Annual Report 2013

Transcription

Annual Report 2013

Moving
Ahead
Annual Report
2013
MOVING AHEAD //
Contents
SOLLERS: MOVING AHEAD
06
08
12
14
16
Chairman’s Statement
CEO’s Statement
About the Company
Project Mapping
Key Performance Indicators
Business & Strategy
20
29
34
36
Market Overview and Sollers’ Product Portfolio
Our Strategy
Our Business Model
Business Projects and Key Assets
Corporate Governance
48
50
54
55
60
62
What does Corporate Governance Mean to Sollers?
The Profiles of Sollers’ Directors
Board of Directors’ Meetings
Board Committee Reports
The Profiles of Sollers’ Managers
Risk Management and Principal Risks
Corporate Social Responsibility
RUB 61.3 bln
consolidated revenue in 2013
>20
new products were launched by
SOLLERS together with its partners
SOLLERS is one of the leading Russian automotive
companies and works in partnership with global
automotive producers such as Ford, SsangYong,
Toyota, Mazda and Isuzu
SOLLERS // Annual Report 2013
68
69
70
71
73
74
75
75
76
Responsible Business Principles in All Our Operations
Increasing the Company’s Shareholder Value
Growth Through Long-Term Partnerships
Continuing Development
Improving the Quality of Our Products and Services
Improving Employee Competences
Contributing to the Social and Economic Development
Increasing Operating Safety and Monitoring
Reducing Our Impact on the Environment
Shareholders’ Equity & Securities
80
80
80
81
81
Share Capital
Major Shareholders’
Market Share Price & GDR
Investor Relations Calendar 2014
Investor Relations Department
Financial Reporting
86 Independent Auditor’s Report
87 Sollers Group Consolidated Financial Statements
91 Sollers Group Notes to the Consolidated Financial Statements
at 31 December 2013
Additional Information
124 Glossary
125 Corporate Information and Key Contacts
www.sollers-auto.com
For more info...
This Annual Report is also
available on our website,
MOVING
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BUSINESS &
STRATEGY
CORPORATE
SOCIAL
RESPONSIBILITY
CORPORATE
GOVERNANCE
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
2
MOVING AHEAD //
2013: SOLLERS’ Major Achievements
Strengthening positions and internal efficiency
Retail Sales
SsangYong retail sales grew by 9% Y-on-Y to 34.1 k
units. The brand was included in the top 20 most
popular car brands in Russia, according to the
Association of European Businesses. This growth was
driven by Actyon, which was restyled in August 2013.
SSANGYONG
UAZ Domestic market
Export
ISUZU
FORD SUVs
34.1 k units
51.6 k units
10.4 k units
1.3 k units
17 k units
+9%
–15%
+37%
+71%
TRIPLED
versus 2012
versus 2012
versus 2012
versus 2012
The launch of the new generation UAZ Patriot has
helped to maintain a solid demand for UAZ SUVs and
is proving itself to be a good substitute for the old
UAZ model range.
versus 2012
Ford Sollers JV tripled its retail sales of Ford SUVs
in 2013 Y-on-Y to over 17 k units, due to the launch
of the new Kuga and increased production of the
Explorer. Further localisation of Ford SUV models
and new launches will increase the competitiveness
of the Ford brand in the SUV segment and improve
production efficiency.
› For more information about
SOLLERS’ market position
and business structure
see PAGE 13.
Our Year in Brief
APRIL 05 > SOLLERS-ISUZU JV
starts assembly of the ISUZU ELF 9.5,
a new chassis with a payload
of 6.6 tonnes, in Ulyanovsk
JANUARY
FEBRUARY
FEBRUARY 18 > SOLLERS-BUSSAN
JV starts production of the Toyota
Land Cruiser Prado at its Vladivostok
production site
MARCH
APRIL 12 > MAZDA SOLLERS
JV starts production of
the Mazda6, the second
SKYACTIVE-equipped vehicle
from Mazda, at the Vladivostok
production site
APRIL
APRIL 11 > Ford Sollers JV starts
assembly of the Ford Explorer SUV
from completely-knocked-down
(CKD) kits at its plant in Elabuga,
where it also welds and paints bodies
JUNE 14 > Ford Sollers
JV starts assembly
of the Ford Tourneo
Custom MPV
MAY
JUNE
› Our CEO discusses our year’s performance
AUGUST 6 > UAZ starts the production
and sales of a new UAZ Patriot model
with a Dymos transfer gearbox (Korea)
and new interior
JULY
MAY 14 > Ford Sollers JV starts building
its first engine plant in Tatarstan, which
will be opened in December 2015. The
joint venture will also launch Ford
EcoSport crossover utility vehicles in
the second half of 2014
AUGUST
SEPTEMBER
and future priorities on
OCTOBER
AUGUST 23 > Launch of the SsangYong
Actyon 2014 with a restyled exterior
and interior at MAZDA SOLLERS JV in
Vladivostok
Key Financial Indicators
Revenue
RUB 61,317
mln
NOVEMBER
PAGE 8.
DECEMBER
OCTOBER 16 > Ford Sollers JV starts
assembly of Ford Kuga crossover utility
vehicles from completely-knocked-down
kits at its plant in Elabuga
› More KPIs can be found on
EBITDA
RUB 6,387
mln
Net Debt
RUB 3,491
mln
Net Debt/ EBITDA
0.6
Net Profit
RUB 3,625
mln
Free Cash Flow
RUB 6,923
mln
PAGE 16
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MOVING
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BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
SOLLERS-BUSSAN JV
Start of operations in the Russian Far East
with the launch of Toyota LC Prado production
in Vladivostok
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
MOVING AHEAD //
Ford Sollers JV
The largest SOLLERS’ JV project with
a revenue of over RUB 82 bln in 2013 and
production capacity up to 350 k units per year
SOLLERS:
Moving Ahead
We are moving ahead with our partners in fast-growing
market segments, aspiring to market leading positions
and keeping a focus on business efficiency
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5
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CORPORATE
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CORPORATE
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FINANCIAL
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6
MOVING AHEAD //
Continuing to Make Progress
Chairman’s Statement
SUV segment’s share
of the PC market
SOLLERS’
EBITDA margin
SOLLERS’
Net Debt/ EBITDA
36%
10.4%
<0.6
makes Russia the largest SUV
market in Europe
We continued to make progress at SOLLERS
in 2013, not just in terms of preparing our
business to move ahead when market growth
returns but also ensuring that we will be able
to do so in a robust and sustainable way. We
remain committed to working towards best
practice standards, ensuring high levels of
governance and ethics whether in our fullyowned businesses or joint ventures and
whether in buoyant or more challenging
trading conditions.
2.77 million new passenger cars and light commercial vehicles were
sold in the Russian Federation in 2013, 5.8% below the record level
of 2012. Viewed from a global perspective, however, this decline
was modest. While the EU passenger car market fell by just 1.7%
in the same period, EU sales have now been in decline for six
years in a row, making 2013 the worst year in the EU since 1995.
The coming year is unlikely to see a return to growth, and SOLLERS
believes that a further decline of several percentage points is
likely. However, healthy growth is expected to resume in 2015 with
a compound annual growth rate (CAGR) until 2020 of between 3%
and 5%. This growth will be driven by a number of factors, alongside
general economic ones: the relatively low level of car ownership,
only about half the average of OECD countries, has the potential
to improve; despite rapid sales growth in recent years, the average
age of the domestic fleet is 13 years and consumers will be looking
to upgrade old vehicles or replace obsolete ones; and the level
of credit financing is likely to continue to grow.
compares favourably with our peer
group both in Russia and globally
Nearly all global automotive groups have now undertaken large
investment programmes in the Russian Federation and are governed
by Regulation 166 which rewards the creation of value-added
activities and which has become even more important, given
the decline in value of the Russian rouble. The Ford Sollers JV
partnership, involving three modern and efficient assembly plants,
is set to become one of the largest and most successful of these
ventures. It will benefit from Ford's extensive knowledge of platform
technology, as well as SOLLERS’ experience and commitment
to working with existing and new suppliers in Russia. All these
activities are designed to create a manufacturing base which
will be competitive on a global scale.
Equally, SOLLERS’ continued development of its own range
of Sport Utility Vehicles (SUVs) and other all-wheel drive vehicles
under its own brand, UAZ, is clearly responding well to the needs
of Russian consumers. The SUV segment’s share of the total
passenger car market, at 36%, makes Russia the largest SUV
market in Europe. SOLLERS continues to modernise its plant
in Ulyanovsk, its paint process for example, and invest in its own
engineering capability. At the same time, successful partnerships
for the assembly and distribution of SsangYong and Isuzu products
are developing well, as are the other assembly projects in the Far
East plant (Vladivostok), also involving Toyota and Mazda.
Despite difficult trading conditions in 2013, SOLLERS managed
to achieve an EBITDA margin of 10.4%, which compares favourably
with our peer group both in Russia and globally. Our Net Debt/
EBITDA ratio at year end was an historic low of below 0.6. Our
share price in the period considerably outperformed the market
and continues, together with our dividend payments, to justify the
investment community’s positive view of SOLLERS.
The Board of SOLLERS continues to be dedicated to the highest
international standards of corporate governance, with a majority
of independent directors, who chair all Board Committees.
SOLLERS also benefits from a transparent management system
based on merit. These factors contribute to the Company's
leading ability to secure effective partnerships with international
technology providers and to work effectively with Government,
suppliers and customers alike.
We work in an exciting industry whose strategic importance is recognised and supported by the
Russian Government. Together with our commitment to best practice in all that we do, we believe
we offer excellent and rewarding opportunities to existing and future employees to be part of our
long-term commitment to shareholder value creation.
DAVID J. HERMAN
CHAIRMAN
record low Net Debt/ EBITDA ratio
demonstrates our strong financial position
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8
MOVING AHEAD //
Taking on Challenging Tasks
CEO’s Statement
Growth of SOLLERS’ and Ford Sollers
JV’s retail sales for new SUVs
Market share
of the SUV segment
Ford Sollers JV’s market share
of the C segment
24%
8.0%
12%
Y-on-Y from 60.7 k vehicles in 2012 to 75.2 k vehicles
in 2013
HOW WOULD YOU SUMMARISE YOUR 2013 RESULTS?
In 2013 we progressed well in line with our growth strategy. We
took another step towards gaining leadership positions through
our full-scale partnerships with leading international automakers.
To summarise the strategic progress we made I will focus on four
principal milestones in 2013.
›› Successfully incorporated all joint ventures into the new Group
structure.
In January 2013, we started operations at the SOLLERS-BUSSAN
JV. This represented the completion of our Group restructuring
programme and our first full operating year under this Group
structure.
I would like to express my gratitude to our
shareholders and all of SOLLERS Group’s
stakeholders, including customers, employees,
international partners, suppliers and local
communities for their sustained support and
loyalty, as well as the Board of Directors for
their professionalism, enthusiastic work and
courage to take on challenging tasks.
›› Expanded our product range, increased localisation at the joint
ventures and improved our sales network.
One of the key achievements in our consolidated businesses was
the remodelling of the UAZ Patriot. This best-selling UAZ SUV is
now equipped with a Hyundai-Dymos transfer gear, a new, more
ergonomic interior and a range of modern options, making it an
excellent alternative to the old UAZ model range. We have great
expectations for this affordable and well-equipped SUV and plans
for its gradual makeover are already in place.
We also contributed to the success of SsangYong models in Russia.
In October we started selling the restyled Actyon and orders
surpassed our expectations, with retail sales in 2013 reaching 20.1 k
units and shattering all previous records. The model was extremely
well received and contributed substantially to its brand popularity
in Russia. According to the Association of European Businesses,
in 2013 SsangYong’s outperformance in the market made it one of
the 20 best-selling brands in Russia. We consider this to be a great
achievement, as only 10 years ago its brand awareness in Russia was
very low.
versus 7.1% in 2012
Alongside product launches in our consolidated business,
SOLLERS’ joint ventures also expanded their model range, adding
global leading products to their portfolio in several market
segments. SOLLERS-BUSSAN JV had a successful start to the year,
commencing assembly of the Toyota Land Cruiser Prado in the Far
East of Russia. This is the first time that Toyota assembly has been
outsourced to a third party and this fact alone demonstrates the
excellence of our production sites and technical ability to live up to
Toyota’s high quality standards and controls. In April we also saw the
launch of the new D-class Mazda6 sedan in Russia. The assembly is
carried out by MAZDA SOLLERS JV, located in Vladivostok.
In April 2013, SOLLERS-ISUZU JV started the production of a new
ISUZU ELF 9.5 chassis with a payload of 6.6 tonnes in Uliyanovsk.
This launch has helped revive ISUZU retail sales, which increased
by 71% to 1,295 trucks in 2013. The joint venture is investing in
production capacity in preparation for CKD–assembly planned for
2014.
In March 2013, Ford Sollers JV launched the new Kuga at the
Elabuga plant, and in October CKD assembly started. In April,
CKD assembly kits also started to be used for the production of
the Explorer. Ford Sollers JV is on track with its localisation plans,
introducing CKD-production in Elabuga and its R&D centre which
will adapt Ford vehicles for Russia and create special versions
of LCVs tailored to the local market. The company continues to
strengthen its supply chain with its strategy now focused on
Tatarstan, where the joint venture is actively developing a supplier
base and already sourcing components from over 50 companies in
Russia.
We are continually improving our sales network and quality of our
service. The UAZ and SsangYong sales network grew from 254
dealerships in 2012 to 266 in 2013. We are creating new credit and
leasing tools to help finance our vehicles through new partnership
programmes with leading banks.
In 2013, the Ford Focus became the market
leader of the C segment in Russia
›› Sales strengthened in the growing market segments and
leadership maintained in the large saturated market segments.
In 2013, SOLLERS’ and Ford Sollers JV’s retail sales in the Russian
market for new SUVs grew 24% Y-on-Y from 60.7 k vehicles in 2012 to
75.2 k vehicles in 2013; total market share in the SUV segment is 8.0%
(versus 7.1% in 2012).
Sales of C segment passenger cars were affected more strongly by
the market deterioration than others. However, the C segment is the
second largest segment in the Russian passenger car market and also
one of the most competitive. And we are pleased to announce that
in 2013 the Focus became market leader of the C segment in Russia,
across all models, with almost 12% market share of this segment.
›› Solid financial position and sound profitability achieved despite
the adverse operating environment.
SOLLERS Group’s Revenue in 2013 amounted to RUB 61,317 million
(RUB 65,549 million in 2012). The deterioration in revenue of 6.5%
is due to the decrease in UAZ sales volumes, the deconsolidation
of the ISUZU business and the discontinuation of FIAT sales.
EBITDA margin for 2013 was 10.4%, compared to 11.7% in 2012.
The decline in EBITDA margin performance was largely driven by
the restructuring of the Group’s income in 2013. The decrease in
consolidated operating profit and EBITDA was due to the transfer of
SsangYong production to the MAZDA SOLLERS JV, which resulted
in the deconsolidation of its operating profit margin. This decline in
operating profit is compensated for at the net profit level. Therefore,
if calculated on a like-for-like basis there would be no impact on
EBITDA margin.
Net profit for the year was RUB 3,625 million compared to RUB
5,843 million in 2012. The fall in net profit is mainly explained by
gains from one-off transactions in 2012 and a decline in operations
in 2013. Free cash flow generated by SOLLERS’ consolidated
entities was a key factor to the Company’s ability to reduce Net
debt, which was at a record low level of RUB 3,491 million at the
end of 2013 (down by 56% Y-on-Y). This low leverage is an indicator
of the financial stability of the Company and enabled us to propose
dividends.
9
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ADDITIONAL
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10
MOVING AHEAD //
CEO’s Statement
(continued)
SOLLERS Group’s
Consolidated Revenue in 2013
EBITDA margin for 2013
Net profit for the year
Net Debt decreased by
Proposed dividend
Total declared dividend
payment
RUB 61.3 bln
10.4%
RUB 3.6 bln
56%
RUB 52.52
per share
RUB 1.8 bln
WHAT IS THE MOST IMMEDIATE PRIORITY FOR THE COMPANY?
Market
SOLLERS plans to grow further in the SUV segment in Russia.
The plan to produce the Ford EcoSport in Tatarstan will significantly
increase Ford Sollers JV’s presence in the only growing segment of
the Russian market.
Localisation
Further localisation of vehicle components eliminates our exposure
to foreign exchange risk, which is important in the current
environment of a weakening rouble. It also increases our business
operating efficiency through logistics benefits. Ford Sollers JV is on
track with its localisation plans and remains committed to comply
with Regulation 166 targeting the level of 60% by 2016.
Product development
We plan to develop the UAZ model range, alongside increasing
production efficiency, by utilizing UAZ’s spare production capacity
for contractual assembly and rental contracts.
The 2015 Patriot model range will have a new exterior and a number
of technological upgrades, improving passenger comfort and vehicle
safety. In 2016, we plan to continue innovating the Patriot range by
introducing a Euro 5 compliant turbo engine and Dynamic Stability
Control (DSC). The product development will be accompanied
with investments to optimize UAZ plant’s logistics, stamping and
painting, which will increase the quality of the product and its
warranty terms.
WHAT IS YOUR OUTLOOK FOR THE OPERATING ENVIRONMENT
IN 2014?
WHAT IS YOUR APPROACH TO DIVIDENDS?
With continued Russian macroeconomic instability the future still
remains uncertain. Unfortunately, the Russian automotive market
is highly dependent on the USD/ RUB exchange rate. At the current
exchange rate, we anticipate a further decline in the automotive market
of 7-10% in 2014.
Maintaining a balanced approach to dividends is always a complex
decision for the Board of Directors. Historically the Board of
Directors proposes a dividend if the Net Debt/ EBITDA is lower than
1.5 and the Group has performed well financially in the year. The
Dividend Yield is also an important ratio that the Board of Directors
considers when making a proposal to the AGM.
Despite this situation, if the rouble valuation is corrected and GDP
revived, the Russian automotive market has all the fundamental
reasons to show growth:
›› low car penetration
›› old car fleet
›› high potential of credit financing.
In 2013, the Group’s Net profit for the year amounted to RUB 3,625
million while Net Debt/ EBITDA fell to a record low of 0.6. Taking
into account the Group’s stable financial position and its strong cash
flow, the Board of Directors proposed to the Annual General Meeting
of Shareholders a dividend of RUB 52.52 per share, which will make a
total declared dividend payment of RUB 1,800 million.
We forecast the SUV segment to attain a 50% share of the total
car market in the medium term; this is the only large segment that
is forecast to show sustainable growth in 2014. The main reasons
behind this growth trend are the harsh climatic conditions and the
change in Russian consumers’ preferences. The recent emergence of
light crossovers, the cheapest SUV category, has also contributed to
the segment’s popularity.
We believe that steady dividend payments will be viewed positively
by the market and indicate a strong rationale for the long-term
growth potential of SOLLERS’ market capitalisation.
2014 is going to be quite a challenging year for the Ford Sollers
JV due to the continuing contraction of the C segment and high
exposure to foreign exchange risk. Nevertheless, the JV is continuing
to implement its investment plans, which could boost sales in the
future. Specifically, the launch of the new Ford Transit and Ford
EcoSport at the Tatarstan production sites is seen as the key growth
factor for Ford Sollers JV in 2014.
WOULD YOU LIKE TO SAY ANYTHING TO SHAREHOLDERS,
CUSTOMERS AND EMPLOYEES IN CONCLUSION?
Going forward, we aim to manage the Group’s core strengths to
create a resilient business that will not be significantly affected by
exchange rate movements and macroeconomic uncertainty, and to
improve shareholder value.
We will continue to make competitive and high quality products
that provide the best solution in each market segment, focusing
on specific customer needs and moving our brands into leading
positions on the Russian market.
I would like to thank our shareholders and investors, and all our
stakeholders, for their continued support and cooperation.
We will continue to make competitive and high quality products that provide the best solution in
each market segment, focusing on specific customer needs and moving our brands into leading
positions on the Russian market.
VADIM SHVETSOV
CHIEF EXECUTIVE OFFICER
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SOLLERS: Moving Ahead
12
MOVING AHEAD //
Strengthening Positions
and Internal Efficiency
About the Company
SOLLERS is one of the leading Russian automotive
companies and works in partnership with global
automotive producers such as Ford,
SsangYong, Toyota, Mazda and Isuzu.
In 2013, our consolidated
turnover was in excess
of RUB 61 billion.
In 2013 we diversified our model mix to create one
of the best SUV portfolios in the Russian market.
In 2013 we diversified our model mix to create one of the best SUV
portfolios in the Russian market.
SsangYong retail sales grew by 9% Y-on-Y to 34.1 k units. The brand
was included in the top 20 most popular car brands in Russia, according
to the Association of European Businesses. This growth was driven by
Actyon, which was restyled in August 2013.
The launch of the new generation UAZ Patriot has helped to maintain
a solid demand for UAZ SUVs and is proving itself to be a good
substitute for the old UAZ model range.
Further localisation of Ford SUV models and new launches will
increase the competitiveness of the Ford brand in the SUV segment
and improve production efficiency.
In 2013, we remained focused on the overall efficiency of the
business. SOLLERS’ consolidated Net Debt decreased by 56% to RUB
3,491 mln, which led to a record low level of Net debt/ EBITDA ratio
of 0.6. We achieved effective capacity management through ongoing
cost-cutting and resource allocation to maintain a sustainable level
of consolidated EBITDA margin of 10.4%.
Ford Sollers JV tripled its retail sales of Ford SUVs in 2013 Y-on-Y
to 17.0 k units, due to the launch of the new Kuga and increased
production of the Explorer.
Business structure as of 31.12.20131
SOLLERS assembles a wide range of
vehicles, which are sold in the fastestgrowing and most in demand segments
of the Russian automotive market, and
operates a strong distribution and service
network across the country. SOLLERS
owns production facilities which produce
Russian UAZ off-road vehicles, Japanese
ISUZU trucks (controlled by SOLLERSISUZU JV), and both petrol and diesel
engines.
Alongside its fully-owned businesses,
SOLLERS has partnerships with leading
global automakers. In 2011, we set up a
joint venture, Ford Sollers JV, the exclusive
producer and distributer of Ford vehicles
in Russia. The Ford model range in Russia
includes eight vehicles assembled locally,
of which six were launched in the Republic
of Tatarstan in the last two years.
The industrial cluster in the Russian
Far East, Vladivostok, includes MAZDA
SOLLERS JV, the producer of the Mazda
CX-5 and Mazda6, and SOLLERS-BUSSAN
JV, which at the very start of 2013
began assembling the Toyota Prado.
The production facility in Vladivostok
assembles Korean SsangYong off-road and
crossover vehicles.
Since it was founded SOLLERS has gained
leading market positions across multiple
segments of the Russian automotive
market; launched together with its
partners over twenty new products;
increased manufacturing capacity
to around 550,000 vehicles a year;
and become one of the most efficient
companies in the Russian automotive
industry.
At SOLLERS we have an excellent track
record of integrating innovative ideas into
and finding solutions for all projects that
we undertake, whether targeting exciting
high growth market segments or focusing
on improving our operational efficiency.
We are well-positioned to move ahead,
taking advantage of our focused, strategic
actions in this challenging market.
SOLLERS
Manufacturing capacity
>550 k
vehicles p.a.
The Ford model range
in Russia
8 vehicles
CONTROLLED ASSETS
SsangYong
Distribution of SsangYong
vehicles3
Production site: Vladivostok
UAZ
Production and Distribution of
UAZ vehicles and parts
Production sites: ZMZ & UAZ
assembled locally, of which 6 were
launched in the Republic of Tatarstan
in the last two years
PARTNERSHIPS2
FULL SCALE JOINT VENTURES
Ford Sollers JV (50:50 Joint Venture)
SOLLERS-ISUZU JV (50:50 Joint Venture)
Production and Distribution of Ford
vehicles
Production sites: Vsevolozhsk,
Naberezhnye Chelny, Elabuga
Production and Distribution of Isuzu
trucks
Production site: Ulyanovsk
INDUSTRIAL PARTNERSHIPS
SOLLERS-BUSSAN JV (50:50 Joint Venture)
MAZDA SOLLERS JV (50:50 Joint Venture)
Production of Toyota vehicles
Production of Mazda and SsangYong
vehicles
SOLLERS-FINANCE JV (50:50 Joint Venture)
Joint Venture with Sovkombank offers
a full range of car leasing services
1 Company source
2 Partnerships are equity-accounted under IFRS
3 In 2013, the production of SsangYong vehicles
was transferred to MAZDA SOLLERS JV
13
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Moving Ahead with Our Partners
Project Mapping
Our strategic partnership with Korean SsangYong was
established in 2005. Since then, SOLLERS has been
the exclusive producer and distributor of SsangYong
vehicles in Russia, has developed production facilities
in Vladivostok, and achieved one of the leading positions
in the Russian SUV market with over 34,000 vehicles sold
in 2013. In 2013 SsangYong production was transferred
to the MAZDA SOLLERS JV to benefit from economies of
scale and investment sharing.
SOLLERS-ISUZU JV was established in 2007
as the first Russian-Japanese joint venture
for the production and distribution of ISUZU
commercial vehicles. In June 2012, the
production of ISUZU trucks was transferred
to the Ulyanovsk production facility.
SOLLERS’ overall capacity
>550 k units p.a.
› For more information about SOLLERS-
directly owned or through JVs
ISUZU JV, please see PAGE 44.
SOLLERS-BUSSAN JV is a joint venture
established by Mitsui & Co. (Japan) and SOLLERS
in 2011. In February 2013 the industrial joint
venture started production of the Toyota LC
Prado SUV at the production site in Vladivostok.
Vsevolozhsk
› For more information about SOLLERS-
› For more information about SsangYong,
BUSSAN JV, please see PAGE 41.
MOSCOW
please see PAGE 38.
UAZ Holding manufactures SUVs and commercial
vehicles. Since 1942, UAZ has been a traditional
Russian OEM, developing large-scale production
facilities, including the production of engines and
automotive components, forging and aluminium
casting.
› For more information about UAZ, please see
14
MOVING AHEAD //
Zavolzhye
Ulyanovsk
MAZDA SOLLERS JV is a joint venture
established by Mazda Motor Corporation and
SOLLERS. Since September 2012, the joint
venture has been producing Mazda CX-5
crossovers in Vladivostok. At the very beginning
of 2013, SOLLERS transferred the production
of SsangYong vehicles to MAZDA SOLLERS JV.
In April 2013, the joint venture started assembly
of the new Mazda6 sedan.
Naberezhnye Chelny
Elabuga
PAGE 36.
› For more information about MAZDA
Ford Sollers JV was established by Ford Motor
Company and SOLLERS. Since October 2011, Ford
Sollers JV has been the exclusive producer, distributor
and provider of automotive components for all Ford
cars in Russia. The three production facilities, financed
by the joint venture partners, have a total production
capacity of 350,000 vehicles per year.
SOLLERS JV, please see PAGE 40.
SOLLERS-FINANCE JV is a financial company,
initially founded by SOLLERS in 2008, which
specialises in leasing services. In December
2010, it was transformed into a 50:50 joint
venture between Sovkombank and SOLLERS.
Vladivostok
› For more information about Ford Sollers JV,
please see PAGE 42.
› For more information about SOLLERS
FINANCE JV, please see PAGE 45.
UAZ
ZMZ
SOLLERS-ISUZU JV
FORD SOLLERS JV
VSEVOLOZHSK
100 k units p.a. 200 k units p.a. 5 k units p.a.
FORD SOLLERS JV
ELABUGA
FORD SOLLERS JV
NABEREZHNYE CHELNY
350 k units p.a.
MAZDA SOLLERS JV
& SOLLERS-BUSSAN JV
100 k units p.a.
Production capacity
Production capacity
Production capacity
PRODUCT LINES:
PRODUCT LINES:
PRODUCT LINE:
PRODUCT LINES:
PRODUCT LINES:
PRODUCT LINE:
PRODUCT LINES:
›› UAZ SUVs
›› UAZ LCVs
›› Petrol engines
›› Diesel engines
›› ISUZU trucks, N-series
›› Ford Focus
›› Ford Mondeo
››
››
››
››
››
››
›› To be launched in 2H2014
›› Ford EcoSport
››
››
››
››
Total production capacity of Ford
Sollers JV
Ford Transit
Ford Explorer
Ford Kuga
Ford S-MAX
Ford Galaxy
Ford Edge
Production capacity
SsangYong SUVs
Mazda CX-5
Mazda6
Toyota LCPrado
Headquarters
Fully Controlled Assets
Joint Ventures
15
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REPORTING
ADDITIONAL
INFORMATION
16
MOVING AHEAD //
Moving Ahead Constantly
Key Performance Indicators
SOLLERS’ Consolidated Wholesales, thousand units
2009
2010
2011
2012
2013
Change
%
35.1
57.0
63.7
70.3
62.9
(7.4)
-11%
SUVs
16.7
25.7
30.2
32.1
27.7
(4.4)
-14%
LCVs, MPVs
18.4
31.3
33.5
38.2
35.2
(3.0)
-8%
SsangYong
7.9
14.3
24.8
32.7
35.2
2.5
8%
TOTAL
43.0
71.3
88.5
103.0
98.1
(4.9)
-5%
FIAT5
14.4
23.7
29.8
5.1
-
(5.1)
-100%
UAZ
EBITDA, RUB mln
Total Sales, RUB mln
80,000
60,000
40,000
7,652
8,000
69,531
65,549
55,266
61,317
6,000
34,743
6,923
5,747
6,000
2,000
0
0
2010
2011
2012
2013
2009
–2,000
2010
2011
2012
2,277
Net Debt, RUB mln
5,843
6,000
4,594
4,000
25,000
3,625
2,000
23,205
–494
2011
2012
2013
30
25
20,000
15
0
10,000
–2,000
–1,815
–6,000
–5,027
2009
7,880
5,000
–4,000
2011
2012
2013
3,491
14.0
2009
2010
2011
2012
2013
6,8
5,8
6,1
5,0
5,1
Production
and related
workers
17,4
16,9
14,4
14,7
14,2
TOTAL
24,2
22,8
20,5
19,8
19,3
25.7
2012
2013
17.1
5
2010
2011
2012
2013
2009
4 Attributable to owners of the Company.
25.1
0
2009
19,3
10
0
2010
22.4
20
13,877
15,000
19,8
0
2010
Average Salary per Month, RUB thousand
21,442
20,5
10
White
collar
Net Profit (Loss)4, RUB mln
22,8
5
2009
2013
24,2
15
0
264
25
20
4,000
4,306
2,000
20,000
2009
7,903
8,000
6,387
6,269
4,000
Average Number of Employees6, thousand people
Free Cash Flow, RUB mln
2010
2011
5 SOLLERS discontinued FIAT business in 2012.
6 Average number of employees at consolidated business.
17
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75.2 k units
$350 mln
Total SOLLERS’ and Ford Sollers JV’s retail sales
in the Russian market for new SUVs in 2013
Investments made by Ford Sollers JV in new
models and localisation in 2013
ADDITIONAL
INFORMATION
MOVING AHEAD //
We work in partnership with global automative producers
to generate synergies by combining key competencies
into a single, multi-faceted business, enabling us to offer
freedom of choice to our customers
18
Business
and Strategy
19
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20
MOVING AHEAD //
Moving Ahead even in Turbulent Markets
Market Overview and SOLLERS’ Product Portfolio
The SUV segment is the fastest-growing segment in the Russian
automotive market, with a growth rate of +9% Y-on-Y,
which outperforms passenger car sales. It is forecast
to grow steadily over the medium term, with
an average market share up to 40-50%
of the total market.
PASSENGER CARS (PC)
›› Based on 2013 figures, the Russian market remains the second
largest in Europe (behind Germany) in terms of new passenger car
unit sales; in 2010 Russia was the fifth largest market.
›› In 2013, market growth was seen in only two segments. Sales of
SUVs and minivans increased by 9% and 61% respectively. All
other segments fell versus 2012.
›› Foreign models assembled in Russia have dominated the market
since 2011 and, in 2013, continued to increased their share (47%
in 2013; 46% in 2012; 43% in 2011).
›› In 2013, sales by volume were down 6% while revenues stayed at
the same level as in 2012 and the average purchase price of a car
in Russia increased from USD 25,042 to USD 26,353 (+5.2%).13
Sales of Passenger Cars and Commercial Vehicles in the Russian
Federation by Key Segment, thousand units
Sales of Passenger Cars in the Russian Federation by Origin,
thousand units12
2,943
3,000
2,646
2,000
Major Macro Trends7
In 2013, Russian industrial production increased 0.3%8 Y-on-Y.
