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Attachment 1

CORPORATE GOVERNANCE CODE COMPLIANCE REPORT

THIS CORPORATE GOVERNANCE CODE COMPLIANCE REPORT WAS DISCUSSED BY THE BOARD OF DIRECTORS OF PUBLIC JOINT STOCK COMPANY TRUBNAYA METALLURGICHESKAYA KOMPANIYA (PAO TMK) AT THE MEETING DATED APRIL 25 2019, MINUTES NO.23 DATED APRIL 29, 2019.

THE BOARD OF DIRECTORS CERTIFIES THAT ALL DATA IN THIS REPORT CONTAIN FULL AND RELIABLE INFORMATION ON COMPLIANCE BY THE COMPANY WITH THE PRINCIPLES AND RECOMMENDATIONS OF THE CORPORATE GOVERNANCE CODE FOR 2018.

THE STATEMENT OF PAO TMK’S BOARD OF DIRECTORS ON COMPLIANCE WITH THE CORPORATE GOVERNANCE PRINCIPLES SET OUT IN THE CORPORATE GOVERNANCE CODE IS PROVIDED ON PAGE 44 OF THIS ANNUAL REPORT.

No Corporate governance principles Compliance criteria Compliance status Reasons for non-compliance
1.1 The company ensures equal and fair treatment of all shareholders in exercising their corporate governance right
1.1.1 The company ensures the most favorable conditions for its shareholders to participate in the general meeting, develop informed positions on agenda items of the general meeting, coordinate their actions, and voice their opinions on items considered.
  1. The company’s internal document approved by the general meeting of shareholders governing the procedures to hold general meetings of shareholders is publicly available.
  2. The company provides accessible means of communication with the company, such as a hotline, e-mail, or online forum, to enable shareholders to express their opinions and send questions on the agenda in preparation for the general meeting. The company performed the above actions in advance of each general meeting held in the reporting period.
Full
Partial
none
1.1.2 The procedure for giving notice of, and providing relevant materials for, the general meeting enables shareholders to properly prepare for attending the general meeting.
  1. The notice of an upcoming general shareholders meeting is posted (published) online at least 30 days prior to the date of the general meeting.
  2. The notice of an upcoming meeting specifies the meeting venue and documents required for admission.
  3. Shareholders were given access to the information on who proposed the agenda items and who nominated candidates to the company’s board of directors and the revision committee.
Full
Partial
none
1.1.3 In preparing for, and holding of, the general meeting, shareholders were able to receive clear and timely information about, and all materials related to, the meeting, put questions to the company’s executive bodies and board of directors, and communicate with each other .
  1. In the reporting period, shareholders were given an opportunity to put questions to members of executive bodies and members of the board of directors in advance of, and during, the annual general meeting.
  2. The position of the board of directors (including dissenting opinions entered in the minutes) on each item on the agenda of general meetings held in the reporting period was included in the materials for the general meeting of shareholders.
  3. The company gave duly authorized shareholders access to the list of persons entitled to participate in the general meeting, as from the date when such list was received by the company, in all instances of general meetings held in the reporting period.
Full
Partial
none
1.1.4 There were no unjustified difficulties preventing shareholders from exercising their right to request that a general meeting be convened, to propose nominees to the company’s governing bodies, and to make proposals for the agenda of the general meeting.
  1. In the reporting period, shareholders had an opportunity to make proposals for the agenda of the annual general meeting for at least 60 days after the end of the respective calendar year.
  2. In the reporting period, the company did not reject any proposals for the agenda or nominees to the company’s governing bodies due to misprints or other insignificant flaws in the shareholder’s proposal.
Full
Partial
none
1.1.5 Each shareholder was able to freely exercise their voting right in the simplest and most convenient way. An internal document (internal policy) contains provisions stipulating that any person attending a general meeting may, before the end of this meeting, request a copy of the ballot filled out by them and certified by the counting commission. Full
Partial
none
1.1.6 The procedure for holding a general meeting set by the company provides equal opportunities for all persons attending the meeting to voice their opinions and ask questions.
  1. During general meetings of shareholders held in the reporting period in the form of a meeting (joint presence of shareholders), sufficient time was allocated for reports on, and discussion of, the agenda items.
  2. Nominees to the company’s governing and control bodies were available to answer shareholders’ questions at the meeting at which their nominations were put to vote.
  3. When passing resolutions on the preparation and holding of general meetings of shareholders, the board of directors considered using telecommunication means for remote access of shareholders to general meetings in the reporting period.
Full
Partial
none
Additional clarifications on paragraph 3. In 2018, the Board of Directors considered the use of telecommunication means for remote access of shareholders to the general meeting. PAO TMK’s Articles of Association were amended accordingly. Based on historical data on attendance and activity levels of minority shareholders, as well as the need for additional funding, it was resolved not to use telecommunication means for remote access of shareholders to the Annual General Meeting on June 21, 2018. Since the Extraordinary General Meeting of Shareholders was convened by absentee voting of members of the Board of Directors, the use of telecommunication means for remote access of shareholders to the meeting was not discussed again. The Company is planning to use telecommunication means for remote access of shareholders to the Annual General Meeting in 2019.
1.2 Shareholders are given equal and fair opportunities to share profits of the company in the form of dividends.
1.2.1 The company has designed and put in place a transparent and clear mechanism to determine the dividend amount and payout procedure.
  1. The company has drafted and disclosed a dividend policy approved by the board of directors.
  2. If the company’s dividend policy uses reporting figures to determine the dividend amount, then relevant provisions of the dividend policy take into account the consolidated financial statements.
