Leading the Way WP02-B WP01-A *02-B 46 V N E 236.5M *01-A 10 S N E 91.

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1 O2C (ISIN AT0000A00Y78) LIMIT EXPANDED *02-B WP02-B 46 V N E 236.5M *01-A WP01-A 10 S N E 91.5M Leading the Way Annual Report 2015

2 C.A.T. OIL AG ANNUAL REPORT 2015 Key Group Figures SELECTED GROUP FIGURES IN ACCORDANCE WITH IFRS in EUR million (restated) Change Sales revenues (21.8)% Gross profit (44.6)% EBIT (54.4)% EBIT margin 9.6% 16.5% EBITDA (28.0)% EBITDA margin 25.3% 27.5% Profit (Group result) (62.5)% Earnings per share (62.2)% Balance sheet total* (20.7)% Equity* (13.9)% Equity ratio* 48.3% 44.5% 8.5% Cash flows from operating activites (16.0)% Cash flows used in investing activities (67.0) (134.3) 50.1% Cash flows from financing activities (29.7) 84.7 (135.1)% Cash and cash equivalents* (51.0)% Employees (average) % * as at 31 December 2015 and 31 December 2014 KEY FIGURES STOCK German securities ID no. (WKN) A00Y7 ISIN AT0000A00Y78 Ticker symbol O2C Share class No par value bearer shares Authorized capital EUR 48,850,000 Share capital EUR 48,850,000 Free float 12.9% Number of shares 48,850,000 Year s high (2 January 2015) EUR Year s low (21 December 2015) EUR 6.02 Closing price (30 December 2015) EUR 6.41 Stock exchange listings SDAX, Prime Standard

3 C.A.T.oil AG Annual Report 2015 Thinking Ahead Think ahead but look back with pride. Where we come from defines where we are going. What we have achieved determines how we continue along our chosen path. These were the pathbreaking steps of 2015:

4 How do we know that our path is the right one? Every step we want to go is planned with strategic foresight. Every step we take is taken resolutely. Every step we put behind us has brought us closer to our goals:

5 JANUARY MAY Joma announced acquisition of 39.36% of the shares in C.A.T. oil under the mandatory offer The investment programme budgeted for 2014 was completed by delivering the last outstanding equipment; C.A.T. oil s machinery henceforth comprises: 26 sidetracking rigs, 16 fracturing fleets and 15 drilling rigs FEBRUARY JUNE Yury Semenov was appointed CEO and Valeriy Inyushin CFO C.A.T. oil announced full production capacity utilization for 2015 APRIL JULY Record drilling in the Orenburg region (Russia) for Gazprom Neft: 1,000 m of horizontal drilling in 12.3 days The Company concluded its 30,000th fracturing job in Taylakovskoe (Russia) for Slavneft-MNG

6 C.A.T. OIL AG ANNUAL REPORT Company and mission 002 Strategy and business model 003 Foreword by the Supervisory Board 004 Foreword by the Management 005 The C.A.T. oil share Vienna Moscow Samara A 007 GROUP MANAGEMENT REPORT 009 Economic environment 014 Highlights and key events 016 New Group structure 018 Economic development of the Group 018 Operating segments and their activities 019 Operating performance of the Group 021 Revenue development 022 Development of costs 022 Development of earnings 024 Equity and balance sheet structure 025 Cash flow development 026 Human resources and corporate responsibility 027 Risk management report 032 Disclosures and miscellaneous 035 Events after the balance sheet date 036 Outlook and guidance C 047 CONSOLIDATED FINANCIAL STATEMENTS 049 Group balance sheet 050 Income statement 051 Statement of comprehensive income 052 Statement of changes in equity 053 Cash flow statement 054 Notes B 037 CORPORATE GOVERNANCE 039 Corporate governance report 046 Report of the Supervisory Board 102 Auditor s report 104 Statement of all legal representatives 105 Financial calendar 106 Imprint

7 Kogalym Nizhnevartovsk Headquarter Offices Operations C.A.T. OIL SHARE PERFORMANCE IN 2015 Index 120% 100% 80% 60% 40% 20% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr C.A.T. oil share SDAX

8 INTRODUCTION COMPANY AND MISSION THE COMPANY C.A.T. oil AG headquartered in Vienna and listed on the Frankfurt Stock Exchange is one of the leading independent companies in the field of oil field services in Russia and Kazakhstan. C.A.T. oil AG offers a broad range of high quality services for large and selected smaller oil and gas companies. Thanks to the services provided by C.A.T. oil AG, these firms can extend the useful lives of their production areas, gain access to untapped oil fields, and considerably increase the productivity of new and existing oil and gas formations. Since the company was founded in 1991, C.A.T. oil AG has built up a leading position in hydraulic fracturing in Russia and Kazakhstan, and emerged as a reliable and recognized business partner. Following its Initial Public Offering in 2006, it created a second mainstay of its service offering in just two years, i.e. sidetrack drilling. In this way, C.A.T. oil AG has been able to expand and consolidate its strong presence on the Russian market. In 2011/2012, C.A.T. oil AG initiated the next phase of its targeted growth and diversification strategy by developing conventional drilling as the third cornerstone of its business. In addition, it also renders cementing and completing services. The year 2015 brought C.A.T. oil AG a new, stable ownership structure and a professionally experienced top management designed to further develop the company with the aim of a continuous creation of value. In 2015, the C.A.T. oil Group had a staff of more than 3,300 employees, most living and working in Russia and Kazakhstan. Mission 1. Our objective is to make a sustainable contribution to cover global energy needs by increasing the production volumes of hydrocarbons and optimal exploiting oil and gas wells. 2. We enable the profitable extraction of oil and gas deposits and contribute to using existing resources as safely and efficiently as possible in order to ensure a stable and economical energy supply. 3. We strive to assist in achieving robust growth in shareholder value on the basis of a foresighted, profitable expansion of fracking, sidetracking and drilling as well as other complementary services. Mission statement Technology: We offer our customers services at the highest technological level based on state-of-the-art solutions and innovation-oriented engineering quality. Employees: We only work with the most highly qualified and committed employees, whose further training and professional development are promoted by us. Customers: We strive tirelessly every day to ensure ongoing customer care and support as well as the further expansion of longstanding customer relationships to major oil and gas producers. Finances: Sustainable profitability and the responsible increase in shareholder value comprise the foundation of our operations to which we orient our business activities. C.A.T. oil AG Annual Report

9 INTRODUCTION STRATEGY AND BUSINESS MODEL GROUP STRATEGY AND BUSINESS MODEL The C.A.T. oil Group is one of the leading independent service providers for oil field services in Russia and Kazakhstan. The company is very well positioned on the market, and is considered to be the undisputed market leader in its segment. C.A.T. oil AG is striving to generate robust growth in shareholder value by profitably expanding fracturing, sidetracking and drilling along with a series of complementary services. The business model of C.A.T. oil AG is based on state-of-the-art technologies and first class equipment, with a large proportion of its operating capacities originating in the EU and USA. High engineering quality and a competent, experienced and well-coordinated team of employees help to achieve the objective of predominantly organic growth. The strategically well thought-out diversification and streamlining of the service portfolio as well as a conservative financial policy have created a solid foundation for business. Longstanding customer relationships to major oil producers in the region represent an important competitive advantage of C.A.T. oil AG. Capacity expansion and further growth C.A.T. oil AG has succeeded in considerably expanding its operational capabilities following the November 2013 approval of the investment program for the years At the end of 2015, the Group had 26 sidetracking rigs (2014: 22), 16 fracturing fleets (2014: 15) and 15 drilling rigs (2014: 9). In the event of attractive investment opportunities, the company is considering to enter new geographical markets on the basis of established and new business relationships or playing an active role in the consolidation process on the market for service providers to the oil industry. Expansion beyond the traditional markets is seen as a medium-term strategic goal to increase revenues and diversify the customer portfolio. Sustainable customer relationships C.A.T. oil AG has developed solid, longstanding customer relationships to major oil producers in Russia and Kazakhstan. It rendered services to more than 20 customers in the year Similar to 2014, 98.7% of total revenues in 2015 were generated by C.A.T. oil AG s top seven customers, namely Rosneft, Gazprom Neft, Lukoil, Slavneft, Tomskneft, Kazmunaygaz and Russneft. The top three Rosneft, Gazprom Neft and Lukoil are the biggest customers, accounting for 77.7% of total revenues (see Table 1). Table 1: Share of revenues generated by the biggest customers Customers Revenue share 2015 Revenue share 2014 Rosneft (Russia) 48.1% 35.1% Gazprom Neft (Russia) 16.6% 11.6% Lukoil (Russia) 13.0% 27.4% Slavneft (Russia) 9.4% 12.9% Tomskneft (Russia) 7.8% 7.7% Kazmunaygaz (Kazakhstan) 2.0% 1.5% Russneft (Russia) 1.8% 2.7% Others 1.3% 1.1% C.A.T. oil AG Annual Report

10 INTRODUCTION FOREWORD FOREWORD BY THE SUPERVISORY BOARD Dear Shareholders, Esteemed Customers and Employees, the year 2015 brought C.A.T. oil AG a new, stable ownership structure and a professionally experienced top management designed to further develop our company with the aim of a continuous creation of value. As the majority owner and Chairman of the Supervisory Board, it is really a pleasure for me to provide support to the company for the benefit of all stakeholders as it moves ahead into the future especially our customers, employees and shareholders. I am personally convinced of the exceptional capabilities of C.A.T. oil AG, as well as its future potential and further developmental possibilities. However, the overall business environment in the past financial year did not permit to overperform our targets mainly expressed in euros. That is why I value the performance of the management and employees even more. They succeeded in increasing the number of contract orders as well as revenues in Russian roubles. In my work on the Supervisory Board, I focus on the development of the company s entrepreneurial capital. Accordingly, I consider the currency-related effects on the consolidated balance sheet in euros as a short-term collateral damage, but not as a serious threat to our business model. C.A.T. oil AG has an outstanding competitive position, and I am optimistic that our company will particularly profit from a recovery on the oil market and a corresponding increase in investment activity. An analysis of the performance of C.A.T. oil AG shows that the qualitative expansion and increase in capacities with respect to our service portfolio are more than just promising steps. These measures have to be systematically evaluated and strategically implemented after the stabilization of the oil market which we expect to take place this year, especially with regard to the situation on our core markets. This task will also affect our work in cultivating the markets in other countries, which is also conceivable in cooperation with business partners. I would like to take this opportunity to expressly thank my fellow shareholders that they have continued to be our partners, even in really turbulent times, and my colleagues on the Supervisory Board for advising both the Management Board and me with foresight and composure. I also want to extend my thanks to Yury Semenov and Valeriy Inyushin that they are leading our company into the future under the most difficult circumstances on the basis of their highly professional expertise and passionate commitment. With best regards, Maurice Gregoire Dijols Chairman of the Supervisory Board C.A.T. oil AG Annual Report

