General Meeting of Shareholders

General Meeting of Shareholders – supreme management body of MTS PJSC Procedure for holding the General Meeting of Shareholders is aimed at ensuring the adherence to the rights of shareholders, and meets all the requirements of the Russian Federation legislation. Procedure for the preparation, convocation, holding and summarizing of results of the General Meeting of Shareholders is defined by the Chart and the Regulations on the General Meeting of Shareholders of MTS PJSC.

The shareholders take part in governance over the Company and significantly influence its business priority areas of the business development by making decisions at the Company’s General Meeting of Shareholders. Powers of the General Meeting of Shareholders on their meetings encompass the approval of an annual report and financial reporting, distribution of profit, including payment of dividends, election of key management and control bodies of the Company, adoption of decisions on reorganization of the Company and a number of other important matters.

Notifying shareholders on the holding of the General Meeting of Shareholders

Shareholders shall be notified on holding of the General Meeting of Shareholders through publication of this information on the official website of the Company at least thirty (30) calendar days prior to its date.

The message on holding of the General Meeting of Shareholders may be additionally sent to the persons entitled to participate in the General Meeting of Shareholders and registered in the Company’s shareholders register, by registered mail to the address specified in the register of the Company’s shareholders, or delivered personally to such persons against signature simultaneously with sending or handing over the voting ballots. The information and files on the agenda of the General Meeting of Shareholders are provided to persons registering their rights to the Company’s shares in a depositary by providing them to the Company’s registrar for direction to a nominee holder entered in the register of shareholders in accordance with the Russian Law on securities.

Subject to guidelines of the Corporate Governance Code, the approximate form of the power of attorney for voting is posted on the official website of the Company.

Within the framework of preparation to the General Meeting of MTS Shareholders, the shareholders get the opportunity to ask members of executive bodies and the Board of Directors on issues of the agenda of the General Meeting of Shareholders, and to voice their opinion on issues of the Meeting’s agenda by sending e-mails to the address: shareholder@mts.ru. Materials on the agenda of the meeting are posted on a special page of the website dedicated to the Annual General Meeting of Shareholders.

Holding of the General Meeting of Shareholders

Shareholders may implement their voting right by most simple and convenient for them ways without any encumbrance. Voting at General Meetings of Shareholders is carried out by direct participation in the meeting or by filling out and sending to the Company (as well as its registrar) ballots on agenda items or by filling out an electronic form of voting ballots on the MTS website  www.mts.ru/shareholder/ via electronic services.

The General Meetings of Shareholders shall be organized and held in a way allowing for easy access of all the shareholders. General meetings held in the form of joint attendance shall be organized at locations convenient for coming and personal participation of the shareholders and their representatives. During the registration and during the break, the shareholders are provided with an opportunity to receive the necessary consultations on various projects of the Company.

Results of the Annual General Meeting of Shareholders 2022

The Annual General Meeting of Shareholders of MTS PJSC was held on June 22, 2022 in absentia using the E-Voting services of the National Settlement Depository (NSD) and Registry-Online of “Reestr” JSC. At the annual General Meeting of Shareholders, 99% of those participating in the meeting voted electronically.

Board of Directors

The Board of Directors is a key element of the MTS PJSC corporate governance system, representing the interests of its shareholders through an effective management organization.

Establishment procedure, status, composition, functions, tasks and objectives, powers of the Board of Directors, its operating procedure and interaction with other management bodies of the company are determined by the provisions of the law of the Russian Federation, the Charter and the Regulations on the Board of Directors of MTS PJSC, as well as by taking into account the recommendations of the Corporate Governance Code of the Bank of Russia.

Basic functions of the Board of Directors:

• developing and analyzing general corporate strategy, and exercising control over its implementation;
• providing for the control over executive bodies and chief executive officers of the Company, and assessing their activities;
• increasing the Company’s capitalization, expanding its market positions, achieving and preserving the Company’s competitiveness;
• maintaining financial stability, and increasing revenues and profitability;
• protecting rights and legitimate interests of the Company’s shareholders.

Composition of the Board of Directors

The composition of the Board of Directors is formed in accordance with the interests of shareholders, taking into account the balance of professional qualifications, experience and business skills of its members. Issues related to the needs of the Board of Directors in the area of professional qualification, background and business skills of its members, and also to the numerical composition, were considered within the framework of the procedure for assessing the Board of Directors’ work¹. The present members of the Board of Directors of MTS PJSC were approved at the annual General Meeting of Shareholders of MTS PJSC on June 22, 2022.

¹ For more details, see section “Assessment of the Performance of the Board of Directors”

The majority of seats on the MTS Board of Directors have been occupied by independent directors in recent years. The Board of Directors is well-balanced both in terms of numerical composition and in terms of experience and qualification of its members.

¹  data as of December 31, 2022

Chairman of the Board of Directors

The Chairman of the Board of Directors of MTS PJSC ensures the growth of shareholder value and maintains a balance between short-term financial results and long-term strategic positioning of the business. The key task of the Chairman of the Board of Directors is to create a dynamic and positive environment in the Board of Directors in which each member can show their best qualities.

By a unanimous decision of the MTS Board of Directors, a non-executive Director was elected Chairman of the Board of Directors of MTS PJSC on June 24, 2022. An independent director with broad competencies in the field of financial expertise has been elected Deputy Chairman of the Board of Directors, having specialized expertise in important ecosystem areas — telecom, media, digital.

The Deputy Chairman of the Board of Directors, in fact, performs the functions of a senior independent director provided for by the Corporate Governance Code. He coordinates the work of independent directors and builds interaction between independent directors and the Chairman of the MTS Board of Directors.

Independent directors

Independent directors ensure a reasonable balance of interests of all the parties concerned: the Company itself, its shareholders and other stakeholders. Criteria of independence of the Board of Directors’ members are defined in the Regulations on the Board of Directors of MTS PJSC¹ and correspond to advanced international practices of corporate governance.

¹ Regulations on the Board of Directors of MTS PJSC — Moscow (mts.ru).

Since 2020, independent directors make up more than a half of the numerical composition of the Board of Directors.

The Board of Directors includes two independent female directors.

According to the internal rules of MTS, the Company is required to have at least one member of the Board of Directors (in the Audit Committee) with expertise in accounting or relevant financial management experience (financial expert). The Audit Committee under the Board of Directors is headed by an independent director, who has experience and knowledge in the preparation, analysis, evaluation and audit of financial reporting. The status of “financial expert” has also been assigned to the other two members of the committee.

According to recommendations of the Code, the key committees of the Board of Directors (Audit, Remuneration and Nomination) are formed exclusively from independent directors. Other committees include at least one or two independent directors.

Independent directors are members of the committees on key projects: Special Committee for Compliance, Special Committee of Independent Directors for the Project of Co-locating Moscow-based Employees of MTS PJSC in a Unified Office Space In 2022, with the participation of independent directors, a Special Committee for Cloud and Infrastructure Asset Development, a Special Committee (significant transactions) and a Special Committee on Fintech were established.

Independent directors participate in strategic sessions for discussing the Company’s strategy update with participation of BoD members, representatives of the majority shareholder and the Company’ management.

Independent directors are actively involved in preliminary discussions of related party transactions that are significant to the Company. The Company has also introduced the practice of preliminary consideration of a number of related party transactions, including transactions with companies being part of the Sistema Group, at a meeting of the Audit Committee of Board of Directors, which consists exclusively of independent directors.

Our independent directors are professional managers, whose experience and knowledge make a significant contribution to the development of the Company’s corporate governance system.

