COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
SOLLERS:
THE TEAM IN FRONT
SOLLERS is one of the leading Russian automotive companies
and works in partnership with global automotive producers
such as Ford, SsangYong, Toyota, Mazda and Isuzu. In 2012,
our consolidated turnover was in excess of RUB 65.5billion.
SOLLERS owns production facilities which produce Russian
UAZ off-road vehicles, Japanese ISUZU trucks, and both petrol
and diesel ZMZ engines.In 2011, we set up a joint venture,
Ford Sollers, the exclusive producer and distributor of a broad
range of Ford vehicles in Russia. In 2012, production of the Mazda
CX-5 began at the MAZDA SOLLERS joint venture, and at the
very beginning of 2013, the SOLLERS-BUSSAN joint venture
launched Toyota Prado production in Vladivostok, in the far east
of Russia. SOLLERS holds leading positions on the Russian
automotive market, having introduced – along with its partners –
more than fifteen new products to the market and jointly created
the capacity to produce around 550,000 vehicles annually.
ADDITIONAL
INFORMATION
UAZ
ZMZ
Russian UAZ off-road vehicles
ZMZ petrol and diesel engines and parts
2
3
SsangYong
Korean SsangYong SUVs
ISUZU
Japanese ISUZU trucks
SOLLERS-BUSSAN Ford Sollers
Production of Toyota Prado
Exclusive production and distribution
of Ford vehicles in Russia
MAZDA SOLLERS
SOLLERS-FINANCE
Production of Mazda vehicles
Full range of car leasing services
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
Executive Summary
FINANCIAL HIGHLIGHTS
SOLLERS performed well in 2012, with key
indicators showing robust progress over the previous
year.
up 22%
EBITDA
up from RUB 6,269 million to RUB 7,652 million.
RUB 5,881 mln
NET PROFIT
down to
RUB 7,880 mln
NET DEBT
RUB 5,747 mln
FREE CASH FLOW
COMPANY OVERVIEW: KEY MILESTONES
MAZDA SOLLERS
Start of operations in the Russian Far East with launch
of Mazda CX-5 production in Vladivostok.
SOLLERS-ISUZU
Relaunch of truck production at Ulyanovsk production
site. ISUZU MOTORS LIMITED increased its
shareholding in the JV to 45%.
Ford Sollers
Start of production of Kuga, Explorer, Galaxy,
and S-Max at the Elabuga plant, in the Republic
of Tatarstan, Russia.
CORPORATE GOVERNANCE
The Company has formed a number of committees
to support the Board of Directors in exercising control
over all business lines. All Committees comprise
members of the Company’s Board of Directors.
In 2012, the Company supplemented the existing
committees with the creation of a Nomination
and Corporate Governance Committee.
BUSINESS AND STRATEGY
To achieve leadership positions in the Russian
automotive market through partnerships with
international automakers.
To implement partnership projects that include all
significant elements of the automotive industry value
chain and are based on:
•growth through equally-shared partnerships with
global OEMs
•development of local production facilities and
components’ manufacturing to ensure high levels of
localisation
•launching new car models in the fastest-growing
market segments: SUVs and LCVs.
CORPORATE SOCIAL RESPONSIBILITY
RUB 43 mln
SOLLERS’ policies are aimed at fostering social
and economic development. With this in view, the
Company carried out charitable programmes worth
RUB 43 million in 2012. Through the SOLLERS
Occupational Health and Safety (OHS) programme,
we have significantly reduced the risk of work-related
accidents and health problems. Our environmental
policy is designed to ensure conservation of energy
and resources, reduction of carbon emissions, and
efficient solid-waste management.
The Russian automotive market experienced
growth in 2012:
2.9 mln sales
Sales of passenger cars and light commercial vehicles
reached 2.9 mln units, up 11% year-on-year. Foreign
brands assembled in Russia achieved market share of
43%.
SHAREHOLDERS’ EQUITY
AND SECURITIES
RUB 428 mln
Subscribed share capital of RUB 428 million with
34,270,159 ordinary shares of RUB 12.50.
4
5
31Strategy
32 Business Model
34 Market Overview
40 Our Products
47 Business Projects
& Key Assets
61 Board of
Directors
64Committees
68Management
70 Code of Conduct
71Information
Policy
73Risk
Management
77Regional
Development
78 Industrial &
Occupational Safety
80 Environment 82Employee
Development & Social
Programmes
85Education
86National
Occupational
Standards &
Qualifications
93 Share Capital
94Major
Shareholders
95 Market Share
Price & GDR
96Bonds
103Independent
Auditor’s Report
104 Sollers Group
Consolidated
Financial Statements
110 Sollers Group
Notes to the
Consolidated Financial
Statements at
31 December 2012
ON THE COVER:
SsangYong Actyon
Contents
ADDITIONAL
INFORMATION
P. 156-161
financial
reporting
P. 98-155
SHAREHOLDERS’
EQUITY &
SECURITIES
P. 90-96
CORPORATE
SOCIAL
RESPONSIBILITY
P. 74-89
P. 8-27
11 About us
12 Financial &
Operating Highlights
15Business
Structure &
Project Mapping
20Milestones
in 2012
22Chairman’s
Statement
23 CEO’s Statement
26SOLLERS’
History in Brief
CORPORATE
GOVERNANCE
P. 58-73
BUSINESS &
STRATEGY
P. 28-57
COMPANY
OVERVIEW
159Disclosure
Calendar
160 Annual General
Meeting
161Contacts
We create first-class solutions
in everything related to
automotive vehicles: launching
new models, building plants,
opening dealerships, and coming
up with the great ideas which
inspire our customers to move
forward.
6
7
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
P. 8-27
BUSINESS &
STRATEGY
8
9
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
IFRS FINANCIAL
STATEMENTS
2011
ADDITIONAL
INFORMATION
At SOLLERS, we are committed
to ensuring the best for all
our stakeholders: employees,
investors, customers and
suppliers. This leads to a win-win
situation all round and promotes
organic growth.
· About Us
· Financial & Operating
Highlights
· Business Structure &
Project Mapping
· Milestones 2011
· Chairman’s Statement
· CEO’s Statement
· SOLLERS’ History
in Brief
About Us
SOLLERS is one of the leading Russian automotive companies and works in partnership
with global automotive producers such as Ford,
SsangYong, Toyota, Mazda and Isuzu. In 2012,
our consolidated turnover was in excess of RUB
65.5 billion. SOLLERS owns production facilities which produce Russian UAZ off-road vehicles, Japanese ISUZU trucks, and both petrol
and diesel ZMZ engines.
In 2011, we set up a joint venture, Ford Sollers, the exclusive producer and distributor of a
broad range of Ford vehicles in Russia. In 2012,
production of the Mazda CX-5 began at the
MAZDA SOLLERS joint venture, and at the very
beginning of 2013 the SOLLERS-BUSSAN joint
venture launched production of the Toyota
Prado. Both industrial joint ventures with Japanese partners are based in the Russian Far East.
Founded in 2002, SOLLERS has created
partnerships with global automakers for the
growing Russian market, meeting customers’
demand and preferences in automotive products. We have managed to take leading positions across multiple categories of the Russian
automotive market, to bring – along with our
partners – more than fifteen new products
to market, to create a manufacturing capacity
of around 550,000 cars a year, and to become
one of the most efficient companies in the
industry.
10
11
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
Financial & Operating
Highlights1
NOTES TO 2012 FINANCIAL RESULTS
· About Us
· Financial & Operating
Highlights
· Business Structure &
Project Mapping
· Milestones in 2012
· Chairman’s Statement
· CEO’s Statement
· SOLLERS’ History
in Brief
SOLLERS’ Consolidated Wholesales2, thousand units
down 5.7%
RUB 7,245 mln
SALES
OPERATING PROFIT
Based on the 2012 results, SOLLERS revenue
decreased by 5.7% year-on-year. This deterioration
was driven by discontinuation of FIAT business and
restructuring of SOLLERS-ISUZU joint venture in
September 2012 (SOLLERS-ISUZU is equity-accounted
starting from September 2012).
Operating profit totalled RUB 7,245 million in 2012,
up 59% over the result of 2011. ROCE was up from
23% in 2011 to 31% in 2012 (operating profit over
long-term borrowings plus total equity).
up 22%
RUB 5,881 mln
EBITDA
NET PROFIT FOR THE PERIOD
(before non-controlling interest)
The increase of EBITDA was the result of improved
sales mix and ongoing cost cutting. With growing
sales of SsangYong and UAZ vehicles, effective cost
controls ensured an EBITDA margin of 12%. Factors
that have impacted the Company’s costs include:
deconsolidation of SOLLERS-ISUZU business (from
September 2012), transfer of assets to Ford Sollers
joint venture, growth of transportation tariffs (in line
with the market).
down to
RUB 7,880 mln
NET DEBT
Net debt was down from RUB 13,877 mln in 2011
to RUB 7,880 mln in 2012 due mostly to strong cash
flow from operating activities.
The Net debt/EBITDA ratio was down from 2.2
in 2011 to 1.0 in 2012, below the pre-crisis level.
Strong operating results (RUB 7,245 million),
a decrease in financing costs of nearly 64% due to
a reduced debt burden resulted in net profits of
RUB 5,881 million. The launch of new products and
effective marketing policy took SOLLERS’ financial
results to the pre-crisis level.
DEBT UPDATE
At the end of the period Group’s Debt totalled RUB
10,440 million. 64% of the Group’s debt is represented
by short-term borrowings. As of 31 December 2012
committed credit lines cover all refinancing needs of
the Group. The average interest rate for bank loans
was 9.8%. All debt is rouble denominated, no foreign
currency risk related to debt. SOLLERS’ interest cover
(operating profit over finance costs) was up from 2.0
in 2011 to 8.9 in 2012.
2012
2011
CHANGE
%
70.3
22.0
10.1
38.2
32.8
1.8
11.6
19.4
0.8
0.8
‒
2.4
2.7
109.0
63.7
17.9
12.3
33.5
24.8
1.9
10.8
12.1
1.8
1.3
0.5
13.2
16.6
120.1
6.6
4.1
-2.2
4.7
8.0
-0.1
0.8
7.3
-1.0
-0.5
-0.5
-10.8
-13.9
-11.1
10%
23%
-18%
14%
32%
-5%
7%
60%
-56%
-38%
-100%
-82%
-84%
-9%
2012
2011
GROWTH
Sales
EBITDA
EBITDA margin
Operating profit4
Net profit/(loss) for the year
(before non-controlling interest)
65,549
7,652
12%
7,245
5,881
69,531
6,269
9%
4,549
4,694
(3,982)
1,383
3%
2,696
1,187
Net debt
Free cash flow
7,880
5,747
13,877
7,903
(5,997)
(2,156)
UAZ
UAZ Patriot
Other SUVs
LCVs, MPVs
SY SUVs
Rexton
Kyron
Actyon & Actyon Sports
ISUZU
N-series
C, E-series
FIAT Ducato3
FIAT PC3
TOTAL
SOLLERS financial results2, RUB mln
Company source.
Discontinuation of FIAT business.
4
In 2011 the operating ptofit was adjusted for one-off
transactions (including the net result from the formation
of a joint venture totaling RUB 4,007 million).
2
3
1
Hereinafter point (.) refers to decimal and comma (,)
is used as separating element for thousands.
12
13
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
Business Structure
& Project Mapping
KEY PERFORMANCE INDICATORS 2008-2012
Consolidated Wholesales by Brand , Thousand Units
5
122.4
120.1
120
109.0
98.1
100
Business structure as of 31 December 20126
80
58.8
60
SOLLERS
40
20
· About Us
· Financial & Operating
Highlights
· Business Structure &
Project Mapping
· Milestones in 2012
· Chairman’s Statement
· CEO’s Statement
· SOLLERS’ History
in Brief
FULLY CONTROLLED
0
UAZ
SYMC
FIAT
ISUZU
TOTAL
2008
2009
2010
2011
2012
70.8
15.8
31.2
4.6
122.4
35.1
7.9
14.4
1.4
58.8
57.0
14.3
23.7
3.1
98.1
63.7
24.8
29.8
1.8
120.1
70.3
32.8
5.1
0.8
109.0
Net Profit / Loss 5, RUB mln
Total Sales 5, RUB mln
6,000
80,000
69,531 65,549
61,630
55,266
49,136
40,000
34,743
4,694
60,000
2009
2010
2011
2012
-1,241
Production sites:
ZMZ & UAZ
15,000
10,000
7,880
6,607
2010
2011
SOLLERSISUZU
(50/50 JV)
SOLLERSFINANCE
(50/50 JV)
PRODUCTION &
DISTRIBUTION
OF FORD
VEHICLES
PRODUCTION
OF MAZDA
VEHICLES
PRODUCTION
OF TOYOTA
VEHICLES
PRODUCTION &
DISTRIBUTION
OF ISUZU
TRUCKS
Production site:
Vladivostok
Production site:
Vladivostok
JV WITH
SOVKOMBANK
OFFERS A FULL
RANGE OF CAR
LEASING
SERVICES
Production sites:
Vsevolozhsk,
Naberezhnye
Chelny,
Elabuga
2012
10,000
2,277
-13,424
7,903
5,747
2010
2011
2012
5,000
0
-494
-5,000
5,000
-10,000
0
-15,000
2008
2009
2010
2011
2012
Company source.
In 2013 the production of SsangYong vehicles was
transferred from SOLLERS-Far East to MAZDA SOLLERS JV.
8
Partnerships are equity-accounted under IFRS.
6
7
Company source.
SOLLERSBUSSAN
(50/50 JV)
-6,000
2009
20,000
13,877
5
MAZDA
SOLLERS
(50/50 JV)
-4,000
25,000
2009
Production Site:
Vladivostok
FORD SOLLERS
(50/50 JV)
Free Cash Flow 5, RUB mln
22,286 23,205 21,442
2008
PRODUCTION &
DISTRIBUTION
OF UAZ
VEHICLES &
PARTS
PARTNERSHIPS 8
-2,000
-5,011
2008
Net Debt 5, RUB mln
PRODUCTION7 &
DISTRIBUTION
OF SSANGYONG
VEHICLES
2,000
0
2008
4,000
UAZ
0
-376
20,000
5,881
SSANGYONG
14
15
Production site:
Ulyanovsk
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
Project mapping9
Key PROJECTS
Key Projects as of 31/12/2012
Our strategic partnership with Korean
SsangYong was established in 2005. Since then,
SOLLERS has been an exclusive producer and
distributor of SsangYong vehicles in Russia, has
developed production facilities in Vladivostok,
and achieved one of the leading positions on
the Russian SUV market with over 32 thousand
vehicles sold in 2012.
UAZ Holding manufactures SUVs and commercial vehicles. Since 1942 UAZ has been a
traditional Russian OEM developing large-scale
production facilities, including production of
engines and automotive components, forging
and aluminium casting.
Ford Sollers JV was established by Ford Motor Company and SOLLERS. Since October
2011, the Ford Sollers JV has been an exclusive
producer, distributor and provider of automotive components for all Ford cars in Russia.
The three production facilities contributed
by partners to the joint venture have a total
production capacity of 350,000 vehicles
per year.
CITY
PASSENGER
CARS
SPORTS
UTILITY
VEHICLES
LIGHT
COMMERCIAL
VEHICLES
TRUCKS
MINIVANS
MOSCOW
ST. PETERSBURG
· About Us
· Financial & Operating
Highlights
· Business Structure &
Project Mapping
· Milestones in 2012
· Chairman’s Statement
· CEO’s Statement
· SOLLERS’ History
in Brief
ADDITIONAL
INFORMATION
OTHER
BUSINESSES
• Head Office
• Finance
Services
Ford
Retail outlet
ELABUGA
Ford
NABEREZHNYE New Ford
CHELNY
models due
to be launched
soon
New Ford
models due
to be launched
soon
Ford
Ford
• ZMZ Engines
• Aluminium
Foundry
• Special
instruments
• Components
ZAVOLZHYE
ULYANOVSK
UAZ
VLADIVOSTOK
SsangYong
UAZ
ISUZU
• Iron Foundry
• Special
instruments
• Components
Industrial joint
ventures for
production
of Mazda
and Toyota
vehicles10
SOLLERS Group‘s international partnerships enable us
to provide a broad product and service line while achieving
an ideally balanced investment portfolio.
Company source.
SOLLERS Group is not involved into the distribution of Mazda and Toyota vehicles. At the beginning of 2013,
the production of SsangYong vehicles was transferred from SOLLERS-Far East to MAZDA SOLLERS JV for investmentsharing purposes. The distribution of SsangYong vehicles remains under SOLLERS’ control.
9
10
SOLLERS-ISUZU JV was established in 2007
as the first Russian-Japanese joint venture for
the production and distribution of ISUZU commercial vehicles. In June 2012, the production
of ISUZU trucks was transferred to the Ulyanovsk production facility.
SOLLERS-BUSSAN JV is a joint venture
established by Mitsui & Co. (Japan) and SOLLERS in 2011. The industrial joint venture
produces Toyota Prado SUVs at the production
site in Vladivostok.
MAZDA SOLLERS JV is a joint venture established by Mazda Motor Corporation and SOLLERS. Since September 2012, the joint venture
has been engaged in the production of Mazda
CX-5 crossovers in Vladivostok. The joint
venture plans to launch new Mazda6 sedan. At
the very beginning of 2013, SOLLERS transferred the production of SsangYong vehicles to
MAZDA SOLLERS JV.
SOLLERS-FINANCE is a financial company
specialising in leasing services initially founded by SOLLERS in 2008. In December 2010,
it was transformed into a 50/50 joint venture
between Sovkombank and SOLLERS.
16
17
COMPANY
OVERVIEW
BUSINESS &
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CORPORATE
GOVERNANCE
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financial
reporting
ADDITIONAL
INFORMATION
FORD SOLLERS
VSEVOLOZHSK
SOLLERS’ overall capacity
(directly owned or through JVs)
exceeds 550,000 units
per annum.
Key Projects11
Product line:
Ford Focus, Ford Mondeo.
Capacity:
up to 160 K units p.a.
Vsevolozhsk
ZMZ
Moscow
Product line:
petrol and diesel engines.
Capacity: up to 300 K
units p.a.
· About Us
· Financial & Operating
Highlights
· Business Structure &
Project Mapping
· Milestones in 2012
· Chairman’s Statement
· CEO’s Statement
· SOLLERS’ History
in Brief
Zavolzhye
Ulyanovsk
Fully Controlled Assets
Joint Ventures
Naberezhnye Chelny
Elabuga
18
19
Vladivostok
UAZ
Product line:
UAZ SUVs and LCVs.
Capacity:
up to 110 K units p.a.
Company source.
11
SOLLERS-ISUZU
Product line:
ISUZU trucks, N-series.
Capacity:
up to 5 K units p.a.
Relaunch: June, 2012
FAR EAST
PRODUCTION SITE
FORD SOLLERS
ELABUGA
Product line:
Transit, Explorer, Kuga,
S-MAX, Galaxy.
Capacity:
up to 75 K units p.a.
FORD SOLLERS
NABEREZHNYE
CHELNY
To be launched soon.
Capacity:
up to 115 K units p.a.
Product line:
SsangYong, Mazda CX-5,
Mazda6, Toyota Prado
Capacity:
approx. 100 K units p.a.
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
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SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
Milestones in 2012
· About Us
· Financial & Operating
Highlights
· Business Structure &
Project Mapping
· Milestones in 2012
· Chairman’s Statement
· CEO’s Statement
· SOLLERS’ History
in Brief
March 27
April 5
Start of SsangYong Actyon Sports sales, an all
new-generation pickup. New exterior design, more
options and reasonable pricing made it one of the most
attractive offers on the market.
Russian launch of SsangYong Actyon restyled version
with new petrol engine and functional features.
20
21
May 22
May 31
Start of production and sales of the new versions
of the Patriot and Pickup. Redesigned interior and
new functions make these off-road vehicles safer
and more comfortable.
New agreement on SOLLERS-ISUZU JV and relaunch
at UAZ production site. Isuzu increased its share in
the joint venture to 45%, while SOLLERS retained
50%. Production started in June 2012.
July 24
September 6
Ford Sollers launches the production of Kuga,
Explorer, Galaxy, and S-Max at the Elabuga plant.
Mazda Sollers Manufacturing Rus starts operations
in the Russian Far East following an agreement
between SOLLERS and Mazda Corporation signed
the same year on April 27. The joint venture
manufactures CX-5 and plans to launch new Mazda6.
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
IFRS FINANCIAL
STATEMENTS
2011
ADDITIONAL
INFORMATION
Chairman’s Statement
· About Us
· Financial & Operating
Highlights
· Business Structure &
Project Mapping
· Milestones in 2011
· Chairman’s Statement
· CEO’s Statement
· SOLLERS’ History
in Brief
The excitement generated by the automobile
industry continues to captivate all of us. This
is not only because it reflects our desire for
individual mobility and expresses the selfimage we wish to project, but also because it
is an essential element of economic life, representing up to one-fifth of total employment
in industrialised countries.
Russia is now the second-largest market in
Europe, and is the focus of an explosion of
investment and development by all major
manufacturers; the Russian government views
the industry as an important strategic element
in efforts to diversify Russia‘s economy.
SOLLERS is one of Russia’s leading automotive groups, having charted a course of independent development in the interests
of its investors. It has created partnerships
with recognised technology sources to supplement its record of leadership in SUV and other
4x4 vehicles (UAZ), most notably through the
Ford Sollers joint venture and agreements with
SsangYong, Mitsui, Mazda and Isuzu. SOLLERS
works closely with international partners to
develop its component sector, auto dealerships
and wide range of local service providers. Its
Board of Directors – a majority of whose members, both Russian and foreign, serve as independent, non-executive directors – supports a
skilled management team and a workforce of
more than 19,000 throughout the Russian Federation. The Board wishes to express its sincere
thanks to every one of them, as well as to our
investors, suppliers, and other stakeholders.
The Russian government has created a framework to encourage the development of the
automotive industry by establishing rules that
assure investors a stable environment conducive for business in line with Russia’s recent
accession to the World Trade Organisation
(WTO). Year-on-year sales growth of over 30%
over 2009-2011 and 11% in 2012 has made Russia the world’s most important growth market,
and demonstrates the resilience of the Russian economy in the uncertain economic times
which have had such a devastating effect on
both the European Union and the United States.
SOLLERS is in good economic health, has a
debt/equity ratio of 0.5 and secure financing
for its development projects. Most of its plants
are modern and have been built to international standards, and we are committed to bringing
all our production sites up to this standard.
Over my nearly 40 years of involvement in
the Russian market, I have been a firm believer in the global nature of the automotive
business. The global auto sector’s similarities
transcend all manner of political and social differences. That fact, combined with the integrity
and skill of SOLLERS management and workforce, means that I can state with confidence
that SOLLERS’ increasing success will continue
to reward its investors, and provide secure,
well-paying jobs for its employees.
David J. Herman
Chairman
CEO’s Statement
For SOLLERS, 2012 saw the successful implementation of a strategic idea that the Company
formulated as the key driver of its development. This idea calls for achieving growth and
a leadership position in the Russian automotive market through full-scale partnerships
with leading international automakers to
manufacture new and competitive products
and to localise their production in Russia.
In following through on this strategy, we have
continued our growth over the past year by
establishing new joint ventures, launching
new models, and fostering sales and enhancing
business efficiency. We firmly believe that our
work will result in greater benefits for all our
stakeholders.
Russia’s economic recovery in recent years
has opened up new opportunities for further
growth in the automotive sector, while governmental support has given an incentive for
the renewal of Russia’s car fleet. The growth
of Russia’s automotive market has highlighted
the need for new multi-purpose products that
meet the needs of consumers with modern, dynamic lifestyles. That is what SOLLERS brings
to the Russian market, and our success directly
hinges on the success of our products.
In 2012, the Company sold a total of 100,196
motor vehicles (retail sales of UAZ, SsangYong
and ISUZU), representing 14.5 % year-on-year
sales growth. SOLLERS has significantly reinforced its position in the Russian SUV market,
which was facilitated by bringing a new petrol
modification of the SsangYong Actyon crossover to market and the launch of restyled versions of SsangYong flagman Rexton and stylish
pickup Actyon Sports. In 2012, UAZ Pickup
showed the best ever sales, resulting in 46%
year-on-year sales growth. SOLLERS’ sales of
SUVs exceeded 65,000 (including UAZ exports).
The Company has significantly diversified its
business and launched five new products in the
SsangYong and UAZ model ranges which resulted in posting a net profit of 5,881. EBITDA
growth of nearly 22% was driven by strong UAZ
and SsangYong sales in tandem with an efficient cost-control system. Having significantly
strengthened its financial position, the Company has reduced its net debt thanks to robust
cash flows from operating activities.
2012 was a make-or-break year for us in
terms of a totally new business configuration.
Our joint venture showed first full year results
and our Far East joint ventures started operations. In April, SOLLERS and Mazda signed an
agreement to establish a joint venture to manufacture Mazda CX-5 and Mazda6 in Vladivostok and later in October the new JV produced
its first Mazda CX-5. July saw the widening of
the Ford model range produced in the Republic
of Tatarstan with the launch of production of
Kuga, Explorer, Galaxy and S-Max.
The results of the first full year activity of the
Ford Sollers joint venture have a very important
impact on the whole Russian automotive market. This is the first 50/50 partnership between
a Russian company and a global automotive
industry leader which covers the entire auto
industry value chain, including: developing
R&D competencies, producing a wide range of
products for the most popular segments of the
passenger car and LCV markets, localising the
component base, and developing a distribution
chain. Strong sales, products that are ideally
adapted to the Russian market, an extensive
dealership network, and Ford’s readiness to expand its presence in Russia through increasing
production capacity, launching new car models
and establishing a local supplier base were the
key factors that enabled us to establish this
long-term partnership – one with significant
promise for future business development.
During the first year of our cooperation, the
joint venture demonstrated sales of 130,809
motor vehicles in 2012, up 11% on sales posted
in 2011. The full year net profit of Ford Sollers
joint venture totalled RUB 1,983 million in 2012.
Joint industrial projects in the Russian Far
East with such giants as Mazda and Mitsui
started operations in 2012. Full scale production will be launched in the early 2013,
enabling the Company not only to enjoy the
benefits of greater production volumes, but
also bolster more vigorous localisation of both
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COMPANY
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· About Us
· Financial & Operating
Highlights
· Business Structure &
Project Mapping
· Milestones in 2011
· Chairman’s Statement
· CEO’s Statement
· SOLLERS’ History
in Brief
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Japanese car models and SsangYong SUVs produced in the Far East.
We strongly believe that our sector development and social responsibility goals will
benefit society at large and create value for our
shareholders. In 2012, we helped initiate and
actively participated in a project aimed
at developing National Occupational Standards
and Qualifications for the automotive industry.
Such new standards will help ensure a pool of
qualified personnel for automotive sector companies which, in turn, will significantly improve
product and service quality, enhance business
efficiency, and ensure optimum resource usage
by car-makers.
In 2013, we will pursue our partnership policy by expanding existing projects and initiating
new ones. The launch of new marketable products, both our own and those manufactured by
joint ventures, will be a driver for expanding
our presence in the Russian automotive market. We are also planning to renew our existing
product line and improve the quality of our
products.
Moving forward, one of the core focus areas
for the Company will be improving its operational efficiency. In the context of moderate-
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growth projections for the automotive market,
we expect to generate significant operating
cash flow from our own vehicle brands and
increased earnings from our joint ventures,
which we are confident will represent the
greatest value in future for our shareholders.
Of course, in the context of global economic
volatility and high growth rates for our business, we may face serious challenges. But
experience indicates that we should be optimistic about new business opportunities. We
are excited by the new scale of our business
which allows SOLLERS to take part in developing new products for the Russian market and
further unlock the localisation potential of our
traditional products since we see this as a core
driver to the Company’s contributed profitable
growth.
As always, we would like to thank our partners and staff for their devotion and confidence, as well as the Board of Directors for
their professionalism and readiness to take
on challenging tasks, and our shareholders for
their support for our initiatives.
Vadim Shvetsov
CEO
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SOLLERS’ History in Brief
· About Us
· Financial & Operating
Highlights
· Business Structure &
Project Mapping
· Milestones in 2012
· Chairman’s Statement
· CEO’s Statement
· SOLLERS’ History
in Brief
2002
2003
2009
2010
Establishment of OAO Severstal-auto as an automotive
arm of Severstal Group, comprising OAO UAZ and
OAO ZMZ production sites.
First-ever publication of Company’s Consolidated
Financial Statements, for year ended 31 December
2002.
Expansion of production of Fiat Ducato-based special
versions: ambulances (class A, B and C), minibus
taxies, and emergency service vehicles.
Launch of production of SsangYong Actyon
and Actyon Sports cars at SOLLERS-Far East plant.
2005
2006
The Company conducts an IPO.
Launch of SsangYong Kyron and Fiat Albea
production at SOLLERS-Naberezhnye Chelny.
Signing of first licence agreement with SsangYong
Motor Company for production of SUVs in Russia.
Launch of UAZ Patriot production.
Signing of licence agreements with both Fiat and
ISUZU to manufacture cars in Russia.
2007
2008
Change in shareholding structure of Severstal-auto
(now SOLLERS); acquisition of a controlling interest
by Vadim Shvetsov, CEO; the Company splits from
Severstal Group.
Launch of new brand: SOLLERS; headquarters,
subsidiaries and production sites renamed.
Launch of Fiat Doblo production at
SOLLERS-Naberezhnye Chelny.
Establishment of joint venture with ISUZU
to manufacture trucks in Russia.
Certification of UAZ Patriot and UAZ Pickup
with ZMZ petrol engine under Euro 4 emission
standards.
Start of ISUZU truck assembly at UAZ
production site.
Acquisition of SOLLERS-Naberezhnye Chelny
production site (previously OAO ZMA) and launch of
SsangYong Rexton SUV assembly line.
Election of new independent Board of Directors.
Launch of first automotive factory in
Primorye Region: SOLLERS-Far East (Vladivostok).
Opening of SOLLERS-Elabuga car factory in Elabuga
Special Economic Zone; production starts of Fiat
Ducato commercial vehicles and ISUZU trucks.
Establishment of leasing company SOLLERS-FINANCE.
Launch of UAZ Cargo, UAZ Pickup and UAZ Patriot
diesel models.
Launch of new product manufacture at UAZ: limited
edition of UAZ Patriot Sports cars and new generation
of UAZ 469 with a biofuel feed system (petrol and
gas).