11 INTRODUCTION FOREWORD FOREWORD BY THE MANAGEMENT Dear Readers, 2015 was successful for C.A.T. oil AG and the new management team. Since taking responsibility of the top management at the end of February 2015, we continuously focused on the profitable expansion of the business activities for the benefit of the company and shareholders. We are proud of our achieving an increase in the number of contract scopes and revenues in the local currency despite the backdrop of the current market environment featuring difficult conditions for the oil field service business in Russia and CIS. We maintained our financial solidity by a proactive approach in managing, disciplined cost control and the balance sheet structure, enabling us to calmly and confidently look ahead to the upcoming months. Today we have already marketed almost all our operation capacities across all service segments for the year Our employees are the basis of our success. They are the ones who deploy technologically advanced facilities for particularly competitive and high value-added services. All our employees deserve our sincere thanks and appreciation. Our business would not be that successful without their high performance and professional commitment. After having taken over the management, we were confronted with the steep drop in oil prices and the value of national currencies in our core markets. As one could say, it was simply not the right time to implement an ambitious expansion strategy. We are focused not only on supporting but on enhancing and strengthening the quality of the services we provide to our customers. The positive feedback from our customers is proof of our right approach. Intensive efforts were made to increase efficiency and generate synergies among our subsidiaries. We supported this important objective by establishing the management company LLC Petro Welt Technologies (LLC Pe-We-Te ) and reaching a binding agreement on key performance indicators. In the future, we will strive to further upgrade our service portfolio and develop our own know-how. We will do everything we can to defend and expand upon our leadership position on the market for oil and gas field services. We are committed to our customers who we have supported for 25 years, as well as our employees and shareholders, with whom we aim to maintain a transparent and trusting relationship in the future. Kind regards, Yury Semenov Chief Executive Officer Valeriy Inyushin Chief Financial Officer C.A.T. oil AG Annual Report

12 INTRODUCTION SHARE THE C.A.T. OIL AG SHARE The C.A.T. oil AG share is traded on the Prime Standard at the Frankfurt Stock Exchange. On 2 January 2015, the C.A.T. oil AG share started the stock market year at a price of EUR per share and closed at EUR per share. This was the highest share price in the year The lowest price for the year of EUR 6.02 was recorded on 21 December. For the most part, the value of the C.A.T. oil AG share developed parallel to the oil price, and ended the last day of trading at EUR The share price development showed a decrease of 56.7% in one year, reflecting the general situation for the oilfield segment on the stock market. For example, C.A.T. oil AG s most comparable Canadian peers such as Trican and Calfrac even lost 94% and 77% of their share price value respectively, and registered negative earnings per share of CAD -2 and CAD -2.3 respectively. Trading of C.A.T. oil AG totaled 16,568,794 shares in 2015, which does not include shares handed over in due course within the context of the mandatory offer. Total daily trading volume in 2015 amounted to an average of 63,726 shares. Mandatory offer In December, Joma Industrial Source Corp., which is a company indirectly owned by Maurice Gregoire Dijols, published after acquiring a controlling interest its mandatory offer to the shareholders of C.A.T. oil AG. The offer document was approved by the German Federal Financial Supervisory Authority (BaFin). The price for one share of C.A.T. oil AG under the mandatory offer was EUR in cash. This corresponded to the weighted average domestic stock price of C.A.T. oil AG calculated by BaFin for the last three months before the day on which the acquisition of the controlling interest was announced on 31 October After expiry of the acceptance period of the mandatory offer for C.A.T. oil AG shares, a total of 19,228,711 shares have been tendered by former shareholders. Together with the shares previously acquired, Joma owner Maurice Gregoire Dijols directly and indirectly controls a total of 87% of C.A.T. oil AG. The remaining 13% are in free float. Stable rating outlook The rating agency Moody s confirmed in June 2015 (and again in April 2016) the Ba3 rating of C.A.T. oil AG with a stable rating outlook. The ratings rationale for the positive conclusion mentioned in particular the robust business model, the strong market position and the conservative financial policy of the company. The strong order book and the comfortable debt maturity profile were highlighted. C.A.T. oil AG Annual Report

13 INTRODUCTION SHARE Chart 1: Development of the C.A.T. oil AG share 2015 compared to the oil price Source: Frankfurt Stock Exchange, In 2015, the C.A.T. oil AG share developed in parallel with the oil price, showing a clear upward trend from January 2016 onwards. C.A.T. oil AG Annual Report

14 C.A.T. OIL AG ANNUAL REPORT 2015 A 007 GROUP MANAGEMENT REPORT 009 Economic environment 014 Highlights and key events 016 New Group structure 018 Economic development of the Group 018 Operating segments and their activities 019 Operating performance of the Group 021 Revenue development 022 Development of costs 022 Development of earnings 024 Equity and balance sheet structure 025 Cash flow development 026 Human resources and corporate responsibility 027 Risk management report 032 Disclosures and miscellaneous 035 Events after the balance sheet date 036 Outlook and guidance

15 A MANAGEMENT REPORT Defining our position. Where we come from defines where we are going. What we have achieved determines how we continue along our chosen path.

16 GROUP MANAGEMENT REPORT ECONOMIC ENVIRONMENT THE RUSSIAN ECONOMY IN 2015 According to initial estimates of the Federal State Statistics Service Rosstat, the Russian economy contracted by 3.7% in 2015 (see Table 2). The main reasons were the sharp decline in exports (-32% from the previous year), a significant decrease in private consumption (-10% in retail sales) and considerable restraint in investments (-8.4% in a yoy comparison). The key underlying reasons for these developments were the steep drop of oil prices (-35.2% yoy from USD 57.56/barrel Brent to USD 37.28/barrel Brent) and other commodity prices as well as the ongoing strong devaluation of the national currency of 33.4% yoy versus the euro on the average annual basis (2015: RUB/EUR 67.78/1, 2014: RUB/EUR 50.81/1). Main trends The drastic depreciation of the Russian rouble (see Chart 2) had a twofold effect on the economy. On the one hand, consumption and investment activity were seriously impacted. On the other hand, industrial output was supported by the effect of import substitution, and thus declined by only 3.4%. However, import substitution had a limited character because of the lack of investment activity and strict monetary policy. Devaluation and Russian anti-sanction measures triggered accelerated inflation. The consumer price index (CPI) reached a level of 15.5% in 2015 versus 7.8% in 2014 (see Table 2). The prices imposed by producers did not increase at such a fast pace, climbing by 12.4% due to government regulations, especially with respect to tariffs, as well as limited margins in the B2B segment. Another challenge for the Russian economy in 2015 posed the drop of real disposable income (-4% compared to the previous year) and a rise in the budget deficit, anticipated to comprise about 2.6% of GDP compared to 0.5% in Prudent crisis management In 2015, Russia surprised many observers by implementing effective and prudent policy responses to the crisis. The government demonstrated its willingness to implement unpopular measures, such as a nominal freeze in civil service wages, incomplete pension indexation and sizeable cuts in public services and transfers. This was accompanied by the decision of the Central Bank of Russia to let the Russian rouble float while preserving a prudent monetary stance. All these measures prevented potentially damaging financial destabilization and also fostered the economy s adjustment to the new economic reality. Table 2: Key Russian economic indicators 2015/ /2013 Indicators Change Change Economic growth (GDP) -3.7% 0.7% Industrial production -3.4% 1.7% Oil production 1.3% 1.1% Investments -8.4% -1.5% Inflation (CPI) 15.5% 7.8% Producer Price Index (PPI) 12.4% 6.1% Real disposable income -4.0% -0.7% Source: Ministry of Economy of Russia, Rosstat C.A.T. oil AG Annual Report

17 GROUP MANAGEMENT REPORT ECONOMIC ENVIRONMENT Chart 2: Currency and oil price development 2015 Sources: Developments on the Russian oil market In 2015, oil prices stagnated at a low level due to the declining demand for crude oil and natural gas against the backdrop of increasing oil and gas production. In turn, this resulted in a global 23% drop in capital expenditures on new projects following the half-year estimations. In comparison, oil-related investments in exploration and production are expected to diminish by 35% in the USA and more than 15% globally for the whole year The investment policy of the Russian oil companies in 2015 could be defined as providing support to oil production via relatively cheap and intensive solutions. According to a recent Deloitte poll, about 25% of oil industry professionals indicated a reduction of investments in drilling and 30% in efficient field development. The intention to reduce upstream expenditures was less pronounced than the cutback on exploration expenses. 10% planned to reduce drilling investments, whereas only 5% expected reduced investments in efficient field development. Record year for production The structural constraints of non-energy exports, the high dependence of the federal budget on oil revenues, the need of leading Russian energy companies to repay external debt and their willingness to maintain their market share on the global market explain the necessity to boost oil production. Whereas oil production and GDP growth developed more or less in parallel and oil production started to regain momentum after a decline to a record low in 2013, oil output growth lost direct correlation with GDP growth in 2014 and 2015 respectively due to the dramatic fall of the oil prices (see Chart 3). C.A.T. oil AG Annual Report

18 GROUP MANAGEMENT REPORT ECONOMIC ENVIRONMENT Chart 3: Russian GDP and oil output dynamics Sources: Ministry of Economy of Russia, Rosstat In 2015, Russian oil companies succeeded in achieving a post-soviet production record at the level of million barrels per day by the end of the year. Russian oil output registered 1.3% yoy growth (2014: +1.1%) for the entire year The record oil output in 2015 was reached thanks to further expansion of production drilling which grew by 11.6% yoy. Despite the significant fall of exploration drilling by 17.7% yoy, overall drilling volume increased by 10.2% yoy and achieved 22,883 thousand meters (see Chart 4). Chart 4: Drilling dynamics in Russia overall drilling volume 2015 Source: CDU TEK Russian oil majors demonstrated varying dynamics with respect to production drilling. Rosneft was the undisputed leader, reporting 30% yoy growth. Gazprom Neft was the second major player to dominate this segment of the oil field market. Lukoil, the second largest Russian oil company, showed the worst result and lost 31% yoy of its drilling volumes compared to The two leaders, the state-owned companies Rosneft and Gazprom Neft, accounted for 73% of production drilling increases in 2015, strongly supporting the oil field industry. However, there was a drastic redistribution of drilling market shares on the part of the main oil companies (see Table 3). C.A.T. oil AG Annual Report

