CONTENTS€¦ · 1 1 decaliter is 10 liters 0 5 000 10 000 15 000 20 000 25 000 30 000 0 2 000 4...

OJSC «SYNERGY»1

CONTENTS

1. Company Overview 2

� Company Position in the Industry 2

� Company Business Priority Areas 2

2. Brands 4

3. Address of Chairman of Management Board 28

4. Key Events 2013 30

5. Strategy 34

6. Marketing 36

7. Distribution 40

8. Production 66

9. Export Operations 68

10. «PentAgro»Group 70

11. Financial Review 75

12. Social Responsibility 80

13. To Shareholders and Investors 84

� Report on Payment of Declared (Accrued) Dividends on Company Shares 84

� List of material Transactions 88

� List of Transactions of Interest 88

� Information about Energy Resources Utilization Capacity 88

� Compliance to Corporate Code of Conduct 88

14. CorporateGovernance 90

� Members of Board of Directors 92

� Members of Management Board 96

� Sole Executive Body 97

� Criteria in Remuneration Determination and Amount of Remuneration for Members of Board of Directors, Management Board and Chairman of Management Board 98

15. Risk Management 100

16. Consolidated Financial Statements 104

17. Information about Compliance to Corporate Code of Conduct Provisions 108

Supplement

OJSC «SYNERGY»3ANNUAL REPORT 20132

COMPANY OVERVIEW

Company Position in the Industry

«Synergy»isthelargestcompanyintheRussianspiritmarket.Ourcore business is the production and distribution of strong alcoholic beveragesofthehighestquality.Nowadays«Synergy»unitesmorethan 9,000 of talented employees and presents its production in over 60 countries around the world. The Company’s Corporate Headquarters are situated in Moscow.

A well-balanced portfolio of trademarks ensures the presence of Company’s production in all key segments of strong alcoholic beverages.Thekeyvodkabrandsof«Synergy»todayarethe following:«Beluga»,«Veda»,«Myagkov»,«Belenkaya»and«GosudarevZakaz».TheCompanypresentsthefollowingtrademarks:«ZolotoyRezerv»,«KamennyiLev»and«StarayaGvardia»inthebrandysegment.Whiskysegmentisrepresentedbytrademark«Fox&Dogs».Thecompanyistheleaderintheproduction of bitter and sweet liqueurs.

«Synergy»isanexclusiverepresentativeanddistributorinpremiumalcoholof«WilliamGrant&Sons»andworld-famousCamusfamily-owned Cognac house. In 2013 the Company strenghtened its distribution portfolio with iconic bitter (herbal liqueur) «Riga Balsam»andArmenianbrandy«TsarTigran».«Synergy»hasoneof the most powerful and effective production complexes in Russia: 7 distilleries that are situated throughout the Russian Federation. Some of them have more than a century-old history. Nowadays allthedistilleriesof«Synergy»usethemostmodernequipmentwith a total output of over 15 million decaliters. The Company also manages its own largest highly-effective distributive system in Russia, the staff of this system numbers more than 3,600 highly-skilledemployees.Theadditionalbusinessof«Synergy»isfoodstuff manufacturing that is carried out by subsidiary company «PentAgro»(www.penta-agro.ru).Highlevelsofprofessionalismand achievements of the company are recognized by the business community. The Company has long-term international issuer default rating(IDR)atlevel«B»andnationallong-termratingatlevel«BBB+»(Rus)assignedby«FitchRatings»Agency.

Company Business Priority Areas

«Synergy»considersitselfasaresponsibleparticipantofthenational alcohol market and implements deliberate policy of social responsibility. Regarding these directions, financial and organizational support of cultural and social projects, charity assistance are the essential part of the Company business. «Synergy»closelyco-operateswithprofessionalindustrialsectorand government institutions.

COMPANY OVERVIEW

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2010

21 128

2011

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2010

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7 380

2011

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8 938

Spirits Sales Overview (Combined Information of All Operating Press Releases in 2013)

Sales, ‘000 decaliters1 2012 2013 % change

Aggregate annual volume 14 306 12 541 -12

1 quarter 2 717 1 900 -30

2 quarter 3 446 2 847 -17

3 quarter 3 148 3 080 -2

4 quarter 4 993 4 714 -6

1 1 decaliter is 10 liters

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26 664

2012 2012 2012

11 012

41.3% 6.4% 5.8%

42.8%

2013 2013 2013

11 280

1 702

1 541

26 378

(Union of Alcoholic Beverage Producers and Federal Service for SpiritMarketRegulation).Besides,«Synergy»actsasaresponsibletaxpayer – at the year-end the total payments to the budgets of different levels were 23 billion Rubles.

Key Output Indicators

On 1st January 2013 excise duty increased considerably, which led to weakening of market on the whole by 13-15%. The group «Synergy’s»shippingdecreasedby12%.Bymeansofshippingpriceincrease the Company was able to virtually mitigate this decrease, net income decrease was 1%.

Revenue, million Rub. Gross profit, million Rub. Net income, million Rub.

Revenue, million Rub. Gross profit, million Rub.

Gross profit margin

Net income, million Rub.

Net income margin


BRANDS

«Belenkaya» vodka is one of the leaders in the vodka market in Russiaandmakesthetopfiveworldvodkabrands.«Belenkaya»gained its popularity among the customers due to its peculiar quality standards as they are higher than the ones suggested by state regulation(GOST).Theproducthasasofttastewhichisachievedwith the help of high level of water purification through a 13-meter longcharcoalfilter.Today«Belenkaya»isamodernbrandthatisarmed with innovation technologies.

«Russian Ice» vodka. In October the Company launched restyling offamousinthemarket«RussianIce»vodka,whichcreatedadditional possibilities for carrying out export potential. After revolu-tionaryrestylingthedesignof«RussianIce»brandpackagestartedto correspond to all the criteria of the modern vodka market.

«Gosudarev Zakaz» (Sovereign’s Order) vodka. According to the authoritativerankingsof«TheMillionaires’Club»,in2012vodka«GosudarevZakaz»tookthefirstplaceinRussiaandsecondplacein the world in terms of sales growth. In 2013 the sales of vodka «GosudarevZakaz»continuedtoincreaseandtheadd-onsaleswere fixed at the level of 21% compared to the last year’s. Vodka «GosudarevZakaz»winsmoreandmorecustomersthankstoitshighqualityinheriting«sovereign’s»productiontraditionswhichimplythe maximum level of vodka’s purity.

BRANDS

«Synergy’s»portfolioofstrategicnationalCompanybrandscom-prises several vodka brands, brandy and whisky. These trademarks have a successful longstanding history and take large shares in fast growing segments of the alcohol market. Federal brands are suc-cessfully sold not only throughout the Russian Federation but also abroad. Each of these brands is highly popular with consumers and is aimed at the corresponding segment ranging from the super-pre-mium to the mid-price one, which as a whole ensures a high overall yield of the company’s national portfolio.

The company pays a lot of attention to the core marketing func-tions – branding, application of innovations and brand restyling contributing to existing customers’ loyalty and new business devel-opment.Eachof«Synergy’s»brandshasitsownclear-cutfeaturesand character as well as unique positioning.

«Beluga» vodka is the Company’s flagship product, brand No.1 in the super-premium and ultra-premium segments in Russia. The unique combination of traditions and innovations together with the usageofthebestingredientsallowedvodka«Beluga»tohaveprideof place in the list of symbols of Russia. Advance equipment of Mariinsk Distillery, artesian water wells, the possibility to use expen-sive malt spirit and years-long experience of experts are the basic principles of stability and high quality of the product.

In2011«Synergy»expandedthe«Beluga»brandfamilybystartingtwonewproductionlines«BelugaTransatlanticRacing»and«BelugaAllure».Bytheendof2013bothnewly-designedproductswon the market successfully.

«Myagkov» vodka is one of the main leaders in the Russian vodka market in the sub-premium segment. The main competitive advantage of the brand is its exceptional mild flavor. This unique peculiarity of the product appears due to combination of softened water, dynamic filtration and natural ingredients during the production process.

Theassortmentofthebrand«Myagkov»consistsofthemostpopular kinds of liqueurs with the strength up to 40%. The leader in thissegmentis«MyagkovCranberry».Citrustasteanduniqueflavorof«MyagkovLemon»andalsodistinctiveflavorofthenewly-designedproductof2013«MyagkovChili&Honey»addtothebrand line.

Atpresentliqueursandbitterliqueurs«Myagkov»withthestrengthup to 20% are truly considered to be the most currently important area of the brand development.

ANNUAL REPORT 2013 OJSC «SYNERGY»6 7

BRANDS

«Zolotoy Rezerv» brandy. The company actively works both in the vodka segment of spirit market and in the brandy category. It should be noted that brandy market ranks second in terms of volume after the vodka one in Russia. Developing its own brand «ZolotoyRezerv»theCompanymakesthetopfiveofthebiggestmanufacturers of brandy in Russia.

«Staraya Gvardia» and «Kamennyi Lev» brandies. In November the Company made a sure step towards brandy portfolio develop-ment and reinforcement of its positions in this market by launching twonewproducts«StarayaGvardia»and«KamennyiLev».Thanksto launching two these brands the Company is represented in all high-volume brandy market segments, i.e. low price segment, mid-price segment and sub-premium segment, which allowed the Company to make the top three of market players in the Russian brandy market.

«Fox & Dogs» whisky. The company presented its own brand in oneofthegrowingcategories–whisky«Fox&Dogs».Thewhiskyproduction is executed at the manufacturing facilities of «William Grant&Sons»company,oneoftheworld’swhiskymarketleaders,which guarantees high quality of products. Moreover, the taste of whisky«Fox&Dogs»hasbeenspeciallydevelopedbythemastersofblendingofthecompany«WilliamGrant&Sons»withconsidera-tion of the Russian consumers’ preferences. In the first year of brand’s appearance in the whisky market its sales reached 30 thousand of nine-liter cases. A secure base for distribution was established, represented by far the most influential players of national and regional retail as well as by far the biggest number of retail outlets.


«Beluga» vodka is a unique product, it is the leader in the segment of super and ultra-premium kinds of vodka in Russia in terms of sales. It is the first truly premium, global Russianbrand.«Beluga»ismanufacturedatMariinskyDistillery. The base of the first-class product consists of high quality ingredients, painstaking work of masters, their focused attention to every detail and continuous production control.«Beluga»vodkaisactivelypromotedinexportmarkets in Europe, Asia, the USA and the Middle East; and it is sold in more than 60 countries worldwide and 120 airports.Todaytheassortmentof«Beluga»consistsof4products:

«Beluga Noble» is the flagship product in the family of «Beluga»brand.Thisdesignerdrinkobtainedthestatusofthe«classic»«Beluga».«BelugaNoble»hasanobleflavorful taste because it comprises some unique natural ingredients. Malt spirit and the purest artesian water are traditional ingredients and they are of primary importance inthe«Beluga»vodkaproduction.Assoonasthedrinkisready,thethirty-day«rest»periodstarts.Thiskindoftechnology has been proven for centuries. It eliminates strongspirituoussmellandprovides«BelugaNoble»witha flavorful taste and soft aroma.

«Beluga Transatlantic Racing» is the limited edition of vodka«Beluga»,createdinhonorofouryachtingteamthat took part and made series of brilliant victories at the most prestigious yachting world championships. The unique formula, which is the basis for «Beluga Transatlantic Racing»production,requirestheadditionofthetraditionalforvodka«Beluga»barleymalt,anditispurifiedbyrunningthrough a specific cotton filter, which makes the taste of vodka soft, clean and elegant.

«Beluga Allure» isthecollectionseriesofvodka«Beluga»,created in honor of our horse polo team that made a series of victories in major championships of world importance. «BelugaAllure»isthepersonificationofaristocracyandnobility inherent in this royal sport bordering on art.

«Beluga Gold Line» is the limited edition for those who trulyappreciateluxury.«BelugaGoldLine»isavailablein a limited edition, where each bottle has its own serial number. Harmonious, solemnly noble flavor of this vodka is the result of long creative search of the Company’s specialists.

«BELUGA» «BELUGA»


«VEDA»

«Veda» vodka is modern product that combines both traditional technologies and the unique «double ice filtering»methoddistinguishing«Veda»fromtheotherbrands. The production of this premium vodka was launched in 2004. Thanks to the dynamic strategy of promotion that lasted for three years, the brand became the second most popular in the premium segment.

Customersconsider«Veda»brandtobeaninnovation product, the creation of the latter is only possible through the use of by far the most updated technologies.

Today«Veda»vodkaismanufacturedatoneofthemost up-to-date and hi-tech enterprises in Russia – at Mariinsky Distillery located in Siberia, owned by theSynergyGroup.

«VEDA»


«MYAGKOV»

«Myagkov» vodka is one of the key brands in the sub-premium segment of the Russian market. Today the assortmentof«Myagkov»brandcomprises2kindsofvodka:«Myagkov»vodkaand«MyagkovSilver»;3kindsofbitterliqueur:«MyagkovCranberry»,MyagkovLemon»and«MyagkovChili&Honey»;1sweetliqueur«MyagkovAshberrywithCognac»andliqueur«MyagkovCappuccino».

At the beginning of 2013 the new product «Myagkov Cappuccino»firstbottlingtookplaceatALVIZdistillery.«MyagkovCappuccino»isasoftpronouncedcoffeetaste.Coffee masters created a blend of aromatic Colombian SupremoandArabica«KenyaAA»(top-classKenyacoffee, properly selected coffee beans of large size). Coffee beans are roasted over an open fire following the originalItalianrecipe,asaresult«MyagkovCappuccino»liqueur acquires flavorful but very soft taste.

Moreover, in May the new product «Myagkov Chili & Honey»bottlingtookplaceatALVIZdistillery.Thisproductexcellently added the brand line. This product is the first bitter with aromatic hot-chili pepper (that was brought from South India) and natural honey. A chili pepper pod is put just inside the bottle in order to strengthen the acuity of taste.Thetasteof«MyagkovChili&Honey»appearstobe hot, spicy and sweet, with subtle bitterness in addition to surprisingly soft and long-lasting finish.

Further in August 2013 the restyling of liqueurs was launched as a result the appearance became more premium and modern: the images of fruit and berries are vividly visualized.

In the future the brand is going to renew the assortment to offer more unusual and creatively different products as well as the line of liqueurs and bitter liqueurs for women is going to be expanded.

«MYAGKOV»


«RUSSIANICE»

«Russian Ice»isoneofthe«Synergy»Company’soldest brands, which has taken its rightful place in the Company’s assortment for 10 years. After the revolutionary restyling that took place in 2013, the brand package design became fully correspondent to the criteria of the up-to-date market and it made the trademark more popular as well as increased the consumer audience. The present strong vodka taste of«RussianIce»isachievedthankstouseofhighqualityspirit«Lux»classandaspecialtechnologyof multiple filtration that includes charcoal, gold and silver filtration. The main distribution channel for «RussianIce»vodkaislargetradingnetworksofhyper or supermarket formats.

«RUSSIANICE»


«BELENKAYA»

«Belenkaya». In autumn the brand launched a new product with exceptional characteristics called «Belenkaya Voronaya».Thisinnovationabsolutizestheapproachofthebrand«QualityHigherthanGOST’s».Thequalityperformanceof«Voronaya»is5timesashighastheGOSTdemands.Intheprocessofproductionof«Voronaya»thecharcoal filter is used, the total length of this charcoal filter is21meters.«Voronaya»isdifferentduetoitsnewformulaand recipe, innovation design of black frosted bottle, black frosted cap with soft-touch cover, labels, designed in black-red hues.

Apart from manufacture of premium products the Company actively develops the business of limited series. By the year2014«Belenkaya»offeredanew-yearlimitedseriesdesigned in white color with the symbols of New Year and attributes of winter fairy-tale called «Belenkaya Lux New Year»0.5liter-bottlesize.

Theyear2013for«Belenkaya»vodkawasalsomarkedbyevolutionary and innovative restyling. The cap design was changed, the new shape of the label with two-layer effect was created, besides, the whole surface of the lower label was covered with dimensional patterns, guilloche grid and anewbrandedstamp«QualityHigherthanGOST’s»witha holographic image were added. The shape of the bottle kept its elegant contours and the punt at the bottom. The main target of restyling was to emphasize how premium the brand is; due to the growth of minimum retail shelf price, the above-stated target was achieved. Restyling affected thewhole«Belenkaya»brandlineincluding«Belenkaya»,«Lux»,«Gold»and«BelenkayaCedar».Therecipeandthequality stayed at the same high quality level.

Moreover,in2013«Belenkaya»tookthe5thplace(the10th in 2011 and the 7th in 2012) in the consolidated vodka rating«Millionaires’Club2012»among30best-sellingvodka brands worldwide (Top 30 Vodkas). The data of the rating is annually published by the leading international magazinedevotedtospirits«DrinksInternational»*.