2011
2012
Launch of manufacture of SsangYong New Actyon
model at SOLLERS-Far East plant.
SsangYong model range renewal: Rexton, Actyon
Sports, restyled Actyon and its production launch
in the Russian Far East.
Signing of the Agreement with Ford establishing
a joint venture, and start of Ford Sollers joint venture
operations.
Signing of Agreement with Mitsui & Co. (Japan)
establishing SOLLERS-BUSSAN joint venture
to manufacture Toyota cars in Vladivostok.
70th anniversary of Ulyanovsk Automobile Plant
(UAZ).
Signing of Memorandum of Intent with Mazda Motor
Corporation to launch new joint venture based at
SOLLERS-Far East production site.
Start of Mazda Sollers Manufacturing Rus operations
and production launch of the new crossover
Mazda CX-5.
Market launch and production start of the restyled
versions of UAZ Patriot and UAZ Pickup with all new
interior and new features.
Approval of a new development plan for Zavolzhsky
Engine Plant (ZMZ) to become the basis for an auto
components industrial park.
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SOLLER’ strategy is aimed
at achieving leadership positions
in the Russian automotive
market through partnerships
with leading international
automakers.
· Strategy
· Business Model
· Market Overview
· Great Products
· Business Projects &
Key Assets
ADDITIONAL
INFORMATION
Strategy
The Company’s strategic priority is to achieve
and maintain a strong leadership position in
Russia and the countries of the Customs Union
in the manufacture and distribution of passenger vehicles and light commercial vehicles.
In 2012, the Company continued to follow the
fundamental principles of its strategy which
are to:
• build sustainable growth through partnerships
• focus on the most dynamic market segments with products “made for Russians”
• increase the level of locally-produced parts
and components to 60%
• implement modern technologies in products and production to maintain the highest
quality
• offer technical and financial services on
a 24/7 basis
• improve the value proposition for clients,
partners, suppliers, employees and shareholders.
Our fundamental principles - which we also
share with our partners - are built around
mutual trust, market- and customer-focus, and
a corporate culture which awards initiative,
creativity and quality in all fields of operations.
The Ford Sollers joint venture, which started
operations in October 2011, was the most
important milestone of SOLLERS’ strategy
implementation. The JV is expected to become
SOLLERS’ Group largest project in the near
future, with a total production capacity of at
least 350,000 motor vehicles per year, and offering a wide range of models to the market,
including Ford Transit, Ford Explorer, Ford
Kuga, Ford Mondeo and Ford Focus III. The
plan is to launch new Ford models that will
be made in Russia for the first time ever. In
addition, its business plan calls for creating an
engine-manufacturing and in-house R&D centre which will be integrated into Ford’s global
network of product development centres, as
well as achieving an average localisation level
of at least 60%.
In line with its growth strategy through partnership, SOLLERS established a joint venture
with Mitsui Corporation, Japan, dedicated to
the manufacturing of the Toyota Land Cruiser
Prado and, in 2012, SOLLERS launched a joint
venture with Mazda Motors Corporation, Japan,
to produce CX-5 and the new generation of
Mazda6. Both joint ventures are industrial
partnerships that will develop their own production facilities in Vladivostok. This implementation will not only provide SOLLERS with
the benefit of increased car manufacturing
volumes, but will also help it to promote more
vigorous localisation of both Japanese brands
and the existing model range of SsangYong
sports utility vehicles produced in the Far East.
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Business Model
Success trough
continuous growth.
· Strategy
· Business Model
· Market Overview
· Our Products
· Business Projects &
Key Assets
LONG-TERM INTERNATIONAL
PARTNERSHIPS
From day one, SOLLERS has successfully implemented a partnership-focused strategy to
generate synergies by combining key competencies into a single, complex mechanism,
enabling the Company to offer great products
and services to its customers. The complementary nature of the Company’s partners’
competencies is in direct relation to the value
generated by its partnerships. When embarking on a new business partnership, SOLLERS
always seeks to foster an atmosphere of mutual trust and respect. This helps to make the
Company’s business partnerships strong and
enduring.
Well-known brands
All brands represented by SOLLERS Group
are well-known and respected worldwide.
UAZ is at the forefront of Russian SUV manufacturing. The model range includes traditional
off-road vehicles of well-known domestic
brands.
Since its establishment in 1954, SsangYong
has grown into a progressive and innovative automaker that creates ground-breaking
products at reasonable prices. Its SUV model
range has been adapted for Russian market
requirements and represents an attractive
combination of modern design, reliability and
affordability.
Founded in 1916, Isuzu Motors has a long
history of vehicle and engine manufacture.
The brand has always focused on what it calls
“creation without compromise”. Today, the
company is confidently responding to the challenge of global leadership in light-duty truck
building (ISUZU N-series) while maintaining
a tradition of excellent quality. ISUZU trucks
are well adapted to challenging climates and
tough operating conditions, which explains the
brand’s popularity in Russia.
It is a little known fact that Ford Motor
Company first entered the Russian market in
1907, only four years after it was founded in
the United States. The company is a legend of
world auto manufacture and enjoys exceptional
respect among Russian motorists. In 2008,
Russia became Ford’s fifth-largest market in
Europe after posting sales of nearly 176,000
units in 2007. The Ford Focus has been the
highest-selling model among foreign brands in
Russia for the past five years.
Focus on core value chain elements
in large-scale investments
As of the end of 2012, SOLLERS’ overall
capacity (directly owned or through joint ventures) exceeded 550,000 units per annum, making SOLLERS the second-largest automaker in
Russia.
Large-scale investments in the Company’s
Far East-based production partnerships will
help improve the efficiency of SsangYong’s
assembly operations and create localisation
opportunities.
SOLLERS produces components and engines
which are sold to the Group’s subsidiaries as
well as to external clients.
Flexible and competitive organisation
in Russia
In-depth market knowledge, a unique product line, a strong customer base and financial
stability all make SOLLERS an attractive global
business partner.
SOLLERS’ partners enjoy the benefits of the
Company’s expertise in the Russian car market, as well as its logistics, infrastructure and
production activities. And its efficient funding
mechanisms for investment purposes make the
Company’s financial position stable.
With a unique range of products for nearly
any transportation purpose, SOLLERS is
represented in a broad spectrum of market
segments and price classes. This helps improve the Company’s flexibility under diverse
market conditions. And new partnerships
will enhance SOLLERS’ market presence even
further.
Large distribution and after-sales network
with strong growth potential
SOLLERS’ distribution chain encompasses
over 120 UAZ dealers and 110 SsangYong
dealers. The Company’s distribution network
stretches from Kaliningrad in the westernmost
part of European Russia to Vladivostok in
Russia’s Far East – a distance of almost 10,300
km. All dealers and service centres are obliged
to meet strict requirements developed by the
SOLLERS’ sales headquarters to ensure delivery of the very best products and services to
customers.
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Market Overview
MAJOR MACRO TRENDS 12
· Strategy
· Business Model
· Market Overview
· Our Products
· Business Projects &
Key Assets
In 2012, Russian industrial production was
up 3.2%13 year-on-year. Over the year, the
manufacturing sector among all industrial
production sectors demonstrated 4.1%14 annual
growth, outpacing other sectors. The mechanical engineering industry was the growth leader,
mainly driven by rapid growth in transportation and equipment manufacturing (annual
growth rate of 12.67%).
Passenger car production volumes (including
LCV and MPV) grew in 2012 by 14.1%15. Rus-
sia’s automobile factories produced 1,984,17015
cars – a record for the industry. However, the
production of traditional domestic car models
showed a modest decline (down 3% to 643,058
units) while foreign models production continued to grow (up 24% to 1,341,112 units).
Output of trucks in 2012 was flat (-0.4% vs. 2011 at 206,208 vehicles).
2012 was a successful year for the Russian
automotive market with the market continuing
to recover. One indicator of this is that sales of
new passenger cars and LCVs during the year
reached 2,935,946 units, up 11% year-on-year.
Sales of passenger cars and commercial vehicles with a gross weight of up to six tons in the Russian Federation
by key segment, thousand units (Source: AEB, Association of European Businesses)
3,000
2,916
2,936
2,646
2,500
+11%
+39%
1,461
1,500
3,000
2,463
2008
2009
2010
2011
2012
284
571
923
141
529
203
265
2,916
150
273
438
68
320
104
108
1,461
210
383
556
67
432
141
120
1,909
283
547
711
84
670
183
168
2,646
266
553
769
92
875
191
190
2,936
The main source for market data in the paragraph is AEB,
Association of European Businesses, unless otherwise mentioned.
13
Estimated by Ministry of Economic Development, December 2012.
14
Jan-Dec 2012 status.
15
Estimated by ASM-Holding, December 2012.
+11%
+39%
1,767
1,356
1,500
0
12
2,745
2,712
2,000
500
TOTAL
• Based on 2012 results, the Russian market
remains the second in Europe (following Germany) in terms of new passenger car unit sales,
whereas in 2010 Russia placed fifth.
• Foreign models assembled in Russia demonstrated the highest growth in sales (+19%) in 2012
(+77% in 2011 vs. 2010); this segment has
dominated the market since 2011 (45% in 2012;
42% in 2011).
• In 2012, the highest growth rates were demonstrated by such car segments as SUVs, pickups, E, and minivans.
• Russian customers are beginning to buy cars
with more expensive option packages; in 2012,
sales were up 11% and revenues grew 19% and
the average purchase price of a car in Russia increased from USD 25,661 to USD 27,822 (Source:
Autostat).
2,500
1,000
B
B+
C
D
SUV+Pickup
LCV+MPV
Others
Passenger cars
Sales of passenger cars in the Russian Federation by origin, thousand units
(Source: AEB, Association of European Businesses)
1,909
2,000
This moderate growth signalled organic development for the sector, as at the end of 2011
two government programmes ceased: “cash for
clunkers” and subsidised interest rates on car
loans. These supportive measures, low interest rates combined with the market tendency
for rapid recovery after the economic downturn,
provided for abnormal sales growth
in 2011 (39% year-on-year).
Key drivers of the market growth in 2012
were:
• Moderate interest rates
• Relatively favourable macroeconomic
conditions resulting in slight growth of real
disposable income
• Sales promotion activities of dealers
and distributors
• Deferred demand on new cars formed
during last years.
1,000
500
0
2008
2009
2010
2011
2012
Russian brands
Foreign brands
assembled
in Russia
685
567
377
331
560
585
618
1,034
577
1,227
New import
1,460
2,712
648
1,356
622
1,767
811
2,463
941
2,745
TOTAL
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Commercial vehicles (CVs)
with a gross weight of up to six tons
The market of commercial vehicles with
a gross weight of up to six tons comprises three
major segments: car-derived vans (CDV) or
box carriers based on light motor vehicles with
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a payload of up to 2,500 kg, LCV (light commercial vehicles) or light trucks with a payload
of 2,500 kg to 3,500 kg, and multi-purpose
vehicles (MPV), mainly minibuses.
• In 2012, sales growth in the CV market was
4%. This was strengthened by both overall eco-
Sales of CVs with a gross weight of up to six tons in the Russian Federation by segment,
thousand units (Source: AEB, Association of European Businesses)
250
204
200
· Strategy
· Business Model
· Market Overview
· Our Products
· Business Projects &
Key Assets
184
140
150
+4%
191
+31%
104
100
Key long-term growth factors
50
0
LCV
MPV
CDV
TOTAL
2008
2009
2010
2011
2012
137
40
27
204
60
27
17
104
89
30
21
140
120
31
33
184
126
34
31
191
Sales of CVs with a gross weight of up to six tons in the Russian Federation by origin,
thousand units (Source: AEB, Association of European Businesses)
250
200
nomic growth in Russia and growth in specific
industries using commercial vehicles such as
retail and small-scale wholesale trade, transport, food production and basic goods manufacturing.
• In 2012, LCV remains the largest segment
in the group with a growth rate of 5%. The LCV
market growth that began in 2010 is expected
to continue. According to forecasts, the market
will fully recover and reach its pre-crisis level in
2013-2014.
• The market of foreign brands assembled in
Russia is represented mostly by Ford Transit.
Ford Sollers is the only producer of foreign
branded LCVs and MPVs in Russia. In 2012, the
sales of Transit almost substituted the sales of
Fiat Ducato the production of which was discontinued at the end of 2011.
204
184
140
150
+4%
191
+31%
104
100
50
• Russian automobile penetration rate provides for robust growth potential; currently, the
number of cars per 1,000 inhabitants in Russia is 265, whereas in developed countries this
indicator exceeds 500.16
• An old car fleet and the increasing rate
of replacement (the average age of the existing
domestic car fleet is currently 12 years, with
two thirds over 15 years old17); despite the
successful implementation of an old-vehicle
scrappage programme, many Russian car owners still have old vehicles that soon will be
unfit for use.
• Foreign automakers’ investments in facility
management in Russia.
• New industrial assembly aimed at supporting localisation of foreign brands which will
enable manufacturers to increase their operating margins.
• Growth of credit sales from
25% in 200918 to 42-45%19 in 2012.
• Joint loan programmes by automakers
and banks along with the operations of several
captive banks.
0
Russian brands
Foreign brands
assembled
in Russia
New import
TOTAL
2008
2009
2010
2011
2012
146
14
62
12
89
17
111
22
114
22
44
204
30
104
34
140
51
184
55
191
Estimated by Avtostat.
Estimated by the Company.
18
Estimated by the Ministry of Industry and Trade.
19
Estimated by Rosgosstrakh.
20
SOLLERS’ Group sales in the current paragraph
are represented by retail domestic sales of SsangYong,
UAZ, Ford and ISUZU.
16
17
SOLLERS’ POSITION
IN THE RUSSIAN AUTOMOTIVE
MARKET IN 201220
SUV segment
• In recent years, SUV has been the most
dynamically growing segment of the Russian automotive market, with the growth rate
outpacing the overall growth of passenger car
sales (31% vs. 11%); it is the highest growth
rate among all car classes.
• In 2012 SUV became the largest car segment on the Russian market.
• SUV is one of few segments in the Russian
passenger car market (along with pickups, E and
F+S) where sales in 2012 exceeded the pre-crisis
level of 2008; it is forecast that sales of SUVs will
grow steadily with the overall market over the
mid-term with an average market share of 40%.
• The main growth in the SUV segment is
driven by higher demand for cars that represent a “universal solution” for driving during
winter conditions in cities and all year round
outside the cities, higher sales were also driven
by the popularity of affordable foreign brand
SUVs assembled in Russia (2012 sales of such
cars were up 49%).
• The share of foreign brands assembled
in Russia in the SUV segment grew from 23%
in 2009 to 40% in 2012.
• In the SUV segment, SOLLERS and Ford Sollers are represented by several brands: Russian
UAZ, Korean SsangYong and American Ford.
• In 2012, SOLLERS’ sales in the Russian
market for new SUVs were up 23% year-on-year
from 49,479 to 60,660 vehicles (incl. sales of
Ford SUVs assembled in Russia in 2012); SOLLERS’s total market share in the SUV segment is
7.1%.
• UAZ sales grew by 3% from 28,229 to 29,129
vehicles; UAZ’s market share in the SUV segment reached 3.5% at the end of 2012.
• Year-on-year, the Company increased its
sales of SsangYong SUVs by 38%, thus increasing
SsangYong’s presence in the SUV market from
3.3% in 2011 to 3.4% in 2012; such success was
mainly driven by sales of SsangYong Actyon in
the fastest-growing market segment.
• Ford SUV production in Russia started at
Q4 of 2012 with Explorer and Kuga assembly
in Elabuga; in 2012, Ford SUV sales in
combination with imported cars grew by 84%
from 3,400 to 6,250 units; 2,267 SUVs (36%)
sold in 2012 were produced in Russia.
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C and D segments
Sales of SUVs in the Russian Federation by origin, thousand units
(Source: AEB, Association of European Businesses)
850
900
750
600
651
510
+31%
+54%
422
450
310
300
150
· Strategy
· Business Model
· Market Overview
· Our Products
· Business Projects &
Key Assets
0
Russian brands
Foreign brands
assembled
in Russia
New import
TOTAL
2008
2009
2010
2011
2012
49
101
43
71
68
129
89
226
84
336
360
510
196
310
225
422
336
651
430
850
Sales of C– and D– class passenger cars in the Russian Federation by origin,
thousand units (Source: AEB, Association of European Businesses)
1200
1,064
900
794
623
600
861
+8%
+27%
507
300
0
Russian brands
Foreign brands
assembled
in Russia
New import
TOTAL
2008
2009
2010
2011
2012
169
290
107
164
138
264
147
368
148
405
605
1,064
236
507
221
623
279
794
308
861
• Since the 2008 crisis, the Russian passenger car market has been steadily growing;
C is the second largest segments of Russian
PC market after SUV and also the most competitive; in 2012, this segment accounted for
28% of passenger car sales; D segment is in the
5th place in terms of size in the PC market with
a share of 3% in 2012.
• For the third consecutive year the highest
sales in these segments were found among foreign brands assembled in Russia; these sales grew
10% against 2011, with over 47% of total sales.
• Ford has kept its leading position in D segment since 2010; in 2012, Ford Sollers’ market
share in this segment was 16%.
Trucks
• This section looks at the market for trucks
with a gross weight over 3.5 tons; the market is
divided into three payload classes: light-duty
trucks (LDT) with a payload of 2 to 5 tons,
medium-duty trucks (MDT) with a payload of 5
to 15 tons, and heavy-duty trucks (HDT) with a
payload of over 15 tons.
• The Russian truck market did not move in
2012 (-1.1% vs. 2011).
• The HDT class made a major contribution
to overall market performance after suffering
the most from the downturn with sales in 2009
dropping by 74%; at present, the market is
recovering rapidly along with growth in those
sectors that rely heavily on HDT vehicles such
as construction and public utilities.
Commercial vehicles with a gross weight
• Sales of foreign LDT vehicles assembled
of up to six tons (LCV+MPV incl. CDV)
in Russia grew by 20% in 2012 while sales of
• In 2012, SOLLERS and Ford Sollers were repre- domestic LDTs fell by 18%.
sented in the commercial vehicle segment by UAZ
• SOLLERS’ truck segment is represented by
and Ford (Transit); the sales of these two brands
ISUZU, a Japanese brand and global leader in
in the Russian LCV and MPV market was up 16%
LDT segment; ISUZU’s share of the LDT market
from 34,554 to 40,064, mainly due to the increase was 2% in 2006, 7% in 2007, and levelled off at
in Transit sales, which was driven by the local
13% between 2008-2010; in 2009, despite the
production launch at the end of 2011.
crisis, ISUZU managed to maintain its market
• UAZ commercial vehicles took second place
share.
in sales in Russia, with a market share around
• In 2011, ISUZU’s share in the LDT segment
15%; in 2012, sales increased by 6%; while UAZ
declined to 4%; in 2012, SOLLERS – along with
sales in LCV segment were down by 11%, its
its Japanese joint venture partners – decided
sales in MPV segment grew by 40%.
to re-launch the project and move production
• Sales of Ford Transit increased by 56% from
to the Ulyanovsk production site; as a result
7,363 in 2011 to 11,475 units in 2012 (incl.
of this production facilities change and the
11,314 locally assembled vehicles); this growth
temporary discontinuation of production the
is explained by the launch of local production in sales of ISUZU in LDT segment were quite
Q4 2011; Ford Sollers’ total share of the commoderate resulting in 2% market share by the
mercial vehicle market reached 6% in 2012.
end of 2012.
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39
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Our Products21
SSANGYONG
· Strategy
· Business Model
· Market Overview
· Our Products
· Business Projects &
Key Assets
Actyon
The bestseller in SsangYong’s SUV product line
entered the Russian market in early 2011. The
Actyon is the first SsangYong crossover vehicle
with an integrated body and all-wheel drive
and is designed to bring this Korean brand into
the fastest-growing segment of compact urban
crossovers. The launch of this model, featuring
a powerful engine (up to 175 hp), a wide range
of options, and an attractive-yet-quiet design,
helped SsangYong to significantly increase its
market share in 2012 and attract the attention
of younger consumers.
In 2012, the Company launched a restyled
version of the Actyon equipped with a new
4-cylinder, 2-litre petrol engine, a highcontrast Supervision dashboard, and some new
fitting elements.
In 2012, the retail sales of SsangYong Actyon
SUVs were up 103% year-on-year.
The SsangYong Kyron
offers a wider range
of equipment for less
money.
Rexton
The Rexton is the flagman
SsangYong off-roader and boasts
great passing abilities in a wide
range of road conditions combined
with a high level of driver and
passenger comfort.
Actyon
Sports
The SsangYong Rexton, a comfortable Korean
SUV, has been made in Russia for seven years
and has a proven record of reliability and high
cross-country performance. The Rexton is targeted at an older generation of customers and
offers excellent off-road capability, remarkable
exterior design and generous passenger space
for a reasonable price. It boasts excellent emer-
gency protection, including airbags, alarm, and
active safety systems. The Rexton’s passenger
compartment is spacious, with high-quality
finishing, an ergonomic and interactive dashboard, comfortable seats, and superb look.
In 2012, the Company started manufacturing
a new Rexton model with expanded equipment
options and a whole new exterior.
The Actyon Sports is a pickup
that combines the comfort
of a passenger car, the crosscountry agility of an SUV,
and the load capacity of a truck.
The New Actyon is the first
SsangYong crossover vehicle
with an integrated body
and all-wheel drive.
The section does not consider Fiat cars, as since as of 1 January 2012, SOLLERS has been assigning
the rights to the distribution of Fiat in Russia directly to FIAT GROUP AUTOMOBILES S.p.A.
21
Kyron
40
41
The SsangYong Kyron is an affordable SUV
designed for both city and off-road driving. Its
frame build, comfortable passenger section,
4-wheel drive and competitive price make Kyron
attractive for those drivers who want to access
to any type of terrain. The SsangYong Kyron offers a wider range of equipment for less money.
Kyron’s basic option package includes: TOD
4-wheel drive, ABS, two airbags, air-conditioner,
heated front seats and remote central locking.
In 2012, the Kyron was launched with expanded equipment options that were upgraded
with heated back seats, parking sensors, cruise
control and electric sun-roof.
The towed trailer weighs 2,300 kg, the cargo
bed area is over 2 m2 and, thanks to a dropdown side, the pickup can be used to haul
non-standard-size objects. The Actyon Sports
has a 141-hp diesel engine. The Actyon Sports’
advanced Common Rail multi-point injection system and noise and vibration-reduction
technologies offer motorists an unprecedented
level of comfort and quietness in the passenger
section.
In 2012, we launched the new Actyon Sports.
The car’s key distinctive features are its
upgraded body design and new e-XDi diesel
engine, thanks to which the vehicle is more
economical, powerful and comfortable, thus
meeting the needs of a wide range of consumers. The vehicle is also equipped with a trip
computer, ESP and modernised audio system,
which contributed to higher demand for the
vehicles of the 2012 model range and resulted
in 34% retail sales growth year-on-year.
COMPANY
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BUSINESS &
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UAZ
· Strategy
· Business Model
· Market Overview
· Our Products
· Business Projects &
Key Assets
CORPORATE
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UAZ
Patriot
Winner of the nationwide
RuNet’s Best Auto Award
in the Domestic Automobile
category.
UAZ
Pickup
The UAZ Pickup offers the
exclusive reliability of 4-wheel
drive and the strength of a
durable frame structure.
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The UAZ Patriot is a powerful and reliable SUV
that can be driven comfortably in both urban
traffic and rough off-road terrain. In terms of
performance characteristics, the UAZ Patriot
is second to none on the Russian market. The
UAZ Patriot’s cross-country characteristics and
reliability have been recognised both in Russia
and abroad. In 2012, the model was exported
to 14 countries, primarily Kazakhstan, Ukraine
and Belarus.
In May 2012, SOLLERS launched the production of a restyled version of the UAZ Patriot,
equipped with new diesel engine and improved
climate-control system. Its restyled interior offers more ergonomic configuration, significantly
increasing the consumer appeal of the vehicle.
Since its launch in 2005, the UAZ Patriot
has won a large number of automotive competitions. In 2012, the UAZ Patriot again took
the first place in the Domestic Automobile
category of the “RuNet’s Best Auto” National
Automotive Award.
In 2012, retail domestic sales of UAZ Patriot
SUVs were up 17% year-on-year.
In 2008, the Ulyanovsk Automobile Plant
started production of a five-passenger off-road
UAZ Pickup, whose retail price is one of the
most attractive in the market. The UAZ Pickup
offers the exclusive reliability of 4-wheel drive
and the strength of a durable frame structure. Its spacious boot, roomy interior and
outstanding cross-country features make this
model the perfect vehicle for hunting and fishing enthusiasts.
In 2012, SOLLERS launched production of a
restyled version of UAZ Pickup equipped with
new diesel engine, improved climate control
system and ergonomic interior. In November
2012, the UAZ Patriot was a prize winner in
the nationwide Russia’s 100 Top Products
competition.
In 2012, SOLLERS succeeded in increasing its
retail domestic sales of UAZ Pickup vehicles by
almost 46% as against 2011.
A legendary vehicle.
The Hunter has unique
off-road capabilities.
UAZ
Hunter
42
43
The UAZ Hunter is a legendary off-road vehicle
in Russia, uniquely combining the off-road capabilities of a combat tank with both maintainability and ease of service. Its fuel-efficient engine,
high payload and low operating costs have driven
UAZ
commercial
vehicles
Its durable frame structure
and easy maintenance have been
tested by generations
of consumers both in Russia
and abroad.
the model’s sales since its launch in 2004. The
Hunter, like most UAZ models, is widely used
in the public sector and by security agencies.
Leading customers include the Russian ministries of Internal Affairs, Health and Education.
The UAZ product line of commercial vehicles
combines the seemingly incompatible characteristics of commercial and off-road vehicles. These reliable cars are designed both for
carrying both passengers and cargo on roads
of all surface types as well as off-road. Their
durable frame structure, easy maintenance,
simplicity of design and amazing working
capacity have been tested by generations of
consumers both in Russia and abroad.
By 2011, all UAZ commercial vehicle types
were brought into compliance with the Euro
4 standard. In 2012, UAZ adopted a five-speed
gearbox for the whole commercial model
range. In 2012, UAZ retail domestic sales of
commercial vehicles were up 5% year-on-year.
COMPANY
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ISUZU
· Strategy
· Business Model
· Market Overview
· Our Products
· Business Projects &
Key Assets
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N-series22
Easy maintenance and extremely high reliability
are confirmed by warranty statistics and numerous
positive reviews from ISUZU customers.
The ISUZU NPR75 is a relatively new truck
from the SOLLERS-ISUZU joint venture which
replaced the NQR75 in 2011. A full-sized
light chassis with a 5-ton capacity reinforcing ISUZU’s 700P new-generation vehicles,
enhances the comfort and safety of LDT trucks.
The ISUZU NPR75 has numerous technological innovations that distinguish it from its
predecessor. The use of advanced solutions and
innovative digital technology in the truck’s design has considerably enhanced both comfort
and safety. The exterior features highly aerodynamic properties and provides easy maintenance access to components. The model is
wider than its predecessor with doors opening
at 90 degrees, and has become a spacious mobile office where each detail meets ergonomic
and comfort requirements. A wide range of
body superstructures allows for multiple applications from simple delivery truck to garbage
compactor and even car carrier truck.
ISUZU C and E-­series are not presented
in the report as they are directly imported from Japan.
22
In 2012, ISUZU NPR75 specifications were
added with an extra-long wheelbase up to
4,475 mm. Also, service interval mileage for the
NPR75 was increased to 15,000 km.
The lightest chassis of ISUZU model range
NLR85 and NMR85 made their debut on the
Russian market in 2008-2009. Designed for
harsh climate conditions and adapted to the
demands of Russian roads, the trucks have
a highly durable frame, a fully rust-proofed
cabin, and suspension that can withstand
heavy loads. The functional design of the
compartment’s front stands and side panels
ensure high aerodynamic characteristics and
efficient use of interior space. Their high
manoeuvrability makes them the perfect city
delivery truck.
Easy maintenance and extremely high reliability are confirmed by warranty statistics and
numerous positive reviews from ISUZU customers.
44
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Ulyanovsk Automobile Plant
(UAZ)
· Strategy
· Business Model
· Market Overview
· Our Products
· Business Projects &
Key Assets
OAO Ulyanovsk Automobile Plant (UAZ) is a leading Russian
manufacturer of SUVs, commercial vehicles and spare parts.
In 2012, UAZ sold 60,700 cars in Russia and exported
7,600 vehicles. Since its foundation in 1941, UAZ has produced
approximately 4,700,000 vehicles. UAZ SUVs and LCVs are currently
exported to more than 30 countries worldwide. In 2012,
UAZ produced 70,500 cars, up 10% year-on-year.
UAZ
Significant events in 2012
• In May, as part of its investment in modernising the UAZ model range, the Company
launched production and sales of restyled
version of its popular off-roaders UAZ Patriot
and UAZ Pickup; the main changes relate to
the vehicle interior: new dashboard, steering
wheel, more ergonomic layout.
• June saw the relaunch of SOLLERS-ISUZU
joint venture; the production of ISUZU N-series
was transferred to the UAZ production facility.
• September saw the introduction of a project
aimed at improving the assembly pace of UAZ
SUVs; as part of this project, the Company’s assembly line increased output of Patriot vehicles
by integrating the manipulating device for
dashboard insertion.
• In September, the Ulyanovsk Automobile
Plant and its subsidiaries successfully passed
a re-certification audit and confirmed
their quality management compliance with
the ISO 9001: 2008 international standard.
• In December, the plant adopted the
in-house education scheme for the suppliers
of automotive components and parts; the
course covers the main aspects of lean manufacturing and the requirements of ISO/TS 16949
standard.
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47
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ADDITIONAL
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ZMZ
Significant events in 2012
Zavolzhsky Engine Plant
(ZMZ)
· Strategy
· Business Model
· Market Overview
· Our Products
· Business Projects &
Key Assets
OAO Zavolzhsky Engine Plant (ZMZ) is one of Russia’s largest
production facilities manufacturing internal combustion engines.
The plant owns 83 patents for models and production
prototypes, and 18 trademarks. Since its foundation in 1958,
ZMZ has produced over 14,000,000 engines. In 2012,
ZMZ produced 93,700 engines, up 16% year-on-year.