Informing newly elected members of the Board of Directors and the Board of Directors committees about the Company’s operation

In accordance with best corporate governance practices, an orientation (information) course is held for newly elected members of the Board of Directors and the Board of Directors committees in the format of interactive presentation in Russian and English. This course makes it possible to briefly familiarize new members of the Board of Directors and the Board of Directors committees with the Company’s development history, operation of the Board of Directors, main documents governing the Company’s operations, annual financial reporting, development strategy, the Company’s management structure, etc.

The President, the Company’s management and the secretary of the Board of Directors take part in the presentation. Individual meetings with senior functional management of the Company are also offered to members of the Board of Directors, at which members of the Board of Directors may obtain any information required for their work.

The role of the Board of Directors in the organization of an efficient risk management and internal control system¹

¹ More complete information is provided in the section “Risk Management”.

Within its competences, the Board of Directors is responsible for monitoring the effectiveness of the structure and functioning of the Company’s systems for risk management, compliance and internal control; twice a year it reviews and approves the reports of the Audit Committee on the work of internal audit, business ethics, compliance and risk management units and the internal control system, as well as reports on risk management in the MTS Group and reports on the development of the Unified Compliance System, reports on the development of the anti-corruption compliance system at MTS PJSC and its subsidiaries.

An efficient risk management, compliance and internal control system is in place in the Company designed to ensure a reasonable level of confidence in the Company achieving its objectives.

Organization of the Board of Directors activities

At least six in-person meetings shall be conducted each year in accordance with the approved plan of meetings of the Board of Directors. If necessary, it is possible to participate in a joint meeting through video conferencing. Extraordinary meetings shall be convened to take decisions on urgent matters. At meetings in the form of absentee voting, issues are submitted that were previously qualitatively elaborated and on which the members of the Board of Directors do not have significant comments.

Plan of the Board of Directors activities for the next year shall be approved in June of the current year. Dates, periods and locations of meetings shall be determined according to the schedules of activities of the Board of Directors members in order to provide for participation of all the directors.

The plan of activities includes the main issues of the Company’s operation: strategy, finances, budget and risks, HR. Such a plan shall be prepared with regard to the suggestions of the Board of Directors members and the Company’s management. All issues on the BoD meeting agenda shall normally be reviewed by relevant committees, allowing to discuss and draw up recommendations for a final decision of the Board of Directors.

In-person meetings of the Board of Directors are held in Moscow headquarters. First meeting of the newly elected Board of Directors shall be held with personal attendance, on the day of the General Shareholders’ Meeting or within a few working days after the election of the Board of Directors in a new composition. which decided on election of the Board of Directors. The Company also use remote forms of communication.

The Chairman of the Board of Directors holds monthly meetings/consultations with representatives of shareholders and/or management of the Company. Main topic of such meetings is a matter of the management of strategic changes.

Corporate Secretary

The Corporate Secretary ensures effective work id the Board of Directors, interaction with the shareholders, coordinates the Company’s activities aimed at protection of rights and interests of the shareholders.

The functions of the Corporate Secretary in MTS PJSC are performed by the Corporate Governance Department, which acts on the basis of the Regulations on the Corporate Governance Department. The Corporate Governance Department is headed by the Director of Corporate Governance appointed and dismissed by the President of the Company in agreement with the Board of Directors of the Company.

The Functions of the Corporate Governance Department include:

• participating in the improvement of the Company’s corporate governance system and practice;
• participating in the organization of the preparation and holding of the Company’s general meetings of shareholders;
• supporting the work of the Board of Directors and Committees of the Board of Directors of the Company;
• participating in the implementation of the Company’s policy on information disclosure, and also ensuring storage of the Company’s corporate documents;
• ensuring the Company’s interaction with its shareholders and participating in the prevention of corporate conflicts;
• ensuring the implementation of the procedures established by the law and the Company’s internal documents, ensuring the rights and legitimate interests of shareholders and control over their use;
• ensuring the Company’s interaction with regulators, trade organizers, the registrar, other professional participants of the securities market within the powers assigned to the Corporate Secretary;
• immediately notifying the Board of Directors of all identified violations of the law and the Company’s internal documents, the observance of which is within the functions of the Corporate Governance Department.

Secretary of the Board of Directors

The Secretary of the Board of Directors ensures compliance of the Company’s management bodies with the requirements of legislation and internal regulations of the Company which guarantee the enforcement of rights and interests of its shareholders.

Secretary of the Board of Directors performs its functions in accordance with the Charter, Regulations on the Board of Directors of MTS PJSC.

The functions of the Board of Directors Secretary include:

• an onboarding of newly elected members of the Company’s Board of Directors;
• informing members of the Board of Directors and invited persons on forthcoming meetings of the Board of Directors;
• sending to members of the Board of Directors materials on issues of the Board of Directors agenda;
• provision, upon request, to members of the Board of Directors an additional information on the Company’s activities;
• calculation of the votes on issues put to a vote and keeps record of the Board of Directors meetings;
• storage of the Board of Directors’ documents;
• control over the implementation of the Board of Directors decisions;
• assistance to the Chairman of the Board of Directors in planning for activities of the Board;
• communication of members of the Board of Directors with management;
• assistance in solving organizational and technical issues.

Report on the Work of the Board of Directors

Significant items on the agenda of the MTS PJSC Board of Directors meetings in 2022

• On the progress of implementing the MTS strategy and the main business risks related thereto.
• On measures for the continuous improvement of MTS compliance control procedures.
• On approval of MTS Group budget for 2023.
• On approval of key performance indicators of the President and members of the MTS PJSC Management Board in 2022.
• On the development of the anticorruption compliance system at MTS PJSC and subsidiaries in 2021.
• On 2023–2025 MTS Group Strategy.
• On consideration of MTS Technological (IT) Strategy, including status report.
• On the status of tracking and implementation of new strategic initiatives.
• On status of MTS PJSC depositary receipt program.
• On the inside compliance system of MTS PJSC.
• On assessing the level of business ethics and compliance culture in the MTS Group in 2022.
• On the development of the compliance program in certain MTS PJSC subsidiaries.
• Recommendations of the Board of Directors on a payment of dividends for 2021.
• On approval of design of trademarks, emblems and means of visual identification of MTS PJSC.
• On approval of the Succession Policy for the President of MTS PJSC and Executives Directly Subordinate to the President of MTS PJSC.
• On the creation of a Special Committee under the Board of Directors.
• On changes in the compositions of Committees of MTS PJSC Board of Directors.
• On issues related to convening the Annual General Meeting of Shareholders of MTS PJSC.
• On approval of Programs of MTS PJSC Off-Market Commercial Bonds.
• On the results of performance assessment of MTS PJSC Board of Directors.
• On participation of MTS PJSC in other organizations
• On organizational changes.

Review of reports:

• on preliminary results of execution of the MTS Group budget for 2021 and the forecast for 2022.
• on execution of MTS Group budget and CAPEX program for 2021, as well as the current forecast of budget execution for 2022.
• on risk management;
• on MTS PJSC corporate governance system (Report of the Corporate Secretary);
• on evaluation of KPI fulfillment and completion of individual tasks by the President and Management Board members;
• on performance assessment of MTS PJSC Board of Directors.
• on the fulfilment of compliance controls;
• on the operation of the units for internal audit, control and compliance, including the report on the efficiency of the risk management system.

