REGARDING REPORT

In 2020, significant changes took place in the external environment (coronavirus pandemic, drop in oil prices, currency fluctuations) with the result that the Sole Shareholder of the Company instructed to optimize the Company’s expenses and to revise the approved business plan for the years 2020–2024. The Company’s revised business plan was developed and approved in April 2020. However, given the extension of quarantine measures and the growing uncertainty particularly associated with the coronavirus epidemic, there have been some changes in the implementation of the adjusted plan. In particular, there is an insignificant deviation in the sale of real estate within the framework of the lease area of Nurly Zher Program, while all financial KPIs of the Company, with the exception of the Debt / Equity ratio, have been achieved. It should be noted that the unplanned loan has been obtained in order to implement a new construction project, which has used the Company’s resources for construction management, and will further increase the pool of managed real estate. The Company’s annual report for 2020 is the twelfth in succession and continues the practice of annual publication of corporate reports.

All reports are available on the official website of the Company www.skcn.kz. This report is an integration of the financial and non-financial statements of the Company for 2020 and reflects the interrelation between the corporate management systems of the Company and sustainable development. At the stage of developing the concept of the Report, the results of dialogues with stakeholders, recommendations of the Board of Directors received in relation to the previous report in the field of sustainable development have been monitored.

The Company’s sustainable development report for 2020, which is included in the Annual Report, has been prepared in accordance with the GRI standards: basic version. The report is discussed at a meeting of the Management Board of the Company followed by a meeting of the Board of Directors and approved as part of the Annual Report. To update significant topics among the Company’s employees and representatives of external stakeholders, a survey has been conducted. Based on the work carried out, a matrix of essential topics has been compiled. Topics with the highest scores have been considered significant. Significant topics are fully disclosed in the Report; a reference to their disclosure is given in the GRI content index.

In comparison with the aspects disclosed in the Report 2019, following the stakeholder survey, the topics of Economic performances, Relations between employees and management, and Health and safety in the workplace have been identified as significant, and the topics of Indirect economic impacts, Consumer health and safety have ceased to be significant for disclosure in the Report for 2020. The limits for collecting information on significant topics are defined to the extent that the Report describes all the most significant impacts of the Company. Compared to the previous reporting period, the limits of information collection did not change significantly. This report has not been acknowledged formally.

The Company’s sustainable development report for 2020, which is included in the Annual Report, has been prepared in accordance with the GRI standards: basic version.

STRUCTURE OF THE AUTHORIZED CAPITAL STOCK

– 100 % of the Company’s shares are owned by Sovereign Wealth Fund ‘Samruk-Kazyna’ JSC (Sole Shareholder). The number of authorized and allocated shares is 16,247,541, including:
– 15,000,000 shares at par value of 1,000 tenge per a share

– 15,000,000 shares at par value of 1,000 tenge per a share
– 1 share at the par value of 2,490 tenge per a share.
– All shares are ordinary.

The register of holders of the Company’s securities is maintained by Central Securities Depository JSC.

VISION

We will become an organization with sufficient resources, a wide range of reliable partners, as well as the competence and experience to effectively manage the projects, construction and real estate

MISSION

We improve the living conditions of the population of the Republic of Kazakhstan by providing high-quality and affordable housing, as well as increasing the efficiency of construction and project management of the Group of Companies of Samruk-Kazyna JSC.

According to the Company’s Development Strategy for the years 2018–2028 approved in 2018, the Company switched from the functions of the Operator of state programs to providing services in the field of construction and real estate management for the group of companies of Samruk-Kazyna JSC. As per the Development Strategy, the main strategic directions of the Company are:

Completion of participation in the state programs:

– Completion of construction of the projects implemented under the state programs;

– Implementation of the projects through direct sale, finance or operating lease;

– Timely fulfilment of financial obligations to the Sole Shareholder, in terms of repayment of the principal debt and fee according to the schedule.

Property management:

– Marketing;

– Leasing out or selling the real estate objects;

– Financial management;

– Management of cash flows and risks.

