Summary of the annual performance and activity of management in the context of strategy implementation

During implementation of the Customer Lifetime Value 2.0 (CLV 2.0) strategy, MTS is evolving from a mono-industry (telecommunications) player into a multi-industry company operating in several markets that develops the diversified business areas at different stages of maturity and with different scales and dynamics.   Under such conditions, one of the key tasks facing the Board of Directors and top management is to find the best format for the business area management system, which is reflected in the process of transforming the company’s management structure.

The Company began its activity in 2021 with a fully elaborated structure that meets the new business configuration and created the necessary conditions in the business vertical and horizontal directions for productive collaboration and fulfillment of set business tasks. The above made it possible to focus on solving a higher-level problem: how to translate growing competencies, expanding product content and increasing value offered by us to customers into an increase in the shareholder value of MTS Group. Based on a comprehensive analysis, we have made a strategic decision on the practicability of strengthening the independence of promising business areas up to their segregation into independent assets. Such an approach allows us to simultaneously  solve several problems: ensure better motivation for teams of business areas, simplify the implementation of business processes specific to each particular area, and make management better focus on solving the task of development of a high-quality product. However, the most important effect that we want to achieve is the assessment by the investment community of the business areas being part of  the MTS Group at fair multipliers inherent in each specific type of business, which, in their entirety,   will significantly increase the overall investment assessment of the MTS Group and positively affect the growth of shareholder value. The adoption and implementation of this concept is a key strategic decision made by the corporate governance bodies and management of the Company in 2021.

The first specific decisions adopted by the Board of Directors in this area were the spin-off of cell tower infrastructure to Tower Infrastructure Company LLC, as well as the transfer of a significant part of the infrastructure equipment to MTS Web Services JSC. Strategies in relation to assets being segregated can vary significantly depending on a number of factors, such as growth dynamics, the degree of influence on the implementation of strategic goals and objectives, the possibility of external monetization, complementarity with the ecosystem, etc. However, in any case, all our actions in relation to assets will be aimed at the ultimate increase of the shareholder value of the MTS Group.

The results of business operations of the Company in 2021 are the evidence of high productivity of management’s actions in the main business areas, which as a result made it possible to achieve target levels for all key performance indicators of the MTS Group. Among the most striking achievements of individual business areas, the following can be mentioned.

• Telecom. High dynamics of 4G network expansion: more than 25,000 base stations were put into operation (30% increase). In the course of the network design, income level modeling and forecasting are arranged based on Big Data and AI mechanics, which clearly illustrates the natural symbiosis of ecosystem verticals and horizontals. The fixed network modernization program is being successfully implemented; by the end of the year, customers could take advantage of speeds up to 1 Gb/s on the territory over 60% of its coverage. Steady growth in the number of users of the MTS Premium subscription, which is an important marketing tool to attract customers to the MTS ecosystem offers.
• FinTech. Made a significant contribution to the growth of MTS Group’s revenue in 2021: 34%. To a great extent, this became possible due to the growth of the retail portfolio (more than 60% on annual basis), in particular, a two-fold increase in sales of credit products. Significant progress in the deployment of MTS Payment service (including a complete refactoring of the technical solution), which is designed to become the main payment instrument for the MTS Group ecosystem.
• Media. In April 2021, the KION streaming service based on the MTS TV OTT platform was launched, which was a distinctive addition to the MTS ecosystem offer. The KION Originals content line, which features original exclusive projects, has become an  important competitive differentiating element of the KION project.

More detailed information on the annual performance results by the MTS main business areas is available in the section “Development of the MTS ecosystem”.

In 2021, the Board of Directors of MTS decided to systematize the existing ESG practices in the company and at the same time raise the profile of ESG  area in line with its growing importance. In particular, the The ESG Committee has been transformed from the Corporate Governance, Environmental and Social Responsibility Committee of the Board of Directors of MTS PJSC (hereinafter referred to as the “Committee”) was established, the goals and objectives of the Committee were determined, the Regulations on the Committee were approved, and a decision was made to develop an ESG strategy for MTS PJSC, which in October 2021 was approved at the level of the Committee of the Board of Directors.

In the field of M&A, the Board of Directors considered and made decisions on membership in a number of companies in order to strengthen the position of MTS in the telecom sector, as well as on participation in promising projects in new digital business areas. Given the circumstances that already existed in 2022, we expect that such issues will be considered more actively and intend to take advantage of the favorable background for strategic investments in promising digital areas.

In pursuance of protection of the rights and interests of shareholders, the Board of Directors, in particular, arranged measures to ensure control over compliance with the Regulations on Dividend Policy adopted by the Company and took the necessary decisions to pay the approved amount of dividends^1. Besides, decisions were made to directly buy back the company’s shares from shareholders who did not express their consent to the segregation of the part of the MTS Group’s assets into separate legal entities. Therefore, we emphasize that regardless of the degree of investor support for our strategic initiatives, respect for the rights and interests of shareholders is a top priority for us.

¹ For detailed information see section “Dividends and Share Redemption Program”.

MTS PJSC adheres to responsible business conduct and the principles of zero tolerance for violations of the rules of business conduct and ethics. The Board of Directors supports the development of an ethical culture and compliance program as a fundamental element of good business practice. The compliance culture research conducted in 2021 demonstrated the correctness of the growth direction chosen and highlighted further ways for the development of compliance in MTS.

The following can be noted among other issues considered by the MTS Board of Directors in 2021 and the respective decisions made.

• The Board of Directors reviewed and adopted decisions regarding the overall strategy of the MTS Group and the strategies of individual business areas. Furthermore, promoting MTS right to build its position as a shareholder, the Board of Directors reviewed reports on performance results and strategies of subsidiaries and affiliated companies.
• Following the best corporate governance practices, the Board of Directors considered a number of issues related to functioning of the internal audit, control and compliance system, as well as the risk management system in MTS.
• Necessary decisions were made regarding the composition of the Management Board of MTS PJSC.
• An assessment was made with regard to the achievement in 2020 of the target KPIs by President and members of the Management Board of MTS, and the target levels of KPIs for 2021 for these management bodies were approved.
• The results of execution of the MTS 2020 budget and the capital expenditure program, as well as the MTS 2022 budget and capital expenditure program, were considered and approved.
• Exercising the right to build the position of MTS as a member of subsidiaries, the Board of Directors ensured the formation of corporate management bodies of MTS subsidiaries.
• Within the framework of ensuring MTS shareholders’ rights and interests, all necessary procedures for convening general meetings of shareholders were carried out by the Board of Directors; the data and materials were prepared and recommendations were submitted on all issues requiring shareholders’ approval.
• A program of motivation and long-term material incentives for MTS employees was considered and adopted by the Board of Directors in order to ensure a high level of personnel motivation and the quality of company management.