Assessment of Board of Directors performance

The Methodology of assessment defines the approach to the assessment, aimed to improve the performance of the Board of Directors, its committees, Board of Directors members, and to enhance the quality of corporate governance at MTS as a whole. The assessment is carried out on a regular basis (annually) and can be conducted both independently (by questionnaire method) and with the involvement of an independent consultant.

Assessment Scope:

• Activities of the Board of Directors
• Activities of committees of the Board of Directors
• Activities of each member of the Board of Directors and committees, including their chairmen
• Activities of the Corporate Secretary

Assessment of Board of Directors performance included:

• ensuring a balanced composition of the Board of Directors from the point of view of professional experience, knowledge, skills and personal qualities of its members;
• analysis of effective approaches and procedures used by the Board of Directors and Committees in their work;
• tracking the presence and level of motivation of the Board of Directors members;
• confirmation of sufficient control from the Board of Directors over operations of the organization and determination of the quality of interrelations between the Board of Directors and the management;
• determination of the Board of Directors contribution to development of the MTS corporate governance system and ensuring efficient cooperation of its subjects.

Assessment of Board of Directors’ committees performance included:

• determining the effectiveness of committees and assisting the Board of Directors in the decision-making process;
• confirmation of the role, function and objectives of the Committee;
• inspection of the balanced composition of the Committee from the point of view of number of its members, their knowledge, professional experience and competences;
• analysis of the quality and efficiency of the Committee’s interaction with the Board of Directors and the management.

The individual assessment of members of the Board of Directors included:

• determination of contribution to operations of the Board of Directors and Committees, and also to detect directors’ need for upgrade or development of certain skills enabling more effective operation of the Board of Directors and the Committees.

Results of assessment of Board of Directors performance

In 2022, MTS conducted an assessment of performance of the Board of Directors of MTS in the form of a self-assessment. All acting members of the Board of Directors of MTS and 23 representatives of management, members and invited experts of committees of the Board of Directors of MTS took part in the survey.

Preliminary report on the results of the assessment was submitted by the Corporate Governance Director for consideration by the Remuneration and Nomination Committee and the ESG of the Committee of the Board of Directors of MTS . The final report was presented to the MTS Board of Directors. The results of the assessment proved that the principles of work of the Board of Directors of MTS meet high standards of corporate governance. Development areas were also identified, for which plans were adopted to improve the work of the Board of Directors.

The Board of Directors will continue conducting self-assessment of its performance on an annual basis, as well as an external independent assessment every three years in order to ensure continuous improvement of the performance by the Board of Directors, its committees and directors.

Liability insurance

The sum insured under the liability insurance contract for members of the Boards of Directors, officials of MTS and MTS Group companies (hereinafter referred to as the “Insurance Contract”) shall be USD 45 million.

Insurance contract allows to ensure protection of members of the Board of Directors, Management Board and management of MTS PJSC and MTS PJSC subsidiaries and provide coverage for indemnification of executive officers, in connection with actions or claims submitted against them or their persecution by authorized state authorities for their actions/omissions while they exercise office duties in the office held, namely:

• reimbursement of expenses of executive officers for lawyers and legal protection in connection with the above actions or claims;
• indemnification of damages caused to plaintiffs by inadvertent actions/omission of executive officers (in the event that the lawsuit is satisfied by the court);
• indemnification of damages of MTS PJSC and subsidiaries of MTS PJSC for claims related to securities (except for lawsuits related to new IPO of American depositary receipts).

Committees of the Board of Directors

Committees of the Board of Directors perform preliminary study of issues before they are submitted to the meeting of the Board of Directors. Committee members thoroughly study an issue and propose to the members of the Board of Directors the elaborated alternative decisions, making it possible for them to join the discussion of the issue more promptly.

In 2022, for improvement of management quality in priority areas, two committees were additionally established: the Special Committee for FinTech, and the Special Committee.

Powers of and requirements to compositions of the committees shall be determined by regulations on the committees approved by the Board of Directors. The committees may involve external experts and advisors in order to resolve their tasks. The results of reviews of agenda issues by the Committees are communicated to the Board of Directors members prior to every meeting of the Board of Directors.

Each BoD member is also a member of one to nine committees. Representation of the Company’s managers in the committees allows for a meaningful dialog during committee meetings.

Audit Committee

The Audit Committee assists in efficient implementation of functions of the Board of Directors in terms of control over financial and economic activities of the Company.

In their activities, the Committee members are guided by the applicable law, the Charter and the internal documents of the Company, the Corporate Governance Code¹, the Code of Business Conduct and Ethics of MTS PJSC, decisions of the Company’s management bodies, and the Regulations on the Audit Committee.

¹ The Corporate Governance Code recommended for use by the Bank of Russia (Letter No. 06-52/2463 dd. April 10, 2014).

Key functions of the Committee:

• oversight of completeness, accuracy, and objectivity of the Group’s financial statements;
• review and analysis, together with management and an external auditor, of the Group’s annual financial statements, interim financial information and relevant documents submitted to the SEC, the Central Bank of the Russian Federation and other regulatory authorities;
• review of reports on financial and operational results of MTS Group before issuing press releases;
• monitoring of the effectiveness of risk management, the internal control system and corporate governance of the MTS Group;
• assessment of the performance of procedures used by MTS Group to identify the principal risks and appropriate control procedures in order to determine their adequacy and efficiency;
• supervision of the execution of procedures ensuring compliance by MTS Group with the requirements of the Sarbanes-Oxley Act;
• consideration in cooperation with the management and the external auditor any cases of law violation, fraud and significant deficiencies in internal control and risks management procedures;
• supervision of updating, bringing the Code of Business Conduct and Ethics of MTS PJSC (hereinafter referred to as the “Code”) to the persons covered by the Code;
• review of the measures taken by the management of MTS PJSC to increase the level of corporate, compliance and risk culture, awareness of those covered by the Code about the Code requirements and the consequences of its violation;
• review of proposed measures to resolve the conflict of interests of members of the management bodies of MTS PJSC;
• ensuring independence and objectivity of the internal and external audit functions;
• review and approval of the internal audit policy, the internal audit strategy, the annual audit plan and the main changes made to the plan during the calendar year;
• review in cooperation with the Internal Audit Director and approval of the internal audit resource plan, budget and KPIs;
• evaluation of the effectiveness of internal audit activities and the implementation of KPIs;
• evaluation of the Group’s external auditors independence, objectivity, and no conflict of interest, including the assessment of candidates for auditors of the Group, submission of recommendations on the appointment, re-appointment and discharge of the external auditors of the Group, the remuneration for their services, and the contractual terms;
• supervision of the external audit and assessment of the quality of the audit and audit opinions;
• development and oversight of the compliance with the Group’s procedures setting the principles of provision and combination of audit and non-audit services by the auditor.
• overseeing the effectiveness of the reporting system on the potential cases of fraud of the Group’s employees (including violation of anti-corruption policy, unfair use of insider and confidential information) and of third parties, and on other violations in the Group;
• review of reports on the work of the MTS Group Unified Hotline, as well as the results of internal audits and investigations held.

Quantitative composition

The composition of the Committee was approved at the meeting of the Board of Directors on June 24, 2022, and the changes also took place in September 2022.

Meetings

In the reporting year, 27 meetings of the Committee took place: 20 in-person meetings and 7 meetings in the form of absentee voting.

Besides these meetings, the Committee members held meetings with financial executives of the Company and managers responsible for the risk management, internal control system, internal audit, business ethics and compliance, as well as with external consultant of the Company on a number of issues.

