innovation and leadership · 4 United agon pany Annual Report and Accounts 2014 United agon pany...

united wagon company AnnuAl RepoRt And Accounts 2014

innovation and leadership

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United Wagon Company Annual Report and Accounts 2014

CONTENTS

abOuT ThE COmpaNy

a mESSaGE FROm ThE ChiEF ExECuTivE OFFiCERPage 12

ENGiNEERiNG aNd iNNOvaTiONPage 20

OuR buSiNESS mOdEL Page 14

FiNaNCiaL pERFORmaNCE OvERviEw

Page 38

PRODUCTION

Railc

ar

leasi

ng

S

ale

s

Leasi

ng

Railcar sales

CUSTOMER

SALESleasing companies

SALESrailway operator ENGINEERING

pro

ductio

n o

f

new

mod

els

Launch o

f

GUARANTEED RAILCAR SALES

PRODUCTS TAKEN QUICKLY TO MARKET

HIGH RETURNS IRRESPECTIVE OF

MARKET CONDITIONS

requirem

ents

Market

transportation services

Railway

SEE ThE REpORT ONLiNEwww.uNiwaGON.COm/ EN/iNvESTORS

iNNOvaTiON aNd LEadERShip

United Wagon Company Research and Production Corporation, a public joint-stock company1, is a leading company in innovative railcar production in Russia and the CIS. As an integrated railway holding company, it is involved in the manufacturing, transportation, operational leasing, engineering and servicing of new-generation railcars.

№ 1in innovative railcar production

№ 2in railcar manufacturing in Russia

19,000railcars in the UWC fleet

тop 5in the operational leasing market

1 Hereafter referred to as UWC or the Company.

STRaTEGiC REpORT

2 About the Company4 Key performance indicators 6 Innovative railcars8 A stable market10 A message from the Chairman12 A message from the Chief

Executive Officer14 Our business model15 Our strategy18 The market20 Overview of our operations 20 Engineering and innovation 22 Production 26 Sales30 Corporate social responsibility 30 Employees 32 Health and safety 33 Environmental protection 36 Social responsibility38 Financial performance overview42 Risk management

FiNaNCiaL STaTEmENTS

56 Statement of management’s responsibilities

57 Auditor’s report58 Consolidated financial statements 58 Consolidated statements

of financial position 59 Consolidated statements

of profit or loss and other comprehensive income

60 Consolidated statements of changes in equity

61 Consolidated statements of cash flow

62 Notes to the consolidated financial statements

appENdiCES

102 Transactions in which the Company had an interest

106 Major transactions114 Compliance with the Corporate

Governance Code 132 Use of energy resources in 2014133 Сontact information

CORpORaTE GOvERNaNCE

48 Board of Directors50 Corporate governance structure53 Information for shareholders

32 United Wagon Company Annual Report and Accounts 2014United Wagon Company Annual Report and Accounts 2014

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UWC manufactures and sells railcars with enhanced technical and economic specifications, and ranks No. 1 in the production of these railcars in Russia and the CIS. What sets our innovative rolling stock apart is its enhanced capacity, its longer service life, its lower operating costs and its separate empty run tariff-setting system, giving it an economic advantage over railcars that use standard bogies.

58%production of innovative railcars market share

ouR buSineSS

№ 1in railcar fleet size

About the CompAny

pRoduCtion UWC’s main production asset is the Tikhvin Freight Car Building Plant (TVSZ), located at the Tikhvin industrial estate in the town of Tikhvin, Leningrad Region. Also located there is the TikhvinChemMash manufacturing facility, which will start manufacturing tank cars in 2015. Based in the city of Izhevsk, NPC Springs supplies UWC with all its heavy-duty springs. In addition, the Company is developing joint ventures with American firms Wabtec and Timken to manufacture innovative railcar components.

15%Railcar manufacturing market share

SaleS UWC uses several channels to sell its innovative railcars, which means the Company remains efficient in any market environment. The key channel is operational leasing. The RAIL1520 group of leasing companies, which forms part of UWC, ranks among the top five players in the operational leasing market. In addition, UWC offers rolling-stock operating services through its Vostok1520 transport company, as well as selling new-generation railcars directly.

23.6 billion RubleS

Leasing portfolio value

enGineeRinG And innovAtion

UWC owns the intellectual property rights to Barber, the leading bogie in the Russian market. At its own design unit, the All-Union Research and Development Centre for Transportation Technology, the Company develops a wide range of innovative railcar designs, modernises existing models and refines production technologies.

60 railcar modifications to be incorporated into the production process by 2017

SeRviCinG For owners of its railcars, UWC guarantees that its products are high-quality and safe to use. For these purposes, the Company is developing an extensive servicing network, providing in-warranty and post-warranty servicing of freight cars that use Barber bogies.

32service centres in Russia and Kazakhstan

the leAdeR in innovAtive RAilCAR pRoduCtion

CompellinG inveStment CASe

Strong upSide potentialOF INNOvATIvE RAIlCARS

teCHniCal and eConoMiC SuperioritYOF INNOvATIvE RAIlCARS

MarKet deMand SHiFtingTOWARDS INNOvATIvE RAIlCARS

a uniQue BuSineSS Model THAT IS SUSTAINABlE AMID UNSTABlE MARKET CONDITIONS

a Clear StrategY FOCUSED ON GROWTH

leading poSitionS IN THE MARKET

State Support FOR INNOvATIvE RAIlCAR BUIlDING

Strong ManageMent teaMExPERIENCED AND PROFESSIONAl

LARGEST PRODUCERS OF RAILCARS IN RUSSIA IN 2014(’000)

0

4

8

12

16

20

19.4

9.6

5.8

UV

Z

Alta

iva

go

n

Source: Promyshlennyye Gruzy, Company data

LARGEST PRODUCERS OF INNOVATIVE RAILCARS IN RUSSIA IN 2014 (’000)

Source: Promyshlennyye Gruzy,Company data

16.5

UWC – 9.6 UVZ – 4.6 Others – 2.3

14%

28%58%

FLEET SIZE OF LEASING COMPANIES AT THE END OF 2014 (’000)

0

7

14

21

28

35

Source: companies’ websites, INFOLine data

UV

Z

Bru

nsw

ick

Ra

il

RTH

ОТЕ

КО

Innovative railcars Standard railcars

6.3 10

.6

0.1

26.0

25.5

20.8

8.3

14.5

32.3

25.6

20.818.9

14.5


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key peRfoRmance indicatoRS foR 2014

RAILCAR PRODUCTION

2012 2013 2014

0

4

8

12

16

20

3.9

9.6

1.3

10%

30%

74%

0

16

32

48

64

80

Thousands of railcars produced Capacity utilisation

GROWTH IN UWC’S RAILCAR FLEET (thousand railcars)

2012 2013 2014

0

4

8

12

16

20

10.2

19.0

5.7

REVENUE(million rubles)

0

4,000

8,000

12,000

16,000

20,000

2012 2013 2014

3,0

71

2,1

67

17,0

57

production

9.6 thouSand RailcaRS

railcar fleet

19 thouSand RailcaRS

revenue

17.1 Billion RuBleS

AVERAGE EMPLOYEE HEADCOUNT*(thousand people)

2012 2013 2014

0

2

4

6

8

10

3.4

6.9

2.2

*Excluding part-time employees.

UWC’S INVESTMENTS (billion rubles)

2012 2013 2014

0

1

2

3

4

5

2.3

3.94

.2

2012 2013 2014

1,403

825

3,5

72

800

1,600

2,400

3,200

4,000

0

EBITDA(million rubles)

employee headcount

6.9 thouSand people

eBitda

3.6 Billion RuBleS

investments

3.9 Billion RuBleS

Despite the difficulties the Russian economy is experiencing, UWC managed to deliver strong operational and financial indicators, confirming the effectiveness of our vertically integrated business model.

key eVentS

13,000TVSZ’s main production lines reached planned capacity of 13,000 railcars a year

10,000TVSZ manufactured its landmark 10,000th railcar

production of platform cars Production of platform cars and solid-bottom gondola cars using Barber bogies launched

20 Development of 20 railcar modifications launched

50%Customer base of leasing companies increased by 50%

Vostok1520 Vostok1520 railway operator launched

timken and Wabtec Joint production ventures with Timken and Wabtec set up

npc Springs Series of transactions completed to acquire NPC Springs, producer of heavy-duty springs


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innovAtiveRAilCARSInnovative railcars offer increased capacity, longer service life and lower operating costs and are subject to a separate system of empty-run tariffs.

bARbeR eFFeCtThe spread of new-generation railcars is one of the key priorities for various government programmes to develop transport machine-building, heavy haul transport and rail transportation.

www.barbers2r.com

teCHniCal SpeCiFiCationS eConoMiC SpeCiFiCationS CoMulative eFFeCt

SALES OF INNOVATIVE RAILCARS IN RUSSIA IN 2014 (thousand units)

0

500

1,000

1,500

2,000

3,500

2,500

3,000

Source: Promyshlennyye Gruzy.

Jan

Feb

Ma

r

Ap

r

Ma

y

Jun

Jul

Aug

Sep

Oct

No

v

Dec

Innovative railcars Railcars using 18-100 bogies

3,036

2,764

3,128

3,481

2,532

3,188 3,258

2,7302,944

3,408

2,5052,716

484

655

940

1,13

2

1,035

1,280

1,415

882

1,285

1,723

1,619

1,880

2,5

52

2,1

09

2,1

88

2,3

49

1,497 1,

908

1,843

1,848

1,659 1,685

886 836

+ =innovAtion A StAble mARket

vAlue CReAtion

Axle load increased from 23.5 to 25 tonnes-forceFreight capacity increased from 69-71 to 75-77 tonnes

Carriage duty reduced by 10-15% per tonne of freight

15% less impact on the railway bed

Special empty run tariff system, offering savings of up to 30%

Scheduled service life increased to 32 years

Frequency of fleet overhaul reduced

Scheduled intervals between repairs twice as long

Life-cycle costs reduced by 50%

Service life of abrasion-resistant components increased to one million kilometres

Frequency of breakdowns reduced by a factor of 30

875 RubleSNew-generation railcars earn their owners and lessors an extra 875 rubles a day compared to standard railcars.

2.8 millionRubleS

Additional saving made over a railcar’s life cycle based on a discount rate of 12%.


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RAilwAy tRAnSpoRtAtion iS the FoundAtion oF RuSSiAn eConomy

FeatureS oF tHe MarKet

The Russian railway infrastructure is one of the largest in the world. Russia ranks second in the world in terms of the size of its railway infrastructure and the size of its railcar and locomotive fleet.

Sources: Rosstat, Russian Railways data.

FREIGHT CARRIED BY DIFFERENT TYPES OF TRANSPORT excluding pipelines (2014)

Railway Road Internal waterways Sea Air

2,654.2bn t-km

0.2%1.2%

86.6%

2.7%9.3%

MAIN TYPES OF FREIGHT TRANSPORTED BY RAILWAY(2014)

Coal Oil, petroleum products Ore Ferrous metals Chemical and mineral fertilisers Construction freight Others

20.1%

11.5%

10.5%

20.9%

25.7%

7.3%

4.0%

1,220,000Russia’s railcar fleet

263,000Number of railcars that have exceeded their scheduled service life

22,000Russia’s fleet of innovative railcars

key FACtS

FREIGHT INDICATORS FOR 2014 WERE HIGHER THAN AT ANY TIME IN THE PAST 10 YEARS (BN T-KM)

Source: Russian Railways

160

168

176

184

192

200

Jan

Feb

Ma

r

Ap

r

Ma

y

Jun

Jul

Aug

Sep

Oct

No

v

Dec

2014 2013 2012

The importance of railway transportation is predicated on the following factors:

• Significant volumes of bulky raw materials carried (coal, ore, ballast)

• Long distances

• Poorly developed road infrastructure along the main freight routes

• Extreme climate conditions

• Lack of suitable waterways for freight transportation

+ =innovAtion A StAble mARket

vAlue CReAtion

Source: Russian Railways.


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developMent oF Corporate governanCeThe Company’s IPO was the culmination of a great deal of work to strengthen our system of corporate governance. We had to guarantee that the interests of UWC’s shareholders would be very well protected. The Company’s new shareholders selected a new, expanded Board of Directors, which now has nine members and two Committees: an Audit Committee and a Remuneration and Nomination Committee. Guided by the Corporate Governance Code recommended by the Central Bank of Russia, and by best global practice, the shareholders put in place additional instruments to protect the rights of minority shareholders. For instance, a third of the Board of Directors are independent directors, who are also members of the two Committees.

During the period under review, we took a series of measures to improve the transparency of UWC’s corporate procedures. The Company established a procedure for granting access to internal information and disclosing it on time, and also established a procedure for the publication of information subject to mandatory disclosure, bringing these procedures into compliance with the legislation of the Russian Federation.

The work carried out in 2014 to establish an effective system of corporate governance at UWC is only the beginning. We are guided by best Russian and global practice, so I am confident that we will make rapid progress, and that the systems we have put in place will help our shareholders understand and run the Company better.

“uwC’S ipo wAS the FiRSt by A RuSSiAn RAilCAR buildinG CompAny in the hiStoRy oF the RuSSiAn StoCk mARket, And the FiRSt ipo oF 2015.”

Important steps were also taken to set up an effective system to monitor the Company’s operations. The key coordinating and monitoring element in this system is the Board of Directors’ Audit Committee. Together with UWC’s Auditor and Internal Audit Service, the Committee provides thorough supervision of the Company’s financial and business operations.

reSultS oF 2014 and StrategYFrom the business standpoint, 2014 was a very successful year for UWC. We strengthened our market position appreciably, becoming Russia’s largest manufacturer of freight rolling stock with enhanced technical and economic specifications. Despite the difficulties experienced by the railcar building industry, we almost trebled our manufacturing output. Among UWC’s customers there is consistent demand for innovative railcars: over the course of 2014, the Company’s customer base grew by 50%. Even though UWC’s railcar fleet virtually doubled in size during the period under review, its utilisation coefficient remained at 100%, confirming once again the competitiveness of innovative railcars and their strong economic benefits for freight dispatchers.

We have big plans for 2015. Unlike the majority of players in the market, we are not planning to reduce production. On the contrary, we are planning to increase it. Next year will also be a breakthrough year in terms of the diversification of the range of models produced by UWC. We intend to launch production of several models of innovative tank cars at the TikhvinChemMash site, as well as significantly increasing the production line at TVSZ. The market is displaying consistent demand for UWC’s output, and so we are doing all we can to take advantage of the situation and strengthen our position.

I would like to take this opportunity to thank the Company’s shareholders, its management and all its employees. Each of you made a major contribution to UWC’s successful development in 2014. I am confident that, with your help and the support of our customers and partners, we will be at least as successful in 2015.

nikolay dobrinovChairman of the UWC Board of Directors

A meSSAGe FRom the ChAiRmAn

Dear Shareholders I am very pleased to present you with United Wagon Company’s first annual report. In 2014, the Company became a public joint-stock company. This change was a logical step in the dynamic development of UWC, which in the space of three years has become one of the leading players in the Russian railcar building market. Starting from this year, UWC will be publishing its annual report annually, so that all interested parties can obtain objective information about its business and follow the trajectory of its development.

ipoBefore reporting on our results for 2014, I would like to draw attention to a very important event in UWC’s development that took place in early 2015. In April, the Company held its first initial public offering on the Moscow stock exchange. I am glad to say that UWC’s IPO was the first by a Russian railcar building company in the history of the Russian stock market, and the first IPO of 2015. Despite the difficult situation in the financial markets, UWC successfully managed to sell 12.2% of its stock. The Company was valued at 73.9 billion rubles, with demand for our shares outstripping expectations. More than 50 institutional and private investors, some of them foreign, became shareholders.

I welcome UWC’s new shareholders and, as Chairman of the Board of Directors, I will do all I can to protect their rights and interests.


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A meSSAGe FRom the ChieF exeCutive oFFiCeR

a FavouraBle MarKet For innovative railCarSDuring the period under review, the railway transportation market remained a favourable environment for UWC’s development. Railway transportation’s share of the freight market continued to grow. Freight turnover, a key indicator determining market demand for freight railcars, increased by 4.6% over the course of 2014. Amid a significant weakening in the value of the ruble, export markets, where innovative railcars are realising their potential to the full, proved to be particularly popular during the year.

In 2014, there continued to be a surplus in the railcar fleet across the industry as a whole. For a number of reasons, including the economic situation, demand for railcars fell, as a result of which there was a fall in the volume of rolling stock manufactured. In addition, the lease rates for old-generation railcars dropped below the ‘service level’, which made using them economically unviable.

These factors prompted the market to shift toward more efficient innovative rolling stock. This was also made possible by effective measures of state support for the industry. As a result, by the end of 2014, the number of innovative railcars sold overtook the number of old-generation railcars sold for the very first time.

SteadY BuSineSS growtHAgainst this backdrop, in 2014 UWC significantly increased the volume of rolling stock it manufactured, and completely stopped producing railcars that use an 18-100 bogie. As a result of the planned increase in production, we manufactured 9,600 innovative railcars over the course of the year, compared to 3,600 the previous year. Over the whole of the period under review, we continued to develop our range of

products. By the end of 2014, we had incorporated eight railcar modifications into the production process at TVSZ and were developing several more to make our manufacturing more flexible.

During the year, we worked actively in preparation for launching tank railcars using Barber bogies. The new product will be manufactured at a new business, TikhvinChemMash. During the period under review, we finished work on the workshop premises and started delivering equipment. Production is scheduled to start in the second half of 2015, with up to 3,600 tank railcars to be manufactured annually.

All new railcars manufactured by TVSZ in 2014 were sold. At the end of 2014, the Company’s fleet numbered 19,000 railcars, compared to 10,200 at the start of the year. The leasing portfolio of RAIL1520, one of UWC’s companies, increased by 14% over the course of the year, and was worth 23.6 billion rubles at the end of the year, while the number of customers rose by 50%. The market is displaying steady demand for innovative railcars – at the start of 2015, all the rolling stock scheduled to be manufactured at TVSZ over the course of the year had already been included in existing contracts or preliminary agreements with customers.

The energetic development of our production and sales resulted in UWC’s revenue in 2014 totalling more than five times the figure for the previous year, 17.1 billion rubles compared to 3.1 billion rubles in 2013. The EBITDA figure rose to 3.6 billion rubles, while EBITDA margin totalled 21%. In the next few years, we are expecting significant growth in the Company’s financial indicators as its production assets reach full capacity, the business grows in scale and a whole package of measures are taken to improve efficiency.

Dear Shareholders, Colleagues and Partners 2014 was a year of great achievements for UWC. Although it would be hard to say that the past year has been a successful one for the Russian economy in general and the railcar building industry in particular, the Company has managed to make full use of the advantages of its business model to significantly strengthen its position in the market. Three years have passed since UWC started operating, and we have already established ourselves among the top players in the industry and are making a serious bid to be the market leader.

reFining our BuSineSS ModelUWC’s business is based on a model that is unique in the Russian railcar building market and that integrates the production of innovative railcars with several sales channels. In 2014 we continued to refine the Company’s business model, improving its sustainability and efficiency.

For instance, in 2014, UWC made a series of deals that allowed it to consolidate 100% of the shares in NPC Springs, a unique production asset that manufactures heavy-duty springs for railcar bogies. The two businesses had already been actively cooperating, but now UWC has guaranteed its supplies of one of the key design components required for Barber bogies. Over the course of the year, NPS Springs manufactured around one million separate parts and increased its production capacity to 15,000 car sets a year. The business is currently working on launching mass production, which will virtually double its production capacity.

During the period under review, we also set up joint ventures with American firms Wabtec and Timken, both of which are leading global producers. These projects were set up so that the Company could expand its own capacity to produce key components for innovative railcars. Together with our partners, we are planning to start manufacturing cassette bearings, brake mechanisms and connectors, some of which are unparalleled in Russia.

In order to bring about the practical introduction of the technologies used in moving freight in innovative railcars, in 2014 we entered what to us was an entirely new transportation segment for the business. The Company set up the Vostok1520 railway operator, the objective of which is to help promote innovative rolling-stock in the 1520 railway gauge area. By the end of 2014, Vostok1520 was operating a fleet of 5,000 railcars, and had already started playing an active part in a project to develop high-tonnage transport in Russia. Based on figures for the whole year, Vostok1520’s railcar fleet displayed exceptional productivity – delivering 10,600 tonne-kilometres per freight-car per day, more than double the average figure for the market. This once again confirms the high level of efficiency shown by innovative railcars.

ipoUWC’s ambitious development plans require significant investment. In 2013, we issued ruble bonds for the first time, while in late 2014 we took the decision to make some of the Company’s stock available on the Moscow stock exchange (IPO). As we prepared for the IPO, we made qualitative improvements to the Company’s management and oversight procedures, and refined the systems we use to draw up our financial statements and to manage risk. The good operational and financial results we achieved in 2014, which confirm the effectiveness of the business model we have chosen, enabled us to make investors an attractive offer.

In April 2015, we held a successful IPO, floating 12.2% of the Company’s shares. Investors valued the Company at almost 74 billion rubles. We acquired 50 new shareholders, both major professional investors and retail investors. I was one of several top managers at UWC who also bought shares in the Company, using our own money to confirm our confidence in its prospects. During the IPO we brought in around 3.9 billion rubles, which we will spend primarily on expanding UWC’s railcar fleet, making the production process more flexible and optimising the structure of the Company’s capital.

Through our successful IPO, we have once again confirmed our status as market leader, becoming the first public railcar building Company in Russia and in the 1520 railway gauge area. We are continuing to set new standards in the industry and are planning, as ever, to stay ahead of the market.

I would like to thank all of the Company’s employees for their huge efforts and hard work, which in a relatively short period have allowed us to create an efficient and attractive business that is highly rated by investors. I would like to express my gratitude to the Company’s Board of Directors and its shareholders for their unstinting support in helping us implement our initiatives. Today we turn a new page in UWC’s history, and I am confident that the future will be even more exciting and engaging.

Roman SavushkinUWC Chief Executive Officer

“uwC’S buSineSS iS bASed on A model thAt iS unique in the RuSSiAn RAilCAR buildinG mARket And thAt inteGRAteS the pRoduCtion oF innovAtive RAilCARS with SeveRAl SAleS ChAnnelS.”


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ouR buSineSS model ouR StRAteGy

Our vertically integrated business model is unique in the Russian railcar building market, and provides stability against a backdrop of general instability. UWC’s business model delivers effective collaboration between all the Group’s companies at all stages of value creation: from development to the distribution of the end product.

The objectives of UWC’s development are to grow and to preserve its leading position in the market. The Company has two strategic aims – increasing its market share and maximising the economic effect from the use of innovative railcars. In order to achieve these aims, UWC focuses on working actively in the following priority areas: developing new products with high added value, diversifying our customer base, further developing our network of service centres and increasing our operational efficiency.

Developing new products (primarily railcars) with high added value increases our flexibility in meeting demand in a changing market, and strengthens the technical and economic superiority of the Company’s products over those of its rivals. New railcars designed to transport a wider range of goods provide access to new markets and diversify the customer base, which will make revenue levels less volatile and increase the business’s profitability because we are making more profitable products.

Developing our network of service centres will ensure guaranteed repairs and minimise railcar downtime. This will apply to any type of repair work on innovative railcars wherever they are used, as the number of innovative railcars in use on the network increases.

Increasing our operational efficiency will make it possible to increase production capacity without making significant capital investment, and will make production more flexible so that we can meet demand for railcars and their components as fully as possible.

PRODUCTION

Railc

ar

leasi

ng

S

ale

s

Leasi

ng

Railcar sales

CUSTOMER

SALESleasing companies

SALESrailway operator ENGINEERING

pro

ductio

n o

f

new

mod

els

Launch o

f

GUARANTEED RAILCAR SALES

PRODUCTS TAKEN QUICKLY TO MARKET

HIGH RETURNS IRRESPECTIVE OF

MARKET CONDITIONS

requirem

ents

Market

transportation services

Railway


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1 developing new products with high added value

Initiatives/priorities

Refining existing modifications

Increasing the specialisation of rolling stock

Expanding the range of railcar types manufactured

Key indicators of effectiveness

Revenue

Number of certified railcar modifications

Results for 2014

Number of certified railcar modifications – 8

Production line for fitting platforms launched

Production of solid-bottom gondola cars launched

Programme to modernise hopper cars by improving their loading hatches completed

Development of 20 new railcar modifications launched

Experimental models of tank cars and cement carriers completed

Risks

Increased competition

Fall in demand for freight transportation in specific industries as a result of a fall in general economic activity in Russia

Aims for 2015

Expand the portfolio of certified railcar models and certify six new railcars, and launch a modification of our gondola cars – a drop-bottom gondola car with a capacity of 92 cubic metres and a solid-bottom gondola car with a capacity of 98 cubic metres

Organise the launch of production of tank cars

Start developing 10 new railcar models

Draw up 10 experimental railcar models

2 diversifying our customer base


Focused work on ‘growth areas’ in the market

Replacing inefficient railcars and shifting towards routes where innovative railcars deliver the maximum economic advantage

Developing railcars for specific customers


Size of customer base, including the number of new customers

Diversification of customers by industry

Diversification of contract structure

Diversification of portfolio by type of rolling stock

Results for 2014

Number of customers grows by 50%

New contracts concluded with major players such as RusVinyl, Uralkali, PhosAgroTrans, En+ and others

Expanded range of railcars leased to existing customers: innovative grain-carriers and mineral-carriers, platforms

New segments of the chemicals industry developed: transportation of caustic substances and mineral fertilisers, container transportation

Risks

Increased competition

Reduced demand for new rolling stock as a result of a deterioration in the macroeconomic situation

Aims for 2015

Increase the number of customers in the long term

Draw up contracts for new types of innovative railcars:

• tank cars

• grain-carriers with increased load and cubic capacity

Analyse customer routes in order to increase UWC’s share in their fleets

ouR StRAteGy

continued

3 developing our network of service centres


Expanding our network of service centres

Extending the geographical spread of our network of service centres

Extending the technical expertise of our service centres


Railcar downtime for repairs

Number of service centres

Results for 2014

Four new service centres opened, 32 in operation as of the end of 2014

Network of service centres covers the whole of Russia and Kazakhstan

Average downtime for innovative railcars 11% less than for 18-100 railcars

Risks

No current risks

Aims for 2015

Organise service centres on the Transbaikal, North Caucasus, Sverdlovsk and Far Eastern railways

Raise service centres to category 2 standard (allowing them to diagnose bogie die-cast parts, oversee their geometrical parameters and carry out repairs)

4 increasing operational efficiency


Increasing productivity on assembly lines and preliminary production

Increasing productivity in low-level casthouse production

Implementing projects to reduce production costs

Reducing waste at all production units


Maximum productivity

Time to switch over to new projects

Cost of production

Overall efficiency of equipment

Results for 2014

13,000 railcars produced in the year

Joint ventures set up with foreign partners to produce a range of components

Railcars manufactured as part of partnership programmes

Additive technologies introduced (3D printing)

A number of projects were implemented to reduce the cost of production, as a result of which the cost of production was reduced by roughly 4% compared to 2013

Risks

Delays in supply and installation of equipment

Increased prices for rolled metal products as a result of the weakening of the ruble

Aims for 2015

Increase maximum productivity at TVSZ to 16,000 railcars a year

Introduce modular, quick-set technological equipment to produce drop-bottom gondola cars with a capacity of 88 cubic metres and 92 cubic metres

Introduce flexible technological solutions for the manufacture of all hopper cars

Increase productivity at casthouse and preliminary production units

Introduce ‘lean manufacturing’ systems, increase average output per employee

Reduce equipment downtime, changeover downtime and work at substandard speed


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the mARket

Rail tRanspoRt stRengthens its position as a Key element in Russia’s tRanspoRt infRastRuctuReRail transport’s share of freight traffic in Russia is continuing to grow. Whereas in 1994 rail transport accounted for 67% of total freight turnover on all forms of transport (excluding pipelines), by 2014 this figure had risen to 86.6%.

fReight tuRnoveR Rose by 4.6% in 2014, despite a 0.8% fall in loadThe trends in loading and freight turnover indicators went in different directions over the course of 2014.

Compared to the previous year, in 2014 the total volume of freight movement fell by 0.8%. Over the course of the period under review, there was an increase in the transportation of stone coal (+1.5%), oil and petroleum products (+2.5%), ferrous metals (+2.4%), timber freight (+8.4%), chemical and mineral fertilisers (+4.7%), grain and milling products (+31.9%) and coke (+2.6%). There was a fall in the transportation of construction freight (-17.1%), iron and manganese ore (-1.9%), cement (-6.4%) and non-ferrous ore (-6.3%).

Despite the reduction in freight movement, freight turnover was consistently higher in 2014 than in the previous year. The main reason was that export goods transported over long distances (coal, mineral ore and rolled metal products) accounted for a larger share of freight turnover, while construction freight, which is transported over significantly smaller distances, accounted for a smaller share.

TRENDS IN RUSSIA’S RAILCAR FLEET (thousand units)

Active rolling stock Subpar rolling stock Surplus

0

260

520

780

1,300

1,040

Jan

Feb

Ma

r

Ap

r

Ma

y

Jun

Jul

Aug

Sep

Oct

No

v

Dec

974

971

1,007

1,018

1,008

1,003

1,013

1,014

1,019

1,026

1,018

1,009

74

153

155

118

107

113

117

105

103

96

85

89

98

76 80 85

94

96 99

102

104

110

115

115

Source: Russian Railways

LEASE RATE FOR GONDOLA CARS USING 18-100 BOGIES* (rubles per day)

100

440

780

1,120

1,800

1,460

2012 2013 2014

Lease rate Target daily rate

*Industrial loads, lease rate only for new gondola cars.

This trend in freight turnover is having a positive impact on the industry, since freight turnover is the indicator that determines the rolling stock requirements of those involved in the transportation process.

a suRplus of old Rolling stocK has led to a fall in demand foR new RailcaRsHigher-than-normal extensions to the service life of railcars (introduced in the late 1990s because of railcar shortages), and the overproduction of railcars in 2010-2012 without a commensurate increase in the amount of freight being carried, have led to a surplus of rolling stock.

Demand for new railcars has fallen, leading to a fall in the manufacture of rolling stock. In 2014, railcar production totalled 54,600 railcars, 7.7% lower than in the previous year.

The government reacted to the surplus of old rolling stock by introducing, as of 2 August 2014, the Customs Union technical regulation ‘On safety of railway rolling stock’ (the procedure for extending a railcar’s service life now involves mandatory certification, and railcar service life may not be extended by more than 50% of the standard service life).

For the period up to 2022, the baseline figure for the number of railcars that will be written off is up to 460,000 (an average of 55,000 railcars a year). The accelerated writing-off of railcars will result in a rebalancing of the fleet so that there is no shortage in 2015-2016, and will also lead to an increase in the rates charged for leasing rolling stock.

the cuRRent Rate of RetuRn fRom opeRating standaRd Rolling stocK means it is not possible to seRvice RailcaRs on time, foRcing owneRs of RailcaRs to decommission themAs a result of the surplus of rolling stock, lease rates for gondola cars using 18-100 bogies has fallen below ‘service level’, the point at which scheduled and running repairs, the replacement of railcar fittings and parts and loan and financial leasing repayments are viable.

Russian Industry and Trade Minister D.V. Manturov puts the target daily lease rate at 830 rubles.

Owing to the fall in lease rates, owners of rolling stock have been forced to keep using subpar rolling stock. As a result, the number of subpar railcars (under Russian Railways criteria) being used on the network increased from 74,000 in January 2014 to 115,000 in December 2014, the latter figure amounting to 10% of the total railcar fleet.

maRKet demand shifting towaRds new-geneRation RailcaRsDespite the overall contraction in the railcar building industry, the number of railcars with an increased axle load sold, expressed as a share of the total market, grew steadily in 2014. In December 2014, for the first time, it exceeded sales of railcars with 18-100 bogies. UWC accounted for around 60% of the total number of innovative railcars produced in 2014.

The shift in demand has been driven by the higher economic and technological specifications of innovative railcars. Using innovative railcars delivers an additional economic benefit of up to 875 rubles a day.

state suppoRt foR innovative RailcaR buildingThe state has assessed the advantage of innovative railcars across the country and introduced a range of measures to support them.