Within the industrial production sectors, the manufacturing sector
demonstrated 0.1%9 annual growth over the year. The mechanical
engineering sector was flat Y-on-Y.10
Automotive production volumes (including PCs, CVs, Trucks and
Buses) fell in 2013 by 2% to 2,178 k units11. Russia’s automobile
factories produced 1,916 k (-2.0% vs. 2012) passenger cars (PCs)
and light commercial vehicles (CVs), 209 k trucks (-1.5%) and 52.9 k
buses (-9.1%). This decline in production is a direct consequence of
the reduced purchasing activity in the market. The Association of
European Businesses (AEB) considers that the main reason for this is
consumer concern about future economic instability.
7 The main source for market data in the paragraph is AEB, Association of European
Businesses, unless otherwise mentioned.
8 Rosstat.
2013 was a difficult year for the Russian automotive market: sales of
new cars declined from February to November and the explosive growth
witnessed in December was driven by unprecedented discounts and
special offers that continued into 2014. The 2013 figures bear out this
difficult year – 2,772 k vehicles were sold (incl. CVs), 6% lower than
record figures of 2012 (2,943 k units) and 5% lower than in the pre-crisis
year of 2008 (2,917 k units).
The market was influenced by both positive and negative factors:
›› Deteriorating economic expectations
›› State car loan subsidizing programme
›› Exchange rate and oil price fluctuations
›› Decelerating GPD growth
›› Gradual saturation of demand in some segments
›› High interest rates.
9 Rosstat.
10 Ministry of Industry and Trade.
11 Rosstat.
2,000
1,909
1,461
1,500
1,000
1,000
500
500
0
2,596
2,462
2,500
2,500
1,500
2,753
3,000
2,772
1,768
1,357
0
2009
2010
2011
2012
2013
B
150
210
283
266
218
B+
273
383
547
554
547
C
438
556
710
755
581
D
68
67
84
92
73
SUV+Pickup
320
432
670
883
959
CV (incl. CDV)
104
141
183
190
176
Others
108
120
169
204
218
TOTAL
1,461
1,909
2,646
2,943
2,772
Source: AEB, Association of European Businesses.
12 The numbers are different to those published in the 2012 SOLLERS Annual Report
due to a retrospective correction of the origin of several car models later during
the year 2013, which had actually been assembled locally.
2009
2010
2011
2012
2013
Russian
brands
377
560
618
577
477
Foreign
brands
assembled
in Russia
343
576
1,049
1,260
1,232
New imports
TOTAL
636
632
796
917
887
1,357
1,768
2,462
2,753
2,596
13 Company estimates. Sales data from AEB. Price monitoring from official OEM
websites (Evitos-Inform agency).
21
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22
MOVING AHEAD //
(continued)
COMMERCIAL VEHICLES (CV)
WITH A GROSS WEIGHT OF UP TO SIX TONNES
The market for commercial vehicles comprises three major segments:
car-derived vans (CDVs) or box carriers based on light motor vehicles
with a gross vehicle weight (GVW) of up to 2,500 kg; light commercial
vehicles (LCVs) or light trucks with a GVW of 2,500 kg to 3,500 kg; and
multi-purpose vehicles (MPVs), mainly minibuses.
›› In 2013, CV sales declined by 7%. The Russian light commercial vehicles
(LCV) market subsegment shrank for the first time since 2009.
›› In 2013, the LCV subsegment remained the largest within the CV
segment, despite a fall in unit sales of 5% versus 2012. However,
the decline in LCV sales was the lowest in the CV segment and
the growth that this subsegment experienced in 2010 is expected
to return.
›› The market for foreign brands assembled in Russia is dominated
by Ford Transit. Ford Sollers JV is the only producer of foreign
branded LCVs and MPVs in Russia, except for a small quantity of
the Mercedes Sprinter Classic assembled at GAZ since mid-2013.
In 2013, Transit retail sales grew by 13% versus 2012.
Sales of CVs in the Russian Federation by Segment,
thousand units
200
183
150
100
190
176
›› An old car fleet and an accelerating replacement rate (the average
age of the existing domestic car fleet is currently 13 years, with
one third over 15 years old15) favours long-term growth; despite
the successful implementation of an old-vehicle scrappage
programme in 2011, many Russian car owners still have old
vehicles that will soon be obsolete.
›› Foreign automakers’ investments in facility management in Russia
will force OEMs to increase local production.
›› New industrial assembly aimed at supporting the localisation
of foreign brands will enable manufacturers to increase their
operating margins.
›› The growth in sales financed by credit increased from 25% in 200916
to 46%17 in 2013. In 2014 this share is expected to reach 50%.
104
SUV SEGMENT
1,000
›› In 2012 the SUV segment became the largest car segment in
the Russian market and, in 2013, it increased its share of PC sales
to 36%.
50
2009
2010
2011
2012
2013
LCV
60
89
120
124
118
MPV
27
30
31
35
30
CDV
TOTAL
17
21
33
31
28
104
141
183
190
176
200
183
150
›› The SUV segment is just one of a few segments in the Russian
passenger car market (along with pickups and the F+S segment)
where sales in 2013 surpassed the pre-crisis level of 2008; the SUV
segment is forecast to grow steadily outpacing the overall market
growth rate over the medium term with an average market share of
40-50%.
›› The main growth in the SUV segment is driven by a higher demand
for cars with a “universal solution” (e.g. the ability to drive all year
round in cities and rural areas); higher sales were also driven by
the popularity of affordable foreign branded SUVs assembled in
Russia (in 2013 these SUV sales increased by 19% versus 2012).
Sales of CVs in the Russian Federation by Origin,
thousand units
100
190
176
›› The share of foreign brands assembled in Russia in the SUV
segment grew from 23% in 2009 to 47% in 2013.
›› In the SUV segment, SOLLERS is represented by several brands:
UAZ, SsangYong and Ford (through Ford Sollers JV).
141
104
›› In 2013, SOLLERS’ and Ford Sollers JV’s retail sales in the Russian
market for new SUVs were up 24% Y-on-Y from 60.7 k vehicles
in 2012 to 75.2 k vehicles in 2013; total market share in the SUV
segment is 8.0% (versus 7.1% in 2012).
50
0
2009
2010
2011
2012
2013
Russian
brands
62
89
111
114
108
Foreign
brands
assembled
in Russia
12
17
22
21
15
New imports
TOTAL
858
800
600
400
651
23%
24%
422
935
40%
36%
30%
31%
26%
20%
310
10%
200
0
0
›› UAZ retail sales fell by 13.3% from 29.1 k vehicles to 25.3 k
vehicles; UAZ’s market share in the SUV segment was 2.7% at
the end of 2013. The slowdown was due to a decrease in sales of
the old UAZ model range, whereas Patriot sales were virtually flat.
0
2009
2010
2011
2012
2013
Russian
brands
43
68
89
84
77
Foreign
brands
assembled
in Russia
71
129
228
349
417
New imports
196
225
334
425
441
TOTAL
310
422
651
858
935
Total
23%
Market share
of SUVs in PC
market
24%
26%
31%
36%
3.4% in 2012 to 3.5% in 2013; this growth was mainly driven by
sales of the SsangYong Actyon, following its recent restyling in
this fast-growing market segment.
›› Ford Sollers JV’s SUV production in Russia started in Q4 of 2012
with the assembly of the Explorer and Kuga in Elabuga. The joint
venture started CKD production of the Explorer in Elabuga in April
2013 and of the Kuga in October. In 2013, Ford SUV sales grew
significantly by 172% from 6.3 k units to 17.0 k units; in 2013,
100% of the 17.0 k SUVs sold were produced in Russia (whereas in
2012 only 36% of Ford SUVs were assembled locally).
›› Year-on-year, the Company increased its retail sales of SsangYong
SUVs by 12.6%, moving SsangYong’s share of the SUV market from
30
34
51
55
53
104
141
183
190
176
›› The undertaking of joint loan programmes between automakers
and banks along with the operations of several captive banks.
14 Avtostat estimates.
15 Sollers estimates.
16 Ministry of Industry and Trade estimates.
17 NBKI (National Bureau of Credit Histories) estimates.
Sales of SUVs in the Russian Federation by Origin,
thousand units19
›› In recent years, the SUV segment has been the fastest-growing
segment in the Russian automotive market, outpacing the overall
growth rate of passenger car (PC) sales (+9% versus -6% in 2013).
141
KEY LONG-TERM GROWTH FACTORS
›› There is considerable potential for the Russian automobile market
penetration rate to grow; currently, the number of cars per 1,000
inhabitants in Russia is 266, whereas in developed countries this
indicator exceeds 500.14
SOLLERS’ Position in the Russian
Automotive Market in 201318
18 SOLLERS’ Group sales here include retail domestic sales of SsangYong, UAZ, Ford
and ISUZU.
19 The numbers are different to those published in the 2012 SOLLERS Annual Report
due to a retrospective correction (later during the year 2013) of the origin of
several car models, which had actually been assembled locally.
23
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MOVING AHEAD //
24
(continued)
UAZ Patriot
Explorer
The legendary American off-roader first appeared on the Russian
market in March 2012, when Ford Sollers JV started assembling
the SUV in Elabuga. In 2013, the Explorer was one of the top 20
best-selling vehicles in USA, the biggest SUV and pick-up market
in the world, and its prospects look very promising in the Russian
market, especially taking into account the fast-growing share of
SUVs in Russia. In 2013, Explorer retail sales surpassed the 2012
level by 145%, reaching 5.0 k SUVs.
A powerful and reliable SUV with a true off-road character – second
to none on the Russian market in terms of performance.
In August 2013, SOLLERS revamped the original model, equipping
the UAZ Patriot with the latest features such as a Hyundai-Dymos
transmission with electronic control, windscreen heating, front seat
heaters and individual heating modules for back seats. Together
with the restyling which took place in 2012, when the Patriot was
equipped with a new diesel engine and improved air conditioning,
a soft-touch control panel, a hands-free entertainment system
and new interior, this additional revamp in 2013 has created a new
member of the Patriot family.
In January 2013, Ford Sollers JV launched a new top-of-the-range
version – the Explorer Sport. This car is finished with the original
exterior elements, which not only make the SUV stand out in urban
traffic, but also provide an unforgettable experience of driving
a real off-roader. In addition the Explorer Sport is equipped with
a powerful engine of 355 hp and a range of innovative technologies
including Terrain Management System. In 2013, the Explorer was
acknowledged the best in class model in the Annual Russian “Car of
the year 2013” Awards.
In 2013, the model was exported to over a dozen countries, primarily
Kazakhstan, Belarus and Ukraine.
SsangYong Actyon
Kuga
In March 2013, the new Kuga first appeared in Russian dealerships.
Powerful, superior and more stylish, both inside and out, Ford
Sollers JV launched the Kuga, the smartest of Ford’s SUVs. The car
was an instant success on the Russian market. In 2013, retail sales of
the Ford Kuga tripled compared to 2012, totalling 12 k units.
The SsangYong Actyon is the first crossover to be designed with
an integrated body and four-wheel drive. The model was first
launched in Russia in 2011 and it now occupies a secure place
in the Russian market for compact urban crossovers. Its share of
crossovers, the fastest-growing subsegment of the SUV market,
is 3%. In 2013, retail sales of the Actyon reached 20.1 k units,
an increase of 26% Y-on-Y.
The new Ford Kuga has excellent stowage capacity and boasts
the very latest on-demand technology. An Intelligent All-Wheel Drive
system adapts instantly to the terrain and driving conditions. Active
City Stop automatically brakes at low speed to prevent collisions and
the Ford SYNC allows hands-free control of music, phone calls and
much more. The Ford Kuga is the first SUV model with an innovative
hands-free tailgate. Packed with innovative features, the Kuga takes
SUV styling and technology to a whole new level.
In 2013, the model had a major internal and external makeover.
The restyled version of the model is equipped with LED headlights
and rearlights, seat ventilation, automatic tyre pressure checks,
a soft-touch interior finish and the latest entertainment and
navigation systems. SsangYong added a choice of four new colours
and a special “Red Line” version with a red leather interior.
In February 2013, the Ford Kuga won the 2012 Euro NCAP best-inclass safety award, coming top in the SUV segment.
25
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MOVING AHEAD //
26
(continued)
COMMERCIAL VEHICLES (LCV & MPV, EXCL. CDV)
C AND D SEGMENTS
›› Since the 2008 economic crisis, the Russian passenger car market
has been growing steadily, but in 2013 it went into decline for
the first time in the post-crisis recovery period. C and D segments
were affected more strongly by the market deterioration than
others. Nonetheless, the C segment is the second largest segment
of the Russian PC market (behind the SUV segment) and also one
of the most competitive; in 2013, this segment accounted for 22%
of passenger car sales (27% in 2012); the D segment fell from 5th
place in 2012 to 7th place in 2013 in terms of unit volumes in the PC
market, but it maintained its 2012 market share of 3%.
›› For the first time since 2009 sales of foreign imported brands
nearly equalled sales of foreign brands assembled in Russia, with
sales of the latter falling by 22% vs. 2012 and holding a 46% share
of the total C + D segment.
›› In 2013, retail sales of Ford cars in the C segment decreased by
27% against 2012. However, the Ford Focus is the number one C
segment car in Russia across all brands with a 12% market share
in this segment. In 2012 it was ranked 3rd behind Chevrolet and
Lada.
›› Ford’s D segment sales in 2013 put the brand into the top five most
popular models in this class. In 2013, the Ford Mondeo’s market
share in this segment was 9.3%.
Sales of C and D Segment Passenger Cars in the Russian
Federation by Origin, thousand units
›› In 2013, SOLLERS and its joint ventures were active in the
commercial vehicle segment through UAZ, ISUZU and Ford brands;
sales of these three brands in the Russian LCV & MPV market
amounted to 35.4 k units, accounting for a 24% share of the
Russian LCV & MPV market in 2013.
1,000
794
800
600
847
654
623
507
400
200
›› The ISUZU model range in the LCV & MPV segment is represented
by NLR and NMR chassis. In 2013 sales of light commercial
vehicles under this brand increased by 22% from 175 units to
213 units.
0
2009
2010
2011
2012
2013
Russian
brands
107
138
147
133
60
Foreign
brands
assembled
in Russia
170
253
367
388
297
New imports
229
232
280
325
297
TOTAL
507
623
794
847
654
Ford Focus
›› UAZ commercial vehicles held second place in the Russian LCV &
MPV market, with a market share of around 15%.
›› Ford Transit remains the absolute sales leader among foreign
brands in Russia. In the same period, sales of locally assembled
Ford Transit and Tourneo Custom vehicles increased by almost
17% (from 11.0 k units to 12.8 k units) despite unfavourable
market conditions. Ford Sollers JV’s total share of the LCV & MPV
market reached 9% in 2013 (7% in 2012).
Tourneo Custom
The Ford Focus is one of the most technologically advanced cars in
its class on the road today. It is equipped with an array of state-ofthe-art systems and features, all designed to make every journey
safer, easier, more efficient and more exhilarating.
The Tourneo Custom has obtained a maximum 5-star safety rating
from Euro NCAP. Two of its innovative technologies, Lane Keeping
Alert and Ford SYNC with Emergency Assistance, also received Euro
NCAP Advanced awards for technology.
For example, the innovative Active City Stop helps to avoid collisions
in slow-moving traffic or at speeds under 30 km/h. If the system
detects the car in front has unexpectedly stopped, it automatically
brakes. Active City Stop recently won a Euro NCAP Advanced Reward
for safety. When parking, Active Park Assist automatically steers the
car into the tightest of spaces, completely hands-free.
The luxurious interior has innovative flexible rear seats, with over
30 different configurations. There are cutting-edge features such as
the Ford SYNC voice control and MP3/phone connectivity system.
And the vehicle’s aerodynamic design, economical engine and
fuel‑saving technologies, such as Auto-Start-Stop, make it one of
the most efficient vehicles available.
In 2013, Ford Sollers JV launched a new version of the Ford Focus –
Ambiente Plus, which has fewer, but the most popular, extra
features. Ambiente Plus represents the best value for money in the
Ford Focus range.
In Russia assembly of the Tourneo Custom started in June 2013 at
the Elabuga production site.
27
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(continued)
›› Sales in the Russian truck market declined by 11% versus 2012.
›› The HDT class contributed significantly to overall market
performance, having suffered the most from the downturn,
with sales in 2009 dropping by 74%. At present, the market
is slowly recovering. This is a direct consequence of the growth
in sectors, such as construction and public utilities, that rely
heavily on HDT vehicles. In 2013, the decline in the HDT segment
was in line with the overall truck market: -12% versus 2012.
Moving Ahead Towards
Leadership Positions
Our Strategy
TRUCKS
›› This section covers the market for trucks with a gross weight
of over 3.5 tonnes; the market is divided into three payload classes:
light-duty trucks (LDT) with a payload of 2 to 5 tonnes, mediumduty trucks (MDT) with a payload of 5 to 15 tonnes, and heavy-duty
trucks (HDT) with a payload of over 15 tonnes.
MOVING AHEAD //
›› The MDT segment is the smallest truck segment and was the only
segment to show a recovery in 2013: +24% versus 2012.
›› SOLLERS is represented in the truck segment by ISUZU,
a Japanese brand and global leader in the LDT segment. In 2013,
ISUZU also moved into the MDT segment with its new model
range – ELF 9.5 and FORWARD vehicles.
›› In 2012, SOLLERS – along with its Japanese joint venture
partners – decided to relaunch the ISUZU project and move
production to the Ulyanovsk site. As a result of this move,
and the temporary halt in production, sales of ISUZU in the LDT
segment were quite moderate, resulting in a market share of 2%
by the end of 2012. In 2013, ISUZU sales in the LDT segment more
than doubled, from 485 units to 1,015 units, and its market share
increased to 6%.
The Company’s long-term strategic priority
is to achieve and maintain a strong
leadership position in the manufacturing
and distribution of passenger cars
and light commercial vehicles
in Russia.
›› The LDT segment suffered the most from the unfavourable market
conditions; at the end of 2013 sales had fallen by 19%.
Isuzu ELF 9.5
In April 2013, the SOLLERS-ISUZU JV started production of the
ELF 9.5 chassis with a payload of 6.6 tonnes, the highest payload in
the N-series model range. The new ISUZU ELF 9.5 is equipped with
a Euro 4 engine, an innovative braking system and a larger fuel tank;
it also offers an improved and easy-to-maintain interior. Like all
ISUZU trucks it brings the benefits of advanced engineering to every
aspect of vehicle design. From superb safety and convenience to
unsurpassed power and durability, these top-performing trucks are
equipped with the most sought after features to meet the challenge
of tough jobs and cost-effective operations.
In the last five years the Company has concentrated on areas
with considerable growth potential that will be realised when
market conditions improve. Today SOLLERS remains focused
on the fastest-growing market segments, launching new
products and increasing the level of localisation.
In the uncertain macroeconomic environment, we believe
that striking a reasonable balance between improving internal
efficiency and increasing our market positions considerably
benefits the market capitalisation of the Company.
28
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Our Strategy
Sustainable Growth Through Partnerships
(continued)
SOLLERS’ strategy is aimed at generating shareholder value by growing
organically in its consolidated businesses and accelerating its joint venture
activities by investing in new, promising products and localisation.
Strategic objective
Key criteria
Sustainable growth through
partnerships
›› Increase capacity utilisation in the joint ventures with global
OEMs
›› Develop partnerships with global suppliers of automotive
components
›› Improve efficiency through economy of scale, localisation and
investment sharing
Development of the most attractive
market segments
›› Launch new products in the fastest-growing segments
›› Regularly modernise the current model ranges
›› Maintain leading positions in the large, saturated market segments
Increase the level of locally-produced
parts and components to 60%
Implement modern product and
manufacturing technologies to maintain
the highest quality
›› Develop a supplier cluster with global manufacturers of automotive
components
›› Launch a Ford Sollers JV engine factory by December 2015
›› Contribute to the development of a supplier cluster in the Far East of
Russia
›› Modernise UAZ capacities to improve product quality and increase
manufacturing efficiency
›› Develop products with a focus on the UAZ Patriot series
SOLLERS developed four 50:50
partnerships with international OEMs and
set up a financial joint venture for leasing
services. Today, the SOLLERS’ business
comprises a number of well-structured
joint ventures and two independently
managed businesses. We believe that
the key growth driver of the SOLLERS’
business lies in our partnerships with
global OEMs; and the main criteria to
achieve this are:
›› Increase capacity utilisation in the joint
ventures with global OEMs
›› Develop partnerships with global
manufacturers of automotive
components
›› Improve efficiency through economy
of scale, localisation and investment
sharing
Objectives 2013
Results 2013
Plans 2014
›› Increase capacity
utilisation by launching
new products in the joint
ventures
›› Create investment
synergies through
industrial cooperation
MAZDA SOLLERS JV AND
SOLLERS-BUSSAN JV
›› Transferred production
of SsangYong vehicles to
MAZDA SOLLERS JV at
the Far East production site
›› Launched assembly of
the new Mazda6
›› Launched assembly of
the Toyota LC Prado
›› Increased capacity
utilisation at the Far East
production site to almost
70%
›› Increase production
capacity utilisation further
by launching new products
in the SUV segment
›› Open the second Ford
Sollers JV factory in
the Republic of Tatarstan
›› Implement cost
optimisation programmes
at production facilities
in the Ford Sollers JV
to increase economic
efficiency
›› Facelift current Ford
Sollers JV model range
FORD SOLLERS JV
›› Launched the new Kuga
and Explorer Sport
›› Launched the Tourneo
Custom
›› Increased capacity utilisation at Elabuga production
site to almost 40%
Development of the Most Attractive Market Segments
The SUV segment is the fastest-growing
segment in the Russian automotive
market, with a growth rate of +9%
Y-on-Y. It is forecast to grow steadily over
the medium term, with an average market
share of 40-50%. SOLLERS has a strong
track record of producing 4x4 vehicles
and has obtained considerable experience
specifically in the Russian market. We
plan to invest further to increase our
activity in the SUV segment. Our key
priorities for the Russian market are:
›› Launch new products in the fastestgrowing segments
›› Regularly modernise and facelift
the current model ranges
›› Maintain leading positions in the large,
saturated market segments
›› Ensure our operations comply with the highest standards of
Sustainable development and
environmentally responsible production
30
MOVING AHEAD //
environmental and industrial safety
›› Respect the environment through the considerate use of natural
resources
›› Develop employee competences in the best interests of the Company
and maintain a positive social environment in the communities where we
operate
Objectives 2013
Results 2013
Plans 2014-2015
›› Increase sales and market
share in the SUV segment
›› Launch new products in
the SUV segment
›› Maintain leading positions
in the C segment market
›› Modernise and facelift
current model ranges
›› Together, SOLLERS’ and Ford
Sollers JV’s retail sales in
the Russian market for new
SUVs grew 24% Y-on-Y
›› SOLLERS’ and Ford Sollers
JV’s total market share in
the SUV segment reached
8.0% (versus 7.1% in 2012)
›› Ford Sollers JV launched
the new Kuga, a modern
urban crossover, a new topof-the-range version of the
Explorer and mid-sized 4x4
SUV Ford Edge
›› The Ford Focus is the number
one car in the Russian
C segment with almost
12% market share
›› Facelift of the SsangYong:
new lighting, electronic
equipment and interior
›› Modernisation of the Patriot:
new Hyundai-Dymos
transmission with electronic
control
›› Further development of
Ford’s brand perception as
a large SUV producer
›› Launch of the B segment
urban crossover, the Ford
EcoSport, which in the
medium term is expected to
become the highest volume
model at the Tatarstan
production sites
›› Start production of the new
Ford Transit at the Elabuga
production site
›› Modernise current model
ranges
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Our Strategy
Implement Modern Product and Manufacturing Technologies
to Maintain the Highest Quality
(continued)
Increase the Level of Locally-produced Parts and Components to 60%
The Industrial Assembly regime (Regulation 166)
allows manufacturers who are compliant with
its conditions to be exempt from import duty on
components.
In 2005 the original Regulation 166 was issued
requiring a minimum capacity of 30 k units p.a. to be
installed and a minimum localisation level of 30%.
The term of the agreement was limited to seven years.
In 2010 the Government amended and extended
Regulation 166 to 2020 to facilitate further
development of local car production and the
component industry. The new requirements are
applicable to large-scale investment projects with
a minimum capacity of 300 k units p.a. and a target
localisation level of 60%. New requirements for the
local production of engines and stamping were also
added.
Ford Sollers JV is one of four large players in
the Russian automotive market to have signed
the new Regulation 166 agreements with the
Government. Other SOLLERS’ businesses are also
compliant with Regulation 166. Our key priorities
for localisation are:
›› Develop a supplier cluster through partnerships
with global suppliers of automotive components
›› Launch Ford Sollers JV engine factory by
December 2015
›› Contribute to the development of a supplier cluster
in the Far East of Russia
32
MOVING AHEAD //
Objectives 2013
Results 2013
Plans 2014-2016
›› Insrease localisation
level at Ford Sollers JV in
Elabuga
›› Increase component
supplier base for Ford
Sollers JV in Tatarstan
›› Determine the scope
of localisation for Ford
engines
›› Initiate automotive
cluster in the Far East of
Russia
›› Ford Sollers JV started
building the engine plant
in Elabuga, Tatarstan
with an investment of
approximately $274
million
›› Ford Sollers JV
announced the creation
of an R&D centre in
Russia
›› Ford Sollers JV increased
its local component
supplier base to over
50 companies in Russia
›› In April 2013 the Ford
Sollers JV started
CKD production of the
Explorer in Elabuga and
in October switched to
CKD production of the
Kuga
›› The establishment of
a Far East automotive
cluster by 2015
was included by the
authorities in the
Region’s development
plan in March 2013
›› Ford Sollers JV will
gradually increase the
level of localisation to
reach the target of 60%
in 2016
›› Construction of an engine
plant with a minimum
capacity of 105 k
engines p.a.
›› In 2014 switch to CKD
kit assembly of Isuzu
trucks at the Uliaynovsk
production site
›› In 2014 SOLLERSISUZU JV will start
sourcing large component
parts from local suppliers,
which should increase the
localisation level by 5%
Most of SOLLERS’ plants are modern
and have been built to international
standards. We are committed to bringing
all our production sites up to these
standards. SOLLERS’ main priorities
for the development of its consolidated
production facilities and products are:
›› Modernise UAZ assets to improve
product quality and increase
manufacturing efficiency
›› Develop products with a focus on the
UAZ Patriot series
Objectives 2013
Results 2013
Plans 2014-2015
›› Further improvement of
the UAZ Patriot model
range to meet changing
customer preferences
›› Increase internal
efficiency of UAZ and ZMZ
manufacturing
›› Modernised the Patriot,
mainly through the
new Hyundai-Dymos
transmission with
electronic control
›› Optimised UAZ production
schedule and headcount
according to market
demand
›› Developed industrial
park at ZMZ engine plant.
By the end of 2013 ZMZ
industrial park had six
occupants
›› UAZ Patriot facelift
including new lighting,
interior and exterior
changes, upgrade of
on-board equipment,
additional options
›› Acquisition of new painting
equipment and transfer to
the cataphoresis method
›› Increase corrosion
resistance of the UAZ
Patriot
›› Optimisation of moulding,
stock logistics and
assembly operations
›› Investment in stamping
facilities for the UAZ
Patriot, UAZ Cargo and
UAZ Pickup
Sustainable Development and Environmentally Responsible Production
Sustainable development is important to
the future prosperity of the Company and
the elimination of possible risks, as well
as to the welfare of society in general. It
is our policy to improve continuously our
environmental performance, employee
motivation and relations with local
communities. Our aims to achieve this:
›› Ensure our operations comply with
the highest standards of environmental
and industrial safety
›› Respect the environment through
the considerate use of natural resources
›› Develop employee competences in
the best interests of the Company and
maintain a positive social environment in
the communities where we operate
Objectives 2013
Results 2013
Plans 2014
›› Environmental monitoring
›› Controls for compliance
with environmental
regulations
›› Minimisation of
environmental footprint
›› Reconstruction of
environmental protection
equipment resulted in
considerable reduction in
pollution
›› UAZ was awarded «GLOBAL
ECO BRRANDAWARD»
as an «ECO
REGIONALBRAND»
›› UAZ won a top-100
Organizations award:
Environmental Protection
and Management
›› Ford Sollers JV introduced
a Global Safety Operating
System which aligns
internal Company
standards with global Ford
requirements
›› Further repair of
environmental protection
equipment
›› Research into an
appropriate method for
the thermal disposal of
combustible waste
›› Introduction of
Performance Management
System at SOLLERS’
consolidated business
divisions
›› Continue with
internship programme at
Ford Sollers JV
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34
MOVING AHEAD //
Moving Ahead with
a Sustainable Business Model
Our Business Model
Product Development
Manufacturing
›› Ensure strong brands remain in the product
portfolio
›› Select/ develop marketable products,
staying up to date with customer
preferences
›› Modify products tailored to customer needs
›› Carry out rigorous quality control
›› Ensure all production sites meet
international standards
›› Maintain focus on internal efficiency and
continuous localisation
›› Introduce investment sharing where
possible
›› Long-term partnerships with international
OEMs
›› Well-known brands
›› Focus on core value chain elements in
large-scale investments
›› Investment sharing
SOLLERS is moving ahead with its partners
to develop the best products for the Russian
market. From day one, the Company has
successfully implemented a partnershipfocused strategy to generate synergies by
combining key competencies into a single,
multifaceted business, enabling the Company
to offer great products and services to its
customers.
Our international partners, with their global
operating base, reinforce our strong market
position and enable us to choose the most
promising models to customise according to
the needs of Russian customers. Strong and
well-known brands help to gain substantial
market share in the largest market segments.
Ford Sollers JV, working under a running
royalty arrangement, can select any
model from the Ford global model range
if the product has proven market demand
and meets the required cost-efficiency
level. For example, Ford Sollers JV started
production of the Ford Explorer, which before
2012, when it was launched in the Russian
joint venture, was produced only for the US
market. In 2013, Explorer sales grew by
145% and Ford Sollers JV launched CKDassembly production. The joint venture has
announced the expansion of its SUV model
range to include the subcompact crossover
vehicle Ford EcoSport, which is currently
only produced for the Brazilian and Indian
markets.
As of the end of 2013, SOLLERS’ overall
capacity (directly owned or through joint
ventures) exceeded 550 k units per year,
making SOLLERS the second-largest
automaker in Russia.
Three state-of-the-art plants, established by
the partners of Ford Sollers JV, are dedicated
to different platforms and market segments.
The equipment and technological process
comply with Ford requirements and are
aligned with the One Ford concept. Ford
Sollers JV is accelerating its manufacturing
and localisation level in the Russian market
through its commitment to build its first
engine plant in Tatarstan by December 2015.
SOLLERS has made large-scale investments in
the production site based in the Far East of Russia.
The capacity and infrastructure are now shared
between two industrial partnerships, which helps
to improve the efficiency of SsangYong’s assembly
operations and create localisation opportunities.
The current capacity of the Far East plant is 100 k
units per year which provides economies of scale
and will facilitate investment sharing between
the partners when the plant is equipped for CKD
assembly.
SOLLERS’ plants produce components
and engines which are sold to the Group’s
subsidiaries as well as to external clients.
Taking into account the localisation
commitments of the four largest market players
and the requirement to increase the level of
local content, the Group’s component business
is forecast to grow steadily.
Meeting Customer
Expectations
›› Provide financing services
›› Carry out efficient product promotion and
marketing activities
Sales
After-sales Service
›› Develop independent dealership network
›› Establish and attain the best service
standards at the dealerships
›› Monitor financial and operating activity at
the dealerships
›› Perform wholesale financing
›› Develop independent service network
›› Establish and attain excellent automotive
service standards
›› Improve warranty guarantees in line with
changes in production
›› Track record of successful and
competitive market launches in Russia
›› Large distribution and after-sales network with strong growth potential
In-depth market knowledge, a wide range
of models and the provision of financial
services all contribute to the growth in
SOLLERS’ customer base. SOLLERS Group
is uniquely placed to launch new models
across five brands, with different origins
and in various market segments.
SOLLERS’ independent distribution and
service network encompasses 129 UAZ
dealers and 137 SsangYong dealers.
The Ford Sollers JV distribution and service
network covers 70 Russian cities and
comprises 130 dealers.
SsangYong is a good example of successful
market promotion and increased brand
loyalty. In 2005, when SsangYong was first
launched in the Russian market, brand
loyalty was very low and customers had no
idea of the brand’s origin and reputation.
2013 was a record breaking year for the
SsangYong brand in Russia with over 34 k
vehicles sold. The brand was one of the top
20 most popular car brands in Russia,
according to the Association of European
Businesses.
