the Board of Directors.

1. As part the procedure of assessment of the Board of Directors performed in the reporting period, the Board of Directors reviewed the issue of conformance of the number of members of the Board of Directors to the Company's demands and the shareholders' interests.

Not observed The Board of Directors, as well as the Nomination and Remuneration Committee, did not assess the work of the Board of Directors during the reporting period as the assessment methodology had not been developed.In 2017, the Company developed a draft as-sessment methodology that includes a mechanism for analysing conformance of the number of the members of the Board of Directors to the Company’s demands and the shareholders’ interests.It should be noted that in 2016 the number of members of the Board of Directors was re-duced to 6 (six) members by the resolution of the General Meeting of Shareholders which fully conforms to the Company’s demands.

2.4 The composition of the Board of Directors includes a sufficient number of independent directors.

2.4.1 The Independent director shall be recognized as the person who has a sufficient professional level, expertise and independence for making its own opinion, able to make unbiased and good-faith judgements, independent of the influence of the executive bodies the Company, certain groups of shareholders or other parties concerned. At the same time, it should be taken into consideration that, normally, a nominee (an elected member the Board of Directors) who is associated with the Company, its substantial shareholder, a substantial contractor or a competitor of the Company or associated with the state cannot be considered independent.

1. During the reporting period, all the independent members of the Board of Directors complied with all the criteria of independence, specified in recommendations 102 - 107 of the Code, or were recognized as independent upon the resolution of the Board of Directors.

Observed All the independent members of the Board of Directors elected in the reporting year comply with all the criteria of independence, specified in recommendations 102 - 107 of the Code. The Board of Directors did not make a resolution to recognize a member of the Board of Directors as independent.





2.4.2 The compliance of the nominees to the members of the Board of Directors with the independence criteria is assessed and the compliance of the independent members of the Board of Directors with the independence criteria is analysed on a regular basis. For the purposes of such assessment, substance should prevail over form.

1. In the reporting period, the Board of Directors (or the Nomination Committee of the Board of Directors) made an opinion on independence of each nominee to the Board of Directors an presented the respective summary to the shareholders. 2. During the reporting period, the Board of Directors (or the Nomination Committee of the Board of Directors) reviewed independence of the active members of the Board of Directors whom the Company specifies in the annual report as independent directors a least once. 3. The Company developed the proce-dures that determine necessary actions of the member of the Board of Directors in case he / she is no longer independent, including obligations of timely notifica-tion of the Board of Directors to that effect.

Not observed The Nomination and Remuneration Committee assessed the nominees to the members of the Board of Directors for the first time immediately before the annual General Meeting of Share-holders at year-end 2016. The Company will provide the shareholders with the information on the nominees’ compliance with the independence criteria in accord-ance with recommendations 102 - 107 of the Code in the information materials for the AGMS at year-end 2016.The Company develops procedures that determine necessary actions of the member of the Board of Directors in case he / she is no longer independent. In 2017, these procedures will be formalized.

2.4.3 Independent directors comprise at least one third of the elected composition of the Board of Directors.

1. Independent directors comprise at least one third of the elected composition of the Board of Directors.

Observed In 2016, the number of members of the Board of Directors was reduced to 6 (six) members, upon the resolution of the General Meeting of Shareholders.In the reporting year, the shareholders proposed two nominees to the members of the Board of Directors meeting the criteria of independence and the established listing rules who were included in the composition of the Board of Directors and later re-elected to the Board.

2.4.4 Independent director play a key role in preventing internal conflicts in the Company and performing substantial corporate actions by the Company.

1. Independent directors (who have no conflict of interests) preliminarily assess substantial corporate actions associated with a potential conflict of interests, with results of this assessment being presented to the Board of Directors.

Observed


Appendices





2.5 The Chairman of the Board of Directors promotes the most efficient performance of the functions imposed on the Board of Directors.

2.5.1 The Chairman of the Board of Directors is an elected independent director, alternatively, the senior independent director is selected out of the elected independent directors who coordinates the work of the independent directors and interacts with the Chairman of the Board of Directors.

1. The Chairman of the Board of Directors is an independent director, alternatively, the senior independent director is selected out of the independent direc-tors.2. The role, rights and obligations of the Chairman of the Board of Directors (and, if applicable, the senior independent director) are duly specified in internal documents of the Company.

Partially observed

From January 2016 to November 2016, the Chairman of the Board of Directors was the independent member of the Board.In November 2016 (after the number of the members of the Board was reduced), the non-executive director was elected as the Chairman.The Chairman of the Board of Directors may not always be an independent director. In ac-cordance with the internal documents and the established practice of the Company, the Chairman of the Board of Directors is elected by the members of the Board of Directors of the Company, out of their number by a majori-ty of votes of the total number of the members of the Board of Directors and the Board of Di-rectors may at any time re-elect the Chairman of the Board of Directors by a majority of votes of the total number of the members of the Board of Directors of the Company, for which reason the Company may not control the process of his / her election.In the reporting year, the senior independent director was not elected. The Company is now developing amended internal documents. In 2017, the opportunity of electing the senior independent director will be formalized.

