ANNUAL REPORT 2015 - Sovcomflot

ANNUAL REPORT 2015

ANNUAL REPORT 2015

PAO «SOVCOMFLOT»

4 SovcomflotAnnual Report 2015

SCF GROUP iS The LArgeST ShiPPing COMPAny in ruSSiA And One OF The wOrLd LeAderS in energy shipping

5Annual Report 2015Sovcomflot

Key events and achievements of 2015

Statement from the Chairman of the Board of Directors

Statement from the President & Chief Executive Officer

About SCF Group

Operating results

Corporate governance

Sustainable development

Appendices

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62

76

Contents

6 Annual Report 2015 Sovcomflot


KEy EvENTS ANd AChiEvEmENTS OF 2015January

• RoyalDutchShell,chartererofthenewLNGcarrierSCF Melampus,completedavettinginspectionofthevessel.HerfirstdestinationbacametheLNGplantatBonnyIsland,Nigeria

February

• PAOSovcomflotlauncheditsnewwebsiteinRussianandEnglish.Specialattentionwaspaidtoinformationdisclo-sureforinvestors

March

• ThekeelwaslaidforthefirstArcticLNGcarrierorderedbySCFGroup,toservetheYamalLNGproject

• Grand Elena,anice-classLNGcarrier,completedher100thvoyagetransportinggastoJapanaspartoftheSakhalin-2project

• SCFGroupwasawarded«DealoftheYear»bytheinternationalshipfinancepublicationMarineMoneyfortheprojectfinancingoftwonewLNGcarriers,SCF MelampusandSCF Mitre.

April

• AnamingceremonywasheldforSCF Mitre,thefourthvesselinaseriesofstate-of-the-artAtlanticmaxLNGcar-riersorderedbySCFGroup.Thevesselisoperatedunderalong-termchartercontractwithRoyalDutchShell.

• AsteelcuttingceremonywasheldforthenewArcticshuttletankerofrein-forcediceclassArc-7(project42КArcticShuttleTanker).SheisthefirstintheseriesofthreevesselsorderedbySCFGroupunderanagreementforoiltrans-portationfromtheNovyPortfield.



May

• AcooperationagreementwassignedwithAdmiralNevelskyStateMaritimeUniversityinVladivostok,anewlevelofthelong-establishedpartnershipbetweenSovcomflotandtheuniversity

July

• SCFGroupwasshortlistedamongthefinalistsoftheLloyd`sListGlobalAwardsforDealoftheYear

September

• SCFGroup`s14thannualconferenceofbusinesspartnerswasheldinSaintPetersburg.Anewattendancerecordwasset:theconferencebroughttogetherover200ofSCF`spartnersandcustomers

• The400thcargoofcrudeoilwasdeliv-eredtoJapansincethebeginningofyear-roundshipmentsfromSakhalinIslandin2008

October

• SCFGroupwasnominatedafinalistinthePlattsGlobalEnergyAwards2015,intheMidstreamIndustryLeadershipcategory

December

• A14-yearUSD340millioncreditfacilityagreementwassignedwithSberbankCIB.Thedealwillfinancethedevelop-mentofinfrastructureformaritimetransportationofoilfromtheNovyPortfieldontheYamalPeninsula

• Akeel-layingceremonywasheldforthenewicebreakingplatformsupplyvessel(iceclassIce-15)orderedbySCFGrouptoservetheSakhalin-2projectintheOkhotskSea

• AcooperationagreementwassignedwithUnitedShipbuildingCorporation.TheagreementprovidesforplacementofordersfortheconstructionofaseriesofAframaxtankersmeetingthehighestenvironmentalstandards

• SCFGrouptoppedthe2015rankingofRussia`sBestMarineSeismicContrac-tors,basedonasurveyofmajorRussianandforeigncompaniesoperatingontheRussianshelf


statement from the chairman of the Board of directors

mESSAGE FROm ThE ChAiRmAN OF ThE BOARd OF diRECTORS

Inthereportingperiod,theSCFGroupachievedparticularlyhighoperatingandfinancialresults.Projectedbudgetfigureswereexceededinallrespects,allowingthecompanytocarryoutthetasksenvisagedfor2015bytheDevelopmentStrategyintheirentirety.Itisparticularlynoteworthythatthecom-panywasabletoachievesuchsuccessagainstabackgroundoftheincreasingimpactoffinancialimbalancesandtightercreditavailabilityonglobalfinancesandtrade.

Thecompany’ssuccessfuldevelopmentin2015wasmainlyduetotheconsistentimplementationofalong-termstrategythatisfocusedonincreasingtheparticipationofourfleetinhighlyprofitableindustrialmarketsegments.Iamreferringfirsttothedevelopmentofoffshoreoil-and-gasproductionprojectsandthetransportationofliquefiednaturalgasbyseaformajoroilandgascompanies,bothinRussiaandabroad.TheGroup’seffectiveuseofpositivedevelopmentdynamicsinthecurrenttankermarketenabledittonotonlyimproveitsoperationalperformance,butalsotostrengthenitsleadingpositionamongsttheworld’slargesttankerfleetownersandoperators.

AnintegralpartoftheGroup’sstrategyfocusesonintroducinginnovativetechnologiesintheformationandoperationofitsfleet,inordertoexpandtherangeandimprovethequalityofservicesprovidedtocustomers,aswellastoensuretheefficiencyandsafetyofmaritimetransport.Inthereportingperiod,thenumberofnewvessels,incorporatingthelatesttechnology,inthecompany’sfleetincreasedagain.AllthevesselscommissionedandbuiltfortheGroupweredesignedinaccordancewiththebestinternationalstandardsforenergysavingandenvironmentalprotection.

IshouldliketomakespecialmentionoftheSCFGroup’scontinuingeffortstodevelopmutuallybeneficialcoopera-tionwithRussianshipbuildingenterprises.ThecompanyhashistoricallybeenandremainsoneofthelargestcommercialshipbuildingcustomersinRussia,andcollaboratesactivelywithallmajorindustrialpartners.TheBoardofDirectorshasnodoubtthatthecompany’sfar-reachingexpertiseandknowledge,especiallyinthefieldoforganisingthecon-structionandsubsequentoperationofhigh-techvesselsforoil-and-gasproductiononthecontinentalshelfandunderextremehigh-latitudeconditions,willbeusedtothefullextentforfurtherdevelopmentofcommercialshipbuildingintheRussianFederation.

In2015,theGroupcontinuedtopayspecialattentiontosup-portingnationalmaritimeeducationandindustrialresearch.GiventhatRussiaisoneoftheleadingmaritimenations,itisvitalforourcountrytopromotehigh-qualityeducationformarineengineersthatreflectsthecurrentlevelsofmarinetechnologyandthegrowingdemandsoftheinternationalmarket.Therefore,theGroupcontinuestoprioritiseitspar-ticipationinimprovingtheleveloftrainingandeducationforfutureprofessionalsspecialisingindifferentmaritimefields.

Iwishtoexpressmyappreciationtoallourcustomers,part-nersandemployeesfortheirexceptionalcontributiontothesuccessfuldevelopmentofSCFGroup.

Ilya Klebanov ChairmanoftheBoardofDirectorsofPAOSovcomflot

2015 wAS ONE OF ThE mOST SUCCESSFUL yEARS iN ThE hiSTORy OF SCF GROUP


statement from the President & chief executive officer

mESSAGE FROm ThE PRESidENT & ChiEF ExECUTivE OFFiCER

Afteralong,almostsix-yeardownturninthetankermarket,therewasanoticeableupswingintheeconomicconditionsduring2015.Spotratesincreased,underabalancedcondi-tionofsupplyanddemandfortonnage,helpedbyaglobalslowdownintankerfleetrenewal,decliningcrudeoilprices,revitalisedglobalcommerceinhydrocarbonsandtheforma-tionofcrudeoilandpetroleumproductsreserves,aswellasreducedbunkerfuelprices.

Operatingwithoneofthelargestandmostmoderntankerfleetsintheworld,SCFGroupwasabletotakefulladvan-tageofthepositivechangesintheprevailingmarketcondi-tions.Abalancedfreightpolicy,coordinatedworkbetweenthein-houseanalyticalandcommercialteams,coupledwithhigh-qualitytechnicalmanagementallowedtheGrouptoachieveresultssignificantlyexceedingbudgetarytargetsandtheresultsofpreviousyears.Thus,thenetrevenue(timecharterequivalent)in2015amountedtoUSD1.240billion(anincreaseof18.8%),EBITDAwasUSD742.6million(anincreaseof38%),whilenetprofitincreased4.2timesincom-parisonwith2014andamountedtoUSD354.5million.

Inthereportingperiod,theGroupcontinuedtoimplementitsdevelopmentstrategythatisaimedatincreasingparticipa-tioninhighlyprofitableindustrialprojects,involvinglique-fiednaturalgas(LNG)transportationbyseaandsupportingoil-and-gasproductiononthecontinentalshelf.ThefleetincludestwonewLNGIce2carriers,withacargocapacityof170,000cubicmeterseach,whichareoperatedunderlong-termtimechartercontractswithRoyalDutchShell.

Inaccordancewithourshipbuildingcontracts,in2016and2017theGroupshouldenlargeitsoperatedfleetwiththeadditionofthreenewshuttletankers,fouricebreakingvesselssupplyingoffshoreplatformsandoneArcticLNGtanker.AsignificantpartoftheshipbuildingprojectisimplementedinpartnershipwithUnitedShipbuildingCorporation.Thecom-mercialoperationofvesselsunderconstructionisensuredbylong-termagreementswithfirstclasscharterers,whilsttheirfuturecontractedrevenuesareestimatedatUSD4.3billion.Asof31December2015,thetotalfuturecontractedrevenueunderalloftheGroup’slong-termcontractsamountedtoUSD8.5billion.

UndertheGroup’scurrentbusinessmodel,thereisafocusonexpandingfurthertherangeofservicesprovidedtocustom-ersandimprovingtheservicequality.Thiswillinvolvetheconsistentimplementationofinnovativeandenergy-savingtechnologies,andimprovingoperationalefficiency,aswellastheenvironmentalandnavigationalsafetyofthefleet.During2015,theGrouppaidparticularattentiontoreplacinglow-yieldingconventionalvesselstodevelopamoretech-nologicallyadvancedfleet,whichcontributedtoasignificantincreaseintheeconomiceffectivenessofourfleetoperations.

SCFGroup’sexcellentresultsin2015gaveinternationalrat-ingagenciessufficientgroundstoconfirmorimprovethecompany’screditratings,andallowedittomaintainaccesstotheinternationalcapitalmarketsdespitethegrowinggeo-politicalrisks.Inparticular,inDecember2015,theGroupconcludedaUSD340millionlong-termloanagreementwithSberbankCIB,inordertofinancetheconstructionofthreenewshuttletankersforcrudeoiltransportationfromtheNovyPortoilfieldintheYamalPeninsula.ThistransactionisuniqueinthatpreviouslyRussianbanksdidnotprovidefinanceforcapital-intensive,long-termmaritimeprojects.Therefore,itwasnocoincidencethattheauthoritativetradepublicationMarineMoneyvotedthecreditagreementbetweenSCFGroupandSberbankCIBas‘DealoftheYear’intheProjectFinancecategoryofitsannualawards.

Humancapital –especiallythecaptainsandcrewsofourvessels –constitutesthemajorsourceofourcompany’ssuc-cessandthefoundationofourfleet’sexcellentoperations.During2015,thecompanycontinuedtopayspecialattentiontotrainingprofessionalseafarers,upgradingtheirworkingconditionsandimprovingthesocialsecurityfortheirfamilies.In2015,thecompanylauncheditsfirstlong-termincentiveprogramme(LTIP)forcaptains,chiefengineersandshore-basedSCFemployees,runningfortheperiodupto2020.TheGroup’smanagementisgratefultotheBoardofDirectorsforitssupportofthisinitiative.

Sergey Frank

PresidentandCEOofPAOSovcomflot

iN 2015, SCF GROUP CONTiNUEd TO imPLEmENT iTS STRATEGy AimEd AT iNCREASiNG iTS PARTiCiPATiON iN mAjOR ENERGy PROjECTS


ABOUT SCF GROUP • SCFGroupisthelargestshippingcompanyinRussia

andagloballeaderintheshipmentofhydrocarbons(crudeoilandpetroleumproducts,liquefiednaturalgas)andinservicingoilandgasprojectsonthecontinentalshelf,includingoffshoreseismicexploration

• ThemainstrategicgoalofSovcomflotistomaximisethecompany’sshareholdervaluebyexpandingitsin-dustrialbusinessportfolio(long-termcontractswithafixedhighrateofreturn)whileretainingaleadingposi-tioninitsconventionaltankerbusiness

• DevelopingeffectiveandopencommunicationswithstakeholdersisoneofthekeycomponentsofthesuccessfulimplementationtheGroup’sDevelopmentStrategy.Stakeholdercommunicationsarebasedontheprinciplesoftransparency,integrity,andtrust

• TheGroup’sriskmanagementsystemisbuiltonacomprehensiveapproachentailingtheconstantidentifi-cationandassessmentofrisks,developingriskmanage-mentmeasures,monitoringdynamics,andmonitoringandanalysingtheeffectivenessofimplementedactions.



About SCF GRoupaBout scf GrouP

1.1 STRUCTURE OF SCF GROUP’S FLEETThe GrOup’S FleeT COMprISeS:

• CRUDEOILCARRIERSOFVLCC,SUEzMAx,AFRAMAx,ANDPANAMAxSIzES,INCLUDINGARCTICSHUTTLETANkERS

• LNGANDPETROLEUMGASCARRIERS

• PRODUCTCARRIERSOFHANDYSIzE,MR,LRI,ANDLRIISIzES

• ICE-BREAkINGSUPPLYVESSELS

• ARESEARCHVESSELFOROFFSHOREGEOPHYSICALExPLORATION

• PANAMAxBULkCARRIERS

• PORTTUGS,INCLUDINGICECLASSTUGS

The GrOup’S FleeT IS MAnAGeD ThrOuGh FOur DIvISIOnS:

• Conventionaltankerfleetmanagementanddevelopment(ConventionalDivision)

• Gasfleetmanagementanddevelopment(GasDivision)

• Offshorefleetmanagementanddevelopment(OffshoreDivision)

• SCFGeoLtd.(SeismicExplorationDivision)

SCFGroupoperatesvesselsinsegmentswhichattractthemostdemandfromleadingRussianandinternationaloilandgascompanies.Ourin-housecapabilitiesandsetofadvancedtechnologies,especiallyrelatedtoshipmentsinextremeclimateconditions,areuniqueforashippingcompany,andenabletheGrouptosatisfythevariousrequire-mentsofourcustomersandtoprovidethemwithareliableandefficienttransportservice.

FIGure 1. Structure of PAO Sovcomflot’s fleet, by division*


About SCF GRoupaBout scf GrouP

Transportationofcrudeoilandpetroleumproductsinthedownstreamsegment(refinedpetroleumproducts),

bulkcargoes

102tankersandtwobulkers

Transportationofliquefiednaturalgasandliquefiedpetroleumgas

Supplyandservicingofoffshoreplatforms,managementofterminals,

safeshuttleshipmentsofoil

Offshoregeophysicalexploration

12gastankers

26vessels,including13shuttletankersand

fourice-breakingsupplyvessels

Onevessel

GAS DIvISIOn

OFFShOre DIvISIOn

SeISMIC explOrATIOn DIvISIOn

COnvenTIOnAl DIvISIOn

*FormoredetailsabouttheCompany’sperformanceinthereportingyear,seetheOverviewofOperatingActivitiessection.


About SCF GRoup

1.2 GLOBAL mARKET TRENdS

CruDe OIl MArKeT2015wasmarkedbyoneofthelargestdeclinesinoilpricesofthelast20years.Thus,theweightedaveragepriceofBrentcrudereacheditslowestlevelinDecember2015,plungingtoUSD36.27*perbarrelfromapeakofUSD114.25perbarrelinJune2014(afallof69.3%).

InanticipationoffurtherstepsbyOPECmembers,followingOPEC’srefusaltocutoilproductionquotasannouncedatitsOctober2014meeting,in2015oilpro-ductionandexportsbySaudiArabiaandIraqrosebymorethan1millionbarrelsaday.Asaresult,OPECexceededitsownproductionquota,withproductionrunningatabout31millionbarrelsperday(bpd)againstthequotaof30.0millionbpd.

Thedeclineinoilpriceshadapositiveimpactondemandforstrategicandcom-mercialstockpiling.Inparticular,inthefirsthalfof2015Chinaimportedabout6.1mil-lionbpdagainstthepreviousrecordof5.6millionbpdin2014(and5.1millionbpdin2013),andinDecember2015oilimportsbyChinahitarecord6.8millionbpd.India,anothermajorcrudeoilimporter,alsoincreaseditsimportstoreplenishstrategicreserves.

OIl AnD prODuCT TAnKer ShIppInG MArKeT

Thetrendtowardanincreaseinfreightratesintheoilandproductshippingmar-ket,whichappearedinQ42014,continuedin2015.Increasesinspotratesforoiltankersrangedfrom54%to116%in2015comparedto2014averages,spotratesforproducttankerswereup70%(althoughfromalowerbasein2014).

Themainreasonforasharpupturninthetankermarketin2015wasadeclineinoilpricesandassociatedgrowthindemandforrawmaterials.Inparticular:

• Asharpfallinoilquotationscreatedananticipationoffuturepricesincreasesamonginvestors(acontangoeffect),which,inturn,pushedupdemandforonshoreandoffshorestoragefacilities.Inthetankerindustry,thisresultedinasurgeindemandforVLCCvessels

• Increaseddemandforcheapercrudeoilledtoanincreaseinoilshipmentsbysea,boostingtonne-miledemandforalmostalltypesofoiltankers.

• Thefallinoilpricesresultedinareduc-tionofbunkeroilprices,whichhadapositiveimpactonthedynamicsofthetime-charterequivalent(averagedailyfreightrates)inspottransportationmarkets

• Inpetroleumproductstransportation,lowoilpriceshelpedwidentherefin-ingmarginbothintheAtlanticandIndianOceanbasins,whichcreatedademandfortonnagetopursuearbitrageopportunities.

Itshouldbealsonotedthatthegrowthindemandfortransportationservicesin2015tookplaceamidstarebalancingoftonnagedemandandsupply,causedbyaslowdowninthepaceofadditionstotheglobaltankerfleet.Inparticular,asregardsAfra-maxandSuezmaxtankers,thetotalnum-berofnewbuildsreceivedfromshipyardsin2015effectivelymatchedthenumberofscrappedoldervessels(i.e.thegrowthintonnagewaszero).Asregardsproductcarri-ers,tonnagecontinuedtogrowmoderatelyin2015(atalevelof5%)duetoconsider-ableorderbookdeliveriesin2013.

Trendsinthetimechartermarketin2015weresimilartothosein2014:ratesincreasedsignificantlyforallsizesofoiltankers.Theincreaseinratesforproductcarrierswasrelativelysmall.Amoremoder-ateincreaseintimecharterrates,withhighspotratesforproductcarriersisattribut-abletoahighersupplyofnewvessels.

*Source:Clarksons(sin.clarksons.net)

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2013 2014 2015

10 000

20 000

40 000

30 000

50 000

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Mr

Suezmax

Source:Сlarksons

FIGure 2. Dynamics of spot tanker freight market rates (uSD per day)


About SCF GRoup

0

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Mr

Suezmax

Source:Сlarksons

FIGure 3. Dynamics of the time charter tanker freight market rates (uSD per day)

TABle 1. Activity in the new build market

Activityinthenewbuildmarket(units)

Newbuildtankers 2015 2014 Difference

Crudeoilandproducttankers 353 197 +79.19%

Chemicaltankers 88 175 -49.71%

LPGcarriers 67 110 -39.10%

LNGcarriers 35 69 -49.28%

TOTAl 543 551 -1.45%

TABle 2. Activity in the market for second-hand crude oil and product tankers

Activityinthemarketforsecond-handcrudeoilandproducttankers

Indicator Unitofmeasure 2015 2014 Difference(proratedfortheyear)

Numberofvesselssold Vessel 317 388 -18.30%

Totaldeadweightofsoldships ‘000tonnes 29,842 44,951 -33.61%

Totalvalueofsales USDmillion 9,014 11,556 -22.00%

TABle 3. Competitive position of SCF Group in the market

Parameter Globalranking

Arcticshuttletankerfleet 1

Ice-classtankerfleet 1

NumberofAframaxtankersintankerfleet 1

Ice-classLNGtankerfleet 2

Sizeoftankerfleet 3

Shuttletankerfleet 3


About SCF GRoup

new BuIlD AnD S&p MArKeT

Despitemoreactiveordersfornewoiltankersandlargecapacityproducttank-ers(LR1andLR2),shipbuildingactivityingeneraldeclinedslightlyin2015com-paredto2014,asaresultofadecreaseinthenumberofordersforproductcarriers,chemicaltankersand,toalargerextent,LPGandLNGtankers.

In2015,353largecapacityvesselswereordered(mainlyAframax,Suezmax,LR2andLR1tankers)versus197vesselsorderedinthepreviousyear,representingan80%growthinactivityyear-on-year.However,whereasin2014atotalof551tankersofdifferentsizeswereorderedworldwide,in2015theirnumberwas543,down1.45%year-on-year.

Thesecond-handtankermarketalsosawsomedeclineinactivity(by18.30%),with317deals(totaldeadweight:29.842milliontonnes,totalvalue:USD9.014billion)in2015versus388deals(totaldeadweight:44.951milliontonnes,totalvalue:USD11.556billion)in2014.

COMpeTITIve pOSITIOn In The MArKeT

ThemaincompetitorsofSCFGroupinthetankertransportationsegmentareTeekay(Canada),OSG(US),Torm(Denmark),andMinervaMarine(Greece).TheGroup’sshareofthecorrespondingmarketseg-mentdoesnotexceed1%.

Anychangeinthisindicatoroverthepastthreeyearsisconsideredimmaterial(lessthan0.01%),whichisduetothehighdegreeoffragmentationofthetankertransportationmarketandthecontinuedpresenceofasignificantnumberofoperators,esti-matedintotalat3,800(includingmorethan260companieswithafleetof10ormoretankers).


About SCF GRoup

1.3 dEvELOPmENT STRATEGy1.3.1 STrATeGy OF SCF GrOup

TheGroupstrategyuntil2017wasapprovedbyPAOSovcomflot’sBoardofDirectorsin2011.ThemainGroupStrategyparameterswereupdatedin2013withastrategyhorizonextensionuntil2018.

AccordingtoSCF’sStrategy,theCompany’smissionistomanageabusinessportfolioassociatedwithservicesforoffshoreoilproductionandthemaritimetransportationofhydrocarbons,withamaximumreturnfromtheoperationandownershipofassetswhilemaintainingnationalinterestsandhighqualityandsafetystandards.

