Magnit Annual Report 2008

FY2008 Annual Report · Magnit

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TABLE OF CONTENTS

11.. KKEEYY OOPPEERRAATTIIOONNAALL AANNDD FFIINNAANNCCIIAALL HHIIGGHHLLIIGGHHTTSS ....................... 4

22.. MMIISSSSIIOONN ............................................................................................................ 5

33.. CCHHIIEEFF EEXXEECCUUTTIIVVEE OOFFFFIICCEERR’’SS SSTTAATTEEMMEENNTT ......................................... 6

44.. IINNFFOORRMMAATTIIOONN OONN TTHHEE PPEERRSSOONN IINN TTHHEE PPOOSSIITTIIOONN OOFF AA SSOOLLEE
EEXXEECCUUTTIIVVEE BBOODDYY............................................................................................... 7

55.. IINNFFOORRMMAATTIIOONN OONN TTHHEE BBOOAARRDD MMEEMMBBEERRSS ........................................ 9

66.. RREEPPOORRTT OOFF TTHHEE BBOOAARRDD OONN 22000088 OOPPEERRAATTIIOONNSS .............................. 17

77.. MMAAIINN 22000088 CCOORRPPOORRAATTEE EEVVEENNTTSS ........................................................... 23

88.. PPOOSSIITTIIOONN OOFF TTHHEE CCOONNPPAANNYY IINN TTHHEE SSEECCTTOORR................................. 25

RRUUSSSSIIAANN MMAARRKKEETT .............................................................................................. 25

IINNFFLLAATTIIOONN OONN TTHHEE FFOOOODD MMAARRKKEETT ............................................................ 27

SSTTRRUUCCTTUURREE OOFF RREETTAAIILL TTUURRNNOOVVEERR BBYY PPRROODDUUCCTT TTYYPPEESS.................... 28

SSTTRRUUCCTTUURREE OOFF RREETTAAIILL TTUURRNNOOVVEERR BBYY TTYYPPEESS OOFF TTRRAADDIINNGG
OORRGGAANNIIZZAATTIIOONNSS................................................................................................ 29

RREEGGIIOONNAALL SSTTRRUUCCTTUURREE OOFF RREETTAAIILL TTUURRNNOOVVEERR ..................................... 31

MMAAIINN CCOOMMPPEETTIITTOORRSS......................................................................................... 33

CCOOMMPPEETTEETTIIVVEE AADDVVAANNTTAAGGEESS OOFF ““MMAAGGNNIITT”” CCHHAAIINN .............................. 36

99.. PPRRIIOORRIITTYY DDIIRREECCTTIIOONNSS OOFF TTHHEE CCOOMMPPAANNYY’’SS OOPPEERRAATTIIOONN......... 38

1100.. PPRRIIOORRIITTYY DDIIRREECCTTIIOONNSS OOFF TTHHEE CCOOMMPPAANNYY’’SS DDEEVVEELLOOPPMMEENNTT 40

1111.. IINNFFOORRMMAATTIIOONN OONN TTHHEE PPAAIIDD DDIIVVIIDDEENNDDSS ..................................... 43

1122.. SSEECCUURRIITTIIEESS................................................................................................... 44

1133.. TTRRAANNSSAACCTTIIOONNSS,, CCOONNSSIIDDEERREEDD MMAAJJOORR TTRRAANNSSAACCTTIIOONNSS
AACCCCOORRDDIINNGG TTOO TTHHEE FFEEDDEERRAALL LLAAWW ““OONN
JJOOIINNTT--SSTTOOCCKK
CCOOMMPPAANNIIEESS””,, MMAADDEE WWIITTHHIINN TTHHEE YYEEAARR 22000088.. ..................................... 51

1144.. LLIISSTT 00FF 22000088 TTRRAANNSSAACCTTIIOONNSS DDEECCLLAARREEDD AASS RREELLAATTEEDD--PPAARRTTYY
IINN AACCCCOORRDDAANNCCEE WWIITTHH TTHHEE FFEEDDEERRAALL LLAAWW ““JJOOIINNTT--SSTTOOCCKK
CCOOMMPPAANNIIEESS”” ..................................................................................................... 53

1155.. DDEESSCCRRIIPPTTIIOONN OOFF TTHHEE MMAAIINN RRIISSKK FFAACCTTOORRSS RREELLAATTEEDD TTOO TTHHEE
OOPPEERRAATTIIOONN OOFF TTHHEE CCOOMMPPAANNYY................................................................. 64

INDUSTRY RISKS ................................................................................................. 65

COUNTRY AND REGIONAL RISKS ................................................................. 72

FINANCIAL RISKS................................................................................................ 79

LLEEGGAALL RRIISSKKSS......................................................................................................... 83