Construction management:

– Formation of a pool of projects;

– Development of a design assignment and technical specification, selection of potential companies for the design and construction of facilities;

– Construction management as a Consultant by monitoring pricing, controlling the progress of construction, the quality of the materials used, the timing of the work performed, as well as the timely commissioning of facilities.

Trust management of the company’s shares at the design and construction stage:

– Implementation of a uniform and efficient construction project management system;

– Construction management by monitoring pricing, controlling the progress of construction, the quality of the materials used, the timing of the work performed, as well as the timely commissioning of facilities.

CC Development LLP was established on 20 March 2013 in order to implement the projects for the construction of real estate with the use of ‘green’ and eco-technologies in order to implement the projects for the construction of real estate with the use of ‘green’ and eco-technologies.

The main areas of activity are housing development with the use of ‘green’ technologies; investing in the construction of infrastructure projects in the Republic of Kazakhstan and abroad; development of industrial zones and business parks; attracting institutional and private investors; control of quality and timing of work performance by contracting organizations; carrying out activities related to the organization of the construction of utility systems, buildings and structures, landscaping territories within the development area. As part of the execution of the order of the President of the Republic of Kazakhstan N.A. Nazarbayev, CC Development LLP jointly with BI Corporation LLP implemented the project Zeleny kvartal using ‘green’ technologies. In 2018, the construction of the project Zeleny kvartal was completed. The project consists of 10 residential, 3 commercial blocks and a podium with an elevated parking. The architectural concept of the project Zeleny kvartal was developed by AHR, a British company. The concept provides for the use of innovative green technologies – the buildings of the facility Zeleny kvartal are certified for compliance with LEED standards. The territory has a landscape design of the area around the building, a picturesque lake, a park with run and cycle paths, a fitness club, and a health centre.

Engineering activities of CC Development LLP. On 02.04.2019, Accreditation Certificate No.000025 was obtained for the right to manage the projects in the field of architecture, town planning and construction for a 2-year period; and on 11.04.2019, Accreditation Certificate No.01009 was obtained for the right to provide engineering services related to technical supervision of technically and technologically complex facilities of the first level of responsibility for a 2-year period.

Implemented project: ‘Construction of infrastructure facilities of the special economic zone ‘National Industrial Petrochemical Technopark’ in Atyrau Oblast. GTPP utility service facilities. Corridor of utility systems. 1st stage, external water supply, 1st stage, Installation of water treatment and wastewater treatment. 1st stage’. Customer: Karabatan Utility Solutions LLP. Completion of the first stage: February 2021.

Samruk-Kazyna Construction JSC has a 49% interest in SamrukKazyna Development LLP

For the purpose of completing the participation in state programs and property management. Within the framework of the Anti-Crisis Program, 99 % of the pool (or 576 thousand square meters) was implemented. 2 parking lots with the area of 43 square meters within the residential complex Ishim and 2 parking lots within the residential complex Akzhaiyk with the area of 28.3 square meters were sold through direct sale; 6,107 square meters in Nur-Sultan City were sold on rent-to-own basis, including: RC Ishim – 22 parking lots with the area of 434.1 square meters, 309 parking lots within RC Akzhaiyk with the area of 5,355.2 square meters and RC Bogenbay Batyr – 2 commercial premises with the area of 318 square meters; the operating lease agreements have expired for 53 parking lots within RC Akzhaiyk. The source of financing for the anti-crisis program is the loans provided by the Fund at the expense of the National Fund of the Republic of Kazakhstan. Under this program, 98.4 billion tenge of credit funds were received, which were fully repaid, including 7.3 billion tenge.

Under Nurly Zher Program in the rental housing area, the Company entered into 22 housing construction contracts with the Company’s obligations of 96.2 billion tenge; within the framework of the concluded contracts, 96.1 billion tenge were invested in the housing construction. Under the contracts concluded, the Company acquires 642.5 thousand square meters of real estate; out of 22 facilities, 20 facilities and a residential group of 1 facility were commissioned, 1 facility was sold at the construction stage and commissioning thereof is not monitored; the total pool of real estate commissioned as part of rental housing makes 596.6 thousand square meters. Within the framework of this program, 562.2 thousand square meters were sold to the population, including 555.1 thousand square meters of living spaces, 4.0 thousand square meters of commercial properties, and 3.1 thousand square meters of parking lots. The source of funding for the direction of rent-to-own housing is the funds of the credit facility provided by the Fund. Under this program, 95.8 billion tenge of credit funds were received of which 39.2 billion tenge were repaid as per the schedule and ahead of schedule. The balance of the loan amounted to 56.7 billion tenge.