Using innovative railcars allows Russian Railways to achieve a significant reduction in the money it spends on maintaining infrastructure, as a result of the reduced impact these railcars have on the railway bed.

Introducing railcars with increased capacity increases the network’s carrying capacity, because trains with an increased tonnage rating can be introduced onto the network, and because there is a significant reduction of 1-2 days in railcar turnaround, as a result of the introduction of so-called ‘guarantee runs’ (railcars do not halt en route for additional technical inspections).

The improved durability of the components used makes it possible to reduce railcar downtime, both from scheduled repairs as a result of an increase in the intervals between repairs for innovative rolling stock, and because innovative railcars require running repairs more than 30 times less often.

The combination of these factors has prompted the Government of the Russian Federation to adopt a number of measures to support innovative railcar building:

• on 9 April 2013, the Federal Tariffs Service of the Russian Federation introduced tariff system 25(2) for freight gondola cars of models 12-9761-02, 12-9833-01, 12-9853, 12-9869, and tariff system 25(3) for model 19-9835-01 hopper cars, which means that the cost of empty runs for innovative railcars manufactured by TVSZ is up to 30% lower than for standard old-generation rolling stock;

• the Government of the Russian Federation approved a discount for the purchase of innovative rolling stock, in the form of compensation for interest payments on loans taken out in order to buy innovative railcars, equivalent to 90% of the refinancing rate. At present, the subsidy is worth around 140,000 rubles per railcar;

• Russian Railways is implementing a large-scale project to increase the carrying capacity of the Baikal-Amur Mainline and the Trans-Siberian Railway. Part of the project involves increasing trains’ tonnage rating, something that can only be achieved by using new-generation rolling stock.

2014marked a new stage in the development of the Russian railway market


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oveRview oF ouR opeRAtionS enGineeRinG And innovAtionInnovation and modern technologies lie at the heart of UWC’s business. The Company enjoys the exclusive right to produce Barber and Motion Control bogies in Russia and in the countries that use the 1520 railway gauge, where work is in progress to develop a wide range of innovative models of freight transportation technologies. In order to ensure technological superiority, UWC operates the All-Union Research and Development Center for Transportation Technology (VNICTT), a modern research and design company specialising in railway freight rolling stock.

Center For tranSportation teCHnologieS

As of the end of 2014, the industry’s leading specialists were working at VNICTT – 20 doctors and masters of science and more than 100 designers and technology specialists with experience of working at the CIS’s largest railcar building plants. VNICTT’s expertise covers the entire life-cycle of rolling stock.

The main aim of research and design work at VNICTT is to create products with high added value that deliver economic efficiency in comparison with other railcars.

One of VNICTT’s priorities during the period under review was to support the launch of the production of tank cars using Barber bogies, scheduled for 2015. The centre’s specialists took part in the development of a portfolio of new products which, in the initial stage, will include three models of tank cars – for transporting oil products, chemicals and technical sulphuric acid. In addition, amongst other initiatives, the centre planned new production processes.

At the same time, in 2014 VNICTT was actively involved in expanding the range of hopper cars and platforms. Work was completed on the development of the new hopper grain-carrier model 19-9549, which has a capacity of 120 cubic metres, as well as a drop-bottom gondola car with a capacity of 92 cubic metres (modification model 12-9853). Both models are scheduled to enter into production at TVSZ in 2015.

In 2015, VNICTT continued working on new railcar designs that make maximum use of the potential of the Barber bogie, as well as working on new railcar materials and equipment solutions. Its main priority will be to develop a range of gondola cars with an increased load per journey, and to create new, economically effective types of railcars: tank cars, covered railcars and various types of platform cars.

key FACtSuwc has its own consultative science and technology council, which is responsible for choosing the main areas for the development of the company’s innovation operations, and drawing up its scientific and technical policy on the production of new-generation rolling stock, including heavy haul transport. the council brings together more than 20 scientists and industry experts.

+14new patents in 2014. as of the end of the year, uwc owned 125 patents in Russia and the countries of the cis

>20more than 20 leading scientists and industry experts

>100more than 100 designers with experience of working at leading railcar building plants in the cis

vniCtt’S KeY areaS oF operation inClude:• designing new railcars,

undercarriages and components;

• designing new and modernised production processes;

• developing and introducing technologies for the repair of railcars and undercarriages;

• implementing projects to reduce the cost of production and refine production processes.


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oveRview oF ouR opeRAtionS pRoduCtion

pRoduCtion indiCAtoRS

pRoduction of innovative RailcaRsUWC’s production centre is the Tikhvin Freight Car Building Plant, which manufactures innovative freight cars.

In 2014, UWC manufactured 9,600 railcars, compared to 3,900 railcars in 2013. Managing to more than double the previous year’s figure was the result of a planned increase in production levels. An additional factor in the growth in output was the improved efficiency of the equipment currently in service at the business and the introduction of refined technological solutions. In 2014, production ran at 74% of capacity at TVSZ, up from 28% a year earlier.

In 2014, UWC only manufactured railcars with enhanced technical and economic specifications, using Barber bogies, and entirely stopped producing old-generation rolling stock. Over the course of the year, the Company continued to expand its range of models. For instance, the manufacturing of platform cars and solid-bottom gondola cars running on Barber bogies was successfully launched at TVSZ. During the period under review, the Company almost entirely stopped producing railcars running on 23-tonnes-force Barber bogies, concentrating instead on the more economically efficient models with axle loads of 25 tonnes-force. In 2014, a total of eight modifications of hopper cars, gondola cars and platforms were incorporated into the production process at TVSZ.

At TVSZ, UWC has its own casthouse production, which is viewed as one of the best in Europe and in Russia. UWC’s ability to produce its own key bogie design elements ensures production is highly efficient and the business’s work is stable.

During the period under review, TVSZ manufactured 10,200 cast car sets, more than three times the figure for 2013. The plant was able to achieve such significant growth in its manufacturing output by reducing the amount of forced downtime and the volume of poor-quality output, and by increasing productivity on the moulding line. During 2014, 20 new types of small and medium-sized cast were manufactured for the purposes of localising production.

In 2014, TVSZ’s capacity to manufacture casts remained unchanged at 10,000 car sets a year. At the same time, the business’s specialists managed to eliminate the majority of bottlenecks in auxiliary equipment that had prevented cast production from reaching its stated capacity.

During the period under review, UWC launched a programme at TVSZ to increase production efficiency by using ‘lean manufacturing’ instruments. Priority was given to training the business’s employees in how to use the appropriate methodologies in production, and also to creating a sustainably functioning ‘TVSZ production system’, involving the introduction of so-called ‘lean manufacturing’, based on the permanent elimination of losses and inefficiency.

tiKHvin FreigHt Car Building plant

In the brief period since 2012, UWC has managed to become one of the largest manufacturers of freight rolling stock and to take up a leading position in the manufacture of innovative railcars in Russia. Unique technologies and modern production facilities allow UWC to manufacture the most efficient freight cars and build a new market architecture.

TVSZ’s production plans for 2015 include manufacturing up to 13,000 innovative railcars, as well as up to 15,000 cast car sets. In 2015 the business’s capacity is expected to increase to 16,000 railcars a year, through the implementation of projects to increase the productivity of equipment and production lines. Over the course of the next year, UWC intends to expand the range of railcars it manufactures. For instance, it plans to begin manufacturing hopper cars to transport cement, specialised railcars with increased capacity to carry grain, gondola cars with increased load capacity, all-purpose and specialised platform cars and other high-tech railcars. In the medium term, the Company intends to expand its new-generation railcar offer to 60 models.

RAILCAR PRODUCTION BY STRUCTURE

Gondolas Hopper cars Platforms

1%

78%

21%

2012 2013 2014

3.9

9.6

1.3

10%

30%

74%

0

20

40

60

80

100

Production volume, thousands of railcars Capacity utilisation

2

4

6

8

10

0

RAILCAR PRODUCTION TRENDS

2012 2013 2014

3.3

10.2

0%

11%

34%

0

7

14

21

28

35

Production volume, thousands of railcars

Capacity utilisation

2

4

6

8

10

0

CAST PRODUCTION TRENDS

9.6 thouSAnd RAilCARS 10.2 thouSAnd

CASt CAR SetS


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npC SpringS

tiKHvinCHeMMaSHDuring 2014, UWC worked intensively in preparation for the launch of the new business. During the period under review, in the tightest possible timeframes, the workshop premises were prepared, while production equipment was ordered, with part of it being delivered. In addition, design documentation was drawn up for tank cars for the transportation of oil products (15-9993), methanol (15-6880 and 15-6880-01), technical sulphuric acid (15-9545) and liquefied petroleum gas (15-9542, 15-9541 and 15-6855). Packages of technological documentation were also prepared for the manufacture of tank cars for the transportation of oil products and technical sulphuric acid (15-9993 and 15-9545).

In the course of preparations for the launch of serial production at TikhvinChemMash, experimental prototype models of railcars were assembled for the transportation of oil products (15-9993), technical sulphuric acid (15-9545) and liquefied petroleum gas (15-9542) and were sent off for preliminary tests.

The launch of TikhvinChemMash in 2015 will enable UWC to access a segment of the market that is new to the Company, where demand for innovative products is high, and to strengthen its leading position in the market for railcars with enhanced technical and economic specifications.

Joint produCtion ventureSIn 2014, in order to develop and produce innovative components for freight cars with high added value, UWC set up joint ventures with leading global producers from the United States, Wabtec and Timken.

The purpose of the joint venture with Wabtec is to start producing freight-car brake components and connectors in 2016 at the TVSZ site. Some of those parts will be unique in Russia. In 2014, the joint venture was actively involved in developing and adapting components for the Russian market. Under current plans, design work on the most important and complex products, the bogie brake systems and the SAC-1 connector, is due to be completed in 2015. The purchasing of production equipment is also due to start in 2015. The joint venture will enable UWC to offer the market new models of freight cars with even higher technical and economic specifications than those that are produced at the moment and to reinforce its technological leadership.

The focus of the joint venture with Timken is the launch in 2016 of in-house high-tech bearing production at the TVSZ site. In 2014, the joint venture started purchasing equipment which is expected to be installed and fine-tuned in 2015. The joint venture will enable UWC to increase its production efficiency by using bearings produced in-house.

In 2014, NPC Springs made active preparations to launch an assembly line for the mass production of high-tech springs, and our specialists made significant progress in implementing the first stage of the launch. Under current plans, the line’s main production equipment will enter into operation in 2015, and the technologies will be tested out during the same period. Mass production will enable NPC Springs to almost double its production capacity, reaching 30,000 car sets a year, which should fully meet TVSZ’s production requirements in the medium term.

2012 2013 2014

435.7

991.

4

179.9

0

200

400

600

800

1,000

PRODUCTION LEVELS AT NPC SPRINGS (thousand items)

NPC Springs manufactures high-quality railway springs that meet the enhanced operational requirements and design specifics of innovative railcar bogies. The centre provides UWC with all the springs it needs for Barber bogies and is actively expanding its capacity to cover future demand for its output, given the increase in railcar production at TVSZ and the planned launch of the TikhvinChemMash plant.

In 2014, NPC Springs started using an assembly for the large-scale serial production of springs and raised it to planned capacity. The new line has been specially designed to produce heavy-duty railway springs for Barber bogies. As a result of launching its large-scale serial production, NPC Springs has increased its production capacity to 15,000 car sets a year (1.3 million items), more than 50% higher than the figure for 2013. Launching production using state-of-the-art equipment helped NPC Springs to achieve a significant increase in production efficiency, and to increase the quality of its output.

Launching the new assembly line delivered significant growth in production levels at NPC Springs, with 991,000 items being manufactured, more than double the figure for the previous year. During the course of the year, NPC Springs manufactured six types of springs for Barber bogies. By the end of 2014, the business significantly expanded the range of its output by focusing on models that target external customers.

In 2013 UWC took the decision to set up a production unit to manufacture tank cars with enhanced technical and economic specifications. The project will be implemented at TikhvinChemMash, with the launch scheduled for 2015.

The new production facilities will be situated at a site near TVSZ in Tikhvin, and will cover an area of 49,000 square metres. The business will be able to produce a nominal capacity of 3,600 tank cars a year. The tank cars manufactured at TikhvinChemMash will have two types of shell – one for the transportation of oil products, methanol, technical sulphuric acid and chemicals, while the other, a version with thicker walls, for the transportation of liquefied petroleum gas. All tank cars will be manufactured with innovative Barber bogies with an axle load of 25 tonnes-force and will come both with and without frames.

oveRview oF ouR opeRAtionS pRoduCtion

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oveRview oF ouR opeRAtionS SAleSUWC’s business model provides its customers with a wide choice of innovative railcar options. The principal way in which the Company sells its own output is through operational leasing. In addition, the Company offers operating services based on railcars with enhanced technical and economic specifications. Depending on the market situation, UWC can also sell railcars directly. Flexibility in the way in which UWC sells its railcars makes its business model more resistant to fluctuations in demand.

rail1520

operational leaSingOperational leasing is the key method by which the Company derives income from its railcars. UWC has a group of leasing companies brought together under the RAIL1520 brand. RAIL1520 is one of the largest leasing companies in the Russian market. As of the end of 2014, RAIL1520 had a larger fleet of innovative railcars than any of its competitors, and ranked second among companies specialising in the operational leasing of rolling stock.

In 2014, RAIL1520 continued to boost its own railcar fleet. At present the company is the principal buyer of innovative railcars manufactured at TVSZ. Over the course of the year, its fleet rose to 16,600 railcars, compared to 10,200 at the end of 2013. During the period under review, RAIL1520 primarily acquired railcars with enhanced technical and economic specifications using Barber bogies. As a result, their share of the total fleet increased to 56%, compared to 23% a year earlier. In addition, the company continued to diversify its fleet, significantly increasing the proportion of innovative hopper cars and buying platform cars. As of the end of 2014, RAIL1520 had one of the youngest fleets of freight-car rolling stock in Russia, with an average railcar age of no more than 1.8 years.

The railcar fleet, which consists primarily of innovative railcars with enhanced economic and technical specifications, enables RAIL1520 to meet the growing demand from freight dispatchers. As of the end of 2014, its portfolio of leasing deals was worth 23.6 billion rubles, 14% higher than the figure at the end of 2013. Over the course of the year, the company attracted 50% more customers, primarily by entering new segments of the market, such as the transportation of timber, chemicals and mineral fertilisers and container transportation. During the period under review, RAIL1520 managed to agree contracts with major players such as RusVinyl, Uralkali, PhosAgroTrans, En+ and others. At the same time, the Company expanded its cooperation with existing clients by offering new types of railcars.

Кey FACtS

2012 2013 2014

10.2

19.0

5.7

0

4

8

12

16

20

UWC RAILCAR FLEET TRENDS(thousand railcars)

2012 2013 2014

Barber gondola car Barber hopper car Old-generation railcars 18-100

176

41

15

100

77

44

0

20

40

60

80

100

STRUCTURE OF UWC’S RAILCAR FLEET (%)

69%

6%

6%

6%

3%

2%2%

6%

Coal Fertilisers Oil and oil products Mineral ores Ferrous metals Construction materials Grain Other freight

STRUCTURE OF FREIGHT CARRIED BY UWC BY TYPE

RENTAL RATES FOR INNOVATIVE GONDOLA CARS COMPARED WITH MARKET RATES (rubles per day)

100

280

460

640

1,000

820

Source: Promyshlennyye Gruzy, Company data.

20

13

20

14

Barber

18-100

Jan

Feb

Ma

r

Ap

r

Ma

y

Jun

Jul

Aug

Sep

Oct

No

v

Dec

Oct

No

v

Dec

55%

During 2014, the average lease rate for RAIL1520 rolling stock totalled 836 rubles a day, an increase of 5%, amid a significant fall in market rates for old-generation gondola cars, down to 500-600 rubles a day. The stable trends in rates for innovative railcars confirms their technical and operational advantages, ensuring stable demand even in a difficult economic period.

In 2015, RAIL1520 will continue to expand and also diversify its railcar fleet. In the medium term, UWC plans to concentrate up to 60,000 railcars under its management.

19,000railcars in the uwc fleet

100%fleet utilisation coefficient

23.6 billion RubleS

value of Rail1520’s portfolio of leasing agreements as of the end of 2014


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tranSportation ServiCeSIn order to execute the practical introduction and dissemination of transportation technologies based on innovative railcars, in 2014 UWC entered the transportation segment of the market, a new area for the business. The Company set up the Vostok1520 rail operator, which has already become one of the most active players in a project to develop heavy haul transportation in the 1520 railway gauge area. The new company will assist in the distribution of innovative railcars, including by making test deliveries to new loading and unloading stations.

Vostok1520’s railcar fleet consists exclusively of railcars with enhanced technical and economic specifications, including all-purpose gondola cars (75 tonnes), solid-bottom gondola cars (77 tonnes) and hopper cars for the transportation of grain and mineral fertilisers (76.5 tonnes). As of the end of 2014, Vostok1520 managed a fleet of approximately 5,000 railcars.

UWC’s rail operator offers new freight transportation technologies for businesses in the coal-producing, metallurgical and chemicals industries, as well as the agroindustrial complex. Vostok1520’s largest customers were Kuzbassrazrezugol, SUEK, MMK, RUSAL, URALCHEM, Uralkali and others.

Vostok1520 transports freight primarily over long distances, since this allows the company to make the fullest use possible of the advantages of innovative railcars. The most important routes include transporting coal from the Kuzbass region to the ports of the Northwestern and Far Eastern basins, and transporting various types of freight to the countries of the CIS, Finland and China. In 2014, freight deliveries carried out by the company covered an average distance of 3,728 km. Around 66% of Vostok1520’s freight deliveries were for export. The share of deliveries for export is expected to increase in 2015.

Overall in 2014, UWC’s rail operator transported 2.5 million tonnes of freight, while the volume of freight handled totalled 9.22 billion tonne-kilometres. The key indicator of a railcar’s efficiency, its productivity (volume of freight handled per day), totalled 10,580

vostok1520

ServiCingFor owners of its railcars, UWC guarantees that its products are high-quality and safe to use. For these purposes, the Company is developing an extensive servicing network, providing in-warranty and post-warranty servicing of freight cars that use Barber bogies.

In 2014, UWC’s added four centres to its servicing network, which means the network now has 32 centres. The service centres carry out running uncoupling repairs (category 3 service centres) and also reduce railcar repair downtime by promptly delivering components and arranging repairs in situ.

During the period under review, the Company began work to prepare its service centres to become category 2 facilities, which will allow them to diagnose bogie die-cast parts, oversee their geometrical parameters and carry out repairs.

STRUCTURE OF FREIGHT DELIVERIES BY TYPEOF FREIGHT

Coal Construction materials Chemicals and soda ash Fertilisers Mineral ores Other freight

6%

8% 56%

7%

11%

12%

STRUCTURE OF FREIGHT DELIVERIES BY TYPE

Within Russia Imports Exports

32%

2%

66%

tonne-kilometres a day, more than twice the average figure for the market as a whole (5,200 tonne-kilometres a day). This figure confirms the high efficiency of innovative freight-car rolling stock for freight dispatchers.

9.22Bn t-KMvolume of freight handled by Vostok1520 in 2014

10,580t-KMdaily productivity of Vostok1520’s rolling stock in 2014

SeRviCe CentReSUWC’s service centres are based at businesses that repair railcars:

• Railcar Repair Company – 1

• Railcar Repair Comapny – 2

• Railcar Repair Company – 3

• Kaliningrad Railways

• Urals Railcar Repair Company

• Siberian Railcar Repair Company

• Transvagonmash

• Titran-Ekspress

• Kamkor Wagon (Kazakhstan)

oveRview oF ouR opeRAtionS SAleS

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eMploYeeS Ensuring a high quality of life and good health for our employees, as well as ensuring their professional and personal development, is inextricably linked to the Company’s success – this conviction lies at the heart of the five principles of UWC’s human resources policy:

• achieving strategic aims by engaging people;

• relentless improvement by realising the potential of our human resources;

• an effective system of material and non-material remuneration;

• training and development, and the creation of an environment that fosters professional and career growth;

• a balance between powers and responsibilities, accompanied by fair decision-making.

The Company is working in five areas to implement its human resources policy:

1. Employee recruitment and training.

2. Pay and bonuses.

3. Creation and refining of a system of pay grades.

4. Increasing the efficiency of the employee development system.

5. Developing and maintaining our corporate culture.

In 2014, UWC finished developing and introduced its pay and bonus system, as well as its employee recruitment and training system.

employee headcountDuring the period under review, the average employee headcount at UWC was 6,900, 48% higher than in 2013. The largest growth in employee headcount was at the Tikhvin Freight Car Building Plant, as a result of an expansion in the manufacture of railcars and of the range of models, which involved a series of measures that

involved raising the employee headcount. There was also a significant increase in the employee headcount at VNICTT, as a result of a natural growth in its testing and design work arising out of the active implementation of UWC’s development strategy.

In order to recruit employees at the right time who are capable of effectively meeting the strategic and tactical objectives of the Company, adapting rapidly to changes in the environment and operating effectively amid uncertainty, UWC endeavours to maintain and reinforce its image as an attractive employer. The Company offers competitive pay, incentives, social payments, a comfortable and safe work environment, a programme of private pension provision, training and qualifications upgrading. In order to monitor how satisfied employees are with their working conditions, the Company’s production departments carry out employee surveys twice a year.

pay and RemuneRationUWC has drawn up a common policy on pay for employees at all its subsidiaries. The policy sets out the pay system, the types of and procedures for financial remuneration and other payments to employees, and defines the principles and rules in line with which local pay regulations are drawn up.

Material employee remuneration consists of permanent and variable elements. The permanent element includes salary and various additional payments stipulated by the Labour Code of the Russian Federation. UWC’s subsidiaries are drawing up their own local pay regulations, although the calculation procedures and size of extra payments remain the same right across all of the Company’s businesses.

The variable element consists of incentive payments and bonuses, the size of which depends on the extent to which an employee has achieved their objectives and their key effectiveness indicators in the period under review. These indicators are included in a Targets Card which follows the same format for all UWC employees and consists of corporate, team and individual targets, as well as a qualitative assessment of an employee by his manager.

The Company meets all its obligations in respect of pension provision for its employees in accordance with the legislation of the Russian Federation. In conjunction with the private pension fund Stalfond, the Company is implementing a programme of private pension provision. As of the end of 2014, more than 4,000 employees were members.

employee tRaining and development The system for developing employee potential provides for uninterrupted professional growth for all UWC employees, an expansion of their skills and abilities, the accumulation and dissemination of knowledge, objective selection and career advancement for the best employees. Employee training is delivered in three areas:

1. Compulsory training in workplace health and safety, fire safety and industrial safety.

2. Professional employee training, including training, vocational retraining and qualifications upgrading.

3. Seminars and training events for managers, specialists and employees in order to develop their competencies.

In order to give employees training that reflects the requirements of the business, the Company is drawing up an integrated employee development programme, covering seven issues:

• long-term employee requirement planning;

• employee appraisals;

• talent pools;

• training and qualifications upgrading, individual employee development plans;

• business careers and professional advancement;

• working with young people to create the image of an attractive employer;

• accumulation and dissemination of knowledge.

Employees are trained by in-house trainers as well as by external training providers. During the period 2012-2014, more than 15,000 employees underwent training. Training costs over this period amounted to 62.7 million rubles.

social guaRantees and benefitsUWC offers its employees social guarantees, including those stipulated in the legislation of the Russian Federation as well as additional benefits and compensation, including payment for food and mobile communications, optional medical insurance and regular free medical examinations, additional paid leave etc.

In Tikhvin, UWC is implementing a comprehensive housing programme for TVSZ employees. In three of Tikhvin’s suburbs, nine modern apartment blocks have been built, with total living space of more than 127,000 square metres. The housing complexes are designed to include 2,000 apartments with convenient layout. The business’s employees can take advantage of a programme of preferential mortgage rates (by being compensated for a proportion of the interest payments or receiving a contribution to the initial deposit), as well as a programme offering preferential lease rates. As of the end of 2014, around 1,000 apartments have been occupied under TVSZ’s housing programme.

UWC AVERAGE EMPLOYEE HEADCOUNT* (thousand people)

2012 2013 2014

0

2

4

6

8

10

3.4

6.9

2.2

*Excluding part-time employees.

UWC EMPLOYEE STRUCTURE

Production Sales

92.6%

7.4%

AVERAGE PAY AT UWC(thousand rubles)

2012 2013 2014

0

10

20

30

40

50

41.

2

43.7

37.9

CoRpoRAte SoCiAl ReSponSibility


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development of coRpoRate cultuReThe main objective for the development and maintenance of corporate culture at UWC is to create a favourable environment for the development and introduction of state-of-the-art technologies and business processes, as well as the development of a community of employees who share the Company’s values.

In order to ensure that employees are properly informed, the Company uses a range of modern communication methods. At UWC’s largest production site in Tikhvin, the Company publishes the PROZAVOD newspaper eight times a year, and a programme with the same name is broadcast on the Russkoye Radio Tikhvin radio station. The VKontakte social networking site has a group called ‘Forum. Tikhvin Freight Car Building Plant, TVSZ’, which has around 9,000 members. In order to communicate with employees, there are a number of noticeboards spread across the sites and premises occupied by the businesses, a round-the-clock programme of video reports is broadcast on special monitors and news is distributed by e-mail.

In order to develop and strengthen team spirit, the businesses’ employees regularly take part in sporting events in the town of Tikhvin and in the Leningrad Region, sightseeing tours, cultural and historical excursions and civic events.

HealtH and SaFetYCreating a safe and comfortable workplace environment is one of UWC’s strategic priorities. Internal safety standards designed to reduce the incidence of workplace injuries and minimise the number of accidents have been drawn up in accordance with the legislation of the Russian Federation and cutting-edge global standards in this area.

The main risks to the health of UWC employees are concentrated at the Company’s two largest production sites: the Tikhvin Freight Car Building Plant and NPC Springs.

tiKhvin fReight caR building plantIn order to implement workplace health and safety policy, working conditions, the technical condition of equipment, safety measures, maintenance of documentation on workplace health

and safety and industrial safety are monitored at TVSZ. An audit of working conditions in the workplace is also carried out. All dangerous production facilities are covered by an employer liability insurance policy relating to workplace injury.

In order to prevent injuries and occupational illness, the business carries out periodic medical examinations on employees, as well as special training sessions on workplace health and safety.

In 2013, TVSZ received a certificate confirming that it has met the IRIS international railway standard. This standard takes account of the requirements laid down in the OHSAS 18001 international professional health and safety management standard and the ISO 14000 environmental management standard.

The business does not exceed the LTIFR limits on the frequency of workplace injuries or the LTISR limits on the severity of injuries in the workplace. Between 2012 and 2014, several fatal accidents were recorded at TVSZ. Over the course of the period under review, there were 11 accidents.

In all these cases, investigations were carried out in accordance with the legislation of the Russian Federation, with the involvement of a state labour inspector. In each case its causes were established, and measures were drawn up to prevent any repeat occurrence. In addition, the employees of the business were informed of the reasons for each accident through additional training events.

As of 2014, the business has embarked on identifying and assessing the scale of risks. This work is intended to identify dangers and determine priorities in order to draw up aims, objectives and programmes in the area of environmental protection, workplace health and safety and industrial safety.

In total, 146.6 million rubles was spent on workplace health and safety at TVSZ in 2014.

In the next period under review, the Company will implement its workplace health and safety action plan for 2015 and will continue to assess conditions in the workplace, with 500 separate work positions being studied. Risk assessments in all the business units are also scheduled for 2015.

npc spRingsNPC Springs operates a modern workplace health and safety management system, based on legislative standards and corporate regulations, as well as an internal standard, ‘Supply of individual safety equipment to the business’s employees’. NPC Springs conducts three-tier monitoring of workplace health and safety:

• Tier one: daily monitoring (each shift) by the line manager;

• Tier two: monitoring by the production manager or the chief foreman at least once a week;

• Tier three: monitoring by a commission headed by one of the business’s managers, at least once a quarter and covering all production units.

In 2012-2013, two minor accidents were recorded at the business, and no accidents were recorded in 2014. The fall in the incidence of industrial injuries during the course of the period under review resulted from the introduction of additional workplace health and safety measures: new safety instructions have been drawn up, modern hydro-filters have been installed on grinding equipment, vacuum ventilation is now being used in production units, safe

power-hoisting equipment has been purchased and new equipment has undergone technical tests and certification on time.

The business is intent on delivering a further reduction in production risks, and in 2015 plans to continue modernising equipment, actively promoting healthy lifestyles to employees and increasing their motivation for fulfilling common workplace health and safety aims and objectives.

In total, 1,432,000 rubles were spent on workplace health and safety at NPC Springs in 2014.

environMental proteCtionConsideration for the environment and natural resources is an essential part of UWC’s strategy. Every year, the Group sets itself aims and objectives focused on reducing its impact on the environment and raising its level of environmental responsibility, paying special attention to protecting the atmosphere and environment through careful waste management. At its production sites, the Company has set up effective environmental management systems, based on standards laid out in the legislation of the Russian Federation and industry best practice.


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enviRonmental policy at uwc’s businessesThe Tikhvin Freight Car Building Plant’s (TVSZ) environmental management system is based on the CTO 1510-002-2014 environmental protection management system, developed during 2014, which takes account of the requirements of the GOST R ISO 14001

SPENDING ON ENVIRONMENTAL PROTECTION AT NPC SPRINGS IN 2014

Waste management Installation of filter and ventilation equipment Installation of systems to purify process liquids Arrangement of locations for the storage and sorting of waste Other

4.7MILLIONRUBLES

5%

21%

50%

15%

9%

2012 2013 2014

0

60

120

180

240

300

115.9

267.9

118.1

EMISSIONS INTO THE ATMOSPHERE AT TVSZ (tonnes per annum)

SPENDING ON ENVIRONMENTAL PROTECTION AT TVSZ IN 2014

Wastewater collection and purification Waste management Other

18.9MILLIONRUBLES

3%

26%

71%

standard. The system stipulates that the environmental risks attached to production should be assessed, followed by the compilation of a register recording the business’s significant environmental aspects and the development of an action plan to reduce risk. The provisions of the system apply to all production processes and must be

implemented by all structural units, as well as being communicated to the employees of all subcontractors.

Every year, on the basis of the register of significant environmental aspects, the business’s structural units put together a programme of environmental protection measures, with the results

of the programme being analysed and communicated to the management on a quarterly basis. Using this system ensures effective management of environmental protection operations, as well as guaranteeing that the views and needs of all interested parties are taken into account.

The environmental management system at NPC Springs is based on the internal regulation on production controls, observance of all legislative standards and regulations in the area of environmental protection, the rational use of natural resources and measures to prevent pollution of the environment.

eneRgy conseRvation and saving ResouRcesEquipment, buildings and facilities at TVSZ meet the very latest standards in the field of energy and resource conservation, and so the business primarily puts in place organisational measures designed to reduce the consumption of heat and electricity. At present, TVSZ’s production equipment is one of the most energy-efficient not only in Russia, but also in Europe.

NPC Spring’s work on energy and resource conservation includes a number of measures designed to reduce the wasting of electricity during its transmission, to reduce the consumption and waste of water and to improve the technologies used to anneal and polymerise paint lines, which means diesel fuel does not need to be used.

emissions into the atmospheReUWC’s businesses use state-of-the-art technology that meets the standards of ‘clean’ production. For instance, TVSZ uses the very latest gas-cleaning systems, and also strictly monitors emissions levels.

In 2014, the number of railcars and casts produced at the business almost trebled, which inevitably led to an increase in emissions into the atmosphere. At the same time, the trends in emissions were considerably lower than the rate of growth of production indicators. High-tech equipment and permanent monitoring of its effectiveness mean that it is possible to deliver a significant reduction in emissions levels when compared to the growth in production.

waste RepRocessingVarious types of waste build up at the Company’s production units as a result of the manufacture of railcars, casts and components. UWC operates a progressive system to handle that waste safely. The majority of the waste produced at the Tikhvin Freight Car Building Plant is sent away for reprocessing, and is then reused. Making dangerous waste safe is compulsory. In 2014, only 25% of the waste produced was transferred for storage at special sites.