RRIISSKKSS RREELLAATTEEDD TTOO TTHHEE CCOOMMPPAANNYY’’SS OOPPEERRAATTIIOONN ................................ 86

1166.. IINNFFOORRMMAATTIIOONN OONN TTHHEE CCOOMMPPLLIIAANNCCEE WWIITTHH TTHHEE FFFFMMSS CCOODDEE
OOFF CCOORRPPOORRAATTEE CCOONNDDUUCCTT OOFF RRUUSSSSIIAANN FFEEDDEERRAATTIIOONN .................. 92

ANNEX TO 2008 ANNUAL REPORT OF OJSC “MAGNIT”.................. 110

ANNEX № 1. Open Joint-Stock Company “Magnit” and its subsidiaries.
Independent Auditors’ Report. Year ended December 31, 2008. .................... 110

ANNEX № 2. RAS Accounting report of CJSC “Tander” for the year 2008 110

ANNEX № 3. RAS Accounting report of OJSC “Magnit” for the year 2008
................................................................................................................................. 110

11.. KKEEYY OOPPEERRAATTIIOONNAALL AANNDD FFIINNAANNCCIIAALL HHIIGGHHLLIIGGHHTTSS 11

Number of opened stores, NET

Total number of stores

Selling space, sq. m.

Number of customers

Net sales, million RUR

Net sales, million USD

Gross profit, million RUR

Gross profit, million USD

Gross margin, %

EBITDAR2, million RUR

EBITDAR2, million USD

EBITDAR2 margin, %

EBITDA, million RUR

EBITDA, million USD

EBITDA margin, %

EBIT, million RUR

EBIT, million USD

EBIT margin, %

Net profit, million RUR

Net profit, million USD

Net profit margin, %

Capitalization as of 31.12.2008, million RUR

Capitalization as of 31.12.2008, million USD

1 According to audited financial statements prepared in compliance with IFRS
2 Management accounts’ data

385

2 582

823,507

860.34

132,921.22

5,347.81

28,820.57

1,159.54

21.7%

13,393.34

538.85

10.1 %

9,983.50

401.67

7.5%

7,776.45

312.87

5.9%

4,670.68

187.92

3.5%

96,461.94

3,283.21

22.. MMIISSSSIIOONN

“WWee wwoorrkk hhaarrdd ttoo iinnccrreeaassee tthhee pprroossppeerriittyy ooff oouurr ccuussttoommeerrss bbyy

mmiinniimmiizziinngg tthheeiirr eexxppeennddiittuurree oonn qquuaalliittyy ccoonnssuummeerr ggooooddss tthhrroouugghh::

-- EEffffiicciieenntt uussee ooff tthhee CCoommppaannyy''ss rreessoouurrcceess;;

-- OOnn--ggooiinngg iimmpprroovveemmeennttss iinn tteecchhnnoollooggyy;;

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33.. CCHHIIEEFF EEXXEECCUUTTIIVVEE OOFFFFIICCEERR’’SS SSTTAATTEEMMEENNTT

Last year was of high importance for our Company.
On the background of global financial crisis we managed not only to avoid any

noticeable losses in our operational business, but to set more aggressive expansion plans.

Financial and operational results of the past year proved the right development strategy,

and we hope they assured our shareholders of the fact that the Company realizes its plans.

Organic development
“Magnit” retail chain is Russia’s leading retailer in terms of number of stores and

customers according to 2008 results.

In the medium-term outlook we are going to keep fast expansion rates: we plan to open

not less than 430 “convenience” stores this year and up to 300 annually in the next 2-3 years.

Within the crisis environment we plan to open more “convenience” stores in the leased
premises, which allows to reduce the payback period of investments. At the same time we
intend to make significant capital investments into “hypermarket” format development and
hope to open 6-9 new objects during 2009.

Business efficiency improvement
Reduction of logistics costs, improvement of buying conditions and steady work over
the in-house business efficiency improvement are strategic directions of the Company’s
profitability growth.

Construction and launch of the new distribution center as well as the increase of the fleet
to 1,350 owned vehicles will enable us in the nearest term to achieve the target share of products
delivered to the stores and processed via the in-house logistics system.

By opening new stores and strengthening our position on the operational territory we
plan to significantly improve purchasing conditions both through the local and federal
suppliers.

Retail is a complex and adaptable business consisting of a numerous processes which
simple and insignificant at a first glance. We see great potential for further efficiency
improvement.

44.. IINNFFOORRMMAATTIIOONN OONN TTHHEE PPEERRSSOONN IINN TTHHEE PPOOSSIITTIIOONN OOFF AA SSOOLLEE
EEXXEECCUUTTIIVVEE BBOODDYY

As of April 13, 2006 Sergey Galitskiy is elected a Chief Executive Officer by the

resolution of the Board of directors of April 12, 2006.