Full
Partial
none
1.2.2 The company does not resolve to pay out dividends if such payout, while formally compliant with law, is economically unjustified and may lead to a false representation of the company’s performance. The company’s dividend policy contains clear indications of financial/ economic circumstances under which the company shall not pay out dividends. Full
Partial
none
The revised Dividend Policy was approved in 2018 and is available on the Company’s website at www.tmk-group.com/Documents
1.2.3 The company does not allow for dividend rights of its existing shareholders to be impaired. In the reporting period, the company did not take any actions that would lead to the impairment of the dividend rights of its existing shareholders. Full
Partial
none
1.2.4 The company makes every effort to prevent its shareholders from using means to profit (gain) from the company other than dividends and liquidation value. To prevent shareholders from using means to profit (gain) from the company other than dividends and liquidation value, the company’s internal documents provide for controls to timely identify and approve deals with affiliates (associates) of the company’s substantial shareholders (persons entitled to use votes attached to voting shares) where the law does not formally recognize such deals as interested party transactions. Full
Partial
none
1.3 The corporate governance framework and practices ensure equal conditions for all shareholders owning the same type (class) of shares, including minority and non-resident shareholders, and their equal treatment by the company.
1.3.1 The company has created conditions for fair treatment of each shareholder by the company’s governing and control bodies, including conditions that rule out abuse by major shareholders against minority shareholders. In the reporting period, procedures for management of potential conflicts of interest among substantial shareholders were efficient, while the board of directors paid due attention to conflicts, if any, between shareholders. Full
Partial
none
1.3.2 The company does not take any actions that lead or may lead to artificial redistribution of corporate control. No quasi-treasury shares were issued or used to vote in the reporting period. Full
Partial
none
1.4 Shareholders are provided with reliable and efficient means of recording their rights to shares and are able to freely dispose of their shares without any hindrance.
1.4.1 Shareholders are provided with reliable and efficient means of recording their rights to shares and are able to freely dispose of their shares without any hindrance. The company’s registrar maintains the securities register in an efficient and reliable way that meets the needs of the company and its shareholders. Full
Partial
none
2.1 The board of directors provides strategic management of the company, determines key principles of, and approaches to, organizing a corporate risk management and internal control system, monitors the activities of the company’s executive bodies, and performs other key functions.
2.1.1 The board of directors is responsible for appointing and dismissing executive bodies, including for improper performance of their duties. The board of directors also ensures that the company’s executive bodies act in accordance with the company’s approved development strategy and core lines of business.
  1. The board of directors has the authority stipulated in the articles of association to appoint and remove members of executive bodies and to set out the terms and conditions of their contracts.
  2. The board of directors reviewed the report(s) by the sole executive body or members of the collegial executive body on the implementation of the company’s strategy.
Full
Partial
none
2.1.2 The board of directors sets key long-term targets for the company, assesses and approves its key performance indicators and key business goals, as well as the strategy and business plans for the company’s core lines of business. At its meetings in the reporting period, the board of directors reviewed strategy implementation and updates, approval of the company’s financial and business plan (budget), and the implementation criteria and performance (including interim criteria and performance) of the company’s strategy and business plans. Full
Partial
none
2.1.3 The board of directors determines the principles of, and approaches to, organizing a risk management and internal control system in the company.
  1. The board of directors determined the principles of, and approaches to, organizing a risk management and internal control system in the company.
  2. The board of directors assessed the risk management and internal control system in the company during the reporting period.
Full
Partial
none
2.1.4 The board of directors determines the company’s policy on remuneration due to, and/ or reimbursement (compensation) of costs incurred by, members of the board of directors, executive bodies, and other key executives of the company.
  1. The company developed and put in place a remuneration and reimbursement (compensation) policy (policies), approved by the board of directors, for its directors, executive bodies, and other key executives.
  2. At its meetings in the reporting period, the board of directors discussed matters related to such policy (policies).
Full
Partial
none
2.1.5 The board of directors plays a key role in preventing, identifying, and resolving internal conflicts between the company’s bodies, shareholders, and employees.
  1. The board of directors plays a key role in preventing, identifying, and resolving internal conflicts.
  2. The company set up mechanisms to identify transactions leading to a conflict of interest and to resolve such conflicts.
Full
Partial
none
2.1.6 The board of directors plays a key role in ensuring that the company is transparent, timely and fully discloses its information, and provides its shareholders with unhindered access to the company’s documents.
  1. The board of directors approved the company’s regulations on the information policy.
  2. The company designated persons responsible for implementing the information policy.
Full
Partial
none
2.1.7 The board of directors controls the company’s corporate governance practices and plays a key role in its significant corporate events. In the reporting period, the board of directors reviewed the company’s corporate governance practices. Full
Partial
none
2.2 The board of directors is accountable to the company’s shareholders.
2.2.1 Performance of the board of directors is disclosed and made available to the shareholders.