19 GROUP MANAGEMENT REPORT ECONOMIC ENVIRONMENT Table 3: Breakdown of market shares in production drilling by company Companies Rosneft 19.6% 20.7% 28.6% 26.2% 30.5% Surgutneftegaz 26.4% 24.9% 24.8% 21.8% 19.6% Lukoil 14.5% 18.2% 18.0% 20.2% 12.5% Gazprom Neft 12.6% 12.5% 14.1% 14.0% 13.1% Others 26.9% 23.7% 14.5% 17.8% 24.3% Total 100.0% 100.0% 100.0% 100.0% 100.0% Source: CDU TEK During the past five years, the hydraulic fracturing segment developed at a very fast pace. The number of fracks increased by 51% and the average rate of growth amounted to 8.6 %. In 2014, volumes reached a record growth rate of 28.4%, but were subject to a downward correction of -4.8% in 2015 (see Chart 5). Chart 5: Growth rate of number of fracks in Source: CDU TEK Rosneft remains the leading oil company in this segment. However, its market share has declined each year over the last five years, amounting to 26.5% in Surgutneftegaz and Lukoil rank second and third respectively (see Table 4). The further reduction of demand for onshore oil field services during the past years on the part of Lukoil side can be attributed to the declared emphasis on offshore development, which requires high capex. Table 4: Breakdown of fracturing by company Companies Rosneft 35.4% 33.3% 31.6% 32.4% 26.5% Surgutneftegaz 17.7% 14.0% 13.7% 16.7% 20.9% Lukoil 16.7% 19.8% 18.2% 14.9% 14.1% Tatneft 7.6% 8.6% 11.3% 10.2% 9.9% Bashneft 2.4% 3.5% 5.4% 7.7% 9.3% Gazprom Neft 6.9% 7.4% 7.5% 6.1% 5.1% Others 13.3% 13.4% 12.3% 12.0% 14.2% Total 100.0% 100.0% 100.0% 100.0% 100.0% Source: CDU TEK C.A.T. oil AG Annual Report

20 GROUP MANAGEMENT REPORT ECONOMIC ENVIRONMENT As one of the core drivers of the oil industry, drilling sustained the financial results of the oil field service market in According to our estimates, it decreased by around 15% yoy as measured in hard currency. Cautious optimism regarding oil prices The Russian oil field market as measured in hard currency continued to decline in 2015 due to the pressure on contract prices and currency devaluation. Prices should now be stabilized on the basis of limiting oil production in Russia and abroad. In March 2016, the Russian Government decided that oil production for the rest of the year would be kept at the same level as in January Due to the gradual convergence of supply and demand, which is not only becoming evident in Russia, a stabilization trend is expected to actually emerge in the course of the year. In terms of supply, the anticipated decrease in production output in the USA should have an impact on prices. On the demand size, China s flourishing consumption could help sustain higher oil prices. Iran as a question mark The Organization of Petroleum Exporting Countries (OPEC) comprises an uncertainty factor. Although the twelve member states decided against reducing oil production at the beginning of December 2015, it remains to be seen what they will do at the next meeting scheduled for June It must be borne in mind that as a result of the lifting of sanctions against the OPEC member Iran, this traditional player in the oil business is once again competing on the marketplace. C.A.T. oil AG Annual Report

21 GROUP MANAGEMENT REPORT HIGHLIGHTS AND KEY EVENTS DEVELOPMENT OF THE C.A.T. OIL GROUP Highlights in was a defining year for C.A.T. oil AG, a year in which the foundation was laid for the further development of the Group. In spite of extremely challenging economic conditions, the C.A.T. oil Group led by a new management team developed satisfactorily, both in terms of its operating business as well as from a financial point of view. The number of service jobs increased from 4,489 in 2014 to 4,975 in 2015, comprising an increase of 10.8%. Revenue generated in Russian roubles was up by 4.4%. The consolidated financial statements in euros show a performance slightly above the original guidance and the expected results. Revenue for the year 2015 totaled EUR million, whereas EBITDA and EBIT amounted to EUR 81.5 and 31.0 million respectively. Accordingly, C.A.T. oil AG performed clearly better than its competitors. The most important business achievements of C.A.T. oil Group in 2015 were as follows: The company s market position was maintained in drilling and expanded in the fracturing segment. A sufficient EBITDA margin and operating cash flow continued to be generated. Capex and opex control were optimized. The Group business was converted to the self-financing model without the need for external resources. A solid cash position was maintained during the year. A conversion program for intergroup debt-to-equity was launched, enabling improved profitability of operating units and the Group s equity structure. Figures are based on the following exchange rates: Table 5: Exchange rates EUR/RUB/USD and USD/RUB 2015 Closing rate 31 Dec Closing rate 31 Dec Average rate 2015 Average rate 2014 Exchange rate 1 Euro (EUR) = Russian rouble (RUB) = US dollar (USD) US dollar (USD) = Russian rouble (RUB) C.A.T. oil AG Annual Report

22 GROUP MANAGEMENT REPORT HIGHLIGHTS AND KEY EVENTS KEY EVENTS IN 2015 Q January Joma announced the purchase of 39.36% of the shares in C.A.T. oil AG within the context of a mandatory takeover offer. February A new Supervisory Board was elected at the Extraordinary General Meeting. Yury Semenov was appointed to serve as CEO, Valeriy Inyushin as CFO and Deputy CEO. Q April Record drilling in the Orenburg region of Russia on behalf of Gazprom Neft: 1,000 meters of horizontal oil drilling were carried out in only 12.3 days. May June Conclusion of the investment program budgeted in 2014 based on the delivery of the last outstanding facility. The equipment portfolio of C.A.T. oil AG now encompasses 26 sidetracking rigs, 16 fracturing fleets and 15 drilling rigs. Announcement of first quarter results: revenues reached a level of EUR 72.7 million. Moody s confirmed C.A.T. oil AG s Ba3 rating with a stable outlook. C.A.T. oil AG reported complete utilization of production capacities for The 10th Annual General Meeting of C.A.T. oil AG approved the election of Maurice Gregoire Dijols, Remi Paul and Ralf Wojtek as Members of the Supervisory Board. Q July Successful conclusion of the 30,000th fracturing job in the company s history in Taylakovskoe, Russia, for Slavneft-MNG. August September C.A.T. oil AG published its half-year results: strong increase in the number of jobs, ongoing solid equity and cash flow basis. A new management entity called LLC Petro Welt Technologies was established in order to introduce unified standards of corporate governance throughout the entire C.A.T. oil Group. Q October Launch of debt-to-equity program in operating companies. November December C.A.T. oil AG announced third-quarter results: number of service jobs in Russia considerably increased, the decline in value of the Russian rouble continued to burden business results. Formation of a contract portfolio in line with the planned rate of utilization of operational capacities. C.A.T. oil AG Annual Report

23 GROUP MANAGEMENT REPORT NEW GROUP STRUCTURE CHANGES IN THE GROUP STRUCTURE The C.A.T. oil Group consists of C.A.T. oil AG, the Austrian holding and parent company of the three fullyowned operating subsidiaries, i.e. CATKoneft, CATOBNEFT and C.A.T. oil Drilling, as well as the three other completely owned subsidiaries, namely C.A.T. oil Leasing, C.A.T. oil Trading House and C.A.T. GEODATA. All subsidiaries are registered in Russia as LLC companies, except for C.A.T. GEODATA which is registered in Vienna/Austria. The managing holding headquartered in Vienna, C.A.T. oil AG, performs general and administrative services for the Group, including monitoring and supervision, controlling, strategic planning, corporate financing, central sales and marketing, risk management and strategy. New management unit for efficient control In fall 2015, the managing holding C.A.T. oil AG set up its own management unit named LLC Petro Welt Technologies, short LLC Pe-We-Te. The objective is to enhance efficiency in the operating subsidiaries of the C.A.T. oil Group, and generate synergies by improving cooperation among the individual companies. This particularly applies to human resources, procurement as well as financial and liquidity planning. Accordingly, internal services are now professionally offered from a single source to the entire Group. Furthermore, a state-of-the-art compliance management was introduced to ensure absolute adherence to rules and regulations within the C.A.T. oil Group. New brand In order to ensure a distinct brand identity and brand clarity, C.A.T. oil AG launches a corporate identity and corporate design process for the new brand PeWeTe (Petro Welt Technologies). The brand represents a clear differentiator from the competition and should send a message to the market, which could be described by the formula transforming potential into power. This process reflects the direction in which the company is moving, and also makes an unambiguous statement about its field of activity. C.A.T. oil AG Annual Report

24 GROUP MANAGEMENT REPORT NEW GROUP STRUCTURE New structure of the Group C.A.T. oil AG Annual Report

25 GROUP MANAGEMENT REPORT ECONOMIC DEVELOPMENT OF THE GROUP OPERATING SEGMENTS AND THEIR ACTIVITIES The C.A.T. oil Group is active in the upstream business in the oil and gas industry, and presents its activities in two reportable segments. Well Services segment The Well Services segment encompasses hydraulic fracturing, multi-stage fracturing and remedial cementing. Hydraulic fracturing is a very effective method to convey hydrocarbons (crude oil and natural gas) to the surface. Special fluids and a stabilizer (proppant) are pumped into the borehole under high pressure. This method enables oil and gas deposits to be exploited more profitably and efficiently. Multi-stage fracking makes use of horizontal designs in order to maximize contact with the well. The additional points of contact reduce the number of required wells to be drilled, and correspondingly cuts exploration costs for the particular oil or gas field. Remedial cementing is offered as a complementary service when needed during hydraulic fracturing. This prevents the mixing of water and other undesired substances with hydrocarbons during the fracking process, and prepares the borehole for efficient production at a later time. C.A.T. oil AG is the largest independent fracking services provider in Russia with a market share by number of jobs close to 30%. Drilling, Sidetracking and IPM segment The segment encompasses conventional drilling, sidetracking and integrated project management (IPM). Conventional drilling involves the conventional technology of vertical, horizontal or inclined hole drilling to open up oil and gas fields to a depth of up to 5,000 meters. Sidetrack drilling, also known as inclined drilling, develops new reservoirs from existing boreholes which do not produce any more oil due to problems in the reservoir or irreparable damage in the borehole. This approach opens up cost-effective and efficient methods for oil companies to reactivate idle wells and thus create new production capacities by bypassing troublesome spots in a borehole or reaching new reservoirs. With its Integrated Project Management (IPM), C.A.T. oil AG offers drilling capacities on a turnkey basis. IPM services include order processing, contract management and the management of all service rendered by subcontractors, for example drilling fluids, drill bits, casing and liner programs, downhole motors and turbines, measurement while drilling (MWD), logging while drilling (LWD) and liner cementing. This segment of C.A.T. oil AG completed a total of 287 jobs in The Group maintains its market position in sidetracking and permanently expands its market share in conventional drilling. C.A.T. oil AG Annual Report