Biographical information of the person in the position of a sole executive body:

Name: Sergey Galitskiy
Date of birth: 14.08.1967
Education: Mr. Galitskiy graduated from Kuban State University with a degree in

Economics in 1992

Positions occupied in the Company and other companies in the last five years including

plural offices:

1) Period: 25.04.1996 – 27.06.2006.
Organization: CJSC “Tander”.
Position: CEO;

2) Period: 28.06.2002 – 18.04.2006.
Organization: CJSC “Tander”.
Position: member of the Board;

3) Period: 01.04.2004 – present day.
Organization: OJSC “Magnit”.
Position: member of the Board;

4) Period: 13.04.2006 – present day.
Organization: OJSC “Magnit”.
Position: CEO

Stockholding of CEO in the Company’s share capital: 43.9218%.
Ordinary shares, owned by CEO: 43.9218%;

Information on transactions of acquisition/alienation of the Company’s shares, made by

the person in the position of a sole executive body during the reporting period:

№

Date of
operation

06.05.2008

16.05.2008

Operation

Number of shares

Type of shares

Acquisition of
securities
Alienation of
securities (conversion
into GDR)
Acquisition of
securities

4,350,474

4,337,554

21,687,770

Ordinary nominal
uncertified shares

Global depositary
receipts issued for

27.05.2008

28.05.2008

19.08.2008

Alienation of
securities

21,687,770

Alienation of
securities
Alienation of
securities (purchase
and sale)
Alienation of
securities (purchase
and sale)

12,920

41,000

116,000

nominal shares of
OJSC “Magnit”
Global depositary
receipts issued for
nominal shares of
OJSC “Magnit”
Ordinary nominal
uncertified shares

Ordinary nominal
uncertified shares

CCEEOO RREEMMUUNNIIRRAATTIIOONN CCRRIITTEERRIIAA AANNDD AAMMOOUUNNTT OOFF CCEEOO RREEMMUUNNEERRAATTIIOONN
((RREEFFUUNNDD OOFF CCHHAARRGGEESS)) PPAAIIDD AACCCCOORRDDIINNGG TTOO TTHHEE RREESSUULLTTSS AACCHHIIEEVVEEDD IINN TTHHEE
FFIINNAANNCCIIAALL YYEEAARR

Under Clause 7 of Regulations “On the chief executive officer of OJSC “Magnit”, ratified
by the resolution of the annual general shareholders’ meeting of 28.01.2008 (minutes of meeting
of 04.02.2008 and previous editions), the wage rate and other payments set upon CEO are
determined by the labor contract agreed with CEO.

Remuneration of CEO of OJSC “Magnit” in 2008 amounted to 14,476,000.00 rubles.

55.. IINNFFOORRMMAATTIIOONN OONN TTHHEE BBOOAARRDD MMEEMMBBEERRSS

Dmitriy Chenikov – the Chairman of the Board.
Date of birth: 1965.
Education: a graduate of Krasnodar Polytechnic Institute,
engineer/constructor/technologist, candidate of technical sciences.

Positions occupied in the Company and other companies in the last five years including

plural offices:

1) Period: 22.01.2001 – 31.08.2007.
Organization: CJSC “Tander”.
Position: Director, Discounter format development;

2) Period: 12.04.2006 – 25.06.2008.
Organization: OJSC “Magnit”.
Position: member of the Board;

3) Period: 01.09.2007 – 08.01.2008.
Organization: CJSC “Tander”.
Position: Regional Director;

4) Period: 09.01.2008 – present day.
Organization: CJSC “Tander”.
Position: Director, Nonfood products acquisition;

5) Period: 18.09.2007 – 04.02.2009.
Organization: LLC “Tandem”.
Position: member of the Board;

6) Period: 25.06.2008 – present day.
Organization: OJSC “Magnit”.
Position: Chairman of the Board;

7) Period: 10.12.2008 – 01.04.2009.
Organization: LLC “Magnit – Nizhniy Novgorod”.
Position: member of the Board.