SOLLERS provides leasing financing
through its joint venture with
Sovkombank – SOLLERS-FINANCE JV.
In 2013, the value of its leasing
portfolio increased to RUB 2,226 million
(+19% Y-on-Y).
With a unique range of products for nearly
all transportation purposes, SOLLERS is
present across a broad spectrum of market
segments and price classes. This helps
improve the Company’s flexibility in diverse
market conditions.
The Company’s distribution network
stretches from Kaliningrad in the
westernmost part of European Russia
to Vladivostok in Russia’s Far East – a
distance of almost 10,300 km. All dealers
and service centres are obliged to meet
strict requirements developed by the sales
headquarters to ensure delivery of the very
best products and services to customers.
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MOVING AHEAD //
UAZ Holding
FACTSHEET
›› Leading Russian producer of 4x4 vehicles and their spare parts
›› ZMZ, as a part of UAZ Holding, is one of the largest Russian
producers of petrol and diesel engines and aluminium castings
›› Manufacturing capacity up to 100 k vehicles and 300 k engines per
year
›› Over 4.6 mln vehicles have been produced since 194120 and over
14 million ZMZ engines since 195821
›› Average number of personnel as of the end of 2013 was over
18,00022 people
UAZ PATRIOT SERIES LAUNCH TIMELINE23
UAZ Patriot
2005
2006
›› OCTOBER
UAZ and its subsidiaries successfully passed a re-certification
audit and confirmed their quality management compliance with
the ISO: 9001: 2008 international standard
ZMZ passed a re-certification audit and confirmed its quality
management compliance with the ISO/TS 16 949: 2009
international automotive standard
ZMZ and its subsidiaries started large-scale production and sales of
aluminium transmission cases for KAMAZ (Tatarstan) trucks under
a localisation project in partnership with ZF-KAMA (Germany). Now
ZMZ casts six modifications of aluminium transmission cases and
provides subsequent machining for two of them
›› DECEMBER
UAZ produced a limited series of the UAZ Patriot Arctic. This
version, equipped with an Eberspecher HYDRONIC coolant
heater and special winter options, combines exceptional off-road
capability with comfort in low temperatures
UAZ Pickup
UAZ Cargo
4X4 LCV
Prices start from RUB 580 k
4X4 SUV
2013 ACHIEVEMENTS
›› JANUARY
ZMZ started large-scale production and sales of Euro 4 engines
with various modifications
›› APRIL
UAZ was the winner in the 100 Best Russian Organizations for
Ecology and Environmental Management
The UAZ Patriot won a prestigious Runet award, coming top in ‘The
best national car’ nomination
ZMZ engine plant celebrated its 55th Anniversary
›› JUNE
Ferrum (Russian producer of metal parts for shipbuilding) moved into the
ZMZ industrial park, becoming the sixth member alongside Daido Metal
Rus, Trelleborg, LEONI, Flaig+Hommel and SOLLERS- Special Vehicles
›› AUGUST
UAZ started production of the modernised UAZ Patriot equipped
with Hyundai-Dymos transmission
›› SEPTEMBER
UAZ launched the UAZ Patriot’s new Trophy series and the UAZ Pickup
with attractive design options and improved off-road capability
2007
4X4 Pickup
2008
2009
2010
2011
2012
2013
AT THE END OF 2014, PRODUCTION OF THE NEXT UAZ SUV GENERATION – PATRIOT 2015 WILL BE LAUNCHED
UAZ WHOLESALES, thousand units
2013
2012
62.9
70.3
Hunter
7.7
10.2
Patriot
20.0
21.9
Old LCV, MPV model range
30.4
33.2
4.8
5.0
UAZ
New LCV model range
Company source. UAZ wholesales represent the Company’s sales to dealers and direct corporate sales, including export.
20 The year UAZ was established.
21 The year ZMZ was established.
Multimedia system with navigation
New instruments panel
Updated headlights
Selection of options for driver
and passenger comfort
New exterior
New 18” wheels
22 Includes UAZ OJSC, ZMZ OJSC and all their subsidiaries.
23 The graph shows retail prices as of 1Q2014.
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MOVING AHEAD //
(continued)
SsangYong
FACTSHEET
›› SOLLERS has been the exclusive producer and distributor of
SsangYong vehicles in Russia since 2005
›› In 2009 SOLLERS launched the first automobile plant in the Far
East of Russia for the production of SsangYong vehicles
2013 ACHIEVEMENTS
›› SEPTEMBER
For the third consecutive time SsangYong’s Russian distributor was
awarded the best SsangYong distributor globally, based on sales,
dealer/service network growth and brand marketing
›› OCTOBER
SsangYong started selling the SsangYong Actyon 2014 with
a restyled exterior and interior. The model is assembled at MAZDA
SOLLERS JV in Vladivostok
SsangYong launched the SsangYong Actyon Sports 2014 in Russia.
The pickup is known globally as the perfect vehicle for outdoor life
Launched the Actyon luxury ‘Red Line’ version. The top-of-therange version of this well-known crossover is equipped with a
number of premium class options and an outstanding interior
›› In 2013 SsangYong production was transferred to MAZDA
SOLLERS JV to benefit from economies of scale and investment
sharing
›› The distribution of SsangYong vehicles in Russia remains under
SOLLERS’ control
›› NOVEMBER
SsangYong starts selling the brand new 4x4 minivan SsangYong
Stavic, one of the biggest passenger cars with off-road
capabilities in Russia
SSANGYONG MODEL RANGE LAUNCH TIMELINE24
SsangYong Rexton
SsangYong Kyron
SsangYong Actyon Sports
SsangYong Actyon
SsangYong Stavic
SUV
Prices start from RUB 1,249 k
SUV
Pickup
SUV
Minivan
2005
2006
2007
2008
2009
2010
SSANGYONG WHOLESALES, thousand units
2013
2012
35.2
32.7
Rexton
0.7
1.7
Kyron
11.9
11.5
NEW Actyon (incl. Actyon Sports)
22.3
19.5
0.3
-
SSANGYONG
Stavic
Company source. SsangYong wholesales represent the Company’s sales to dealers and direct corporate sales.
2011
2012
2013
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MOVING AHEAD //
(continued)
Industrial Cooperation
MAZDA SOLLERS JV
SOLLERS created two joint ventures in the Russian Far
East in partnership with Japanese OEMs to benefit from
accelerated economies of scale and investment sharing.
Both joint venture agreements are focused on production
only and do not cover distribution rights. The distribution
of the vehicles is controlled by the corresponding brand
partner. The joint ventures are structured to remain
profitable through cost plus agreements. The total
production capacity of the two joint ventures is 100 k
units p.a.
FACTSHEET
›› MAZDA SOLLERS JV is a 50:50 joint venture with Mazda located in
Vladivostok
›› The joint venture agreement covers production of Mazda and
SsangYong vehicles in Russia
›› Distribution is not covered by the joint venture agreement
›› SOLLERS remains the exclusive distributor of SsangYong vehicles
in Russia
›› Current model range: Mazda CX-5, Mazda6, SsangYong SUVs
›› Average number of personnel as of the end of 2013 was 67725
people
›› Total investment from launch till 2020 – RUB 10 billion
›› The joint venture uses project financing provided on a nonrecourse basis at a subsidised interest rate amounting to RUB
6 billion
›› Revenue in 2013 was RUB 39,068 million
›› Investment sharing will improve the efficiency of Mazda and
SsangYong SKD and CKD assembly operations at the Far East
production site
SOLLERS-BUSSAN JV
FACTSHEET
›› SOLLERS-BUSSAN JV is a 50:50 joint venture with Mitsui located
in Vladivostok
›› The joint venture agreement covers the production of the Toyota
LC Prado in Russia
›› Distribution is not covered by the joint venture agreement
›› Current model range: Toyota Land Cruiser Prado
›› Average number of personnel as of the end of 2013 was 22826
people
›› Initial investment of RUB 1 billion
›› The joint venture uses project financing provided by VEB on a nonrecourse basis at a subsidised interest rate
›› The Group benefits from industrial cooperation with the global
automotive leader and Toyota’s production experience
2013 ACHIEVEMENTS
›› JANUARY
SsangYong SUV production transferred to MAZDA SOLLERS JV in
Vladivostok
›› FEBRUARY
Large-scale production of the Toyota LC Prado at SOLLERSBUSSAN JV in Vladivostok
›› APRIL
Launched production of the new SKYACTIV Mazda6 at MAZDA
SOLLERS JV in Vladivostok
›› AUGUST
Launched production of the SsangYong Actyon 2014 with a restyled
exterior and interior at MAZDA SOLLERS JV in Vladivostok
›› SEPTEMBER
Launched the restyled version of the Toyota LC Prado at SOLLERSBUSSAN JV in Vladivostok
MAZDA SOLLERS JV AND SOLLERS-BUSSAN JV MODEL RANGE LAUNCH TIMELINE
2007
2008
2009
2010
Mazda CX-5
Toyota LC Prado
The first Mazda crossover
with SKYACTIV technology
Classic frame based SUV
equipped with Toyota’s
leading off-road systems
2011
2012
2013
SsangYong production
transferred to MAZDA
SOLLERS JV
MAZDA SOLLERS JV AND SOLLERS-BUSSAN JV PRODUCTION VOLUMES , thousand units
SsangYong Vehicles
MAZDA SOLLERS JV
Mazda CX-5
Mazda6
SsangYong SUVs
SOLLERS-BUSSAN JV
Toyota LC Prado
2013
2012
58.2
3.4
19.8
3.4
6.4
-
32.0
-
7.9
-
7.9
-
25 Includes factory workers, specialists and managers.
26 Includes factory workers, specialists and managers
New Mazda sedan with
SKYACTIV-body, one of
the lightest models in
the class
Mazda6
41
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ADDITIONAL
INFORMATION
42
MOVING AHEAD //
(continued)
Ford Sollers JV
FACTSHEET
›› 50:50 joint venture formed in October 2011 between Ford Motor
Company and SOLLERS OJSC
›› Ford Sollers JV is responsible for the exclusive production, import
and distribution of all Ford brand products, including vehicles,
parts and accessories in Russia
›› The company operates three vehicle assembly plants in Russia
with a total capacity of over 350 k units per year
›› Ford Sollers JV is accelerating its plan to grow in the Russian market
by building its first engine plant in Tatarstan by December 2015
5,60027 people
›› Total project investment is $1.6 billion. In 2013, the joint venture’s
investment cash flow was $350 million
›› In two years, Ford Sollers JV has moved from building two car
models, Focus and Mondeo, to producing a wide range of Ford
vehicles
FORD SOLLERS JV MODEL RANGE LAUNCH TIMELINE28
2013 ACHIEVEMENTS
›› APRIL
The first CKD-assembled Explorer was produced at the Ford
Sollers JV Elabuga plant in the Republic of Tatarstan
›› MAY
Ford Sollers JV announced its plans to build a $274 million (RUB
10 billion) engine plant in Elabuga (Tatarstan), with the first
engines to be built in 2015
›› JUNE
Ford Sollers JV Vsevolozhsk plant started production of the special
20th anniversary series of the Ford Mondeo
Over one million Russian customers have chosen Ford vehicles in
the past decade
›› JULY
Ford won the prestigious JATO CO2 award in Russia
›› SEPTEMBER
Ford Sollers JV received a special award “For success in
the development of the Russian market.” The award was
announced at the “Best Commercial Vehicle of the Year in Russia”
awards ceremony in Moscow, which took place during the
COMTRANS 2013 commercial vehicle show
Ford Sollers JV announced the creation of an R&D centre in Russia
›› OCTOBER
Ford Sollers JV announced the start of CKD assembly of the Ford
Kuga at its plant in Elabuga in the Republic of Tatarstan
›› DECEMBER
Sales of the SUV line tripled in 2013 and Ford Focus became
the number 1 C segment car in Russia across all models
Ford Focus III
Ford Transit
Ford Explorer
Ford S-Max
Ford Turneo Custom
Ford Edge
Ford Ecosport
C-class
Ambiente Plus version
launched in February 2013
LCV
4X4 SUV
CKD assembly started in April
2013
Minivan
MPV
4X4 SUV
To be launched in 1Q2014
B segment crossover
To be launched in 2H2014
2011
2012
2013
C-class crossover
CKD assembly started in
October 2013
Ford Kuga
FORD SOLLERS JV WHOLESALES, thousand units
2013
2012
104.6
134.3
62.6
93.8
Mondeo
6.6
14.4
Transit
14.6
12.7
Kuga
13.1
5.1
Explorer
5.2
2.0
Other models
2.5
6.3
FORD SOLLERS JV
Focus
Company source. Ford Sollers JV wholesales represent the Company’s sales to dealers and direct corporate sales.
27 Includes three plants and corporate headquarters in Moscow.
ON TRACK WITH LOCALISATION PLANS
Ford Sollers JV is highly committed to Russia and
regards it as one of the most promising automotive
markets in Europe: in 2013 the company started
building the engine plant in Elabuga, Tatarstan,
and announced the creation of an R&D centre in
Russia which will adapt Ford vehicles for Russia
and create special local versions of LCVs. R&D will
be based in three locations: Moscow, Tatarstan and
the Leningradskiy region. The company is investing
considerably in the development of its supplier base
in the regions where it operates. In St. Petersburg
a supplier cluster has already been created and in
Tatarstan the JV is actively developing its supplier
base and already sourcing components from more
than 50 companies in Russia. Ford Sollers JV is fully
on track with its localisation plans and aims to hit the
target of 60% in 2016.
2014
LCV
To be launched in 2H2014
ELABUGA ENGINE PLANT
MAIN INPUTS:
›› Investment: $274 mln
›› SOP: December 2015
›› Capacity: 105-200 k engines p. a.
›› Staff: over 500 employees
ENGINE TO BE ASSEMBLED
FORD 1.6-LITRE DURATEC ENGINE:
›› Fuel: Gasoline
›› Displacement: 1.6 litre
›› Output: 85 HP, 105 HP and 125 HP
New Ford Transit
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44
MOVING AHEAD //
(continued)
SOLLERS-ISUZU JV
SOLLERS-FINANCE JV
FACTSHEET
›› The first Russian-Japanese joint venture for the production and
distribution of ISUZU vehicles was launched in July 2007
›› In 2012 SOLLERS-ISUZU was restructured into a joint venture,
with SOLLERS retaining 50% of share capital. The assembly line
was relocated to the Ulyanovsk production site (UAZ)
›› SOLLERS-ISUZU JV is responsible for the production, import and
distribution of ISUZU trucks and their parts in Russia
›› The locally assembled model range includes ISUZU N-series light
commercial vehicles and light duty trucks. The joint venture has
a capacity of 5 k trucks per annum
16029 people
SOLLERS-ISUZU JV MODEL RANGE LAUNCH TIMELINE30
2013 ACHIEVEMENTS
›› APRIL
SOLLERS-ISUZU JV started production of the NQR90 chassis with
a payload up to 6.6 tonnes. This model has the highest payload in
the ISUZU model range, assembled in Russia
SOLLERS-ISUZU JV started selling two F-series trucks: FORWARD
12.0 (FSR90) and FORWARD 18.0 (FRV34), the first ISUZU models
in the medium duty trucks (MDT) segment for Russian customers
›› MAY
SOLLERS-ISUZU JV announced the successful certification of
the ISUZU ELF 3.5 chassis (NMR85H). The chassis is a modification
of the well-known ELF 5.2, but with the maximum gross weight
reduced to a maximum of 3.5 tonnes
›› DECEMBER
In 2013, SOLLERS-ISUZU JV increased its retail sales in Russia to
1,295 trucks and commercial vehicles (75% up Y-on-Y)
FACTSHEET
›› Financial company specialising in leasing services
›› Founded by SOLLERS in 2008
›› In December 2010, it was restructured into a 50:50 joint venture
between Sovkombank and SOLLERS
›› Value of leasing portfolio as of 31 December 2013 increased by
19% Y-on-Y to RUB 2,226 million
›› Cost of vehicles purchased in 2013 increased by 6% Y-on-Y to RUB
2,939 million (incl. VAT)
›› SOLLERS-FINANCE JV’s IFRS revenue for the year ended
31 December, 2013 totalled RUB 599 million (up 38% Y-on-Y)
SOLLERS-FINANCE JV 2013 Leasing Portfolio by Brand
12%
11%
34%
ISUZU ELF 3.5S
ISUZU ELF 3.5 – ELF 5.2
ISUZU ELF 7.5
ISUZU ELF 9.5
ISUZU FORWARD 12.0-18.0
LCV chassis
Certified name: NLR85A
Payload: 1.5 tonnes
LCV & LDT chassis
Certified name: NMR85H
Payload: 3.0 tonnes
LDT chassis
Certified name: NPR75L
Payload: 4.7 tonnes
LDT chassis
Certified name: NQR90L
Payload: up to 6.6 tonnes
MDT chassis
Certified name: FSR90SL and FRV34UL
Payload: up to 12.5 tonnes
2007
2008
2009
2010
SOLLERS-ISUZU JV WHOLESALES, thousand units
2013
2012
1,640
727
N-series
1,592
718
F-series
48
-
C-series
-
9
SOLLERS-ISUZU JV
Company source. SOLLERS-ISUZU JV wholesales represent the Company’s sales to dealers and direct corporate sales.
29 Includes production site in Ulyanovsk and
SOLLERS-ISUZU JV headquarters in Moscow.
2011
2012
2013
ON TRACK WITH LOCALISATION PLANS
In the second quarter of 2014, SOLLERS-ISUZU JV plans to start
CKD assembly of N-series trucks. Also in the second half of 2014
SOLLERS-ISUZU JV plans to start the local assembly of F-series
medium duty trucks. The 2014 production plan includes the
assembly of 2,340 N-series chassis and 204 F-series chassis.
In 2014, the joint venture will increase the local content of the
assembled trucks by increasing the number of locally-produced
large parts, such as fuel tanks, leaf springs, shock absorbers and
propeller shafts. These actions will help to partly reduce logistics
costs and decrease the exposure to foreign exchange. The estimated
increase of the localisation level is +5%.
Ford
ISUZU
Special vehicles
MAZ
10%
2%
4%
KAMAZ
Fiat
Hyundai
9%
5%
5%
9%
MAN
HINO
Other
45
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CORPORATE
GOVERNANCE
Transparent
We are committed to disclosing relevant
financial and operational information and
our future development plans
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
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FINANCIAL
REPORTING
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MOVING AHEAD //
Ethical
We believe in the fundamental principle
of protecting the legal rights and interests
of all our stakeholders
SOLLERS is focused on improving its corporate
governance standards, upholding the rights and legal
interests of its stakeholders, providing transparent
information and adopting ethical practices
46
Corporate
Governance
47
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What does Corporate Governance Mean to SOLLERS?
48
MOVING AHEAD //
Annual General
Shareholders Meeting
Board of Directors (BoD)
The Annual General Shareholders meeting is the supreme managing
body of SOLLERS OJSC.
The Board of Directors is responsible for the strategic management
and overall control of SOLLERS.
The procedures regarding the Annual General Shareholders Meeting
are set out in the Regulations relating to the Annual General
Shareholders Meeting.
The main role of the BoD is to uphold the rights of SOLLERS’
shareholders, develop corporate strategy and determine longterm objectives, monitor the implementation of this strategy and
coordinate internal control and risk management functions.
The procedures and functions of SOLLERS’ Board of Directors are set
out in the Regulations relating to the Board of Directors.
› For more info, please see
DAVID J. HERMAN
CHAIRMAN OF BOARD OF DIRECTORS
Good corporate governance is integral to
our overall business approach. It enables
us to make informed and considered
decisions to ensure that we set and execute
a sound corporate strategy for the long
term on behalf of our shareholders. At
the heart of our governance framework
sits our Board – a balanced team of
qualified individuals who, together, bring
an excellent mix of skills, knowledge and
experience to our business. The Board is
supported by Board Committees, chaired
by independent Directors, who advise
and challenge our management team and
the strategic direction of the business. At
SOLLERS, we are committed to improving
our governance and aspire to follow best
practice standards.
PAGE 50.
Board of Directors’ Committees
Management
The Company has formed a number of committees to support the
Board of Directors in exercising control over different lines of
operations. Although the Committees report directly to the BoD they
also have functional reporting lines to Company’s management to
ensure the provision of timely information about business operations
for decision-making purposes.
Management carries out the day-to-day governance of the
Company’s operations and its subsidiaries/ affiliates.
Corporate Governance Framework
ANNUAL GENERAL SHAREHOLDERS
MEETING
Direct reporting lines
Functional reporting lines
CHAIRMAN OF BOARD OF
DIRECTORS
BOARD OF DIRECTORS’S
COMMITTEES
Board of Directors
Audit Committee
Strategy Committee
Remuneration
Committee
Management
Nomination and
Committee
The procedures and roles of the SOLLERS’ Board of Committees are
set out in the Regulations relating to each Committee.
Management is responsible for implementing strategy, business
plans, investment programmes and creating a roadmap to achieve
operating objectives. It also has operational control over the
financial position of the Company, prepares improvement proposals
for the main business lines and reports to the BoD.
Management operates in compliance with the Company’s Charter
and internal acts.
PAGE 59.
PAGE 55.
PAGE 60.
49
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FINANCIAL
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ADDITIONAL
INFORMATION
Protecting our Long-term Success
2
The Profiles of SOLLERS’ Directors
RICHARD BROYD
INDEPENDENT DIRECTOR
Independent: Yes
Board Committees: Strategy Committee (Chairman)
Year appointed to the Board: 2007
Key skills and experience: Corporate Development and Finance,
Principal Investing and Philanthropy.
Our Board structure follows corporate governance best practice,
with a majority of five Independent Directors out of a total of nine.
Other current appointments:
Director of Waypoint Capital, Northill Asset Management and
Euromedic, a diagnostic imaging company in Budapest. He is
Chairman of Reach-to-Teach, a charity providing children’s primary
education in rural India and an Advisory Board member of the
Legatum Center for Development and Entrepreneurship, MIT.
Independent Directors
1
2
Background:
Prior to his current appointments, Richard was Chief Executive of a
private investment fund in Brussels. He held a number of positions
in the Montedison Group, Milan, including Managing Director of
SIR SpA, a specialty chemical company, and Director of Corporate
Development and Strategy, and Controller. He has also been a
partner of The Monitor Group, co-founder and managing director of
Monitor Clipper Partners, a private equity fund, and has worked for
the United Nations in Japan.
Education and awards:
Richard holds a PhD from Cornell University.
4
3
4
5
SEPPO REMES
Independent: Yes
Board Committees: Audit Committee (Chairman)
Key skills and experience: Wide experience gained mainly in the
energy sector.
Chairman of the Board at EOS Russia (an investment company
focusing on the Russian power sector), and board member of
several major companies, including JSC Russian Grids, SIBUR
Holding and Rusnano.
1
DAVID J. HERMAN
CHAIRMAN OF BOARD OF DIRECTORS (SINCE 2007)
Independent: Yes
Board Committees: Nomination and
Corporate Governance Committee
(Chairman), Strategy Committee, Audit
Committee
Key skills and experience: Over 30 years of
international experience in the automotive
industry. A qualified lawyer.
Member of the US-Russia Council and the American Chamber of Commerce (Russia), and an
independent director of Magnitogorsk Iron and Steel Works, Strategic Initiatives and New
Health Sciences.
Background:
David worked at General Motors for 29 years, including 10 years as Vice President. In addition
to establishing GM-AVTOVAZ, the largest Russian automobile joint venture, he was chairman
of the board of Adam Opel AG, CEO of SAAB Automobile, and represented General Motors in a
number of countries.
David is a graduate of New York University, holds a Master’s degree from Harvard Graduate
School and a Juris Doctor degree from Harvard Law School. He has been awarded the German
Bundesverdienstkreuz and the Belgian Order of Leopold.
50
MOVING AHEAD //
Background:
As a board member of RAO UES Seppo took part in the fundamental
reform of Russia‘s electric power sector and created one of
Russia’s first corporate audit committees. Prior to this, he was
vice president for Russian Affairs of Neste-Fortum, an OMX-listed
global energy company. He was also the founder of the European
Business Club (now the Association of European Businesses).
Seppo Remes is a graduate of Oulu University and holds a
Licentiate Degree from the Turku School of Economics and
Business Administration in Finland. Seppo has twice been named
Best Independent Director of the Year by the Investor Protection
Association, Russia (2006, 2008) and Director of the Year 2012
by the Independent Directors Association. He is the Honorary
Doctor at Plekhanov Russian Academy of Economics and also the
Honorary Doctor of Turku School of Economics, Finland.
3
PATRICK T. GALLAGHER
Independent: Yes
Board Committees: Remuneration Committee (Chairman), Audit
Committee, Strategy Committee
Key skills and experience: International business career mainly in
the telecoms sector.
Chairman of Harmonic Inc (NASDAQ: HLIT) a US-based
global provider of high performance video solutions and a
director of Ciena Corporation, a NYSE-listed global supplier of
Telecommunications and related equipment.
Background:
From 2008 to 2012, Patrick was Chairman of Ubiquisys Ltd in the
UK and, from 2008 to 2009, Chairman of Macro 4 plc, a FTSE-listed
global software company. Prior to this, he was Vice Chairman
of Golden Telecom Inc., in Moscow. Patrick was Executive Vice
Chairman and served as Chief Executive Officer of FLAG Telecom
Group and, for 17 years, held various senior management positions
at BT Group.
Graduate of Warwick University in Economics and Industry.
5
ALEXANDER IKONNIKOV
Independent: Yes
Board Committees: Remuneration Committee, Nomination and
Key skills and experience: Over 10 years’ experience serving on the
boards of leading Russian companies in the telecommunications,
financial services and brewing industries.
Chairman of the Board of the Independent Directors Association,
an Independent Director at Swedish investment fund East Capital
Explorer Plc, and a Member of the Supervisory Board of the
National Settlement Depository.
Background:
Prior to holding his current position, Alexander was CEO of the
Russian Investor Protection Association. Alexander also served as
an independent director of North-West Telecom OJSC and Baltika
OJSC.
Alexander is a graduate of the Gubkin Russian State University
of Oil and Gas. He holds a PhD in Economics and is a Chartered
Director of the Institute of Directors (IoD) in the UK. In 2010, the
Yale School of Management recognised him as a “rising star of
corporate governance”.
51
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52
MOVING AHEAD //
53
The Profiles of SOLLERS’ Directors
(continued)
Executive Directors
6
8
7
NIKOLAY SOBOLEV
FIRST DEPUTY CEO (SINCE 2009) AND
CFO (SINCE 2005) OF SOLLERS
Independent: No
Board Committees: Strategy Committee,
Remuneration Committee
Key skills and experience: Financier
and economist, with experience in the
automotive and machine tool industries.
Since 2012 a Board member of Russian
Railways.
7
9
Background:
Between 2002-2005 Nikolay was the Director
for Financial and Economic Affairs of UAZ
OJSC and in 2002-2011 he was a Member of
the Board of Directors of UAZ OJSC. From
1997 to 2002, he served as the First Deputy
Director General and Vice President of
Yuzhuralmash Holding JSC and a Member of
the Board of Directors of Yuzhuralmash OJSC.
8
ZOYA KAIKA
DEPUTY CEO (SINCE 2013) AND
DIRECTOR OF PUBLIC AND
GOVERNMENT RELATIONS (SINCE
2003) OF SOLLERS
9
VICTOR KHVESENYA
DIRECTOR OF LEGAL AFFAIRS (SINCE
2009) OF SOLLERS, SECRETARY OF
THE BOARD OF DIRECTORS
Independent: No
Board Committees: Nomination and
Key skills and experience: International
legal experience.
Independent: No
Board Committees: n/a
Key skills and experience: Journalism and
economic analysis.
Board member of UAZ OJSC.
Background:
Zoya was a member of the board of directors
of ZMZ OJSC from 2010 to 2013. Prior to
joining the Company as an analyst, she was
Deputy Editor of the economics section of
Vedomosti, one of Russia‘s leading business
publications.
Zoya holds a Journalism degree from
Lomonosov Moscow State University.
Background:
Between 2005 and 2009 Victor was VicePresident of Legal Affairs in AMEDIA
Group. From 1995 to 2005, he served as
Senior Attorney in the Moscow office of the
international law firm of White & Case.
Victor graduated from the Law Faculty of
Belarusian State University (Minsk) in 1984
and earned a Master’s degree from the Case
Western Reserve University School of Law
(Cleveland, USA) in 1993.
Nikolay graduated from Lomonosov
Moscow State University and the Russian
Presidential Academy of National Economy
and Public Administration. He holds a PhD
in Economics from Lomonosov Moscow
State University and an MBA from Kingston
University Business School (UK).
6
VADIM SHVETSOV
CEO OF SOLLERS, CEO OF UAZ OJSC
Independent: No
Board Committees: Strategy Committee,
Nomination and Corporate Governance
Committee
Key skills and experience: Extensive
operational and sales experience in the
automotive sector.
Chairman of the boards of directors of UAZ OJSC, ZMZ OJSC and Ford Sollers Holding.
Member of the board of directors of Russian Automobile Producers Association, the largest
automotive sector association in Russia.
Director
Background:
Vadim Shvetsov has held operational management roles in the Company and its subsidiaries
since 2002. From 1993 to 2002, he held a number of positions at Severstal Group, from
commercial manager to First deputy CEO. As Head of sales he established Severstal’s system
of in-bound and foreign sales. For four consecutive years to 2000, Vadim was a member of the
town council in Cherepovets.
Vadim is a graduate of the Moscow Institute of Steel and Alloys, specialising in Electric Drives
and Automation of Industrial Installations and Technological Complexes. In 2001, he received
an MBA from Northumbria University Business School (UK). He has been awarded the Order
for Service to the Motherland (2nd degree) and the Automotive Industry Order of Honour.
Board Composition 2013:
Percentage Interest that Directors Hold in the Share Capital as of 31 December 2013
Number of direct
voting rights
Number of indirect
voting rights
% of voting rights
-
-
-
David J. Herman
Richard Broyd
-
-
-
Patrick T. Gallagher
-
-
-
Seppo Remes
-
-
-
Alexander Ikonnikov
44%
Independen
Executive D
56%
-
-
-
Vadim Shvetsov
15,980
18,433,919
53.85%
Nikolay Sobolev
99,383
-
0.29%
-
-
-
-
Executive Directors
Viktor Khvesenya
-
Zoya Kaika
-
Source: SOLLERS OJSC List of Affiliates as of 31 December 2013.
44%
56%
As of 31 December 2013
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54
MOVING AHEAD //
Board of Directors’ Meetings
The Board met 11 times in 2013 and the majority of agenda
items discussed were corporate governance matters.
In line with best practice corporate governance, the Company has
formed a number of Board committees to support the Board of
Directors in exercising control over different business activities.
Meetings and Attendance
Matters Discussed and Approved
Audit Committee
The Audit Committee was established in
2005. Its mission is to support the Board
of Directors in exercising control over the
Company’s business activities. The Audit
Committee reports to the Company’s Board
of Directors.
During the year under review the Board of Directors held
11 meetings. The Board’s attendance for each meeting is set out in
the table below. One new member was appointed to the Board at the
AGM on 16 May 2013 (Zoya Kaika) and one member (Evegeny Yasin)
retired from the Board on the same date. Nearly a half of the Board
meetings in the year were attended in person.
A variety of topics was discussed at the Board meetings during
the year. Over 50% of the number of topics discussed related to
corporate governance matters, which demonstrate the Board’s
commitment to keeping corporate governance high on its agenda.
Board Meeting Attendance in 201331
Number of Topics Approved at Board Meetings in 2013
Director
1
2
3
4
5
6
7
8
9
10
Number of meetings
David J. Herman
Richard Broyd
Patrick T. Gallagher
Seppo Remes
Alexander Ikonnikov
Vadim Shvetsov
Nikolay Sobolev
Viktor Khvesenya
Zoya Kaika32
Evgeny Yasin33
11/11
10/11
11/11
11/11
11/11
11/11
11/11
11/11
2/3
3/8
Number of Board Meetings Held in Person and in Absentia in 2013
60
52
50
40
38
38
Number of items
put to the vote
Number of items
passed unanimously
30
20
10
0
Total number
of items discussed
Breakdown of Topics Considered at Board Meetings in 2013, %
10%
10%
45%
55%
Meetings held in person
Mettings held in absentia
52%
11%
Approval of Transactions
Strategy and Main
Business
Members of the Audit Committee must
be independent and also have relevant
professional financial qualifications in
order to ensure the committee operates in
the most effective manner. All members
fulfil these criteria. Details about the
status of each members’ independence and
qualifications can be found in the Board
profiles on page 50.