Within the framework of Nurly Zher Housing Construction Program in the commercial housing area, the Company entered into the financing agreements for 11 facilities totalling 95.8 billion tenge, including the Company’s share of 75.9 billion tenge. In fact, 73.9 billion tenge was funded by the Company in the commercial area. The pool of real estate in this area amounted to 323.52 thousand square meters. 285.8 thousand square meters at 10 facilities and residential groups of one facility were commissioned. The source of financing for this program was the credit facility provided by the Sole Shareholder at the expense of the National Fund of the Republic of Kazakhstan within the framework of which the Company received 73.6 billion tenge.

n order to complete the project of RC Vostochka.kz and to get back the funds previously invested in 2020, an agreement was concluded with Berkut Development LLP to invest in construction under the project Vostochka.kz in Almaty City. According to the commissioning certificates dated 04 June 2020, 31 July 2020, 14 September, 15 October and 30 November 2020, 16 buildings with the area of 52,510 square meters were commissioned in RC Vostochka in Almaty City.

The implementation of the project Zeleny kvartal is carried out in pursuance of paragraph 1 of clause 4 of the Minutes of the meeting with the participation of the President of the Republic of Kazakhstan. This project was initiated within the framework of the international specialized exhibition EXPO-2017 due to the reuse of funds allocated as part of anti-crisis measures. The project was implemented by a subsidiary of the Company – CC Development LLP, the total investment cost is 44 billion tenge with 15 billion tenge of the authorized capital stock of the Company, which were used to capitalize CC Development LLP, and 29 billion tenge attracted in the form of the credit facility through the reuse of anti-crisis funds. The project is being implemented through the mechanism of placing a target deposit in ATF Bank JSC using which the project company carrying out the construction of the facility and the buyers of real estate in this project are credited. In 2018, the construction of all facilities in the project was completed.

The General Contractors have completed construction and installation works on these facilities. The Kazakh Drama Theatre in Nur-Sultan City and the Athletics Sports Complex were put into operation.

For the purpose of the real estate management, the Company performed the functions of managing the following assets:

1. Zeleny kvartal business centre: the Company provided trust management services for a fee in the form of free use of premises in the business centre. The income from lease of premises, expenses for maintenance of the building and other expenses corresponding to the terms of the trust management agreement were accounted on a separate balance sheet

2. Kazyna Tower business centre was transferred to third party operating lease;

3. The other facilities owned by the Company were also leased out for operating leases;

4. For the facilities transferred to trust management by the Sole Shareholder in 2015 for further sale of real estate by the Company on a rent-to-own basis, the payments were collected and monitored

It should be noted that in the reporting period, due to the coronavirus pandemic and the state of emergency, the Company made decisions to provide a deferment for payments under rent-to-own agreements and to suspend operating lease agreements until the end of the reporting year.

For the purposes of construction management, the Company acts as a construction project management consultant and/or construction customer, technical supervisor, with using the accumulated experience and resources to implement the construction projects within the established budget, time frame and with proper quality. The projects for which construction management is carried out are transferred by direct order of the Chairman of the Management Board of Samruk-Kazyna JSC and the Government.