Main strategic sectors:

• Conventionalhydrocarbontransportation;

• LNGandLPGtransportation;

• Offshorepetroleumservices.

TheStrategyalsosetsforththeGroup’sprioritiesinsustainabledevelopment:ensuringnavigationsafety;reducingadverseenvironmentalimpacts;improv-ingtheprofessionalismofpersonnel;andplacingafocusontechnicalandinnovativedevelopment.

TheGroup’sobjectivesfor2015reflectthegeneralareassetbytheDevelopmentStrategy,andinparticularinclude:

• Maximisingincomefromtheopera-tionoftheconventionalfleet(oilandpetroleumproducttankers),takingintoaccountthestateofthefreightmarket,seasonalfactors,andemerginglocal“peak”freightratesincertaingeographicmarkets;

1MinutesoftheBoardofDirectorsNo.113dated12September2011.

2MinutesoftheBoardofDirectorsNo.127dated20March2013.

3TheLDPwasdevelopedpursuanttoRussianPresidentialOrderNo.Pr-3086dated27December2013andrelatedupdateddocuments.

• Furtheroptimisingthecompositionofthefleet,factoringinthestateofthemarketforsecond-handtonnage,andrealisingopportunitiestoupgradeexist-ingvessels(aspartoftheinnovationstrategy)inordertoreduceoperatingcostsandtoincreasecompetitiveness;

• ImplementingcurrentandlaunchingnewRussianandinternationalprojectsinvolvingthetransportationofliquefiedgas,shuttletransportationofoil,andservicingofoffshorehydrocarbonfieldsinordertoincreasetheshareoflong-termprojectbusinessintotalrevenueandtheaggregateassetsoftheGroup.

1.3.2 lOnG-TerM DevelOpMenT prOGrAMMe OF SCF GrOupIn2014theLong-TermDevelopmentPro-gramme(LDP)ofSCFGroupwasdrafted.ThedraftLDPwasdiscussedatthemeetingoftheworkinggroup,withtheparticipationofrepresentativesofOpenGovernment,theRussianMinistryofTransport,andinvitedexperts.ThefinalversionoftheLDPwasapprovedbythePAOSovcomflotBoardofDirectorson19November2014.TheLDPisintendedfortheperiod2015-2019.

ThemainstrategicgoalofPAOSovcomflotistomaximisethecompany’sshareholdervaluebyexpandingtheindustrialbusinessportfolio(long-termcontractswithafixedhighrateofreturn)whileretainingalead-ingpositioninitsconventionalbusiness.

ThemainquantitativetargetsestablishedbytheLDPwereformulatedinasetoffinancialandindustry-specifickeyperfor-manceindicators(kPIs),withthetargetsapprovedforeachofthemfortheeffectivetermoftheprogramme.Inaccordancewith

methodologicalrecommendationsfromtheRussianMinistryofEconomicDevelopment,theLDPandthekPIsresultingfromitarepresentedinabaselinescenario,withanattachmentofalternativescenarios.

TheresultsofimplementationoftheSCFGroupLDParesubjecttoindependentaudit.Theauditor’sopinionandmaincon-clusionsregardingimplementationoftheLDParedisclosedinthisreport.

LDP2015resultswereauditedbykPMG.Theauditgaveapositiveopinion.Accord-ingtotheauditopinion,theLDPimple-mentationreportfor2015ispresentedfairly,inallmaterialrespects,inconformitywiththeapplicablelaws,standards,andinternalregulationsoftheCompany,givesatrueandfairviewandisfreefrommaterialmisstatement.

4MinutesoftheBoardofDirectorsNo.139dated24November2014.

5PursuanttoNote2ofDirectivesNo.2007p-P13dated6April2015tothepartiesrepresentingtheinterestsoftheRussianFederationforparticipationatthemeetingsoftheboardsofdirectors(supervisoryboards)ofthejoint-stockcompaniesincludedinthespeciallistapprovedbyRussianGovernmentOrNo.91-rdated23January2003.

FIGure 4. OrganisatiOnal and strategic decisiOn-making structure

BOArD OF DIreCTOrSStrategy Committee under the

Board of Directors

Approving strategic decisions, target KPIs, and controlling their

implementation

preliminary consideration of strategic issues, preparation of recommendations for the Board

exeCuTIve BOArDStrategic planning and

Development Department

Making the most important operating decisions within the

Group Strategy framework

Monitoring the Group Strategy implementation, preparing

respective reports

TABle 4. Key performance indicators of the long-Term Development programme for 20156

No. kPIs Targetvalue ActualConclusionaboutattainment

1 Net revenue (time charter equivalent income), USD million ≥1,158.9 1,316.4 Attained

2 Net profit, USD million ≥143.7 354.5 Attained

3 EBITDA margin, % ≥55.29 66.91 Attained

4 EBITDA, USD million (for reference) 640.8 880.9 Attained

5 Total dividends (index of dynamics of dividend payments vs. average level during the past three years), %

≥100 243.8 Attained

6 Return on Invested Capital (ROIC), % ≥4.96 7.7 Attained

7 Return on Equity (ROE), % ≥4.48 11.23 Attained

8 Utilisation efficiency of fixed assets (fleet), % ≥95 96.91 Attained

9 net Debt / eBITDA ≤8 3.28 Attained

10 Implementation of the innovative development programme, % ≥100 115.45 Attained


About SCF GRoup

1.3.3 STrATeGIC DeCISIOn-MAKInG STruCTure

keystrategydecisionsaremadeattheBoardofDirectorslevel(targetkPIs,controllingtheirimplementation,etc.)withpreliminaryconsiderationbyStrategyCom-mitteeundertheBoardofDirectors.Strate-gicPlanningandDevelopmentDepartmentismonitoringtheimplementationofGroupStrategy,preparingrespectivereportsandanalyticaldocumentation.Themostimpor-tantoperatingdecisionsaremadeattheExecutiveBoardlevel.

1.3.4 Key perFOrMAnCe InDICATOrS OF The lOnG-TerM DevelOpMenT prOGrAMMeTheLong-TermDevelopmentProgrammecontainsthekPIsshowninTable4,includ-ingtargetandactualvaluesfor2015.

ActualkPIsexceedplannedfiguresduetofavourablemarketconditionsinthecon-ventionalsegmentandalsothankstotheapplicationofabalancedfreightpolicy,andworkingwithhigh-qualityclients.

7СогласнодействующейредакцииДПР,целевыезначенияКПЭустановленыбюджетомПАО«Совкомфлот»на2015год.

6TargetandactualkPIvaluesarecalculatedusingtheproportionalconsolidationmethodaccordingtomethodologyapprovedbytheBoardofDirectorson10Dec2014(MinutesNo.140oftheBoardofDirectorsdated12Dec2014).

8TheProgrammeontheSaleoftheNon-CoreAssetsofPAOSovcomflotwasapprovedbytheBoardofDirectorson19May2011(MinutesNo.110oftheBoardofDirectorsdated23May2011).


About SCF GRoup

ALL ThE PLANNEd KEy PERFORmANCE iNdiCATORS SET By ThE LONG-TERm dEvELOPmENT PROGRAmmE FOR 2015 hAvE BEEN FULLy AChiEvEd

TABle 5. pAO novoship non-core assets sale results

Asset Bookvalue,‘000RUB

Actualsaleprice,‘000RUBexcludingVAT

Difference,`000RUB

100%shareinОООNovomorsnab 40,100 116,200 76,100

Property“Portovaya8.10” 108,360 478,644 370,284


About SCF GRoup

1.3.5 nOn-COre ASSeT SAle prOGrAMMe

In2011theProgrammeontheSaleoftheNon-CoreAssetsofSCFGroupwasdraftedbytheGroupandapprovedbytheBoardofDirectors(theNon-CoreAssetSaleProgramme).ItdeterminestheunderlyingprinciplesandoperatingproceduresoftheGroupregardingthedisposalofitsnon-coreassets.

The programme contains:

• Regulationsgoverningactionswithnon-coreassets

• Theregisterofnon-coreassetsandtheprocedurefordisposingofthem

• Theprinciplesandprocedurefororgan-isingthesaleofnon-coreassets

• Theprocedureforconcludingotheractionsinrespectofthenon-coreassets

Tomaximisetheshareholder’sprofits,theProgrammestipulates:specifictimeframesforthesaleofthemostexpensiveassets;thatthevalueoftheassetsshouldbedeterminedbyanindependentappraiser;thatthebuyershouldbesoughtthroughtheannouncementofatender;andthatatendercommissionshouldbesetup.

PursuanttoInstructions No.241-roftheRussianGovernmentdated26February2013,SCFGroupiscontinuingitsworkrelatedtothesaleofonenon-coreasset:5,116ordinaryregisteredsharesinJSCBNationalReserveBank(JointStockCom-pany),representing0.3017%ofitsautho-risedcapital.ThebookvalueofthisassetisRUB5,116,000.

Novoship,asubsidiaryofSCFGroup,soldthefollowingnon-coreassetsin2015atamarketpriceabovebookvalue.

1.3.6 STAKehOlDer COMMunICATIOnS

ThestakeholdersofSCFGroupareinstitu-tions,organisations,orindividualswhoseinterestsarerelatedtotheactivitiesoftheGroup,andwhichinturnhaveanimpactonitsperformance.

ThemainprinciplesandprioritiesforstakeholdercommunicationsareenshrinedintheCodeofCorporateConduct.

ThekeystakeholdergroupsidentifiedbySCFGroup,aswellasthemechanismsforcorrespondingstakeholdercommunica-tions,aresetoutinTable7.

DuringthereportingperiodSCFGroupactivelycommunicatedwithitsstakehold-ers,performingworkinparallelaimedatexpandinganddevelopingexistingplat-formsandmechanismsforjointdialogue.

9Currentprogressonthesaleofthenon-coreassetisdisclosedintheReportOnProgressontheImplementationoftheProgrammetosellnon-corePAOSovcomflotAssets

Velikiy Novgorod, an Atlanticmax Ice2-class LNG carrier designed for the year-round transportation of gas. The vessel is chartered to Gazprom under a long-term contract

TABle 6. Mechanisms for stakeholder communications

Stakeholder Mechanismsforcommunications

Shareholderandinvestors

Shareholder

Investors

Banksandcreditors

– GeneralMeetingofShareholders

– Presentations,conferencecalls,meetingsbetweenmanagementandtheinvestmentcommunity,analystandinvestordays

– PublicationofpressreleasesandothermaterialsaspartofthedisclosureofinformationonSCFGroupactivities

– Disclosureofinformationandreporting

Businesspartners Groupcustomers

Suppliersandcontractors

– Auditofsuppliersinordertoconfirmtheirgoodfaithandsolvency

– Developmentoftenderproceduresfortheprocurementofgoodsandservices

– Implementationofanti-corruptionprocedures

– Meetingswithclients,includingindustryconferencesandseminars

– Conductingresearchamongconsumers

Employees Groupemployees – MeetingsbetweenHRdepartmentrepresentativesandemployees

– Notifyingemployeesthroughanintra-corporatecommunicationssystem

– Useoffeedbacktools,employeesurveys

– Considerationoffiledappealsandcomplaints

– Materialandnon-materialincentiveprogrammes

– Developmentofthefleetpersonneltrainingsystem

State Russianlegislativeandexecutivestateauthorities

– ParticipatingintheactivitiesofworkinggroupsandexpertcouncilsestablishedunderRussianstateexecutiveauthorities

Society Academicinstitutions

Healthcareinstitutions

Industryveterans

LocalpopulationintheregionswheretheCompanyhasafootprint

– Charitableassistancetoeducationalandhealthcareinstitutions

– Programmefortargetpreparationofcadetsofmaritimeuniversities

– Regularmeetingswithcadets

– Organisinginternshipsforteachersofmaritimeuniversities

– Sponsoringsportseventsandcompetitions

RussianandinternationalprofessionalorganisationsandNGOs

Industrynon-governmentalorganisations

Businessassociations

NGOs

– Participationintheactivitiesofworkinggroupsandboardsofprofessionalnon-governmentalorganisations

– Supportingprojectsanddiscussingdocuments

– Implementingjointprojectswiththemaritimecommunity

– Participatingineventsaimedatincreasingnavigationsafety

Themedia Printpublications

Electronicmedia(includingtelevision,theinternet,andradio)

– RegularpublicationsinthemediaofmaterialsdedicatedtoimportanteventsintheGroup’sactivities

– InterviewswiththeGroup’smanagement

– Pressconferencesandothereventsformediarepresentatives

– ParticipationofGrouprepresentativesasexpertsduringthepreparationoftopicalsubjectsonnavigationissuesintheArcticregion,developmenttrendsinvariousfreightmarketsegments,andshipbuilding


About SCF GRoup


About SCF GRoup

1.4 RiSK mANAGEmENT SySTEmSCFGROUPPAYSPARTICULARATTENTIONTORISkMANAGEMENTISSUES.SCFGROUPMANAGEMENTANDEMPLOYEESARERESPONSIBLEFORESTABLISHINGANDOPERATINGTHERISkMANAGEMENTSYSTEMATALLMANAGEMENTLEVELS.

TheGrouphascreatedanAuditCommitteeaffiliatedtotheBoardofDirectors,whoseresponsibilitiesincluderiskmanagement.ThecommitteessetupbytheExecutiveBoard(StrategyCommittee,FreightCom-mittee,InvestmentCommittee,FinanceCommittee,TechnicalPolicyCommittee –TechnicalCouncil,etc.),whichcarryoutriskmanagementwithintheirrespectivecompetence,continuedtoworkthroughouttheyear.

Several initiatives were implemented in 2015 to further improve the risk manage-ment system:

• AnewCorporateGovernanceCodeoftheCompany,which,interalia,providesforfurtherdevelopmentoftheriskmanage-mentsystem,wasapprovedbytheBoardofDirectorsinNovember2015;

• Accordingtotheshareholder’srecom-mendations,theRegulationsonthePAOSovcomflotRiskManagementSystem(hereinafterreferredasthe“RMSRegulations”)weredraftedin2015.The

TABle 7. Main functions and tasks of key participants in the risk management system

BOArD OF DIreCTOrS

Determininggeneralprinciplesandapproaches

toriskmanagement

Approvingtheriskappetitecalculationmethodology

Reviewingkeyrisksandmethodstomanagethese

risks

STrATeGIC plAnnInG AnD DevelOpMenT DIreCTOrATe (COOrDInATOr)

Coordinatingriskmanagementactivities

DevelopingtheregulatoryandmethodologicalframeworkoftheRMS

Consolidatinginformationonrisks

Preparingreportsonrisks

InTernAl AuDIT

Evaluatingtheefficiencyoftheriskmanagementsystem

PreparingreportsonevaluationresultsandrecommendationsfortheAuditCommitteeandtheBoardofDirectorsregarding

strategicallyappropriatechangestotheRMS

MAnAGeMenT/MAnAGerS OF STruCTurAl DIvISIOnS

Maintaininganddevelopingtheriskmanagementsystem

Identifyingandassessingrisks

Implementingriskmanagementactivities

exeCuTIve BOArD

Approvingtheregulatoryandmethodologicalframework

Monitoringimplementationofriskmanagementmeasures

Approvingthecorporateregisterofrisks,therisk

mapandriskmanagementmeasures

2ApprovedbyBankofRussiaLetterNo.06-52/2463dated10April2014.1MoredetailsabouttheCorporateGovernanceCodeofPAOSovcomflotcanbefoundintheCorporateGovernanceSectiononthewebsiteathttp://www.scf-group.ru/.


About SCF GRoup

SCF GROUP PAyS PARTiCULAR ATTENTiON TO RiSK mANAGEmENT iSSUES


About SCF GRoup

documentwasdevelopedinaccordancewiththeCorporateGovernanceCodeoftheRussianFederationandGuidelinesforthePreparationofRegulationsontheRiskManagementSystem.TheRMSRegulationswereapprovedbythePAOSovcomflotBoardofDirectorson10November2015;

• Workcontinuestofurtherimprovetheriskmanagementsystem,includingupdatingitsstructureandtheclassifica-tionandthelistofrisksintheregisterofrisks,whichwillhelpimprovetheefficiencyofriskmanagementprocessesandmaketheresponsibilityofriskown-ersmoretransparent.

TheRMSRegulationsconstituteafunda-mentalframeworkdefiningthetasksandobjectivesoftheriskmanagementsystem,themainprinciplesofitsoperation,thestructureoftheriskmanagementsystem,theallocationofresponsibilitybetweenthepartiesinvolvedandnatureoftheirinterac-tion,andthegeneralapproachtotheorgan-isationoftheriskmanagementsystem.

PursuanttotheRMSRegulations,themainpurposeoftheRMSistocreatecondi-tionsforachievingtheCompany’sstra-tegicandoperatingobjectivesandgoalsthroughregularidentification,analysisandassessmentofrisks,developmentandimplementationofmeasurestomanagerisksandmaintaintherisklevelwithinlimitsacceptableformanagementandshareholders.

InaccordancewiththeRMSRegulations,theStrategicPlanningandDevelopmentDirectorateisinchargeofcoordinatingriskmanagementactivities.AdescriptionofkeyparticipantsintheriskmanagementsystemandtheirmainresponsibilitiesisprovidedinTable7.

FurtherdevelopmentandimprovementoftheriskmanagementsystemisbasedontheCOSOstandardEnterpriseRiskManagement –IntegratedFramework,ISO31000:2009RiskManagement –Princi-plesandGuidelines,andISO31010:2009RiskManagement –RiskAssessmentTechniques.

Key rISKSTheGrouphasandregularlyupdatesaregisterofrisksthatcanhaveasignificantimpactonitsoperations.

Inaddition,theCompanyisimplementingregularandone-timeactionstominimiserisks.Suchactionsincludethefollow-ing:monitoringglobalfreightmarkets;theconstructionandcommissioningofstate-of-the-artvesselsandtheoffload-ingofobsoleteships;theplanningandimplementationofnecessaryenvironmen-talmeasures;monitoringamendmentstoshippingindustryregulations,andimprove-mentstoHRpolicies.

TheimplementedriskmanagementmeasurestogetheraproactiveresponsetoemergingthreatsenabledtheGrouptopreventtheoccurrenceofidentifiedrisksinthereportingperiod.Therisksdescribedinthisannualreportbelowarenotexhaus-tive,butarehighlightedaskeyrisks.

4MinutesoftheBoardofDirectorsNo.149dated13November2015.5Table8describesthemostmaterialrisksidentifiedandthemeasurestominimisesuchrisks,andriskmanagementmethodsandthekeyriskmanagementactionsimplementedbytheGroup.

3ApprovedbyRussianGovernmentOrderNo.ISh-P13-4148dated24June2015.

Grand Aniva, an ice class LNG carrier, at the terminal in Prigorodnoye, Sakhalin-2 project. Since 2009, she delivers energy to customers in the ApAC region on a year-round basis

TABle 8. SCF Group – Key risks

Typeofrisk Riskfactors Riskmitigationmeasures

Economicrisks Changestofreightandleaseratesontheinternationalfreightmarket

DraftandapprovetheDevelopmentStrategyoftheGroupandregularlyupdatethedocumentinconnectionwithchangesonthemarketandtheexternalenvironment;identifytheoptimalratioofrevenuesfromlong-termandspotcontracts

Seasonalandregionalchangestothesupplyofanddemandfortonnage

Monitorglobalfreightmarketsfortheadoptionoftimelydecisionsontheoptimaldistributionofthefleet

Strongcompetitionfromothercarriers LeveragetheGroup’saccumulatedexperienceontheoperationofdifferenttypesofvessels,takingintoaccountcustomerrequirements

Arrivalofnewcargotransportation,loading,storageandwarehousingtechnologiesandresultingchangestotechnologicalrequirementsonshipments

Buildandcommissionstate-of-the-artdedicatedvessels;promptlysellobsoletefleet

Quantitativeandqualitativechangestoglobalfleetcomposition

DiversifytheGroup’sactivitiesandbreakintonew,promisingsegments

Environmentalrisks Accidentshavinganegativeenvironmentimpact IdentifysignificantenvironmentalaspectsoftheGroup’sactivities,planandimplementrequiredenvironmentalmeasures,monitorandanalysetheirsufficiency

Impactontheatmosphereofpollutingemissions,andontheoceansfromthedischargeofwastewateranddifferenttypesofrefuse

Implementintegratedgovernanceandcontrolsystemsbasedoninternationalsafetyandqualitystandards

Regulatoryandlegalrisks Changestothenormsofinternationallegislationandshippingindustryregulations,customsandtaxlaw,licensing,andenvironmentalprotection

Monitorchangesinshippingindustryregulations,beproactiveinresponsetosuchchanges,andmaintainaconstructivedialoguewiththeregulatoryauthorities

Theintroductionofstringentrequirementsonvesselsbyleadingclassificationsocieties,aswellasinternationaloilandtradingcompanies

Draftandimplementbest-practicedesignandtechnologicalsolutionswhichcomplywithcurrentandfuturepotentialrequirements

SeizureofthevesselsofGroupcompanies,inrespectofwhichmaritimeliensormaritimeclaimsmayarise

MonitorthelikelihoodofclaimsandotherlegalencumbrancesinrespectoftheGroup’svessels;proactivelyrespondtopotentialactionsinthisarea

InadequateinsurancecoverageoftheGroup'svessels InsuretheGroupfleetusingleadinginternationalandRussiancompanies

Operationalrisks Mechanicalfaultsanddamagetovessels;maritimecasualties

Improvetechnicalmanagementsystemsandprocedures,implementanacross-the-boardcriticalanalysisofthereasonsforbreakagesandemergencies,increasetheprofessionalleveloffleetpersonnelandonshoresupport

Delaysanddefaultsonobligationsbymaincounterparties Concludecontractswithreputableandhighlyreliablecounterparties

Suspensionofactivitiesowingtolabourdisputes PromptlyconsiderthelegalinterestsofGroupemployeesandintroduceaculturewhichpromotesthejointresolutionofissuesastheyarise

DependenceoftheGrouponhiringandretainingqualifiedpersonnel

ImproveHRpolicies,createahigh-performingteamunitedbycommongoalsandvalidmaterialandmoralincentives

Countryrisks AdversechangestothepoliticalandeconomicsituationincountriesandregionswheretheGroupoperates

Draftanti-crisisactionplansifadversescenariosarise

NegativeimpactofrestrictionsimposedagainstRussiabyanumberofWesterncountries

Diversifythecustomerbase,projectportfolioandareasofactivities,andsourcesofGroupfinancing

PirateattacksontheGroup’svessels OrganisesecurityfortheGroup’svesselsindangerousregions,rampupcooperationwithrespectiveinternationalandnationalauthorities,introduceandadjusttherulestobeappliedbyvesselsduringcrises

Financialrisks Changestotheexchangeratesofforeigncurrencies,whichhaveanadverseimpactontheGroup’sexpensesandincome

Useforeignexchangehedginginstruments

Increasedinterestpaymentsoncurrentloanobligations Useinterest-rateriskhedginginstruments,diversifysourcesofborrowing

Improvetheproceduresforensuringtheoptimalstructureofassetsandliabilities,inconjunctionwithanoperationalanalysisofchangesinthefinancialenvironment


About SCF GRoup



OPERATiNG RESULTS

• Amidstrisinggeopoliticalrisks,adversestockmarketconditions,andrevisionofthecredit-worthinessofRussianissuersbyinternationalratingagencies,SCFGroupmanagedtoachieveaconsiderableimprovementinitsfinancialindicators,retainaccesstobothforeignanddomesticdebtcapitalmarkets,continueimple-mentationoftheinvestmentprogramme,andimproveitsowncreditratings.