26 GROUP MANAGEMENT REPORT ECONOMIC DEVELOPMENT OF THE GROUP OPERATING PERFORMANCE OF THE GROUP In 2015, the operating subsidiaries of C.A.T. oil AG demonstrated their competitiveness in the light of a very unfavourable business environment, and succeeded in maintaining their excellent market position. The price of oil declined in the course of the year by 35.2%, from USD at the beginning of the year 2015 to USD for Brent crude. The price of Urals oil was subject to a similar price drop, losing 47.4% in value during the year. The second determining factor was the weakening of the Russian rouble, with an initial exchange rate of against the US dollar at the start of the financial year and a rouble-to-euro exchange rate of By the end of 2015, its value had fallen by 29.6% versus the US dollar to RUB 72.88, and 16.6% versus the euro to RUB Both factors led the customers of C.A.T. oil AG to sharply cut back on their investments. However, they kept production volumes at a high level due to the significance of oil production for the Russian economy. However, oil field service providers were faced with downward price pressure on service fees, which declined by about 15% on average. Increased number of jobs Against this backdrop, the operating subsidiaries of C.A.T. oil even managed to increase the number of service jobs (see Table 6). The number of service jobs in the Well Services segment climbed by 10.8%, from 4,231 in 2014 to 4,688 in The number of service jobs in the Drilling, Sidetracking and Integrated Project Management (IPM) segment was up by 11.2% to 287 jobs in 2015 from 258 jobs in Table 6: Quarterly development of the service job count Segments Q1 Q2 Q3 Q /- Well Services 1,114 1,395 1, ,688 4, % Drilling, Sidetracking, IPM % The rise in the number of implemented service jobs is not only due to the high level of customer satisfaction related to the high quality service offered by C.A.T. oil AG. It is also the result of the upgrading and expansion of the company s equipment in connection with the investment program initiated in 2014 and concluded in June The equipment capacities operated by C.A.T. oil AG now consists of 26 sidetracking rigs (2014: +4), 16 fracturing fleets (2014: +1) and 15 drilling rigs (2014: +6). Complete utilization of equipment portfolio The entire equipment portfolio of C.A.T. oil AG was completely utilized throughout The company currently has sufficient equipment at its disposal in the light of the particular situation prevailing on the Russian market for oil and gas exploration and production. Against the backdrop of restrained customer investments and price pressure on service fees, the management of C.A.T. oil AG pursued a flexible investment policy, focusing mainly on carrying out the required replacement and maintenance investments. It attached particular importance to upholding the high technological standards of the equipment, comprising an important competitive advantage. C.A.T. oil AG generates almost all its revenues in Russian rouble. Accordingly, part of the investments took place in soft currency countries whilst ensuring adherence to qualitative criteria. This adaptive behavior of the management in a volatile market was also acknowledged by the rating agency Moody s. C.A.T. oil AG Annual Report

27 GROUP MANAGEMENT REPORT ECONOMIC DEVELOPMENT OF THE GROUP Leading position in fracturing Another highlight in the company s operating business in 2015 was the record level of drilling in the Orenburg region. Horizontal drilling of more than 1,000 meters was successfully concluded for the customer Gazprom Neft in only 12.3 days. This unprecedented achievement was also recognized by the industry. Moreover, the 30,000th fracturing job in the history of the company was carried out in June/July This milestone demonstrates the leading market position of C.A.T. oil AG in the application of this technology on the Russian market as well as the high customer satisfaction. Introduction of a holistic management approach The goal of the new Management Board is to ensure the targeted further development of the C.A.T. oil Group. In particular, the underlying objective is to quickly and comprehensively generate synergies in the management and administration of business operations and introduce unified performance and quality standards in order to continuously improve upon them. Additionally, the new Management Board aims to further expand its high-quality services and develop proprietary oil field service know-how in order to secure the company s sustainable competitiveness in the future. For this purpose, a fully-owned subsidiary of C.A.T. oil AG directly below the level of the parent company was established in the fall of The company, LLC Petro Welt Technologies, short LLC Pe-We-Te headquartered in Moscow, has the right to issue directives and intervene in the activities of the operating subsidiaries of C.A.T. oil AG. Pe-We-Te assumed responsibility for a number of administrative services from the operating subsidiaries such as finance, liquidity management, human resources and above all procurement. This step is designed to serve as the basis for generating synergies and ensuring the ongoing further development of unified quality standards. Change of procurement process and improved compliance Great importance is attached to the procurement processes for equipment, materials and purchased services. The new norms underlying the procurement process start with annual demand planning and include the ongoing analysis of equipment utilization and material consumption. They take into account tendering and bidding requirements and stipulate terms and conditions for the purchase and acceptance of goods and services. The management did not aim to dictate a new status quo but initiate a continuous learning and improvement process. A revision of the new procurement guidelines taking the lessons learned into account is already expected to be implemented in the middle of Mandatory tendering in the procurement process is required, not least for reasons of improved compliance, and to put a transparent process at place addressing the market situation. Moreover, this prevents discussions with tax authorities, because tenders help ensure that purchase prices correspond to competitive market prices. The management considers the involvement of upper level management from different business areas in the decision-making process to be a key success factor in the procurement process. The new procurement guidelines enabled the company to generate considerable cost savings in In particularly, double-digit cost reductions were achieved for telemetry services and drill mud disposal without compromising the quality of the services rendered by C.A.T. oil AG. C.A.T. oil AG Annual Report

28 GROUP MANAGEMENT REPORT ECONOMIC DEVELOPMENT OF THE GROUP Revenue development C.A.T. oil AG generates its revenues exclusively in Russian roubles and Kazakh tenge. Actual revenues are converted into euros in the consolidated presentation of the Group s business results. The Russian rouble lost 33.4% in value versus the euro in 2015 on the basis of the average exchange rate. However, the currency was subject to enormous fluctuations during the year. The rate of volatility measured as standard deviation in relation to the annual average reached 9% for EUR/RUB and 8% for USD/RUB. The recovery of the Russian rouble was perceptible in the period January to 17 April, when it gained 23% and 12% versus the euro and US dollar respectively. After that, the Russian rouble declined in value by 51% and and 47% against the euro and the US dollar respectively by the end of % of the Group s revenues are generated in the Russian rouble, 2.0% in Kazakh tenge. There were no revenues in other currencies in The tenge was highly volatile and devaluated by 43% versus the Russian rouble during the year Total Group revenues measured in Russian roubles increased by 4.4% in the 2015 financial year. In contrast, revenues in the Group currency, the euro, fell by 21.8% to EUR million from EUR million in the previous year. The high quality services rendered by C.A.T. oil AG on the basis of the topnotch quality of the employees deployed and the high technological standards of the technical equipment has made the company more resistant against unfavourable market conditions. The quarterly revenue development and seasonality of the operating business is presented in the following table: Table 7: Revenue development 2015 per quarter and segment Revenues in EUR million Q1 Q2 Q3 Q /- C.A.T. oil consolidated % Well Services % Drilling, Sidetracking, IPM % The deteriorating economic conditions reflected in the pressure on service fees and the changed structure of service jobs related to the cost savings programs implemented by customers are clearly shown by the average per job revenue. This indicator declined by 27.8% to EUR 37,400 per job in the Well Services segment against the backdrop of a 10.8% rise in the number of service jobs (see Table 8). In the Drilling, Sidetracking and IPM segment, average per job revenue fell by 31.4%, with the number of jobs increasing by 11.2%. Table 8: External revenues Revenues and jobs per segment /- +/- Well Services in EUR million % Jobs number 4,688 4, % Average revenue in EUR thousand % Share of revenues 54.3% 53.2% Drilling, Sidetracking, IPM in EUR million % Jobs number % Average revenue in EUR thousand % Share of revenues 45.7% 46.8% C.A.T. oil AG Annual Report

29 GROUP MANAGEMENT REPORT ECONOMIC DEVELOPMENT OF THE GROUP The company s revenues generated by its service lines in the years ended 31 December 2013, 31 December 2014 and 31 December 2015 shows some increase in revenue contribution of fracturing and an important growth of the share of conventional drilling which partly replaced sidetracking (see Table 9). Table 9: Revenue development by service line Service lines Hydraulic fracturing 51.8% 50.3% 50.8% Sidetrack drilling 25.9% 33.9% 33.4% Conventional drilling 19.5% 13.4% 13.0% Cementing 2.1% 2.2% 2.5% Other services 0.7% 0.2% 0.3% Reduced costs and increased efficiency The cost of sales fell by 15.2% or EUR 48.7 million to EUR million from EUR million in the previous year. This decrease is comparable with the devaluation of the Russian rouble during 2015 (-16.6%), showing that the management of C.A.T. oil AG was able to successfully increase the efficiency of the operating business and reduce costs incurred in US dollars or euros. This improvement took place in spite of the conclusion of an investment program designed to expand capacities. However, it was not sufficient to cover the decrease of revenues expressed in euros based on the average exchange rate dynamics of 2015 versus Raw material costs fell by 15.1% or EUR 17.4 million to EUR 97.6 million in the financial year The average number of employees rose to 3,303 people in 2015, up from the comparable level of 2,972 in the previous year. This comprised an increase of 11.1% or 331 employees. Nevertheless, personnel costs could be reduced by 9.1%, from EUR 43.9 million to EUR 39.9 million in Direct costs, which include expenditures for production services, transport, maintenance and repair, fell by 30.1% or EUR 27.7 million, from EUR 92.0 million in 2014 to EUR 64.3 million in 2015 in spite of the increased capacities. Adminstrative costs, primarily arising in euros, were down slightly to EUR 20.3 million from the prior-year figure of EUR 21.0 million due to the existence of euro-nominated expenses related to the Austrian head office and inflation in Russia. Development of earnings The gross profit declined by 44.6% in the financial year 2015 to EUR 51.0 million, down from 92.0 million in the previous year (see Table 10). The gross profit margin equalled 15.8% (down from 22.3% in 2014), which can be considered as a relatively comfortable level for corporate finances in such a challenging market environment. EBITDA development was quite successful in Firstly, its margin was maintained at 25.3%, just marginally below the level of 27.5% in Secondly, the EBITDA decline in Russian roubles was only 4%. Accordingly, despite the 28% EBITDA decrease in euro terms, from million in 2014 to 81.5 million in 2015, it had a limited impact to the company. The Group preserved its ability to generate a robust operating cash flow and even increased it in Russian rouble terms by 12%. The operating result reported as earnings before interest and taxes (EBIT) deteriorated by 54.4% in the year under review to EUR 31.0 million, down from the prior-year level of EUR 67.9 million. This was due to the insufficient compensation through a decline in general and administrative expenses. C.A.T. oil AG Annual Report

30 GROUP MANAGEMENT REPORT ECONOMIC DEVELOPMENT OF THE GROUP The financial result in 2015 was negative at minus EUR 1.9 million, compared to the positive financial result of EUR 3.2 million in This development can be mainly attributed to exchange rate changes. The net profit before tax in 2015 amounted to EUR 29.0 million. The more pronounced drop in the net profit compared to the profit before tax (-62.5% versus -59.1% yoy) can be primarily attributed to the increase in the effective tax rate from 24% in 2014 to 30% in This is due to additional tax payments in Russia and specifying taxes for previous periods. Earnings per share equalled EUR 0.42 for the 2015 financial year, lower than the level of EUR 1.11 per share in Table 10: Group figures EBITDA and EBIT Key positions /- +/- Sales revenues in EUR million % Gross profit in EUR million % EBITDA in EUR million % EBIT in EUR million % Gross profit margin 15.8% 22.3% EBIT margin 9.6% 16.5% EBITDA margin 25.3% 27.5% Group result in EUR million % Earnings per share in EUR % Dividend for the financial year 2015 In the event of attractive investment opportunities, the company is considering to enter new geographical markets on the basis of established and new business relationships or playing an active role in the consolidation process on the market for service providers to the oil industry. For this reason, a solid structure of the balance sheet is necessary. The Management Board and Supervisory Board willl therefore propose that the Annual General Meeting approves the intention not to distribute any dividend for the financial year The dividend for 2014 amounted to EUR 0.12 per share. C.A.T. oil AG Annual Report