During the period under review, the plant implemented its ‘Introducing a waste management system’ project, as part of which five centralised sites were set up for the sorting, collection and accumulation of waste, and technological containers were purchased for the sites.

The Company pays particular attention to training employees in this field. Thirty-five employees responsible for handling waste at TVSZ received special training in 2014 under the ‘Ensuring environmental safety while handling dangerous waste’ programme. The plant’s chief engineer, as the individual responsible for ensuring environmental safety at the business, attends training courses focusing on how managers and systems involved in general business management should ensure environmental safety.

2012 2013 2014

Secondary reprocessing Made safe Stored

10.9

54.9

69.0

0.4

3.27.7

0.3

40.0

14.5

51.

217

.5

0

16

32

48

64

80

WASTE MANAGEMENT AT TVSZ (thousand tonnes)


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SoCial reSponSiBilitYUWC is geared towards growing value over the long term. We recognise that we have a responsibility to the individuals and communities in the regions where the Company has a presence and above all to those of the town of Tikhvin, home to the main production facility. As a result, we do not see our social responsibility solely in terms of unfailing compliance with all statutory and regulatory norms. UWC believes it is important to do more and to create a social environment that promotes the harmonious business development of the Company and all interested parties.

Urban development, education and cultural projects are the priority features of UWC’s corporate social responsibility. As a socially responsible business, the Company also provides support to vulnerable sections of the population and to people with disabilities.

uRban development pRojectsTogether with its majority shareholder, the ICT Group, UWC is engaged in an extensive programme to develop the town of Tikhvin, home to the Company’s main production facilities. The programme aims to create a comfortable and contemporary urban

environment. A number of projects which have radically transformed the city have been implemented to date with support from the local administration.

The city’s central Freedom Square (Ploschad Svobody) has been turned into a pleasant area for walks and relaxation. Pavements have been resurfaced, the monument to the heroes of the Great Patriotic War has been restored, new benches have been installed and flower beds have been provided.

Improvements to the area beside the Vyazitsky Stream and Tabory Ponds include the city’s first pedestrian and cycle lane, new benches, street lights and additional landscaping. This neglected spot has been transformed into a comfortable and safe pedestrian area for adults and children alike.

The town centre has acquired a space for events: three wooden footbridges have been built over the Vyazitsky Stream and the Tabory Ponds; the grounds adjacent to the Cathedral of the Transfiguration of the Saviour have been landscaped; a viewpoint has been installed where Orlovskaya Street opens onto the banks of the Tabory Ponds; and Sovetskaya Street and Karl Marx Street have undergone regeneration. The town’s appearance has been

substantially transformed, with the fronts of buildings renovated, improved storm drainage ridding the streets of puddles and the creation of new pocket parks and high-grade pedestrian zones. In 2014, Russia-wide travel website Travel described Tikhvin as one of the country’s most tourist-friendly small towns.

UWC has brought new ventures to Tikhvin in a bid to create a livelier town and enhance the lives of its residents. The DESIGN REFORMA art and design festival was held in Tikhvin in 2012 and 2014. The Company is also a general partner of the ‘Running City’ city racing competitions in which more than 400 people take part every year from Tikhvin, Saint Petersburg, Moscow, Tver, Troitsk, Cherepovets and Pushkino. UWC supports the annual City Day, the ‘Tikhvinsky Lel’ children’s and young adults’ talent contest, the ‘September in Tikhvin’ jazz festival and other events.

The town acquired its own brand in 2014. This included a town logo and brand book, plus redesigned street signs, direction signs and information displays. In addition, a booklet was produced containing information about the history of Tikhvin, its architectural monuments, restaurants, cafes and hotels.

social suppoRtThe Company’s Tikhvin Freight Car Building Plant is a partner of the AdVita charitable foundation, which provides support to adults and children with cancer. For several years, the Plant has sponsored a Saint Petersburg team made up of children supported by the foundation, their parents and volunteers, which takes part in the World Children’s Winners’ Games. These are athletic competitions for survivors of childhood cancers. The Plant also pays for children supported by the foundation to visit the Sheredar Rehabilitation Centre, the first holiday camp in Russia to specialise in the psychosocial rehabilitation of child survivors of cancers and blood diseases.

Since 2014, the Plant has worked with foodbank charity Rus and the Tikhvin Eparchy of the Russian Orthodox Church to provide food assistance to disadvantaged groups in Tikhvin and its neighbouring districts. With the Plant’s financial support, a workshop making up food parcels was launched in the village of Nadkopanye in Volkhovsky District. Once packed, these ‘People’s Meals’ are sent to the social outreach team at Tikhvin’s Vvedensky Convent for delivery to low-income families. Some of the meals go to the elderly living alone and to large families in the hamlets and villages of the Tikhvin Eparchy.

educational and cultuRal pRogRammesSince 2013, as part of the ‘Grade As for Tikhvin’ educational project, additional classes to prepare the town’s school-leavers for the Unified State Examination (USE) have been held with UWC support. To this end, invitations are issued to teachers and textbooks are acquired for advanced mathematics, physics, Russian and English, as requested by the schools. In the 2013-2014 academic year, 160 students regularly attended classes. In 2014, Tikhvinsky District came top in the Leningrad Region in the Unified State Examination in Russian and second in mathematics. In English, the average USE score for the project’s students was 75.2 (compared to a Leningrad Region average of 65.2).

UWC offers Tikhvin schoolchildren the chance to see productions at Saint Petersburg’s Mikhaylovsky Theatre. In 2014, eight groups of 30 enjoyed cultural excursions to Saint Petersburg, many of them going to the Mikhaylovsky Theatre, where they saw famous works of opera and ballet for the first time.

In the period under review, UWC support helped organise a free concert by the Stanislavsky and Nemirovich-Danchenko Moscow Music Theatre. The theatre’s visit was timed to coincide with Tikhvin’s City Day and the tenth anniversary of the return of the Theotokos of Tikhvin icon. The concert programme included extracts from operas by Russian composers – Rimsky-Korsakov, Tchaikovsky, Glinka and Rachmaninov.

Together with the ICT Group and the town administration, UWC is implementing a project to create a contemporary social and cultural centre for the whole town, based around a library. The project aims to create a state-of-the-art library with an outstanding stock of books and periodicals and access to online databases and libraries, and to provide a fully-equipped, multipurpose space for cultural events, meetings, interest groups and clubs, conferences, lectures and seminars. Municipal premises were renovated in 2014 as part of the project, which was devised by a team of the country’s leading librarians (Moscow). A start has been made on fitting out the premises and installing equipment and work on the project is ongoing. The library is due to open in 2015.


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FinAnCiAl peRFoRmAnCe oveRview

RevenueUWC revenue in 2014 amounted to 17.1 billion rubles, a more than seven-fold increase over 2012 and a five-fold increase over 2013. This dynamic is the result of increased revenue from the Company’s two core business segments.

Given UWC’s approved development programme, further revenue growth is expected in the years ahead, to be achieved by increasing production capacity and boosting sales of innovative railcars.

pRoductionIn 2014, revenue from UWC’s Production segment amounted to 23.2 billion rubles, a more than three-fold increase on the same figure for 2013. This solid upward trend can be attributed both to increased production volumes and to the higher cost of goods sold.

salesIn 2014 the Sales segment revenue rose to 4.3 billion rubles, compared to 2.7 billion rubles at year end 2013. The rise in segment revenue was due to the planned expansion of the railcar fleet, which topped 19,000 by the end of 2014. The Company plans to increase its managed railcar fleet to 60,000 over the next five years.

REVENUE(million rubles)

0

4,000

8,000

12,000

16,000

20,000

2012 2013 2014

3,0

71

2,1

67

17,0

57

2012 2013 2014

7,1

03

23,1

66

1,998

0

5,000

10,000

15,000

20,000

25,000

PRODUCTION SEGMENT REVENUE(million rubles)

2012 2013 2014

2,6

89

4,3

79

2,1

72

0

1,000

2,000

3,000

4,000

5,000

SALES SEGMENT REVENUE(million rubles)

ebitda The Company’s 2014 EBITDA was 3.6 billion rubles, with an EBITDA margin of 21%. UWC profitability in the period under review fell because production reached design capacity and the Sales segment margin was adversely affected at a time when railcars were not being put on the market.

The Company plans to achieve and maintain an EBITDA margin of 40%, above all by:

• reaching full capacity production and target output rates;

• implementing efficiency-boosting measures;

• growing the Sales division’s business volume as a result of greater market promotion of innovative standards.

pRoduction By 2014, the Production segment showed a positive EBITDA of 1.3 billion rubles, with a margin of 6%. Management estimates the segment’s target EBITDA at up to 25% if the target figures for production volume and production costs are achieved.

salesIn 2014, Sales segment EBITDA stood at 3.3 billion rubles, with an EBITDA margin of 76%. A slight decline in the margin was the result of a one-off sale of railcars at the end of 2014. The Company plans to keep the division’s average EBITDA margin stable at 80-85%.

2012 2013 2014

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

PRODUCTION SEGMENT EBITDA(million rubles)

-2,9

41

-3,3

71

1,293

2012 2013 2014

1,403

825

3,5

72

800

1,600

2,400

3,200

4,000

0

EBITDA(million rubles)

2012 2013 2014

1,403

3,5

72

825

800

1,600

2,400

3,200

4,000

0

SALES SEGMENT EBITDA(million rubles)

Revenue ebitdA


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67.5%

14.0%

10.2%

5.9%

2.4%

Amortization Goods and materials Property tax Servicing and repairs Other

BREAKDOWN OF SALES SEGMENT COSTS

70.6%

15.1%

12.8%

1.5%

Goods and materials Salaries Amortization Other

BREAKDOWN OF PRODUCTION SEGMENT COSTS

As of year end 2014, Company costs had risen to 14.8 billion rubles. During the period under review, the cost structure for each segment achieved stability.

pRoductionIn the Production segment, the bulk of costs was for goods and materials: rolled metal products, bogie parts and components, brake equipment and so forth.

salesIn the Sales segment, the bulk of costs was for fixed asset depreciation caused by expansion of the Company’s railcar fleet.

A substantial proportion of costs entered as expenditure for both segments is not pegged to foreign currency, which considerably lessens the exposure of Company spending to currency risks.

The Company plans to take measures to implement a programme to optimise operational costs and so reduce current costs. This will have a positive impact on UWC’s business performance.

31.7%

21.9%19.9%

19.5%

3.3%2.5% 1.1%

Bonds Sberbank VEB-EABR Otkrytiye EABR Gazprombank ROSNANO

BREAKDOWN OF UWC DEBT SERVICE OBLIGATIONS

2012 2013 2014

Financial flow Transaction flow Investment flow

-12,874

-1,431

14,271

-12,534

-2,144

14,931

-23,770

-7,422

32,918

-40,000

-30,000

-20,000

-10,000

10,000

0

30,000

20,000

40,000

CASHFLOW: TRENDS AND BREAKDOWN OF CASH FLOW(million rubles)

-34

253

1,726

inveStment, debt, CASh Flow

2012 2013 2014

Plant construction Operating efficiency Product range expansion Asset acquisition Other projects

4.2

2.3

3.9

0.2

1.8 1.8

1.8

0.3

0.30.04

0

1

2

3

4

5

TRENDS AND BREAKDOWN OF UWC INVESTMENTS (billion rubles)

CoStS

2012 2013 2014

-6,000

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

NET PROFIT(million rubles)

-5,7

13-4,5

17

549

net pRoFit

Company net profit in 2014 amounted to 549 million rubles after the negative performances of 2012 and 2013. The return to profitability is linked to the fact that the Production division reached target capacity and to increased sales of innovative railcars.

FinAnCiAl peRFoRmAnCe oveRview

At the end of 2014, Company debt stood at 89.9 billion rubles, of which 6.3% was in foreign currency. The Company’s debt burden depends on the state of the rail transportation market and the proportion of railcars being sold or leased to third parties. A programme to develop the Company’s managed fleet is in hand, funded in part by borrowing. Management sees a comfortable debt burden as no more than 3.0 x Net Debt/EBITDA.

UWC’s annual investment expenditure has been 3-4 billion rubles during the past three years. In 2012, the bulk of this was spent on the final phases of building the Tikhvin Freight Car Building Plant, and in 2013-2014 on total cost reduction, process optimisation and expansion of the product range.

A capital outlay programme for 2015-2017 was adopted in 2014. Investment during that period will go primarily into implementing strategic plans to increase the product range and boost production capacity, flexibility and operational efficiency. Once the approved development programme for 2015-2017 has been implemented, no substantial capital outlay will be required. Only current expenditure to maintain production will be necessary.


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riSK ManageMent SYSteMUWC has an autonomous risk management unit. It is part of the Company’s Finance Directorate and is accountable directly to the Chief Executive Officer. The risk management unit produces a risk chart. It also establishes and updates the risk management policies which determine the risk identification and minimisation measures taken by the Company’s operational units. Furthermore, the risk management unit regularly briefs UWC managers on current risks and monitors the implementation of risk hedging measures.

riSK CHartA key element in the UWC risk management system is the Risk Chart which is updated on a quarterly basis. The Company regularly interviews the heads of its business units in order to monitor changes in current risks and identify new ones. Updating the Risk Chart includes UWC assessing/re-assessing the impact of each risk and carrying out regular stress tests. Moreover, the Company is gradually expanding the scope of its Risk Chart through the inclusion of new business processes and new business units.

The Company’s risk management procedures are being constantly adapted and upgraded. These include ongoing analysis of the competitive environment and analysis of contemporary risk requirements and solutions (including solutions standardised by the ISO).

The Company distinguishes the following main risk groups:

• credit risk (basic risk);

• liquidity risks;

• operating risks;

• investment risks;

• business process risks.

cRedit RisK management Since UWC’s profit comes primarily from freight car leasing payments, credit risk, of which the adverse effect lies in the potential loss of business partners’ capacity to meet payments, is the Company’s basic risk.

The main document regulating the Company’s credit risk management is the Credit Policy. This envisages the following procedures for managing credit risk:

• preliminary analysis of the business partner’s ability to meet payments;

• complex analysis of the lessor’s business, including:

� credit scoring modelling;

� financial factor analysis, including:

· structural and trend analysis of the business partner’s financial activities;

· an established system of financial indicators (absolute and relative);

� analysis of non-financial factors:

· the lessor in the market;

· the lessor as part of a group of companies;

· business sector trends;

· cooperation with the state;

· the quality of management;

· reputation and analysis of publicly available information;

• examination of each transaction by varyingly representative Credit Committees;

• monitoring payment history;

• monitoring the business partner’s financial health.

Credit risk management tools also include the development of preventive measures to avert/reduce the consequences of risk occurrence by devising asset remarketing measures, seeking compromise solutions and taking legal action where required.

Various risks have an impact on UWC’s business and may adversely affect the achievement of business goals. In order to manage and minimise these risks, the Company has adopted a risk-based approach, designed to ensure the adoption of the most effective management solutions. UWC’s risk-management system enables early risk detection, detailed risk analysis and the adoption of hedging and minimisation measures. Risk identification and risk management procedures are closely integrated into strategic decision-making processes and into ongoing Company activities.

Heads of Departments Risk Manager Chief Executive OfficerCredit and InvestmentCommittees

01Take risk reduction

measures

02Produces a

risk chart

05Identify potentialrisks, alert risk

manager

04Monitors risk

management andrisk reporting

03Run the business,taking unified risk charts into account

riSK ManageMent

SYSteM

RiSk mAnAGement


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uwC BaSiC riSKS CHart

DESCRIPTION OF RISk PROBABILITy ExPOSURE POTENTIAL EFFECT OF OCCURRENCE RISk MANAGEMENT ChANGE By COMPARISON WITh 2013

Funding risksThe risk of the creditor unilaterally imposing a substantial change in the rate of raising capital

The risk of a substantial change in the basic conditions of financing

low medium Rise in financing cost, entailing increased costs

Need to raise additional funds from shareholders

Need to put up additional collateral

• Strengthening conditions of financing in long-term credit agreements

• Monitoring compliance with covenants and other conditions of financing in credit agreements, and modifying the terms of credit agreements ahead of time

• Reducing the volume of funds raised from bank credits and loans

• Offsetting spending by raising factory-gate prices of output produced and services provided

• Reviewing the distribution pattern of borrowed funds to ensure priority funding of lines with higher return on equity

The risk has increased in connection with the downturn in the Russian economy: a weaker ruble, a higher key rate and, so, an increase in the value of debt financing.

Currency riskThe risk of a substantial fluctuation in exchange rates

high low Rise in financing cost

Rise in losses from exchange rate differences in credit agreements and in equipment and parts supply agreements

• Localising production of imported parts

• Forward contracts with a fixed exchange rate

• Minimising the volume or conversion of foreign currency credits

• Hedging currency risk, closing open forex positions/minimising short open forex positions

The risk has increased in connection with depreciation of the ruble and its highly volatile rate of exchange.

liquidity riskThe risk of insufficient cash over the short or long term

low high Failure to meet current financial commitments

Insufficient working capital to ensure operations

• Boosting the proportion of long-term sources of finance in the overall volume

• Constantly monitoring and managing balance-sheet liquidity

• Constantly working with banks to raise additional financing

No change.

tax riskThe risk of tax concessions and subsidies being abolished

Varying interpretations of tax laws

The accuracy of transfer pricing application

Tougher requirements of ‘controlled indebtedness’

low low Reduction or abolition of subsidies/tax concessions leading to the withdrawal of a particular source of financing so that other sources must be found

Supplemental income tax assessment, payment of tax penalties

• Working with the Ministry of Industry and Trade to coordinate subsidies and the scale of requirements

• Structured document management, timely submission of documents for tax inspections

• Monitoring changes in requirements as regards ‘controlled indebtedness’

• Timely preparation of documents as regards transfer price transactions

No change.

Credit riskThe risk of default by one or several lessors, accounting for a significant proportion of the portfolio, and the risk that the portfolio will make a loss

medium medium Lessor default

Contractual arrears

A proportion of railcars standing idle

Forced reduction in the lease rate when remarketing

• See page 43 The risk has grown in connection with Russia’s general economic decline.

intellectual property riskThe risk of losing intellectual property rights.

The risk of unlawful patent use

low high The appearance of lower-priced competitive equivalents

Shortfall in revenue from licensing agreements

Legal proceedings

• Developing legislation on mechanisms to preserve the protection of intellectual property

• Introducing a non-disclosure regime, concluding non-disclosure agreements

• Monitoring production volumes of licensed companies

• Timely development of new intellectual property

No change.

RiSk mAnAGement


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DESCRIPTION OF RISk PROBABILITy ExPOSURE POTENTIAL EFFECT OF OCCURRENCE RISk MANAGEMENT ChANGE By COMPARISON WITh 2013

market riskThe risk of changes in raw material prices

The risk of changes in lease rates on the market

medium high A substantial decline in railcar value and lease rates

A fall in revenue

Margin decrease

• Contracting parts supply by methods that are not dependent on the market situation

• Increasing the fleet’s proportion of innovative railcars that are least susceptible to falling prices

• Exercising the option to change the lease rate in lease agreements

• Increasing and diversifying the client base

The risk has grown in the light of reduced lease rates.

Risk of losing clientsThe risk of losing clients if cooperation with UWC is no longer advantageous

low medium A drop in revenue as a result of a shrinking lease portfolio

A proportion of railcars standing idle

Additional administrative outlay on emergency expansion of the client base

Output sold at unacceptable prices

• Diversifying the client base of UWC lease companies

• Selling output to related companies

The risk has fallen with ‘market acceptance’ of the innovative superiority of Company output.

Risk of losing competitive advantageThe risk of competitors emerging in the market with more attractive prices and lease rates for railcars with analogous quality characteristics

low medium A reduction in the rates and prices of rail cars from the Tikhvin Freight Car Building Plant

• Prioritising output from the Tikhvin Freight Car Building Plant when assembling the rail car fleet

• Licensing the production of innovative railcars

• Expanding and diversifying the client base

• Investing in R&D

The risk has not changed despite the arrival of an Uralvagonzavod rail car that holds its own in terms of performance characteristics and the financial return on investment.

Government regulation/ sovereign risksThe risk of changes in the country’s political situation and/or a deterioration in the business climate

The risk of greater regulation of the sector, or a change in standards

The risk of a reduction in state support for the transport engineering business

low medium The loss of a proportion of existing competitive advantages

A fall in demand and sales volumes

• Participating in sectoral associations (Union of Producers of Railway Technics, Association of Railcar Builders)

• Working closely with Russian Railways

• Monitoring compliance with the requirements of government support programmes

The risk has diminished as a result of the downturn in the Russian economy. Freight operators and shippers prefer higher performance transportation. This is secured by rolling out new Company output and/or replacing its obsolete railcar fleet.

human resources riskThe risk of losing key staff with access to the Company’s commercial secrets

medium low The loss of key Company clients

Leaks/loss of important financial information or commercial secrets

The loss of intellectual resources with the departure of key staff

• The existence of procedures to restrict access to information in line with employees’ authority, introducing a non-disclosure regime

• In-house security vetting of staff at recruitment, proficiency tests

No change.

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01 niKolai doBrinovCHAIRMAN OF THE BOARD OF DIRECTORS, NON-ExECUTIvE DIRECTOR

Nikolai Dobrinov is Chairman of the UWC Board of Directors and a vice-president of the ICT Group.

Since the ICT Group’s inception, he has held a number of senior management positions in companies within the Group. As a current Vice-President of the Group, he is in charge of corporate communications and relations with government authorities.

Before joining the ICT Group, Mr. Dobrinov was Deputy Chairman of the Board of the Saint Petersburg and North Western Region Development Fund. From 1983-1990, he was a head of unit and first secretary of the Gatchina City Committee of the Young Communist League and later a head of unit and secretary of the League’s Leningrad Region Committee.

Nikolai Dobrinov began his working life at the Burevestnik Electromechanical Plant in Gatchina, Leningrad Region.

In 1980, he graduated from the Sergo Ordzhonikidze Moscow Institute of Management as a Business Administration Engineering Economist and in 1993 from the Russian Foreign Trade Academy.

He has no equity interest in UWC’s charter capital and no ordinary shares in the Company. He did not deal in Company stocks in 2014.

02 ilYa YuZHanovINDEPENDENT DIRECTOR, MEMBER OF THE AUDIT COMMITTEE, MEMBER OF THE REMUNERATION AND NOMINATION COMMITTEE

Ilya Yuzhanov has been Chairman of the Supervisory Board of the ALROSA Open Joint-Stock Company since 2011.

He is currently Chairman of the Board of Directors at Polyus Gold International.

From 2004-2013, he was a member of the Supervisory Board of the NOMOS Bank Open Joint-Stock Company. From 2000–2011, Mr. Yuzhanov sat on the Boards of Directors of companies such as RAO Unified Energy System of Russia, the Uralkali Open Joint-Stock Company, the Kirovsky Zavod Open Joint-Stock Company, the Polymetal Open Joint-Stock Company and the IDGC Holding Open Joint Stock Company.

Previously, Mr. Yuzhanov held various positions in the city administration of Leningrad/Saint Petersburg, served as chairman of the Russian Federation State Committee on Land Resources and Land Planning, Russian Federation Minister for Land Policy, Construction and Housing and Russian Federation Minister for Anti-Monopoly Policy and Enterprise Support.

Ilya Yuzhanov graduated from the Economics Faculty of Leningrad State University in 1982. He has a PhD in Economics.


03 gennadY ZHuZHlevINDEPENDENT DIRECTOR, MEMBER OF THE AUDIT COMMITTEE, MEMBER OF THE REMUNERATION AND NOMINATION COMMITTEE

Gennady Zhuzhlev has worked in banking since 1995 and has a wealth of practical experience in project finance and in investment project funding. From 1996-2003, he held various positions at MDM Bank, including that of deputy head of the Credit Department. From 2003-2008, he was an executive director at the URALSIB Financial Corporation.

Gennady Zhuzhlev went to work as a project group leader at the Eurasian Development Bank (EABR) in July 2008. While there, he was responsible for launching a number of major projects, including the reconstruction and development of Saint Petersburg’s Pulkovo Airport. In 2010, he was made a deputy chairman of the EABR board.

In 1996, Mr. Zhuzhlev graduated from the K.E. Tsiolkovsky Moscow State Aviation Technology University and in 1999 took a degree in Finances and Credit at the Moscow International Higher Business School, MIRBIS.


04 aleXander pleSHaKov INDEPENDENT DIRECTOR, MEMBER OF THE AUDIT COMMITTEE, MEMBER OF THE REMUNERATION AND NOMINATION COMMITTEE

Alexander Pleshakov is President of the not-for-profit Guild of Financial Managers. Previously, he held various senior positions in the banking sector. He has been Deputy President of joint-stock commercial bank NOVIKOMBANK and a member of its Board (2007-2008) and Deputy Chairman of the Board of the Gazenergoprombank closed joint-stock company (2004-2007).

From 2000-2004, Mr. Pleshakov was a member of the Federal Commission for the Securities Market. In 1998-2000 he was a deputy department head at the Russian Federation Ministry of Property Relations.

He graduated from the A.F. Mozhaisky Military Engineering Institute holding the Order of the Red Banner with a degree in Aircraft. In 1993 he completed post-graduate military studies in Military Cybernetics, Information Science, Systems Analysis, and Operations Research.

In 2000, he took a course in Finance and Law at the Russian Federation Government Academy of the National Economy.


05 igor tSYplaKov NON-ExECUTIvE DIRECTOR

Igor Tsyplakov is a Vice-President of the ICT Group where he heads the industrial sector. He is one of the ICT Group’s founders and has managed projects for the Group in shipbuilding, finance and commercial and industrial development.

From 2001-2002, he was first deputy CEO of the ROSTEK state unitary enterprise run by the Russian Federation State Customs Committee.

From 1981-1992, he held a variety of senior positions at scientific research institutes and scientific and manufacturing associations belonging to the Ministry of Medium Machine Building Industry and the Atomic Energy Ministry, working on the development and manufacture of weapons systems and the safety of high-security facilities.

In 1980, Igor Tsyplakov graduated from the Sergo Ordzhonikidze Moscow Institute of Management as a Business Administration Engineering Economist.


06 ZuMrud ruStaMovaNON-ExECUTIvE DIRECTOR

Since 2006, Zumrud Rustamova has been deputy CEO at the Polymetal Open Joint-Stock Company. In 2006, she also joined the Board of the Russian Development Bank. From 2004-2006 she was Vice-President at the Siberian Coal Energy Company (SUEK PLC).

From 2000-2004, Ms. Rustamova was a deputy minister at the Russian Federation Ministry of Property Relations. From 1995-1999, she held a variety of positions at the Russian State Committee for the Management of State Property. From 1999-2000, she was a deputy chairman of the Russian Federation Property Fund (RFFI).

Zumrud Rustamova is a graduate of the Moscow Institute of Economics and Statistics.

She has no equity interest in UWC’s charter capital and no ordinary shares in the Company. She did not deal in Company stocks in 2014.

07 roMan SavuSHKinExECUTIvE DIRECTOR, UWC CHIEF ExECUTIvE

Roman Savushkin joined the Company in January 2012.

Prior to that, Mr. Savushkin was head of the RAIL1520 Limited Liability Company, a specialist operations lessor of freight rolling stock. He was in charge of strategy development and corporate governance. Previously, he worked in transport engineering and held senior positions in a number of production, leasing and engineering firms, such as those of the Titran group, Brunswick Rail, the Railcar Building Engineering Centre, Commercial Transport Systems etc.

A graduate of Saint Petersburg State Transport University, with a degree in Overground Transport Systems, he has a PhD in Engineering Sciences and obtained an Executive MBA at Antwerp University Management School (Belgium) in 2009.

He did not carry out any transactions with the Company’s shares in 2014, and as of 31 December 2014 he did not own any shares in the Company. As of 29 June 2015, his share of UWC’s share capital amounted to 0.0134%.

08 dMitrY BovYKinExECUTIvE DIRECTOR, UWC FIRST DEPUTy CEO, OvERAll MANAGEMENT

Dmitry Bovykin joined the Company in January 2012.

Prior to that, Mr. Bovykin worked at the Brunswick Rail leasing company where he was in charge of investor relations and strategic marketing. He had earlier carried out market research for companies such as Kraft Foods and Vimm-Bill-Dann.

He is a graduate in Applied Maths and Physics from the Moscow Institute of Physics and Technology.

He did not carry out any transactions with the Company’s shares in 2014, and as of 31 December 2014 he did not own any shares in the Company. As of 29 June 2015, his share of UWC’s share capital amounted to 0.00673.

09 aleXei tSYplaKov UWC FIRST DEPUTy CEO, ECONOMICS AND FINANCE

Alexei Tsyplakov joined the Company in January 2012.

Mr. Tsyplakov had previously worked as director for strategic investments and planning at the Tikhvin Freight Car Building Plant Closed Joint Stock Company. Before that, he worked at McKinsey & Company, where he was involved in implementing projects in the metallurgy, electricity, oil and gas and other sectors. Mr. Tsyplakov has also been Director for Economics, Finance and Management at the Commercial Transport Systems Company and head of economic management at the Tikhvin Assembly Plant, Titran-Express.

Alexei Tsyplakov holds a bachelor degree in economics, a master’s in management from the Economics Faculty of the Lomonosov Moscow State University and an MBA from the INSEAD business school. In each case, he graduated with honours.

He did not carry out any transactions with the Company’s shares in 2014, and as of 31 December 2014 he did not own any shares in the Company. As of 29 June 2015, his share of UWC’s share capital amounted to 0.00431.

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In facing up to this challenge, the Company refers to the Corporate Governance Code recommended by the Central Bank of Russia and to core principles recognised internationally and domestically:

• the protection of the rights and interests of all shareholders;

• fair and equal treatment of all shareholders;

• business transparency for shareholders and investors;

• provision of an effective mechanism for cooperation between management bodies;

• a Board of Directors with decision-making autonomy;

• maintenance of an effective internal control and auditing system;

• compliance with legislative norms in every aspect of the business.

UWC has set itself the objective of developing an effective system of corporate governance that meets the highest standards in the field. The Company strives to observe modern practices of managing and disclosing information so as to enable the creation of an atmosphere of trust between all interested parties and to raise the quality of management decision-making.

A modern system of corporate governance is one of UWC’s strategic priorities. The Company was reorganised into a joint-stock company in 2014. As a result, creating effective business management and governance procedures is among the Company’s key challenges.

governanCe and SuperviSion BodieS The following bodies and units have been set up at UWC in order to implement the principles mentioned above:

• the General Meeting;

• the Board of Directors;

• the CEO;

• the Auditor;

• the Internal Audit Service.

UWC’s governance and supervision bodies operate according to the Company’s constituent and internal documents. These can be found on the Company’s official website at: www.uniwagon.com/corporate_documents.

tHe general MeetingThe General Meeting is UWC’s highest body of governance. By taking part in the Company’s General Meeting, shareholders exercise their right to participate in Company management. Under the UWC Charter and Russia’s current legislative norms, shareholder participation is required for taking a number of the most important corporate decisions, including those on profit distribution and the approval of major transactions.

UWC offers its shareholders various opportunities to exercise their rights to manage the Company by participating in the General Meeting, tabling proposals and nominating candidates for the Board of Directors and the position of Auditor.

The Annual General Meeting is held no less than once a year between 1 March and 30 June. An Extraordinary General Meeting is convened by a decision of the Board of Directors at its discretion or at the request of the Auditor, the external auditor or a shareholder with a stake of at least 10% of UWC voting shares. Meetings may require attendance or allow absentee voting. The procedure for holding a General Meeting is set out in the UWC Charter and the Regulations on the General Meeting.

Three UWC General Meetings were held in 2014. They passed resolutions to approve a major transaction and to join the International Public Transport Union and the not-for-profit Union of Producers of Railway Technics.

Board oF direCtorS The Board of Directors is the collegiate governance body in overall charge of the Company, with the exception of matters that are within the remit of the General Meeting. Its activities are regulated by the Federal Law On Joint-Stock Companies, the Company Charter and the Regulations on the Board of Directors.