THE ROLE OF THE AUDIT COMMITTEE
The Audit Committee’s main areas of
activities include control over the following:
›› completeness and fairness of financial
statements, and the process of their
preparation and presentation
›› operation of internal control, internal audit
and risk management systems
›› compliance with current Russian legislation
and the Company’s internal regulations.
Financials
17%
31 The figures presented in the table indicate the number of meetings in which a
Board member actually participated/ the number of meetings in which a Board
member could participate.
The Audit Committee consists of the
Chairman and three members who are nonexecutive directors of the Company. As of
31 December 2013, the Audit Committee
included the following members of the Board
of Directors:
›› Seppo Remes (Committee Chairman,
independent director)
›› Patrick T. Gallagher (independent director)
›› David J. Herman (independent director,
Chairman of the Board of Directors)
The Audit Committee’s exclusive functions
include:
›› evaluating candidates for Company
auditors and presenting their conclusions
to the Board of Directors
›› assessing the auditors’ opinion
›› evaluating the efficiency of current
internal control and risk management
procedures, and making recommendations
for improving them.
AUDIT COMMITTEE MEETINGS
The Audit Committee meets regularly to ensure
the prompt monitoring of the Company’s
internal control and audit systems and risk
management procedures, and to summarise
the interim and annual results of the
Company’s business operations.
Meetings are attended by Committee
members, who are invited to make
presentations, and also by other
stakeholders, as and when required (for
example, the heads of corporate reporting,
internal audit and control, risk management,
and representatives of external auditor).
32 New member of the Board of Directors who was elected during the AGM held on
May 16, 2013.
33 Member of the Board of Directors who served on it before the AGM held on May 16, 2013.
SEPPO REMES
CHAIRMAN OF AUDIT COMMITTEE
KEY AUDIT COMMITTEE ACTIVITIES IN 2013
The following documents were approved at
the Audit Committee meetings in 2013:
›› Consolidated Financial Statements of
SOLLERS Group for 2012
›› Consolidated Financial Statements for
H1 2013
›› approval of PricewaterhouseCoopers
Audit, as the external auditor of SOLLERS
Group’s Financial Statements for 2013
›› the reports on internal audit findings and
internal audit plan for 2014.
In 2013, the Audit Committee also
implemented the risk matrix and influenced
the development of major risk management
activities.
Other
“In 2013 we successfully
implemented our risk
management matrix
and developed our risk
management activities.”
› For more information about our
internal control, risk management
processes and our principal risks,
please see PAGE 62.
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Strategy Committee
Remuneration Committee
The Strategy Committee was established in
2005. Its task is to present recommendations
on the development of the Company’s
strategy and to determine its priority
development areas. The Strategy Committee
reports to the Company’s Board of Directors.
STRATEGY COMMITTEE MEETINGS
The Strategy Committee includes the
Chairman and at least three Members of the
Company’s Board of Directors. During 2013
and as of 31 December 2013, the Committee
included the following Members of the Board
of Directors:
›› Richard Broyd (Committee Chairman,
›› Patrick T. Gallagher (independent director)
›› Vadim Shvetsov (CEO)
›› Nikolay Sobolev (First Deputy CEO, CFO).
The Strategy Committee presents its
opinions to the Board of Directors on
documents submitted by management
regarding the Company’s development
strategy. At the Board of Directors’ request,
or on its own initiative, the Strategy
Committee prepares oral or written
recommendations on specific topics within
its competence, and issues reports on its
work for consideration by the Board of
Directors.
The Strategy Committee meets on a regular
basis, at least twice per year. Committee
meetings are attended by the Company’s
First Deputy CEO or CEO.
KEY STRATEGY COMMITTEE ACTIVITIES IN
2013
THE ROLE OF THE STRATEGY COMMITTEE
The Strategy Committee’s main areas of
activities include:
›› reviewing the goals, development concepts,
and strategic plans developed by top
management, as well as coordinating
strategic plans in accordance with the
Company’s performance and prospects and
communicating these to the Company’s units
›› preparing recommendations for the Board of
Directors concerning investment decisions,
including:
–– acquiring capital of other companies,
analysis of investment projects and review
of their compliance with the development
strategy (at the project acceptance stage)
–– analysis of top-level organisational
projects and assessment of their
compliance with the development strategy
(at the project development stage)
›› preparing recommendations for the Board of
Directors regarding potential restructuring,
including the utilisation of non-core assets.
SOLLERS business is growing organically,
adapting to changing macro- and
microeconomic factors. The Strategy
Committee played a significant role in
defining the Company’s development
strategy, focusing in particular on the
changing market structure and deterioration
of the macroeconomic environment.
“In 2013 we focused in
particular on monitoring
changing consumer
demand and the challenging
macroeconomic
environment.”
RICHARD BROYD
CHAIRMAN OF STRATEGY COMMITTEE
The Remuneration Committee was first
established in 2005. Among the Committee’s
responsibilities is the establishment of fair
compensation packages for the Company’s
governing bodies. The Remuneration
Committee reports to the Company’s Board
of Directors.
REMUNERATION COMMITTEE MEETINGS
The Remuneration Committee includes the
Chairman and at least three members of the
Company’s Board of Directors. During 2013
and as of 31 December 2013, the Committee
included the following members of the Board
of Directors:
›› Patrick T. Gallagher (Committee Chairman,
›› Alexander Ikonnikov (independent director)
›› Nikolay Sobolev (First Deputy CEO, CFO).
Based on the results of the Committee’s
work, the Board of Directors made
recommendations to the Annual General
Shareholders Meeting regarding the
amount of remuneration and compensation
for members of the Company’s Board of
Directors.
THE ROLE OF THE REMUNERATION
COMMITTEE
The Remuneration Committee’s main areas
of activity are:
›› defining criteria for selecting candidates for
the Company’s Board of Directors and top
management, and the preliminary evaluation
of candidates
›› developing proposals for determining
essential contract terms with members
of the Company’s Board of Directors and
top management, including principles and
criteria for determining their remuneration
›› assessing the performance of the Company’s
management on a regular basis.
KEY REMUNERATION COMMITTEE
ACTIVITIES IN 2013
“We put our remuneration
proposals to the vote at the
AGM, based on a detailed
assessment of the work
carried out by the Board of
Directors and its Committees
during the year.”
PATRICK T. GALLAGHER
CHAIRMAN OF REMUNERATION
COMMITTEE
› Details of the remuneration
for members of the Board and
its Committees which were
approved at the AGM can be
found on PAGE 59.
› For more information about
strategy, please see PAGE 29.
The Remuneration Committee meets as
required.
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Nomination and Corporate Governance
Committee
The Nomination and Corporate Governance
Committee was established in 2012. The main
purposes of the Nomination and Corporate
Governance Committee are to develop and
enhance the corporate governance of the
Company, to carry out preliminary reviews of
matters regarding the corporate governance
and corporate culture of the Company and
to make recommendations to the Board of
Directors on such matters. The Nomination
and Corporate Governance Committee reports
to the Company’s Board of Directors.
Committee includes the Chairman and
at least three members of the Company’s
Board of Directors. During 2013 and as of 31
December 2013, the Committee included the
following members of the Board of Directors:
›› David J. Herman (Committee Chairman,
Chairman of the Board of Directors,
›› Alexander Ikonnikov (independent director)
›› Vadim Shvetsov (CEO)
›› Victor Khvesenya (director of Legal Affairs).
THE ROLE OF THE NOMINATION AND
CORPORATE GOVERNANCE COMMITTEE
Committee’s main areas of activity are to:
›› develop general recommendations regarding
the desired composition and size of the Board
of Directors
›› conduct an evaluation of candidates
proposed for election to the Board of
Directors and provide the Board of Directors
with recommendations regarding such
candidates
›› review and develop the Company’s standard
for director independence and recommend
to the Board of Directors any modifications
to that standard
›› monitor emerging corporate governance
trends, evaluate corporate governance policies
and Company programmes and recommend
to the Board of Directors any actions as the
Committee may consider appropriate
›› consider policies relating to the preparation,
convocation and holding of general meetings
of shareholders and meetings of the Board of
Directors
›› make recommendations to the Board of
Directors with respect to the approval of
and amendments to the Company’s internal
corporate rules and policies relating to insider
information and the Company’s confidential
information, as well as regarding the procedure
relating to the use of information about
the Company’s operations, securities and
transactions which is not in the public domain
›› handle any other matters relating
to corporate governance as may be requested
by the Board of Directors or deemed
necessary or desirable by the Committee.
NOMINATION AND CORPORATE
GOVERNANCE COMMITTEE MEETINGS
Committee meets as required. The Nomination and Corporate Governance
Committee presents its opinions and
recommendations to the Board of Directors
on the Company’s corporate governance and
corporate culture. At the Board of Directors’
request or on its own initiative, the Committee
prepares oral or written recommendations
on specific issues within its competence, and
issues reports on its work for consideration
by the Board of Directors.
KEY NOMINATION AND CORPORATE
GOVERNANCE COMMITTEE ACTIVITIES
IN 2013
In 2013, the Committee initiated and
contributed to the development of a new
Corporate Code of Governance, which was
finally approved at the AGM held on 16 May
2013. The Corporate Code of Governance
was established in compliance with the
terms of the Corporate Code of Conduct,
recommended by the Act issued by the Federal
Committee for Security Markets on 4 April
2002 # 421 ‘Recommendations for application
of Corporate Code of Conduct’ and the UK
Corporate Governance Code, revised version
as of September 2012. The amendments to the
Corporate Code of Governance primarily
involve the definition of independent directors.
Annual General Meetings
KEY AMENDMENTS TO THE CORPORATE CODE OF GOVERNANCE:
DEFINITION OF INDEPENDENT DIRECTOR
“In 2013 we developed
a new Corporate Code of
Governance, reinforcing
the importance of corporate
governance within our
corporate culture.”
DAVID J. HERMAN
CHAIRMAN OF NOMINATION AND
CORPORATE GOVERNANCE COMMITTEE
SOLLERS is committed to ensuring that the Board of Directors
includes at least three independent members of the Board of
Directors, each of whom meets the following requirements:
›› within the last five years, he/she has not been a direct or indirect
employee of the Company or of the companies controlled by
the Company
›› he/she does not have, or within the last three years has not had,
any relevant business relationships with the Company, directly or
indirectly
›› he/she does not receive any additional remuneration from
the Company, other than the remuneration for performing his/her
duties as a Board of Director member, and does not participate in
any of the Company’s stock options and retirement plans
›› he/she is not a close relative of any advisor, any Board of Director
member or the Company's Chairperson
›› he/she, together with other members of the Board of Directors
of the Company, does not hold management positions in other
companies and has no other relevant relationships with other
members of the Board of Directors through participation in other
companies or bodies
›› he/she is not a major shareholder (please note that if a candidate is
nominated by or voted for by a major shareholder to hold a position
on the Board of Directors, this candidate is not deemed to be
a representative of the major shareholder)
›› he/she has not been a member of the Board of Directors of
the Company for more than nine years since his/her first election
In its decision to appoint an independent director, the Board of
Director takes into consideration the above requirements to ensure
that there are no circumstances which may affect the independence
of the member of the Board of Director when performing his/her
functions.
The definition of an independent director provided by the Code
is used exclusively for the purpose of applying the provisions of
this Code and does not cancel or alter any statutorily prescribed
definition of an independent director established by the applicable
laws of the Russian Federation.
The Annual General Meeting (AGM) is held at least two months
after, and no later than six months after, the financial year end.
The SOLLERS OJSC’s next AGM will be held on 30 May 2014.
The information regarding the AGM procedure and Shareholders
materials can be found on the Company’s website.
The Company’s 2012 AGM took place on 16 May 2013. The SOLLERS
OJSC shareholders approved the financial statements for the year
ended 31 December 2012 as well as the Annual Report for 2012.
On the back of strong financial performance in 2012
the shareholders took the decision to pay out a dividend of RUB
52.52 per share, making a total declared dividend of around RUB 1.8
billion. Dividends were paid 60 days from the day that the decision
was taken.
The shareholders elected the nine following members to make
up the SOLLERS OJSC Board of Directors: David Herman, Vadim
Shvetsov, Richard Broyd, Patrick Gallagher, Seppo Remes, Nikolay
Sobolev, Viktor Khvesenya, Zoya Kaika and Alexander Ikonnikov.
The Company’s statutory auditor for the second term running
was elected: ACG Business Krug Ltd. The meeting also approved
the new version of the SOLLERS OJSC Charter, the Corporate Code
of Governance and Statute of the Board of Directors. The AGM
established remuneration for each member of the Board of Directors
for the period during which they performed their duties:
›› EUR 130 000 for the Chairman of the Board of Directors
›› EUR 120 000 for Chairmen of the Committees
›› EUR 110 000 for each other member of the Board of Directors.
All resolutions were passed by a majority vote.
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Managing Exclusively for the Benefit
of our Shareholders
5
The Profiles of SOLLERS’ Managers
1
2
3
5
6
ALEXANDER KORNEYCHUK
GENERAL DIRECTOR OF MAZDA SOLLERS MANUFACTURING RUS
LLC (SINCE 2012) AND SOLLERS-BUSSAN LLC (SINCE 2011)
Background:
In 2011 Alexander was appointed General Director of SOLLERSBUSSAN LLC. In 2012 this position was combined with the role
of General Director of MAZDA SOLLERS Manufacturing Rus LLC.
In 2009, he became General Director of SOLLERS-Far East. From
2005 to 2009, he was Executive Director of SOLLERS-Naberezhnye
Chelny (formerly, OAO ZMA). From 2002 to 2005, he was Director of
Strategic Development Projects at SOLLERS. In 2000-2001, he was
Acquisition Manager at Ford Motor Company.
ALEXEI VOLODIN
MANAGING DIRECTOR OF SSANGYONG DISTRIBUTION
(SINCE 2009)
Background:
Prior to his current role, Alexei worked in the Sales, Marketing
& Aftersales operations of General Motors Europe, starting at
Chevrolet BDM Russia in 2005 and ending up as European Fleet &
Remarketing Manager in Russelsheim (Germany).
Alexei is a graduate of the Moscow Legal Institute.
9
7
8
9
ANDREY MATYUSHIN
GENERAL DIRECTOR OF ZMZ OJSC (SINCE 2012)
Background:
Alongside his current role Andrey was appointed head of RosALit
Foundry LLC (a ZMZ subsidiary) in February 2012. Andrey began his
career at ZMZ OJSC in 1997 as a technologist and for the past five
years has headed its technical department.
Andrey is a graduate of Nizhny Novgorod State Technical University
and where he is currently studying for an MBA.
10
11
12
11
› For a full biography of Managers numbered 1–4, please see the Board of Directors’ section on
PAGE 52
6
OLGA TYRYSHKINA
DIRECTOR OF RISK MANAGEMENT AND INTERNAL AUDIT
OF SOLLERS (SINCE 2010)
Background:
Olga was Chief Accountant of SOLLERS from 2004. From 1993, she
worked as Deputy Chief Accountant at ZAO Raspadskaya.
Olga graduated in Economics from Kuzbass State Technical
University.
Alexander is a graduate of the Moscow Aviation Institute.
7
4
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TARAS ROSTOPIROV
HUMAN RESOURCES DIRECTOR OF SOLLERS
(SINCE OCTOBER 2013)
8
ANTON KARPOV
GENERAL DIRECTOR OF THE UAZ DISTRIBUTION CENTRE
(SINCE 2010)
Background:
From 2005, he was Head of the UAZ Sales Department. From 2003,
he was Head of the Marketing Department at UAZ OJSC (Ulyanovsk).
Anton holds a degree in Journalism from the Moscow State Social
University, and completed his postgraduate studies at the Higher
School of Economics with a degree in Economics and Management of
the Domestic Economy.
10
VERONIKA ANTONOVA
STRATEGIC MARKETING DIRECTOR OF SOLLERS
(SINCE MAY 2013)
Background:
Prior to joining SOLLERS in 2012, Veronika held a managerial
position at KPMG Strategy Group. She has over 12 years of
professional experience in marketing and consulting in Europe and
in Russia in B2B and B2C markets.
Veronika graduated from the Lomonosov Moscow State University,
Faculty of Economics and received a Master’s Degree at Lomonosov
Moscow State University Business School. In 2008, Veronika
received her MBA from SDA Bocconi in Italy.
12
EVGENY SUDARKIN
INFORMATION TECHNOLOGY DIRECTOR (SINCE 2011), GENERAL
DIRECTOR OF PROF-IT GROUP LLC (SINCE APRIL 2013)
Background:
Taras joined SOLLERS Group as a Dealer Network Development
Director in 2010. In 2012, he was appointed General Director of
FRONTLINE Company (an education subsidiary of SOLLERS Group).
He started his career in the automotive sector in 2001 at Rolf Import
LLC, where he served nine years.
Background:
Evgeny joined SOLLERS Group as a project manager at UAZ OJSC in
2007. In 2009, he was appointed Head of UAZ IT department and from
2010 he also became Head of ZMZ IT department. Evgeny started his
career in 2005 at Kristal LLC as a senior engineer and was involved in
several automation projects.
Taras graduated from the Kiev Military Aviation Engineering
Academy and Moscow State Lenin Pedagogical University with
a major in Educational Research. Taras served in the Military Air
Force as a training specialist at the Yuri A. Gagarin State Scientific
Research and Testing Cosmonaut Training Center.
Evgeny graduated from Uliyanovsk State Technical University
majoring in Applied Information Science in Economics and Finance
and Credit. He also has an MBA from International Institute of
Management LINK.
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Balanced Approach to Risk Management
One of the most important elements of SOLLERS’ corporate
governance is its risk management system that enables
the Company’s management to identify current strategic,
operational, regulatory and financial risks in a timely manner.
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MARKET RISKS
Description
Risk management
In the last couple of years we have observed a significant change in
the preference of Russian consumers, who are now demanding vehicles
from the SUV segment at the expense of the C segment.
The Company faces very tough competition, which includes leading
global manufacturers, who are focusing their activity on the Russian
SUV segment. Competition is particularly intense from those
companies that have higher production capacities and sales volumes
than SOLLERS. Sales of SUVs from some major brands can account for
nearly 70% of their total sales in Russia.
The successful localisation of competitors, together with their
economies of scale, can result in the emergence of new models in
the low-end price range.
This change in customer preferences and the increased competition in
the SUV segment could influence the Company’s profitability.
The Company aims to mitigate these risks through the following
actions:
›› SOLLERS Group continuously monitors trends in the Russian car
market and changes its model mix and pricing scheme accordingly
›› Ford Sollers JV started production of several Ford SUVs between
2012 and 2013 and plans to increase the number of SUV models in its
portfolio in 2014
›› Ongoing modernisation and facelifts of the current SUV model range
(SsangYong and UAZ) in the low-end price range is carried out in
order to support the Company’s sales and market share
›› To support sales in the declining C segment, Ford Sollers JV has
introduced the most affordable versions of the Focus to compete
with the top-of-the range cars in the B+ segment.
COUNTRY AND REGIONAL RISKS
Our approach to risk
management
MARKET RISKS
The risk management system plays
an important role in safeguarding the
Company’s value creation as it improves
the Company’s ability to manage risks by
identifying potentially negative factors,
which could affect the achievement of the
Company's goals.
Risk management is integrated into
the decision-making processes for all
investment, strategic and automation
projects.
P63
COUNTRY AND
REGIONAL
RISKS
LEGISLATION RISKS
P63
P63
KEY RISK AREAS
PROCUREMENT RISKS
P64
Description
Risk management
SOLLERS’ business activities are mainly concentrated in the Russian
Federation. Deterioration in the Russian economic environment could
result in a decrease of disposable income and a slow down of GDP
growth. This could have a negative impact on SOLLERS’ revenues and
lead to a lack of liquidity.
The Company continually monitors the macroeconomic and
geopolitical situation and, accordingly, diversifies its activity in
different Russian regions and increases its UAZ export sales (up 37%
Y-on-Y).
The Company uses wholesales bank financing to eliminate the risk
of late payment of receivables from dealers should any liquidity
constraints arise.
SOLLERS engages with federal authorities to negotiate the interests
of automotive manufacturers through sector associations and has
also initiated the development of support programmes for the Russian
automotive sector.
FINANCIAL RISKS
P64
LEGISLATION RISKS
Risk identification and mitigation
The Company adopts a balanced approach to risk management with
a focus on mitigating risks in order to minimise their implications
and/or likelihood of materialising. In-depth analyses of operational
and transaction risks are performed regularly, as well as of market
risks and risks inherent in pricing, financial reporting and taxation.
Following a recent review made by senior management, the most
significant risks areas and risk factors for the Company are set out
below. The risks are grouped into five categories: market risks,
legislation risks, procurement risks, financial risks and country and
regional risks.
Description
Risk management
The introduction of new environmental regulations for CO2 emissions,
Euro 4, and the further tightening of standards to Euro 5 impacts
the Company’s business, as engine manufacturing is one of its key
brand strengths.
The introduction of a recycling fee for imported vehicles and its
expansion to include locally-assembled vehicles could considerably
impact the profitability of the business.
SOLLERS Group continuously monitors all environmental regulations
and ensures that all new products comply with current environmental
standards.
The UAZ model range already complies with the Euro 4 standard and
ZMZ engines are planned to be upgraded to the Euro 5 standard by
2016.
As such, the likelihood of our products failing to comply with
environmental regulation is low.
SOLLERS Group continuously monitors tax and tariff legislation.
Sector associations negotiate with federal authorities on behalf of
local producers.
To maintain its current level of profitability the Company is focused on
continuous improvement of its operational efficiency and product mix.
In 2014, the federal authorities introduced subsidies to support
Russian producers and to incentivise R&D activities. We consider that
the net impact of changes in legislation will be minimal.
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Risk Management and Internal Audit Directorate
PROCUREMENT RISKS
Description
Risk management
The failure to receive components according to agreed delivery terms,
a sharp increase in prices of materials and components, and any
deterioration in the quality of components could lead to production
stoppages and a loss of customer loyalty.
SOLLERS continually works with its supplier base and is improving
its procurement competences. Ongoing quality management
improvement enables the Company to control the timely supply and
quality of components.
Long-term relations with global OEMs and joint ventures with
international OEMs facilitate the secure supply of assembly kits and
fair pricing policies through mutually beneficial contracts.
Given our mitigating actions, in our opinion, the likelihood of these
risks materialising is quite low.
FINANCIAL RISKS
Description
Risk management
An influential financial risk, and currently the most significant for
the Russian automotive industry, is foreign exchange risk. Leading
Russian banks have forecast a depreciation in the rouble against
the USD to around 36.0034 roubles to the USD by the end of 2014, which
represents a 9% devaluation in the rouble compared to the end of
2013.
The Company has a considerable share of materials and components
denominated in USD and EUR. The level of purchases in foreign
currency varies from one business to another and also depends on
the level of localisation of each model.
Given the fact that around 80% of the Russian automotive market is
denominated in foreign currencies35 all industry players will increase
prices to compensate for the long-term weakening of the national
currency. It will not change the level of competition, as all players
will be subject to the same negative impact. However, it will result in
a change in consumer purchasing patterns as, typically, consumers
tend to defer large purchases until prices start to stabilise again.
In the short term the market is forecast to respond with normal
elasticity to changes in the exchange rate and any decline in consumer
spending.
A long-term, continuous depreciation of the rouble could negatively
impact the profitability of the Company.
The Company does not typically hedge foreign currencies as the nature
of its business enables the Group to eliminate possible negative effects
by changing related rouble-denominated retail prices.
As at 31 December 2013 SOLLERS had no debt facilities denominated
in foreign currency.
The Company strengthens its internal efficiency through ongoing
cost-cutting initiatives and by focusing on localisation activities.
By increasing the local content of the vehicle cost, we can reduce
our exposure to foreign exchange risk and, as a result, improve
the competitiveness of the vehicles. SOLLERS aims to increase
the level of localisation up to 60% in the medium term.
Our Risk Management and Internal Audit
Directorate facilitates the achievement of
SOLLERS Group’s goals and objectives. It
provides shareholders and management
with systematic, consistent, independent,
substantiated advice and guarantees in
relation to risk management, internal audit
processes and taxation.
It reports directly to the CEO or First
Deputy CEO and also has a functional
reporting line into the Board of Directors’
Audit Committee. The Directorate has
a clear set of objectives:
›› Building a risk management system
and supporting its effectiveness at
a corporate and operational level within
SOLLERS Group
›› Providing Management with
methodological assistance and advice
regarding risk management and internal
audit issues
›› Monitoring SOLLERS Group companies’
compliance with tax laws and working
closely with competent third parties,
including regulatory/government bodies,
on relevant matters
›› Developing programmes, organising
and conducting risk-based audits in
the following areas:
–– assessing the reliability and
effectiveness of monitoring tools applied
in key business processes
–– monitoring compliance with applicable
laws and internal regulations
–– assisting the Company’s Management
to develop corrective measures and
risk management activities, based on
the results of audits, and following these
up once implemented
–– submitting reports to the Audit
Committee and Management on the risks
identified within SOLLERS Group and on
risk management activities, as well as
on the results of audits that have been
conducted.
34 Forecast consensus as of 11 March, 2014.
35 SOLLERS’ estimates: 80% of the cost of car sales, for companies active in the Russian market, is denominated in foreign currencies. These companies include local
manufacturers who source components from abroad and importers.
Organisational Structure of the Risk Management
and Internal Audit Directorate
BOARD OF DIRECTORS’ AUDIT
COMMITTEE
RISK MANAGEMENT AND INTERNAL AUDIT DIRECTORATE
RISK MANAGEMENT
DEPARTMENT
Direct reporting lines
INTERNAL AUDIT
DEPARTMENT
TAX
DEPARTMENT
Functional reporting lines
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Safe
Sustainable
We are committed to increasing our
operational safety record throughout our
business
As we grow we must do so sustainably –
nurturing our people and developing a robust
culture for the long term
ADDITIONAL
INFORMATION
MOVING AHEAD //
Corporate Social
Responsibility
We take CSR topics into account when embarking
on a new project or making important operational
decisions – they are an integral part of our strategic
planning
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Responsible Business Principles
in All Our Operations
SOLLERS’ responsible business policy is an integral part of
its overall strategic planning. CSR topics are considered at all
levels of corporate governance: at a shareholder level, through
to the Board of Directors and senior management. This means
that the Group’s social and environmental impact in its areas
of operation is taken into account when making important
operational and economic decisions.
All companies, in which Sollers OJSC owns a controlling stake,
follow the same principles of responsible business in their
operations. The Group CSR policy is implemented and monitored
in the following consolidated businesses: UAZ Holding (including
the production of ZMZ engines and components), its headquarters
(including the distribution divisions for UAZ and SsangYong cars),
and other subsidiaries.
SOLLERS partnerships, Ford Sollers JV, SOLLERS-ISUZU JV,
SOLLERS-BUSSAN JV, MAZDA SOLLERS JV, and SOLLERS-FINANCE
JV, implement their own sustainable development strategies, which
are not covered in this section of the Annual Report.
CORPORATE RESPONSIBILITY PRINCIPLES
1. Increasing the Company’s
shareholder value
2. Contributing to growth through
long-term mutually beneficial
partnerships
3. Continuing development
SOCIAL INVOLVEMENT
P69
4. Improving the quality of our
products and services
5. Improving employees’ competences
P70
P71
6. Contributing to the social
and economic development in
the regions where we operate
The strategy to increase SOLLERS’
shareholder value is based on improving its
market capitalisation as well as increasing
its dividend payout. In 2013 market
capitalisation increased by 23%, while
the MICEX index remained at the same level.
PROPOSED DIVIDEND
Historically the Company makes dividend
payments of between 30–40% of the
consolidated net profit for the respective
period. The final decision on dividend
payments and their amount is made at the
Shareholders General Meeting. The Board
of Directors will propose to pay dividends
to shareholders if positive financial results
have been achieved in the reporting period
and if the Net debt / EBITDA ratio does not
exceed 1.5.
At the Board of Directors meeting held on
7 April 2014 it was decided to recommend
to the Shareholders General Meeting to pay
dividends of RUB 52.52 per share (in line
with the previous dividend payment), which
makes a total declared dividend amount of
RUB 1.8 billion.
SOLLERS Group’s Key Corporate Responsibility Principles
ECONOMIC EFFICIENCY
1. Increasing the Company’s Shareholder Value
ENVIRONMENTAL AND
OCCUPATIONAL SAFETY
P73
P74
P75
7. Increasing operating safety and
monitoring across our business
processes
P75
8. Reducing our impact on the
environment
P76
This recommendation represents an
increase in the payout ratio to 50%, which
demonstrates the Board of Directors’
confidence in the stability of the Group’s
financial position, and is also based on
the strong free cash flow generated
in 2013. The maintenance of dividend
payments in an environment of financial
market volatility and continued economic
and geopolitical uncertainty underpins
SOLLERS’ commitment to create value for
its shareholders.
MARKET CAPITALISATION
MICEX INDEX
as of 08.01.2013
1,514.8
695.0
23,818
as of 30.12.2013
1,504.1
854.3
29,277
Y-on-Y Growth
23%
* Number of ordinary shares outstanding: 34,270,159
› You can find more information about the Company’s share price in the Market
Share Price and GDR section on PAGE 80.
FINANCIAL RATIONALE FOR MAKING THE DECISION TO PAY DIVIDENDS
›› Strong free cash flow in 2013: up 20% Y-on-Y to RUB 6,923 million
›› Stable financial position with a record low Net Debt/ EBITDA ratio of 0.6 as of 31 December
2013 (versus 1.0 as of 31 December 2012)
›› Positive financial result: Net profit for the year of RUB 3,625 million
› You can find more information about our financial performance in the Financial
Reporting section on PAGE 83.
DIVIDEND PAYMENT HISTORY
Record date
Dividend per
share (RUB)
Declared
dividend (mln
RUB)
Dividend yield
(as of record
date)
Payout ratio
Market
Capitalisation*
(RUB mln)
SVAV share price
(RUB)
2003
9M 2004
2004
2005
2006
2007
1H 2008
2012
P2013
09.01.04
28.10.04
21.04.05
21.04.06
01.04.07
11.04.08
05.09.08
08.04.13
11.06.14
17.00
10.00
11.00
14.00
19.70
29.18
16.00
52.52
52.52
375
298
328
480
675
1,000
548
1,800
1,800
n/a
n/a
n/a
2%
2%
2%
2%
7%
n/a
0.4
n/a
0.2
0.3
0.4
0.4
n/a
0.3
0.5
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2. Contributing to Growth Through Long-term Mutually Beneficial Partnerships
3. Continuing Development
SOLLERS Group’s sustainable development
strategy aims to develop long-term
partnerships based on its unique corporate
culture. Strategic relationships are built
on mutual trust, a creative approach to
solving common tasks, and by striving to
attain the highest quality standards in all
areas of operation.
SOLLERS was founded to meet the needs
and expectations of private Russian car
owners, as well as to create the best
transport solutions for businesses. The
Company continues to operate with this
purpose by constantly taking on board new
trends in the automotive market and using
this information to update products for its
customers.
Within its framework of global
cooperation, SOLLERS aims to maximise
value for its shareholders and business
partners through its unique combination of
core competencies:
›› a deep understanding of trends in the
Russian automotive market
›› efficient logistics
›› a strong infrastructure and
›› a high level of expertise in automobile
manufacturing.
The ability to remain flexible is another
important feature of our market
strategy, making it possible to take on
board changing customer preferences.
Competitive advantage is achieved through
a unique combination of product lines and
brands, across a wide range of segments
and price bands, shaped to the needs and
tastes of the majority of customers.
HISTORY OF SOLLERS’ PARTNERSHIP PROJECTS
2000–2005
›› acquisition of UAZ and ZMZ
›› restructuring of UAZ and ZMZ
2005
›› IPO
›› acquisition of ZMA
›› strategic partnership with SsangYong for SUV production
established
2006–2007
›› strategic partnership with ISUZU for truck production
›› strategic partnership with FIAT for production of passenger cars
and LCVs
2008
›› launch of SOLLERS-Elabuga plant for production of LCVs
›› JV with ISUZU established
›› launch of SOLLERS-ISUZU plant for truck production
2009–2011
›› launch of Far East plant (Vladivostok) for SsangYong production
›› JV with Sovkombank established for development of leasing
services
›› new major strategic partnership with Ford: 50:50 Ford Sollers JV
launched on 1 October 2011
›› exit from strategic partnership with FIAT
2012–2013
›› JV with Mazda for production of cars in Vladivostok launched on
6 September 2012
›› JV with Mitsui for production of Toyota LC Prado in Vladivostok
launched on 18 February 2013
NEW PROJECTS: AN OPTIMAL PARTNERSHIP STRATEGY WITH A 50:50 STRUCTURE
In 2011, SOLLERS established a joint
venture with the Ford Motor Company,
with production assets located in
Vsevolozhsk (in the Leningrad Region), and
in Naberezhnye Chelny and Elabuga (in
the Republic of Tatarstan). The Ford Sollers
JV manufactures and distributes Ford
branded vehicles exclusively in Russia.