Issues considered

The Audit Committee made recommendations to the Board of Directors regarding the consideration and approval of the following items:

• Restated Charter of MTS PJSC;
• Restated Regulations on the Audit Committee under the Board of Directors of MTS PJSC;
• Reports on implementation of the corporate anti-corruption compliance program of MTS PJSC and subsidiaries for the first six months and for 2022;
• Risk management and key risk dashboard reports of MTS PJSC for the first six months and for 2022 and assessment of the risk management performance of the MTS Group in 2022;
• Plan for assessing the culture of business ethics and compliance of MTS Group in 2022;
• nominations of the auditor and remuneration of Business Solutions and Technologies JSC for audit services in 2022;
• Major transactions and M&A transactions, with interest falling within the competences of review by the Board of Directors.

Key areas of the Audit Committee’s activities and matters considered in 2022

In financial reporting

During 2022, the Audit Committee reviewed the interim financial information of the MTS Group for the Q1, Q2, Q3 of 2022 in order to determine the completeness, consistency of information and presentation of reasonable assessment of financial standing, performance indicators and prospects of the MTS Group.

The consolidated financial reporting of the MTS Group for 2022, prepared in accordance with the international financial reporting standards, and the financial reporting of MTS PJSC for 2022, prepared in accordance with the Russian accounting and reporting standards, were considered, and an analysis of audit results was carried out together with the management and the external auditor.

The reports on the financial and operating performance of the MTS Group for Q1, Q2, Q3, Q4 and 2022 as a whole were reviewed and recommended for subsequent disclosure.

In risk management, internal controls and corporate governance system

During 2022, the Committee reviewed the 20-F report for 2022 and the reports on risk management at MTS PJSC for the first six months and 2022 and dashboard for key strategic risks of the MTS Group. The Audit Committee gave a positive assessment of the work in the field of risk management of the MTS Group in 2022.

The Committee pays special attention to risk assessment in potentially problematic areas, such as hardware and software supplies, logistics in order to ensure the continuity of key business processes.

During 2022, the Committee controlled the procedures providing for the Group’s compliance with the requirements of Sarbanes-Oxley Act. Plan for 2022 and the performance results of the Internal Control Systems Department for the first six months of the year and for 2022 as a whole were reviewed, including the results of testing and certification of the internal control system for reliability of the financial reporting of the MTS Group. The Committee gave a positive assessment of the unit performance results.

The Committee approved the report of the Internal Audit Unit on the results of assessing the effectiveness of the internal control system, risk management and corporate governance of the MTS Group for 2022.

During 2022, the Committee conducted a preliminary review of MTS PJSC transactions with related parties, including materials on upcoming mergers and acquisitions, and subsequent review of transactions with related parties in accordance with the procedure described in the Regulations on the Audit Committee. The results of analysis of economic feasibility and compliance with the requirements of the regulations when making such transactions carried out by the Internal Audit Block of CC of the MTS Group and subsidiary companies, respectively, were discussed and taken into account.

Starting from the second half of 2022, the Audit Committee carries out subsequent review of transactions related to investing in startups (including purchase, sale and change of ownership interest) made during the reporting quarter.

In compliance and observance of the standards of business conduct and ethics

The Audit Committee considered the report on development of the Unified Compliance System of MTS PJSC for 2022.

The Committee reviewed the plan for 2022 for the development of the corporate anti-corruption compliance program of MTS PJSC and subsidiaries and reports on implementation thereof based on the results of the first six months of the year and for 2022 as a whole. The Audit Committee gave a positive assessment of the activities in the field of business ethics and compliance for 2022; the key performance indicators and goals in the field of business ethics and compliance for 2022 were achieved with the expected results.

In December 2022, the Committee reviewed the 2023–2025 strategy and the 2023 plan for the development of a corporate anti-corruption compliance program at MTS PJSC and subsidiary companies.

During the year, the committee reviewed information on the status of conflict of interest management of members of management bodies, as well as a number of other issues in the field of compliance, compliance with business conduct and ethics of MTS PJSC and subsidiaries in accordance with the Regulations on the Audit Committee.

In the field of internal audit

The Audit Committee reviewed the implementation of strategic initiatives in the field of internal audit, including improvement of audit methodology and risk assessment, introduction of Agile approaches in the practice of internal audit, improving the effectiveness of interaction with supervisory functions and stakeholders. The Audit Committee reviewed quarterly reports on the status of implementation of audit recommendations and elimination of deficiencies identified by internal audit in MTS PJSC and its subsidiaries. The Committee reviewed the changes to the audit plan for 2022 made by the internal audit and approved the revised audit plan.

An internal assessment of the quality of internal audit activities for 2022 was carried out, according to the results of which the activity was recognized as conforming to International Professional Standards of Internal Audit and Code of Ethics of the Institute of Internal Auditors.

The Audit Committee gave a positive assessment of the results of the internal audit of MTS PJSC and its subsidiaries for 2022 and concluded that the activities of the internal audit block were effective, key performance indicators and internal audit objectives for 2022 were fully achieved.

In December 2022, the Committee approved the internal audit strategy, audit schedule, KPIs and budget for 2023, as well as took into account the audit schedules for 2023 of the internal audit units of significant subsidiaries.

In external audit

The Audit Committee recommended Business Solutions and Technologies JSC as the auditor of financial reporting of MTS PJSC for 2022, which was confirmed by the recommendation of the Board of Directors and by shareholders of the Company at the Annual General Meeting of Shareholders in June 2022. The Committee previously approved and recommended that the Board of Directors approve the remuneration of the auditor.

The Audit Committee discussed and took into account the results and conclusions of the external auditor based on the review of quarterly overviews of MTS Group financial information for Q1, Q2 and Q3 of 2022 and the annual audit, including conclusions on the effectiveness of the internal control system over the preparation of financial reporting at the MTS Group.

At the end of 2022, the Committee gave a positive assessment of the quality of the audit and the auditor’s opinions based on the results of the audit of MTS PJSC financial reporting for 2022 prepared in accordance with the Russian accounting standards, and consolidated financial reporting of MTS PJSC and its subsidiaries for 2022 prepared in accordance with the international financial reporting standards.

The Committee exercised supervision over compliance of the auditors with the independence principles. During 2022, the Committee considered information on permissible auditing and non-auditing services, which was provided by the external auditor, and discussed with the auditor a possible impact of the service on independence of the auditor. Permissible auditing and non-auditing services were preliminarily approved by the Committee in accordance with the procedure described in the Regulations on the Audit Committee.

In prevention of fraud of the Group’s employees and third parties

The Audit Committee reviewed and took note of the main initiatives to improve the administration of the MTS Group Unified Hotline and the conduct of internal investigations, as well as the disciplinary action.

The Committee reviewed the results of work of the Unified Hotline of the MTS Group of Companies in the first six months and for 2022 as a whole.

Remuneration and Nomination Committee

The Remuneration and Nomination Committee is an auxiliary collective deliberative body under the Board of Directors. Primary goals of the Committee include: development of the Company’s HR policy, determination of the system for remuneration of chief officers of the Company, shaping the strategy for the development of the MTS Group’s corporate culture.

The Committee members follow leading international practices and trends in preparation of effective solutions within the area of their competence.

In its activities the Committee follows the recommendations and requirements of the relevant legislation, the Company’s Charter and internal documents, Code of Ethics and Business Conduct, decisions of the Company’s management bodies, and Regulations on the Committee.