2.5.2 The Chairman of the Board of Directors ensures a positive atmosphere for holding meetings, free discussions of the issues included in the agenda meeting, control over execution of resolutions made by the Board of Directors.

1. The efficiency of the Chairman of the Board of Directors was assessed within the procedure of assessment of efficiency of the Board of Directors in the reporting period.

Not observed The Company plans to perform the assessment of efficiency of the Board of Directors in 2017, after the developed assessment methodology is agreed upon and approved.

2.5.3 The Chairman of the Board of Directors takes necessary measures to timely provide the information required to the members of the Board of Directors to make resolutions on the items of the agenda.

1. The obligation of the Chairman of the Board of Directors to take measures to ensure timely provision of information materials to the members of the Board of Directors concerning the issues of the agenda of the meeting the Board of Directors is enshrined in internal documents of the Company.

Observed





2.6 The members of the Board of Directors act reasonably and in good faith for the benefit of the Company and its shareholders based on sufficient awareness and with duty of care.

2.6.1 The members of the Board of Directors make decisions taking into consideration all the information available, in the absence of the conflict of interests, with regard to equal treatment of the shareholders of the Company, within a normal business risk.

1. The internal documents of the Company establish that a member the Board of Directors must notify the Board of Directors if he / she has a conflict of interests in respect of any issue on the agenda of the meeting of the Board of Directors or of the committee the Board of Directors prior to commencement of the discussion on the respective item on the agenda. 2. Internal documents of the Company stipulate that the member of the Board of Directors must abstain from voting on any issue in which he / she has a conflict of interests. 3. The Company has an established procedure that allows the Board of Directors to obtain professional consulting on the issues pertaining to its competence, at the Company’s expense.

Not observed The norm obliging to notify of the conflict of interests in respect of the issue on the agenda being discussed in not included in the internal documents of the Company. The Company develops drafts of internal documents that contain these norms. In 2017, these norms will be formalized.The Company does not have an established procedure that allows the Board of Directors to obtain professional consulting on the issues pertaining to its competence.According to the practice established in the Company, the members of the Board of Directors obtain all the necessary professional consulting via the Committees of the Board of Directors, as well as by using such instrument as an instruction of the Board of Directors.Over a long period of time, this practice has proven to be effective.

2.6.2 The rights and obligations of the members of the Board of Directors are clearly formulated and enshrined in the internal documents of the Company.

1. The Company has an adopted and published internal document that clearly defines rights and obligations of the members of the Board of Directors.

Observed

2.6.3 The members of the Board of Directors have enough time to fulfil their obligations.

1. Personal attendance at the meetings of the Board and of the committees, as well as the time spent on preparing for participation in the meetings, was taken into account within the procedure of assessment of the Board of Directors, in he reporting period. 2. In accordance with internal docu-ments of the Company, the members of the Board of Directors must notify the Board of Directors both of their inten-tion to enter corporate bodies of other organizations (other than controlled and associated organizations of the Company) and of the fact of such appointment.

Partially observed

During the report period, the assessment of the Board of Directors was not performed. The Company plans to perform the assessment of efficiency of the Board of Directors in 2017, after the developed assessment methodology is agreed upon and approved. The internal documents do not contain the norms that oblige the members of the Board of Directors to notify of their intention to enter corporate bodies of other organizations or of the fact of such appointment. However, the members of the Board of Directors on a quar-terly basis notify the Company both of the fact and of the intention to enter the above bodies.


Appendices





2.6.4 All the members of the Board of Directors have equal opportunities for accessing the Company’s documents and information. Newly elected members of the Board of Directors are given sufficient information about the Company and the work of the Board of Directors within the shortest time possible.

1. In accordance with internal documents of the Company, the members of the Board of Directors have the right to get access to the documents and make enquiries concerning the Company and the Company-controlled organizations, and the executive bodies of the Company are obliged to provide the respective infor-mation and documents. 2. The Company has a formalized familiarization programme for newly elected members of the Board of Directors.

Partially observed

The Company does not have a formalized familiarization programme for newly elected members of the Board of Directors. However, the official website of the Company discloses large amounts of various information about the Company on the «About Company», «Information Disclosure», «For Shareholders and Investors» pages. Newly elected members of the Board of Directors can familiarize themselves with them to get an insight into the Company.Each member of the Board of Directors is granted access to his / her account on the Com-pany’s website to which the Corporate Secretary uploads the information required by the member of the Board of Directors. The Company plans to formalize familiarization activities for newly elected members of the Board of Directors as may be necessary.

2.7 Meetings of the Board of Directors, preparing for them and participation of the members of the Board of Directors in them ensure efficient work of the Board of Directors.

2.7.1 Meetings of the Board of Directors are held as may be needed with regard to the scale of activities and the objectives that the Company faces at a certain period of time.