31 GROUP MANAGEMENT REPORT ECONOMIC DEVELOPMENT OF THE GROUP Development of equity and balance sheet structure In 2015, the equity ratio could be increased to 48.3%, up from 44.5% in 2014 (see Table 11). This is mainly due to the reduction in the balance sheet total, from EUR million to EUR million. For one thing, the valuation of assets was lower as a result of the loss in value of the Russian rouble. In addition, the non-current and current liabilities of C.A.T. oil AG were substantially reduced. Equity of the Group fell to EUR million as at 31 December 2015 compared to EUR million at the end of The non-current assets of C.A.T. oil AG recognized to the amount of EUR million were more than offset by equity and non-current liabilities totalling EUR million. At the end of 2015, total net debt amounted to EUR million, which corresponds to a factor of 1.3 EBITDA (see Table 12). Table 11: Group balance sheet structure 31 Dec Dec Balance sheet positions in EUR million Share in EUR million Share Current assets % % Non-current assets % % Assets % % Current liabilities % % Non-current liabilities % % Equity % % Liabilities and equity % % Table 12: Development of debt and debt/equity ratio Key figures 31 Dec Dec Liabilities against C.A.T. Holding (Cyprus) Ltd. in EUR million Trade payables in EUR million Other liabilities with the exception of accrued liabilities in EUR million Less: cash and cash equivalents in EUR million (28.5) (58.2) Net debt in EUR million Total equity in EUR million Net debt to equity ratio 71.9% 59.3% C.A.T. oil AG Annual Report

32 GROUP MANAGEMENT REPORT ECONOMIC DEVELOPMENT OF THE GROUP Cash flow development Based on an EBITDA of EUR 81.5 million in 2015 (2014: EUR million), the cash flow from operating activities amounted to EUR 67.3 million, down from the prior-year figure of EUR 80.1 million. The negative impact of the reduction in the profit before tax was partly compensated by the improved dynamics of working capital (2015: EUR -1.0 million, 2014: EUR million). The Management Board succeeded in limiting the cash flow decline thanks to its stringent receivables management and improved contract conditions. Following delivery of the equipment ordered in 2014, investment activity was considerably cut back in Capital expenditures in property, plant and equipment totalled EUR 57.6 million, compared to EUR million in the previous year. The cash flow from financing activities was minus EUR 29.7 million, down from EUR 84.7 million in The main reason was the early total repayment of a loan to Sberbank of Russia. C.A.T. oil AG Annual Report

33 GROUP MANAGEMENT REPORT HUMAN RESOURCES, CORPORATE RESPONSIBILITY HUMAN RESOURCES AND CORPORATE RESPONSIBILITY At the end of 2015, a total of 3,303 people were employed with the entire C.A.T. oil Group. This corresponds to a rise of 11.1% from the prior-year level (2014: 2,972). Almost all the employees of the company live in Russia and Kazakhstan. They combine extensive technical expertise and local knowledge acquired at numerous oil fields in almost all oil production areas of Russia and Kazakhstan. Employee retention measures C.A.T. oil AG is aware of the fact that its ability to attract qualified personnel and retain these employees in the long term is a key factor enabling the company to continue providing its services, maintain its competitive position and further expand and diversify its business operations. For this reason, the C.A.T. oil Group is proactively involved in the professional development and operating performance of its employees, and promotes basic values such as individual responsibility and respect. C. A.T. oil AG believes that an open corporate culture as well as its offering of social and support services comprise major contributions towards increasing employee loyalty and retention. Clear legal foundation and certification The operating subsidiaries have concluded collective wage agreements with employees defining their employment terms and conditions remuneration, incentives and social benefits. Employees also have a variable salary component in which their remuneration depends on fulfilling specified performance indicators. It is important for C.A.T. oil AG to emphasize the fact that high safety and quality standards are not only important for employees, but also means to protect the company s reputation and its ability to successfully obtain major contract orders within the context of tenders. That is why the operational companies and processes implemented in the C.A.T. oil Group are certified in accordance with ISO Environmental protection and responsibility C.A.T. oil AG attaches great importance to protecting the environment and combating pollution. For this reason, the operating companies within the C.A.T. oil Group are particularly careful to strictly comply with valid national environmental laws and regulations in Russia and Kazakhstan. Similarly, the Group fulfils all additional environmental standards imposed by customers at the oil fields, which in some cases are more stringent than the valid environmental protection regulations. C.A.T. oil AG Annual Report

34 GROUP MANAGEMENT REPORT RISK MANAGEMENT REPORT RISK MANAGEMENT C.A.T. oil AG serves as an executive holding company for its subsidiary companies. One of the holding company s core responsibilities is to identify and actively manage the Group s strategic, operational and financial risks as well as to develop and implement timely counter-measures to minimize identifiable risks. To this end, C.A.T. oil AG developed the Group-wide Opportunities and Risk Management System and has documented the system in the Group s Risk Management Handbook since The system is an essential part of the Group s business planning and controlling processes. The new Management Board (since 25 February 2015) has empowered by default CFO Valeriy Inyushin to act as the Group s Chief Risk Manager (CRM), a focal point for the Group s risk reporting on a regular and an ad-hoc basis. This appointment has enabled the Management Board to obtain access to all risk-related information at any time in order to identify and assess various risk events, take appropriate actions, and respond to different developments and scenarios. Risk factors and risk measurement Risks arising from the Group companies Similar to 2014, the Group continues to be exposed to material financial risks, which may arise in case of a recurrence of the global economic and financial crisis as well as the intensification of the political tensions between Russia and Western countries as well as of the political turmoils in the surrounding geographies. The monetary policies and economic actions taken by the Russian and Kazakh governments may have a significant risk impact on the Group s net assets, financial position, and results of operations. Measures aiming at strengthening the Russian government s control over oil and gas extraction industries may indirectly affect the service providers in the region. An important direct impact on the Group s results of operations may have potential adverse changes in exchange rates of the Russian rouble or the Kazakh tenge against the euro, which is the Group s reporting currency. Therefore, the Group-wide Opportunities and Risk Management System continues to address financial risks and enables the development of counter-measures to mitigate these risks. The potential deterioration of the operating environment as well as a reversal of the global economic recovery may also result in the full or partial impairment of certain assets or goodwill in case the expected business goals cannot be achieved. This could have a significant impact on the Group s financial results. As the Group depends on a limited number of significant customers within the oil field service markets, the Group companies risks relate to non-fulfilment of the Group companies operating objectives and commitments. This could potentially lead to a loss of a significant customer and a material decline in revenue. The Group companies competitiveness is maintained and expanded by continuous innovations, quality control, compliance management and assurance measures, and the deepening scale and scope of services with core customers. Customers opportunity costs of switching from the Group services to other service providers are relatively high due to years of cooperation, the Group s proprietary technology and know-how as well as deep working knowledge of Russian and Kazakh oil fields. Liquidity risks The Group s liquidity risk includes its ability to meet the financial obligations, for instance in respect to trade payables or interest-bearing liabilities. In order to assess the liquidity risk, the budgeted operating, financial and investment cash inflows and outflows are analysed on a monthly basis throughout the Group and the budgeted net liquidity is compared with the actual results. The Group holds the policy of zero debt creation from external pure sources in the medium term perspective. Strong cash position and capacities of the total self-financing are the reliable basis of the Group financial stability. C.A.T. oil AG Annual Report

35 GROUP MANAGEMENT REPORT RISK MANAGEMENT REPORT The current liquidity management is based on the concentration of financial resources for the timely fulfilling of obligations to contractors. The management carries out the monitoring of the predicted and actual cash flows and analyzes repayment schedules for financial obligations. Another measure designed to improve the quality of liquidity management is the continuing automation of treasury processes, which in turn helps optimize repayment planning. Liquidity management is also facilitated by up-to-date information provided about the current liquidity of subsidiaries. Noteworthy risks of the Group Market risks The Russian market is diversified, with domestic and foreign oilfield services companies of various sizes offering services. Sanctions changed the picture by limiting access of large foreign oil field service companies to the Russian market. Local oil field services companies have an open field to provide a full scope of services, if they prove capable of meeting the requirements of operators. However, the entire industry faces significant challenges resulting from the low oil price environment. E&P companies have been pushing the supply chain to aggressively lower costs, which in turn impacts margins. This affects the service sector by reducing capacity utilization and lowering rates, to which service companies are responding by downsizing. For these reasons, demand for the Group s services is closely linked to the level of exploration, development and production activity and capital spending by oil and gas companies in general. Lower oil prices as witnessed in 2015 may result in the Group customers lower upstream activities. As a result, the Group s operating subsidiaries can be exposed to higher downside risks to their service job count and prices. As a consequence, consolidated revenue and earnings may deteriorate. The Group predominantly operates in Russia and Kazakhstan, servicing all major oil and gas groups in the region. Hydrocarbon production volumes are often defined by producers long-term strategic plans and sometimes by international contracts. Near-term, an important way to mitigate against market risks includes the Group s significant exposure to national oil and gas companies such as Gazprom and Rosneft, which have demonstrated greater resilience of their upstream activities and budgets to the decreases in energy prices. The Group s risks are also related to political developments in Russia and Kazakhstan on the one hand, and between Russia and the EU and the USA on the other hand. As of today, the risk is deemed immaterial and a quantifiably high market risk does not exist. The Group s future success depends, among other factors, on its ability to obtain new service orders. In some cases it is difficult to predict the time when an order will be awarded in response to a bid submitted by a subsidiary. The awards of contracts may be affected by events beyond the scope of the Group s influence, such as energy prices, the global political and general economic environment, the customers ability to obtain required permits and licenses and the availability of funding at a reasonable cost. In such cases the awards of contracts may be delayed and some of the Group customers may even decide to nullify tenders. The key technical challenge will be to optimize technology integration to reduce costs. Out of mutual necessity, the low oil price environment may accelerate the trend to new operating models, leading oil services companies and oil field companies into new partnerships through which risk can be shared and project delivery optimized on a longer term life-of-field basis. The trend within the sector towards more integrated services to operators will lead to service sector consolidation, as the larger and more dynamic service companies continue to build capabilities and competencies over a wider range of activities. The Russian Government views the oil and gas sector as its national heritage and a matter of strategic importance. The Group s customer structure is diversified, inasmuch as this is allowed by the market, which consists of a limited number of large oil and gas producers. C.A.T. oil AG Annual Report