Objectives:

• Development and updating of the HR Policy of MTS PJSC, preparation of a succession pool for the positions of chief officers;
• Drawing up proposals on candidates and on the determination of significant conditions for remuneration of the chief executives, and proposals on an early termination of office;
• Evaluation of performance results of the Company’s President and Management Board members, direct subordinates of the Company’s President for the reporting period and preparation of proposals on their reappointment and appointment of the Corporate Secretary;
• Development and submission for BoD review of internal documents related to the implementation of the Company’s Options Plan;
• Control over meeting the requirements of the effective legislation, MTS PJSC Charter and internal regulatory acts of MTS PJSC as to compliance with the Company’s HR Policy, standards and procedures in the sphere of remuneration and appointments;
• Determining methods and evaluation of performance of the Company’s Board of Directors;
• The Committee preliminarily addresses the issues reviewed at meetings of the Company’s Board of Directors in the sphere of appointment and remuneration of top managers of the Company.

Main areas of activities of the Remuneration and Nomination Committee in 2022

Issues in the field of appointment to the management and control bodies of MTS

Recommendations to the Board of Directors regarding candidates for the positions of members of the Management Board, President and other key employees of the Company.

Elaboration of proposals on the essential terms of employment contracts concluded with key employees of the Company.

Issues in the field of organizational structure, system of motivation and remuneration of employees of the Company and members of the management and control bodies of the Company

Preparation of recommendations to the Board of Directors on approval of the organizational structure of the Company;

Preliminary review of provisions on short-term and long-term motivation of members of the Company’s executive bodies;

Preliminary review of internal documents related to the implementation of the Company’s Option Program.

Issues related to personnel policy and remuneration strategy of the Company

Consideration of a set of measures aimed at implementing the personnel policy at MTS PJSC and providing relevant recommendations to the Board of Directors.

Discussion of ecosystem issues affecting the Company’s personnel development strategy.

Assessment of the Board of Directors and Committees under the Board of Directors

Preliminary consideration of the Report on the annual assessment of performance of the Board of Directors and Committees under the Board of Directors.

Succession planning for members of the Board of Directors and key employees of the Company

Consideration of organization of the succession planning process for members of the Board of Directors and key employees of the Company, including the annual analysis of the composition of the Board of Directors in terms of the needs of the Company, updating the succession plan, participation in the selection of candidates for members of the Board of Directors.

The Committee has provided the following recommendations to the Board of Directors

On all of the issues discussed, the Committee provided recommendations for appropriate decisions in accordance with the best world practices, the current business environment and the Company’s development strategy.

Work results in 2022

In the reporting year, the Committee reviewed all the necessary issues related to the competences of the Committee required to effectively support the Company’s activities and its development.

The key topics for discussion at the Committee meetings were issues of succession of members of the Board of Directors and the President of MTS PJSC, updating of the MTS management long-term incentive program, as well as issues of appointing internal and external nominees for the positions of key managers of the company.

ESG Committee (Corporate Governance and Environmental and Social Responsibility Committee)

Corporate Governance, Environmental and Social Responsibility Committee (ESG Committee) was established to ensure compliance with the principles of environmental, social and corporate responsibility in the activities of the MTS Group.

Within its competence, the committee takes part in the development of initiatives and policies of MTS in the field of sustainable development, monitors the implementation of ESG principles in the Company, carries out a preliminary review of the most important issues in the field of corporate governance and sustainable development, falling within the competence of the Board of Directors, and prepares recommendations for the Board of Directors to take appropriate decisions.

The committee follows in its activities the recommendations and requirements of the relevant legislation, the Charter and internal documents of the Company, Code of Ethics and Business Conduct, decisions of management bodies of the Company, Regulations on the Committee and best global practices of ESG-agenda management.

Quantitative composition

Composition of the Committee was changed during the reporting year.

The composition of the Committee was approved at the meeting of the Board of Directors on June 24, 2022.

Meetings

In the reporting year, 12 meetings were held in face-to-face form, including joint meetings of the ESG Committee and the Remuneration and Appointments Committee.

Issues considered

• Members of the ESG Committee and external international experts were presented with the current status of the projects to develop ESG agenda in MTS subsidiaries.
• Materials on the initiatives in the field of hiring people with special needs were considered.
• Key initiatives developed by the ESG Center were reviewed and taken into account.
• The status of the development of a set of initiatives in the “Electronic waste management” area was taken into account.
• The information on energy efficiency management in the MTS Group was considered.
• Monitoring and assessment of the level of culture of business ethics and compliance at the MTS Group were carried out.
• The procedural issues were considered as part of the annual assessment of the Board of Directors’ performance.
• Sustainable Development Report for 2021 was reviewed.
• The results of audit of processes for working with special groups within the social sphere of the ESG program were taken into account.

Strategy Committee

The Committee prepares recommendations to the Board of Directors upon review of general strategy issues of the MTS Group, strategic development of key functions, projects and the Company in general, and the implementation of M&A transactions and investment projects.

Quantitative composition

Composition of the Committee was changed during the reporting year.

The composition of the Committee was approved on June 24, 2022. The number of members of the committee has increased from 9 to 11.

Meetings

In the reporting year, 18 in-person meetings were held.

Issues considered

• MTS Group Strategy for 2023–2025.
• Strategies for business verticals and key functional horizontals.
• Restructuring of bond and credit loan programs.
• Approval of the MTS Group budget for 2023.
• Reports on the current fulfilment of the budget.
• On acquisition and sale of assets.
• On reorganization of MTS PJSC in the form of acquisition of its subsidiaries.

The Committee has provided the following recommendations to the Company’s Board of Directors and management:

• finalizing and approving the strategy of the MTS Group for 2023–2025;
• finalizing business vertical strategies;
• approving transactions;
• approving the MTS Group budget for 2023.

Special Committee on Compliance

The objective of the Special Committee is overall supervision in the sphere of compliance, review of issues and preparation of recommendations for the Board of Directors on compliance issues.

Quantitative composition

There were no changes in the composition of the Committee during the reporting year.

The composition of the Committee was approved at the meeting of the Board of Directors on June 24, 2022.

Meetings

In the reporting year, 3 in-person Committee meetings and 1 meeting in absentia were held.

Issues considered

In 2022, the work of the Special Committee on Compliance Matters was focused on promoting the effective improvement of the compliance system at MTS in accordance with the best Russian and international practices, including with the participation of parties independent of the Company.

The Committee provided the following recommendations to the Company’s Board of Directors:

The Committee issued a recommendation on the establishment of a Special Committee of the Board of Directors of MTS PJSC in the area of FinTech.

Work results in 2022

In the reporting year, the Committee reviewed issues related to compliance supervision measures implemented by the Company.

Special Committee for Cloud & Infrastructure Asset Development

The Committee was established to develop recommendations for the development of cloud and infrastructure assets transferred to MWS JSC as part of the reorganization of MTS PJSC.

Quantitative composition

There were no changes in the composition of the Committee during the reporting year. The composition of the Committee was approved at the meeting of the Board of Directors on June 24, 2022.

Meetings

The reporting year saw 8 in-person meetings of the Committee.

Issues considered

In 2022, the work of the Special Committee for Cloud & Infrastructure Asset Development was focused on ensuring the growth of the efficiency of the technological and IT infrastructure of MWS JSC, assistance in building a Company in building the Company as a leading provider of digital infrastructure technologies and cloud solutions in the market of cloud and IT infrastructure services.

The Committee provided the following recommendations to the Company’s Board of Directors:

• The Committee issued recommendations within the current competence.

Work results in 2022

In the reporting year, the Committee reviewed issues related to compliance cloud and infrastructure assets development measures implemented by the Company.