  1. The company’s annual report for the reporting period includes the information on individual attendance at board of directors and committee meetings.
  2. The annual report discloses key performance assessment results of the board of directors in the reporting period.
Full
Partial
none
2.2.2 The chairman of the board of directors is available to communicate with the company’s shareholders. The company has in place a transparent procedure enabling shareholders to forward questions and express their positions on such questions to the chairman of the board of directors. Full
Partial
none
2.3 The board of directors manages the company in an efficient and professional manner and is capable of making fair and independent judgements and adopting resolutions in the best interests of the company and its shareholders.
2.3.1 Only persons of impeccable business and personal reputation who have the knowledge, expertise, and experience required to make decisions within the authority of the board of directors and essential to performing its functions in an efficient way are elected to the board of directors.
  1. The procedure for assessing the board of directors’ performance established in the company includes, inter alia, assessment of professional qualifications of directors.
  2. In the reporting period, the board of directors (or its nomination committee) assessed nominees to the board of directors for required experience, business reputation, absence of conflicts of interest, etc.
Full
Partial
none
2.3.2 The company’s directors are elected via a transparent procedure that enables shareholders to obtain information on nominees sufficient to judge on their personal and professional qualities. Whenever the agenda of the general meeting of shareholders included election of the board of directors, the company provided to shareholders the biographical details of all nominees to the board of directors, the results of their assessment carried out by the board of directors (or its nomination committee), and the information on whether the nominee meets the independence criteria set forth in Recommendations 102–107 of the Code, as well as the nominees’ written consent to be elected to the board of directors. Full
Partial
none
2.3.3 The board of directors is balanced, including in terms of directors’ qualifications, experience, expertise, and business skills, and has the trust of shareholders. As part of assessment of the board of directors’ performance run in the reporting period, the board of directors reviewed its requirements to professional qualifications, experience, and business skills. Full
Partial
none
2.3.4 The company has a sufficient number of directors to organize the board of directors’ activities in the most efficient way, including ability to set up committees of the board of directors and enable the company’s substantial minority shareholders to elect a nominee to the board of directors for whom they vote. As part of assessment of the board of directors’ performance run in the reporting period, the board of directors considered whether the number of directors met the company’s needs and shareholders’ interests. Full
Partial
none
2.4 The board of directors includes a sufficient number of independent directors
2.4.1 An independent director is a person who is sufficiently professional, experienced, and independent to develop his/her own position, and capable of making unbiased judgements in good faith, free of influence by the company’s executive bodies, individual groups of shareholders, or other stakeholders. It should be noted that a nominee (elected director) who is related to the company, its substantial shareholder, substantial counterparty, or competitor, or is related to the government, may not be considered as independent under normal circumstances. In the reporting period, all independent directors met all independence criteria set out in Recommendations 102–107 of the Code or were deemed independent by resolution of the board of directors. Full
Partial
none
2.4.2 The compliance of candidates to the board of directors with the criteria for independence is assessed, and a regular review of compliance of independent members of the board of directors with such criteria is performed. In such assessment, substance should prevail over form.
  1. In the reporting period, the board of directors (or its nomination committee) made a judgement on the independence of each nominee to the board of directors and provided its opinion to shareholders.
  2. In the reporting period, the board of directors (or its nomination committee) reviewed, at least once, the independence of incumbent directors listed by the company as independent directors in its annual report.
  3. The company has in place procedures defining the actions to be taken by directors if they cease to be independent, including the obligation to timely notify the board of directors thereof.
Full
Partial
none
2.4.3 Independent directors make up at least one third of the elected directors. Independent directors make up at least one third of directors. Full
Partial
none
2.4.4 Independent directors play a key role in preventing internal conflicts in the company and in ensuring that the company performs significant corporate actions. Independent directors (who do not have a conflict of interest) carry out a preliminary assessment of material corporate actions implying a potential conflict of interest, and submit the results to the board of directors. Full
2.5 The chairman of the board of directors ensures that the board of directors discharges its duties in the most efficient way.
2.5.1 The board of directors is chaired by an independent director, or a senior independent director is chosen from among the elected independent directors to coordinate the activities of independent directors and enable the interaction with the chairman of the board of directors.
  1. The board of directors is chaired by an independent director, or a senior independent director is chosen from among the independent directors.
  2. The role, rights, and duties of the chairman of the board of directors (and, if applicable, of the senior independent director) are duly set out in the company’s internal documents.
  3. The company has in place procedures defining the actions to be taken by directors if they cease to be independent, including the obligation to timely notify the board of directors thereof.
Full
Partial
none
1. The Chairman of PAO TMK’s Board of Directors is a non-executive director. The Company believes that this inconsistency with the Code’s recommendations is favorable for the Company since its Chairman is also the Company’s ultimate beneficiary.