By the end of 2011, the Group established
a joint venture with the Japanese company
Mitsui&Co., Ltd in Vladivostok, where
Toyota LC Prado cars were first launched in
February 2013.
In the second half of 2012, SOLLERS
set up a joint venture with Mazda Motor
Corporation in Vladivostok and, in the same
year, started production of Mazda CX5
SUVs, with the range extended to include
the new Mazda6 notchback in 2013.
In 2012, SOLLERS Group sold a 16% stake
in SOLLERS-ISUZU JV and moved to a
50:50 joint venture ownership structure.
In 2013, this structure was used for all of
SOLLERS’ joint ventures.
› You can find more information about the Group’s projects in the Business
Projects and Key Assets section on PAGE 36.
This is a fast-moving market which requires
our employees to improve their skills and
acquire new knowledge and to stay focused
on progressing projects with innovative
solutions. Our CSR policy principle of
sustainable development, which is evident
across all areas of operation, fundamentally
underpins our approach to stay true to our
original purpose.
GLOBAL STRATEGY
SOLLERS’ strategy aims to generate
shareholder value by growing organically
in its consolidated businesses and
accelerating its joint venture activities by
investing in new, promising products and
localisation.
STRATEGIC OBJECTIVE
Sustainable growth
through partnerships
Development of
the most attractive
market segments
Increase the level of
locally-produced parts
and components to
60%
Implement modern
product and
manufacturing
technologies to
maintain the highest
quality
› You can find more information about the Group’s strategic objectives in the Strategy section on
Sustainable
development and
environmentally
responsible production
PAGE 29.
INVESTMENT IN THE KEY ELEMENTS OF THE VALUE CHAIN
WIDE DEALERSHIP NETWORK
As of the end of 2013, the production capacity of SOLLERS Group
(including joint ventures) was over 550 k cars, making SOLLERS
the second largest manufacturer in the Russian market.
SOLLERS’ dealership network comprises 129 UAZ and 137
SsangYong centres; the Ford Sollers JV dealership network covers
over 70 cities in Russia and consists of 130 dealerships. ISUZU
trucks dealers are present in all federal districts and many of them
are authorised to install and update ISUZU chassis superstructures
upon request. The ISUZU dealership network has 46 centres.
Large scale investments in the Far East production site will allow the
Company to localise production of SsangYong SUVs effectively and
improve profitability by increasing production volumes (up to 100 k
vehicles per year) through industrial joint ventures with Japanese
automakers.
SOLLERS Group is developing its industrial park for the production
of automotive components at the Zavolzhsky Engine Plant (ZMZ)
site. This industrial park concept uses Russian and foreign
automotive component manufacturers to support the localisation
of automotive manufacturing in Russia and enables the Company
to satisfy both the internal needs of the Group and to meet the
increased demand for components from Russian automakers.
› You can find more information about our value creation in
the Business Model section on PAGE 34.
Geographically, the dealership and service network covers the
territory from Kaliningrad to Vladivostok. All dealership and service
centres meet the strict requirements of the brand distributor in order
to maintain the traditionally high quality of products and services.
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CORPORATE CULTURE
KPI SYSTEM
SOLLERS Group uses an incentive system built in alignment with
the Group’s general strategy and objectives. The set of metrics used
reflects the specific characteristics of the business and aims both
to promote the Group’s financial health and to meet customer needs
through the provision of new, high quality products and services.
One of the most important metrics in the incentive system for top
management of distribution divisions is NPS – Net Promoter Score.
This is a customer loyalty metric based on a direct question: How
likely are you to recommend our company/product/service to your
friends and colleagues?
NPS = % of promoters - % of detractors
SOLLERS Group is planning to introduce a Performance
Management System for employees at its headquarters and
vehicle distribution businesses in 2014-2015. The Performance
Management System is a system for tracking business objectives for
employees focused on target setting and performance.
Net
Profit,
FCF, Market
Capitalisation
NPS, Market share,
Revenue, EBITDA,
Operating cash flow
Production perfomance / effiency
Defectivity ratios,
Industrial safety ratios
Individual KPIs for workers,
specialists, managers and bonus
plans for sales personnel
The Performance Management System is intended to improve the
Company’s efficiency by enhancing:
›› The quality of management
›› Employee commitment.
Key advantages of the Performance Management System:
›› Target setting based on transparency, joint discussion of the
desired outcome and criteria for achieving it
›› A set of competencies and their quality assessment method
approved and accepted by all employees
›› Maintaining achieved performance levels
›› Accurate planning:
–– Understanding of team goals by all team members; competition;
timely risk detection
–– Performance analysis of business units and its employees
–– Building a strong employee database
–– Ability to understand the Company’s expectations more easily
–– Ability to plan employee development.
MEDIUM-TERM
MOTIVATION
SOLLERS Group’s top
management
ANNUAL AND INTERIM
MOTIVATION
Top management of
distribution divisions
ANNUAL, INTERIM AND
QUARTERLY MOTIVATION
Top management of
production divisions
SHORT-TERM MOTIVATION
Workers, specialists,
managers, sales personnel
Our most important task in relation to our employees is to create an environment that helps them to work at their best and achieve high results. To
ensure we are providing the right environment we are developing our corporate culture in six main areas.
OUR CORPORATE CULTURE: MAIN DEVELOPMENT AREAS
Creating
decent working
conditions
Providing health
care
Providing support
in difficult
circumstances
Each company within the Group develops and implements its own
programme of social benefits for its employees, taking into account
its local business needs. In-house canteens and medical centres,
various corporate events and compensation and incentive systems
are covered by collective employment agreements — these are used
to ensure that employees are motivated to work to their full potential
whilst promoting a good work-life balance and enabling them to
feel secure about their future in the knowledge that they will be
supported if faced with difficult circumstances.
SOLLERS Group goes beyond legislative occupational safety
requirements: it provides employees with an opportunity to take
health treatments at a reduced price and has significantly expanded
the range of available medical services under the Voluntary
Healthcare Insurance programmes. The Group’s large enterprises
have in-house healthcare centres, where qualified medical staff can
give immediate professional medical assistance.
Developing
employees and
their careers
Organising large
corporate events
and charitable
programmes
All SOLLERS’ companies place great importance on programmes
for young people. UAZ OJSC and ZMZ OJSC have a special “Youth”
programme for employees under 35, which aims to develop
the creative and intellectual potential of young employees, promote
healthy lifestyles and alternative leisure activities, and improve their
professional capability. The Company also provides for its longserving veterans. Pensioners are covered by the “Care” programme,
under which former employees can obtain a lump-sum financial
assistance in critical circumstances, in-home medical services for
bedridden patients, and housing repairs. In 2013, the total amount of
social expenditure increased to RUB 70 million (compared to RUB 36
million in 2012). This increase reflects the higher expenditure made
by UAZ Holding in its key social programmes.
4. Improving the Quality of Our Products and Services
We are constantly looking for ways of applying innovation to
improve our products and services. A key recent development is the
introduction at UAZ of a new painting technology, which improves
body corrosion resistance eight-fold. This is important owing to the
various climatic conditions to which our vehicles are exposed.
The new method has several advantages: the paint penetration is
far superior, reaching hidden and inaccessible cavities, including
component edges.
Recognising
employees’
achievements
To achieve this a new EISENMANN production line was installed
at the plant and all equipment was designed in line with the latest
environmental requirements and with the possibility of further
upgrading.
The modernisation of this technological process allows the company
to improve significantly the reliability of its manufactured cars
and to offer customers warranties of three years or 100 thousand
kilometres for vehicles in the Patriot series.
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5. Improving Employee Competences
The training of SOLLERS Group’s employees is based on a single
competency model, which allows us to develop the skills and
knowledge of employees necessary for the successful fulfilment of
their official duties. In addition to compulsory training, employees
have the opportunity to develop personal competences, completing
short-term courses.
In the main, employees in the production companies and at
the headquarters are trained either by leading training companies, which
have offices in the regions where the Company operates or at special
corporate training centres, controlled by the Group, which provide
a consistent training quality and tailor-made educational programmes.
In 2013, training for managers at our headquarters was focused on
the development of skills in financial management, professional
competencies and changes in the applicable laws of the Russian
Federation.
Number of Employees Receiving Training, thousand people
In 2013, the Group continued to implement programmes in
lean manufacturing, occupational health and safety, quality
management, and professional development of senior management
at UAZ Holding. A Training Centre for mechanical engineers working
on assembly lines was opened.
In 2013, the ZMZ engine production facility launched a range of
innovative training programmes: from technological innovation and
foreign language learning, to training in IT and managing investment
projects. This line of activities should create a step change in
thinking at a senior management level.
100%
21.1
20.0
10.0
We continued to develop our employee succession pool project
(scheduled for three years), which involves over 80 professionals.
19.7
14.5
13.5
19.3
64%
70%
5.0
80%
40%
20%
0
31%
24%
25%
69%
76%
75%
2011
2012
2013
0
2011
2012
Despite the contribution of the Far Eastern production facilities to
MAZDA SOLLERS JV, the plant kept its tradition of supporting regional
initiatives and raising awareness of youth in automotive manufacturing.
Each Friday the plant opens its doors to children and teenagers and
gives them tours around the plant. High school pupils from Ulyanovsk
and the region visit the plant to see how cars are manufactured.
2013
Number of employees receiving training
Male
Average headcount as of 31 December
Female
Employees receiving training, percentage of total headcount
Particular attention is paid to improving safety at the production
facilities of the Group. In 2013, a whole range of measures to
modernise the workplace were implemented at our production sites.
In particular, outdated equipment was modernised, the factory
temperature controlling systems were improved, and workplaces
were certified according to relevant working conditions. In order to
improve working conditions, the Work-related Accident Prevention
Programme was developed.
Full-time and Distance Learning
Compulsory and Optional Courses
100%
25
80%
20
80%
17%
10%
60%
40%
35%
Number of Accidents
42%
39%
60%
96%
83%
90%
20%
40%
20%
0
2012
22%
20%
42%
36%
42%
2013
2011
2012
2013
Since its establishment, the SOLLERS Group has been focusing on
three charity programme areas: healthcare projects, development
programmes for educational centres, and youth sports teams.
Optional
Distance
Compulsory professional (recertification)
This programme involves regular occupational safety and health and
environmental protection inspections, the monitoring of compliance
with requirements, and disciplinary measures for people in charge.
Factories train new employees in occupational safety and health and
environmental protection and provide regulatory safety procedure
certification for its personnel.
Over three years, the programme has led to a two-fold reduction in
the number of accidents, and the frequency coefficient (number of
accidents per 1,000 employees) decreased by 37%.
25
1.9
20
13
12
1.2
15
10
10
5
5
0
Full-time
0.9
0
2011
Compulsory (occupational and industrial safety)
In 2013, total charitable donations increased to RUB 111 million
which is 2.6 times higher than in the previous year. The Company
increased its contributions to educational, healthcare and child
welfare facilities in the regions where it operates. During the year,
the Group also supported charities in Moscow, where SOLLERS’
headquarters is located.
Accidents Frequency Coefficient per 1,000 Employees
23
15
23%
0
2011
CHARITY
7. Increasing Operating Safety and Monitoring across Our Business Processes
100%
4%
The tours are free, and there is also the opportunity of meeting with our
recruitment and adaptation department, where visitors can talk about
practical training and employment at the plant.
60%
13.5
74%
UAZ, which is one of the main industrial enterprises in the city
of Ulyanovsk and the Ulyanovsk Region, takes an active part in
the social and economic development of its local community
and implements a relevant social policy to support and develop
the region. Following an established tradition, the enterprise
supports the following Ulyanovsk Region Government’s social
initiatives: schools sponsorship, Children’s Protection Day, Mother’s
Day, Disabled People’s Day, and activities to help victims of natural
disasters. In recent years UAZ OJSC has funded more than 20 sports
grounds and children’s sports facilities.
Gender Ratio of Personnel Trained
25.0
15.0
6. Contributing to the Social and Economic Development
in the Regions of Operation
2012
2013
2011
2012
2013
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8. Reducing Our Impact on the Environment
In order to reduce the volume of solid waste, the Company
introduced a system to rationalise the use of raw materials and
supplies. The system monitors the supply of components in costeffective packaging, which allows costs associated with solid waste
disposal to be reduced.
Air Emissions, tonnes
1,400
1,208
1,200
Water Emissions, tonnes
600
1,216
1,004
1,000
800
2011
2012
Solid Waste Disposal, tonnes
7,000
50,000
6,470
5,716
5,000
5,073
30,000
3,000
20,000
2012
2013
40,461
35,815
25,353
10,000
1,000
0
0
2011
2012
2013
2011
2012
Energy Consumption, Gcal
Electric Power Consumption, MW*h
600,000
320,000
310,000
300,000
290,000
280,000
270,000
260,000
250,000
240,000
500,000
503,831
486,526
399,504
400,000
300,000
200,000
100,000
0
2011
40,000
4,000
2,000
UAZ OJSC was the winner of the GLOBAL ECO BRANDAWARD Prize
in the ECO REGIONALBRAND category.
2011
2013
Water Consumption, thousand cubic metres
6,000
UAZ OJSC was the winner in the 100 Best Russian Organizations for
Ecology and Environmental Management.
390
0
0
AWARDS
408
100
200
In order to reduce air pollutant emissions and discharges of
pollutants into water, in 2013 the manufacturing units of
the Company installed new dust- and gas-trapping units, and
commissioned a thermal waste treatment unit and a sludge
dewatering unit at its wastewater treatment facilities.
The stormwater drainage system was updated and water discharge
outlets were joined to the wastewater treatment facility. In 2013,
the running of the biological treatment units at the ZMZ Engine
Plant was transferred to municipal authorities. This will optimise
the wastewater treatment cost, as well as reduce the cost of
maintaining treatment facilities.
400
200
400
A strict adherence to these principles has enabled us to improve our
performance against all major indicators for resource consumption
and environmental pollution.
552
500
300
600
SOLLERS’ environmental policy aims to conserve energy and
resources, reduce carbon emissions and manage solid waste
efficiently. In 2013, SOLLERS’ major focus areas in environmental
safety were:
›› energy conservation, sustainable use of natural resources,
reduction of greenhouse gas emissions, efficient solid waste
management
›› compliance of business operations with environmental standards
›› environmental footprint measurement and rapid response to any
detected violations
›› environmental safety of employees and local communities in areas
of manufacturing expansion
›› continuous reinforcement of an environmental culture among
employees.
Within the framework of its long-term technological re-tooling
programme, UAZ Holding is increasing the use of high-tech material
that does not generate waste. This allows a significant reduction in
the volume of solid waste.
2012
2013
2013
310,638
293,036
268,357
2011
2012
2013
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up 23%
Dedicated
Engaged
Market capitalisation is
up from RUB 23.8 bln
to RUB 29.3 bln Y-on-Y
We have a dedicated IR team,
led by our First Deputy CEO, CFO,
Nikolay Sobolev
We run a variety of investor
events and roadshows
throughout the year
We operate in the best interests of our shareholders.
Our share price performed well in 2013 despite
significant volatility in the financial markets
ADDITIONAL
INFORMATION
MOVING AHEAD //
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SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
80
MOVING AHEAD //
Ensuring the Best for All Our Investors
Shareholders’ Equity and Securities
SOLLERS operates in the best
interests of its shareholders.
Our share price performed
well in 2013 increasing in value
compared to the previous year,
despite significant volatility
in the financial markets.
Major Shareholders
As of 31December 2013 the immediate parent company was
Newdeal Investments Limited36. The Group’s ultimate controlling
party is Vadim Shvetsov, who is the Company’s principal shareholder.
Date
VENUE
EVENT
14 February
-
SOLLERS OJSC 4th Quarter Report, 2013
7 April
-
SOLLERS Full Year Financial Results, 2013 (Consolidated IFRS Financial Statements)
May
-
SOLLERS Group Annual Report 2013
15 May
-
SOLLERS OJSC 1st Quarter Report, 2014 and SOLLERS OJSC Full Year Financial Results, 2013
30 May
Moscow
Annual General Shareholders Meeting and SOLLERS OJSC Annual Report 2013
V. Shevtsov
14 August
-
SOLLERS OJSC 2nd Quarter Report, 2014
Other shareholders
29 August
-
SOLLERS Half Year Financial Results, 2014 (Consolidated IFRS Financial Statements)
Free-float
14 November
-
SOLLERS OJSC 3rd Quarter Report, 2014
Shareholder Structure37
34%
54%
12%
Share Capital
The Company’s subscribed share capital is RUB 428 million, divided into
34,270,159 ordinary shares at a value of RUB 12.50 each. The Company
has the right to allocate an additional 47,804,033 ordinary shares at
a value of RUB 12.50 each. These ordinary shares would carry voting
rights in the same proportion as other ordinary shares.
Investor Relations Calendar 2014
Market Share Price and GDR
The Company’s shares are listed on the Moscow Exchange under the
ticker SVAV.
In addition to the disclosures required by the Regulator and the
quarterly release of operating results, we take part in one-on-one
meetings at investor conferences, organised by major investment
banks in Russia and abroad. In 2013, we participated in nine
investor conferences.
For the latest upcoming events, please see the investor relations
section of our website, which also includes other IR information, for
example, equity analyst coverage and archived reports and results.
http://www.sollers-auto.com/en/investors/
Share Price Performance 2013, RUB
1,000
900
800
700
600
500
400
300
200
100
1,800
1,700
1,600
1,500
1,400
1,300
0
01.02.2013
01.03.2013
01.04.2013
01.05.2013
01.06.2013
01.07.2013
01.08.2013
01.09.2013
01.10.2013
SVAV (Last Price)
During the reporting period, SOLLERS share price increased by
23% whereas the MICEX index remained almost flat (between
8 January 2013 and 30 December 2013).
In August 2005, SOLLERS established a sponsored Global Depositary
Receipt (GDR) programme. The GDRs are unlisted and 1 DR equals
1 ordinary share. The custodian for the programme is Deutsche
Bank, Moscow.
1,200
01.11.2013 01.12.2013
MICEX Index (Last Price)
DR Ratio:
1:1
DR ISIN:
US8342581050
CUSIP
834258105
DR Type:
Reg S / Sponsored
Investor Relations Department
Our First Deputy CEO, CFO, Nikolay Sobolev, has overall
responsibility for our IR activities. He is supported by a dedicated
IR team, who can be contacted using the details below for any
IR‑related queries:
Elena Nishanova
Head of Corporate Reporting and Investor Relations Department
Anna Mikhaylova
IR-manager
36 As of the publication date of this Annual report, but after 4 April 2014, the Cypriot entity, NEWDEAL INVESTMENTS LIMITED, the immediate parent company of the Group,
transferred 53.79% of SOLLERS’ shares to the Russian entity, ERFIX LLC. Vadim Shvetsov, the Group’s beneficial owner and ultimate controlling shareholder, maintains a share of
54% of SOLLERS through ERFIX LLC
37 Free-float is estimated by MOEX as of 22 April 2014, source: http://moex.com/
10 Testovskaya Street
Moscow International Business Centre
Northern Tower, Moscow City
Moscow, 123317, Russia
Tel.: +7 (495) 228 3045
Fax: +7 (495) 228 3044
Email: ir@sollers-auto.com
Website: www.sollers-auto.com
81
MOVING
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BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
up 20%
down 56%
Strong free cash flow in 2013: up 20% to
RUB 6,923 mln
Net debt was down from RUB 7,880 mln in 2012 to
RUB 3,491 mln in 2013
ADDITIONAL
INFORMATION
MOVING AHEAD //
We have demonstrated a stable operational and financial
perfomance, despite the challenges posed by ongoing
macroeconomic instability; this performance confirms
the financial robustness of our strategy to build strong
and long-term partnerships
82
Financial
Reporting
83
MOVING
AHEAD
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
SOLLERS GROUP
INTERNATIONAL FINANCIAL
REPORTING STANDARDS
CONSOLIDATED FINANCIAL
STATEMENTS AND INDEPENDENT
AUDITOR’S REPORT
31 DECEMBER 2013
MOVING AHEAD //
84
CONTENTS
Independent Auditor’s Report............................................................................................................................................................................ 86
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Financial Position at 31 December 2013............................................................................................................................... 87
Consolidated Statement of Comprehensive Income for the year ended 31 December 2013.......................................................................................... 88
Consolidated Statement of Cash Flows for the year ended 31 December 2013............................................................................................................... 89
Consolidated Statement of Changes in Equity for the year ended 31 December 2013................................................................................................... 90
Notes to the Consolidated Financial Statements
1 The Sollers Group and its operations............................................................................................................................................................................. 91
2 Basis of preparation and significant accounting policies............................................................................................................................................ 92
3 Critical accounting estimates and judgements in applying accounting policies................................................................................................... 101
4 Adoption of new or revised standards and interpretations...................................................................................................................................... 102
5 New accounting pronouncements.............................................................................................................................................................................. 104
6 Balances and transactions with related parties........................................................................................................................................................ 105
7 Property, plant and equipment................................................................................................................................................................................... 106
8Goodwill........................................................................................................................................................................................................................ 107
9 Development costs....................................................................................................................................................................................................... 107
10 Other intangible assets................................................................................................................................................................................................ 108
11 Investments in joint ventures and associates............................................................................................................................................................ 108
12 Other non-current assets............................................................................................................................................................................................. 110
13Inventories.................................................................................................................................................................................................................... 110
14 Trade and other receivables......................................................................................................................................................................................... 110
15 Cash and cash equivalents........................................................................................................................................................................................... 111
16 Shareholders equity..................................................................................................................................................................................................... 112
17Borrowings................................................................................................................................................................................................................... 113
18 Advances received and other payables....................................................................................................................................................................... 113
19 Taxes payable................................................................................................................................................................................................................ 114
20 Warranty and other provisions..................................................................................................................................................................................... 114
21Sales............................................................................................................................................................................................................................... 114
22 Cost of sales.................................................................................................................................................................................................................. 115
23 Distribution costs......................................................................................................................................................................................................... 115
24 General and administrative expenses........................................................................................................................................................................ 115
25 Other operating income – net..................................................................................................................................................................................... 115
26 Finance costs, net........................................................................................................................................................................................................ 115
27 Income tax expense....................................................................................................................................................................................................... 116
28 Earning per share.......................................................................................................................................................................................................... 117
29 Segment information.................................................................................................................................................................................................... 117
30 Financial risk management.......................................................................................................................................................................................... 117
31 Contingencies, commitments and operating risks.................................................................................................................................................... 121
32 Principal subsidiaries.................................................................................................................................................................................................. 123
85
MOVING
AHEAD
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
86
MOVING AHEAD //
ZAO PricewaterhouseCoopers Audit, White Square Office Center,
10 Butyrsky Val, Moscow, Russia, 125047
T:+7 (495) 967 6000, F: +7 (495) 967 6001, www.pwc.ru
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2013
(IN MILLIONS OF RUSSIAN ROUBLES)
(AMOUNTS TRANSLATED INTO US DOLLARS FOR CONVENIENCE PURPOSES, NOTE 2)
RR million
Note
INDEPENDENT AUDITOR’S REPORT
To the Shareholders and Board of Directors of Open Joint Stock Company Sollers:
We have audited the accompanying consolidated financial statements of Open Joint Stock Company Sollers and its subsidiaries (the “Group”),
which comprise the consolidated statement of financial position as at 31 December 2013 and the consolidated statements of comprehensive
income, cash flows and changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory
information.
Management’s Responsibility for the Consolidated Financial Statements
Management 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 Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance
with 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. 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.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December
2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
4 April 2014
Moscow, Russian Federation
ASSETS
Non-current assets
Property, plant and equipment
Goodwill
Development costs
Other intangible assets
Deferred income tax assets
Investments in associates and joint ventures
Other financial assets
Other non-current assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Other current assets
Cash and cash equivalents
Total current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
EQUITY
Share capital
Share options
Share premium
Additional paid-in capital
Retained earnings
Equity attributable to the Company's owners
Non-controlling interest
Total equity
LIABILITIES
Non-current liabilities
Long-term borrowings
Deferred income tax liabilities
Other long term liabilities
Total non-current liabilities
Current liabilities
Trade accounts payable
Advances received and other payables
Taxes payable
Warranty and other provisions
Short-term borrowings
Total current liabilities
TOTAL LIABILITIES
TOTAL LIABILITIES AND EQUITY
At 31 December 2013 At 31 December 2012 At 31 December 2013 At 31 December 2012
7
8
9
10
27
11
12
13
14
15
16
16
16
16
16
32
17
27
18
19
20
17
9,451
1,484
361
167
196
14,947
20
515
27,141
11,539
1,484
393
182
276
14,492
20
677
29,063
289
45
11
5
6
456
1
16
829
380
49
13
6
9
477
1
22
957
4,526
6,894
40
6,020
17,480
44,621
4,503
9,816
231
2,560
17,110
46,173
138
211
1
184
534
1,363
148
323
8
84
563
1,520
530
4,538
1,438
9,187
15,693
5,083
20,776
530
50
4,480
1,438
6,340
12,838
7,042
19,880
16
139
44
280
479
155
634
17
2
148
47
209
423
232
655
5,716
514
2
6,232
3,742
854
31
4,627
175
16
191
123
28
1
152
10,115
1,362
1,376
965
3,795
17,613
23,845
44,621
10,454
2,865
1,045
604
6,698
21,666
26,293
46,173
309
42
42
29
116
538
729
1,363
344
94
34
20
221
713
865
1,520
Approved for issue and signed on behalf of the Board of Directors on 4 April 2014.
General Director
V.A. Shvetsov
The accompanying notes on pages 91 to 123 are an integral part of these consolidated financial statements.
Supplementary information
US$ million (Note 2)
Chief Financial Officer
N.A. Sobolev
87
MOVING
AHEAD
BUSINESS &
STRATEGY
CORPORATE
SOCIAL
RESPONSIBILITY
CORPORATE
GOVERNANCE
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2013
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013
RR million
Sales
Cost of sales
Gross profit
Distribution costs
General and administrative expenses
Net result on formation of joint venture
Other operating income, net
Operating profit
Finance costs, net
Share of result of joint ventures and associates
Profit before income tax
Income tax expense
Profit for the year
Total comprehensive income for the year
Profit is attributable to:
Owners of the Company
Profit for the year
Total comprehensive income is attributable to:
Owners of the Company
Total comprehensive income for the year
Weighted average number of shares outstanding during
the period (in thousands of shares) – basic
Weighted average number of shares outstanding during
the period (thousands) – diluted
Profit per share
(in RR and US$) – basic
Profit per share
(in RR and US$) – diluted
RR million
Year ended
31 December 2013
61,317
(49,878)
11,439
(2,554)
(4,167)
523
5,241
(1,144)
574
4,671
(1,093)
3,578
3,578
Year ended
31 December 2012
65,549
(51,475)
14,074
(2,551)
(5,205)
922
5
7,245
(810)
1,149
7,584
(1,703)
5,881
5,881
Year ended
31 December 2013
1,925
(1,566)
359
(80)
(130)
16
165
(36)
18
147
(34)
113
113
Year ended
31 December 2012
2,108
(1,656)
452
(82)
(167)
30
233
(26)
37
244
(55)
189
189
3,625
(47)
3,578
5,843
38
5,881
114
(1)
113
188
1
189
28
3,625
(47)
3,578
34,270
5,843
38
5,881
34,152
114
(1)
113
34,270
188
1
189
34,152
28
34,281
34,275
34,281
34,275
28
105.78
171.1
3.32
5.50
28
105.75
170.5
3.32
5.48
Note
21
22
23
24
11
25
26
11
27
32
88
MOVING AHEAD //
Other than as presented above, the Group did not have in year 2013 any items to be recorded as other comprehensive income in the statement of
comprehensive income (2012: no items).
Note
Cash flows from operating activities
Adjustments for:
Depreciation
Amortisation
Share options
Provision for impairment of receivables and write-offs
Provision for inventories
Other provision movements
Loss on disposal of other non-current assets
Amortisation of Government grants
Development expenses write-off
Net (gain)/losses on disposal of property, plant and equipment
Loss on disposal of investments
Net result on formation of joint venture
Share of result of JV and associates
Finance costs, net
Operating cash flows before working capital changes
(Increase)/decrease in inventories
Decrease in trade and other receivables
Decrease in other current assets
(Decrease) in trade accounts payable, advances received and
other payables
Increase /(decrease) in taxes payable
Cash provided from operations
Income taxes paid
Interest paid
Net cash from operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Proceeds from the sale of property, plant and equipment and
advances received
Development costs
Purchase of other non-current assets
Investment in joint venture
Dividends received from participation in joint venture
Proceeds from sale of subsidiary net of cash disposed
Net cash from /(used in) investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid to the Group’s shareholders
Change in non-controlling interest in subsidiaries
Change in treasury shares
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
13
11
11
9
11
Year ended
31 December 2013
Year ended
31 December 2012
Year ended
31 December 2013
Year ended
31 December 2012
4,671
7,584
147
244
985
161
8
2
19
(153)
(29)
(563)
839
274
18
172
71
439
28
(16)
7
220
31
5
1
(5)
(1)
(18)
27
9
1
6
2
14
1
(1)
7
31
(574)
1,003
5,561
(91)
3,210
192
(499)
(922)
(1,149)
1,438
9,003
1,424
945
25
(584)
1
(18)
32
175
(3)
101
6
(16)
(30)
(37)
47
290
46
30
1
(19)
262
8,635
(1,220)
(1,252)
6,163
(1,200)
9,613
(1,755)
(1,424)
6,434
8
271
(38)
(39)
194
(39)
309
(56)
(46)
207
(1,162)
2,072
(917)
1,626
(36)
65
(30)
53
(88)
(25)
(100)
22
41
760
(86)
(52)
(951)
13
(320)
(687)
(3)
(1)
(3)
1
1
24
(3)
(2)
(30)
(10)
(22)
15,141
(15,943)
(1,761)
(900)
(3,463)
3,460
2,560
6,020
6,995
(13,305)
(16)
182
(6,144)
(397)
2,957
2,560
475
(501)
(55)
(28)
(109)
109
(9)
84
184
225
(428)
(1)
6
(198)
(13)
5
92
84
89
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2013
(in millions of Russian Roubles – RR)
ADDITIONAL
INFORMATION
90
(900)
(1,790)
8
20,776
BUSINESS &
STRATEGY
Total equity
13,554
5,881
5,881
232
(80)
247
46
19,880
3,578
3,578
-
MOVING
AHEAD
(1,138)
5,083
238
(1,790)
8
15,693
The Company and the Group’s principal activity is the manufacture and sale of vehicles, including automotive components, assembly kits and
engines. The Group’s manufacturing facilities are primarily based in Ulyanovsk and the Nizhniy Novgorod region in the Russian Federation.
238
(1,790)
9,187
In 2011 the Group established the joint venture with Ford. Joint venture’s production assets are located in Vsevolozhsk in the St.Petersburg
region, Naberezhnye Chelny and Elabuga in the Republic of Tatarstan. Ford-Sollers joint venture is exclusive manufacturer and distributor of Ford
branded vehicles in Russia.
By the end of 2011 the Group established the joint venture with Japanese Mitsui&Co., Ltd located in Vladivostok. Toyota vehicles production
started in February 2013.
During the second half 2012 the Group finalized the foundation of the joint venture with Mazda Motor Corporation in Vladivostok also for
production of Mazda SUVs and passenger cars. Mazda-Sollers joint venture launched the production of Mazda SUVs in September 2012 and of
passenger cars in April 2013.
In August 2012 the Group disposed 16% stake in joint venture Sollers-Isuzu and recognised the remained investment as 50%-50% joint venture.
The Sollers-Isuzu production of lights-duty trucks is located in Ulyanovsk.The Company was incorporated as an open joint stock company
in the Russian Federation in March 2002 by OAO “Severstal” (the predecessor) by contributing its controlling interests in OAO “Ulyanovsky
Avtomobilny Zavod” (OAO “UAZ”) and OAO “Zavolzhskiy Motor Works” (OAO “ZMZ”), which were acquired through purchases close to the end
of 2000, in exchange for the Company’s share capital.