In accordance with the Government decree ‘On certain issues of Sovereign Wealth Fund Samruk-Kazyna Joint-Stock Company’, Samruk-Kazyna JSC was instructed to finance the construction of a number of facilities in Turkestan City, which is due to the transformation of Turkestan City into a regional centre. Based on the instruction, the following facilities were financed by Samruk-Kazyna JSC:

1. Stadium for 7000 seats,

2. Palace of schoolchildren,

3. Museum of Hodge Ahmet Yassaui,

4. Digital office, and

5. Congress Centre.

These projects were financed through the Corporate Fund ‘Construction Campaign’ of Samruk-Kazyna JSC and other companies of the group of Samruk-Kazyna JSC, which acted as customers, while the Company provided construction management and technical supervision services. All facilities out of those listed above have been put into operation. For all facilities, the agreements on donation of a facility as communal property of Turkestan Oblast have been entered into, and the ownership right has been registered for the Akimat of Turkestan City.

The similar construction management agreements were entered into by the Company for the facilities of the Athletics Sports Complex and the Kazakh Drama Theatre in Nur-Sultan City the construction of which was also stipulated by the resolutions of the Government of the Republic of Kazakhstan. The General Contractors have completed construction and installation works on these facilities. The Kazakh Drama Theatre in Nur-Sultan City and the Athletics Sports Complex were put into operation. The sports complex has been certified by the International Association of Athletics Federations (IAAFВ).

In the context of this strategic goal, in 2019, CC Development LLP started its activities with the Articles of Association supplemented with appropriate alterations regarding the business expansion: permits were obtained from the antimonopoly authorities to carry out activities in the field of engineering surveys and to provide technical consultations in this area until 2025. CC Development LLP currently provides technical supervision services for the following projects of the group of Samruk-Kazyna JSC:

GTPP utility service facilities: Corridor of utility systems, external water supply, water treatment and wastewater treatment plant.

In order to manage the shares of companies at the design and construction stage, the Company manages the interests/shares of design companies that are at the design and construction-and-installation stage, until the facilities/projects are put into operation.

In December 2018, in accordance with the resolution of Samruk-Kazyna JSC, a subsidiary of Samruk-Kazyna JSC – Ob’yedinennaya khimicheskaya kompaniya LLP – transferred into the Company’s trust management the interests in the authorized capital stocks of its following companies – Khim-plus LLP and Karabatan Utility Solutions LLP.

Projects of KHIM-plus LLP on the territory of SEZ Chemical Park Taraz. The term of trust management is up to the moment of handover of the facilities to operation, but not later than 31.03.2021.

Projects of Karabatan Utility Solutions LLP – Construction of infrastructure facilities of SEZ NINT. The term of trust management is up to the moment of handover of the facilities to operation, but not later than 30 June 2021.

The following table shows the production KPI values for 2020, including strategic ones, as defined by Samruk-Kazyna JSC in the Business Plan for the years 2020–2024:

The consolidated net income of the Company at 2020 year-end remained at the level of the previous year and amounted to 6,798,510 thousand tenge

The Company’s consolidated total incomes amounted to 23.1 billion tenge for the reporting period, which is 15 % lower than the figure in 2019. The main factors of change are:

proceeds from sales in the reporting period are lower than in 2019 by 2.5 billion tenge due to the sale of the land plot in 2019 and construction unfinished by Berkut Development LLP;

other non-operating incomes in the reporting period are lower by 2.7 billion tenge since in 2019 incomes have been accrued in the form of penalties and fines imposed on developers for the commercial housing for breach of contractual obligations, including penalty imposed on Baur Development LLP in connection with the termination of the contract, and incomes from reimbursement of expenses on bonds in connection with a longer term of bonds floatation.

At the same time, the finance incomes in the reporting period are higher by 0.7 billion tenge than in 2019 due to changes in the amount of cash placed on deposits, as well as placement of funds at the rates higher than those during the same period in 2019.

The Company’s consolidated total expenses for the reporting period amounted to 14.2 billion tenge, which is 26 % lower than expenses in the same period in 2019. The change in total expenses is due to the fact that:

the cost of premises sold for the reporting period is 4.5 billion tenge lower compared to the similar period in 2019 due to distinct sales volume under Nurly Zher Program using the direct sale method and due to the recalculation of utility expenses by the utility services the expenses for the maintenance of real estate before sale of the real estate in the reporting period are lower;

general administrative expenses in the reporting period are 0.4 billion tenge lower, which is connected with a change in the number of employees. Also, the change in the GAE compared to the similar period in 2019 was affected by the expenses to pay the state duty incurred by the Company in the similar period in 2019 and the remuneration of the management;

finance costs in the reporting period are 0.5 billion tenge lower than in the similar period in 2019 due to the change in the amount of liabilities.