• Toalargeextent,thecompany’sinitiativesweresupportedbyfavourableconditionsintheglobalconventionaltankermarket,measurestakentorenewandmodernisethefleet,theapplicationofabalancedfreightpolicy,andworkingwithhigh-qualityclients.

• Successfulresultsin2015providedthebasistocontinueconsistentimplementationoftheLong-TermDevelopmentProgrammeintendedfortheperiodto2019inclusive.

TABLE 9 Breakdown of SCF Group fleet

Numberofvesselsatyear-end(units) Totaldeadweightatyear-end,‘000tonnes

Vesselsbytype 2013 2014 2015 2013 2014 2015

Crudeoilandproducttankers 131 125 115 11,972 11,822 11,448

Gastankers 10 10 12 498 604 794

Bulkcarriers 3 3 2 218 218 149

Multifunctionalice-breakingsupplyvessels 4 4 4 17 17 17

Seismicexplorationandservicevessels 1 1 1 2 2 2

Charteredtankers 0 0 0 0 0 0

Fleet/tonnageoftheGroupownedbytheGroupandJVs 149 143 134 12,706 12,664 12,410

VesselsleasedtoRosnefteflot 9 9 9 2 2 2

TOTAl 158 152 143 12,708 12,666 12,412


OpeRAting Results

2.1 OvERviEw OF PROdUCTiON ACTiviTiES2.1.1 STATe OF The GrOup’S FleeT In 2015

InthereportingyearthefleetofSCFGroupconsistedofstate-of-the-art,high-techves-selsofdifferenttypes.

Attheendof2015theGrouphadafleetof143vesselswiththetotaldeadweightof12.4milliontonnes.

Theaverageageofvesselinthecompany’sfleet(includingleasedtugs)attheendof2015was8.49years.

TheLong-TermDevelopmentProgrammeofSCFGroupstipulatesthedisposalofoldervessels,asprescribedunderconven-tions,registries,andothernationaland

internationalrequirements,includingthoseoftheInternationalMaritimeOrganisation,classificationsocieties,charterersandthemarket.In2015,11vessels,withatotaldeadweightof472,000tonnes,weresold.

Retiredtonnageisreplacedwithstate-of-the-artvesselsinpromisingsegmentswithadvancedequipment.In2015,twovesselswereaddedtothecompany’sfleet,LNGcarriersSCF MelampusandSCF Mitre.BothwillbeusedforLNGtransportationunderlong-termtimechartercontractswithRoyalDutchShell.

NewvesselsenabletheGrouptooccupyastrongpositioninthissegment,whichisuniquefortheRussianfleet.

TABle 10 Vessels added to the SCF Group fleet in 2015

No. Nameofvessel Typeofvessel Cargocapacity,cubicmetres

1 SCF Melampus Ice-classAtlanticmaxLNGcarrier 170,200

2 SCF Mitre Ice-classAtlanticmaxLNGcarrier 170,200

Totalcargocapacity 340,400

TABle 11 Maintenance and repair of vessels, 2013-2015

Name 2013 2014 2015

Drydockrepairs(numberofvessels) 34 21 41

In-waterinspections(numberofvessels) 30 20 43

Actualexpensesonthedockingandrepairofvessels(‘000USD) 62,404 38,600 68,866

2013 2014 2015

336760

349116

338745

FIGure 6

Dynamics of actual operating expenses for 2013-2015, ‘000 USD

Crewupkeep

Technicaloperations

Insurance

Overhead

Lubricatingoils

Non-capitaliseddockingexpenses

59%

7%4%3%

6%

20%

FIGure 5

Structure of operating expenses in 2015, %


OpeRAting Results

2.1.2 OperATIOn OF The FleeT

ThefleetoperatesinaccordancewiththeIntegratedSafetyManagementSystem(theISMS)ineffectattheGroup.SCFGroupmanagestheoperationofthefleetbasedontheprovisionsofitsTechnicalPolicy.ThispolicyisasetofmeasuresandactionswhichenablesSCFGrouptoachieveopera-tionaladvantagesinthemaritimetranspor-tationandservicemarketsectors.

InaccordancewiththeISMS,theGroupstrivestooptimisethesystemofprovid-ingvesselswiththerequiredfinancialandmaterialresourcestomaintaintheminexcellentworkingorder,andalsoappliesadvancedmethodstomonitorandanalysethetechnicalconditionofeachvesselanditsequipment.

Withinthestructureofoperatingexpensesthemajorityareattributabletocrewupkeep(59%),whiletechnicaloperationsandnon-capitaliseddockingexpensesaccountfor20%and6%,respectively.

UndertheISMStheGroupcarriesoutregularmaintenanceandrepairsofvessels,whichisakeycriterionforthesafeandreliableoperationofavessel.TheTechnicalPolicystipulates:

• Afive-yearclassificationsurveyperiodindocksasthemainmethodofoptimisingmaintenanceandrepairwork.

• Ascheduledpreventivemaintenanceplanforeachvessel,approvedinaccor-dancewiththeclassofvessel.

• MonitoringthetechnicalconditionofindividualtypesofvesselandcriticalequipmenttomakesurethatitcomplieswithSCFGrouprequirements.

• Maintainingatahighleveltheexternalappearanceofvessels.

TheTechnicalPolicyalsoprescribesthefol-lowingactionstoensurethehighqualityofmaintenanceworkandtherepairofvesselsandtheirequipment:

• Competitiveselectionofthemosteffec-tiveandqualifiedshipyards.

• Usingcertifiedsparepartsfromoriginalmanufacturerswhenreplacingworn-outorfaultycomponentsofequipment.

• Theinspectionofshipsbyclassificationsocieties,whichensuresahighdegreeofsupervisionoverthetechnicalcondi-tionofvessels.

In2015,41vesselsweredrydockedandrepaired(vs.21vesselsinthepreviousyear).OneofthegoalsoftheGroupunderitsTechnicalPolicyistoensurelongerperiodsbetweenrepairs.Forexample,in2015interimin-waterinspectionswere

conductedfor43vessels,withoutanyneedfordrydocking(vs.20vesselsintheprevi-ousyear).

Duringthereportingperiodtherewere10operationalaccidents,whichresultedindamagetohullstructuresandvesselequip-ment,andrequiredthedecommissioningofvesselsforrepairs.TheGroupworkspro-activelytoreducethenumberofaccidents,andperformsdetailedanalysesofthemtopreventanyrepeatincidents.

2013 2014 2015

8731044

1240

FIGure 7

Dynamics of the time charter equivalent revenues of the Group, 2013-2015, USD million

+18,9%


OpeRAting Results

848.5 million uSD

THENETEARNINGSFROMVESSELS’TRADINGOFTHEGROUPIN2015

2.1.3 OperATInG reSulTS FOr 2015

2.1.3.1 Overall results for SCF Group

In2015themainoperatingresultswereanimprovementonthosein2014,thankstomeasurestakentorenewandmodernisethefleet,theapplicationofabalancedfreightpolicy(whichensurestheeffectiveuseofthefleetatdifferentdevelopmentalstagesofthetankermarket),andworkingwithhigh-qualitycustomers.

TimecharterequivalentrevenuesfortheGrouproseby18.9%in2015comparedto2014andtotalledUSD1,240millionunderIFRS.TheGroup’sNetearningsfromvessels’tradingalsorosesignificantly(up32.1%),toUSD848.5million.

SCFGroupworkswithbothinternationalandRussiancustomers.InthereportingyeartheGroupcontinuedtomeetRussianforeigntraderequirements –itsvesselsparticipatedintransportationofoilandpetroleumproductsfromdifferentRussianports,includingNovorossiysk,Murmansk,Primorsk,Ust-Luga,Prigorodnoye,andoth-ers.Inaddition,theGroup’svesselswere

usedasfloatingstorageunitstofacilitatethetranshipmentofexportoilandpetro-leumproductsfromrivertankervesselstoseatankers.

In2015theGroupcarriedover52mil-liontonnesofRussianexportandtransitcargoesexportedthroughRussia.Thiscargoaccountsfor38.6%ofthetotalcargotransportedbytheGroup’svesselsin2015(against35%in2014).

Victor Konetsky, an ice-strengthened Aframax shuttle tanker, at the Sokol platform, Sakhalin-1 project. De-Kastri, Khabarovsk region

2013 2014 2015

489,9

642,2

848,5

FIGure 8

Dynamics of net earnings from vessels’ trading of the Group, 2013-2015, USD million

+32,1%

0

200

600

400

100

500

300

2013

344

2014

CrudeOil OilProduct Gas Offshore Others

421

2015

542+29%

2013

216

2014

213

2015

240

2013

48

2014

83

2015

137+65%

2013 2013

207

58

2014 2014

222

104

2015 2015

229

913%

-12%

FIGURE 9 Dynamics of the time charter equivalent by operating segments, 2013-2015, USD million

+13%

0

200

400

100

500

300

2013

204

2014

CrudeOil OilProduct Gas Offshore Others

267

2015

388+45%

2013

88

2014

102

2015

145

2013

36

2014

65

2015

115+77%

2013 2013

166

-52014 2014

177

30

2015 2015

181

19

2% -37%+43%

FIGure 10 Dynamics of the Net earnings from vessels’ trading by operating segments, 2013-2015, USD million


OpeRAting Results

2.1.3.2 Fleet performance indicators by lines of business

Positivedynamicsofthemainoperat-ingindicatorswerealsoobservedinthebreakdownoftheGroup’smainoperatingsegmentsin2015.

Theincreaseintimecharterequivalentandnetearningsfromvessels’tradinginthecrudeoilandproducttransportationsegmentwasachievedduetoamarketupturnandtheoptimaldistributionofthelarge-capacityfleet,betweenworkontimechartersandonthespotmarketintraditionalregionsoftheAtlanticBasin(BlackSea,MediterraneanSea,BalticSea),aswellasmaximumparticipationinpremiummarketswhereSCFGroupenjoystraditionalcompetitiveadvantages,includ-ingshippingwithice-classvesselsfrom

thePrimorskandUst-Lugaportsduringthewinterperiod.

IntheLNGshippingsegment,growthintime-charterequivalentrevenueandNetearningsfromvessels’tradingwasachievedthroughthecommissioningofnewves-sels,andintheoffshoreservicesegmentthroughefficiencyimprovementsintheoperationsoflong-termchartervessels.

DespiteaslightdeclineinincomefromtheGroup’sseismicsurveybusiness(Otheroperatingsegments),whichoccurredin2015duetounfavourableconditionsintheoilandgassector,theOffshoreSeismicExplorationDivisionofSCFGroupcontin-uedtopoststeadyprofitsfromtheopera-tionofseismicvesselVyacheslav Tikhonovandimplementationofotherspecialisedprojects.

1Source:Company

2013 2014 2015

299,9

501,9 530,5

FIGure 11

Dynamics of Group investments, 2013-2015, USD million


OpeRAting Results

THEINVESTMENTACTIVITIESOFSCFGROUPAREPERFORMEDASPARTOFTHELONG-TERMDEVELOPMENTSTRATEGYOFTHEGROUP,FORTHEPERIODUPTO2020.EVERYSPECIFICPROJECTISDEVELOPEDANDEVALU-ATEDACCORDINGTOTHECOMPANY’SINTERNALREGULATIONS.

WithdueregardfortheGroup’sstrategicpriorities,theInvestmentProgrammechieflyfocusesontheimplementationofhigh-yieldindustrialprojectsintheareaofliquefiedgastransportationandtheservic-ingofoffshorehydrocarbonfields.In2015mostinvestmentsweredirectedtothesesegments.InvestmentswerealsomadeintherepairandmodernisationoftheGroup’sexistingfleet.

TheInvestmentProgrammeoftheGroupfor2015wasimplementedinfull.In2015,investmentsincreasedtoUSD530.5mil-lion,aUSD29millionincreaseon2014.

2.2.1 IMpleMenTATIOn OF InveSTMenT prOJeCTS In 2015 – Key reSulTS

Multifunctional ice-breaking supply vessels for Sakhalin-2 project

AspartoftheSakhalin-2project,oil,gasandcondensatereservesarebeingdevel-opedonthenortheastshelfofSakhalinIsland,includingthePiltun-AstokhskoeoilandLunskgasfields.Tomeettheproject’srequirements,since2009theGrouphasbeenprovidingspecialisedreinforcedice-classsupplyvesselsunderalong-termtimecharter.

ThedevelopmentofSakhalin-2requiredfouradditionalsupplyvessels.Thus,on18April2014atimechartercontractforoneice-breakingsupplyvesselwassignedwithSakhalinEnergy,theSakhalin-2operator,followedbyacontractforanotherthreestandbyice-breakingvesselson16May2014.

Allfourvesselswereunderconstructionin2015,withthekeelforthefirstvesselofthisserieslaidattheendof2015.

LNG carriers for Yamal LNG project

ThisprojectinvolvesthedevelopmentoftheSouthTambeygascondensatefieldandincludestheconstructionofaliquefiednaturalgasplantandthetransportationofLNGbyreinforcedice-classgascarriersalongNorthernshippingroutesfromtheportofSabetta.

SCFGroupprovidedadvisoryservicestoOAOYamalLNG(projectoperator)toassistindevelopingadesignfortheLNGcar-riersandoptimisingthecostsassociatedwiththeprojectlogistics.TheGroupalsoparticipatedinatenderfororderingandbuildingthevessels.Basedontheresultsofthetender,on14February2014aship-buildingcontractandtimecharteragree-mentweresignedforthepilotuniquereinforcedice-classArc7LNGcarrier,withacapacityof172,600cubicmeters.Thevesselwasspecificallydesignedforthisprojectandisunmatchedintheworld.

In2015thegascarrierwasbuiltunderthesupervisionofSovcomflot,withthekeellaidforthevesselon23March2015.

2.2 OvERviEw OF iNvESTmENT ACTiviTiES

TABle 12 Total investments by investment projects of SCF Group

No Client/project Goal ImplementationstageInvestmentsin2015(USDmillion)Actualvalue

1 Shell ConstructionoftwoLNGcarriers Bothcarriersweredeliveredin2015 319.3

2 YamalLNG ConstructionofLNGcarriers Onevesselisbeingbuilt 2.9

3 SEIC/Sakhalin-2 ConstructionoffourMultifunctionalice-breakingsupplyvessels

Thevesselsarebeingbuilt 78.0

4 Gazpromneft/NovyPort Constructionofthreeshuttletankers Thevesselsarebeingbuilt 130.3

TOTAl 530.5


OpeRAting Results

Atlanticmax lnG gas carriers for royal Dutch Shell

In2015theconstructionofLNGcarriersSCF MelamusandSCF Mitre,orderedforoperationsunderalong-termagreementwithRoyalDutchShell,wascompleted.

Arctic shuttle tankers for novy port project

ThisprojectinvolvestheconstructionofanoffshoreoilterminalneartheNovyPortvillageinYamalo-NenetsAutonomousDistrict.Oilwillbeshippedbyspecialisedreinforcedice-classshuttletankers.In2014agreementswereconcludedonthecon-structionofthefirstthreetankers.Allves-selswerebeingbuiltin2015;inparticular,thekeelsforallvesselsofthisserieswerelaidduringtheyear.

530.5 million uSD

THEGROUP’SINVESTMENTSIN2015

2.2.2 IMpleMenTATIOn OF ShIpBuIlDInG prOGrAMMe

During2012-2015SCFGroupworkedwithshipbuildingcompaniesbasedinRussia,Finland,theRepublicofkorea,andthePeople’sRepublicofChina,andcommis-sioned17vesselswithatotaldeadweightofsome1.8milliontonnes,includingtwoAtlanticmaxgascarriers –SCF MelampusandSCF Mitre –in2015.

In2015eightvesselswereunderconstruc-tion,offourdifferenttypes,plannedtobeoperatedbySCFGroupforYamalLNG,Sakhalin-2andNovyPortprojects.

Asat31December2015SCFGroup’sorderportfoliowaseightvessels,withatotaldeadweightof233,800tonnes.

2.3 OvervIew OF InnOvATIOnS AnD r&D

ThemainareasofSCFGroup’sinnovativedevelopmentaredeterminedaccordingtothepriorityareasforthedevelopmentofscience,engineeringandtechnologysetbytheRussianPresidentialDecree No.899dated7July2011,aswellascriticaltechnologiesaimedatthemodernisa-tionandtechnologicaldevelopmentofRussia’seconomyandimprovementofitscompetitiveness.

ForSCFGroup,asthelargestRussianshippingcompanyspecialisedinprovid-ingservicesformaritimetransportationofenergyresources(oil,petroleumproductsandliquefiedgas)ontheglobalshippingmarket,suchareasandcriticaltechnologiesareasfollows:

• Priorityareasforthedevelopmentofscience,engineeringandtechnologiesintheRussianFederation:transportsystems;

• CriticaltechnologiesintheRussianFederation:technologiesforcreatingnew-generationtransportequipment.

SCFGroup’sinnovativeactivitiesareorgan-isedinaccordancewiththerequirementsandmethodologicalguidelinesoftheRussianMinistryofEconomicDevelopmentforstate-ownedcompaniesandjoint-stockcompanieswithstateparticipation.

InMay2011,theInnovationDevelopmentProgrammeofSCFGroupwasdraftedandapprovedbytheBoardofDirectors.Theprogrammedeterminedthemainareasforperforminginnovativeactivitiesintheareaoffleetrenewal,stafftraining,expandingtherangeofservicesprovidedbytheGroup,theperformanceofR&D,andexperimentalanddesignwork.

1RussianGovernmentOrderNo.1713-rdated11October2010.


OpeRAting Results

8 NEw STATE-OF-ThE-ART vESSELS wiLL jOiN ThE GROUP’S FLEET iN 2016-2017

R&Dfornewbuilds

Targetedtraining,retraininganddevelopmentofstaff

R&Dofunivesities

85.50%

1.32%

13.18%

FIGure 12

Structure of R&D expenses in 2015, %

TABle 13 Shipbuilding portfolio of the Group as at 31 December 2015

No. Nameofvessel Typeofvessel Deadweight,tonnes Iceclass

1 Shturman Albanov Shuttletanker 42,000 Arc7

2 Shturman Malygin Shuttletanker 42,000 Arc7

3 Gennady Nevelskoy Platformsupplyvessel 3,000 IcebreakerICE-15

4 Shturman Ovtsyn Shuttletanker 42,000 Arc7

5 Fedor Ushakov Supportvessel 2,000 IcebreakerICE-15

6 Christophe de Margerie LNGtanker 98,800 Arc7

7 Stepan Makarov Supportvessel 2,000 IcebreakerICE-15

8 Mikhail Lazarev Supportvessel 2,000 IcebreakerICE-15

TOTAl 233,800


OpeRAting Results

SCFGroupreportsannuallytotheRussianMinistryofEconomicDevelopment,MinistryofRegionalScience,andMinistryofTrans-portontheimplementationofInnovationDevelopmentProgrammeactions.

InthecourseofimplementationoftheInnovationDevelopmentProgramme,during2012-2015,SCFGroupworkedpersistentlyondevelopingoptimalengi-neeringandtechnicalsolutionstoformthetransportcomponentofmajorindus-trialprojects,andinparticulartoprovidesmoothyear-roundshippingintheGulfofOb(YamalLNGandNovyPortprojects).Thisworkwillresultintheadditionofuniquevesselsintermsoftechnicalandoperatingcharacteristicstothefleet,whichwillgiveSCFGroupacompetitiveadvan-tageinoperationsonoffshoreprojectsinsevereclimaticconditionsoftheArcticandSub-arcticseas.

Themainareasofinnovative,research,developmentandtechnologicalactivitiesofSCFGroupin2015wereasfollows:

• Research,calculations,andexperimentsontheselectionofoptimalparametersoftheenergyunitsofvesselsfromtheperspectiveofenergyefficiencyandareductioninenvironmentalimpacts;

• Developmentofshipowner’stechnicalspecificationsforAframaxtankerswithtri-fuelmainengines(heavyfueloil/die-selfuelandnaturalgas);

• Thedesignofvesselscapableofoperat-inginthemostchallengingworkingconditionsoftheNorthAtlanticinthewinterperiodwasbasedonaservicelifeincreasedto25years(equivalenttoa40-yearservicelifeofavesseloperatinginotherpartsoftheworld’soceans);

• Applicationofnewrulesgoverningtheconstructionofvesselsduringresearchintothestructuralandfatigueperfor-mancecharacteristicsofthehulldesign;

• Research,calculations,andexperimentsontheselectionofoptimalformsofhullsandtheparametersofrudderpropellerunits;

• Reviewandapprovalofengineeringdocumentationfortheconstructionofafloatingstorageandregasificationunit(FSRU);

• Developmentofmethodologicalrecom-mendationsforsafeyear-roundnaviga-tionoflarge-capacityoiltankersandLNGtankersintheGulfofOb.

• Thefinancingofresearch,developmentandengineeringwork,professionaltraining,retraininganddevelopmentofSCFGroupemployeesin2015amountedtoUSD9,761,808.

TABle 14 Development dynamics of capital structure, USD million1

Name 2014 2015 %∆

Securedloans 1,982.6 1,885,6 -4.9%

Obligationsunderfinanciallease 193.3 183.8 -4.9%

Eurobondsandotherloans 842.9 875.5 3.9%

Minus:cashandcashequivalents 284.5 (367.4) 29.1%

Netdebt 2,734.3 2,594.4 -5.1%

Sharecapital 3,157.5 3,481.0 10.2%

Totalcapital 5,891.7 6,075.4 3.1%

Netdebt/equityratio 46.4% 42.7% -8.0%

Netdebt/EBITDAratio 5.1 3.5 -31.4%


OpeRAting Results

2.4 OvERviEw OF FiNANCiAL PERFORmANCESCFGROUPDELIVEREDASTRONGFINANCIALPERFORMANCEIN2015AMIDSTFAVOURABLEMARkETCON-DITIONSFORTANkEROWNERS,DUETOMEASURESTAkENTORENEWANDMODERNISETHEFLEET,THEAPPLI-CATIONOFABALANCEDCHARTER-INGPOLICY,ANDWORkINGWITHHIGH-QUALITYCLIENTS.

ThefinancialstatementsofSCFGroupwerepreparedaccordingtoIFRSandareattachedasanappendixtothisreport,togetherwithcorrespondingcommentsandclarifications.WepresentbelowabriefoverviewandanalysisofthekeyfinancialindicatorsoftheGroup.