* accordingtodata«DrinksInternational»,2013

«BELENKAYA»


«GOSUDAREVZAKAZ»

«Gosudarev Zakaz» (Sovereign’s Order) is the acknowledged leader in the lower price segment in the Russian vodka market. After the restyling in 2012 the product brand sales growth was 22%. According to the reputable rankings «The Millionaires’Club»,vodka«GosudarevZakaz»holdsthe first place in Russia and the second place in the world in terms of sales growth among the brands whose sales exceed 1 million decaliters a year. In 2013 the brand sales growth continued and reached the rate of 21% against 2012. Thanks to the new product«GosudarevZakazPepper»launchedinthe range of bitter liqueurs, the brand sales must exceed the rate 1.5 million decaliters in 2014.

Thesuccessofvodka«GosudarevZakaz»inthe market is preconditioned not only by a more modern and premium package design but also by the high quality of products inheriting the imperial «sovereign»productiontraditionswhichimplythehighest degree vodka purity. Its high quality vodka «GosudarevZakaz»getsduetomultiplefiltrationand the use of a special food additive to neutralize the toxic components.

«GOSUDAREVZAKAZ»


«KAMENNYILEV»

«Kamennyi Lev» (Stone Lion) cognac is a newly-designedproductin«Synergy»assortmentof cognacs that is destined to strengthen the Company’s position in the sub-premium segment. Cognac«KamennyiLev»wascreatedonthemodel of the best European samples and stands out among its competitors in the range of Russian cognacs. The main advantage of the cognac «KamennyiLev»istheproductionofthelatteronly from French cognac materials. Status strict design of the bottle is made in the premium frosted dark-green color scheme that makes the product moreattractive.Thetasteof«KamennyiLev»ischaracterized by fruity hints with subtle vanilla and chocolate flavors.

«KAMENNYILEV»


«STARAYAGVARDIA»

One more cognac of mid-price segment called «Staraya Gvardia» (Old Guard) was produced. This product naturally complemented the Company’s cognac assortment. The original taste was obtained thanks to use of French cognac materials, a bright design of the product that personifies world military history, all these arouse considerable interest of consumersin«StarayaGvardia»cognac.

«STARAYAGVARDIA»


«ZOLOTOYREZERV»

«Zolotoy Rezerv» brandy (Gold Reserve) is the result of the unique combination of centuries long traditions and modern technologies. French cognac materialsof5yearsageinggive«ZolotoyRezerv»a deep harmonic taste and a pleasant mature aroma.

«ZolotoyRezerv»isanewstrongplayerintheRussian brandy market. Annual sales growth up to 70% allowed the Company to be listed as one of the top ten brandy manufacturers in Russia. In order to achieve this goal the assortment was expanded and the design was corrected so the natural cork and polylaminate bottle-neck cover were introduced.

«ZOLOTOYREZERV»


«FOX&DOGS»

The popularity of the Scotch blended whisky in the Russian market is growing year by year, as evi-denced by double figures of growth in import of this product.

Scotch blended whisky «Fox & Dogs» is a pro-prietarytrademarkofthecompany«Synergy»,anew offer of the classic Scotch whisky, the taste of which is adapted to the taste of the Russian con-sumer; it has a high degree of softness and bal-ance.Whisky«Fox&Dogs»ismanufacturedatthe plants of one of the world market leaders – the company«WilliamGrant&Sons»,withthedirectparticipation of its famous masters of blending.

The outstanding features of blending can be called the use of more than 20 types of malt spirits, whose average age is more than 5 years, as well as grain spirit produced at one of the best grain distilleries in Scotland.

Theoriginaltasteofwhisky«Fox&Dogs»iscom-plemented with the bright product design that repre-sents an embodiment of the famous Scottish legend, the name is simple and easy to remember and the price for the consumer is affordable.

In the first year of brand’s appearance in the whisky market its sales reached 30 thousand of nine-liter cases. A secure base for distribution was estab-lished, represented by far the most influential play-ers of national and regional retail as well as by far the biggest number of retail outlets. Successful sales start, active marketing and trade-marketing promo-tion of the brand, creation of the platform for further distribution expansion allow us to say that the brand has definitely taken its own place in the whisky mar-ket and its further growth can be forecast.

«FOX&DOGS»


Dear shareholders, partners and customers!

2013 was a challenging year for the Company but it was neverthe-less a successful one. Synergy continued its development despite growing government control over the alcohol industry and a sharp increase of excise tax. Regardless negative market trends, the Company showed growth in certain financial indicators due to its own pro-active strategy aimed at maximising diversification within the business and increasing profits across all segments.

Today Synergy is Russia’s alcohol market leader, #1 independent premium alcohol importer and exporter of one fifth of the spirits produced in Russia.

In 2013 The Company increased total gross profit and alcohol segment gross profit by 2% and a 5% respectively compared to 2012.TheCompany’sGrossProfitMarginincreasedby1.5pp,andby 3.4pp in the alcohol segment due to a proactive pricing policy for in-house products and an increase of high margin operations with third party premium brands distribution. These achievements had a positive impact on the Company’s profitability. For example, EBITDA showed a 2%.

In2013«Synergy»enhancedexportoperationsenteringnewmarkets and strengthened its positions on the current ones, it developed import premium portfolio, increased the share of other cate gories of spirit beverages (whisky, brandy, balsams and liqueurs) in the Company’s sales structure. During this period our Company continued to increase international market share of its super-premium Beluga brand. Overall, Beluga export showed a 17% volume growth.

2013 key events for Synergy are exclusive agreements with Latvijas BalsamsandGreatValley,whichexpandedandstrengthenedourrange of imported goods. Now the Company is the one to distrib-ute world-famous Latvian balsams and Armenian cognacs to Russia. Following its strategy of diversifying alcohol business and expand-ing growing categories share Synergy launched a number of own brands: Fox&Dogs whiskey, Kamenny Lev (Stone Lion) and StarayaGvardia(OldGuard)cognacs.Thus,theCompanyhasastrong presence in the majority of high-margin categories, which positively influences Synergy’s business and guarantees its stability.

ADDRESS OF CHAIRMAN OFMANAGEMENTBOARD

ADDRESS OF CHAIRMAN OFMANAGEMENTBOARD

ALEXANDER MECHETIN

CHAIRMAN OF MANAGEMENTBOARD

The success achieved last year is the result of hard work of the Company’s staff numbering more than 9,000 people today. Thanks totheeffortsofeveryemployee«Synergy»todayisasolid,unitedand efficient team of like-minded people, who are united by com-mon target; the team that is highly reputable in a professional community.

To conclude, I would like to express my gratitude to our employees, partners and shareholders for their contribution to the Company’s development,constructiveco-operationandsupport.«Synergy»willcontinue its development, will open new horizons, will keep its leader ship position and will demonstrate the highest standards of business operations.

Alexander MechetinChairman of Management Board of OJSC «Synergy»


Startup Sales of Own Whisky.

SalesstartupofownScotchwhisky«Fox&Dogs»canbecon-sidered as a strategic move towards the Company’s product port-folio expansion as the Russian whisky segment demonstrates a steadygrowth.Itisobviousthat«Fox&Dogs»willoccupyawell-deserved market share in its sector because there are all condi-tions for that, such as a good product that possesses a balanced taste, a reasonable shelf price and a powerful distribution platform.

Launch of New Cognacs.

Theproductionof5yearsageingcognac«KamennyiLev»waslaunched. This product of sub-premium price segment is aimed at customers aged 30-45 years old; it was developed for 1,5 years. «KamennyiLev»isproducedsolelyonthebaseofFrenchcognacmaterials and owing to this fact it is quite close to the best Euro-pean samples.

Onemorecognacbutofmid-pricesegmentcalled«StarayaGvar-dia»waslaunched. This product naturally complemented the Com-pany’s cognac assortment. It possesses an original taste that was obtained thanks to use of French cognac materials, a bright design of the product that personifies world military history, all these arouse considerableinterestofconsumersin«StarayaGvardia»cognac.

Thankstothelaunchof«KamennyiLev»and«StarayaGvardia»the Company managed to take the most forward-looking niches in different price segments as the cognac proposal was fully per-formed:newproductscomplementedtheexistingonesin«ZolotoyRezerv»portfolio.

Distributionof«LatvijasBalzams»ProductioninRussia.

The Company signed an exclusive long-term distribution agreement with«LatvijasBalzams»company. On July 1st2013«Synergy»became an importer and two months later it became a distribu-torof«LatvijasBalzams»productsinRussia.Undertermsoftheagreement«Synergy»exclusivelypresentedinRussiathefollow-ingfamousbrands«RigaBlackBalsam»and«RigaBlackBalsamCurrant»,aswellasliqueurs«Moka»and«Šarlote».Thesetrade-marks are going to be distributed by our company through on-trade and off-trade channels.

KEY EVENTS 2013

Distributionof«GreatValley»(Armenia)Productionin Russia.

The company signed a five-year distribution agreement with the company«GreatValley»(Armenia)thatbecameeffectiveon1stJuly2013.Accordingtothesigneddocument«Synergy»»offeredtheRussianmarkettwonewproducts:«TsarTigran»and«Yere-vanTraditional»brandythatagefrom3tounique30years,thesedrinks are of high price bracket. Besides, Synergy provides listing through the retail chains and also carries trade-marketing support.

Brands«BelugaNoble»and«BelugaGoldLine»intheUSA.

Beluga North America, Inc., a North American subdivision of «Syn-ergy»signedadistributionagreementwiththecompanyShawRossInternational Importers (ShawRoss).

AccordingtotheagreementShawRosswillpresent«BelugaNoble»and«BelugaGoldLine»brandsintheUSAmarket.Thegoalofthesignedagreementistobringthebrands«BelugaNoble»and«BelugaGoldLine»tothenewsales-levelintheUSA,whichwillallow«Synergy»jointheleagueofinfluentialplayersofpremiumvodka segment in the USA market. The company ShawRoss was founded in 1968 and at present it supplies the production to all 50 states as well as to the capital city of Washington.

«BelugaNoble»and«BelugaGoldLine»inChina.

The company signed an exclusive three-year renewable distribution agreementwithcognachouse«Camus»inthePeople’sRepublicofChina.SinceSeptember2013«Camus»becameanexclusivedis-tributorof«Beluga»brandinthiscountry.Thesaleswillbecarriedoutbyasubsidiaryof«Camus»–YuanLiuInternationalTrade(SH)Co.Ltd.Accordingtotheagreement«Camus»willpresent«BelugaNoble»and«BelugaGoldLine»ontheterritoryofChina;inthelong-term«BelugaTransatlantic»and«BelugaAllure»sup-plies are planned.

Cognachouse«Camus»willensurethesalesandthefullpromo-tioninChinaofsuper-premiumbrandof«Synergy»fromlogisticstobrand and trade-marketing support of the product.

KEY EVENTS 2013


KEY EVENTS 2013

«BelugaNoble»and«BelugaGoldLine»inSpain.

The Company signed an exclusive 5 years distribution agreement withSpanishcompany«MiguelTorresS.A».SinceSeptember2013«MiguelTorresS.A»hasbeenanexclusivedistributorof«BelugaNoble»and«BelugaGoldLine»ontheterritoryofSpain(includingDuty Free Shops), in the Canary Islands, in the Balearic Islands andinAndorra.«MiguelTorresS.A»companyisoneofthebest-known companies in Spain that has its own powerful distribu-tion base, unblemished reputation and huge experience in pro-motion and development both its own trademarks and imported brands.«MiguelTorresS.A»isgoingtoplacethemainemphasison«BelugaNoble»and«BelugaGoldLine»promotion.Takinginaccount the cultural features of Spain, where 90% of spirits in this category are consumed via on-trade channel, the special attention will be paid to it.

Bitterandsweetliqueurs«Myagkov»beatthemarket

«Myagkov»beatsthemarketofsweetandbitterliqueursanditisone of the most forward-looking segments. The brand portfolio has already3bitterliqueurs:«MyagkovCranberry»,«MyagkovLemon»and«MyagkovChili&Honey»,aswellas1sweetliqueur«Myag-kovAshberrywithCognac»andliqueur«MyagkovCappuccino»;still«Myagkov»continuestoexpanditsportfolioconstantlydevel-oping new products.

«Belenkaya»continuedtoexpandinexportmarkets

2013wasmarkedbyactivedevelopmentof«Belenkaya»inexter-nal markets. The most effective development occurred in a pri-ority direction that is in spirit markets of CIS countries where «Belenkaya»becameasupremeleaderespeciallyinArmeniaandKazakhstan.

The development in overseas countries was also successful: the product was not only adapted to the needs of the countries (the UK,Germany,FranceandtheBalticstates)butthereweresomesteps taken towards the product promotion.

Thus,now«Belenkaya»isconfidentlysoldnotonlyinCIScountriesbut it also discovers Europe and Asia. Since 2013 some new coun-tries(theUK,Italy,ChinaandLebanon)sell«Belenkaya».


«Synergy’s»strategicaimistheleadershipinproductionanddis-tribution of spirit beverages in Russia. Apart from that, the Com-panystrivestointernationalrecognitionand«Beluga»brandawareness. This set of missions is going to be accomplished by expanding direct distribution, by strengthening sales teams, increasing awareness and exposure of the brands. In current development the Company puts the main emphasis on maximum diversification of operation both in internal and external spirit mar-kets.

The plan is to get 20-25% of Russian spirit market. Today the Company manages a balanced portfolio of national brands cov-ering all price categories. The Company is aimed at growth of income by means of premiumisation and diversifying the spirit product sales.

Company expected future development

Since2002«Synergy»hasbeenpursuingapolicyofstrictselec-tion of brands to be included into its national distribution and today the portfolio of the Company’s own brands consists of six vodka brands, three brandies and one whisky.

These trademarks are sold on the territory of Russia and they are in demand. The Company follows the development strategy that allows it to constantly increase the overall efficiency, optimize the production costs and consistently expand market outlets for the product.Inadditiontothat,«Synergy»considersthepossibilitytostrengthen its system of sales by selective addition of premium international brands to the distribution portfolio, which will encour-age the increase of operating efficiency. Developing its own trade-marks in brandy category the Company is planning to cover no less than 10% of this market; this category is the second largest one of strong spirit beverages in Russia.

Because of restrictions on strong spirits advertising the Company attributes importance to trade-marketing activity, and it also works on the improvement of the qualitative brand exposure on shop shelves.«Synergy»thoroughlysupervisestheformatandparame-ters of such product placement, developing its distribution network, in particular by increasing the number of exclusive sales teams.

STRATEGY


MARKETING

Marketing is something special to the Company’s business: market-ing team is always searching for new solutions that would improve the product characteristics. It is an important constituent of sus-tained effort that is aimed at maintaining the Company’s leadership.

The law to totally ban alcohol advertising in mass media came into force in 2012. Due to this change the Company refocused the mar-keting strategy and reinforced the support of its brands in the com-modity distribution network. Dynamic trade-marketing programs for distributors, promotion in sales outlets, sales promotions for custom-ers – all these allow the Company not only keep but also increase the loyalty level to brands.

«BELUGA»

Aspecialshow«Beluga»ontheeventof«RoyalAscot»races

«RoyalAscot»takesplaceinmid-Juneandlastsforaweek.Atthis time more than 300 thousand people come to the small town of Ascot in Berkshire every year. The main prize of these races is alargesumofmoneyandtheGoldCuppresentedtothewinneron the last day of the event. Everything should be flawlessly and perfectataneventofsuchimportance.«Beluga»vodkahasbeennoted as a favorite in ultra-premium class by the best sommeliers worldwide. This vodka is traditionally produced and it reflects the essence of royal races traditions, the main peculiarity of which is the worship of history. This is one of the reasons why particularly «Beluga»isaspiritpartnerof«RoyalAscot»andithasanofficialstatus of the drink at Bessborough restaurant which is visited only by invited persons. Considering the importance of such an event the «Beluga»teampreparedabreathtakingshowandaspecialmenu.Theguestscouldtryunique«TheBelugaBubble»thatarevodka-filled bubbles which burst inside your mouth and a cool «Beluga-Sherbet»madeoffrozencocktailswith«Beluga».

«BelugaTerrace»:luxuryinthecenterofBerlin

Thankstothepartnershipagreementbetween«Beluga»andoneofthebestfive-starhotelsHotelAdlonKempinskiinGermany,along-awaited opening of summer terrace (Hotel Adlon Kempinski`s New Beluga Terrace) took place in the center of Berlin in July 2013.

MARKETING

«Beluga»becameanofficialdrinkoftheNobelPrize.

On 10th December at the Stockholm City Hall with support of noble vodka«Beluga»,whichbecameanofficialpartneroftheevent,theNobel Prize Award Ceremony took place. It is one of the oldest and most important international awards bestowed in recognition of dis-tinguished scientific researches.