According to interviews with directors conducted as part of the assessment of the Board of Directors’ performance by the external auditor, most directors believed that election of a senior independent director would not enhance the actual performance of the Board of Directors. The Company is aware that election of a senior independent director is good international practice; however, international practice is largely based on a diffused ownership model, which is not typical of TMK.

The Board of Directors considers the existing governance framework to be efficient; the members of the Board of Directors actively participate in meetings discussing all agenda items.

Potential risks arising from non-compliance with this Code recommendation are mitigated through the practice of electing to the Board of Directors a sufficient number of independent directors (five directors out of eleven) with an impeccable reputation in the investment and business community.

When considering its composition in the reporting year, the Board of Directors assumed that there was no need to elect a senior independent director since independent directors are included in the Board of Directors and each independent director is free to express his/her opinion and vote on agenda items.

The need to elect a senior independent director will be considered by the Board of Directors in 2019.

2. Full compliance.
2.5.2 The chairman of the board of directors maintains a constructive environment at meetings, enables free discussion of agenda items, and supervises the execution of resolutions passed by the board of directors. Performance of the chairman of the board of directors was assessed as part of assessment of the board of directors’ performance in the reporting period. Full
Partial
none
2.5.3 The chairman of the board of directors takes all steps necessary for the timely provision to directors of information required to pass resolutions on agenda items. The company’s internal documents set out the duty of the chairman of the board of directors to take all steps necessary for the timely provision to directors of materials regarding items on the agenda of a board meeting. Full
Partial
none
2.6 Directors act reasonably and in good faith in the best interests of the company and its shareholders, on a fully informed basis and with due care and diligence.
2.6.1 Directors pass resolutions based on all information available, without conflict of interest, subject to equal treatment of the company’s shareholders, and assuming normal business risks.
  1. The company’s internal documents provide that a director should notify the board of directors of any existing conflict of interest as to any item on the agenda of the meeting of the board of directors or its committee, prior to the discussion of the relevant agenda item.
  2. The company’s internal documents provide that a director should abstain from voting on any item in connection with which he/she has a conflict of interest.
  3. The company has in place a procedure enabling the board of directors to get professional advice on matters within its remit at the expense of the company.
Full
Partial
none
2.6.2 The rights and duties of directors are clearly stated and incorporated in the company’s internal documents. The company adopted and published an internal document that clearly defines the rights and duties of directors. Full
Partial
none
2.6.3 Directors have sufficient time to perform their duties.
  1. Individual attendance at board and committee meetings, as well as time devoted to preparation for attending meetings, was recorded as part of the procedure for assessing the board of directors in the reporting period.
  2. In accordance with the company’s internal documents, directors should notify the board of directors of their intentions to be elected to governing bodies of other entities (apart from the entities controlled by, or affiliated to, the company), and of their election to such bodies.
Full
Partial
none
2.6.4 All directors have equal access to the company’s documents and information. Newly elected directors are furnished with sufficient information about the company and the board of directors’ performance as soon as possible.
  1. In accordance with the company’s internal documents, directors are entitled to access documents and make queries regarding the company and its controlled entities, while executive bodies of the company should furnish all relevant information and documents.
  2. The company has in place a formalized induction program for newly elected directors.
Full
Partial
none
2.7 Meetings of the board of directors, preparation for such meetings, and participation of directors ensure efficient performance by the board of directors.
2.7.1 Meetings of the board of directors are held as needed, taking into account the scale of operations and goals of the company at a particular time. The board of directors held at least six meetings in the reporting year. Full
Partial
none
2.7.2 The company’s internal regulations formalize a procedure for arranging and holding meeting of the board of directors, enabling members of the board of directors to properly prepare for such meetings. The company has an approved internal document that describes the procedure for arranging and holding meetings of the board of directors and sets out, in particular, that the notice of the meeting is to be given, as a rule, at least five days prior to such meeting. Full
Partial
none
2.7.3 The format of the meeting of the board of directors is determined taking into account the importance of its agenda items. The most important matters are dealt with at meetings of the board of directors held in person. The company’s articles of association or internal document provide for the most important matters (as per the list set out in Recommendation 168 of the Code) to be passed at in-person meetings of the board of directors. Full
Partial
none
2.7.4 Resolutions on most important matters relating to the company’s operations are passed at a meeting of the board of directors by a qualified majority or by a majority of all elected directors. The company’s articles of association provide for resolutions on the most important matters set out in Recommendation 170 of the Code to be passed at a meeting of the board of directors by a qualified majority of at least three quarters or by a majority of all elected directors. Full
Partial
none
2.8 The board of directors sets up committees to preview the most important matters related to the company’s operations.
2.8.1 To preview matters related to controlling the company’s financial and business activities, an audit committee was set up, comprised of independent directors.
  1. The board of directors set up an audit committee comprised solely of independent directors.
  2. The company’s internal documents set out the tasks of the audit committee, including those listed in Recommendation 172 of the Code.
  3. At least one member of the audit committee represented by an independent director has experience and knowledge of preparing, analyzing, assessing, and auditing accounting (financial) statements.
  4. . In the reporting period, meetings of the audit committee were held at least once a quarter.
Full
Partial
none
1. Along with independent directors, the Audit Committee includes one non-executive director. The Chairman of the Audit Committee is an independent director. The Board of Directors discussed exclusive Committee membership of independent directors and acknowledged the Company’s practice to be justified since it strikes the optimal balance of directors’ roles and ensures sufficient time to perform their duties, as well as provides for the membership of directors whose qualifications and experience allow to make professional judgements on industry trends and the Company’s operations.

All Committee members comply with the Russian Corporate Governance Code recommendations for the reporting review and assessment competencies. The Board of Directors also pays attention to regular re-election of Committees, the age balance of their members, and ensuring continuity of their functions.