1,438
58
4,538
(50)
530
32
16
6, 16
32
6, 16
32
11
530
-
Additional
paid-in-capital
1,438
1,438
Share premium
4,893
(312)
(101)
4,480
Share options
77
(27)
50
Treasury shares
(653)
(80)
559
174
Share capital
530
Note
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards for the year ended
31 December 2013 for Sollers OJSC, previously called OAO “Severstal-auto”, (the “Company”) and its subsidiaries (the “Group”). The Group
adopted its new name “Sollers” in 2008.
Since February 2013 the Group relocated SsangYong SUVs’ production from the Group’s subsidiary site to JV Mazda-Sollers’ production facilities.
The Group continues exclusive distribution of the SsangYong SUVs.
Balance at 1 January 2012
Profit for the year
Total comprehensive income for 2012
Change of interest in subsidiary
Disposal of subsidiary
Treasury shares acquisition
Treasury shares disposal
Share options
Balance at 31 December 2012
Profit for the year
Total comprehensive income for 2013
Change of interest in subsidiary
Purchase of non-controlling interest in
subsidiary
Dividends
Share options
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2013
Retained
earnings
1,092
5,843
5,843
(595)
6,340
3,625
3,625
774
Total
Attributable to
equity holders Non- controlling
of the Group
interest
7,377
6,177
5,843
38
5,843
38
(595)
595
232
(80)
247
46
12,838
7,042
3,625
(47)
3,625
(47)
774
(774)
1. THE SOLLERS GROUP AND ITS OPERATIONS
The immediate parent company is Newdeal Investments Limited. The ultimate controlling party of the Group is Vadim Shvetsov who is
the principal shareholder of the Company.
The Company’s shares are listed on MICEX-RTS.
The registered office of the Company is Testovskaya street, 10, Moscow, Russian Federation.
These consolidated financial statements were approved for issue by the General Director and Chief Financial Officer on 4 April 2014.
Operating Environment of the Group
The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices.
The legal, tax and regulatory frameworks continue to develop and are subject to varying interpretations (Note 31). The political and economic
turmoil witnessed in the region, including the developments in Ukraine have had and may continue to have a negative impact on the Russian
economy, including weakening of the Rouble and making it harder to raise international funding. At present, there is an ongoing threat of
sanctions against Russia and Russian officials the impact of which, if they were to be implemented, are at this stage difficult to determine.
The financial markets are uncertain and volatile.
In 2014 Rouble exchange rates deteriorated by more than 8% reaching the level of 48.8834 roubles/Euro on 4 April 2014. Given the substantial
volume of imports, these events alongside with a decline in customer demand observed in the beginning of 2014 and forecasted to continue
throughout 2014 resulted in certain operational cost reduction measures implemented by management in order to maintain short to mediumterm profitability. Management is confident that long-term business plans of the joint ventures are sustainable.
The tax, currency and customs legislation within the Russian Federation is subject to varying interpretations and frequent changes, and other
legal and fiscal impediments contribute to the challenges faced by entities currently operating in the Russian Federation. The future economic
direction of the Russian Federation is largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by
the Government, together with tax, legal, regulatory, and political developments.
Management is unable to predict all developments which could have an impact on the Russian economy and consequently what effect, if
any, they could have on the future financial position of the Group. Management believes it is taking all the necessary measures to support
the sustainability and development of the Group’s business.
91
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BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
92
2. Basis of preparation and significant accounting policies (continue)
2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation. These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value and
by the revaluation of available for sale securities. The principal accounting policies applied in the preparation of these consolidated financial
statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated (refer to
Note 4, Adoption of New or Revised Standards and Interpretations). These financial statements are prepared on a going concern basis.
The Group companies maintain their accounting records in Russian Roubles (“RR”) and prepare their statutory financial statements in accordance
with the Federal Law on Accounting of the Russian Federation. The consolidated financial statements are based on the statutory records, with
adjustments and reclassifications recorded for the purpose of fair presentation in accordance with IFRS.
2.1. Presentation currency
All amounts in these consolidated financial statements are presented in millions of Russian Roubles (“RR millions”), unless otherwise stated.
2.2. Supplementary information
US Dollar (“US$”) amounts shown in the consolidated financial statements are translated from the Russian Rouble (“RR”) amounts as a matter
of arithmetic computation only, at the official rate of the Central Bank of the Russian Federation at 31 December 2013 of RR 32.7292 = US$1
(31 December 2012: RR 30.3727 = US$1). The profit or loss statement and cash flow statement have been translated at the average exchange
rates during the years ended 31 December 2013 of RR 31.8478 = US$1 (2012: RR 31.0930 = US$1). The US$ amounts are presented solely for
the convenience of the reader, and should not be construed as a representation that RR amounts have been or could have been converted to
the US$ at this rate, nor that the US$ amounts present fairly the financial position and results of operations and cash flows of the Group.
2.3. Consolidated financial statements
Subsidiaries are those investees, including structured entities, that the Group controls because the Group (i) has power to direct relevant activities of
the investees that significantly affect their returns, (ii) has exposure, or rights, to variable returns from its involvement with the investees, and (iii) has
the ability to use its power over the investees to affect the amount of investor’s returns. The existence and effect of substantive rights, including
substantive potential voting rights, are considered when assessing whether the Group has power over another entity. For a right to be substantive,
the holder must have practical ability to exercise that right when decisions about the direction of the relevant activities of the investee need to be made.
The Group may have power over an investee even when it holds less than majority of voting power in an investee. In such a case, the Group assesses
the size of its voting rights relative to the size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee.
Protective rights of other investors, such as those that relate to fundamental changes of investee’s activities or apply only in exceptional circumstances,
do not prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is transferred to the Group
(acquisition date) and are deconsolidated from the date on which control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries other than those acquired from parties under common
control. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values
at the acquisition date, irrespective of the extent of any non-controlling interest.
The Group measures non-controlling interest that represents present ownership interest and entitles the holder to a proportionate share of net
assets in the event of liquidation on a transaction by transaction basis, either at: (a) fair value, or (b) the non-controlling interest’s proportionate
share of net assets of the acquiree. Non-controlling interests that are not present ownership interests are measured at fair value. Goodwill is
measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of noncontrolling interest in the acquiree and fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount
(“negative goodwill”) is recognised in profit or loss, after management reassesses whether it identified all the assets acquired and all liabilities
and contingent liabilities assumed and reviews appropriateness of their measurement.
The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities
incurred or assumed, including fair value of assets or liabilities from contingent consideration arrangements but excludes acquisition related
costs such as advisory, legal, valuation and similar professional services. Transaction costs related to the acquisition and incurred for issuing
equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of the business combination are deducted from
the carrying amount of the debt and all other transaction costs associated with the acquisition are expensed.
Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are
also eliminated unless the cost cannot be recovered. The Company and all of its subsidiaries use uniform accounting policies consistent with
the Group’s policies.
2.5. Purchases and sales of non-controlling interests
The Group applies the economic entity model to account for transactions with owners of non-controlling interest. Any difference between
the purchase consideration and the carrying amount of non-controlling interest acquired is recorded as a capital transaction directly in
equity. The Group recognises the difference between sales consideration and the carrying amount of non-controlling interest sold as a capital
transaction in the statement of changes in equity.
2.6. Purchases of subsidiaries from parties under common control
Purchases of subsidiaries from parties under common control are accounted for using the pooling of interest method. Under this method
the consolidated financial statements of the combined entity are presented as if the businesses had been combined from the beginning of
the earliest period presented or, if later, the date when the combining entities were first brought under common control. The assets and liabilities
of the subsidiary transferred under common control are at the predecessor entity’s carrying amounts. The predecessor entity is considered to be
the highest reporting entity in which the subsidiary’s IFRS financial information was consolidated. Related goodwill inherent in the predecessor
entity’s original acquisitions is also recorded in these consolidated financial statements. Any difference between the carrying amount of net
assets, including the predecessor entity’s goodwill, and the consideration for the acquisition is accounted for in these consolidated financial
statements as an adjustment to other reserves within equity.
2.7. Associates and joint ventures
Associates are entities over which the Group has significant influence (directly or indirectly), but not control, generally accompanying
a shareholding of between 20 and 50 percent of the voting rights. Investments in associates are accounted for using the equity method of
accounting and are initially recognised at cost. Dividends received from associates reduce the carrying value of the investment in associates.
Other post-acquisition changes in the Group’s share of net assets of an associate are recognised as follows: (i) the Group’s share of profits or
losses of associates is recorded in the consolidated profit or loss for the year as share of result of associates, (ii) the Group’s share of other
comprehensive income is recognised in other comprehensive income and presented separately, (iii); all other changes in the Group’s share of
the carrying value of net assets of associates are recognised in profit or loss within the share of result of associates.
However, when the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured
receivables; the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
Joint ventures are those joint arrangements whereby the parties that have joint control of the arrangement have rights to the net assets of
the arrangement. When a joint venture is created through loss of control of a subsidiary, the initial carrying amount is recognised at fair value.
Subsequently, they are accounted for using the equity method of accounting. The share of joint ventures’ results is recognised in the consolidated
financial statements from the date that joint control commences until the date at which it ceases.
Unrealised gains on transactions between the Group, its associates and joint ventures are eliminated to the extent of the Group’s interest in
the associates and joint ventures; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred.
2.8. Disposals of subsidiaries, associates or joint ventures
When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change
in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for
the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive
income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that
amounts previously recognised in other comprehensive income are recycled to profit or loss.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously
recognised in other comprehensive income are reclassified to profit or loss where appropriate.
2.9. Financial instruments – key measurement terms
Depending on their classification financial instruments are carried at fair value or amortised cost as described below.
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length
transaction. Fair value is the current bid price for financial assets and current asking price for financial liabilities which are quoted in an active
market. For assets and liabilities with offsetting market risks, the Group may use mid-market prices as a basis for establishing fair values for
the offsetting risk positions and apply the bid or asking price to the net open position as appropriate. A financial instrument is regarded as quoted
in an active market if quoted prices are readily and regularly available from an exchange or other institution and those prices represent actual
and regularly occurring market transactions on an arm’s length basis.
Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not owned, directly or
indirectly, by the Company. Non-controlling interest forms a separate component of the Group’s equity.
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2.9. Financial instruments – key measurement terms (continue)
2.10. Classification of financial assets (continue)
Valuation techniques such as discounted cash flows models or models based on recent arm’s length transactions or consideration of financial
data of the investees are used to fair value certain financial instruments for which external market pricing information is not available. Valuation
techniques may require assumptions not supported by observable market data. Disclosures are made in these consolidated financial statements
if changing any such assumptions to a reasonably possible alternative would result in significantly different profit or loss, sales, total assets or
total liabilities.
All other financial assets are included in the available-for-sale category, which includes investment securities which the Group intends to hold for
an indefinite period of time and which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An
incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions
paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities
exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative
or holding costs.
Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus
accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of
transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method.
Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including
fees deferred at origination, if any), are not presented separately and are included in the carrying values of related consolidated balance
sheet items.
The effective interest method is a method of allocating interest income or interest expense over the relevant period so as to achieve a constant
periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated
future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period,
if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest
instruments to the next interest repricing date except for the premium or discount which reflects the credit spread over the floating rate specified
in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life
of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of
the effective interest rate (refer to income and expense recognition policy).
2.10. Classification of financial assets
The Group classifies its financial assets into the following measurement categories: (a) loans and receivables; (b) available-for-sale financial
assets; (c) financial assets held to maturity and (d) financial assets at fair value through profit and loss. Financial assets at fair value through
profit and loss have two subcategories: (i) assets designated as such upon initial recognition, and (ii) those classified as held for trading.
Certain derivative instruments embedded in other financial instruments are treated as separate derivative instruments when their risks and
characteristics are not closely related to those of the host contract.
Other financial assets at fair value through profit and loss are financial assets designated irrevocably, at initial recognition, into this category.
Management designates financial assets into this category only if (a) such classification eliminates or significantly reduces an accounting
mismatch that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases; or (b)
a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with
a documented risk management or investment strategy, and information on that basis is regularly provided to and reviewed by the Group’s key
management personnel. Recognition and measurement of this category of financial assets is consistent with the accounting policy for trading
investments.
Trading investments are financial assets which are either acquired for generating a profit from short-term fluctuations in price or trader’s
margin, or are securities included in a portfolio in which a pattern of short-term trading exists. The Group classifies securities into trading
investments if it has an intention to sell them within a short period after purchase, i.e. within 12 months The Group may choose to reclassify
a non-derivative trading financial asset out of the fair value through profit and loss category if the asset is no longer held for the purpose of
selling it in the near term. Financial assets other than loans and receivables are permitted to be reclassified out of the fair value through profit
and loss category only in rare circumstances arising from a single event that is unusual and highly unlikely to reoccur in the near term. Financial
assets that would meet the definition of loans and receivables may be reclassified if the Group has the intention and ability to hold these financial
assets for the foreseeable future or until maturity.
Loans and receivables are unquoted non-derivative financial assets with fixed or determinable payments other than those that the Group intends
to sell in the near term.
Held-to-maturity assets include quoted non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group
has both the intention and ability to hold to maturity. Management determines the classification of investment securities held to maturity at their
initial recognition and reassesses the appropriateness of that classification at each reporting date.
2.11. Classification of financial liabilities
Financial liabilities have the following measurement categories: (a) held for trading which also includes financial derivatives and (b) other
financial liabilities. Liabilities held for trading are carried at fair value with changes in value recognised in profit or loss for the year in the period
in which they arise. Other financial liabilities are carried at amortised cost.
2.12. Initial recognition of financial instruments
Trading investments, derivatives and other financial instruments at fair value through profit and loss are initially recorded at fair value. All other
financial assets and liabilities are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by
the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which
can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only
data from observable markets.
All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (“regular
way” purchases and sales) are recorded at trade date, which is the date that the Group commits to deliver a financial asset. All other purchases
are recognised when the entity becomes a party to the contractual provisions of the instrument.
The Group uses discounted cash flow valuation techniques to determine the fair value of options and bonds that are not traded in an active market.
Differences may arise between the fair value at initial recognition which is considered to be the transaction price and the amount determined at
initial recognition using the valuation technique. Any such differences are amortised on a straight line basis over the term of the options and bonds.
2.13. Derecognition of financial assets
The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expired or (b)
the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i)
also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks
and rewards of ownership but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in
its entirety to an unrelated third party without needing to impose additional restrictions on the sale.
2.14. Valuation of investments
Available-for-sale investments. The Group classifies investments as available for sale at the time of purchase. Available-for-sale investments
are carried at fair value. Interest income on available-for-sale debt securities is calculated using the effective interest method and recognised in
profit and loss. Dividends on available-for-sale equity instruments are recognised in profit and loss when the Group’s right to receive payment is
established and inflow of benefits is probable. All other elements of changes in the fair value are recognised in other comprehensive income until
the investment is derecognised or impaired at which time the cumulative gain or loss is reclassified from other comprehensive income to finance
income in profit or loss for the year.
Impairment losses are recognised in profit and loss when incurred as a result of one or more events (“loss events”) that occurred after the initial
recognition of available-for-sale investments. A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it
is impaired. The cumulative impairment loss – measured as the difference between the acquisition cost and the current fair value, less any impairment
loss on that asset previously recognised in profit and loss – is reclassified from other comprehensive income to finance costs in profit or loss for the year.
If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an
event occurring after the impairment loss was recognised in profit and loss, the impairment loss is reversed through current period’s profit and loss.
Held-to-maturity investments. Held-to-maturity investments are carried at amortised cost using the effective interest method, net of
a provision for incurred impairment losses.
Trading investments. Trading investments are carried at fair value. Interest earned on trading investments calculated using the effective interest
method is presented in the consolidated profit or loss as finance income. Dividends are included in dividend income within other operating
income when the Group’s right to receive the dividend payment is established and inflow of benefits is probable. All other elements of the changes
in the fair value and gains or losses on derecognition are recorded in profit and loss as gains less losses from trading investments in the period in
which they arise.
Embedded derivatives. Foreign currency forwards embedded into sales-purchase contracts are separated from the host contracts and
accounted for separately unless the contract is denominated in the functional currency of any substantial party to the contract or in a currency
that is commonly used in the economic environment in which the transaction takes place, such as in US Dollars and Euros for contracts within
the Russian Federation.
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2.15. Property, plant and equipment
Property, plant and equipment are stated at cost, restated to the equivalent purchasing power of the Russian Rouble at 31 December 2003 for
assets acquired prior to 1 January 2003, less accumulated depreciation and provision for impairment, where required. Cost includes borrowing
costs incurred on specific or general funds borrowed to finance construction of qualifying assets.
2.19. Share based compensation
Until May, 16, 2013 the Group operated equity-settled, share-based compensation plans. The fair value of the employee services received in
exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by
reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and
sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become
exercisable. At each reporting date, the Group revises its estimates of the number of options that are expected to become exercisable. It
recognises the impact of the revision of original estimates, if any, in the consolidated profit or loss for the year, and with a corresponding
adjustment to equity over the remaining vesting period.
Costs of minor repairs and maintenance are expensed when incurred. Costs of replacing or renewing major parts or components of property,
plant and equipment items are capitalised and the replaced part is retired.
At each reporting date, management assess whether there is any indication of impairment of property, plant and equipment. If any such
indication exists, management estimates the recoverable amount, which is determined as the higher of an asset’s fair value less costs to sell and
its value in use. The carrying amount is reduced to the recoverable amount and the impairment loss is recognised in the consolidated profit or loss
for the year. An impairment loss recognised for an asset in prior years is reversed if there has been a change in the estimates used to determine
the asset’s value in use or fair value less costs to sell.
Gains and losses on disposals determined by comparing proceeds with carrying amount are recognised in profit and loss.
2.16. Depreciation
Land is not depreciated. Depreciation on other items of property, plant and equipment is calculated using the straight-line method to allocate
their cost amounts to their residual values over their estimated useful lives:
Buildings
Plant and machinery
Equipment and motor vehicles
Useful lives in years
35 to 45
15 to 25
5 to 12
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. The residual value of an asset is nil
if the Group expects to use the asset until the end of its physical life. The assets’ residual values and useful lives are reviewed, and adjusted if
appropriate, at each reporting date.
2.17. Operating leases
Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownership from the lessor
to the Group, the total lease payments are charged to profit and loss on a straight-line basis over the lease term. The lease term is the noncancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option
to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will
exercise the option.
Leases embedded in other agreements are separated if (a) fulfilment of the arrangement is dependent on the use of a specific asset or assets and
(b) the arrangement conveys a right to use the asset. When assets are leased out under an operating lease, the lease payments receivable are
recognised as rental income on a straight-line basis over the lease term.
2.18. Finance lease receivables
Where the Group is a lessor in a lease which transfers substantially all the risks and rewards incidental to ownership to the lessee, the assets
leased out are presented as a finance lease receivable and carried at the present value of the future lease payments. Finance lease receivables
are initially recognised at the date from which the lessee is entitled to exercise its right to use the leased asset, using a discount rate determined
at inception (the earlier of the date of the lease agreement and the date of commitment by the parties to the principal provisions of the lease).
The difference between the gross receivable and the present value represents unearned finance income. This income is recognised over
the term of the lease using the net investment method (before tax), which reflects a constant periodic rate of return. Incremental costs
directly attributable to negotiating and arranging the lease are included in the initial measurement of the finance lease receivable and
reduce the amount of income recognised over the lease term. Finance income from leases is recorded within other operating income in
profit or loss for the year.
recognition of finance lease receivables. Impairment losses are recognised through an allowance account to write down the receivables’ net
carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at
the interest rates implicit in the finance leases. The estimated future cash flows reflect the cash flows that may result from obtaining and selling
the assets subject to the lease.
The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when
the options are exercised.
2.20. Goodwill
Goodwill is carried at cost less accumulated impairment losses, if any. The Group tests goodwill for impairment at least annually and whenever
there are indications that goodwill may be impaired. Goodwill is allocated to the cash-generating units, or groups of cash-generating units,
that are expected to benefit from the synergies of the business combination. Such units or groups of units represent the lowest level at which
the Group monitors goodwill and are not larger than an operating segment.
Gains or losses on disposal of an operation within a cash generating unit to which goodwill has been allocated include the carrying amount
of goodwill associated with the operation disposed of, generally measured on the basis of the relative values of the operation disposed of and
the portion of the cash-generating unit which is retained.
2.21. Other intangible assets
The Group’s intangible assets other than goodwill have definite useful lives and primarily include capitalised computer software, patents,
trademarks, licences and clips.
Acquired computer software licenses, patents and trademarks are capitalised on the basis of the costs incurred to acquire and bring them
to use.
Development costs that are directly associated with identifiable and unique software controlled by the Group are recorded as intangible assets if
the inflow of incremental economic benefits exceeding costs is probable. Capitalised costs include staff costs of the software development team
and an appropriate portion of relevant overheads. All other costs associated with computer software, e.g. its maintenance, are expensed when
incurred. Intangible assets are amortised using the straight-line method over their useful lives:
Trademarks
Production licences
Computer software licences
Useful lives in years
3 to 10
5 to 10
3 to 5
If impaired, the carrying amount of intangible assets is written down to the higher of value in use and fair value less costs to sell.
2.22. Inventories
Inventories are recorded at the lower of cost and net realisable value. The cost of inventory is determined on the weighted average basis. The cost
of finished goods and work in progress comprises raw material, direct labour, other direct costs and related production overheads (based on
normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business,
less the cost of completion and selling expenses. Inventories at the reporting date include expected sales returns subsequent to the period end,
where the related sales, profit margin and receivables balance are reversed. Inventories are initially recognised when the Group has control of
the inventory, expects it to provide future economic benefits and the cost of the inventory can be measured reliably. For components imported
from outside of the Russian Federation, this is typically at the point of delivery to the Group’s warehouse and accepted by the Group.
2.23. Income taxes
Income taxes have been provided for in the consolidated financial statements in accordance with Russian legislation enacted or substantively
enacted by the balance sheet date. The income tax charge comprises current tax and deferred tax and is recognised in profit or loss for the year,
except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in
the same or a different periods, in other comprehensive income or directly in equity.
Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current
and prior periods. Taxes other than on income are recorded within operating expenses.
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2.23. Income taxes (continue)
Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition
exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than
a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not
recorded for temporary differences on initial recognition of goodwill and subsequently for goodwill which is not deductible for tax purposes.
Deferred tax balances are measured at tax rates enacted or substantively enacted at the reporting date which are expected to apply to the period
when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are netted only
within the individual companies of the Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded
only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.
The Group controls reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or on gains at their disposal.
The Group does not recognise deferred tax liabilities on such temporary differences except to the extent that management expects the temporary
differences to reverse in the foreseeable future.
The Group’s uncertain tax positions are reassessed by management at every reporting date. Liabilities are recorded for income tax positions that
are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax
authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the reporting date
and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on
management’s best estimate of the expenditure required to settle the obligations at the reporting date.
2.24. Trade and other receivables
Trade and other receivables are carried at amortised cost using the effective interest method.
2.25. Impairment of financial assets carried at amortised cost
recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or
group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment has incurred
for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk
characteristics and collectively assesses them for impairment. The primary factors that the Group considers in determining whether a financial
asset is impaired are its overdue status and realisability of related collateral, if any. The following other principal criteria are also used to
determine whether there is objective evidence that an impairment loss has occurred:
›› any portion or instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems;
›› the counterparty experiences a significant financial difficulty as evidenced by its financial information that the Group obtains;
›› the counterparty considers bankruptcy or a financial reorganisation;
›› there is adverse change in the payment status of the counterparty as a result of changes in the national or local economic conditions that
impact the counterparty; or
›› the value of collateral, if any, significantly decreases as a result of deteriorating market conditions.
If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of
the counterparty, impairment is measured using the original effective interest rate before the modification of terms.
Impairment losses are always recognised through an allowance account to write down the asset’s carrying amount to the present value of
expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of
the asset. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that
may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after
the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by
adjusting the allowance account through profit and loss.
Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to recover the asset have
been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to
impairment loss account in the profit or loss for the year.
2.26. Prepayments
Prepayments are carried at cost less provision for impairment. A prepayment is classified as non-current when the goods or services relating to
the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as noncurrent upon initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset once the Group has obtained
control of the asset and it is probable that future economic benefits associated with the asset will flow to the Group. Other prepayments are
written off to profit and loss when the goods or services relating to the prepayments are received. If there is an indication that the assets, goods
or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding
impairment loss is recognised in profit and loss.
2.27. Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original
maturities of three months or less. Cash and cash equivalents are carried at amortised cost using the effective interest method. Restricted
balances are excluded from cash and cash equivalents for the purposes of the consolidated cash flow statement. Balances restricted from being
exchanged or used to settle a liability for at least twelve months after the reporting date are included in other non-current assets.
2.28. Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as
a deduction, net of tax, from the proceeds. Any excess of the fair value of consideration received over the par value of shares issued is recorded as
share premium in equity.
2.29. Treasury shares
Where the Company or its subsidiaries purchase the Company’s equity instruments, the consideration paid, including any directly attributable
incremental costs, net of income taxes, is deducted from equity attributable to the Company’s equity holders until the equity instruments
are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly
attributable incremental transaction costs and the related income tax effects, and are included in equity attributable to the Company’s equity
holders.
2.30. Dividends
Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved. Any dividends declared after
the reporting date and before the consolidated financial statements are authorised for issue are disclosed in the subsequent events note.
2.31. Value added tax
Output value added tax related to sales is payable to tax authorities on the earlier of (a) collection of the receivables from customers or (b)
delivery of the 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 sales and purchases is recognised in the balance sheet on a gross basis
and disclosed separately as an asset and liability. Where provision has been made for impairment of receivables, impairment loss is recorded for
the gross amount of the debtor, including VAT.
2.32. Borrowings
Borrowings are carried at amortised cost using the effective interest method. Interest costs on borrowings to finance the construction of
property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use.
All other borrowing costs are expensed.
2.33. Government grants and subsidies
Grants from the Government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group
will comply with all attached conditions. Government grants relating to the purchase of property, plant and equipment are included in noncurrent liabilities as deferred income and are credited to the consolidated profit or loss for the year on a straight line basis over the expected lives
of the related assets.
Government grants and subsidies relating to costs are deferred and recognised in the consolidated profit or loss over the period necessary to
match them with the costs that they are intended to compensate.
2.34. Trade and other payables
Trade and other payables are accrued when the counterparty performed its obligations under the contract and are carried at amortised cost using
the effective interest method.
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2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUE)
2.39. Employee benefits (continue)
2.35. Provisions for liabilities and charges
Provisions for liabilities and charges are recognised when the Group has a present legal or constructive obligation as a result of past events, and
it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where
there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of
obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of
obligations may be small. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement
is recognised as a separate asset but only when the reimbursement is virtually certain. The Group recognises the estimated liability to repair or
replace products sold still under warranty at the end of each reporting period. This provision is calculated based on past history of the level of
repairs and replacements and recognised in costs of sale.
2.36. Foreign currency translation
The functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in which the entity
operates. The Group’s functional currency and the Group’s presentation currency is the national currency of the Russian Federation, Russian Roubles.
Monetary assets and liabilities are translated into each entity’s functional currency at the official exchange rate of the Central Bank of
the Russian Federation (“CBRF”) at the respective reporting dates. Foreign exchange gains and losses resulting from the settlement of
the transactions and from the translation of monetary assets and liabilities into each entity’s functional currency at year-end official exchange
rates of the CBRF are recognised in profit and loss. Translation at year-end rates does not apply to non-monetary items that are measured at
historical cost. Non-monetary items measured at fair value in a foreign currency, including equity investments, are translated using the exchange
rates at the date when the fair value was determined. Effects of exchange rate changes on non-monetary items measured at fair value in a foreign
currency are recorded as part of the fair value gain or loss.
Labour expenses include state pension contributions of RR 1,795 for the year ended 31 December 2013 (2012: RR 1,670). In addition, labour
expenses include payments under share based compensation of RR 8 (2012: RR 18).
2.40. Earnings per share
Basic earnings per share are calculated by dividing the profit or loss attributable to equity holders of the Company by the weighted average
number of ordinary shares in issue during period.
If applicable, diluted earnings per share is calculated adjusting the weighted average number of ordinary shares outstanding to assume
conversion of dilutive potential ordinary shares under the share based compensation programme. For the share options used in the share based
compensation programme a calculation is done to determine the number of shares that would have been issued at the reporting date if this date
was the vesting date.
2.41. Offsetting
Financial assets and liabilities are offset and the net amount reported in the balance sheet only when there is a legally enforceable right to offset
the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously.
2.42. Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operating decision maker.
Segments whose revenue, result or assets are ten percent or more of all the segments are reported separately where they do not have similar
economic characteristics.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
At 31 December 2013, the principal rate of exchange used for translating foreign currency balances was US$ 1 = RR 32.7292, Euro 1 = RR 44.9699
(2012: US$ 1 = RR 30.3727, Euro 1 = RR 40.2286). The principal average rate of exchange used for translating income and expenses was
US$ 1 = RR 31.8478 (2012: US$ 1 = RR 31.0930).
2.37. Revenue recognition
Revenues from sales of vehicles, engines and automotive components are recognised at the point of transfer of the major of risks and rewards
of ownership of the goods, normally when the goods are shipped. If the Group agrees to transport goods to a specified location, revenue is
recognised when the goods are passed to the customer at the destination point. The group generally retains physical possession of the vehicle
ownership document (“PTS’) until cash is collected from the dealer, however, it considers that substantially all risks and rewards are transferred
upon shipment.
An estimate is made for vehicles that are returned to the Group subsequent to the period end where a dealer is not able to settle receivables
owed to the Group. In such instances, the related sales revenue, profit margin and trade receivable balances are reversed during the period and
the vehicles are included as inventories as at the period end date.
Sales of services are recognised in the accounting period in which the services are rendered, by reference to the stage of completion of
the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
Sales are shown net of VAT, excise, discounts and other bonuses to dealers.
Revenues are measured at the fair value of the consideration received or receivable. When the fair value of goods received in a barter transaction
cannot be measured reliably, the revenue is measured at the fair value of the goods or service given up. Interest income is recognised on a timeproportion basis using the effective interest method.
The Group makes estimates and assumptions that affect the amounts recognised in the consolidated financial statements and the carrying
amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on
management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies.
Judgements that have the most significant effect on the amounts recognised in the consolidated financial statements and estimates that can
cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:
3.1. Remaining useful life of property, plant and equipment
Management has assessed the remaining useful life of property, plant and equipment in accordance with the current technical conditions of
assets and estimated period when these assets will bring economic benefit to the Group. The estimation of the useful lives of items of property,
plant and equipment is a matter of judgment based on the experience with similar assets. The future economic benefits embodied in the assets
are consumed principally through use. However, other factors, such as technical or commercial obsolescence and wear and tear, often result in
the diminution of the economic benefits embodied in the assets. Management assesses the remaining useful lives in accordance with the current
technical conditions of the assets and estimated period during which the assets are expected to earn benefits for the Group. The following
primary factors are considered: (a) expected usage of the assets; (b) expected physical wear and tear, which depends on operational factors and
maintenance programme; and (c) technical or commercial obsolescence arising from changes in market conditions.
3.2. Impairment of assets (including goodwill)
Management have used judgement when evaluating any indicators of potential impairment of the Group’s non-current assets (including property,
plant and equipment, intangibles and goodwill), or, when testing for impairment as at 31 December 2013 as required. Management have
determined that there are two cash-generating units (“CGU”) within the Group: OAO “UAZ” and OAO “ZMZ”.
No indicators in respect of impairment of assets were identified in 2013 due to favourable Group’s financial position.
2.38. Research and development costs
Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of
new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial
and technological feasibility, and costs can be measured reliably. Other development expenditures are recognised as an expense as incurred.
Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs with a finite
useful life that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis
over the period of its expected benefit, on average over ten years.
2.39. Employee benefits
Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual leave and sick leave, bonuses, and
non-monetary benefits (such as health services and kindergarten services) are accrued in the year in which the associated services are rendered
by the employees of the Group.
During the year 2013 there was a slight slowdown of 6% in the Russian automotive market. The total market sales amounted to 2.8 mln. units.
The slowdown was driven mostly by macroeconomic factors, such as an increase in interest rates together with negative changes in foreign
currency exchange rates escalated at the end of the year. However, the Group has not experienced significant negative effect. The stocks remain
under control and sustainable cash flows are maintained. The Group managed to improve its net debt position and maintain profitability level.
Management considers the current market situation as expected and is able to plan and perform accordingly.