«Beluga»is«BestoftheBest2013»,notonlytherightto be best but acknowledgment of perfect quality.

«Beluga»is«bestofthebest»–thesearenotjustfinewords,itisthe acknowledgement of the perfection given by famous American journal Robb Report. Robb Report is an authoritative American jour-nal possessing a 30-years-old history, it is considered to be a guide in the world of the highest standards and intended for very demand-ing and sophisticated readers. The journal publishes a special issue «RobbReport.BestoftheBest»annually.Thisissueincludesaquintessenceofallthebestthings.Thisyearvodka«BelugaGoldLine»enteredthelistcomprising175brandsfromallovertheworld, and it became the only vodka representative deserving such atitle.Now«Beluga»holdsprideofplacein«RobbReport.BestoftheBest»alongsidesuchtrademarksas«AstonMartin»,«Ferrari»,«Hermes»,«LouisVuitton»,«PatekPhilippe»,«Chopard»,«Chanel»and«Cartier».

«MYAGKOV»

Oneofthedirectionsof«Myagkov»productportfoliobranddevel-opment is creation of the limited series. In December 2013 the limitedseriesofvodka«Myagkov»wentonsale,theseriesweredevotedtotheOlympicGamesinSochi.Thedistinguishingfeatureof this product was a new design made in a sports style. There is an image of winter season in Sochi on the bottle and an active and modern lifestyle is depicted, which fully exemplifies the spirit of brand«Myagkov».Thelimitedserieswereproducedasarestrictedbatch of 100,000 bottles, and first of all it was distributed through federal and local networks. Moreover, the assortment of brand «Myagkov»hasthemostpopularkindsofbitterandsweetliqueurs;andthebrand«Myagkov»portfolioconstantlyexpands.InMaythenewproduct«MyagkovChili&Honey»bottlingtookplaceatALVIZdistillery. This product became a nice addition to the line.


MARKETING

«RUSSIANICE»

In October 2013 the Company launched restyling of famous in the market«RussianIce»vodka,whichcreatedadditionalpossibili-ties for carrying out export potential. After revolutionary restyling the designof«RussianIce»brandpackagestartedtocorrespondtoallthe criteria of the modern consumer and occupied a well-deserved place in the Russian vodka market. There was a contract concluded with Hollywood actor Sylvester Stallone, the contract allowed to use the image depicting the actor on all kinds of packaging of this prod-uct brand. No doubt the image of this actor, who supported «Rus-sianIce»brandin2010,attractedcustomers’attentiontorestyledversionof«RussianIce».On-saledateofthefirstbatchhavinggiftwrapping with Sylvester Stallone images was planned for May 2014.

«BELENKAYA»

Advertisement at football matches

Advertisement placement during qualifying matches of World Cham-pionship with participation of Russia National Team and within the frame of the Europa League matches became a key instrument of ATLadvertising.«Belenkaya»advertisementwasplacedat4qualify-ing matches of the Championship and at 5 matches of the Europa League. Each match was viewed by more than 45 million viewers. The broadcast of the matches took place on central national chan-nels of the country: the First Channel, Channel 1 Russia and Chan-nel 2 Russia and NTV. On the whole the broadcast circulation of the advertising campaign was 400 million viewers.

«BelenkayaVoronaya»launch

«BelenkayaVoronaya»becamethebrighteststartof2013inspiritmarket of the RF. This innovation absolutizes the approach of the brand«QualityHigherthanGOST’s».Thequalityperformanceof«Voronaya»is5timesashighastheGOSTdemands.Thisbecame possible due to product filtration through 21 meter charcoal filter.

MARKETING

Advertising Campaign on Satellite TV

«Belenkaya»brandheldalarge-scaleadvertisingcampaignonsat-elliteTVchannel«TheFirstChannel.Worldwideweb.»Itsbroad-cast covers more than 90 countries around the world (European countries, Asia and Africa). According to the in-house data of the Channel«TheFirstChannel»isthemostpopularchannelamongthe Russian-speaking audience in Europe and it is watched by 90% TVviewers.Thus,theadvertisementof«Belenkaya»wasseenbymore than 280 million of people in more than 90 countries around the world.

«GOSUDAREVZAKAZ»

Keepingtothecontemporarytrendsofspiritmarket,brand«Gosu-darevZakaz»expandedtheproductlinewithbitter«GosudarevZakazPepper».Thankstobrand’spopularityandareasonableprice, the sales volume of the bitter is going to be increased up to 100,000 decaliters in the nearest two years, which will allow to considerablygrowupthesalesvolumeofthebrand«GosudarevZakaz».


Distribution

«Synergy»groupofcompaniesperformsthesalesthroughoneofthe most branched distribution networks in Russia.

Distribution network consists of several complementary channels: direct sales including own retail outlets and sales through inde-pendent distributors. Today the team that performs sales has 3,600 people. The Company’s distribution network geography is divided into two parts: West and East. In those regions where dis-tilleriesarelocated«Synergy»exploitsitsownsalespersonnel,warehouses and its own transportation fleet to deliver the product directly to retail outlets.

Implementing the distribution network expansion the Company con-siderably increased promotion and sales personnel.

Each key brand occupied a special place on shop shelves after «Synergy»haddevelopedandapproveditsownstandardsofmer-chandising.

In this connection the main aim of the Company’s trade repre-sentatives and merchandisers became the corresponding product placementonshopshelves.«Synergy»istheonlyspiritCompanyin Russia where the merchandiser personnel has 500 people and which in 2012 launched a special system, allowing the Company to track the accomplishment of the plan and optimize the efficiency of allocation of own forces. Nowadays the sales are accompanied by trade marketing program implementation, in particular by moti-vation campaigns for partners and advertising material distribution in sale outlets. For instance, the program aimed at trade outlets motivationtoexhibitthefullassortmentof«Synergy»onthebestplaceiscalled«AGoldShelf».10,000retailoutletsareinvolvedinthis campaign monthly.

Every employee involved in sales of the Company’s trademarks should understand the value of brands, in order to achieve this there are 15 professional trainers in the Company’s personnel. Every day the trainers organize master classes and put the infor-mation about unique brands across. Apart from the work with own personnel the Company reinforces its positions among bartenders, waiters and waitresses, and restaurateurs: 20 brand ambassadors work for them.

DISTRIBUTION AND IMPORT


Import

TheCompany«SynergyImport»–importerofpremiumspiritbev-erges was actively developed. The Company as the largest inde-pendent importer achieved great results.

In August the Company signed two exclusive long-term distribution agreements:onewithcompany«LatvijasBalzams»,thesecondwithcompany«GreatValley»(Armenia).

The contract with Latvian partners became the next strategic step of the Company towards appearance of new spirit categories. The objective factors show that there is a perspective of bitter category in Russia, moreover the Latvian production has long-standing tra-ditions and it has been familiar to a Russian customer since the USSR time. This partnership will be mutually beneficial to both parties:«LatvijasBalzams»acquiredthelargestindependentdis-tributorinRussiarepresentedby«Synergy»,initsturn«Synergy»expanded its portfolio. Now besides whisky, tequila and cognac it contains high quality balsams that have their own established tar-get audience.

As for the second agreement, five-year distribution agreement with company«GreatValley»(Armenia),whichbecameeffectiveon1stJuly2013,«Synergy»willexclusivelypresent«TsarTigran»and«YerevanTraditional»brandiesontheRussianterritory.Thesebrandies age from 3 to unique 30 years and are of high price segment. These trademarks will be distributed through the off trade channel. Besides, Synergy provides listing through the retail chains and also carries trade-marketing support.

The Company continues to expand and reinforce the distribution portfolio in different categories including brandy category. The pro-ductionofcompany«GreatValley»istraditionallyofhighquality,Armenian brandy has always been in demand and popular with customers both on the territory of Russia and CIS countries (for-mer part of the USSR).



Brandy category is the fastest-growing in Russia so it is planned to occupy no less than 5% of this market in the nearest future. Having its own the largest national independent distribution plat-form«Synergy»willeffectivelyusethisadvantagefornewproductpromotion.

Itisinterestingthatin2013theCompany’s«CAMUSLAGRANDEMarque»S.A.brandportfolioexpandedanditcomprisesthreebrandssuchas«CAMUS»cognac,«Chatelle»brandy,«Berneroy»calvadosand«DomainePinnacle»cider.

Important desision was made in 2013 to expand distribution port-folio with the wine category. So far wines of economy-plus price segment and higher to be considered.


«GRANT’S» «GRANT’S»

The history of «Grant’s» started thanks to William Grantin1898whenhemadehisfirstblend.Itisthe oldest family blend in Scotland. 110 years later «Grant’s»whiskyisstillproducedusingtraditionaltechnologies that are cherished and handed over from generation to generation. The flavorful and balancedtasteofallproductsin«Grant’s»lineis achieved thanks to production on the base ofgrainwhiskyGirvan.Thiswhiskyundergoesvacuum distillation under the conditions of relatively low temperatures that contributes to keeping the sophisticated hints in the end product.

Own team of professional on-staff barrel-makers who thoroughly look after the oak barrels, as thanks to the technology of additional ageing period of ready-made blend in barrels previously containing different drinks,«Grant’s»acquiresnewaromahints.

«Grant’s»hasbeenmanufacturedinalegendaryrecognizable bottle of a triangle shape since 1957. «Grant’s»productlinehasbeenawardedwithmedalsof the most prestigious international competitions. All the blends possess a balanced harmonious taste – allofthesearepartof«Grant’s»inimitablestyle.


Thecompany’sfounder«WilliamGrant&Sons»hasforeverchangedthe history of scotch. Even 125 years later, «Glenfiddich» is the most titled single malt Scotch whisky in the world. Today, the assortment of «Glenfiddich»whiskyconsistsof11sortsinRussia.

«Glenfiddich 12 Years Old» is a version that marked the beginning of single malt whisky category with light fruity aroma, with subtle hints of young pear and oak. It is achieved thanks to vatting in barrels pre-viously containing Oloroso sherry or bourbon and to the purest water from Robbie Dubh spring.

«Glenfiddich 15 Years Old» is a single-malt whisky with a rich bright honey spicy flavor. It is vatted in three different types of oak barrels: previously containing sherry, bourbon and in barrels made of new oak.

«Glenfiddich 18 Years Old» is a single-malt whisky with a mild and rich flavor, it is vatted in barrels previously containing sherry or bour-bon, this whisky is extra vatted for another three months in oak vats untilthe«marriage»ofspiritsoccurs.

«Glenfiddich Rich Oak 14 Years Old» is filled with spicy oak and vanilla tones acquired as a result of vatting in new previously not-used barrels made of Spanish and American oak.

«Glenfiddich 19 Years Old Age of Discovery» has a versatile taste with ripe fig hints, baked fruit, cinnamon and black pepper. This whisky is extra vatted in barrels previously containing Madeira.

«Glenfiddich Malt Master Edition» has hints of sherbet, plum and cherry with subtle taste of scorched almond. This is the first whisky thatundergoes«doubleageing»intwodifferenttypesofoakbarrels:traditional and sherry.

«Glenfiddich Barrel of Dreams» is a limited line of whisky, produced specially for Russia. For the first time scotch is extra vatted in oaks made of Russia oak. The taste is bright, tannins and sweet-oaky. The main emphasis is bitterness of heather honey.

«Glenfiddich 21 Years Old Gran Reserva» is vatted in oak bar-rels made of American oak for 21 years, those oak barrels give the soft and flavorful taste, extra-aging in barrels previously containing the Caribbean rum gives this drink some sweet hints of toffee, fig and vanilla.

«Glenfiddich 30 Years Old» is made according to exceptional old supply from distillery. The taste is flavorful and harmonious, once tast-ing its plum hints with some ripe banana, it is impossible to forget it.

«Glenfiddich 40 Years Оld» is an exclusive position that is produced annually – no more than 600 bottles. It has a luxury, silken and ten-der taste.

«Glenfiddich 50 Years Old» is vatted in two sherry barrels – one of which is a little older than 50 years old. The whisky has kept al the freshness, fruit hints and acquired an unusual birch bark flavor.

«GLENFIDDICH» «GLENFIDDICH»


«The Balvenie» is a unique selection single malt Scotch whisky, created by the master of distillery David Stewart. Each type of this whisky has its unique flavor: rich, soft, with bright hints of honey, characteristic only for «The Bal-venie».Thecollectionconsistsofeighttastesofsinglemalt whisky.

«The Balvenie DoubleWood 12 Years Old» spends many years in traditional oak barrels and afterwards in the final stageitisputintoabarrel,wherepreviously«Oloroso»sherry was kept.

«The Balvenie Caribbean Barrel 14 Years Old» is vatted in oak barrels previously containing bourbon and then it is extra vatted for several months in barrels previously con-taining Caribbean rum.

«The Balvenie Single Barrel 15 Years Old» is vatted in one barrel previously containing bourbon. The number if such a barrel can be found on each bottle.

«The Balvenie Double Wood 17 Years Old» is a whisky that first aged in a barrel made of American oak (it added some sweet hints of vanilla) and then was put into sherry barrels made of European oak.

«The Balvenie Peated Barrel 17 Years Old» is vatted in barrels of peated sorts of the Balvenie as well as in new barrels made of American oak.

«The Balvenie PortWood 21 Years Old» in order to pro-duce this whisky the blend of rare sorts the Balvenie is extra vatted in barrels previously containing branded sorts of port wine.

«The Balvenie TUN 1401 batch 5» for this series of whisky the master chose special old American and sherry barrels,theiryearof«birth»whichvariesfrom1966to1991. The whisky from these barrels blend and age in a tremendous«marriage»vattun1401.

«The Balvenie Thirty 30 Years Old» is a rare and truly peculiar single malt whisky, for which David Stewart selects only the best barrels that are often older than 30 years old.

«The Balvenie Forty 40 Years Old» in order to produce each of these drink batches that consists of only 150 bot-tles, David Stewart carefully selected and then blended whisky from the most rare barrels kept at the distillery.

«The Balvenie Fifty» is vatted in an oak barrel made from European oak previously containing sherry and is presented in a glass bottle manually blown that is kept in a wooden case.

«THEBALVENIE» «THEBALVENIE»


«Tullamore D.e.w» is the premium blended Irish whisky with a harmonious taste. For its produc-tion three kinds of whisky are used: the so-called «whiskyofdistillingtank»,grainandsingle-maltwhisky. After the creation of the blend the drink is aged in special oak barrels to give it an even greatersoftness.Youcanenjoy«TullamoreD.e.w.»both in pure form and with ice or with soda and lime.

«TullamoreD.e.w.»lineapartfromtheblendofstandard ageing has another two products: single-malt whisky «Tullamore D.e.w. 10 Years Old» and blended «Tullamore D.e.w. 12 Years Old».

«Tullamore D.e.w. 10 Years Old» is vatted for 10 years in barrels previously containing bourbon, Oloroso sherry, port wine and Madeira. This is the only Irish single-malt whisky that is brought to per-fection in four different types of barrels. These spe-cially selected barrels enrich and make the aroma of the drink stronger as a result it acquires a splendid complex and flavorful taste.

«Tullamore D.e.w. 12 Years Old» is a blended Irish whisky created from carefully selected barrels of 12- and 15-year-old ageing. The drink acquires its per-fection thanks to triple distillation, crystal-clear water, selected barley and ageing in barrels previously con-tainingbourbonand«Oloroso»sherry.

«TULLAMOREDEW» «TULLAMOREDEW»


«Clan MacGregor» is a high-quality Scotch whisky, which people enjoy in more than 30 countries around the world; it proudly carries its badge and motto:«Weareofroyaldescent».Today«ClanMacGregor»isoneofthemostpopularblendsinthe UK. It is skilfully blended from a selection of fin-est malt and grain sorts of Scotch whisky, and its fresh, balanced mellow taste with hints of fruitiness is highly appreciated by lovers of this drink.

«CLANMACGREGOR» «CLANMACGREGOR»


«Monkey Shoulder» is an original brand in the world of whisky, where cherishing traditions are considered to be the norm. Despite its modern daring style, this Scotch is produced following inviolable laws of the production of genuine Scotch drink.«MonkeyShoulder»isproducedbyblendingthree malts of three best Speyside distilleries. It ages in the barrels previously containing bourbon of the first filling, these barrels are prepared by coopers of the malt distillery. Triple malt gives this scotch a rich taste. The master of the malt distillery personally selects no more than 27 casks of three typesofsingle-maltwhisky,«marries»theminaspecial tun and then leaves them there for several months. Then he puts the scotch into barrels, where it acquires its individual taste and aroma.