In 2019, the Board of Directors will get back to considering the need to change the procedure for determining the membership of the Audit Committee.

2–4. Full compliance.

2.8.2 To preview matters related to adopting an efficient and transparent remuneration scheme, a remuneration committee was set up, comprised of independent directors and headed by an independent director who is not the chairman of the board of directors.
  1. The board of directors set up a remuneration committee comprised solely of independent directors.
  2. The remuneration committee is headed by an independent director who is not the chairman of the board of directors.
  3. The company’s internal documents set out the tasks of the remuneration committee, including those listed in Recommendation 180 of the Code.
Full
Partial
none
1. The Nomination and Remuneration Committee combines the functions of a remuneration committee and a nomination (HR, appointments) committee.

The Chairman of the Committee is an independent director.

Along with independent directors, the Committee includes one non-executive director.

The reasons for such inconsistency with the Code recommendation set out in paragraph 2.8.2, subparagraph 1, are stated in the note to paragraph 2.8.1.

In 2019, the Board of Directors will get back to considering the need to change the procedure for determining the membership of the Nomination and Remuneration Committee.

2–3. Full compliance.
2.8.3 To preview matters related to talent management (succession planning), professional composition and efficiency of the board of directors, a nomination (appointments, HR) committee was set up, predominantly comprised of independent directors.
  1. The board of directors set up a nomination committee (or its tasks listed in Recommendation 186 of the Code are fulfilled by another committee) predominantly comprised of independent directors.
  2. The company’s internal documents set out the tasks of the nomination committee (or the tasks of the committee with combined functions), including those listed in Recommendation 186 of the Code.
Full
Partial
none
2.8.4 Taking into account the company’s scope of business and level of risks, the company’s board of directors made sure that the composition of its committees is in line with the company’s business goals. Additional committees were either set up or not deemed necessary (strategy committee, corporate governance committee, ethics committee, risk management committee, budget committee, health, safety, and environmental committee, etc.). In the reporting period, the board of directors considered whether the composition of its committees was in line with the board’s tasks and the company’s business goals. Additional committees were either set up or not deemed necessary. Full
Partial
none
2.8.5 Committees shall be composed so as to enable comprehensive discussions of matters under preview, taking into account the diversity of opinions.
  1. Committees of the board of directors are headed by independent directors.
  2. The company’s internal documents (policies) include provisions stipulating that persons who are not members of the audit committee, the nomination committee, and the remuneration committee may attend committee meetings only by invitation of the chairman of the respective committee.
Full
Partial
none
2.8.6 Committee chairmen inform the board of directors and its chairman on the work of their committees on a regular basis. In the reporting period, committee chairmen reported to the board of directors on the work of committees on a regular basis. Full
Partial
none
2.9 The board of directors ensures performance assessment of the board of directors, its committees, and members of the board of directors.
2.9.1 The board of directors’ performance assessment is aimed at determining the efficiency of the board of directors, its committees and members, consistency of their work with the company’s growth requirements, as well as at bolstering the work of the board of directors and identifying areas for improvement.
  1. Self-assessment or external assessment of the board of directors’ performance carried out in the reporting period included performance assessment of committees, individual directors, and the board of directors in general.
  2. Results of self-assessment or external assessment of the board of directors’ performance carried out in the reporting period were reviewed at the in-person meeting of the board of directors.
Full
Partial
none
2.9.2 Performance of the board of directors, its committees and members is assessed regularly at least once a year. An external advisor is engaged at least once in three years to conduct an independent assessment of the board of directors’ performance. The company engaged an external advisor to conduct an independent assessment of the board of directors’ performance at least once over the last three reporting periods. Full
Partial
none
3.1 The company’s corporate secretary ensures efficient ongoing interaction with shareholders, coordinates the company’s efforts to protect shareholder rights and interests, and supports efficient performance of the board of directors.
3.1.1 The corporate secretary has the expertise, experience, and qualifications sufficient to perform his/her duties, as well as an impeccable reputation and the trust of shareholders.
  1. The company adopted and published an internal document – regulations on the corporate secretary.
  2. The biographical data of the corporate secretary are published on the corporate website and in the company’s annual report with the same level of detail as for members of the board of directors and the company’s executives.
Full
Partial
none
3.1.2 The corporate secretary is sufficiently independent of the company’s executive bodies and has the powers and resources required to perform his/her tasks. The board of directors approves the appointment, dismissal, and additional remuneration of the corporate secretary. Full
Partial
none
4.1 Remuneration payable by the company is sufficient to attract, motivate, and retain people with competencies and qualifications required by the company. Remuneration payable to directors, executive bodies, and other key executives of the company is in compliance with the approved remuneration policy of the company.
4.1.1 The amount of remuneration paid by the company to directors, executive bodies, and other key executives creates sufficient incentives for them to work efficiently while enabling the company to engage and retain competent and qualified specialists. At the same time, the company avoids unnecessarily high remuneration, as well as unjustifiably large gaps between remunerations of the above persons and the company’s employees. The company has in place an internal document (internal documents) – the policy (policies) on remuneration of members of the board of directors, executive bodies, and other key executives, which clearly defines the approaches to remuneration of the above persons. Full
Partial
none
4.1.2 The company’s remuneration policy is devised by the remuneration committee and approved by the board of directors. The board of directors, assisted by the remuneration committee, ensures control over the introduction and implementation of the company’s remuneration policy, revising and amending it as required. During the reporting period, the remuneration committee considered the remuneration policy (policies) and its (their) introduction practices to provide relevant recommendations to the board of directors as required. Full
Partial
none
4.1.3 The company’s remuneration policy includes transparent mechanisms for determining the amount of remuneration due to directors, executive bodies and other key executives of the company, and regulates all types of expenses, benefits, and privileges provided to such persons. The company’s remuneration policy (policies) includes (include) transparent mechanisms for determining the amount of remuneration due to directors, executive bodies, and other key executives of the company, and regulates (regulate) all types of expenses, benefits, and privileges provided to such persons. Full
Partial
none
4.1.4 The company defines a policy on reimbursement (compensation) of expenses detailing a list of reimbursable expenses and specifying service levels that directors, executive bodies, and other key executives of the company may claim. Such policy can make part of the company’s remuneration policy. The remuneration policy (policies) or other internal documents of the company defines (define) the rules for reimbursement of expenses incurred by directors, executive bodies, and other key executives of the company. Full
Partial
none
4.2 Remuneration system for directors ensures alignment of financial interests of directors with long-term financial interests of shareholders.
4.2.1 The company pays fixed annual remuneration to its directors. The company does not pay remuneration for attending particular meetings of the board of directors or its committees. The company does not apply any form of shortterm motivation or additional financial incentive for its directors. Fixed annual remuneration was the only form of monetary remuneration payable to directors for their service on the board of directors during the reporting period. Full