36 GROUP MANAGEMENT REPORT RISK MANAGEMENT REPORT Risks of non-payment The Group s risk management system makes it possible to recognize contingent losses on receivables and potential risks of non-payment at an early stage. The Group companies always perform thorough creditworthiness checks on new potential customers before taking them on. Also, the Group s existing customer base, which is dominated by financially strong major oil and gas groups in Russia and Kazakhstan, enables it to minimize risks of non-payment. In the situation of worsened economic and industry conditions the Group management introduced permanent and close monitoring of payment delay from debtors. All delay reasons are strictly analyzed and treasury and operational management propose the most efficient solutions for each case. The survey of its implementation is effectuated on the Budget Committee. Foreign currency risks The Group s reporting currency is the euro. Almost all of the Group s revenue and expenses are in Russian rouble and partly in Kazakh tenge. Fluctuations in exchange rates between the euro, the Russian rouble and the tenge will affect the translation of the Group s financial results into the euro. Further, instability in exchange rates between the US dollar, the euro and the Russian rouble may impact the Group s supply costs, in particular for operating equipment and machinery. Volatility of exchange rates may also affect the Group s consolidated balance sheet. From the accounting point of view foreign exchange risks mostly concern P&L effects but have not an incarnation in the consolidated balance sheet because the functional Group is presented in euro. It allows for a safe intergroup asset and liability structure. However, as the model of financing a huge capex existed before 2015 and was based on the creation of intergroup debt expressed in hard currency, C.A.T. oil Leasing accumulated some specific standalone exchange rate risk inside the Russian accounting area. On the Group level it is showing in the statement of comprehensive income. Aiming to reduce these risks, the Group launched the project of C.A.T. oil Leasing restructuring. It supposes the conversion following a debtto-equity approach. According to a decision taken by the Supervisory Board, the following operational companies have the right of a premature repayment of leased equipment in a maximum amount of EUR 200 million in total to LLC C.A.T. oil Leasing: LLC CATKoneft: LLC CATOBNEFT: LLC С.A.T. oil Drilling: EUR 56 million (max.) EUR 58 million (max.) EUR 86 million (max.) On the other hand, LLC C.A.T. oil Leasing could effectuate the premature repayment of the loans obtained from C.A.T. oil AG formed from 1 December 2006 till 1 September 2015 up to a maximum amount of EUR 200 million. Finally, the operational companies can increase authorized capital in a maximum amount of EUR 200 million in the same proportion as premature repayment of leased equipment is effected. Thus, we formed a long-term instrument which will permit to reduce the above described specific exchange rate risk. C.A.T. oil AG Annual Report

37 GROUP MANAGEMENT REPORT RISK MANAGEMENT REPORT Legal risks (a) On 2 February 2011, Caterpillar Inc., Peoria, Illinois, USA instituted legal proceedings against C.A.T. oil AG before the District Court of Hamburg for the alleged trademark infringement in Germany regarding the use of the brands C.A.T. oil, C.A.T. oil energy in motion, etc. On 27 September 2013, Caterpillar Inc. filed a similar trademark lawsuit in Canada. At present C.A.T. oil AG is conducting serious negotiations on reaching a trademark agreement with Caterpillar. It was not possible to achieve an agreement before the balance sheet date. The legal dispute may potentially be resolved with the renaming of the company. (b) As reported in the previous year, there is the suspicion that the Group could have been charged overly high acquisition costs for some fixed assets. In case that the suspicion is confirmed that some of the fixed assets of the Group were overvalued, this could result in the revision of the valuation of these fixed assets and in corresponding claims for damages. If the suspicion is confirmed, a revaluation of the affected fixed assets to the corresponding residual value would lead to a restatement of the acquisition costs without impacting profit or loss. The consequence would be a reduction in depreciation and amortization for previous periods, in which case the restatement would be reported cumulatively in retained earnings. Such a revision of the valuation is not feasible at this time due to the early stage of the proceedings and the related necessity of having clear and transparent data available. The investigation being carried out by the Central Public Prosecutor's Office for the Prosecution of Economic Crimes and Corruption in Vienna is still ongoing. Appropriate measures will be taken as soon as the results of the investigation are available, and providing that the suspicions of potential damage to C.A.T. oil AG are confirmed. Once all findings are evaluated, it will be important to assess whether adjustments to the list of related parties are necessary. In case the suspicions are, in fact, confirmed, the affected subsidiaries of C.A.T. oil AG, in particular C.A.T. oil Leasing, would be directly and negatively impacted. The potential assertion of claims for damages is being assessed at the present time. (c) In the meantime, the investigation being carried out by the Vienna Public Prosecutor s Office for Combating Economic Crimes and Corruption was extended to include business transactions of C.A.T. GEODATA GmbH headquartered in Vienna, a fully owned subsidiary of C.A.T. oil. The Vienna Public Prosecutor s Office is currently investigating procurement transactions and the use of financial resources made available by the parent company. The Managing Directors of this company were Ronald Harder (up to 13 March 2015) and Edward Brinkmann (up to 13 February 2015). (d) Within the context of carrying out a contract order in India, GEODATA filed claims for damages of USD 817,409 from Essar Oil Ltd. with a court in Mumbai. In turn, Essar Oil Ltd. has filed counterclaims to the amount of USD 832,500. The legal dispute is still pending. (e) Within the context of another contract order, GEODATA filed claims for damages of USD 3,118,642 from GeoEnpro Petroleum Ltd. with a court in New Delhi. In turn, the defendant filed counterclaims to the amount of USD 944,841. The legal dispute is still pending. (f) In the course of the change of control, the three former members of the Management Board, namely the former Chairman Manfred Kastner, the former Vice-Chairman Ronald Harder and the former member Leonid Mirzoyan, gave notice of termination, invoking the change-of-control clause stipulated in their Management Board employment contracts. The respective employment contracts were terminated effective 31 March According to this change-of-control clause, the former directors would have been entitled to compensation payments. These payments would have been due by 31 March 2015 at the earliest. A premature payment would have required a formal resolution on the part of the Supervisory Board. C.A.T. oil AG Annual Report

38 GROUP MANAGEMENT REPORT RISK MANAGEMENT REPORT Nevertheless, the former members of the Management Board initiated payment to themselves to the total amount of EUR 1,539, on 13 February 2015 prior to the stipulated due date and without formal approval of the Supervisory Board for this premature payment. Subsequently, the former members of the Management Board were dismissed for good cause from the Management Board with immediate effect by resolution of the Supervisory Board dated 25 February On 17 March 2015, C.A.T. oil AG filed a lawsuit against the former members of the Management Board to the amount of EUR 1,539, The lawsuit is based on unjust enrichment, compensation for damages and repayment of the unlawfully issued payment. The claim also consists of a declaratory claim that no further compensation payments are owed to the former members of the Management Board. The outcome of the legal proceedings is uncertain. (g) Legal risks that may arise from normal business operations are sufficiently covered by existing insurance policies. C.A.T. oil AG Annual Report

39 GROUP MANAGEMENT REPORT DISCLOSURES AND MISCELLANEOUS Disclosures pursuant to section 243a para. 1 Company Law C.A.T. oil AG s share capital amounted to EUR 48,850,000 as of 31 December 2015 (31 December 2014: EUR 48,850,000) and is divided into 48,850,000 issued and outstanding no-par-value shares. The shares are listed on the Prime Standard, Official Market, on the Frankfurt Stock Exchange. All of the shares are admitted for trading. No preferred shares have been issued. There are no restrictions regarding voting rights or transmission rights of the shares. As of the balance sheet date of 31 December 2015, C.A.T. oil AG had not acquired any of its own shares (treasury shares) to date. Since its successful Initial Public Offering in 2006, C.A.T. oil AG has voluntarily adhered to the German Corporate Governance Code. Apart from a few exceptions, which are revealed in the declaration of compliance of C.A.T. oil AG, the company has fully complied with the recommendations contained in the code. C.A.T. Holding Limited (Cyprus) directly holds 47.7% (2014: 47.7%) of the shares of C.A.T. oil AG directly. The majority owner of C.A.T. Holding Limited (Cyprus) is Joma Industrial Source Corp., a company of which Maurice Gregoire Dijols is ultimately the sole owner. Dijols previously held 5,850 shares of C.A.T. oil AG. On 16 January 2015, on the basis of a mandatory public offer (cash offer), Joma Industrial Source Corp. acquired control over 19,228,711 voting rights in C.A.T. oil AG (corresponding to approx % of the shares). Since 16 January 2015, Mr. Maurice Gregoire Dijols therefore has directly and indirectly controlled a total of 42,534,561 voting rights in C.A.T. oil AG (corresponding to approx. 87% of the shares). Disclosures pursuant to section 243a para. 2 Company Law Internal control system The description of the essential characteristics of the monitoring and control of the internal control system (ICS) and the risk management system (RMS) is based on the five components of the COSO Framework. The ICS consists of the organizational structures along with the controlling principles, methods and procedures which are crucial for implementation by the Group s Management Board, the Audit Committee and the Moscow-based Executive Board of Directors as well as the management team of subsidiaries and their audit committees, internal audit departments and top executives. The ICS is subject to supervision by the regulatory authority on all issues of controlling and accounting and the authorization to issue instructions to ensure the adoption of uniform standards throughout the Group. Process manuals have been created in the form of Group and individual company guidelines to aid in implementation. These include the accounting manual applying to subsidiaries in accordance with Russian GAAP, the IFRS accounting manual, budgeting manual and schedule, inventory guidelines, a handbook on the circulation of documents, a health, safety and environmental management (HSE) manual as well as other manuals and internal instructions. The key components of the Group s internal control system are the controlling environment, risk assessment and management, controlling activities, dataware and exchange of information, monitoring and supervision. The controlling environment encompasses business policies, ethical values and competences on the part of employees, the assignment of responsibilities, the organizational structure as well as guidance. The following bodies are involved in the controlling process: the Management Board, the Audit Committee, the Executive Board of Directors along with the audit committees, internal audit departments and authorized employees in the subsidiaries. C.A.T. oil AG Annual Report