The General Meeting elects members of the Board of Directors by cumulative voting for the period until the next Annual General Meeting. Members of the Board of Directors are accountable to the General Meeting and are responsible for the Company’s successful development. The Board of Directors is a vital tool for protecting the rights and legitimate interests of shareholders, including those with minority holdings.

Under the Charter, there are nine members of the Company’s Board of Directors. It is headed by the Chairman.

The Company attaches great significance to the institution of independent directors in the belief that their input increases the objectivity of the resolutions adopted by the Board of Directors and ensures the best protection of the rights and interests of all shareholders. In accordance with UWC internal documents, the Board of Directors must include no fewer than three independent directors who hold no less than one-fifth of the seats on the Board of Directors.

A Member of the Board of Directors is deemed independent if s/he has no connection with the Company or with any substantial shareholder, business partner, competitor or state. The independence of members of the Board of Directors is determined according to the criteria set out in the rules for listing on the Moscow Stock Exchange and those of trade organisers listing Company stock.

As at 31 March 2015, the UWC Board of Directors included three independent directors, three non-executive and three executive directors (the CEO and senior management).

In 2014 the Board of Directors met five times (one face-to-face meeting and four teleconferences) and considered the following issues among others:

• electing the Chairman of the Board of Directors;

• approving a Corporate Secretary;

• confirming a decision to issue additional securities;

• specifying the price of the additional securities issue.

No payments were made to members of the Board of Directors in 2013.

committees of the boaRd of diRectoRsThe Board of Directors has two committees: the Audit Committee and the Remuneration and Nomination Committee. Their tasks are to provide the Board with recommendations and advice on the issues within their competence.

the audit committeeThe main aim of the Audit Committee’s work is to facilitate the effective performance of the UWC Board of Directors in handling strategic management issues and monitoring financial and business performance. The Audit Committee’s decisions are non-regulatory.

The Audit Committee’s task is oversight to ensure that financial accounting is complete, precise and accurate and that risk management and internal control systems operate effectively. In addition, the Audit Committee aims to guarantee that internal and external audits are carried out independently and objectively and to monitor operations to combat corruption and guard against insider trading.

The Audit Committee of the UWC Board of Directors is made up entirely of independent directors in keeping with best international corporate governance practice.

the RemuneRation and nomination committee The Remuneration and Nomination Committee draws up recommendations and proposals for consideration by the Board of Directors regarding the Company’s organisational structure and the principles of its personnel policy. In addition, the Committee drafts proposals determining the personal specifications for candidates being appointed to UWC management bodies and also recommends the principles and criteria that determine the amount of their remuneration.

The Remuneration and Nomination Committee of the UWC Board of Directors is made up entirely of independent directors in keeping with best international corporate governance practice.


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inFoRmAtion FoR ShAReholdeRS

tHe CeoThe CEO is a one-person executive body of the Company, carrying out day-to-day supervision of the Company’s ongoing business. The CEO is elected by the General Meeting. The CEO is accountable to the Board of Directors and the General Meeting.

Roman Savushkin was appointed CEO in April 2012. For more details, see page 49.

internal Control and auditingIn order to protect the rights and interests of its shareholders and investors, UWC has a system of internal control and auditing, which oversees the Company’s business and financial performance. This system makes it possible to identify, avert and limit financial and operational risks effectively and to expose violations. The internal control and auditing system includes the following elements:

• the Audit Committee of the Board of Directors;

• the Auditor;

• the Internal Audit Service.

the audit committee of the boaRd of diRectoRsThe Audit Committee is responsible for submitting recommendations to the Board of Directors on the appointment of an external auditor and on the amount of his/her remuneration. The Committee oversees the work of the external auditor and helps resolve disagreements over the financial statements between Company management and the external auditor. In addition, the members of the Audit Committee act on behalf of the Board of Directors to oversee the internal control system, financial reporting and the Company audit.

For more information on the work of the Audit Committee of the Board of Directors, see page 51.

the auditoRThe Auditor oversees UWC’s business and financial performance. The Auditor is elected at the Annual General Meeting for the period until the next General Meeting. The Company Auditor at 31 December 2014 was Alexander Godeyev.

The Auditor carries out checks (audits) of UWC’s business and financial performance at his own initiative, following a resolution from the General Meeting or Board of Directors or at the request of a shareholder with a stake of at least 10% of UWC voting shares.

In 2014, the Auditor received no performance-related pay for 2013.

the inteRnal audit seRvice The Company has an Internal Audit Service. Its head is accountable to the Board of Directors and is elected by it at the recommendation of the CEO who is his/her line manager.

The work of the Internal Audit Service is based on the principles of consistency, independence and impartiality and is performed in accordance with the Regulations on the Internal Audit. The head and staff of the Internal Audit service may not combine their work with work in other UWC units.

The Internal Audit Service coordinates its activities with UWC’s external auditor and the Audit Committee of the Company Board of Directors.

tHe eXternal auditorIn order to verify and confirm the accuracy of its financial statements, UWC engages an independent external auditor. The independent auditor is endorsed by the General Meeting at the recommendation of the Board of Directors. At present, the external auditor for UWC is Deloitte and Touche CIS Closed Joint Stock Company. The Auditor checks the consolidated financial statements against the International Financial Reporting Standards and the accounting statements against the Russian Accounting Standards.

In 2014, the actual amount of performance related pay received by the auditor from UWC for 2013 was 3,867,000 rubles.

tHe Corporate SeCretarYThe Corporate Secretary acts as a guarantor that Company officials and management bodies will comply with procedural requirements, ensuring that the rights and legitimate interests of the shareholders are respected.

The Corporate Secretary is responsible for cooperation with shareholders and for bolstering effective work by the Board of Directors and its committees. The Corporate Secretary ensures that management bodies adhere strictly to their terms of reference and facilitates cooperation between the Company management, Board of Directors and shareholders.

The Corporate Secretary is elected by the Board of Directors and accountable to it. The current Corporate Secretary is Anna Mikutskaya.

inSider trading poliCYThe Federal Law On Insider Trading and Market Manipulation sets out Rules of Procedure for listing insiders, access to insider information, nondisclosure of insider information and monitoring compliance with the requirements of the law, as well as a List of Insider Information.

UWC also draws up a List of Insiders. It is the responsibility of the Corporate Secretary to monitor compliance with the Law on Insider Trading and any normative legal acts adopted in accordance with it.

CHarter CapitalUWC has charter capital of 105,556,000 rubles, comprising 105,556,000 ordinary registered uncertified shares with a nominal value of 1 ruble each. The Company may in addition offer another 94,454,000 ordinary registered shares with a nominal value of 1 ruble each1. There are no preference shares in UWC’s charter capital. The state owns none of the Company’s charter capital.

As at 31 March 2015, UWC’s sole shareholder was UNITED WAGON PLC (Jersey) which is fully owned by the ICT Group.

In April 2015, UWC undertook an initial public offering (IPO) on the Moscow Stock Exchange. In the course of this IPO, investors bought 5,556,000 additionally offered shares, as well as shares owned by UNITED WAGON PLC (Jersey). The offer price was 700 rubles per ordinary share. A total of 12.22% of The Company shares2 worth 9.028 billion rubles were sold in the offer. Market capitalisation of UWC at the date of the offer was 73.9 billion rubles.

More than 50 investors took part in the UWC IPO. Foreign investors accounted for 38.3% of the demand for shares. Demand from institutional investors accounted for 81.6% of the offer, including 11.1% from pension funds. Wealthy small and private investors acquired 18.4%. The Company’s own senior managers also took part.

Since 30 April 2015, UWC shares have traded in the Moscow Stock Exchange top quotation list, using stock tickers UWGN and UWGN001d.

Since 17 June 2015 emissions were combined and the UWC shares are now traded under the UWGN ticker.

dividend poliCY UWC’s Dividend Policy seeks to maintain a balance between dividend distribution and increasing the Company’s value by reinvesting in its development. Thanks to this approach, the Company’s shareholder value is increasing over the long term.

The process whereby decisions on dividend payments are made and their size calculated is regulated by the current legislation of the Russian Federation, the Company Charter and the Dividend Policy Regulations. In making recommendations to the General Meeting on the size of dividends and the procedure for their payment, the Board of Directors is guided by the principle of an optimum combination of effective Company development and respect for the rights of its shareholders to receive a proportion of the net profit as dividends.

Dividends are paid from the Company’s net profit as determined from the figures in the financial statements which are compiled in accordance with the requirements of Russian legislation. Dividends may be paid out of the undistributed profit of previous years. The decision to pay dividends is taken by the UWC General Meeting on the basis of recommendations from the Board of Directors. The Board of Directors may no longer make recommendations as to the size of dividends.

No dividends were paid on the basis of the 2013 performance.

CoRpoRAte GoveRnAnCeStRuCtuRe

STRUCTURE OF UWC SHAREHOLDER CAPITAL AFTER THE IPO

United Wagon Plc (Jersey) The float

87.8%

12.2%

1 As at 29 June 2015. 2 Taking into account additionally offered shares, free-float.

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United Wagon Company Annual Report and Accounts 2014United Wagon Company Annual Report and Accounts 2014

PJSC RPC UWC

TABLE OF CONTENTS

56 Statement of management’s responsibilities for the preparation and approval of the consolidated financial statements for the years ended 31 December 2014, 2013 and 2012

57 Auditor’s report58 Consolidated financial statements for the years

ended 31 December 2014, 2013 and 2012: 58 Consolidated statements of financial

position 59 Consolidated statements of profit or loss

and other comprehensive income 60 Consolidated statements of changes

in equity 61 Consolidated statements of cash flows 62 Notes to the consolidated financial statements

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STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS for the years ended 31 December 2014, 2013 and 2012

AUDITORS’ REPORT

Management is responsible for the preparation of the consolidated financial statements that presents fairly in all material respects the financial position of Public Joint Stock Company ‘Research and Production Corporation ‘United Wagon Company’ (hereinafter, PJSC RPC UWC or the ‘Company’) and its subsidiaries (hereinafter, the ‘Group’) at 31 December 2014, 2013 and 2012, the consolidated results of its operations, cash flows and changes in equity for the years then ended, in compliance with International Financial Reporting Standards (‘IFRS’).

In preparing the consolidated financial statements, management is responsible for:

• Properly selecting and applying accounting policies;

• Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• Providing additional disclosures when compliance with the specific IFRS requirements is insufficient to ensure that users are able to understand the impact of particular transactions, other events and conditions on the Group’s consolidated financial position and financial performance;

• 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 position of the Group, and which enable them to ensure that the consolidated financial statements of the Group comply with IFRS;

• Maintaining statutory accounting records in compliance with local legislation and accounting standards;

• Taking such steps as are reasonably available to them to safeguard the assets of the Group; and

• Preventing and detecting fraud and other irregularities.

The consolidated financial statements of the Group for the years ended 31 December 2014, 2013 and 2012 were authorized for issue by the Group’s management on 15 April 2015.

On behalf of the management:

Roman Savushkin Chief Executive Officer PJSC RPC UWC

Anton SaykinChief Financial OfficerPJSC RPC UWC

To the Board of Directors and Shareholders of PJSC RPC UWC:We have audited the accompanying consolidated financial statements of PJSC RPC UWC and its subsidiaries (the ‘Group’), which comprise the consolidated statements of financial position as at 31 December 2014, 2013 and 2012, consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.

ManageMenT’S ReSPonSiBiliTy foR The ConSoliDaTeD finanCial STaTeMenTSManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, 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.

aUDiToR’S ReSPonSiBiliTyOur responsibility is to express an opinion on the fair presentation of these consolidated financial statements based on our audit. We conducted our audit in accordance with Russian Federal Auditing Standards and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements 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 entity’s internal control system. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

oPinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2014, 2013 and 2012, and its financial performance and cash flows for the years then ended in accordance with International Financial Reporting Standards.

15 April 2015

Andrey Sedov, Partner (Qualification certificate No. 01-000487 dated 13 February 2012)ZAO Deloitte & Touche CIS

Audited entity: PJSC RPC UWC

Certificate of registration in the Unified State Register of Legal Entities No. 5117746026041 issued by Interregional Inspectorate of the RF Ministry of Taxes and Levies No. 46 for Moscow on 24 December 2011.

Location: 5 Stary Tolmachevskiy pereulok, Moscow, 115184.

Audit firm: ZAO Deloitte & Touche CIS.

State Registration Certificate No. 018.482 issued by Moscow Registration Chamber on 30 October 1992.

Certificate of registration in the Unified State Register of Legal Entities No. 1027700425444 issued by Interregional Inspectorate of the RF Ministry of Taxes and Levies No.39 for Moscow on 13 November 2002.

Certificate of membership in ‘NP ‘Audit Chamber of Russia’ (auditors’ SRO) of 20 May 2009 No. 3026, ORNZ 10201017407.

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION as at 31 December 2014, 2013 and 2012(in thousands of Russian Rubles, unless otherwise indicated)

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the years ended 31 December 2014, 2013 and 2012(in thousands of Russian Rubles, unless otherwise indicated)

note31 December

201431 December

201331 December

2012

AssetsNon-current assetsProperty, plant and equipment 8 68,483,344 55,415,840 43,730,219Prepayments for non-current assets 2,336,192 757,833 1,127,921Intangible assets 7 2,838,785 2,769,043 1,600,459Deferred tax assets 24 1,852,555 – 607Investment in a joint venture 9 158,838 308,538 303,575Loans receivable 12 1,658,939 2,047,121 193,990Other receivables 30,000 – –Finance lease receivables 260,818 – –Total non-current assets 77,619,471 61,298,375 46,956,771 Current assetsInventories 266,972 93,933 117,178Trade and other accounts receivable 10 7,578,533 1,078,235 338,992Finance lease receivables 8,803 – –Loans receivable 12 16,255,261 235,313 751,147Prepayments to suppliers and other assets 11 705,374 842,193 789,356VAT receivable 1,653,166 1,804,589 1,473,137Cash and cash equivalents 13 2,386,595 710,807 418,295Total current assets 28,854,704 4,765,070 3,888,105Total assets 106,474,175 66,063,445 50,844,876 Equity and liabilitiesEquityShare capital issued 14 10 10 10Share capital issued but not registered 14 99,990 – –Additional paid-in capital 14 12,428,965 9,005,233 14,071,764(Accumulated deficit)/retained earnings (4,969,137) (5,526,510) 186,245Total equity attributable to shareholders 7,559,828 3,478,733 14,258,019Non-controlling interests 668 78,721 –Total equity 7,560,496 3,557,454 14,258,019 Non-current liabilitiesBorrowings 15 44,493,124 35,084,592 31,693,730Bonds – non-current portion 16 27,891,700 10,029,994 –Finance lease liabilities – non-current portion 2,637 18,263 34,260Deferred tax liabilities 24 1,200,984 809,036 187,035Total non-current liabilities 73,588,445 45,941,885 31,915,025 Current liabilitiesBorrowings 15 16,953,742 11,384,750 2,496,053Trade and other payables 17 6,357,576 4,535,429 1,760,462Advances received and other current liabilities 18 1,395,571 557,261 314,722Derivative financial instruments – – 86,532Finance lease liabilities – current portion 19,384 18,557 14,063Bonds – current portion 16 598,961 68,109 –Total current liabilities 25,325,234 16,564,106 4,671,832Total liabilities 98,913,679 62,505,991 36,586,857Total liabilities and equity 106,474,175 66,063,445 50,844,876

The notes on pages 62-101 form an integral part of these consolidated financial statements.

note 2014 2013 2012

Revenue 19 17,057,489 3,070,975 2,166,529Cost of sales 20 (14,984,530) (1,684,685) (905,888)Gross profit 2,072,959 1,386,290 1,260,641 Selling, general and administrative expenses 21 (1,644,648) (807,699) (1,032,627)Impairment loss 8 (27,309) (1,801,142) (2,990,254)Other operating income/(expenses), net 23,371 (91,798) (71,607)Operating profit/(loss) 424,373 (1,314,349) (2,833,847) Finance income 22 647,313 154,176 88,273Finance costs 23 (6,516,137) (2,786,552) (2,100,923)Foreign exchange gain/(loss) 4,604,625 (1,266,404) 324,611Gain/(loss) on valuation of derivative financial instruments – 31,434 (86,532)Loss before income tax (839,826) (5,181,695) (4,608,418) Income tax benefit/(expense) 24 1,389,146 (531,060) 91,134 Net profit/(loss) and comprehensive income/(loss) for the year 549,320 (5,712,755) (4,517,284) Profit and comprehensive income attributable to: Shareholders of the Company 557,373 (5,712,755) (4,517,284) Non-controlling interests (8,053) – –


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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY for the years ended 31 December 2014, 2013 and 2012(in thousands of Russian Rubles, unless otherwise indicated)

CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended 31 December 2014, 2013 and 2012(in thousands of Russian Rubles, unless otherwise indicated)

Share capital issued

Share capital issued but

not registered

additionalpaid-in capital

Retained earnings/

(accumulated deficit)

non-controlling interests

Total equity

Balance at 1 January 2012 10 – 4,611,347 4,703,529 – 9,314,886 Loss for the year – – – (4,517,284) – (4,517,284)Shareholder contributions – – 9,460,417 – – 9,460,417 Balance at 31 December 2012 10 – 14,071,764 186,245 – 14,258,019 Loss for the year – – – (5,712,755) – (5,712,755)Acquisition of subsidiaries (Note 6) – – – – 78,721 78,721Distribution to shareholders (Note 14) – – (8,000,000) – – (8,000,000)Shareholder contributions – – 2,933,469 – – 2,933,469 Balance at 31 December 2013 10 – 9,005,233 (5,526,510) 78,721 3,557,454 Profit/(loss) for the year – – – 557,373 (8,053) 549,320Shareholder contributions – – 3,488,196 – – 3,488,196Additional share issue as part of restructuring (Note 14) – 99,990 (99,990) – – –Effect of the acquisition of company under common control (Note 6) – – 35,526 – – 35,526Purchase of non-controlling interests – – – – (70,000) (70,000) Balance at 31 December 2014 10 99,990 12,428,965 (4,969,137) 668 7,560,496


2014 2013 2012

Operating activitiesLoss before income tax (839,827) (5,181,695) (4,608,418)Adjustments for: Depreciation and amortization 3,119,976 916,458 668,446 Impairment loss 27,309 1,801,142 2,990,254 Change in provision for doubtful receivables (36,886) 36,886 16,231 Loss on disposal of property, plant and equipment – – 17,661 Loss from joint venture 157,219 – – Non-operating foreign exchange (gain)/loss, net (4,628,269) 1,266,404 (270,074) Loss on revaluation of derivative – (31,434) 86,532 Finance costs 6,516,140 2,786,552 2,100,923 Finance income (647,313) (154,176) (88,958)Operating profit before changes in working capital 3,668,349 1,440,137 912,597Movements in working capital: Increase in trade and other accounts receivable (7,075,851) (398,404) (122,569) Increase in prepayments to suppliers and other current assets (284,099) (47,351) (65,544) Decrease/(increase) in VAT receivable 166,413 (331,453) 200,177 Decrease/(increase) in inventories (172,056) 115,674 (37,374) Decrease/(increase) in trade and other payables 838,310 (67,335) 21,019 Increase in advances received and other current liabilities 418,597 242,539 161,963Cash flows (used in)/from operating activities (2,440,337) 953,807 1,070,269Income tax paid (34,190) – (3,980)Finance costs paid (4,947,025) (3,097,817) (2,497,421)Net cash used in operating activities (7,421,552) (2,144,010) (1,431,132)

Investing activitiesPayments for property, plant and equipment, including prepayments (15,584,815) (10,708,281) (11,258,668)Proceeds from disposal of property, plant and equipment – – 13,712Purchase of intangible assets (295,305) (176,358) (505,852)Purchase of currency forwards – (59,301) –Loans granted (16,924,040) (1,610,204) (1,616,618)Cash proceeds from redemption of loans granted 9,422,914 272,904 763,986Interest received 111,388 154,176 40,607Net cash outflow on acquisition of subsidiaries (499,824) (406,958) –Cash paid on acquisition of investment in a joint venture – – (310,930)Net cash used in investing activities (23,769,682) (12,534,022) (12,873,763)

Financing activitiesShareholders’ capital contribution, net 3,865,920 (5,444,269) 9,460,417Proceeds from borrowings 67,058,348 35,644,105 15,943,278Repayment of borrowings (55,841,729) (25,286,962) (11,122,899)Proceeds from issue of bonds 17,861,705 10,029,994 –Finance lease payments (26,579) (11,503) (10,167)Net cash from financing activities 32,917,665 14,931,365 14,270,629Net increase/(decrease) in cash and cash equivalents 1,726,431 253,333 (34,266)Effect of exchange rate changes (50,643) 39,179 (49,313)Cash and cash equivalents, beginning of the year 710,807 418,295 501,873Cash and cash equivalents, end of the year 2,386,595 710,807 418,295


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1. GENERAL INFORMATIONPJSC RPC UWC (the ‘Company’) is a public joint stock company which was incorporated and domiciled in the Russian Federation on 16 December 2011. The Company’s registered and business address is 5 Stary Tolmachevskiy pereulok, Moscow.

As at 31 December 2014, the Company is a holding entity for the group of companies (PJSC RPC UWC or the ‘Group’) incorporated in the British Virgin Islands (the ‘BVI’), Cyprus, and Russia (complete list of subsidiaries is presented in the table below). Prior to 2014, the holding company for the Group was United Wagon Plc which sold its major assets to PJSC RPC UWC as a result of the restructuring process in exchange for 100% of additional issue of the Company’s shares.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the years ended 31 December 2014, 2013 and 2012(in thousands of Russian Rubles, unless otherwise indicated)

Principal activities of the Group include:

• Production of railway cars at the manufacturing facility located in the town of Tikhvin, Leningrad region, Russian Federation;

• Operating lease of the railway cars to transportation and manufacturing companies in Russia.

Most of the railcars produced at the manufacturing facility in Tikhvin are used internally in the operating lease business unit.

As at the reporting dates, the Company’s shareholders’ structure was as follows:

Shareholders

As 31 December

2014Ownership interest, %

as 31 December

2013ownership interest, %

at 1 January

2013 ownership interest, %

United Wagon Plc 100% – –Rail 1520 BVI Management Company Ltd – 1% 1%Rail 1520 Cyprus Management Company Ltd – 99% 99%

As at 31 December 2014, ultimate control of the Group was divided between individual shareholders, with Alexander Nesis holding the largest share.

Information about the Company’s subsidiaries and their principal activities is set out below:

Percentage held as at

Company namePlace of incorporation Principal activity

31 December 2014

31 December 2013

1 January 2013

Rail Holding LTD BVI Investment company 100% 100% 100%Rail 1520 (BVI) LTD BVI Investment company 100% 100% 100%RAIL1520 Finance Cyprus LTD Cyprus Investment company 100% 100% 100%RAIL1520 Cyprus LTD Cyprus Investment company 100% 100% 100%RAIL1520 LLC Russian

FederationOperating lease of railcars

100% 100% 100%

RAIL1520 Service (BVI) LTD BVI Investment company 100% 100% –RAIL1520 Service Finance Cyprus LTD Cyprus Investment company 100% 100% –RAIL1520 Service Cyprus LTD Cyprus Investment company 100% 100% –RAIL1520 Service LLC Russian

FederationOperating lease of railcars

100% 100% –

RAIL1520 (BVI) Leasing LTD BVI Investment company 100% 100% –RAIL1520 Cyprus Leasing LTD Cyprus Investment company 100% 100% –RAIL1520 Leasing LLC Russian

FederationFinance lease of railcars

100% 100% –

Kintonia Investments LTD BVI Investment company 100% 100% 100%Ovilleno Holdings LTD Cyprus Investment company 99% 99% 99%CTT LLC Russian

FederationEngineering and construction bureau

99% 99% –

Trade House ‘UWC’ LLC Russian Federation

Trading of vehicles and equipment

99% 99% –

Springs Industrial Technology Center LLC** Russian Federation

Springs production 100% 68.3% –

Restadiana Ventures LTD Cyprus Investment company 99% 99% –

Percentage held as at

Company namePlace of incorporation Principal activity

31 December 2014

31 December 2013

1 January 2013

Vostok 1520 LLC Russian Federation

Facilitation of transportation and cargoes

99% 99% –

RAIL1520 Management Company LTD BVI Investment company 100% 100% 100%RAIL1520 Cyprus Management Company LTD Cyprus Investment company 100% 100% 100%UWC Finance LLC Russian

FederationSecurities issuer, consulting on commercial activity

100% 100% –

RAIL1520 Tank Cars BVI Holding LTD BVI Investment company 100% 100% –Heavy Engineering Works JSC* Russian

FederationRailway car manufacturing

100% – –

TikhvinSpecMash Closed Joint Stock Company* Russian Federation

Railway car manufacturing

100% – –

RAIL1520 Tank Cars Cyprus Holding LTD Cyprus Investment company 100% 100% –TikhvinChemMash Closed Joint Stock Company Russian

FederationProduction of tank cars

100% 100% –

Holme Services Limited BVI Investment company 100% 100% 100%Pegadisa Management LTD Cyprus Investment company 100% 100% –RAIL1520 IP LTD Cyprus Investment company 100% 100% –Raygold Limited Cyprus Investment company 99.7% 99.7% 99.7%AFCT Advanced Freight Car Technology Limited Cyprus Development of

production technology for the plant

99.7% 99.7% 99.7%

DEANROAD Limited Cyprus Development of production technology for the plant

99.7% 99.7% 99.7%

TVSZ Closed Joint Stock Company Russian Federation

Railway cars manufacturing plant

99.7% 99.7% 99.7%

TM-energosbyt Russian Federation

Power supply services

100% 100% 100%

NeoTech LLC Russian Federation

Development of production technology

100% 100% –

* In 2014 the Group acquired 100% of shares in Heavy Engineering Works JSC from companies under common control with the Group (Note 6).

** In April 2014 the Group additionally acquired 31,7% of Springs Industrial Technology Center LLC, thus increasing its ownership to 100% (Note 6).

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

STaTeMenT of CoMPlianCeThese consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (‘IFRS’).

BaSiS of PRePaRaTionThese consolidated financial statements are prepared on the basis of standalone financial statements of the Company and its subsidiaries. The entities of the Group maintain their accounting records in accordance with the laws, accounting and reporting regulations of the jurisdiction in which they are incorporated and registered. The accounting principles and financial reporting procedures in these jurisdictions may differ substantially from those generally accepted under IFRS. Accordingly, financial statements of the entities of the Group were adjusted to ensure that they are presented in accordance with IFRS.

These financial statements have been prepared on the historical cost basis except for certain derivative financial instruments that are measured at fair values at the end of each reporting period, as explained in the accounting policies below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

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 leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 or value in use in IAS 36.

In addition, for financial reporting purposes, fair value measurements are categorized 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 Company 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.

going ConCeRn aSSUMPTion These consolidated financial statements have been prepared on the assumption that the Group will continue as a going concern in the foreseeable future, which implies the realization of assets and settlement of liabilities in the normal course of business.

In 2014, 2013 and 2012, the Group incurred losses before tax and had negative cash flows from operating activities.

In 2014, the Group continued its production activities. The 2014 volume of production (9,637 railcars) was in line with initial plans and significantly higher than is required by a covenant under the loan agreement with TVSZ CJSC (the Group’s subsidiary comprising the railcar manufacturing plant) (8,825 railcars). Based on management forecasts, the minimum expected production volume of TVSZ CJSC in 2015 will exceed twelve thousand railcars. Management expects that this will allow the Group to become profitable.

Management also plans to implement the following measures to improve its working capital position: maximization of prepayment terms with customers, work with suppliers on post payment basis, applying contracted deferred payments and use of factoring, renegotiation of bank loans repayment terms.

As part of the series of measures to improve financial position of the Group in April 2015 the Group’s major shareholder, United Wagon Plc, settled its loan obligations to the Group dated 11 December 2013 in the amount of RUB 11,133,877 thousand (as at 31 December 2014). Also, in January 2015, NitroChemProm LLC repaid the principal part of the debt due to the Group for the delivery of railway cars in the amount of RUB 5,722,139 thousand.

fUnCTional anD PReSenTaTion CURRenCyItems included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The functional currency of the Group’s entities is the Russian Ruble (‘RUB’). These consolidated financial statements are presented in Rubles which is the presentation currency used by the Group.

foReign CURRenCy TRanSaCTionS In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences on monetary items are recognized in profit or loss in the period in which they arise.

Exchange rates used in the translation were as follows:


RUB/USD exchange rate

31 December 2014

31 December 2013

31 December2012

At the reporting date 56.2584 32.7292 30.3727Average for the respective years 38.4217 31.8480 31.0915

BaSiS of ConSoliDaTionThe consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) prepared through 31 December of each year. Control is achieved when the Company:

(a) Has power over the investee;

(b) Is exposed, or has rights, to variable returns from its involvement with the investee; and

(c) Has the ability to use its power to affect variable 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.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intragroup balances and any unrealized gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.

Non-controlling interest in consolidated subsidiaries is identified separately from the Group’s equity therein. Total comprehensive income / (loss) is attributed to non-controlling interests even if this results in the non-controlling interest having a deficit balance.

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.

The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities assumed and the equity instruments issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.

Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated to the extent they do not represent an impairment loss on the Group’s non-current assets. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

TRanSaCTionS UnDeR CoMMon ConTRolAcquisitions of entities under common control are accounted for on the basis of predecessor carrying values, which results in the historical book value of assets and liabilities of the acquired entity being combined with that of the Group. For material common control transactions the consolidated historical financial statements of the Group are retrospectively restated to reflect the effect of the acquisition as if it occurred at the beginning of the earliest period presented.

In 2014, as a result of the legal restructuring, PJSC RPC UWC acquired all its subsidiaries from United Wagon Plc in exchange for 99,990,000 additionally issued ordinary shares. The acquisition represented a transaction with entities under common control and was accounted for retrospectively starting from the earliest period presented in these consolidated statements.

gooDWillGoodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

inveSTMenTS in JoinT venTUReSA joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The results and assets and liabilities of joint ventures are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in a joint venture is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the joint venture. When the Group’s share of losses of a joint venture exceeds the Group’s interest in that joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment in the joint venture), the Group discontinues recognizing its share of further losses.

Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture.

inTangiBle aSSeTSIntangible assets acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.

Internally-generated intangible assets – research and development expenditure – The Group recognizes intangible assets arising out of development when it can demonstrate all of the following:

• The technical feasibility of completing the intangible asset so that it will be available for use or sale;

• Its intention to complete, use or sell the asset;

• The ability to use or sell the intangible asset;

• It is probable that the asset will generate future economic benefits;

• The availability of adequate technical, financial and other resources to complete, use or sell the asset; and

• Its ability to measure reliably the expenditure attributable to the intangible asset during its development.

Expenditure on research activities is recognized as an expense in the period in which it was incurred. Development expenditure, that does not meet the criteria of intangible assets, is charged to the statement of comprehensive income when incurred.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

No amortization is charged for intangible assets that are in the phase of development. Amortization begins when the asset is available for use, that is, when the asset is in the location and condition necessary for it to be capable of operating in the manner intended by management. Intangible assets which have been transferred from intangible assets under development to intangible assets subject to amortization are represented with patents and are amortized over the useful economic lives of the patents ranging between 51 to 174 months. Know-how and production technology development costs are considered to have indefinite useful lives. Such assets are not amortized and are carried at cost less accumulated impairment losses. The ERP system development and installation costs are amortized over 120 months which is the best estimate of their useful economic lives.

Expenditure, which enhances or extends the performance of intangible assets beyond their original specifications is recognized as a capital improvement and added to the original cost of the intangible asset.

Intangible assets acquired in a business combination – Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

PRoPeRTy, PlanT anD eqUiPMenTProperty, plant and equipment acquired by the Group are recorded at purchase or construction cost, less accumulated depreciation and accumulated impairment. The costs of day to day servicing of property, plant and equipment, including repairs and maintenance expenditure, are expensed as incurred.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Assets under construction (‘Construction In-Progress’ or ‘CIP’) are carried at cost, less any recognized impairment loss. Cost includes capital expenditures directly related to the construction of property, plant and equipment including an appropriate allocation of directly attributable variable overheads including capitalized borrowing costs on qualifying assets. Depreciation of these assets, on the same basis as for other property assets, commences when the assets are ready for their intended use. Construction in-progress items are reviewed regularly to determine whether their carrying value is fairly stated.