«MONKEYSHOULDER» «MONKEYSHOULDER»


«MILAGRO»

Тequila «Milagro» is more than just tequila. It is produced from 100% blue agave the raw mate-rial that is grown on own plantations, harvested by hand and is roasted in clay ovens. Triple distillation in small batches creates a drink with a slight aroma andsofttaste.«Reposado»and«Anejo»sortsagein oak barrels longer than it is accepted in the industry. Premium bottles are blown according to a unique technology and are processed manually.

The collection consists of 6 tastes:

«Milagro Silver» has hints of blue agave as well as vegetable and citrus hints, and a spicy aftertaste.

«Milagro Reposado» has hints of blue agave with subtle flavor of caramel and toast, and a spicy aftertaste.

«Milagro Anejo» has caramel and coconut with chocolate, tobacco and banana notes, and a little sweet spicy aftertaste.

«Milagro Select Barrel Reserve Silver» has a bright taste of blue agave and vanilla hints, and a dry spicy aftertaste.

«Milagro Select Barrel Reserve Reposado» is pure with vanilla, black pepper and cinnamon hints, and a dry aftertaste.

«Milagro Select Barrel Reserve Anejo» has the flavor of not sweet chocolate, tobacco leaves, toffee with bright oak hints, and a dry aftertaste.

«MILAGRO»


«HENDRICK’S» «HENDRICK’S»

«Hendirck’s» is the gin that is produced in an unu-sual way with the addition of non-standard ingre-dients which give it an original flavor and aroma – extracts from the petals of Bulgarian rose and freshcucumber.«Hendrick’s»isespeciallyvaluablebecause the main eleven ingredients (the so-called «botanicals»,thecombinationofwhichgivesthisdrink its unique character) are delivered from differ-ent corners of the planet.

«Hendrick’s»istheonlyginthatisproducedwiththe help of two stills: a Carter-Head still and a cop-per Bennett still. Due to this fact the drink has an outspoken bouquet.

«Hendrick’s»isproducedinScotlandusingonlypure water from the local natural springs. The gin is hand-crafted in very small batches of only 450 liters each.


«CAMUS» «CAMUS»

«Camus» was founded in 1863, it is a family-owned company that has a unique portfolio of premium spirit brands which are popular all over the world.

«Camus»isthehistoryofthecognachouse,whichsince 1863 was owned by five generations of one family, where the exceptional skill of creating out-standing cognacs with a unique, elegant style was passed from father to son.

Passionate devotion to duty is alive today due to Cyril Camus. Being loyal to his heritage, he pre-servestheindependenceof«Camus»andistheinspirer of what we call a Living Tradition. The «Camus»familycreatecognacsofsomeuniquestyle, they can satisfy the taste of the most demanding connoisseur of this noble drink.

Thanks to continuous search for new flavors, the company«Camus»discoveredthevineyardsofÎle de Re, which allowed it to create a range of exclusive island cognacs. The island Île de Re is found off the west coast of France, in the Charente-Maritime department. Located in the area of Bois Ordiner, the island is the westernmost part of the Appellation Cognac.

This series is produced exclusively from grape spir-its from the island of Île de Re, which have under-gone the process of distillation and ageing on the island. Thanks to the influence of the sea, rich in iodinefromnature,theline«CamusIledeRe»ischaracterized by a unique aroma and a fresh, dry taste.


«RIGABLACKBALSAM» «RIGABLACKBALSAM»

«Riga Black Balsam» was founded in Riga more than100yearsago,LATVIJASBALZAMSisalead-ing producer of spirit beverages in the Baltics.

LATVIJASBALZAMSoperatestwodistilleriespro-ducing more than 70 million bottles per year. The maintrademarkofLATVIJASBALZAMSis«RigaBlackBalsam»,itisabitter(herballiqueur)thathasbeen produced since 1752 and it is one of the old-est drinks.

Theline«RigaBlackBalsam»ispresentedbythreetastes: classical bitter, with the taste of black currant and balsam with rum.

«Riga Black Balsam» is classical but at the same time its modern bitter-sweet taste combines different palatable nuances; some people will find in its taste a mellow hint of lime blossom, raspberry, bilberry; some people will taste honey with savory nuance of ginger, nutmeg or oak.

«Riga Black Balsam Currant» has the taste of a mellow and sophisticated spirit beverage that keeps its bouquet till the impressive exquisite ending, the first currant note with pleasant balsam hints will quickly make you hot.

«Riga Black Balsam Element» is a special compo-sition of tastes that is based on original ingredients of«RigaBlackBalsam»withsomeadditionofhigh-quality rum.


«GREATVALLEY»

«Tsar Tigran». More than two thousand years agoduringthereignofTsarTigrantheGreat(anoutstanding ruler and land owner) Ancient Armenia was one of the most powerful countries in the region. Its territory comprised the land from the Сaspian Sea to the Black Sea and to the Mediterranean Sea.TheCompany«GreatValley»createdcognac«TsarTigran»inhonorofTigrantheGreat,agreatArmenian ruler.

The line of cognacs is presented by products of different age periods: 3, 5, 7, 10, 15, 20 and even 30!

«Tsar Tigran» 3 years, 0.5 l. is the youngest cognac in the line. It has a golden color and an expressive aroma which has some dried fruit aroma which is added by hints of candied fruit, chocolate and vanilla. It has a mellow warm aftertaste.

«Tsar Tigran» 5 years 0.5 l. has a deep golden color. The hints of flowers, orange candied peel, nuts and chocolate predominate in its aroma. The taste is well-balanced and harmonious with long-lasting aftertaste that has some hints of roasted almond. This cognac is grand by itself as well as being an ingredient of some cocktails.

«GREATVALLEY»


«Synergy»groupofcompaniesoperates7distilleriesthatareaccording to the strategic Company’s interests located in the largest federal districts including Central, Far Eastern, Northwestern, Volga and Siberian. The number of distilleries and their geographic diver-sification provide the Company with additional savings in matters of logistics and also reduction of technological risks in production activities. It also facilitates aversion of other operational risks which some companies having only one production facility experience at times.

All7distilleriesoperateadvancedGermanandItalianequipmentwith more than 15 million decaliters of total capacity.

Production programs of all distilleries include output of the full range of federal brands and corresponding local brands. The exceptions are«Beluga»and«Veda»brandsproducedonlyatMariinskydistill-eryinSiberia.«Synergy»distilleriesareanimportantcomponentofthedistributionsystemoftheGroup:theyareactivelyusedaslargelogistic centers in corresponding regions.

Our Distilleries

«Traditsii Kachestva Distillery» is one of the largest distiller-ies that produces strong spirit beverages in Russia, it is located in Krasnoznamensk town, Moscow region. The distillery was founded in1997andjoinedtheGroupin2007.In2009thedistillerybecameone of the top ten largest distilleries in terms of production vol-umes. The distillery operates advanced Italian equipment. The distill-ery operates as a large logistic and production center producing all nationalvodkabrandsoftheGroupthroughoutthewholewesternpart of Russia up to Ural border.

«Arkhangelsk Alviz» distillery was founded in 1899 and is now the largest distillery in Arkhangelsk region. The distillery was acquired by«Synergy»in2004anditisoneoftheleadingstrongspiritbeverage producers in the region. The distillery operates advanced high-performanceGermanandItalianequipment.

Nizhny Novgorod «ROOM» distillery was founded in 1993 in Nizhny Novgorodandwasacquiredby«Synergy»in2006.Thedistilleryoperates new Italian equipment.

PRODUCTION PRODUCTION

Perm «UralAlko» distillery is the leading strong spirit beverage pro-ducer, that is apart of 50 largest factories in the region. It joined «Synergy»in2003.Thedistillerycommenceditsactivitiesin1968and specialized initially in grape wine production and sales. The dis-tilleryoperatesadvancedGermanandItalianequipment.Besides,«UralAlko»functionsasthedistributioncenterfortheCompanyproductsrepresentingallnationalvodkabrandsoftheGroupintheUral region of Russia.

«Ussuriiski balzam» has been the leading factory in the spirit industry of the Primorye Territory for more than 100 years. The dis-tilleryjoined«Synergy»in2002.Itwasfoundedin1894byMikhailPyankov, the merchant. The factory operates both as production and distribution center and presents all national vodka brands of the Company in the Far East of Russia.

«Mariinsky» distillery in Kemerovo region is one of the leading dis-tilleries in Russia. The factory has been in operation since 1900 and it functions as the logistic center performing production and distribution of the whole range of the Company products in Sibe-ria.Thefactoryjoined«Synergy»in2006.Thedistilleryislocatedin environmentally pristine area with no industrial facilities within a radius of 200 km.

«Khabarovsk» distillery founded in 1881, is the largest distillery in theFarEast.Thefactoryjoined«Synergy»in2005.


At2013year-endtheCompany«Synergy»continuestostrengthenits positions in international spirit market. Sales performance clearly demonstrates the leading position: the Company makes the topthreeofthelargestexportersofRussianvodka.«Synergy»is the only company in Russia that successfully exports vodka of super-premium segment.

The high-quality product and thoroughly considered development strategy allow the Company to make ambitious plans of the Com-pany’s brands promotion in the export markets.

The highest growth was noted in the super-premium vodka seg-ment.Exportsalesof«Beluga»increasedby17%forthefiscalyear.

The Company places emphasis on five main export directions: Europe, Asia, CIS, the USA and Canada.

In Western Europe the geography of the Company’s brands sales expanded in Portugal and the Netherlands; in Eastern Europe it expanded in Bulgaria, Serbia and on Cyprus. Moreover, the Com-pany has plans to start direct supply to Montenegro and Malta.

The Company brand portfolio sales performance in the West increased by more than 100%. In countries of Eastern Europe «Beluga»vodkastartedtosellby38%morethanin2012.

Lastyear«Synergy»signedanexclusive5yeardistributionagreementwithSpanishcompany«MiguelTorres».SinceSep-tember2013«MiguelTorres»hasbeenanexclusivedistribu-torof«Beluga»vodkaontheterritoryofSpain(includingDutyFree Shops), in the Canary Islands, in the Balearic Islands and in Andorra.

Company«MiguelTorres»isoneofthebest-knowncompaniesinSpain that has its own powerful distributor base, unblemished rep-utation and huge experience in promotion and development both its own trademarks and imported brands.

TheCompany«Synergy»planstostrengthenitspositionsinWest-ern Europe as well as in Asia by means of quality distribution increase and local marketing events.

In 2013 an exclusive three-year renewable distribution agreement withcognachouse«Camus»inthePeople’sRepublicofChinaandinHong-Kong.Sinceautumn2013«Camus»hasbeenanexclusivedistributorof«Beluga»brandinthiscountry.

EXPORT OPERATIONS

EXPORT OPERATIONS

Accordingtothecontract«Camus»willpresent«BelugaNoble»and«BelugaGoldLine»,ontheterritoryofChina;inthelong-term«BelugaTransatlantic»and«BelugaAllure»suppliesareplanned.Cognachouse»Camus»willensurethefullpromotionandsalesofsuper-premiumbrandof«Synergy»fromlogisticstobrandandtrade-marketing support of the product on the territory of China. Thisagreementwillallowtoreinforce«Beluga»brandpresenceinAsian region where the trend of customer’s preference shift from «brown»spiritstovodkatakesplace.

Besides, sales startup took place in Malaysia and first shipments were performed to Mariana Islands last year. In 2014 the com-pany is going to start shipment to the Philippines, the Seychelles and the Maldives. Steady sales development continues in Viet-nam (37% growth), South Korea (69% growth), Indonesia (220% growth) and in other countries of Southeast Asia.

At the end of 2013 first shipment to the Dominican Republic was performed. Latin America is the perspective direction in our plans for 2014 to establish shipping to Brazil, Mexico and Chile.

«Synergy»alsoconsidersthepossibilitiesforexportsalesdevel-opment in African region. In 2013 the negotiations with distributors from the Republic of South Africa, Nigeria, Morocco, Congo and Angola started.

The year became successful for sales through Duty Free channel. The sales increased by 27% in comparison with 2012, while sales in Russia increased only by 2% but in European airports they increased by 75% and in the Middle East by 32%.

«Beluga»becametheworldNo.4super-premiumvodkabrandinDuty Free sales-channel according to version IWSR.

Sales increase takes place in Asian, African and American airports buttheshareof«Beluga»salesitselfinthesepartsoftheworldisnothighyet.Theshareincreaseof«Beluga»brandisoneofthe key targets of the Company in the nearest future.

The listing in 44 airports of the largest cities around the world (such as Rome, Madrid, Barcelona, Cancún, Abu Dhabi and Kuala Lumpur) is the result of the work fulfilled in 2013.

During the last year 34 successful promotion campaigns with the use of brand decorations and promotion staff in the biggest shops of Duty Free were held.

Itisimportanttomentionthatin2013«Synergy»expandeditspresence in the USA. Thanks to signing a contract with a new importer,nowitispossibletobuyproductsof«Beluga»brandinmore than 30 states.


«PENTAGRO»GROUPFOODSTUFF

The Company owns and operates agricultural and food business enterprises, carrying out the production, marketing and sales of crops, poultry meat, dairy and meat products in Russia. In 2009, all the assets of this business were separated from the spirits business of the Company and consolidated into a separate company – JSC«PentaAgro»whichisa100%ownedsubsidiaryofOJSC«Synergy».«PentAgro»membercompanieshaveleadingmarketpositions in the regions of their presence. Marketing and sales of food products are carried out exclusively under the names of local brands and mainly in those regions where the corresponding production plants are located. Products are distributed through direct sales, distributors and wholesalers.

Dairy Products

Dairy products are manufactured and sold primarily in the Primorsky and Khabarovsk Territories. The company’s dairy assets include twomanufacturingbusinesses:JSC«Ussuriisky»MilkFactorylocated in the city of Ussuriisk of the Primorsky Territory and JSC «DAKGOMZ»inKomsomolskonAmuroftheKhabarovskTerritory.

These factories produce over 100 different products including different categories such as sterilized and pasteurized milk, sour cream, cottage cheese, butter, cultured milk and soya products, ice cream,etc.JSC«DAKGOMZ»isoneofthefewmanufacturersofsoya milk products in Russia and the only manufacturer of such products in the Russian Far East.

Meat Processing

MeatproductsareproducedbyJSC«MeatProcessing»PlantNakhodkinsky in the city of Nakhodka, the Primorsky Territory, and are sold throughout the Far East. The plant produces a wide range of processed meat: cooked uncooked and semi-cooked sausages, ham, salami and semi-processed meat. The company is focused on producing high-margin products in the medium price and premium market segments of the processed meat market.

«PENTAGRO»GROUPFOODSTUFF

Poultry Meat Processing

Poultry products are distributed mainly in Saratov Region and in the neighboring regions of the Volga federal district. The essential in poultry business is an integrated poultry production complex in Saratov region. Its core assets are JSC Mikhailovskaya poultry farmandthestudfarmJSC«PPZTsarevschinsky-2».Thepoultryproduction complex produces the brood chicken egg, broiler chickens and products made from them – more than 100 kinds of high quality products, including chilled poultry meat, semi-finished products, ready meals and sausages. The complex also has its own distribution network, sales department and its own retail stores.

In2013JSC«PentAgro»solditsmainagriculturalassetstoastrategic investor in Saratov region.


GEOGRAPHYANDDISTRIBUTION

Arkhangelsk

Khabarovsk

Perm

Moscow Region.Krasnoznamensk

MariinskKemerovo Region.

Nizhny Novgorod

UssuriiskPrimorsky Krai

Moscow

Vladivostok

Kiev

Miami

Almaty

RF

CIS

Asia

Europe

USA

Canada

Australia

Mexico

Brazil

Market

Main Offices

Representative Offices

Distilleries

� We distribute our products in more than 40 countries worldwide.

� The Company has 7 distilleries.

� There are two offices: in Moscow and Vladivostok.

� There are three representative offices: in Kiev, Almaty and Miami.