40 GROUP MANAGEMENT REPORT DISCLOSURES AND MISCELLANEOUS The ICS is based on the budgets and financial results of subsidiaries as well as the consolidated budget and financial results of the Group. The departments in the subsidiaries with responsibility for accounting and reporting report directly and regularly to the Executive Board of Directors, which in turn regularly reports about business developments to the Management Board of the C.A.T. oil Group. They monitor and report on planning, budgeting, reporting processes as well as deviation analyses and goal attainment. They put together monthly, quarterly and annual financial reports in line with Russian GAAP and IFRS requirements. Quarterly external reporting to the Supervisory Board relates to the accounting process, which is the main feature of internal quarterly reporting. However, it also includes a general report about the economic environment in the oil and gas field services industry. Other external reports for the Supervisory Board include the Annual Report and the report by the Management Board focusing on the annual budget, including the finance, liquidity and investment plans. Financial accounting Financial accounting in Russia is carried out on the basis of the program 1C. Stocktaking and disposal of assets are the responsibility of the local inventory managers at the individual subsidiary level. Their roles are stipulated in the inventory guidelines applying to Group subsidiaries. Additions to non-current assets are entered into 1C and are checked against the approved investment plans on a monthly basis. Depreciation and amortization of non-current assets is automatically recorded in 1C. The main document entry in 1C is responsible for checking, entering and payment preparation of all invoices. Accounts payable enters all invoices and payment orders from various creditors. This area attaches particular importance to checking legal requirements, sales and corporation tax data and the Group s internal regulations such as payment instructions for signing authorization and value limits. Accounting for subsidiaries is carried out in line with Russian GAAP by the accounting staff in the accounting department in close cooperation with Group controlling. On a quarterly basis, the financial accounting departments of subsidiaries implement the transformation process on their Russian GAAP financial data and prepare the IFRS packages. Once these have been finalized, they are then passed on for evaluation purposes to the Group s IFRS reporting department. Following the department s approval, the data is forwarded for consolidation. IT systems The 1C system is used for financial accounting. The Group uses the Oracle Hyperion planning system for budgeting, management accounting and reporting. Safety measures and operational quality monitoring Top quality service and ensuring employee safety are core values for C.A.T. oil AG, and comprise a top priority during the upcoming years. To ensure the safety and quality of the C.A.T. oil AG staff in the field, various measures were implemented with the objective of protecting them from potential hazards. These measures include in-house C.A.T. oil AG regulations and instructions. A root cause analysis of incidents that have occurred in the C.A.T. oil Group over the past three years was carried out. This analysis showed that a number of safety and quality measures have shortcomings. Our Group s strategic program encompasses four cornerstones aiming to minimize risks and improve the quality of operational processes: Step 1 is reflected in the focus on quality, health, safety and environment (QHSE) and in the related improvement of the corporate culture. This area consists of numerous activities including the implementation of monitoring and intervention practices in the field and establishing the OLIMP Online Training Program for all business segments. QHSE also stands for a critical position assessment by a qualified authority. C.A.T. oil AG Annual Report

41 GROUP MANAGEMENT REPORT DISCLOSURES AND MISCELLANEOUS Step 2 consists of the Hazard and Effects Management Process (HEMP). It encompasses the implementation of prevailing regulations and a training program for all business segments as well as the application of the worksite hazard management process implementation for all rigs and fracking fleets. Step 3 stands for the improvement of service quality. It includes quality management measures focusing on regulations and a training program for all business segments. The objective is to optimize nonperforming time (NPT). This system is based on data analysis preparation and monthly control by the operating companies and quarterly control by management team leaders. Step 4 comprises road safety management. The key aspects are an in-vehicle monitoring system (IVMS) accompanied by the installation of a tracking system for all public transport vehicles as well as the assessment of traffic safety on the part of suppliers. Disclosures pursuant to section 243a para. 3 Company Law Research and development (R&D) In 2015, C.A.T. oil AG did not invest in R&D activities. The company does not perform research and development activities on its own. The company cooperates with global major service providers for the best fit in purpose technologies addressing clients needs and market trends. C.A.T. oil AG Annual Report

42 GROUP MANAGEMENT REPORT EVENTS AFTER BALANCE SHEET DATE IMPORTANT EVENTS AFTER THE BALANCE SHEET DATE 31 DECEMBER 2015 No material events occurred after the balance sheet date. C.A.T. oil AG Annual Report

43 GROUP MANAGEMENT REPORT OUTLOOK AND GUIDANCE ECONOMIC EXPECTATION AND GUIDANCE Three main factors will determine the development of the Russian economy: One factor is commodity prices, which already recovered sligthly in the beginning of In the second quarter 2016, the oil price could fluctuate in the range of US dollar/barrel and in the second half of the year is expected to come up to a level of US dollar/barrel. The second factor is the economic sanctions imposed by the USA and the European Union which could be eased after the presidential elections in the US in Thirdly, the ability of the Central Bank of Russia and the government to keep financial and budget stability will help to relaunch the economic growth based on a restored investment process adapted to stabilized new environment conditions. Thus, the performance of the Russian economy should improve starting in the second half of the current year, turning into real growth rates in the fourth quarter of Some industry analysts and experts expect the investment activities in the oil industry to restart in the middle of the year in order to keep up the production rates in Russia in the future. It could lead to the diversification of oil companies demand for oil field services and to support and drive the prices in the sector. Guidance for revenues and earnings levels Based on these general assumptions calculating with an exchange rate of Russian rouble for 1 euro and assured by almost fully contracted capacities, the management expects revenue from operations in Russian rouble to raise by 1 or 2% in The margins regarding EBIT and EBITDA are expected to keep their satisfactory level around 12% and 25% respectively. The Management will keep a focus on cost of sales which are expected to keep their current level in Russian rouble. C.A.T. oil AG Annual Report

44 C.A.T. OIL AG ANNUAL REPORT 2015 B 037 CORPORATE GOVERNANCE 039 Corporate governance report 046 Report of the Supervisory Board

45 B CORPORATE GOVERNANCE Challenges as far as the eye can see. We think on a broader scale and know that every path is the right one, as long as we never lose sight of our objective.

46 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT CORPORATE GOVERNANCE REPORT Corporate governance is of high importance to C.A.T. oil AG beyond its obligations to fulfil the requirements of the applicable legal regulations. It is the duty of the Company s Management Board and Supervisory Board to manage and control the Company in accordance with national and international standards. C.A.T. oil AG is a publicly listed company limited by shares with its registered office in Vienna, Austria. The applicable principles of corporate governance are therefore those under Austrian law, in particular stock corporation law and the laws governing capital markets, as well as the Articles of Association of C.A.T. oil AG. Due to the fact that the shares of the Company are quoted on the Frankfurt Stock Exchange, the Company is also bound to observe the laws governing the German capital markets, in particular the laws governing the admission of shares to the capital markets. In order to ensure a high degree of transparency and clarity for all persons participating in the capital markets, the Company s bodies decided in 2006 to apply the German Corporate Governance Code. The basis for this report is the German Corporate Governance Code in the version of 5 May 2015, which can be downloaded at The executive bodies of C.A.T. oil AG Upon submission of proof of shareholding (sec. 10a of Stock Corporation Act [AktG] and sec. 16 of the Articles of Association), the shareholders are entitled to exercise their rights, in particular their voting rights, at the Annual General Meeting. Each share in the Company entitles the holder to one vote. There are no multiple or preferential voting rights and there is no cap on the number of voting rights. All information on the convening of the Annual General Meeting and all reports and information required for the resolutions to be voted upon are published pursuant to the applicable regulations of the law on stock companies and made available on the website of C.A.T. oil AG ( Functions of the Supervisory Board and the Management Board Pursuant to the applicable legal provisions, the Company is managed on the basis of a dual board system characterized by a strict separation of management and supervisory bodies. It is not permissible to simultaneously be a member of both bodies. Members of the Supervisory Board On 20 February 2015 the mandates of the three members ended by voluntary resignation: Gerhard Strate, Chairman of the Supervisory Board, born 1950, date of initial appointment: 26 September 2005 Manfred Zacher, Deputy Chairman, born 1946, date of initial appointment: 26 September 2005 Mirco Schroeter, born 1968, date of initial appointment: 13 March 2006 The above mentioned members of the Supervisory Board did not perform other Board functions in domestic or foreign competitors. Newly appointed on 25 February 2015: Maurice Gregoire Dijols, Chairman of the Supervisory Board, born 1951 Remi Paul, Member of the Supervisory Board, born 1966 Ralf Wojtek, Member of the Supervisory Board, born 1945 The current members of the Supervisory Board appointed on 25 February 2015 are elected to the Supervisory Board until the close of the Annual General Meeting resolving on the formal approval for the 2016 financial year. C.A.T. oil AG Annual Report

47 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT Other Supervisory Board functions in domestic or foreign companies are held by: Maurice Gregoire Dijols: Ruspetro plc, Russia, LSE member of the Board of Directors, independent Non-Executive Director Bashneft, Russia, Moscow Stock Exchange member of Board of Directors, independent Non- Executive Director Ralf Wojtek: GO! Holding AG, Berlin/Germany member of the Supervisory Board In its current composition, the Supervisory Board fulfils all requirements for impartiality. The following Supervisory Board members are deemed independent: Remi Paul Ralf Wojtek Mr. Maurice Gregoire Dijols is the sole owner of Joma Industrial Source Corp., in total he controls 87% of the shares of C.A.T. oil AG indirectly through his company. The Supervisory Board supervises and advises the Management Board during the course of the management of the Company. The bylaws of the Company regulate the individual tasks and responsibilities and the convening, scheduling and chairing of the meetings of the Supervisory Board. The Supervisory Board reserves rights of consent regarding all matters of vital importance to the Company. The tasks of the Supervisory Board include the appointment and dismissal of members of the Management Board and the awarding of the salaries of the Management Board. Furthermore, the Supervisory Board also audits the Annual Financial Statements and Consolidated Financial Statements and reports to the Annual General Meeting on the results of the audit. The Supervisory Board has formed an Audit Committee, which is responsible on behalf of the Supervisory Board for fulfilling the auditing duties assigned to it, insofar as this is legally permissible. The formation of this Committee is obligatory under Austrian law. Members of the Management Board Until 25 February 2015 (mandates ended by dismissal for good cause with immediate effect): Manfred Kastner, born 1962, Chairman of the Management Board, initial appointment November 2005, responsible for key company functions as strategy, personnel, marketing and public relations Ronald Harder, born 1963, Deputy Chairman of the Management Board, initial appointment November 2006, responsible for finance and accounting, legal affairs and internal control system Leonid Mirzoyan, born 1966, member of the Management Board, initial appointment March 2007, responsible for central planning, strategic planning, corporate finance and investor relations Supervisory Board mandates of Management Board members listed above outside the Company: Manfred Kastner, Vision Microfinance Fund, Luxemburg, Director of the Board Newly appointed 25 February 2015: Yury Semenov, Chairman of the Management Board, born 1977, responsible for key company functions such as strategy, personnel, marketing, legal affairs and public relations Valeriy Inyushin, Deputy Chairman of the Management Board, born 1972, responsible for central planning, corporate finance and accounting, internal control system, investor relations Eugeny Pankratov, Member of the Management Board, born 1951, responsible for operating management and commercial affairs Resigned on 8 May 2015 for personal reasons: Eugeny Pankratov C.A.T. oil AG Annual Report