2.4.1 Key FInAnCIAl InDICATOrS

In2015theGroupimproveditskeyfinan-cialindicators.Thetotalbookvalueofthevesselsinoperationincreasedby2.1%,fromUSD5.28billionasattheendof2014toUSD5.39billionattheendofthereportingperiod.Shareholderequityattheendof2015totalledUSD3.48billion,10.2%uponthepreviousperiod.Intotal,theGroup’sassetsequalledUSD6.70bil-lionattheendof2015,4.2%upon2014.

TheGroupmaintainsastableprogrammeofcapitalinvestmentsduringallphasesoftheshippingcycle.Investmentsinnewbuildsin2015totalledUSD516,200(in2014:USD492,400);theamountpayableundercurrentshipbuildingcontractsin2016-2017attheendof2015wasUSD953,400.

Theinvestmentprogrammeandoperatingactivitieswerefinancedthroughsecuredbankloans(asat31December2015,totaldebttobanksamountedtoUSD2.07billion),revenuesfromtheplacementat

theendof2010ofUSD800,000worthofunsecuredEurobondsthousand,andoperatingcashflow.

DespiteadversemarketconditionsforRussianborrowersamidvolatilegeopoliti-calandeconomicsituationintheworld,theGroupretainedaccesstobothforeignanddomesticdebtcapitalmarkets.InthereportingperiodtheGroupconcludedtwoloanagreementsforatotalamountofUSD756million,whichwillbeusedtofinancenewbuildsin2016-2017,andalsotworefinancingdealsforatotalamountofUSD130million.Inthereportingyear,SCFGroup’sborrowersandguarantorsfullymetalltherequirementsandthetermsandconditions(“covenants”)oftheircorrespondingloanagreements.

TheGroupcarefullymonitorsitscapitalstructureandworksonitsoptimisation.

StrongfinancialresultsinthereportingperiodhelpedsignificantlyimprovetheCompany’screditindicators.SCFGroup’sleverage(netdebttoequityratio)attheendof2015declinedto42.7%,whilstnetdebttoEBITDAratiowentdowntobelow3.5.

TheGroup’scurrentleverageisfavour-ableandisbelowaverageindustrylevelswhicharetraditionallyimpactedbythehighcapitalintensityofnewprojectsandvolatilityofthefreightmarkets.

2.4.2 InDICATOrS FrOM The InCOMe STATeMenT

ThekeyprofitindicatorsoftheGroupimprovedin2015.Grossrevenueincreasedby7.6%,fromUSD1.38billionasattheendof2014toUSD1.43billion

1SeeFinancialReportoftheSCFGroup

TABle 15 Profit indicators, USD million

Indicator 2014 2015 %∆

Grossrevenue 1,377.9 1,483.0 7.6%

Timecharterequivalent 1,044.0 1,240.1 18.8%

EBITDA 538.2 742.6 38.0%

Netprofit/(loss) 83.9 354.5 х4.2

Crudeoiltransportation

Petroleumproductstransportation

Gastransportation

Servicingofoffshoreprojects

Other

44%

8%

18%

11%

19%

FIGure 13

Structure of the time charter equivalent by operating segments

Directoperatingexpenses

Depreciationandamortisation

Voyageexpensesandcommissions

Financingexpenses

Generalandadministrativeexpenses

Other

32%

26%

3%

10%

9%

20%

FIGure 14

Structure of the main expense items


OpeRAting Results

asattheendofthereportingperiod.In2015,EBITDAreachedUSD742.6mil-lion,up38.0%yearonyear.

Intotal,theGroupsignificantlyincreaseditsoperatingmarginin2015andpostedarecordnetprofitinthelastsevenyearsofUSD354.5million.

Thecompany’sincomestructurewascomposedoffourmainsegments.63.1%ofthetotalincomewasderivedfromtheconventionalfleetoperation(transportationofcrudeoilandpetro-leumproducts)and36.9%wasgener-atedbytheindustrialbusinessportfolio(transportationofgasandservicingofoffshorefields).

Thestructureofthecompany’smainexpensesinthereportingperiodisshowninFigure14.

Asaresultofabalancedoperationalpolicy,thecompanyachieveda3%savinginoperatingexpenses(whichtotalledUSD391.6millionin2015).Generalandadministrativeexpensesremainedatthelevelofthepreviousperiod(USD105.9millionin2015vs.USD104.0millionin2014).Financingexpensesalsoremainedatthesamelevelasinthepreviousperiod(USD123.7millionin2015vs.USD121.7millionin2014)andcomprised30.3%ofcouponpaymentsonEurobondswith5.375%yieldand69.7%ofexpensesforservicingthecurrentbankdebt.

Aleksey Chirikov,oneoftheseriesofmultifunctionalicebreakingstandbyandsupplyvesselsthatserviceoffshoreoilplatformsinRussia’sFarEast

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OpeRAting Results

2.4.3 lIquIDITy InDICATOrS

TheGrouphasastrongliquiditycushion,whichactsasasignificantstabilisingfactor.FreelyavailablecashinbankaccountsanddepositstotalledUSD333millionattheendof2015,inlinewiththeGroup’scashmanagementpolicy.TheGroupalsohasareserveofunusedrevolvingcreditfacilitiesofUSD129millionandaccessiblespecial-purposecreditfacilitiesfornewbuildsofUSD756million.Thus,theCompany’scurrentliquidityasat31December2015totalled1,218USDmillion.TheCompany’sliquidityfullycoversfutureinvestmentsunderthecurrentshipbuildingprogramme,takingintoaccounttheobligationsundershipbuildingcontractsasattheendof2015amountingtoUSD953.4million.

0

2013 2014 2015

2

4

8

6

10

12

14

16

18

Gzprom 18rZD 17Severstal 17 russia 20Sovcomflot 17 Alrosa 20

Source:Citibank

FIGure 15 Yield to maturity (%) of bonds of SCF Group and comparable Russian corporate issuers

2.4.4 CreDIT rATInG OF The GrOup

During2015SCFGroupcontinuedtoworkwithinternationalratingagencies.BackedbyasteadystrengtheninginthefreightmarketandthepositivedynamicsoftheGroup’screditmetricsagainstthisback-drop,andnotwithstandingtherevisionofcreditworthinessofRussianissuersbyratingagenciesandadopteddecisionstodowngradetheirratingsamidstrisinggeopoliticalrisksandinstabilityinRussia’seconomicdevelopment,theGroupman-agedtoimproveitscreditratings.

Moody’sInvestorsServiceraisedtheGroup’sissuerratingtoBa3andsimultaneouslyreaffirmedthecorporatecreditratingatBa2,havingliftedtheoutlookforbothratingstostable.FitchRatingsupgradedtheGroup’sratingbyonenotchtoBB,leavingtheoutlookasstable.Standard&Poor’s(S&P)notedpositivedynamicsoftheGroup’sfinancialposition,butleftthecreditratingunchangedatBB+,withanegativeoutlookinlinewithRussia’ssovereignrating.

In2015theunfavourablegeopoliticalenvironmentputsignificantpressureonthequotationsofthebondsofRussianissuers,includingSCFGroup.However,inthesec-ondhalfoftheyear,againstabackdropofstabilisingfinancialmarketsandconsider-ingimprovementsintheGroup’screditmetricsandratings,itsEurobondstradedwithaminimaldiscountontheirfacevalue,andtheiryieldtomaturityattheendofthereportingyearwas6.0%.


OpeRAting Results

ThE PERFORmANCE OF ThE SCF GROUP iN 2015 ALLOwEd iT TO imPROvE iTS CREdiT RATiNGS


CORPORATE GOvERNANCE

• ThehighlydevelopedcorporategovernancesystematSCFGroupfacilitatesimprovementsintheGroup’sinvestmentattractivenessandpromotesincreasesinoperationalefficiency.PAOSovcomflot’splanstoaccesspubliccapitalmarketsmakethedevelopmentofcorporategovernancepracticesaprioritytask.



CoRpoRAte goveRnAnCe

3.1 CORPORATE GOvERNANCE SySTEm

• RegulationsontheCommitteeforInnovativeDevelopmentandTechnicalPolicy(approvedbytheBoardofDirec-torsdecisiondated25February2011,Minutes No.109);

• RegulationsontheExecutiveBoard(approvedbyInstructions No.838-roftheFederalAgencyforStatePropertyMan-agementdated30June2009);

• RegulationsontheChiefExecutiveOfficer(approvedbyInstructions No.696-roftheFederalAgencyforStatePropertyMan-agementdated30June2014);

• RegulationsontheInternalAuditCommis-sion(approvedbyInstructions No.838-roftheFederalAgencyforStatePropertyManagementdated30June2009);

Mechanismsrelatedtomanagingsustain-abledevelopmentandsocialresponsibilityareembeddedintheSCFGroupcorporategovernancesystem.Duringtheiractivitiesmanagementbodiesassessanumberofissues,includingthoserelatedtooccupa-tionalhealthandsafety,HRmanagement,charitywork,andenvironmentalimpacts.

SCFGroup(representedbythemanagementbodiesandemployees)ensurescompliancewithcurrentRussianlawrequirements,includingthoserelatedtocombattingcorruption.

ThegeneralpolicyforregulatingconflictsofinterestinvolvingPAOSovcomflotisdeter-minedbyitsBoardofDirectors.Themecha-nismfornotifyingthemanagementbodiesofSovcomflotofanyconflictsofinterestisdeterminedbytheRegulationsontheBoardofDirectors,aswellasthecurrentCorporateGovernanceCode.

Development of the corporate gover-nance system

TheoriginalversionofthePAOSovcomflotCorporateGovernanceCodewasapprovedbytheBoardofDirectorson22February2007(Minutes No.80).ThecurrentversionoftheCorporateGovernanceCodeofPAOSov-comflot,developedinaccordancewiththeFederalLawonJoint-StockCompanies,theCharterandotherinternaldocumentsoftheCompany,recommendationsoftheCorporateGovernanceCodeapprovedbytheBankofRussia(BankofRussiaLetter No.06-52/2463dated10April2014),recommendationsofthePrinciplesofCorporateGovernanceoftheOrganizationforEconomicCooperationandDevelopment(OECD),andthelistingrequirementsofRussianandforeignstockexchanges,wasapprovedbythePAOSov-comflotBoardofDirectorsdecisiondated10November2015(Minutes No.149).

TheCorporateGovernanceCodeisasetofrules,standards,andinternalregulations,whichareadoptedonavoluntarybasisandareusedbySCFGroupinthecourseofitsactivities,andwhicharebasedonabalancedconsiderationoftheinterestsoftheCom-pany’sshareholders,managementbodiesandotherstakeholders.ThegoaloftheCorporateGovernanceCodeistoensureahighlevelofcorporategovernanceandprofessionalandbusinessethicsnecessarytoachievethestra-tegicgoalsandobjectivesdeterminedbytheCharterandotherinternaldocumentsoftheCompany.TheCorporateGovernanceCodedeterminesthekeyprinciplesandelementsonwhichthecorporategovernancecodeoftheCompanyisbasedandreliesoninterna-tionalcorporategovernancestandardsrecog-nisedbythebusinesscommunity,includingthecorporategovernanceprinciplesoftheOrganizationforEconomicCooperationandDevelopment,theCodeofCorporateGover-nancerecommendedforusebytheBankofRussia,andtheCompany’sCharter.

SCFGROUPSEEkSTOENSURETHATITSCORPORATEGOVERNANCESYS-TEMCOMPLIESWITHINTERNATION-ALLYRECOGNISEDSTANDARDS –THISREQUIRESCOMPLETEADHERENCETOBOTHLEGISLATIVEREQUIREMENTSANDTOBESTPRACTICESTANDARDSRELATEDTOCORPORATEBEHAVIOURANDETHICALNORMS.

Sovcomflotisgovernedbythefollowinginternalcorporategovernanceregulations1:

• TheCharterofPAOSovcomflot(approvedbythePAOSovcomflotBoardofDirectorsdecisionNo.478dated29June2015);

• TheCorporateGovernanceCode(approvedbyInstructions No.18-roftheFederalAgencyforStatePropertyMan-agementdated13January2009);

• RegulationsontheBoardofDirectors(approvedbyInstructions No.18-roftheFederalAgencyforStatePropertyMan-agementdated13January2009);

• RegulationsontheStrategyCommitteeoftheBoardofDirectors(approvedbytheBoardofDirectorsdecisiondated5February2009,Minutes No.95);

• RegulationsontheAuditCommitteeoftheBoardofDirectors(thenewversionwasapprovedbytheBoardofDirectorsdecisiondated30May2014,Minutes No.135;thepreviousversionoftheRegu-lationswasapprovedbytheBoardofDirectorsdecisiondated5February2009,Minutes No.95);

• RegulationsontheHRandCompensa-tionCommitteeoftheBoardofDirec-tors(approvedbytheBoardofDirec-torsdecisiondated5February2009,Minutes No.95);

1TheinternalregulationsgoverningtheactivitiesofthemanagementandcontrolbodiesofPAOSovcomflotareavailableonthewebsitehttp://www.scf-group.ru

General Meeting of Shareholders(russian Federation represented by the Federal Agency for State property Management)

Board of Directors(nine members of the Board of Directors:

four independent members, five government appointees,including the Chief Executive Officer)

executive Board*

(10 members of the Executive Board, including the President and Chief Executive Officer as Chairman)

Strategy Committee

Strategic planning Committee

Committee for Social and hr policy and Corporate ethics

Audit Committee

Freight Committee

Committee for Maritime Safety, Environmental Protection, Quality and

Technology

hr and Compensation Committee

Investment Committee

Committee for Corporate Identity and public relations

Committee for Innovative Development and Technical policy

Committee for Information Technologies

Committee for Technical policy – Technical Council

Finance Committee



FIGure 16 structure Of the management and cOntrOl bOdies Of PaO sOvcOmflOt2

2In2015nochangestookplacetothestructureofPAOSovcomflotmanagementbodies.*Asof31December2015



3.2 GENERAL mEETiNG OF ShAREhOLdERS

On29June2015thePAOSovcomflotAnnualGeneralMeetingofShareholderswasheld(Instructions No.478-roftheFederalAgencyforStatePropertyManage-mentdated29June2015),whichadoptedthefollowingresolutions:

• ApprovetheannualreportontheperformanceofPAOSovcomflotin2014andtheannualfinancialstatements,includingtheincomestatement,ofPAOSovcomflotfor2014;

• ApprovethedistributionofthenetprofitofPAOSovcomflotamountingtoRUB912.1million(100%ofthenetprofit)asdividendsbasedonPAOSovcomflot’soperatingresultsfor2014;

• ApprovethedistributionofPAOSov-comflotprofitsforpreviousyearsintheamountofRUB3,411,416,whichwerenotdistributedtotheCompany’sshareholders,asdividendsonthesharesofPAOSovcomflottotallingRUB213.9million;

• ApprovepaymentofdividendsontheordinarysharesofPAOSovcomflotbasedonthe2014resultsamount-ingtoRUB1,126millionorRUB0.572533481145275perone(1)regis-teredordinaryshareofPAOSovcomflot,representing100%ofthe2014netprofitofRUB912.imillionandretainedearningsfromprioryearsofRUB213.9million,andsetthe10thdayfollowingthedateofthedecisiontopayoutdivi-dendsasthedividendrecorddate;

• ElectmembersofthePAOSovcomflotBoardofDirectorsandInternalAuditCommission;

• ApproveOOOErnst&YoungastheauditorofPAOSovcomflotfor2015;

• ApprovetherevisedCharterofPAOSovcomflot;

• ApproveamendmentstotheRegula-tionsonthePaymentofCompensationandtheReimbursementofExpensestoMembersofthePAOSovcomflotBoardofDirectorsandthepaymentofcom-pensationtomembersoftheCompany’sBoardofDirectorsintheamountdeter-minedbytheseRegulations.

AnextraordinaryGeneralMeetingofPAOSovcomflotshareholderswasheldon19June2015(Instructions No.432-roftheFederalAgencyforStatePropertyMan-agementdated19June2015),atwhichitwasdecidedtoextendthetermofofficeofSergeyFrankandreappointhimasthePresident&ChiefExecutiveOfficerofPAOSovcomflotforfiveyearswitheffectfrom8June2015.

AllresolutionsadoptedattheGeneralMeetingsofShareholdershadbeenexecutedasat31December2015.

INACCORDANCEWITHCLAUSE5OFTHEREGULATIONSONTHEMANAGE-MENTOFTHEFEDERALLYOWNEDSHARESOFOPENJOINT-STOCkCOM-PANIESANDExERCISINGTHESPE-CIALRIGHTFORTHEPARTICIPATIONOFTHERUSSIANFEDERATIONINTHEMANAGEMENTOFOPENJOINT-STOCkCOMPANIES(THE“GOLDENSHARE”),APPROVEDBYRUSSIANGOVERN-MENTRESOLUTION NO.738DATED3DECEMBER2004,THERIGHTSOFTHESHAREHOLDER –THERUSSIANFEDERATION –AREExERCISEDBYTHEFEDERALAGENCYFORSTATEPROPERTYMANAGEMENT,ASAGREEDWITHTHERUSSIANMINISTRYOFTRANSPORT.



RUB 1.126 BiLLiON PAid iN dividENdS TO ThE ShAREhOLdER iN 2015



3.3 BOARd OF diRECTORS ANd iTS COmmiTTEES THEBOARDOFDIRECTORSOFPAOSOVCOMFLOTPLAYSANIMPORTANTROLEINTHEORGANISATIONOFANEFFECTIVECORPORATEGOVERNANCESYSTEM.THEBOARDISRESPONSIBLEFORTHESTRATEGICLEADERSHIPOFTHEGROUP’SACTIVITIESANDDETERMININGTHEVISION,MISSION,ANDSTRATEGICDEVEL-OPMENTOFTHEGROUP.

ThePAOSovcomflotBoardofDirectorscomprisesninemembers.

ThemembersofthePAOSovcomflotBoardofDirectorsduringthereportingperiodwere:

1) elected by the Annual Meeting of Shareholders dated 30 June 2014 (Instructions No. 696-r of the Federal Agency for State Property Management dated 30 June 2014) as follows:

• Ilya Klebanov—Governmentappointee

• Anna Belova —Governmentappointee

• Sergey Frank —Governmentappointee

• Alexey Klyavin —Independentdirector

• Marlen Manasov —Independentdirector

• David Moorhouse —Independentdirector

• Mikhail poluboyarinov —Governmentappointee

• Charles ryan —Governmentappointee

• nikolay Tokarev —Governmentappointee

2) Elected by the Annual Meeting of Shareholders dated 29 June 2015 (Instructions no. 478-r of the Federal Agency for State property Management dated 29 June 2015) as follows:

• Ilya Klebanov —Governmentappointee

• Anna Belova —Governmentappointee

• walid Chammah —Independentdirector

• Ivan Glumov —Independentdirector

• Sergey Frank —Governmentappointee

• Alexey Klyavin —Independentdirector

• David Moorhouse —Governmentappointee

• Mikhail poluboyarinov —Governmentappointee

• Andrei Sharonov —Independentdirector

IlyaklebanovwaselectedChairmanofthePAOSovcomflotBoardofDirectors,basedonBoardofDirectorsdecisionsdated9September2014(MinutesNo.137)and7August2015(MinutesNo.147),inaccor-dancewithRussianGovernmentdirectives.

IndependentdirectorshavebeenelectedtotheBoardofDirectorsofPAOSovcom-flotannuallysince2008,inaccordancewiththecriteriaestablishedinthecur-rentCorporateGovernanceCodeandinRussianGovernmentResolutionNo.738.AccordingtotheCharterofPAOSovcom-flot,theshareholdersseektonominateandelectatleastthreeindependentdirec-tors.Forexample,fourindependentdirec-torswereelectedtotheBoardofDirectors(asat31December2015):Alexeyklyavin,IvanGlumov,WalidChammah,andAndreiSharonov.

TheChairmanandmembersoftheBoardofDirectorsdidnotownsharesinPAOSovcomflotduringthereportingperiod.

Since2006PAOSovcomflothastakenoutliabilityinsuranceformembersoftheBoardofDirectors.



Ilya KlebanovChairmanofthePAOSovcomflotBoardofDirectors

Sergey FrankMemberofthePAOSovcomflotBoardofDirectors,PresidentandCEOofSovcomflot

Mikhail poluboyarinovMemberofthePAOSovcomflotBoardofDirectors,MemberoftheManagementBoardandFirstDep-utyChairmanofVnesheconombank

David MoorhouseMemberofthePAOSovcomflotBoardofDirectors,Non-ExecutiveChairmanoftheBoardofDirectorsofBraemarServicesPLC

Alexey KlyavinMemberofthePAOSovcomflotBoardofDirectors(independentdirector),PresidentofRussianChamberofShipping

Ivan GlumovMemberofthePAOSovcomflotBoardofDirectors(independentdirector),CEOofSeverneftegaz

Anna BelovaMemberofthePAOSovcomflotBoardofDirectors,ProfessorandDeputyDeanoftheHigherSchoolofManagementatNationalResearchUniversityHigherSchoolofEconomics

Andrei SharonovMemberofthePAOSovcomflotBoardofDirectors(independentdirector),RectoratMoscowSchoolofManagementSkolkovo

walid Chammah MemberofthePAOSovcomflotBoardofDirectors(independentdirector),PartnerofChammah&Partners

The Board of directors

2013 2014 2015

41

42

43

FIGure 18

number of issues considered by the Board of Directors, 2013-2015

2013 2014 2015

2

6

3

5

4

5

FIGure 17

Number of Board of Director meetings, 2013-2015

Заочныезаседания

Очныезаседания



3.3.1 ACTIvITIeS OF The BOArD OF DIreCTOrS In 2015

TheprocedureforconveningandholdingmeetingsoftheBoardofDirectorsisdeter-minedbytheRegulationsontheBoardofDirectors.

TheworkoftheBoardofDirectorsinthereportingyearwasperformedinaccor-dancewithitscompetence,asdeterminedundertheFederalLawonJoint-StockCompaniesandthePAOSovcomflotCharter.In2015thePAOSovcomflotBoardofDirec-torsconvenedninetimes(includingfivemeetingsthroughjointattendanceandfourthroughabsenteevoting).

In2015thePAOSovcomflotBoardofDirectorsconsidered44issuesandadopteddecisionsonthefollowingmainareas:

• StrategicmanagementofSCFGroup,includingupdatingthelong-term

andtheholdingbyexecutivebodiesofpositionsonthemanagementbodiesofotherorganisations.

• Approvalofinternaldocuments,includingtheRegulationsonInternalAuditandtheRegulationsonRisks;

• ApprovaloftheCorporateGovernanceCodeofPAOSovcomflot;

• ApprovaloftherevisedRegulationsontheProcurementofGoods,WorksandServicesfortheNeedsofPAOSovcomflot;

• Approvalofinterested-partytransaction;

• SupportingtheorganisationalactivitiesoftheBoardofDirectorsandestablishingCommitteesoftheBoardofDirectors.

