LXFT Luxoft Holding Class A Ordinary Shares

ITEM 3:    Key Information

A.  Selected Financial Data

        The following tables set forth our selected consolidated financial data. You should read the following selected consolidated financial data in conjunction with "ITEM 5. Operating and Financial Review and Prospects" and our consolidated financial statements and the related notes included elsewhere in this annual report. We have derived the consolidated statements of income data for the years ended March 31, 2017, 2016, and 2015 and the consolidated balance sheet data as of March 31, 2017 and 2016 from our audited consolidated financial statements included in "ITEM 18. Financial Statements," which have been prepared in accordance with generally accepted accounting principles in the United States. We have derived the consolidated statements of income data for the years ended March 31, 2014 and 2013 and the consolidated balance sheet data as of March 31, 2015, 2014 and 2013 from our audited consolidated financial statements, which are not included in this annual report. Historical results are not indicative of the results to be expected in the future.

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B.  Capitalization and Indebtedness

        Not applicable.

C.  Reasons for Offer and Use of Proceeds

        Not applicable.

D.  Risk Factors

         An investment in our Class A ordinary shares involves a high degree of risk. You should consider carefully the risks described below, together with financial and other information contained in this annual report and in our other filings with the United States Securities and Exchange Commission (the "SEC"). If any of the following risks actually occurs, our business, financial condition and results of operations could be materially adversely affected. In that event, the trading price of our Class A ordinary shares would likely decline and you might lose all or part of your investment. This report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements, as a result of certain important factors including the risks described below and elsewhere in this report and our other SEC filings. See "Preliminary Notes — Special Note Regarding Forward-Looking Statements."

Risks related to our business and our industry

We generate a significant portion of our sales of services, and anticipate deriving a large portion of our sales of products, from a limited number of clients, and any significant loss of business from these clients or failure by such clients to pay for our services would materially adversely affect our results of operations.

        We are dependent on our key clients for a significant portion of our sales of services. Our largest clients, Deutsche Bank and UBS, together accounted for 56.4%, 52.3% and 43.3% of our sales of

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services in the fiscal years ended March 31, 2015, 2016 and 2017, respectively. In the aggregate, our ten largest clients accounted for 80.1%, 73.7% and 66.0% of our sales of services in the fiscal years ended March 31, 2015, 2016 and 2017, respectively.

        Our ability to maintain close relationships with these and other major clients is essential to the growth and profitability of our business. We have entered into framework agreements with each of our key clients, including Deutsche Bank and UBS, which govern substantially all of our arrangements for the provision of services to such clients. These agreements, however, do not grant us any exclusivity and do not contain any minimum service conditions. Further, although our framework agreements with Deutsche Bank and UBS entitle us to compensation for any services already rendered by us if prematurely terminated, they may be terminated by Deutsche Bank and UBS, respectively, generally upon prior written notice of between one and six months' without any penalty. In addition, Deutsche Bank may terminate any or all of the individual service contracts governed by the master framework agreement if the master framework agreement is terminated for cause or for any other reason. Accordingly, we cannot provide any assurance that we will succeed in maintaining or growing our business with sales of services from our largest clients.

        Our reliance on any individual client may give that client a certain degree of pricing leverage against us as we negotiate contracts and terms of service. In addition, a number of other factors outside our control could cause the loss of or reduction in business or sales of services from any client. These factors may include, among others, a client's corporate restructuring or insolvency, pricing pressure or changes to its outsourcing strategy and budget. A client may decide to reduce spending on technology services or sourcing from us, or shift such spending to one of our competitors, due to a challenging economic environment, a change of strategy in outsourcing services or other internal or external factors relating to its business.

        Furthermore, as we expand our services and product offerings to clients, we run the risk of approaching our clients' maximum budget allowance for spending on IT services and software products. If our clients are unable or unwilling to devote more of their IT or overall budget to paying for our services, we risk being unable to increase our sales of services from each of these clients.

        The loss of any of our major clients, or a significant decrease in the volume of work they outsource to us or the price at which we sell our services to them, would materially adversely affect our sales of services and thus our results of operations.

We generate a significant portion of our sales of services, and anticipate deriving a material portion of our sales of products, from clients primarily located in the United States and Europe. Deterioration of economic conditions in the United States or Europe could result in reduced sales of our services and thus adversely affect our results of operations.

        We derive a significant portion of our sales of services from clients in the United States and Europe. If the U.S. or European economies weaken or slow, pricing for our services may be depressed and our clients may significantly reduce or postpone their technology spending which may in turn lower the demand for our services. Furthermore, clients in affected regions could terminate their contracts with us, generally by giving between 30 days' and six months' notice, or choose not to renew their contracts with us. Such actions by our clients would negatively affect our sales of services and profitability.

        If we are unable to successfully anticipate changing economic and other conditions affecting the markets in which we operate, we may be unable to effectively plan for or respond to those changes, and our results of operations could be materially adversely affected.

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Rapid growth may strain our limited resources, and a failure to manage this growth could have a material adverse effect on the quality of our services and client support.

        We have recently experienced rapid growth and significantly expanded our business. Our sales of services grew from $314.6 million in the fiscal year ended March 31, 2013 to $785.6 million for the fiscal year ended March 31, 2017. As of March 31, 2017, we had 12,766 personnel, as compared to 11,087 personnel as of March 31, 2016. Our rapid growth has placed, and we expect it to continue to place, significant demands on our management and our administrative, operational and financial infrastructure. In addition, since the fiscal year ended March 31, 2015, we have been implementing our Global Upgrade Program, which is aimed at increasing the share of our operations in the EU, the U.K., Asia Pacific and North America. The Global Upgrade Program has resulted in our expansion in Central and Eastern Europe and is expected to facilitate our expansion into new markets. Continued expansion increases the challenges we face in offering our services in the following areas:

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recruiting and retaining sufficiently skilled IT professionals, as well as marketing and management personnel;



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training and supervising our personnel to maintain our high standards of quality;



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borrowing adequate short-term funds to finance rapid growth;



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developing financial and management controls; and



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preserving our culture and values and our entrepreneurial environment.

        If we are unable to manage our rapid growth effectively, or if we are unable to implement our Global Upgrade Program successfully or promptly, the quality of our services and client support could suffer, and productivity and results of operations could be materially adversely affected.

We derive a large portion of our sales of services, and expect that we will derive a large portion of our sales of products, from clients who operate in a limited number of industries. While this gives us deep expertise in those industries, it increases our exposure to adverse conditions in any of them.

        We derive a large portion of our sales of services from clients who operate in a limited number of industries. In the fiscal year ended March 31, 2017, we derived 61.6%, 14.1% and 8.9% of our sales of services from clients operating in the financial services, automotive and transport, and telecom industries, respectively. Furthermore, we anticipate our product sales will be largely to clients in the same industries. Our business and growth depend to a large extent on continued demand for our services from clients and potential clients in these industries. Demand for our services and products in general, as well as in any industry specifically, could be affected by multiple factors outside of our control, including a decrease in growth or growth prospects of the industry, a slowdown or reversal of the trend to outsource technological applications and software development services generally, or consolidation within the industry. Clients in these affected industries could terminate their contracts with us, generally by giving between 30 days and six months' notice, or choose not to renew their contracts with us. In addition, serving a major client within a particular industry may restrict our ability to enter into engagements with competitors of that client, and certain of our client contracts prohibit certain of our employees from working on engagements with our clients' competitors. As businesses within these industries, in particular, the financial services industry, continue to limit the number of vendors from whom they buy products and services, we may face challenges in gaining new clients or keeping the existing clients. Any significant decrease in demand for our services by clients in these industries, or other industries from which we derive significant sales of services in the future, may have a material adverse effect on our results of operations.

        In particular, an economic slowdown or financial crisis could result in decreased IT spending by institutions in the financial services industry and/or project delays, making it more difficult for us to

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obtain new clients, sell our services and products or maintain the current level of demand from our existing clients in this industry. Because the financial services industry is our largest vertical, such a slowdown could materially affect our revenues and thus our results of operations.

Credit default or a drop in the credit ratings of certain sovereigns or financial institutions could lead to weakened economic conditions in countries where our clients face exposure, thus adversely affecting our clients' ability to engage in business with us and materially adversely impacting our financial condition and results of operations.

        The large sovereign debts and/or fiscal deficits of a number of European countries and the United States have raised concerns regarding the financial condition of financial institutions, insurers and other corporations:

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located in these countries;



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that have direct or indirect exposure to these countries; and/or



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whose banks, counterparties, custodians, clients, service providers, sources of funding and/or suppliers have direct or indirect exposure to these countries.

        The default, or a significant decline in the credit rating, of one or more sovereigns or financial institutions could cause severe stress in the financial system generally and could adversely affect the businesses and economic condition and prospects of our clients (some of the largest of which are European banks), counterparties, suppliers or creditors, directly or indirectly, in ways difficult to predict. The impact of these conditions could be detrimental to us and could materially adversely affect our business, operations and profitability.

We operate in a highly competitive environment and may not be able to compete successfully.

        The IT industry in general, and the software development market in particular, is highly competitive, and we expect competition not only to persist but also to intensify. We believe that the principal competitive factors in our markets are the quality of the services offered, breadth and depth of service offerings, reputation and track record, industry expertise, effective personnel recruiting, training and retention, marketing and sales skills, scalability of infrastructure, and ability to address clients' timing requirements and price.

        We face competition from offshore technology service providers in outsourcing destinations with low wage costs such as India, as well as competition from large global consulting and outsourcing firms and in-house IT departments of large corporations. There is no assurance that we will not face additional competition from new market entrants. We do not enter into exclusive services arrangements with any of our clients, and as a result, our sales of services could suffer to the extent that clients could obtain services from other competing application and software engineering outsourcing services. Clients may prefer application and software engineering outsourcing service providers that have more locations or that are based in countries that are more cost-competitive or more politically and economically stable than the countries in which we operate.

        Some of our current and potential competitors may benefit from substantially greater financial, marketing, or technical resources. Our current and potential competitors may also be able to respond more quickly to new technologies or processes and changes in client demands; may be able to devote greater resources toward the development, promotion and sale of their services than we can; and may also make strategic acquisitions or establish cooperative relationships among themselves or with third parties that increase their ability to address client needs. We cannot give any assurance that we will be able to retain our clients while competing against such competitors. Increased competition, our inability to compete successfully, pricing pressures and resulting loss of clients could materially adversely affect our business.

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Our computer networks may be vulnerable to security risks that could disrupt our services and cause us to incur losses or liabilities that could adversely affect our business.

        Our computer networks may be vulnerable to unauthorized access, computer hackers, computer viruses, worms, malicious applications and other security problems caused by unauthorized access to, or improper use of, systems by third parties or employees. A hacker who circumvents security measures could misappropriate proprietary information, including personally identifiable information, or cause interruptions or malfunctions in our operations. Although we intend to continue to implement security measures, computer attacks or disruptions may jeopardize the security of information stored in and transmitted through our computer systems. Actual or perceived concerns that our systems may be vulnerable to such attacks or disruptions may deter our clients from using our solutions or services. As a result, we may be required to expend significant resources to protect against the threat of these security breaches or to alleviate problems caused by these breaches.

        Data networks are also vulnerable to attacks, unauthorized access and disruptions. For example, in a number of public networks, hackers have bypassed firewalls and misappropriated confidential information, including personally identifiable information. It is possible that, despite existing safeguards, an employee could misappropriate our clients' proprietary information or data, exposing us to a risk of loss or litigation and possible liability. Losses or liabilities that are incurred as a result of any of the foregoing could adversely affect our business.

If we cause disruptions to our clients' businesses or provide inadequate service, our clients may have claims for substantial damages against us, which could cause us to lose clients, have a negative effect on our reputation and adversely affect our results of operations.

        Many of our engagements involve projects that are critical to the operations of our clients' businesses and provide benefits to our clients that may be difficult to quantify. Our software development services involve a high degree of technological complexity, have unique specifications and could contain design defects or software errors that our quality assurance procedure may fail to detect and correct.

        Errors or defects may result in the loss of current clients, failure to attract new clients, diversion of development resources and an increase in support or service costs. Furthermore, any failure in a client's system or any breach of security could disrupt the client's business and could result in a claim for substantial damages against us, regardless of our responsibility for such failure, if such failure is caused by a breach of our contract obligations under any agreements with clients. In addition, any such failures or errors could seriously damage our reputation and materially affect our ability to attract new business.

        Many of our contracts contain limitations on liability capped either at between six months and one year of payments under the contract or at the full service contract price, and many of our contracts disclaim any warranties of merchantability and sell our services "as-is." However, not all client contracts contain liability caps, and these limitations on liability may not apply in all circumstances, may be unenforceable in some cases or may be insufficient to protect us from liability for damages, direct or consequential. Any substantial liability that we incur as a result of any of the above could have a material adverse effect on our business and results of operations.

Our insurance may be inadequate to protect us against our losses.

        Although we believe our insurance coverage is customary for the jurisdictions in which we operate, insurance for our operations in Central and Eastern Europe ("CEE") does not cover all the risks that a company of a similar size and nature operating in a more economically developed country could insure. For example, we do not have coverage for business interruption or loss of key management personnel. In addition, we only have limited product liability insurance to the extent required by our

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client contracts. We do not maintain separate funds or otherwise set aside reserves to cover such losses or third-party claims. If any such uninsured event were to occur, we might incur substantial costs and diversion of resources, which, in turn, could have a material adverse effect on our results of operations.

Our success depends on our ability to continue to attract new personnel, and retain and motivate our existing personnel.

        Our ability to maintain and renew existing engagements and obtain new business is critical to our success and will largely depend on our ability to attract, train and retain skilled professionals, including experienced IT professionals and other professionals, which enables us to keep pace with growing demands for outsourcing, evolving industry standards and changing client preferences.