The Group recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. The assets being replaced are written off immediately. All other costs are recognized in the consolidated profit or loss as an expense as incurred.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the consolidated profit or loss.

Depreciation is recognized so as to write off the cost or valuation of assets (other than freehold land and properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Freehold land and assets under construction are not depreciated.

Depreciation is charged as from the time when an asset is available for use over the following useful economic lives:

Useful lives, number of years

Railcars 22–32Production plant and buildings 20–50Equipment and motor vehicles 2–31Office equipment and furniture 1–10

The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. Residual values of assets and their useful lives are reviewed and adjusted at each balance sheet date, if necessary.


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iMPaiRMenT of non-finanCial aSSeTSAt each reporting date, the Group reviews the carrying amounts of its non-current assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in-use. In assessing value in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset 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 (cash-generating unit) is reduced to its recoverable amount.

An impairment loss is recognized immediately in the consolidated profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. Any reversal of that impairment loss is recognized immediately in the consolidated profit or loss.

leaSeSThe determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date, specifically, on whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

Leases are classified as finance leases whenever the terms of the lease transfer substantially all of the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The group as lessorAmounts due from lessees under finance leases are recognized as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.

group as a lesseeAssets under finance leases are recognized as assets at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rentals are recognized as expenses in the periods in which they are incurred.

Payments under operating leases are recognized as an expense on a straight-line basis over the term of the lease. Lease incentives received are recognized as a liability and a reduction to expense on a straight-line basis. Contingent rentals under operating leases are recognized as an expense in the period in which they are incurred.

finanCial aSSeTSFinancial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (‘FVTPL’), ‘held to maturity’ investments, ‘available for sale’ (‘AFS’) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. As at the reporting date the Group had only financial assets classified as loans and receivables.

loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortized cost using the effective interest rate method. Gains and losses are recognized in the consolidated profit or loss when the loans and receivables are derecognized or impaired, as well as through the amortization process. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

iMPaiRMenT of finanCial aSSeTSThe financial assets are assessed for indicators of impairment as 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 financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. 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 (provision for impairment of receivables).

If, in a subsequent period, the amount of the impairment loss for assets carried at amortized cost decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

effeCTive inTeReST MeThoD The effective interest method is a method of calculating the amortized cost of a financial asset or liability and of allocating interest income over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments through the expected life of the financial asset or liability, or, where appropriate, a shorter period, to the net carrying amount of initial recognition.

invenToRieSInventories are stated at lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventory is based on the weighted average cost principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

CaSh anD CaSh eqUivalenTSCash and cash equivalents comprise cash on hand, balances with banks, short-term interest-bearing deposits and short-term bank overdrafts with original maturities of not more than three months. Restricted cash balances are not considered as part of cash and cash equivalents for the purposes of the statement of cash flows. Balances restricted from being exchanged or used to settle a liability for at least twelve months after the financial year-end date are included in other non-current assets.

valUe aDDeD Tax (vaT)Output value added tax related to sales is payable to the tax authorities on the earlier of (a) collection of proceeds from customers or (b) delivery of goods or services to customers. Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice. The tax authorities permit the settlement of VAT on a net basis. VAT related to purchases where all the specified conditions for recovery have not been met yet is recognized in the statement of financial position and disclosed separately within accounts receivable, while input VAT that has been claimed is netted off with the output VAT payable. Where provision has been made for impairment of receivables, impairment loss is recorded for the gross amount of the debtor, including VAT.

aCCoUnTS PayaBle anD oTheR finanCial liaBiliTieSAccounts payable and other financial liabilities are initially recognized at cost, which is the fair value of the consideration received, taking into account transaction costs. After initial recognition, financial liabilities are carried at amortized cost. Interest expense is calculated using the effective interest method. As normally the expected term of accounts payable is short, the value is stated at the nominal amount without discounting, which corresponds with fair value.

PRoviSionSProvisions are recognized when, and only when, the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. Where the effect of the time value of money is significant, the amount of a provision is the present value of the cash flows required to settle the obligation.


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inCoMe TaxIncome tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in the consolidated profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantially enacted by the reporting date. Provisions in respect of uncertain tax positions which relate to income tax are included in current income tax at an amount expected to be payable including penalties, if any.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries, associates and joint ventures to the extent that the parent is able to control the reversal of the temporary difference and it is probable that the temporary difference will not be utilized in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates that are expected to apply in the period when the liabilities are settled or the assets realized.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized.

Deferred income tax is recognized on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets and liabilities are not discounted.

RevenUe ReCogniTionRevenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of value added taxes, estimated rebates and discounts. The revenue is recognized in the amount which is probable that the economic benefits associated with the transaction will flow to the Group, the amount of revenue can be measured reliably.

(i) Sales of goodsRevenue from the sale of goods is recognized when significant risks and rewards incidental to ownership are transferred to the customers.

(ii) Rental incomeRental income is generated principally from leasing of railcars and is recognized on a straight-line basis during the term of rent agreements.

(iii) other servicesSales of services are recognized in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.

(iv) interest incomeInterest income is accrued on a time basis, by reference to the principal outstanding and at the applicable effective interest rate.

BoRRoWing CoSTSBorrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized and amortized over the useful life of the asset. Other borrowing costs are recognized as an expense in the period in which they are incurred.

goveRnMenT gRanTSGovernment grants comprise compensation of interest expense under bank loans. Grants from the government are recognized at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to compensation of interest expense under bank loans are credited to profit or loss over the periods of the related interest expense unless this interest was capitalized into the cost of property, plant and equipment in which case they are deducted from the cost of the respective items of property, plant and equipment as government grants and credited to the profit or loss on a straight-line basis over the expected lives of these assets.

ShaRe CaPiTalOrdinary shares are classified as equity and have no nominal value. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

aDDiTional PaiD-in CaPiTalEquity contributions made by shareholders, whereby shares are not issued, are recorded as additional capital within equity whereby such capital contributions do not carry any interest and any future return to the shareholder is at the Group’s discretion.

loanS gRanTeD To The PaRenTLoans granted to the parent and other companies under common control and other accounts receivable from these companies are recognized as an asset or a decrease in equity based on the substance of each separate transaction giving rise to such debt. Usually, loans receivable from the parent and other companies under common control are presented as a decrease in equity. These loans may be recognized as an asset when all material arrangements of this transaction (including interest, repayment terms, intention and practical ability to repay the debt, size and adequacy of collateral, etc.) are comparable with the market ones, and they are expected to be repaid in a relatively short period of time.

eMPloyee BenefiTSRemuneration to employees in respect of services rendered during the reporting period is recognized as an expense in that reporting period.

The Group contributes to the Pension Fund of the Russian Federation, a defined contribution plan. The Group’s only obligation is to pay contributions to the Fund as they fall due. As such, the Group has no legal obligation to pay and does not guarantee any future benefits to its Russian employees. The Group’s contributions to the Russian Federation State Pension Fund are recorded as an expense over the reporting period based on the related employee service rendered. In 2014 and 2013 contributions for each employee vary from 10% to 22%, depending on the annual gross remuneration of each employee.

ConTRaCTUal CoMMiTMenTSContractual commitments comprise legally binding trading or purchase agreements with stated amount, price and date or dates in the future. The Group discloses significant contractual commitments in the notes to the consolidated financial statements.

ConTingenCieSContingent liabilities are not recognized in the consolidated financial statements unless they arise as a result of a business combination. Contingencies attributed to specific events are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed when an inflow of economic benefits is probable.

aDoPTion of neW anD ReviSeD STanDaRDS anD inTeRPReTaTionS The Group has adopted all of the new and revised International Financial Reporting Standards and Interpretations that are mandatory for adoption in annual periods beginning on 1 January 2014.

The adoption did not have a material impact on the Group’s consolidated financial statements.


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3. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (‘IFRS’) IN ISSUE BUT NOT YET EFFECTIVE

At the date of authorization of these consolidated financial statements, the following Standards and Interpretations were in issue but not yet effective, and have not been early adopted in preparation of these financial statements:

Standards and interpretationseffective for annual periods

beginning on or after

Amendments to IAS 1 Presentation of Financial Statements – Disclosure Initiatives 1 January 2016Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets – Clarification of Acceptable Methods of Depreciation and Amortization 1 January 2016Amendments to IAS 19 Employee Benefits – Defined Benefit Plans: Employee Contributions 1 July 2014Amendments to IAS 27 Separate Financial Statements (2011) – Equity Method in Separate Financial Statements 1 January 2016IFRS 9 Financial Instruments 1 January 2018Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates (2011) – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 1 January 2016Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments in Associates (2011): Investment Entities – Exemption from the consolidation of particular subsidiaries 1 January 2016Amendments to IFRS 11 Joint Arrangements – Accounting for Acquisitions of Interests in Joint Operations 1 January 2016IFRS 14 Regulatory Deferral Accounts 1 January 2016IFRS 15 Revenue from Contracts with Customers 1 January 2017Amendments to IFRSs – Annual Improvements to IFRSs 2010-2012 Cycle 1 July 2014Amendments to IFRSs – Annual Improvements to IFRSs 2011-2013 Cycle 1 July 2014Amendments to IFRSs – Annual Improvements to IFRSs 2012-2014 Cycle 1 January 2016

The Group is currently assessing the impact of adoption of these standards in the preparation of the consolidated financial statements and plans to adopt them when they become effective or earlier, where permitted. This will ensure a more reliable presentation of the consolidated financial statements. The new and revised standards and interpretations which are likely to have an effect on the consolidated financial statements of the Group are described below:

Amendments to IAS 1 Presentation of Financial Statements – Disclosure Initiatives

Amendments to IAS 1 Presentation of Financial Statements are designed to help preparers using judgment when preparing financial statements by introducing the following clarifications:

• Data may not be concealed by aggregation or immaterial disclosures; materiality applies to all parts of financial statements and even in those cases when the standards require specific disclosures materiality criteria do apply;

• The list of items to be presented in the financial statements may be disaggregated or aggregated, respectively; additional requirement with respect to interim results in the financial statements and clarification that the entity’s share of other comprehensive income of associates and joint ventures accounted for by the equity method should be presented on a aggregate basis as a single line irrespective of whether it will be subsequently reclassified to profit or loss;

• Additional examples of possible methods of streamlining notes to clarify that the order of notes should ensure understandable and comparable information and that notes should not be presented in the manner specified in paragraph 114 of IAS 1.

Amendments to IAS 19 Employee Benefits – Defined Benefit Plans: Employee Contributions

The amendments to IAS 19 Employee Benefits clarify the recognition requirements related to contributions from employees or third parties to defined benefit plans depending on whether such contributions are linked to periods of service.

If the amount of the contributions is independent of the number of years of service, such contributions may be either recognized as a reduction in the service cost in the period in which the related service is rendered, or attributed to periods of service using the method of expected levels of pension payments; if contributions are linked to service, they are required to be attributed to periods of service.

The management of the Group does not anticipate that the application of these amendments to

IAS 19 will have a material impact on the consolidated financial statements.

IFRS 9 Financial Instruments

Issued in November 2009, IFRS 9 introduces 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. In July 2014 IASB issued a finalized version of IFRS 9. The principal changes cover (a) impairment requirements for financial assets and (b) limited amendments to the classification and measurement requirements for financial assets by introducing a ‘fair value through other comprehensive income’ category for certain debt instruments.

Amendments to IFRS 11 Joint Arrangements – Accounting for Acquisitions of Interests in Joint Operations

The amendments to IFRS 11 provide guidance on how to account for the acquisition of a joint operation that constitutes a business. Specifically, the amendments state that the relevant principles on accounting for business combinations in IFRS 3 and other standards (e.g. IAS 36 Impairment of Assets with respect to impairment testing of the cash-generating unit to which goodwill was allocated on acquisition of a joint operation) should be applied. The same requirements should be applied to the formation of a joint operation if and only if an existing business is contributed to the joint operation by one of the parties that participate in the joint operation.

A joint operator is also required to disclose the relevant information required by IFRS 3 and other standards for business combinations.


Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets – Clarification of Acceptable Methods of Depreciation and Amortization

The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortization of an intangible asset. This presumption can only be rebutted:

(a) When the intangible asset is expressed as a measure of revenue, or

(b) When it can be demonstrated that revenue and consumption of the economic benefits of the intangible asset are highly correlated.

The amendments apply prospectively for annual periods beginning on or after 1 January 2016. Currently, the Group uses straight-line method for depreciation and amortization of its property, plant and equipment and intangible assets, respectively. The management of the Group believes that the straight-line method most closely reflects the pattern of consumption of the future economic benefits embodied in the asset. The management of the Group does not anticipate that the application of these amendments to IAS 16 and IAS 38 will have a significant effect on the consolidated financial statements.

IFRS 15 Revenue from Contracts with Customers

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 replace all existing revenue standards, including IAS 18 Revenue, IAS 11 Construction contracts and respective interpretations.

The core principle of IFRS 15 is that an entity should recognize 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:

• Step 1: Identify the contract with the customer;

• Step 2: Identify the performance obligations in the contract;

• Step 3: Determine the transaction price;

• Step 4: Allocate the transaction price to the performance obligations in the contracts;

• Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

Under IFRS 15, an entity recognizes 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 with respect to accounting for various types of transactions. New disclosures about revenue are also introduced.

Annual Improvements to IFRSs 2010–2012 Cycle

Amendments were introduced to the following standards:

• The amendments to IFRS 2 change the definition of ‘vesting condition’ and ‘market condition’ and add definitions for ‘performance condition’ and ‘service condition’.

• The amendments to IFRS 8 require an entity to disclose the judgments made by management in applying the aggregation criteria to operating segments and clarify that a reconciliation of the total of the reportable segments’ assets should only be provided if the segment assets are regularly recognized in the financial statements.

• The amendments to IFRS 13 clarify that the issue of IFRS 13 and consequential amendments to IAS 39 and IFRS 9 did not remove the ability to measure short-term receivables and payables without discounting (with only application guidance being amended).

• The amendments to IAS 16 and IAS 38 clarify that the gross carrying amount of property, plant and equipment is adjusted in a manner consistent with the revaluation of the carrying amount of the asset.

• The amendments to IAS 24 clarify the disclosure procedure applied to payments to entities providing management services.

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3. NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (‘IFRS’) IN ISSUE BUT NOT YET EFFECTIVE (CONTINUED)


Amendments were introduced to the following standards: The amendments to IFRS 1 clarify what versions of IFRS may be used by first-time adopters of IFRS (with only application guidance being amended).

• The amendments to IFRS 3 clarify that the standard does not apply to the accounting for the formation of all types of joint arrangement in the financial statements of the joint arrangement itself.

• The amendments to IFRS 13 clarify the scope of portfolio exception in paragraph 52.

• The amendments to IAS 40 clarify the correlations between IAS 40 and IFRS 3 when the property meets the definition of investment property or owner-occupied property.


Amendments were introduced to the following standards:

• The amendments to IFRS 5 provide additional guidance for reclassification of an asset from held for sale to held for distribution to owners or vice versa, and for derecognition of an asset held for distribution to owners.

• The amendments to IFRS 7 provide additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset and to clarify disclosures in the condensed interim financial statements.

• The amendments to IAS 19 clarify that the high quality corporate bonds used to estimate the discount rate for post-employment benefits should be issued in the same currency as the benefits to be paid.

• The amendments to IAS 34 clarify the meaning of ‘elsewhere within the interim financial report’ and require cross-references.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES

In the application of the Group’s accounting policies, which are described in Note 2, management is required to make judgments, 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 key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

CoMPlianCe WiTh Tax legiSlaTionRussian tax, currency and customs legislation is subject to varying interpretations and changes occurring frequently. Management’s interpretation of such legislation in applying it to business transactions of the Group may be challenged by the relevant regional and federal authorities enabled by law to impose fines and penalties. It is possible that the tax treatment of transactions that have not been challenged in the past may be challenged. Fiscal periods remain open to review by the tax authorities in respect of taxes for the three calendar years preceding the year of tax review. Under certain circumstances reviews may cover longer periods. While the Group believes it has provided adequately for all tax liabilities based on its understanding of the tax legislation, the above facts may create additional financial risks for the Group (see Note 26).

RelaTeD PaRTy TRanSaCTionSIn the normal course of business the Group enters into transactions with its related parties. Identification of related parties calls inevitably for the application of management’s professional judgment. The related party disclosures in these consolidated financial statements, in the opinion of the management, provide all information necessary to attract attention to the potential effect of the Group’s transactions and outstanding mutual payment balances with related parties on its financial position and financial performance (Note 25).

IAS 39 requires initial recognition of financial instruments based on their fair values. Judgment is applied in determining if transactions are priced at market or non-market interest rates, where there is no active market for such transactions. The basis for judgment is pricing for similar types of transactions with unrelated parties and effective interest rate analysis. Terms and conditions of related party balances are disclosed in Note 25.

USefUl liveS of PRoPeRTy, PlanT anD eqUiPMenTThe Group assesses the remaining useful lives of items of property, plant and equipment at least annually at the end of each reporting period. If expectations differ from previous estimates, the difference is recognized as a change in accounting estimates, in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. These estimates may have a material impact on the amount of the carrying values of property, plant and equipment and on depreciation expense for the period.

iMPaiRMenT of PRoPeRTy, PlanT anD eqUiPMenTThe Group reviews at each reporting date the carrying amounts of its property, plant and equipment to determine whether there is any indication that assets are impaired. This process involves judgment in evaluating the cause for any possible reduction in value, including a number of factors such as changes in current competitive conditions, expectations of growth in the industry, increased cost of capital, changes in the future availability of financing, technological obsolescence, discontinuance of service, current replacement costs and other changes in circumstances that indicate impairment may exist.


Whenever such indications exist management makes an estimate of the asset’s recoverable amount to ensure that it is not less than its carrying value. If the asset’s fair value is not readily determinable or is less than asset’s carrying value plus costs to sell, management necessarily applies its judgment in determining the appropriate cash generating unit to be evaluated, estimating the appropriate discount rate and the timing and value of the relevant cash flows for the value-in-use calculation.

The Group carried out a review of recoverable amount of its property, plant and equipment in the ‘Sales’ segment as part of its impairment review of non-current assets at the reporting date. For this purpose, the recoverable amount of railcars was determined based on value in use calculations. Value in use calculation uses cash flow projections based on actual operating results and business plan approved by management and corresponding discount rate which reflects time value of money and risks associated with the Group’s operations. Key assumptions management used in their value in use calculation are as follows:

• The Group estimated its future cash flows for the period from 2015 to 2019, after which it assumed a constant amount of cash flow in real terms for the remaining average useful life of the existing assets.

• Cash inflow projections are based on the average daily contractual revenue, which is calculated by management as average daily leasing rate for leased rail cars.

• Prices for rail car repairs are expected to remain at a level of prices effective in 2014 in real terms.

• The pre-tax discount rate used in the calculations was equal to 7.4% in real terms. It has been determined with reference to the estimated weighted average cost of capital of the Group.

Values assigned to key assumptions and estimates used to measure the unit’s value-in-use are consistent with external sources of information and historic data for each cash-generating unit. Management believes that the values assigned to the key assumptions and estimates represent the most realistic assessment of future trends.

For the year ended 31 December 2014 an impairment loss of RUB 27,309 thousand was recognized (2013: RUB 1,801,142 thousand).

The above estimates are particularly sensitive to the changes in the following assumptions:

• The increase in discount rate to 10% increases the impairment loss by approximately RUB 270,000 thousand;

• A 5.5% decrease in future planned operating revenues increases the impairment loss by approximately RUB 270,000 thousand.

iMPaiRMenT of gooDWill anD inTangiBle aSSeTS WiTh inDefiniTe USefUl liveSDetermining whether goodwill and intangible assets with indefinite useful lives are impaired requires an estimation of the value in use of the cash-generating units to which goodwill and the intangible assets have been allocated. The value in use calculation requires management to

estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.

The goodwill and intangible assets with indefinite useful lives have been allocated to the Group’s railcar building cash-generating unit, which constitutes the ‘Production’ segment of the Group’s operations.

The recoverable amount was determined based on a value in use calculation which uses cash flow projections based on financial budgets approved by the management covering a five-year period, and a pre-tax RUB discount rate of 16.5% in nominal terms.

Cash flow projections during the forecast period are based on growing gross margins and raw materials price inflation throughout the forecast period. The expected increase in gross margins is based on achievement of the plant full production capacity, putting into operation of the 4th production line as well as planned selling prices increases further to the Group’s penetration into the market in the second half of 2015. The cash flows beyond that five-year period have been extrapolated using a steady 5% per annum growth rate which is the projected long-term average growth rate for the industrial market of the Russian Federation.

The management believes that any reasonably possible change in the key assumptions on which recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit.

5. SEGMENT INFORMATIONFor management purposes the Group is divided into business units on the basis of goods manufactured and services rendered, and incorporates two reportable segments:

• The Production segment is involved in manufacturing and sale of freight railcars with improved technical and economic characteristics and fitted with innovative wheelsets;

• The Sales segment provides operating and finance lease of freight railcars.

The Group’s principal business activities are within the Russian Federation. Other activities of the Group do not constitute a separate reportable segment and are included in the Other category.

Accounting principles of the reportable segments are consistent with the Group accounting policies described in Note 2. The management of the Group assesses performance of operating segments based on profit before tax, finance costs and income, foreign exchange differences, depreciation and amortization and impairment loss (‘EBITDA’). Segment income is used by the chief operating decision maker for the purposes of resource allocation and evaluation of segment results.

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5. SEGMENT INFORMATION (CONTINUED)Segment information for the years ended on the indicated dates is presented as follows:

31 December 2014Production

segmentSales

segment otherTotal

segments

adjustments and

eliminations Consolidated

Revenue 23,166,418 4,379,058 2,876,357 30,421,833 (13,364,344) 17,057,489including inter-segment revenue 11,025,806 646,858 1,732,434 13,405,099 (13,405,099) –Cost of sales, including: (24,292,988) (2,115,677) (3,009,165) (29,417,830) 14,433,300 (14,984,530)– Raw materials (17,153,217) (296,062)– Payroll and social contributions (3,672,928) –– Property tax – (214,784)– Maintenance and repairs – (124,845)– Depreciation and amortization (3,113,561) (1,428,903)– Other (353,282) (51,083)

EBITDA 1,292,502 3,348,689 (632,099) 4,009,092 (437,434) 3,571,658

Finance income 6,416 1,113,153 2,115,108 3,234,677 (2,587,364) 647,313Finance costs (1,943,679) (4,953,708) (2,344,446) (9,241,833) 2,725,696 (6,516,137)Depreciation and amortization (3,113,561) (1,428,903) (67,283) (4,609,747) 1,489,771 (3,119,976)Foreign exchange gain/(loss) 4,604,625Impairment loss (27,309)Loss before income tax (839,826)


segmentSales

segment otherTotal

segments

adjustments and


Revenue 7,103,378 2,689,150 434,230 10,226,758 (7,155,783) 3,070,975including inter-segment revenue 6,893,084 7,384 421,171 7,321,639 (7,321,639) –Cost of sales, including: (10,931,412) (1,127,992) (19,235) (12,078,639) 10,393,954 (1,684,685)– Raw materials (7,301,886) –– Payroll and social contributions (1,831,756) –– Property tax – (224,082)– Maintenance and repairs – (24,300)– Depreciation and amortization (1,419,070) (855,469)– Other (378,700) (24,141)

EBITDA (2,940,571) 2,268,820 (152,365) (824,116) 2,227,367, 1,403,251

Finance income 7,707 164,559 2,161 174,427 (20,251) 154,176Finance costs (935,025) (1,620,394) (135,535) (2,690,954) (95,598) (2,786,552)Depreciation and amortization (1,419,070) (856,042) – (2,275,112) 1,358,654 (916,458)Foreign exchange gain/(loss) (1,234,970)Impairment loss (1,801,142)Loss before income tax (5,181,695)



segmentSales

segment otherTotal

segments

adjustments and


Revenue 1,997,937 2,171,710 221,882 4,391,529 (2,225,000) 2,166,529including inter-segment revenue 1,879,000 134,500 221,822 2,235,382 (2,235,382) –Cost of sales, including: (5,248,198) (726,577) – (5,974,775) 5,068,887 (905,888)– Raw materials (3,565,797) –– Payroll and social contributions (1,045,704) –– Property tax – (185,616)– Maintenance and repairs – (11,006)– Depreciation and amortization (479,164) (524,669)– Other (157,533) (5,286)

EBITDA (3,370,829) 1,773,148 (187,178) (1,784,859) 2,609,754 824,895

Finance income 4,227 91,751 18,080 114,058 (25,785) 88,273Finance costs (898,685) (1,129,647) (15,631) (2,043,963) (56,960) (2,100,923)Depreciation and amortization (526,766) (525,322) – (1,052,088) 383,600 (668,488)Foreign exchange gain/(loss) 238,079Impairment loss (2,990,254)Loss before income tax (4,608,418)

Breakdown of the Group’s revenue by types of goods and services is presented in Note 19. In 2014, the key external customer of the Production segment was NitroChemProm LLC which accounted for 100% of the segment’s external sales. In 2014, the key external customer of the Sales segment was SUEK OJSC which accounted for approximately 35% of the segment’s external sales.

Segment assets and liabilities are not disclosed, as this information is not provided to the chief operating decision maker.

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6. ACQUISITION OF SPRINGS INDUSTRIAL TECHNOLOGY CENTER LLC AND HEAVY ENGINEERING WORKS JSC

heavy engineeRing WoRkS JSCIn March 2014, the Group obtained control over a heavy engineering plant, Heavy Engineering Works JSC, by acquiring 100% interest in the company’s share capital for RUB 44,082 thousand from companies under common control with the Group.

At the time of acquisition Heavy Engineering Works JSC was not involved in production activities and constituted a property complex leased to TVSZ CJSC. The acquisition was recognized as a transaction with an entity under common control at the carrying amount in equity in the current period. The Group made no retrospective adjustments to prior periods in connection with the acquisition of a company under common control, as the impact of this transaction on prior periods is not material.

Carrying values of assets and liabilities of Heavy Engineering Works JSC at the acquisition date are presented below:

value as recognized

on acquisition

Property, plant and equipment 333,474Deferred tax assets 1,835Inventories 983Trade and other accounts receivable 82,727VAT receivable 14,988Cash and cash equivalents 18

Total assets 434,025

Long-term borrowings 331,018Deferred tax liabilities 802Trade and other payables 22,597

Total liabilities 354,417Net assets 79,608Total purchase consideration 44,082Effect of the acquisition of company under common control (35,526)


SPRingS inDUSTRial TeChnology CenTeR llCIn December 2013 the Group obtained control over Springs Industrial Technology Center LLC, a springs manufacturing plant, by acquiring 68.3% of its share capital for a cash consideration of RUB 766,491 thousand.

In April 2014 the Group acquired the remaining 31.7% of its share capital for a cash consideration of RUB 70,000 thousand.

In 2014 the Group obtained an independent appraiser’s valuation report on the fair value of the assets and liabilities acquired. The purchase price allocation was as follows:

fair value asrecognized

on acquisition

Intangible assets 991,179Property, plant and equipment 449,668Prepayments for non-current assets 91,351Deferred tax assets 78,256Inventories 92,427Cash and cash equivalents 2,781Income tax receivable 5,499

Total assets 1,711,161

Long-term borrowings 507,663Deferred tax liabilities 150,587Short-term borrowings 157,820Trade and other payables 49,879

Total liabilities 865,949

Net assets at fair value 845,212Non-controlling interest (78,721)Net assets acquired 766,491Total purchase consideration 766,491Cash and cash equivalents of subsidiaries acquired (2,781)Consideration remained unpaid as at 31 December 2013 (377,698)Net outflow of cash and cash equivalents on the acquisition date 386,012

The non-controlling interest was measured at its acquisition-date fair value.

The subsidiary was acquired at the end of 2013 and, therefore, didn’t contribute any revenue or profit for the year ended 31 December 2013. In 2013 most of sales of Springs Industrial Technology Center LLC were done to subsidiaries of the Group and, therefore, if the acquisition had occurred on 1 January 2013, the Group’s consolidated revenue for the year ended 31 December 2013 would not change significantly.

If the acquisition had occurred on 1 January 2013, consolidated profit for the year ended 31 December 2013 would have decreased by approximately RUB 86 million.

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7. INTANGIBLE ASSETSMovements in the carrying amount of intangible assets were as follows:

goodwill

intangible assets at the development

stageknow-how

and patents Software Total

Cost

As at 1 January 2012 107,535 505,672 574,121 74,727 1,262,055Additions – 414,666 – 56,726 471,392Transfers – (464,125) 464,125 – –Other movements – – (39,258) – (39,258)As at 31 December 2012 107,535 456,213, 998,988 131,453 1,694,189

Additions – 68,635 221,299 45,808 335,742Acquisition of companies – – 946,240 44,938 991,178Transfers – (430,521) 430,521 – –Correction of prior periods – (9,236) (64,587) – (73,823)As at 31 December 2013 107,535 85,091 2,532,461 222,199 2,947,286

Additions – 188,895 25,905 34,876 249,676Transfers – (44,702) 44,702 – –As at 31 December 2014 107,535 229,284 2,603,068 257,075 3,196,962

Accumulated amortizationAs at 1 January 2012 – – 25,403 – 25,403

Amortization charge – – 68,327 – 68,327As at 31 December 2012 – – 93,730 – 93,730

Amortization charge – – 69,458 15,055 84,513As at 31 December 2013 – – 163,188 15,055 178,243

Amortization charge – – 159,219 20,716 179,934As at 31 December 2014 – – 322,407 35,771 358,177

Net book value

As at 31 December 2012 107,535 456,213 905,258 131,453 1,600,459

As at 31 December 2013 107,535 85,091 2,369,274 207,144 2,769,043

As at 31 December 2014 107,535 229,284 2,280,661 221,304 2,838,785

The Group is engaged in research and development of freight rolling stock technologies. Intangible assets at the development stage include capitalized expenses for development of casting and railway car construction technologies for future use in production of the new generation railway cars in the town of Tikhvin. During 2014, 2013 and 2012 the Group registered patents with regards to exclusive rights to utility models and to know-hows by means of technical specifications. The registered intangible assets are transferred from intangible assets under development to know-how and patents, and are amortized over their useful economic lives ranging from 51 to 174 months.

Production technologies development costs are considered to have indefinite useful lives and are carried at cost less accumulated impairment losses. The total amount of know-hows and patents with indefinite useful lives was RUB 981,712 thousand, RUB 981,712 thousand and RUB 119,820 thousand as of 31 December 2014, 2013 and 2012 respectively.

Software mainly relates to the ERP system implemented at TVSZ and amortized over a period of 120 months. Intangible assets pledged as collateral are disclosed in Note 15.