InformationonthemostsignificantissueswasdisclosedbyPAOSovcomflotasmate-rialfacts.

1Dateofthemeetingandnumberoftheminutes:24March2015,No.142dated27March2015;4April2015,No.143dated9April2015;19May2015,No.144dated21May2015;28May2015,No.145dated29May2015;24July2015,No.146dated28July2015;7August2015,No.147dated10August2015;22September2015,No.148dated25September2015;10November2015,No.149dated13November2015;10December2015,No.150dated15December2015.

developmentprogramme,termsofreferenceforaudit,implementa-tionofthelong-termdevelopmentprogramme,amendmentstothestructureoftheannualreportofPAOSovcomflot;

• Updatingthecorporateemployeecompensationpolicy;

• NotificationofsignificantissuesinSCFGroupoperations.

• Approvalofthefinancialplan(budget)ofPAOSovcomflotandSCFGroup,asummaryofperformanceduringthereportingperiod,preparationsforholdingtheannualGeneralMeetingofShareholders.

• SupervisingtheactivitiesofPAOSovcomflotexecutivebodies,includingamendingthecompositionoftheExecutiveBoard,approvingperformancetargetsandtheresultsoftheirattainmentbytheexecutivebodies,

CorporateGovernance

StrategyandDevelopment

ApprovalofTransactions

OperatingActivities

Procurement

Other

37%

6%

4%

11%

9%

33%

FIGURE 19

Structure of issues considered at Board of Director meetings, 2015

Director Participationinmeetings Totalnumberofmeetings

Members of the Board of Directors throughout 2015

Ilyaklebanov 9 9

AnnaBelova 9 9

SergeyFrank 9 9

Alexeyklyavin 9 9

DavidMoorhouse 9 9

MikhailPoluboyarinov 9 9

AndreiSharonov 9 9

Members of the Board of Directors until 30 June 2014

MarlenManasov 4 4

CharlesEmmettRyan 4 4

Members of the Board of Directors since 30 June 2015

WalidChammah 5 5

IvanGlumov 5 5

TABle 16 Participation of PAO Sovcomflot directors in Board of Director meetings, 2015



3.3.2 ACTIvITIeS OF The COMMITTeeS OF The BOArD OF DIreCTOrS

Whenconsideringissueswithinitscompetence,thecommitteesarrangeforadetailedanalysisofdraftsproposedbymanagementandthepreparationofrecommendationsfortheBoardofDirec-tors,therebyimprovingthequalityofthedecision-makingprocess.Thecommitteesoperateonthebasisofrespectiveprovi-sionsapprovedbytheBoardofDirectors.

ReportontheworkoftheStrategyCommittee

Duringthereportingperiodtwocom-positionsoftheAuditCommitteewereinoperation(electedbyPAOSovcomflotBoardofDirectorsdecisiondated22July2014(MinutesNo.136)andelectedbyPAOSovcomflotBoardofDirectorsdecisiondated24July2015(MinutesNo.146)).

DuringthereportingperiodStrategyCom-mitteemembersheldworkingmeetingswithPAOSovcomflot’smanagementonmattersrelatedtoupdatingthelong-termdevelopmentprogrammeofPAOSovcomflot.

report on the work of the Audit Com-mittee


In2015theCommitteeconsideredandpreparedrecommendationsfortheBoardofDirectorsontheamountofthefeetobepaidtothePAOSovcomflotauditor,approvaloftheRegulationsontheInternalAuditDepartmentandtheRegulationsonRiskofPAOSovcomflot,andparticipatedinthepreparationoftheconsolidatedfinancialstatementsandauditreportfor2014.

DuringthereportingperiodAuditCommit-teemembersheldregularworkingmeet-ingswiththeauditorsandthefinancialandaccountingdepartmentsofPAOSovcomflot.

report on the work of the hr and Com-pensation Committee


TheHRandCompensationCommitteeconsideredandpreparedrecommendationsfortheBoardofDirectorsonthefollowingissues:

• UpdatingthecorporateemployeecompensationpolicyofSCFGroup;

• ImprovingthesystemofcompensationformembersofthePAOSovcomflotBoardofDirectors;

• Approvingperformancetargetsandtheresultsoftheirattainmentbytheexecutivebodies;

2Dateofthemeetingandnumberoftheminutes:1April2015,minutesunnumbereddated3April2015;22September2015,minutesunnumbereddated22September2015;10December2015.minutesunnumbereddated10December2015.



9 meetings

OFTHEPAOSOVCOMFLOTBOARDOFDIRECTORSWEREHELDIN2015

• EvaluatingperformanceofthePAOSovcomflotChiefExecutiveOfficerandrecommendationsonhisre-electionforanewterm;

• AmendingtheRegulationsontheWagesandMaterialIncentivesofPAOSovcomflotEmployees,includingthePAOSovcomflotlong-termemployeeincentiveprogramme;

• ProposalsonthecompensationsystemandthereimbursementofexpensestoPAOSovcomflotBoardofDirectormembers.

DuringthereportingperiodmembersoftheHRandCompensationCommitteeheldregularworkingmeetingsontheaboveissueswithmembersofthePAOSovcom-flotcollegiateexecutivebody.

report on the work of the Committee for Innovative Development and Tech-nical policy


DuringthereportingperiodmembersoftheCommitteeforInnovativeDevelopmentandTechnicalPolicyheldregularworkingmeetingswithcorrespondingPAOSovcom-flotstructuraldivisionsonissuesregard-ingtheimplementationoftheinnovativedevelopmentprogramme.

SCF Primorye, a Suezmax tanker of 158,000 deadweight tonnes

Nameofcommittee Compositionofcommitteeasat31December2015

Competenciesofcommittee

StrategyCommittee 1.Alexeyklyavin(independentdirector)–CommitteeChairman;

2.AnnaBelova;

3.WalidChammah(independentdirector);

4.IvanGlumov(independentdirector);

5.SergeyFrank;

6.AndreiSharonov(independentdirector).

– AnalysisofproposalsandelaboratingrecommendationsfortheBoardofDirectorsonpriorityareasofactivityofPAOSovcomflot,includinglong-termplansanddevelopmentstrategiesandprogrammes.

– PreliminaryconsiderationandpreparationofrecommendationsoncompilingandadjustingthePAOSovcomflotbudget,andondraftingPAOSovcomflotplansforfinancialandbusinessactivitiesoverthelongtermandforthecurrentperiod.

– ElaboratingproposalsandrecommendationsonkeyperformanceindicatorsandthegovernancesystemforPAOSovcomflotfinancialactivities.

– Elaboratingproposalsandrecommendationsoninvestmentpolicy,increasingthecapitalisationofPAOSovcomflot,andworkingwithPAOSovcomflotsecurities.

– ElaboratingproposalsandrecommendationsonthePAOSovcomflotdividendpolicy.

AuditCommittee 1.AndreiSharonov(independentdirector)–CommitteeChairman;

2.AnnaBelova;

3.WalidChammah(independentdirector);

4.Alexeyklyavin(independentdirector);

5.DavidMoorhouse.

– AssessingauditorcandidatesforPAOSovcomflot,includingsubmittingtheassessmentresultstotheBoardofDirectors,preparingforthePAOSovcomflotBoardofDirectorsrecommendationsonthecandidacyofanauditorforsubsequentapprovalbytheGeneralMeetingofShareholders.

– AssessingthefinancialandbusinessactivitiesofPAOSovcomflot,includinginrelationtomanagementreportingandthefinancialstatements.

– Assessingtheauditor’sreportforPAOSovcomflotpriortoitsbeingsubmittedtotheGeneralMeetingofShareholders.

– AssessingtheeffectivenessofinternalcontrolproceduresineffectatPAOSovcomflot,andpreparingproposalsonhowtheymaybeimproved.

– Creatingrecommendationsonselectinganindependentappraiserandthevaluationofpropertybytheindependentappraiserininstancesstipulatedunderlaw.

– SupervisingtheactivitiesandfunctionalmanagementoftheactivitiesofthePAOSovcomflotinternalauditdepartment.

– PreliminaryconsiderationofriskmanagementissueswithinthecompetenceoftheBoardofDirectors.

HRandCompensationCommittee

1.WalidChammah(independentdirector)-CommitteeChairman;

2.AnnaBelova;

3.DavidMoorhouse;

4.AndreiSharonov(independentdirector).

– DeterminingtheamountofcompensationofmembersoftheBoardofDirectorsandthePAOSovcomflotInternalAuditCommission.

– DeterminingtheamountofcompensationofmembersofthecollegiateexecutivebodyandthepersonexercisingthefunctionsofsoleexecutivebodyofPAOSovcomflot,includingthemanagementcompanyormanagerofPAOSovcomflot.

– DeterminingthetermsandconditionsofcontractswithmembersofthecollegiateexecutivebodyandthepersonexercisingthefunctionsofsoleexecutivebodyofPAOSovcomflot.

– ElectingtheexecutivebodiesofPAOSovcomflot.

– DeterminingandadjustingthePAOSovcomflotHRpolicy.

– Elaboratingandsubmittingrecommendations(opinions)totheBoardofDirectorsonotherissues,inaccordancewithinstructionsfromtheBoardofDirectors.

CommitteeforInnovativeDevelopmentandTechnicalPolicy

1.DavidMoorhouse-CommitteeChairman;

2.SergeyFrank;

3.IvanGlumov(independentdirector);

4.Alexeyklyavin(independentdirector).

– ConsideringandapprovingtheinnovativedevelopmentpolicyandprogrammesofPAOSovcomflot.

– ConsideringandapprovingR&Dprojects.

– Assessingstate-of-the-artinnovativetechnologiestobeimplementedatPAOSovcomflot.

– CreatingthePAOSovcomflottechnicalpolicy.

– CreatingthePAOSovcomflotinnovativedevelopmentpolicy.

– ImprovementstothesafetyandqualityservicemanagementsystematPAOSovcomflot.

– Technicalexpertappraisalsofinvestmentprojects.

TABle 17 Composition and structures of committees of the Board of Directors



2013 2014 2015

136

114

137

FIGure 21

number of issues considered by the executive Board, 2013-2015

2013 2014 2015

10

55

12

53 7

46

FIGure 20

Number of Executive Board meetings, 2013-2015

Absenteevoting Jointpresence



3.4 ChiEF ExECUTivE OFFiCER ANd ThE ExECUTivE BOARdTHEDAY-to-DAYACTIVITIESOFPAOSOVCOMFLOTAREMANAGEDBYTHEPRESIDENT&CHIEFExECUTIVEOFFICER(SOLEExECUTIVEBODY)ANDTHEExECUTIVEBOARD(COLLE-GIATEExECUTIVEBODY).

InaccordancewithdirectivesoftheRussianGovernment,SergeyFrankwaselectedPresident&ChiefExecutiveOfficeron4October2014byaPAOSovcomflotExtraor-dinaryGeneralMeetingofShareholders.ThepowersofSergeyFrankasPAOSov-comflotPresident&ChiefExecutiveOfficerwereextendedforfiveyearsbyaResolu-tionoftheExtraordinaryGeneralMeetingofShareholders(Instructions No.432-roftheFederalAgencyforStatePropertyMan-agementdated19June2015).

TherightsandobligationsofthePresident&ChiefExecutiveOfficerandmembersoftheExecutiveBoardonmanagingthecurrentactivitiesofPAOSovcomflotaredeterminedbyFederalLaw No.208-Fz“OnJoint-StockCompanies”dated26Decem-ber1995,otherlegalactsoftheRussianFederation,theCharter,RegulationsontheManagementBodies,theinternalregula-tionsofPAOSovcomflot,andcontractsdeterminingtherightsandobligationsofthePresident&ChiefExecutiveOfficerandmembersoftheExecutiveBoardconcludedbyeachofthemwithPAOSovcomflot.

TheChiefExecutiveOfficerexercisesthefunctionsofPresidentoftheExecutiveBoard,actswithoutapowerofattorneyonbehalfofPAOSovcomflot,andapprovesinternalregulationsgoverning:produc-tionandtechnology;financial;accounting;business;HR;andoccupationalhealthandsafetyissues.

TheExecutiveBoardoperateswithinthelimitsofitscompetencedeterminedbytheCharter,andorganisestheimplementationofresolutionsoftheGeneralMeetingsofShareholders,aswellasdecisionsofthePAOSovcomflotBoardofDirectors.

ThePresidentandmembersoftheExecu-tiveBoarddidnotownsharesinPAOSovcomflotduringthereportingperiod.

In2015thefollowingchangesweremadetothecompositionofthePAOSovcomflotExecutiveBoard:accordingtothedecisionoftheBoardofDirectorsdated10Decem-ber2015(Minutes No.150),thecomposi-tionoftheExecutiveBoardwaschangedandthepowersofExecutiveBoardmemberAlexanderkurtyninwereterminatedinconnectionwithterminationofhisemploy-mentagreementwithPAOSovcomflot.

BasedonadecisionoftheExecutiveBoard,thefollowingcommitteeswerecreatedandoperateatPAOSovcomflot:

• TheStrategicPlanningCommittee

• TheCommitteeforMaritimeSafety,EnvironmentalProtection,QualityandTechnologies

• TheFinanceCommittee

• TheInvestmentCommittee

• TheFreightCommittee

• TheCommitteeforCorporateIdentityandPublicRelations

• TheCommitteeforSocialandHumanResourcesPolicyandCorporateEthics

• TheCommitteeforTechnicalPolicy –TechnicalCouncil

• TheCommitteeforInformationTechnologies

Sevenoutofthe53meetingsoftheExecu-tiveBoardwereheldbyabsenteevoting.Atotalof137issueswereconsideredattheExecutiveBoardmeetingsin2015.

Basedontheissuesconsidered,theExecutiveBoardadopteddecisionsonthefollowingmainareasofactivityofPAOSovcomflot:

• ImplementingthedevelopmentstrategyofSCFGroup

• RenewingthePAOSovcomflotfleetandexpandingtheGroup’sparticipationinindustrialprojects

• Improvingthecorporateandorganisa-tionalstructureoftheGroup

• Expandingthesocialguaranteesandbenefitpackagesoffleetandonshorepersonnel

• CharitableandsponsorshipprogrammesofPAOSovcomflotandSCFGroup

1MoredetailsontheregulationsonthemanagementbodiescanbefoundintheCorporateGovernancesectionontheGroup’swebsite:http://www.scf-group.ru



Sergey FrankPresidentandCEO

vladimir emelyanovVice-President,HeadofStrategicPlanningandDevelopment

nikolay KolesnikovExecutiveVice-President,ChiefFinancialOfficer

Alexey OstapenkoVice-President,AdministrativeDirector

Igor TonkovidovExecutiveVice-President,ChiefEngineer

Alexander KurtyninVice-President,HeadoftheSeismicExplorationDivision

evgeny Ambrosov SeniorExecutiveVice-President

Marios Christou OrphanosManagingDirectorofSovcomflot(Cyprus)Ltd.

Callum ludgateManagingDirectorofSovcomflot(Uk)Ltd.

yury TsvetkovPresidentofPAONovoship

Sergey popravkoManagingDirectorofUnicomManagementServices(Cyprus)Ltd.

The executive Board



3.5 iNTERNAL AUdiT COmmiSSiON THEINTERNALAUDITCOMMISSIONExERCISESCONTROLOVERTHEFINANCIALANDBUSINESSACTIVI-TIESOFPAOSOVCOMFLOT,ASWELLASITSDIVISIONSANDSERVICES.THEINTERNALAUDITCOMMISSIONCONSISTSOFTHREEINDIVIDUALSAPPOINTEDBYTHEFEDERALAGENCYFORSTATEPROPERTYMANAGEMENTINAGREEMENTWITHTHERUSSIANMINISTRYOFTRANSPORT.

Thecompetenceandoperatingproce-duresoftheInternalAuditCommission1aredeterminedbytheRegulationsontheInternalAuditCommission,approvedbythePAOSovcomflotGeneralMeetingofShareholdersandInstructions No.838-roftheFederalAgencyforStatePropertyManagementdated30June2009.Thepay-mentofcompensationandreimbursementofexpensestoInternalAuditCommissionmembersisperformedonthebasisoftheInstructionsoftheFederalAgencyfor

StatePropertyManagement,inaccordancewiththeRegulationsonthePaymentofCompensationandtheReimbursementofExpensestoMembersofthePAOSovcom-flotInternalAuditCommission(approvedbyInstructions No.1046-roftheFederalAgencyforStatePropertyManagementdated13August2013).

TheInternalAuditCommissioniselectedbytheannualGeneralMeetingofShare-holdersuntilthefollowingannualGeneralMeetingofShareholdersandconsistsofnofewerthanthreepeople(Clause17.2ofthePAOSovcomflotCharter).Duringthereportingperiod,theInternalAuditCom-missionoperatedinthefollowingcompo-sitions,whichwereelectedby:

1. TheannualGeneralMeetingofShareholdersof30June2014(Instruc-tions No.696-roftheFederalAgencyforStatePropertyManagementdated30June2014)asfollows:Irina

Babenkova,AlexanderVolchkov,andAlexanderTikhonov.

2. TheannualGeneralMeetingofShareholdersof29June2015(Instruc-tions No.478-roftheFederalAgencyforStatePropertyManagementdated29June2015)asfollows:Mikhailkuznetsov,EvgenyStolyarov,andAlex-anderTikhonov.

DuringthereportingperiodmembersoftheInternalAuditCommissiondidnotownsharesinPAOSovcomflot.

Basedontheresultsfor2015,compen-sationwasnotpaidtomembersoftheInternalAuditCommission.

Duringthereportingperiodallrecom-mendationsofthePAOSovcomflotInternalAuditCommission,basedontheresultsoftheinternalauditoffinancialandbusinessactivities,wereexecuted.

1Formoredetails,theRegulationscanbefoundontheCorporateGovernancesectionoftheGroup’swebsite:http://www.scf-group.com



3.6 COmPENSATiON SySTEm FOR mEmBERS OF mANAGEmENT BOdiES 3.6.1 COMpenSATIOn OF BOArD OF DIreCTOrS MeMBerS In The repOrTInG yeArInaccordancewiththeRegulationsonthePaymentofCompensationandtheReimbursementofExpensestoMembersofthePAOSovcomflotBoardofDirectors,approvedbyInstructionsNo.1158-4oftheFederalAgencyforStatePropertyManage-mentdated30June2012,PAOSovcomflotreimbursesBoardofDirectorsmembersfordocumentedexpensesincurredwhilstexercisingtheirdutiesasBoardofDirectorsmembers.

InaccordancewithRussianMinistryofEconomicDevelopmentrecommendationsandtheRegulationsonthePaymentofCompensationandtheReimbursementofExpensestoMembersofthePAOSovcom-flotBoardofDirectors,thedirectorsofPAOSovcomflotarepaidcompensationduringtheirtermofofficeforexercisingtheirdutiesasBoardofDirectorsmembers,withbasiccompensationsetatRUB2millionayear.Compensationinthefollowingamountsispaideachyearinadditiontobasiccompensationforthedirectorsserv-ingasChairmanoftheBoardofDirectors,ChairmanofaCommitteeoftheBoardofDirectors,andMemberofaCommitteeofthePAOSovcomflotBoardofDirectors:

• ForexercisingthedutiesoftheChairmanoftheBoardofDirectors,intheamountofthebasiccompensationmultipliedbyacoefficientof2.3.

• ForexercisingthedutiesoftheChairmanofaCommitteeoftheBoardofDirectors,intheamountofthebasiccompensationmultipliedbyacoefficientof0.8.

• ForexercisingthedutiesofaMemberofaCommitteeoftheBoardofDirectors,intheamountofthebasiccompensationmultipliedbyacoefficientof0.6.

CompensationamountspaidontopofthebasiccompensationarepaidregardlessofthenumberofPAOSovcomflotBoardofDirectorcommitteesonwhichthememberoftheBoardofDirectorsworks.Compensa-tionisnotpaidtoBoardofDirectormem-bersthatareemployeesofPAOSovcomflot,ortostateofficialsandotherindividualsthatarenotentitledunderRussianlawtocompensation.

InaccordancewiththeaboveRegulationsonthePaymentofCompensationandtheReimbursementofExpensestoMembersofthePAOSovcomflotBoardofDirectorsandInstructionsNo.478-roftheFederalAgencyforStatePropertyManagementdated29June2015,in2015PAOSov-comflotBoardofDirectorsmemberswerepaidcompensationandreimbursementforexpensesintheamountsetforthininter-naldocumentsofPAOSovcomflot.

3.6.2 COMpenSATIOn OF exeCuTIve BOArD MeMBerS AnD The ChIeF exeCuTIve OFFICer In The repOrTInG yeAr

ThecompensationofthePAOSovcomflotExecutiveBoardmembersconsistsof:

• Afixedcomponent(monthlysalary)

• Avariablecomponent(compensa-tionbasedontheCompany’sannualperformance)

Thesizeofamonthlysalaryisestablishedbytheemploymentcontractsconcludedatthetimeofemployment.

CompensationbasedontheCompany’sannualperformanceisdirectlylinkedtotheattainmentofanumberofkeyper-formanceindicatorsdefinedaccordingtotheLong-TermDevelopmentProgramme.

ThepaymentofannualbonusesactsasanincentivetoattainthestrategicgoalsofPAOSovcomflot,andalsoservestoattractandretainthebestindustryspecialists.

Startingfrom1January2015,MembersoftheExecutiveBoardandsomeofseagoingandonshorepersonnelareparticipatingintheLong-TermMotivationProgramme(LTMP)approvedbytheBoardofDirectors.ThetotaldurationoftheLTMPisfiveyearswithremunerationtobepaidin2018,2019and2020.

InaccordancewiththeLTMP,employeesareentitledtoreceiveremunerationupontheattainmentoftargetkeyperformanceindicators(kPItargets)definedintheCom-pany’sLong-TermDevelopmentProgramme.IfkPItargetsarenotattained,entitlementsaccruedinaccordancewiththeLTMPtermsandconditionsmaybecancelled.

Target(projected)kPIsdeterminingthecontributionofExecutiveBoardmemberstoimplementingSCFGroupstrategyforthe2015financialyearwereapprovedbytheBoardofDirectorsdecisiondated10December2014(MinutesNo.140).

InaccordancewiththeRegulationsonWagesandMaterialIncentivesforEmploy-eesofPAOSovcomflot,basedontheBoardofDirectorsdecisiondated7April2015(MinutesNo.143)confirmingtheattain-mentofkPIsforthereportingperiod,com-pensationofRUB317.9millionwaspaid.



3.7 iNTERNAL ANd ExTERNAL AUdiT3.7.1 InTernAl AuDITSCFGrouphasbuiltasystemofinternalcontrolsandaudit,whichfacilitatestheeffectiveimplementationoftheinternalbusinessprocessesoftheGroup.ThesystemofinternalcontrolsandauditismanagedbytheAuditCommitteeoftheBoardofDirectors,theInternalAuditCommission,andthePAOSovcomflotInternalAuditDepartment.TheefficiencyoftheinternalcontrolssystemisalsobolsteredbyhavingfourindependentdirectorsontheBoardofDirectors.