        We rely heavily on maintaining a workforce of skilled professionals. Because our business model does not provide for the hiring and training of a large number of junior personnel, we must depend on lateral hires to provide us with skilled professionals. Competition for skilled professionals in the markets in which we operate can be intense, and, accordingly, we may not be able to retain or hire all of the professionals necessary to meet our ongoing and future business needs. If our competitors are able to increase the educational level of their workforce, or if clients and prospective clients become more price-sensitive and choose lower-cost suppliers that have a cheaper labor force, we may lose our competitive advantage notwithstanding the relatively high educational level of our workforce. In addition, any reductions in headcount for economic or business reasons, however temporary, could negatively affect our reputation as an employer and our ability to hire qualified professionals to meet our business requirements.

        Attrition rates among our employees were 10.5%, 10.3% and 12.7% for the fiscal years ended March 31, 2015, 2016 and 2017, respectively. We define "attrition" as the total number of personnel with more than six months of work experience in the Company, who have left the Company during the reporting period, divided by the total number of personnel at the end of the reporting period, net of employees who have left on the last day of the period. We believe that our competitors calculate attrition based on the same principles, although their methodology may differ slightly from ours. We may encounter higher attrition rates in the future. A significant increase in the attrition rate among professionals with specialized skills could decrease our operating efficiency and productivity and could lead to a decline in demand for our services. The competition for highly-skilled professionals may require us to increase salaries, and we may be unable to pass on all these increased costs to our clients. These factors may, as a result, have a material adverse effect on our profitability and results of operations.

Wage inflation in countries where our delivery centers are located may adversely affect our financial condition and results of operations.

        We operate delivery centers in Russia, Ukraine, Romania, Poland, Bulgaria and Vietnam where wage costs have historically been significantly lower than wage costs in the United States and Western Europe for comparably skilled professionals. Wages are our most significant operating expense, and wage increases in these countries may prevent us from sustaining this competitive advantage internationally and may negatively affect our profitability. Russia and Ukraine use inflation as measured by the consumer price index, as a proxy for wage inflation in official statistics. However, we believe that wage inflation rates for the IT industry can be significantly higher than overall wage inflation rates within each of these countries. We may need to increase the levels of employee compensation more rapidly than in the past to remain competitive, and we may not be able to pass on these increased costs to our clients. Unless we are able to continue to increase the efficiency and productivity of our employees as well as the prices we can charge for our services, wage inflation may materially adversely affect our financial condition and results of operations.

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Fluctuations in currency exchange rates and increased inflation could materially adversely affect our financial condition and results of operations.

        We conduct business in multiple countries, which exposes us to risks associated with fluctuations in currency exchange rates. In the fiscal year ended March 31, 2017, 56.5% of our sales were denominated in U.S. dollars and 28.3% were denominated in euros, and 12.7% of our expenses were denominated in Polish zloty and 12.5% in Russian rubles. As a result, weakening of the euro against U.S. dollar, as well as strengthening of the Russian ruble and Polish zloty relative to the U.S. dollar, are significant short-term risks to our financial performance. The Russian ruble-to-U.S. dollar and euro-to-U.S. dollar exchange rates have been volatile in the past few years as a result of instability of the global financial markets. Any further significant fluctuations in currency exchange rates may have a material impact on our business.

        In addition, economies in CEE countries such as Russia and Ukraine have periodically experienced high rates of inflation. Periods of higher inflation may slow economic growth in those countries. As a substantial portion of our expenses are denominated in Russian rubles, the relative movement of inflation can significantly affect our results of operations by increasing some of our costs and expenses, including wages, rents, leases and employee benefit payments, which we may not be able to pass on to our clients and, as a result, may reduce our profitability and materially adversely affect our business. Inflationary pressures could also slow economic growth in the applicable countries and limit our ability to access financial markets and take counter-inflationary measures, which may harm our financial condition and results of operations or materially adversely affect the market price of our securities.

The decision by the United Kingdom to exit from the European Union could materially adversely affect our business and results of operations.

        In a referendum held on June 23, 2016, the people of the United Kingdom voted in favor of the United Kingdom withdrawing from the European Union ("Brexit") and on March 29, 2017, the United Kingdom formally notified the European Union of its intention to withdraw from the European Union. A two-year period has now commenced during which the United Kingdom and the European Union will negotiate the future terms of the United Kingdom's relationship with the European Union, including, among other things, the terms of trade and immigration between the United Kingdom and the European Union. The effects of Brexit will depend on any agreements the United Kingdom reaches to retain access to EU markets either during a transitional period or more permanently.

        We have two UK subsidiaries, which together employ approximately 380 people, and have operations across the European Union. As a result, we face risks associated with the political and economic uncertainty and consequences that have flowed, and may continue to flow, from Brexit.

        The announcement of Brexit has caused significant volatility in global financial markets and currency exchange rate fluctuations that have resulted in the strengthening of the U.S. dollar against the British pound and the euro. The uncertainty in the financial markets created by Brexit has caused, and may continue to cause, the price of our ordinary shares to decline, and may also cause our clients to closely monitor their costs and reduce their spending budget on our services. In addition, the strengthening of the U.S. dollar relative to the British pound and the euro may adversely affect our results of operations in a number of ways, including:

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Our sales are denominated in both the U.S. dollar and currencies other than U.S. dollars, including the euro and the British pound. The depreciation of the euro and the British pound relative to the U.S. dollar may impair the purchasing power of our European clients and could cause clients to cancel contracts or default on payment; and



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We translate sales and other results denominated in foreign currency into U.S. dollars in the preparation of our financial statements. During periods of a strengthening dollar, our reported

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sales and earnings could be reduced because the euro and British pound may translate into fewer U.S. dollars.

        For more information, see "Risks related to our business and our industry—Fluctuations in currency exchange rates and increased inflation could materially adversely affect our financial condition and results of operations."

        In addition, because a significant portion of the regulatory framework in the United Kingdom is derived from EU directives and regulations, Brexit could materially change the regulatory regime applicable to our operations and our clients' operations as the United Kingdom determines which EU directives and regulations to replace or replicate. In particular, the European Union has implemented various regulations relating to the financial services industry that apply to all member states. Because we generate a significant portion of our sales from clients in the financial services industry, any decision by the United Kingdom to adopt different or conflicting laws could negatively affect our clients' businesses, which in turn could adversely impact our financial condition and results of operations.

        Although the long-term effects of Brexit will depend on any agreements the United Kingdom makes to retain access to the EU markets, the United Kingdom could lose access to the single EU market, including the single market for financial services, and to the global trade deals negotiated by the European Union on behalf of its members, which may materially harm the UK financial services industry and increase trade barriers, both of which could adversely affect our results of operations. For a company with UK subsidiaries and operations across Europe, such as us, Brexit could result in adverse changes in applicable tax benefits or liabilities in various jurisdictions within and outside EU, reconsideration of indirect tax rules without EU VAT Directive, restrictions on the movement of capital or sales of services, and limitations on the mobility of our personnel. Any of these effects of Brexit, among others, could materially adversely affect our business, results of operations and financial condition.

Significant political or regulatory developments, such as those stemming from the recent change of the presidential administration in the U.S. could have a materially adverse effect on us.

        In the United States, the new presidential administration expressed support for and may implement greater restrictions on free trade and increases tariffs on goods imported into the United States, as well as a comprehensive tax reform, including in corporate and income taxation. While we cannot predict whether quotas, duties, tariffs, taxes or other similar restrictions will be imposed by the United States or other countries upon the import or export of our products in the future, given our significant sales operations in the U.S., changes in U.S. political, regulatory and economic conditions or in its policies governing international trade and foreign investment in the U.S. could materially and adversely affect our business.

Our competitive position and future prospects depend on the expertise of members of our senior management team, and our business may be severely disrupted if we lose their services.

        Our business is dependent on retaining the services of certain key members of the management team who have extensive experience in the IT industry. If a key member of the management team is unable or unwilling to continue in his or her present position, our business operations could be disrupted, and we may not be able to replace such a person easily, or at all. In addition, the number of qualified managerial personnel in the primary jurisdictions in which we operate is limited, and competition for the services of such persons in our industry is intense. While we have entered into employment contracts with our senior managers and have provided incentives for them to remain with us, including monetary bonuses and share-based compensation, we cannot guarantee that we will retain their services. We currently do not maintain insurance against any damage that may be incurred in case of the loss or dismissal of our key specialists or managers.

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        If any of our key personnel, including senior management and business development managers, joins a competitor or forms a competing company, we may lose clients, suppliers, knowhow and key technology professionals and staff members to them, and our sales of services may be materially adversely affected. Such movement by key personnel could also result in unauthorized disclosure or use of our technical knowledge, practices or procedures, which may materially adversely affect our competitive position and, consequently, our business.

Our ability to generate and retain business depends on our reputation in the marketplace.

        Because many of our specific client engagements involve unique services, our corporate reputation is a significant factor in our clients' evaluation of whether to engage our services and in our potential and existing employees' decision to join and remain at our Company. However, our corporate reputation is susceptible to damage by actions or statements made by current or former clients, competitors, vendors, employees, adversaries, government regulators and members of the investment community and the media, irrespective of the accuracy or the veracity of the information on which such actions or statements are based. There is a risk that negative information about us, even if based on false rumor or misunderstanding, could adversely affect our business. In particular, damage to our reputation could be difficult and time-consuming to repair, could make potential or existing clients reluctant to select us for new engagements and could materially adversely affect our recruitment and retention efforts. Damage to our reputation could also reduce the value and effectiveness of the Luxoft brand name and could reduce investor confidence in us. Our inability to generate or retain business as a result of damage to our reputation could materially adversely affect our business.

If we do not succeed in quickly assimilating new technologies and rapidly changing technologies, methodologies and evolving industry standards, our business may be materially adversely affected.

        The IT industry is subject to rapid and significant changes in technology, methodologies and evolving industry standards. Our clients rely on us to continue to anticipate and provide them with the most innovative technologies on the market. Our future success will to a large extent depend on our ability to quickly acquire and assimilate cutting edge technologies, which we can then use to develop our clients' systems. Development and introduction of new services and products involve a significant commitment of time and resources and are subject to a number of risks and challenges, including:

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difficulty or cost in ensuring that some features of our software work effectively and securely over the Internet or with new or changed operating systems;



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difficulty or cost in developing and updating our software and services quickly enough to meet our clients' needs and to keep pace with business, evolving industry standards, methodologies, regulatory and other developments in the industries where our clients operate; and



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difficulty or cost in maintaining a high level of quality as we implement new technologies and methodologies.

        We may not be successful in anticipating or responding to these developments in a timely manner, or if we do respond, the services, technologies or methodologies we develop or implement may not be successful in the marketplace. Further, products, services, technologies or methodologies that are developed by our competitors may render our services and products non-competitive or obsolete. Our failure to enhance our existing services and to develop and introduce new services and products in line with the developments in technology, methodologies and standards in the IT industry that will promptly address the needs of our clients could cause us to lose clients, and materially adversely affect our business.

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Our profitability could suffer if we are not able to manage large and complex projects.

        Our profitability and operating results are dependent on the scale of our projects and the prices we are able to charge for our services. The challenges of managing larger and more complex projects include:

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maintaining high-quality control and process execution standards;



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maintaining planned resource utilization rates on a consistent basis;



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maintaining productivity levels and implementing necessary process improvements;



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controlling project costs;



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maintaining close client contact and high levels of client satisfaction;



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recruiting and retaining sufficient numbers of skilled IT professionals; and



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maintaining effective client relationships.

        In addition, large and complex projects may involve multiple engagements or stages, and there is a risk that a client may choose not to retain us for additional stages or may cancel or delay additional planned engagements. Such cancellations or delays may make it difficult to plan our project resource requirements, and may result in lower profitability levels than we anticipated upon commencing engagements.

Our profitability could suffer if we fail to maintain favorable pricing for our services.

        The pricing of our services is affected by a number of factors, including:

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our clients' perception of our ability to add value through our services;



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our competitors' pricing policies;



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bid practices of clients and their use of third-party advisors;



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our ability to charge premium prices when justified by market demand or the type of service;



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our large clients' pricing leverage; and



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general economic conditions.

        If we are unable to maintain favorable pricing for our services, our profitability could suffer.

If we are unable to collect our receivables from, or bill our unbilled services to, our clients, our results of operations and cash flows could be materially adversely affected.

        Our business depends on our ability to obtain payment from our clients of the amounts they owe us for work performed. We usually bill and collect such amounts on relatively short cycles. We maintain allowances for doubtful accounts. Actual losses on client balances could differ from those that we currently anticipate and, as a result, we might need to adjust our allowances. There is no guarantee that we will accurately assess the creditworthiness of our clients. Weak macroeconomic conditions and related turmoil in the global financial system could also result in financial difficulties, including limited access to the credit markets, insolvency, or bankruptcy for our clients, and, as a result, could cause clients to delay payments, request modifications to their payment arrangements that could increase our receivables balance, or default on their payment obligations. In addition, some of our clients may delay payments due to changes in internal payment procedures driven by rules and regulations these clients are subject to. Timely collection of client balances also depends on our ability to complete our contractual commitments and bill and collect our contracted sales of services. If we are unable to meet our contractual requirements and if we experience an increase in the time to bill and collect for our

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services, we might be unable to collect our client balances or experience delays in collection. If this occurs, our results of operations and cash flows could be materially adversely affected.

Our sales of services, operating results or profitability may experience significant variability and our past results may not be indicative of our future performance.

        Our operating results may fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance.

        Factors that are likely to cause these variations include:

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the number, timing, scope and contractual terms of projects in which we are engaged;



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delays in project commencement or staffing delays due to difficulty in assigning appropriately skilled or experienced professionals;



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the accuracy of estimates on the resources, time and fees required to complete fixed price projects and costs incurred in the performance of each project;



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inability to maintain high employee utilization levels;



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changes in pricing in response to client demand and competitive pressures;



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changes in the allocation of onsite and offshore staffing;



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the business decisions of our clients regarding the use of our services;



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the ability to further grow sales of services from existing clients;



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the available leadership and senior technical resources compared to junior engineering resources staffed on each project;



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seasonal trends and the budget and work cycles of our clients;



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delays or difficulties in expanding our operational facilities or infrastructure;



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our ability to estimate costs under fixed price contracts;



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employee wage levels and increases in compensation costs, including timing of promotions and annual pay increases;



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unanticipated contract or project terminations;



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the timing of collection of accounts receivable;



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our ability to manage risk through our contracts;



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the continuing financial stability of our clients; and



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general economic conditions.