1. The Board of Directors held at least six meetings during the reporting year.

Observed

2.7.2 The internal documents of the Company enshrine the procedure for preparing and holding meetings of the Board of Directors that permits the members of the Board of Directors to duly prepare for the meeting.

1. The Company approved the internal document determining the procedure for preparing and holding meetings of the Board of Directors which establishes, inter alia, that the notification of the meeting should be normally made no later than 5 days before the meeting date.

Observed

2.7.3 The form of holding the meeting of the Board of Directors is determined with regard to the importance of the issues on the agenda. The most important issues are resolved at the meetings held in praesentia.

1. The Charter or the internal document of the Company provides that the most important issues (according to the list given in recommendation 168 of the Code) must be resolved at the meetings of the Board held in praesentia.

Not observed The internal documents of the Company do not contain requirements to consider the most important issues at the meetings of the Board of Directors held in praesentia. However, according to the established practice, the Company tries to hold the discussion of the most important issues at the in-person meetings.During the next reporting year, the Company plans to amend the internal documents accordingly.





2.7.4 Resolutions on the most important issues concerning the Company’s business are made at the meeting of the Board of Directors by qualified majority or the majority of the votes of all of the elected members of the Board of Directors.

1. The Charter of the Company stipulates that resolutions on the most important issues specified in recommendation 170 of the Code must be made at the meeting of the Board of Directors by qualified majority of at least of three quarters of the votes or by the majority of votes of all of the elected members of the Board of Directors.

Partially observed

The Charter’s list of resolutions to be made by qualified majority or the majority of the members of the Board of Directors, does not cover all the issues listed in recommendation 70 of the Code.The Company plans to change this practice as may be needed from time to time

2.8 The Board of Directors forms committees for preliminary consideration of the most important issues of the Company’s business.

2.8.1 For preliminary consideration of the issues connected with control over financial and economic operations of the Company, the Audit Committee consisting of the independent directors was established.

1. The Board of Directors formed the Audit Committee consisting solely of independent directors. 2. The internal documents of the Company define the tasks of the Audit Committee, including, inter alia, the tasks contained in recommendation 172 of the Code.3. At least one member of the Audit Committee, being an independent director, shall have expertise and knowledge in preparation, analysis, assessment and audit of the accounting (financial) statements.4. Meetings of the Audit Committee were held at least once in three months during the reporting period.

Partially observed

During the reporting year, the Audit Committees included 3 (three) independent directors.Currently, the Audit Committee does not include solely independent directors. The com-mittee includes two independent directors, hav-ing expertise and knowledge in preparation, analysis, assessment and audit of the accounting (financial) statements, one of them being the Chairman of the Audit Committee. Due to the reduction in the number of the members of the Board of Directors, currently, it does not seem possible to form the Committee solely out of independent directors.

2.8.2 For preliminary consideration of the issues, related to establishing the efficient and transparent practice of remuneration, the Remuneration Committee was formed; it consists of the independent directors and is headed by the independent director who is not the Chairman of the Board of Directors.

1. The Board of Directors formed the Remuneration Committee that consists solely of independent directors. 2. The Chairman of the Remuneration Committee is an independent director who is not the Chairman of the Board of Directors. 3. The internal documents of the Com-pany define the tasks of the Remuneration Committee, including, inter alia, the task contained in recommendation 180 of the Code.

Partially observed

The Board of Directors formed the Nomination and Remuneration Committee which included, as of the reporting date, two independent direc-tors, one of them being its Chairman, yet not the Chairman of the Board of Directors. Due to the reduction in the number of the members of the Board of Directors, currently, it does not seem possible to form the Committee solely out of independent directors. The objectives of the committee are defined in the Provision on the Nomination and Remuneration Committee. However, since this version of the document was approved in 2010, it does not contain all the norms listed in recommendation 180 of the Code.The Company plans to adopt the amended version of the Provision in 2017.


Appendices





2.8.3 For preliminary consideration of the issues related to human resources planning (continuity planning), professional composition and efficiency of the work of the Board of Directors, the Nomination (appointments, human resources) Committee was formed, with majority of its members being independent directors.

1. The Board of Directors formed the Nomination Committee (or its objectives, specified in recommendation 186 of the Code are implemented within other com-mittee), the majority of the members of which being independent directors.2. The internal documents of the Company define the objectives of the Nomination Committee (or a respective committee having additional duties), including, inter alia the objectives contained in recommendation 186 of the Code.

Partially observed

The Board of Directors formed the Nomination and Remuneration Committee that exercises the functions of the Nomination Committee.The objectives of the committee are defined in the Provision on the Nomination and Remuneration Committee. However, since this version of the document was approved in 2010, it does not contain all the norms listed in recommendation 180 of the Code.The Company plans to adopt the amended version of the Provision in 2017.

2.8.4 Taking into account the scale of operations and the risk level, the Board of Directors of the Company made sure that the composition of its committees fully complies with the goals of the Company’s business. Additional committees were either formed or not recognized as necessary (the strategy committee, the corporate governance committee, the ethics committee, the risk management committee, the budget committee, the HSE committee etc.).