Special Committee on FinTech

The Special Committee on Fintech was created to develop recommendations for the development of fintech in the MTS Group.

Quantitative composition

There were no changes in the composition of the Committee during the reporting year.

The composition of the Committee was approved at the meeting of the Board of Directors on November 24, 2022.

Meetings

In the reporting year, 2 in-person Committee meetings were held.

Issues considered

In 2022, the Committee considered reports on individual issues in the field of internal controls and compliance procedures in the area of fintech in the MTS Group.

Work results in 2022

In the reporting year, the Committee considered issues related to the ongoing improvements in the field of compliance, internal controls and corporate governance in the area of fintech in the MTS Group.

Special Committee

The Committee was created to ensure compliance with the conditions of the planned significant material transactions that potentially affect the activities of the MTS Group and the development of the ecosystem.

Quantitative composition

Composition of the Committee was changed during the reporting year. The composition of the Committee was approved at the meeting of the Board of Directors on June 28, 2022. It consists of 4 independent directors. Powers of one of the committee members (independent director) terminated on September 15, 2022

Meetings

In the reporting year, 4 in-person Committee meetings were held.

Issues considered

In 2022, the Special Committee considered the issues of analyzing the terms of transactions and the risks associated therewith, developing an opinion on the expediency of concluding transactions.

Work results in 2022

In the reporting year, the Committee considered issues related to ensuring compliance of the terms of transactions with fair market conditions, prepared recommendations to the Board of Directors on issues related to the implementation of transactions.

Remuneration paid to Members of the Board of Directors

The procedure and terms of remuneration payment to members of the Board of Directors of MTS PJSC are defined in accordance with the Regulations on remunerations and compensations paid to members of the Board of Directors of MTS PJSC.

MTS pays remuneration to independent directors, as well as directors, who are not employees or members of the management bodies of companies in MTS Group. Overheads are compensated to all directors in accordance with actually made and documented target expenses.

The remuneration system applicable to the members of the Board of Directors provides for approach of financial interests of directors with long-term financial interests of shareholders.

Detailed information is disclosed in clause 4.2.1. Report on the fulfilment of the principles and recommendations of the Corporate Governance Code.

Remuneration paid to members of the Board of Directors in 2022

Indicator name	Total, RUB
Remuneration for participation in operations of the management body	182,012,757.35
Reimbursement of expenses	0
TOTAL	182,012,757.35

Remuneration components:

¹ Mandatory committees: Audit Committee, Remuneration and Nomination Committee, ESG Committee, Strategy Committee

² Special committees: Special Committee on Compliance, Special Project Committee for Co-locating Employees, Special Committee for Cloud & Infrastructure Asset Development, Special Committee.

³ In this respect, should any restrictions on operations (transactions) with shares/ADRs be introduced in accordance with the legislation of the Russian Federation or the applicable legislation of a foreign country or international instruments, the specified remuneration would be replaced by remuneration in cash. The amount of the specified remuneration is $100,000 or the equivalent of the specified amount in another currency, for more details see clauses 6.10, 7.1 of the Regulations on Remunerations and Compensations Payable to Members of the Board of Directors of MTS PJSC.

⁴ Regulations on Remunerations and Compensations Payable to Members of the Board of Directors of MTS PJSC.

⁵The Director may dispose of the shares/ADR received starting from the fourth year after receiving the first stock of shares.

President and Management Board of MTS

A key role in pursuing the selected strategy, organizing efficient implementation of resolutions of the Board of Directors and managing current operations of the Company is played by the Company’s Executive Bodies: The President (sole executive body) and the Management Board (collective executive body).

The executive bodies are accountable to the Board of Directors and the General Meeting of Shareholders.

The executive bodies of the Company shall be established by the Board of Directors.

The President and the Management Board act on the basis of the Charter of MTS PJSC, the Regulations on the President of MTS PJSC and the Regulations on the Management Board of MTS PJSC.

Executive bodies’ powers:

• shall organize the Company’s activities and be responsible for results of these activities, ensure the enforcement of decisions made by the General Meetings of Shareholders and by the Board of Directors;
• shall assure establishment and maintenance of operation of the efficient risk management and internal control system at the Company, are responsible for implementation of resolutions of the Board of Directors in terms of organization of the risk management and internal control system;
• are responsible for the effective economic, financial, scientific and technical and social policies of the Company.

The Board of Directors is entitled at any time to adopt a resolution on the early termination of a President’s powers, as well as on the termination of the powers of an individual member of the Management Board or all members of the Management Board and on establishment of new Executive Bodies.

Meetings of the Management Board

Over 2022, 42 meetings were held: 13 in-person meetings and 29 meetings in the form of absentee voting.

Issues reviewed at the meetings of the Management Board

• Preliminary consideration of materials for the meetings of the Board of Directors of MTS PJSC
• On preliminary consideration of materials for the meetings of the Strategy Committee, Audit Committee, EGS-Committee of the Board of Directors of MTS PJSC.
• Report on current budget estimate of MTS Group for 2022.
• On the risks of MTS PJSC in the current economic situation
• On the principles of product motivation for 2022.
• Controlling reports on MTS Group.
• MTS PJSC Technical Block Strategy for 2022–2024
• Development strategy of the B2G product line.
• Review of report on MTS PJSC network and service quality status as compared to that of the competitors for 2021.
• On the results of the engagement survey for 2021.
• Strategy for the development of the product segments “Children” and “Youth” for 2022–2023.
• On procedure of implementation of the Succession Policy for the President of MTS PJSC and Executives Directly Subordinate to the President of MTS PJSC.

Report on the work of the Management Board in 2022

Remuneration for members of the Management Board and senior executive officers based on 2022 results

Principles of remuneration of Management Board members and senior executive officers

A contract is entered into with every Management Board member, which defines labour terms, procedure for definition of the amount of remuneration, terms of reimbursement of expenses connected with execution of duties of the Management Board member and contract termination procedure. The contract shall be signed on behalf of the Company by the Chairperson of the Board of Directors of the Company or by a person authorized by the Board of Directors. The Board of Directors is entitled at any time to terminate the contract with a member of the Company’s Management Board. Terms and conditions of the contract shall be approved by the Board of Directors of the Company.

Remuneration of senior executive officers is fixed and calculated based on the Policy for labor payment of employees of MTS PJSC and meets the following principles:

• observation of fairness and competitiveness of remuneration;
• connection of remuneration with personal contribution and final work results in the Company in general;
• motivation for achievement of target initiation of business parameters in accordance with strategic development guidelines approved by the Board of Directors.

The system of remuneration to senior executive officers includes elements of base remuneration and variable premium part:

• base remuneration – monthly official salary;
• variable part of remuneration is determined by the results of the Company’s business in the reporting period in accordance with the Company’s internal regulations and approved by the Company’s Board of Directors and consists of:
  • short-term motivation system is an annual premium paid for fulfilment of key performance indicators (“KPI”) fixed in general for the Company for a corresponding reporting period, as well as for fulfilment of functional tasks defined by the Board of Directors.
  • the long-term material incentive program is aimed at increasing the Company’s shareholder value, acceleration of its capitalization growth, as well as preserving long-term labor and corporate relations between the Company and its management.

MTS PJSC Business Key Performance Indicators System

Ecosystem indicators, which are formed on the basis of the Company’s business plan and include the main financial and economic, industrial and strategic indicators. They reflect the general corporate responsibility for the results of the MTS Group business and make it possible to track the generalized results of the Company’s business and adjust the strategy.