        Based upon all of the factors described above, our operating results may from time to time fall below our estimates or the expectations of public market analysts and investors.

We have incurred, and may continue to incur, significant share-based compensation expenses which could adversely impact our net income.

        We have granted shares and share-based instruments under our stock option plan, as a result of which we have recorded $29.0 million, $17.7 million, $5.8 million, $1.4 million, and $5.5 million in share-based compensation expenses for the fiscal years ended March 31, 2017, 2016, 2015, 2014 and 2013, respectively.

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        U.S. GAAP prescribes how we account for share-based compensation. U.S. GAAP requires us to recognize share-based compensation as a compensation expense in the statement of comprehensive income generally based on the fair value of equity awards on the date of the grant, with the compensation expense recognized over the period in which the recipient is required to provide service in exchange for the equity award. Such expenses could adversely impact our results of operations or the price of our Class A ordinary shares. If we do not grant equity awards, or if we reduce the number of equity awards we grant, we may not be able to attract and retain key personnel. If we adopt additional equity incentive plans in the future in order to attract and retain key personnel, the expenses associated with such additional equity awards could materially adversely affect our results of operations.

We may be subject to third-party claims of intellectual property infringement that could be time-consuming and costly to defend.

        Our success largely depends on our ability to use and develop our technology, tools, code, methodologies and services, which might also require us to utilize the intellectual property rights of third parties, including patents, copyrights, trade secrets and trademarks. All intellectual property rights created by our employees and contractors are transferred to us subject to local laws and regulations. Typically, we transfer to our clients all of the intellectual property rights to the software we develop for them within the scope of our custom software development and software engineering arrangement, without retaining any rights for ourselves. In developing software for our clients we use third-party environment software under separate license agreements, or, if requested by clients, we may incorporate third-party software into our software development for them. In these cases, we acquire all necessary licenses for such software once we reach a preliminary agreement with our clients.

        Following the software industry trend of making an increasing use of open source software in its development work, we incorporate open source technology in our services, which may expose us to liability and have a material impact on our software development services and sales. The open source license may require that the software code in those components or the software into which they are integrated be freely accessible under open source terms. There is a possibility that third-party claims may require us to disclose our own source code to the public, to make the same freely accessible under open source terms. Any such requirement to disclose our source code or other confidential information related to our work product could materially adversely affect our competitive position, results of business operations, financial condition and client relationships.

        Claims that we have infringed the intellectual property rights of others may be asserted against us in the future. For example, we may be unaware of intellectual property registrations or applications relating to our services that may give rise to potential infringement claims against us. Our contracts may be deemed to result in the assignment to our clients of the rights to any developments or improvements in our proprietary delivery platform, software development tools, or residual know-how developed by us during the course of our engagements. Such an interpretation may give rise to a potential claim that our product improvements or residual know-how were previously assigned to our client and can no longer be used by us on behalf of ourselves or other clients, or subject us to liability for infringement of our client's intellectual property rights. There may also be technologies licensed to and relied on by us that are subject to infringement or other corresponding allegations or claims by third parties which may damage our ability to rely on such technologies.

        Further, our current and former employees and/or independent contractors could challenge our exclusive rights in the software they have developed in the course of their employment or engagement. In Russia and certain other countries in which we operate, (a) where intellectual property was created by an employee of a company as part of their employment relationship, the respective employee retains authorship of such intellectual property, while the employer, unless otherwise provided in the employment agreement, is deemed to own the exclusive rights to such intellectual property, and (b) where an engaged specialized contractor creates the intellectual property by contract with the client,

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the latter is by default the holder of exclusive rights to such intellectual property, unless the contract provides otherwise. However, in either case, the authors, regardless of whether they were employees of the company or of any of its contractors (as the case may be), may retain authorship and should be paid consideration for the intellectual property work performed. In the case of intellectual property work created by an employee during his/her employment, the employer may be required to satisfy additional legal requirements in order to make further use or dispose of such intellectual property. Courts have been inconsistent in their approach to enforcing such applicable legal requirements. As a result, there can be no guarantee that we would be successful in defending against any claim by our current or former employees or contractors challenging our exclusive rights over the use and transfer of works that the respective employees and contractors created or requesting additional compensation for such works.

        Parties making infringement claims may be able to obtain an injunction to prevent us from delivering our services or using technology containing the allegedly infringing intellectual property.

        We may also be subject to litigation involving claims of patent infringement or violation of other intellectual property rights of third parties. Furthermore, most of our client contracts require us to indemnify the client in these circumstances for any damages and expenses the client incurs in defending any such claims by third parties, and we may be required to indemnify the client even if the claim by the third party against our client is without merit or is dismissed.

        If we fail to defend ourselves and our clients against such claims, our reputation as well as our financial condition may be adversely affected.

We may not be successful in protecting our intellectual property rights, including our unpatented proprietary knowhow and trade secrets, or in avoiding claims that we infringed on the intellectual property rights of others.

        We rely on unpatented proprietary know-how and trade secrets and employ commercially reasonable methods, including confidentiality agreements with employees and consultants, to protect our know-how and trade secrets. However, these methods and our patents and trademarks may not afford complete protection and there can be no assurance that others will not independently develop the knowhow and trade secrets or develop better production methods than us. Further, we may not be able to deter current and former employees, contractors and other parties from breaching confidentiality agreements and misappropriating proprietary information and it is possible that third parties may copy or otherwise obtain and use our information and proprietary technology without authorization or otherwise infringe on our intellectual property rights. Additionally, in the future we may develop and license trade secrets and similar proprietary rights to third parties. Third parties may take actions that could materially adversely affect our rights or the value of our intellectual property, similar proprietary rights or reputation. In the future, we may also rely on litigation to enforce our intellectual property rights and contractual rights and, if not successful, we may not be able to protect the value of our intellectual property. Furthermore, no assurance can be given that we will not be subject to claims asserting the infringement of the intellectual property rights of third parties seeking damages, the payment of royalties or licensing fees and/or injunctions against the sale of our products. Any litigation could be protracted and costly and could have a material adverse effect on our business and results of operations regardless of its outcome.

We may be liable to our clients for damages caused by violations of intellectual property rights and the disclosure of other confidential information, system failures, errors or unsatisfactory performance of services, and our insurance policies may not be sufficient to cover these damages.

        We often have access to sensitive or confidential client information, including personally identifiable information. The protection of our clients' intellectual property rights and other

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confidential information, including personally identifiable information of our clients, is particularly important for us since our operations are mainly based in CEE countries. CEE countries have not traditionally enforced intellectual property protection to the same extent as countries such as the United States. To protect proprietary information and other intellectual property, we require our employees, independent contractors, vendors and clients to enter into written confidentiality agreements with us.

        Despite measures we take to protect the intellectual property and other confidential information or personally identifiable information of our clients, unauthorized parties, including our employees and subcontractors, may attempt to misappropriate certain intellectual property rights that are proprietary to our clients or otherwise breach our clients' confidences. The agreements we enter into with employees, independent contractors, vendors and clients may not provide meaningful protection for trade secrets, knowhow or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, knowhow or other proprietary information. Policing unauthorized use of proprietary technology is difficult and expensive. The steps we have taken may be inadequate to prevent the misappropriation of our and our clients' proprietary technology. Reverse engineering, unauthorized copying or other misappropriation of our and our clients' proprietary technologies, tools and applications could enable third parties to benefit from our or our clients' technologies, tools and applications without paying us for doing so. Unauthorized disclosure of sensitive or confidential client information, including personally identifiable information, or a violation of intellectual property rights, whether through employee misconduct, breach of our computer systems, systems failure or otherwise, may subject us to liabilities, damage our reputation and cause us to lose clients.

        Our client contracts generally provide for indemnity for intellectual property infringements of third-party rights that arise from our breach under such contracts. Although we attempt to limit our contractual liability for consequential damages in rendering our services, and provide limitation of liabilities for amount of such liabilities, typically to one year's payment under the relevant agreement, these limitations on liability may be inapplicable, unenforceable or insufficient to protect us from liability for damages. There may be instances when liabilities for damages are greater than the insurance coverage we hold and we will have to internalize those losses, damages and liabilities not covered by our insurance. Furthermore, if any third party brings any claims against our clients, claiming that our work product or intellectual property transferred to our clients infringes upon such third party's IP rights, any such claims could result in claims by our clients against us, which could result in the loss of such client, could seriously damage our reputation, could result in other clients terminating their engagements with us and could make it more difficult to obtain new clients.

If we fail to integrate or manage acquired businesses efficiently, or if the acquired companies are difficult to integrate, divert management resources or do not perform to our expectations, we may not be able to realize the benefits envisioned for such acquisitions, and our overall profitability and growth plans could be materially adversely affected.

        On occasion we have expanded our service capabilities and gained new clients through selective acquisitions. During the fiscal year ended March 31, 2017, we completed four acquisitions, and we plan to continue making selective acquisitions in the future. Our ability to successfully integrate an acquired business and realize the benefits of an acquisition requires, among other things, successful integration of technologies, operations and personnel. Challenges we face in the acquisition and integration process include:

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integrating operations, services, personnel and corporate, IT and administrative infrastructures in a timely and efficient manner;

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diverting significant management attention and financial resources from our other operations and disrupting our ongoing business;



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unforeseen or undisclosed liabilities and integration costs;



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incurring liabilities from the acquired businesses for infringement of intellectual property rights or other claims for which we may not be successful in seeking indemnification;



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incurring debt, amortization expenses related to intangible assets, large and immediate write-offs, or issuing ordinary shares as consideration for the acquired assets that would dilute our existing shareholders' ownership;



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generating sufficient revenues and net income to offset acquisition costs;



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potential loss of, or harm to, employee or client relationships;



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properly structuring our acquisition consideration and any related post-acquisition earn-outs and successfully monitoring any earn-out calculations and payments;



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failing to realize the potential cost savings or other financial benefits and/or the strategic benefits of the acquisition;



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retaining key senior management and key sales and marketing and research and development personnel, particularly those of the acquired operations; and



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increased complexity or risks from potentially doing business in unfamiliar markets and operating additional geographically dispersed sites.

        In addition, the primary value of many potential acquisition targets in the IT services industry lies in their skilled IT professionals and established client relationships. Transitioning these types of assets to our business can be particularly difficult due to different corporate cultures and values, geographic distance and other intangible factors. For example, some newly acquired employees may decide not to work with us or to leave shortly after their move to our company and some acquired clients may decide to discontinue their commercial relationships with us. These challenges could disrupt our ongoing business, distract our management and employees and increase our expenses, including causing us to incur one-time expenses and write-offs, and make it more difficult and complex for our management to effectively manage our operations. If we are not able to successfully integrate an acquired business and its operations and to realize the benefits envisioned for such acquisition, our overall growth and profitability plans may be adversely affected.

Our international operations involve risks that could increase our expenses, adversely affect our results of operations and require increased time and attention from our management.

        We have operations in a number of jurisdictions, including Russia, Ukraine, Romania, Bulgaria, the United States, the United Kingdom, Germany, Poland, Mexico, South Africa, Australia, Canada, Singapore and Vietnam, and we serve clients across North America, Australia, Europe and Asia. As a result, we may be subject to risks inherently associated with international operations. Our global operations expose us to numerous and sometimes conflicting legal, tax and regulatory requirements, and violations or unfavorable interpretation by the respective authorities of these regulations could harm our business.

        Additional risks associated with international operations include difficulties in enforcing contractual rights, the burdens of complying with a wide variety of foreign laws and potentially adverse tax consequences, including permanent establishment and transfer pricing issues, tariffs, quotas and other barriers and potential difficulties in collecting accounts receivable. In addition, we may face competition in other countries from companies that may have more experience with operations in such countries or with international operations. Additionally, such companies may have longstanding or well-established

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relationships with desired clients, which may put us at a competitive disadvantage. We may also face difficulties integrating new facilities in different countries into our existing operations, as well as integrating employees that we hire in different countries into our existing corporate culture. Our international expansion plans may not be successful and we may not be able to compete effectively in other countries. We cannot ensure that these and other factors will not impede the success of our international expansion plans or limit our ability to compete effectively in other countries.

Our business operations and financial condition could be adversely affected by negative publicity about offshore outsourcing or anti-outsourcing legislation in the United States or other countries in which our clients operate.

        Concerns that offshore outsourcing has resulted in a loss of jobs and sensitive technologies and information to foreign countries have led to negative publicity concerning outsourcing in some countries, including the United States. Current or prospective clients may elect to perform services that we offer themselves, or may be discouraged from transferring these services to offshore providers such as ourselves to avoid any negative perceptions that may be associated with using an offshore provider. As a result, our ability to compete effectively with competitors that operate primarily out of facilities located in these countries could be harmed. In addition, anti-outsourcing legislation, if adopted, could materially adversely affect our business, financial condition and results of operations, and impair our ability to service our clients.

We may need additional capital to support our growth, and a failure by us to raise additional capital on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our service offerings to respond to market demand or competitive challenges.

        We believe that our current cash balances, cash flow from operations and credit facilities should be sufficient to meet our anticipated cash needs for at least the next 12 months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain another credit facility. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that would restrict our operations. Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:

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investors' perception of, and demand for, securities of IT services companies;



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conditions of the U.S. and other capital markets in which we may seek to raise funds;



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our future results of operations and financial condition; and



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economic, political and other conditions in CEE and globally.

        Financing may not be available in amounts or on terms acceptable to us, or at all, and could limit our ability to grow our business and develop or enhance our service offerings to respond to market demand or competitive challenges.

We face risks associated with having significant resource commitments to provide services prior to realizing sales for those services.