ThePAOSovcomflotInternalAuditDepart-ment(beforeFebruary2009:InternalControlDepartment)createdinApril2006isastandalonestructuraldivisionofPAOSovcomflotandoperatesinaccordancewiththeregulationsonthedepartmentapprovedbythedecisionofthePAOSovcomflotBoardofDirectorsdated10November2015(Min-utes No.149).TheInternalAuditDepartmentisdesignedtohelpimprovethemanage-mentefficiencyofPAOSovcomflotthroughasystematicandconsistentapproachtotheanalysisandevaluationoftheriskmanage-mentandinternalcontrolsystemandassisttheBoardofDirectorsandtheexecutivebodiesofPAOSovcomflotinensuringsuc-cessfuloperationofPAOSovcomflot.

TheInternalAuditDepartmentisledbyitshead,whoisappointedanddischargedbythePAOSovcomflotpresident&ChiefExecutiveOfficerbyrecommendationoftheAuditCommittee(Clause1.4oftheRegula-tionsontheInternalAuditDepartment).Thedepartmenthasthreeemployees.

ThemainobjectivesoftheInternalAuditDepartmentareto:

• Assesstheefficiencyandmonitortheadequacyoftheinternalcontrol,riskmanagementandcorporategovernancesystems;

• Checkthefinancial,managementandotherreportsforcompletenessandaccuracy;

• Checktheeffectivenessofcontrolmeasuresandotherriskmanagementactivities;

• ControlcompliancebyPAOSovcomflotwithinternaldocuments,proceduresandregulations,andtheirconformitytothecurrentlegislationoftheRussianFederation;

• Putforwardproposalsonwaystoimprovetheefficiencyoftheexistinginternalcontrolandriskmanagementsystem,includingthecorrectionofidenti-fiedviolationsanddeficiencies(Clause3oftheRegulationsontheInternalAuditDepartment).

TheInternalAuditDepartmentreportsfunctionallytothePAOSovcomflotBoardofDirectorsandadministrativelyreportsdirectlytothePAOSovcomflotChiefExecu-tiveOfficer(Clause2.1oftheRegulationsontheInternalAuditDepartment).

TheInternalAuditDepartmentworkswiththeAuditCommitteeoftheBoardofDirectors,theInternalAuditCommission,andexternalauditorsofPAOSovcomflot,itssubsidiariesandassociates(Clause5.5.oftheRegulationsontheInternalAuditDepartment).

Toincreasethequalityoftheinternalauditfunction,anexternalassessmentofitisperformedonaregularbasis,basedonadecisionofmanagementoftheGroup.Forexample,in2012Ernst&Youngperformedsuchanexternalassess-mentaspartoftheauditoftheoveralldiagnosticsoftheinternalauditandriskmanagementfunctionandtheinternalcontrolsystemfromtheperspectiveofcompliancewiththekeyrequirementsoftheregulatoryauthorities.TheinternalauditfunctionisanalysedeachyearasacomponentoftheInternalControlServiceduringtheannualauditofthefinancialstatementsoftheGroup,basedontheresultsoftheyear.

In2014,aspartoftheapprovedLDP,theBoardofDirectorsadoptedtheStandardfortheAuditoftheImplementationoftheLong-TermDevelopmentProgrammeofPAOSovcomflot,aimedatimprovingtheriskmanagementandinternalcontrolsystem.

3.7.2 exTernAl AuDIT

Inaccordancewithlegislativerequirements,PAOSovcomflotholdsanannualtendertoappointanauditortoconductanindepen-dentauditofthefinancialstatementsofPAOSovcomflotpreparedinaccordancewithRussianaccountinglaws,andtheconsoli-datedfinancialstatementsofPAOSovcom-flotpreparedunderFederalLaw No.208-Fz“OnConsolidatedFinancialStatements”of27July2010.Forthispurposeatendercommissioniscreatedandtheprocedureswhichgoverntheholdingofpublictendersarecarriedout.

Thetenderisopen,andthenoticeoftenderandrelatedtenderdocumentationarepublishedundertheprocedureestablishedbylaw.InterestedparticipantsmeetingRus-sianstatutoryrequirementsonauditorsareinvitedtoparticipate.Thewinnerisdeemedtobetheauditfirmthathascollectedthemostpointsbasedonanassessmentofthebids.Ifthereisatie,theauditfirmthatwasthefirsttosubmitabidisdeemedtobethewinner.

ThefinancialstatementsofPAOSovcomflotfor2015preparedinaccordancewithRus-sianaccountinglawsandtheconsolidatedfinancialstatementspreparedinaccordancewithIFRSwereauditedbyOOOErnst&Young.

InthereportingyeartheauditordidnotprovideanyadvisoryservicestoPAOSovcomflot.

1Formoredetails,seethesubsectionsentitledBoardofDirectorsanditsCommitteesandInternalAuditCommission2FederalLawNo.307-Fz“OnAuditing”dated30December2008andFederalLawNo.44-Fz“OntheContractSystemintheProcurementofGoods,WorksandServicesforStateandMunicipalNeeds”dated5April2013.



3.8 STRUCTURE OF ThE ShARE CAPiTAL THEAUTHORISEDSHARECAPITALOFPAOSOVCOMFLOTASAT31DECEMBER2015AMOUNTEDTORUB1,966,697,210ANDCONSISTEDOF1,966,697,210ORDINARYREGISTEREDSHARESWITHANOMINALVALUEOFONEROUBLEEACH.

In2015,basedtoaresolutionoftheannualPAOSovcomflotGeneralMeetingofShare-holdersdated30June2014(InstructionsNo.696-roftheFederalAgencyforStatePropertyManagementdated30June2014),itwasdecidedthattheauthorisedcapitalshouldbeincreasedbytheplacementofanadditional280,956,743ordinaryregisteredshares.

Aspartofimplementingthisresolution,thePAOSovcomflotGeneralMeetingofShareholders(MinutesNo.141)approvedon17December2014aresolutionontheadditionalissueofordinaryregistereduncertifiedsharesofPAOSovcomflot,aswellasthesecuritiesprospectusfortheseshares.ThesedocumentswereregisteredwiththeBankofRussiain2015.On27January2016,thePAOSovcomflotBoardofDirectorsmadeadecisiononamendments

totheresolutionontheadditionalissueofregisteredordinaryuncertifiedsharesofPAOSovcomflotandthesecuritiesprospec-tusfortheseshares,extendingtheperiodforplacementoftheadditionalissueofsharesfromoneyeartotwoyearsafteritsregistration.Theseamendmentswereregis-teredbytheBankofRussiaon25February2016.

AllPAOSovcomflotsharesarefederallyowned.TheRussianFederation,representedbytheFederalAgencyforStatePropertyManagement,isthesoleshareholderofPAOSovcomflot.

2012 2013 2014 2015

421300 300

1126

FIGure 22

Dynamics of dividend payments to the russian Federation, 2012-2015, RUB million



3.9 ExPENdiTURE OF NET PROFiT ANd dividENd POLiCy 3.9.1 InFOrMATIOn On The DISTrIBuTIOn OF prOFIT

Inrelationtothedistributionofnetprofitandthepaymentofdividends,PAOSovcomflotisgovernedbyInstructions No.774-roftheRussianGovernmentdated29May2006«OnEstablishingthePositionoftheShareholder —theRussianFederationinJoint-StockCompanies»,aswellastheRegulationsontheDividendPolicyofPAOSovcomflot.

In2015thenetprofitoftheGroupwasUSD354.5million.Aresolutionregardinghownetprofitshouldbeallocatedinthereportingyear,includingondividendpaymentsfor2015,willbeadoptedattheannualGeneralMeetingofShareholdersin2016.

3.9.2 DIvIDenD pOlICyThedividendpolicyisbasedonmaintaininganoptimalbalanceofinterestsbetweenPAOSovcomflotanditsshareholderwhendistributingnetprofit,andontheneedtoincreasetheinvestmentappealofPAOSovcomflotanditscapitalisation.

On14December2012theOAOSovcomflotBoardofDirectorsapprovedtheDividendPolicy,whichsetsdividendsatalevelnolowerthan25%ofthenetprofitattributabletotheequitystakeofthePAOSovcomflotshareholder,inaccordancewiththeauditedconsolidatedfinancialstatementspreparedunderIFRS,andconvertedintoroublesattheCBRexchangerateattheendofthereportingperiod.

On7April2015theBoardofDirectorsrecommendedthattheGeneralMeetingofShareholdersallocateRUB1,126millionindividendpayments,basedonthe2014results.Thisamountofdividendsaccountedfor25%ofthenetconsolidatedprofitattributabletotheequitystakeofthePAOSovcomflotshareholderinaccordancewiththeIFRSstatementsand123.45%ofthenetprofitaccordingtothePAOSovcomflotstatementspreparedunderRAS.On29June2015theannualPAOSovcomflotGeneralMeetingofShareholdersadoptedaresolutiononthepaymentofdividendsinaccordancewithrecommendationsfromtheBoardofDirectors.TheamountofdividendswastransferredinfullbyPAOSovcomfloton13July2015.Dividendsbasedonthe

operatingresultsfor2014werepaidin2015infullandbythedeadlinesstipulatedunderRussianlaw.

Asat31December2015PAOSovcomflothadnodebtrelatedtodividendpayments.

On13April2016,theBoardofDirectorsrecommendedthatatotalofRUB6.186billionbeallocatedfordividendpayments,basedontheoperatingresultsofPAOSovcomflotin2015,whichcomplieswiththeapproveddividendpolicyandamountsto25%ofthenetprofitoftheGroupattributabletothestakeoftheshareholderofPAOSovcomflot,inaccordancewiththeauditedconsolidatedfinancialstatementspreparedunderIFRS,andconvertedintoroublesattheCBRexchangerateasat31December2015.

1Formoredetailsonprofitindicators,seetheOverviewofFinancialPerformancesub-section

Area Amount Comment

Paymentofdeclared(accrued)dividendsonshares 0 Notapplicable

Amountofdividendstransferredtofederalbudget RUB1.126billion Paidfromretainedearningsofpreviousyears

Amountallocatedtoreservefund 0 Reservefundisfullyformed

Amountallocatedtootherfundsin2015,indicatingnamesofthefunds 0 Therearenootherfunds

Amountallocatedin2015toimplementinvestmentprojects 0

Otherareasoftheuseofnetprofitin2015 0

TABle 18 Main areas of expenditure of the 2014 net profit



Vyacheslav Tikhonov, a 3D seismic vessel designed for geophysical exploration on the continental shelf of the Arctic seas



SUSTAiNABLE dEvELOPmENT

• TheoccupationalhealthandsafetyactivitiesofSCFGrouparebasedoncompliancewiththeprincipleSafetyComesFirst.

• ThecornerstoneofthesuccessofSCFGroupistheprofessionalismandcoordinatedworkofitstopspecialists;primarilythecaptainsandcrewsofitsvessels,aswellasonshorepersonnelinRussiaandabroad.

• ThesponsorshipandcharityactivityoftheGroupisaimedatpreservingthehistoricallegacy,takingcareofthehealthandphysicaldevelopmentofthenextgeneration,andsupportingthenationaleducationalcluster.

SAFETy COmES FiRST iS ThE KEy PRiNCiPLE OF SCF GROUP iN ThE AREA OF SUSTAiNABLE dEvELOPmENT


SuStAinAble development



4.1 OCCUPATiONAL hEALTh ANd SAFETyTHEOCCUPATIONALHEALTHANDSAFETYACTIVITIESOFTHEGROUPAREBASEDONTHEPRINCIPLESAFETy COMES FirST –ONEOFTHEkEYPRIORITIESOFSCFGROUP.THEGROUPSEEkSTOCOMPLYNOTONLYWITHRUSSIANLEGISLATION,BUTALSOWITHBESTPRACTICESANDINTERNATIONALSTANDARDSPER-TAININGTOOCCUPATIONALHEALTHANDSAFETY.

4.1.1 OCCupATIOnAl heAlTh AnD SAFeTy MAnAGeMenT SySTeMOccupationalhealthandsafetymanage-mentisimplementedatalllevelsofSCFGroup.Forexample,theBoardofDirectorshassetuptheCommitteeforInnovativeDevelopmentandTechnicalPolicy,whichconductsapreliminaryreview,analysis,andelaborationofrecommendationsonhowthesafetymanagementsystemcanbeimproved.ThePAOSovcomflotExecutiveBoardhassetuptheCommitteefortheSafetyofNavigation,EnvironmentalProtec-tion,QualityandNewTechnologies,whichisresponsibleforestablishingtheareas,goals,andobjectivesoftheGroup’spolicyrelatedtooccupationalhealthandsafety.

Thefleetisoperatedinaccordancewithanintegratedsafetymanagementsys-tembasedonthestandardmethodsforensuringtheeffectiveandsafetechnicaloperationofvesselsandvesselequipment,approvedaspartoftheInternationalSafetyManagementCode(ISMCode),theISO9001andISO140001standards,theShipSafetyManagementSystembasedontheISMCode,andcorrespondingrequirements

oftheFlagAdministration,theGroupandbestseamanship.

TheGrouphasimplementedaunifiedsafetymanagementsystem.Theunifica-tionprocessbeganin2009,withpoliciesandbasicpractices.Subsequently,organ-isationalstructureswereadaptedtoalignwiththeunifiedstandards.

SCFGroupmaritimesafetyandqualityspecialistsperformR&DworkaimedatstudyingthespecificsofArcticshipping,andsupportinnovativeprojects,participateindevelopingindustryregulations,andregularlyparticipateinmeetingsoftheMaritimeSafetyCommitteeoftheRussianChamberofShipping.

4.1.2 Key OCCupATIOnAl SAFeTy AnD ACCIDenT InCIDenCe rATe InDICATOrS In 2015

1. Occupational safety and work-related accidents

TheLostTimeInjuryFrequency(LTIF)in2015was0.42(84thpositionamong182companiesaccordingtoIntertanko),whichisbetterthantheaveragefigurefortheglobaltankerfleet,equalto0.95accord-ingtoIntertanko.TheTotalRecordableCaseFrequency(TRCF)was1.14(73rdpositionamong182companiesaccord-ingIntertanko),whichis52.5%lowerthantheindustryaverage(2.40accordingtoIntertanko).

In2015therewerenofatalwork-relatedaccidents.

2. Ship accidents

Thenumberofseriousaccidents(causingdamageofmorethanUSD250,000)fellfrom11incidentsin2014to11in2015.

Theprevailingtypesofincidentswereoccupationalinjurycases.In2015,therewerenoconsiderable(abovestatisticalthresholds)spillsofchemicals,oilorfuel.

Basedontheresultsofanalysingmechani-calbreakdowns,theGroupapprovedanActionPlantoimprovethequalityoftech-nicalmanagementandaccidentpreventionmeasures.TheCommitteeforNavigationSafety,EnvironmentalProtection,QualityandNewTechnologiesofthePAOSovcom-flotExecutiveBoardregularlydraftsrecom-mendationsthatcontainalistofactionstoimprovethequalityoftechnicalmanage-mentonvessels.

47.5% of the industry average

The TOTAL reCOrdABLe CASe FrequenCy rATe AT The grOuP in 2015



4.2 EmPLOyEES4.2.1 hr pOlICyAllvesselsintheSCFGroupfleetaremannedbyhighlyprofessionalcaptainsandcrewmembers,whosetrainingandexperiencemeetthebestglobalstandards.AnimportantroleintheattainmentofgoalssetintheGroup’sDevelopmentStrategyisplayedbytheprofessionalismofcaptainsandcrewmembersandalsotheemployeesofonshoreunits.

TheGrouphasdevelopedandimplementsasystemofinternalregulationsgoverningtheHRpolicygearedtoattract,train,anddeveloppersonnel.Inparticular,intheareaofprofessionaldevelopmentandemployeemotivation,theRegulationsonWagesandMaterialIncentivesforEmployeesandRegulationsontheProfessionalTraining/RetrainingandRaisingtheQualificationsLevelofPersonnelareappliedandcontinuouslyimproved.

InthereportingperiodSCFGroupcarriedoutactiveHRworkinthefollowingmainareas:

• IncreasingtheappealofworkingontheGroup’svesselsandimprovingthesystemforselectingandtrainingthecompetentfleetpersonnelrequiredforvessels;

667 people

hired By SCF grOuP in 2015

• Enhancingsocialsecurityforseafarersandonshorepersonnelintimesoffinancialturbulence;

• Furtherimprovingtheincentivesystemforseniorandmiddlemanagementtoalignthefixedandvariablecomponentsofcompensationwithlabourmarketrealities;

• Furtherimprovingthestaffmotivationsystem,includingimplementationbeginningin2015oftheLong-TermPersonnelMotivationProgramme,whichisdesignedforfiveyearsandistargetedattopandmiddle-levelmanagersaswellasbestcaptainsandchiefengineersofSCFGroup’svessels.

TheGroup’semployeescanbesplitintotwocategories:fleetpersonnelandonshorepersonnel(personnelofonshoreunits).InconnectionwiththenatureoftheGroup’soperations,thenumberoffleetpersonnelsignificantlyexceedsthenumberofonshorepersonnel,accountingforabout90%ofthetotalGroupheadcount(6,540peopleasattheendof2015).Inthereportingperiod653fleetpersonneland14onshorepersonnelwerehired,makingup10%and1%,respectively,ofthetotalnumberofemployeesoftherespectivecategories.

SCFGrouppaysspecialattentiontothecareergrowthandprofessionaldevelopmentofitsemployees.Forexample,aperformanceappraisalisregularlyconductedfortheGroup’semployees;in2015allfleetandonshorepersonnelunderwentsuchappraisals.Basedontheresultsofworkandappraisals,in2015theGrouppromoted518employees,including390fleetpersonneland128onshorepersonnel.

TheGrouphasalsodevelopedaprogrammetolowertheaverageageofseniorcommandstaff,bypromotingthemosttalentedfirstofficersandsecondengineeringofficerstothepositionsofcaptainandengineeringofficer.

ThehighretentionrateofseniorcommandstaffdemonstratesthatSCFGroupisconsideredasanattractiveemployerandiscapableofretainingitsprofessionalstaff.Theretentionrateofcommandstaffin2015was95%,andofseniorcommandstaff97%.

4.2.2 prOFeSSIOnAl DevelOpMenT OF STAFFHighlyskilledemployeesarethefoundationuponwhichtheeffectiveoperationofacompanyisbuilt.HencetheGroupactivelyencouragesandparticipatesintheprofessionaldevelopmentofitsstaff.

TheGroupregularlyorganisesseminarsforfleetofficerstoexchangeprofessionalexperiences.Inthereportingyear,700fleetofficersparticipatedinsuchseminars.Internshipswereorganizedfor17seniorfleetofficersattheofficesoftwomanagementcompanies,UnicomManagementServices(Cyprus),LimassolandSCFNovoshipTechnicalManagement,Novorossiysk.

TheGroup’soperatingspecificscreatetheneedforsubjectmatterspecialists.Aspartofstafftrainingandretraining,trainingisorganisedboththroughcooperationwithmaritimeeducationalinstitutionsandatin-housetrainingcentres.

Inordertoattractyoungskilledspecialists,SCFGroupfosterscooperationwithRussianmaritimeeducationalinstitutions.

Training existing employees the Group

In connection with an existing shortfall in professional crews in the global fleet, the Group

regularly sends working seafarers for training in the disciplines electric and Gas welder and Turner to the

Federal State professional educational Institution novorossiysk College of

Construction and economics. The Group also promotes

the best technically skilled motormen and sailors to the position of pumpman and provides all necessary

additional training.

In 2015, 156 cadets from maritime universities and 35 sailor trainees and motormen received practical training at

sea.

Targeted training of fleet specialists

In 2015 all cadets received practical training on the Group’s vessels. 87 graduates of higher

and secondary educational institutions were employed by

the Group.

In 2015, 21 people started training under this target

program.

The Group implements targeted training programmes for young fleet officers in collaboration

with leading russian maritime universities. The dedicated group of cadets at Admiral Makarov State university of

Maritime and Inland Shipping in 2015 consisted of 15

navigators, 10 ship engineers, and 5 electrical officers. A

dedicated group of 20 people was formed for training at

Admiral nevelskoy Maritime State university.

As part of a joint project between the Group and

Admiral ushakov Maritime State University, a group of first-year students received

training in the following areas of expertise: Navigator, Ship

Engineer, and Electrical Officer.

navigation practice for cadets

Cadets and trainees from maritime universities receive hands-on training at sea on

board the Group’s vessels. hr Department specialists recruit the most promising graduates

based on the results of pre-graduation practical training,

the average degree score, and the characteristics of the

academic institution.

In 2015, 12 of the rank and file received training as turners, gas and electric welders, and

pumpmen.

FIGure 23 Main types of cooperation with maritime educational institutions



Currently,cooperationagreementshavebeenconcludedwiththecountry’sthreemainmaritimeuniversities:AdmiralUshakovMaritimeStateUniversity;AdmiralMakarovStateUniversityofMaritimeandInlandShipping,andAdmiralNevelskoyMaritimeStateUniversity.Thecollaborationprogrammeincludesparticipationinthepreparationandtrainingoffuturespecialists,theannualorganisationofnavigationpractice,andtheregularholdingofmeetingswithcadets.

Aspartofmutuallybeneficialcollaborationwithuniversities,theGroupplanstocontinueallocatingfundsforclassroomequipmentandpurchasingadditionalteachingaids.

SCFGroupalsoplanstocontinuedevelopingitsownfleetpersonneltrainingsystemmeetingthehighestinternationalstandards.Thissystemisbasedontwoin-housetrainingcentres:

1. TheSovcomflotTrainingCentreinSt.Petersburg,whichprovidestrainingcoveringthewholerangeofmaritimeoperationsintheArctic,forexample,theservicingofoilplatforms,navigationinnorthernlatitudes,navigationinice –bothindependentlyandaccompaniedbyicebreakers,etc.In2015400peoplereceivedtrainingattheCentreinallareas.

2. TECNovoshipTraininginNovorossiysk,whichhasbeenoperationalformore

than10years.TodaythisisoneofRussia’sleadingmaritimetrainingcentres.ThecentrehasbeencertifiedbyDNVtoISO9001:2008forQualityManagement.Accordingto2015results,2,593peopleweretrainedatTECNovoshipTraining(includingsailorsfromothercompanies).

Tocontinuouslyraisethelevelandqualityofknowledgeandskills,short-andlong-termupgradeprogrammesareimplemented,bothinRussiaandabroad,forseniorexecutivesandmiddle-levelmanagers.Theabilitytoparticipateintheseprogrammesreinforcestheprofessionalmotivationofemployeesandtheirvalueashighlyskilledmembersofstaff.