Partial
none
4.2.2 Long-term ownership of the company shares helps align the financial interests of directors with long-term interests of shareholders to the utmost. At the same time, the company does not link the right to dispose of shares to performance targets, and directors do not participate in stock option plans. If the company’s internal document(s) – the remuneration policy (policies) stipulates (stipulate) provision of the company shares to members of the board of directors, clear rules for share ownership by board members shall be defined and disclosed, aimed at stimulating long-term ownership of such shares. Full
Partial
none
4.2.3 The company does not provide for any extra payments or compensations in the event of early termination of powers of members of the board of directors resulting from the change of control or any other reasons whatsoever. The company does not provide for any extra payments or compensations in the event of early termination of powers of members of the board of directors resulting from the change of control or any other reasons whatsoever. Full
Partial
none
4.3 The company considers its performance and the personal contribution of each executive to the achievement of such performance when determining the amount of a fee payable to members of executive bodies and other key executives of the company.
4.3.1 Remuneration due to members of executive bodies and other key executives of the company is determined in a manner providing for reasonable and justified ratio of the fixed and variable parts of remuneration, depending on the company’s performance and the employee’s personal contribution.
  1. In the reporting period, annual performance targets approved by the board of directors were used to determine the amount of the variable part of remuneration due to members of executive bodies and other key executives of the company.
  2. During the latest assessment of the remuneration system for members of executive bodies and other key executives of the company, the board of directors (remuneration committee) made sure that the company applies efficient ratio of the fixed and variable parts of remuneration.
  3. The company has in place a procedure that guarantees return to the company of bonus payments illegally received by members of executive bodies and other key executives of the company.
Full
Partial
none
4.3.2 The company has in place a long-term incentive program for members of executive bodies and other key executives of the company with the use of company shares (options and other derivative instruments where company shares are the underlying asset).
  1. The company has in place a long-term incentive program for members of executive bodies and other key executives of the company with the use of company shares (financial instruments based on company shares).
  2. The long-term incentive program for members of executive bodies and other key executives of the company implies that the right to dispose of shares and other financial instruments used in this program takes effect at least three years after such shares or other financial instruments are granted. The right to dispose of such shares or other financial instruments is linked to the company’s performance targets.
Full
Partial
none
In 2018, the Board of Directors approved the Long-Term Top Management Incentive Program.
4.3.3 The compensation (golden parachute) payable by the company in case of early termination of powers of members of executive bodies or key executives at the company’s initiative, provided that there have been no actions in bad faith on their part, does not exceed the double amount of the fixed part of their annual remuneration. In the reporting period, the compensation (golden parachute) payable by the company in case of early termination of powers of executive bodies or key executives at the company’s initiative, provided that there have been no actions in bad faith on their part, did not exceed the double amount of the fixed part of their annual remuneration. Full
Partial
none
5.1 The company has in place an effective risk management and internal control system providing reasonable assurance in the achievement of the company’s goals.
5.1.1 The company’s board of directors determined the principles of, and approaches to, organizing a risk management and internal control system in the company. Functions of different governing bodies and business units of the company related to risk management and internal control are clearly defined in the company’s internal documents / relevant policy approved by the board of directors. Full
Partial
none
5.1.2 The company’s executive bodies ensure establishment and continuous operation of an efficient risk management and internal control system in the company. The company’s executive bodies ensured the distribution of functions and powers related to risk management and internal control between the heads (managers) of business units and departments accountable to them. Full
Partial
none
5.1.3 The company’s risk management and internal control system ensures an objective, fair, and clear view of the current state and future prospects of the company, the integrity and transparency of the company’s reporting, as well as reasonable and acceptable risk exposure.
  1. The company has in place an approved anti-corruption policy.
  2. The company arranged for an accessible means of notifying the board of directors or the board’s audit committee about violations of the law, the company’s internal procedures and code of ethics.
Full
Partial
none
5.1.4 The company’s board of directors takes necessary measures to make sure that the company’s risk management and internal control system is consistent with the principles of, and approaches to, its setup determined by the board of directors, and that the system is functioning efficiently. In the reporting period, the board of directors or the board’s audit committee assessed the performance of the company’s risk management and internal control system. The information on the key results of this assessment is included in the company’s annual report. Full
Partial
none
5.2 The company performs internal audit for regular independent assessment of the reliability and performance of the risk management and internal control system and the corporate governance practices.
5.2.1 The company set up a separate business unit or engaged an independent external organization to carry out internal audits. Functional and administrative reporting lines of the internal audit department are delineated. The internal audit unit functionally reports to the board of directors. To perform internal audits, the company set up a separate business unit – the internal audit division, functionally reporting to the board of directors or to the audit committee, or engaged an independent external organization with the same line of reporting. Full
Partial
none
5.2.2 The internal audit division assesses the performance of the internal control, risk management, and corporate governance systems. The company applies generally accepted standards of internal audit.
  1. In the reporting period, the performance of the internal control and risk management system was assessed as part of the internal audit procedure
  2. The company applies generally accepted approaches to internal audit and risk management.
Full
Partial
none
6.1 The company and its business are transparent for its shareholders, investors, and other stakeholders.
6.1.1 The company has developed and implemented an information policy ensuring efficient exchange of information by the company, its shareholders, investors, and other stakeholders.
  1. The company’s board of directors approved an information policy developed in accordance with the Code recommendations.
  2. The board of directors (or one of its committees) considered the matters related to the company’s compliance with its information policy at least once in the reporting period.
Full
Partial
none
The revised Information Policy of the Company was approved in 2018 and is fully in line with the Code recommendations.
6.1.2 The company discloses information on its corporate governance system and practices, including detailed information on compliance with the principles and recommendations of the Code.
  1. The company discloses information on its corporate governance system and general principles of corporate governance applied in the company, in particular, on the corporate website.
  2. The company discloses information on the composition of its executive bodies and board of directors, independence of the directors, and their membership in the board of directors’ committees (as defined by the Code).
  3. If the company has a controlling person, the company publishes a memorandum of the controlling person setting out this person’s plans for the company’s corporate governance.
Full
Partial
none
1–2. Full compliance.