8. PROPERTY, PLANT AND EQUIPMENTMovements in the carrying amount of property, plant and equipment were as follows:

Railcars

equipment and motor

vehicles

Production plant and buildings

office equipment

and furnitureConstruction in progress (i) Total

Cost

As at 1 January 2012 3,772,514 642,924 5,304,533 21,829 22,645,932 32,387,732

Additions 6,093,791 734,106 2,174,800 2,112 6,433,359 15,438,168Transfers 2,846,098 4,140,810 5,477,716 24,470 (12,489,094) –Disposals – (29,414) – (31) (6,996) (36,441)As at 31 December 2012 12,712,403 5,488,426 12,957,049 48,380 16,583,201 47,789,459

Additions 1,464,823 1,001,098 7,644 7,779 14,112,469 16,593,813Acquisition of companies – 86,123 22,078 5,466 259,746 373,413Disposals (1,986) (4,178) – (2,197) (36,397) (44,757)Transfers 10,573,189 11,211,282 661,238 69,674 (23,552,768) (1,037,385)As at 31 December 2013 24,748,429 17,782,752 13,648,009 129,102 7,366,250 63,674,542

Additions 2,277,130 343,433 153,849 818 24,891,951 27,667,181Acquisition of companies – – 231,409 – 102,065 333,474Transfers 22,581,957 2,269,467 252,139 69,836 (25,172,590) 811Disposals – (13,603) (11,217) (2,906) (4,187) (31,914)Transfer to goods for sale (10,165,534) – – – – (10,165,534)As at 31 December 2014 39,441,983 20,382,049 14,274,189 196,851 7,183,489 81,478,560

Accumulated depreciation

As at 1 January 2012 65,841 39,118 17,643 9,305 – 131,907

Depreciation charge 536,254 214,293 239,603 7,711 (50,584) 947,277Disposals – (10,167) – (31) – (10,199)Impairment losses (ii) 1,633,791 – – – 1,356,463 2,990,254As at 31 December 2012 2,235,886 243,244 257,246 16,985 1,305,879 4,059,239

Depreciation charge 1,053,196 930,133 400,322 16,951 – 2,400,603Disposals (173) (1,195) – (920) – (2,288)Impairment losses (ii) 3,157,611 – – – (1,356,468) 1,801,142As at 31 December 2013 6,446,520 1,172,182 657,568 33,016 (50,589) 8,258,697

Depreciation charge 1,652,420 2,713,554 434,818 50,751 – 4,851,543Disposals – (6,700) (9,036) (2,007) – (17,743)Transfer to goods for sale (124,589) – – – – (124,589)Impairment losses (ii) 27,309 – – – – 27,309As at 31 December 2014 8,001,659 3,879,036 1,083,350 81,760 (50,589) 12,995,216

Net book value

As at 31 December 2012 10,476,517 5,245,182 12,699,803 31,395 15,277,322 43,730,219

As at 31 December 2013 18,301,910 16,610,569 12,990,441 96,086 7,416,839 55,415,845

As at 31 December 2014 31,440,324 16,503,013 13,190,840 115,091 7,234,078 68,483,344

(i) Construction in progress includes primarily expenses for the construction of the railway car manufacturing plant and equipment being prepared for installation, as well as railcars and components being assembled at TVSZ.

(ii) In 2014, 2013 and 2012 the Group carried out a review of the recoverable amount of railway cars and construction in progress. The review led to the recognition of an impairment loss of RUB 27,309 thousand, RUB 1,801,142 thousand and RUB 2,990,254 thousand respectively, which has been recognized in profit or loss (Note 4).


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8. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)Information on capitalized borrowing costs and interest rates used for calculation is presented in Note 15. Information on property, plant and equipment pledged as collateral is also disclosed in Note 15.

9. INVESTMENTS IN A JOINT VENTUREDuring 2012 the Company entered into a joint venture agreement with Mitsui Corporation and acquired a 50% share in IMRCR Limited (Cyprus). The joint venture started its operation in 2013. The joint venture’s primary business is operating lease of railcars to transportation and manufacturing companies within Russia.

Summarized financial information in respect of the Group’s joint venture and its reconciliation to the carrying amount of the interest in the joint venture are set out below. The summarized financial information below represents amounts shown in the joint venture’s consolidated financial statements prepared in accordance with IFRSs adjusted by the Group for equity accounting purposes.

31 December 2014

31 December 2013

31 December2012

Cash and cash equivalents 215,928 87,812 611,554Other current assets 17,313 216,275 19,499Non-current assets 1,520,552 1,302,098 108,734Short-term borrowings (1,407,248) (888,467) –Other current liabilities (28,869) (100,609) (132,333)Non-current liabilities – (33) –

Net assets of the joint venture 317,677 617,076 607,454

Group’s ownership interest in the joint venture 50% 50% 50%

Carrying amount of the Group’s interest in the joint venture 158,838 308,538 303,727

2014 2013 2012

Revenue 273,486 60,766 5,099Net loss and total comprehensive loss for the year (299,400) 9,622 (5,628)

The above loss for the year includes the following:

2014 2013 2012

Depreciation and amortization (102,694) (28,090) (2,612)Interest income 500 1,497 –Interest expense (77,381) (10,160) –Income tax expense 70,312 (1,433) 1,306


10. TRADE AND OTHER ACCOUNTS RECEIVABLE Trade and other accounts receivable comprised the following:

31 December 2014

31 December 2013

31 December2012

Accounts receivable on sale of railcars to NitroChemProm LLC 6,094,610, – –Trade accounts receivable 1,432,920 698,899 332,308Other accounts receivable 81,002 38,497 22,901Receivables from shareholders on contributions to the additional paid–in capital – 377,724 –Provision for doubtful accounts receivable – (36,886) (16,216)

,Total trade and other accounts receivable 7,608,532 1,078,235 338,992

Management has determined the provision for impairment of receivables based on assessment of customers’ credit quality, changes in industry trends, subsequent receipts and historical experience. The status of trade receivables that are past due but not impaired at the reporting date is as follows:

31 December 2014

31 December 2013

31 December2012

Past due 31 – 90 days 199,445 372,818 17,677Past due 90 – 180 days 144,711 7,331 5,285Past due 181 – 365 days 194,344 8,444 2,734Past due over 365 days 443,328 1,015 –

Total 981,828 389,608 25,695

Movements in the provision for doubtful accounts receivable during the years ended 31 December 2014, 2013 and 2012 were as follows:

2014 2013 2012

Balance, beginning of the year 36,886 16,216 152,255Impairment losses/(gain from reversal of provision) (36,886) 20,670 16,230Amounts written off during the year as uncollectible – – (152,269)

Balance at the end of the year – 36,886 16,216

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11. PREPAYMENTS TO SUPPLIERS AND OTHER ASSETS Prepayments to suppliers and other assets were as follows:

31 December 2014

31 December 2013

31 December2012

Prepayment to suppliers 353,671 140,052 306,642Prepayment to customs 90,334 48,472 –Prepaid expenses 197,832 178,539 87,565Government grants receivable 35,441 468,846 388,285Taxes receivable 28,096 6,284 6,864

Total prepayments to suppliers and other assets 705,374 842,193 789,356

12. LOANS RECEIVABLELoans receivable were as follows:

Currencyinterest rate,

% 31 December

2014 31 December

201331 December

2012

Loans to related partiesRe Test Cyprus LTD USD 6.4% 104,742 1,739 –Re Test LTD USD 6.4% 2,027 332 –United Wagon Plc RUB 8.73% – 1,425,728 –United Wagon Plc USD 6,4% 168,118 54,723 –United Wagon Plc USD 7% 11,133,877 – –Tikhvin Railway Engineering Test Center RUB 7.50% 26,286 6,877 –Test Center Holding USD 6.4% 24,019 – –Trade House Railway Casted Components USD 6.4% 310,390 69,513 –

Loans to third partiesDoland Business Limited USD 3,5% 5,046,574 – –Doland Business Limited RUB 0.5% 260 – –BLK-Proekt RUB 10% 34,418 – –ZSIPK RUB 9% 31,590 – –NitroChemProm RUB 9% 1,029,553 – –Investros RUB 7% – 26,184 –Investros RUB 6% 2,100 2,100 –Investros USD 5% – 9,331 –Investros RUB 7.5% – 157,173 146,656Investros RUB 8% – 49,159 45,998Prime RUB 7.5% – 479,575 751,143Other 246 1,340

Total loans receivable 17,914,200 2,282,434 945,137

Current 16,255,261 235,313 751,147Non-current 1,658,939 2,047,121 193,990

Total loans receivable 17,914,200 2,282,434 945,137

13. CASH AND CASH EQUIVALENTSCash and cash equivalents comprise:

31 December 2014

31 December 2013

31 December2012

Current accounts in USD 10,599 22,946 161,372Current accounts in RUB 490,467 462,199 120,610Current accounts in Euro 6,505 39 –Deposits with banks 1,879,003 224,700 135,736Cash in transit 21 923 577

Total cash and cash equivalents 2,386,595 710,807 418,295

As at 31 December 2014 the Group placed cash to overnight deposits. The interest rate on these deposits ranges from 7% to 10.64%.

14. SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITALShaRe CaPiTalAs at 31 December 2014, the Company’s issued and registered share capital amounted to RUB 10 thousand, divided into 10,000 ordinary shares with par value of RUB 1 each.

In December 2014 the Company’s shareholder made a decision to issue additional 99,990,000 shares with par value of RUB 1 each. As at 31 December 2014 the Company reported RUB 99,990 thousand as issued but not registered share capital, as the additional issue was officially registered only in 2015.

aDDiTional CaPiTalAs at 31 December 2014 contributions from shareholders recorded as Additional capital amounted to RUB 12,428,965 thousand.

During the year ended 31 December 2013 the Company granted a loan to its immediate shareholder in the amount of RUB 8,000,000 thousand. The loan is not expected to be repaid, and, therefore, the Company recorded it as equity distribution to shareholders.


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15. BORROWINGSAs at 31 December 2014, 2013 and 2012, long-term borrowings comprised the following:

Maturityinterest rate

(at 31 December 2014)31 December

201431 December

201331 December

2012

Secured borrowings, at amortized cost, including:RUB-denominatedSberbank 2021–2023 Fixed 10.2%–11%* 19,699,565 13,103,985 9,100,754Bank Otkritie 2015 Fixed 13.5%–13.9% 9,238,192 5,139,846 1,580,018Gazprombank 2022 Fixed 12.15% 2,290,783 253,889 –ZAO Retsital 2014–2015 Fixed 9% – 20,519 –Khanty-Mansiysk Bank 2015 Fixed 13% 1,515,380 52,732 –Khanty-Mansiysk Bank 2017–2020 Fixed 13.5%–26.1% 1,135,475 – –Rosnano 2016–2017 Fixed 14% 996,954 665,457 –Eurasian Development Bank (EBD) 2015 Fixed 12% 3,010,000 1,669,790 –VEB and EDB 2022 Fixed 11.8% 17,910,686 18,082,990 17,854,379

USD-denominatedEurasian Development Bank (EBD) 2018 Fixed 9.50% – – 2,268,021

EUR-denominatedBank Otkritie 2022 Fixed 8% 5,642,481 3,740,106 3,384,703

Unsecured borrowings, at amortized cost, including:USD-denominatedUWC PLC 2014 Fixed 5.5% – 3,733,072 –UWC PLC 2018 Fixed 6.5% 7,350 6,956 –

Accrued interest – – – – 1,908

Total borrowings 61,446,866 46,469,342 34,189,783,

Less: current portion 16,953,742 11,384,750 2,496,053,

Long-term loans and borrowings 44,493,124 35,084,592 31,693,730,

* Effective from 17 August 2018 the maximum rate – MosPrime 3m+6%.

Under the above borrowing agreements the Group provides the following types of security:

•Property,plantandequipmentintheamountofRUB55,511,460thousand(Note8);

•IntangibleassetsintheamountofRUB757,059thousand(Note7);

•FuturepaymentsunderoperatingleaseagreementsintheamountofRUB28,084,645thousand;

•Sharesinsubsidiaries(CJSCTVSZ(100%),AdvancedFreightCarTechnologyLimited(100%),DeanroadLimited(100%),Raygold Limited; LLC RAIL1520 (100%) and LLC RAIL1520 Service (100%)).

The schedule of long-term debt repayments for the five years ending 31 December 2019 and thereafter is as follows:

Year ended 31 December

2015 16,953,7422016 4,881,8662017 5,438,9482018 5,008,2842019 5,551,248Thereafter 23,612,778Total 61,446,865

CovenanTSUnder the terms of the above borrowing agreements, the Group is required to comply with a number of covenants and restrictions, including maintenance of certain financial ratios and other non-financial conditions. Non-compliance with these covenants may result in negative consequences for the Group, including declaration of default. As at 31 December 2014 the Group complied with these covenants. During 2014 a Group subsidiary breached a Debt to EBITDA covenant contained in one of its debt agreements. The Group obtained a waiver from this covenant from a bank, and subsequently the bank agreed to amend terms of the covenant which allowed the Group to be in compliance with all of its existing covenants as at 31 December 2014.

availaBle CReDiT faCiliTieSAs at 31 December 2014 the Group’s total available unused credit facilities amounted to RUB 3,193,390 thousand and related to the following credit lines:

Maturity interest rate available tillavailable amount

Khanty-Mansiysk Bank 2015 26.9% 02.11.2015 924,677Khanty-Mansiysk Bank 2017 13.5% 22.12.2017 10,744Khanty-Mansiysk Bank 2020 26.1% 25.12.2015 2,257,969Total 3,193,390

16. BONDSIn 2014 the Group issued 15,000,000 bonds (Series BO 01) at par value of RUB 1 thousand on the MISEX. In addition, in December 2013 the Group issued 15,000,000 bonds (Series 01) 10,029,994 of which were placed in the market as at 31 December 2013. As at the end of the reporting period one of the Group’s subsidiaries held bonds for RUB 2,108,300 thousand for a purpose of future resale of these bonds on the market.

The annual coupon rate of the bonds was set at:

• 8.7% for bonds of Series 01 for the first half-year period and Russia CPI + 3% thereafter with interest being paid semi-annually (11.72% in the second half of 2014);

• CBR REPO rate for bonds of Series BO 01 on the 7th day prior to coupon payment + 3.5% with interest being paid semi-annually (12.5% in the second half of 2014).

The Group intends to use net proceeds from the issuance for implementation of the Group’s current capital expenditure program. The bonds are guaranteed by certain entities of the Group.

The carrying value of the bonds as of 31 December 2014 and 2013 was as follows:

Maturityeffective

interest rate31 December

201431 December

2013

Series 01 30.11.2016 10.2% 15,000,000 10,029,994Series BO 01 10.09.2019 12.5% 12,891,700 –

Total 27,891,700 10,029,994

The amount of accrued interest is RUB 598,961 thousand, and has been included as the short-term portion of the bonds in the consolidated statement of financial position.


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17. TRADE AND OTHER PAYABLESTrade and other payables comprised the following:

31 December 2014

31 December 2013

31 December2012

Payables for property, plant and equipment 5,842,041 4,157,738 1,693,126Trade payables 515,535 – 577Payables for acquisition of subsidiaries – 377,691 –Other payables – – 66,759

Total trade and other payables 6,357,576 4,535,429 1,760,462

18. ADVANCES RECEIVED AND OTHER CURRENT LIABILITIES Advances received and other current liabilities comprised the following:

31 December 2014

31 December 2013

31 December2012

Advances received from customers 381,842 141,947 78,878Taxes payable 595,715 158,471 119,729Provisions and accrued expenses 418,014 256,843 116,115

Total advances received and other current liabilities 1,395,571 557,261 314,722

19. REVENUERevenue comprised the following:

2014 2013 2012

Rail-based cargo transportation services 1,198,990 – –Operating lease of railway cars 3,473,472 2,722,463 2,037,276Sales of goods (railcars) 12,224,768 228,605 110,007Other services 160,259 119,907 19,246

Total revenue 17,057,489 3,070,975 2,166,529

20. COST OF SALESCost of sales comprised the following:

2014 2013 2012

Raw materials used in production 8,744,580 289,498 127,450Depreciation and amortization 3,087,284 898,241 548,743Payroll and social contributions 1,861,439 45,320 14,427Freight, transportation and maintenance service 804,051 24,299 11,007Property tax 214,819 224,083 185,625Insurance 8,715 4,491 3,762Other 263,642 198,753 14,874 Total cost of sales 14,984,530 1,684,685 905,888

21. SELLING, GENERAL AND ADMINISTRATIVE EXPENSESSelling, general and administrative expenses comprised the following:

2014 2013 2012

Payroll and social contributions 517,181 271,913 216,002Information, consulting and audit services 278,773 197,650 259,528Operating lease expense 201,494 85,544 55,854Travel expenses 95,676 32,347 9,478Reserve for guarantee repairs 83,953 – –Loss on sale of inventories 81,203 – –Other staff costs 71,762 21,853 81,007Advertising expenses 70,640 26,880 17,132Depreciation and amortization 32,692 18,217 119,703Production start-up expenses – 16,020 184,475Other 211,274 137,275 89,448

Total selling, general and administrative expenses 1,644,648 807,699 1,032,627

22. FINANCE INCOMEFinance income comprised the following:

2014 2013 2012

Interest income from financial assets 633,796 140,736 76,302Interest income on cash balances 13,517 13,440 11,971

Total finance income 647,313 154,176 88,273


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23. FINANCE COSTSFinance costs comprised the following:

2014 2013 2012

Interest expense on borrowings 7,962,572 4,161,115 3,481,359Bank commissions 257,472 198,453 220,076Government grants (1,448,814) (1,193,599) (1,353,882)

Less: amounts included in the cost of qualified assets: Capitalized interest expense (348,499) (711,835) (1,353,882) Capitalized grants 93,406 332,418 1,107,252

Total finance costs 6,516,137 2,786,552 2,100,923

The Group receives subsidies from the Ministry of Industry and Trade of the Russian Federation, granted within the state-run program on partial compensation of the interest payable on bank loans used for modernization of the equipment to the extent that such equipment is compliant with certain requirements. From 2014 onwards the Group also receives subsidies for partial compensation of the interest payable on bank loans used for acquisition of innovative railcars.

24. INCOME TAXIncome tax benefit/(expense) recorded in the statement of profit or loss and other comprehensive income comprises the following:

2014 2013 2012

Current income tax expense (70,427) – (3,979)Deferred income tax benefit/(expense) 1,459,573 (531,060) 95,113

Income tax benefit/(expense) for the year 1,389,146 (531,060) 91,134

As at 31 December 2014, the income tax rates applicable to the entities of the Group were as follows:

• Russian companies – 20%

• Cyprus companies – 10%

A reconciliation of the expected and actual tax charge is presented below:

2014 2013 2012

Loss before income tax (839,826) (5,181,695) (4,608,418)

Theoretical tax credit at statutory tax rate of 20% 167,965 1,036,339 921,684Tax effect of items which are not deductible or assessable for taxation purposes: Unrecognized tax losses for the year (139,707) (1,561,539) (794,644) Exclusion of foreign exchange differences from taxable profit of foreign companies 1,563,176 – – Effect of different income tax rates applicable to foreign companies (109,621) 21,402 (16,691) Share of loss of joint venture (31,444) – – Other items (61,223) (27,262) (19,215)

Income tax benefit/(expense) 1,389,146 (531,060) 91,134

Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes.

Deferred tax assets/(liabilities) as at 31 December 2014, 2013 and 2012 are presented as follows:

2014 2013 2012

Tax losses carried forward 5,253,892 3,332,062 1,520,063Less: valuation allowance (3,004,461) (2,864,754) (1,285,737)Accounts receivable (11,234) (96,518) 138,014Accruals 8,797 25,594 16,037Property, plant and equipment (1,244,491) (857,505) (335,679)Loan commission (120,970) (159,849) (168,326)Intangible assets (271,725) (211,922) (84,740)Other 41,763 23,856 13,940

Net deferred tax assets/(liabilities) 651,571 (809,036) (186,428)

The movements in deferred tax during the years ended 31 December 2014, 2013 and 2012 were as follows:

2014 2013 2012

Deferred tax at the beginning of the year (809,036) (186,428) (281,541)Deferred tax benefit 1,459,573 (531,060) 95,113Deferred tax liability acquired through business combination 1,034 (72,331) –Other – (19,217) –

Deferred tax at the end of the year 651,571 (809,036) (186,428)

The following amounts, determined after appropriate offsetting, are presented in the consolidated statement of financial position as of 31 December 2014, 2013 and 2012:

2014 2013 2012

Deferred tax asset 1,852,555 – 607Deferred tax liability (1,200,984) (809,036) (187,035)

Net deferred tax assets/(liabilities) 651,571 (809,036) (186,428)

As of 31 December 2014 the Group has unrecognized potential deferred tax assets in respect of unused tax loss carry forwards of RUB 3,004,461 thousand. Tax loss carry forward period expires in 10 years after the year the loss is incurred (major losses were incurred in 2013 and 2012).


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25. RELATED PARTY TRANSACTIONSParties are generally considered to be related if one party has the ability to control the other party or can exercise significant influence over the other party in making financial or operational decisions, as defined by IAS 24 Related Party Disclosures. In considering each possible related party relationship, attention is directed to the substance of the relationship not merely the legal form. Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties.

The Group, in the ordinary course of business, enters into various transactions with related parties, such as sale and purchase of railcars spare parts or financing and investing transactions. In 2012 one of the Group’s lenders was a related party to the Group (entity under common control), in 2013 ultimate shareholders significantly decreased their stake in the bank ceasing control or significant influence over the bank.

The nature of the related party relationships for those related parties, with whom the Group entered into significant transactions or had significant balances outstanding at 31 December 2014 are the parent, entities under common control with the Group and joint venture.

As of 31 December 2014, 2013 and 2012 the Group had the following balances with its related parties:

31 December 2014

31 December 2013

31 December2012

Cash and cash equivalentsEntities under common control – – 236,543

Trade and other accounts receivableEntities under common control 668,781 434,677 223,422

Prepayments for property, plant and equipmentEntities under common control 103,868 38,719 79,333

Loans receivableParent 11,301,995 1,480,465 –Entities under common control 467,718 78,462 –

PrepaymentsEntities under common control 11,136 9,819 3,371

Total assets 12,553,498 2,042,142 542,069

BorrowingsParent 7,349 3,739,971 –

Trade and other payablesParent 189 – –Entities under common control 748,660 736,440 417,716

Advances receivedEntities under common control – – 29,553

Total liabilities 756,198 4,476,411 447,268

For the years ended 31 December 2014, 2013 and 2012 the Group’s transactions with its related parties were as follows:

2014 2013 2012

Sales of railcars and inventoriesJoint venture – 176,215 129,844Entities under common control 209,053 – –

Sales of electric powerEntities under common control 47,474 – –

Income from consulting activitiesJoint venture 21,019 – –Entities under common control 155 – 5,721

Purchase of inventories for railcar productionEntities under common control 471,467 1,243,546 232,473

Operating lease expensesEntities under common control 20,268 64,397 4,104

Cost of sales – otherEntities under common control 83,495 – –

Freight, transportation and maintenance serviceEntities under common control 89,183 – –

Interest incomeParent 534,542 25,827 –Entities under common control 2,592 – –

Interest expenseParent 323,380 154,328 –Entities under common control – 4,108 347,060

Foreign exchange gainParent 6,188,250 – –

CoMPenSaTion To key ManageMenT PeRSonnel Compensation to key management personnel for their services in full or part time executive management positions is made up of a contractual salary and a performance bonus depending on operating results. The total amount of the Groups’ key management personnel compensation accrued for the year ended 31 December 2014 equaled RUB 102,885 thousand (2013: RUB 38,560 thousand), including RUB 13,255 thousand of social contribution payments (2013: RUB 3,949 thousand).


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26. COMMITMENTS AND CONTINGENCIESCaPiTal exPenDiTURe CoMMiTMenTS As of 31 December 2014 the Group has contractual capital expenditure commitments in respect of property, plant and equipment totaling RUB 1,036,789 thousand (31 December 2013: RUB 2,688,246 thousand).

oPeRaTing leaSeSThe group as a lessorOperating leases relate to the railcars owned by the Group with lease terms of between 5 to 10 years, with an option to extend at the discretion of the lessee. All operating lease contracts contain market review clauses in the event of changes in market conditions. The lease contracts do not contain step up rent increases during the lease period. The lessee does not have an option to purchase the railcar at the expiry of the lease period.

Non-cancellable operating lease receivables are presented as follows:

31 December 2014

31 December 2013

31 December2012

Less than 1 year 3,550,120 2,653,847 2,307,748Later than 1 year and not longer than 5 years 10,654,131 8,977,063 7,712,692Over 5 years 3,479,508 4,205,048 2,224,071

17,683,759 15,835,958 12,244,511

The group as a lessee As at 31 December 2014 the Company leases four land plots (31 December 2013: three) classified as operating leases:

1. 503,476 sq. m. located at Promploschadka, 5, Town of Tikhvin, Leningradskaya oblast, from the Tikhvin municipal authority under a lease agreement that runs from 22 July 2008 until 20 January 2053;

2. 21,845 sq. m. located at Promploschadka, 2, Town of Tikhvin, Leningradskaya oblast, from SZIPK CJSC under a lease agreement that runs from 1 July 2014 until 31 May 2015; and

3. 2,487 sq. m. located at Promploschadka, 10, Town of Tikhvin, Leningradskaya oblast, from the Tikhvin municipal authority under a lease agreement that runs from 6 June 2012 until 20 June 2057; and

4. 15,421 sq. m. located at Promploschadka, 2, Town of Tikhvin, Leningradskaya oblast, from the Tikhvin municipal authority under a lease agreement that runs from 3 October 2008 until 3 October 2063.

The payment obligations under these land lease agreements are listed below:

31 December 2014

31 December 2013

31 December2012

Within 1 year 948 67,488 1,701From 1 to 5 years 3,793 6,808 6,743Over 5 years 32,540 39,373 40,821

Total 37,281 113,669 49,265

oPeRaTing enviRonMenT 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 may change rapidly and may be subject to arbitrary interpretations. The future economic direction of the Russian Federation is largely dependent upon fiscal and monetary measures undertaken by the government, together with legal, regulatory, and political developments.

Because Russia produces and exports large volumes of oil and gas, the country’s economy is particularly sensitive to the prices of oil and gas on the world market. During 2014 energy prices dropped significantly. Management is unable to estimate reliably further price movements and the impact that they may have on the Group’s financial position.

Starting from March 2014, the USA and the EU imposed sanctions on a number of Russian officials, businessmen, and organizations. International rating agencies downgraded the Russian Federation’s long-term foreign currency sovereign rating. In December 2014, the Russian Central Bank raised its key policy rate significantly, which caused a considerable growth in lending rates in the domestic market. The Ruble devalued significantly against other currencies. These developments may restrict access to international capital and export markets for Russian businesses, which might provoke capital flight, weakening of the Ruble, and other negative economic consequences.

The impact of these events on the Group’s future performance and financial position is currently difficult to estimate.

TaxaTionCommercial legislation of Russian Federation, including tax legislation, is subject to varying interpretations and frequent changes. In addition, there is a risk of tax authorities making arbitrary judgments of business activities. If a particular treatment, based on management’s judgment of the Group’s business activities, was to be challenged by the tax authorities, the Group may be assessed additional taxes, penalties and interest.

Russia’s transfer pricing (TP) legislation was amended with the effect from 1 January 2012. The amendments introduce additional requirements with respect to the accounting for and documenting transactions. The new legislation allows the tax authorities to impose additional tax liabilities in respect of certain transactions, including but not limited to transactions with related parties, if they consider transaction to be priced not at arm’s length. As the practice of implementation of the new transfer pricing rules has not yet developed and wording of some clauses of the rules is unclear, the impact of challenge of the Group’s transfer pricing positions by the tax authorities cannot be reliably estimated.

Generally, taxpayers are subject to tax audits with respect to three calendar years preceding the year of the audit. However, completed audits do not exclude the possibility of subsequent additional tax audits performed by upper-level tax inspectorates reviewing the results of tax audits of their subordinate tax inspectorates. Besides, in accordance with clarifications of courts, reviews may cover longer periods where the judicial authorities rule that the audit by the tax authorities was impeded.

Management believes that it has accrued for all taxes that are applicable based on its interpretations of the tax legislation. Where uncertainty exists, the Group has accrued tax liabilities as management’s best estimate of the probable outflow of resources which will be required to settle such liabilities. Management also assesses the maximum exposure to tax risks, which are considered to be less then probable but more than remote, and believes that the exposure is only material with respect to income tax and will not exceed the amount of unrecognized deferred tax assets related to tax losses in previous years. No provisions were recorded with respect to these tax risks. Management continues to monitor closely any developments related to tax risks and regularly reassesses the risk and related liabilities, provisions and disclosures.

legal PRoCeeDingSThe Group has been and continues to be the subject of legal proceedings and adjudications from time to time, none of which has had, individually or in the aggregate, a material adverse impact on the Group. Management believes that the resolution of such matters will not have a material impact on the Group’s financial position or operating results.

enviRonMenTal iSSUeSThe enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are determined, they are recognized immediately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated but could be material. In the current enforcement climate under existing legislation, management believes that there are no significant liabilities for environmental damage. The Group undertook monitoring of the environment at the construction site and within the limits of its impact on the natural environment at an environmental survey stage. No adverse impact of the dump operations on the environment has been found.


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27. FINANCIAL RISK MANAGEMENTRisk management is being carried out by the Group in relation to financial (credit, market, currency, liquidity and interest rate), operating and legal risks. The main purpose of financial risk management is to determine risk limits and to further uphold the limits determined. Operating and legal risk management is provided through reliable performance of internal policy and procedures of the Group to minimize these risks.

Main CaTegoRieS of finanCial inSTRUMenTSThe Group’s financial assets and liabilities at the reporting dates comprised the following:

31 December 2014

31 December 2013

31 December2012

Financial assets – loans and accounts receivable

Loans receivable 17,914,200 2,282,434 945,137Trade and other accounts receivable 7,608,533 1,078,235 338,992Cash and cash equivalents 2,386,595 710,807 418,295Finance lease receivables 269,621 – –

Financial liabilities at amortized cost

Borrowings 61,446,866 46,469,342 34,189,783Bonds 28,490,661 10,098,103 –Trade and other payables 6,357,576 4,535,429 1,760,462Provisions and accrued expenses 418,014 256,843 116,115Finance lease liabilities 22,021 36,820 48,323

faiR valUe of finanCial inSTRUMenTSThe carrying amounts and fair values of the Group’s borrowings as at 31 December 2014 was presented as follows:

31 December 2014Carrying amount fair value

Borrowings* 61,446,866 56,181,800

61,446,866 56,181,800

* For the fair value estimation the Group used 13.9% as market rate of cost of debt (for borrowings nominated in RUB). That rate of the cost of debt excludes the effect of subsidies.

As the majority of long-term loans receivable was early repaid by counterparties in April 2015 (Note 28), and the remaining financial assets are short-term, the management of the Group considers that the carrying amounts of financial assets as at 31 December 2014 approximate their fair values. The bonds issued by the Group have a floating rate correlating with the inflation index or CBR REPO rate (Note 16), and, therefore, their carrying amounts approximate their fair values.

The management of the Group believes that the carrying amounts of financial assets and financial liabilities reflected in the consolidated financial statements as at 31 December 2013 and 2012 at amortized cost approximate their fair values.

liqUiDiTy RiSkLiquidity risk is the risk that the Group will not be able to settle all liabilities as they fall due. The Group’s liquidity position is carefully monitored and managed by the treasury function. Management controls current liquidity based on expected cash flows and revenue receipts through establishing and maintaining a cash fund sufficient to cover its contractual obligations for the period of three to six upcoming months. Such funds are normally kept as highly liquid short-term bank deposits, and are available on demand. In addition, the Group’s policy is to continually maintain a diversified portfolio of open credit lines with reputable banks, which serve to secure for the Group a stable ad hoc borrowing capability.

The following tables detail the Group’s remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.

less than 12 months

from 1 to 5 years

over 5 years Total

31 December 2014Borrowings 21,832,552 37,066,052 28,897,995 87,796,599Bonds 3,411,839 37,699,499 – 41,111,338Finance lease liabilities 19,384 2,637 – 22,021Trade and other payables 6,357,576 – – 6,357,576Provisions and accrued expenses 418,014 – – 418,014

Total 32,039,365 74,768,188 28,897,995 135,705,548

31 December 2013Borrowings 15,292,090 35,017,280 26,743,848 77,053,218Bonds 1,023,049 12,377,005 – 13,400,054Finance lease liabilities 18,557 18,263 – 36,820Trade and other payables 4,535,429 – – 4,535,429Provisions and accrued expenses 256,843 – – 256,843

Total 21,125,968 47,412,548 26,743,848 95,282,364

31 December 2012Borrowings 5,433,646 32,673,250 10,979,731 49,086,627Finance lease liabilities 14,063 34,260 – 48,323Trade and other payables 1,760,462 – – 1,760,462Provisions and accrued expenses 116,115 – – 116,115

Total 7,324,286 32,707,510 10,979,731 51,011,527


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27. FINANCIAL RISK MANAGEMENT (CONTINUED)The following tables detail the Group’s expected maturity for its financial assets, except for cash and cash equivalents. The tables below have been drawn up based on the undiscounted contractual maturities of the financial assets, including interest that will be earned on those assets.

less than 12 months

from 1 to 5 years

over 5 years Total

31 December 2014Loans receivable 17,313,201 539,299 2,253,614 20,106,114Trade and other accounts receivable 7,578,533 30,000 – 7,608,533Finance lease receivables 47,927 216,664 236,976 501,567

Total 24,939,661 785,963 2,490,590 28,216,214

31 December 2013Loans receivable 499,845 985,981 2,174,373 3,660,199Trade and other accounts receivable 1,078,235 – – 1,078,235

Total 1,578,080 985,981 2,174,373 4,738,434

31 December 2012Loans receivable 822,037 264,880 – 1,086,917Trade and other accounts receivable 338,992 – – 338,992

Total 1,161,029 264,880 – 1,425,909

MaRkeT RiSkThe Group takes on exposure to market risks. Market risks arise from open positions in foreign currencies and interest bearing assets and liabilities which are exposed to general and specific market movements. Management sets limits on the value of risk that may be accepted, which is monitored on a monthly basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements.