Goodwill allocated to OAO “UAZ” and OAO “ZMZ” CGUs have been tested by management for impairment using value-in-use calculations.
The calculations use business plans and cash flows projections developed and approved by the management. The discounting rate used for each
CGU was estimated based on weighted average cost of capital, which is post-tax and reflects specific risks related to the CGU and time value of
money.
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4. Adoption of new or revised standards and interpretations (continue)
3.2. Impairment of assets (including goodwill) (continue)
The cash flow projections cover an initial five-year period. Cash flows beyond five year period are extrapolated using basic assumptions such as
potential sales volumes, EBITDA margin level and discounting rate specific for the particular CGU. Management determined budgeted EBITDA
margin on the basis of the past performance of each CGU and its expectations for the market development. For the OAO “UAZ” these include
continued stable demand for quality vehicles in the niche markets in which the units operate, and the CGU’s sales price advantage over its foreign
competition in those markets. For the OAO “ZMZ” these include expansion of its position as a supplier to the Russian market, development
further the production of spare parts and components and ability to upgrade its products in line with expected increases in regulations over
emission levels.
Cash flows beyond the five-year period are extrapolated using estimated growth rate of 3.0% for both CGUs (31 December 2012: 3.5% for both
CGUs); these growth rates do not exceed the long-term average growth rate for the automotive business in which CGUs operate. The discount
rate used of 15% for OAO “ZMZ” and 15% for OAO “UAZ” (31 December 2012: 14.8% and 14.9% respectively) are pre-tax and reflect specific
risks related to the relevant CGU.
The inherence of no impairment of OAO “UAZ” CGU is sensitive to the level of future revenues. With all other assumptions held constant,
a reduction in revenues of 20% in each future period would result in a need to reduce the carrying value of goodwill by RR 219.
The inherence of no impairment of OAO “ZMZ” CGU is sensitive to the level of future revenues. With all other assumptions held constant,
a reduction in revenues of 10% in each future period would result in a need to reduce the carrying value of goodwill by RR 277 and other noncurrent assets in aggregate by RR 45.
For each of the CGUs identified for impairment testing, management consider that there have not been any significant changes in any of
the businesses during the year. For all CGUs, the recoverable amount in the valuation performed as at 31 December 2013 exceeded the carrying
amount by a substantial margin and based on an analysis of events, the likelihood that the current recoverable amount would be lower that
the carrying amount is remote.
Management believes that any reasonably possible change in the key assumptions described above would not cause the carrying amount of
goodwill related to OAO “UAZ” and OAO “ZMZ” to exceed their recoverable amounts.
3.3. Tax legislation and deferred income tax recognition
Russian tax, currency and customs legislation is subject to varying interpretations. Related accounting treatment requires the use of estimates
and judgements as further detailed in Note 31.
Deferred tax assets represent income taxes recoverable through future deductions from taxable profits and are recorded on the balance sheet.
Deferred income tax assets are recorded to the extent that realisation of the tax benefit is probable. In determining future taxable profits and
the amount of tax benefits that are probable in the future, management makes judgements and applies estimation based on taxable profits
earned in the past three years; the possibility of challenges to the deductibility of expenses; the time period available in order to utilise the losses
and expectations of future taxable income that are believed to be reasonable under the circumstances. For details of the deferred tax assets
recognised as at 31 December 2013, see Note 27. The balance includes RR 196 (2012: RR 276). Management expects the losses to be utilised in
the next few years based on current profit forecasts.
4. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS
The following new standards and interpretations became effective for the Group from 1 January 2013:
IFRS 10 “Consolidated Financial Statements” (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013)
replaces all of the guidance on control and consolidation in IAS 27 “Consolidated and separate financial statements” and SIC-12 “Consolidation –
special purpose entities”. IFRS 10 changes the definition of control so that the same criteria are applied to all entities to determine control. This
definition is supported by extensive application guidance. The Standard did not have any material impact on the Group’s consolidated financial
statements.
IFRS 12 “Disclosure of Interests in Other Entities” (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013)
applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. It replaces
the disclosure requirements previously found in IAS 28 “Investments in associates”. IFRS 12 requires entities to disclose information that helps
financial statement readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates,
joint arrangements and unconsolidated structured entities. To meet these objectives, the new standard requires disclosures in a number of areas,
including significant judgements and assumptions made in determining whether an entity controls, jointly controls, or significantly influences
its interests in other entities, extended disclosures on share of non-controlling interests in group activities and cash flows, summarised financial
information of subsidiaries with material non-controlling interests, and detailed disclosures of interests in unconsolidated structured entities.
The Standard resulted in additional disclosures in these consolidated financial statements. Refer to Note 32.
IFRS 13 “Fair Value Measurement” (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013) improved
consistency and reduced complexity by providing a revised definition of fair value, and a single source of fair value measurement and disclosure
requirements for use across IFRSs. The Standard did not have any material impact on the Group’s consolidated financial statements.
IAS 27 “Separate Financial Statements” (revised in May 2011 and effective for annual periods beginning on or after 1 January 2013) was
changed and its objective is now to prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and
associates when an entity prepares separate financial statements. The guidance on control and consolidated financial statements was replaced
by IFRS 10 “Consolidated Financial Statements”. The amended standard did not have any material impact on the Group’s consolidated financial
statements.
IAS 28 “Investments in Associates and Joint Ventures” (revised in May 2011 and effective for annual periods beginning on or after 1 January
2013). The amendment of IAS 28 resulted from the Board’s project on joint ventures. When discussing that project, the Board decided to
incorporate the accounting for joint ventures using the equity method into IAS 28 because this method is applicable to both joint ventures and
associates. With this exception, other guidance remained unchanged. The amended standard did not have any material impact on the Group’s
consolidated financial statements.
Amended IAS 19 “Employee Benefits” (issued in June 2011, effective for periods beginning on or after 1 January 2013) makes significant
changes to the recognition and measurement of defined benefit pension expense and termination benefits, and to the disclosures for all
employee benefits. The standard requires recognition of all changes in the net defined benefit liability (asset) when they occur, as follows: (i)
service cost and net interest in profit or loss; and (ii) remeasurements in other comprehensive income. The Standard did not have any impact on
the Group’s consolidated financial statements.
“Disclosures – Offsetting Financial Assets and Financial Liabilities” – Amendments to IFRS 7 (issued in December 2011 and effective for
annual periods beginning on or after 1 January 2013). The amendment requires disclosures that enable users of an entity’s consolidated financial
statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off. The Standard didn’t result in additional
disclosures in these consolidated financial statements.
Improvements to International Financial Reporting Standards (issued in May 2012 and effective for annual periods beginning 1 January
2013). The improvements consist of changes to five standards. IFRS 1 was amended to (i) clarify that an entity that resumes preparing its IFRS
financial statements may either repeatedly apply IFRS 1 or apply all IFRSs retrospectively as if it had never stopped applying them, and (ii) to
add an exemption from applying IAS 23 “Borrowing costs”, retrospectively by first-time adopters. IAS 1 was amended to clarify that explanatory
notes are not required to support the third balance sheet presented at the beginning of the preceding period when it is provided because it
was materially impacted by a retrospective restatement, changes in accounting policies or reclassifications for presentation purposes, while
explanatory notes will be required when an entity voluntarily decides to provide additional comparative statements. IAS 16 was amended to
clarify that servicing equipment that is used for more than one period is classified as property, plant and equipment rather than inventory. IAS 32
was amended to clarify that certain tax consequences of distributions to owners should be accounted for in the income statement as was always
required by IAS 12. IAS 34 was amended to bring its requirements in line with IFRS 8. IAS 34 now requires disclosure of a measure of total assets
and liabilities for an operating segment only if such information is regularly provided to chief operating decision maker and there has been
a material change in those measures since the last annual consolidated financial statements. The amended standards did not have any material
impact on the Group’s consolidated financial statements.
IFRS 11 “Joint Arrangements” (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013) replaces IAS 31
“Interests in Joint Ventures” and SIC-13 “Jointly Controlled Entities—Non-Monetary Contributions by Venturers”. Changes in the definitions
have reduced the number of types of joint arrangements to two: joint operations and joint ventures. The existing policy choice of proportionate
consolidation for jointly controlled entities has been eliminated. Equity accounting is mandatory for participants in joint ventures. The Standard
did not have any material impact on the Group’s consolidated financial statements.
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4. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS (CONTINUE)
5. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUE)
“Transition Guidance Amendments to IFRS 10, IFRS 11 and IFRS 12” (issued in June 2012 and effective for annual periods beginning 1 January
2013). The amendments clarify the transition guidance in IFRS 10 “Consolidated Financial Statements”. Entities adopting IFRS 10 should assess
control at the first day of the annual period in which IFRS 10 is adopted, and if the consolidation conclusion under IFRS 10 differs from IAS 27 and
SIC 12, the immediately preceding comparative period (that is, year 2012) is restated, unless impracticable. The amendments also provide additional
transition relief in IFRS 10, IFRS 11 “Joint Arrangements” and IFRS 12 “Disclosure of Interests in Other Entities”, by limiting the requirement to
provide adjusted comparative information only for the immediately preceding comparative period. Further, the amendments remove the requirement
to present comparative information for disclosures related to unconsolidated structured entities for periods before IFRS 12 is first applied.
The amended standards did not have any material impact on the Group’s consolidated financial statements other than application of the relief from
disclosure of certain comparative information in the notes to the financial statements.
An investment entity will be required to account for its subsidiaries at fair value through profit or loss, and to consolidate only those subsidiaries
that provide services that are related to the entity’s investment activities. IFRS 12 was amended to introduce new disclosures, including any
significant judgements made in determining whether an entity is an investment entity and information about financial or other support to an
unconsolidated subsidiary, whether intended or already provided to the subsidiary. The Group does not expect the amendment to have any impact
on its financial statements.
Other revised standards and interpretations: IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine”, considers when and how to
account for the benefits arising from the stripping activity in mining industry. The interpretation did not have an impact on the Group’s consolidated
financial statements. Amendments to IFRS 1 “First-time adoption of International Financial Reporting Standards – Government Loans”, which were
issued in March 2012 and are effective for annual periods beginning 1 January 2013, give first-time adopters of IFRSs relief from full retrospective
application of accounting requirements for loans from government at below market rates. The amendment is not relevant to the Group.
5. NEW ACCOUNTING PRONOUNCEMENTS
Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2014 or
later and which the Group has not early adopted.
IFRS 9 “Financial Instruments: Classification and Measurement”. Key features of the standard issued in November 2009 and amended in
October 2010, December 2011 and November 2013 are:
›› Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those
to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s
business model for managing its financial instruments and the contractual cash flow characteristics of the instrument.
›› An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity’s business model
is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent payments of principal and interest
only (that is, it has only “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss.
›› All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value
through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and
realised fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains
and losses to profit or loss. This election may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or loss, as
long as they represent a return on investment.
›› Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9.
The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair
value through profit or loss in other comprehensive income.
›› Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an
accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because
the standard currently does not address accounting for macro hedging.
The amendments made to IFRS 9 in November 2013 removed its mandatory effective date, thus making application of the standard voluntary.
The Group does not intend to adopt the existing version of IFRS 9.
Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32 (issued in December 2011 and effective for annual periods beginning on
or after 1 January 2014). The amendment added application guidance to IAS 32 to address inconsistencies identified in applying some of the offsetting
criteria. This includes clarifying the meaning of ‘currently has a legally enforceable right of set-off’ and that some gross settlement systems may be
considered equivalent to net settlement. The Group is considering the implications of the amendment and its impact on the Group.
Amendments to IFRS 10, IFRS 12 and IAS 27 – Investment entities (issued on 31 October 2012 and effective for annual periods beginning
1 January 2014). The amendment introduced a definition of an investment entity as an entity that (i) obtains funds from investors for the purpose
of providing them with investment management services, (ii) commits to its investors that its business purpose is to invest funds solely for capital
appreciation or investment income and (iii) measures and evaluates its investments on a fair value basis.
IFRIC 21 – “Levies” (issued on 20 May 2013 and effective for annual periods beginning 1 January 2014). The interpretation clarifies
the accounting for an obligation to pay a levy that is not income tax. The obligating event that gives rise to a liability is the event identified by
the legislation that triggers the obligation to pay the levy. The fact that an entity is economically compelled to continue operating in a future
period, or prepares its financial statements under the going concern assumption, does not create an obligation. The same recognition principles
apply in interim and annual financial statements. The application of the interpretation to liabilities arising from emissions trading schemes is
optional. The Group does not expect the amendment to have any impact on its financial statements.
Amendments to IAS 36 – “Recoverable amount disclosures for non-financial assets” (issued in May 2013 and effective for annual
periods beginning 1 January 2014; earlier application is permitted if IFRS 13 is applied for the same accounting and comparative period).
The amendments remove the requirement to disclose the recoverable amount when a CGU contains goodwill or indefinite lived intangible assets
but there has been no impairment. The Group is currently assessing the impact of the amendments on the disclosures in its financial statements.
Amendments to IAS 39 – “Novation of Derivatives and Continuation of Hedge Accounting” (issued in June 2013 and effective for annual
periods beginning 1 January 2014).The amendments will allow hedge accounting to continue in a situation where a derivative, which has been
designated as a hedging instrument, is novated (i.e parties have agreed to replace their original counterparty with a new one) to effect clearing
with a central counterparty as a result of laws or regulation, if specific conditions are met. The Group is currently assessing the impact of
the amendments on the disclosures in its financial statements.
Amendments to IAS 19 – “Defined benefit plans: Employee contributions” (issued in November 2013 and effective for annual periods
beginning 1 July 2014). The amendment allows entities to recognise employee contributions as a reduction in the service cost in the period in
which the related employee service is rendered, instead of attributing the contributions to the periods of service, if the amount of the employee
contributions is independent of the number of years of service. The amendment is not expected to have any material impact on the Group’s
financial statements.
Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s financial
statements.
6. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Related parties are defined in IAS 24, Related Party Disclosures. Parties are generally considered to be related if one party has the ability to
control the other party, is under common control, or can exercise significant influence or joint control over the other party in making financial
and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not
merely the legal form. The Group’s immediate parent and ultimate controlling party are disclosed in Note 1.
6.1. Balances and transactions with related parties
Balances with related parties of the Group as at 31 December 2013 and 31 December 2012 consist of the following:
Balances
Nature of relationship
As at 31 December 2013
Accounts receivable
Trade and other accounts payable
Accounts receivable
Loans issued
Advances received
Trade and other accounts payable
Parent company
Other related parties
Associates
and joint ventures
Total
-
2
539
5,708
539
5,710
-
203
-
157
961
553
157
203
961
553
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7. PROPERTY, PLANT AND EQUIPMENT (CONTINUE)
6.1. Balances and transactions with related parties (continue)
Transactions with related parties of the Group for the years ended 31 December 2013 and 31 December 2012 consist of the following:
As at 31 December 2013, bank borrowings are secured on land and buildings and plant and equipment. The value of these items of property, plant
and equipment included above is RR 2,790 (31 December 2012: RR 2,845). See Note 17.
Transactions
Nature of relationship
Year ended 31 December 2013
Sales of vehicles and components
Sale of non-current assets and services
Purchases
Dividends paid
Year ended 31 December 2012
Sales of vehicles and components
Sale of non-current assets and services
Purchases
Capital transaction
Parent company
Other related parties
Associates
and joint ventures
920
931
342
-
207
2,975
18,872
-
207
3,906
19,214
920
247
-
210
195
488
-
210
195
488
247
Total
6.2. Key management compensation
The compensation paid to the nine members of key management (year ended 31 December 2012: nine people) 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. Each
director receives a fee for serving in that capacity and is reimbursed reasonable expenses in conjunction with their duties. No additional fees,
compensation or allowances are paid.
Total key management compensation included in expenses in the consolidated profit or loss for the year ended 31 December 2013 comprises:
›› short-term employee benefits amounting to RR 670 (2012: RR 613); and
›› expenses recognised under equity-settled, share based compensation amounting to RR 8 (2012: RR 16).
8. GOODWILL
Goodwill arose first on the original purchase of the controlling stake in OAO “UAZ” and OAO “ZMZ” and then on the increase of the holding stake
in OAO “UAZ” in 2003 and OAO “ZMZ” in 2004.
OAO “UAZ”
OAO “ZMZ”
Total goodwill
31 December 2013
1,207
277
1,484
31 December 2012
1,207
277
1,484
Impairment tests for goodwill
Management have tested goodwill for impairment at 31 December 2013. Goodwill is allocated to two of the Group’s CGUs: OAO “UAZ” and
OAO “ZMZ”. See details of impairment testing in Note 3.2.
9. DEVELOPMENT COSTS
During the year ended 31 December 2013 nil options were exercised (2012: 150,000 options at an exercise price US$ 3) by members of key
management.
Following an assessment of future economic benefits to the Group for each individual project, as at 31 December 2013, RR 3 of development
costs were written off (31 December 2012: RR 7). Management do not consider that the write-off would be materially different in the event of
applying reasonable changes to the underlying assumptions used in reaching this conclusion.
On 16 May 2013 share option programme for the key management was ceased. All expenses related to share options were recognised
immediately with the corresponding change in equity. The compensation for termination of the option programme amounted to RR 40 and
recognised in labour costs of the reporting period.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and related accumulated depreciation consist of the following:
The Group owns the land on which factories and buildings, comprising the principal manufacturing facilities of the Group, are situated. At
31 December 2013, the cost of the land amounted to RR 678 (2012: RR 689).
As a result of the assessment performed by management, no impairment loss has been identified as at 31 December 2013 (31 December 2012:
nil).
For information on the share based compensation, refer Note 16.
Cost
Additions
Disposals
Transfers
Additions
Disposals
Transfers
Accumulated depreciation
Depreciation expense for year
Disposals
Depreciation expense for year
Disposals
Net book value
Construction in progress consists mainly of equipment. Upon completion, assets are transferred to plant and equipment. During the year ended
31 December 2013, the Group capitalised borrowing costs of RR 36 (2012: RR 80) as part of the cost of the qualifying assets (see Note 2.14).
The annual capitalisation rate was 11.7% (2012: 10.0%).
Land and buildings
Plant and equipment
Other
Construction in progress
Total
7,184
(772)
660
7,072
(1,650)
876
6,298
8,700
(331)
340
8,709
(422)
198
8,485
2,661
(242)
265
2,684
(239)
266
2,711
1,477
897
(19)
(1,265)
1,090
1,725
(985)
(1,340)
490
20,022
897
(1,364)
19,555
1,725
(3,296)
17,984
(1,972)
(174)
77
(2,069)
(172)
104
(2,137)
(3,926)
(422)
140
(4,208)
(383)
116
(4,475)
(1,597)
(284)
142
(1,739)
(384)
202
(1,921)
-
(7,495)
(880)
359
(8,016)
(939)
422
(8,533)
5,003
4,161
4,501
4,010
945
790
1,090
490
11,539
9,451
Cost
Balance at the beginning of the year
Additions
Write-off
Balance at the end of the year
Accumulated amortisation
Amortisation charge
Write-off
Net book value
31 December 2013
31 December 2012
1,479
92
(3)
1,568
1,401
86
(8)
1,479
(1,086)
(121)
(1,207)
(877)
(210)
1
(1,086)
361
393
31 December 2013
26
51
3
65
2
7
96
111
361
31 December 2012
59
67
3
40
2
15
130
77
393
Breakdown of development costs
Development of new off-road vehicle (UAZ Patriot)
Development of Euro-4 engine for UAZ
Development of new light commercial vehicle (UAZ-2360)
Improvement of selected vehicle component parts
Improvement of vehicles and engines to satisfy Euro-2 requirements
Vehicles with ABS
Improvement of vehicles and engines to satisfy Euro-4 requirements
Other
Total development costs
107
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REPORTING
ADDITIONAL
INFORMATION
108
11. Investments in joint ventures and associates (continue)
10. OTHER INTANGIBLE ASSETS
The gain from the subsidiary disposal for RR 922 is recognised within operating income in the profit or loss for the year.
Other intangible assets mainly comprise of exclusive licences, which were provided for a period of 4 to 10 years:
After the recognition of 50%-50% joint venture the Group provided additional cash contribution to the joint venture for RR 136 and non-cash
contribution in the form of debt forgiveness for RR 257.
Cost
Additions
Disposals
Accumulated amortisation
Amortisation charge
Disposals
Net book value
31 December 2013
31 December 2012
559
25
584
573
52
(66)
559
(377)
(40)
(417)
(374)
(64)
61
(377)
167
182
Investments in joint ventures and associates are presented by followings assets:
31 December 2013
12,438
961
887
213
414
34
14,947
31 December 2012
12,597
797
674
45
345
34
14,492
The table below summarises the movements in the carrying amount of the Group’s investment in joint ventures and associates.
Carrying amount at 1 January
Share of profit of joint venture and associates
Unrealised profit from sales to joint venture
Fair value of net assets of joint venture and associate acquired
Cash contribution to joint ventures
Non-cash contribution in joint venture
Dividends received from joint venture
31 December 2013
14,492
574
(197)
100
(22)
14,947
31 December 2012
11,921
1,149
214
951
257
14,492
Sollers-Finance JV
In November 2010, the Group established a joint venture with a bank for the development of leasing services and contributed О “Sollers-Finance”,
a previously wholly owned subsidiary, to the joint venture. During the year ended 31 December 2013 the dividends of RR 22 were received from
the Sollers-Finance JV.
Sollers-Isuzu JV
During 2013 the additional shares issue was performed by the joint venture. In December 2013 the Group paid its contribution amounted to RR 100.
In May 2012 the Group entered to the agreement with intention of partial shares disposal in ZAO Sollers-Isuzu. On 30 August 2012 the deal was
finalised and 16% stake of ZAO Sollers-Isuzu was sold to the other venturer for RR 257 and the Group’s share declined to 50%. The negative net
assets of the subsidiary at the date of disposal amounted to RR 683, including non-controlling interest of RR 232.
The Group recognised the retained investment as 50%-50% joint venture with fair value of RR 214. The portion of the gain related to
the remeasurement of the retained non-controlling investment to fair value:
Fair value of recognised share in joint venture
The Group's retained share of negative carrying value of subsidiary
The Gain on retained non-controlling investment, joint venture
The Group has pledged it’s share in OOO “DC SanYong” as a collateral for working capital facility related to SsangYong business at Mazda-Sollers JV.
Sollers-Bussan JV
By the end of 2011 the Group established 50%-50% joint venture with Japanese Mitsui&Co., Ltd located in Vladivostok, where Toyota vehicles are
produced. During 2012 additional RR 65 were contributed to the JV.
Ford-Sollers JV
In February 2011, the Group announced cancellation of the alliance with FIAT SPA and the signing of Memorandum of understanding to establish
a new joint venture in Russia with Ford. In May 2011 Sollers and Ford signed an Agreement to establish a joint venture for exclusive production
and distribution of Ford vehicles in the Russian Federation.
11. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
Ford-Sollers JV
Mazda-Sollers JV
Sollers-Isuzu JV
Sollers-Bussan JV
Sollers-Finance JV
DaeWon-SeverstalAuto Elabuga
Total
Mazda-Sollers JV
In August 2012 the Group paid its contribution to share capital of joint venture with Mazda Motor Co in amount of RR 750 and finalized
the foundation of 50%-50% joint venture with Mazda Motor Corporation. The production of Mazda SUVs and passenger cars was launched in
September 2012.
214
342
556
On 1 October 2011 the Group completed formation of 50%-50% Ford-Sollers JV and the commencement of the joint venture was announced.
Ford Sollers JV will manufacture a range of Ford passenger cars and light commercial vehicles in the St. Petersburg region and in the Republic
of Tatarstan. The project implies development of large-scale production facilities with a high level of localization as well as maintaining of R&D
activities.
At 31 December 2013 the Ford-Sollers JV has contractual capital expenditure commitments in respect of property, plant and equipment
amounted to RR 12,490 (2012: RR 6,087 million) and operating lease commitments for RR 298 (2012: RR 322).
The financing for the joint ventures Mazda-Sollers, Sollers-Bussan and Ford-Sollers have been agreed and obtained from Vnesheconombank
(further “VEB”). The borrowings are secured by joint ventures’ property, plant and equipment. Additionally the Group together with the coinvestors Mazda Motor Co, Mitsui&Co and Ford, respectively, have pledged 100% interest in the joint ventures to the VEB.
For Joint ventures’ contingencies refer to note 31.
At 31 December 2013 and 2012, the Group held 50% interest in joint ventures Ford-Sollers, Mazda Sollers, Sollers-Isuzu, Sollers-Bussan and
Sollers-Finance and also held 30% interest in OOO DaeWon-SeverstalAuto Elabuga. The summarised financial information of the Joint ventures
and the associates, including full amounts of total assets, liabilities, revenues, operating and net profit/(loss), is as follows:
Joint ventures:
Total at 31 December 2013
Ford-Sollers JV
Mazda-Sollers JV
Sollers-Isuzu JV
Sollers-Bussan JV
Sollers-Finance JV
Ford-Sollers JV
Mazda-Sollers JV
Sollers-Isuzu JV
Sollers-Bussan JV
Sollers-Finance JV
Associates:
Total assets
Total liabilities
Revenue
Operating profit/(loss)
Profit/ (loss)
85,988
64,048
12,276
3,154
4,176
2,334
64,955
56,166
3,731
2,454
520
2,084
55,912
39,302
9,961
1,329
3,749
1,571
35,983
30,934
2,136
1,056
429
1,428
134,248
82,362
39,068
1,987
10,232
599
94,468
90,960
2,625
448
435
2,596
400
1,376
170
425
225
3,507
3,284
133
(16)
(42)
148
1,148
(319)
722
227
336
182
2,298
1,983
95
134
(37)
123
105
120
18
27
(-)
-
(15)
(16)
(15)
(12)
109
MOVING
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BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
111
110
14. TRADE AND OTHER RECEIVABLES (CONTINUE)
12. OTHER NON-CURRENT ASSETS
Advances for construction in progress and equipment
Other non-current assets
Total other non-current assets
The analysis by credit quality of trade receivables outstanding are as follows:
31 December 2013
449
66
515
31 December 2012
675
2
677
31 December 2013
1,655
(120)
1,535
398
398
2,657
(64)
2,593
4,526
31 December 2012
2,067
(111)
1,956
709
709
1,891
(53)
1,838
4,503
13. INVENTORIES
Raw materials
Less: provision
Total raw materials
Work in progress
Less: provision
Total work in progress
Finished products
Less: provision
Total finished products
Total
At 31 December 2013 and 31 December 2012 there were no any pledged inventories.
14. TRADE AND OTHER RECEIVABLES
Trade receivables
Less: provision for impairment
Total trade receivables
Other receivables
Total other receivables
Advances to suppliers, other than for equipment
Total advances to suppliers, other than for equipment
Taxes prepayments
VAT recoverable, net
Other prepayments
Total
31 December 2013
6,045
(39)
6,006
217
(13)
204
357
(3)
354
162
155
13
6,894
31 December 2012
8,608
(60)
8,548
706
(21)
685
432
(9)
423
75
68
17
9,816
At 31 December 2013, trade receivables arising from revenue contracts of RR 2,913 were pledged as a security for a working capital facility
related to SsangYong business (at 31 December 2012: RR 5,021).
Trade receivables are represented by currency as follows:
Currency
Russian Roubles
US Dollars
Total
31 December 2013
6,003
3
6,006
31 December 2012
8,463
85
8,548
31 December 2013
31 December 2012
300
4,733
877
5,910
621
7,444
371
8,436
37
36
9
5
9
96
36
65
10
1
112
39
39
(39)
6,006
60
60
(60)
8,548
Current and not impaired – exposure to
- Group 1 – large corporate clients
- Group 2 – dealers
- Group 3 – other clients
Total current and not impaired
Past due but not impaired
- less than 30 days overdue
- 30 to 90 days overdue
- over 360 days overdue
Total past due but not impaired
Individually determined to be impaired (gross)
- over 360 days overdue
Total individually impaired
Less impairment provision
Total
The Group retains the PTS (vehicle registration certificate representing the certificate of title of a vehicle) as a pledge when other
documents are transferred to the dealer in conjunction with a sale. Management considers that this serves as collateral in relation for
the trade receivables in Group 2 and Group 3. The fair value of the collateral for the past due but not impaired receivables as at 31 December
2013 was RR 96 (31 December 2012: RR 112) and the fair value of the collateral for the individually determined to be impaired receivables
was RR 39 (31 December 2012: RR 60).
Movements in the impairment provision for trade and other receivables are as follows:
31 December 2013
Provision for impairment at start of year
Amounts written off
during the year as uncollectible
Provision for impairment during the year
Provision for impairment at end of year
31 December 2012
Trade receivables
60
Other financial
receivables
21
Advances
to suppliers
9
Trade receivables
151
Other financial
receivables
70
Advances
to suppliers
3
(18)
(3)
39
(8)
13
(6)
3
(71)
(20)
60
(54)
5
21
6
9
15. CASH AND CASH EQUIVALENTS
31 December 2013
1,657
4,363
6,020
Cash on hand and balances with banks
Cash deposits
Total
31 December 2012
1,436
1,124
2,560
Cash and cash equivalents held by the Group earned the following interest rates per annum:
Cash deposits
Total
Cash deposits
Total
<1%
1%-3%
3%-5%
5%-7%
non-interest
bearing
Total
702
702
387
387
503
503
3,860
3,860
568
568
1,657
4,363
6,020
14
157
171
243
243
69
69
898
898
1,179
1,179
1,436
1,124
2,560
MOVING
AHEAD
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
112
15. CASH AND CASH EQUIVALENTS (CONTINUE)
16. SHAREHOLDERS EQUITY (CONTINUE)
The following cash and cash equivalents held by the Group are denominated in foreign currencies:
Share based compensation
On 10 March 2009, the Group granted to members of key management and other employees options to acquire 855,000 of the Group’s ordinary
shares at an exercise price of US$3 that represented the average market share price for the three months preceding the grant date. The market
share price at the grant date was US$3. The vesting period for the options is one year for 285,000 options; two years for 285,000 options and
three years for 285,000 options. These options are exercisable until 1 March 2013 subject to an employee meeting certain conditions, including
remaining in employment in the Group up until the date of vesting.
Currency
US Dollars
Euro
Korean won
Total
31 December 2013
78
5
83
31 December 2012
831
1
6
838
During the year ended 31 December 2012 248,000 options were exercised at an exercise price of US$ 3 by the members of key management and
other employees.
The carrying value of cash and cash equivalents as at 31 December 2013 and 31 December 2012 is approximately equal to their fair value.
The Group holds cash and cash equivalents in the top-20 Russian banks. Credit ratings of the banks where accounts were held as at the year-end
date are set out in the analysis below:
Rating by Fitch
- A-A
- BBB+
- BBB
- BBB- BВBВ+
- BB
- B+
-B
Rating by Moody’s
- B2
Rating by S&P
-B
Other
- Unrated
- Cash on hand
Total
On 16 May 2013 share option programme was ceased. For further details please see Note 6.2.
31 December 2013
31 December 2012
5,326
59
513
16
-
59
100
7
2,138
23
16
24
90
183
13
-
2
1
6,020
4
6
2,560
16. SHAREHOLDERS EQUITY
At 31 December 2013
At 31 December 2012
The Group’s long-term borrowings consisted of bank loans amounted to RUB 5,716 (31 December 2012: RUB 3,742).
The Group’s long-term borrowings are denominated in Russian Roubles at 31 December 2013 and 31 December 2012. The carrying amounts of
long-term borrowings approximates to their fair values as at 31 December 2013 and 31 December 2012.
The Group’s short-term borrowings consisted of the following:
Bank loans
Bonds
Interest payable
Total short-term borrowings
Share capital
530
530
Share premium
4,538
4,480
Additional paid-in capital
1,438
1,438
The total authorised number of ordinary shares is 82,074 thousand (31 December 2012: 82,074 thousand). The nominal value of all shares is
12.5 roubles per share. All issued ordinary shares are fully paid. Each ordinary share carries one vote.
Share premium represents the excess of contributions received over the nominal value of shares issued.
In accordance with Russian legislation, the Group distributes profits as dividends or transfers them to reserves (fund accounts) on the basis of financial
statements prepared in accordance with Russian Accounting Rules. The statutory accounting reports of the Company are the basis for profit distribution
and other appropriations. Russian legislation identifies the basis of distribution as the accumulated profit. For the year ended 31 December 2013, the net
statutory profit for the Company reported in the published annual statutory reporting financial statements was RR 1,786 (2012: net loss RR 2,601) and
the closing balance of the accumulated profit including the current reporting period net statutory profit was RR 2,399 (31 December 2012: RR 2,423).