• April saw the launch of mass production
of ZMZ diesel engines with Common Rail fuel
supply system certified to Euro-4 standard; the
engines are installed into UAZ Patriot, UAZ
Hunter and UAZ Cargo models.
• October saw approval of a new development
plan for ZMZ; Zavolzhsky engine plant will become a base for the creation of an auto components industrial park; such companies as Daido
Metal Russia, Trelleborg Automotive, LEONI,
Flaig+Hommel have already taken up residency
at the industrial park.
• On November 1st, a new 100% subsidiary of
the plant, ZMZ-Autocomponent, started operations; the branch inherited all operations regarding production of automotive components
on the request of Russian and foreign OEMs.
• In November, ZMZ successfully passed an
ISO inspection management system audit confirming its right to obtain new ISO/TS 16 949:
2009 conformity certificates valid for the next
3 years.
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49
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2011
ADDITIONAL
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Far East production facility
· Strategy
· Business Model
· Market Overview
· Our Products
· Business Projects &
Key Assets
The plant currently assembles several types of SsangYong SUVs,
Mazda CX-5 and plans to launch the new Mazda6 in 2013.
Production is organised under the MAZDA SOLLERS joint venture.
At the very beginning of 2013 SOLLERS-BUSSAN began
mass-production of the Toyota LC Prado at a new assembly line.
Far East production facility
PROJECTS IN THE FAR EAST
Significant events in 2012
SOLLERS-BUSSAN
• In early 2012, SOLLERS-Far East launched
SsangYong Kyron with expanded equipment
options: upgraded with heated back seats,
parking sensors, cruise control and electric
sun-roof.
• In March, the first petrol engine
SsangYong Actyon was assembled at the Far
East production plant.
• April marked the launch of new
SsangYong Actyon Sports with upgraded body
design and new e-XDi diesel engine.
• June saw the launch of the mass-production of a restyled version of the SsangYong
flagman SUV Rexton W with expanded equipment options and whole new exterior.
• In September, the MAZDA SOLLERS joint
venture started operations with a pilot assembly of the Mazda CX-5; in October, massproduction of this crossover was launched in
Vladivostok.
• In October, SOLLERS-Far East produced
the first petrol engine SsangYong Actyon with
automatic gearbox.
In 2011, SOLLERS announced a joint venture
with Mitsui & Co. (Japan) to produce Toyota
vehicles. SOP of Toyota LC Prado: February 18,
2013.
Project Highlights:
• 50/50 joint venture
• Activity: production of Toyota SUVs in Russia
• Key model: Toyota Land Cruiser Prado
• Location: Vladivostok
• Start of production: February 2013
• Industrial cooperation with a global automotive leader; share Toyota’s production experience
• Initial investment up to RUB 1bln
• Funding: project financing provided by VEB
on non-recourse basis at a subsidised interest
rate.
Toyota Market Performance, Thousand Units
(Source: AEB, Association of European Businesses)
35
14%
30
12%
25
10%
20
8%
15
6%
10
4%
5
2%
0
0%
Toyota SUV sales
13%
12%
12%
10%
10%
2008
2009
2010
2011
2012
29
13
21
25
33
Toyota SUV
market
share
50
51
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MAZDA SOLLERS
On 27 April 2012, SOLLERS OJSC and Mazda
Motor Corporation signed an agreement to
establish the JV. SOP of Mazda CX-5: September 06, 2012.
Project Highlights:
· Strategy
· Business Model
· Market Overview
· Our Products
· Business Projects &
Key Assets
• 50/50 joint venture with Mazda
• Activity: production of Mazda and SsangYong vehicles
• Key models: Mazda CX-5, Mazda6,
SsangYong SUVs23
• Location: Vladivostok
• Investment sharing will improve the
efficiency of Mazda and SsangYong assembly
at the Far East production site
• Total investments through 2020:
RUB 10 billion
• Funding: project financing provided on
a non-recourse basis at a subsidised interest
rate totalling RUB 6 billion.
52
53
Mazda Market Performance, thousand units
(Source: AEB, Association of European Businesses)
35
16%
30
14%
25
20
14%
13%
14%
13%
12%
11%
Mazda
D-class
market share
2%
Mazda SUV
market share
10%
8%
15
10
23
6%
4%
5
2%
0
0%
2%
2%
1%
1%
2008
2009
2010
2011
2012
Mazda SUV
sales
9
7
4
9
19
Mazda D-class
sales
18
9
9
12
10
In 2013 the production of SsangYong vehicles was transferred to MAZDA SOLLERS JV.
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2011
ADDITIONAL
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Ford SOLLERS Joint Venture
On 1 October 2011, the Ford Sollers joint venture started operations.
Project Highlights:
Ford Sollers
• 50/50 joint venture with Ford
• Scope: exclusive production and distribution of Ford-branded vehicles in Russia
• Funding: 10-year project financing of RUB
39 billion at a subsidised interest rate signed
in September 2011 between Ford Sollers
and VEB; raised funds cover the investment
• Project target: to become one of the leaders
in the Russian passenger car market
• Production capacity: over 350,000 units
per year
• Level of localisation: over 60%
• Development of R&D competences
• The project is fully in compliance
with the revised Regulation 166.
PRODUCTION ASSETS
· Strategy
· Business Model
· Market Overview
· Our Products
· Business Projects &
Key Assets
In October 2011, the Ford Sollers joint venture started
operations. Ford Sollers is the first full-scale 50/50 automotive
joint venture between a Russian and global OEM. Ford Sollers
FORD SOLLERS
ELABUGA
FORD SOLLERS
NABEREZHNYE CHELNY
FORD SOLLERS
VSEVOLOZHSK
LOCATION: TATARSTAN
CAPACITY: UP TO 75,000 UNITS/YEAR
LOCATION: TATARSTAN
CAPACITY: UP TO 115,000 UNITS/YEAR
LOCATION: LENINGRAD REGION
(NEAR ST. PETERSBURG)
CAPACITY: UP TO 160,000 UNITS/YEAR
PRODUCT LINE:
PRODUCT LINE: New PCs/SUVs
PRODUCT LINE:
production sites include the Ford manufacturing plant in
Vsevolozhsk, near St. Petersburg, which currently builds
the Ford Focus and Ford Mondeo. It also operates two SOLLERS’
production facilities in the Republic of Tatarstan. Together, these
three plants manufacture a wide range of Ford passenger cars
Ford Transit LCVs
Ford Mondeo
Ford Explorer SUVs
Ford Focus III
and light commercial vehicles. The projected manufacturing
capacity of the Ford Sollers joint venture exceeds 350,000 units
per year with a localisation level of 60%. The Ford Sollers JV was
approved for participation in the new industrial assembly regime
and enjoys all the benefits of 166 Regulation.
Ford Kuga SUVs
Ford S-MAX minivans
Ford Galaxy minivans
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Ford and Ford Sollers Market Performance24, thousand units
(Source: AEB, Association of European Businesses)
200
187
150
118
82
100
+11%
131
91
50
0
C-class
D-class
LCV
Other
· Strategy
· Business Model
· Market Overview
· Our Products
· Business Projects &
Key Assets
TOTAL
2008
2009
2010
2011
2012
94
13
10
70
187
52
7
6
17
82
67
11
5
8
91
83
15
8
12
118
92
12
15
12
131
Ford and Ford Sollers Market Share (Source: AEB, Association of European Businesses)
Segment
2008
2009
2010
2011
2012
C-class
D-class
LCVs, MPVs
10%
10%
4%
1%
12%
11%
5%
1%
12%
16%
3%
0%
12%
18%
5%
1%
12%
16%
7%
1%
SUVs
• The second largest market player on the Russian C-class car segment with 12% market share
• The leader in the Russian D-class car segment with 16% market share
• The overall market share to grow with the launch of new vehicles
• The launch of local assembly in 2012 resulted in record sales of Ford SUVs:
- Kuga sales up 45%
- Explorer sales up by a factor of 4.
Ford Sollers Sales, thousand units (Source: AEB, Association of European Businesses)
Explorer
Kuga
Transit
Mondeo
Focus
Others
Total
24
2011
2012
CHANGE
%
0.5
2.9
7.4
15.1
82.5
9.7
118.1
2.1
4.2
11.5
15
92.2
5.9
130.9
1.6
1.3
4.1
-0.1
9.7
-3.8
12.8
320%
45%
55%
-1%
12%
-39%
11%
2008 other sales include Ford Fusion, a compact minivan based on B-class platform.
56
57
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SOLLERS is consistently focused
on increasing the efficiency of its
corporate governance, protecting
the rights and legal interests
of stakeholders, ensuring
the high ethical standard of its
executive bodies, and making sure
information and decision-making
are transparent.
We own manufacturing facilities to produce Russian UAZ off-road vehicles, Korean
SsangYong vehicles, FIAT light and commercial
vehicles, Japanese ISUZU cargo trucks, as well
as ZMZ petrol and diesel engines. Besides, our
company is developing a car dealership network and owns a leasing division.
Since its establishment in 2002 the Company
has put its efforts in developing the first-class
solutions for customers in everything related
to automobiles. It drives us in launching new
models and constructing plants, opening new
dealerships, developing customer services and
creating the ideas which provide new opportunities for our consumers and inspire them to
move forward.
During the course of our activities we took
leading position in Russian automobile market, brought more than ten new products to
the market, developed manufacturing facilities
with annual capacity around 300,000 automobiles and became one of the most efficient
companies in the industry. Our current annual
turnover exceeds $1.8 billion.
The unique combination of the production
capacity and developing retail sector allows
us to fully implement the service-oriented
company strategy, not only proposing vehicles
to our customers, but also creating the best
motion formula.
SOLLERS is the Russian automobile company
which provides a full scope of automobile services comprising all stages from manufacturing
up to sales and maintenance services.
We own manufacturing facilities to produce Russian UAZ off-road vehicles, Korean
SsangYong vehicles, FIAT light and commercial
vehicles, Japanese ISUZU cargo trucks, as well
as ZMZ petrol and diesel engines. Besides, our
company is developing a car dealership network and owns a leasing division.
Since its establishment in 2002 the Company
has put its efforts in developing the first-class
solutions for customers in everything related
to automobiles. It drives us in launching new
models and constructing plants, opening new
dealerships, developing customer services and
creating the ideas which provide new opportunities for our consumers and inspire them to
move forward.
During the course of our activities we took
leading position in Russian automobile market, brought more than ten new products to
the market, developed manufacturing facilities
with annual capacity around 300,000 automobiles and became one of the most efficient
companies in the industry. Our current annual
turnover exceeds $1.8 billion.
The unique combination of the production
capacity and developing retail sector allows
us to fully implement the service-oriented
company strategy, not only proposing vehicles
to our customers, but also creating the best
motion formula.
SOLLERS is the Russian automobile company
which provides a full scope of automobile services comprising all stages from manufacturing
up to sales and maintenance services.
We own manufacturing facilities to produce Russian UAZ off-road vehicles, Korean
SsangYong vehicles, FIAT light and commercial
vehicles, Japanese ISUZU cargo trucks, as well
as ZMZ petrol and diesel engines. Besides, our
company is developing a car dealership network and owns a leasing division.
Since its establishment in 2002 the Company
has put its efforts in developing the first-class
solutions for customers in everything related
to automobiles. It drives us in launching new
models and constructing plants, opening new
dealerships, developing customer services and
creating the ideas which provide new opportunities for our consumers and inspire them to
move forward.
During the course of our activities we took
leading position in Russian automobile market, brought more than ten new products to
the market, developed manufacturing facilities
with annual capacity around 300,000 automobiles and became one of the most efficient
companies in the industry. Our current annual
turnover exceeds $1.8 billion.
The unique combination of the production ca
Board of Directors of Directors
David J. Herman
(Chairman)
Richard Broyd
(Member)
Patrick T. Gallagher
(Member)
‘Over my nearly 40 years of involvement in the Russian market, I have
been a firm believer in the global
nature of the automotive business.
The global auto sector’s similarities
transcend all manner of political
and social differences. That fact,
combined with the integrity and skill
of SOLLERS management and workforce, means that I can state with
confidence that SOLLERS’ increasing
success will continue to reward its
investors, and provide secure, wellpaying jobs for its employees.’
‘In recent years, we’ve seen the Company’s rapid growth and development. Considering the success we’ve
achieved, our sound strategy, and an
ambitious and capable management,
I strongly believe that SOLLERS is on
course for further success.’
‘SOLLERS is a company with a true
international spirit, appeal and capability, and its excellence in building
global partnerships reflects that.’
David J. Herman has been a Member
of the SOLLERS Board since 2004,
serving as Chairman since 2007.
David was with General Motors for
29 years, including 10 years in the
position of Vice President. Currently, he is a member of the US-Russia
Council and the American Chamber
of Commerce (Russia), and an independent director of Magnitogorsk
Iron and Steel Works, Strategic
Initiatives and New Health Sciences. In addition to establishing
GM-AVTOVAZ, the largest Russian
automobile joint venture, he was
chairman of the board of Adam
Opel AG, CEO of SAAB Automobile,
and represented General Motors
in a number of countries. He is a
graduate of New York University,
holds a Master’s degree from Harvard Graduate School and a Juris
Doctor degree from Harvard Law
School. David has been awarded the
German Bundesverdienstkreuz and
the Belgian Order of Leopold.
Richard Broyd has been a Member of the SOLLERS Board since
2007. Richard has a diversified
background including Corporate
Development and Finance, Principal Investing and Philanthropy.
Richard is a Director of Waypoint
Capital, and Chairman of Reachto-Teach.
Prior to that, Richard was Chief
Executive of a substantial private
investment fund based in Geneva
and Brussels that made leveraged
investments and had a portfolio
of marketable securities, held a
number of positions in the Montedison Group, Milan, Italy including
Managing Director of SIR SpA, a
specialty chemical company, and
Director of Corporate Development, Strategy and was Controller
of the Montedison Group during
a major portfolio restructuring
and hostile takeover; he was also
a partner of The Monitor Group.
Richard holds a PhD from Cornell
University.
Patrick T. Gallagher has been a
Member of the SOLLERS Board
since 2008. Patrick has over 30
years’ experience in international
business, including 17 years with
British Telecommunications Plc
(BT). He also serves on the boards
of Ciena Corp., a global telecoms
network specialist, and Harmonics
Inc., a global provider of high-performance video solutions. Patrick
was chairman of Macro4 Plc, a
FTSE-listed global software solutions provider with wholly-owned
subsidiaries across Europe and the
United States. He led the sale of
the company to an American buyer.
He was also a vice chairman of
Golden Telecom Inc., leading the
company’s sale to Vimpelcom in
April 2008. Patrick is a graduate of
Warwick University with a degree
in Economics and Industry.
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COMPANY
OVERVIEW
· Board of Directors
· Committees
· Management
· Code of Conduct
· Information Policy
· Risk Management
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
Seppo Remes
(Member)
Evgeny Yasin
(Member)
Alexander Ikonnikov
(Member)
Vadim Shvetsov
(Member, CEO)
‘SOLLERS has real prospects of
becoming one of the leading partners
for foreign automobile companies entering Russia because of its position
in the market, its in-depth knowledge
of Russian markets, and its great
management capabilities.’
‘I have been following SOLLERS’ development for several years and can
say that this is an excellent example
of a new growing business with an
interesting strategic approach,
a promising future and, even more
importantly, the capability to achieve
its goals.’
‘SOLLERS’ success has been built on
the success of its international and
Russian partnerships. This philosophy both helps global partners
develop their business in Russia and
helps SOLLERS attract technology
and acquire best business practices.’
‘The idea of growth and achieving
leadership on the Russian car market
through full-scale partnerships with
leading international OEMs has
been defined as the key driver for
SOLLERS’ development. We believe
that the result of our work will be a
generation of benefits for all of our
stakeholders.’
Seppo Remes has been a Member
of the SOLLERS Board since 2004.
Seppo took part in the fundamental
reform of Russia‘s electric power
sector as a board member of RAO
UES. Concurrently, he created one
of Russia’s first corporate audit
committees under the UES board.
Presently, Seppo is Chairman of the
Board at EOS Russia (an investment
company focusing on the Russian
power sector), and serves on the
boards of several major energy
companies, including IDGC Holding, RAO ES of East and Lenenergo.
He was vice president for Russian
Affairs of Neste-Fortum, an OMXlisted global energy company. He
also founded the board of a major
foreign business association, the
European Business Club (now the
Association of European Businesses). Seppo Remes is a graduate
of Oulu University and holds a PhD
from the Turku School of Economics and Business Administration
in Finland. Seppo has twice been
named Best Independent Director
of the Year by the Investor Protection Association, Russia (2006,
2008). Seppo is Honorary Doctor
at Plekhanov Russian Academy of
Economics.
Evgeny Yasin has been a Member
of the SOLLERS Board since 2005.
He is a professor, one of the bestknown economists in Russia, and
was one of the intellectual founders of Russia’s economic reforms
in the 1990s. Currently, Evgeny is
Academic Supervisor of National
Research University at the Higher
School of Economics, and Director of the Expert Institute. He also
serves on the boards of WimmBill-Dann and Echo Moskvy CJSC,
an independent radio station.
Evgeny was appointed Minister of
Economic Affairs of the Russian
Federation in 1994. Prior to that,
he was director of the Presidential
Analytical Centre and actively
involved in developing economic
policies and programmes. He is a
graduate of the Odessa Engineering Institute and the Department
of Economics of Moscow State
University. He holds a doctorate in
Economics.
Alexander Ikonnikov became a
Member of the SOLLERS Board in
2011. Alexander has more than 10
years’ experience serving on the
boards of leading Russian companies in the telecommunications,
financial services and brewing
industries. Currently, he is Chairman of the Advisory Board of the
Independent Directors Association,
an Independent Director at Swedish investment fund East Capital
Explorer Plc, and a Member of the
Supervisory Board of the National
Settlement Depository. Prior to
that, he was CEO of the Russian
Investor Protection Association.
Alexander also served as an independent director of North-West
Telecom OJSC and Baltika OJSC.
Alexander is a graduate of the
Gubkin Russian State University
of Oil and Gas. He holds a PhD in
Economics, and a Certificate and
Diploma in Company Direction (Institute of Directors, UK). In 2010,
the Yale School of Management
recognised him as a “rising star of
corporate governance”.
Vadim Shvetsov has exercised
operational management of the
Company and its subsidiaries since
2002. He serves as Chairman of
the boards of directors of UAZ
OJSC and ZMZ OJSC. From 2001
to 2002, Vadim held the position
of First Deputy General Director
of Severstal OJSC. From 1993 to
2001 he was Commercial Director
and then CEO of Severstal-Invest.
He graduated in 1992 from the
Moscow Institute of Steel and Alloys, specialising in Electric Drives
and Automation of Industrial
Installations and Technological
Complexes.
In 2001, he received an MBA
from Northumbria University Business School (UK).
Nikolay Sobolev
(Member, First Deputy CEO,
CFO)
Victor Khvesenya
(Member, Director of Legal
Affairs)
‘We are inspired by the new magnitude of our business and are confident that we can become a leader
in the Russian automotive market
on a partnership basis, increase
the level of localisation, and build a
technological base which will positively affect performance and take
the Russian automotive industry
to a whole new level.’
‘The essence of SOLLERS is its
team’s in-depth knowledge of the
local market and its cross-border
expertise combined with ambition,
experience, strategic thinking and
hard work.’
Nikolay Sobolev has been Chief
Financial Officer since 2005 and
First Deputy CEO since 2009.
In 2002, he was appointed Director for Financial and Economic
Affairs and Member of the Board
of Directors of UAZ OJSC. Nikolay
has been on the Board of Russian
Railways since 2012. From 1997
to 2002, he served as First Deputy
General Director and Vice President of Holding Yuzhuralmash
JSC, and Member of the Board of
Directors of Yuzhuralmash OJSC.
Nikolay graduated from Lomonosov Moscow State University and
the Russian Presidential Academy
of National Economy and Public
Administration. He holds a PhD in
Economics from Lomonosov Moscow State University and an MBA
from Kingston University Business
School (UK).
Victor Khvesenya has been Director of Legal Affairs since 2009.
From 2005 to 2009, he was VicePresident of Legal Affairs in AMEDIA Group. From 1995 to 2005, he
served as Senior Attorney in the
Moscow office of the international
law firm of White & Case. Victor
graduated from the Law Faculty of
Belarusian State University (Minsk)
in 1984 and earned a Master’s
degree from the Case Western
Reserve University School of Law
(Cleveland, USA) in 1993.
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COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
Committees
To ensure the fulfilment of special functions,
the Company has formed a number of committees to support
the Board of Directors in exercising control over different
lines of operations.
· Board of Directors
· Committees
· Management
· Code of Conduct
· Information Policy
· Risk Management
BOARD OF DIRECTORS AUDIT COMMITTEE
The Audit Committee was established in 2005.
Its mission is to support the Board of Directors
in exercising control over the Company’s business activities. The Committee reports to the
Company’s Board of Directors.
The role of the Audit Committee
The Audit Committee’s main areas of activities include control over the following:
1. completeness and fairness of financial
statements, and the process of their preparation and presentation
2. operation of internal control, internal
audit and risk management systems
3. compliance with current Russian legislation and the Company’s internal regulations.
The Board of Directors’ exclusive functions
include:
• evaluating candidates for Company auditors and presenting their conclusions to the
Board of Directors
• assessing the auditors’ opinion
• evaluating the efficiency of current internal
control and risk management procedures, and
making recommendations for improving them.
Committee structure
The Audit Committee consists of the Chairman and three Members who are not executive
directors of the Company. During 2012 and as of
31 December 2012, the Committee included the
following Members of the Board of Directors:
• Seppo Remes (Chairman, non-executive
director)
• Patrick T. Gallagher (non-executive director)
• Evgeny Yasin (non-executive director)
The independence of candidates is an essen-
tial condition in selecting members to the Audit
Committee. A membership with strong professional qualifications in finance enables the Committee to operate with maximum efficiency.
Audit Committee reports
The Audit Committee meets regularly to ensure prompt monitoring of the Company’s internal control and audit systems and risk management procedures, and to summarise the interim
and annual results of the Company’s business
operations.
Meetings are attended by Committee members
who are invited to deliver presentations, and
other stakeholders (heads of corporate reporting,
internal audit and control, risk management, and
representatives of ZAO PricewaterhouseCoopers
Audit, the Company’s external auditor).
The following documents were approved at
Committee meetings in 2012:
• Consolidated Financial Statements of SOLLERS Group for 2011
• Consolidated Financial Statements for H1 2012
• action plans for assessing the efficiency
of current internal control and management
procedures presented by the internal audit and
risk-management departments
• approval of PricewaterhouseCoopers Audit,
as the external auditor of SOLLERS Group’s
Financial Statements for 2012.
The role of the Strategy Committee
The Strategy Committee’s main areas of
activities include:
1. reviewing the goals, development concepts, and strategic plans developed by top
management, as well as coordinating strategic
plans in accordance with the Company’s performance and prospects and transmitting them
to the Company’s units
2. preparing recommendations for the Board
of Directors concerning investment decisions,
including:
• participation in the capital of other companies, holding companies, and associations
• analysis of investment projects and review
of their compliance with the development
strategy (at the project acceptance stage)
• analysis of top-level organisational projects
and assessment of their compliance with the
development strategy (at the project development stage)
3. preparing recommendations for the Board
of Directors regarding potential restructuring,
including utilisation of non-core assets.
Committee structure
The Strategy Committee includes the
Chairman and at least three Members of the
Company’s Board of Directors. During 2012
and as of 31 December 2012, the Committee
included the following Members of the Board
of Directors:
• Richard Broyd (Chairman, non-executive
director)
• Patrick T. Gallagher (non-executive director)
• David J. Herman (non-executive director,
Chairman of the Board of Directors)
• Vadim Shvetsov (CEO)
• Nikolay Sobolev (First Deputy CEO, CFO).
BOARD OF DIRECTORS STRATEGY COMMITTEE
Strategy Committee reports
The Strategy Committee was established in 2005.
Its task is to present recommendations on development of the Company’s strategy and to determine its priority development areas. The Committee reports to the Company’s Board of Directors.
The Strategy Committee meets on a regular basis, at least twice per year. Committee
meetings are attended by the Company’s First
Deputy CEO or CEO. The Committee presents
opinions to the Board of Directors on documents drawn up by the Strategy Directorate re-
garding the Company’s strategic development.
At the Board of Directors’ request, or on its
own initiative, the Committee prepares oral or
written recommendations on specific issues
within its competence, and at the year-end
issues a report on its work for the year for consideration by the Board of Directors.
SOLLERS is a fast-growing company, adapting to changing macro- and microeconomic
factors. The year 2012 was an eventful period
for the Company which included the formation of strategic priorities for a joint project
with Ford, and the signing of key documents
outlining the framework for cooperation with
Mitsui & Co., Ltd (Toyota production) and
Mazda Motor Corporation. The Strategy Committee played a significant role in defining the
Company’s development strategy, particularly
the emphasis on joint projects in Russia with
international automotive leaders as a priority
development area.
BOARD OF DIRECTORS PERSONNEL
& REMUNERATION COMMITTEE
The Personnel and Remuneration Committee
was established in 2005. Among the Committee’s responsibilities is the implementation of
a project to recruit qualified top managers and
establish fair compensation packages for them.
The Committee reports to the Company’s
Board of Directors.
The role of the Personnel
and Remuneration Committee
The Personnel and Remuneration Committee’s main areas of activity are:
1. defining criteria for selecting candidates
for the Company’s Board of Directors and top
management, and the preliminary evaluation of
candidates
2. developing proposals for determining essential terms of contracts with members of the
Company’s Board of Directors and top management, including principles and criteria for
determining their remuneration
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COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
3. assessing the performance of the Company’s
management on a regular basis.
Committee structure
· Board of Directors
· Committees
· Management
· Code of Conduct
· Information Policy
· Risk Management
The Personnel and Remuneration Committee includes the Chairman and at least three
Members of the Company’s Board of Directors.
During 2012 and as of 31 December 2012, the
Committee included the following Members of
the Board of Directors:
• Patrick T. Gallagher (Chairman, non-executive director)
• David J. Herman (non-executive director,
Chairman of the Board of Directors)
• Alexander Ikonnikov (non-executive director)
• Nikolay Sobolev (First Deputy CEO, CFO).
Personnel and Remuneration Committee reports
The Committee meets as required. Based on
the results of the Committee’s work, the Board
of Directors makes recommendations to the
Annual General Shareholders Meeting regarding the amount of remuneration and compensation for members of the Company’s Board of
Directors.
BOARD OF DIRECTORS NOMINATION
AND CORPORATE GOVERNANCE
COMMITTEE
The Committee was established in 2012. The
main purposes of the Committee are to develop
and enhance the corporate governance of the
Company, to carry out preliminary reviews of
matters regarding the corporate governance
and corporate culture of the Company and to
make recommendations to the Board of Directors on such matters. The Committee reports to
Company’s Board of Directors.
The role of the Nomination and Corporate
Governance Committee
Nomination and Corporate Governance Committee’s main areas of activity are to:
1. develop general recommendations regarding the desired composition and size of the
Board of Directors
2. conduct preliminary evaluation of candidates proposed for election to the Board of Directors and provide the Board of Directors with
recommendations regarding such candidates
3. review and develop the Company’s standard
for director independence and recommend to
the Board of Directors any modifications to that
standard
4. monitor emerging corporate governance
trends, evaluate corporate governance policies
and Company programs and recommend to the
Board of Directors any actions as the Committee
may consider appropriate
5. consider policies relating to the preparation,
convocation and holding of general meetings of
shareholders and meetings of the Board of Directors
6. make recommendations to the Board of
Directors with respect to the approval of and
amendments to the Company’s internal corporate
rules and policies relating to confidential information and Company secrets, as well as regarding
the procedure relating to the use of information
about the Company’s operations, securities and
transactions which is not in the public domain
7. handle any other matters relating to corporate governance as may be requested by the
Board of Directors or deemed necessary or desirable by the Committee.
Committee structure
The Nomination and Corporate Governance
Committee includes the Chairman and at least
three Members of the Company’s Board of Directors. During 2012 and as of 31 December 2012,
the Committee included the following Members
of the Board of Directors:
• David J. Herman (Chairman, Chairman of the
Board of Directors)
• Alexander Ikonnikov (non-executive director)
• Vadim Shvetsov (CEO)
• Victor Khvesenya (director of Legal
Affairs).
Nomination and Corporate Governance
Committee reports
The Committee meets as required. The Committee presents opinions and recommendations
to the Board of Directors on the Company’s
corporate governance and corporate culture. At
the Board of Directors’ request or on its own initiative, the Committee prepares oral or written
recommendations on specific issues within its
competence, and at the year-end issues a report
on its work for the year for consideration by the
Board of Directors.
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COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
Management
· Board of Directors
· Committees
· Management
· Code of Conduct
· Information Policy
· Risk Management
Vadim Shvetsov25
(CEO)
Gerhard F. Hilgert
(Director of Business
Development)
Gerhard F. Hilgert has been Business Development Director at
SOLLERS since January 2010. In
October 2008, Gerhard was appointed General Director of ZAO
Severstalavto-ISUZU. In 2007, he
joined the SOLLERS team as leader
of a project to develop the Company’s own dealership network.
From 2002 to 2006, he was Chief
Representative of Daimler Chrysler
AG in Russia and the CIS and from
1998 to 2004 he was President of
the Russian subsidiary of Daimler
Chrysler Automotive RUS. Gerhard
holds a degree in Economics from
Darmstadt-Eberstadt University,
and is a graduate of the International Management Development
Institute in Lausanne, Switzerland.
Nikolay Sobolev25
(First Deputy CEO, CFO)
Alexander Korneychuk
(General Director,
MAZDA SOLLERS
Manufacturing Rus LLC,
SOLLERS-BUSSAN LLC)
Since 2011, Alexander Korneychuk has been General Director of
SOLLERS-BUSSAN LLC and since
2012 has combined this position
with post of General Director of
MAZDA SOLLERS Manufacturing
Rus LLC. From 2009, Alexander was
General Director of SOLLERS-Far
East. From 2005 to 2009, he was
Executive Director of SOLLERS-Naberezhnye Chelny (formerly, OAO
ZMA). From 2002 to 2005, he was
Director of Strategic Development
Projects at SOLLERS. In 2000-2001,
he was Acquisition Manager at
Ford Motor Company. Alexander is
a graduate of the Moscow Aviation
Institute.
For a full biography, please see the Board of Directors section above.
