Report on compliance with the principles and recommendations of the Bank of Russia Corporate Governance Code

1. A notice of the general meeting was posted (published) on the website at least 30 days prior to the date of the meeting.

2. The notice of the meeting includes the venue of the meeting and documents required for access to the premises.

3. The shareholders were granted access to information on who proposed items for the agenda and nominated candidates for the board of directors and auditing commission of the company.

1. In the reporting period the shareholders were given the opportunity to pose questions to members of the company’s executive bodies and board of directors before and during the annual general meeting.

2. Positions of the board of directors (including special opinions recorded in the minutes) regarding each item on the agenda of the general meetings held during the reporting period were set out in the materials for the general meeting.

3. The company provided the eligible shareholders with access to the list of persons entitled to attend the general meeting from the date it was received by the company in all cases when general meetings were held in the reporting period.

1. In the reporting period the shareholders were able to place proposals on the agenda of the annual general meeting at least during 60 days after the end of the corresponding calendar year.

2. In the reporting period the company did not refuse to include shareholder proposals on the agenda or candidates for the company’s bodies due to typos and other insignificant flaws in such proposals.

1. At the general meetings of shareholders held in the form of joint presence during the reporting period a sufficient time for reports on the agenda was provided and there was sufficient time to discuss these issues.

2. Candidates to the company’s management and control bodies were available to answer questions from shareholders at the meeting at which their candidatures were put to the vote.

3. When making decisions related to the preparation for and holding of general meetings, the board of directors considered using telecommunication systems to provide the shareholders with remote access to the general meetings during the reporting period.

1. The company has developed a dividend policy which has been approved by the board of directors and disclosed.

2. If the company’s dividend policy uses indicators from financial statements to determine the dividend amount, the respective provisions of the dividend policy take into account indicators of consolidated financial statements.

1. The board of directors has the powers set forth in the charter to appoint and remove members of executive bodies and determine the terms and conditions of contracts with them.

2. The board of directors reviewed the report(s) of the sole executive body and members of the collegiate executive body on the implementation of the company’s strategy.

In accordance with the current Charter of PAO Sovcomflot, the authority to form the sole executive body and early terminate its powers is vested in the general meeting of shareholders - the Company’s sole shareholder (Art. 12 of the Charter); the authority to form the collegiate executive body and early terminate its powers and to determine the remuneration and compensation for its members is vested in the Company’s Board of Directors (Art. 12 of the Charter).

The Board of Directors reviews reports from the Company’s executive bodies concerning the implementation of the Company’s strategy on a regular basis in accordance with the requirements of the Company’s Charter.

1. The board of directors determined the principles of and approaches to creation of a risk management and internal control system in the company.

2. The board of directors evaluated the company’s risk management and internal control system during the reporting period.

1. The company has developed and implemented a policy (policies) on remuneration and/or reimbursement (compensation) of expenses for members of the board of directors and executive bodies and other key managers of the company, which was approved by the board of directors.

2. Matters related to the said policy(ies) were considered at meetings of the board of directors held during the reporting period.

1. The board of directors plays a key role in prevention, detection and resolution of internal conflicts.

2. The company has established a system designed to identify transactions involving a conflict of interest and a system of measures aimed at resolving such conflicts.

1. The board of directors has approved regulations on information policy.

2. The company has designated persons responsible for implementation of the information policy.

1. The company’s annual report for the reporting period includes information on attendance of meetings of the board of directors and committees by individual directors.

2. The annual report contains information on principal results of evaluation of the work of the board of directors performed during the reporting period

1. The procedure for evaluating the performance of the board of directors adopted in the company includes, but is not limited to, assessment of the professional qualifications of the board members.

2. In the reporting period the board of directors (or its nominating committee) evaluated candidates to the board of directors to determine whether they have the necessary experience, knowledge and business reputation, whether there was any conflict of interest, etc.

1. During the reporting period the board of directors (or its nominating committee) formed an opinion on the independence of each candidate to the board of directors and submitted the relevant report to the shareholders.

2. The board of directors (or its nominating committee) reviewed the independence of the current board members identified as independent directors in the company’s annual report at least once during the reporting period.

3. The company has developed procedures determining which actions a board member is required to undertake in the event that he/she ceases to be independent, including an obligation to notify the board of directors to this effect in a timely manner.

Independent members of the Company’s Board of Directors are elected following a review of the candidates by the commission for selecting candidates to the governing bodies of companies with state participation, which enables the shareholder to receive information about the candidates necessary to get an idea of their personal and professional qualities.

The criteria of independence are defined in the Regulations on the Company’s Board of Directors and are similar to those defined in the CG Code.