FINANCIAL REVIEWBOARD OF DIRECTORS’ REPORT ON BUSINESS PRIORITY AREAS


2013 2012 Change %

H22013

H22012

Change %

Sales, thousands dL 12,534 14,306 -12 7,774 8,141 -5

Sales 44,594 41,547 +7 27,246 24,020 +13

Net Revenue 26,378 26,664 -1 15,615 15,272 +2

COGS 15,098 15,652 -4 8,926 8,859 +1

Gross Profit 11,280 11,012 +2 6,689 6,413 +4

GrossProfitMargin,% 42.8 41.3 +1.5pp 42,8 42.0 +0.8pp

GeneralandAdministrativeExpenses 2,053 2,090 -2 1,076 1,172 -8

Distribution Expenses 5,871 5,416 +8 3,500 3,180 +10

EBITDA 3,674 3,593 +2 2,290 2,301 0

EBITDA Margin, % 13.9 13.5 +0.5pp 14.7 15.1 -0.4pp

Operating Income 3,127 3,123 +0 2,023 2,048 -1

Operating Income Margin, % 11.9 11.7 +0.1pp 13.0 13.4 -0.5pp

Net Financial Expenses 1,202 993 +21 572 556 +3

Net Income 1,541 1,702 -9 1,123 1,203 -7

Net Income Margin, % 5.8 6.4 -0.5pp 7.2 7.9 -0.7pp

Net Operating Cash Flow 1,010 1,854 -46 343 1,648 -79

Earnings per Share, RUR 82.32 84.87 -3 59.24 62.11 -5

Financial Performance and Operations Results

The table below illustrates the consolidated financial results of the Company’s activities for the full year 2013 as compared with the full year 2012 and for the second half 2013 in comparison with the second half 2012. (in million roubles, except for those indicators which are otherwise stated)

The excise tax significantly increased on January 1, 2013, which resulted in an overall strong alcohol market decrease by 13-15%. SynergyGroupsalesshoweda12%decrease(from14.306milliondL to 12.534 million dL), however, due to an increase in shipment prices, the Company managed to almost completely mitigate this decline (Net Revenue drop only by 1% from 26,664 RUR million to 26,378 RUR million). The negative dynamics of 1H changed to positive dynamics in 2H (Net Revenue growth amounted to 2% from 15,272 RUR million to 15,615 RUR million).

The company’s pricing policy also had a positive effect on the GrossProfitandGrossProfitMargin:GrossProfitshoweda2%growth to 11,280 RUR million while the margin showed a 1.5pp growthto42.8%.2H2013GrossProfitshoweda4%growthascompared with 2H2012. Profitability and efficiency indicators in 2H showed better dynamics than the full year, which indicates the gradual stabilisation of consumer demand.

Generalandadministrativeexpensesdroppedby2%to2,053RURmillion. Despite inflation in 2013, the company was still able to decrease its administrative expenses. Wages increased by 6% while expenses for third party services decreased.

In 2013, the Company’s distribution expenses increased by 8% to 5,871 RUR million. A number of corresponding expense items correlates the amount of total revenue with the excise tax, which showed a 7% growth in 2013 (44,594 RUR million). This is why the present indicator of change in commercial expenses is, overall, stable.


2012 2013

The Company’s revenue in 2013 was 26,378 million Rubles, which is by 1.1% less than in 2012.

Revenue

0

5 000

10 000

15 000

20 000

25 000

EBITDA and Net Profit

The consolidated 2013 EBITDA increased by 2% from 3,592 RUR million to 3,674 RUR million. EBITDA growth indicates a stabilization of the company’s growth, an increase in its operational efficiency, a possibility to mitigate the negative impact of the abrupt excise tax increase and the decrease in consumer demand through operational diversification and a pro-active pricing policy.

Net Profit decreased by 9% from 1,701 RUR million in 2012 to 1,541 RUR million in 2013. While the company’s operational activities allowed it to compensate the impact of the excise tax increase and the decrease in shipment volume (Operational Profit increased by 4 RUR million and amounted to 3,127 RUR million), the financial expenses which showed a 21% growth to 1,202 RUR million resulted in a Net Profit decline as compared with the previous year. The growth in financial expenses was also caused by the excise tax increase on January 1, 2013, as bank guarantee expenses increased and additional credit resources were necessary to finance inventories and accounts receivable, which includes excise tax.

0

2000

4000

6000

8000

10000

12000

3985

2012

18 164

3 487

2010 2011


Àëêîãîëü

Ïðîäóêòû ïèòàíèÿ

0

5 000

10 000

15 000

20 000

25 000

30 000

21 228

3985

Food SegmentAlcohol Segment

18 164

3 487

2010 2011


Àëêîãîëü


0

5 000

10 000

15 000

20 000

25 000

30 000

21 228

3985


18 164

3 487

2010 2011


Àëêîãîëü


0

5 000

10 000

15 000

20 000

25 000

30 000

21 228

3985


18 164

3 487

2010 2011


Àëêîãîëü


0

5 000

10 000

15 000

20 000

25 000

30 000

21 228

3985


Revenue, million Rub.

Shares of segments in Revenue

Gross Profit by Segments, million Rub.

2012

19% 20%

81% 80%

2013

2013

5036

1 2941 027

5228

21 629

9744

10 253

21 150




Alcohol Segment

The indicators for the alcohol segment dynamics are similar to the overall group results: a drop in sales volume, an increase in gross profit due to an increase in prices and an increase in the share of premium distribution of imported brands due to a rejection of low-profit non-exclusive agreements. These helped achieve a significant growthoftheGrossProfitMargin:from45.1%to48.5%.

FoodSegmentImpactontheGroupResults

The food segment had an overall negative impact, because despite ofa4%revenuegrowth,theGrossProfitdroppedby267RURmillionandamountedto1,027RURmillion(GrossMargindropby6.1pp). This is primarily due to the sale in the reporting period of 2012 harvested crops as part of divesting the agricultural business sector.

The agricultural business began to be divested in 3Q2013. The divestment was executed as the sale of assets that belonged toRusskyGektarCJSCandRusskyGektarUrozhayCJSC,theGroup’ssubsidiaries.Cashrevenuefromassetsalesin2013amounted to 448 RUR million net of VAT, the transaction closing and the final cash flow is expected for in 1H2014.

The poultry business and the meat and dairy business continue full operations.

Cash Flows

Net Cash Flow from operational activities in 2013 decreased as compared with 2012 from 1,854 RUR million to 1,010 RUR million. However, the fact that a significant positive flow was generated during the difficult period of abrupt excise tax increase is a good signal indicating that the company is in a stable phase of development.

Capital Structure

The table below illustrates changes in the equity structure as of December 31, 2013, as compared to the previous period.

(in million roubles, except for those indicators which are otherwise stated)

The total debt amount as of the year end did not show a significant change as compared with December 31, 2012, while the Net Debt/EBITDA ratio remained at the conservative level of 1.69. The average weighted cost of loan did not change and still amounts to 10.8%. It is important to note the qualitative improvement in the debt structure in the form of a larger share of long term-loans and the growth of unsecured debt instruments. The prevalence of unsecured loans in the credit portfolio remains our long term strategic aim.

2012 2013

12% 9%

88% 91%

December 312013

December 312012

Year-over- year basis , %

Total Debt 6,679 6,626 +0.8

Long-Term Debt 5,802 4,963 +16.9

Short-Term Debt 877 1,663 -47.3

Share of long-term debt in total debt, %

87 75 +12pp

Share of unsecured liabilities in total debt, %

62.1 52.1 +10pp

Cash and Equivalents 467 707 -33.9

Total Capital and Reserves 18,369 17,371 +5.7

Total Capital 24,716 23,046 +7.2

Net Debt / EBITDA 1.69 1.65 +2.6



Shares of Segments in Gross Profit

18 164

3 487

2010 2011


Àëêîãîëü


0

5 000

10 000

15 000

20 000

25 000

30 000

21 228

3985

FoodstuffAlcohol

18 164

3 487

2010 2011


Àëêîãîëü


0

5 000

10 000

15 000

20 000

25 000

30 000

21 228

3985

FoodstuffAlcohol


«Synergy»buildsitslong-termdevelopmentstrategybasednotonly on its commercial interests, but also on the principles of social responsibility and ethical standards of doing business always considering the balance between business and society interests.

The Company seeks to make a significant contribution to the development of the Russian economy and the prosperity of the country’s population. Thus, in 2013 the total volume of its tax pay-mentsexceeded23billionRubles.«Synergy’s»Managementareconvinced that the achievement of excellent results and manage-ment efficiency are to a considerable extent determined by the level of loyalty to the Company. Trust, in its turn, is based on fair treatment and respect for all involved parties, including sharehold-ers, customers, business partners and employees. The relation-ships with these groups provide the basis for the Company’s repu-tation – one of the key non-financial assets, which is especially important for any company operating in the consumer sector of the market.

Our corporate and social responsibility policy is based on the follow-ing four priority areas:

� socially responsible marketing and developing responsible alco-hol consumption culture,

� socially responsible human resources policy based on mutual respect, fair compensation and providing our employess with professional growth opportunities,

� taking care of the environment and caring for the preservation of natural resources,

� social and cultural initiatives encouraging harmonious society development.

Social responsible marketing

«Synergy»isoneoftheleadersintheRussianspiritmarketandwith the help of its activity in spirit brands promotion tries to set an example of social marketing within the above mentioned market. The Company’s products promotion and distribution are aimed exception-ally at adult consumers and we take into account the risks related to excessive alcohol consuming.

SOCIALRESPONSIBILITY


The Company performs marketing activities on the base of full com-pliance with the Russian legislation and puts its advertisements only on allowed by the law channels. Apart from meeting the regulation bodies’ demands, the Company developed its own system of stand-ards in the sphere of responsible alcohol consumption and inform-ing consumers that are based on recommendations and guidelines of such international organizations as the European Alcohol and Health Forum and the EU Council of Ministers. In its marketing activity «Synergy»doesnotimposealcoholconsumptionprocessbutmakesadults aware of its products in order they could make a conscious choice in favor of one or another brand.

Apartfromthis«Synergy»actsasaninitiatorofalotwiderspread-ing of information material explaining the negative effects of exces-sive alcohol consumption. So in 2007 the Company developed and approved its own medium-term information and explanatory program called«Responsiblealcoholconsumption».

The main objectives of this project are avoidance of alcohol con-sumption among the under age, explanation of the potential harm of spirit products to some groups of consumers (pregnant women, peo-ple suffering from central nervous system diseases, etc.), prevention of road accidents that happen due to drink-driving.

Apart from following the legislation and more detailed in-house stand-ards«Synergy»activelyparticipatesinformationofindustrystandardsin the sphere of responsible marketing. The Company’s specialists take part in development of such standards that follow the base prin-ciples of Union of Alcoholic Beverage Producers as well as the co-operation with Federal Service for Spirit Market Regulation.

Socially Responsible Human Resources Policy

The«Synergy’s»employeesareaguaranteeoftheCompany’sfutureachievements. That is why an ethical and socially responsible human resources policy is a key priority for the Company. Motivation of the staff, objective assessment of the professional contributions of each employee, continuous training and providing conditions for the self-realization of specialists are among the main goals of the personnel policy. Particular attention is paid to improvement of standard of life of the Company’s employees and their families. Benefits concerning health care can be used by personnel as well as office workers.


Professional medical checks are carried out twice a year at pro-duction facilities. There is a Voluntary Health Insurance scheme for office personnel. Moreover, the employees and their family mem-bers can use the benefits concerning holiday options. In particu-lar, the employees can be treated at health resorts at the Com-pany’s expense once a year, and they can also send their children to health resorts and summer camps. The Company tries to do its best in encouraging the employees to lead a healthy lifestyle.

«Synergy»stickstotheprincipleofequalopportunitiesandtheCompany guarantees freedom from any kind of discrimination to its employees. The Company closely monitors staff promotions to ensure that career advancement is always the result of productiv-ity gains, higher business skills and gained experience. Recruit-ment and promotion are carried out without regard to gender, age, national origin, religious beliefs, political opinions or membership in voluntary associations. All government standards for employer-employee relationship are strictly adhered to.

Environmental Friendliness

The Company operates in strict compliance with Russian legal requirements to environmental protection and seeks to minimize the negative impact that its production process and its waste have on nature. Among the company’s priority directions in the sphere of environmental protection are sustainable use of natural resources, energy conservation and industrial waste management.

The Company is conscious of the fact that in the production pro-cess plenty of limited natural resources are used such as water and hydrocarbon fuel, so the Company seeks the ways how to utilize these as efficiently as possible. It shall be noted that for «Synergy»conservationofresourceshasalsoeconomic,ratherthan just ethical significance – it is an important component of its general cost management system. Plant modernization consist-ently performed by the Company includes building environmental construction and equipment of production facilities with production monitoring systems preventing environmental damage.



Social and Cultural Initiatives

Fromyeartoyear«Synergy»buildsupitsparticipationinprojectsthat are aimed at social support of population in the regions where the Company’s facilities are based. The Company conducts sys-tematic charitable activity and pursues a comprehensive approach to solving social problems in cooperation with local authorities.

Providing aid to people from the poorest social groups, the Com-pany under no circumstances tries to use this aid for promotion of its products. Neither of such projects is used for information oradvertisingpurposes.Moreover,«Synergy»takesallmeas-ures necessary to avoid any associations between the aid that is addressed to under age and the Company’s alcohol brands.

Apartfromtargetedaid«Synergy»activelyparticipatesinthepro-gramofAll-Russiapublicorganization«DelovayaRossiya»(Busi-ness Russia) that is oriented to aid orphans, large families that adopt children from orphanages and infant orphanages. In addition to organization aid within the above-mentioned program the Com-panyregularlytransfersmoneyto«DelovayaRossiya»accounttopurchase toys, medication, clothes, books and many other things for such children and their families. For this particular aid the Companywasawardedwithacertificate«PublicRecognition».


Shareholders’ equity

Asof31December2013OJSC«Synergy»authorizedcapitalwas2,495,404,900 Rubles divided into 24,954,049 uncertified registered ordinary shares with a nominal value of 100 rubles.

OJSC«Synergy’s»ordinaryshareswereissuedundertheStateregistration number – 1-01-55052-E, ISIN: RU000A0HL5M1.

OJSC«Synergy’s»stockregistrarwasOJSC«Reestr»(license№ 10-000-1-00254, issued by Russian Federal Committee for Securities Market on 13.09.2002, without restriction on the period ofvalidity).Thecompany’sshares(BloombergcodeSYNGRUEquity,SYNGRXEquity,ReuterscodeSYNGRTS)arelistedatthe RTS and MICEX stock exchanges in the quotation list B under thecodeSYNG.

Account for Payment of Declared (Accrued) Dividends on Company Shares

Throughout 2013 dividends on ordinary registered shares of OJSC «Synergy»wereneitheraccruednorpaid.TheCompanyconsid-ers it expedient to reinvest the whole retained earnings and is not planning the dividends payment. Thus, the Company fulfills its strategic plans in sales expansion and increase of its market share, the Company’s shareholders get the benefit in the form of stock value increase.

TO SHAREHOLDERS AND INVESTORS


03.10.2013 the documentary interest-bearing inconvertible bearer bonds with compulsory centralized storage of series БÎ-01 with total issue amount 3,000,000,000 were fully paid; the basis for redemption of securities was the settlement of securities.


Outstanding Bonds

Documentary interest-bearing inconvertible bearer bonds with compulsory centralized

storage and redeemable at nominal value

Documentary interest-bearing inconvertible exchange-traded bearer bonds

with compulsory centralized storage and early redeemable by demand of

exchange-traded bond bearer

Series 03 Series БО-03

State Registration Number

4-03-55052-Е от 11.09.2008

4В02-03-55052-Е от 24.05.2012

Exchange MICEX MICEX

Quotation List – Б

Ratings – B/RR4 Fitch Ratings

Trading Code RU000A0JQA82 RU000A0JR2G2

ISIN Code RU000A0JQA82 RU000A0JR2G2

Volume at par 2.5 billion Rub. 2 billion Rub.

Bond Nominal Value per piece

1 000 Rub. 1 000 Rub.

Issue Quantity 2 500 000 pcs 2 000 000 pcs

Placement Date 24.08.2009 06.06.2012

Maturity Date 18.08.2014 03.06.2015

Circulation Period 1820 days 1092 days

Number of Coupons ten six

Coupon Period 182 days 182 days

Originator VTB «Svyaz-Bank»,«VTBCapital»

RatingsofOJSC«Synergy»

Rating Agency Rating Outlook Valuation Date

Fitch

IDR-B Steady

13.09.2010Nationallong-term rating BBB+ (rus)

Steady


Investor Calendar 2014

General Meeting of Shareholders

June AnnualGeneralMeetingofOJSC«Synergy’s»Shareholders

Announcement of Operating Results

January Announcement of the Fourth Quarter and Full Year 2013 Operating Results

April Announcement of the First Quarter 2014 Operating Results

July Announcement of the First Half 2014 Operating Results

October Announcement of the Third Quarter 2014 Operating Results

Publication of IFRS Financial Statements

April Publication of IFRS Financial Statements for Year 2013

August Publication of IFRS Financial Statements for the First Half of 2014

Bond Payment Schedule

Series 03

February Seventh Coupon Payment. Put Option

August Eighth Coupon Payment

Series BО-01

17.02.2014 Ninth Coupon Payment

18.08.2014 Tenth Coupon Payment and Bond Redemption

Series BО-03

04.06.2014 Fourth Coupon Payment

03.12.2014 Fifth Coupon Payment


List of Transactions On-Scale Made in the Reporting Year

In the fiscal year the Company did not make any deals recognized as large ones according to the Federal Law «On Joint-Stock Companies»,oranyotherdealsthatdemandtheprocedureforapproval of transactions on-scale according to the Charter of OJSC«Synergy».