Shareholding of the person in the issuer’s charter capital: 0.2643 %.
Ordinary shares owned by the person: 0.2643 %.
Information on transactions of acquisition/alienation of the Company’s shares made by

the person occupying the position of the sole executive body (CEO):

№

Date of
operation

15.02.2008

Operation

Number of shares

Type of shares

Alienation of
securities (purchase
and sale)

30,000

Ordinary nominal
uncertified shares

Vladimir Gordeychuk – Deputy Chairman of the Board.
Date of birth: 15.08.1961.
Education: a graduate of Novorossisk Engineering Marine School, 1998, navigator.
Positions occupied in the Company and other companies in the last five years including

plural offices:

1) Period: 01.04.1999 – 27.06.2006.
Organization: CJSC “Tander”.
Position: Director;

2) Period: 28.06.2002 – 18.04.2006.
Organization: CJSC “Tander”.
Position: member of the Board;

3) Period: 10.11.2003 – 12.04.2006.
Organization: OJSC “Magnit”.
Position: CEO;

4) Period: 01.04.2004 – present day.
Organization: OJSC “Magnit”.
Position: member of the Board;

5) Period: 30.01.2006 – present day.
Organization: LLC “Magnit – Nizhniy Novgorod”.
Position: CEO;

6) Period: 13.04.2006 – present day.
Organization: OJSC “Magnit”.
Position: second Deputy CEO;

7) Period: 28.06.2006 – present day.
Organization: CJSC “Tander”.
Position: CEO;

8) Period: 20.12.2006 – 04.02.2009.
Organization: LLC “Tandem”.
Position: Chairman of the Board;

9) Period: 10.12.2008 – 01.04.2009.
Organization: LLC “Magnit – Nizhniy Novgorod”.
Position: member of the Board.

Shareholding of the person in the Company’s charter capital: 3.6027 %.
Ordinary shares owned by the person: 3.6027 %.

Information on transactions of acquisition/alienation of the Company’s shares made by

the Board member during the reporting period:

During the reporting period no transactions of acquisition/alienation of the Company’s

shares were made.

Andrey Arutyunyan
Date of birth: 1969.
Period: a graduate of Kuban State University with a degree in Economics, 1991.
Positions occupied in the issuer and other companies in the last five years including

plural offices:

1) Period: 01.03.2002 – 30.09.2004.
Organization: LLC “Health Centre “Biryuza”.
Position: Deputy Director for commercial issues;

2) Period: 28.06.2002 – 18.04.2006.
Organization: CJSC “Tander”.
Position: member of the Board;

3) Period: 01.12.2003 – present day.
Organization: OJSC “Magnit”.
Position: first Deputy CEO;

4) Period: 01.04.2004 – 25.06.2008.
Organization: OJSC “Magnit”.
Position: Chairman of the Board;

5) Period: 01.10.2004 – present day.
Organization: CJSC “Tander”.
Position: Director of Development department;

6) Period: 30.01.2006 – 01.04.2009.
Organization: LLC “Magnit – Nizhniy Novgorod”.
Position: Chairman of the Board;

7) Period: 25.06.2008 – present day.
Organization: OJSC “Magnit”.
Position: member of the Board;

8) Period: 12.12.2008 – 04.02.2009.
Organization: LLC “Tandem”.
Position: member of the Board.

Shareholding of the person in the issuer’s charter capital: 0.2243 %.
Ordinary shares owned by the person: 0.2243 %.

Information on transactions of acquisition/alienation of the Company’s shares made by

the Board member during the reporting period:

During the reporting period no transactions of acquisition/alienation of the Company’s

shares were made.

Pierre Bruno Charles Bouchut
Date of birth: 1955.

Education: a graduate of the High School of Commerce (НЕС), 1977, candidate of

economic sciences of the university of Paris (Dauphine).

Positions occupied in the issuer and other companies in the last five years including

plural offices:

1) Period: 1992 – 2005.
Organization: Smart & Final (USA).
Position: member of the Board;

2) Period: 1998 – 2003.
Organization: Casino.
Position: Managing director, member of the Board;

3) Period: 1998 – 2005.
Organization: Big C (Thailand).
Position: member of the Board;

4) Period: 2000 – 2005.
Organization: CBD (Brazil).
Position: member of the Board;

5) Period: 2000 – 2005.
Organization: Exito (Columbia).
Position: member of the Board;

6) Period: 2002 – 2005.
Organization: Laurus (the Netherlands).
Position: member of the Board;

7) Period: 2003 — 2005.
Organization: Casino.
Position: Managing director, member of the Board;

8) Period: 2003 – 2005.
Organization: Casino Guichard Perrachon (France).
Position: member of the Board;

9) Period: 2005 – present day.
Organization: Schneider Electric.
Position: Chief financial officer for Development, Finance Consolidation, Treasury, Tax
control, Auditing, Legal Support, Financial Communications and Reorganization of Business
Units of the Company;

10) Period: 2005 – 2006.
Organization: Havas (France).
Position: member of the Board;

11) Period: 2007 – present day.
Organization: DPAM (France).

Position: member of the Board;

12) Period: 25.06.2008 – present day.
Organization: OJSC “Magnit”.
Position: member of the Board.

Shareholding of the person in the issuer’s charter capital: no share.
Ordinary shares owned by the person: no share.

Information on transactions of acquisition/alienation of the Company’s shares made by

the Board member during the reporting period:

During the reporting period no transactions of acquisition/alienation of the Company’s

shares were made.