1. The chairman of the board of directors is an independent director or the senior independent director among the independent directors is identified.

2. The role, rights and duties of the chairman of the board of directors (and, if applicable, the senior independent director) are properly defined in the company’s internal documents.

Considering the fact that, in accordance with Russian Government Resolution No. 738, the Chairman of the Board of Directors of the Company (in which 100% of the shares are held by the Russian Federation) is charged with certain duties, including deciding on the need to obtain voting directives for the Board of Directors members who are government appointees on the agenda items of the Board not expressly specified in Russian Government Resolution No. 738, a government appointee who has sufficient knowledge and experience, taking into account the specifics of the Company’s activities, is elected as Chairman of the Company’s Board of Directors.

The role, rights and duties of the Chairman of the Board of Directors are defined in the Regulations on the Board of Directors approved by decision of the Company’s sole shareholder.

1. The company’s internal documents establish that a member of the board of directors shall notify the board of directors if he/she has a conflict of interest relating to any item on the agenda of the meeting of the board of directors or its committee before discussion of such item is commenced.

2. The company’s internal documents provide that a board member shall abstain from voting on any issues in respect of which he/she has a conflict of interest.

3. The company has established a procedure enabling board members to receive, at the expense of the company, professional advice on issues within their competence.

1. Individual attendance of meetings of the board of directors and committees and the time devoted to preparation for meetings was taken into account when performing the procedure of evaluating the board of directors in the reporting period.

2. In accordance with the company’s internal documents, board members are required to notify the board of directors of their intention to take a position in gov-erning bodies of other entities (other than entities controlled by or affiliated with the company), as well as of such appointment.

1. In accordance with the company’s internal docu-ments, board members have the right to access the company’s documents and make inquiries concerning the company and entities under its control, and the executive bodies of the company are required to provide such information and documents.

2. The company has a formalised introductory programme for newly elected board members.

1. The board of directors has formed an audit committee composed entirely of independent directors.

2. The company’s internal documents define the tasks of the audit committee, including, but not limited to, those set out in recommendation 172 of the Code.

3. At least one member of the audit committee who is an independent director has experience and knowledge in the preparation, analysis, evaluation and audit of accounting (financial) statements.

4. Meetings of the audit committee were held at least once per quarter during the reporting period.

A majority of the Audit Committee members are independent directors.

The Committee is chaired by an independent director.

The Regulations on the Audit Committee of the PAO Sovcomflot Board of Directors are in accordance with the recommendations of the CG Code.

1. The board of directors has formed a remuneration committee composed entirely of independent directors.

2. The chairman of the remuneration committee is an independent director other than the chairman of the board of directors.

3. The company’s internal documents define the tasks of the remuneration committee, including, but not limited to, those set out in recommendation 180 of the Code.

A majority of the HR and Compensation Committee members are independent directors.

An independent director was elected as Chairman of the Committee.

The Regulations on the HR and Compensation Committee of the PAO Sovcomflot Board of Directors are in accordance with the recommendations of the CG Code.

1. The board of directors has formed a nominating committee with a majority of its members being independent directors (or its functions specified in recommendation 186 of the Code are delegated to another committee).

2. The company’s internal documents define the tasks of the nominating committee (or a relevant committee with combined functions), including, but not limited to, those set out in recommendation 186 of the Code.

1. The committees of the board of directors are headed by independent directors.

2. Internal documents (policies) of the company include provisions that persons who are not members of the audit committee, nominating committee and remuneration committee may attend their meetings only at the invitation of their chairmen.

The Audit Committee and the HR and Compensation Committee of the PAO Sovcomflot Board of Directors are headed by independent directors. The Strategy Committee and the Committee for Innovative Development and Technical Policy of the PAO Sovcomflot Board of Directors are headed by directors who are government appointees.

The Regulations on Committees provide that persons who are not committee members may attend their meetings only by decision of their chairmen.

1. Self-assessment or external evaluation of the board’s work conducted in the reporting period included evaluation of the work of the committees, individual members of the board and the board of directors as a whole.

2. The results of self-assessment or external evaluation of the board of directors conducted during the reporting period were discussed at a meeting of the board of directors held in person.

1. The company has adopted and disclosed an internal document – regulations on the corporate secretary.

2. The company’s website and annual report pro-vide biographical details of the corporate secretary with the same level of detail as for members of the board of directors and executive managers of the company.

The company should pay a fixed annual fee to members of the board of directors. The company should not pay a fee for attending individual meetings of the board of directors or its committees.

The company should not use any forms of short-term incentives or additional financial incentives for members of the board of directors.

The Regulations on the Payment of Compensation and the Reimbursement of Expenses to Members of the PAO Sovcomflot Board of Directors provide for payment of compensation to Board members in monetary form.