Functional indicators that are formed on the basis of business blocks strategies and strategic objectives of a specific director of the Company.

The list of indicators for the Company’s directors are approved by the Board of Directors of the Company with preliminary discussion at the relevant committees on an annual basis.

The list of corporate performance indicators of the MTS PJSC President includes such indicators as:

• OIBDA;
• income;
• ecosystem indicators;
• integral assessment of the implementation of strategic projects and initiation of business.
• transformation objectives.

Structure of remuneration for top management in 2022

The remuneration structure consists of base and variable payments and depends on the level of the position in the structure of the Company.

Achievement of the established KPIs is the basis for being entitled to receive a variable payment, as it pertains to long-term payments, including an increase in the shareholder value of the Company and growth of its capitalization.

Evaluation of performance of the President and members of the Management Board

One of the tasks of the Board of Directors is to assure control of operation of the President and members of the Management Board, as well as to evaluate their performance which is performed based on materials approved by the Remuneration and Appointment Committee.

The assessment of the President and members of the Management Board for 2022 was performed in accordance with an existing method based on fulfilment of key performance indicators of the Company in general, functional individual tasks and competence development level.

Remuneration paid to members of the Management Board in 2022

Indicator name	Total, RUB
Salary	293,990,163.24
Bonuses	1,283,549,364.76
Reimbursement of expenses	26,903,801.25
Other remuneration types	4,478,011.98
TOTAL	1,608,921,341.23

Remuneration paid to senior executive officers in 2022¹

Indicator name	Total, RUB
Salary	380,204,659.21
Bonuses	1,427,758,713.97
Reimbursement of expenses	34,928,498.84
Other remuneration types	6,456,376.79
TOTAL	1,849,348,248.81

¹ Includes information on remuneration of 24 top officials of the Company (including members of the Management Board).

Monitoring and Audit

Internal Control System

MTS PJSC’s internal control system is implemented at all management levels on the basis of internal policies, regulations, procedures and methods of internal control and risk management. The functioning of the internal control system provides reasonable confidence in the achievement of the Company’s goals and controls the financial and economic activities of the Company in order to increase its efficiency.

The Board of Directors of MTS PJSC defines the policy in respect to internal control and audit and twice per year considers the report of the Audit Committee following the results of performance of the internal audit, risk management, business ethics, compliance and internal control functions of MTS PJSC with analysis of the existing control system and identified violations.

The Report of the Auditing Commission is annually attached to the materials of the annual General Shareholders’ Meeting of MTS PJSC.

For a systematic independent assessment of the reliability and effectiveness of the risk management and internal control system, as well as corporate governance practices in MTS PJSC, the Internal Audit Block of MTS PJSC uses the results of the audits conducted, forming a conclusion on the level of maturity for the Company as a whole. The Internal Audit Block is a separate structural division of MTS PJSC, functionally subordinate to the Board of Directors, administratively directly to the President of MTS PJSC.

The internal control system of MTS PJSC corresponds to the COSO model¹. In the Company, a control environment is established, the risk assessment system is applied, the Internal Control Systems Department provides for implementing control procedures and monitoring of their performance, the monitoring of changes in organizational structure and business processes is carried out.

¹ COSO Internal Control — Integrated Framework 2013

MTS PJSC approved the Policy for complying with anti-corruption legislation defining measures aimed at establishing elements of the corporate culture, organizational structure, rules and procedures assuring non-admission of corruption².

² Detailed information is provided in the section “Unified Compliance System”.

Under the internal control system, a range of anti-corruption measures mitigating reputational risks and risks of sanctions for bribery of officials against MTS PJSC. For the purposes of counteraction to abuses, authorization of transactions and operations, distinction of powers and rotation of duties, control over the actual availability and condition of facilities is implemented.

For some areas, the Internal Control and Audit Block of MTS not only holds the leading positions in Russia, but also meets the strictest global standards of quality in terms of setting objectives and performance of tasks, communications building, and also organization of the work and status of the Internal Audit Service. The Internal Audit Block of MTS successfully underwent an external independent evaluation — activities of the subdivision were recognized as compliant with the International Professional Standards of Internal Audit and Code of Ethics, Institute of Internal Auditors, the reputable international professional association.

The Audit Committee at the Board of Directors of MTS PJSC biannually reviews reports on the operation of the Internal Audit Block, Internal Control Systems Department, Ethics & Compliance Department and Risk Management Division and generates conclusions on the efficiency of the internal control and audit function, risk management, compliance and internal control of MTS PJSC.

The Audit Committee positively evaluates the work of the Internal Control Systems Department with regard to the creation, implementation and development of an effective system of internal control over the reliability of generation of financial reporting for the MTS Group, including in new businesses, for 2022.

The Audit Committee positively assesses performance of the Risk Management Function as effective and fit for its purposes at the moment.

The Audit Committee positively assesses the work of the Ethics and Compliance Department and believes that the tasks of the division have been completed in full compliance with the expected results.

The Audit Committee quarterly reviews the reports of the external auditor of Business Solutions and Technologies JSC and draws conclusions about the quality of their work.

Audit Committee of the Board of Directors

The Audit Committee is a collective deliberative body under the Board of Directors. The committee was established for the purposes of assisting in efficient implementation of functions of the Board of Directors in terms of control over financial and economic activities of the Company.

For detailed information about the Audit Committee’s work results in the reporting year see the section “Committees of the Board of Directors”.

Results of evaluation by the Audit Committee of the external and internal audit process efficiency: are specified in the section “Report on the work of the Audit Committee”.

Auditing Commission

On June 22, 2022, the Auditing Commission was elected at the annual General Shareholder Meeting of MTS PJSC.

Report on the operation of the Auditing Commission

In April 2022, the Auditing Commission carried out an audit of the financial and economic activities of the Company for 2021. The Auditing Committee did not record material facts of violation of accounting and financial reporting submission procedures while carrying out financial and economic activities of the Company.

The Auditing Commission confirmed that the financial reporting of the Company for 2021 and the Annual report on the Company’s activities for 2021, in terms of the Company’s financial reporting, are authentic.

In April 2023, the Auditing Commission plans an audit of the financial and economic activities of the Company for 2022. The opinion report of the Auditing Commission will be submitted for the approval of the Annual General Shareholders’ Meeting of MTS in June 2023.

Internal Audit Block

The Internal Audit Block is an independent structural unit headed by the Director of Internal Audit. The task of the unit is to ensure and improve the quality of internal audit.

The Internal Audit Block performs the following functions:

• assessment of the effectiveness of the internal control system, risk management and corporate governance processes by analyzing the Company’s operating activities and its information systems, the achievement of the Company’s strategic goals, the effectiveness and efficiency of projects and products, the reliability and integrity of information about the Company’s activities, the safety of assets, compliance with internal standards and external requirements
• development of recommendations for improving internal control, risk management and corporate governance procedures and assistance to management in the development of corrective measures based on the results of audits;
• monitoring the implementation of recommendations to eliminate violations and shortcomings identified as a result of audits;
• development and implementation of IT analytics to continuously monitor risk indicators based on business process data and improve the efficiency of audit procedures;
• improvement of internal audit methodology and audit quality control system;
• analysis and improvement of the efficiency of the Internal Audit Block, coordination of joint work of the Block’s subdivisions and internal audit functions in subsidiaries;
• registration and coordination of the investigation of messages received by the Single Hotline;
• provision of consulting services.

