During implementation of the Customer Lifetime Value 2.0 (CLV 2.0) strategy, MTS Group has undergone a stage of transformation from a mono-industry (telecommunications) player into a multi-industry co^mpany operating in several markets that develops diversified business areas at different maturity stages and with different scale and dynamics. The next key strategic task of the corporate governance bodies and top management of MTS was the search for and adjustment of mechanisms for translating the increased cost of product content into increased shareholder value.

At the current stage, we identify three strategic areas of management effort, the progress in which, in our opinion, can ensure such growth:

• building an ecosystem of digital products;
• transforming into the Group with implementation of the sum of the parts principle;
• achieving excellence in digital technology and competencies.

Building an ecosystem of digital products has been one of the Company’s primary strategic priorities over the past few years. The ecosystem market offer is our key value capture tool in the B2C segment, the basis that has and will continue to ensure the Company’s financial strength in both short and long term.

In this area, the majority of the necessary decisions and actions on the part of senior management and the Board of Directors have already been implemented. The main product areas have been identified, the principles and rules of interaction between them have been established and an operational management system has been built. Thus, the main management activities here is carried out by the management of the business areas, while the senior management and corporate governance bodies fulfil the functions of high-level distribution of financial flows, control over the generation and implementation of business area strategies, as well as the degree of achievement of business outcomes. Besides, we provide targeted impacts related, in particular, to key personnel decisions, consideration of issues of entering new product areas and strengthening the current ones, including through M&A.

During 2023, the implementation of the above functions constituted a significant part of our work, however, we perceive this area of activity, without diminishing its strategic importance, as “operational”, where management of business areas plays the main part in the development of creative and non-conventional management decisions.

For us, such decisions are aimed at the transformation into a Group with the implementation of the sum of the parts principle. Taking into account the current historical context, we cannot set any specific time frame for bringing business areas into the category of independent businesses (let alone their IPO). However, in our opinion, the above does not prevent us from, firstly, filling these business areas with value, thus developing them; secondly, helping them gain independence without depriving them of operational ties with the Group; and thirdly, gradually forming the target legal framework of the Group itself. Thus, we continue to move forward in accordance with the adopted strategic guidelines and believe that this particular area is key for senior management and corporate governance bodies.

The most important issues that we are considering now and will consider in the near future are as follows:

• Smooth transfer of responsibility to business areas and ensuring the possibility of their independent activities with motivation for market leadership.
• Reconfiguring the management system by business areas (including from the point of view of establishing independent corporate governance bodies) taking into account the prospects for spin-off of business areas to be independent companies.
• Maintaining high quality operational and corporate governance processes in all businesses and compliance with control, compliance and risk management processes and procedures.
• Ensuring a high level of motivation through motivation programs and long-term financial incentives for employees.

We believe that achievement of excellence in digital technologies and competencies is possible through continuous process of introducing advanced technological competencies, tools and solutions into the company’s business processes and products, in the formation and maintenance of a digital corporate culture and “digital consciousness” among the personnel. We consider this process to be a separate strategic area and thus emphasize that the Group’s growth path lies in the technological environment. In a practical sense for the Board of Directors, this means that all issues and decisions that can contribute to progress in this area are given increased priority, and management actions are assessed, inter alia, from the point of view of their positive contribution to this process.

The function of protecting the rights and interests of shareholders is one of the most important for the Board of Directors. Within its implementation, we fulfilled all the necessary actions to arrange the annual general meeting of shareholders and pass resolutions on the payment of dividends for 2022 in the total amount of RUB 67.2 billion. Also in 2023, the Board of Directors considered the issues of restructuring the ownership of foreign businesses of MTS and transferring them to friendly jurisdictions in order to keep the shareholder value.

It is worth noting that the implementation of the principles of environmental and social responsibility (ESG) is an important component of our management philosophy. We consistently implement inclusive projects to achieve sustainable positive changes in society based on the principles of equality and diversity. In 2023, MTS became the leader in the RAEX ranking of companies with a developed inclusive culture, having received the highest AAA grade. Also, we received the highest non-financial (ESG) reporting rating and the highest sustainability rating according to AK&M.

The following can be noted among other issues considered by the Board of Directors of MTS in 2023 and the respective decisions made.

• Following the best corporate governance practices, the Board of Directors considered a number of issues related to functioning of the internal audit, control and compliance system, as well as the risk management system in MTS.
• Necessary decisions were made regarding the composition of the corporate management bodies of MTS PJSC and subsidiaries.
• An assessment was made with regard to the achievement of the target KPIs in 2022 by the President and members of the Management Board of MTS, and the target KPI levels for 2023 were approved.
• In order to ensure the continuity of financing of MTS PJSC activities and optimal debt management, issues related to the programs for issuing and repurchasing bonds and other financing instruments were considered.

Expansion of MTS business into new high-tech and highly dynamic areas, more active development of such market segments as B2B and B2B2X, development of a partnership program, elaboration of the Group’s legal framework, as well as the current historical context, have significantly increased the burden on management at all levels and the corporate governance bodies of the company. In view of the above, the Board of Directors specifically notes the highest level of professionalism, cohesion and dedication of the MTS team, our focus on achieving strategic goals, fulfilling all obligations to customers, business partners, employees and shareholders.