Sensitivities to market risks included below are based on a change in a factor while holding all other factors constant. In practice this is unlikely to occur and changes in some of the factors may be correlated – for example, changes in interest rates and changes in foreign currency rates.

CURRenCy RiSkForeign currency risk is the risk that the financial results of the Group will be adversely impacted by changes in exchange rates to which the Group is exposed. During 2014, 2013 and 2012 the Group entered into certain transactions denominated in USD and EUR.

The table below summarizes the Group’s exposure to foreign currency exchange rate risk at the reporting date relative to the functional currency of the respective entities of the Group:

31 December 2014 31 December 2013 31 December 2012Monetary financial

assets

Monetary financial liabilities

net monetary position

Monetary financial

assets



Monetary financial

assets



USD 16,789,747 (333,727)16,456,020 165,776 (3,754,743) (3,588,967) 164,409 (2,307,108) (2,142,699)EUR 6,488 (5,853,089) (5,846,601) 39 (3,956,929) (3,956,890) – (3,682,969) (3,682,969)

Total 16,796,235 (6,186,816) 10,609,419 165,815 (7,711,672) (7,545,857) 164,409 (5,990,077) (5,825,668)

The table below details the Group’s sensitivity to weakening of Russian Ruble against the respective foreign currencies by 10%, all other variables being held constant. The analysis was applied to monetary items at the reporting dates denominated in respective currencies.

USD – impact eUR – impact31 December

201431 December

201331 December

201431 December

2013

Gain/(loss) 1,645,602 (358,897) (584,660) (395,689)

The strengthening of the Russian Ruble in relation to the same currencies by the same percentage will produce an equal and opposite effect on the consolidated financial statements of the Group to that shown above.

As at 31 December 2014 the Group does not have formal arrangements to hedge foreign exchange risks of the Group’s operations. Management monitors all changes in the exchange rates and does not expect any material negative fluctuations in the medium-term.

inTeReST RaTe RiSkInterest rate risk is determined by the effect of interest rate changes on income. The Group’s borrowings currently bear fixed interest rates (until 2018) limiting the Group’s exposure. However, the Group is exposed to interest rate risk with respect to bonds with variable interest rates and to a certain extent to the effects of fluctuations of interest rates arising from changes in financial markets. This exposure extends to cash flow and fair value risks on its future borrowings and lease receivables. The Group reduces this risk by including in its lease agreements an option to increase lease rates in case of significant changes in market conditions.

The sensitivity analysis below has been determined based on the exposure to interest rates for bonds at the reporting date. The analysis assumed that the balance at end of the period remained unchanged during the reporting period. A 3% increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 3% higher/lower and all other variables were held constant, the Group’s profit for the year ended 31 December 2014 would decrease/increase by RUB 837 million.


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27. FINANCIAL RISK MANAGEMENT (CONTINUED)CReDiT RiSkThe Group is exposed to credit risk where one party to a financial instrument may incur losses as a result of the other party defaulting on its obligations. Exposure to credit risk arises as a result of the Group’s transactions with counterparties giving rise to financial assets.

The Group’s maximum exposure to credit risk by class of assets is reflected in the carrying amounts of financial assets as follows:

31 December 2014

31 December 2013

31 December2012

Loans receivable 17,914,200 2,282,434 945,137Trade and other accounts receivable 7,608,533 1,078,235 338,992Finance lease receivables 269,621 – –Cash and cash equivalents 2,386,595 710,807 418,295

Total 28,178,949 4,071,476 1,702,424

Credit risk is reduced in considerable proportion by the selection of solvent counterparties, especially lessees. At the same time the Group demands lessees to make monthly lease payments in advance.

The largest customers of the Group during the period ended 31 December 2014 are JSC Suek, LLC NTS, UGMK and LLC NitroChemProm. The Group’s core customers are highly rated companies with low credit risks. These companies form a foundation for the future development of the Group enabling it to optimize business processes and high standards of service. The Group’s growth strategy includes the intention to diversify its lease portfolio, while preserving the highest quality customer base.

The credit risk associated with cash and cash equivalents is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

The credit risk associated with loans issued is limited because the counterparties for the majority of loans are related parties well know to the Group.

The Group has also a significant concentration of credit risk with respect to loans issued to Doland Business Limited.

The Group does not hold any collateral to cover its credit risks associated with its financial assets.

CaPiTal RiSk ManageMenTThe Group manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to stakeholders through optimization of the debt and equity balance within the limits imposed by its providers or finance. The capital structure of the Group consists of net debt (borrowings and bonds as detailed in Notes 15 and 16, offset by cash and cash equivalents balances) and equity.

28. SUBSEQUENT EVENTSThe change in the share capital as a result of the additional issue of 99,990,000 shares was officially registered with the authorized tax authority on 17 March 2015.

On 25 February 2015, Timken OVK LLC was incorporated as a joint venture of the Group and Timken Lux Holdings II S.A.R.L.

On 27 February 2015 the Group and PJSC Bank Otkritie FC signed additional agreements to extend the repayment period of credit facility No. 3663-14/КЛ dated 24 July 2014 to 24 July 2015 and credit facility No. 4517-14/КЛ dated 21 August 2014 to 21 May 2015.

On 3 March 2015 the legal name of the Company was changed. Effective this date the full name of the legal entity is Public Joint Stock Company Research and Production Corporation ‘United Wagon Company’.

On 5 March 2015 a decision was made to issue additional 5,556,000 shares with par value of RUB 1 each.

In April 2015 the loan receivable from United Wagon Plc under the loan agreement dated 11 December 2013 in the amount of RUB 11,133,877 thousand was fully repaid by the debtor.

No other material events occurred after the reporting date.


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APPENDIX 1TRANSACTIONS IN WHICH THE COMPANY HAD AN INTEREST

Material terms and conditions

Management body responsible for giving approval Interested entity

1 Subletting agreement for non-residential premises No UWC-007-2014, dated 17.02.2014, on the following terms:

Subject of transaction: In exchange for payment, the Tenant shall be obliged to provide the Subtenant with the use of non-residential premises covering an area of 7.15 square metres (total area of 14.3 square metres) in office no 511 at the address Moscow, Staryy Tolmachevsky Pereulok, No 5 from 17.02.2014 to 30.09.2014 inclusive.

Parties to transaction: Tenant – United Wagon Company Ltd;Subtenant – UWC Finance Ltd.

Total value of transaction: The monthly rent stipulated in the Contract totals 28,904.00 (twenty eight thousand nine hundred and four) rubles for 7.15 square metres, including VAT at 18%.

Approved at the general meeting of UWC Ltd participants on 30.04.2014, report no 4-2014 dated 30.04.2014.

A participant in the Company with more than 20% of the votes in the Company’s charter capital – RAIL1520 CYPRUS MANAGEMENT COMPANY LTD – which is also a participant, counterparty to the UWC Finance Ltd transaction.

2 Unmanned transport lease agreement, dated 22.01.2014, on the following terms:

Subject of transaction: Lease of an AUDI A8 (VIN WAUZZZ4HXCN010332) from 22.01.2014 to 31.12.2014 inclusive.

Parties to transaction: Lessor – Vostok1520 Ltd; Lessee – United Wagon Company Ltd.

Total value of the transaction: 73,000.00 (seventy three thousand and 00/100) rubles a month, including VAT at 18% amounting to 11,135.59 (eleven thousand one hundred and thirty five and 59/100) rubles.


The Company’s Chief Executive Officer, R.A. Savushkin, as he is Chief Executive Officer of the entity performing the functions of individual executive body of Vostok1520 Ltd, a party to the transaction.

3 Agreement on transfer of the powers of the individual executive body between TikhvinChemMash closed joint-stock company and United Wagon Company Ltd, dated 01.05.2014, on the following terms:

Subject of transaction: The Company shall hand the managing organisation the powers to perform the functions of the Company’s individual executive body, as stipulated in the Company’s Charter and current Russian law, while the managing organisation shall supply the Company with a package of services in connection with the transfer of those powers.

Parties to transaction: Company – TikhvinChemMash closed joint-stock company; Managing organisation – United Wagon Company Ltd.

The powers shall be transferred for a period of 5 (five) years.


I.N. Tsyplakov and R.A. Savushkin, members of the Company’s Board of Directors and simultaneously members of the Board of Directors of the TikhvinChemMash closed joint-stock company.



4 Agreement on the transfer of the powers of the individual executive body between RAIL1520 WAGON Ltd and United Wagon Company research and production corporation closed joint-stock company, dated 03.10.2014, on the following terms:

Subject of transaction: The Company shall hand the managing organisation the powers to perform the function of the Company’s individual executive body, as stipulated in the Company’s Charter and current Russian law, while the managing organisation shall supply the Company with a package of services in connection with the transfer of those powers.

Parties to the transaction: Company – RAIL1520 WAGON Ltd;Managing organisation – United Wagon Company research and production corporation closed joint-stock company.

The powers shall be transferred for a period of 5 (five) years.

Approved by the sole shareholder of JC UWC RPC, decision No 3/2014 dated 30.12.2014.

Company Chief Executive Officer R.A. Savushkin, who is simultaneously Chief Executive Officer of RAIL1520 WAGON Ltd.

5 Addendum No 4, dated 01.11.2014, to the Agreement on the transfer of the powers of the individual executive body, dated 01.11.2012, between Tikhvin Freight Car Building Plant closed joint-stock company and United Wagon Company research and production corporation closed joint-stock company, on the following terms:

Subject of the transaction: changes to Appendix 3 to the Agreement on the transfer of the powers of the individual executive body, dated 01.11.2012, in respect of the calculation of the coefficient of the actual labour costs related to work done by employees of the managing organisation with the Company (the coefficient for actual labour costs was changed from 80% to 77.5%).

Parties to transaction: Company – Tikhvin Freight Car Building Plant closed joint-stock company; Managing organisation – United Wagon Company research and production corporation closed joint-stock company.

Approved by the sole shareholder of JC UWC RPC, decision No 3/2014 dated 30.12.2014.

1. I.N. Tsyplakov, who is a member of the Company’s Board of Directors and simultaneously a member of the Board of Directors of a party to the transaction – CSJC TVSZ.

2. R.A. Savushkin, the Company’s Chief Executive Officer and a member of its Board of Directors, since he is Chief Executive Officer of an entity performing the functions of the individual executive body of a party to the transaction – CSJC TVSZ.

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6 Agency agreement between United Wagon plc and United Wagon Company research and production corporation joint-stock company, dated 10.12.2014, on the following terms:

Subject of transaction: The Firm shall instruct the Agent, and the Agent shall be obliged to carry out a package of legal and practical actions, a specific list of which is determined by the Parties in corresponding declarations that form an integral part of the Agreement.

Parties to transaction: Firm – UNITED WAGON PLC; Agent – United Wagon Company research and production corporation joint-stock company.

Value of transaction: the Agent’s remuneration shall be 1.001 (one point zero zero one) times the value of the corresponding contract concluded by the Agent and the counterparty.

The transaction was not subject to approval as all the Company’s shareholders have an interest in its completion.

Company shareholder UNITED WAGON PLC, which owns more than 20% of the votes in the Company’s charter capital, is simultaneously a party to the transaction.

7 Securities purchase agreement between UNITED WAGON PLC and United Wagon Company research and production corporation joint-stock company, dated 22.12.2014, on the following terms:

Subject of transaction: The Vendor shall be obliged to transfer the ownership of 37,080 non-voting shares in HOLM SERVICES LTD to the Buyer, while the Buyer shall be obliged to accept the securities and make payment for them.

Parties to transaction: Vendor – UNITED WAGON PLC; Buyer – United Wagon Company research and production association joint-stock company.

Value of transaction: The shares cost 72,086,344,000 rubles.

Payment deadline: 01.04.2015.




Subject of transaction: The Vendor shall be obliged to transfer the ownership of 1,000 non-voting shares in KINTONIA INVESTMENTS LTD to the Buyer, while the Buyer shall be obliged to accept the securities and make payment for them.


Value of transaction: The shares cost 960,398,000 rubles.







Subject of transaction: The Vendor shall be obliged to transfer the ownership of 1,000 non-voting shares in RAIL1520 TANK CARS (BVI) HOLDING LTD to the Buyer, while the Buyer shall be obliged to accept the securities and make payment for them.







Subject of transaction: The Vendor shall be obliged to transfer the ownership of 1,000 non-voting shares in RAIL HOLDING LTD to the Buyer, while the Buyer shall be obliged to accept the securities and make payment for them.







Subject of transaction: The Vendor shall be obliged to transfer the ownership of 1,000 non-voting shares in RAIL1520 (BVI) MANAGEMENT COMPANY LTD to the Buyer, while the Buyer shall be obliged to accept the securities and make payment for them.






APPENDIX 1TRANSACTIONS IN WHICH THE COMPANY HAD AN INTEREST (CONTINUED)

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Material terms and conditionsManagement body responsible for giving approval

1 Date of transaction: 27.01.2014.

Type and subject of transaction: Sub-licensing contract.

Content of transaction, including civil rights and obligations the completed transaction is designed to establish, amend or terminate:

Under the terms of the Contract, the Licensee shall grant the Sub-Licensee the right to use computer programmes listed in the Specification cited in Appendix 1 to the Contract, on the terms of a simple (non-exclusive) licence, while the Sub-Licensee shall accept and pay the right to use the computer programmes in accordance with the procedure and terms stipulated in this Contract.

Deadline for contractual obligations to be met: 27.01.2017.

Transaction parties and beneficiaries: Licensee – SoftLine Trade closed joint-stock company; Sub-Licensee – UWC Ltd.

Monetary value of transaction: 41,399,300,28 rubles.

Value of transaction as a percentage of the value of the issuer’s assets: 33.67%.

Approved at the general meeting of participants on 12.05.2014, report 4/1-2014, dated 12.05.2014.


Type and subject of transaction: Addendum to a rental agreement.


Addendum No 16 to Rental Agreement No 01/01-2012T, dated 01.01.2012. The Landlord shall hand over, while the Tenant shall take temporary possession of and use part of the building at the address Moscow, Staryy Tolmachevsky Pereulok, No 5. The total area rented out, taking account of the coefficient applicable to the use of auxiliary space, shall be 1,861.64 square metres, located on the third, fourth and fifth floors, as of 05.03.2014. The cost of the permanent rental shall be 41,110.00 rubles per square metre a year as of 01.01.2014.

Deadline for contractual obligations to be met: 30.11.2012, with the possibility of an automatic extension for the subsequent 11 calendar months on an unrestricted number of occasions. The Contract was cancelled by agreement of the parties on 31.03.2014. Contractual obligations were met in full.

Transaction parties and beneficiaries: Landlord – Zarechye Ltd; Tenant – UWC Ltd.

Monetary value of transaction: not applicable. Payments were made (monthly) on the basis of a service agreement in accordance with the rates stipulated by the Landlord. The actual sum paid totals 65,624,300.00 rubles.





Type and subject of transaction: Addendum to a rental agreement.


Addendum No 17 to Rental Agreement No 01/01-2012T, dated 01.01.2012. The Landlord shall hand over, while the Tenant shall take temporary possession of and use part of the building at the address Moscow, Staryy Tolmachevsky Pereulok, No 5. The total area rented out, taking account of the coefficient applicable to the use of auxiliary space, shall be 1,896.14 square metres, located on the third, fourth and fifth floors, as of 05.03.2014. The cost of the permanent rental shall be 41,110.00 rubles per square metre a year as of 01.01.2014.

Deadline for contractual obligations to be met: 30.11.2012, with the possibility of an automatic extension for the subsequent 11 calendar months on an unrestricted number of occasions. The Contract was cancelled by agreement of the parties on 31.03.2014. Contractual obligations were met in full.

Transaction parties and beneficiaries: Landlord – Zarechye Ltd; Tenant – UWC Ltd.

Monetary value of transaction: not applicable. Payments were made (monthly) on the basis of a service agreement in accordance with the rates stipulated by the Landlord. The actual sum paid totals 65,624,300.00 rubles.



APPENDIX 2MAJOR TRANSACTIONS

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Type and subject of transaction: Subletting agreement.


Subletting Agreement No CA 06/04-2014, dated 01.04.2014. The Tenant shall hand over, while the Subtenant shall make temporary use (on a subletting basis) of non-residential premises, taking account of the coefficient applicable to the use of auxiliary space, covering a total area of 1,944.17 (one thousand nine hundred and forty four and 17/100) square metres, including the following premises:

– basement plant room – room no 125;

– third floor – rooms nos 303, 315–319;

– fourth floor – rooms nos 403, 404, 411–415, 421, 428–436;

– fifth floor – rooms nos 503–507, 511–519, 521, 525–532, 537.

These premises are located in the Building situated at the address: Moscow, Staryy Tolmachevsky Pereulok, No 5.

Deadline for contractual obligations to be met: 27.02.2015, with the possibility of an automatic extension subject to agreement between the parties. Contractual obligations are being met in full.

Transaction parties and beneficiaries: Tenant – IST-M; Subtenant – UWC Ltd.

Monetary value of transaction: not applicable. Payments were made (monthly) on the basis of a service agreement in accordance with the rates stipulated by the Tenant. The actual sum for payment totals 56,533,800.00 rubles.





Type and subject of transaction: Contract for delivery of advertising services.


Contract for delivery of advertising services No 21/07/14-F. During the term of this contract, the Contractor, in line with the procedure and under the terms stipulated by the Contract, shall be obliged to place advertising about the Customer, its goods, work and services (UWC RPC CSJC), while the Customer shall be obliged to receive and pay for the Contractor’s services in line with the procedure and under the terms stipulated by this Contract. The parties have determinate that the subject of the advertising shall be United Wagon Company research and production corporation closed joint-stock company.

Deadline for contractual obligations to be met: 31.12.2014. The Contract was cancelled by agreement of the parties on 01.10.2014. Contractual obligations were met in full.

Transaction parties and beneficiaries: Contractor – Finresurs Ltd; Customer – UWC RPC CSJC (UWC Ltd until 28.05.2014).

Monetary value of transaction: 47,200,000 rubles.




Type and subject of transaction: Non-residential rental agreement.

Content of transaction, including civil rights and obligations the completed transaction is designed to establish, amend or terminate: Long-term non-residential rental agreement (unnumbered).


Transaction parties and beneficiaries: Landlord – Levium Ltd; Tenant – UWC RPC CSJC.

Monetary value of transaction: not applicable. Payment was made (monthly) on the basis of a service agreement in accordance with the rates stipulated by the Landlord. The actual sum paid totals 89,716,541.78 rubles.


Approved at the General Meeting of Shareholders on 31.08.2014, report 7-2014, dated 31.08.2014.

APPENDIX 2MAJOR TRANSACTIONS (CONTINUED)

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Type and subject of transaction: Addendum to subletting agreement.


Addendum No 3 to Subletting Agreement No CA 06/04-2014, dated 01.04.2014. The Tenant shall hand over, while the Subtenant shall make temporary use (on a subletting basis) of non-residential premises, taking account of the coefficient applicable to the use of auxiliary space, covering a total area of 2,270.78 (two thousand two hundred and seventy and 78/100) square metres, including the following premises:

– basement plant room – room no 125;

– first floor – room no 33;

– third floor – rooms nos 303, 315–319;

– fourth floor – rooms nos 403, 404, 411–415, 416–419, 421, 428–436;

– fifth floor – rooms nos 503–507, 511–519, 521, 525–532, 537.

These premises are located in the Building situated at the address: Moscow, Staryy Tolmachevsky Pereulok, No 5.

Deadline for contractual obligations to be met: 27.02.2015, with the possibility of an automatic extension subject to agreement between the parties. Contractual obligations are being met in full.

Transaction parties and beneficiaries: Tenant – IST-M; Subtenant – UWC NPC CJSC.

Monetary value of transaction: not applicable. Payments were made (monthly) on the basis of a service agreement in accordance with the rates stipulated by the Tenant. The actual sum for payment totals 56,533,800.00 rubles.





Type and subject of agreement: Securities purchase agreement.


Securities purchase agreement between UNITED WAGON PLC and United Wagon Company research and production corporation joint-stock company, in accordance with which the Vendor shall be obliged to transfer ownership of 37,080 non-voting shares in HOLM SERVICES LTD to the Buyer, while the Buyer shall be obliged to accept the securities and make payment for them.

Transaction parties and beneficiaries: Vendor – UNITED WAGON PLC; Buyer – United Wagon Company research and production association joint-stock company.




Under Article 81, Clause 2 of the Federal Law ‘On joint-stock companies’, the transaction was not subject to approval, as it was a major transaction and also a transaction where the Company’s sole shareholder had an interest in its completion.


Type and subject of transaction: Securities purchase agreement.

Content of transaction, including civil rights and obligations the completed transaction is designed to establish, amend or terminate: Securities purchase agreement between UNITED WAGON PLC and United Wagon Company research and production corporation joint-stock company, in accordance with which the Vendor shall be obliged to transfer ownership of 1,000 non-voting shares in KINTONIA INVESTMENTS LTD to the Buyer, while the Buyer shall be obliged to accept the securities and make payment for them.




Value of transaction as a percentage of the value of the issuer’s assets: 938%.



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Securities purchase agreement between UNITED WAGON PLC and United Wagon Company research and production corporation joint-stock company, in accordance with which the Vendor shall be obliged to transfer ownership of 1,000 non-voting shares in RAIL1520 TANK CARS (BVI) HOLDING LTD to the Buyer, while the Buyer shall be obliged to accept the securities and make payment for them.








Content of transaction, including civil rights and obligations the completed transaction is designed to establish, amend or terminate: Securities purchase agreement between UNITED WAGON PLC and United Wagon Company research and production corporation joint-stock company, in accordance with which the Vendor shall be obliged to transfer ownership of 1,000 non-voting shares in RAIL HOLDING LTD to the Buyer, while the Buyer shall be obliged to accept the securities and make payment for them.




Value of transaction as a percentage of the value of the issuer’s assets: 63,643%.






Securities purchase agreement between UNITED WAGON PLC and United Wagon Company research and production corporation joint-stock company, in accordance with which the Vendor shall be obliged to transfer ownership of 1,000 non-voting shares in RAIL1520 (BVI) MANAGEMENT COMPANY LTD to the Buyer, while the Buyer shall be obliged to accept the securities and make payment for them.







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APPENDIX 3 INFORMATION ON PAO RPC UWC’S COMPLIANCE IN 2014 WITH THE PRINCIPLES AND RECOMMENDATIONS OF THE CORPORATE GOVERNANCE CODE RECOMMENDED BY THE CENTRAL BANK OF RUSSIA

The Company observes the majority of the principles and recommendations of the Corporate Governance Code.

Since, as at the end of 2014, the Company was not public and its shares were not available for organised trading, the Company was not obliged to comply with all the principles and recommendations of the Corporate Governance Code. UWC bases its corporate policy on the following principles and recommendations from the Corporate Governance Code:

Principle of corporate governance or key criterion (recommendation) Compliance datai. Rights of shareholders and equality of terms available to shareholders as they exercise their rights1.1. A company must ensure there is a fair and equal attitude to all shareholders as they exercise their rights to take part in the management of the company.

Compliant.

The Company bases its system and practice of corporate governance on ensuring equal terms for all shareholders – owners of shares of one category (type), including minority shareholders and foreign shareholders, and on the Company treating all of them in the same way.

The Company discloses the content of decisions taken at Shareholders’ General Meetings, in accordance with the procedure stipulated by current Russian law and the Company’s internal documents.

1.1.1. A company is advised to create the most favourable opportunities possible for shareholders to take part in the general meeting, to create the conditions in which a justified position can be drawn up on the items on the agenda of a general meeting, to take part in the coordination of its actions, and to create the opportunity for shareholders to express their views on the issues under consideration.

Compliant.

The Company has approved an Article on Shareholders’ General Meetings, which defines the procedures that should be followed during the preparation, calling and holding of a Shareholders’ General Meeting (hereafter referred to as Meeting).

1.1.2. The procedure for announcing a general meeting and supplying a package of information on the general meeting should provide shareholders with the opportunity to prepare properly to take part in the meeting.

Compliant.

The Company notifies shareholders of a Meeting and provides them with the opportunity to study the information that should be supplied during preparations for the Meeting no later than 20 (twenty) days before the Meeting, unless the Company Charter and Russian law stipulate a different deadline.

Information on the date on which a list of the individuals who have the right to attend the Meeting is compiled is disclosed by the Company in accordance with the requirements of current Russian law.

The Company provides shareholders with the fullest possible information on each item on the agenda.

As well as mandatory information stipulated by Russian law and by the Company Charter, the Company provides shareholders with additional information.

1.1.3. During preparations for and the conduct of a general meeting, shareholders must have the opportunity to obtain information on the meeting and the relevant materials, ask company executives and members of the company’s board of directors questions and talk to one another, without restriction and in good time.

Compliant.

See comments on principles 1.1.1, 1.1.2, 1.1.5 and 1.1.6.

1.1.4. A shareholder’s exercising of their right to demand the summoning of a general meeting, to nominate candidates for a company’s bodies and to propose items for the agenda of a general meeting must not be fraught with unjustified complications.

Compliant.

See comments on principle 1.1.1.

Principle of corporate governance or key criterion (recommendation) Compliance data

1.1.5. Each shareholder shall have the opportunity to exercise their right to vote in the manner they find easiest and most convenient.

Compliant. The Company provides each shareholder with the opportunity to exercise their right to vote at a Meeting in the manner they find easiest and most convenient. The procedure by which individuals register to take part in a Meeting does not create any obstacles to the participation of any shareholder in the meeting and is regulated by the Article on Shareholders’ General Meetings. The Company determines the optimum time for the registration of Meeting participants, sufficient for all shareholders wishing to take part in the Meeting to register.

The functions of scrutineer at a Meeting are performed by the Company registrar, who maintains the Company’s register of shareholders.

See also comments on principle 1.1.1. 1.1.6. The procedure established by a company for its general meetings shall provide all individuals and entities attending those meetings with an equal opportunity to express their views and ask questions that are of interest to them.

Compliant.

During consideration of issues relating to the Company’s financial and business activities at meetings conducted in the presence of shareholders, the Company takes all necessary measures to ensure that shareholders have the opportunity to ask questions of the individual executive body (the Chief Executive Officer), of other Company executives responsible for maintaining the Company’s accounts, or, if, under a contract concluded with the Company, the accounts are maintained by an organisation or individual, of a senior employee from such an organisation or of the individual, and of members of the Audit Commission.

The Company takes all necessary measures in order to ensure the Meeting’s participants have the opportunity to talk to and consult each other without restriction on issues relating to voting under the procedure for the conduct of Meetings.

See also comments on principle 1.1.1. 1.2. Shareholders shall be given equal and fair opportunity to take part in a company’s profits by receiving dividends.

Compliant.

1.2.1. A company must draw up and introduce a transparent and comprehensible mechanism to determine the size of dividends and how they are paid.

Compliant.

The Company has approved an Article on dividends policy, which sets out the procedure to determine what proportion of net profit is allocated for the payment of dividends, and to determine the terms under which dividends will be announced.

If a decision is taken to pay (announce) dividends, shareholders receive an explanation of the importance of notifying the Company in good time of any changes to shareholder data that may be required for dividends to be paid out, and also receive an explanation of the consequences and risks attached to any failure to notify the Company in good time of changes to this data.

1.2.2. A company is advised not to take a decision to pay out dividends if such a decision is economically unjustified and could lead to false impressions about the company’s operations, even if the decision does not formally breach any of the restrictions stipulated in law.

Compliant.

1.2.3. A company shall not allow any deterioration in the dividends rights of existing shareholders.

Compliant.

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1.2.4. A company shall strive to prevent the use by shareholders of any means of receiving profit (income) at the company’s expense other than dividends and disposal value.

Compliant.

1.3. A company’s system and practice of corporate governance shall ensure equal terms for all shareholders – holders of shares of one category (type), including minority (small) shareholders and foreign shareholders, and shall ensure that the company treats all those shareholders equally.

Compliant.


1.3.1. A company shall create an environment for fair treatment of each and every shareholder on the part of the company’s management bodies and the individuals who control those bodies, including ensuring that major shareholders do not commit any wrongdoing against minority shareholders.

Compliant.

The Company bases its system and practice of corporate governance on the principle of equal terms for all shareholders – holders of shares of one category (type), including minority (small) shareholders and foreign shareholders, as well as the principle of fair treatment of them on the part of the Company. For their part, shareholders are obliged not to abuse the rights granted to them. Shareholders are not allowed to take any action with the intention of inflicting damage on other shareholders or the Company, nor is any other abuse of shareholders’ rights allowed. The Company recognises the importance of rejecting any actions that lead to or could lead to artificial redistribution of corporate oversight and to the creation of unjustified privileges for certain shareholders over others.

1.3.2. A company shall not take any action that leads to or could lead to artificial redistribution of corporate oversight.

Compliant.

1.4. Shareholders shall be provided with reliable and effective means of recording their share rights, and with the opportunity to dispose of the shares they own without restriction or hindrance.

Compliant.

The Company takes all the measures within its control to provide shareholders with reliable and effective means of recording their share rights, and with the opportunity to dispose of the shares they own without restriction or hindrance, including by the following means:

1) through its choice of a registrar who enjoys a strong reputation and employs refined and reliable techniques to ensure that share rights are recorded and shareholders’ rights are exercised as effectively as possible;

2) to cooperate with the registrar and take joint measures intended to ensure that shareholder information recorded in the shareholder register is kept updated.

ii. Companies’ boards of directors2.1. A board of directors shall perform the strategic management of a company, determine the main principles and approaches to a company‘s organisation of its risk management and internal monitoring system, monitor the operations of a company’s executive bodies and perform other key functions.

Compliant.

The remit of the Board of Directors is defined by existing law and the Company’s Charter.

The Board of Directors performs the Company’s strategic management, determines the main principles and approaches to the organisation of the Company’s risk management and internal monitoring system, and performs other key management functions in accordance with the remit determined by Russian law and the Company’s Charter.

The procedure for nominating candidates for the Board of Directors, the status of members of the Board of Directors, the procedure for the calling and holding of board meetings and for the formalising of its decisions are regulated by the Company’s Article on the Board of Directors.


2.1.1. A board of directors shall be responsible for the taking of decisions concerning appointments to and dismissals from executive bodies, including in connection with the failure to perform duties properly. A board of directors shall also exercise oversight over how a company’s executive bodies act in accordance with the company’s approved development strategy and main areas of activity.

Compliant.

In accordance with the Company’s Charter, the Board of Directors takes decisions concerning appointments and dismissals from executive bodies, including:

decisions on the selection of a Chief Executive Officer and the early termination of his powers.

2.1.2. A board of directors shall establish the main guidelines for a company’s operations in the long term, assess and approve the key measures of a company’s activities and its main business objectives, and assess and approve strategy and business plans for a company’s main areas of activity.

In accordance with the Company’s Charter, the Board of Directors’ remit includes defining the Company’s priority areas of activity and the principles by which the Company’s property is formed and used.

2.1.3. A board of directors shall define the principles and approaches to a company’s organisation of its risk management and internal monitoring system.

Compliant.