        We have a long selling cycle for our IT services (generally up to 18 months for new clients), which requires significant investment of human resources and time by both our clients and us. Before committing to use our services, potential clients require us to expend substantial time and resources educating them on the value of our services and our ability to meet their requirements. Therefore, our selling cycle is subject to many risks and delays over which we have little or no control, including our

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clients' decisions to choose alternatives to our services (such as other IT services providers or in-house resources) and the timing of our clients' budget cycles and approval processes. Our selling cycle for new clients can be especially unpredictable. In the past, we have received sales from new clients up to six months later than expected. If our selling cycle unexpectedly lengthens for one or more large projects, it would negatively affect the timing of our sales and hinder our sales growth.

        Implementing our services also involves a significant commitment of resources over an extended period of time from both our clients and us. Our clients may experience delays in obtaining internal approvals or delays associated with technology, thereby further delaying the implementation process. Our current and future clients may not be willing or able to invest the time and resources necessary to implement our services, and we may fail to close sales with potential clients to which we have devoted significant time and resources. Any significant failure to generate sales, or delays in recognizing sales after incurring costs related to our sales or services process, could materially adversely affect our business.

Our effective tax rate could be materially adversely affected by a number of factors, including recent OECD initiatives

        We conduct business globally and file income tax returns in Switzerland, the United States, the United Kingdom, Russia, Romania, Poland, Ukraine and multiple other tax jurisdictions. Our effective tax rate could be materially adversely affected by a number of factors, including changes in the amount of income taxed by or allocated to the various jurisdictions in which we operate and which have different statutory tax rates; changing tax laws, regulations and interpretations of such tax laws in multiple jurisdictions; implementation, by various jurisdictions, of measures developed by the Organization for Economic Cooperation and Development (OECD) and aimed at preventing base erosion and profit shifting (BEPS) and enhancing international exchange of financial and tax information; and the resolution of issues arising from tax audits or examinations and any related interest or penalties; acquisition or setting up of new businesses in jurisdictions with higher statutory rates, undeveloped or evolving tax regimes.

        We report our results of operations based on our determination of the amount of taxes owed in the various jurisdictions in which we operate. We have certain intercompany arrangements among our subsidiaries in relation to various aspects of our business, including operations, marketing, sales and delivery functions, as well as financing and licensing arrangements that are subject to transfer pricing regulations of the respective jurisdictions. U.S. transfer pricing regulations, OECD regulations, as well as regulations applicable in CEE countries in which we operate, require international transactions involving associated enterprises be on arm's-length terms. We consider the transactions among our subsidiaries to be on arm's-length terms; however, the determination of transfer prices for intercompany transactions and relevant tax liabilities in each particular jurisdiction requires estimates, judgment and complex calculations, and the ultimate tax determination may not be certain.

        The Organization for Economic Cooperation and Development ("OECD") has been working on a Base Erosion and Profit Shifting project ("BEPS"), resulting in issuance in 2015 and further years guidelines and proposals that may change various aspects of the existing framework under which our tax obligations are determined in many of the countries in which we do business. It is expected that OECD will continue issuing further comments and practical guidelines on BEPS in the future which can also impact our approaches to future tax computations.

        Actions 8-10 of BEPS seek to update guidance on practical application of arm's-length principle, removing outdated emphasis on contractual allocation of risks, functions and assets, which has proven to be vulnerable to manipulation. Instead, OECD proposes using pricing methods that will allocate profits to jurisdictions with the most important economic activities, functions performed and risks undertaken and align transfer pricing outcome with value created in such locations. Many countries,

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where we operate, have implemented at least some of OECD guidelines by introducing new tax legislation of varying scope and wording. It is currently unknown what would be the effect of applying updated guidelines to our intercompany arrangements, but we cannot exclude that it will lead to increase of our effective tax rate.

        Action 13 of BEPS proposes an addition to transfer pricing documentation in the form of Country-by-Country Report ("CbCR"). The new guidance requires large multinational enterprises to provide tax authorities a global overview of enterprise operations and taxation in a format of unified report. This overview contains business activities description, information about employees, assets, revenue, profits before tax, accrued and paid income taxes and several other indicators for each jurisdiction, where the Group operates. Such reporting requirements are proposed to be applicable to multinational enterprises with annual consolidated Group revenue exceeding EUR 750 million (although some countries have established a different threshold for national purposes). The proposed reporting rules have met worldwide recognition, and majority of developed countries have adopted CbCR legislation. We are not in the scope of CbCR reporting for the year ended March 31, 2017; however we expect to exceed reporting threshold in the next two years. Visibility of global operations and taxation may lead tax authorities in some countries to increased scrutiny of intercompany arrangements and challenging tax treatment of transactions, which was not questioned before. In addition, automatic exchange of information, which is implemented by tax authorities worldwide, may also result in additional tax claims to us.

        If a tax authority in any jurisdiction reviews any of our tax returns and proposes an adjustment and/or imposes fines and/or penalties, including, as a result of a determination, that the transfer prices and terms we have applied are not appropriate, this could have a negative impact on our financial results.

We may encounter difficulties in obtaining withholding income tax benefits envisaged by the Cypriot double tax treaties for dividends distributed from our subsidiaries.

        Our subsidiary in Cyprus is a sub-holding company, which is a direct or indirect 100% parent of all other legal entities of the Group, except for Luxoft Holding, Inc. Upstream dividends, which could be paid to Cyprus by our major operational legal entities, may be subject to withholding income tax upon distribution.

        Cyprus has a wide range of double tax treaties with various jurisdictions, which often provide either decreased tax rate or complete exemption from withholding taxes. For example, under a tax treaty between Cyprus and Switzerland the withholding tax on dividends may be reduced to zero. At the same time, most of the double tax treaties contain a limitation on benefits provisions and/or special provision regarding the beneficial owner of the dividends. Under beneficial ownership concept, double tax treaty benefits are only available to the recipient of income if such recipient is the beneficial (economic) owner of the relevant income. Based on OECD commentaries, the beneficial owner is defined as a person holding directly, through its direct and/or indirect participation in other organizations or otherwise, the right to own, use or dispose of income, or the person on whose behalf another person is authorized to use and/or dispose of such income. Entities are not recognized as beneficial owners of income if they have limited authorities to use or dispose income, perform agency or other similar functions in favor of third parties, not taking any risks, or transfer such income (either partially or in full) to third parties that are not eligible to double tax treaty benefits. Some of the double tax treaties contain additional requirements to apply reduced rate or exemption.

        Although in the case of dividend payment we will seek to claim treaty protection, there is a risk that the applicability of the reduced rate or exemption may be challenged by tax authorities. As a result, there can be no assurance that we would be able to avail ourselves of the benefits under double

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tax treaty in practice, if the treaty clearance procedures are not duly performed at the date when the dividend payment is made.

Ongoing corporate tax reform in Switzerland may result in abolition of privileged tax regime and increase in our effective tax rate

        Switzerland is undertaking a comprehensive corporate tax reform ("CTRIII") that will among others result in the phasing out of the so-called holding, mixed company, domiciliary company and other special tax regimes with a timeline to adopt anticipated changes within 2018 - 2020, most likely in 2019 and earliest as from January 1, 2018.

        Our Swiss subsidiary, which also serves as group operational headquarters, has been enjoying mixed company regime in the canton of Zug since its incorporation in 2013. Under cantonal tax law a mixed company is partially exempted from cantonal taxation of profits earned outside of Switzerland. The income tax saving from utilizing this regime was $1.9 million for the year ended March 31, 2017 and $3.2 million for the year ended March 31, 2016.

        Switzerland's privileged taxation of holdings as well as mixed companies has been under increasing international pressure over the last decade, particularly from the European Union and the OECD. On 17 June 2016, the Swiss Parliament approved the final bill on CTRIII. The bill announced abolition of privileged regimes and several compensating measures to retain Switzerland's attractiveness as a business location. Companies, which previously used privileged regimes, were provided with a 5-year transitional period and, subject to certain limitations, were expected to maintain the effective tax rate at the pre-reform level during this period. Several cantons, including canton of Zug, also announced plans to decrease their statutory rate, if CTRIII is implemented.

        However Swiss voters rejected the new law on 12 February 2017. Since abolition of preferential tax regimes is a commitment made by Switzerland to European Union and OECD, it remains widely undisputed that reform is required. Thus, a new draft law will likely be proposed in the near future. If no or reduced compensating measures would be available in the new bill, our financial results may significantly suffer from immediate rise in effective tax rate.

Planned tax reform in the United States may affect us in a negative manner

        New U.S. administration is actively considering a largest tax reform since 1986, which is aimed to improve U.S. tax landscape and increase competitiveness of U.S. economy. Several reform ideas have been presented, yet none materialized in the draft bill.

        Although proposals include inter alia a substantial decrease in nominal U.S. federal corporate tax rate and possibilities to immediately expense capital investments, several measures are planned to compensate the respective loss of tax revenues by the federal government. In particular, a suggestion to introduce a border-adjustment tax, or "a destination-based cash flow tax" would drastically change how corporate taxation in U.S. works. Currently, it is not clear how the proposed tax would exactly be implemented, what types of goods, services, other transactions would be in scope, or the effects on various business models. Nonetheless, understanding that the aim of border-adjustment tax is to promote businesses to place their operations in U.S., and we currently serve U.S. customers mainly with off-shore personnel, we believe that adoption of any similar measure will be unfavorable to us. At the same time, since both proposals (decrease of CIT tax rate and increase/introduction of new special taxes) compensate each other, it is currently not feasible to assess possible impact of the reform on our tax liabilities in the US.

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International hostilities, terrorist activities, other violence or war, natural disasters, pandemics and infrastructure disruptions could delay or reduce the number of new service orders we receive and impair our ability to service our clients.

        Hostilities and acts of terrorism, violence or war, natural disasters, global health risks or pandemics or the threat or perceived potential of these events could materially adversely affect our operations and our ability to provide services to our clients. We may be unable to protect our people, facilities and systems against any such occurrences. Such events may cause clients to delay their decisions on spending for IT services and give rise to sudden significant changes in regional and global economic conditions and cycles. These events also pose significant risks to our people and to physical facilities and operations around the world, whether the facilities are ours or those of our clients, which could materially adversely affect our financial results. By disrupting communications and travel, giving rise to travel restrictions, and increasing the difficulty of obtaining and retaining highly-skilled and qualified IT professionals, these events could make it difficult or impossible for us to deliver services to some or all of our clients. Travel restrictions could cause us to incur additional unexpected labor costs and expenses or could restrain our ability to retain the skilled IT professionals we need for our operations. In addition, any extended disruptions of electricity, other public utilities or network services at our facilities, as well as system failures at, or security breaches in, our facilities or systems, could also adversely affect our ability to serve our clients.

Risks related to conducting business in CEE countries

Emerging markets, such as CEE countries, are subject to greater risks than more developed markets, and financial turmoil in any emerging market in which we operate could disrupt our business.

        CEE countries are generally considered to be emerging markets. Investors in emerging markets should be aware that these markets are subject to greater legal, economic and political risks than more developed markets. Emerging markets are subject to rapid change, and information relating to our operations in such markets set out in this annual report may become outdated relatively quickly. Moreover, financial or political turmoil in any emerging market country tends to adversely affect prices in the equity markets of all emerging market countries, as investors move their money to more stable, developed markets. As has happened in the past, financial problems or an increase in the perceived risks associated with investing in emerging economies could dampen foreign investment in the CEE region and adversely affect regional economies. In addition, during such volatile times, companies that operate in emerging markets could face severe liquidity constraints as foreign funding sources are withdrawn. Thus, even if the economy of the CEE region remains relatively stable, financial turmoil in any emerging market country could adversely affect our business which could result in a material decrease in the price of our Class A ordinary shares.

Sanctions imposed by the United States, the EU and other countries as a result of the ongoing crisis in Ukraine may have a material adverse effect on our business.

        In late 2013 and the first half of 2014, deteriorating economic conditions and general social unrest in Ukraine resulted in a wide-scale crisis provoking armed confrontations in Eastern Ukraine that ultimately involved the Russian Federation.

        The United States, the European Union and a number of other jurisdictions and authorities (including Australia, Albania, Canada, Iceland, Japan, Moldova, Montenegro, Norway, Switzerland, the United Kingdom and Ukraine) have imposed sanctions on a number of Russian officials and individuals, former Ukrainian officials, and several Russian companies and banks, with the consequence that entities and individuals in the United States and European Union cannot do business with such persons or provide funds or economic resources to such persons. Certain assets in the relevant sanctioning jurisdictions are subject to seizure and the sanctioned individuals to visa bans. In addition,

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the United States and European Union have applied "sectoral" sanctions, whose principal consequence is that several leading Russian banks have been restricted from accessing international capital markets. These sanctions have adversely affected the Russian economy and Russia's financial markets, increased the cost of capital and capital outflows, and worsened the investment climate in Russia.

        No individual or entity within the Group has been designated by either the United States or the EU as a target of their respective sanctions imposed in connection with the situation in Ukraine. However, no assurance can be given that none of those individuals or entities will be made subject to any such sanctions in the future. Additionally, no assurance can be given that broader sanctions against Russia or parts of Ukraine that affect us will not be imposed. Certain of our subsidiaries are U.S. or EU Persons and are therefore subject to U.S. and EU sanctions restrictions, including prohibitions on dealing with any persons subject to U.S. blocking sanctions or the EU asset freeze. However, the majority of Group entities are neither U.S. nor EU Persons, and these entities are therefore restricted in dealings with sanctioned persons only to the extent those dealings involve U.S. nor EU Persons or U.S.-dollar denominated transactions, are conducted within the United States or in EU member states, or otherwise fall within EU jurisdiction.

        We may engage in certain operations with Russian and Ukrainian persons and entities that are currently sanctioned. Such operations are rare and, according to our estimates, the overall volume of such operations with such persons and entities is not material and such operations are limited to the territory of the Russian Federation and Ukraine.