25
Victor Khvesenya25
(Director of Legal Affairs)
Andrey Matyushin
(General Director, ZMZ OJSC)
Since 2012, Andrey Matyushin
has been General Director of ZMZ
OJSC. Andrey began his career at
ZMZ OJSC in 1997 as a technologist and for the past five years has
headed the technical department
of the enterprise. In February
2012, he was also appointed head
of RosALit Foundry LLC (ZMZ subsidiary). Andrey is a graduate
of Nizhny Novgorod State Technical University where Andrey is
currently also doing his MBA.
Irina Likhova
(Director of Human
Resources)
Olga Tyryshkina
(Director of Risk Management
and Internal Audit)
Zoya Kaika
(Director of Public
and Government Relations)
Irina Likhova joined SOLLERS’
management team in 2012. For
almost nine years prior to this she
was HR Director at MegaFon OJSC,
one of Russian leading telecommunication enterprises. From 1994,
she worked at Unilever Russia
& Ukraine and occupied key HR
positions including that of Performance Development Manager,
building the managerial capability
of the company. Irina graduated
from Leningrad State University
with a degree in Applied Mathematics and Process of Control and
also holds an MBA from Leuven
University (Belgium). Irina was
included in the Top 1000 Russian
Managers by the Russian Association of Managers (AMR).
Since 2010, Olga Tyryshkina has
been Director of Risk Management
and Internal Audit. From 2004, she
was Chief Accountant of SOLLERS
OJSC. From 1993, she worked as
Deputy Chief Accountant at ZAO
Raspadskaya. Olga graduated in
Economics from Kuzbass State
Technical University.
Zoya Kaika has held this position since 2003. Prior to joining
the Company, she was Deputy
Editor of the economics section of
Vedomosti, one of Russia‘s leading
business publications. Zoya holds
a Journalism degree from Lomonosov Moscow State University.
Alexei Volodin
(General Director,
SsangYong Distribution Centre)
Anton Karpov
(General Director,
UAZ Distribution Centre)
Alexei Volodin has been General
Director of the SsangYong Distribution Centre, the exclusive distributor of SsangYong cars in Russia
since 2009. From 2008, he was head
of the corporate fleet at General
Motors Europe. From 2005 to 2008,
he was Business Development
Manager at General Motors CIS.
Alexei holds a diploma from the
Legal Institute of the Russian Federation Ministry of Internal Affairs.
Anton Karpov has been General
Director of the UAZ Distribution
Centre since 2010. From 2005, he
was Head of the UAZ Sales Department. From 2003, he was Head of
the Marketing Department at OAO
UAZ (Ulyanovsk). Anton holds a degree in Journalism from the Moscow
State Social University, and completed postgraduate studies at the
Higher School of Economics with
a degree in Economics and Management of the Domestic Economy.
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69
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
Code of Conduct
· Board of Directors
· Committees
· Management
· Code of Conduct
· Information Policy
· Risk Management
SOLLERS’ Corporate Code
of Conduct has remained highly
relevant for the Company since
its approval by the General
Shareholders Meeting in 2005.
The Code defines the Company’s
corporate governance framework
and safeguards the interests
of both majority and minority
shareholders. The Code also
ensures informational and
decision-making transparency
as well as the professional
and ethical responsibility of all
SOLLERS Board of Directors
members, top management
and employees.
Information Policy
The fundamental principles of corporate conduct include:
1. compliance with current Russian legislation and the Company’s internal regulations
2. equal treatment for all shareholders,
including minority and foreign shareholders,
which is ensured through prompt and accurate
information disclosure, reports to shareholders
by the Board of Directors (which must include
independent non-executive directors), and
maintenance of an efficient internal control
and audit system
3. managing the Company exclusively for the
benefit of its shareholders through strategic
management and effective Board of Directors
supervision of management activity
4. social responsibility of the Company’s
management, and its engagement with employees to resolve social issues and maintain
proper working conditions
5. compliance with standards of business
ethics, honesty, fairness, professionalism and
responsibility by members of the Company’s
Board of Directors and all employees in carrying out their professional duties.
Settlement of corporate conflicts
The management places great emphasis on
the prevention and fair settlement of corporate
conflicts. In the event of a conflict, the Company’s position is based on its internal regulations, Charter and current contracts.
In meeting the requirements for securities
trade organisers, the Company regularly provides reports on its compliance with standards
of corporate conduct.
Throughout 2012, all requirements for securities trade organisers were fully met.
The Company’s information policy is set forth
in a regulation approved by the Board of Directors in 2005.
SOLLERS’ management has made the provision of complete and reliable information to
shareholders, investors and other stakeholders
a priority area for corporate management.
The regulation sets forth the following
General principles of information policies:
1. compliance with Russian legislation
2. regularity, promptness, availability, reliability and completeness of information
provided
3. maintaining a balance between transparency in providing information and safeguarding
the Company’s commercial interests.
Disclosures:
Disclosure is understood to mean ensuring access to information for all stakeholders
regardless of their purpose in obtaining it.
Information disclosure rules and approach:
The Company’s management is aware that
external users may need to access information
in a form other than that required by law. Thus,
the Company has a special department that
publishes relevant information, including news
and data on the Company’s strategic goals,
development areas and social policy, etc.
Information disclosure methods
The Company uses the most relevant methods for disclosing information to stakeholders,
including:
1. publication via information agencies’ news
bulletins
2. Internet resources (the Company’s own
website)
3. public appearances, press briefings and
participation in third-party conferences for
potential and existing investors
4. the issuing of press releases
5. providing information in hard copy upon
request.
The Company has a flexible system for keeping up with new developments in communica-
tions media, and provides necessary information in a form that best meets the needs of
users while meeting all legal requirements.
Insider information
The Company treats the following as insider
information:
1. information that constitutes a commercial
secret
2. information to be disclosed in compliance
with current legislation prior to mandatory
publication
3. other information on the Company’s
activities that is not publicly available, the
disclosure of which could materially affect the
value of the Company’s securities.
Compliance with the procedures for using
insider information (including prevention of
unauthorised access to such information or
using it for purposes not in the Company’s
interest) is ensured by the implementation of
mandatory procedures:
1. establishing access controls at the Company’s premises (including authorised access
to insider information for management and
specific employees)
2. timely destruction of documents not to be
retained which may contain insider information
3. using security systems to prevent loss of
information or unauthorised access through
communications channels
4. appointment of a person in charge of compliance with insider information procedures.
The Company has developed a regulation on
the use of insider information which covers
in particular: access to insider information,
protection of confidentiality of insider information, and control over compliance with
the provisions of the regulation. The regulation also determines those groups of persons
deemed insiders and issues a list of such
persons.
The Regulation on Information Policy and
the Regulation on the Use of Insider Information are available on the Company’s website.
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COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
Risk Management
Organisational Structure of Risk Management
SHAREHOLDERS
AUDIT COMMITTEE
BOARD OF DIRECTORS
· Board of Directors
· Committees
· Management
· Code of Conduct
· Information Policy
· Risk Management
RISK MANAGEMENT
DEPARTMENT
MANAGEMENT
Risk Management and Internal Audit Directorate
INTERNAL AUDIT
DEPARTMENT
General information
on risk management
KEY AREAS OF THE COMPANY'S
RISK MANAGEMENT
One of the most important elements of SOLLERS’ corporate governance is a risk management system that enables the Company’s
management to identify current strategic, operational and regulatory risks, as well as risks
related to financial statements, in a timely
manner.
The system increases the Company’s value
and improves its manageability by means of
identifying potentially negative factors affecting achievement of the Company’s goals.
Risk management is integrated into the
decision-making process for investment and
strategic projects, and automation projects.
The Company is exposed to a variety of risks
including, but not limited to currency risks,
environmental risks, market risks and other risks
inherent to the automotive industry. Regular
monitoring and risk management activities are
undertaken as an integral part of our overall risk
management programme, which includes regular reports to the Audit committee. As a result
of this policy, the Company believes that its risk
exposure is manageable and insignificant.
Functional aspects
of risk management
The Risk Management and Internal Audit
Directorate is a structural unit in charge of risk
management activities and efficient operation
of the Company’s business processes.
The functions of the Risk Management and
Internal Audit Directorate include:
• systematisation, coordination and centralisation of risk management processes
• identification, review and classification of
risks
• development of a risk management system
for corporate processes and processes used by
the Company’s subsidiaries and associates
• risk-based approach to conducting internal
audits
• methodological support for organising internal control and corporate governance systems
• interaction with external auditors.
SOLLERS' risk management framework
The Company uses a balanced approach to
risk management with a focus on mitigating
risks through minimising their implications
and/or likelihood of materialising. In-depth
analyses of operational and transaction risks are
performed regularly, as well as of market risks
and risks inherent in pricing, financial reporting
and taxation.
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GOVERNANCE
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
P. 74-89
COMPANY
OVERVIEW
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OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
Corporate responsibility permeates
all aspects of our activities and
is based on the following principles:
increasing Company shareholder
value, achieving growth through
long-term, mutually beneficial
partnerships, continuous
development, quality improvement
of our products and services,
improving Company employees’
skills, boosting social and economic
development in the regions where
we operate, improving operational
safety, and control of business
processes.
· Regional Development
· Industrial &
Occupational Safety
· Environment · Employee Development
& Social Programmes
· Education
· National Occupational
Standards &
Qualifications
Regional Development
As part of implementing SOLLERS’ social programmes at both the municipal and regional
level, we actively participate in sports and
cultural events, and support vulnerable segments of the population. In total, the Company
carried out charitable programmes worth RUB
43 million in 2012.
In cooperation with the Ruki Pomoschi
(trans: Helping Hands) charitable foundation,
Far East production sites regularly arrange
guided tours of production facilities for orphans and disadvantaged children. Company
employees also provide orphanages with material assistance and New Year presents.
In 2012, in cooperation with the Ulyanovsk
Region government, UAZ sponsored the construction of sports and recreation facilities at
a local infant school and contributed to the
city architecture by establishing a monument
dedicated to Alexander Ablukov, a World War II
hero. The enterprise contributes to the Ulyanovsk Sports Support Foundation, local medical and social authorities on a regular basis.
ZMZ took part in the federal charity campaign Pod Flagom Dobra (trans: Under the Flag
of Kindness) and provided financial support to
the Nizhny Novgorod Children’s Hospital by
sponsoring medical care for children in need of
expensive medical treatment. The plant sponsors the Centre of Social Services for Disabled
and Senior citizens in Zavolzhye. In 2012, ZMZ
provided this social institution with computers and other technical equipment. As a part
of its professional development and academic
cooperation with regional institutions, ZMZ
sponsors a local youth club for technical creativity and a state vocational school through
providing computer equipment, software and
technical assistance. The plant contributes to
local sports initiatives by providing financial
support to a women’s hockey team. In 2012 the
enterprise sponsored a volleyball tournament
dedicated to the celebration of Mechanical
Engineers’ Day.
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COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
Industrial &
Occupational Safety
Employee health and safety is one of the Company’s strategic priorities. Through the SOLLERS Occupational Health and Safety (OHS)
programme, we have significantly reduced the
risk of work-related accidents and health problems by providing conditions for our employees to work both safely and productively. Our
OHS programme is compliant with Russian
· Regional Development law and aims to ensure the continuous im· Industrial &
provement of working conditions and reduce
Occupational Safety
both industrial injuries and occupational ill· Environment nesses. According to our regulations, Company
· Employee Development
employees must increase their awareness of
& Social Programmes
OHS standards and comply with their require· Education
· National Occupational ments, as well as take part in developing and
Standards &
improving OHS standards, while management
Qualifications
is responsible for encouraging and motivating
our people to observe OHS standards.
In 2012, the management of UAZ and ZMZ
implemented the following improvements:
• detailed identification of hazardous production facilities, all of which were registered and
insured in compliance with current regulations,
no industrial accidents or injuries registered
while running or repairing hazardous production facilities
• expert appraisal of industrial safety of
production equipment and auxiliaries where all
examined objects were approved for safe use
• investment project to substitute worn-out
technological devices and equipment with new
facilities, and carried out an expert industrialsafety appraisal of newly installed objects
• approved an expert committee to examine
safety equipment and protective clothing supplied to the production facilities
• performed OHS assessment of individual
workplaces and amended working environment
• organised training for 2,361 employees to
increase their awareness of OHS standards.
In 2012, our production facilities in Vladivostok (the Far East Region) took the following
steps to improve OHS functions:
• performed OHS assessment of 116 workplaces and improved the working environment
• worked out a programme of industrial
control over the execution of sanitary arrange-
Industrial &
Occupational Safety
Number of work-related accidents 2011 – 2012 26
35
30
30
-37%
25
19
20
15
78
79
5
0
2011
2012
ments in order to prevent epidemiological
situations
• monitored OHS arrangements and injury
risks in the workplace, adopted the CCAR
(Concern and Corrective Action Report) approach; made weekly reports on the findings
of OHS inspections and imposed tough
deadlines for corrective actions, significantly
improving our work efficiency and effectiveness in this area
• performed medical examination of new
employees and regular health examinations for
categories of employees deemed to be at higher
risk, both funded by the employer
• organised training and tests of employees
to increase their awareness of OHS standards
• developed a programme of operational control over OHS compliance at hazardous production facilities
• monitored working conditions on a daily
basis, conducted investigations of injuries and
accidents.
In 2012, SOLLERS decreased the number of
work-related accidents by 37% year-on-year.
The 2013 plan provides for further assessment of workplaces, improvement of working
conditions, upgrading of technical devices and
personal protective equipment and treatments,
personnel training in OHS, repair and construction of indoor courses on industrial premises, and installation of safety labels/plates.
Company source.
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COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
IFRS FINANCIAL
STATEMENTS
2011
ADDITIONAL
INFORMATION
Environment
Our environmental policy is designed to
ensure conservation of energy and resources,
reduction of carbon emissions, and efficient
solid-waste management. The Company’s environmental protection and management policy
calls for strict compliance with Russian law and
regulations as well as continuous improvement
of environmental management and the reduc· Regional Development tion of our environmental footprint. Manage· Industrial &
ment seeks to foster a culture of efficient and
Occupational Safety
responsible environmental management and
· Environment protection.
· Employee Development
Key areas of SOLLERS’ environmental policy
& Social Programmes
are as follows:
· Education
· National Occupational
• energy conservation and sustainable use of
Standards &
natural resources, reduction of GHG emissions,
Qualifications
efficient solid waste management
• verifying and ensuring compliance of projected economic operations and other activities
with environmental regulations
• assessing our environmental footprint and
prompt response to any irregularities
• environmental safety of both our personnel
and local communities in the Company’s areas
of operation
• continuous improvement of personnel
environmental awareness.
Environmental management
system
As part of our environmental management system, the Company regularly takes the following
steps:
• accounting for the mix and volumes of polluting substances discharged into the natural
environment
• timely development of environmental-impact standards and monitoring of compliance
• control and monitoring of the implementation of environmental plans, activities, directives and recommendations
• control and monitoring of hazardous
waste-management rules
• control and monitoring of the consistency
and operational efficiency of environmental
protection equipment and facilities
• analytical control of waste streams and air
emissions
• environmental monitoring of water repositories.
SOLLERS’ environmental protection initiatives and responsible environmental management have been assessed under a range of
environmental competitions and certification
processes.
For example, in 2008, UAZ took part in
a European Quality Gold Medal Contest in
the category of Russia’s Top-100 Entities:
Environmental Protection and Management.
As a result, UAZ’s Executive Director was
awarded the honorary title of Environmentalist
of The Year. In 2011, UAZ won a prize in
Russia’s Top-100 Entities: Environmental
Protection and Management. ZMZ has been
included in a Greenpeace White List, which
lists those entities that promote environmental
transparency. In 2009, based on an annual
evaluation of businesses’ environmental
efficiency, OAO ZMZ shares were included
in the NERAX-Eco investment portfolio for
2010. The entity’s environmental management
system has been certified as complying with
ISO 14001.
Environmental emissions
and management
In 2012, implementation of the “Renovation
of storm water drainage in the north-east and
southwest sections of UAZ” project resulted in
zero wastewater discharge to the River Sviyaga.
In addition, UAZ launched the “Installation of
dust and gas collecting equipment in the body-
painting shop of the flow-coating section”
project. The environmental effect from
this project’s implementation was a considerable reduction in air pollution. Work on
this project will continue in 2013. The plant
has conducted major repairs on environmental protection equipment.
Consistent efforts to implement the requirements of ZMZ’s environmental policies
helped decrease water consumption per unit
produced by 28% as against 2011. In 2012,
gross emissions into the atmosphere per unit
produced were down 13% year-on-year.
Electric power consumption per unit produced
decreased by 12% year-on-year.
In 2012, SOLLERS-Far East reduced its
water and electricity consumption per car
produced by 14% and 11%, respectively, and
discharges into water per cubic meter by
11% year-on-year. The plant bought new
equipment for its container terminal, which
contributed to reducing exhaust emissions.
The newly installed modern ventilation system fully eliminates CO2 emissions. The plant
is constructing heat-transfer agents, including a liquid-gas operated boiler house, which
will save the city 11 megawatts of power.
Four sub-stations are being renovated, and
the replacement of electric transformers
is underway, which should result in consumption savings. The plant uses energy-saving
lamps and equipment. SOLLERS-Far East has
furnished its territory with VEKSA advanced
treatment system designed for purifying
storm water, snowmelt, industrial and street
sprinkler water polluted with oil products and
suspended substances.
The 2013 plan provides for further major repairs of environmental protection equipment,
working out the project documentation for
purifying industrial emissions, and searching
for an appropriate method of thermal disposal
of combustible refuse.
SOLLERS’ environmental
protection initiatives
and responsible environmental
management have been assessed
under a range of environmental
competitions and certification
processes.
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COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
Employee Development
& Social Programmes
Under its social responsibility programme,
SOLLERS focuses on enhancing the quality
of employee healthcare, family support, recreation and work-life balance, motivation and
assistance for young people, social support for
retired people, training and development for
staff, and incentivising talent. All Company entities have successfully implemented a system
· Regional Development of in-kind incentives
· Industrial &
in addition to bonuses and other performanceOccupational Safety
based motivational benefits.
· Environment UAZ and ZMZ independently carry out an· Employee Development
nual
youth and family social programmes and a
& Social Programmes
series of corporate events aimed at team-build· Education
· National Occupational ing, enhancing employee loyalty and helping
Standards &
staff to understand the importance of their role
Qualifications
for the Company.
The Family Programme
The Family Programme is aimed at strengthening the family, supporting personnel and encouraging them to act as a team, and resuming
the tradition of family celebrations. Its principal goal is to support and develop positive social initiatives among employees. Programme
events include theme parties, art exhibitions,
children’s drawing contests and performances,
sports activities, children’s festivals and visits
to theatres.
Every year, ZMZ publishes a prose and poetry collection titled “Rodniki” (trans: Spring
Brooks). The Company also offers legal support
for women facing challenging life situations,
and sponsors a women’s club at the plant.
Children’s recreation is one of the key themes
of UAZ’s corporate responsibility policy. All
employees who apply for a tour are provided
with vouchers for children’s recreation camps
and health resorts, enabling the children
of employees to enjoy a high-quality summer
holiday on attractive terms.
The Youth Programme
The aim of the Youth Programme is to foster
the development of younger employees’ creative and intellectual potential, and promote
a healthy lifestyle. The main objectives of the
Average number of employees in 2012 totalled 19,722
with the following distribution:
3% 1%
96%
UAZ Holding
(including ZMZ)
Corporate Centre
SsangYong
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COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
Programme include: further training, the fostering of discipline and responsibility, and the
promotion of a healthy lifestyle and innovation
among young staff. The Programme is open
to all Company employees and its subsidiaries
under 35 years old. Programme events include
intellectual games, professional contests,
sports functions, tourism trips, comedy festivals, youth balls, and environmental events.
In 2012, for the first time UAZ held its very own
Olympics featuring 14 different sports.
In addition to the social guarantees provided
for under Russian Law, UAZ and ZMZ offer
health programmes to their employees
at health centres and other medical and pre· Regional Development ventative treatment institutions. Costs related
· Industrial &
to treatment, accommodation and food are covOccupational Safety
ered only partially by the employee. The plants
· Environment provide employees with rehabilitation facili· Employee Development
ties, spa resort and medical services out
& Social Programmes
of their own funds under voluntary medical
· Education
· National Occupational insurance agreements.
Standards &
Both companies also offer their employees
Qualifications
assistance with costs associated with funerals, childbirth, maternity leave and childcare,
and make sure that all children have New Year
presents.
SOLLERS-Far East has a well-developed system of non-financial incentives. Employees can
visit the plant with their families on various
national holidays. On Family Day, for example,
they can come to enjoy excursions, and various
master classes and concerts. On Mechanical
Engineers’ Day, representatives of the municipal and regional administrations hold award
ceremonies which recognise employees’ professional achievements. Sports events include the
Primorye Business Olympics and rowing races.
The plant’s team took fourth place at the 2012
Winter Business Olympics and first place in the
men’s Dragon-class rowing race at the Summer
Business Olympics.
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
Education
Personnel development contributes to business development
and results in higher productivity, higher quality of goods
and services, lower personnel turnover, lower injury rates, increased
consumer demand, better morale and psychological environment,
and improved satisfaction overall.
The aim of personnel training and development
is to enhance competencies and qualifications
in line with the Company’s business needs.
In 2012, SOLLERS’s training costs were almost
RUB 19 million. Training covered the following
areas:
• mandatory training
• further education for employees and management
• corporate (internal training)
• induction and adjustment programmes
• technical training in the plants’ Training
Centres and Corporate Training Centre.
SOLLERS entities offer learning and development opportunities through four licensed
training centres. In addition to company employees, training is provided to dealer centres
and other companies outside the SOLLERS
Group. In 2012, training activity for third-party
employees was extended with the SOLLERS
Corporate Training Centre becoming a separate business entity under the name Frontline.
Frontline develops tailor-made education programmes that meet specific Company needs.
Company personnel have the opportunity
to choose a training provider which best meets
their particular business needs. Among
the Company’s educational partners are
Ernst & Young, and PricewaterhouseCoopers.
In 2012, the most relevant topics for Company
professional training were: financial management, changes in law and professional standards, lean manufacturing, and quality management.
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OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
National Occupational
Standards & Qualifications
The Russian government has tasked the domestic automotive industry with developing
competitive products that meet international
standards. This requires providing the industry
with qualified personnel capable of meeting
business, scientific, technical, social, and other
challenges.
Russia‘s automotive industry leaders are
· Regional Development committed to recruiting and developing human
· Industrial &
resources. In 2011, the SOLLERS Engineering
Occupational Safety
Academy started developing a set of occupa· Environment tional standards for the sector. The Russian
· Employee Development
Federation Ministry of Trade and Industry is
& Social Programmes
working on this with SOLLERS, AVTOVAZ, GAZ,
· Education
· National Occupational KAMAZ and VOLKSWAGEN. Their overall share
Standards &
of the Russian auto market is about 80%. The
Qualifications
project’s total budget for 2011 and 2012 was
RUB 16.4 million and RUB 6.4 million respectively.
Organisers
• Russian Presidential Academy of National
Economy and Public Administration
• National Research University Centre for
Qualifications Development, Higher School of
Economics
• International Association of Corporate
Education.
Project participants
Eighty experts and 756 respondents representing five car manufacturers took part in this
project, initiated and led by SOLLERS. Based
on 2011 results, the Association of Russian Automakers set up a Professional Qualifications
Committee.
Project goals
• analysis of the human-resources pool for
the automotive industry
• development of general industry projects
for key categories of personnel
• development of communications between
automotive companies, industry-related
educational and scientific institutions, and
government authorities in relation to human
resources
• a scheme demonstrating competency
models of specialists/graduates from specific
educational institutions vis-à-vis occupational
standard requirements
• development of a framework matching occupational standard requirements with educational programmes at all levels.
2011 - 2012 project results
Twenty-one industry occupational standards
were developed, namely:
• paint-spray processing specialist
• units and car-assembly specialist
• automobile design engineer
• process manager for metalwork mechanical
engineering
• metalwork specialist
• steelwork specialist
• tooling specialist
• automotive industry logistics specialist
• automotive industry designer
• mechatronics specialist
• automobile mechatronics specialist
• industrial engineering specialist
• foundry specialist
• automotive market analyst
• equipment adjusting specialist
• automotive industry sales specialist
• presswork specialist
• welding specialist
• preproduction planning specialist
• heat-processing specialist
• mechanical engineering chemist-technologist.
Educational Programmes vs Occupational Standards.
The Way To Convergence
EDUCATIONAL PROGRAMMES
PLANNING
DESIGNING
IMPLEMENTING
1. MARKETING
OF EDUCATIONAL
SERVICES
2. DETERMINATION
OF SOCIAL MISSION
1. DETERMINATION
OF GOALS, RESULTS,
CONTENTS
AND EDUCATIONAL
TECHNIQUES
2. DEVELOPMENT
OF REGULATORY
DOCUMENTS
AND EDUCATIONAL
MATERIALS
1. EDUCATIONAL
PROCESS
2. EDUCATIONAL
QUALITY MONITORING
3. PROGRAMME
UPGRADING
FINALISING
1. PROPER
ORGANISATIONAL
ARRANGEMENTS
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EMPLOYERS
OCCUPATIONAL STANDARDS
1. Objectives of professional activities, compliance with employment
duties corresponding to vocational qualification level
2. Requirments for the level of competences' maturity
3. Requirments for quality criteria of graduates' education and training
4. The goal is to determine new cases, where new professionals are needed
Competency Model Formation
MANAGERIAL
COMPETENCIES
PERSONNEL COMPETENCIES
OCCUPATIONAL
COMPETENCIES
The result is an absolute first across
all sectors of the economy.
1. For the first time, Russia has an occupational and qualification industry framework
covering the entire product life cycle in place to
help develop human resources. The framework
is based on interaction between the labour
qualification system and the educational qualification system.
2. This is also the first time that a development forecast for the automotive industry has
been drafted covering the period up to 2020
EDUCATIONAL ACTIVVITY
Universities, colleges
CMG
COMPETENCY
MODEL
OF GRADUATE
COMPETENCIES
CMS
OCCUPATIONAL ACTIVITY
COMPETENCY
MODEL
OF SPECIALIST
Employers
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
The Effect Produced by Occupational Standards and
Qualification Framework on Labour Quality
Audit of Qualification
Framework
and introduction
of missing occupational
competencies
· Regional Development
· Industrial &
Occupational Safety
· Environment · Employee
Development & Social
Programmes
· Education
· National Occupational
Standards &
Qualifications
Cooperation
with educational institutions
to bring educational
programmes into conformity
with occupational standard's
requirements
Control
of personnel competencies
when recruited
Identification and
development of personnel
competencies
Interrelation
of incentive scheme and
occupational standards'
requirements
OCCUPATIONAL
STANDARDS
AND QUALIFICATION
FRAMEWORK AS KEY DRIVERS
OF LABOUR QUALITY
IMPROVEMENT
Interrelation
of technological changes
and occupational
standards' requirements
Intercompany training
and improvement of
personnel qualifications
Personnel
certification
Interrelation
of regulatory documents
and occupational
standards' requirements
based on Rapid Foresight methods. The project
participants received a road map, a visual image of a joint future comprising key trends,
events, technology, strategic options and
decision-making points, a plan of legislative
and lobbying steps, and a forecast for developing technology and critical markets. The result
can be regarded as a prototype for an acting
organisational solution for managing industry
development, and specifically as a prototype
communication tool for auto-market players
at all levels (human resource providers, plants,
management structures).
3. An adapted international expert evaluation of industry occupational standards and its
human resource development framework has
been conducted.
4. A framework which matches occupational
standard requirements with educational programmes at all levels (at the design and implementation stages) has been developed.
5. In accordance with occupational standard
requirements, competency models for both
specialists and graduates have been developed. In education, a competency approach
means implementing occupational educational
programmes that develop the student’s ability
to independently apply to a certain context the
knowledge and skills acquired in training.
6. Recommendations have been developed for
further the elaboration of occupational standards and their application. The final stage of
the project was to draft and approve the Regulation on the Framework for Human Resourcing
for the Russian Automotive Industry Strategy
up to 2020 and to issue recommendations on
the further elaboration of occupational standards
and their application. Experts worked out a
schedule of seminars for 2013 entitled:
“Occupational standards: practical implications
for the Company’s employee development”,
and “The application of occupational standards
within the framework of professional education
and training”.
The occupational standards and occupational/
qualification framework designed by the automotive manufacturers forms part of the documentation pertaining to the labour-regulation
framework. In addition, such materials help to
draft the occupational competencies required
for implementing new techniques and technology, to master skills on an on-going basis, and
to reduce the use of non-qualified labour.
It is important to note that occupational
standards and the occupational/qualification
framework are designed together with the
establishment of their period of validity and
level of methods and technology development in the sector. For example, occupational
standards are normally valid for two to three
years. The occupational/ qualification framework should also be regularly reviewed in line
with the emergence of new professions and
the disappearance of old ones. To comply with
these principles the expert group worked out
a mechanism for replacing and updating the
occupational/ qualification framework which
takes into account low indicators of the new
profession emergence and the need to update
certain requirements.
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SOCIAL
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P. 90-96
COMPANY
OVERVIEW
ADDITIONAL
INFORMATION
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
SOLLERS works hard for its
share capital investors. SOLLERS
performed well in 2012 with
key indicators showing robust
progress over the previous year.
We look forward to continued
growth in the years to come.
· Share Capital
· Major Shareholders
· Market Share Price
& GDR
· Bonds
Share Capital
The Company’s subscribed share capital totals
RUB 428 million, represented by 34,270,159
ordinary shares at a value of RUB 12.50 each.
The Company has the right to allocate an
additional 47,804 ordinary shares at a value
of RUB 12.50 each. These ordinary shares
would carry voting rights in the same proportion as other ordinary shares.
In 2007, SOLLERS implemented a stock-option programme for key management members
for the first time.
The programme was renewed in 2009, and
the options are still available for execution.
Additional information on SOLLERS’ optional
plan is published in the Notes to the IFRS
Statements.
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COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
Major Shareholders
The immediate parent company is Newdeal
Investments Limited. The Group’s ultimate
controlling party is Vadim Shvetsov, who is the
Company’s principal shareholder.
financial
reporting
ADDITIONAL
INFORMATION
Market Share Price & GDR
The Company’s shares are listed on the MICEX-RTS
stock exchange under the ticker SVAV.