List of Transactions of Interest Made in the Reporting Year

In the fiscal year the Company did not make any deals recognized as transactions of interest according to the Federal Law «On Joint-StockCompanies».

Information about Each Energy Resource Utilization Capacity in the Fiscal Year

The Company consumes electricity and heating energy within ordinary amounts necessary for supply of administraton proper functioning. The Company rents office premises through a third party and the current rental agreement does not assume defining a separate sum of compensation for renter’s utilized energy resources in the total rental payment sum.

InformationaboutOJSC«Synergy’s»CorporateCompliance Code of Conduct

The Company in its business is guided by the principles of corporate conduct and follows fundamental guidelines of the Corporate Code of Conduct that protects the rights of all the shareholders regardless of size of holding they possess. Information about compliance Code of Conduct that is recommended to be used by joint-stock companies according to Order of FCSM RF of 04.04.2002 № 421/р. are given in the supplement of this annual report.


АКЦИОНЕРАМИИНВЕСТОРАМ


OJSC«Synergy»worksitswaytotheoptimumgovernancemodelguided by global best practices, Russian market environment and the specifics of its business. The governance system of a dynamic company in a developing market cannot remain static. That is why OJSC«Synergy»placeshighemphasisonimprovementofthissystem for the benefit of its shareholders.

OJSC«Synergy’s»corporategovernanceisbasedonthefollowingprinciples:

� aspiration for the maximum efficient use of the Company’s assets to receive economic profit;

� strict compliance with current laws;

� equal treatment of all shareholders of the Company;

� business transparency, timely and complete information disclosure;

� attention and respect for all parties interested in the Company’s business.

CorporateGovernanceStructureoftheCompany

TheCompany’ssuprememanagementbodyistheGeneralMeetingof Shareholders. It controls Board of Directors that performs general management of the Company’s operations determining its priority operation areas and its development strategy. The executive bodies reporting to Board of Directors are the Chairman of Management Board (the sole executive body) and Management Board (the collegial executive body) that carry out the company’s day-to-day management. Additional control of the Company’s financial and business operations is exercised by the independent auditor and the Auditing Committee.

GeneralMeetingofShareholders

TheshareholdersofOJSC«Synergy»participateinthecorporategovernancebyvotingattheGeneralMeetingofShareholdersinaccordancewithFederalLaw«OnJoint-StockCompanies»№208-FZ,theshareholdersofthecompany’sordinarysharesmaytakepartintheGeneralMeetingofShareholderswiththerighttovote on all matters within its competence.

CORPORATEGOVERNANCE


The Company’s Board of Directors consists of 7 people, two of them are independent members of Board of Directors. The Valid Board of DirectorswaselectedattheAnnualGeneralMeetingofShareholdersofOJSC«Synergy»,thatwasheldon20thJune2013.BeforetheAnnualGeneralMeetingofShareholdersofOJSC«Synergy»thatwasheld on 20th of June 2013 Board of Directors performed management having the same membership.

CORPORATEGOVERNANCE

Members of Board of Directors

Sergei Molchanov, ChairmanofBoardofDirectorsofOJSC«Synergy», Chief Operations Officer

Heldexecutivepositionsinthecompaniesof«Synergy»Groupfor13years.GraduatedfromtheFarEasternStateUniversity,Economics Department, his specialty is an economist. Earned a Bachelor’s Degree in Management at the University of Maryland UniversityCollege.DidnotpossessanysharesofOJSC«Synergy»throughout the accounting period.

Alexander Mechetin, ChairmanofManagementBoardofOJSC«Synergy»

ThefounderofOJSC«Synergy»GrouphasbeentheHeadoftheCompanyfor14years.GraduatedfromtheInstituteofEconomicsand Management of the Far Eastern State Technical University, and Law Department of the Far Eastern State University. In 2001 defended a PhD thesis in economics on the topic «Organizational and Economic Provisioning of Enterprises Reforming in the TransitionPeriod».CompletedEMBAcourseatOxfordUniversity.DidnotpossessanysharesofOJSC«Synergy»throughouttheaccounting period.

Nikolai Belokopytov, DeputyChairmanofManagementBoardofOJSC«Synergy»,Chief Financial Officer

Has occupied executive positions at the enterprises of OJSC «Synergy»Groupfor14years.GraduatedfromtheInstituteofEconomics and Management of the Far Eastern State Technical University.DidnotpossessanysharesofOJSC«Synergy»throughout the accounting period.

CORPORATEGOVERNANCE

Nikolai Malashenko, LegalDepartmentDirectorofOJSC«Synergy»

HasbeentheHeadofOJSC«Synergy’s»LegalDepartmentsince2004. Before that occupied different executive positions in OJSC «Synergy-Vostok».GraduatedfromtheFarEasternStateUniversityobtainingtwospecialties:«law»and«financialmanagement».Asoftheendofthereportingperiod(31.12.2013)possessedOJSC«Synergy»sharesintheamountof0.04%ofShareCapitalofOJSC«Synergy»,ownedshareis0.04%.InthereportingyearMalashenkoN.G.madea deal to sell 8,500 (eight thousand five hundred) of ordinary registered shares of the Company, date of the accomplishment of the deal – 06.08.2013.

Sergei Kuptsov, HeadofInvestmentDepartmentofOJSC«Synergy»

HasbeenworkingforOJSC«Synergy»for14years.Beforethatoccupied executive positions in the investment company «Tiger Securities»inVladivostok.GraduatedfromtheFarEasternStateUniversity, Physics Department. Has a qualification certificate of the Federal Committee of Equity Market, Series 1.0. Did not possess any sharesofOJSC«Synergy»throughouttheaccountingperiod.

Andrey Gomzyakov, Independent Director, GeneralDirectorofMirProduktovLimitedLiabilityCompany

GraduatedfromtheFinanceandEconomicsInstituteoftheFarEastern State Agrotechnical University. According to the end of the accountingperiod(31.12.2013)possessedOJSC«Synergy»sharesintheamountof0.01%ofShareCapitalofOJSC«Synergy»,ownedshare 0.01%.

Dmitri Aleevski, Independent Director, Managing Director of Raiffeisen Investment Limited Liability Company

Prior to joining Raiffeisen Investment in 2013, held senior positions in different Russian and foreign banks. Over that period completed more than35dealsinbankssuchas«UBSWarburg»,«INGBarings»,«ABNAmro»and«MDMBank»;includingcapitalfundsraisingprojectsandM&Atransactions.GotanhonorsciencedegreefromLeningradInstitute of Mechanics, he also earned an MBA degree from William E. Simon Business School at University of Rochester (New York, USA).DidnotpossessanysharesofOJSC«Synergy»throughoutthereporting period.


Board of Directors’ Committees

There are four committees in Board of Directors: the Audit Committee, the Strategic Planning Committee, HR and Remuneration Committee, and Finance Committee. Committees carry out a preliminary review of the most important issues related to management of the Company, and make recommendations for the meetings of Board of Directors.

The Audit Committee of Board of Directors (hereinafter «The AuditCommittee»)ensuresparticipationofBoardofDirectorsincontrol over the Company’s financial and economic activities. The Audit Committee acts on the premise that professional awareness of Members Board of Directors relating to financial and economic activities of the Company is necessary for Board of Directors to monitor the implementation of budgets (financial and business plans) of the Company, as well as to monitor the efficiency of the Company’s internal supervision and risk management of the Company. The exceptional functions of the Audit Committee also include assessment of auditor-candidates of the Company, assessment of auditor’s opinion, assessment of the efficiency of the Company’s internal audit and preparation of improvement suggestions.

Targets and objectives of the Audit Committee and the procedure for coordination with the Company’s bodies are stated in the Provision on the Audit Committee of Board of Directors of OJSC «Synergy».

The Audit Committee consists of the members of Board of Directors, who are not the sole executive body of the Company and (or) the members of the collegial executive body of the Company. It is headed by an independent director. Members of the Audit Committee are:

� AndreyGomzyakov(ChairmanoftheCommittee,IndependentDirector), � Dmitri Aleevski (Independent Director), � Sergei Kuptsov.

The Strategic Planning Committee of Board of Directors of the Company (hereinafter«TheStrategicPlanningCommittee»)ensuresdetermination of strategic objectives and development of priorities business areas of the Company; including business planning, budgeting and other plans of the Company’s financial and business activities for long-term and current perspective.

The goals, objectives and functions of the Strategic Planning Committee and the procedure for coordination with the Company’s bodies are stated in the Provision on the Strategic Planning CommitteeofBoardofDirectorsofOJSC«Synergy».

CORPORATEGOVERNANCE

Members of the Strategic Planning Committee are:

� Sergei Molchanov (Chairman of the Committee), � Alexander Mechetin, � Nikolai Belokopytov.

The HR and Remuneration Committee of Board of Directors of the Company (hereinafter«TheHRandRemunerationCommittee»)ensures the involvement of the most qualified specialists in management of the Company and creation of the necessary incentives for their successful work.

The goals, objectives and functions of the HR and Remuneration Committee and the procedure for coordination with the Company’s bodies are stated in the Provision on the HR and Remuneration CommitteeofBoardofDirectorsofOJSC«Synergy».

The HR and Remuneration consists of independent members of Board of Directors and members of Board of Directors, who are not the sole executive body of the Company and (or) the members of the collegial executive body of the Company. It is headed by an independent director. Members of the HR and Remuneration Committee are:

� AndreyGomzyakov(ChairmanoftheCommittee), � Sergei Molchanov, � Sergei Kuptsov.

The Finance Committee of Board of Directors of the Company (hereinafter«TheFinanceCommittee»)ensuresapreliminaryreviewof the materials relating to transactions that are the Company’s major transactions (transactions on-scale) and (or) transactions of interest – transactions which should be approved by Board of Directors.

The aim of the Finance Committee formation is development and creation of recommendations, as well as advising Board of Directors of the Company in issues of approving of transactions.

The goals, objectives and functions of the Finance Committee and the procedure for coordination with the Company’s bodies are stated in the Provision on the Finance Committee of Board of Directors of OJSC«Synergy».MembersoftheFinanceCommitteeare:

� Nikolai Belokopytov (Chairman of Finance Committee), � Sergei Kuptsov, � Nikolai Malashenko.

ExecutiveBodiesofOJSC«Synergy»

ExecutivebodiesofOJSC«Synergy»actforthebenefitoftheCompanyanditsshareholders,thebodiesreporttotheGeneralMeeting of Shareholders and Board of Directors.

CORPORATEGOVERNANCE


CORPORATEGOVERNANCE

CORPORATEGOVERNANCE

Management Board

Management Board develops the operating policy of the Company, coordinates the work of services and divisions of the Company’s apparatus, it also make decisions on important issues of the current economic operations.

Management Board acts on the base of the Company’s Charter approvedbytheGeneralMeetingoftheCompany’sShareholders,Provision on Collegial Executive Body (the Board) of OJSC «Synergy»andotherin-housedocumentsoftheCompany.

AccordingtotheCharterofOJSC«Synergy»thenumberofmembers of the Company’s Management Board is defined by the Board of Directors and comprises at least 4 (Four) people. The current Management Board’s members were appointed by Board of Directors on 16th July 2013 (Minutes No. 124 of 16.07.2013). BeforeholdingtheGeneralMeetingofShareholdersofOJSC«Synergy»on20thJune2013ManagementBoardperformeditsactivity having the same membership.

Members of the Board

Prokopiev Alexander Nikolayevich, Deputy Chairman of Management Board – Director of Security DepartmentofOJSC«Synergy».

According to the end of the accounting period (31.12.2013) possessedOJSC«Synergy’s»sharesintheamountof0.008%ofShareCapitalofOJSC«Synergy»,commonstockshare–0.008%.

Yasenov Oleg Ivanovich,MarketingDirectorofOJSC«Synergy».

According to the end of the accounting period (31.12.2013) he possessedOJSC«Synergy’s»sharesintheamountof0.0001%ofShareCapitalofOJSC«Synergy»,commonstockshare–0.0001%.

Kim Elena Senbeevna,ChiefAccountantofOJSC«Synergy».

According to the end of the accounting period (31.12.2013) she possessedOJSC«Synergy’s»sharesintheamountof0.006%ofShareCapitalofOJSC«Synergy»,commonstockshare–0.006%.

Chairman of Management Board

Chairman of Management Board of the Company is appointed by theGeneralMeetingofShareholdersfortheperiodof5(Five)years. Alexander Mechetin has been holding the position of Chair-manofManagementBoardOJSC«Synergy»since17thDecember2009. The rights and duties, responsibility and compensation pack-age of Chairman of Management Board are determined in the con-tract that is signed with him by the Company.

MechetinA.A.isthefounderofOJSC«Synergy»GroupandhasbeentheHeadoftheCompanyfor14years.GraduatedfromtheInstitute of Economics and Management of the Far Eastern State Technical University, and Law Department of the Far Eastern State University. In 2001 defended a PhD thesis in economics on the topic «Organizational and Economic Provisioning of Enterprises ReformingintheTransitionPeriod».CompletedEMBAcourseatOxford University.

DidnotpossessanysharesofOJSC«Synergy»throughouttheaccounting period.

Total amount of remuneration (compensation for expenses) of the person holding the position of the Sole Executive Body, Members of Collegial Executive Body and Members of Board of Directors of the Company

The employment contract, where the amount of remuneration obtained by the Sole Executive Body is defined, was concluded betweenOJSC«Synergy»andthepersonholdingthepositionofthe Sole Executive Body.

MembersofCollegialExecutiveBodyofOJSC«Synergy»donotget any remuneration or compensation for performing their duties.

MembersofBoardofDirectorsofOJSC«Synergy»getremunera-tion (compensation for expenses) according to Provision on remu-nerationforMembersofBoardofDirectorsofOJSC«Synergy».


CORPORATEGOVERNANCE

CORPORATEGOVERNANCE

Information about the amount of remuneration for each governance body (except for an individual performing functions of the Sole Executive Body of Issuer Management):

Board of Directors, thousand Rub.

Name of Indicator 2013

Salary 104 668.3

Bonuses 48 814.6

TOTAL 153 482.9

Collegial Executive Body, thousand Rub.

Name of Indicator 2013

Salary 60 385.4

Bonuses 30 576.8

TOTAL 90 962.2

Transparency of Information and Relations with Shareholders and Investors

OJSC«Synergy»appreciatesitsrelationswithinstitutionalandprivate investors and strives for maximum transparency of its operation. Dialogue with investors is a process which the Company conducts on a daily basis.

The Internal Department of Investor Relations assists Management Board and Board of Directors to communicate with shareholders and the investment community as a whole. The Department is in regular contact with institutional investors and investment analysts and regularly makes perception studies to reveal the investors’ opinion of the Company’s operation. Disclosure of the Company’s semiannual and annual financial results is accompanied by direct communicationofinvestorswiththeheadsofOJSC«Synergy»onthe telephone and via Internet conferences.

ThewebsiteofOJSC«Synergy»containsaconstantlyupdatedsection for investors, which includes the news about the circulation of the Company’s securities on the market, presentations, and disclosure of financial results and information about corporate management.


OJSC«Synergy»wouldnotbeabletoreachitsstrategicgoalswithout timely identification and effective management of existing and potential risks.

Economic Risks

Decreasing Demand Risk. The main market risk is decreasing demand for the Company’s production risk, in the first place decreasing demand for vodka. The customers’ change of preference in favor of other spirit beverages and development of programmes in health care can lead to decreasing demand for vodka.

Decreasing Demand Risk Management. The Company developed a demand survey system in all segments of its production that allows to quickly respond to possible demand fluctuations. OJSC «Synergy»expectsthatprobabledecreaseindemandwillaffectillegal production and cheap price segment. Diversified portfolio of the Company’s brands protects it from decreasing demand in different price segments. Demand behavior in the Company’s priority vodka premium segments differs greatly from demand behavior concerning vodka on the whole; and the Company forecasts an active growth in this segment. In order to support and develop customers’ demand for the production, the Company regularly performs restyling of its own brands.

Apart from the Company’s focus on making premium products, «Synergy»activelydiversifiesandentersanotherpremiumsegmentsof strong spirits. So, in 2009 the Company launched sales of itsowntrademarkinthecategoryofmid-pricebrandy«ZolotoyRezerv»,in2013produced2brandsinmorepremiumsegmentsbrandy«StarayaGvardia»and«KamennyiLev»,andattheendof2012itissueditsownwhiskybrand«Fox&Dogs».

Resource Price Fluctuation Risk. Increase in prices for resourcesused in the production higher than it expected can negatively affect the Company’s results by increasing production cost and increase logistics expenses. Additional risk factors connected to resources are promptness and volumes of supplied raw materials.