The activity is structured in accordance with the International Professional Standards of Internal Audit and the Code of Ethics of the Institute of Internal Auditors (The IIA).

Report on operation of the Internal Audit Block

In 2022, the implementation of recommendations for improvement was completed, noted by the results of an external assessment of the internal audit activity conducted at the end of 2021.

The annual audit plan for 2022 has been completed, the audits covered 61% of high-risk processes and 48% of medium-risk processes, which corresponds to the achievement of the target KPIs.

In 2022, the Agile approach to audit was successfully implemented, which led to optimization of audit project deadlines and improved project management.

Within the framework of audits, IT analytics was widely used, as well as in individual projects on the introduction of risk indicators (red flags) into processes. Certain projects are aimed at creating analytical tools that allow monitoring risks in some areas, for example, a system of risk indicators for subsidiaries, search for sites for base stations, contract management by sites, inventory monitoring. Integration of information from internal audit, compliance and security departments into a single dashboard is used to monitor the level of risks in subsidiaries.

The process of operation of the Single Hotline has been significantly improved. Based on the results of an internal assessment of the quality of internal audit activities for 2022, its activities were recognized as conforming to the International Professional Standards of Internal Audit and the Code of Ethics of the Institute of Internal Auditors.

The Audit Committee approved the performance results of the internal audit of MTS PJSC and subsidiary companies in the first six months and for 2022 as a whole. The Audit Committee gave a positive assessment of the results of the internal audit for 2022 and concluded that the activities of the internal audit block were effective, key performance indicators and internal audit objectives for 2022 were fully achieved.

In December 2022, the Committee reviewed and approved the internal audit strategy, audit schedule, KPIs and budget for 2023, as well as took into account the audit schedules for 2023 of the internal audit units of significant subsidiaries.

Internal Control Systems Department

Since 2018, the management of the internal control system function (further ICS) in subsidiaries is carried out with the corporate center. This approach has proven its effectiveness and has increased and optimized the time to support the internal control system in subsidiaries.

As part of the development of the internal control system, work has been carried out to update and formalize control procedures aimed at covering significant risks. More than a thousand control procedures have been updated and passed the necessary testing for the MTS Group. The internal control system for the purposes of 2021 financial reporting reliability for MTS Group was recognized effective, no material or significant shortcomings were identified.

Significant events/projects of ICSD carried out in 2022 include the following.

• ICS assessment and certification were completed in the automated information system of ICS and risk management.
• The regulatory documents of the Department of Internal Control Systems were adapted for new subsidiaries included in the scope of work of the Internal Control System
• In 2022, the access rights of employees for 8 SOX — essential systems were revised. As part of the expansion of the scope of the algorithm in 2022, the analysis of critical powers has also been extended to cover a number of new subsidiaries.
• Procedures were completed to analyze and mitigate SOD-risks. Roles were analyzed in the processing center system, the SOD-matrix was developed and introduced. Following the results of work, SOD conflicts were compensated by the existing ICS procedures. The withdrawal of powers with SOD conflicts in 2023 is planned.
• Roles were analyzed for MGTS PJSC billing systems by extent of their impact. Excessive powers were recalled from the users, non-relevant roles were removed. As a result of the analysis, the register of potential SOD-conflicts was prepared. Identified risks were closed by existing CCP. Works were planned to establish an SOD-matrix in 2022.

In 2023, it is planned to reengineer ICS processes, with a focus on increasing the share of automated decisions as part of control procedures development of a management system for analyzing roles, functions and powers through the use of SOD matrices.

Based on the results of the internal evaluation and external audit opinion, the internal control system for proving the accuracy of preparation of financial reporting of the MTS Group as of December 31, 2022 was found to be efficient and to have no material and significant deficiencies.

External Audit

At the Annual General Meeting of shareholders of MTS PJSC¹ approved Business Solutions and Technologies Joint Stock Company as the auditor (hereinafter referred to as the “Auditor” (location: 125047, Russian Federation, Moscow, Lesnaya Str., 5), OGRN 1027700425444, certificate of membership in the Self-Regulatory Organization of Auditors of the Association “Commonwealth” (Association) of January 31, 2020, ORNZ 12006020384.

¹ The Annual Meeting was held on June 22, 2022

Business Solutions and Technologies JSC is one of the leading audit and consulting firms providing services in the field of audit, management and financing consulting, risk management, taxation and accompanying services. Since May 24, 2022, the Russian company, formerly part of the Deloitte international network, has continued to work in Russia under its own brand.

In the reporting year, the Auditor performed:

• an audit of annual financial reporting of MTS PJSC for 2022 prepared in accordance with the Russian Accounting Standards as per the International Audit Standards (IAS);
• audit of consolidated financial reporting of MTS PJSC and its subsidiaries prepared in accordance with IFRS for 2022, as per the International Audit Standards;
• an integrated audit of consolidated financial reporting of MTS PJSC and its subsidiaries prepared in accordance with IFRS for 2022 and efficiency of the internal control system over its preparation as of December 31, 2022, conducted in accordance with the standards of the US Public Company Accounting Oversight Board.

In March and April 2023, the Audit Committee approved the results of the external auditor based on the results of audits for 2022, including conclusions on the effectiveness of the internal control system over the formation of financial reporting at the MTS Group.

Based on the results of the audits, the MTS PJSC auditor expressed opinions on the reliability of the financial reporting of MTS PJSC for 2022 prepared in accordance with Russian accounting standards, and the consolidated financial reporting of MTS PJSC and its subsidiaries for 2022 prepared in compliance with the IFRS.

Procedure for the selection of the issuer’s auditor.

A tender for selection of the external auditor of MTS PJSC is conducted at least once every five years. To conduct the tender, MTS PJSC establishes a tender commission. Based on tender results, the tender commission generates recommendations for selection of the external auditor which are submitted for approval to members of the Audit Committee under the Board of Directors of MTS PJSC.

In the event that the auditor’s candidacy is approved by the Audit Committee, Board of Directors and General Shareholder Meeting of the Company, a contract for financial reporting audit services shall be signed with an auditing company.

Auditor’s remuneration

The remuneration of the auditor for the audit of the accounts of MTS PJSC and its subsidiaries for 2022 is approved by the Board of Directors of MTS PJSC and according to the results of 2022 amounted to 159,700 thousand rubles, excluding VAT and overhead expenses, including audit of reports of MTS PJSC In the amount of 15,000 thousand rubles.

Settlement of potential conflict of interest

During managing a conflict of interests the Company is guided by the principles of lawfulness, confidentiality, impartiality, objectiveness and reasonable sufficiency, obligatory immediate disclosure of information by Company’s employees and the directors about an actual or potential conflict of interests or likelihood of such a conflict.

Members of the Management Board, of the Board of Directors and employees are not entitled to participate in the approval, agreement, or other decision-making in respect of transactions concluded by the Company if they are or may be under the influence of the conflict of interests.

For the purposes of non-admission of conflicts of interests, the Company holds an annual knowledge testing and certification of compliance with norms of the Code of Business Conduct and Ethics for executives and top management. The results of testing are considered by the Audit Committee under the MTS PJSC Board of Directors.

Procedures minimizing the risk of making decisions in a situation of the conflict of interests of directors are also established at our Company. Members of the Board of Directors must refrain from actions which may result in appearance of a conflict of interests and, if such a situation exists or arises, disclose information about it to the Board of Directors and not participate in voting on conflict agenda items.

Members of the Board of Directors, who have interest in agenda items of the Board of Directors, do not take part in discussion and voting on the specified agenda items.