25
1900
1800
20
1700
Shareholder Structure as of 31.12.2012
· Share Capital
· Major Shareholders
· Market Share Price
& GDR
· Bonds
1600
USD
15
1500
1400
10
1300
1200
5
46%
1100
1000
0
V.Shvetsov
Free-float
3/01/2012
54%
14/02/2012 29/03/2012 11/50/2012
22/06/2012
SVAV RTS
RTS
In August 2005, SOLLERS established a sponsored Global Depositary Receipt (GDR) program.
The GDRs are unlisted and 1 DR includes 1 ordinary share. The custodian for the program
is Deutsche Bank Moscow.
DR Ratio:
DR ISIN:
CUSIP:
DR Type:
1:1
US8342581050
834258105
Reg S / Sponsored
3/08/2012
14/09/2012
26/10/2012
10/12/2012
94
95
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION
Bonds27
As of 31 December 2012, SOLLERS OJSC had two
bond issues outstanding.
Issue BO-2
· Share Capital
· Major Shareholders
· Market Share Price
& GDR
· Bonds
Name
SOLLERS OJSC, certified unregistered
interest-bearing exchange bonds, issue BO-2
State registration details:
ISIN code:
Par value:
Emission volume, items:
Traded volume, items:
Trading period, days:
Commencement date of placement:
Expiration date:
Maturity date:
Frequency of payments per year:
No. 4B02-02-02461-D of 29.08.2008, MICEX
RU000A0JQUW3
RUB 1,000
2,000,000
2,000,000
1,092
05.05.2010
05.05.2010
01.05.2013
2
% per annum:
9.25
Issue 02
Name:
SOLLERS OJSC, interest-bearing
certified unregistered bonds
State registration details:
ISIN code:
Par value:
Emission volume, items:
Traded volume, items:
Trading period, days:
Commencement date of placement:
Expiration date:
Maturity date:
Frequency of payments per year:
% per annum:
No. 4-02-02461-D of 22.06.2007, FSFM
RU000A0JPCB7
RUB 1,000
3,000,000
3,000,000
2184
25.07.2007
25.07.2007
17.07.2013
2
12.5
As of the report issue date.
27
96
97
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
ADDITIONAL
INFORMATION
P. 98-155
COMPANY
OVERVIEW
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
SOLLERS accounting
procedures equal or exceed
all local and international
requirements.
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
ADDITIONAL
INFORMATION
FINANCIAL REPORTING
SOLLERS GROUP
INTERNATIONAL FINANCIAL
REPORTING STANDARDS
CONSOLIDATED FINANCIAL STATEMENTS
AND INDEPENDENT AUDITOR’S REPORT
31 DECEMBER 2012
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
Independent
Auditor’s Report
103INDEPENDENT
AUDITOR’S REPORT
104 Sollers Group
Consolidated
Financial
Statements
110 Sollers
Group Notes to
the Consolidated
Financial
Statements
104 Sollers Group
Consolidated
Statement of
Financial Position at
31 December 2012
105 Sollers Group
Consolidated
Statement
of Comprehensive
Income for the year
ended 31 December
2012
106 Sollers Group
Consolidated
Statement of Cash
Flows for the year
ended 31 December
2012
108 Sollers Group
Consolidated
Statement of Changes
in Equity for the year
ended 31 December
2012
110 1 The Sollers
Group and its
operations
111 2 Basis of
preparation and
significant accounting
policies
124 3 Critical
accounting estimates
and judgements
in applying accounting
policies
126 4 Adoption
of new or revised
standards and
interpretations
127 5 New
accounting
pronouncements
129 6 Balances and
transactions with
related parties
130 7 Property, plant
and equipment
131 8 Goodwill
131 9 Development
costs
132 10 Other
intangible assets
133 11 Investments
in joint ventures
and associates
135 12 Other
non-current assets
135 13 Inventories
136 14 Trade and
other receivables
138 15 Cash
and cash equivalents
139 16 Shareholders’
equity
140 17 Borrowings
141 18 Advances
received and other
payables
142 19 Taxes
payable
142 20 Warranty
and other provisions
142 21 Sales
143 22 Cost of sales
143 23 Distribution
costs
143 24 General
and administrative
expenses
144 25 Other
operating (income) /
expenses – net
144 26 Finance
costs, net
144 27 Income tax
expense
146 28 Earning
per share
147 29 Segment
information
147 30 Financial risk
management
152 31 Contingencies,
commitments
and operating risks
154 32 Principal
subsidiaries
To the Shareholders and Board of Directors of Open Joint Stock Company Sollers:
We have audited the accompanying consolidated financial statements of Open Joint Stock
Company Sollers and its subsidiaries (the “Group”) which comprise the consolidated statement
of financial position as of 31 December 2012 and the consolidated statements of comprehensive
income, changes in equity and cash flows for the year then ended and notes comprising
a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with International Financial Reporting Standards, and for such
internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on
our audit. We conducted our audit in accordance with International Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation and fair presentation
of the consolidated financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Group as of 31 December 2012, and its financial performance and its cash
flows for the year then ended in accordance with International Financial Reporting Standards.
Contents
8 April 2013
Moscow, Russian Federation
102
103
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
Sollers Group Consolidated
Financial Statements
Sollers Group Consolidated Statement of Financial Position
at 31 December 2012*
RR million
Note
At 31 December
2012
Sollers Group Consolidated Statement of Comprehensive Income
for the year ended 31 December 2012*
Supplementary information
US$ million (Note 2)
At 31 December
2011
At 31 December
2012
RR million
ASSETS
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
Non-current assets
Property, plant and equipment
Goodwill
Development costs
Other intangible assets
Deferred income tax assets
Investments in associates and joint ventures
Other financial assets
Other non-current assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Other current assets
Cash and cash equivalents
Total current assets
TOTAL ASSETS
7
8
9
10
27
11
12
13
14
15
11,539
1,484
393
182
276
14,492
20
677
29,063
12,527
1,484
524
199
874
11,921
22
596
28,147
380
49
13
6
9
477
1
22
957
389
46
16
6
27
370
1
19
874
4,503
9,816
231
2,560
17,110
46,173
6,700
11,034
256
2,957
20,947
49,094
148
323
8
84
563
1,520
208
343
8
92
651
1,525
530
–
50
4,480
1,438
6,340
12,838
7,042
19,880
530
(653)
77
4,893
1,438
1,092
7,377
6,177
13,554
17
–
2
148
47
209
423
232
655
16
(20)
2
152
45
34
229
192
421
3,742
854
31
4,627
5,851
1,208
48
7,107
123
28
1
152
182
38
1
221
10,454
2,865
1,045
604
6,698
21,666
26,293
46,173
13,104
1,680
2,321
345
10,983
28,433
35,540
49,094
344
94
34
20
221
713
865
1,520
407
52
72
11
341
883
1,104
1,525
LIABILITIES AND EQUITY
Equity
Share capital
Treasury shares
Share options
Share premium
Additional paid-in capital
Retained earnings
Equity attributable to the Company's owners
Non-controlling interest
Total equity
Liabilities
Non-current liabilities
Long-term borrowings
Deferred income tax liabilities
Other long term liabilities
Total non-current liabilities
Current liabilities
Trade accounts payable
Advances received and other payables
Taxes payable
Warranty and other provisions
Short-term borrowings
Total current liabilities
Total liabilities
TOTAL LIABILITIES AND EQUITY
16
16
16
16
16
16
17
27
18
19
20
17
Note
At 31 December
2011
Supplementary information
US$ million (Note 2)
Year ended 31 December
Year ended 31 December
2012
2011
2012
2011
Sales
Cost of sales
Gross profit
21
22
65,549
(51,475)
14,074
69,531
(57,319)
12,212
2,108
(1,656)
452
2,365
(1,949)
416
Distribution costs
General and administrative expenses
Net result on formation of joint venture
Other operating income/(expenses), net
Operating profit
23
24
11
25
(2,551)
(5,205)
922
5
7,245
(2,578)
(4,982)
4,007
(150)
8,509
(82)
(167)
30
–
233
(88)
(170)
136
(4)
290
Finance costs, net
Share of result of joint ventures and associates
Profit before income tax
26
11
(810)
1,149
7,584
(2,281)
47
6,275
(26)
37
244
(77)
1
214
Income tax expense
Profit for the year
27
(1,703)
5,881
(1,581)
4,694
(55)
189
(54)
160
Total comprehensive income for the year
5,881
4,694
189
160
Profit is attributable to:
Owners of the Company
Non-controlling interest
Profit for the year
5,843
38
5,881
4,594
100
4,694
188
1
189
156
4
160
Total comprehensive income is attributable to:
Owners of the Company
Non-controlling interest
Total comprehensive income for the year
5,843
38
5,881
4,594
100
4,694
188
1
189
156
4
160
28
34,152
33,472
34,152
33,472
28
34,275
33,907
34,275
33,907
28
171.1
137.2
5.50
4.67
28
170.5
135.5
5.48
4.61
Weighted average number of shares outstanding
during the period (in thousands of shares) –
basic
Weighted average number of shares outstanding
during the period (thousands) − diluted
Profit per share
(in RR and US$) – basic
Profit per share
(in RR and US$) – diluted
Other than as presented above, the Group did not have any items to be recorded as other
comprehensive income in the statement of comprehensive income (2011: no items).
Approved for issue and signed on behalf of the Board of Directors on 8 April 2013.
General Director V.A. Shvetsov
Chief Financial Officer N.A. Sobolev
* In millions of Russian Roubles. Amounts translated into US Dollars for convenience purposes, Note 2
The accompanying notes on pages 110 to 155 are an integral part
of these consolidated financial statements.
* In millions of Russian Roubles. Amounts translated into US Dollars for convenience purposes, Note 2
104
105
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
SOLLERS GROUP Consolidated Statement of Cash Flows
for the year ended 31 December 2012*
RR million
Note
SOLLERS GROUP Consolidated Statement of Cash Flows
for the year ended 31 December 2012 (continued)*
RR million
Supplementary information
US$ million (Note 2)
Year ended 31 December
2012
Note
Year ended 31 December
2011
2012
2011
Cash flows from operating activities
Profit/(loss) before income tax
Adjustments for:
Depreciation
Amortisation
Share options
Provision and write-off for impairment
of receivables
Provision for inventories
Other provision movements
Loss on disposal of other non-current assets
· Independent
Amortisation of Government grants
Auditor’s Report
Development costs write-off
Net losses/(gain) on disposal of property, plant
· Sollers Group
and equipment
Consolidated
Financial Statements Net result on formation of joint venture
Share of result of JV and associates
· Sollers Group Notes
Finance costs, net
to the Consolidated
Operating cash flows before working capital
Financial Statements changes
at 31 December 2012 Decrease in inventories
(in millions of Russian Decrease/(increase) in trade and other
receivables
Roubles – RR)
Decrease/(increase) in other current assets
(Decrease) in trade accounts payable, advances
received and other payables
(Decrease)/increase in taxes payable
Cash provided from operations
13
11
11
7,584
6,275
244
214
839
274
18
172
1,406
215
28
71
27
9
1
6
48
7
1
2
71
439
28
(16)
7
220
(2)
477
67
(20)
5
144
2
14
1
(1)
–
7
–
16
2
(1)
–
5
(922)
(1,149)
1,438
9,003
(4,007)
(47)
3,031
7,643
(30)
(37)
47
290
(136)
(1)
103
260
1,424
945
5,431
(4,260)
46
30
185
(145)
25
(584)
(212)
(3,806)
1
(19)
(7)
(130)
(1,200)
2,165
(39)
74
9,613
6,961
309
237
Income taxes paid
Interest paid
Net cash from operating activities
Supplementary information
US$ million (Note 2)
Year ended 31 December
Year ended 31 December
2012
2011
2012
2011
(1,755)
(1,424)
6,434
(640)
(2,304)
4,017
(56)
(46)
207
(22)
(78)
137
(917)
1,626
(1,148)
5,593
(30)
53
(39)
190
(86)
(52)
(951)
13
(157)
(72)
(330)
–
(3)
(2)
(30)
–
(5)
(2)
(11)
–
(320)
–
(10)
–
(687)
3,886
(22)
133
6,995
(13,305)
(16)
182
(6,144)
13,521
(21,414)
(22)
(120)
(8,035)
225
(428)
(1)
6
(198)
460
(729)
(1)
(4)
(274)
(397)
–
(132)
–
(13)
5
(4)
(5)
2,957
3,089
92
101
2,560
2,957
84
92
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from the sale of property, plant
and equipment and advances received
Development costs
Purchase of other non-current assets
Investment in joint venture
Dividends received from participation in joint
venture
Proceeds from sale of subsidiary net of cash
disposed
Net cash (used in)/from investing activities
9
11
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid to the Group’s shareholders
Change in treasury shares
Net cash used in financing activities
Net decrease in cash and cash equivalents
Effect of exchange rate changes on cash
and cash equivalents
Cash and cash equivalents at the beginning
of the year
Cash and cash equivalents at the end of the year
The accompanying notes on pages 110 to 155 are an integral part
of these consolidated financial statements.
The accompanying notes on pages 110 to 155 are an integral part
of these consolidated financial statements.
* In millions of Russian Roubles. Amounts translated into US Dollars for convenience purposes, Note 2
* In millions of Russian Roubles. Amounts translated into US Dollars for convenience purposes, Note 2
106
107
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
SOLLERS GROUP Consolidated Statement of Changes in Equity
for the year ended 31 December 2012*
Note
Share
capital
Treasury
shares
Share
options
Share
premium
Additional
paid-in-capital
Retained
earnings
530
(724)
77
5,062
1,438
–
–
–
–
–
Balance at 1 January 2011
Profit for the year
Total comprehensive income for 2011
Change of interest in subsidiary
Treasury shares acquisition
Share options
32
6, 16
Balance at 31 December 2011
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
Total Attributable
to equity holders of
the Group
Non-controlling
interest
Total
equity
(3,144)
3,239
5,719
8,958
4,594
4,594
100
4,694
–
–
–
–
–
4,594
4,594
100
4,694
–
–
–
–
(135)
206
–
–
–
–
–
(169)
–
–
–
(358)
–
–
(358)
(135)
37
358
–
–
–
(135)
37
530
(653)
77
4,893
1,438
1,092
7,377
6,177
13,554
Profit for the year
–
–
–
–
–
5,843
5,843
38
5,881
Total comprehensive income for 2012
–
–
–
–
–
5,843
5,843
38
5,881
–
–
–
–
–
–
–
559
(80)
174
–
–
–
–
(27)
–
–
(312)
–
(101)
–
–
–
–
–
(595)
–
–
–
–
(595)
–
247
(80)
46
595
232
–
–
–
–
232
247
(80)
46
530
–
50
4,480
1,438
6,340
12,838
7,042
19,880
Change of interest in subsidiary
Disposal of subsidiary
Treasury shares disposal
Treasury shares acquisition
Share options
32
11
6, 16
Balance at 31 December 2012
The accompanying notes on pages 110 to 155 are an integral part
of these consolidated financial statements.
* In millions of Russian Roubles.
108
109
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
Sollers Group
Notes to the Consolidated
Financial Statements
at 31 December 2012
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
1 The Sollers Group and its operations
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards for the year ended 31 December 2012 for Sollers OJSC, previously
called OAO “Severstal-auto”, (the “Company”) and its subsidiaries (the “Group”). The Group
adopted its new name “Sollers” in 2008.
The Company and the Group’s principal activity is the manufacture and sale of vehicles,
including automotive components, assembly kits, and engines. The Group’s manufacturing
facilities are primarily based in Ulyanovsk, the Nizhniy Novgorod region, and Vladivostok in the
Russian Federation.
On 1 October 2011 the Group established the joint venture with Ford with production assets
located in Vsevolozhsk in the St. Petersburg region, Naberezhnye Chelny and Elabuga in the
Republic of Tatarstan. Ford-Sollers joint venture is intended for exclusive production and
distribution of Ford branded vehicles in Russia. By the end of 2011 the Group established the
joint venture with Japanese Mitsui&Co., Ltd located in Vladivostok, where Toyota vehicles are
planned to be produced. During the second half 2012 the Group finalized the foundation of the
joint venture with Mazda Motor Corporation in Vladivostok also (Note 11) and launched the
production of Mazda SUVs in September 2012. In August 2012 the Group disposed 16% stake in
joint venture Sollers-Isuzu and recognised the remained investment as 50%-50% joint venture.
The Sollers-Isuzu production of light-duty trucks is located in Ulyanovsk (Note 11).
In February 2013 the Group relocated SsangYong SUVs’ production from the Group’s subsidiary
site to JV Mazda-Sollers’ production facilities. The Group will continue exclusive distribution of
the SUVs in future.
The Company was incorporated as an open joint stock company in the Russian Federation
in March 2002 by OAO “Severstal” (the predecessor) by contributing its controlling interests in
OAO “Ulyanovsky Avtomobilny Zavod” (OAO “UAZ”) and OAO “Zavolzhskiy Motor Works” (OAO
“ZMZ”), which were acquired through purchases close to the end of 2000, in exchange for the
Company’s share capital.
The immediate parent company is Newdeal Investments Limited. The ultimate controlling
party of the Group is Vadim Shvetsov who is the principal shareholder of the Company.
The Company’s shares are listed on MICEX-RTS.
The registered office of the Company is Testovskaya street, 10, Moscow, Russian Federation.
These consolidated financial statements were approved for issue by the General Director and
Chief Financial Officer on 8 April 2013
Operating Environment of the Group
The Russian Federation displays certain characteristics of an emerging market, including
relatively high inflation and high interest rates. The recent global financial crisis has had a
severe effect on the Russian economy and the financial situation in the Russian financial and
corporate sectors significantly deteriorated since mid-2008. Starting from 2011 the Russian
economy demonstrated a moderate recovery of economic growth. The recovery was accompanied
by a gradual increase of household incomes, lower refinancing rates, stabilisation of the exchange
rate of the Russian Rouble against major foreign currencies, and increased liquidity levels in the
banking sector. In particular, a number of these factors have helped the automotive industry in
general to recover and sales of new vehicles in Russia have significantly increased during the years
ended 31 December 2011 and 2012 to date compared to the previous periods and in the most of
market segments achieved the pre-crisis peak levels.
Further to the negotiations of the Cyprus government with the European Commission, the
European Central Bank and the International Monetary Fund for the purpose of obtaining
financing, on 25 March 2013 it was agreed that financial assistance will be provided to Cyprus in
conjunction with a package of measures to be implemented including the split of Laiki Bank into
depositors with amounts up to €100 thousand and depositors with amounts over €100 thousand;
and a substantial haircut on Bank of Cyprus deposits with amounts over €100 thousand. As at 31
December 2012 the Group did not hold any bank balances or deposits in the Cypriot banks.
The tax, currency and customs legislation within the Russian Federation is subject to varying
interpretations and frequent changes, and other legal and fiscal impediments contribute to the
challenges faced by entities currently operating in the Russian Federation. The future economic
direction of the Russian Federation is largely dependent upon the effectiveness of economic,
financial and monetary measures undertaken by the Government, together with tax, legal,
regulatory, and political developments.
Management is unable to predict all developments which could have an impact on the Russian
economy and consequently what effect, if any, they could have on the future financial position
of the Group. Management believes it is taking all the necessary measures to support the
sustainability and development of the Group’s business.
2 Basis of preparation and significant accounting policies
Basis of preparation
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) under the historical cost convention, as modified by
the initial recognition of financial instruments based on fair value and by the revaluation of
available for sale securities. The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been consistently applied
to all the periods presented, unless otherwise stated (refer to Note 4, Adoption of New or Revised
Standards and Interpretations). These financial statements are prepared on a going concern basis.
The Group companies maintain their accounting records in Russian Roubles (“RR”) and prepare
their statutory financial statements in accordance with the Federal Law on Accounting of the
110
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COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
2 Basis of preparation and significant accounting policies
2 Basis of preparation and significant accounting policies
Russian Federation. The consolidated financial statements are based on the statutory records, with
adjustments and reclassifications recorded for the purpose of fair presentation in accordance with
IFRS.
2.1 Presentation currency
ered. The Company and all of its subsidiaries use uniform accounting policies consistent with
the Group’s policies.
Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not owned, directly or indirectly, by the Company. Non-controlling
interest forms a separate component of the Group’s equity.
All amounts in these consolidated financial statements are presented in millions of Russian Roubles (“RR millions”), unless otherwise stated.
2.4 Purchases and sales of non-controlling interests
2.2 Supplementary information
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
US Dollar (“US$”) amounts shown in the consolidated financial statements are translated from
the Russian Rouble (“RR”) amounts as a matter of arithmetic computation only, at the official
rate of the Central Bank of the Russian Federation at 31 December 2012 of RR 30.3727 = US$1
(31 December 2011: RR 32.1961 = US$1). The consolidated income statement and consolidated
statement of cash flows have been translated at the average exchange rates during the years
ended 31 December 2012 of RR 31.0930 = US$1 (2011: RR 29.3948 = US$1). The US$ amounts are
presented solely for the convenience of the reader, and should not be construed as
a representation that RR amounts have been or could have been converted to the US$ at this rate,
nor that the US$ amounts present fairly the financial position and results of operations and cash
flows of the Group.
2.3 Consolidated financial statements
Subsidiaries are those companies and other entities (including special purpose entities) in
which the Group, directly or indirectly, has an interest of more than one half of the voting rights
or otherwise has power to govern the financial and operating policies so as to obtain benefits. The
existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. Subsidiaries are
consolidated from the date on which control is transferred to the Group (acquisition date) and are
deconsolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries other
than those acquired from parties under common control. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values
at the acquisition date, irrespective of the extent of any non-controlling interest.
The Group measures non-controlling interest on a transaction by transaction basis, either at:
(a) fair value, or (b) the non-controlling interest’s proportionate share of net assets of the acquiree.
Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and
fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill”) is recognised in profit or loss, after management reassesses
whether it identified all the assets acquired and all liabilities and contingent liabilities assumed
and reviews appropriateness of their measurement.
The consideration transferred for the acquiree is measured at the fair value of the assets given
up, equity instruments issued and liabilities incurred or assumed, including fair value of assets
or liabilities from contingent consideration arrangements but excludes acquisition related costs
such as advisory, legal, valuation and similar professional services. Transaction costs related to
the acquisition and incurred for issuing equity instruments are deducted from equity; transaction
costs incurred for issuing debt as part of the business combination are deducted from the carrying
amount of the debt and all other transaction costs associated with the acquisition are expensed.
Intercompany transactions, balances and unrealised gains on transactions between Group
companies are eliminated; unrealised losses are also eliminated unless the cost cannot be recov-
The Group applies the economic entity model to account for transactions with owners of noncontrolling interest. Any difference between the purchase consideration and the carrying amount
of non-controlling interest acquired is recorded as a capital transaction directly in equity. The
Group recognises the difference between sales consideration and the carrying amount of noncontrolling interest sold as a capital transaction in the statement of changes in equity.
2.5 Purchases of subsidiaries from parties under common control
Purchases of subsidiaries from parties under common control are accounted for using the
pooling of interest method. Under this method the consolidated financial statements of the
combined entity are presented as if the businesses had been combined from the beginning of the
earliest period presented or, if later, the date when the combining entities were first brought under
common control. The assets and liabilities of the subsidiary transferred under common control
are at the predecessor entity’s carrying amounts. The predecessor entity is considered to be the
highest reporting entity in which the subsidiary’s IFRS financial information was consolidated.
Related goodwill inherent in the predecessor entity’s original acquisitions is also recorded in these
consolidated financial statements. Any difference between the carrying amount of net assets,
including the predecessor entity’s goodwill, and the consideration for the acquisition is accounted
for in these consolidated financial statements as an adjustment to other reserves within equity.
2.6 Associates and jointly controlled entities
Associates are entities over which the Group has significant influence (directly or indirectly),
but not control, generally accompanying a shareholding of between 20 and 50 percent of the
voting rights. Investments in associates are accounted for using the equity method of accounting
and are initially recognised at cost. Dividends received from associates reduce the carrying value
of the investment in associates. Other post-acquisition changes in the Group’s share of net assets
of an associate are recognised as follows: (i) the Group’s share of profits or losses of associates
is recorded in the consolidated profit or loss for the year as share of result of associates, (ii) the
Group’s share of other comprehensive income is recognised in other comprehensive income and
presented separately, (iii) all other changes in the Group’s share of the carrying value of net assets
of associates are recognised in profit or loss within the share of result of associates. When the
Group’s share of losses in an associate equals or exceeds its interest in the associate, including any
other unsecured receivables, the Group does not recognise further losses, unless it has incurred
obligations or made payments on behalf of the associate.
Jointly controlled entities are those enterprises over whose activities the Group has joint
control, established by contractual agreement. When a jointly controlled entity is created through
loss of control of a subsidiary, the initial carrying amount is recognised at fair value. Subsequently,
they are accounted for using the equity method of accounting. The share of jointly controlled
entities’ results is recognised in the consolidated financial statements from the date that joint
control commences until the date at which it ceases.
Unrealised gains on transactions between the Group, its associates and jointly controlled
entities are eliminated to the extent of the Group’s interest in the associates; unrealised
losses are also eliminated unless the transaction provides evidence of an impairment of the
asset transferred.
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COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
2 Basis of preparation and significant accounting policies
2 Basis of preparation and significant accounting policies
2.7 Disposals of subsidiaries, associates or joint ventures
life of the financial instrument or a shorter period, if appropriate, to the net carrying amount
of the financial instrument. The effective interest rate discounts cash flows of variable interest
instruments to the next interest repricing date except for the premium or discount which reflects
the credit spread over the floating rate specified in the instrument, or other variables that are not
reset to market rates. Such premiums or discounts are amortised over the whole expected life of
the instrument. The present value calculation includes all fees paid or received between parties
to the contract that are an integral part of the effective interest rate (refer to income and expense
recognition policy).
When the Group ceases to have control or significant influence, any retained interest in the
entity is remeasured to its fair value, with the change in carrying amount recognised in profit or
loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for
the retained interest as an associate, joint venture or financial asset. In addition, any amounts
previously recognised in other comprehensive income in respect of that entity are accounted for as
if the Group had directly disposed of the related assets or liabilities. This may mean that amounts
previously recognised in other comprehensive income are recycled to profit or loss.
If the ownership interest in an associate is reduced but significant influence is retained, only
a proportionate share of the amounts previously recognised in other comprehensive income are
reclassified to profit or loss where appropriate.
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
2.8 Financial instruments – key measurement terms
Depending on their classification financial instruments are carried at fair value or amortised
cost as described below.
Fair value is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction. Fair value is the current bid price
for financial assets and current asking price for financial liabilities which are quoted in an active
market. For assets and liabilities with offsetting market risks, the Group may use mid-market
prices as a basis for establishing fair values for the offsetting risk positions and apply the bid or
asking price to the net open position as appropriate. A financial instrument is regarded as quoted
in an active market if quoted prices are readily and regularly available from an exchange or other
institution and those prices represent actual and regularly occurring market transactions on an
arm’s length basis.
Valuation techniques such as discounted cash flows models or models based on recent
arm’s length transactions or consideration of financial data of the investees are used to fair
value certain financial instruments for which external market pricing information is not
available. Valuation techniques may require assumptions not supported by observable market
data. Disclosures are made in these consolidated financial statements if changing any such
assumptions to a reasonably possible alternative would result in significantly different profit or
loss, sales, total assets or total liabilities.
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or
disposal of a financial instrument. An incremental cost is one that would not have been incurred
if the transaction had not taken place. Transaction costs include fees and commissions paid to
agents (including employees acting as selling agents), advisors, brokers and dealers, levies by
regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs
do not include debt premiums or discounts, financing costs or internal administrative or holding
costs.
Amortised cost is the amount at which the financial instrument was recognised at initial
recognition less any principal repayments, plus accrued interest, and for financial assets less any
write-down for incurred impairment losses. Accrued interest includes amortisation of transaction
costs deferred at initial recognition and of any premium or discount to maturity amount using the
effective interest method. Accrued interest income and accrued interest expense, including both
accrued coupon and amortised discount or premium (including fees deferred at origination, if
any), are not presented separately and are included in the carrying values of related consolidated
balance sheet items.
The effective interest method is a method of allocating interest income or interest expense
over the relevant period so as to achieve a constant periodic rate of interest (effective interest
rate) on the carrying amount. The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts (excluding future credit losses) through the expected
2.9 Classification of financial assets
The Group classifies its financial assets into the following measurement categories: (a) loans
and receivables; (b) available-for-sale financial assets; (c) financial assets held to maturity and (d)
financial assets at fair value through profit and loss. Financial assets at fair value through profit
and loss have two subcategories: (i) assets designated as such upon initial recognition, and (ii)
those classified as held for trading.
Certain derivative instruments embedded in other financial instruments are treated as separate
derivative instruments when their risks and characteristics are not closely related to those of the
host contract.
Other financial assets at fair value through profit and loss are financial assets designated
irrevocably, at initial recognition, into this category. Management designates financial assets
into this category only if (a) such classification eliminates or significantly reduces an accounting
mismatch that would otherwise arise from measuring assets or liabilities or recognising the
gains and losses on them on different bases; or (b) a group of financial assets, financial liabilities
or both is managed and its performance is evaluated on a fair value basis, in accordance with
a documented risk management or investment strategy, and information on that basis is
regularly provided to and reviewed by the Group’s key management personnel. Recognition and
measurement of this category of financial assets is consistent with the accounting policy for
trading investments.
Trading investments are financial assets which are either acquired for generating a profit from
short-term fluctuations in price or trader’s margin, or are securities included in a portfolio
in which a pattern of short-term trading exists. The Group classifies securities into trading
investments if it has an intention to sell them within a short period after purchase, i.e. within 12
months The Group may choose to reclassify a non-derivative trading financial asset out of the fair
value through profit and loss category if the asset is no longer held for the purpose of selling it in
the near term. Financial assets other than loans and receivables are permitted to be reclassified
out of the fair value through profit and loss category only in rare circumstances arising from
a single event that is unusual and highly unlikely to reoccur in the near term. Financial assets
that would meet the definition of loans and receivables may be reclassified if the Group has the
intention and ability to hold these financial assets for the foreseeable future or until maturity.
Loans and receivables are unquoted non-derivative financial assets with fixed or determinable
payments other than those that the Group intends to sell in the near term.