Resource Price Fluctuation Risk Management. OJSC«Synergy»monitors inflation dynamics of the resources utilized by the Company, it minimizes the resource price fluctuations by means of signing long-term agreements with suppliers, optimization of purchasing process and efficient stock management as well as own proactive price policy.

DESCRIPTION OF THE MAIN RISK FACTORS. RISKMANAGEMENT


Financial Risks

The Company considers the following financial risks: customer and bank-counterparty credit risk, interest rate fluctuations, under-liquid-ity risk as well as violation of the conditions of credit agreements (co venant). Currency exchange rate fluctuations are considered to be insignificant because the Company does not have considerable amounts of transactions with foreign contractors.

Information about financial risks and the Company’s efforts in minimizing them can be found in notes to financial statements (point27–«RiskManagement»).

Production Risks

Technology Risk.OJSC«Synergy»carriesoutaninvestmentprogram that is aimed at increase of production capacity, increase of performance, decrease of production costs and maintaining pro-duction quality in the process of growth of scale of operation. The installation of equipment, start-up and maintenance are all the tasks that demand considerable internal and external engineering resources. Failures in the design process or in the installation pro-cess can lead to production plan breakdown consequently to the Company’s costs. Deterioration of equipment operating conditions can lead to standard violation of product quality.

Technology Risk Management. In order to reduce technology risks the Company developed a system of scheduled preventive over-hauls and monitoring of product quality. There is a program of regu-lar modernization of equipment to avoid excessive wear. In order to reducetechnologicalrisksOJSC«Synergy»carefullychoosestheequipment suppliers and signs long-term service agreements. The Company carries out the insurance program of property assets; the program corresponds to industry standards. The level of technical staff training is regularly assessed and is improved by means of dif-ferent workshops and educational programs.

Risk of Losing Valuable Employees. Competitive conditions at the labor market create the risk of losing key skills and compe-tence due to employees leaving the Company. There is also a risk of impossibility to find new qualified personnel that are essential for maintaining and expanding the Company’s operation.

ANNUAL REPORT 2013102

Regulatory Risks

Legislation Alterations and Changes in the State Regulations Risks.

The Russian legal system has faced frequent and substantial alterations in legislation and state regulation in the sphere of strong spirit beverages production and operation for the last three years. The foundation of Federal Service for Spirit Market Regulation of RF in 2009 became an important step towards more efficient and balanced regulation of the industry.

Regulatory risks affecting the Company’s operation comprise risks such as tax and excise duty increase for strong spirit beverages, withdrawal of a license and refusal of manufacturing license renewal, as well as the risks of regulating relating industries with possibly negative effect for the Company. At the moment regulation of advertising does not incur considerable risks because the advertisement for strong spirit beverages is significantly limited.

Legislation Alterations and Changes in the State Regulations Risks Management.

OJSC«Synergy»actsinastrictcorrespondencewithappliedtotheCompany legislation and promptly responds to any alterations in it. The Company strives to constructive dialogue with regulatory bodies regarding interpretation and application of the legal regulations.

The Company actively takes part in informing legislation bodies about the situation in the industry, first and foremost, participa-ting in activities of industry organization Union of Alcoholic Bever-age Producers. President of the Company Alexander Mechetin is a member of Union of Alcoholic Beverage Producers’ Management. Strengthening state regulation gives hope to gradual reduction of illegal market, which in its turn will have a positive effect on the legal producers’ results. The Company expects that the predicted increase of excise duty for alcohol will influence the beer market more than vodka market, which will definitely have a positive effect on the Company’s results.



CONSOLIDATEDFINANCIALSTATEMENTS

Consolidated Statement of Comprehensive Income, Russian Ruble million

2013 2012

Sales 44 594 41 547

Excise Duties (18 216) (14 883)

Net Revenue 26 378 26 664

Cost of Sales (15 098) (15 652)

Gross Profit 11 280 11 012

GeneralandAdministrativeExpenses (2 053) (2 090)

Distribution Expenses (5 871) (5 416)

Other Income/(Expenses) (229) (383)

Operating profit 3 127 3 123

Net Finance Costs (1 202) (993)

Profit Before Tax 1 925 2 130

Income Tax (384) (428)

Net Income 1 541 1 702

Attributable to:

Equity Holders of the Company 1 486 1 642

Non-Controlling Interests 55 60

Basic Earnings per Share, Ruble 82,32 84,87


2013 2012

ASSETS

Long-Term Assets

Property, Plant and Equipment 6 327 5 944

Goodwill 213 213

Intangible Assets 6 693 5 738

Other Long-Term Assets 254 120

Deferred Tax Assets 506 402

Total Long-Term Assets 13 993 12 417

Short-Term Assets

Inventories 7 096 4 932

Biological Assets 163 201

Trade and Other Receivables 12 162 11 956

Prepayments 383 518

Income Tax Overpaid 18 25

Cash and Cash Equivalents 467 707

Total Short-Term Assets 20 289 18 339

TOTAL ASSETS 34 282 30 756

SHAREHOLDERS’ EQUITY AND LIABILITIES

Equity and Reserves

Share Capital 2 495 2 567

Treasury Shares (733) (704)

Retained Earnings 10 062 8 576

Other Reserves 5 829 6 263

Non-Controlling Interest 716 669

Total Equity and Reserves 18 369 17 371

Non-Current Liabilities

Loans and Borrowings 5 804 4 963

Deferred Tax Liabilities 543 712

Total Non-Current Liabilities 6 347 5 675

Current Liabilities

Trade and Other Payables 875 1 663

Trade and Other Payables 8 377 5 884

Income Tax Payable 314 163

Total Current Liabilities 9 566 7 710

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 34 282 30 756

Consolidated Statement of Financial Position, Russian Ruble million



Consolidated Statement of Changes in Equity, Russian Ruble million

Share Capital

TreasuryShares

Retained Earnings

Other Reserves

TotalShare-Holders’Equity

Non- Control-

ling Interest

Total

Balance at 31 December 2011

2 567 (513) 6 934 7 093 16 080 611 16 692

Other Changes in Non-Controlling Interest

– – – – – (2) (2)

Repurchase of Own Shares – (191) – (829) (1 020) – (1 020)

Total Changes, Not Recorded into Net Profit

– (191) – (829) (1 020) (2) (1 022)

Net Profit for the Period – – 1 642 – 1 642 60 1 702


2 567 (704) 8 576 6 263 16 702 669 17 371

Other Changes in Non-Controlling Interest

– – – – – 1 1

Dividends Accrued to Non-Controlling Interest

– – – – – (9) (9)

Repurchase of Own Shares – (101) – (434) (535) – (535)

Redemption of Own Shares (72) 72 – – – – –

Total Changes, Not Recorded into Net Profit

(72) (29) – (434) (535) (8) (543)

Net Profit for the Period – – 1 486 – 1 486 55 1 541


2 495 (733) 10 062 5 829 17 653 716 18 369


2013 2012Cash Flow from Operating ActivitiesProfit Before Tax and Finance Costs 3 127 3 123

Adjustments for:Depreciation and Amortization 547 470(Gain)/LossonDisposalofFixedAssets 66 8(Gain)/LossonDisposalofMaterials 100 61(Gain)/LossonWrite-OffofAccountsPayable (6) (11)(Gain)/LossonChangeinFairValueofBiologicalAssets (12) 62Provisions and Accruals 74 218(Gain)/LossonDisposalofFinancialAssets – 26Other Non-Cash Transactions (215) (99)Changes in Working Capital:

(Increase)/Decrease in Inventories and Biological Assets (288) 25

(Increase)/ Decrease in Accounts Receivable (2 553) (1 403)Increase/(Decrease) in Accounts Payable 1 765 974Cash Flows from Operating Activities 2 605 3 454Interest Paid (1 276) (1 077)Income Tax Paid (319) (523)Net Cash Flow from Operating activities

1 010 1 854

Cash Flows from Investing ActivitiesAcquisition of Subsidiaries 44 –Acquisition of Property, Plant and Equipment and Intangible Assets (1 147) (1 924)Disposal of Property, Plant and Equipment and Intangible Assets 450 16Net Cash Flow from Investing activities

(653) (1 908)

Cash Flow from Financing ActivitiesRepurchase of Own Shares (535) (1 020)Loans Received 22 813 23 061

Loans Repaid (22 875) (21 996)

Net Cash Flow from Financing activities

(597) 45

Net Increase/(Decrease) in Cash and Cash Equivalents (240) (10)

Cash and Cash Equivalents at the Beginning of the Year 707 718

Cash and Cash Equivalents at the End of the Year 467 707

Consolidated Cash Flow Statement, Russian Ruble million


SUPPLEMENTTO SHAREHOLDERS AND INVESTORS


№ Code of Conduct Provisions

Observedor not

Comments

General Meeting of the Shareholders

1 NotificationofshareholdersaboutholdingtheGene-ral meeting at least 30 days prior to the date of the meeting itself regardless the issues on the agenda; if according to legislation a longer period is not stipulated

comply para. 7.15. of the Company Charter

2 Shareholders have the possibility to familiarize with the list of persons who have the right to participate intheGeneralmeetingofshareholders,startingfromthenotificationdateholdingtheGeneralmeet-ing of the Company’s shareholders and until bring-ing the attendee meeting to a close; in case of absenteeGeneralmeetingoftheCompany’sshare-holders – until the end date of voting paper accept-ance

comply According to Article. 13 of the Provision on procedure for preparation and holding the GeneralmeetingoftheCom-pany’s shareholders; the list of persons who have the right toparticipateintheGeneralmeeting of shareholders is submitted on demand of per-sons who are included in this list and possess not less than 1 percent of votes

3 Shareholders have the possibility to familiarize with the information (materials) subject to be presented duringpreparationofholdingtheGeneralmeetingof the shareholders, by electronic means including the Internet

partlycomply

under development

4 Shareholders have the possibility to bring an issue ontheagendaoftheGeneralmeetingofshare-holdersordemandcallingoftheGeneralmeetingof shareholders without presenting an extract from the shareholder register; or if his rights for shares is performed in the system of keeping shareholder register; or if his rights for shares is performed in the custodian account – the statement of custodian account is enough to perform the above-mentioned rights

comply para. 1 Article 6 of the Provi-sion on procedure for prepara-tionandholdingtheGeneralmeeting of OJSC «Syn-ergy’s»shareholdersstipu-lates for sending shareholders some other documents apart from a message in a written form mentioning shareholders’ names, number and category (type) of shares they possess

5 Availability in the Charter or in-house documents of the joint-stock company’s demand of obliga-torypresenceofthejoint-stockcompany’sGeneralDirector, Members of Board of Directors, Members ofAuditingCommitteeattheGeneralmeetingofshareholders

absent The Company does not con-sider the availability of such provisions in the Charter or in in-house documents necessary

6 Obligatory presence of candidates while consideringthe issues of election of Members of Board of Directors,GeneralDirector,MembersofManage-ment, Members of Auditing Committee alongside theissueofauditorapprovalattheGeneralmeet-ing of shareholders

absent The Company does not con-sider it necessary

7 Availability of registration procedure for participants oftheGeneralmeetingofshareholdersinin-housedocuments of the stock-joint company

comply Chapter 10 of Provision on preparation and holding theGeneralmeetingofOJSC«Synergy’s»shareholders

Board of Directors

8 Availability of authority of Board of Directors to annually approve of financial-economic plan of the joint-stock company according to Charter of the joint-stock company

comply para. 8.7. of the Company’s Charter, para. 1 Article 4Provision on the Company’s Board of Directors

9 Availability of risk management procedure approved by Board of Directors of the joint-stock company

absent this procedure is underdevelopment

10 Availability of Board of Directors right to make a decisiontosuspendtheGeneralDirector’sauthori-ties(whoisappointedbytheGeneralmeetingofshareholders) according to the Charter of the joint-stock company

absent

11 Availability of Board of Directors’ right to estab-lish requirements to qualifications and remuneration oftheGeneralDirector,MembersofManagementBoard, heads of main structural divisions according to the Charter of the joint-stock company

comply para. 8.7.28. of the Company’s Charter

12 Availability of Board of Directors’ right to approve ofcontractconditionsfortheGeneralDirectorandMembers of Management according to the Charter of the joint-stock company

comply para. 8.7.30. of the Company’s Charter

13 Availability (according to the Charter or in-house documents of the joint-stock company) of the demand that says that during approving of con-tractconditionsfortheGeneralDirector(managingcompany, manager) and Members of Management the votes of Members of Board Directors, who are theGeneralDirectorandMembersofManagementBoard are not taken into account

comply Approval of contract conditionswith Chairman of ManagementBoard and Members of Mana-gement Board is fulfilled In accordance with Article 81 of Federal Legislation «About Joint-StockCompanies».para.1 Article 6 Provision on Board of Directors obliges Members of Board of Directors To abstain from voting in deals where they have their own interest


21 Holding meetings of Board of Directors of the joint-stock company throughout the year, at the end of which the joint-stock company’s annual report is made, with regularity at least once every six weeks


22 Availability (in in-house documents of the joint-stock company) of the procedure for holding meetings of Board of Directors of the joint-stock company

comply Chapter 6 Provision on the Company’s Board of Directors

23 Availability (in in-house documents of the joint-stock company) of the provision on necessity of Board of Directors’ approval of the joint-stock com-pany’s transactions worth 10 and more percent of the Company’s asset value, except for transactions made in the process of ordinary business operation


24 Availability (in in-house documents of the joint-stock company) of the Members of Board of Directors’ right to obtain the necessary information essential for fulfilling their functions and responsibility for fail-ure to provide such information from the joint-stock company’s executive bodies and heads of the main structural divisions

comply Extract 1 para. 1 Article 5 Provision on the Company’s Board of Directors

25 Availability of the Strategic Planning Committee of Board of Directors or charging with duty of the above-mentioned committee another committee (except for the Audit Committee and the HR and remuneration Committee)

comply

26 Availability of the committee of Board of Directors (The Audit Committee) that recommends an audi-tor to Board of Directors of the joint-stock company and co-operates with him/her and the Audit Com-mittee of the joint-stock company

comply

27 Availability of only independent and non-executive directors in the Audit Committee membership

comply

28 The performance of the Audit Committee manage-ment is carried out by an independent director

comply Chairman of the Audit Com-mittee is independent director GomzyakovA.A.

29 Availability (in in-house documents of the joint-stock company) of all the Audit Committee’s members right of access to any documents and informationof the joint-stock company on the assumption ofnon-disclosure of confidential information

comply para. 1 Article 6 Provision on the Audit Committee of OJSC«Synergy’s»BoardofDirectors

14 Availability of the option for Board of Directors to have 3 independent Directors who fully corre-spond to Corporate Code of Conduct

absent The Company’s Board of Directors comprises 2 inde-pendent directors

15 There is nobody in Board of Directors who has ever been convicted in the sphere of economic activity or committed a crime against the govern-ment, against civil service’s interests and local municipal service; They have never had any admin-istrative punishment in the sphere of entrepreneurial activity or in the sphere of finance, taxes and levies or stock market

comply Members of Board of Directorsof the Company have neverbeen convicted in the sphereof economic activity or commit-ted a crime against the gov-ernment, against civil service’s interests and local municipal service; They have never had any administrative punishment

16 There is nobody in Board of Directors who areparticipants, general director (manager), memberof corporate body or an employees of any legal bodies that are the joint-stock company’s rivals

comply Members of Board of Directorsof the Company are not partic-ipants, general directors (man-agers), members of any cor-porate bodies or employees of any legal bodies that are the joint-stock company’s rivals

17 Availability of demands concerning Board of Direc-tors election by cumulative voting according to theCharter of the joint-stock company

comply para. 8.2. of the Company’s Charter

18 Availability (in in-house documents of the joint-stock company) of Members of Board of Directors to refrain from actions that can lead to or possibly canlead to conflicts between their own interests and the interests of the joint-stock company; in case of such a conflict, there some duties to reveal such information about the conflict

comply Chapter 10 Provision on theCompany’s Board of Directors

19 Availability (in in-house documents of the joint-stockcompany) of Members of Board of Directors’ duties to notify in writing the Board of Directors about any intention to effect a deal with stocks/shares of the joint-stock company whose members of Board of Directors they are, or any of its subsidiary (depend-ent) Companies, as well as their duty is to reveal Information about any implemented transaction with such stock/shares

comply para. 1 Article 6 Provision on the Company’s Board of Direc-tors

20 Availability (in in-house documents of the joint-stock company) of the demand to hold the meetings of Board of Directors at least once every six weeks

absent According to para. 1 Article 22 Provision on the Company’s Board of Directors, the meet-ings of Board of Directors are held as often as required




38 Availability (in the Charter of the joint-stock com-pany) of the procedure for counting the quorum of Board of Directors that secures obligatory participa-tion of independent directors in Board of Directors meetings

comply According to para. 8.12. of the Company’s Charter at determi-nation of counting the quorum and dealing with the results of the voting, the written opinion concerning the issues on the agenda should be taken into account; the written opinion of Board of Directors’ member who was absent at the meeting

Executive Bodies

39 Availability of the Collegial Executive Body(Management Board) in the joint-stock company


40 Availability (in the Charter or in-house documents of the joint-stock company) of provision on neces-sity of Management Board’s approval of real estate transactions, obtaining credits by the joint-stock company, provided that the mentioned transactions are on large scale and their execution does not relate Ordinary business operation of the joint-stock company

absent The Company does not own real estate. However, there is the Financial Committee that deals with credits in the Com-pany

41 Availability (in in-house documents of the joint-stock) of the procedure for co-ordination of opera-tions, that go beyond limits of business operating plan of the joint-stock company

absent

42 Absence (in the executive bodies’ membership ofthe joint-stock company) of persons who have ever been convicted in the sphere of economic activityor committed a crime against the government, against civil service’s interests and local municipal service; or who experienced any administrative pun-ishment or committed offences in the sphere of entrepreneurship or in the sphere of finance, taxes and levies or stock market. If the Sole Executive Body’s functions are performed by the management company or manager – there should be correspondencetorequirementsimposedonGen-eral Director and members of Management Board of the joint-stock company

comply in executive bodies’ member-ship of the joint-stock com-pany there are no persons, who have been convicted in the sphere of economic activity or committed a crime against the government, against civil service’s interests and local municipal service; or who experienced any administrative punishment. The Sole Executive Body’s functions have never been passed to the management company or managers

30 Formation of Board of Directors’ committee (the HRand Remuneration Committee) the main function of which is defining the criteria of candidate selec-tion for Board of Directors membership and devel-opment of the joint-stock company’s policy in the sphere of remuneration

comply Article 3 Provision on the HRand Remuneration Committee ofOJSC«Synergy’s»BoardofDirectors

31 The performance of the HR and Remuneration Committee is carried out by an independent director

comply Chairman of the HR and Remuneration Committee is independent director GomzyakovA.A.