1. In the reporting period, the Board of Directors of the Company considered the issue of compliance of the composition of its committees to the objectives of the Board of Directors and the goals of the Company's business. Additional committees were either formed or not recognized as necessary.

Partially observed

In the reporting period, the Board of Directors of the Company did not consider the issue of compliance of the composition of its committees to the objectives of the Board of Directors and the goals of the Company's business. After the GMS approved a new composition of the Board of Directors, the Board determined the number and personalities of the members of the committees earlier defined by the Board as necessary for achieving the goals and objectives set to the Board of Directors.The Company plans to change this practice as may be needed from time to time.

2.8.5 The composition of the committees is determined in such a way as to allow conducting a comprehensive discussion of preliminarily considered issues taking into accounts various opinions.

1. The Committees of the Boards of Di-rectors are headed by the independent directors. 2. The internal documents (policies) of the Company enshrine the provisions whereby the persons, not included in the Audit Committee, the Nomination Committee and the Remuneration Committee may attend meetings of the committees only when invited by the Chairman of the respective committee.

Observed

2.8.6 The Chairmen of the Committees inform the Board of Directors and its Chairman on the work of their committees on a regular basis.

1. During the reporting period, the chairmen of the committees reported to the Board of Directors on the work of their committees on a regular basis.

Partially observed

Only the Chairman of the Audit Committee reported to the Board of Directors as part of consideration of the Company’s budget and motivation issues. The Company plans to change the established practice and incorporate into the Provision on the Committees the obligation of the Chairmen of the Committees to report to the Board of Directors on the work of the Committees on a regular basis.





2.9 The Board of Directors provides for the assessment of the quality of work of the Board of Directors, its committees, and members of the Board of Directors.

2.9.1 The assessment of the quality of work of the Board of Directors is aimed at determining the degree of efficiency of the Board of Directors, of the committees and of the members of the Board of Directors, conformance of their work to the demands of the Company's development, intensification of the work of the Board of Directors and identification of the areas where their activities can be improved.

1. Self-assessment or external assess-ment of the Board of Directors per-formed in the reporting period included the assessment of the work of the committees, of individual members of the Board of Directors, and of the Board of Directors in general. 2. The results of self-assessment external assessment of the Board of Directors, performed during the reporting period, were reviewed at the in-person meeting of the Board of Directors.

Not observed The efficiency of work of the Board of Directors and its Committees was not performed. The Company plans to perform such assessment after the developed methodology for self-assessment of the Board of Directors and its Committees is agreed upon and approved.

2.9.2 Assessment of the work of the Board of Directors, of the committees and of the members of the Board of Directors is performed on a regular basis at least once a year. In order to perform an independent assessment of the quality of work of the Board of Directors at least once in three years, an external Company (consultant) is employed.

1. In order to perform an independent assessment of the quality of work of the Board of Directors during the three past reporting periods, the Company employed an external Company (consultant) at least once.

Not observed The Company plans to perform such assessment in the future whenever possible. In 2017, we plan to perform self-assessment of efficiency of the Board of Directors and its Committees after the developed methodology for self-assessment is agreed upon and approved.

3.1 The Corporate Secretary of the Company carries out effective operational interaction with the shareholders, coordinates the Company's activities for protecting the rights and interests of the shareholders, maintains efficient work of the Board of Directors.

3.1.1 The Corporate Secretary has knowledge, expertise and qualification, sufficient for performing the duties imposed on him / her, an unblemished reputation and enjoys the trust of the shareholders.

1. The Company has an adopted and disclosed internal document: Provision on the Corporate Secretary. 2. The Company’s website on the Internet and the annual report present the Corporate Secretary’s biographic data, with the same level of detail as for the members of the Board of Directors and the executive management of the Company.

Observed

3.1.2 The Corporate Secretary has sufficient independence from the executive bodies of the Company and has the necessary powers and resources for fulfilling the tasks assigned to him / her.

1. The Board of Directors approves the appointment, dismissal and additional remuneration for the Corporate Secretary.

Observed

4.1 The level of the remuneration paid by the Company is sufficient to attract, motivate and retain the persons who have competence and qualification that the Company needs. The remuneration to the members of the Board of Directors, of the executive bodies and other key managers of the Company is paid in accordance with the remuneration policy adopted in the Company.


Appendices





4.1.1 The level of the remuneration provided by the Company to the members of the Board of Directors, the executive bodies and other key managers creates sufficient motivation for their efficient work, which allows the Company to attract and retain competent and qualified specialists. When doing so, the Company avoids both a higher-than-required level of remuneration and an unjustified big gap between the levels of remuneration of these persons and the employees of the Company.

1. The Company has an adopted internal document (documents): Policy (Policies) for remuneration of the members of the Board of Directors, the executive bodies and other key managers which clearly defines approaches to remuneration of the above persons.