However, this legislation and other statutory laws and regulations are open to legal interpretation and accordingly management believes at present that
it would not be appropriate to disclose an amount for the distributable reserves in these consolidated financial statements.
By the date of approval of these consolidated financial statements, no dividends were proposed by the Board of Directors for the year ended
31 December 2013. In May 2013 the General Shareholders Meeting declared the dividends per results of the year ended 31 December 2012 totally
amounted to RR 1,800, or 52.52 Roubles per ordinary share. No dividends were declared at the General Shareholders Meetings during the year
ended 31 December 2012.
31 December 2012
3,320
3,185
193
6,698
The Group’s short-term borrowings are denominated in Russian Roubles at 31 December 2013 and 31 December 2012. The carrying amounts
of short-term borrowings approximates to their fair values at 31 December 2013. At 31 December 2012 the fair value of short-term borrowings
amounted to RR 6,737, comprising bonds RR 3,222 and bank loans and interests payable RR 3,513.
Property, plant and equipment of RR 2,790 (31 December 2012: RR 2,845) are pledged as collateral for long-term and short-term borrowings. See
Note 7.
The short-term borrowings from Repurchase agreement for RR 250 are secured by 9.6% shares of the Group’s subsidiary OAO “UAZ”.
18. ADVANCES RECEIVED AND OTHER PAYABLES
Dividends payable
Liabilities for purchased property, plant and equipment
Accrued liabilities and other creditors
Total financial liabilities within other payables
Advances received
Accrued employee benefit costs
Vacation accrual
Bonus accrual
Total advances received and other payables
31 December 2013
56
38
94
188
197
244
214
519
1,362
31 December 2012
17
34
237
288
1,290
300
266
721
2,865
There were no overdue payables as at 31 December 2013, including in respect of trade payables (31 December 2012: nil).
The bonus accrual relates to performance based on productivity of employees at a subsidiary during the year ended 31 December 2013 of RR 519
(31 December 2012: RR 721).
During the year ended 31 December 2013 the Group did not perform any transactions with treasury shares. During the year ended 31 December
2012, the Group disposed of 1,047 thousand of ordinary shares and acquired an additional 248 thousand shares.
31 December 2013
3,730
65
3,795
Certain of the Group’s borrowings are subject to covenant requirements that the Group is required to comply with, or otherwise could result in an
acceleration of the repayment period. See Note 31.
The value of share capital issued and fully paid up consists of the following amounts:
Number of outstanding
ordinary shares (thousands)
34,270
34,270
17. BORROWINGS
113
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REPORTING
ADDITIONAL
INFORMATION
19. TAXES PAYABLE
23. DISTRIBUTION COSTS
31 December 2013
755
183
353
26
36
23
1,376
Value-added tax
Payments to the State Pension Fund and other social taxes
Income tax
Property tax
Personal income tax
Other taxes
Total
31 December 2012
557
156
210
20
15
87
1,045
The Group had no tax liabilities past due at 31 December 2013 or 31 December 2012.
Transportation
Advertising
Labour costs
Check and inspection performed by dealers
Materials
Commission fee
Other
Total
During the year ended 31 December 2013 and 31 December 2012, the following movements in warranty and other provisions were recorded:
Warranty
318
426
(213)
531
459
(358)
632
Tax and other claims
27
68
(22)
73
261
(1)
333
Total
345
494
(235)
604
720
(359)
965
The Group provides a one-year warranty on most UAZ vehicles, except a three-year warranty on the UAZ Patriot; one and two-year warranty
on ZMZ engines; and a three-year warranty period on sport utility vehicles. The Group undertakes to repair or replace items that fail to perform
satisfactorily. A provision has also been recognised for SsangYong vehicles based on expected costs to be incurred that are not covered by
warranties provided by the supplier.
All of the above provisions have been classified as current liabilities as the Group does not have an unconditional right to defer settlement beyond
one year.
Labour costs
Services provided by third parties
Depreciation and amortisation
Rent
Taxes other than income
Business travel
Fire brigade and security costs
Repairs and maintenance
Transportation
Materials
Insurance
Training costs
Movement in the provision for impairment of receivables
Other
Total
Year ended
31 December 2013
51,704
5,595
1,845
1,145
1,028
61,317
Year ended
31 December 2012
55,071
5,841
1,684
1,788
1,165
65,549
22. COST OF SALES
Materials and components
Labour costs
Other production costs
Depreciation and amortisation
Change in finished goods and work in progress
Total
Year ended
31 December 2012
1,415
470
337
113
106
35
75
2,551
Year ended
31 December 2013
2,776
317
157
120
203
150
136
130
17
38
19
30
3
71
4,167
Year ended
31 December 2012
3,058
497
192
228
193
155
144
130
73
72
46
19
172
226
5,205
Year ended
31 December 2013
(557)
(7)
111
70
93
(29)
(204)
(523)
Year ended
31 December 2012
220
(197)
43
36
60
7
(16)
(158)
(5)
Year ended
31 December 2013
1,039
(18)
159
1,180
(36)
1,144
Year ended
31 December 2012
1,574
(369)
(315)
890
(80)
810
25. OTHER OPERATING INCOME – NET
21. SALES
Vehicles
Automotive components
Engines
Services
Other sales
Total
Year ended
31 December 2013
1,284
488
401
63
44
174
100
2,554
24. GENERAL AND ADMINISTRATIVE EXPENSES
20. WARRANTY AND OTHER PROVISIONS
Additional provision
Utilised in the year
Additional provision
Utilised in the year
114
Net (income)/losses on disposals of property, plant, equipment and investments
Accounts payables written-off
Charitable donations
Social expenses
Loss on disposal of materials
Research and development expenses
Government grant amortisation
Other
Total
26. FINANCE COSTS, NET
Year ended
31 December 2013
41,438
5,485
2,401
998
(444)
49,878
Year ended
31 December 2012
40,877
5,501
2,200
884
2,013
51,475
Interest expense, net
Government subsidy of interest expenses
Foreign exchange losses/(gain), net
Total finance costs, net
Less capitalised finance costs
Total finance costs, net
The Group’s capitalised borrowing costs of RR 36 mainly arising on financing attributable to the construction of property, plant and equipment (2012: RR 80).
Interests paid during 2013 and 2012 to State banks were partly compensated under Government Decrees #640 dated 1 August 2011 and #357
dated 6 June 2005. The compensation was recognised within finance costs of the consolidated profit or loss of the reporting periods to match it
with the costs that they are intended to compensate.
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27. INCOME TAX EXPENSE (CONTINUE)
27. INCOME TAX EXPENSE
The Group has not recorded a deferred tax liability in respect of temporary differences associated with investments in subsidiaries and joint
ventures as the Group is able to control the timing of the reversal of these temporary differences and does not intend for them to reverse in
the foreseeable future. Un-remitted earnings from subsidiaries and joint ventures were RR 15,882 at 31 December 2013 (31 December 2012:
RR 13,776), mostly being subject to tax rate on dividends of 0%.
The income tax expense recorded in the consolidated statement of comprehensive income for the year comprises the following:
Year ended
31 December 2013
1,358
(265)
1,093
Current income tax expense
Deferred tax charge
Income tax expense
Year ended
31 December 2012
1,681
22
1,703
28. EARNING PER SHARE
Basic earning per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number of ordinary
shares in issue during the year, excluding treasury shares.
The income tax rate applicable to the majority of the Group’s income is 20% (2012: 20%). A reconciliation between the expected and the actual
taxation charge is provided below:
Theoretical tax charge at statutory rate (2013: 20%; 2012: 20%)
Theoretical tax charge/(benefit) at different statutory rate (2013: 16%; 2012: 16%)
Tax effect of items which are not deductible or assessable for taxation purposes:
- Non-deductible expenses/(income) at 20%
- Non-deductible expenses at 16%
Income tax expense
Year ended
31 December 2013
4,671
925
9
Year ended
31 December 2012
7,584
1,480
36
158
1
1,093
50
137
1,703
Differences between IFRS and statutory taxation regulations in Russia give rise to temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these temporary differences is detailed
below and is recorded at the rate of 20% (31 December 2012: 20%)
The recognised deferred tax asset represents income taxes recoverable through future deductions from taxable profits and is recorded on
the balance sheet. Deferred income tax assets are recorded to the extent that realisation of the related tax benefit is probable. The future taxable
profits and the amount of tax benefits that are probable in the future are based on the medium term business plan prepared by management
and extrapolated results thereafter. The business plan is based on management’s expectations that are believed to be reasonable under
the circumstances.
In the context of the Group’s current structure, tax losses and current tax assets of the different companies may not be set off against current
tax liabilities and taxable profits of other companies and, accordingly, taxes may accrue even where there is a net consolidated tax loss. Deferred
tax assets may be realised in different periods than the deferred tax liabilities may be settled. Management believes that there will be sufficient
taxable profits available at the time the temporary differences reverse to utilise the deferred tax assets. See Note 3.3.
The recognised tax losses carried forward generally expire in the period to 2023, being ten years after the end of the fiscal period when the losses
were generated.
Tax effects of deductible temporary differences:
Losses carried forward
Accounts payable and provisions
Taxes payable
Inventories
Total
Tax effects of taxable temporary differences:
Property, plant and equipment
Accounts receivable
Equity investments
Total
Recognised deferred tax asset, net
Recognised deferred tax liability, net
Total net deferred tax assets/(liabilities)
1 January 2012
Movement
in the year ended
31 December 2012
31 December 2012
Movement
in the year ended
31 December 2013
31 December 2013
1,243
262
159
1,099
2,763
(1,182)
(38)
(85)
(21)
(1,326)
61
224
74
1,078
1,437
60
106
(74)
(347)
(255)
121
330
731
1,182
(1,027)
(1,332)
(738)
(3,097)
874
(1,208)
(334)
57
287
738
1,082
(598)
354
(244)
(970)
(1,045)
(2,015)
276
(854)
(578)
114
401
515
(80)
340
260
(856)
(644)
(1,500)
196
(514)
(318)
Basic earnings per share (in RR per share)
Diluted earnings per share (in RR per share)
Profit attributable to equity holders of the Company
Basic weighted average number of shares outstanding (thousands)
– Adjustment for share options (thousands)
Diluted weighted average number of shares outstanding (thousands)
Year ended
31 December 2013
105.78
105.75
3,625
34,270
11
34,281
Year ended
31 December 2012
171.1
170.5
5,843
34,152
123
34,275
29. SEGMENT INFORMATION
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group which are regularly reviewed
by the ‘chief operating decision maker’ in order to allocate resources to segments and to assess their performance. The Group’s operating
segments are reported based on the financial information provided to the Group’s Chief Executive Officer and that are used to make strategic
decisions.
Since 2011 the Group restructured its automotive and engine segments after OAO UAZ has become the major customer of OAO ZMZ. The sales
of engine segment became immaterial in terms of segment reporting and are no longer disclosed separately. As at 31 December 2013 the Group
activities are considered as one reporting segment: vehicles.
The Group’s production facilities are wholly located within the Russian Federation, and almost all sales are domestic.
The Chief Executive Officer reviews financial information prepared on the basis of Russian accounting standards adjusted to meet
the requirements of internal reporting. Such financial information differs in certain aspects from International Financial Reporting Standards,
including in relation to inventory provisions; receivables provisions and other adjustments.
Performance is evaluated on the basis of operating profit or loss. Accordingly, foreign currency gains/ losses, interest income/ expenses and
income tax charges are excluded. No balance sheet information is regularly reviewed and accordingly no information on assets or liabilities is
included as part of the segment information presented.
Revenues from external customers are presented in Note 21. Management considers that across the range of vehicles and models produced,
these are considered as similar products. During the year ended 31 December 2013 and 31 December 2012 the Group did not have transactions
with a single external customer that amounted to 10% or more of the Group’s revenues.
30. FINANCIAL RISK MANAGEMENT
30.1. Financial risk factors
The risk management function within the Group is carried out in respect of financial risks (market, currency, price, interest rate, credit and
liquidity), operational risks and legal risks. The primary objectives of the financial risk management function are to establish risk limits, and
then ensure that exposure to risks stays within these limits. The operational and legal risk management functions are intended to ensure proper
functioning of internal policies and procedures to minimise operational and legal risks.
(a) Market risk
During the year ended 31 December 2013 movement of RR 5 (31 December 2012: RR 222) was due to disposal of subsidiaries.
The Group takes on exposure to market risks. Market risks arise from open positions in (a) foreign currencies, (b) interest bearing assets and
liabilities and (c) equity investments, all of 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 daily basis. However, the use of this approach does not prevent losses outside of these limits in
the event of more significant market movements.
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30. FINANCIAL RISK MANAGEMENT (CONTINUE)
30. Financial risk management (continue)
30.1. Financial risk factors (continue)
(i) Currency risk
The Group is exposed to currency risk from changes in the exchange rate of following currencies: Euro and US Dollars. The risks arise on purchase
agreements for delivery of major production components denominated in foreign currencies. Management believes that the nature of its business
enables the Group to offset currency risk by changing related Rouble denominated retail prices.
31 December 2013
Fixed interest rates
Total
The Group did not expose to currency risk arising on open loan positions denominated in Euros and US Dollars.
The positions are monitored monthly. The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31 December 2013:
Monetary financial assets
US Dollars
Euros
Total foreign currencies
Russian Roubles
Total
Cash and cash
equivalents
78
5
83
5,937
6,020
Accounts receivable
3
3
6,167
6,170
Monetary financial liabilities
Accounts payable
(874)
(116)
(990)
(9,313)
(10,303)
Bonds
and borrowings
(9,511)
(9,511)
Net balance sheet
position
(793)
(111)
(904)
(6,720)
(7,624)
Monetary financial assets
Cash and cash
equivalents
831
1
6
838
1,722
2,560
Accounts receivable
85
85
8,711
8,796
Monetary financial liabilities
Accounts payable
(6,389)
(191)
(61)
(6,641)
(4,101)
(10,742)
Bonds
and borrowings
(10,440)
(10,440)
Net balance sheet
position
(5,473)
(190)
(55)
(5,718)
(4,108)
(9,826)
The above analysis includes only monetary assets and liabilities. The Group does not hold any currency derivatives. Investments in equities
and non-monetary assets are not considered to give rise to any material currency risk.
From 3 to 12 months
More than 1 year
More than 5 years
Total
130
130
3,600
3,600
5,716
5,716
-
9,446
9,446
Demand and less
than 3 month
From 3 to 12 months
More than 1 year
More than 5 years
Total
800
800
5,135
570
5,705
3,742
3,742
-
9,677
570
10,247
At 31 December 2013, if interest rates at that date had been 200 basis points lower (31 December 2012: 200 basis points lower) with all other
variables held constant, the interest expense for the year would have been RR 196 lower (2012: RR 270 lower). If interest rates at that date had
been 100 basis points higher (31 December 2012: 100 basis points higher) with all over variables held constant, the interest expense for the year
would have been RR 98 higher (31 December 2012: RR 135 higher).
In % p.a.
Assets
Liabilities
Borrowings
2013
2012
0%-7.4%
0%-6.4%
8.6%-12%
7.5%-12.5%, CB RF refinancing rate + 4%
(b) Credit risk
The Group takes on exposure to credit risk, which is the risk that one party to a financial instrument will cause a financial loss for the other
party by failing to discharge an obligation. Exposure to credit risk arises as a result of the Group’s sales of products on credit terms and other
transactions with counterparties giving rise to financial assets.
The Group’s maximum exposure to credit risk by class of assets is as follows:
Management monitors exchange rates and market forecasts on foreign exchange rates regularly as well as prepares budgets for long-term,
medium-term and short-term periods.
The following table presents sensitivities of profit and loss and equity to reasonably possible changes in exchange rates applied at the reporting
date relative to the Group’s functional currency, with all other variables held constant:
Impact on profit and loss and on equity of:
US Dollar strengthening by 10% (10% for 2012)
US Dollar weakening by 10% (10% for 2012)
Euro strengthening by 10% (10% for 2012)
Euro weakening by 10% (10% for 2012)
Korean Won strengthening by 10% (10% for 2012)
Korean Won weakening by 10% (10% for 2012)
31 December 2012
Fixed interest rates
EURIBOR based interest rates
CB RF refinancing rate based
Total
Demand and less
than 3 month
The Group monitors interest rates for its financial instruments. The table below summarises interest rates based on reports reviewed by key
management personnel:
The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31 December 2012:
US Dollars
Euros
Korean Won
Total foreign currencies
Russian Roubles
Total
118
2013
2012
(79)
79
(11)
11
-
(547)
547
(19)
19
(5)
5
Accounts receivable, including long-term accounts receivable
Other receivables
Total on-balance sheet exposure
Financial guarantees, Note 31
Total maximum exposure to credit risk
31 December 2013
6,020
6,072
68
30
12,190
5,404
17,594
31 December 2012
2,560
8,548
203
45
11,356
11,356
All of the financial assets of the Group, except for RR 20 (31 December 2012: RR 20) in shares, categorised as available for sale, are loans and receivables.
The process of management of credit risk includes assessment of credit reliability of the counterparties and reviewing payments received. All
the receivables from the Group’s dealers are secured through the Group retaining the PTS of vehicles dispatched until payment has been made.
The exposure was calculated only for monetary assets and liabilities denominated in currencies other than the functional currency
of the respective entity of the Group.
Management reviews the ageing analysis of outstanding trade receivables and follows up on past due balances. Management therefore considers
it appropriate to provide ageing and other information about credit risk as disclosed in Note 14.
(ii) Price risk
The credit quality of each new customer is analysed before the Group enters into contractual agreements. The credit quality of customers is
assessed taking into account their financial position and past experience.
The Group is not exposed to equity securities price risk because it does not hold a material portfolio of equity securities.
(iii) Interest rate risk
Although the collection of receivables could be influenced by economic factors, management believes that there is no significant risk of loss to
the Group beyond the provisions already recorded.
The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows.
The table below summarises the Group’s exposure to interest rate risks. The table below presents the Group’s financial liabilities at their carrying
amounts, categorised by the earlier of contractual interest repricing or maturity dates.
The Group’s cash and cash equivalents are held with over 17 banks (31 December 2012: 18 banks) thus there is no significant exposure of
the Group to a concentration of credit risk. Management monitor Moody’s, Fitch and S&P ratings of the banks used to manage the level of credit
risk that the Group is exposed to. Management considers that the credit risk associated with these banks is negligible.
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30. Financial risk management (continue)
30. FINANCIAL RISK MANAGEMENT (CONTINUE)
Credit risks concentration
The Group did not have any derivative financial instruments issued/held during the year ended 31 December 2013 or the year ended 31 December
2012.
No single debtor of the Group accounts for more than 2.1% (31 December 2012: 4.1%) of the trade accounts receivable of the Group. However,
the majority of the Group’s trade receivables represent dealers who sell the Group’s vehicles to consumers, and therefore are exposed in similar
ways to reductions in the demand from consumers for new vehicle sales, and their ability to obtain access to credit in the financial markets in
order to finance their businesses. As the Group maintains the PTS registration certificates to each vehicle and has insurance arrangements
in place covering the vehicles held by the dealers, this mitigates the potential exposure of the Group in the event that a number of dealers are
impacted in similar ways and are not able to repay amounts owed.
Management does not consider any requirement to enter into hedging arrangements in relation to the credit risks to which the Group is exposed.
In the year ended 31 December 2013 SsangYong distributor issued a financial guarantee for working capital facility at its joint venture operations
related to SsangYong business in amount of RR 5,404 (Note 31).
30.2. Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns
for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to
maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue
new shares or sell assets to reduce debt.
(c) Liquidity risk
Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. The ratio is calculated as net debt divided
by a sum of total equity and net debt. The Group considers total capital under management at 31 December 2013 to be RR 24,267 (31 December
2012: RR 27,760).
Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
The Group manages liquidity risk with the objective of ensuring that funds will be available at all times for all cash flow obligations as they
become due by preparing long-term, medium-term and short-term budgets, continuously monitoring forecast and actual cash flows.
The gearing ratios at 31 December 2013 and 31 December 2012 were as follows:
The Group monitors the range of financial ratios (net debt/EBITDA, EBIT/Interest expense) in order to ensure that the Group maintains sufficient liquidity
in order to meet its obligations as they fall due. Management review the targeted ratios in order to ensure that targets are in line with the market and take
actions to ensure that the Group is able to maintain sufficient liquid resources to ensure that the Group continues to meet its liabilities as they fall due.
Management monitors compliance with covenant requirements on a monthly basis, or more frequently as appropriate. A schedule of covenant
requirements that the Group is subject to is maintained by the Head of Treasury, and management are proactive to obtain revised agreements
or waivers to the extent that requirements would otherwise not be achieved.
Management considers the targeted ratios sustainable for the foreseeable future. Management believes that the Group has access to additional
credit facilities if required.
The analysis below represents management expectations of repayment schedule of monetary assets and liabilities of the Group as of
31 December 2013 and 31 December 2012. The table below is based on the earliest possible repayment dates and on nominal cash flows including
future interest payments. Foreign currency cash flows are translated using spot exchange rates as of 31 December 2013 and 31 December 2012.
31 December 2013
Total monetary financial assets
Trade receivables
Other receivables
Total monetary financial liabilities
Loans and bonds
Trade payables
Other payables
Future interest payments
Net monetary financial assets / (liabilities)
at 31 December 2013
31 December 2012
Total monetary financial assets
Trade receivables
Other receivables
Total monetary financial liabilities
Loans and bonds
Trade payables
Other payables
Future interest payments
Net monetary financial liabilities at 31 December 2012
Demand and less
than 3 month
From 3 to 12 months
More than 1 year
More than 5 years
Total
12,127
6,020
6,009
68
30
(10,423)
(195)
(10,040)
(188)
(237)
(3,675)
(3,600)
(75)
(642)
63
63
(5,716)
(5,716)
(322)
-
12,190
6,020
6,072
68
30
(19,814)
(9,511)
(10,115)
(188)
(1,201)
1,467
(4,317)
(5,975)
-
(8,825)
11,356
2,560
8,548
45
203
(11,706)
(993)
(10,425)
(288)
(270)
(620)
(5,731)
(5,705)
(26)
(536)
(6,267)
(3,745)
(3,742)
(3)
(357)
(4,102)
-
11,356
2,560
8,548
45
203
(21,182)
(10,440)
(10,454)
(288)
(1,163)
(10,989)
Long-term borrowings
Short-term borrowings
Less: cash and cash equivalents
Net debt
Equity
Total net debt and equity
Gearing ratio
31 December 2013
5,716
3,795
(6,020)
3,491
20,776
24,267
14%
31 December 2012
3,742
6,698
(2,560)
7,880
19,880
27,760
28%
Management constantly monitor profitability ratios, market share price and debt/capitalisation ratio. The level of dividends is also monitored by
the Board of Directors of the Group.
Fair value of financial instruments
Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted)
in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for
the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations
not based on observable market data (that is, unobservable inputs). Management applies judgement in categorising financial instruments
using the fair value hierarchy. If a fair value measurement uses observable inputs that require significant adjustment, that measurement
is a Level 3 measurement. The significance of a valuation input is assessed against the fair value measurement in its entirety.
The estimated fair values of financial instruments have been determined by the Group using available market information, where it exists, and
appropriate valuation methodologies. However, judgement is necessarily required to interpret market data to determine the estimated fair value.
The Russian Federation continues to display some characteristics of an emerging market and economic conditions continue to limit the volume
of activity in the financial markets. Market quotations may be outdated or reflect distress sale transactions and therefore not represent fair
values of financial instruments. Management has used all available market information in estimating the fair value of financial instruments.
The fair value of long-term and short-term borrowings is disclosed in Note 17. The carrying value of other financial instruments approximates
to their fair value. Level three measurements were applied.
31. CONTINGENCIES, COMMITMENTS AND OPERATING RISKS
Legal proceedings. From time to time and in the normal course of business, claims against the Group may be received. On the basis both of its
own estimates and external and internal professional advice, management is of the opinion that no material losses will be incurred in respect
of claims.
Tax legislation. Russian tax and customs legislation is subject to varying interpretations, and changes, which can occur frequently.
Management’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant
authorities.
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31. Contingencies, commitments and operating risks (continue)
The Russian tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments, and it is possible
that transactions and activities that have not been challenged in the past may be challenged. The Supreme Arbitration Court issued guidance
to lower courts on reviewing tax cases providing a systemic roadmap for anti-avoidance claims, and it is possible that this will significantly
increase the level and frequency of tax authority’s scrutiny.
As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect
of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.
Different interpretations and applications of the Russian Tax Code are possible. For example, in relation to Russian taxpayers where outstanding
loans are controlled by a foreign company owning directly or indirectly more than 20% of the charter capital of the Russian entity, thin
capitalisation limits could be applied to the respective loan interest under certain circumstances even where loans are with other subsidiaries
or Russian banks for the purpose of financing Russian business activities. As Russian tax legislation does not provide definitive guidance
in certain areas, other tax matters including assessment of tax bases could also have different interpretations. Nonetheless management
believes that its interpretation of the relevant legislation is appropriate and the Group’s tax, currency legislation and customs positions will be
sustained.
32. PRINCIPAL SUBSIDIARIES
The principal subsidiaries consolidated within the Group and the degree of control exercised by the Group are as follows:
Entity
OOO “DC SanYong”
OOO “Torgoviy dom Sollers”
OAO “Zavolzhskiy Motor Works” (further “ZMZ”)
OAO “Ulyanovsky Avtomobilny Zavod” (further “UAZ”)
OOO “Sollers-Dal’niy Vostok”
OOO DC UAZ
Activity
Auto trading
Auto components trading
Manufacture and sale of engines for passenger
automobiles, trucks and buses
Manufacture and sale of passenger automobiles,
light trucks and minibuses
Vehicle production
Auto trading
31 December 2013
31 December 2012
% of effective interest
(total share capital)
100
100
% of effective interest
(total share capital)
100
100
68
64
79
100
100
66
100
100
The table presents the Group’s effective interest in total share capital comprising of ordinary shares and preference shares.
Amended Russian transfer pricing legislation took effect from 1 January 2012. The new transfer pricing rules appear to be more technically
elaborate and, to a certain extent, better aligned with the international transfer pricing principles developed by the Organisation for Economic
Cooperation and Development (OECD). The new legislation provides the possibility for tax authorities to make transfer pricing adjustments and
impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with
unrelated parties), provided that the transaction price is not arm’s length. Management has implemented internal controls to be in compliance
with the new transfer pricing legislation and do not anticipate any tax exposures will arise in practice.
Russian transfer pricing legislation is also applicable to all the Joint ventures in which the Group participates. Management of respective
companies has also implemented internal controls to be in compliance with the new transfer pricing regulations and do not anticipate any
tax exposures will arise in practice. The impact of any such exposure cannot be reliably estimated but may have a material effect on the joint
ventures’ financial results.
During the year ended 31 December 2013, as part of an internal Group reorganisation, the Group’s effective interest in OAO “Zavolzhskiy Motor
Works” was increased in comparison with prior year although the Group retained a majority effective interest and there were no changes
in voting rights. As a result of this reorganisation, an amount of RR 774 is recognised in the Statement of Changes in Equity.
During the year ended 31 December 2012, as part of an internal Group reorganisation, the Group’s effective interest in OAO “Zavolzhskiy Motor
Works” was reduced although the Group retained a majority effective interest and there were no changes in voting rights. As a result of this
reorganisation, an amount of RR 595 is recognised in the Statement of Changes in Equity.
At 31 December 2013 and 2012 the Group has two subsidiaries with non-controlling interests that are material:
31 December 2013
Capital commitments. Company’s commitments totalled RR 1,694 at 31 December 2013 (31 December 2012: RR 185) including contractual
obligations to purchase, construct or develop property, plant and equipment.
Guarantees. Guarantees are irrevocable assurance that the Group will make payments in the event that another party cannot meet
its obligations. SsangYong distributor has issued a financial guarantee for working capital facility at its joint venture operations related
to SsangYong business in amount of RR 5,404.
ZMZ
UAZ
Total
Carrying amount
3,320
1,763
5,083
31 December 2012
The non-controlling
interest’s share
32%
21%
The table below summarises the movements in the carrying amount of the non-controlling interest in the Group’s subsidiaries:
Covenants. For certain borrowing agreements, the Group is subject to covenant requirements. Breaches of these requirements could give
a lender the right to accelerate the repayment period of the borrowings and demand immediate repayment.
Management have validated that the Group was in full compliance with all covenants attached to contracts entered into, including borrowing
agreements with lenders, as at 31 December 2013 (31 December 2012: no exceptions).
As at the date of approval of these consolidated financial statements, management considers that the Group is in full compliance
with all covenant requirements.
Environmental matters. Environmental regulation in the Russian Federation is evolving and the enforcement posture of Government authorities
is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are
determined, they are recognised immediately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litigation
or legislation, cannot be estimated but could be material. In the current climate under existing legislation, management believes that there
are no significant liabilities for environmental damage.
ZMZ
2,889
(242)
983
3,630
(60)
(250)
3,320
Carrying amount at 1 January 2012
Non-controlling interest in current year result
Dilution factor effect
Carrying amount at 31 December 2012
Non-controlling interest in current year result
Dilution factor effect
Decrease of non-controlling interest due purchase by the Group
Carrying amount at 31 December 2013
UAZ
3,527
273
(388)
3,412
13
(524)
(1,138)
1,763
In November 2013 the Group bought-out 13% of UAZ shares from the State for RR 900. The Group’s result amounted to RR 238 was recognised in
equity.
The summarised financial information of the Group’s subsidiaries with significant non-controlling interest, including full amounts of total assets,
liabilities, revenues and profit/(loss), is as follows:
ZMZ
UAZ
ZMZ
UAZ
The non-controlling
interest’s share
36%
34%
Carrying amount
3,630
3,412
7,042
Total assets
Total liabilities
Revenue
Profit/ (loss)
Net cash flows
11,908
23,483
(1,564)
(14,892)
6,583
28,304
(176)
38
(170)
1,477
12,381
24,299
(2,303)
(14,198)
7,508
31,530
(889)
807
308
(109)
123
MOVING
AHEAD
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
Glossary
Corporate Information
and Key Contacts
AEB
Association of European Businesses
LDT
Light duty truck
Cataphoresis painting process
A process based on electro-chemical technology
MDT
Medium duty truck
C segment
Medium cars (according to European Commission Classification)
MPV
Multi-purpose vehicle
CDV
Car-derived van
OEM (original equipment manufacturer)
In this report, automotive manufacturer
CKD (Completely Knocked Down)
Fully disassembled unit that is required to be assembled by
the producer locally (See also SKD)
Payload
Carrying capacity of a vehicle, usually measured by weight
Crossover
See CUV
CV
Commercial vehicle with a gross weight of up to 6 tonnes
CUV
Crossover utility vehicle. A vehicle built on a car platform with
features of a sport utility vehicle (SUV) and a passenger cars (PC)
D segment
Large cars (according to European Commission Classification)
F+S
F segment luxury cars and S segment sports coupes (according
to European Commission Classification)
GVW
Gross vehicle weight
HDT
Heavy duty truck
LCV
Light commercial vehicle
MOVING AHEAD //
PC
Passenger car
Retail sales
Sales of independent dealers to customers (also see wholesales)
SKD (Semi Knocked Down)
Partially disassembled unit that is required to be assembled
by the producer locally (See CKD)
SUV
Sport utility vehicle
SYNC
Factory-installed, integrated in-vehicle communications and
entertainment system that allows users to make hands-free
telephone calls, control music and perform other functions
with the use of voice commands
Registered Office:
SOLLERS OJSC
10 Testovskaya Street
Moscow International Business Centre
Northern Tower, Moscow City
Moscow, 123317, Russia
Tel.: +7 (495) 228 3045
Fax: +7 (495) 228 3044
Website: www.sollers-auto.com
Investor Relations Contact:
Head of Corporate Reporting and Investor Relations Department
Elena Nishanova
ir@sollers-auto.com
Tel: +7 (495) 228 30 45
Fax: +7 (495) 228 30 44 (please add: “Attn: Investor Relations”)
Media Contact:
Head of Public Relations Department
Elena Tarasenko
pr@sollers-auto.com
Tel: +7 (495) 228 30 45
Fax: +7 (495) 228 30 44 (please mark: “Attn: Public Relations”)
UAZ
Ulyanovsky Avtomobilny Zavod (Ulyanovsk Automobile Plant)
Wholesales
Sales of SOLLERS’ distributors to independent dealers (also see
retail sales)
124
125
Annual Report 2013
The use of the FSC logo indicates that this
Report was printed on paper that comes
from responsibly managed forests

Annual Report 2013

Transcription

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