Held-to-maturity assets include quoted non-derivative financial assets with fixed or
determinable payments and fixed maturities that the Group has both the intention and ability
to hold to maturity. Management determines the classification of investment securities held
to maturity at their initial recognition and reassesses the appropriateness of that classification
at each reporting date.
All other financial assets are included in the available-for-sale category, which includes
investment securities which the Group intends to hold for an indefinite period of time
and which may be sold in response to needs for liquidity or changes in interest rates, exchange
rates or equity prices.
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115
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
2 Basis of preparation and significant accounting policies
2 Basis of preparation and significant accounting policies
2.10 Classification of financial liabilities
profit or loss for the year. If, in a subsequent period, the fair value of a debt instrument classified
as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit and loss, the impairment loss is reversed through
current period’s profit and loss.
Financial liabilities have the following measurement categories: (a) held for trading which also
includes financial derivatives and (b) other financial liabilities. Liabilities held for trading are
carried at fair value with changes in value recognised in the income statement in the period in
which they arise. Other financial liabilities are carried at amortised cost.
2.11 Initial recognition of financial instruments
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
Trading investments, derivatives and other financial instruments at fair value through profit
and loss are initially recorded at fair value. All other financial assets and liabilities are initially
recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by
the transaction price. A gain or loss on initial recognition is only recorded if there is a difference
between fair value and transaction price which can be evidenced by other observable current
market transactions in the same instrument or by a valuation technique whose inputs include
only data from observable markets.
All purchases and sales of financial assets that require delivery within the time frame
established by regulation or market convention (“regular way” purchases and sales) are recorded
at trade date, which is the date that the Group commits to deliver a financial asset. All other
purchases are recognised when the entity becomes a party to the contractual provisions of the
instrument.
The Group uses discounted cash flow valuation techniques to determine the fair value of options
and bonds that are not traded in an active market. Differences may arise between the fair value at
initial recognition which is considered to be the transaction price and the amount determined at
initial recognition using the valuation technique. Any such differences are amortised on a straight
line basis over the term of the options and bonds.
2.12 Derecognition of financial assets
The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash
flows from the assets otherwise expired or (b) the Group has transferred the rights to the cash
flows from the financial assets or entered into a qualifying pass-through arrangement while (i)
also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither
transferring nor retaining substantially all risks and rewards of ownership but not retaining control.
Control is retained if the counterparty does not have the practical ability to sell the asset in its
entirety to an unrelated third party without needing to impose additional restrictions on the sale.
2.13 Valuation of investments
Available-for-sale investments
The Group classifies investments as available for sale at the time of purchase. Available-forsale investments are carried at fair value. Interest income on available-for-sale debt securities
is calculated using the effective interest method and recognised in profit and loss. Dividends on
available-for-sale equity instruments are recognised in profit and loss when the Group’s right to
receive payment is established and inflow of benefits is probable. All other elements of changes in
the fair value are recognised in other comprehensive income until the investment is derecognised or
impaired at which time the cumulative gain or loss is reclassified from other comprehensive income
to finance income in profit or loss for the year.
Impairment losses are recognised in profit and loss when incurred as a result of one or more
events (“loss events”) that occurred after the initial recognition of available-for-sale investments.
A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired. The cumulative impairment loss – measured as the difference between
the acquisition cost and the current fair value, less any impairment loss on that asset previously
recognised in profit and loss – is reclassified from other comprehensive income to finance costs in
Held-to-maturity investments
Held-to-maturity investments are carried at amortised cost using the effective interest
method, net of a provision for incurred impairment losses.
Trading investments
Trading investments are carried at fair value. Interest earned on trading investments
calculated using the effective interest method is presented in the consolidated income statement
as finance income. Dividends are included in dividend income within other operating income
when the Group’s right to receive the dividend payment is established and inflow of benefits is
probable. All other elements of the changes in the fair value and gains or losses on derecognition
are recorded in profit and loss as gains less losses from trading investments in the period in which
they arise.
Embedded derivatives
Foreign currency forwards embedded into sales-purchase contracts are separated from the
host contracts and accounted for separately unless the contract is denominated in the functional
currency of any substantial party to the contract or in a currency that is commonly used in the
economic environment in which the transaction takes place, such as in US Dollars and Euros for
contracts within the Russian Federation.
2.14 Property, plant and equipment
Property, plant and equipment are stated at cost, restated to the equivalent purchasing
power of the Russian Rouble at 31 December 2002 for assets acquired prior to 1 January 2003,
less accumulated depreciation and provision for impairment, where required. Cost includes
borrowing costs incurred on specific or general funds borrowed to finance construction of
qualifying assets.
Costs of minor repairs and maintenance are expensed when incurred. Costs of replacing or
renewing major parts or components of property, plant and equipment items are capitalised and
the replaced part is retired.
At each reporting date, management assess whether there is any indication of impairment
of property, plant and equipment. If any such indication exists, management estimates the
recoverable amount, which is determined as the higher of an asset’s fair value less costs to
sell and its value in use. The carrying amount is reduced to the recoverable amount and the
impairment loss is recognised in the consolidated income statement. An impairment loss
recognised for an asset in prior years is reversed if there has been a change in the estimates used
to determine the asset’s value in use or fair value less costs to sell.
Gains and losses on disposals determined by comparing proceeds with carrying amount are
recognised in profit and loss.
2.15 Depreciation
Land is not depreciated. Depreciation on other items of property, plant and equipment is
calculated using the straight-line method to allocate their cost amounts to their residual values
over their estimated useful lives:
Useful lives in years
Buildings
Plant and machinery
Equipment and motor vehicles
35 to 45
15 to 25
5 to 12
116
117
COMPANY
OVERVIEW
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
2 Basis of preparation and significant accounting policies
2 Basis of preparation and significant accounting policies
The residual value of an asset is the estimated amount that the Group would currently
obtain from disposal of the asset less the estimated costs of disposal, if the asset were already
of the age and in the condition expected at the end of its useful life. The residual value of an
asset is nil if the Group expects to use the asset until the end of its physical life. The assets’
residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting
date.
become exercisable. It recognises the impact of the revision of original estimates, if any, in
the consolidated income statement, and with a corresponding adjustment to equity over the
remaining vesting period.
The proceeds received net of any directly attributable transaction costs are credited to share
capital (nominal value) and share premium when the options are exercised.
2.16 Operating leases
Goodwill is carried at cost less accumulated impairment losses, if any. The Group tests
goodwill for impairment at least annually and whenever there are indications that goodwill may
be impaired. Goodwill is allocated to the cash-generating units, or groups of cash-generating
units, that are expected to benefit from the synergies of the business combination. Such units
or groups of units represent the lowest level at which the Group monitors goodwill and are not
larger than an operating segment.
Gains or losses on disposal of an operation within a cash generating unit to which goodwill
has been allocated include the carrying amount of goodwill associated with the operation
disposed of, generally measured on the basis of the relative values of the operation disposed of
and the portion of the cash-generating unit which is retained.
Where the Group is a lessee in a lease which does not transfer substantially all the risks and
rewards incidental to ownership from the lessor to the Group, the total lease payments are
charged to profit and loss on a straight-line basis over the lease term. The lease term is the
non-cancellable period for which the lessee has contracted to lease the asset together with any
further terms for which the lessee has the option to continue to lease the asset, with or without
further payment, when at the inception of the lease it is reasonably certain that the lessee will
exercise the option.
Leases embedded in other agreements are separated if (a) fulfilment of the arrangement is
dependent on the use of a specific asset or assets and (b) the arrangement conveys a right to use
the asset. When assets are leased out under an operating lease, the lease payments receivable
are recognised as rental income on a straight-line basis over the lease term.
2.17 Finance lease receivables
Where the Group is a lessor in a lease which transfers substantially all the risks and rewards
incidental to ownership to the lessee, the assets leased out are presented as a finance lease
receivable and carried at the present value of the future lease payments. Finance lease
receivables are initially recognised at the date from which the lessee is entitled to exercise
its right to use the leased asset, using a discount rate determined at inception (the earlier of
the date of the lease agreement and the date of commitment by the parties to the principal
provisions of the lease).
The difference between the gross receivable and the present value represents unearned
finance income. This income is recognised over the term of the lease using the net investment
method (before tax), which reflects a constant periodic rate of return. Incremental costs directly
attributable to negotiating and arranging the lease are included in the initial measurement of
the finance lease receivable and reduce the amount of income recognised over the lease term.
Finance income from leases is recorded within sales in the income statement.
Impairment losses are recognised in profit and loss when incurred as a result of one or more
events (“loss events”) that occurred after the initial recognition of finance lease receivables.
Impairment losses are recognised through an allowance account to write down the receivables’
net carrying amount to the present value of expected cash flows (which exclude future credit
losses that have not been incurred) discounted at the interest rates implicit in the finance
leases. The estimated future cash flows reflect the cash flows that may result from obtaining
and selling the assets subject to the lease.
2.18 Share based compensation
The Group operates equity-settled, share-based compensation plans. The fair value of the
employee services received in exchange for the grant of the options is recognised as an expense.
The total amount to be expensed over the vesting period is determined by reference to the fair
value of the options granted, excluding the impact of any non-market vesting conditions (for
example, profitability and sales growth targets). Non-market vesting conditions are included
in assumptions about the number of options that are expected to become exercisable. At each
reporting date, the Group revises its estimates of the number of options that are expected to
2.19 Goodwill
2.20 Other intangible assets
The Group’s intangible assets other than goodwill have definite useful lives and primarily
include capitalised computer software, patents, trademarks, licences and clips.
Acquired computer software licenses, patents and trademarks are capitalised on the basis of
the costs incurred to acquire and bring them to use.
Development costs that are directly associated with identifiable and unique software
controlled by the Group are recorded as intangible assets if the inflow of incremental economic
benefits exceeding costs is probable. Capitalised costs include staff costs of the software
development team and an appropriate portion of relevant overheads. All other costs associated
with computer software, e.g. its maintenance, are expensed when incurred. Intangible assets are
amortised using the straight-line method over their useful lives:
Useful lives in years
Trademarks
Production licences
Computer software licences
3 to 10
5 to 10
3 to 5
If impaired, the carrying amount of intangible assets is written down to the higher of value
in use and fair value less costs to sell.
2.21 Inventories
Inventories are recorded at the lower of cost and net realisable value. The cost of inventory
is determined on the weighted average basis. The cost of finished goods and work in progress
comprises raw material, direct labour, other direct costs and related production overheads
(based on normal operating capacity) but excludes borrowing costs. Net realisable value is
the estimated selling price in the ordinary course of business, less the cost of completion and
selling expenses. Inventories at the reporting date include expected sales returns subsequent
to the period end, where the related sales, profit margin and receivables balance are reversed.
Inventories are initially recognised when the Group has control of the inventory, expects it to
provide future economic benefits and the cost of the inventory can be measured reliably. For
components imported from outside of the Russian Federation, this is typically at the point of
delivery to the Group’s warehouse and accepted by the Group.
118
119
COMPANY
OVERVIEW
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
2 Basis of preparation and significant accounting policies
2 Basis of preparation and significant accounting policies
2.22 Income taxes
• any portion or installment is overdue and the late payment cannot be attributed to a delay
caused by the settlement systems;
• the counterparty experiences a significant financial difficulty as evidenced by its financial
information that the Group obtains;
• the counterparty considers bankruptcy or a financial reorganisation;
• there is adverse change in the payment status of the counterparty as a result of changes
in the national or local economic conditions that impact the counterparty; or
• the value of collateral, if any, significantly decreases as a result of deteriorating market
conditions.
If the terms of an impaired financial asset held at amortised cost are renegotiated or
otherwise modified because of financial difficulties of the counterparty, impairment is
measured using the original effective interest rate before the modification of terms.
Impairment losses are always recognised through an allowance account to write down the
asset’s carrying amount to the present value of expected cash flows (which exclude future
credit losses that have not been incurred) discounted at the original effective interest rate
of the asset. The calculation of the present value of the estimated future cash flows of a
collateralised financial asset reflects the cash flows that may result from foreclosure less costs
for obtaining and selling the collateral, whether or not foreclosure is probable.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease
can be related objectively to an event occurring after the impairment was recognised (such
as an improvement in the debtor’s credit rating), the previously recognised impairment loss
is reversed by adjusting the allowance account through profit and loss.
Uncollectible assets are written off against the related impairment loss provision after all
the necessary procedures to recover the asset have been completed and the amount of the loss
has been determined. Subsequent recoveries of amounts previously written off are credited to
impairment loss account in the income statement.
Income taxes have been provided for in the consolidated financial statements in accordance
with Russian legislation enacted or substantively enacted by the balance sheet date. The income
tax charge comprises current tax and deferred tax and is recognised in the consolidated income
statement unless it relates to transactions that are recognised, in the same or a different period,
directly in equity.
Current tax is the amount expected to be paid to or recovered from the taxation authorities in
respect of taxable profits or losses for the current and prior periods. Taxes other than on income
are recorded within operating expenses.
Deferred income tax is provided using the balance sheet liability method for tax loss carry
forwards and temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition
of an asset or a liability in a transaction other than a business combination if the transaction,
when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are
not recorded for temporary differences on initial recognition of goodwill and subsequently for
goodwill which is not deductible for tax purposes. Deferred tax balances are measured at tax
rates enacted or substantively enacted at the reporting date which are expected to apply to the
period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are netted only within the individual companies of the
Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are
recorded only to the extent that it is probable that future taxable profit will be available against
which the deductions can be utilised.
The Group controls reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or on gains at their disposal. The Group does not recognise deferred
tax liabilities on such temporary differences except to the extent that management expects the
temporary differences to reverse in the foreseeable future.
The Group’s uncertain tax positions are reassessed by management at every reporting date.
Liabilities are recorded for income tax positions that are determined by management as more
likely than not to result in additional taxes being levied if the positions were to be challenged
by the tax authorities. The assessment is based on the interpretation of tax laws that have been
enacted or substantively enacted by the reporting date and any known court or other rulings
on such issues. Liabilities for penalties, interest and taxes other than on income are recognised
based on management’s best estimate of the expenditure required to settle the obligations
at the reporting date.
2.23 Trade and other receivables
Trade and other receivables are carried at amortised cost using the effective interest method.
2.25 Prepayments
Prepayments are carried at cost less provision for impairment. A prepayment is classified as
non-current when the goods or services relating to the prepayment are expected to be obtained
after one year, or when the prepayment relates to an asset which will itself be classified as noncurrent upon initial recognition. Prepayments to acquire assets are transferred to the carrying
amount of the asset once the Group has obtained control of the asset and it is probable that
future economic benefits associated with the asset will flow to the Group. Other prepayments
are written off to profit and loss when the goods or services relating to the prepayments are
received. If there is an indication that the assets, goods or services relating to a prepayment
will not be received, the carrying value of the prepayment is written down accordingly and a
corresponding impairment loss is recognised in profit and loss.
2.24 Impairment of financial assets carried at amortised cost
2.26 Cash and cash equivalents
Impairment losses are recognised in profit and loss when incurred as a result of one or more
events (“loss events”) that occurred after the initial recognition of the financial asset and which
have an impact on the amount or timing of the estimated future cash flows of the financial asset
or group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment has incurred for an individually assessed financial asset,
whether significant or not, it includes the asset in a group of financial assets with similar credit
risk characteristics and collectively assesses them for impairment. The primary factors that the
Group considers in determining whether a financial asset is impaired are its overdue status and
realisability of related collateral, if any. The following other principal criteria are also used to
determine whether there is objective evidence that an impairment loss has occurred:
Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other
short-term highly liquid investments with original maturities of three months or less. Cash and
cash equivalents are carried at amortised cost using the effective interest method. Restricted
balances are excluded from cash and cash equivalents for the purposes of the consolidated cash
flow statement. Balances restricted from being exchanged or used to settle a liability for at
least twelve months after the reporting date are included in other non-current assets.
2.27 Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue
of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
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BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
2 Basis of preparation and significant accounting policies
2 Basis of preparation and significant accounting policies
Any excess of the fair value of consideration received over the par value of shares issued
is recorded as share premium in equity.
in settlement is determined by considering the class of obligations as a whole. A provision is
recognised even if the likelihood of an outflow with respect to any one item included in the same
class of obligations may be small. Where the Group expects a provision to be reimbursed, for
example under an insurance contract, the reimbursement is recognised as a separate asset but
only when the reimbursement is virtually certain. The Group recognises the estimated liability
to repair or replace products sold still under warranty at the end of each reporting period. This
provision is calculated based on past history of the level of repairs and replacements and recognised in costs of sale.
2.28 Treasury shares
Where the Company or its subsidiaries purchase the Company’s equity instruments, the
consideration paid, including any directly attributable incremental costs, net of income taxes, is
deducted from equity attributable to the Company’s equity holders until the equity instruments
are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any
consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, and are included in equity attributable to the Company’s equity holders.
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
2.29 Dividends
Dividends are recorded as a liability and deducted from equity in the period in which they are
declared and approved. Any dividends declared after the reporting date and before the consolidated financial statements are authorised for issue are disclosed in the subsequent events note.
2.30 Value added tax
Output value added tax related to sales is payable to tax authorities on the earlier of (a) collection of the receivables from customers or (b) delivery of the goods or services to customers.
Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice. The tax
authorities permit the settlement of VAT on a net basis. VAT related to sales and purchases is
recognised in the balance sheet on a gross basis and disclosed separately as an asset and liability. Where provision has been made for impairment of receivables, impairment loss is recorded
for the gross amount of the debtor, including VAT.
2.31 Borrowings
Borrowings are carried at amortised cost using the effective interest method. Interest costs
on borrowings to finance the construction of property, plant and equipment are capitalised,
during the period of time that is required to complete and prepare the asset for its intended
use. All other borrowing costs are expensed.
2.32 Government grants and subsidies
Grants from the Government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.
Government grants relating to the purchase of property, plant and equipment are included in
non-current liabilities as deferred income and are credited to the consolidated income statement on a straight line basis over the expected lives of the related assets.
Government grants and subsidies relating to costs are deferred and recognised in the consolidated income statement over the period necessary to match them with the costs that they are
intended to compensate.
2.33 Trade and other payables
Trade and other payables are accrued when the counterparty performed its obligations under
the contract and are carried at amortised cost using the effective interest method.
2.34 Provisions for liabilities and charges
Provisions for liabilities and charges are recognised when the Group has a present legal or
constructive obligation as a result of past events, and it is probable that an outflow of resources
will be required to settle the obligation, and a reliable estimate of the amount can be made.
Where there are a number of similar obligations, the likelihood that an outflow will be required
2.35 Foreign currency translation
The functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in which the entity operates. The Group’s functional currency and
the Group’s presentation currency is the national currency of the Russian Federation, Russian
Roubles.
Monetary assets and liabilities are translated into each entity’s functional currency at the
official exchange rate of the Central Bank of the Russian Federation (“CBRF”) at the respective
reporting dates. Foreign exchange gains and losses resulting from the settlement of the transactions and from the translation of monetary assets and liabilities into each entity’s functional
currency at year-end official exchange rates of the CBRF are recognised in profit and loss. Translation at year-end rates does not apply to non-monetary items that are measured at historical
cost. Non-monetary items measured at fair value in a foreign currency, including equity investments, are translated using the exchange rates at the date when the fair value was determined.
Effects of exchange rate changes on non-monetary items measured at fair value in a foreign
currency are recorded as part of the fair value gain or loss.
At 31 December 2012, the principal rate of exchange used for translating foreign currency balances was US$ 1 = RR 30.3727, Euro 1 = RR 40.2286, Japanese yen 100 = RR 35.1516
(2011: US$ 1 = RR 32.1961, Euro 1 = RR 41.6714, Japanese yen 100 = RR 37.3789). The principal average rate of exchange used for translating income and expenses was US$ 1 = RR 31.093
(2011: US$ 1 = RR 29.3948).
2.36 Revenue recognition
Revenues from sales of vehicles, engines and automotive components are recognised at the
point of transfer of the major of risks and rewards of ownership of the goods, normally when
the goods are shipped. If the Group agrees to transport goods to a specified location, revenue
is recognised when the goods are passed to the customer at the destination point. The group
generally retains physical possession of the vehicle ownership document (“PTS”) until cash is
collected from the dealer, however, it considers that substantially all risks and rewards are transferred upon shipment.
An estimate is made for vehicles that are returned to the Group subsequent to the period end
where a dealer is not able to settle receivables owed to the Group. In such instances, the related
sales revenue, profit margin and trade receivable balances are reversed during the period and the
vehicles are included as inventories as at the period end date.
Sales of services are recognised in the accounting period in which the services are rendered,
by reference to the stage of completion of the specific transaction assessed on the basis of the
actual service provided as a proportion of the total services to be provided.
Sales are shown net of VAT, excise, discounts and other bonuses to dealers.
Revenues are measured at the fair value of the consideration received or receivable. When the
fair value of goods received in a barter transaction cannot be measured reliably, the revenue is
measured at the fair value of the goods or service given up. Interest income is recognised on a
time-proportion basis using the effective interest method.
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COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
2 Basis of preparation and significant accounting policies
3 Critical accounting estimates and judgements in applying accounting policies
2.37 Research and development costs
believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting
policies. Judgements that have the most significant effect on the amounts recognised in the
consolidated financial statements and estimates that can cause a significant adjustment to
the carrying amount of assets and liabilities within the next financial year include:
Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised
as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and costs can be measured reliably. Other development
expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs
with a finite useful life that have been capitalised are amortised from the commencement of
the commercial production of the product on a straight-line basis over the period of its expected benefit, on average over ten years.
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
2.38 Employee benefits
Wages, salaries, contributions to the Russian Federation state pension and social insurance
funds, paid annual leave and sick leave, bonuses, and non-monetary benefits (such as health
services and kindergarten services) are accrued in the year in which the associated services are
rendered by the employees of the Group.
Labour expenses include state pension contributions of RR 1,670 for the year ended 31 December 2012 (2011: RR 1,812). In addition, labour expenses include payments under share
based compensation of RR 18 (2011: RR 19).
2.39 Earnings per share
Basic earnings per share are calculated by dividing the profit or loss attributable to equity
holders of the Company by the weighted average number of ordinary shares in issue during
period.
If applicable, diluted earnings per share is calculated adjusting the weighted average number of ordinary shares outstanding to assume conversion of dilutive potential ordinary shares
under the share based compensation programme. For the share options used in the share
based compensation programme a calculation is done to determine the number of shares that
would have been issued at the balance sheet date if this date was the vesting date.
2.40 Offsetting
Financial assets and liabilities are offset and the net amount reported in the balance sheet
only when there is a legally enforceable right to offset the recognised amounts, and there is an
intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously.
2.41 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operating decision maker. Segments whose revenue, result or assets
are ten percent or more of all the segments are reported separately where they do not have
similar economic characteristics.
3 Critical accounting estimates
and judgements in applying accounting policies
The Group makes estimates and assumptions that affect the amounts recognised in the
consolidated financial statements and the carrying amounts of assets and liabilities within
the next financial year. Estimates and judgements are continually evaluated and are based on
management’s experience and other factors, including expectations of future events that are
3.1 Remaining useful life of property, plant and equipment
Management has assessed the remaining useful life of property, plant and equipment in
accordance with the current technical conditions of assets and estimated period when these
assets will bring economic benefit to the Group. The estimation of the useful lives of items of
property, plant and equipment is a matter of judgment based on the experience with similar assets. The future economic benefits embodied in the assets are consumed principally
through use. However, other factors, such as technical or commercial obsolescence and wear
and tear, often result in the diminution of the economic benefits embodied in the assets.
Management assesses the remaining useful lives in accordance with the current technical
conditions of the assets and estimated period during which the assets are expected to earn
benefits for the Group. The following primary factors are considered: (a) expected usage of
the assets; (b) expected physical wear and tear, which depends on operational factors and
maintenance programme; and (c) technical or commercial obsolescence arising from changes
in market conditions.
3.2 Impairment of assets (including goodwill)
Management have used judgement when evaluating any indicators of potential impairment
of the Group’s non-current assets (including property, plant and equipment, intangibles and
goodwill), or, when testing for impairment as at 31 December 2012 as required. Management
have determined that there are three cash-generating units (“CGU”) within the Group: OAO
“UAZ”, OAO “ZMZ” and OOO “Sollers-Dal’niy Vostok”.
After substantial increase in 2011 supported by government measures the Russian automotive market continued its growth in 2012: according to independent automotive experts
the volume of the Russian automotive market for 2012 is amounted to 2,9 mln. units. Hence,
the market growth in comparison with 2011 is approximately 11%. Major government support measures i.e. cash-for-clunkers programme and interest subsidy for auto-loans ceased
in 2011, but still the market continued to grow in 2012. The market growth is explained by
two main factors: stabilization of economic environment and the natural recovery of demand
based on fundamental market factors (i.e. low car density per 1000 capita, outdated car park
in Russia and growing level of credit sales which is yet to achieve average global levels).
Sales of vehicles grew overall and the Group benefited from strong growth in the SUV and
LCV segments in particular. The increase in exchange rate of Russian Rouble to major currencies was also a favourable factor for the Group’s results.
Goodwill allocated to OAO “UAZ” and OAO “ZMZ” CGUs have been tested by management
for impairment using value-in-use calculations. The calculations use business plans and cash
flows projections developed and approved by the management. The discounting rate used
for each CGU was estimated based on weighted average cost of capital, which is post-tax and
reflects specific risks related to the CGU and time value of money.
The cash flow projections cover an initial five-year period. Cash flows beyond five year period are extrapolated using basic assumptions such as potential sales volumes, EBITDA margin
level and discounting rate specific for the particular CGU. Management determined budgeted
EBITDA margin on the basis of the past performance of each CGU and its expectations for the
market development. For the OAO “UAZ” these include continued strong demand for quality
vehicles in the niche markets in which the units operate, and the CGU’s sales price advantage
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COMPANY
OVERVIEW
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
3 Critical accounting estimates and judgements in applying accounting policies
4 Adoption of new or revised standards and interpretations
over its foreign competition in those markets. For the OAO “ZMZ” these include expansion of
its position as a supplier to the Russian market, development further the production of spare
parts and components and ability to upgrade its products in line with expected increases in
regulations over emission levels.
Cash flows beyond the five-year period are extrapolated using estimated growth rate of
3.5% for both CGUs (31 December 2011: 2% for both CGUs); these growth rates do not exceed
the long-term average growth rate for the automotive business in which CGUs operate. The
discount rate used of 14.8% for OAO “ZMZ” and 14.9% for OAO “UAZ” (31 December 2011:
12.9% and 12.4% respectively) are pre-tax and reflect specific risks related to the relevant
CGU.
The inference of no impairment of OAO “UAZ” CGU is sensitive to the level of future revenues. With all other assumptions held constant, a reduction in revenues of 45% in each future
period would result in a need to reduce the carrying value of goodwill by RR 302.
The inference of no impairment of OAO “ZMZ” CGU is sensitive to the level of future
revenues. With all other assumptions held constant, a reduction in revenues of 20% in each
future period would result in a need to reduce the carrying amount of goodwill by RR 277 and
other non-current assets in aggregate by RR 438.
For each of the CGUs identified for impairment testing, management consider that there
have not been any significant changes in any of the businesses during the year. For all CGUs,
the recoverable amount in the valuation performed as at 31 December 2012 exceeded the carrying amount by a substantial margin and based on an analysis of events, the likelihood that
the current recoverable amount would be lower that the carrying amount is remote.
Management believes that any reasonably possible change in the key assumptions described above would not cause the carrying amount of goodwill related to OAO “UAZ” and
OAO “ZMZ” to exceed their recoverable amounts.
and a description of the risks and rewards of financial assets that have been transferred to another party, yet remain on the entity’s balance sheet. Disclosures are also required to enable a
user to understand the amount of any associated liabilities, and the relationship between the
financial assets and associated liabilities. Where financial assets have been derecognised, but
the entity is still exposed to certain risks and rewards associated with the transferred asset,
additional disclosure is required to enable the effects of those risks to be understood. The
amendment did not have a material impact on these financial statements.
Other revised standards and interpretations effective for the current period. The amendments
to IFRS 1 “First-time adoption of IFRS”, relating to severe hyperinflation and eliminating
references to fixed dates for certain exceptions and exemptions, did not have any impact on
these consolidated financial statements. The amendment to IAS 12 “Income taxes”, which
introduced a rebuttable presumption that an investment property carried at fair value is recovered entirely through sale, did not have a material impact on these consolidated financial
statements.
3.3 Tax legislation and deferred income tax recognition
Russian tax, currency and customs legislation is subject to varying interpretations. Related accounting treatment requires the use of estimates and judgements as further detailed
in Note 31.
Deferred tax assets represent income taxes recoverable through future deductions from taxable profits and are recorded on the balance sheet. Deferred income tax assets are recorded to
the extent that realisation of the tax benefit is probable. In determining future taxable profits
and the amount of tax benefits that are probable in the future, management makes judgements
and applies estimation based on taxable profits earned in the past three-years; the possibility of challenges to the deductibility of expenses; the time period available in order to utilise
the losses and expectations of future taxable income that are believed to be reasonable under
the circumstances. For details of the deferred tax assets recognised as at 31 December 2012,
see Note 27. The balance includes RR 276 (2011: RR 874). Management expects these losses
to be utilised in the next few years based on current profit forecasts.
4 Adoption of new or revised standards and interpretations
The following new standards and interpretations became effective for the Group
from 1 January 2012:
“Disclosures − Transfers of Financial Assets” – Amendments to IFRS 7 (issued in October 2010
and effective for annual periods beginning on or after 1 July 2011). The amendment requires additional disclosures in respect of risk exposures arising from transferred financial assets. The
amendment includes a requirement to disclose by class of asset the nature, carrying amount
5 New accounting pronouncements
Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2013 or later and which the Group has not early
adopted.
IFRS 9 “Financial Instruments Part 1: Classification and Measurement”. IFRS 9, issued in
November 2010, replaces those parts of IAS 39 relating to the classification and measurement
of financial assets. IFRS 9 was further amended in October 2010 to address the classification
and measurement of financial liabilities and in December 2011 to (i) change its effective date
to annual periods beginning on or after 1 January 2015 and (ii) add transition disclosures.