Partially observed

The decisions on remuneration of the members of the Board of Directors are made by the General Meeting of Shareholders as recom-mended by the Board of Directors.The expenses are reimbursed in accordance with the documents provided by the members of the Board of Directors.The Company plans to modify the current practice by adopting a document regulating the criteria of payment of remunerations to the members of the Board of Directors, inter alia, depending on their attendance at the in-person meetings of the Board of Directors. The issues of remuneration of the executive bodies and other key managers are resolved solely by the Board of Directors.

4.1.2 The Company’s remuneration policy has been developed by the Remuneration Committee and approved by the Board of Directors of the Company. The Board of Directors, assisted by the Remuneration Committee, ensures control over the implementation and execution of the Company’s remuneration policy and revises and amends it as necessary.

1. During the reporting period, the Remuneration Committee reviewed the policy (policies) on remuneration and the practice of its (their) implementation and provided respective recommendations to the Board of Directors as necessary.

Observed

4.1.3 The Company’s remuneration policy contains transparent mechanisms for determining the amount of remuneration for the members of the Board of Directors, of the executive bodies and other key managers of the Company, as well as regulates all types of payments, benefits and privileges provided to the above persons.

1. The Company’s remuneration policy (policies) contains (contain) transparent mechanisms for determining the amount of remuneration for the members of the Board of Directors, of the executive bodies and other key managers of the Company, as well as regulates (regulate) all types of payments, benefits and privileges provided to these persons.

Not observed The decisions on remuneration of the members of the Board of Directors are made by the General Meeting of Shareholders as recommended by the Board of Directors.The expenses are reimbursed in accordance with the documents provided by the members of the Board of Directors.The Company plans to modify the current practice by adopting a document regulating the criteria of remuneration payment to the mem-bers of the Board of Directors, inter alia, depending on their attendance at the in-person meetings of the Board of Directors. The issues of remuneration of the executive bodies and other key managers are resolved solely by the Board of Directors. The mechanisms of determination of the amount of remu-neration are absolutely transparent; the docu-ments approved by the members of the Board of Directors regulate all types of payments, benefits and privileges provided to the above persons.





4.1.4 The Company determines the policy of expense compensation (compensations) that specifies a list of expenses to be compensated for and the level of service the members of the Board of Directors, of the executive bodies and other key managers of the Company can count on. Such policy may be a component of the Company's remuneration policy.

1. The remuneration policy (policies) or in other internal documents of the Company establish the rules for compensation of expenses to the members of the Board of Directors, of the executive bodies and other key managers of the Company.

Not observed Expenses of the members of the Board of Directors associated with their activity in the Board, as of the reporting date, were compensated after the members of the Board provided documents confirming the expenses. The compensation of expenses to the members of executive bodies and other key managers the Company is not regulated in the Company.The Company plans to modify the current practice by adopting a document regulating these criteria of payment.

4.2 The system of remuneration of the members of the Board of Directors ensures convergence of financial interests of the directors with long-term financial interests of the shareholders.

4.2.1 The Company pays a fixed annual remuneration to the members of the Board of Directors. The Company does not pay remuneration for participation in individual meetings of the Board or of the committees of the Board of Directors.The Company does not use any types of short-term motivation or additional financial encouragement for the members of the Board of Directors.

1. The fixed annual remuneration was the only monetary form of remuneration paid to the members of the Board of Directors for their work in the Board of Directors during the reporting period.

Observed

4.2.2 The long-term ownership of the Company's shares mostly contributes to convergence of financial interests of the members of the Board of Directors with long-term interests of the shareholders. In doing so, the Company does not precondition the right of realization of shares by achieving certain performance indicators and the members of the Board of Directors do not participate in stock option plans.

1. If the internal document (documents) - the Company's remuneration policy (policies) stipulates the provision of the shares of the Company to the members of the Board of Directors, clear rules of ownership of shares by the members of the Board of Directors aimed at encouraging long-term ownership of such shares must be envisaged and disclosed.

Not observed The issue of approval of this document (in particular, remuneration of the executive bodies) was brought up for consideration of the Board of Directors, yet it was not resolved before the approval of the Company’s strategy.After the reporting date and approval of the Company’ strategy, this issue will be included again in the agenda of the Board of Directors taking into account the recommendations of the Code.The internal document will not envisage the provision of the Company’s shares to the members of the Board of Directors and, re-spectively, it will not contain the rules of share ownership by the members of the Board of Directors aimed at encouragement of the long-term ownership of such shares.

4.2.3 The Company does not provide for any additional payments or compensations in case of early termination of the powers of members of the Board of Directors resulting from the change of control over the Company or otherwise.

1. The Company does not provide for any additional payments or compensations in case of early termination of powers of the members of the Board of Directors resulting from the change of control over the Company or otherwise.

Observed


Appendices





4.3 The system of remuneration of the members of the executive bodies and other key managers of the Company stipulates the dependence of remuneration on the Company's performance and their contribution to achieving this result.