        The scope and consequences of U.S. and EU sanctions remain subject to interpretation by competent authorities and courts in the United States and the EU and no assurance can be given that a broader interpretation may not affect any of our entities. Non-compliance with applicable sanctions could result in, among other things, the inability of the relevant entities to contract with the U.S. and/or EU governments or their agencies, civil or criminal liability, including the imposition of significant fines, the disgorgement of profits, and/or the imposition of a court-appointed monitor, negative publicity and reputational damage, and designation under U.S. and/or EU sanctions. Designation under U.S. and/or EU sanctions could affect our ability to transact with U.S. and/or EU Persons.

        We have significant exposure to the Russian and Ukrainian economies and the attendant risks. The current difficult economic environment in Ukraine and Russia and any future downturns in the economies of these countries could diminish demand for our services, increase our costs, constrain our ability to retain existing customers and collect payments from them and prevent us from executing our strategies. Although we believe that the Russian IT industry is unlikely to be specifically targeted by OFAC or EU sanctions, if sanctions were generally brought against such industry or specifically against us, such sanctions would likely have a material adverse impact on our business, financial condition, results of operations or prospects.

Regional and international political and diplomatic conflicts involving Russia and Ukraine could create an uncertain operating environment that could adversely affect our business.

        Ukraine has enacted sanctions with respect to certain Russian entities and individuals. The sanctions impose various limitations on economic activities in Ukraine and restrict entry into Ukraine of certain individuals. The sanctions became effective on September 22, 2015 and were set to expire on September 22, 2016. The sanctions apply to 388 individuals and 105 companies, including two Russian IT companies. On October 17, 2016, the President of Ukraine enacted the decision of the Ukranian National Security and Defense Council imposing new personal sanctions against 335 individuals and 167 entities, and extending the sanctions imposed in September 2015 for one more year. On March 15, 2017, the President of Ukraine enacted the decision of the Ukrainian National Security and Defense Council to impose sanctions on five Ukrainian banks with the capital of Russian state-owned banks:

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Sberbank PJSC; VS Bank PJSC; Prominvestbank PJSC; VTB Bank PJSC; and BM Bank PJSC. The Sanctioned Banks are prohibited from transferring capital outside the territory of Ukraine in favour of any affiliated entities.

        Russia has responded with countermeasures to international and Ukrainian restrictions and sanctions, currently including limiting the import of certain goods from the United States, the European Union, Ukraine and other countries, imposing visa bans on certain persons, and imposing restrictions on the ability of Russian companies to comply with sanctions imposed by other countries.

        In addition, Russia's involvement in the armed conflict in Syria, since September 2015, has occasionally put, and may continue to put, pressure on international relations between Russia and other countries. Russia's involvement in the conflict in Syria could further lead to an escalation of geopolitical tensions, the possible introduction or expansion of international sanctions against Russia by other countries and an increased risk of terrorist attacks.

        The instability in Crimea and Eastern Ukraine specifically, and in the surrounding region more generally, economic sanctions and related measures, and other geopolitical developments (including with respect to the current conflict and international interventions in Syria) could result in further instability and/or worsening of the overall political and economic situation in Ukraine, Russia, Europe and/or in the global capital markets generally, which could adversely impact us. Further conflict, sanctions, export controls and/or other measures, including sanctions on additional persons or businesses (including vendors, joint venture and business partners, affiliates and financial institutions) imposed by the United States, the European Union, Ukraine, Russia, and/or other countries, could materially adversely affect our business, financial condition, results of operations, cash flows and prospects.

        We have delivery centers in Ukraine, employing over 3,340 engineers located in Kiev, Dnipro and Odessa. We have delivery centers in Russia, employing over 2,000 engineers located in various cities. At present we have not experienced any interruption in our office infrastructure, utility supply or Internet connectivity. All our offices remain open and fully functional to support our clients. Our contingency plans include relocating work or personnel to other locations and adding new locations as appropriate. We recently opened new delivery centers in Sofia, Bulgaria, and Guadalajara, Mexico. In May 2014, we launched a multiyear Global Upgrade Program to implement another level of globalization across our organization and to accelerate our expansion in the EU, the U.K., Asia Pacific and North America. As part of this program, to better support our global client base, during our fiscal year ended March 31, 2017, we relocated over 700 professionals to key geographies such as Mexico, Poland, Romania, the U.S. and the United Kingdom. While we have contingency plans in place to address volatility in Russia and Ukraine, if we are unable to conduct business with our existing or potential clients or partners, or continue our operations in an uninterrupted manner as a result of these geopolitical developments or the reaction to these developments by international authorities through expanded sanctions or otherwise, our business could be materially adversely affected.

Political and governmental instability in CEE countries could materially adversely affect our business and operations in these countries.

        We have significant operations in Russia, Ukraine, Poland, Bulgaria and Romania. Since the early 1990s, Russia, Ukraine, Romania and other CEE countries have sought to transform from one-party states with a centrally planned economy to democracies with a market economy to various degrees. Despite various reforms, the political systems of many CEE countries remain vulnerable and unstable. In addition, the political and economic situation in these countries is negatively affected by the global financial and economic crisis, the ongoing economic recession in some parts of the world and political conflicts.

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        Although the political situation in Ukraine is stabilizing, minor armed clashes are still ongoing in the eastern regions of Ukraine, though our operations are in the western part of the country. On September 5, 2014, representatives of Ukraine, the Russian Federation, the Donetsk People's Republic, and the Lugansk People's Republic agreed to the Minsk Protocol, an agreement to halt the war in the Donbass region of Ukraine. In February 2015, the leaders of Ukraine, the Russian Federation, France and Germany reached a ceasefire deal on the Ukrainian conflict. The standing cease-fire has been continuously violated. Although the conflict has transitioned to a stalemate after it first erupted in early 2014, shelling and skirmishes occur regularly. A spike in violence and civilian casualties in the summer of 2016 has raised concerns of further escalation. Such escalation of the political instability or military action could have a material negative impact on our operations in Ukraine.

        Since the start of this conflict, there have been multiple waves of partial mobilization to the Ukrainian army. The mobilization has not materially affected our delivery centers in Ukraine; however, any future impact is difficult to predict. In the event the conflict worsens and the Ukrainian government triggers the application of martial law, it could have a material adverse effect on our operations in Ukraine.

        The current political environment in Romania is dynamic and may become unstable. After the collapse of the Democrat-led government in early 2012, the Social Democrats held power in a coalition with the Liberals, until February 2014 when the Liberals terminated their alliance with the Social Democrats. While moving into opposition, the Liberals have since merged with the Democrats. This has fragmented the Romanian Parliament and may ultimately give rise to populist measures at the government level. Moreover, in late 2014, the Liberal-nominated candidate won the presidential election, while the incumbent Social Democrat Prime Minister was reconfirmed by Parliament. The Social Democrat Prime Minister subsequently resigned and his cabinet was dissolved in November 2015 following a corruption scandal, to be replaced by a President-nominated independent Prime Minister and a new cabinet. Romania held parliamentary elections on December 11, 2016. The Social Democratic Party (SDP) and the Allience of Liberals and Democrats (ALDE) formed a government in January 2017 led by a Social Democrat Prime Minister, after winning 250 seats in the 465-seat parliament in the December 2016 election.

        Separately, recent military conflict in Ukraine has resulted in a negative impact in the region, affecting Romania's political and economic outlook. Romania has a significant land border with Ukraine and, as a result, ongoing instability or military conflicts in Ukraine could have a significant and adverse effect on Romania's economic and financial stability either directly or indirectly as a result of sanctions or restrictions on gas exports from Russia. Any escalation of the conflict would heighten the risk of significant unfavorable consequences, both indirectly—through effects on Romania's EU trade partners—and directly, through financial flows. Amendments in the policies pursued by the Romanian government and the political and regional instability may have a material negative impact on our operations in Romania.

        Although the current political situation in Russia has stabilized, future political instability could result in a worsening overall economic situation, including capital flight and a slowdown of investment and business activity. Following Russian parliamentary elections in December 2011 and presidential elections in March 2012, controversy concerning alleged voting irregularities led to organized protests in several Russian cities, including Moscow. In addition, any change in the Russian government or the Russian government's program of reform in Russia or lack of consensus between the President, the Prime Minister, the Russian government, Russia's Parliament and influential economic groups could lead to political instability and a deterioration in Russia's investment climate.

        The emergence of new or increased tensions among CEE countries could further exacerbate tensions between CEE countries and the United States and the European Union, which may have a negative effect on their economy, our ability to obtain financing on commercially reasonable terms, and

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the level and volatility of the trading price of our Class A ordinary shares. Any of the foregoing circumstances could materially adversely affect our business and operations in CEE countries.

Deterioration in political and economic relations among CEE countries in which we operate and/or between CEE countries and the United States and the European Union could materially adversely affect our business and operations in CEE.

        Political and economic relations among Russia, Romania, Ukraine and the other countries in which we operate are complex, and recent conflicts have arisen among many of their governments. Likewise, many CEE countries continue to have a complicated relationship with the United States and the EU. Political, ethnic, religious, historical and other differences have, on occasion, given rise to tensions and, in certain cases, military conflicts between countries of CEE which can halt normal economic activity and disrupt the economies of neighboring regions. Moreover, various acts of terrorism have been recently committed in various parts of the world. The risks associated with such terrorism events could materially and adversely affect the investment environment and overall consumer and entrepreneurial confidence in the countries where we operate, including the CEE countries.

        The relationship between Russia and Ukraine has been historically strained due to, among other things, disagreements over the prices and methods of payment for gas delivered by Russia to, or for transportation through, Ukraine, issues relating to the temporary stationing of the Russian Black Sea Fleet in the territory of Ukraine, a Russian ban on imports of meat and milk products from Ukraine and antidumping investigations conducted by Russian authorities in relation to certain Ukrainian goods. Political tensions have escalated recently following the political situation in Crimea and a number of associated events, including the adoption of a Ukrainian law cancelling neutral status to military blocks, the signing of the Ukraine-European Union Association Agreement and a new wave of gas price negotiations. In 2015 and 2016, economic confrontation between Russia and Ukraine has continued to grow. New bilateral sanctions and restrictions were imposed in the sphere of transport (mostly regarding transit, including air transit), trading and agriculture.

        Any further adverse changes in Ukraine's relations with Russia, in particular any such changes adversely affecting supplies of energy resources from Russia to Ukraine or Ukraine's revenues derived from transit charges for Russian oil and gas, may have negative effects on the Ukrainian economy as a whole. Similarly, sanctions imposed by Ukraine against certain Russian entities could further strain the Russian economy. Although we primarily target markets outside of Russia, stress on the Russian economy from Ukrainian sanctions could materially adversely affect our business. The conflicts among CEE countries and conflicts within CEE countries have, in some instances, also harmed their relationship with the United States and the EU and, at times, have negatively impacted their financial markets. See "—Sanctions imposed by the United States, the EU and other countries as a result of the ongoing crisis in Ukraine may have a material adverse effect on our business" above.

        Similarly, economic deterioration in CEE countries may strain political relationships with neighboring regions, and vice versa. For example, Romania joined the European Union in January 2007, and is subject to certain post-accession benchmarks mandated by the EU under the Cooperation and Verification Mechanism to help Romania address outstanding shortcomings in various social fields such as judicial reform and anti-corruption. On January 27, 2016, the European Commission presented a report recognizing Romania's "impressive" track record and assessing the fact that such trend is a "sign of developing sustainability" towards the goals of the Cooperation and Verification Mechanism and made recommendations for further steps in certain areas including judicial independence, judicial reform, integrity and anti-corruption initiatives. If Romania does not adequately progress towards these benchmarks, the European Commission is authorized to apply safeguard measures against Romania, including the suspension of Member States' obligation to recognize and enforce, under the conditions set forth in the Community laws, the decisions of Romanian courts. The application of any of the sanctions referenced above may have a negative effect on the Romanian economy and investor

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confidence in the Romanian economic environment, which could lead to material adverse consequences on our operations in Romania. Furthermore, any future allegations or evidence of corruption or money laundering in Romania may have an adverse effect on the Romanian economy, and in turn could adversely affect our operations in Romania.

The legal and tax systems in CEE countries can create an uncertain environment for business activity, which could materially adversely affect our business and operations in the CEE.

        The legal and tax framework to support a market economy remains new and in flux in Russia, Ukraine, Romania, Poland, and other CEE countries and, as a result, these systems can be characterized by:

•

inconsistencies between and among laws and governmental, ministerial and local regulations, orders, decisions, resolutions and other acts;



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extensive regulation of businesses in general and substantial protection afforded to domestic IT businesses;



•

gaps in the regulatory structure resulting from the delay in adoption or absence of implementing regulations;



•

selective or inconsistent enforcement of laws or regulations, sometimes in ways that have been perceived as being motivated by political or financial considerations;



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limited judicial and administrative guidance on interpreting legislation;



•

relatively limited experience of judges and courts in interpreting recent commercial legislation;



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a perceived lack of judicial and prosecutorial independence from political, social and commercial forces;



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inadequate court system resources;



•

a high degree of discretion on the part of the judiciary and governmental authorities; and



•

under-developed bankruptcy procedures that are subject to abuse.

        In relation to our business operations in the emerging markets in which we operate, legal ambiguities, inconsistencies and anomalies and, in certain cases, doubts around constitutional or legislative basis exist due to the relatively recent enactment of many laws, the lack of consensus about the scope, content and pace of political and economic reform and the rapid evolution of legal systems in ways that may not always coincide with market developments. Furthermore, legal and bureaucratic obstacles and corruption exist to varying degrees in each of the regions in which we operate, and these factors are likely to hinder our further development. These characteristics give rise to investment risks that do not exist in countries with more developed legal systems. We also face risks with respect to property rights in CEE countries. The expropriation or nationalization of any of our entities, their assets or portions thereof, in these countries, potentially without adequate compensation, could materially adversely affect our business, financial condition and results of operations.

