Profit distribution and dividend policy

The dividend policy of Lenenergo is defined in the Regulations on dividend policy approved by the Board of Directors on 31 August 2010 (Minutes #4) and developed in accordance with applicable law, the Charter of Lenenergo, and recommendations of the corporate governance Code of Lenenergo and other internal documents.

The Regulation determines the general principles of dividend policy of Lenenergo, the terms and amount of dividend payments, sources of the funds directed on dividend payments, the procedure of decision making on dividend payments, the procedure for compiling the list of persons entitled to receive dividends, the order, timing and form of dividend payments, disclosure of dividend policy, and liability of the Company for nonpayment of dividends.

The dividend policy of Lenenergo is a set of principles and methods used by the Company to determine the proportions between the capitalized part of the Company’s profit and part of profits paid as dividends, as well as the system of relations and principles to determine the order and timing of dividend payments and to establish liability for failure to perform the obligation to pay dividends. The dividend policy is based on the balance of interests of the Company and its shareholders when determining the size of dividend payments, on respect and strict observance of shareholders’ rights stipulated by the legislation of the Russian Federation, Charter and internal documents of the Company, and is aimed at improving the investment appeal of the Company and growth of its market capitalization.

Basic principles of dividend policy:

• calculation of dividends is based on the use of profit excluding the effects of investments revaluation;
• the need to maintain the required level of financial and technical state of the Company (implementation of the investment program), providing development prospects of the Company;
• compliance of Company’s practices for accrual and payment of dividends to the legislation of the Russian Federation and the best standards of corporate behavior;
• optimal balance of interests of the Company and its shareholders;
• the need to increase the Company’s investment appeal and its market capitalization;
• transparency (clearness) of the mechanism for determining the size of dividends and their payment;
• dividends on ordinary shares, in accordance with the Charter, are paid only in case of payment in full of dividends on preferred shares (at placement of preferred shares).

The recommended amount of dividend payments is determined by the Board of Directors on the basis of the Company’s performance results, thus the Board of Directors is committed to ensure a positive trend in the size of dividends paid to shareholders.

The Company provides disclosure on dividend policy by placing the Regulations on dividend policy of Lenenergo and all amendments thereto on the corporate website.

In accordance with the Company’s Charter, a decision on profit distribution for 2014 will be approved at the Annual General Meeting of Shareholders.

The Annual General Meeting of Shareholders (Minutes #2/2012 of 20 June 2012) approved the decision not to pay dividends on ordinary shares for 2011.

The reasons for partial non-payment of declared dividends for 2011:

• absence of addresses by the persons included in the dividend statement to receive dividends in a cash form;
• failure of the persons included in the dividend statement to submit accurate and complete information necessary for dividend payments.

The reasons for partial non-payment of declared dividends for 2012:

• absence of addresses by the persons included in the dividend statement to receive dividends in a cash form;
• failure of the persons included in the dividend statement to submit accurate and complete information necessary for dividend payments.

The reasons for partial non-payment of declared dividends for 2013:

• failure of the persons included in the dividend statement to submit accurate and complete information necessary for dividend payments.