4.3.1 The remuneration of the members of the executive bodies and other key managers of the Company is determined in such a way as to ensure a reasonable and justified correlation between the fixed portion of the remuneration and the variable portion of the remuneration which depends on the Company's performance and personal (individual) contribution of the employee to the outcome.

1. During the reporting period, the annual efficiency indicators approved by the Board of Directors were used for determining the amount of the variable remuneration of the members of the executive bodies and other key managers of the Company. 2. In the course of the last assessment of the remuneration system for the members of the executive bodies and other key managers of the Company performed, the Board of Directors (the Remuneration Committee) made sure that the Company uses an effective ratio between the fixed portion of the remuneration and the variable portion of the remuneration. 3. The Company provides a procedure that ensures the payback to the Company of the bonuses wrongfully received by the members of the executive bodies and other key managers the Company.

Partially observed

The Company does not have a procedure that ensures payback to the Company of the bonuses wrongfully received by the members of ex-ecutive bodies and other key managers of the Company.The Company plans to modify the current practice by adopting a document regulating these criteria of payment as may be necessary.

4.3.2 The Company implemented the programme of long-term motivation for the members of the executive bodies and other key managers of the Company using the shares of the Company (options or other derivative financial instru-ments, the underlying asset for which are the shares of the Company).

1. The Company implemented the programme of long-term motivation for the members of the executive bodies and other key managers of the Company using the shares of the Company (financial instruments that are based on the Company’s shares). 2. The programme of long-term motivation of the members of the executive bodies and other key managers of the Company provides that the right of realization of the shares and other financial instruments used in such programme occurs not earlier than three years after the date of their provision. At the same time, the right of their realization is pre-conditioned by achieving certain indicators of the Company’s business.

Not observed The Company considers the possibility of implementing the programme of long-term motivation for the members of the executive bodies and other key managers of the Company in the future.

4.3.3 The amount of compensation (golden parachute) that the Company pays in case of early termination of their powers to the members of the executive bodies or key managers, as initiated by the Company, and in the absence of unfair acts on their part should not exceed a twofold amount of the fixed portion of the annual remuneration.

1. The amount of compensation (golden parachute) that the Company pays in case of early termination of their powers to the members of the executive bodies or key managers, as initiated by the Company, and in the absence of unfair acts on their part, did not exceed a twofold amount of the fixed portion of the annual remuneration during the reporting period.

Observed





5.1 The Company has an effectively operating risk management and internal control system aimed at providing reasonable assurance in achieving the goals set to the Company.

5.1.1 The Board of Directors of the Company determines the principles and approaches to organizing the risk management and internal control system in the Company.

1. The functions of various corporate bodies and subdivisions of the Company in the risk management and internal control system are clearly defined in internal documents/respective policy of the Company approved by the Board of Directors.

Partially observed

The Company has an adopted Provision on the Internal Control (August 14, 2013), that partial-ly describes the functions of various corporate bodies and subdivisions of the Company in the risk management and internal control system. However, the above Provision should be up-dated by incorporating the risks relevant for the Company.In 2017, the Company plans to amend the effective document and bring it to compliance with the effective legislation and present-day objectives of the Company.

5.1.2 The executive bodies the Company ensure establishing and continuous functioning of the effective risk management and internal control system in the Company.

1. The executive bodies of the Company ensured distribution of functions and powers in respect of risk management and internal control between the heads (chiefs) of the subdivisions and departments accountable to them.

Observed

5.1.3 The Company’s risk management and internal control system gives an unbiased, fair and clear insight into the current state and prospects of the Company, integrity and transparency of the Company's reporting, reasonableness and ac-ceptability of the risks taken by the Company.

1. The Company has an approved anti-corruption policy. 2. The Company provided an easy-to-use way of informing the Board of Directors or the audit committee of the Board of Directors on the facts of violations of the legislation, of the internal procedures, of the ethical code of the Company.

Partially observed

The Company does not have the approved anti-corruption policy. However, the employees of the Company can inform the Board of Directors or the Audit Committee of the Board of Directors on violations of the legislation, of the internal proce-dures, or of the ethical code of the Company via the Corporate Secretary. The Company plans to change this practice as may be needed next year.

5.1.4 The Board of Directors of the Company takes necessary steps in order to make sure that the risk management and internal control system effective in the Company complies with the principles and approaches to its organization, as determined by the Board of Directors, and efficiently functions.

1. During the reporting period, the Board of Directors or the Audit Committee of the Board of Directors performed an assessment of efficiency of the Company's risk management and internal control system. Information on the main results of this assessment is included in the annual report of the Company.

Partially observed

The assessment of efficiency of the risk management and internal control system of the Company was performed in the reporting year by the Internal Audit Service. In the reporting year, the results of this assessment were not approved at the meeting of the Audit Committee and of the Board of Directors.The Company plans to change this practice as may be needed next year.


Appendices





5.2 In order to ensure a systematic independent assessment of reliability and efficiency of the risk management and internal control system and of the corporate governance practice, the Company arranges for internal audit.