Westman Johan Mattias
Date of birth: 05.02.1966.
Education: Stockholm School of Economics, 1992, master’s degree in Business

Administration; Linguistic School of Sweden Armed Forces, 1997.

Positions occupied in the Company and other companies in the last five years including

plural offices:

1) Period: 1996 - present day.
Organization: Prosperity Capital Management.
Position: CEO;

2) Period: 2004 - present day.
Organization: Prosperity Capital Management (UK) Ltd.
Position: CEO;

3) Period: 23.05.2002 – 15.05.2003.
Organization: OJSC “Lenenergo”.
Position: member of the Board;

4) Period: 12.04.2006 – present day.
Organization: OJSC “Magnit”.
Position: member of the Board.

Shareholding of the person in the Company’s charter capital: no share.
Ordinary shares owned by the person: no share.

Information on transactions of acquisition/alienation of the Company’s shares made by

the Board member during the reporting period:

During the reporting period no transactions of acquisition/alienation of the Company’s

shares were made.

Sergey Galitskiy
Date of birth: 14.08.1967 .
Education: a graduate of Kuban State University with a degree in Economics in 1992.

Positions occupied in the Company and other companies in the last five years including

plural offices:

1) Period: 25.04.1996 – 27.06.2006.
Organization: CJSC “Tander”.
Position: CEO;

2) Period: 28.06.2002 – 18.04.2006.
Organization: CJSC “Tander”.
Position: member of the Board;

3) Period: 01.04.2004 – present day.
Organization: OJSC “Magnit”.
Position: member of the Board;

4) Period: 13.04.2006 – present day.
Organization: OJSC “Magnit”.
Position: CEO.

Shareholding of the person in the Company’s charter capital: 43.9218%.
Ordinary shares owned by the person: 43.9218%;

Information on transactions of acquisition/alienation of the Company’s shares made by

the person occupying the position of the sole executive body:

Operation

Number of shares

Type of shares

№

Date of
operation

06.05.2008

16.05.2008

Acquisition of
securities
Alienation of
securities (conversion
into GDR)

4,350,474

4,337,554

16.05.2008

Acquisition of
securities

21,687,770

27.05.2008

28.05.2008

19.08.2008

Alienation of
securities

21,687,770

Alienation of
securities
Alienation of
securities
(purchase and sale)
Alienation of
securities
(purchase and sale)

12,920

41,000

116,000

Ordinary nominal
uncertified shares

Global depositary
receipts issued for
nominal shares of
OJSC “Magnit”
Global depositary
receipts issued for
nominal shares of
OJSC “Magnit”
Ordinary nominal
uncertified shares

Ordinary nominal
uncertified shares

Khachatur Pombukhchan
Date of birth: 1974.
Education: a graduate of Kuban State University, applied mathematics, 1995; Russian

Corresponding finance and economics institute with a degree in Economics, 1998

Positions occupied in the issuer and other companies in the last five years including

plural offices

1) Period: 01.10.2002 – 19.07.2004.
Organization: OJSC “UTK-Kubanelectrosvyaz“.
Position: Director, marketing department;

2) Period: 26.07.2004 – 01.03.2006.
Organization: OJSC “Mobile TeleSystems“.
Position: Director, Office sales and service department;

3) Period: 05.12.2005 – 01.03.2006.
Organization: CJSC “Tander”.
Position: Marketing director (part-time);

4) Period: 02.03.2006 – 03.05.2008.
Organization: CJSC “Tander”.
Position: Marketing director;

5) Period: 29.11.2006 – present day.
Organization: CJSC “Digital Gallery”.
Position: member of the Board;

6) Period: 04.05.2008 – 30.06.2008.
Organization: CJSC “Tander”.
Position: first Deputy CFO;

7) Period: 19.06.2008 – present day.
Organization: LLC “Magnit Finance”.
Position: CEO;

8) Period: 25.06.2008 – present day.
Organization: OJSC “Magnit”.
Position: member of the Board;

9) Period: 30.06.2008 – present day.
Organization: CJSC “Tander”.
Position: CFO;

10) Period: 01.07.2008 – present day.
Organization: OJSC “Magnit”.
Position: CFO;

11) Period: 10.12.2008 – 01.04.2009.
Organization: LLC “Magnit – Nizhniy Novgorod”.

Position: member of the Board;

12) Period: 12.12.2008 – 04.02.2009.
Organization: LLC “Tandem”.
Position: member of the Board.

Shareholding of the person in the issuer’s charter capital: no share.
Ordinary shares owned by the person: no share.
Information on transactions of acquisition/alienation of the Company’s shares made by

the Board member during the reporting period:

During the reporting period no transactions of acquisition/alienation of the Company’s

shares were made.