3. The information on the ultimate beneficiary, the Company’s controlling person, is disclosed on the corporate website in quarterly issuer reports and in this Annual Report.

The Company’s controlling person is simultaneously the Chairman of the Board of Directors; his plans for the most significant aspects of the Company’s corporate governance are reflected in the internal documents and in other information (including material facts on decisions made by governing bodies) disclosed on the Company’s website.

The Company plans to consult with the controlling person on the necessity of publishing a memorandum of the controlling person in 2019.

6.2 The company makes timely disclosures of complete, updated, and reliable information to allow shareholders and investors to make informed decisions.
6.2.1 The company discloses information based on the principles of regularity, consistency and promptness, as well as availability, reliability, completeness, and comparability of disclosed data.
  1. The company’s information policy sets out the approaches to, and criteria for, identifying information that can have a material impact on the company’s evaluation and the price of its securities, as well as procedures ensuring timely disclosure of such information.
  2. If company securities are traded on foreign organized markets, the company ensured concerted and equivalent disclosure of material information in the Russian Federation and in the said markets in the reporting year.
  3. If foreign shareholders hold a material portion of company shares, the relevant information was disclosed both in the Russian language and one of the most widely used foreign languages in the reporting period.
Full
Partial
none
6.2.2 The company avoids a formalistic approach to information disclosure and discloses material information on its operations, even if disclosure of such information is not required by law.
  1. In the reporting period, the company disclosed annual and 6M financial statements prepared under the IFRS. The company’s annual report for the reporting period included annual financial statements prepared under the IFRS, along with the auditor’s report.
  2. The company discloses complete information on its capital structure, as stated in Recommendation 290 of the Code, in its annual report and on the corporate website.
Full
Partial
none
The Company adheres to this recommendation of the Code both in form and in substance: in particular, the Company makes an additional disclosure of its IFRS statements on a quarterly basis. This Annual Report has been prepared in accordance with the Code recommendations on additional disclosures to be made in the Annual Report (paragraph 293) and, in particular, contains analysis of key metrics presented in the Company’s consolidated financial statements for 2018 (MD&A). The IFRS statements for 2018 and the auditor’s report are disclosed in the English and Russian languages on the issuer’s website, Interfax information disclosure website, and referred to in this Annual Report. Thus, investors have equal and easy access to the IFRS statements.
6.2.3 The company’s annual report, as one of the most important tools of its information exchange with shareholders and other stakeholders, contains information enabling assessment of the company’s annual performance results.
  1. The company’s annual report contains information on the key aspects of the company’s operations and financial results.
  2. The company’s annual report contains information on the environmental and social aspects of the company’s operations.
Full
Partial
none
6.3 The company provides information and documents requested by its shareholders in compliance with principles of fairness and ease of access.
6.3.1 The company provides information and documents requested by its shareholders in compliance with principles of fairness and ease of access. The company’s information policy establishes the procedure for providing shareholders with easy access to information, including information on legal entities controlled by the company, as requested by shareholders. Full
Partial
none
6.3.2 When providing information to shareholders, the company ensures reasonable balance between the interests of particular shareholders and its own interests consisting in preserving the confidentiality of important commercial information which may materially affect its competitiveness.
  1. In the reporting period, the company did not refuse shareholders’ requests for information, or such refusals were justified.
  2. In cases defined by the information policy, shareholders are warned of the confidential nature of the information and undertake to maintain its confidentiality.
Full
Partial
none
7.1 Actions that materially affect or may affect the company’s share capital structure and financial position and accordingly the position of its shareholders (“material corporate actions”) are taken on fair terms ensuring that the rights and interests of shareholders and other stakeholders are observed.
7.1.1 Material corporate actions include reorganization of the company, acquisition of 30% or more of the company’s voting shares (takeover), execution by the company of major transactions, increase or decrease of the company’s authorized capital, listing or de-listing of company shares, as well as other actions which may lead to material changes in the rights of shareholders or violation of their interests. The company’s articles of association provide for a list (criteria) of transactions or other actions classified as material corporate actions within the jurisdiction of the company’s board of directors.