5.2.1 In order to perform internal audit, a separate structural subdivision was established inside the Company or an independent external organization was employed. The functional and administrative accountability of the internal audit subdivision is delimited. Functionally, the internal audit subdivision is accountable to the Board of Directors.

1. In order to perform internal audit, a separate structural subdivision for internal audit was established inside the Company, which is functionally accountable to the Board of Directors or to the Audit Committee, or an independent external organization was employed under the same accountability principle.

Observed

5.2.2 The internal audit subdivision assesses the efficiency of the internal control system, the efficiency of the risk management system, as well as of the corporate governance system. The Company applies generally accepted internal audit standards.

1. During the reporting period, the effi-ciency of the internal control and risk management system was assessed as part of the internal audit. 2. The Company applies generally accepted approaches to the internal control and risk management.

Observed

6.1 The Company and its business are transparent for the shareholders, investors, and other parties concerned.

6.1.1 The Company developed and implemented the information policy that ensures efficient information interaction between the Company, shareholders, investors, and other parties concerned.

1. The Board of Directors of the Com-pany approved the Company’s infor-mation policy developed with regard to recommendations of the Code. 2. The Board of Directors (or one of its committees) considered the issues relating to the Company’s compliance with its information policy at least once dur-ing the reporting period.

Not observed The Company did not approve the information policy that must take into account all the recommendations of the Code. The reports on compliance with the infor-mation policy are not reviewed by the Board of Directors. The Company plans to modify the current practice, adopt a respective document in 2017 as well as consider the respective reports.

6.1.2 The Company discloses the information on the corporate governance system and practice, including detailed information on the compliance with the principles and recommendations of the Code.

1. The Company discloses the infor-mation on the corporate governance system in the Company and general principles of the corporate governance applied in the Company, inter alia, on the Company’s website on the Internet. 2. The Company discloses the infor-mation on the composition of the executive bodies and of the Board of Directors, independence of the members of the Board and their membership in the committees of the Board of Directors (in accordance with the definition in the Code). 3. In case there is a person controlling the Company, the Company publishes a controlling person memorandum concerning the plans of such person in respect of corporate governance in the Company.

Observed The Company does not publish the controlling person memorandum concerning the plans of such person in respect of corporate governance in the Company, because the above document is not applicable as there is no person controlling the Company.





6.2 The Company timely discloses complete, up-to-date and reliable information about the Company to ensure opportunities for making justified decisions by the Company’s shareholders and investors.

6.2.1 The Company discloses the information in accordance with principles of regularity, consistency and promptness, as well as accessibility, reliability, completeness, and comparability of the information disclosed.

1. The information policy of the Company defines approaches and criteria of determination of the information that can significantly influence the Company’s evaluation and the value of its securities, as well as the procedures ensuring timely disclosure of such information. 2. If the Company’s securities are trad-ed in foreign securities markets, the disclosure of substantial information in the Russian Federation and in such markets shall be performed simultaneously and equivalently during the reporting year.3. If foreign shareholders hold a significant number of the Company’s shares, then the disclosure of information during the reporting year was performed not only in the Russian language but also in one of the most widely-spread foreign languages.

Not observed The Company did not approve the information policy that must take into account all the recommendations of the Code. The Company plans to modify the current practice and adopt the respective document in 2017.

6.2.2 The Company avoids a formal approach to disclosing information and discloses the substantial information on its business, even if the disclosure of such information is not stipulated by the law.

1. During the reporting period, the Company disclosed annual and semi-annual financial statements made according to the IFRS. The Company’s annual report for the reporting period included the an-nual IFRS financial statements together with the auditor’s report. 2. The Company discloses complete information on the structure of the Company’s capital, in accordance with Recommendation 290 of the Code, in the annual report on the Company’s website on the Internet.

Observed

6.2.3 The annual report, being one of the most important tools of informational interaction with the shareholders and other parties concerned, contains the information that allows assessing the Company’s annual performance.

1. The Company’s annual report contains the information on key aspects of the Company’s business and its financial performance2. The Company’s annual report contains the information on environmental and social aspects of the Company’s business.

Observed

6.3 The Company provides information and documents as requested by the shareholders in accordance with principles of fairness and convenience.

6.3.1 The Company provides the information and documents as requested by the shareholders in accordance with the principles of fairness and convenience.

1. The information policy of the Company established a convenient procedure for granting access to the information for the shareholders, including information on the legal entities controlled by the Company, as requested by the shareholders.

Not observed The Company did not approve the information policy that must take into account all the recommendations of the Code. The Company plans to modify the current practice and adopt the respective document in 2017.


Appendices





6.3.2 When the Company provides in-formation to the shareholders, a reasonable balance between the interests of particular shareholders and the interests of the Company itself, seeking to keep confidential the important commercial infor-mation that may significantly in-fluence its competitive ability, is ensured.

1. During the reporting period, the Com-pany did not refuse to satisfy the share-holders’ requests for information, or such refusals were justified. 2. In cases stipulated by the information policy of the Company, the shareholders are warned of the confidential nature of the information and they undertake to keep it confidential.