32 Absenсe of the joint-stock company’s officials in the HR and Remuneration Committee membership

not comply The Company considers itnecessary for officials to bemembers of this committeeat the same time Chairmanof the HR and RemunerationCommittee is an independentdirector

33 Formation of Board of Directors’ Risk ManagementCommittee or charging with duty of the above-mentioned committee another committee (exceptfor the Audit Committee and the HR and Remuner-ation Committee)

absent under development

34 Formation of Board of Directors’ Settlement ofCorporate Conflicts Committee or charging with duty of the above- mentioned committee another committee (except for the Audit Committee and the HR and Remuneration Committee)

comply According to para 1 Article 4 Provision on Board of Direc-tors of the Company, Board of Directors ensures shareholders’exercise of rights and protec-tion of rights, facilitates settle-ment of corporate conflicts

35 Absenсe of the joint-stock company’s officials in The Settlement of Corporate Conflicts Committee

absent The Settlement of Corporate Conflicts Committee is absent in the Company

36 The performance of the Settlement of Corporate Conflicts is carried out by an independent director

absent The Settlement of Corporate Conflicts Committee is absentin the Company

37 Availability of in-house documents of the joint-stockcompany approved by Board of Directors; thesedocuments stipulate the procedure for formation and performance of Board of Directors’ committees

comply The procedure and formation of Board of Directors’ commit-tees are stipulated in Chapter 11 of Provision on Board of Directors of the Company




The Company Secretary

49 Availability of a special official of the joint-stock company (called the Company Secretary), whose duty is to ensure the observation of the proce-dural requirements, which guarantee exercise of the Company shareholders’ rights and legal interests, by bodies and officials of the joint-stock company

comply

50 Availability (in the Charter or in-house documents of the joint-stock company) of the procedure for appointment (election) of the Company Secretary and determination of the Secretary’s duties

comply

51 Availability (in the Charter) of the Company Secre-tary candidate’s specifications

absent The Company Board of Direc-tors determines both the Com-pany Secretary candidate and his/her specifications

Fundamental Corporate Actions

52 Availability (in the Charter or in-house documents of the joint-stock company) of requirement to approve a transaction on-scale before it is made

absent

53 Obligatory involvement of an independent appraiser in order to estimate market price of the property that is the object of a transaction on-scale

absent

54 Availability (in the Charter of the joint-stock com-pany) of prohibition on taking any actions while acquiring of major minority shareholding of the joint-stock company (merger), that are aimed at protec-tion of executive bodies’ (members of these bodies) interests and members of Board of directors of the joint-stock company too, as well as shareholders who worsen the situation compared to the current one (in particular, prohibition on Board of Directors’ making a decision until the end of expected period of shares acquisition, the decision about additional shares issue, securities issue that can be converted to shares; or securities giving the right to acquire the Company’s shares; even if making such a deci-sion is granted by the Charter)

absent

55 Availability (in the Charter of the joint-stock com-pany) of the requirement for obligatory involvement of an independent appraiser in order to estimate market price of the shares and possible changes of their market value as a result of the merger

absent

43 Absence (in the executive bodies’ membership ofthe joint-stock company) of persons who are par-ticipants, general director (manager), a member of the management body or employee of a legal body which is the joint-stock company’s rival

comply in executive bodies’ member-ship of the joint-stock company there are no persons who are participants, general directors, management body’s members or employees of legal bodies which are the joint-stock com-pany’s rivals

44 Availability (in the Charter or in-house documents ofthe joint-stock company) of prohibition on man-agement companies (manager) to perform similar functions in a rival company, as well as to have any property relations with the joint-stock company except for rendering service to the management company (manager)

absent the Company is not planning to make agreements with man-agement companies

45 Availability (in in-house documents of the joint-stockcompany) of duty of executive bodies to refrain from any actions that can lead to or can possibly lead to occurrence of conflict between their inter-ests and the interests of the joint-stock company; in case such a conflict takes place, the main duty is to inform Board of Directors about it

comply(related toChairperson of Manage-ment Board)

para. 5.5. Provision on Colle-gial Executive Body (Manage-ment) of the Company

46 Availability (in the Charter or in-house documents of the joint-stock company) of eligibility criteria for choosing the management company (manager)

absent the Company is not planning to make agreements with man-agement companies

47 Executive bodies of the joint-stock company have to submit monthly reports about their performance to Board of Directors

absent According to para 4.1 Provi-sion on Collegial Executive Body (Management) of the Company Management Board holds meetings as often as required

48 Allocation of responsibility for violation of the provi-sions on confidential and insider information use in contracts made between the joint-stock company and general director (the management company, manager) and members of management board

comply Contracts signed by the Com-pany with Chairman of Man-agement Board and members of Management Board oblige to follow and provide confiden-tiality compliance of the Com-pany. Non-compliance or improper execution of duties and/or dishonest use of rights can be the reason for early termination of Сontract at the initiative of the Company




63 Availability (in in-house documents of the joint-stock company) of requirement to disclose information about all transactions, which can influence the mar-ket value shares price of the joint-stock company

absent In the situation of informationdisclosure the Company isguided by Provision oninformation disclosure approved by Order FCSM RF of 04.10.2011 № 11-46/пз-н / current legislation ininformation disclosure

64 Availability of in-house document approved by Board of Directors. The document is about substan-tial information use and includes information about the joint-stock company’s activity, shares and othersecurities of the Company; transactions with those, this kind of information is not generally accessi-ble and its disclosure can significantly influence the market value of shares and other securities of the joint-stock company

absent

Inspection of Financial Business Operations

65 Availability of procedures for internal inspection of financial business operationsу of the joint-stock company. These procedures were approved by Board of Directors

comply

66 Availability of a special division of the joint-stock company that ensures compliance with proceduresof internal inspection (supervision and auditing service)

comply Internal inspection is carried out by Department of Internal Audit Of the Company

67 Availability (in in-house documents of the joint-stock company) of requirement for determination of the structure and membership of audit service. It shouldBe carried by Board of Directors

comply The structure of Review and Audit Service is stipulatedby chapter 1 of Provision onDepartment of Internal Auditof the Company

68 Absence of persons in a supervision and auditing service who have been convicted in the sphere of economic activity or committed a crime against thegovernment, government’s interests and local municipal service; who have had any administrative punishment in the sphere of entrepreneurial activ-ity or in the sphere of finance, taxes and levies or stock market

comply The persons who are mem-bers of Review and Audit Service have never been convicted in the sphere of eco-nomic activity or committed a crime against the government and government’s interests

56 Absence (in the Charter of the joint-stock com-pany) of exemption of the purchaser from the duty to suggest that shareholders sell their own ordinary shares (equity securities that can be converted to ordinary shares) at merger

comply

57 Availability (in the Charter or in-house documents of the joint-stock company) of requirement for obliga-tory involvement of an independent appraiser in order to estimate the proportion of conversion of shares at reorganization

absent

Information Disclosure

58 Availability of the in-house document approved by Board of Directors. The document determines the joint-stock company’s rules and approaches to infor-mation disclosure (Provision on information policy)

absent In the situation of information disclosure the Company is guided by Provision on infor-mation disclosure approved by Order FCSM RF of 04.10.2011 № 11-46/пз-н

59 Availability (in in-house documents of the joint-stock company) of requirement to disclose the informationabout aims of share placing, about people who are going to purchase the placed shares including major minority shareholding and about the fact if the top executives of the joint-stock company take part in purchasing the placed shares of the Com-pany

absent These requirements are stipulated in Provision on Disclosure information, approved by Order FCSM RF of 04.10.2011 № 11-46/пз-н

60 Availability (in in-house documents of the joint-stock company) of list of information, documents and materials, which should be given to the sharehold-ers in order to solve the issues put on the agenda atGeneralMeetingofShareholders


61 Availability of the joint-stock company’s website in the Internet and regular disclosure of information about the joint-stock company on this website

comply Website: http://www.sygroup.ru/investor_center/

62 Availability (in in-house documents of the joint-stock company) of requirements to disclose informationabout transactions of the joint-stock company; the transactions with persons who are top executives according to the Charter of the joint-stock company, and also about the joint-stock company’s transac-tions with companies where the top executives own directly or indirectly 20 and more ratio of share capital or these people somehow can influence them considerably

comply The mentioned transactions have to be approved according to Article 83 Federal Legisla-tion «About Joint-Stock Com-panies»




Dividends

76 Availability of an in-house document approved by Board of Directors; the document is used by Board of Directors when they should decide on recom-mendations about the dividend rate (the Provision on Dividend Policy)

absent

77 Availability (in the Provision on Dividend Policy)of assessment of the minimum share of net profitof the joint-stock company directed to payment ofdividends, and conditions providing non-payment or incomplete payment of dividends for privileged shares, the dividend rate is stated in the Charter of the joint-stock company

absent Dividend Policy Regulations are adopted by the Company

78 Publication of the joint-stock company’s dividend policy data and inserted amendments in the periodi-cal, which is specified in the Charter of the joint-stock company, in order to publish messages on carrying out the general meetings of shareholders, and also placement of the mentioned data on the joint-stock company’s website on the Interne

absent The Provision on Dividend Policy is not adopted by the Company

69 Absence of persons in a supervision and auditing service that are members of executive bodiesof the joint-stock company, as well as persons,who are participants, general director (manager),members of management bodies or employeeswho are the joint-stock company’s rivals

comply a crime against the govern-ment, against civil service’s interests and local municipal service; or any other persons who are participants, general director (manager), members of executive bodies or employ-ees of a legal body competing with the joint-stock company

70 Availability (in in-house documents of the joint-stock company) of a period of submitting all the docu-ments to supervision and auditing service; the doc-uments include materials for assessment of finan-cial-business operations performed, there is also responsibility stipulated for officials and employees of the joint-stock company who do not report in the period stated

absent

71 Availability (in in-house documents of the joint-stock company) of duties of supervision and audit-ing to report on found violations; they should report to Audit Committee, in case if there is no such body – they should report to Board of Directors of the the joint-stock company

comply para. 3.7. Provision on Depart-ment of internal audit of the Company

72 Availability (in the Charter of the joint-stock com-pany) of requirements for preliminary supervision and auditing service’s assessment of applicability of business performance, not stipulated in the finan-cial-business plan of the joint-stock company (non-standard operations)

absent

73 Availability (in in-house documents of the joint-stock company) of procedure of coordination of non-standard operation with Board of Directors

absent

74 Availability of approved by Board of Directors of an in-house document that determines the procedure of holding inspections of financial-business opera-tions of the joint-stock company by audit committee

absent

75 Performance of assessment (by Audit Commit-tee) of auditor’s opinion before presenting it at the GeneralMeetingoftheShareholders

comply para. 1 Article 4 Regulations about Auditing Committee of Company Board of Directors



ANNUAL REPORT 2013120

ThepresentannualreportwaspreparedbyOJSC«Synergy»(hereinafterreferredtoasthe«Company»,«SynergyGroup»,«Group»or«SynergyCompany»)togetherwithitssubsidiaries.By reading the present annual report, you agree to observe the following restrictions and warnings. The present annual report is a strictly confidential document meant only for the recipient; it shall not be handed over to the press or any other persons and cannot be reproduced, either in whole or in part, in any form whatsoever.

Failure to comply with this restriction may constitute a violation of applicable law on the securities market. The present annual report does not represent, does not constitute a part of, and should not be construed as representing or constituting a part of any offer for sale or transfer, an invitation to submit an offer for purchase or acquisition of the shares of the Company or any of its subsidiaries in any administrative-territorial unit; or inducement to carry out investment activity in any administrative territorial unit. Neither this annual report, nor any part of it, nor the fact of its distribution are the basis or guide for action in connection with any contracts, commitments or investment decisions.

The present annual report may contain statements that are or may be considered as forward-looking statements under the U.S. federal securities laws and foresee the protection provided by this«safeharbor»law.Theexamplesofsuchforward-lookingstatements are the Company statements related to its preliminary estimates, forecasts, projections, strategies, plans, objectives, goals, prospects, preliminary estimates, intentions, assumptions and targets, including those relating to purchases, sales, products or services, results of activities, financial condition, liquidity, prospects and dividend policy; statements regarding the effectiveness of the Company’s activities and the state of the industry in the future; other statements that are not based on strict accordance with the facts of the past or present; initial assumptions on which such statements are based.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and there is a possibility that the forecasts in these statements will not come true. Among other things, forward-looking statements are based on numerous assumptions concerning the present and future business strategy of the Company’s business activities, as well as concerning the conditions under which the Company will operate in the future.

The readers of the report should keep in mind several important factors that could disrupt the Company’s assumptions and cause significant differences between the actual results of its activities and its preliminary estimates, forecasts, projections, strategies, plans, goals, objectives, prospects, preliminary calculations, intentions, assumptions and targets stated in such forward-looking statements.

These factors include: changes in political, social, legal and economic conditions in Russia as a whole or in those parts of Russia where the Company operates, including changes in the level of consumer spending and demand for some or all of its products; changes in consumer preferences and tastes, demographic trends or views on risk factors concerning health status; increasing commodity price pressure from competitors, as well as their unexpected actions that could result in loss of market share, increase of costs and reduction of Company’s growth potential; the Company’s current and future ability to carry out a merger, to achieve equity participation in companies, to buy and sell the companies, to integrate, to achieve anticipated synergies and/or cost reduction; expenditure levels of the Company and those of its competitors to carry out marketing and advertising, as well as implementation of technical innovations; the Company’s ability to protect its intellectual property rights; the growing awareness of the producer’s responsibility for the quality of its products and for harm done to an individual’s health in Russia; changes in legislation and regulation as well as in the policiesoftheGovernmentoftheRussianFederationandofthe regional authorities, including changes in legislation, policy and regulation concerning the consumption and advertising of alcoholic beverages along with their taxation; changes in raw materials and labour costs; renewal of distribution rights and distribution agreements on favorable terms after their expiry; technological developments that can affect the distribution of products; changes in financial and capital markets, including significant interest rate and foreign currency exchange rates fluctuations, which can make the Company’s access to financing difficult or increase its cost, as well as affect the Company’s financial activities; changes in accounting standards, accounting policies and practices; presence of skilled staff including the experts in the area of accounting; ability to identify other risks inherent in the Company’s business and to manage the risks associated with the above-mentioned factors.

This list of important factors is not exhaustive. The readers of the report should carefully weigh such factors and other uncertainties and events, especially when it comes to the political, economic, social and legal environment in which the Company operates. Such forward-looking statements reflect the situation current only for the date on which they were made, and the Company undertakes no obligation to add the latest data or revise any of these statements. The readers of the report should not place undue reliance on forward-looking statements. The Company makes no representation or warranty and does not promise that the results envisaged by such forward-looking statements will be achieved, each of these forward-looking statements is only one version of many possible scenarios, which should not be considered as the most likely or normal version.

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