        In addition, as is true of civil law systems generally, judicial precedents generally have no binding effect (with a few exceptions in Ukraine) on subsequent decisions. Not all legislation and court decisions in CEE countries are readily available to the public or organized in a manner that facilitates understanding. Enforcement of court orders can be very difficult in practice. All of these factors make judicial decisions difficult to predict and effective redress uncertain. Additionally, court claims and governmental prosecutions may be used in furtherance of what some perceive to be political or commercial aims.

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        Any of the factors mentioned above may result in ambiguities, inconsistencies and anomalies in the application and interpretation of laws and regulations in CEE countries, and may affect our ability to enforce our rights under our contracts or to defend ourselves against claims by others. These factors may also subject us to unpredictable requirements.

Loss of taxation benefits related to our employees' personal taxes that are enjoyed in CEE countries could have a negative impact on our operating results and profitability.

        The Russian government provides qualified Russian IT companies with substantial tax benefits through a reduced social contribution charge rate program. This program resulted in savings for us of $7.9 million in the fiscal year ended March, 31, 2016 and $9.5 million in the fiscal year ended March 31, 2017. However, the reduced tax rates for social contributions (14% in total) is a temporary measure. In 2016 application of reduced rates was prolonged until 2023, after which the Russian government may take the decision to gradually increase the tax rates. If the Russian government were to change its favorable treatment of Russian IT companies by modifying or repealing its current favorable tax measures, or if we become ineligible for such favorable treatment, it would significantly impact our financial condition and results of operations.

        In Poland the law provides for a deemed personal income tax cost deduction in the amount of 50% of employment income (but not greater than PLN 43,000 for each individual). Such benefit is available only for employees who, while performing their daily duties, are creating intellectual property with the condition that the result of the creation process qualifies as "work." This deduction has resulted in the personal income tax savings of $3.4 million in the fiscal year ended March, 31, 2016 and $4.1 million in the fiscal year ended March 31, 2017. If our employees would not be entitled for this benefit either through a change in the law or through a failure to comply with the rules, we may suffer additional payroll costs to compensate the lost benefit.

        In Romania employment income of IT specialists is exempt from personal income tax, if the employer and employee meet certain criteria, such as company's nature of activity, employees' position and education and other. This deduction has resulted in the personal income tax savings of $4.5 million in the fiscal year ended March, 31, 2016 and $5.4 million in the fiscal year ended March 31, 2017. If our employees would not be entitled for this benefit either through a change in the law or through a failure to comply with the rules, we may suffer additional payroll costs to compensate the lost benefit.

Selective or arbitrary government action resulting from uncertain application of commercial laws and regulations in CEE countries could materially adversely affect our business and operations.

        Many commercial laws and regulations in CEE countries are relatively new and have been subject to limited interpretation. As a result, their application can be unpredictable. Government authorities have a high degree of discretion in Russia, Ukraine and other CEE countries and have at times exercised their discretion in ways that may be perceived as selective or arbitrary, and sometimes in a manner that is seen as being influenced by political or commercial considerations. These governments also have the power, in certain circumstances, to interfere with the performance of, nullify or terminate contracts. Selective or arbitrary actions have included withdrawal of licenses, sudden and unexpected tax audits, criminal prosecutions and civil actions.

        Federal and local government entities have also used common defects in documentation as pretexts for court claims and other demands to invalidate and/or to void transactions. In this environment, our competitors could receive preferential treatment from the government, potentially giving them a competitive advantage. Government officials may apply contradictory or ambiguous laws or regulations in ways that could materially adversely affect our business and operations in CEE countries. We cannot offer assurance that regulators, judicial authorities or third parties in Russia, Ukraine and other CEE countries will not challenge our compliance (including that of our subsidiaries) with applicable laws,

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decrees and regulations. In addition to the foregoing, selective or arbitrary government actions have included withdrawal of licenses, sudden and unexpected tax audits, criminal prosecutions and civil actions, all of which could materially adversely affect our business, financial condition and results of operations.

        In addition, governments may revise existing contract rules and regulations or adopt new contract rules and regulations at any time and for any reason. Any of these changes could impair our ability to obtain new contracts or renew or enforce contracts under which we currently provide services. Any new contracting methods could be costly or administratively difficult for us to implement, which could materially adversely affect our business and operations in CEE countries.

Changes in the tax system in CEE countries or arbitrary or unforeseen application of existing rules could materially adversely affect our financial condition and results of operations.

        There have been significant changes to the taxation systems in CEE countries in recent years as the authorities have gradually replaced or updated legislation regulating the application of major taxes such as corporate income tax, VAT, corporate property tax with new legislation. In addition, recently, the tax authorities of several CEE countries (including Russia, Poland and Romania) have joined the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information and the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports. These agreements provide for automatic exchange of information regarding financial accounts and so-called "country-by-country reports" related to the transfer pricing documentation. The first exchange between Poland and Romania will take place in September 2017, and the first exchange between Russia and Switzerland will take place in September 2018. In June 2017, these countries also signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, implementing the BEPS measures into bilateral tax treaties, and effectively amending the existing bilateral tax treaties. Significant developments in transfer pricing rules, introduction of controlled foreign corporation legislation and other recent changes in tax laws bring additional uncertainty to the Group's tax affairs. Tax authorities in CEE countries have also been quite aggressive in their interpretation of certain tax laws and their many ambiguities, as well as in their enforcement and collection activities. Incorrect interpretation of contradictory laws and regulations, many of which are relatively new and have not been subject to extensive practical application, may lead to additional tax exposure. High-profile companies may be particularly vulnerable to judgmental application of unclear requirements. Our tax liability may become greater than the estimated amount we have expensed to date, particularly if the tax benefits we receive are revised or removed. The additional burdens and costs that the tax systems of the CEE countries impose on our business as well as the frequent substantial changes in legislation complicate our tax planning and related business decision-making process. Any additional tax liability, as well as any unforeseen changes in tax laws, could materially adversely affect our future results of operations, financial condition or cash flows.

Recent de-offshorization law and other related administrative and international measures in Russia may have a material adverse impact on our operations.

        In early 2015, Russia's De-offshorization Law came into force via amendments to the Russian Tax Code. This law aims at preventing the use of offshore companies and unincorporated foreign structures (e.g. funds, partnerships, trusts, others form of collective investment vehicle and/or trust management) for tax planning purposes.

        The De-offshorization Law regulates, among other things, the taxation of controlled foreign companies. Under the law, with certain exceptions, undistributed profits of foreign companies and unincorporated foreign structures (such as funds and partnerships), which are controlled by Russian tax residents (individuals or legal entities), are subject, in certain circumstances, to taxation in Russia. As

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required by the De-offshorization Law, Russian tax residents must disclose their participation in the foreign companiesin all cases when their stock ownership in a foreign entity exceeds 10% as well as file special notifications concerning the "controlled foreign companies" ("CFC") which broadly mean holding of (i) more than 25% of entity's stock or (ii) more than 10% of the entity's stock if a joint ownership of such entity by other Russian tax resident(s) exceeds 50%.

        The tax implication of being recognised as a CFC is that undistributed profits earned by such a CFC shall be included in the tax base of a Russian tax resident (i.e. the controlling person of the CFC) pro-rata to its participation and shall be subject to tax in Russia at a rate of 20% (if the controlling person is a company) or 13% (if the controlling person is an individual).

        Additionally, the De-offshorization Law introduced the concept of tax residency of organizations in Russia. For non-Russian legal entities, tax residency is defined by the place of "actual management." Based on this concept Russian tax authorities may seek to recognize certain foreign companies as Russian tax residents by claiming that their daily operational management and control are performed from Russia. Foreign entities recognised as Russian tax residents should be subject to tax in Russia at a rate of 20%.

        The De-offshorization Law also incorporates a "beneficial ownership" concept for non-resident legal entities that claim double tax treaty relief with respect to Russian-source income. This concept is broadly repeating similar concept adopted by OECD. The beneficial ownership concept and other anti-treaty shopping concepts give the Russian tax authorities a stronger basis for challenging issues relating to deductibility of Russian-source cross-border income payments and the grant of treaty relief to such income payments. Recent court practice indicates that Russian courts tend to support the Russian tax authorities in applying the "beneficial ownership" concept in a much wider manner than one would usually see in other jurisdictions.

        On July 1, 2015, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the "Convention"), initially developed by the OECD and the Council of Europe in 1988, entered into force in Russia. Membership in a mutual tax assistance club is expected to increase Russia's options for obtaining tax information from foreign tax authorities but it will also require mutual disclosures. As a result of the Convention's ratification, Russian tax authorities are authorized to obtain certain information relating to taxation matters from a number of countries, including certain offshore jurisdictions, and to participate in simultaneous tax examinations and assistance in recovery of tax claims. The list of countries that have signed the Convention includes the Netherlands, Luxembourg, UK, Switzerland, British Virgin Islands and Cyprus, as well as Romania, Poland and Ukraine. Pursuant to the procedure for information exchange stipulated in the Convention and in bilateral double tax treaties, the Russian tax authorities may obtain not only information on the fact whether a foreign contractor of a Russian taxpayer pays taxes, but also information on its staff headcount, office premises, recognition of certain business transactions on its books, providers of funds later transferred to Russia and its ownership structure.

        In addition to the Convention, Russia signed the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information and the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports. On March 6, 2017, the Russian Ministry of Finance published a draft bill adding new provisions to Part I of the Russian Tax Code for implementing the international automatic exchange of financial account information and new standards of the transfer pricing documentation for multinational corporations. It is expected that the bill will be enacted soon and that from 2018 the Russian tax authorities will be able to receive tax information from all participating countries which include, among others, a number of offshore jurisdictions (such as the British Virgin Islands).

        Furthermore, on June 7, 2017, Russia signed the Multilateral Convention to Implement Tax Treaty related Measures to Prevent Base Erosion and Profit Shifting, aimed at implementation of various

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anti-BEPS measures and anti-abuse rules into bilateral tax treaties, by effectively amending the existing treaties between Russia and the countries that signed (and that will later sign) the convention. Apart from this, over the recent years, the Russian Federation has been in the process of revising its bilateral tax treaties by including or expanding the provisions on exchange of information and anti-abuse of treaty.

        In addition, the Russian AML Law was amended with effect from December 2016, obliging Russian legal entities to collect information about their beneficial owners and disclose it upon request, and providing for liability for non-disclosure of beneficial owner.

        No assurance can be currently given as to possible impact of the De-offshorization Law and the other tax-related legislative and administrative and international initiatives on our business. Taking into account the named De-offshorization Law and other related legislative and international initiatives in Russia, we cannot exclude the possibility that some of these regulatory developments could have a material adverse effect on our business, financial condition and results of operations.

We may be exposed to additional taxation in Ukraine related to the activities of our non-Ukrainian companies or Ukrainian independent contractors

        The Ukrainian Tax Code contains the concept of a permanent establishment in Ukraine as a basis for taxing foreign legal entities, which carry out regular entrepreneurial activities in Ukraine beyond those of preparatory and auxiliary character. Ukraine's double tax treaties with other countries contain a similar concept. Double tax treaties provide for a narrower definition of permanent establishment than the Ukrainian Tax Code and overrule Ukrainian tax law, which is expressly recognized by the Tax Code. However, not all countries where the Luxoft companies operate have double tax treaties with Ukraine.

        The practical application in Ukraine of the concept of a permanent establishment under Ukrainian law and double tax treaties is not well developed. For this reason, foreign companies having even limited operations in Ukraine, which would not normally satisfy the conditions for creating a permanent establishment, may be at risk of being treated as having a permanent establishment in Ukraine and hence being liable to Ukrainian taxation. Accordingly, there is a risk that activities of our non-Ukrainian companies will be treated by the Ukrainian authorities as creating such a permanent establishment.

        If activities of any of our non-Ukrainian subsidiaries were treated as creating a permanent establishment in Ukraine, such company would be subject to Ukrainian taxation on the part of its income that is attributable to that permanent establishment in a manner broadly similar to the taxation of any Ukrainian legal entity (with 18% applicable corporate income tax rate). There is, therefore, a risk that the tax authorities might seek to assess Ukrainian tax on the entire income of such company if it were treated as having a permanent establishment in Ukraine. Having a permanent establishment in Ukraine may also have other adverse tax implications, including jeopardizing the right to benefit from the reduced withholding tax rate under an applicable double tax treaty, and affecting the VAT obligations in Ukraine. There is also a risk that penalties could be imposed by the tax authorities for failure to register the permanent establishment with the Ukrainian tax authorities and improper fulfilment of tax obligations. Any such taxes or penalties could have a material adverse effect on Luxoft's business, results of operations, financial condition and prospects.

        Luxoft provides significant portion of its services to multinational clients using Ukrainian IT specialists. Substantial part of Ukrainian IT specialists who provide services to Luxoft are independent contractors who are properly registered as private entrepreneurs with the tax authorities. They are third party suppliers operating as independent contractors, for whom we are not required to pay social duties and personal income tax applicable to employees. There is, nevertheless, a risk that Ukrainian tax authorities may take a different view. Since laws and regulations governing the status and classification

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of independent contractors are subject to change or interpretation by various authorities, it is possible that Ukrainian tax authorities could assert a position on the classification of our independent contractors contrary to ours and even combine their assessment of independent contractors status with permanent establishment status. As a result, they could claim we had to withhold personal income tax and to accrue single social contribution in relation to employees' remuneration. In addition, if a national authority or court enacts legislation or adopts regulations that change the manner in which employees and independent contractors are classified, or makes any adverse determination with respect to some or all of our independent contractors, we could incur significant costs arising from fines or judgments as a result of tax withholding. We may also decide to hire these independent contractors as our employees, and, we may, as a result, incur significant personnel expenses. All of these factors could in turn result in material adverse effects on our financial condition.

        In March 2017, Ukraine and the International Monetary Fund signed the Memorandum of Economic and Financial Policies. In accordance with the memorandum the tax reform will aim to increase the efficiency and equity of the tax system. Ukraine declared that it will refrain from any major tax cuts and will not introduce new tax exemptions and amnesty schemes. It was also announced that the requirements to qualify for the simplified tax regime which is typically used by individual entrepreneurs for tax purposes will be tightened starting from January 2018 to address existing gap in the tax system. Such developments may require us to decision to hire these independent contractors as our employees, and, we may, as a result, incur significant personnel expenses. All of these factors could in turn result in material adverse effects on our financial condition.