Partially observed

The Company did not approve the information policy that must take into account all the rec-ommendations of the Code. However, the shareholders are always warned of the confi-dential nature of the information and they un-dertake to keep it confidential.The Company plans to modify the current practice and adopt the respective document in 2017 by incorporating the respective norms in it.

7.1 The actions that significantly influence or may influence the structure of the equity capital and financial standing of the Company and, accordingly, the shareholders’ state (substantial corporate actions), are performed on equitable conditions that ensure compliance with the rights and interests of the shareholders as well as of other parties concerned.

7.1.1 The substantial corporate actions shall be recognized as restructuring of the Company, purchase of 30 or more percent of the voting shares of the Company (acquisition), making substantial transactions by the Company, increase or reduction of the Company's equity capital, listing and delisting of the shares of the Company as well as other actions that may result in a significant change of the rights of the shareholders or violation of their interests. The Charter of the Company defines a list (criteria) of transactions or other actions that are substantial corporate actions and such actions refer to the competence of the Board of Directors of the Company.

1. The Charter of the Company defines a list of transactions or other actions that are substantial corporate actions and criteria for their determination. De-cision-making in respect of substantial corporate actions refers to the compe-tence of the Board of Directors. When these corporate actions are directly re-ferred by the legislation to the compe-tence of the General Meeting of Share-holders, the Board of Directors provides respective recommendations to the shareholders. 2. The Charter of the Company refers to substantial corporate actions at least the following: restructuring of the Com-pany, purchase of 30 or more percent of the voting shares of the Company (ac-quisition), making substantial transac-tions by the Company, increase or re-duction of the equity capital of the Com-pany, listing and delisting of the Compa-ny’s shares.

Not observed The Charter of the Company contains neither a list of substantial corporate actions or criteria for their identification.The Company plans to modify the current practice and incorporate the respective norms into the Charter when amending it next time.

7.1.2 The Board of Directors plays a key role in making decisions or developing recommendations concerning substantial corporate actions; the Board of Directors relies on the position of the independent directors of the Company.

1. The Company provides for a procedure whereby the independent directors declare their position on substantial corporate actions prior to their approval.

Partially observed

This procedure is not enshrined in the internal documents of the Company, However, in prac-tice, the independent directors declare their po-sition on the corporate actions they deem sub-stantial prior to their approval.The Company plans to change this practice as may be needed from time to time.





7.1.3 When substantial corporate actions that affect the rights and legitimate interests of the shareholders are performed, equal conditions are provided for all the shareholders of the Company, while in case of insufficiency of the mechanisms aimed at protecting the rights of the shareholders stipulated by law, additional measures protecting the rights and legitimate interests of the shareholders of the Company are applied. In doing so, the Company abides not only by compliance with formal requirements of the legislation, but also by the corporate governance prin-ciples specified in the Code.

The Charter of the Company, with re-gard to the specific nature of its busi-ness, establishes the lower minimum criteria than provided by the law to refer the Company’s transactions to substantial corporate actions. 2. During the reporting period, all the sub-stantial corporate actions went through the procedure of approval prior to their execution.

Partially observed

The Charter of the Company contains nether a list of substantial corporate actions nor criteria for their identification.The Company plans to modify the current practice and incorporate the respective norms into the Charter when amending it next time.The procedure of preliminary approval was performed for the interested party transactions and major transactions; a decision on possible participation in investment projects and alienation of the assets were made only with account for recommendations of the particular Committee etc.

7.2 The Company provides a procedure for performing substantial corporate actions that allows the shareholders to obtain in due time complete information on such actions and an opportunity to influence the performance of such actions, and guarantees compliance with the appropriate level of protection of their rights as such actions are performed.

7.2.1 Information on performance of substantial corporate actions is disclosed with the reasons, conditions and consequences of such actions explained.

1. During the reporting period, the Company disclosed the information on substantial corporate actions of the Company in due time and in detail, including the reasons and timeline for performing such actions.

Partially observed

The Charter of the Company contains neither a list of substantial corporate actions nor criteria for their identification.However, the Company disclosed in detail substantial facts of its business, the internal docu-ments adopted by the Board of Directors and the General Meeting etc.The Company plans to modify the current practice and introduce respective amendments to the Charter, by specifying a list of substantial corporate actions as well as criteria for their determination when amending it next time.

7.2.2 The rules and procedures associated with the Company's performance of substantial corporate actions are enshrined in the internal documents of the Company.

1. The internal documents of the Company stipulate the procedure for involving an appraiser for estimation of the value of the property, alienated or purchased through a major transaction or an interested party transaction. 2. The internal documents of the Company stipulate the procedure for involving an appraiser for estimation of the value of purchase and redemption of the Company’s shares. 3. The internal documents of the Company provide an extended list of grounds on which the members of the Board of Directors of the Company and other persons, stipulated by the law, are recognized interested in transactions of the Company.

Observed

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