RREEMMUUNNIIRRAATTIIOONN CCRRIITTEERRIIAA AANNDD AAMMOOUUNNTT OOFF RREEMMUUNNEERRAATTIIOONN ((RREEFFUUNNDD OOFF
CCHHAARRGGEESS)) OOFF EEVVEERRYY MMEEMMBBEERR OOFF CCOOMMPPAANNYY’’SS BBOOAARRDD OOFF DDIIRREECCTTOORRSS PPAAIIDD
AACCCCOORRDDIINNGG TTOO TTHHEE RREESSUULLTTSS AACCHHIIEEVVEEDD IINN TTHHEE RREEPPOORRTTIINNGG YYEEAARR

In 2008 upon the resolution of shareholders’ meeting of 25.06.2008 (minutes of meeting
of 09.07.2008) the Board members were paid remuneration for participation in the board
operation in 2007 in the amount of 9,497,837 (nine million four hundred ninety seven thousand
eight hundred thirty seven) rubles 60 kopecks.

According to Regulations “On OJSC “Magnit” Board of Directors”, ratified by the
resolution of the annual General Shareholders’ meeting of 08.04.2006 (minutes of meeting of
12.04.2006), remuneration of the Board members is paid upon the resolution of general
shareholders’ meeting in the form of remuneration for participation in the board operation and
remuneration for the achieved results.

Remuneration for participation in the board operation amounts to 120,000 (one hundred

twenty thousand) rubles per month.

Remuneration to the independent director for participation in the board operation

amounts to 30,000 (thirty thousand) USD per year, additionally

- 2,000 (two thousand) US dollars for participation by personal presence in each meeting

in the form of joint presence of the board,

- 500 (hundred) US dollars for participation by directing the written opinion for each
meeting in the form of joint presence of the board, or for participation in each meeting in
absentee form.

Year-end bonus, based on the operation results, is also paid to the members of the board
in addition to the remuneration. Fixed amount of year-end bonus is paid to the members of the
board after approval of appropriate annual financial report by the general shareholders’
meeting of the Company.

66.. RREEPPOORRTT OOFF TTHHEE BBOOAARRDD OONN 22000088 OOPPEERRAATTIIOONNSS

The structure of the Board of directors (elected at the annual general shareholders’

meeting of 25.06.2008, minutes of 09.07.2008):

№

Name of the Board member

Date of birth

Dmitriy Chenikov

Andrey Arutyunyan

Pierre Bruno Charles Bouchut

Westman Johan Mattias

Sergey Galitskiy

Vladimir Gordeychuk

Khachatur Pombukhchan

08.09.1965

12.01.1969

22.08.1955

05.02.1966

14.08.1967

15.08.1961

16.03.1974

Westman Johan Mattias (chief executive officer of «Prosperity Capital Management (UK)
Ltd.») and Pierre Bruno Charles Bouchut (Chief financial officer for Development, Finance
Consolidation, Treasury, Tax control, Auditing, Legal Support, Financial Communications and
Reorganization of business units of the Schneider Electric company) are the independent
members of the Board of directors.

By the unanimous resolution at the first meeting of 18.09.2008 Dmitriy Chenikov was
elected a Chairman of the Board of directors, Vladimir Gordeychuk was appointed a Deputy
Chairman and Khachatur Pombukhchan was elected a Secretary of the Board.

The Board of directors of the Company operated in accordance with Law regulations

“Of joint-stock companies” and the Charter of the Company.

According to the provisions of the corporate documents, during the reporting period the
following committees of the Board operated to provide its efficiency and prepare the most
important issues attributed to the competence of the Board of directors:

HR and Remuneration Committee of the Board of directors:

Name of the Board member

Position occupied in the committee

Pierre Bruno Charles Bouchut

chairman of the committee

Vladimir Gordeychuk

Dmitriy Chenikov

member of the committee

№

Audit Committee of the Board of directors:

№

Name of the Board of directors member

Position occupied in the committee

1 Westman Johan Mattias

chairman of the committee

Khachatur Pombukhchan

member of the committee

Andrey Arutyunyan

member of the committee

During 2008 the Board of directors held 10 meetings and examined 62 issues. All the

meetings of the Board of directors were held in the form of joint presence.