Financial assets are required to be classified into two measurement categories: those to be
measured subsequently at fair value, and those to be measured subsequently at amortised
cost. The classification depends on the entity’s business model for managing its financial
instruments and the contractual cash flow characteristics of the instrument. All equity
instruments are to be measured subsequently at fair value. Equity instruments that are held
for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and
realised fair value gains and losses through other comprehensive income rather than profit
or loss. There is to be no recycling of fair value gains and losses to profit or loss. Most of the
requirements in IAS 39 for classification and measurement of financial liabilities were carried
forward unchanged to IFRS 9. The key change is that an entity will be required to present the
effects of changes in own credit risk of financial liabilities designated at fair value through
profit or loss in other comprehensive income. While adoption of IFRS 9 is mandatory from 1
January 2015, earlier adoption is permitted. The Group is considering the implications of the
standard, the impact on the Group and the timing of its adoption by the Group.
IFRS 11, Joint Arrangements, (issued in May 2011 and effective for annual periods beginning on
or after 1 January 2013), replaces IAS 31 “Interests in Joint Ventures” and SIC-13 “Jointly Controlled Entities − Non-Monetary Contributions by Ventures”. Changes in the definitions have
reduced the number of types of joint arrangements to two: joint operations and joint ventures. The existing policy choice of proportionate consolidation for jointly controlled entities
has been eliminated. Equity accounting is mandatory for participants in joint ventures. The
Group does not expect any material impact of the new standard on its financial statements.
The following other new pronouncements are not expected to have any material impact
on the Group when adopted:
126
127
COMPANY
OVERVIEW
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
5 New accounting pronouncements
6 Balances and transactions with related parties
• IFRS 10 “Consolidated Financial Statements” (issued in May 2011 and effective for annual
periods beginning on or after 1 January 2013) which replaces all of the guidance on control
and consolidation in IAS 27 “Consolidated and separate financial statements” and SIC-12
“Consolidation − special purpose entities”.
• IFRS 12 “Disclosure of Interests in Other Entities”, (issued in May 2011 and effective for
annual periods beginning on or after 1 January 2013) which requires new disclosures by entities
that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated
structured entity.
• IFRS 13 “Fair Value Measurement”, (issued in May 2011 and effective for annual periods
beginning on or after 1 January 2013), which aims to improve disclosures and achieve
consistency by providing a revised definition of fair value.
• IAS 27 “Separate Financial Statements” and IAS 28 “Investments in Associates and Joint
Ventures”, (revised in May 2011 and effective for annual periods beginning on or after 1 January
2013), which were changed by IFRS 10 “Consolidated Financial Statements” and IFRS 11 “Joint
Arrangements”.
• Amendments to IAS 1 “Presentation of Financial Statements” (issued in June 2011, effective for
annual periods beginning on or after 1 July 2012), which aim to improve the disclosure of items
presented in other comprehensive income.
• Amended IAS 19 “Employee Benefits” (issued in June 2011, effective for periods beginning on
or after 1 January 2013), which makes changes to the recognition and measurement of defined
benefit pension expense and termination benefits, and to the disclosures for all employee
benefits.
• “Disclosures − Offsetting Financial Assets and Financial Liabilities” − Amendments to IFRS 7
(issued in December 2011 and effective for annual periods beginning on or after 1 January 2013),
which requires disclosures that will enable users to better evaluate the effect of netting
arrangements, including rights of set-off.
• “Offsetting Financial Assets and Financial Liabilities” − Amendments to IAS 32 (issued in
December 2011 and effective for annual periods beginning on or after 1 January 2014), which
clarifies the meaning of ‘currently has a legally enforceable right of set-off’.
• Improvements to International Financial Reporting Standards (issued in May 2012 and
effective for annual periods beginning 1 January 2013), which consists of improvements to five
standards.
• Transition Guidance Amendments to IFRS 10, IFRS 11 and IFRS 12 (issued in June 2012
and effective for annual periods beginning 1 January 2013), which clarify the transition
guidance in IFRS 10 “Consolidated Financial Statements” and provide additional transition
relief from reporting comparative information under IFRS 10, IFRS 11 “Joint Arrangements”
and IFRS 12 “Disclosure of Interests in Other Entities”.
• Amendments to IFRS 1 “First-time adoption of International Financial Reporting
Standards − Government Loans” (issued in March 2012 and effective for annual periods
beginning 1 January 2013), which give first-time adopters of IFRSs relief from full
retrospective application of accounting for certain government loans on transition.
• IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine”, which considers
when and how to account for the benefits arising from the stripping activity in mining
industry.
• Amendments to IFRS 10, IFRS 12 and IAS 27 − Investment entities (issued on 31 October
2012 and effective for annual periods beginning 1 January 2014), which introduced a definition
of an investment entity which will be required to carry its investee subsidiaries at fair value
through profit or loss.
Unless otherwise described above, the new standards and interpretations are not expected
to affect significantly the Group’s financial statements.
6 Balances and transactions with related parties
Related parties are defined in IAS 24, Related Party Disclosures. Parties are generally considered
to be related if one party has the ability to control the other party, is under common control, or
can exercise significant influence or joint control over the other party in making financial and
operational decisions. In considering each possible related party relationship, attention is directed
to the substance of the relationship, not merely the legal form. The Group’s immediate parent and
ultimate controlling party are disclosed in Note 1.
6.1 Balances and transactions with related parties
Balances with related parties of the Group as at 31 December 2012 and 31 December 2011
consist of the following:
Balances
Nature of relationship
As at 31 December 2012
Accounts receivable
Loans issued
Advances received
Trade and other accounts payable
As at 31 December 2011
Accounts receivable
Advances received
Trade and other accounts payable
Parent
company
Other related
parties
Associates and
joint ventures
Total
–
–
–
–
–
203
–
–
157
–
961
553
157
203
961
553
–
–
–
–
–
–
414
10
32
414
10
32
Transactions with related parties of the Group for the years ended 31 December 2012
and 31 December 2011 consist of the following:
Transactions
Nature of relationship
Year ended 31 December 2012
Sales of vehicles and components
Sale of non-current assets and services
Purchases
Capital transaction
Year ended 31 December 2011
Sales of vehicles and components
Sale of non-current assets
Purchases
Parent
company
Other related
parties
Associates and
joint ventures
Total
–
–
–
247
–
–
–
–
210
195
488
–
210
195
488
247
–
–
–
–
–
–
313
5,249
223
313
5,249
223
6.2 Key management compensation
The compensation paid to the nine members of key management (year ended 31 December
2011: nine people) for their services in full or part time executive management positions is made
up of a contractual salary and a performance bonus depending on operating results. Each director
receives a fee for serving in that capacity and is reimbursed reasonable expenses in conjunction
with their duties. No additional fees, compensation or allowances are paid.
Total key management compensation included in expenses in the consolidated income
statement for the year ended 31 December 2012 comprises:
128
129
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6 Balances and transactions with related parties
8 Goodwill
• short-term employee benefits amounting to RR 613 (2011: RR 647); and
• expenses recognised under equity-settled, share based compensation amounting
to RR 16 (2011: RR 14).
For information on the share based compensation, see Note 16.
During the year ended 31 December 2012, 150,000 options were exercised at an exercise price
of US$ 3 (2011: 138,000 options at an exercise price US$ 3) by members of key management.
8 Goodwill
OAO “UAZ”
OAO “ZMZ”
Total goodwill
7 Property, plant and equipment
Property, plant and equipment and related accumulated depreciation consist of the following:
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
Goodwill arose first on the original purchase of the controlling stake in OAO “UAZ”
and OAO “ZMZ” and then on the increase of the holding stake in OAO “UAZ” in 2003
and OAO “ZMZ” in 2004.
Land
Plant
and buildings and equipment
Other
Construction
in progress
Total
Cost
Balance at 1 January 2011
Additions
Disposals
Transfers
Balance at 31 December 2011
9,816
–
(2,926)
294
7,184
16,077
–
(8,090)
713
8,700
2,946
–
(977)
692
2,661
2,934
1,202
(960)
(1,699)
1,477
31,773
1,202
(12,953)
–
20,022
Additions
Disposals
Transfers
Balance at 31 December 2012
–
(772)
660
7,072
–
(331)
340
8,709
–
(242)
265
2,684
897
(19)
(1,265)
1,090
897
(1,364)
–
19,555
Balance at 1 January 2011
Depreciation expense for year
Disposals
Balance at 31 December 2011
(2,082)
(242)
352
(1,972)
(4,869)
(792)
1,735
(3,926)
(1,599)
(329)
331
(1,597)
–
–
–
–
(8,550)
(1,363)
2,418
(7,495)
Depreciation expense for year
Disposals
Balance at 31 December 2012
Net book value
Balance at 31 December 2011
Balance at 31 December 2012
(174)
77
(2,069)
(422)
140
(4,208)
(284)
142
(1,739)
–
–
–
(880)
359
(8,016)
5,212
5,003
4,774
4,501
1,064
945
1,477
1,090
12,527
11,539
Accumulated depreciation
31 December 2012
31 December 2011
1,207
277
1,484
1,207
277
1,484
Impairment tests for goodwill
130
131
Management have tested goodwill for impairment at 31 December 2012. Goodwill
is allocated
to two of the Group’s CGUs: OAO “UAZ” and OAO “ZMZ”. See details of impairment testing
in Note 3.2.
As a result of the assessment performed by management, no impairment loss has been
identified as at 31 December 2012 (31 December 2011: nil).
9 Development costs
Following an assessment of future economic benefits to the Group for each individual
project, as at 31 December 2012, RR 7 of development costs were written off (31 December
2011: RR 298). Management do not consider that the write-off would be materially
different in the event of applying reasonable changes to the underlying assumptions used
in reaching this conclusion.
31 December 2012
31 December 2011
1,401
86
(8)
1,479
1,748
157
(504)
1,401
(877)
(210)
1
(1,086)
(973)
(110)
206
(877)
393
524
Cost
Balance at the beginning of the year
Additions
Write-off
Balance at the end of the year
Accumulated amortisation
The significant property, plant and equipment disposal during 2011 were performed through
the transfer of the assets to the joint venture with Ford (Note 11).
As at 31 December 2012, bank borrowings are secured on land and buildings and plant
and equipment. The value of these items of property, plant and equipment included above
is RR 2,845 (31 December 2011: RR 4,773). See Note 17.
Construction in progress consists mainly of equipment. Upon completion, assets are transferred
to plant and equipment. During the year ended 31 December 2012, the Group capitalised
borrowing costs of RR 80 (2011: RR 77) as part of the cost of the qualifying assets (see Note 2.14).
The annual capitalisation rate was 10.0% (2011: 13.8%).
The Group owns the land on which factories and buildings, comprising the principal
manufacturing facilities of the Group, are situated. At 31 December 2012, the cost of the land
amounted to RR 689 (2011: RR 686).
Balance at the beginning of the year
Amortisation charge
Write-off
Balance at the end of the year
Net book value
Balance at the end of the year
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9 Development costs
11 Investments in joint ventures and associates
Breakdown of development costs
11 Investments in joint ventures and associates
31 December 2012
31 December 2011
59
–
67
3
40
2
15
77
263
93
94
40
23
13
3
23
86
375
130
130
393
149
149
524
Investments in joint ventures and associates are presented by the following assets:
Completed projects
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
Development of new off-road vehicle (UAZ Patriot)
Expenditures related to establishing production of diesel engine
Development of Euro-4 engine for UAZ
Development of new light commercial vehicle (UAZ-2360)
Improvement of selected vehicle component parts
Improvement of vehicles and engines to satisfy Euro-2 requirements
Vehicles with ABS
Other
Total completed projects
Projects in progress
Improvement of vehicles and engines to satisfy Euro-4 requirements
Total projects in progress
Total development costs
10 Other intangible assets
Other intangible assets mainly comprise of exclusive licences, which were provided for a period
of 4 to 10 years:
31 December 2012
31 December 2011
573
52
(66)
559
1,249
45
(721)
573
(374)
(64)
61
(377)
(462)
(105)
193
(374)
182
199
Cost
Balance at the beginning of the year
Additions
Disposals
Balance at the end of the year
Accumulated amortisation
Balance at the beginning of the year
Amortisation charge
Disposals
Balance at the end of the year
Net book value
Balance at the end of the year
31 December 2012
31 December 2011
12,597
797
674
45
345
34
14,492
11,605
–
–
–
282
34
11,921
Ford-Sollers JV
Mazda-Sollers JV
Sollers-Isuzu JV
Sollers-Bussan JV
Sollers-Finance JV
DaeWon-SeverstalAuto Elabuga
Total other financial assets
The table below summarises the movements in the carrying amount of the Group’s investment
in joint ventures and associates.
Carrying amount at 1 January
Share of profit of joint venture and associates
Fair value of net assets of joint venture and associate acquired
Cash contribution to joint ventures
Non-cash contribution in joint venture
Carrying amount at 31 December
31 December 2012
31 December 2011
11,921
1,149
214
951
257
14,492
269
47
11,605
–
–
11,921
Mazda-Sollers JV
In August 2012 the Group paid its contribution to share capital of joint venture with Mazda
Motor Co in amount of RR 750 and finalized the foundation of 50%-50% joint venture with
Mazda Motor Corporation. The production of Mazda SUVs was launched in September 2012.
Sollers-Isuzu JV
In May 2012 the Group entered to the agreement with intention of partial shares disposal
in ZAO Sollers-Isuzu. On 30 August 2012 the deal was finalised and 16% stake of ZAO SollersIsuzu was sold to the other venturer for RR 257 and the Group’s share declined to 50%. The
negative net assets of the subsidiary at the date of disposal amounted to RR 683, including
non-controlling interest of RR 232.
The Group recognised the retained investment as 50%-50% joint venture with fair value
of RR 214. The portion of the gain related to the remeasurement of the retained non-controlling investment to fair value:
Fair value of recognised share in joint venture
The Group's retained share of negative carrying value of subsidiary
The Gain on retained non-controlling investment, joint venture
214
342
556
The gain from the subsidiary disposal for RR 922 is recognised within operating income
in the income statement.
After the recognition of 50%-50% joint venture the Group provided additional cash contribution to the joint venture for RR 136 and non-cash contribution in the form of debt forgiveness for RR 257.
132
133
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11 Investments in joint ventures and associates
11 Investments in joint ventures and associates
Sollers-Bussan JV
By the end of 2011 the Group established 50%-50% joint venture with Japanese Mitsui&Co.,
Ltd located in Vladivostok, where Toyota vehicles are planned to be produced. During 2012 additional RR 65 were contributed to the JV.
Ford-Sollers JV
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
At 31 December 2012, the Group held 50% interest in joint ventures Ford-Sollers, Mazda
Sollers, Sollers-Isuzu, Sollers-Bussan and Sollers-Finance and also held 30% interest in
OOO DaeWon-SeverstalAuto Elabuga (31 December 2011: 50% interest in joint ventures
Ford-Sollers and Sollers-Finance, 30% interest in OOO DaeWon-SeverstalAuto Elabuga).
The summarised financial information of the Joint ventures and the associates, including full
amounts of total assets, liabilities, revenues, operating and net profit/ (loss), is as follows:
In February 2011, the Group announced cancellation of the alliance with FIAT SPA and the
signing of Memorandum of understanding to establish a new joint venture in Russia with Ford.
Management considered these two transactions to be inter-related and one indispensable from
the other.
In May 2011 Sollers and Ford signed an Agreement to establish a joint venture for exclusive
production and distribution of Ford vehicles in the Russian Federation.
On 1 October 2011 the Group completed formation of 50%-50% Ford-Sollers JV and the
commencement of the joint venture was announced. Ford Sollers JV will manufacture a range
of Ford passenger cars and light commercial vehicles in the St. Petersburg region and in the
Republic of Tatarstan. The project implies development of large-scale production facilities
with a high level of localization as well as maintaining of R&D activities. The financing for the
new JV has been agreed with Vnesheconombank (VEB). The Group together with Ford Motor
Company has pledged 100% interest in Ford-Sollers JV with the VEB.
In the amount of disposal of property, plant and equipment (Note 7), intangible assets
(Note 10) and development costs (Note 9) included the assets disposed of that otherwise would
have been used if the establishment of the Ford-Sollers JV had not taken place. Disposal of
assets to Ford Sollers JV was performed through contribution of two subsidiaries located in
Tatarstan and sale of fixed assets to Ford Sollers JV. There was also cash contribution from JSC
Sollers for amount RR 330 into the share capital of the joint venture.
Total at 31 December 2012
Ford-Sollers JV
Mazda-Sollers JV
Sollers-Isuzu JV
Sollers-Bussan JV
Sollers-Finance JV
Total at 31 December 2011
Ford-Sollers JV
Sollers-Finance JV
Associates:
Total at 31 December 2012
Total at 31 December 2011
Included in the income statement is the gain of RR 4,007 related to the formation of the JV.
Details are as follows:
Advances for construction in progress and equipment
Other non-current assets
Total other non-current assets
Total assets Total liabilities
Revenue
Operating
profit/ (loss)
Net profit/
(loss)
94,468
90,960
2,625
448
–
435
23,754
23,507
247
(1,597)
–
275
3,507
3,284
133
(16)
(42)
148
387
255
132
–
(16)
(1)
2,298
1,983
95
134
(37)
123
94
(5)
99
(7,495)
(12)
(10)
Joint ventures:
64,955
56,166
3,731
2,454
520
2,084
56,389
55,133
1,256
(1,972)
120
134
35,983
30,934
2,136
1,056
429
1,428
26,472
25,775
697
(3,926)
27
30
12 Other non-current assets
31 December 2012
31 December 2011
675
2
677
590
6
596
31 December 2011
Fair value of investment in joint venture
Net assets of subsidiaries contributed to the share capital of the joint venture
Disposal of the assets as a consequence of the formation of the joint venture
Gain on disposal of fixed assets to the joint venture after formation
Net result
11,605
(4,148)
(3,715)
265
4,007
13 Inventories
31 December 2012
31 December 2011
2,067
(111)
1,956
2,173
(33)
2,140
Work in progress
Less: provision
Total work in progress
709
–
709
1,256
–
1,256
Finished products
Less: provision
Total finished products
Total
1,891
(53)
1,838
4,503
3,364
(60)
3,304
6,700
Raw materials
Less: provision
Total raw materials
At 31 December 2012 there were no pledged inventories. At 31 December 2011 inventories
of RR 84 have been pledged as security for borrowings. See Note 17.
134
135
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14 Trade and other receivables
14 Trade and other receivables
14 Trade and other receivables
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
The analysis by credit quality of trade receivables outstanding are as follows:
31 December 2012
31 December 2011
Trade receivables
Less: provision for impairment
Total trade receivables
8,608
(60)
8,548
9,336
(151)
9,185
Other receivables
Less: provision for impairment
Total other receivables
706
(21)
685
575
(70)
505
Advances to suppliers, other than for equipment
Less: provision for impairment
Total advances to suppliers, other than for equipment
432
(9)
423
548
(3)
545
75
68
17
9,816
94
680
25
11,034
Taxes prepayments
VAT recoverable, net
Other prepayments
Total
At 31 December 2012, trade receivables arising from revenue contracts of RR 5,021
(31 December 2011: RR 3,923) were pledged as a security for a bill of credit.
Trade receivables are represented by currency as follows:
Currency
Russian Roubles
US Dollars
Euros
Korean Won
Total
31 December 2012
31 December 2011
8,463
85
–
–
8,548
8,392
281
467
45
9,185
31 December 2012
31 December 2011
621
7,444
371
8,436
407
7,165
1,610
9,182
–
36
65
10
1
112
–
1
–
2
–
3
–
–
–
–
–
60
60
(60)
8,548
–
–
–
–
–
151
151
(151)
9,185
Current and not impaired – exposure to
- Group 1 – large corporate clients
- Group 2 – dealers
- Group 3 – other clients
Total current and not impaired
Past due but not impaired
- less than 30 days overdue
- 30 to 90 days overdue
- 90 to 180 days overdue
- 180 to 360 days overdue
- over 360 days overdue
Total past due but not impaired
Individually determined to be impaired (gross)
- not overdue
- less than 30 days overdue
- 30 to 90 days overdue
- 90 to 180 days overdue
- 180 to 360 days overdue
- over 360 days overdue
Total individually impaired
Less impairment provision
Total
The Group retains the PTS (vehicle registration certificate representing the certificate of title
of a vehicle) as a pledge when other documents are transferred to the dealer in conjunction with
a sale. Management considers that this serves as collateral in relation for the trade receivables in
Group 2 and Group 3. The fair value of the collateral for the past due but not impaired receivables
as at 31 December 2012 was RR 112 (31 December 2011: RR 3) and the fair value of the collateral
for the individually determined to be impaired receivables was RR 60 (31 December 2011: RR 151).
Movements in the impairment provision for trade and other receivables are as follows:
31 December 2012
Provision for impairmant
at the start of the year
Amounts written off during
the year as uncollectible
Provision for impairment during
the year
Provision for impairment
at the end of the year
31 December 2011
Trade
receivables
Other
financial
receivables
Advances
to suppliers
Trade
receivables
Other
financial
receivables
Advances
to suppliers
151
70
3
161
26
22
(71)
(54)
–
(20)
–
–
(20)
5
6
10
44
(19)
60
21
9
151
70
3
136
137
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15 Cash and cash equivalents
15 Cash and cash equivalents
15 Cash and cash equivalents
The carrying value of cash and cash equivalents as at 31 December 2012 and 31 December
2011 is approximately equal to their fair value. The Group holds cash and cash equivalents
in the top-20 Russian banks. Credit ratings of the banks where accounts were held as at the yearend date are set out in the analysis below:
Cash on hand and balances with banks
Cash deposits
Total
31 December 2012
31 December 2011
1,436
1,124
2,560
1,393
1,564
2,957
31 December 2012
31 December 2011
59
100
7
2,138
–
23
16
24
24
37
85
2,187
3
150
3
1
–
183
–
23
–
414
4
6
2,560
25
5
2,957
Rating by Fitch
Cash and cash equivalents held by the Group earned the following interest rates per annum:
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
<1%
1%–3%
3%–5%
5%–7%
non-interest
bearing
Total
14
243
–
–
1,179
1,436
157
171
–
243
69
69
898
898
–
1,179
1,124
2,560
137
337
13
–
906
1,393
37
174
104
441
707
720
716
716
–
906
1,564
2,957
As at 31 December 2012
Cash on hand and balances with
banks
Cash deposits
Total
As at 31 December 2011
Cash on hand and balances with
banks
Cash deposits
Total
- A-A
- BBB+
- BBB
- BBB- BB
- B+
-B
Rating by Moody’s
– A1
– B2
– Baa2.ru
Other
– Unrated
– Cash on hand
Total
The following cash and cash equivalents held by the Group are denominated in foreign
currencies:
Currency
US Dollars
Euro
Korean won
Total
31 December 2012
31 December 2011
831
1
6
838
579
2
75
656
16 Shareholders’ equity
The value of share capital issued and fully paid up consists of the following amounts:
At 31 December 2012
At 31 December 2011
Number of
outstanding
ordinary
shares
(thousands)
Number of
treasury
shares
(thousands)
Share
capital
Treasury
shares
Share
premium
Additional
paid-in
capital
34,270
34,270
–
799
530
530
–
(653)
4,480
4,893
1,438
1,438
The total authorised number of ordinary shares is 82,074 thousand (31 December 2011: 82,074
thousand). The nominal value of all shares is 12.5 roubles per share. All issued ordinary shares
are fully paid. Each ordinary share carries one vote.
At 31 December 2012 there were no treasury shares owned by the Group. At 31 December 2011
799 thousand of ordinary shares were owned by wholly-owned subsidiary of the Group. These
ordinary shares carried voting rights in the same proportion as other ordinary shares. The voting
rights of the ordinary shares of the Group held by entities within the Group were effectively
controlled by the management of the Group.
Share premium represents the excess of contributions received over the nominal value
of shares issued.
In accordance with Russian legislation, the Group distributes profits as dividends or transfers them to reserves (fund accounts) on the basis of financial statements prepared in accordance with Russian Accounting Rules. The statutory accounting reports of the Company are the
basis for profit distribution and other appropriations. Russian legislation identifies the basis of
138
139
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16 Shareholders’ equity
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
17 Borrowings
distribution as the net profit. For the year ended 31 December 2012, the net statutory loss for the
Company reported in the published annual statutory reporting financial statements was RR 2,601
(2011: loss RR 3,417) and the closing balance of the accumulated profit including the current
reporting period net statutory loss was RR 2,423 (31 December 2011: RR 5,008). However, this
legislation and other statutory laws and regulations are open to legal interpretation and accordingly management believes at present that it would not be appropriate to disclose an amount for
the distributable reserves in these consolidated financial statements.
By the date of approval of these consolidated financial statements, no dividends were proposed
by the Board of Directors for the year ended 31 December 2012 (2011: no dividends were declared
at the General Shareholders’ Meeting).
During the year ended 31 December 2012, the Group disposed of 1,047 thousand of ordinary
shares and acquired an additional 248 thousand shares.
During the year ended 31 December 2011, the Group disposed of 228 thousand of ordinary
shares and acquired an additional 228 thousand shares.
Share based compensation
On 10 March 2009, the Group granted to members of key management and other employees
options to acquire 855,000 of the Group’s ordinary shares at an exercise price of US$3 that
represented the average market share price for the three months preceding the grant date. The
market share price at the grant date was US$3. The vesting period for the options is one year
for 285,000 options; two years for 285,000 options and three years for 285,000 options. These
options are exercisable until 1 March 2013 subject to an employee meeting certain conditions,
including remaining in employment in the Group up until the date of vesting.
During the year ended 31 December 2012 248,000 options were exercised at an exercise price
of US$ 3 (31 December 2011, 228,000 options were exercised at an exercise price of US$ 3) by
members of key management and other employees. For further details please see Note 6.2.
17 Borrowings
The Group’s long-term borrowings consisted of the following:
Bank loans
Bonds
Total long-term borrowings
31 December 2012
31 December 2011
3,742
–
3,742
3,497
2,354
5,851
The Group’s long-term borrowings are denominated in Russian Roubles at 31 December
2012 and 31 December 2011.
The carrying amounts of long-term borrowings approximates to their fair values as at 31 December 2012. At 31 December 2011 the fair value of long-term borrowings amounted to RR 5,885,
comprising bonds RR 2,388 and bank loans RR 3,497.
The Group’s short-term borrowings consisted of the following:
Bank loans
Bonds
Interest payable
Total short-term borrowings
31 December 2012
31 December 2011
3,320
3,185
193
6,698
8,943
1,843
197
10,983
The Group’s short-term borrowings are denominated in currencies as follows:
Borrowings denominated in:
Total short-term borrowings
– Russian Roubles
– US Dollars
– Euros
31 December 2012
31 December 2011
6,698
–
–
6,698
9,522
124
1,337
10,983
At 31 December 2012 the fair value of short-term borrowings amounted to RR 6,737, comprising
bonds RR 3,222 and bank loans and interests payable RR 3,513. The carrying amounts of shortterm borrowings approximates to their fair values at 31 December 2011.
Certain of the Group’s borrowings are subject to covenant requirements that the Group
is required to comply with, or otherwise could result in an acceleration of the repayment period.
See Note 31.
Property, plant and equipment and inventories of RR 2,845 (31 December 2011: RR 4,857)
are pledged as collateral for long-term and short-term borrowings. Refer to Note 7 and Note 13.
At 31 December 2011 100% shares of the Group’s subsidiary OOO «Sollers-Dal’niy Vostok» were
pledged as collateral for long-term and short-term borrowings.
As of 31 December 2012 the Group had additional available credit facilities in total amount
of RR 3,974.
18 Advances received and other payables
Dividends payable
Liabilities for purchased property, plant and equipment
Accrued liabilities and other creditors
Total financial liabilities within other payables
Advances received
Accrued employee benefit costs
Vacation accrual
Bonus accrual
Total advances received and other payables
31 December 2012
31 December 2011
17
34
237
288
34
151
56
241
1,290
300
266
721
2,865
352
268
206
613
1,680
There were no overdue payables as at 31 December 2012, including in respect of trade payables
(31 December 2011: nil).
The bonus accrual relates to performance based on productivity of employees at a subsidiary during the year ended 31 December 2012 of RR 721 (31 December 2011: RR 613).
140
141
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
ADDITIONAL
INFORMATION
19 Taxes payable
22 Cost of sales
19 Taxes payable
22 Cost of sales
Value-added tax
Payments to the State Pension Fund and other social taxes
Income tax
Property tax
Personal income tax
Tax penalties and interest
Other taxes
Total
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
FINANCIAL
REPORTING
31 December 2012
31 December 2011
557
156
210
20
15
–
87
1,045
1,768
141
291
32
36
–
53
2,321
The Group had no tax liabilities past due at 31 December 2012 or 31 December 2011.
Materials and components
Labour costs
Other production costs
Depreciation and amortisation
Change in finished goods and work in progress
Total
Year ended
31 December 2011
40,877
5,501
2,200
884
2,013
51,475
44,775
5,131
2,650
1,220
3,543
57,319
142
143
23 Distribution costs
20 Warranty and other provisions
During the year ended 31 December 2012 and 31 December 2011, the following movements
in warranty and other provisions were recorded: Warranty
Tax and other claims
Total
Balance at 1 January 2011
Additional provision
Utilised in the year
Balance at 31 December 2011
321
298
(301)
318
20
26
(19)
27
341
324
(320)
345
Additional provision
Utilised in the year
Balance at 31 December 2012
426
(213)
531
68
(22)
73
494
(235)
604
The Group provides a one-year warranty on most UAZ vehicles, except a two and since second half
2011 three-year warranty on the UAZ Patriot; one and two-year warranty on ZMZ engines; and a
three-year warranty period on sport utility vehicles. The Group undertakes to repair or replace items
that fail to perform satisfactorily. A provision has also been recognised for SsangYong vehicles based
on expected costs to be incurred that are not covered by warranties provided by the supplier.
All of the above provisions have been classified as current liabilities as the Group does not have an
unconditional right to defer settlement beyond one year.