The Company has set up an internal audit service, which, in accordance with an article approved by the Board of Directors, is responsible for assisting the Company’s executive body and the Company’s employees in drawing up and monitoring the implementation of procedures and measures to improve the risk management and internal monitoring system, and to improve the Company’s corporate governance.

2.1.4. A board of directors shall formulate a company’s policy on remuneration and/or reimbursement of expenses (compensation) for members of the board of directors, members of executive bodies and a company’s other key managers.

Compliant.

The Company proceeds on the basis that policy on remuneration and/or reimbursement of expenses for members of the Board of Directors, the Company’s Chief Executive Officer and the Company’s other key managers must be based on the principles of transparency and accountability and take account of the role of these individuals in the Company’s operations.

APPENDIX 3 INFORMATION ON PAO RPC UWC’S COMPLIANCE IN 2014 WITH THE PRINCIPLES AND RECOMMENDATIONS OF THE CORPORATE GOVERNANCE CODE RECOMMENDED BY THE CENTRAL BANK OF RUSSIA (CONTINUED)

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2.1.5. A board of directors shall play a key role in the early notification, detection and resolution of internal conflicts between a company’s bodies, shareholders and employees.

Partially compliant.

The Company takes all necessary and possible measures in order to warn of and resolve conflicts (or minimise their consequences) between the Company’s bodies and its shareholder (shareholders), as well as between shareholders, if such a conflict affects the Company’s interests, including by using out-of-court dispute resolution procedures.

The Company proceeds on the basis that, if at any stage in its development a conflict affects or could affect the Company’s executive bodies, its resolution should rest with the Board of Directors. A member of the Board of Directors whose interests are affected or could be affected by the conflict must not take part in efforts to resolve this conflict.

In order to provide early notification of corporate conflicts, the Company is setting up a system that ensures the detection of the Company’s transactions where there is a conflict of interest (in particular, the personal interest of shareholders, members of the Board of Directors, other bodies or the Company’s employees). This system establishes procedures that ensure that:

1) the Company receives up-to-date information in good time on individuals connected and affiliated to members of the Board of Directors and the Chief Executive Officer;

2) decisions on transactions where there is a conflict of interest or oversight over the terms of such transactions rest with individuals who do not have a conflict of interest and who are not subject to influence on the part of individuals who have a corresponding conflict of interest.

2.1.6. A board of directors shall play a key role in ensuring company transparency, a company’s timely and complete disclosure of information and access for shareholders to a company’s documents without restriction.

Compliant.

The Company recognises the importance of timely disclosure of reliable information on its operations, which is a key instrument for the development of a long-term trust-based relationship with its shareholders, and in the long term helps to increase the Company’s value, helps it to attract capital on terms that are as favourable as possible and maintains trust between interested parties (partners, customers, suppliers, the public, state bodies).

The Board of Directors formulates the Company’s information policy, based on the need for proper organisation and effective functioning of the information disclosure system, and based on providing shareholders with access to the Company’s information.

2.1.7. A board of directors shall monitor the practice of corporate governance in a company and play a key role in a company’s major corporate events.


The Company recognises the importance of monitoring the practice of corporate governance by conducting regular analysis of the extent to which the Company’s corporate governance and corporate values system complies with the Company’s aims and objectives, as well as its operations and the risks it takes.

2.2. A board of directors shall be accountable to a company’s shareholders.


See comments on principles 2.2.1, 2.2.2.2.2.1. Information on the work of a board of directors shall be disclosed and supplied to shareholders.


Information on the work of the Board of Directors is disclosed and supplied to shareholders in accordance with Russian law and the Company’s Charter and internal documents.


2.2.2. The chairman of a company’s board of directors shall be available for contact with shareholders.


The Company strives to ensure that shareholders have the opportunity to ask questions of the Chairman of the Board of Directors in connection with the remit of the Board of Directors, and also to inform him of their view (position) on these issues by the means they deem to be accessible and unrestricted, in accordance with the Company’s internal documents.

2.3. A board of directors shall be an effective and professional management body for a company, capable of making objective, independent judgements and taking decisions that reflect the interests of the company and its shareholders.

Compliant.

See comments on principles 2.3.1-2.3.4.

2.3.1. A member of a board of directors should be an individual with an impeccable business and personal reputation possessing the knowledge, skills and experience necessary for taking decisions relating to the remit of the board of directors and required for the effective performance of his functions.

Compliant.

The Company strives to ensure that the individuals elected to the Board of Directors have an impeccable business and personal reputation and possess the knowledge, skills and experience necessary for taking decisions relating to the remit of the Board of Directors and required for the effective performance of their functions.

The Company proceeds on the basis that the Board of Directors should be an effective and professional management body for the Company, capable of making objective, independent judgements and working through and effectively addressing issues relating to its remit in a timely fashion.

The Company proceeds on the basis that if a member of the Board of Directors has a conflict of interest, this provides strong grounds to doubt whether he will act in the Company’s interests. In this regard, the Company takes all possible measures to prevent the election to the Board of Directors of individuals who are participants of, post-holders in the executive bodies of and/or employees of a legal entity that competes with the Company.


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2.3.2. Elections to a board of directors shall take place by means of a transparent procedure that allows shareholders to obtain information on the candidates such as is sufficient to form an impression of their personal and professional qualities.

Compliant.

The Board of Directors is elected through a procedure that takes account of the views of shareholders and ensures the composition of the Board of Directors complies with the requirements of legislation, the objectives facing the Company and the Company’s corporate values.

The Company proceeds on the basis that it is good corporate governance practice to ensure a preliminary discussion among shareholders about the candidates who are being proposed for nomination to the Board of Directors.

The Company takes all necessary measures to ensure that shareholders have the opportunity to receive information on candidates for the Company’s Board of Directors, such as is sufficient to form an impression of their personal and professional qualities, in accordance with the composition and procedure established by the Charter, the Article on Shareholders’ General Meetings and the Article on the Company’s Board of Directors.

The Company takes all necessary measures to provide shareholders with information on a candidate’s compliance with the requirements applicable to independent directors.

Candidates for the Board of Directors must provide written approval to be nominated and elected to the Board of Directors, and to work on the sub-committee (sub-committees) of the Board of Directors, if it is assumed that this candidate will work on the sub-committee (sub-committees) of the Board of Directors, except for those cases where candidates nominate themselves.

Information on candidates for the Board of Directors is supplied in the form of information (materials) supplied during preparations for and the holding of a Meeting.

2.3.3. The composition of a board of directors shall be balanced, including in terms of the qualifications of its members, their experience, knowledge and business qualities, and shall enjoy the trust of shareholders.

Compliant.

See comments on principles 2.3.1, 2.3.2.

2.3.4. The numerical strength of a company’s board of directors makes it possible to organise the work of the board of directors in the most effective way possible, including the possibility of forming sub-committees of the board of directors, as well as to ensure that there is a possibility of the candidate voted for by a company’s significant minority shareholders being elected to the board of directors.

Compliant.

The Company strives to ensure that the numerical strength of the Board of Directors makes it possible to organise the work of the Board of Directors in the most effective way possible, including the possibility of forming sub-committees of the Board of Directors.

2.4. A board of directors should include a sufficient number of independent directors.

Compliant.

The Company strives to ensure that the Board of Directors includes a sufficient number of independent directors, for the purpose of improving the quality of decision-making on matters relating to the formulation of the Company’s development strategy and assessment of the compliance of the Company’s operations with its strategy development, in order to prevent and resolve corporate conflicts, to assess the work of its executive bodies, to assess the compliance of the Company’s activities with the interests of all shareholders, to ensure timely disclosure of reliable information on the Company’s operations, and on all other issues that may affect shareholders’ interests.

The criteria and procedure used to assess the independence of a member of the Board of Directors are defined by existing law and the Company’s internal documents.


2.4.1. An independent director should be a person who has sufficient professionalism, experience and independence to form his own position, a person capable of making objective and scrupulous judgements independent of the influence of a company’s executive bodies, individual groups of shareholders or other interested parties. At the same time, it should be acknowledged that a candidate (an elected member of the board of directors) who is linked to the company, to a significant shareholder, to a significant counterparty, to a rival of the company or to the state shall not normally be deemed to be independent.

Compliant.

2.4.2. Companies are advised to assess the extent to which candidates for their board of directors comply with the criteria of independence, and are also advised to carry regular analysis of the extent to which independent members of the board of directors comply with the criteria of independence. During such assessments, content shall prevail over form.

Compliant.

2.4.4. Independent directors shall play a key role in the prevention of internal conflicts in a company and in a company’s significant corporate actions.


2.5. A chairman of a board of directors shall assist in the most effective possible performance of the functions entrusted to a board of directors.

Compliant.

The Chairman of the Board of Directors effectively organises the work of the Board of Directors and collaborates with other Company bodies.

2.5.2. A chairman of a board of directors shall ensure that meetings are held in a constructive atmosphere, that there is a free discussion of issues included in the meeting’s agenda and that the implementation of decisions taken by the board of directors are monitored.

Compliant.

2.5.3. A chairman of a board of directors shall take all necessary measures to ensure the timely supply to members of the board of directors of the information required to take decisions on items on the agenda.

Compliant.

See comments on principles 2.7.2.

2.6. Members of a board of directors shall act scrupulously and sensibly in the interests of a company and its shareholders, on the basis of sufficient information being provided, with the appropriate level of care and prudence.

Compliant.



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2.6.1. Sensible and scrupulous action by members of a board of directors means that they shall take decisions that take account of all the available information, in the absence of conflicts of interests, and that take account of the equal treatment of the company’s shareholders, within the context of standard business risk.

Compliant.

Sensible and scrupulous action by members of the Board of Directors means that they shall take decisions take account of all the available information, in the absence of conflicts of interests, and that take account of the equal treatment of the Company’s shareholders, within the context of standard business risk.

The Company adopts a socially responsible position, carrying out its activities in compliance with recognised standards of environmental protection and social standards, and the Board of Directors must take account of the interests of other interested parties, including the Company’s employees, creditors and counterparties.

Should a potential conflict of interest arise with a member of the Board of Directors, including having an interest in the Company completing a particular transaction, this member of the Board of Directors should immediately notify the Company’s Board of Directors in accordance with the procedure stipulated by current law, the Company’s Charter and its internal documents, and in any case should place the Company’s interests above his/her own interests.

2.6.2. The rights and obligations of members of a board of directors shall be clearly formulated and enshrined in a company’s internal documents.

Compliant.

2.6.3. Members of a board of directors shall have sufficient time to honour their obligations.


The Company proceeds from recognition of the need for members of the Board of Directors to have sufficient time to work for the Company’s Board of Directors, including for its sub-committees. In this regard, members of the Board of Directors must notify the Company of positions they occupy in the management bodies of other organisations.

2.6.4. All members of a board of directors shall have equal access to a company’s documents and information. Newly elected members of a board of directors shall be supplied as quickly as possible with sufficient information on the company and on the work of its board of directors.

Compliant.

The Company proceeds on the basis that all members of the Board of Directors must have equal access to the Company’s documents and information, something that is ensured through the creation of as effective a mechanism as possible for ensuring that members of the Board of Directors receive the information they need to make balanced decisions and perform their duties properly. Newly elected members of the Board of Directors are supplied as quickly as possible with sufficient information on the Company and on the work of the Board of Directors. Members of the Board of Directors are obliged to maintain the confidentiality of the information they have received in accordance with the provisions of the Company’s internal documents.

2.7. Meetings of a board of directors, preparations for such meetings and the involvement of members of the board of directors in those meetings shall ensure a board of directors operates effectively.

Compliant.


2.7.1. Meetings of a board of directors should take place as needed, taking account of the scale of a company’s operations and the tasks it faces within a certain period of time.

Compliant.

Proper preparation for meetings of the Board of Directors and the involvement of members of the Board of Directors in those meetings ensures the Board of Directors functions effectively. Meetings of the Board of Directors take place as needed, both in person and otherwise, taking account of the scale of operations and the tasks the Company faces within a certain period of time, but, as a rule, at least once a month.


2.7.2. A company should draw up and enshrine in its internal documents a procedure for the preparation and conduct of meetings of its board of directors, ensuring members of the board of directors have the opportunity to prepare properly for such meetings.

Compliant.

The procedure for the preparation and conduct of meetings of the Board of Directors, as stipulated in the Article on the Board of Directors, ensures that members of the Board of Directors have the opportunity to prepare properly for such meetings, and includes a procedure and timescale for the dispatch and receipt of voting papers to each member of the Board of Directors when a meeting is not being held in person.

2.7.3. The choice of format for a meeting of a board of directors should take account of the importance of the items on the agenda. The most important issues shall be addressed at sessions conducted in person.

Compliant.

The choice of format for a meeting of the Board of Directors takes account of the importance of the items on the agenda. The most important issues are addressed at sessions conducted in person, providing an opportunity for a more detailed and complete discussion of items on the agenda among members of the Board of Directors.

2.7.4. Companies are advised to take decisions on the most important issues concerning their operations on the basis of a qualified majority and a majority of votes among all elected members of the board of directors.


The majority of votes required for the Board of Directors to take decisions is determined by law and by the Company’s Charter. The minutes of meetings of the Board of Directors indicate how each member of the Board of Directors voted on items on the meeting’s agenda.

2.8. A board of directors shall set up sub-committees for preliminary consideration of the most important aspects of a company’s operations.

Compliant.

For the preliminary consideration of the most important aspects of the Company’s operations, sub-committees of the Board of Directors are being set up. For detailed information on committees of the Board of Directors, go to page 51.

2.8.1. For preliminary consideration of issues relating to monitoring of a company’s financial and business operations, an audit committee consisting of independent directors should be set up.

Compliant.

For detailed information on the Audit Committee, go to pages 51-52.

2.8.2. For preliminary consideration of issues relating to the formulation of effective and transparent remuneration practices, a remuneration committee should be set up, consisting of independent directors and headed by an independent director who is not chairman of the board of directors.

Compliant.

For detailed information on the Remuneration and Nomination Committee, go to page 51.

2.8.3. For preliminary consideration of issues relating to the implementation of human resources planning (succession planning), the occupational structure and the effectiveness of a board of directors, a nominations (appointments, human resources) committee should be set up, with independent directors forming the majority of members.

Compliant.

For detailed information on the Remuneration and Nomination Committee, go to page 51.

2.8.4. Taking account of the scale of a company’s operations and the level of risk, companies are advised to set up other sub-committees of the Board of Directors (a strategy committee, a corporate governance committee, an ethics committee, a risk management committee, a budget committee, a health, safety and environment committee etc).

Not compliant.

The Company has set up the following sub-committees of the Board of Directors:

1) Audit Committee;

2) Remuneration and Nomination Committee.2.8.5. The composition of sub-committees should be arranged in such a way as to ensure that it allows for comprehensive discussion of the issues being considered preliminarily, taking various views into account.

Compliant.


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2.8.6. The chairmen of sub-committees should regularly inform the board of directors and its chairman of the work of their committees.

Compliant.

2.9. A board of directors shall ensure that the quality of the work of a board of directors, its sub-committees and members of the board of directors is assessed.


In order to assess the quality of the work of the Board of Directors, and in order to ascertain the effectiveness of its work, and also in order to identify areas where there needs to be improvement, the Company may introduce the practice of assessing the quality of work of the Board of Directors.

2.9.1. Assessment of the quality of work of a board of directors shall be designed to ascertain the level of effectiveness of the work of the board of directors, its sub-committees and members of the board of directors, and the extent to which their work complies with the company’s development needs, to step up the work of the board of directors and to identify areas where its work could be improved.


2.9.2. The work of a board of directors, its sub-committees and the members of the board of directors shall be assessed on a regular basis and at least once a year. In order to deliver an independent assessment of the quality of work of the board of directors, companies should hire an external organisation (consultant) at least once every three years.


iv. System for remuneration of members of the board of directors and executive bodies and other key company managers 4.1. The level of remuneration paid by a company shall be sufficient in order to attract, motivate and retain individuals who have the competencies and qualifications required by the company. Remuneration for members of the board of directors, executive bodies and other key company managers shall be paid in accordance with the remunerations policy adopted by a company.


The Company proceeds on the basis that its remuneration policy is formulated by the Board of Directors’ Remuneration and Nomination sub-committee and is approved by the Company’s Board of Directors.

The Board of Directors devises the Company’s policy on remuneration and/or reimbursement of expenses (compensation) for members of the Board of Directors, the Company’s Chief Executive Officer and other key Company managers (heads of structural units, direct subordinates of the Chief Executive Officer, heads of the Company’s branches), guided by the principles of transparency and accountability, taking account of the role of these individuals in the Company’s operations.

With the support of the Remuneration and Nomination sub-committee, the Board of Directors monitors the Company’s introduction and implementation of the remunerations policy, and, if necessary, reviews and makes changes to the policy.

As at 31.12.2014, the Company does not have an internal document that defines the provisions of policy on remuneration for members of the Board of Directors for taking part in the work of this management body.


4.1.1. The level of remuneration a company offers members of its board of directors, executive bodies and other key managers should provide additional motivation for them to work effectively, allowing the company to attract and retain competent and qualified specialists. At the same time, the company should avoid awarding remuneration that is higher than required, and avoid an unjustifiably large gap between levels of remuneration for these individuals and the company’s employees.


See comments on principle 4.1.

4.1.2. A company’s remuneration policy shall be formulated by the remuneration sub-committee and approved by the company’s board of directors. With the support of the remuneration sub-committee, the board of directors should monitor the company’s introduction and implementation of its policy on remuneration, and, if necessary, review and make changes to the policy.



4.1.3. A company’s remuneration policy shall contain transparent mechanisms for determining remuneration levels for members of the board of directors, executive bodies and other key company managers, as well as regulating all forms of payment, benefit and privileges granted to these individuals.



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

Compliant.

4.2.1. Fixed annual remuneration shall be the preferred form of monetary remuneration for members of a board of directors. Remuneration for participating in individual meetings of the board of directors’ sub-committees shall be undesirable. No form of short-term motivation or additional material incentivisation should take place in respect of members of the board of directors.

Compliant.

4.2.3. No additional payments or compensation should be provided in the event of the early termination of the powers of members of a board of directors in connection with a shift in control over a company or with other circumstances.

Compliant.

4.3. A system of remuneration for the executive bodies and other key managers of a company shall provide for the remuneration to depend on the results of the company’s operations and their personal contribution to the achievement of these results.




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4.3.1. Remuneration for the executive bodies and key managers of a company should be determined in such a way as to ensure a sensible and justified relationship between the fixed portion of the remuneration and the variable component of the remuneration, which depends on the results of the company’s operations and an employee’s personal (individual) contribution to the end results.

Compliant.

The Company proceeds on the basis that the system of remuneration for members of executive bodies and other key Company managers must provide for the remuneration to depend on the results of the Company’s operations and the individual’s personal contribution to the achievement of these results.

The Company determines its system of short-term and long-term motivation for members of its executive bodies and other key Company managers on the basis of ensuring a sensible and justified relationship between the fixed and variable components of remuneration, depending on the results of the Company’s operations and an employee’s personal (individual) contribution to the end results.

4.3.3. The sum of compensation (golden parachute) paid by a company if the powers of executive bodies or key managers are terminated early at the company’s initiative and in the absence of any unscrupulous action on the part of those executive bodies or key managers shall not be more than double the fixed component of annual remuneration.

Compliant.

The Company proceeds on the basis that the sum of compensation (golden parachute) paid by the Company if the powers of its executive bodies or its key managers are terminated early at the Company’s initiative and in the absence of any unscrupulous action on the part of those executive bodies or key managers shall not be more than double the fixed component of annual remuneration, unless the law stipulates a lower level of severance package (golden parachute) in certain instances.

v. Risk management and internal monitoring system5.1. A company shall have an effectively functioning risk management and internal monitoring system, designed to provide reasonable assurance that the company’s aims shall be achieved.


The Company proceeds on the basis that there should be an effectively functioning risk management and internal monitoring system, designed to provide reasonable assurance that the company’s aims shall be achieved.

See comments on principles 5.1.1-5.1.4. 5.1.1. A company’s board of directors shall determine the principles of and approaches to the organisation of a risk management and internal monitoring system within the company.


The Board of Directors organises risk management that takes account of widely recognised frameworks and working practice in this area, in order to address the following tasks:

1) providing reasonable assurance that the Company’s aims will be achieved;

2) ensuring the effectiveness of financial and business operations and the economical use of resources;

3) detecting risks and managing those risks;

4) ensuring the security of the Company’s assets. 5.1.2. A company’s executive bodies shall provide for the creation and continued functioning of an effective risk management and internal monitoring system for the company.

Compliant.

The Company’s Chief Executive Officer is providing for the creation and continued functioning of an effective risk management and internal monitoring system for the Company, and is responsible for implementing the directions taken by the Board of Directors on organising a risk management and internal monitoring system.


5.1.3. A company’s risk management and internal monitoring system shall provide an objective, fair and clear picture of the current situation at the company and of its prospects, as well as ensuring the completeness and transparency of the company’s financial statements and the advisability and acceptability of risks taken by the company.

Compliant.

The Company proceeds on the basis that an effective risk management and internal monitoring system presupposes that it is installed at various levels of management, taking account of the role of the relevant level of management in the process of developing, approving, using and assessing its risk management and internal control system:

1) at the operational level – by introducing and implementing the required monitoring procedures in operational processes;

2) at the organisational level – by organising functions that coordinate the Company’s operations within the framework of the risk management and internal monitoring system and supporting the system’s work.

For the purpose of organising a risk management and internal monitoring system, the Company’s internal documents define the roles and tasks of the Board of Directors, executive bodies, the auditor, the internal audit service and other parts of the Company, as well as the procedure for their cooperation.

5.1.4. A company’s board of directors is advised to take all necessary and sufficient measures in order to be confident that the risk management and internal monitoring system operating in the company complies with the principles of and approaches to its organisation, and that it is functioning effectively.


vi. Disclosure of company information, company information policy6.1. A company and its operations shall be transparent to shareholders, investors and other interested parties.

Compliant.

The Company proceeds on the basis that the disclosure of information is one of the most important instruments of cooperation between the Company, its shareholders and interested parties (creditors, partners, customers, suppliers, the public, state bodies), and assists in the development of long-term relationships with these entities and the development of trust among those entities, in increasing the value of the Company and in attracting capital into the Company.

6.1.1. A company shall develop and introduce an information system that provides for effective information cooperation between the company, its shareholders, investors and other interested parties.

Compliant.

The Company proceeds on the basis that its information policy needs to provide for effective information cooperation between the Company, its shareholders, investors and other interested parties, so that those entities can obtain reliable information on the Company’s activities. The Company determines the aims and principles for the disclosure of information, establishes a list of information which the Company is responsible for disclosing, establishes a procedure for the disclosure of information (including the information channels through which the information should be disclosed, and the forms of disclosure), sets deadlines by which access to the information disclosed is given, establishes a procedure for communication between members of the Company’s management bodies, the Company’s managers and its employees on the one hand and shareholders and investors on the other, as well as with the media and other interested parties.


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6.1.2. A company should disclose information on its corporate governance system and practice, including detailed information on its compliance with the principles and recommendations of this Code.


The Company strives to disclose information on its corporate governance system and practice, including detailed information on its compliance with the principles and recommendations of this Code, specifically:

1) on the organisation and general principles of corporate governance applied in the Company;

2) on executive bodies and their composition, with such biographical data as is sufficient to form an impression of the personal and professional qualities of members of executive bodies (including information on their age, education, qualifications, experience), information on the positions they occupy, or have occupied in the last five years at least, in the management bodies of other legal entities;

3) on the composition of the Board of Directors, indicating the chairman, as well as such biographical data as is sufficient to form an impression of the personal and professional qualities of members of the Board of Directors (including information on their age, education, their current place of employment, qualifications, experience), indicating when each director was first elected to the Board of Directors, indicating membership of the boards of directors of other Companies, and whether they are independent directors, as well as information on the positions they occupy, or have occupied in the last five years at least, in the management bodies of other legal entities;

4) on the loss by a member of the Board of Directors of the status of independent director;

5) on the composition of sub-committees of the Board of Directors, indicating the chairman and the independent directors in the composition of the sub-committees.

6.2. A company shall disclose full, up-to-date and reliable information on the company in good time so that its shareholders and investors can make well-grounded decisions.


In order to observe the principles of reliability, completeness and comparability in the information it discloses, the Company strives to ensure that:

1) the information it discloses is clear and uncontradictory, while the data can be compared (the Company’s indicators can be compared over various periods of time, and can also be compared to the figures for similar companies);

2) the information supplied by the Company is objective and balanced in nature;

3) the financial and other information disclosed is neutral, i.e. the provision of this information is independent from the interests of any individuals or groups. The information is not neutral if the choice of content or the choice of form are designed to achieve specific results or consequences.


6.2.1. A company shall disclose information in accordance with the principles of regularity, consistency and timeliness, as well as the principles of accessibility, reliability, completeness and comparability.

Compliant.

In order to implement the principles of regularity, consistency and timeliness in respect of the disclosure of information, as a part of its corporate governance practice, the Company ensures that:

1) information is disclosed without interruption;

2) information that may have a significant impact on assessments of the Company and on the value of its stock is disclosed as quickly as possible;

3) information is provided in a prompt fashion to explain the Company’s position on rumours or unreliable information that forms a distorted impression of the Company and the value of its stock, thus subjecting the interests of shareholders and investors to risk.

The implementation of the principle of accessibility in respect of information disclosure presupposes the Company’s use of various channels and means of disclosing information, primarily electronic means that are available to the majority of interested parties. Channels for the distribution of information must ensure free and unhindered access for interested parties to the information disclosed by the Company.

The Company’s website is the main source of information disclosed by the Company, and so the Company strives to ensure that information posted on the website is sufficient to provide an objective impression of significant aspects of the Company’s operations.

6.2.2. Companies should avoid a formal approach to the disclosure of information and should disclose material information on their operations, even if the disclosure of this information is not stipulated by the law.


The Company strives to avoid taking a formal approach to the disclosure of information and strives to disclose material information on its operations, even if the disclosure of this information is not stipulated by the law.

6.2.3. As one of the most important instruments in a company’s information cooperation with its shareholders and other interested parties, its annual report shall contain information that makes it possible to assess the results of the company’s operations over the course of the year.

Compliant.

The annual report is one of the most important instruments in the Company’s information cooperation with its shareholders and other interested parties, and must contain information that makes it possible to assess the results of the Company’s operations over the course of the year.

6.3. Companies must supply information and documents at the request of shareholders in accordance with the principles of equal and unrestricted access.

Compliant.

The Company establishes the procedure for the supply to shareholders of Company information and documents based on the principle that the procedure should not serve as a hindrance to shareholders.

The volume of shareholders’ rights of access to documents and information is differentiated depending on the number of the Company’s voting shares controlled by the shareholder. Shareholders with the same volume of rights have equal access to the Company’s documents.

The Company charges a fee for providing copies of documents, with the fee being calculated based on the costs incurred in preparing and dispatching the copies of Company documents.


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6.3.1. Shareholders’ exercising of their right of access to a company’s documents and information must not be accompanied by unjustified difficulties.

Compliant.

The Company proceeds on the basis that its executive bodies and Board of Directors have the right to put forward reservations against the implementation of a shareholder’s demands, if the Company deems that the nature and volume of information requested provide evidence of signs that the shareholder has abused their right of access to the Company’s information. Such reservations may not be arbitrary or prejudiced in nature and must comply with the principle of equal access for shareholders, which means that under equal conditions shareholders must be in equal situations.

6.3.2. When a company supplies information to shareholders, it is advised to ensure a sensible balance between the interests of specific shareholders and the interests of the company itself, which has an interest in preserving the confidentiality of important commercial information that may have a significant impact on its competitiveness.

Compliant.

When the Company supplies information to shareholders, it proceeds on the basis that a sensible balance needs to be maintained between the interests of specific shareholders and the interests of the Company itself, which has an interest in preserving the confidentiality of important commercial information that may have a significant impact on its competitiveness. The Company compiles a list of information that constitutes a commercial or business secret or is treated as some other form of confidential information. Access to such information may be granted provided that confidentiality is maintained, and provided that the requirements of federal laws are observed.

vii. Significant corporate actions7.1. Actions that have or could have a significant influence on the structure of a company’s share capital and its financial situation and, consequently, on the position of shareholders (significant corporate actions), shall be conducted in equal conditions that ensure the observance of shareholders’ rights and interests, as well as those of other interested parties.


The Company proceeds on the basis that significant corporate actions refers to actions that have or could have a significant influence on the structure of the Company’s share capital and its financial situation and, consequently, on the position of shareholders, and specifically: a reorganisation of the Company, the acquisition of 30 or more per cent of the Company’s voting shares (acquisition), the completion of significant transactions by the Company and the priority business units it controls (major transactions and other transactions stipulated by the Company’s Charter), an increase or reduction in the Company’s charter capital, the listing or delisting of the Company’s shares. The Company proceeds on the basis that these must be conducted in equal conditions that ensure the observance of shareholders’ rights and interests, as well as those of other interested parties.

7.1.1. The following should be classified as significant corporate actions: a reorganisation of a company, the acquisition of 30 or more per cent of a company’s voting shares (acquisition), the completion of significant transactions by a company and the priority business units it controls, an increase or reduction in a company’s charter capital, the listing or delisting of a company’s shares, as well as other actions that could lead to a significant change in the rights of shareholders or a violation of their interests. A company charter should provide a list of transactions (criteria) or any other actions that are significant corporate actions, and assign consideration of these actions to the company’s board of directors.

Compliant.


7.1.2. A board of directors shall play a key role in decision-making and the preparation of recommendations in respect of significant corporate actions, based on the positions of the company’s independent directors.


The procedure for the conduct of significant corporate actions is stipulated by Russian law, the Company’s Charter and its internal documents.

The Board of Directors is given a key role in decision-making and the preparation of recommendations in respect of significant corporate actions, in accordance with the remit stipulated by legislation and the Company’s Charter.

7.1.3. During significant corporate actions that affect the rights and lawful interests of shareholders, equal conditions should be provided for all of a company’s shareholders. If there is a lack of mechanisms stipulated by law to protect the rights of shareholders, additional measures protecting the rights and lawful interests of the company’s shareholders should be taken. At the same time, the company shall be guided not only by observing the formal requirements of legislation, but also by the principles of corporate governance outlined in this Code.



7.2. A company shall put in place a procedure for the completion of significant corporate actions that allows shareholders to obtain complete information on these actions in good time, that provides them with the opportunity to affect these actions and that guarantees observance of and an adequate level of protection for their rights during such actions.



7.2.1. Information on significant corporate actions should be disclosed, along with an explanation of the reasons for, terms of and consequences of such actions.


Information on significant corporate actions is disclosed in accordance with the procedure stipulated in Russian law.


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APPENDIX 4USE OF ENERGY RESOURCES IN 2014

The energy resources used by PJSC RPC UWC, including electricity and heat energy, is included in rental costs, which means the Company is unable to provide information on volumes of the aforementioned energy resources used, either in physical or monetary terms. In 2014, the Company did not use any other energy resources, including combustibles and lubricants.

Information on the use of energy resources at UWC’s main production units is supplied below.

TvSZ nPC Springs TikhvinChemMash

Electricity, kWh 176,541,554 10,696,000 490,501Gas, m3 22,650,334 – –Petrol, litres – – 8,212Diesel, litres – 179,200 –

CONTACT INFORMATION

UNITED WAGON COMPANY RESEARCH AND PRODUCTION CORPORATION PUBLIC JOINT-STOCK COMPANY (PJSC RPC UWC)Staryy Tolmachevsky Pereulok, 5,

Moscow, Russia, 115184

Tel: +7 (499) 999 15 20

Fax: +7 (499) 999 15 21

[email protected]

CONTACT INFORMATION FOR SHAREHOLDER ENQUIRIESANTON SAYKIN

Finance Director

Tel: +7 (499) 999 15 20

[email protected]

CONTACT INFORMATION FOR MEDIA ENQUIRIESVASILY SOMOV

Corporate Communications Director

Tel: +7 (499) 999 15 20

[email protected]

united wagon companyStaryy tolmachevSky Pereulok, 5,

moScow, ruSSia, 115184

tel: +7 (499) 999 15 20

Fax: +7 (499) 999 15 21

email: [email protected]

www.uniwagon.com

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