We may be exposed to liability for actions taken by our subsidiaries.

        In certain cases we may be jointly and severally liable for obligations of our subsidiaries. We may also incur secondary liability and, in certain cases, liability to creditors for obligations of our subsidiaries in certain instances involving bankruptcy or insolvency.

        In particular, under new Article 53 ¹ of the Russian Civil Code, a "controlling person" of a legal entity may be held directly liable for losses that the entity suffers because of his or her "fault", and any agreement that seeks to limit or waive such liability will not be valid. Generally, a controlling person is anyone who holds the power to determine the entity's actions, including the right to direct the actions of officers or executives. When a controlling person causes losses, officers and executives may all be held jointly and severally liable. (A parent entity may also be held jointly liable with a subsidiary for actions directed by the parent or made with its consent.) Liability may also apply to shareholders or controlling persons when the company is a foreign legal entity but conducts its business primarily in Russia.

        Further, an effective parent is secondarily liable for an effective subsidiary's debts if the effective subsidiary becomes insolvent or bankrupt as a result of the action or inaction of the effective parent. In these instances, the other shareholders of the effective subsidiary may claim compensation for the effective subsidiary's losses from the effective parent that caused the effective subsidiary to take action or fail to take action, knowing that such action or failure to take action would result in losses. We could be found to be the effective parent of the subsidiaries, in which case we could become liable for their debts, which could have a material adverse effect on our business, financial condition and results of operations or prospects.

Our CEE subsidiaries can be forced into liquidation on the basis of formal non-compliance with certain legal requirements.

        We operate in CEE countries primarily through locally organized subsidiaries. Certain provisions of the laws of CEE countries may allow a court to order liquidation of a locally organized legal entity on the basis of its formal noncompliance with certain requirements during formation, reorganization or during its operations.

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        Russian corporate law, Ukrainian corporate law and Romanian corporate law require liquidation of a company if its net assets fall below a certain threshold and, in the case of Romania, it does not take remedial steps, in which case any interested person may request in court the dissolution of the applicable Romanian company. For example, under Russian corporate law, in case of negative net assets calculated on the basis of Russian accounting standards as of the end of the year following the second or any subsequent year of a company's existence, the company is required to reduce its share capital or to liquidate the company. Many Russian companies have negative net assets due to a very low historical value of property, plant and equipment reflected on their Russian accounting standards balance sheets. However, their solvency, which is defined as their ability to pay debts as they come due, has not been otherwise adversely affected by such negative net assets. Also, the Russian Civil Code provides for liquidation of a legal entity by a court decision: if, among other things, a legal entity operates without proper authorization (license) or operations are illegal or the state registration was invalid, and these violations may not be cured.

        There have also been cases in CEE countries in which courts have used formal deficiencies in the establishment process of a legal entity or noncompliance with provisions of law as a basis for liquidation of a legal entity. Weaknesses in the legal systems of CEE countries create an uncertain legal environment, which makes the decisions of a court or a governmental authority difficult to predict. If involuntary liquidation of any of our subsidiaries were to occur, such liquidation could materially adversely affect our financial condition and results of operations.

Planned tax changes in Russia may negatively affect our financial results

        Russian government is considering measures aimed at reducing an overall level of social security contributions with simultaneous increase of indirect taxes to compensate a decrease of tax revenue to the budget. Under these initiatives the following tax rate amendments are proposed (with a contemplated effective date of January 1, 2019):

•

the social security contribution rate to be reduced from 30% to 22%;



•

the VAT rate to be increased from 18% to 22%.

        The foregoing measures are aimed at reducing the tax burden of certain industries involving significant human resources and thus having higher payroll expenses.

        Although these changes have not been implemented in any legislation and are only being dicussed at the government level as one of the tax initiatives considered for 2017-2025, we believe that the adoption of such measures may adversely impact our tax liabilities in Russia. The reason is that being an IT company Luxoft may be able to continue using its special beneficial preferential rate for social security contributions (14%), however, an increase of VAT by 4 percentage points may lead to a significant increase of our VAT liabilities in Russia.

On-going regulatory changes in Russia, including software purchase regulation, Civil Code reform and personal data regulation, among others may have a material adverse effect on our operations there.

        The full-scale reform of the Civil Code aimed at making the code more flexible, up-to-date and attractive to foreign investors. Russia's efforts to reform the Russian Civil Code has continued, and in June 2015, a set of amendments to the code's general contract law provisions came into effect. In addition, the revision of the legislation on legal entities that aimed to bring it in line with the recently amended Russian Civil Code are expected to continue in 2017.

        Several new concepts were introduced, such as insolvency of a citizen, alternative and optional obligations, a fine for failure to perform under a court ruling ("astrent"), the so-called option agreement, inter-creditor and framework agreements, new types of legal entities, protections for

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shareholders in nonpublic companies, right to expel a shareholder, shareholder agreements, joint signatures, mandatory audits, new minimum of charter capital, etc.

        Although recent and potential amendments could ultimately expand our possibilities for doing business and taking advantage of innovative legal structures, they may initially also pose difficulties to us in negotiating and entering into contracts insofar as the underlying legal concepts are not sufficiently developed in the Russian legal system. Additionally, we may face problems enforcing our rights where the application of these concepts by Russian authorities has not been tested or where they carry less weight among counterparties to contracts.

        In addition to the Civil Code reform, Russian legislation is being amended in various sectors. For example, new legislation was introduced regarding the regulation of software purchases, pursuant to which after January 1, 2016 Russian governmental bodies are required to renounce foreign software in favor of Russian software. It is still be possible to buy foreign software but only if necessary programs do not have domestic equivalents or the client can explain why the domestic software is not suitable.

        Changes in personal data protection regulations have also occurred. For example, all data operators collecting personal data of Russian citizens through electronic communications, including the Internet, must ensure that its storage takes place in databases located in the territory of Russia. The new law applies not only to local data controllers but also to data controllers established outside Russia to the extent they gather personal data relating to Russian nationals through websites aimed at the territory of Russia.

        Starting from 2016 employee leasing is prohibited in Russia and only specially accredited employment agencies or affiliated entities can provide staff and only in the exceptional cases. In practice, this means that companies that previously used agency work will have to completely revise the conditions of work with outstaffing companies providing staff to them, and outstaffing companies will have to obtain the appropriate accreditation.

        In the absence of sufficient official guidance and clear practical enforcement examples, we cannot predict how these new laws will be applied and enforced and their influence on our operations. Our failure to comply with the legal requirements may lead to the imposition of penalties and may adversely affect our business, financial condition and results of operations.

Risks related to our Class A ordinary shares

The price of our Class A ordinary shares may be volatile, and you may lose all or part of your investment.

        Following our initial public offering (the "IPO"), the price of our Class A ordinary shares has ranged from a high of $80.64 to a low of $18.55 through the date of this annual report. Some of the factors that have caused or may cause the market price of our Class A ordinary shares to fluctuate include:

•

fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;



•

changes in estimates of our future financial results or recommendations by securities analysts;



•

geopolitical instability in some locations where we operate, such as Ukraine and Russia;



•

failure to develop or deliver our services as expected;



•

changes in market valuations of similar companies;



•

successes by our competitors;



•

changes in our capital structure, such as future issuances of securities or the incurrence of debt;

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•

sales of large blocks of our Class A ordinary shares;



•

announcements by us or our competitors of significant services, contracts (or terminations), acquisitions, strategic alliances or actions/news concerning our major clients;



•

regulatory developments in Russia, Ukraine, Poland, Romania or elsewhere;



•

litigation involving our company, our general industry or both;



•

additions or departures of key personnel;



•

investors' general perception of us, including any perception of misuse of sensitive information;



•

changes in general economic, industry and market conditions;



•

our ability to forecast revenue and control our costs; and



•

changes in regulatory and other dynamics.

        In addition, if the market for shares in our industry, or the stock market in general, experience price and volume fluctuation or a loss of investor confidence, the trading price of our Class A ordinary shares could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our share price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

The dual class structure of our ordinary shares has the effect of concentrating voting control with certain shareholders who held our shares prior to our IPO, including IBS Group Holding Limited, one of our directors and our chief executive officer, and limiting the ability of other shareholders to influence corporate matters.

        Each of our Class B ordinary shares has ten votes per share and each of our Class A ordinary shares has one vote per share. Shareholders who hold Class B ordinary shares together beneficially own shares representing approximately 84.1% of the voting power of our outstanding shares as of June 30, 2017.

        IBS Group Holding Limited, our controlling shareholder ("IBS Group") beneficially owns through its two wholly-owned subsidiaries 97.2% of our outstanding Class B ordinary shares and controls 81.8% of our voting power as of June 30, 2017. As a result of this concentration of share ownership, IBS Group, through its two wholly-owned subsidiaries, has and will have sufficient voting power to effectively control all matters submitted to our shareholders for approval. These matters include:

•

the composition of our board of directors;



•

approving or rejecting a legal merger, demerger or other business combination; and



•

amending our Amended Memorandum and Articles of Association, which govern the rights attached to our ordinary shares.

        This concentrated control will limit the ability of holders of Class A ordinary shares to influence corporate matters for the foreseeable future, and, as a result, the market price of our Class A ordinary shares could be adversely affected. Specifically, this concentration of ownership of our ordinary shares could delay or prevent proxy contests, mergers, tender offers, open-market purchase programs or other purchases of our ordinary shares that might otherwise give Class A shareholders the opportunity to realize a premium over the then-prevailing market price of our ordinary shares. The interests of our controlling shareholder and holders of our Class B ordinary shares generally may not always coincide with the interests of our other shareholders.

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        Future transfers by holders of Class B ordinary shares will generally result in those shares converting to Class A ordinary shares, which will have the effect, over time, of increasing the relative voting power of those holders of Class B ordinary shares who retain their shares in the long term.

Future sales of our Class A ordinary shares by our principal shareholders, or the perception that such sales could occur, may cause the market price of our ordinary shares to decline.

        Future sales of Class A ordinary shares by our principal shareholders, including two wholly-owned subsidiaries of IBS Group, Dmitry Loshchinin, Morgan Stanley Investment Management, JPMorgan Chase & Co., Wasatch Advisors, Inc. and FMR LLC who beneficially owned in the aggregate 65.7% of our Class A ordinary shares as of June 30, 2017, may cause the market price of our Class A ordinary shares to decline. Further, shares issuable under our share incentive plans have been registered on a Form S-8 registration statement and may be freely sold in the public market upon issuance, except for shares held by affiliates who have certain restrictions on their ability to sell. Sales of substantial amounts of our ordinary shares in the public marketplace by us or our shareholders, including our principal shareholders who have the right to cause us to register their shares for resale with the SEC, or the perception that such sales could occur, could adversely affect the market price of our ordinary shares and may make it more difficult for investors to sell ordinary shares at a time and price that such investors deem appropriate.

If securities or industry analysts cease to publish research or publish inaccurate or unfavorable research about our business, our Class A ordinary share price and trading volume could decline.

        The trading market for our Class A ordinary shares is affected by any research and reports that securities or industry analysts publish about us and our business. If one or more of the analysts who currently cover us or our business publish inaccurate or unfavorable research about us or our business, and in particular, if they downgrade their evaluations of our Class A ordinary shares, the price of those shares would likely decline. If one or more of these analysts cease coverage of the Company, we could lose visibility in the market for our Class A ordinary shares, which in turn could cause the price of those shares to decline.

As a foreign private issuer, we are not subject to U.S. proxy rules or Regulation FD and are exempt from filing certain Exchange Act reports.

        As a foreign private issuer, we are exempt from certain rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. We are also exempt from Regulation FD, which prohibits issuers from making selective disclosures of material non-public information. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act.

        However, we would lose our foreign private issuer status if a majority of our directors or executive officers are U.S. citizens or residents and we fail to meet certain additional requirements. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We may also be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain

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corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.

As a foreign private issuer, whose shares are listed on the NYSE, we may in the future elect to follow certain home country corporate governance practices instead of certain NYSE requirements.

        We have elected to comply with the corporate governance rules of the NYSE applicable to controlled companies, with the exception of maintaining an internal audit function, even though, as a foreign private issuer, we are permitted to follow the corporate governance practices of our home country, the British Virgin Islands. Nevertheless, we may in the future follow home country corporate governance practices instead of some or all of the NYSE's requirements. A foreign private issuer that elects to follow a home country practice instead of NYSE requirements must disclose in its annual reports filed with the SEC any significant ways in which its corporate governance practices differ from those followed by domestic companies under NYSE listing standards.

        Certain corporate governance requirements are not reflected in the BVI Business Companies Act, 2004 (as amended from time to time; the "BVI Act") or other British Virgin Islands law, such as the requirement to obtain shareholder approval for certain dilutive issuances of shares, including the sale of our Class A ordinary shares in below-market private placement transactions if greater than 20% of our pre-transaction issued and outstanding shares are sold, or are subject to different approval requirements, such as in connection with the establishment or amendment of equity compensation plans. Moreover, the BVI Act does not require the implementation of a nominating committee or establishment of a formal director nomination process, the formation of an audit committee or if such a committee is formed that it have any specific composition, that a board of directors consists of a majority of independent directors or that independent directors be involved in the determination of executive compensation. See "ITEM 6. Directors, Senior Management and Employees—C. Board Practices—Corporate governance practices." Accordingly, our shareholders may not be afforded the same rights as provided under the NYSE's corporate governance rules.

We may become a passive foreign investment company, or PFIC, which could result in adverse U.S. tax consequences to U.S. holders.