Main issues considered by the Board of directors in 2008:

Date of meeting

Considered issues

04.02.2008

12.02.2008

25.03.2008

Suggestions on the issues to be placed on the agenda of the annual
shareholders’ meeting were viewed
The nominees for election into the Board of directors were considered and
put in the list at the annual shareholders’ meeting
The nominees for the auditor position were considered and put in the list at
the annual shareholders’ meeting
The decision to increase charter capital of OJSC “Magnit” by issuing
additional shares was adopted
The decision on additional issue of securities and the prospectus to be
represented in FFMS of Russia were ratified
The interested party transaction (number of interested party transactions)
related to providing guarantee for CJSC “Tander” was approved

25.03.2008

The report on purchase of shares of OJSC “Magnit” was approved

16.04.2008

08.05.2008

The offering price of ordinary nominal uncertified shares of OJSC “Magnit”
of additional issue was determined
The report of the Chief Executive Officer on the results of exercise of pre-
emption right to acquire ordinary nominal uncertified shares of OJSC
“Magnit” of additional issue was approved
The annual report of OJSC “Magnit” 2007 was preliminary approved,
submitted for approval by the General Shareholders Meeting
Recommendations to the General Shareholders’ Meeting regarding profit
allocation, including allocation according to the amount of dividend of the
OJSC “Magnit” shares and payment procedure, and losses of the Company
based on the results of financial year were approved

08.05.2008

The decision to hold annual general shareholders’ meeting was adopted

08.05.2008

23.06.2008

18.09.2008

The supplementary agreement to the contract with the person in the
position of sole executive body of the Company is ratified
Interested party transaction on alienation of 0,1 % of share in the charter
capital of LLC “Magnit - Ninzhniy Novgorod” in favor of CJSC “Tander”
was approved
The major transaction on acquisition of 49% of share in charter capital of
LLC “Magnit - Ninzhniy Novgorod” was approved
The Chairman of the Board of directors, the Deputy Chairman of the Board
of directors and the Secretary of the Board of OJSC “Magnit” were elected
The members of the Audit Committee of the Board of directors of OJSC
“Magnit” and its Chairman were elected
The members of the HR and Remuneration Committee of the Board of
directors of OJSC “Magnit” and its Chairman were elected

18.109.2008

18.09.2008

23.11.2008

The decision to hold the Extraordinary General Shareholders’ Meeting was
adopted
The recommended transaction price (guarantee for CJSC “Tander” under
loan agreements) or the Extraordinary General Shareholders’ Meeting of
OJSC “Magnit” to make a resolution on approval of the major interested
party transaction was determined
The interested party transactions related to providing guarantee for CJSC
“Tander” including guarantee under loan and lease agreements
The decision to hold the Extraordinary General Shareholders’ Meeting was
adopted
The recommended transaction price (guarantee for CJSC “Tander” under
loan agreements) for the Extraordinary General Shareholders’ Meeting of
OJSC “Magnit” to make a resolution on approval of the major interested
party transaction was determined
The interested party transactions related to providing guarantee for CJSC
“Tander” under loan agreements were approved
The recommended transaction price (guarantee for CJSC “Tander” under
loan agreements) for the Extraordinary General Shareholders’ Meeting of
OJSC “Magnit” to make a resolution on approval of the major interested
party transaction was determined

Besides, the questions in the reporting period concerning the definition of the OJSC
“Magnit” representative position under the realization of votes on the Company’s stocks and
shares owned in the other organizations (economic companies) were examined by the Board of
directors of OJSC “Magnit” in accordance with the Clause 14.2 of the Charter. Thus, the
meetings with the examined issues concerning the definition of the OJSC “Magnit”
representative position under the realization of votes on the Company’s owned shares of CJSC
“Tander”, equity stakes in LLC “Magnit Finance” and LLC “Magnit - Ninzhniy Novgorod”,
were held in January, March, May, June, September and November of the year 2008.

The results achieved by 2008 operations of the Company management are as follows:

1. Net sales of the Company increased from 3,676.56 million USD (94,035.35 million
rubles) to 5,347.81 million USD (132,921.22 million rubles) by 45.46% in dollar terms (41.35% in
ruble terms).

2. Number of the Company’s stores increased from 2,194 “convenience stores” and 3
hypermarkets in 2007 to 2,568 and 14 correspondingly in 2008, total selling space of the stores
increased from 651.57 thousand sq. m. to 823.51 thousand sq. m.

3 000

2 500

2 000

1 500

1 000

500

1500

1014

610

368

1893

2 197

2 194

2 582

2 568

2002

2003

2004

2005

2006

2007

2008

Convenience Stores

Hypermarkets

3. Number of customers increased from 765.16 million in 2007 to 860.34 million in 2008.

4. Share of sales of private label products in 2008 remained at the level of 2007 - 12% -
despite the increased number of hypermarkets from 3 at the end of 2007 to 14 at the end of 2008.
Share of sales of these products in hypermarkets amounts to only 5.12% vs 12.4% in
convenience stores, because having completely different number of SKUs in their assortment
(3,600 SKUs in convenience stores and from 11,000 to 15,000 SKUs in hypermarkets) both
formats offer the same number of private label products — 700 SKUs. Currently the Company
is working to expand the offer of these products in “Magnit” hypermarkets, first of all in the
non-food segment. However, one should not expect that there will be considerable increase of
average share of sales of these products in the total sales of the Company as the number of
hypermarkets will grow and therefore will dilute this figure.