48 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT None of the current Management Board members listed above holds other Board mandates outside the Company. All matters of fundamental or significant importance require the approval of all members of the Management Board. The Management Board follows all Company bylaws and guidelines issued by the Supervisory Board, regulating the tasks and responsibilities of the Board members, in particular procedures of the decision-making process, as well as provisions on the avoidance of conflicts of interest. C.A.T. oil AG has taken out a D&O insurance policy for all members of the Supervisory Board and Management Board. The insurance policy has no deductibles in the event of claims. Remuneration of Supervisory Board and Management Board C.A.T. oil AG follows the recommendations of the German Corporate Governance Code, stating that the remuneration of the Supervisory Board and the Management Board should be disclosed individually for each member. The amount of remuneration awarded is disclosed in the remuneration report, which is part of the notes to the Consolidated Financial Statements. C.A.T. oil AG Annual Report

49 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT Risk management The responsible treatment of risk is one of the fundamental principles of good corporate governance. The Management Board of C.A.T. AG oil and the managerial employees within the entire C.A.T. oil Group have at their disposal comprehensive group and company-specific reporting and control systems for the monitoring, assessment and control of risks. These systems are being constantly developed and adapted to changing framework conditions. Furthermore, these systems are regularly checked for efficiency and functionality by the annual auditor. The Management Board updates the Supervisory Board on a regular basis with information on all existing risks and their development. The risk report as a part of the annual report of C.A.T. oil AG contains further details on risk management within the Group. The risk report also includes the obligatory report on the internal control and risk management systems for the accounting procedures. Transparency C.A.T. oil AG informs the participants in the capital markets, interested parties and the general public immediately, regularly and simultaneously of the current economic situation of the Group. The management report, half-year financial report and interim quarterly reports are all published within the time periods specified by the Frankfurt Stock Exchange. In addition, C.A.T. oil AG also informs interested parties of all events and new developments via press releases and, if necessary, ad hoc notifications. All information is made available in the German and English languages. The Company website also offers in-depth information on the C.A.T. oil Group and C.A.T. oil AG share prices. In 2015 the Management Board formed the position of a Group Chief Compliance Officer. Financial calendar Our financial calendar offers a transparent overview of all scheduled dates of the important events and publications. The calendar is published and made available on the C.A.T. oil AG website. C.A.T. oil AG Annual Report

50 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT Directors holdings Current directors None of the directors listed below hold any shares of the Company: Yury Semenov Chairman of C.A.T. oil AG Valery Inyushin Deputy Chairman of C.A.T. oil AG Natalya Kobetz GM of LLC Pe-We-Te GM functions executed by managing company LLC Pe-We-Te for C.A.T. oil Drilling GM functions executed by managing company LLC Pe-We-Te for CATOBNEFT GM functions executed by managing company LLC Pe-We-Te for CATKoneft Valery Kobetz GM of C.A.T. oil Trading House Ekaterina Fedorova GM of C.A.T. oil Leasing Supervisory Board of C.A.T. oil AG Maurice Gregoire Dijols Chairman of the Supervisory Board, directly and indirectly controls 87% of all shares of C.A.T. oil AG Remi Paul 0 shares Ralf Wojtek 0 shares Shareholders Number of Shares Share C.A.T. Holding Limited (Cyprus) 23,448,000 48% Joma Industrial Source Corp. 19,051,500 39% Free float 6,350,500 13% Total 48,850, % Statement on recommendations of the Corporate Governance Code Recommendation section 2: In the interests of all participants in the Annual General Meeting, the targeted and efficient organizational procedure and guidance remains unchanged. A time limitation to a predefined number of hours is considered not to be appropriate. Recommendation section 2, paragraph 2 and Recommendation 2.3.3: It is ensured that the representative nominated by the Company is available by fax until the starting time of the Annual General Meeting. Considering the size of the Company, the possibility of following the Annual General Meeting via electronic communication media is currently not available, as this would require a disproportionately high additional expense. Recommendation 3.7 paragraph 3: In the event of a takeover bid, the management considers it in principle advisable to convene an Extraordinary General Meeting, which offers the shareholders the opportunity to discuss and, if applicable, to resolve on the matter according to corporate law. Recommendation paragraph 2/1: The recommendation to abstain from nominating new members of the Management Board for the maximum period of five years had already been applied by the Company previously. C.A.T. oil AG Annual Report

51 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT Declaration of compliance C.A.T. oil AG is committed to the recognized principles of corporate governance. As a foreign issuer on the Frankfurt Stock Exchange with headquarters in Austria, C.A.T. oil AG resolved, in accordance with the Austrian Corporate Governance Code, to apply the German Corporate Governance Code. The Annual Declaration of Compliance pursuant to the German Stock Corporation Act (AktG) is an essential part of the German Corporate Governance Code. C.A.T. oil AG (hereinafter the Company ) is a company organized under Austrian law and subject to laws, rules and regulations in Austria. As such, the Company s compliance with the recommendations of the German Corporate Governance Code ( Code ) is dependent on the Code s compatibility with the Austrian laws, rules and regulations, which the Company is subjected to. The Management Board and the Supervisory Board of the Company hereby declare, without being legally obliged to do so, that the recommendations of the German Corporate Governance Code Government Commission (Regierungskommission Deutscher Corporate Governance Kodex) published by the German Federal Ministry of Justice in the official section of the electronic Federal Gazette in the version of 5 May 2015 have been and are being met, save for the recommendations listed below. 1. Recommendation 3.8: The Company does not follow the Code s recommendation on the introduction of a deductible in a reasonable amount in its D&O-insurance policy, as the Company does not expect any positive impact on the Management Board s and the Supervisory Board s performance of their duty of care and loyalty by introducing such deductible. In addition, the Company notes that deductibles in D&O-insurance policies are not widely used outside Germany and might hinder the recruiting of key personnel by the Company. The corresponding German laws are not applicable in Austria and thus the Company does not abide by this recommendation. 2. Recommendations 4.2.3, and 7.1.3: The monetary compensation elements granted to the Company s Management Board members do neither comprise variable elements nor stock options or comparable instruments nor the participation in any pension schemes. Therefore, any recommendations as to stock options or comparable instruments (e.g., demanding or relevant comparison parameters, no retroactive changing of performance targets or comparison parameters, agreement on a cap for extraordinary, unforeseen developments) were not implemented. Consequently, the Company s Compensation Report does not contain details about the value of specific stock option plans or similar long-term incentive and high-risk components of remuneration and details about payments in pension schemes. In addition the Company s Corporate Governance Report does not disclose any stock option programmes and similar security based incentive systems. In the event that stock option plans or programmes for the Management Board should be implemented, the strict standards of the Corporate Governance Code shall be applied. Currently the Company does not follow the Code s recommendation to include a compensation cap in the employment contracts of Management Board members in case they prematurely terminate their Management Board function without good reason. In future amendments to existing employment contracts or in new employment contracts of Management Board members, the Company shall aspire to follow this recommendation. In the event of Change of Control, the existing employment contracts of Management Board members include severance compensation for the agreed term of the respective employment contracts but at least for the duration of two years. The corresponding German laws are not applicable in Austria and thus the Company does not abide by this recommendation. C.A.T. oil AG Annual Report

52 CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 3. Recommendation 5.2, and 5.3.3: Due to the limited number of members, the Supervisory Board and the Company are in the opinion, that beside the mandatory Audit Committee the constitution of further committees would not be appropriate and would not increase the efficiency of the Supervisory Board s work. For the same reason a Nomination Committee was not founded. 4. Recommendations 4.1.5, section 1 and section 2 and 3: In the revised version of 5 May 2015, the German Corporate Governance Code contains recommendations in respect of diversity and age limits for board members as well as executive employees. Nomination proposals of the Supervisory Board to the relevant nomination boards, as well as nominations for the Management Board shall consider these objectives. The Company s Corporate Governance Report shall reflect the aforementioned objectives, especially regarding a women s quota and the state of their realization. The Company does not follow the recommendation to draw up, consider and publish specific objectives. There is no legal obligation to follow these recommendations, as the underlying laws apply to German based companies only. The Company is based in Austria and follows the applicable Austrian rules, which do not provide for such obligation. The constitution of the Supervisory Board ensures effective consulting and monitoring of the Management Board corresponding to the Company s interests. In order to ensure the dutiful performance of the tasks required by law the Supervisory Board will also in future nomination proposals primarily focus on the knowledge, skills and experience of the nominees. In addition, the Supervisory Board will take into account in appropriate manner the Company s international operations, potential conflicts of interest, age and diversity. 5. Recommendation 7.1.2: The Company s Consolidated Financial Statements are not publicly accessible within 90 days after the end of the financial year, nor are Interim Reports publicly accessible within 45 days after the end of the reporting period. This is due to the complex reporting requirements in Russia, Kazakhstan and other jurisdictions. Vienna, April 2016 Management Board Supervisory Board C.A.T. oil AG Annual Report

53 CORPORATE GOVERNANCE REPORT OF THE SUPERVISORY BOARD REPORT OF THE SUPERVISORY BOARD FOR 2015 In the year under review the Supervisory Board fulfilled the duties conferred on it in accordance with statutory requirements and the Articles of Incorporation. The Supervisory Board exercised its rights of control and regularly monitored the Company s business. The Management Board regularly reported to the Supervisory Board in a timely manner on all relevant corporate planning matters and the Group s business situation, including the risk situation. Deviations from planned business objectives were explained in detail. The Supervisory Board held four meetings during 2015 together with all members of the Management Board being present, i.e. on 21 April 2015, on 22 May 2015, on 4 September 2015 and on 18 December 2015, and three meetings in 2016, i.e. on 18 March, 22 April and 27 April The Supervisory Board reviewed the financial statements before publication and was kept informed by the auditors of all audit activities and their results. The members of the Supervisory Board received from the Management Board comprehensive information about the current business situation and material business events. During the balance sheet meeting on 22 April 2016, the Supervisory Board examined the 2015 annual financial statements, the Company s management report, the audit report prepared by KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Vienna, as well as the proposed distribution of profits. On 27 April, the Supervisory Board approved the preliminary financial results for the financial year 2015 and accepted the proposal to retain dividends of The reviewed statements, reports and the proposed distribution gave no cause for complaints. Election of a new Supervisory Board A new Supervisory Board was elected at an extraordinary General Shareholders Meeting on 25 February The three new members subsequently elected Mr. Maurice Gregoire Dijols as Chairman of the Supervisory Board. Further information about the Supervisory Board s composition and work, and its remuneration can be found in the Notes and the Corporate Governance Report. The newly composed controlling body instantly started its work, appointed a new Executive Board of Directors and took care of a timely completion and certification of the annual financial statements Vienna, April 2016 Maurice Gregoire Dijols on behalf of the Supervisory Board C.A.T. oil AG Annual Report

54 C.A.T. OIL AG ANNUAL REPORT 2015 C 047 CONSOLIDATED FINANCIAL STATEMENTS 049 Group balance sheet 050 Income statement 051 Statement of comprehensive income 052 Statement of changes in equity 053 Cash flow statement 054 Notes

55 C CONSOLIDATED FINANCIAL STATEMENTS An upbeat spirit of optimism. A feeling that always drives us forward. We lead the way, because it is our destiny. The paths we take can be challenging, but we still unwaveringly stay focused and on target.