        Based on our financial statements, relevant market data, and the projected composition of our comprehensive income and valuation of our assets, including goodwill, we do not believe we were a passive foreign investment company (a "PFIC") for the fiscal year ended March 31, 2017, and we do not expect to become one in the foreseeable future, although there can be no assurance in this regard. If we become a PFIC, holders of our Class A ordinary shares in the United States may become subject to increased tax liabilities under U.S. federal income tax laws and regulations and may become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our comprehensive income and assets from time to time. Specifically, for any taxable year we will be classified as a PFIC for U.S. federal income tax purposes if either (i) 75% or more of our gross income in that taxable year is passive income or (ii) the average percentage of our assets (which includes cash) by value in that taxable year which produce or are held for the production of passive income is at least 50%. The calculation of the value of our assets will be based, in part, on the quarterly market value of our Class A ordinary shares, which is subject to change. See "ITEM 10. Additional Information — E. Taxation—United States federal income taxation."

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If we are unable to satisfy the requirements of Section 404 of the Sarbanes Oxley Act of 2002, or if our internal control over financial reporting is not effective, we may be unable to report our financial information on a timely basis, our costs may increase, the reliability of our financial statements may be questioned and our share price may suffer.

        We are required to comply with the internal control evaluation and certification requirements of Section 404 ("Section 404") of the Sarbanes Oxley Act of 2002 (the "Sarbanes Oxley Act"). Section 404(a) of the Sarbanes Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting. We are also required to obtain an annual auditor attestation on the effectiveness of our internal control over financial reporting, as required under Section 404(b) of the Sarbanes Oxley Act.

        As a result of our management's assessment of the effectiveness of our internal control over financial reporting, our management may conclude that our internal control over financial reporting is not effective due to any identified material weakness or otherwise. If we fail to achieve and maintain effectiveness of our internal control over financial reporting, we may be unable to report our financial information on a timely basis, we may not be able to timely provide disclosure in accordance with the Sarbanes-Oxley Act and rules promulgated by the SEC thereunder relating to the effective ness of internal control over financial reporting, our independent auditors may not be able to attest to the effectiveness of our internal control over financial reporting, and we may suffer adverse regulatory consequences. Further, the evaluation by our management of the effectiveness of our internal control over financial reporting, and any remedial actions required, could result in us incurring unanticipated additional material costs. Compliance with the auditor attestation requirement of Section 404(b) of the Sarbanes-Oxley Act could further increase our expenses and divert significant management time.

        In addition, timely and accurate financial reporting requires us to retain a sufficient number of U.S. GAAP experienced accounting personnel. There is strong demand for U.S. GAAP experienced accounting personnel in the regions in which we operate, and as such, we may not be able to effectively compete for such personnel, which could make it more difficult for us to maintain the effectiveness of our internal control over financial reporting and obtain an annual auditor attestation concluding that our internal control over financial reporting is effective.

        Irrespective of compliance with Section 404, any material weaknesses detected in our internal control over financial reporting could have a material adverse effect on our stated results of operations and harm our reputation. As a result of such weaknesses, we may experience higher than anticipated operating expenses, as well as higher independent auditor fees. If we are unable to maintain the effectiveness of our internal control over financial reporting efficiently, it could adversely affect our operations, financial reporting and/or results of operations and could result in an adverse opinion on the effectiveness of our internal control over financial reporting from our independent auditors. Further, if our internal control over financial reporting is not effective, the reliability of our financial statements may be questioned and our share price may suffer.

We have taken advantage of NYSE's "controlled company" exemption from certain corporate governance requirements, to a limited extent, and therefore, our shareholders will not have the same protections afforded to shareholders of companies that are subject to such requirements.

        As a result of the number of shares beneficially owned by IBS Group through its two wholly-owned subsidiaries, we are eligible to take advantage of the "controlled company" exemption under NYSE's corporate governance rules. A "controlled company" is a company of which more than 50% of the voting power is held by an individual or group of shareholders. Pursuant to the "controlled company" exemption, a company that qualifies as a "controlled company" is not required to comply with the requirements of having a majority independent board of directors or of having a nominating and corporate governance committee and a compensation committee, each composed entirely of

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independent directors. See "ITEM 6. Directors, Senior Management and Employees—C. Board Practices—Board Committees." We currently rely on this exemption to the extent necessary to permit Anatoly Karachinskiy and Glen Granovsky to serve on our compensation committee, even though they do not satisfy NYSE's definition of an "independent director." We also do not have a nominating and corporate governance committee. If available to us, we may elect to use the controlled company exemption more broadly in the future. If we do so, our shareholders will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the NYSE.

We are not subject to the supervision of the British Virgin Islands Financial Services Commission and so our shareholders are not protected by any regulatory inspections in the British Virgin Islands.

        We are not an entity subject to any regulatory supervision in the British Virgin Islands by the Financial Services Commission. As a result, shareholders are not protected by any regulatory supervision or inspections by any regulatory agency in the British Virgin Islands and we are not required to observe any restrictions in respect of its conduct save as disclosed in this annual report or our Amended Memorandum and Articles of Association incorporated by reference herein.

As a public company we may become subject to further compliance obligations, which may strain our resources and divert management's attention.

        New or amended laws, regulations and standards in the United States, relating to corporate governance and public disclosure and other matters, may be implemented in the future, which may increase our legal and financial compliance costs, make some activities more time-consuming and divert management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. Being a publicly traded company in the United States and being subject to U.S. rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.

It may be difficult to enforce a U.S. or foreign judgment against us, our directors and officers named in this annual report outside the United States, or to assert U.S. securities laws claims outside of the United States.

        Most of our assets are located outside of the United States. A majority of our directors and officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located in Russia, Ukraine and other CEE countries. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them, judgments obtained in U.S. courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state therein. Additionally, it may be difficult to assert U.S. securities law claims in actions originally instituted outside of the United States. Foreign courts may refuse to hear a U.S. securities law claim because foreign courts may not be the most appropriate forums in which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the law of the jurisdiction in which the foreign court resides, and not U.S. law, is applicable to the claim. Further, if U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be governed by the law of the jurisdiction in which the foreign court resides.

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        Additionally, although arbitration awards are generally enforceable in Commonwealth of Independent State ("CIS") countries, judgments obtained in the United States or in other foreign courts, including those with respect to U.S. federal securities law claims, may not be enforceable in many CIS countries including Russia. A foreign court judgment may be recognized and enforced in Ukraine only on the basis of an international treaty to which Ukraine is a party providing for enforcement of such judgments, and then only in accordance with the terms of such treaty. Ukraine is a party to more than 20 mutual legal assistance treaties in civil matters (mostly with CIS and former Socialist countries) and, by way of legal succession, a party to nine mutual legal assistance treaties of the former USSR. However, while Ukraine does have such treaties in place with several EU countries, it is not a party to mutual legal assistance treaties in civil matters with the United States, Canada, the U.K., Germany and France. As a result, there are no international treaties that could be relied upon to enforce in Ukraine a civil judgment rendered in those countries. In the absence of an international treaty providing for enforcement of judgments, the courts of Ukraine may only recognize or enforce a foreign court judgment on the basis of the principle of reciprocity, which, unless proven otherwise, is deemed to exist in relations between Ukraine and the country where the judgment was rendered. At the same time, the principle of reciprocity is a relatively new and undeveloped concept in Ukrainian legislation, and there is no official interpretation or established court practice on the application of the principle of reciprocity. Therefore, it is possible that a U.S. or other foreign court judgment issued in a country, which has no mutual legal assistance treaty with Ukraine, could be refused recognition and/or enforcement in Ukraine, and the parties would have to re-litigate the dispute in Ukrainian courts. In addition, the lack of practice and varying approaches towards recognition and enforcement in Ukraine of foreign court judgments potentially make such recognition and enforcement problematic, if possible at all.

        In Romania, foreign civil and commercial judgments issued by courts of a non-EU member state may be recognized and enforced only if certain conditions are met, including reciprocity between Romania and the relevant foreign state in respect of the effects of the foreign court rulings. Under the existing Romanian legal framework, the existence of a bilateral instrument or agreement providing for the mutual recognition of the legal effects of civil judgments is seen as an important facilitator for the recognition and enforcement of such court judgments. No such agreement or instrument is currently in place between Romania and the United States. In Poland, rulings of foreign state courts issued in civil matters, even from non-EU member states, are recognized by virtue of law unless there exist obstacles specified in the Polish Code of Civil Procedure, such as if the ruling was issued in a case which falls under the exclusive jurisdiction of Polish courts. As a result of the difficulty associated with enforcing a judgment against us, our investors may not be able to collect any damages awarded against us by either a U.S. or foreign court.

We do not intend to pay regular dividends for the foreseeable future.

        Our investors should not rely on an investment in our Class A ordinary shares to provide dividend income. Although we have declared and paid dividends in prior years, we do not intend to declare or pay regular dividends to holders of our Class A ordinary shares for the foreseeable future, and any future credit facility may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our Class A ordinary shares. While we currently intend to retain all available funds and any future earnings to fund the development and growth of our business, we may, by a resolution of the board of directors, authorize a special one-time dividend or other form of distribution to our shareholders at such time and in such amount as the board of directors determines to be appropriate and in the best interest of the Company. Any payment of dividends in the future would be at the discretion of our board and will depend on, among other things, our earnings, availability of distributable profits, liquidity and financial position, business opportunities, tax considerations, planned acquisitions and other strategic plans of the Company, the restrictions in our debt agreements, and other considerations that our board deems relevant. As a result, if we do not pay dividends, capital

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appreciation, if any, of our Class A ordinary shares will be investors' sole source of gain for the foreseeable future. Accordingly, investors must rely on sales of their Class A ordinary shares after price appreciation, which may never occur, as the only way to realize any return on their investment. Investors seeking annual cash dividends should not purchase our Class A ordinary shares.

        In addition, our ability to pay dividends is dependent upon the earnings of our subsidiaries and their distribution of funds to us, primarily in the form of dividends. The ability of our subsidiaries to make distributions may be subject to statutory restrictions and retained earnings criteria, and is contingent upon the cash flow and earnings of those subsidiaries.

Provisions in our organizational documents may delay or prevent our acquisition by a third party.

        Our Amended Memorandum and Articles of Association contain a number of provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our board of directors. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our shareholders receiving a premium over the market price for their ordinary shares. These provisions include, among others:

•

a dual class ordinary share structure for seven years following the completion of our initial public offering;



•

our board of directors' ability to issue, from time to time, one or more classes of preferred shares and, with respect to each such class, to fix the terms thereof by resolution;



•

restrictions on the ability of shareholders to call meetings and bring proposals before meetings;



•

absence of the ability of shareholders to act by written consent;



•

the requirement of an affirmative vote of two-thirds or more of the shares entitled to vote to amend certain provisions of our Amended Memorandum and Articles of Association;



•

the requirement of an affirmative vote of two-thirds or more of the shares entitled to vote on special matters such as mergers or acquisitions; and



•

the ability of directors in their absolute discretion to decline to register or delay the registration of any transfer of shares without assigning any reason.

        These provisions of our Amended Memorandum and Articles of Association could discourage potential takeover attempts and reduce the price that investors might be willing to pay for our Class A ordinary shares in the future, which could reduce the market price of our Class A ordinary shares. For more information, see "ITEM 10 Additional Information—B. Memorandum and Articles of Association."

Risks Related to Our Incorporation in the British Virgin Islands

As the rights of shareholders under British Virgin Islands law differ from those under U.S. law, you may have fewer protections as a shareholder.

        Our corporate affairs are governed by our Amended Memorandum and Articles of Association, the BVI Act and the common law of the British Virgin Islands. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are to a large extent governed by the BVI Act and the common law of the British Virgin Islands. The common law of the British Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes or judicial precedents in some

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jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws than that of the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law. In addition, British Virgin Islands law does not make a distinction between public and private companies and some of the protections and safeguards (such as statutory pre-emption rights, save to the extent that they are expressly provided for in the Amended Memorandum and Articles of Association) that investors may expect to find in relation to a public company are not provided for under British Virgin Islands law.

        As a result of all of the above, holders of our Class A ordinary shares may have more difficulty in protecting their interests in the face of actions taken by our management, directors or major shareholders than they would as shareholders of a U.S. company. For a discussion of significant differences between the provisions of the BVI Act and the laws applicable to companies incorporated in the United States and their shareholders, see "ITEM 10. Additional Information—B. Memorandum and Articles of Association."

Shareholders in British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby limiting shareholders' ability to protect their interests.

        While statutory provisions do exist in British Virgin Islands law for derivative actions to be brought in certain circumstances, shareholders in British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to: (i) recognize or enforce against us judgments of courts in the United States based on certain civil liability provisions of U.S. securities law; or (ii) to impose liabilities against us, in original actions brought in the British Virgin Islands, based on certain civil liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will in certain circumstances recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

The laws of the British Virgin Islands provide little protection for minority shareholders, so minority shareholders will have little or no recourse if those shareholders are dissatisfied with the conduct of our affairs.

        Under the laws of the British Virgin Islands, there is little statutory protection of minority shareholders other than the provisions of the BVI Act dealing with shareholder remedies. The principal protection under statutory law is that shareholders may bring an action to enforce the BVI Act or the constituent documents of the corporation, the Amended Memorandum and Articles of Association. Shareholders are entitled to have the affairs of the company conducted in accordance with the BVI Act and the Amended Memorandum and Articles of Association.

        There are common-law rights for the protection of shareholders that may be invoked, largely dependent on English company law, since the common law of the British Virgin Islands is limited. Under the general rule pursuant to English company law known as the rule in Foss v. Harbottle , a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company's affairs by the majority or the board of directors. However, every shareholder is entitled to have the affairs of the company conducted properly according to British Virgin Islands law and the company's constituent documents.

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        As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company's Amended Memorandum and Articles of Association, then the courts may grant relief. Generally, the areas in which the courts will intervene are the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (2) acts that constitute a "fraud on the minority" where the wrongdoers control the company; (3) acts that infringe or are about to infringe on the personal rights of the shareholders, such as the right to vote; and (4) where the company has not complied with provisions requiring the approval of a majority of shareholders, which are more limited than the rights afforded to minority shareholders under the laws of many states in the United States.