Risk management in the Company is an ongoing and continuous process and is designed to ensure timely identification of potentially risky events and to take measures to minimize risks that could negatively affect the Company’s activities and the achievement of its goals. In cases where the occurrence of such events is inevitable, the Company takes all the necessary measures to minimize negative consequences. The Company operates a corporate risk management system (CRMS) based on the generally accepted conceptual risk management models and recommendations developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO ERM ‘Organizational Risk Management: Integration with Strategy and Performance’)

The basic principles of CRMS in the Company are defined in the Risk Management and Internal Control Policy approved by the resolution of the Board of Directors, which is publicly available on the official website of the Company.

The structure of the risk management system in the Company is represented by risk management at several levels with involving the following bodies and divisions of the Company: Board of Directors, Management Board, Risk Management Committee, Internal Audit Service, Compliance Controller, business unit responsible for risk management. The Company has an internal control system, which is a tool that allows the management making decisions aimed at prompt identification and prevention of risks, and provide reasonable confidence in the achievement of the Company’s strategic goals.

On an ongoing basis, the Company organizes the meetings of the Risk Management Committee, listens to the reports and discusses the measures to manage significant risks, presents reports on the measures taken to improve the CRMS. The information on realized risks is communicated in due time to the Management Board and the Board of Directors of the Company

The Company’s CRMS is a set of interrelated elements combined into a single process in which the Board of Directors, management and employees participate in identifying potential events that may affect the Company’s activities, as well as in managing these events within an acceptable level of risk. The Company annually develops and implements a set of measures to improve the CRMS efficiency.

In 2020, the activities were carried out in the context of improving the CRMS, including:

– the other documents were updated within the risk management and internal control system;

– a strategic session was held for the management of the Company concerning the risk management;

– to enhance the risk culture, introductory trainings on risks are conducted for the newly hired employees;

– to assess the knowledge of employees of the principles of the risk management system, the tests and questionnaires are carried out on an ongoing basis.

The work to improve the risk management system and the internal control system will continue in 2021.

The Company carries out a comprehensive identification and assessment of risks on an annual basis, following which a Register and a map of risks are prepared. The basis risks of the Company are related to the specific character of construction activities.

The Company’s register and map of risks for 2020 are approved by the resolution of the Board of Directors of the Company. In 2020, the Company has included 25 risks in the register and map of significant risks of which the following are critical risks:

– late commissioning of the real estate properties;

– the risk of default in obligations under the mediation agreements between KAONTECH International LLP and Shar-Kurylys LLP;

– the risk of becoming infected with Covid-19.

During 2020, these risks were realized, and the Company updated the list of risks due to the identification of such significant risks as the risk of becoming infected with Covid-19 and the risk of asset impairment.

The Company took measures to minimize the risks realization and the consequences of their realization, including:

– continuous monitoring of sale of the properties, visits to the facilities, concluding with the developers the additional agreements to contracts with updated terms for the commissioning of the real estate properties and taking into possession;

– control and monitoring of elimination of identified defects for the subsequent transfer of real estate properties to the buyers;

– analysis of current prices of sale of the residential and non-residential real estate properties. Changes in the method of sale and selling price due to changes in conditions of the real estate market;

– work is performed to repay the problem receivables, the meetings and negotiations have been organized, proposals from counterparties have been considered regarding fulfilment of obligations under the mediation agreements, the writs of execution have been sent to private and state officers of justice in order to collect debts according to the established procedure;

– some of the Company’s employees are permanently transferred to remote work, testing for the determination of RNA of the COVID-19 virus is carried out when employees come to the office, and the office is treated with preservative.

The activities under the plan to minimize the other risks are carried out on an ongoing basis. The register and map of risks of the Company for 2021 are approved by resolution of the Board of Directors of the Company No.154 dated 09.11.2020.