21 Sales
Vehicles
Automotive components
Engines
Services
Other sales
Total
Year ended
31 December 2012
Year ended
31 December 2012
Year ended
31 December 2011
55,071
5,841
1,684
1,788
1,165
65,549
59,497
5,923
1,400
1,317
1,394
69,531
Transportation
Advertising
Labour costs
Check and inspection performed by dealers
Materials
Other
Total
Year ended
31 December 2012
Year ended
31 December 2011
1,415
470
337
113
106
110
2,551
1,200
534
506
43
160
135
2,578
Year ended
31 December 2012
Year ended
31 December 2011
3,058
497
192
228
193
155
144
130
73
72
46
19
172
226
5,205
2,843
458
321
144
339
109
150
98
66
98
88
22
71
175
4,982
24 General and administrative expenses
Labour costs
Services provided by third parties
Depreciation and amortisation
Rent
Taxes other than income
Business travel
Fire brigade and security costs
Repairs and maintenance
Transportation
Materials
Insurance
Training costs
Movement in the provision for impairment of receivables
Other
Total
COMPANY
OVERVIEW
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
25 Other operating (income) / expenses – net
27 Income tax expense
25 Other operating (income) / expenses – net
The income tax rate applicable to the majority of the Group’s income is 20% (2011: 20%).
A reconciliation between the expected and the actual taxation charge is provided below:
Net losses on disposals of property, plant, equipment and investments
Accounts payables written-off
Charitable donations
Social expenses
Loss on disposal of materials
Research and development expenses
Government grant amortisation
Other
Total
Year ended
31 December 2012
Year ended
31 December 2011
220
(197)
43
36
60
7
(16)
(158)
(5)
105
(18)
45
46
67
5
(20)
(80)
150
26 Finance costs, net
Interest expense
Government subsidy of interest expenses
Foreign exchange losses/(gain), net
Total finance costs, net
Less capitalised finance costs
Total finance costs, net
Year ended
31 December 2012
Year ended
31 December 2011
1,574
(369)
(315)
890
2,827
(1,360)
891
2,358
(80)
810
(77)
2,281
The Group’s capitalised borrowing costs of RR 80 mainly arise from financing attributable
to the construction of property, plant and equipment (2011: RR 77).
Interests paid during 2012 and 2011 to State banks were partly compensated under Government
Decrees #640 dated 1 August 2011 and #357 dated 6 June 2005. The compensation was recognised
within finance costs of the consolidated income statement of the reporting periods to match it
with the costs that they are intended to compensate.
27 Income tax expense
The income tax expense recorded in the consolidated income statement comprises the following:
Current income tax expense
Deferred tax charge
Income tax expense
Year ended
31 December 2012
Year ended
31 December 2011
1,681
22
1,703
822
759
1,581
Profit before income tax
Theoretical tax charge at statutory rate (2012: 20%; 2011: 20%)
Theoretical tax charge/(benefit) at different statutory rate
(2012: 16%; 2011: 16%)
Tax effect of items which are not deductible or assessable for taxation purposes:
- Non-deductible expenses/(income) at 20%
- Non-deductible expenses at 16%
Income tax expense
Year ended
31 December 2012
Year ended
31 December 2011
7,584
1,480
36
6,274
1,722
(467)
50
137
1,703
(16)
342
1,581
Differences between IFRS and statutory taxation regulations in Russia give rise to temporary
differences between the carrying amount of assets and liabilities for financial reporting purposes
and their tax bases. The tax effect of the movements in these temporary differences is detailed
below and is recorded at the rate of 20% (31 December 2011: 20%).
The recognised deferred tax asset represents income taxes recoverable through future
deductions from taxable profits and is recorded on the balance sheet. Deferred income tax assets
are recorded to the extent that realisation of the related tax benefit is probable. The future
taxable profits and the amount of tax benefits that are probable in the future are based on the
medium term business plan prepared by management and extrapolated results thereafter. The
business plan is based on management’s expectations that are believed to be reasonable under the
circumstances.
In the context of the Group’s current structure, tax losses and current tax assets of the
different companies may not be set off against current tax liabilities and taxable profits of other
companies and, accordingly, taxes may accrue even where there is a net consolidated tax loss.
Deferred tax assets may be realised in different periods than the deferred tax liabilities may be
settled. Management believes that there will be sufficient taxable profits available at the time the
temporary differences reverse to utilise the deferred tax assets. See Note 3.3.
The deferred tax liability that has been netted off with deferred tax assets at the subsidiary level
within the Group amounted to RR 1,316 as of 31 December 2012 (31 December 2011: RR 1,237).
The recognised tax losses carried forward generally expire in the period to 2022, being ten years
after the end of the fiscal period when the losses were generated.
144
145
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
27 Income tax expense
29 Segment information
1 January
2011
Movement
in the
year ended
31 December
2011
31 December
2011
Movement
in the year
ended
31 December
2012
31 December
2012
Tax effects of deductible temporary differences:
Losses carried forward
Accounts payable and provisions
Taxes payable
Inventories
Total
1,739
145
50
414
2,348
(496)
117
109
685
415
1,243
262
159
1,099
2,763
(1,182)
(38)
(85)
(21)
(1,326)
61
224
74
1,078
1,437
(1,429)
(428)
(1,857)
402
(904)
(738)
(1,240)
(1,027)
(1,332)
(738)
(3,097)
57
287
738
1,082
(970)
(1,045)
–
(2,015)
1,489
(998)
491
(615)
(210)
(825)
874
(1,208)
(334)
(598)
354
(244)
276
(854)
(578)
Tax effects of taxable temporary differences:
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
Property, plant and equipment
Accounts receivable
Equity investments
Total
Recognised deferred tax asset, net
Recognised deferred tax liability, net
Total net deferred
tax assets/(liabilities)
During the year ended 31 December 2012 movement of RR 222 (31 December 2011: RR 66)
was due to disposal of subsidiaries.
The Group has not recorded a deferred tax liability in respect of temporary differences associated with investments in subsidiaries and joint ventures as the Group is able to control the timing of the reversal of these temporary differences and does not intend for them to reverse in the
foreseeable future. Un-remitted earnings from subsidiaries were RR 13,776 at 31 December
2012 (31 December 2011: RR 11,566), mostly being subject to tax rate on intergroup dividends of 0%.
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group which are regularly reviewed by the ‘chief operating decision maker’ in order to
allocate resources to segments and to assess their performance. The Group’s operating segments
are reported based on the financial information provided to the Group’s Chief Executive Officer and
that is used to make strategic decisions.
In 2011 the Group began to restructure its automotive and engine segments after OAO UAZ became the major customer of OAO ZMZ. The sales of engine segment became immaterial in terms of
segment reporting and thus are no longer disclosed separately. As at 31 December 2012 the Group
activities are considered as one reporting segment: vehicles.
The Group’s production facilities are wholly located within the Russian Federation, and almost
all sales are domestic.
The Chief Executive Officer reviews financial information prepared on the basis of Russian accounting standards adjusted to meet the requirements of internal reporting. Such financial information differs in certain aspects from International Financial Reporting Standards, including
in relation to inventory provisions; receivables provisions and other adjustments.
Performance is evaluated on the basis of operating profit or loss. Accordingly, foreign currency
gains/ losses, interest income/ expenses and income tax charges are excluded. No balance sheet
information is regularly reviewed and accordingly no information on assets or liabilities is included
as part of the segment information presented.
Revenues from external customers are presented in Note 21. Management considers that across
the range of vehicles and models produced, these are considered as similar products. During the
year ended 31 December 2012 and 31 December 2011 the Group did not have transactions with
a single external customer that amounted to ten per cent or more of the Group’s revenues.
30 Financial risk management
30.1 Financial risk factors
28 Earning per share
Basic earning per share is calculated by dividing the profit attributable to owners of the
Company by the weighted average number of ordinary shares in issue during the year, excluding
treasury shares.
Basic earnings per share (in RR per share)
Diluted earnings per share (in RR per share)
Profit attributable to equity holders of the Company
Basic weighted average number of shares outstanding (thousands)
Adjustment for share options (thousands)
Diluted weighted average number of shares outstanding (thousands)
29 Segment information
Year ended
31 December 2012
Year ended
31 December 2011
171.1
170.5
5,843
34,152
123
34,275
137.2
135.5
4,594
33,472
435
33,907
The risk management function within the Group is carried out in respect of financial risks
(market, currency, price, interest rate, credit and liquidity), operational risks and legal risks. The
primary objectives of the financial risk management function are to establish risk limits, and then
ensure that exposure to risks stays within these limits. The operational and legal risk management
functions are intended to ensure proper functioning of internal policies and procedures to minimise operational and legal risks.
(a) Market risk
The Group takes on exposure to market risks. Market risks arise from open positions in (a) foreign currencies, (b) interest bearing assets and liabilities and (c) equity investments, all of which
are exposed to general and specific market movements. Management sets limits on the value of
risk that may be accepted, which is monitored on a daily basis. However, the use of this approach
does not prevent losses outside of these limits in the event of more significant market movements.
(i) Currency risk
The Group was not exposed to currency risk from changes in the exchange rate of the following currencies: Euro, US Dollars and Korean Won. The risks arise on purchase agreements from
delivery of major production components denominated in foreign currencies. Management believes that the nature of its business enables the Group to offset currency risk by changing related
Rouble denominated retail prices.
The Group was not exposed to currency risk arising from open loan positions denominated
in Euros and US Dollars.
146
147
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
ADDITIONAL
INFORMATION
30 Financial risk management
30 Financial risk management
The positions are monitored monthly. The table below summarises the Group’s exposure
to foreign currency exchange rate risk at 31 December 2012:
The exposure was calculated only for monetary assets and liabilities denominated
in currencies other than the functional currency of the respective entity of the Group.
(ii) Price risk
The Group is not exposed to equity securities price risk because it does not hold a material
portfolio of equity securities.
(iii) Interest rate risk
The Group takes on exposure to the effects of fluctuations in the prevailing levels of market
interest rates on its financial position and cash flows. Management believes the Group will be
able to swap floating interest rate loans with fixed interest rate loans in case of a significant
adverse change of market conditions. The table below summarises the Group’s exposure to
interest rate risks. The table below presents the Group’s financial liabilities at their carrying
amounts, categorised by the earlier contractual interest repricing or maturity dates.
Monetary financial
assets
Cash and cash
Accounts
equivalents
receivable
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
FINANCIAL
REPORTING
US Dollars
Euros
Korean Won
Total foreign currencies
Russian Roubles
Total
831
1
6
838
1,722
2,560
85
–
–
85
8,711
8,796
Monetary financial
liabilities
Accounts
Bonds
Net balance
payable
and sheet position
borrowings
(6,389)
(191)
(61)
(6,641)
(4,101)
(10,742)
–
–
–
–
(10,440)
(10,440)
(5,473)
(190)
(55)
(5,718)
(4,108)
(9,826)
The table below summarises the Group’s exposure to foreign currency exchange rate risk
at 31 December 2011:
Monetary financial
assets
Cash and cash
Accounts
equivalents
receivable
US Dollars
Euros
Korean Won
Japanese Yen
Total foreign currencies
Russian Roubles
Total
579
2
75
–
656
2,301
2,957
281
467
45
–
793
8,392
9,185
(124)
(1,337)
–
–
(1,461)
(15,373)
(16,834)
(3,352)
(3,817)
92
(1,381)
(8,458)
(9,579)
(18,037)
The above analysis includes only monetary assets and liabilities. The Group does not hold any
currency derivatives. Investments in equities and non-monetary assets are not considered to give
rise to any material currency risk.
Management monitors exchange rates and market forecasts on foreign exchange rates regularly as well as prepares budgets for long-term, medium-term and short-term periods.
The following table presents sensitivities of profit and loss and equity to reasonably possible
changes in exchange rates applied at the reporting date relative to the Group’s functional
currency, with all other variables held constant:
Impact on profit and loss and on equity of:
US Dollar strengthening by 10% (10% for 2011)
US Dollar weakening by 10% (10% for 2011)
Euro strengthening by 10% (10% for 2011)
Euro weakening by 10% (10% for 2011)
Korean Won strengthening by 10% (10% for 2011)
Korean Won weakening by 10% (10% for 2011)
Japanese Yen strengthening by 10% (10% for 2011)
Japanese Yen weakening by 10% (10% for 2011)
From 3
to 12 months
More than
1 year
More than
5 years
Total
800
–
–
800
5,135
–
570
5,705
3,742
–
–
3,742
–
–
–
–
9,677
–
570
10,247
630
197
113
940
8,269
1,129
448
9,846
4,358
1,493
5,851
–
–
–
–
13,257
1,326
2,054
16,637
31 December 2012
Monetary financial
liabilities
Accounts
Bonds
Net balance
payable
and sheet position
borrowings
(4,088)
(2,949)
(28)
(1,381)
(8,446)
(4,899)
(13,345)
Demand and
less than
3 months
2012
2011
(547)
547
(19)
19
(6)
6
–
–
(335)
335
(382)
382
9
(9)
(138)
138
Fixed interest rates
EURIBOR based interest rates
CB RF refinancing rate based
Total
31 December 2011
Fixed interest rates
EURIBOR based interest rates
CB RF refinancing rate based
Total
At 31 December 2012, if interest rates at that date had been 200 basis points lower
(31 December 2011: 200 basis points lower) with all other variables held constant, the interest
expense for the year would have been RR 270 lower (2011: RR 410 lower). If interest rates at
that date had been 100 basis points higher (31 December 2011: 100 basis points higher) with all
over variables held constant, the interest expense for the year would have been RR 135 higher
(31 December 2011: RR 205 higher).
The Group monitors interest rates for its financial instruments. The table below summarises
interest rates based on reports reviewed by key management personnel:
In % p.a.
RR
2012
US$
Euro
RR
2011
US$
Euro
0%-6.4%
0%
0%
0%-6.5%
0%-0.1%
0%
7.5%-12.5%,
CB RF
refinancing
rate + 4%
–
–
7.25%-10.0%,
CB RF refinancing rate
+ 4%
1.0%
EURIBOR+
0.25% to
0.5%
Assets
Cash and cash equivalents
Liabilities
Borrowings
148
149
COMPANY
OVERVIEW
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
FINANCIAL
REPORTING
ADDITIONAL
INFORMATION
30 Financial risk management
30 Financial risk management
(b) Credit risk
The Group takes on exposure to credit risk, which is the risk that one party to a financial
instrument will cause a financial loss for the other party by failing to discharge an obligation.
Exposure to credit risk arises as a result of the Group’s sales of products on credit terms
and other transactions with counterparties giving rise to financial assets.
The Group’s maximum exposure to credit risk by class of assets is as follows:
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
Cash and cash equivalents
Accounts receivable
Other receivables
Other financial assets
Total
31 December 2012
31 December 2011
2,560
8,548
203
45
11,356
2,957
9,185
250
256
12,648
All of the financial assets of the Group, except for RR 20 (31 December 2011: RR 20) in shares,
categorised as available for sale, are loans and receivables.
The process of management of credit risk includes assessment of credit reliability of the counterparties and reviewing payments received. All the receivables from the Group’s dealers are secured
through the Group retaining the PTS of vehicles dispatched until payment has been made.
Management reviews the ageing analysis of outstanding trade receivables and follows up on past
due balances. Management therefore considers it appropriate to provide ageing and other information about credit risk as disclosed in Note 14.
The credit quality of each new customer is analysed before the Group enters into contractual
agreements. The credit quality of customers is assessed taking into account their financial position
and past experience.
Although the collection of receivables could be influenced by economic factors, management believes that there is no significant risk of loss to the Group beyond the provisions already recorded.
The Group’s cash and cash equivalents are held with over 18 banks (31 December 2011: 20 banks)
thus there is no significant exposure of the Group to a concentration of credit risk. Management
monitor both Moody’s and Fitch ratings of the banks used to manage the level of credit risk that
the Group is exposed to. Management considers that the credit risk associated with these banks is
negligible.
The Group did not issue any financial guarantees in either of the years ended 31 December
2012 or 31 December 2011.
Credit risks concentration
No single debtor of the Group accounts for more than 4.1% (31 December 2011: 3.0%) of the
trade accounts receivable of the Group. However, the majority of the Group’s trade receivables
represent dealers who sell the Group’s vehicles to consumers, and therefore are exposed in
similar ways to reductions in the demand from consumers for new vehicle sales, and their ability to obtain access to credit in the financial markets in order to finance their businesses. As the
Group maintains the PTS registration certificates to each vehicle and has insurance arrangements
in place covering the vehicles held by the dealers, this mitigates the potential exposure of the
Group in the event that a number of dealers are impacted in similar ways and are not able to repay
amounts owed.
The Group’s cash and cash equivalents are held with 18 banks (31 December 2011: 20 banks)
thus there is no significant exposure of the Group to a concentration of credit risk.
Management does not consider any requirement to enter into hedging arrangements in relation
to the credit risks to which the Group is exposed.
The Group manages liquidity risk with the objective of ensuring that funds will be available
at all times for all cash flow obligations as they become due by preparing long-term, mediumterm and short-term budgets, continuously monitoring forecast and actual cash flows.
The Group monitors the range of financial ratios (net debt/EBITDA, EBIT/Interest expense)
in order to ensure that the Group maintains sufficient liquidity in order to meet its obligations
as they fall due. Management review the targeted ratios in order to ensure that targets are in
line with the market and take actions to ensure that the Group is able to maintain sufficient
liquid resources to ensure that the Group continues to meet its liabilities as they fall due.
Management monitors compliance with covenant requirements on a monthly basis, or more
frequently as appropriate. A schedule of covenant requirements that the Group is subject to is
maintained by the Head of Treasury, and management are proactive to obtain revised agreements or waivers to the extent that requirements would otherwise not be achieved.
Management considers the targeted ratios sustainable for the foreseeable future. Management believes that the Group has access to additional credit facilities if required.
The analysis below represents management expectations of repayment schedule of monetary assets and liabilities of the Group as of 31 December 2012 and 31 December 2011. The table below is based on the earliest possible repayment dates and on nominal cash flows including future interest payments. Foreign currency cash flows are translated using spot exchange
rates as of 31 December 2012 and 31 December 2011.
Demand and
less than
3 months
From 3
to 12 months
More than
1 year
More than
5 years
Total
11,356
2,560
8,548
45
203
(11,706)
(993)
(10,425)
(288)
(270)
(620)
–
–
–
–
–
(5,731)
(5,705)
(26)
–
(536)
(6,267)
–
–
–
–
–
(3,745)
(3,742)
(3)
–
(357)
(4,102)
–
–
–
–
–
–
–
–
–
–
–
11,356
2,560
8,548
45
203
(21,182)
(10,440)
(10,454)
(288)
(1,163)
(10,989)
12,535
2,957
9,185
250
143
(13,898)
(1,137)
(12,520)
(241)
(391)
(1,754)
113
–
–
–
113
(10,429)
(9,845)
(584)
–
(807)
(11,123)
–
–
–
–
–
(5,852)
(5,852)
–
–
(563)
(6,415)
–
–
–
–
–
–
–
–
–
–
–
12,648
2,957
9,185
250
256
(30,179)
(16,834)
(13,104)
(241)
(1,761)
(19,292)
31 December 2012
Total monetary financial assets
Cash and cash equivalents
Trade receivables
Other receivables
Other financial assets
Total monetary financial liabilities
Loans and bonds
Trade payables
Other payables
Future interest payments
Net monetary financial liabilities
at 31 December 2012
31 December 2011
Total monetary financial assets
Cash and cash equivalents
Trade receivables
Other receivables
Other financial assets
Total monetary financial liabilities
Loans and bonds
Trade payables
Other payables
Future interest payments
Net monetary financial liabilities
at 31 December 2011
(c) Liquidity risk
Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
The Group did not have any derivative financial instruments issued/held during the year
ended 31 December 2012 or the year ended 31 December 2011.
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30 Financial risk management
31 Contingencies, commitments and operating risks
30.2 Capital risk management
challenged in the past may be challenged. The Supreme Arbitration Court issued guidance to lower
courts on reviewing tax cases providing a systemic roadmap for anti-avoidance claims, and it is possible that this will significantly increase the level and frequency of tax authority’s scrutiny.
As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year
of review. Under certain circumstances reviews may cover longer periods.
Different interpretations and applications of the Russian Tax Code are possible. For example, in
relation to Russian taxpayers where outstanding loans are controlled by a foreign company owning
directly or indirectly more than 20% of the charter capital of the Russian entity, thin capitalisation
limits could be applied to the respective loan interest under certain circumstances even where loans
are with other subsidiaries or Russian banks for the purpose of financing Russian business activities.
As Russian tax legislation does not provide definitive guidance in certain areas, other tax matters
including assessment of tax bases could also have different interpretations. Nonetheless, management believes that its interpretation of the relevant legislation is appropriate and the Group’s tax,
currency legislation and customs positions will be sustained.
Amended Russian transfer pricing legislation took effect from 1 January 2012. The new transfer
pricing rules appear to be more technically elaborate and, to a certain extent, better aligned with the
international transfer pricing principles developed by the Organisation for Economic Cooperation
and Development (OECD). The new legislation provides the possibility for tax authorities to make
transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), provided that the transaction price is not arm’s length. Management has implemented internal controls
to be in compliance with the new transfer pricing legislation.
Management is in process of preparation of the required documentation on the transfer pricing by
the date required by current legislation, which will provide sufficient evidence to support the Group’s
tax positions and related tax returns. Given that the practice of implementation of the new Russian transfer pricing rules has not yet developed, the impact of any challenge of the Group’s transfer
prices cannot be reliably estimated. However, management do not anticipate any tax exposures will
arise in practice.
Management estimates that possible exposure in relation to risks referred to above could substantially reduce recognised losses carried forward. However, management do not anticipate any tax
exposures will arise in practice.
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a
going concern in order to provide returns for shareholders and benefits for other stakeholders and to
maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the
capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital
to shareholders, issue new shares or sell assets to reduce debt.
Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio.
The ratio is calculated as net debt divided by a sum of total equity and net debt. The Group considers
total capital under management at 31 December 2012 to be RR 27,760 (31 December 2011: RR 27,431).
The gearing ratios at 31 December 2012 and 31 December 2011 were as follows:
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
Long-term borrowings
Short-term borrowings
Less: cash and cash equivalents
Net debt
Equity
Total net debt and equity
Gearing ratio
31 December 2012
31 December 2011
3,742
6,698
(2,560)
7,880
19,880
27,760
28%
5,851
10,983
(2,957)
13,877
13,554
27,431
50%
Management constantly monitor profitability ratios, market share price and debt/capitalisation
ratio. The level of dividends is also monitored by the Board of Directors of the Group.
Fair value of financial instruments
Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by an
active quoted market price.
The estimated fair values of financial instruments have been determined by the Group using available market information, where it exists, and appropriate valuation methodologies. However, judgement is necessarily required to interpret market data to determine the estimated fair value. The
Russian Federation continues to display some characteristics of an emerging market and economic
conditions continue to limit the volume of activity in the financial markets. Market quotations may
be outdated or reflect distress sale transactions and therefore not represent fair values of financial
instruments. Management has used all available market information in estimating the fair value of
financial instruments.
The fair value of long-term and short-term borrowings is disclosed in Note 17. The carrying value
of other financial instruments approximates to their fair value.
31 Contingencies, commitments and operating risks
Legal proceedings
From time to time and in the normal course of business, claims against the Group may be received. On the basis both of its own estimates and external and internal professional advice, management is of the opinion that no material losses will be incurred in respect of claims.
Tax legislation
Russian tax and customs legislation is subject to varying interpretations, and changes, which can
occur frequently. Management’s interpretation of such legislation as applied to the transactions and
activity of the Group may be challenged by the relevant authorities.
The Russian tax authorities may be taking a more assertive position in their interpretation of the
legislation and assessments, and it is possible that transactions and activities that have not been
Capital commitments
Contractual obligations to purchase, construct or develop property, plant and equipment totalled
RR 185 at 31 December 2012 (31 December 2011: RR 129).
Covenants
For certain borrowing agreements, the Group is subject to covenant requirements. Breaches of
these requirements could give a lender the right to accelerate the repayment period of the borrowings and demand immediate repayment.
Management have validated that the Group was in full compliance with all covenants attached to
contracts entered into, including borrowing agreements with lenders, as at 31 December 2012 (31
December 2011: no exceptions).
Environmental matters
Environmental regulation in the Russian Federation is evolving and the enforcement posture of
Government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are determined, they are recognised immediately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litiga-
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32 Principal subsidiaries
tion or legislation, cannot be estimated but could be material. In the current climate under existing
legislation, management believes that there are no significant liabilities for environmental damage.
32 Principal subsidiaries
The principal subsidiaries consolidated within the Group and the degree of control exercised
by the Group are as follows:
Entity
· Independent
Auditor’s Report
· Sollers Group
Consolidated
Financial Statements
· Sollers Group Notes
to the Consolidated
Financial Statements
at 31 December 2012
(in millions of Russian
Roubles – RR)
Activity
31 December
2012
% of effective
interest (total
share capital)
31 December
2011
% of effective
interest (total
share capital)
OAO “Sollers-Naberezhnye Chelny
(previously OAO “Small Car Plant”)
Manufacture and sale of passenger
automobiles
–
100
OOO “Sollers-Elabuga (previously OOO
“Severstalavto-Elabuga”)
Manufacture and sale of commercial
vehicles
–
100
OOO “DC Sollers”
(previously OOO “Severstalavto”)
Auto trading
–
100
OOO “DC SsangYong”
Auto trading
100
–
OOO “Torgoviy dom Sollers” (previously
OOO “Torgoviy dom Severstalauto”)
Auto trading
–
100
OOO “Torgoviy dom Sollers“
Auto components trading
100
–
OOO “Turin-Auto”
Auto trading
–
100
OAO “Zavolzhskiy Motor Works”
Manufacture and sale of engines for passenger automobiles, trucks and buses
64
73
OAO “Ulyanovsky Avtomobilny Zavod”
Manufacture and sale of passenger automobiles, light trucks and minibuses
66
66
ZAO “Sollers-Isuzu” (previously
ZAO “Severstalauto-Isuzu”) (Note 11)
Manufacture and sale of commercial
vehicles
–
66
OOO “Sollers-Dal’niy Vostok”
Vehicle production
100
100
OOO DC UAZ
Auto trading
100
100
The table presents the Group’s effective interest in total share capital comprising of ordinary
shares and preference shares.
Disposed principle subsidiaries, except for the disposal of ZAO Sollers-Isuzu (Note 11), were
liquidated. During 2012 the foundation of the new subsidiaries took place. These transactions were
performed within restructuring of the Group and did not arise in business combinations.
During the year ended 31 December 2012, as part of an internal Group reorganisation, the
Group’s effective interest in OAO “Zavolzhskiy Motor Works” was reduced although the Group
retained a majority effective interest and there were no changes in voting rights. As a result of this
reorganisation, an amount of RR 595 is recognised in the Statement of Changes in Equity.
During the year ended 31 December 2011, as part of an internal Group reorganisation, the
Group’s effective interest in OAO “Zavolzhskiy Motor Works” was reduced although the Group
retained a majority effective interest and there were no changes in voting rights. As a result of this
reorganisation, an amount of RR 358 is recognised in the Statement of Changes in Equity.
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OVERVEIW
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financial
reporting
Contact us:
10 Testovskaya Street
Moscow International
Business Centre
Northern Tower, Moscow City
Moscow, 123317, Russia
Tel.: +7 (495) 228 3045
Fax: +7 (495) 228 3044
Email: ir@sollers-auto.com
Website: sollers-auto.com
· Disclosure Calendar
· Annual General
Meeting
· Contacts
ADDITIONAL
INFORMATION
Disclosure Calendar
January 15
February 14
SOLLERS’ operating highlights
SOLLERS OJSC 4th Quarter Report, 2012
April
April 15
SOLLERS Full Year Financial Results, 2012
(Consolidated IFRS Financial Statements)
SOLLERS’ operating highlights
May
May 15
SOLLERS’ Annual Report 2012
May 16
Annual General Shareholders’ Meeting
and SOLLERS OJSC Annual Report 2012
City: Moscow
SOLLERS OJSC 1st Quarter Report, 2013
SOLLERS OJSC Full Year Financial Results, 2012
July 15
SOLLERS’ operating highlights
August 14
September
SOLLERS OJSC 2nd Quarter Report, 2013
SOLLERS Half Year Financial Results, 2013
(Consolidated IFRS Financial Statements)
October 15
November 15
SOLLERS’ operating highlights
SOLLERS OJSC 3rd Quarter Report, 2012
In addition to the disclosures required by the Regulator and quarterly releases of operating results
we take part in one-on-one meetings at investor conferences of major investment banks in Russia and abroad.
For the upcoming events, please see our website.
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Annual General Meeting
· Disclosure Calendar
· Annual General
Meeting
· Contacts
The Annual General Meeting (AGM) is held at
least two months after and no later than six
months after the financial year end. SOLLERS
OJSC’s next AGM is scheduled for 16 May 2013
at 10 a.m. (Moscow time).
The main issues on the agenda are:
• election of members of the Board of Directors
• approval of the SOLLERS OJSC’s Annual
Report and Annual Financial Statements, including Income Statement, and distribution of
profits and losses for the financial year ended
on 31 December 2012
• election of members of the Revision Committee
• approval of SOLLERS OJSC’s external auditor
• determination of the amount of remuneration and compensation to be paid to the Board
members
• approval of Board of Directors’ Code
• approval of Code of Corporate Governance.
SOLLERS’ shareholders who are eligible
to take part in the AGM can request all relevant
information and AGM hand-outs from SOLLERS OJSC. The results of the AGM will be
published on the SOLLERS website
(www.sollers-auto.com).
The Company’s 2011 AGM was held on
29 June 2012. The shareholders approved the
Company’s annual report and financial statements. The AGM decided not to distribute the
profits and not to pay dividends. The AGM
elected a new Board of Directors and Revision
Committee; OOO AKG Business Krug was
approved as SOLLERS OJSC’s external auditor.
The AGM established remuneration for each
member of the Board for the period during
which they performed their duties and addressed other agenda items. All resolutions
were passed by a majority vote. The detailed
results of the AGM are published on the
SOLLERS website (www.sollers-auto.com).
financial
reporting
ADDITIONAL
INFORMATION
Contacts
Nikolay Sobolev
First Deputy CEO, CFO
Elena Nishanova
Head of Corporate Reporting
and Investor Relations Department
10 Testovskaya Street
Moscow International Business Centre
Northern Tower, Moscow City
Moscow, 123317, Russia
Tel.: +7 (495) 228 3045
Fax: +7 (495) 228 3044
Email: ir@sollers-auto.com
Website: sollers-auto.com
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· Disclosure Calendar
· Annual General
Meeting
· Contacts
BUSINESS &
STRATEGY
CORPORATE
GOVERNANCE
CORPORATE
SOCIAL
RESPONSIBILITY
SHAREHOLDERS’
EQUITY &
SECURITIES
financial
reporting
ADDITIONAL
INFORMATION