FOr FleeT perSOnnel

InCenTIve AnD MOTIvATIOn prOGrAMMeS

FOr OnShOre perSOnnel

1. Long-termcontractsforcommandstaffofvessels

2. Corporatepensionprogramme

3. Bonusforsuccessfulresultsofinspectionsandothercontrolmeasures

4. Incentivesintheformofstate,institutional,regional,andcorporateawards

5. TheLong-termIncentiveProgrammeforbestcaptainsandchiefengineersoftheSCFGroup’sfleet

1. Non-materialandmaterialincentivesfortheperformanceofparticularlyimportantassignments

2. Corporatepensionprogramme

3. Incentivesintheformofstate,institutional,regional,andcorporateawards

4. SystemofannualbonusesbasedonkPIperformance

5. TheLong-termIncentiveProgrammefortopandmiddlemanagement

FIGure 24 Incentive and motivational programmes broken down by personnel categories



95% of Group employees

Are MeMBerS OF The ruSSiAn PrOFeSSiOnAL uniOn OF SAiLOrS

4.2.3 perSOnnel MOTIvATIOn

TheGroupdevelopsandimplementsvariousincentiveandmotivationalprogrammes.

TheGroupregularlyconcludesCollectiveBargainingAgreementsbetweentheRussianProfessionalUnionofSailors(RPUS)andSCFGroupManagementCompanies.Acollectivebargainingagreementisaneffectivetoolforguaranteeingadecentwage,safeworkingconditions,andprovidingmedicalinsurancetotheGroup’semployees.

AtpresenttheGrouphasasinglemedium-termcollectivebargainingagreement.

About95%oftheGroup’semployeesaremembersofthetradeunionandarecoveredbycollectivebargainingagreements(including100%offleetpersonnel).TheGroupcooperateswiththetradeunioninthefollowingareas:

• Increasingwagelevels;

• Preservingjobs;

• Ensuringsafeworkingconditions;

• InsuringthefleetpersonnelofSCFGroupagainstaccidentsduringperiodsbetweenvoyages;

• NewYearpresentstochildren;

• Supportprogrammeforpensioners(one-timefinancialassistance,vouchersforhealthresorttreatment,certificatesofmerit,andmemorablegifts).

employee awards

Rewardingemployeesforprofessionalachievementsisoneareasofnon-materialmotivation.In2015,289membersofonshoreandfleetpersonnelofSCFGroupreceivedstate,institutional,andcorporateawardsandrecognitions.

AmongtheemployeesoftheGroupwhoreceivedstateandinstitutionalawardswereindividualswhodirectlyparticipatedintheimplementationofmajorLNGshippingprojects,aswellasPrirazlomnoye –thefirstoilandgasprojectintheArctic.



4.3 ChARiTy ANd SPONSORShiPCHARITYANDSPONSORSHIPWORkINSCFGROUPISCARRIEDOUTINACCORDANCEWITHTHEREGULA-TIONSONCHARITYANDSPONSOR-SHIPAPPROVEDBYTHEBOARDOFDIRECTORSIN2008ANDINSTRICTACCORDANCEWITHTHEBUDGETAPPROPRIATIONSFORTHECURRENTFINANCIALYEAR.

In2015,theGroup’sexpensesforsponsor-shipandcharitytotalledRUB47.7million,whichcorrespondedtothebudgetindica-torsapprovedbytheCompany’sBoardofDirectors.Sectoralandregionalprojects(RUB12.4million)andeducation(RUB10.1million)accountedforthelargestsharesoftheseexpenses.

Key AreAS OF SpOnSOrShIp AnD ChArITy

envIrOnMenT

Support for the eurasian Centre for the preservation of Far eastern Leopards Autonomous Non-Profit Organisation (primorsky Krai)

TheFarEasternLeopard(AmurLeopard)isanendangeredpredatorcat,whosepopula-tioninRussiahasbeengraduallyincreas-ing.Atpresent,theLandoftheLeopardnationalparkcountsabout80animals.

Theirpopulationhasbeencontinuouslygrowingsincethecreationoftheparkandhasincreasedby25-30animalsoverthelastfiveyears.

Thegoalofthecharitableprojectistostudy,protect,andrestoretheFarEasternLeopardspeciespopulation,whichislistedintheRedBook.PursuanttoadecisionoftheExecutiveBoard,theregularfinanc-ingoftheprojecthasbeenextendedto2020.Activitiesorganisedin2015includedimprovingthesecurityandfiresafetysys-temsoftheLandofLeopardnationalpark,furtherdevelopingtheresearchprogrammetoinstalladditionalequipmentfortrackinganimalsandincreasethestabilityoffeedprovisions.

47.7million ruB

The grOuP’S exPenSeS FOr SPOnSOrShiP And ChAriTy in 2015



eDuCATIOn

Admiral nevelskoy State Maritime university (vladivostok)

AdmiralNevelskoyStateMaritimeUniver-sityisthemainspecialisededucationalinstitutionthatproducesskilledmaritimeworkersintheFarEastofRussia,andSCFGroupisinterestedincontinuousexpansionofcooperationwiththeuniversity.Intheyearmarkingtheuniversity’s125thanniver-saryanumberofagreementsweresigned.TheseagreementsprovideforthecreationofdedicatedgroupsofstudentswithSov-comflot’sfinancialsupportforworkonSCFvesselsinthefuture;supportforprofes-sorsandteachers,primarilypost-graduatestudentsandyounguniversityteachers;organizationofinternshipsforteachersonthecompany’sspecialised,high-techvesselssuchasLNGcarriers,shuttleArctictankers,ice-breakingplatformsupplyvessels,andalsogradualmodernisationoftheuniver-sity’ssimulationtrainingcentreandfittingitwithstate-of-the-artequipment.

SCFGrouppaysspecialattentiontothesupportofprofessionalmaritimeeduca-tionandactivelycollaborateswithAdmiralMakarovStateUniversityofMaritimeandInlandShipping(SaintPetersburg)andAdmiralUshakovMaritimeStateUniversity(Novorossiysk).

St. Tikhon Orthodox humanitarian university (Moscow)

Theprojectstartedin2015.Sovcomflotprovidedsupportforfundinghistorical

andsociologicalresearch,organisedon-the-job-trainingforstudentsinRussiannorthernregions,includingatthePlesetskCosmodromeandintheMezenskDistrictoftheArkhangelskRegion,renderedfinancialaidtotheuniversity’slow-incomestudentsfromfamilieswithmanychildrenandorphanstudents.Withtheactivepartici-pationofSovcomflot,theUniversityandtheSafonovoOrphanageBoardingSchoolsignedacooperationagreementwhich,inparticular,providesanopportunityforschoolgraduatestoentertheUniversity.

Safonovo Orphanage Boarding School (Smolensk region)

In2015,87orphansandchildrendeprivedofparentalcareresidedattheSafonovo

state-financedorphanageboardingschool.SCFGrouphelpsthestaffoftheorphanagetopreparechildrenforindependentlives,andmaketheupbringingoftheorphansandchildrendeprivedofparentalcareassimilaraspossibletotheconditionsfoundinafamilyandathome.

WiththesupportoftheGroup,themainpremisesusedforthestudyandresidenceofthechildrenhavebeenrenovated,theclassroomsandplacesofresidencehavebeenfittedwithnecessaryequipment,basicnecessitieshavebeenprocured,holidayeventsandleisureactivitiesforthechil-drenareorganisedduringvacations.

veTerAnS’ SuppOrT

Victory Day-London project

TheprojectVictoryDay-Londonistradition-allydedicatedtotheArcticConvoyswhichservedduringtheSecondWorldWartodelivermilitarycargoalongcorridorsfromGreatBritainandtheUStothenorth-ernmostportsoftheUSSR:ArkhangelskandMurmansk.WiththesupportofSCFGroup,RussianconvoyveteranshaveanopportunitytomeeteachyearwiththeirBritishcounterparts.Intheyearofthe70thAnniversaryoftheGreatVictory,Sovcom-flotsupportedtheinitiativeoftheRussianEmbassyintheUnitedkingdomandorgan-isedtheissueofaspecialanniversarypost-agestampandenvelope,andalsoprovidedassistanceinpresentingmedalscommemo-ratingthe70thAnniversaryoftheVictoryintheSecondWorldWartoveteransoftheBritishArcticConvoys.

Sergey Popravko, member of the Executive Board of PAO Sovcomflot, at the matriculation ceremony, Admiral

Nevelskoy Maritime State University, Vladivostok

veterans of the Arctic Convoys meet in London. 9 May 2015



SpOrTS

International vladimir Salnikov Cup Swimming Tournament (Saint petersburg)

SCFGrouphasbeenasponsorofthetournamentsince2009.TheVladimirSal-nikovCupisaninternationalswimmingtournamentfeaturingthestrongestswim-mersfromRussiaandtheworld.In2015thetournamentattracted369sportsmenfromvariouscountries,whocompetedfor

30setsofawards.Duringthehistoryofthetournamentswimmershaverepeat-edlysetnewworldandnationalrecords,aswellaspersonalrecords.In2015,recordswerebeatenthreetimes.TheCup’sdiscoverywas19-year-oldEvgenyRylov,whoearnedthehighestnumberofpointsundertheFINAscoringsystemandwonthetournamentamongmen.The2015tournamentleaderinteamscoringwastheSaintPetersburgteam:6goldmedals,5silvermedals,and4bronzemedals.TheseinternationalcompetitionsareincludedinLENandFINAcalendarsandareunofficiallyconsideredtobeaqualificationtournamentamongprofes-sionalswimmersforselectingmembersoftheRussiannationalteam.

Support for the All-russian yacht-ing Association (Moscow)

Aspartofsupportforchildren’sandyouthsailingsport,SovcomflothassponsoredtheAll-RussianYachtingAssociationsince2010.DuringthisperiodnewschoolsandsectionshavebeenorganisedinRussian

regionsandmajorchildren’stournamentshavebeenheldregularly,suchastheRus-sianOpenSailingChampionshipintheOptimistclass.Inaddition,comprehensiveandsystematicpreparationswerecarriedoutfortheRussianParalympics.

heAlThCAre

St. Olga’s Children’s hospital (Saint petersburg)

OverthepastnineyearsSCFGrouphasbeensupportingSt.Olga’sChildren’sHos-pitalinSt.Petersburg.Duringthistimetheintensivecareandanaesthesiologywardofthehospitalhasbeengivenspecial-isedequipmentwhichmakesitpossibletosavethelivesofnewbornchildren,substantiallyreducethemortalityrateamongnewlybornbabiestreatedatthehospitalandstabiliseitatalevelbelow1%.TreatmentatthehospitalisprovidedforchildrenfromdifferentregionsoftheRussianFederationaswellasneighbour-ingcountries.



CulTure

Russian American Project (Fort Ross, the United States)

Thegoaloftheprojectistopreserveforhistoryandfuturegenerationsthememo-rialsettlementFortRoss,whichrepresentsauniqueitemofRussiancultureheritageandhistoryintheUS.SponsorshipforthisprojectisprovidedonanannualbasisjointlywithOAOAkTransneftandChev-ron(USA).FortRossisaformerRussiansettlementandfortressonthecoastofNorthernCalifornia,foundedin1812bytheRussian-AmericanCompanyforhuntingandtradinginfurs.ThisisthemostsouthernRussiansettlementinNorthAmerica,andcurrentlyahistoricparkinCaliforniaandavenuewhereannualeventsareheld,withtheparticipationofresearchers,politicians,andpublicfiguresfromdifferentcountries.Withthesupportoftheprojectparticipantsadocumentarywascreatedonthehistoryofthesettlementanditscurrentstatus.Thedocumentarywaswellreceived,bothbyspecialistsandthepublicatlarge.

Support for russia’s historical heri-tage (publications)

AspartoftheprojectprovidingsupporttoresearchintoRussia’sculturaland

historicalheritage,SovcomflotsupportsannualscientificconferencesheldaboardthelegendaryicebreakerkrasinandhelpspublishmaterialsofconferencesunderthecommontitlePolarReadings.

IncooperationwiththeRussianGeographicSociety,twouniquebooks,NorthernExpeditionof1733-1743andLomonosov’sProjectandChichagov’sExpedition,wererepublished.ThesebooksarededicatedtogreatgeographicdiscoveriesofRussian

researchersoftheArcticthatgaverisetosystematicscientificresearchofthisregion.

Booksfrombothprojectsweresenttomajornationalscientificcentres,librar-ies,educationalinstitutions,militaryandmaritimeschools,andhavereceivedverypositivefeedbackfromreaders.

Sectoral and Regional Projects Sponsorship

Aspartofassistanceindevelopinghighqualitymaritimenavigationandcreatingthenecessaryconditionstoenhancethecompetitivenessofthenationalmerchantmarinefleet,SCFGroupinclosecoopera-tionwiththeMaritimeBoardoftheRussianGovernmentprovidedsponsorshipsup-portfortwomajorinternationalforums:MaritimeIndustryofRussiaandInterna-tionalTransportWeek2015heldinMoscowinJuneandDecember2015,respectively.ThejointexpositionofSovcomflotandtheMaritimeBoardshowcasedtechnicalsolutions,includingthoseimplementedatRussianshipbuildingplants,whichenablesafe,highqualityoperationofhigh-techvesselsprovidingservicestolargeindus-trialprojectsonthecontinentalshelfoftheArcticandSubarcticseas(VarandeyandPrirazlomnoyeprojects).

Maksim Sokolov, Russia’s Minister of Transport, and Sergey Frank, President and CEO of the SCF Group, at the Group’s exhibition stand, Transport of Russia Expo. Moscow, December 2015



THEENVIRONMENTALASPECTOFSCFGROUP’SACTIVITIESINTHEAREAOFSUSTAINABLEDEVELOPMENTENCOMPASSESCONTROLOVERITSIMPACTSONLIVINGANDNON-LIVINGNATURALSYSTEMS,INCLUDINGECOSYSTEMS,LAND,AIR,ANDWATER.

SCFGrouprealisesitshighresponsibilityforthequalityoftheenvironmentandseekstominimiseitsadverseimpactsontheenvironmentbyintroducinginnovations,reducingenergyconsumption,andincreasingstaffqualifications.

ThevesselsusedbytheGroupcomplywithmoderninternationalrequirementsonnavigationsafetyandenvironmentalprotection.VirtuallyallthenewtankersoftheGrouphaveanadditionalclasssymbolindicatingcompliancewiththehighestenvironmentalsafetystandards,whichatteststotheresponsibleattitudeofPAOSovcomflottoenvironmentalissues.Thisisalsoconfirmedbytherebeingnosignificantspillsofchemicalsubstances,oil,orfuelin2015.

SCFGroupimplementsanumberofdifferentorganisationalandtechnicalmeasurestomaintaintheenvironmentalsafetyofthefleetatahighlevelonacontinuousbasis.TheGroupadheresinitsproductionactivitiestoanumberofinternationallegislativeactsandregulatoryrequirementsonenvironmentalprotection.

4.4 ENviRONmENTAL PROTECTiON

1TheInternationalConventionforthePreventionofPollutionfromShips(MARPOL73/78)includingcorrespondingannexes,theInternationalSafetyManagementCode,InternationalConventionfortheControlandManagementofShips’BallastWaterandSedimentsof2004,CouncilDirectiveNo.2012/33/ЕUoftheEuropeanUnion“OnaReductionintheSulphurContentofCertainLiquidFuels”,2001GuidelinesfortheControlandManagementofShips’BiofoulingtoMinimisetheTransferofInvasiveAquaticSpecies,theMontrealProtocolonSubstancesthatDepletetheOzoneLayerof1987,andtheInternationalSafetyGuideforOilTankersandTerminals.

4.4.1 envIrOnMenTAl prOTeCTIOn pOlICy

TheSCFGroupenvironmentalprotectionpolicyisincludedinthegeneralmanagementsystemofthesafeoperationofvesselsandthepreventionofpollution,establishedinaccordancewiththeInternationalSafetyManagementCode.

ThemaingoalsoftheSCFGroupenvironmentalprotectionpolicyaretoincreasethelevelofenvironmentalsafetyofthefleetandtoincreasethecapitalisationoftheGroupbyensuringthereliableandenvironmentallysafeprovisionofservicesrelatedtothemaritimetransportofcargo.UndertheEnvironmentalProtectionPolicytheGroupimplementsthefollowingmeasures:

• Environmentalmonitoringandaudit

• Programmesaimedatincreasingthecompetenciesandawarenessofpersonnelinrelationtoenvironmentalprotection

• Investmentprogrammestoincreasetheenergyefficiencyandenvironmentalsafetyofmainproductionactivities

• Environmentalriskmanagementprogrammes,whichincluderiskidentificationandassessment,

implementationofenvironmentalprotectionmeasures,andmonitoringandassessingtheadequacyofadoptedactions.

SCFGroup’senvironmentalmanagementsystemwasdevelopedandisnowupandrunning.Thesystemwasestablishedinaccordancewiththeprinciples,goalsandobjectivesoftheEnvironmentalProtectionPolicy,andencompassesallstructuralunits,fromships’crewstotopmanagement.

Deliveredtoonshorecollectionstations

TreatedanddischaredintotheseainaccordancewiththeMARPOL73/78Convention

99%

1%

FIGure 27

Wastewater management in 2015, cubic meters

DischargedintotheseainaccordancewiththeMARPOL73/78Convention

Burnedinships’incinerators Deliveredtoonshorecollectionstations

472 397

-24%1,590 1,494

-16%

5,339

4,039

-6%

FIGure 26 Waste management in 2014-2015, cubic meters

2014

2015



4.4.2 ATMOSpherIC eMISSIOnS

Theshippingindustryiscurrentlythelargestcontributortogreenhousegasemissionsintheglobaltransportsystem,accountingforupto2%ofglobalCO2emissions.

ThedownwardtrendingreenhousegasemissionsisattributabletotheGroupconstantlysupplementingthefleetwithenergyefficientandenvironmentallysafenewgenerationvesselsinvolvingtheextensiveuseofinnovativetechnologies,developingaShipEnergyEfficiencyPlan(SEEMP)foreachshipinordertocontrolenergyefficiencyandemissionsofhazardoussubstancesfromexhaustfumes,andimplementingEUCouncilDirective2012/33/ЕU“OnaReductionoftheSulphurContentofCertainLiquidFuels”,usingshipfuelwithareducedsulphurcontent.

4.4.3 wASTewATer AnD wASTe MAnAGeMenT

OneofthemainenvironmentalimpactsresultingfromtheoperationoftheSCFGroupfleetiswastewaterandwaste,whicharedischargedintooceansduringthemovementofships.TheactivitiesoftheGrouptoreducethelevelofwastewaterandwastedischargesintotheoceansareimplementedpursuanttotheinternalproceduresoftheGroup,whichencompasstherequirementsofbothinternationalanddomesticlegislation.

AtpresentacombinedwastetreatmentmethodisappliedontheGroup’sships,comprisingmechanical,chemical,physicalandchemical(includingelectrolysis)andbiologicalmethods.Alltheship’splantshavetheapprovalofthecountryoftheflagofthevesselonthecomplianceofthewastewatertreatmentplantswiththerequirementsofAnnexIVoftheMARPOL73/78Convention.Thequalityofdischargedwaterisconfirmedbyawastewaterplantcertificate(typeapprovalcertificate).Inordertominimisedischargesoftreatedwastewaterfromvesselswithina12-milecoastalzoneandinharbours,SCFGroupvesselsareequippedwithadditionaltankstoholdwastewaterandtosubsequentlydeliverittoonshorecollectionstations.

In2015,483cubicmeters(1%)ofwastewaterwasdeliveredtoonshorecollectionstations,whereas61,475cubicmeters(99%)ofpre-treatedeffluentwasdumpedintotheocean.Nounscheduleddischargesofwastewatertookplacein2015.

In2015,theamountofwastedeliveredtoonshorecollectionstationsdecreased(by24%against2014);theamountofwastedumpedintothesea,inaccordancewiththeMARPOL73/78Convention,droppedby16%andtheamountofwasteburnedinships’incineratorscontractedby6%.

Itisimportanttonotethatthetotalamountofwastewasalsoreducedyearonyear.TheseresultsdemonstratethatSCFGroupadherestotheprinciplesofmitigatingadverseenvironmentalimpactsduringwastemanagement.

TABLE 19 Consumption of fuel in 2015

Typeoffuel Quantity,‘000tonnes Cost,USDmillion

Fueloil 193,3 257.6

Dieselfuel 904.0 108.4

Naturalgasmotorfuel 52.2 0

Total 1,149.5 365.0

2013 2014 2015

1,094

1,045

1,097

FIGURE 29

Total fuel consumption for the fleet, thousand tonnes

2013 2014 2015

1,094 1,093

1,149

+5%

TABle 28

Fuel consumption dynamics, thousand tonnes



4.4.4 COnSuMpTIOn OF enerGy AnD enerGy eFFICIenCy

DifferenttypesofshipfuelarethemaintypesofenergyresourcesconsumedasaresultoftheproductionactivitiesoftheGroup.

SCFGroupisactivelyengagedinworktoimplementastateprogrammetointroducegasfuelintransport.Asaresultofthiswork,in2015theGroup’sfleetaddedthreenewVelikiyNovgorod-typegastankersequippedwithcombustionengineswhichoperateongasmotorfuel.

AfterthecommissioningofnewLNGcarriers,theshareofgasmotorfuelusedbytheGroup’svesselsaccountedfor4.54%ofthefleet’stotalfuelconsumptionin2015.

4.4.5 enerGy eFFICIenCy InITIATIveS

SCFGrouprecognisesthatreducingenergyconsumptioniscrucialinordertominimiseadverseenvironmentalimpacts.Accordingly,theGrouphasdevelopedandimplementedtheEnergyConservationandEnergyEfficiencyProgramme,aimedattheefficientuseoffuelandenergyresourcesandatincreasingtheenvironmentalsafetyofthefleet.ThefollowingactionsarebeingimplementedaspartoftheProgramme:

• UsingtheSlowSteamingsystemonshipstoreducefuelconsumptionandemissions

• Monitoringandoptimisingtheheatingandventilationexpensesofships’livingquarters

• Optimisingthepoweroutputinnavigationandharbourmodes

• Establishinganenergyconservationcultureonships

• Checkingfuelandoilconsumptionmetersonships

• Monitoringthestateofthehullanditstimelycleaning

• Ensuringthatthemainenginecylinderlubricationlevelisnothigherthantherecommendedlevel

• Replacingincandescentlightbulbswithenergy-savingbulbs,installinglightingcontroldevices(motionsensors,lightsensors,timers)

• UsingtheS3ES-Novoshipprogrammetocollectandprocessinformationontheuseoffuelsandoils

• PerformingenergyauditsontheGroup’sships.

EnergyauditsareconductedregularlyontheGroup’sships.Thesemakeitpossibletoobtainreliableinformationabouttheexpenditureonfuelandoilandtheenergyefficiencyperformanceindicatorsofshipenginesandboilers,identifyopportunitiesforenergyconservation,andincreasetheenergyandenvironmentalefficiencyofshippowerplants.