  1. The company’s articles of association include a list of transactions or other actions deemed to be material corporate actions, and their identification criteria. Resolutions on material corporate actions are referred to the jurisdiction of the board of directors. When execution of such corporate actions is expressly referred by law to the jurisdiction of the general meeting of shareholders, the board of directors presents relevant recommendations to shareholders.
  2. According to the company’s articles of association, material corporate actions include at least: company reorganization, acquisition of 30% or more of the company’s voting shares (takeover), execution by the company of major transactions, increase or decrease of the company’s authorized capital, listing or de-listing of company shares.
Full
Partial
none
7.1.2 The board of directors plays a key role in passing resolutions or making recommendations on material corporate actions, relying on the opinions of the company’s independent directors. The company has in place a procedure enabling independent directors to express their opinions on material corporate actions prior to approval thereof. Full
Partial
none
7.1.3 When taking material corporate actions affecting the rights and legitimate interests of shareholders, equal terms and conditions are guaranteed for all shareholders; if the statutory procedure designed to protect shareholders’ rights proves insufficient, additional measures are taken to protect their rights and legitimate interests. In doing so, the company is guided by the corporate governance principles set forth in the Code, as well as by formal statutory requirements.
  1. Due to the specifics of the company’s operations, the company’s articles of association contain less stringent criteria for material corporate actions than required by law.
  2. All material corporate actions in the reporting period were duly approved before they were taken.
Full
Partial
none
7.2 The company performs material corporate actions in such a way as to ensure that shareholders timely receive complete information about such actions, allowing them to influence such actions and guaranteeing adequate protection of their rights when performing such actions.
7.2.1 Information about material corporate actions is disclosed with explanations of the grounds, circumstances, and consequences. In the reporting period, the company disclosed information about its material corporate actions in due time and in detail, including the grounds for, and timelines of, such actions. Full
Partial
none
7.2.2 Rules and procedures related to material corporate actions taken by the company are set out in the company’s internal documents.
  1. Due to the specifics of the company’s operations, the company’s articles of association contain less stringent criteria for material corporate actions than required by law.
  2. The company’s internal documents set out a procedure for engaging an independent appraiser to determine the value of shares acquired and bought back by the company.
  3. The company’s internal documents provide for an expanded list of grounds on which members of the company’s board of directors as well as other persons as per the applicable law are deemed to be interested parties to the company’s transactions.
Full
Partial
none
1. The Company’s internal documents do not provide for a procedure for engaging an independent appraiser to determine the value of the property disposed of or acquired pursuant to a major transaction or an interested party transaction. The value of the property is controlled by the Board of Directors within the scope of its authority. The Board of Directors includes independent directors the number of which is sufficient for exercising control over the fair value of the property disposed of or acquired.
In accordance with the Company’s Articles of Association, any transactions associated with acquisition, alienation, pledge, leasing, or other disposal of immovable property are subject to approval by the Company’s Board of Directors.
The Company does not intend to review its approach to this matter in the near future.

2. The Company’s internal documents do not provide for engagement of an independent appraiser to determine the value of the shares acquired and bought back by the Company as Company shares are traded on the highest quotation list of the exchange, have sufficient liquidity, and therefore, the Company has fair knowledge of their value.
The Company does not intend to review its approach to this matter in the near future.

3. The Company’s internal documents provide for an expanded list of grounds on which members of the Company’s Board of Directors as well as other persons as per the applicable law are deemed to be interested parties to the Company’s transactions.
Pursuant to the Regulations on the Company’s Board of Directors, members of the Board of Directors are to refrain from actions that will or may result in a conflict between their interests and those of the Company, and should such a conflict arise, they will promptly disclose to the Company any relevant information.
Analysis of implementation of the Regulations set forth above confirms its efficiency and reasonable sufficiency, so the Company does not intend to introduce additional interested party criteria in the near future.

Attachment 2