The sole shareholder of PAO Sovcomflot is the Russian Federation.

1. During the reporting period the amount of variable portion of remuneration for members of the executive bodies and other key managers of the company was determined using annual performance indicators approved by the board of directors.

2. During the latest evaluation of the remuneration system for members of the executive bodies and other key managers of the company, the board of directors (the remuneration committee) made sure that the company used an effective ratio between the fixed and variable portions of remuneration.

3. The company has in place a procedure ensuring that any bonuses wrongfully obtained by members of executive bodies and other key managers are repaid to the company.

1. The company has introduced a long-term incentive programme for members of the executive bodies and other key managers of the company involving the company’s shares (financial instruments based on the company’s shares).

2. The long-term incentive programme for members of the executive bodies and other key managers of the company provides that the right to dispose of shares and other financial instruments used in the programme shall arise no earlier than three years from the date when such shares were provided. In addition, the right to dispose of the same is made conditional on the achievement by the company of certain performance indicators.

1. The company has approved an anti-corruption policy.

2. The company has organised an easy way to inform the board of directors or its audit committee of any breaches of legislation, internal procedures and the ethics code of the company.

1. The efficiency of the internal control and risk management system was evaluated as part of internal audit conducted during the reporting period.

2. The company applies generally accepted approaches to internal control and risk management.

1. The board of directors has approved the company’s information policy, which was developed by taking into account recommendations of the Code.

2. The board of directors (or one of its committees) considered matters related to the company’s compliance with its information policy at least once during the reporting period.

1. The company discloses information on its corporate governance system and the general principles of corporate governance applied in the company, in particular, on the company’s website.

2. The company discloses information on the composition of its executive bodies and board of directors, independence of the board members and their membership in committees of the board of directors (as defined in the Code).

3. If there is a person that controls the company, the company publishes a memorandum setting out the plans of the controlling person in respect of corporate governance in the company.

1. The company’s information policy defines approaches and criteria for identifying information that may have a significant impact on the valuation of the company and the value of its securities and on procedures ensuring the timely disclosure of such information.

2. If the company’s securities are traded on foreign organised markets, disclosure of material information in the Russian Federation and in such markets is synchronous and equivalent during the year.

3. If foreign shareholders hold a substantial number of company shares, disclosures during the reporting year were made not only in Russian, but also in one of the most common foreign languages.

1. During the reporting period the company disclosed the annual and semi-annual financial statements prepared under IFRS. The annual report of the company for the reporting period included the annual financial statements prepared under IFRS, together with the auditor’s report.

2. The company discloses full information on the company’s capital structure in the annual report and on the company’s website in accordance with recommendation 290 of the Code.

1. The company’s annual report contains information on the key aspects of its operating activities and financial results.

2. The company’s annual report contains infor-mation about the environmental and social aspects of the company’s activities.

1. During the reporting period the company did not refuse shareholder requests for information or such refusals were justified.

2. In cases determined by the company’s information policy, shareholders are notified of the confidential nature of information and assume an obligation to keep it confidential.

1. The company’s charter contains a list of transactions or other actions that constitute material corporate actions and the criteria for identifying them. Decisions on material corporate actions fall within the competence of the board of directors. In cases where the law expressly places these corporate actions within the competence of the general shareholders meeting, the board of directors provides appro-priate recommendations to the shareholders.

2. According to the company’s charter, material corporate actions include reorganisation of the company, acquisition of 30 or more per-cent of its voting shares (takeover), entering by the company into major transactions, increasing or decreasing its share capital, and listing and delisting of its shares.

The Company’s CG Code defines material corporate actions (see its Article 7).

According to the current Charter of the Company, material corporate actions are approved by the General Meeting of Shareholders (the sole shareholder) or the Board of Directors of the Company depending on the competence established by laws and the Company’s Charter. All issues that must be submitted to the General Meeting of Shareholders are subject to preliminary consideration by the Board of Directors (Article 12 of the Company’s Charter).

1. Taking into account specific features of the company’s operations, its charter sets lower criteria for recognizing the company’s transactions as material corporate actions than the minimum criteria set by law.

2. During the reporting period all material corporate actions passed an approval process before their execution.

1. The company’s internal documents provide a procedure for retaining an independent appraiser to value assets being disposed of or acquired in a major transaction or an interested party transaction.

2. The company’s internal documents provide a procedure for retaining an independent appraiser to estimate the acquisition and redemption value of company shares.

3. The company’s internal documents provide for an expanded list of grounds on which members of the board of directors and other persons referred to in respective laws are deemed to be interested parties in transactions of the company.