TheGroupisverysatisfiedwiththeenvironmentalprotectionresultsfor2015:atmosphericgreenhousegasemissionswerereduced,fleetfuelconsumptionwasreduced,andenergyandresourceefficiencyinitiatives,aswellasrationalwastemanagementinitiatives,wereimplemented.SuchactionsconfirmtheadherenceoftheGrouptosustainabledevelopmentprinciplesandmakeitpossibletoattainsignificantpositiveresultsintermsofreducingadverseenvironmentalimpacts.


APPENdiCES

General information about pAO Sovcomflot

Financial Statements

list of key internal regulations serving as the basis for the compilation of this Annual report

Glossary

78

80

86

87


Full name of the company PublicJoint-StockCompanySovcomflot

Number and date of issue of the certificate of state registration as a legal entity

RegisteredbytheMoscowRegistrationChamberon18December1995(certificateseriesBBNo.039.329dated18

December1995.InformationonstateregistrationwasenteredintheUnifiedStateRegisterofLegalEntitieson31

July2002,primarystateregistrationnumber(PSRN)1027739028712(certificateseries77No.007866796onthe

entryofarecordintheUnifiedStateRegisterofLegalEntitiesonalegalentityregisteredbefore1July2002)

place of registration 3a,MoykaRiverEmbankment,St.Petersburg,191186

Address of the standalone division in Moscow 6,GashekaStreet,Moscow,125047

Contact telephone (495)6604000

Fax (495)6604099

e-mail address [email protected]

webpage http://www.scf-group.ru/

Shareholder TheRussianFederation,representedbytheFederalAgencyforStatePropertyManagement(allPAOSovcomflot

sharesarefederallyowned)

Amount of authorised capital (roubles) RUB1,966,697,210(onebillionninehundredandsixty-sixmillionsixhundredandninety-seventhousandtwo

hundredandten)

Total number of shares 1,966,697,210(onebillionninehundredandsixty-sixmillionsixhundredandninety-seventhousandtwohundred

andten)shares

number of ordinary shares 1,966,697,210(onebillionninehundredandsixty-sixmillionsixhundredandninety-seventhousandtwohundred

andten)shares

nominal value of ordinary shares (roubles) Thenominalvalueofanordinaryshareamountsto1(one)roublepershare

State registration number of the issue of ordinary (preferred) shares and date of state registration

1-01-10613-А;27November2007

number of shares owned by the russian Federation 1,966,697,210(onebillionninehundredandsixty-sixmillionsixhundredandninety-seventhousandtwohundred

andten)shares

Interest of the Russian Federation in the authorised capital, indicating the interest of the russian Federation in ordinary and preferred shares (percentages).

TheRussianFederationowns100%oftheordinarysharesofPAOSovcomflot.PAOSovcomflothasnopreferred

sharesinissue

existence of the special right of the russian Federation to participate in the company’s management (the “Golden Share”).

TheRussianFederationhasnospecialrighttoparticipateinthemanagementofPAOSovcomflot(the“Golden

Share”)

Appendix


GENERAL iNFORmATiON ABOUT PAO SOvCOmFLOT

Information on inclusion in the list of strategic enterprises and strategic joint-stock companies

OAOSovcomflotwasincludedinthelistofstrategicjoint-stockcompaniesbyRussianPresidentialDecreeNo.

1009dated4August2004“OnApprovingtheListofStrategicEnterprisesandStrategicJoint-StockCompanies”

Full name and address of the registrar Joint-StockCompanyIndependentRegistrationCompany

8IvanaFrankoStreet,Moscow,121108,Russia

Full name and address of the Company’s auditor LimitedLiabilityCompanyErnst&Young

77с1SadovnicheskayaNab.,Moscow,115035,Russia

Account bank VTBBank(PAO),SaintPetersburg

legal advisors Watson,Farley&WilliamsLLP,London

INCE&CoInternationalLLP,London

ReedSmithLLP,London

Main lines of business Advisoryandmanagementservices,including:– Planningandorganisingthetransportofcargoandpassengers– Adviceonthecurrentstatusanddevelopmentoutlookofdifferentsegmentsoftheshippingmarket– Developingpromisingprojectsintheshippingsector– Adviceonoperationsrelatedtotheacquisitionandsaleofvessels– Marketing,studyingthestateofthemarketandworkingwithcargoowners– Adviceoninsuranceissuesandorganisinginsurancecoverage– Participationinnegotiationstoachieveoperationalgoalsandpreparingcorrespondingdraftdocumentsandagreements;preparingdraftcorporateandcontractualdocuments– Auditofdraftdocumentationregardingdifferenttypesofcontracts,transactions,includingthefinancingofthesaleandpurchaseofvesselsandorderswithshipyards,refinancing,etc.– Analysisoflegaldisputes– Organisingaudits– Paymentmanagementandadviceonfinancialissues– Representingtheclientatshippingandtransportsystemsconferencesandseminars– Otherbusinessdevelopmentactivities

Participationinotherorganisations

Information on inclusion in the list of strategic enterprises and strategic joint-stock companies

PAOSovcomflotwasincludedinthelistofstrategicjoint-stockcompaniesbyRussianPresidentialDecreeNo.

1009dated4August2004“OnApprovingtheListofStrategicEnterprisesandStrategicJoint-StockCompanies”.

Company headcount 92

Operating period of the Company in the respective sector 28years.

Appendix


Consolidated Income Statement For the period ended 31 December 2015

Note.2015$’000

2014$’000

Freight and hire revenue 4,7 1483002 1377880

Voyageexpensesandcommissions 4,8 -242916 -333904

Time charter equivalent revenues 1 240 086 1 043 976

Direct operating expenses

Vessels'runningcosts 9 338745 349116

Charterhirepayments 45 52812 52675

-391557 -401791

net earnings from vessels' trading 848529 642185

Otheroperatingrevenues 12 20215 31907

Otheroperatingexpenses 12 -10814 -24605

Depreciation,amortisationandimpairment 10 -312871 -321533

Generalandadministrativeexpenses 11 -105914 -104010

Gainonsaleofassets 16,18 9895 9904

Lossonsaleofsubsidiary -727 -

Gain/(loss)onsaleofequityaccountedinvestments 5402 -356

Allowanceforcreditlosses -782 1848

Shareofprofitsinequityaccountedinvestments 22 15765 12874

Operating profit 468 698 248 214

Other(expenses)/income

Financingcosts 14 -140492 -138325

Interestincome 16749 16672

Othernon-operatingincome 47 40559 3402

Othernon-operatingexpenses 46 -4868 -8620

Gainonineffectivehedginginstruments 25(a) 683 442

Gainonderivativefinancialinstrumentsheldfortrading 25(b) - 6164

Foreignexchangegains 17212 21026

Foreignexchangelosses -26765 -57996

net other expenses -96 922 -157 235

Profit before income taxes 371776 90979

Incometaxexpense 26 -17304 -7085

Profit for the period 354 472 83 894

Profit attributable to:

Ownersoftheparent 339461 80058

Non-controllinginterests 35 15011 3836

354 472 83 894

earnings per share

Basicearningspersharefortheperiodattributabletoequityholdersoftheparent 27 $0.173 $0.041

Appendix


FiNANCiAL STATEmENTS

Consolidated Statement of Comprehensive Income For the period ended 31 December 2015

Note.2015$’000

2014$’000

Profit for the period 354472 83894

Other comprehensive income:

Shareofassociates’othercomprehensiveincome -27 -84

Shareofjointventures'othercomprehensiveincome 22 6013 2703

Exchangelossontranslationfromfunctionalcurrencytopresentationcurrency -16795 -27954

Reclassificationadjustmentrelatingtoforeigninvestmentsdisposedofduringtheperiod 1834 -

Derivativefinancialinstrumentsrecycledanddebitedtotheincomestatement 25(a) 25050 20081

Fairvaluemovementofderivativefinancialinstrumentsdebitedtoothercomprehensiveincome 25(a) -17541 -23265

Other comprehensive income for the period, net of tax to be reclassified to profit or loss in subsequent periods -1466 -28519

Remeasurement(losses)/gainsonemployeebenefitobligations -550 1252

Other comprehensive income, net of tax not to be reclassified to profit or loss in subsequent periods -550 1252

Total other comprehensive income for the period, net of tax -2016 -27267

Total comprehensive income for the period 352456 56627

Total comprehensive income attributable to:

Ownersoftheparent 338969 55819

Non-controllinginterests 13487 808

352 456 56 627

Appendix


Consolidated Statement of Changes in equity For the period ended 31 December 2015

Share capital $’000

Share premium $’000

reconstruction reserve

$’000hedging reserve

$’000Currency reserve

$’000retained earnings

$’000

Attributable to owners of the parent

$’000

non-controlling interests

$’000Total

$’000

At 1 January 2014 405 012 818 845 -834 490 -81 319 -6 082 2 652 261 2 954 227 157 045 3 111 272

Profitfortheperiod - - - - - 80058 80058 3836 83894

Othercomprehensiveincome

Shareofassociates’othercomprehensiveincome - - - - -84 - -84 - -84

Shareofjointventures'othercomprehensiveincome - - - 2703 - - 2703 - 2703

Exchangelossoncurrencytranslationfromfunctionalcurrencytopresentationcurrency - - - - -24792 - -24792 -3162 -27954

Derivativefinancialinstrumentsrecycledanddebitedtotheincomestatement(Note25(a)) - - - 20081 - - 20081 - 20081

Fairvaluemovementofderivativefinancialinstrumentsdebitedtoothercomprehensiveincome(Note25(a)) - - - -23265 - - -23265 - -23265

Remeasurementgainsonretirementbenefitobligations - - - - - 1118 1118 134 1252

Totalcomprehensiveincome - - - -481 -24876 81176 55819 808 56627

Dividends(Note34) - - - - - -8954 -8954 -1464 -10418

At 31 December 2014 405 012 818 845 -834 490 -81 800 -30 958 2 724 483 3 001 092 156 389 3 157 481




Shareofjointventures'othercomprehensiveincome - - - 6021 -8 - 6013 - 6013


Reclassificationadjustmentrelatingtoinvestmentsdisposedofduringtheperiod - - - - 1734 - 1734 100 1834



Remeasurementlossesonretirementbenefitobligations - - - - - -491 -491 -59 -550

Totalcomprehensiveincome - - - 13530 -13531 338970 338969 13487 352456

Dividends(Note34) - - - - - -20543 -20543 -8196 -28739

Effectofacquisitionofnon-controllinginterestsinPAONovoship(Note43) - - - - -53 1594 1541 -1758 -217

At 31 December 2015 405 012 818 845 -834 490 -68 270 -44 542 3 044 504 3 321 059 159 922 3 480 981

Appendix


Share capital $’000

Share premium $’000

reconstruction reserve

$’000hedging reserve

$’000Currency reserve

$’000retained earnings

$’000

Attributable to owners of the parent

$’000

non-controlling interests

$’000Total

$’000

At 1 January 2014 405 012 818 845 -834 490 -81 319 -6 082 2 652 261 2 954 227 157 045 3 111 272




Shareofjointventures'othercomprehensiveincome - - - 2703 - - 2703 - 2703




Remeasurementgainsonretirementbenefitobligations - - - - - 1118 1118 134 1252

Totalcomprehensiveincome - - - -481 -24876 81176 55819 808 56627

Dividends(Note34) - - - - - -8954 -8954 -1464 -10418

At 31 December 2014 405 012 818 845 -834 490 -81 800 -30 958 2 724 483 3 001 092 156 389 3 157 481




Shareofjointventures'othercomprehensiveincome - - - 6021 -8 - 6013 - 6013


Reclassificationadjustmentrelatingtoinvestmentsdisposedofduringtheperiod - - - - 1734 - 1734 100 1834



Remeasurementlossesonretirementbenefitobligations - - - - - -491 -491 -59 -550

Totalcomprehensiveincome - - - 13530 -13531 338970 338969 13487 352456

Dividends(Note34) - - - - - -20543 -20543 -8196 -28739

Effectofacquisitionofnon-controllinginterestsinPAONovoship(Note43) - - - - -53 1594 1541 -1758 -217

At 31 December 2015 405 012 818 845 -834 490 -68 270 -44 542 3 044 504 3 321 059 159 922 3 480 981

Appendix


Note.2015$’000

2014$’000

2013$’000

ASSeTS

nOn-CurrenT ASSeTS

Fleet 16 5388542 5278983 5206150

Vesselsunderconstruction 17 368453 237250 244584

Intangibleassets 18 4668 3989 4524

Otherproperty,plantandequipment 19 60284 70657 83323

Investmentproperty 20 7468 10341 16973

Otherassetsunderconstruction 21 - - 11992

Investmentsinassociates 104 118 1130

Investmentsinjointventures 22 98306 82430 72507

Available-for-saleinvestments 1012 1012 1012

Loanstojointventures 23 52468 59942 65526

Financeleasereceivables 24 66956 71469 78908

Derivativefinancialinstruments 25 8050 7438 10356

Tradeandotherreceivables 29 16002 17363 17765

Deferredtaxassets 26 7387 3575 2228

Bankdeposits 4,30 10000 12315 8100

6 089 700 5 856 882 5 825 078

CurrenT ASSeTS

Inventories 28 37568 45825 64719

Loanstojointventures 23 8320 4750 4750

Tradeandotherreceivables 4,29 174605 155172 145144

Financeleasereceivables 24 4875 4193 3656

Currenttaxreceivable 888 593 2017

Cashandbankdeposits 4,30 357427 272201 273440

583683 482734 493726

Non-currentassetsheldforsale 31 28130 93163 74252

611813 575897 567978

Total assets 6 701 513 6 432 779 6 393 056

equITy AnD lIABIlITIeS

CApITAl AnD reServeS

Sharecapital 32 405012 405012 405012

Reserves 2916047 2596080 2549215

equity attributable to owners of the parent 3 321 059 3 001 092 2 954 227

non-controlling interests 35 159 922 156 389 157 045

Total equity 3 480 981 3 157 481 3 111 272

nOn-CurrenT lIABIlITIeS

Tradeandotherpayables 37 16045 330 261

Securedbankloans 38 1596434 1587956 1598257

Financeleaseliabilities 39 173690 183810 193291


Retirementbenefitobligations 40 3067 3390 7405

Otherloans 41 875492 842882 798092

Provisions 36 - 3244 6354

Deferred tax liabilities 26 776 1258 2477

2 697 639 2 660 678 2 648 403

CurrenT lIABIlITIeS

Tradeandotherpayables 4,37 181676 183998 231348

Otherloans 41 16984 - -

Securedbankloans 38 289142 394652 363259

Financeleaseliabilities 39 10120 9481 8850

Currenttaxpayable 2042 1653 3206


522893 614620 633381

Total liabilities 3 220 532 3 275 298 3 281 784

Total equity and liabilities 6 701 513 6 432 779 6 393 056

Consolidated statement of Financial position - 31 December 2015

Appendix


Consolidated Statement of Cash Flows For the period ended 31 December 2015

Note.2015$’000

2014$’000

OperATInG ACTIvITIeS

Cashreceivedfromfreightandhireofvessels 4 1460200 1363106

Othercashreceipts 61127 44556

Cashpaymentsforvoyageandrunningcosts 4 -649887 -740125

Othercashpayments -110420 -168633

Cashgeneratedfromoperations 42 761020 498904

Interestreceived 2901 2455

Incometaxpaid -22158 -10259

Netcashinflowfromoperatingactivities 741 763 491 100

InveSTInG ACTIvITIeS

Expenditureonfleet -45022 -26888

Expenditureonvesselsunderconstruction -516181 -492434

Expenditureonassetsheldforsale - -419

Interestcapitalised 17 -10375 -8157

Expenditureonotherproperty,plantandequipment -3444 -3971

Investmentinjointventure -107 -

Loanrepaymentsfromjointventures 4272 7030

Loansissuedtojointventures - -1020

Proceedsfromsaleofsubsidiarynetofcashdisposed 1232 -

Proceedsfromsaleofequityaccountedinvestments 48 6300 -

Proceedsfromsaleofvessels 112909 123298

Proceedsfromsaleofotherproperty,plantandequipment 10035 8711

Capitalelementreceivedonfinanceleases 24 4141 4108

Interestreceivedonfinanceleases 24 13115 17593

Dividendsreceivedfromequityaccountedinvestments 22 2762 2531

Banktermdeposits 4,30 1442 391

Otherreceipts - 285

Netcashoutflowusedininvestingactivities -418 921 -368 942

FInAnCInG ACTIvITIeS

Proceedsfromborrowings 493081 426846

Repaymentofborrowings -546670 -361824

Financingcosts -8196 -7269

Repaymentoffinanceleaseliabilities -9718 -9098

Restricteddeposits 4,30 1469 -4215

Fundsinretentionbankaccounts 30 -6982 -2062

Interestpaidonborrowings -118541 -116643

Interestpaidonfinanceleases -12521 -13141

Dividendspaid -21331 -10192

Acquisitionofnon-controllinginterests 35 -217 -

Netcashoutflowusedinfinancingactivities -229 626 -97 598

InCreASe In CASh AnD CASh equIvAlenTS 93216 24560

Cash and Cash equivalents at 1 January 4, 30 253 840 256 750

Netforeignexchangedifference -14376 -27470

Cash and Cash equivalents at 31 December 4, 30 332 680 253 840

Appendix


Appendix


LiST OF KEy iNTERNAL REGULATiONS SERviNG AS ThE BASiS FOR ThE COmPiLATiON OF ThiS ANNUAL REPORT1. TheLong-TermDevelopment

ProgrammeofSCFGroup

2. ThePAOSovcomflotCorporateGovernanceCode

3. TheEnvironmentalProtectionPolicyofPAOSovcomflot

4. RegulationsonthePaymentofCompensationandtheReimbursementofExpensestoPAOSovcomflotBoardofDirectorMembers

5. RegulationsontheChiefExecutiveOfficerofPAOSovcomflot

6. RegulationsontheDividendPolicyofPAOSovcomflot

7. RegulationsontheAuditCommitteeofthePAOSovcomflotBoardofDirectors

8. RegulationsontheCommitteeforInnovativeDevelopmentandTechnicalPolicyofPAOSovcomflot

9. RegulationsontheHRandCompensationCommitteeofthePAOSovcomflotBoardofDirectors

10. RegulationsontheStrategyCommitteeofthePAOSovcomflotBoardofDirectors

11. RegulationsontheProcedureforPerformingProcurementsofGoods,WorkandServicesfortheNeedsofPAOSovcomflot

12. RegulationsonthePAOSovcomflotExecutiveBoard

13. RegulationsontheProfessionalTraining/RetrainingandRaisingtheQualificationsLevelofPAOSovcomflotPersonnel

14. RegulationsonthePAOSovcomflotInternalAuditCommission

15. RegulationsonthePAOSovcomflotBoardofDirectors

16. RegulationsonWagesandMaterialIncentivesforPAOSovcomflotEmployees

17. RegulationsonthePAOSovcomflotInternalAuditDepartment

18. TheEmployeeLong-TermIncentiveProgrammeofPAOSovcomflot

19. ThePAOSovcomflotInnovativeDevelopmentProgramme

20. ProgrammeontheSaleofPAOSovcomflotNon-CoreAssets

21. ThePAOSovcomflotEnergyConservationandEnergyEfficiencyProgramme

22. ThePAOSovcomflotProjectManagementRegulation

23. TheStandardforAuditingtheImplementationofthePAOSovcomflotLong-TermDevelopmentProgramme

24. ThePAOSovcomflotDevelopmentStrategy

25. TheTechnicalPolicyofPAOSovcomflot

26. ThePAOSovcomflotCharter;

27. RegulationsonthePAOSovcomflotRiskManagementSystem

28. RegulationsontheFinanceDepartment-TreasuryofPAOSovcomflot

Appendix


eBITDA Earningsbeforeinterest,taxes,depreciationandamortisation

lTIF Losttimeinjuryfrequency

SCF Sovcomflot

TrCF Totalrecordablecasesfrequency

AnO Autonomousnon-profitorganisation

nF Navalforces,thenavy

DwT Deadweight

lDp Long-termdevelopmentprogramme

FeSrC FarEasternShipbuildingandShipRepairCentre

KpIs keyperformanceindicators

ICSS Integratedcontrolsafetysystem

ABBrevIATIOnS

DeFInITIOnS

lIBOr LondonInterbankOfferedRate

MArpOl InternationalConventionforthePreventionofPollutionfromShips

ISMCode InternationalSafetyManagementCode

IFrS Internationalfinancialreportingstandards

vAT Value-addedtax

r&D Researchanddevelopment

nCAs Non-CoreAssets

pAO Publicjoint-stockcompany

Sur Seafarers’UnionofRussia

rAS Russianaccountingstandards

rSpp RussianUnionofIndustrialistsandEntrepreneurs

GLOSSARy

The Group of Companies and the Group –SovcomflotGroupofSCFGroup

Deadweight – Thetotalweightofnetloadcarriedbyashipandmeasuredintonnes

MArpOl 73/78 Convention – InternationalConventionforthePreventionofPollutionfromShips

non-Core Assets – а)Thenon-currentassetsoftheCompanythatformpartoftheproperty,plantandequipmentclassifiedasimmovableproperty,intangibleassets,andconstructioninprogress,whichdonotcontributetothecoreandrelatedbusinessandareincludedintheregisterofnon-coreassets;b)sharesconvertibleintoequitysecurities,andparticipationinterestsinthe

rF RussianFederation

lnG Liquefiednaturalgas

lpG Liquefiedpetroleumgas

CBr CentralBankofRussia

authorised(joint)capitalsoflegalentities,whosebusinesses/activitiesarenotrelatedtorunningthecoreandrelatedbusiness,whichareincludedintheregisterofnon-coreassets.

PAO Sovcomflot – PublicJoint-StockCompanyModernCommercialFleet,parentcompanyofSCFGroup

Time-charter equivalent –Theregularaveragedailyincomeofvesselsduringavoyagecharterthattheshipownershouldearnonanyshipmentdestination

Chartering of a vessel –Theagreementtohireavesseltoperformaspecificshipment(journey)orthehiringofavesselforaspecifictimeperiod

Shuttle tanker –Oiltankerperformingregularjourneysbetweentheoperatingfieldandgroundterminaloroilrefinery

ISO 9000 – Seriesofinternationalstandardsdescribingrequirementsonthequalitymanagementsystemoforganisationsandenterprises

ISO 14000 –Seriesofinternationalstandardsontheestablishmentofanenvironmentalmanagementsystem

PAO SOvcOmflOt3a, Moyka River EmbankmentSt. Petersburg, 191186, Russian Federation

Moscow Office:6 Gasheka str., Moscow, 125047, Russian Federation

Tel.: +7 (495) 660 4000Fax: +7 (495) 660 4099Email: [email protected]

www.scf-group.ru

Documents

ANNUAL REPORT 2015 - Sovcomflot