800

600

400

200

508

551

700

162

265

2002

2003

2004

2005

2006

2007

2008

Number of Items

Share in Retail Sales

5. In 2008 the Company opened a distribution center in Slavyansk-on-Kuban. Total space

of 9 distribution centers as of December 31, 2008 amounted to 175,872 thousand sq. m.

6. During the reporting year the fleet of the Company increased by more than 360 trucks,
total number of vehicles amounted to 1,165 which resulted in the considerable reduction of
transportation costs.

7. In 2008 the Company increased the share of products processed via its distribution

centers to 72% which is also one of the gross margin drivers.

8. The Company was actively working with its personnel increasing their loyalty and
developing corporate culture. In 2008 average weighted number of the Company’s employees
amounted to 59,135 out of which 44,986 are in-store personnel; 8,635 people engaged in

distribution; 4,096 people in regional branches and 1,418 employees of Head Office. Average
salary in the Company increased from 10,679 rubles in 2007 to 13,100 rubles in 2008 which is
22.67% y-o-y growth vs. 17% of general wage inflation average in the sector.

9. Effective work with our customers and development of our marketing program

enabled us to achieve the following results:

18.8% LFL revenue growth of 2008 vs. 2007 in ruble terms was driven principally by

21.7% average ticket growth.

Gross margin of the Company increased from 19.9% in 2007 to 21.7% in 2008, gross
profit increased from 730.04 million USD (18,672 million rubles) to 1,159.54 million USD
(28,820.57 million rubles.) correspondingly due to the better purchasing terms and in-house
logistics system improvement.

EBITDA increased by 83.21% in dollar terms (78.04% in ruble terms) from 219.24 million

USD (5,607.58 million rubles) in 2007 to 401.67 million USD (9,983.50 million rubles) in 2008.

Net profit of the Company increased by 92.95% in dollar terms (87.51% in ruble terms)
and amounted to 187.92 million USD (4,670.68 million rubles) in 2008 vs. 97.39 million USD
(2,490.94 million rubles) in 2007.

4 000

3 000

2 000

1 000

18,2%

2 505

4,9%

2,3%

2006

19,9%

3 677

6,0%

2,7%

2007

21,7%

5 348

7,5%

3,5%

2008

25%

20%

15%

10%

Sales

Gross Margin

EBITDA Margin

NI Margin

million USD

On the whole, the Board of Directors of the Company considers the achieved financial

and economic results positive and complying with 2008 target plans.

Following the results of the work carried out the Board of the Company recommends
the annual general shareholders’ meeting to approve the activity of the Company’s
management bodies during 2008 and to ratify 2008 annual report submitted for the meeting
agenda.

77.. MMAAIINN 22000088 CCOORRPPOORRAATTEE EEVVEENNTTSS

January

February

March

April

May

Extraordinary general shareholders’ meeting made a decision to approve the
conclusion by the Company of the following inter-related transactions as both
major and related party transaction: 1) Underwriting agreement; 2) Depositary
agreement; 3) other transactions, agreements and documents provided in the
Underwriting agreement and Depositary agreement or other related to the
offering of Shares and GDRs to Russian and foreign investors.
The charter of OJSC “Magnit” in the new edition is ratified.
Provision on the sole executive body (chief executive officer) of OJSC “Magnit”
in the new edition is ratified.
CJSC “Tander” regional branch is established in Prokhladny, Kabardino-
Balkarian Republic.
A decision is made to increase the charter capital of OJSC “Magnit” by means of
offering of additional ordinary nominal uncertified shares in the amount of
11,300,000 (eleven million three hundred thousand) shares.
A decision on the additional issue of securities and prospectus of securities for
submitting to Russian FFMS is approved.

Depositary agreement is entered into with JPMorgan Chase Bank, N. A.

The 4th additional issue of securities and prospectus of securities of OJSC
“Magnit” are registered by Russian FFMS.
The CJSC “Tander” representative office is established in Beijing, Chinese
People’s Republic.
The offering and floatation outside Russian Federation of OJSC “Magnit”
ordinary nominal uncertified shares in the amount of 11,522,000 (eleven million
five hundred and twenty two thousand) shares are permitted by Russian FFMS.
Road-show with OJSC “Magnit” top management is held.
Underwriting agreement is concluded.
The price of offering of OJSC “Magnit” ordinary nominal uncertified shares of
additional issue is determined.
Under the foreign law the securities (global depository receipts, “GDRs”)
certifying the rights to the OJSC “Magnit” ordinary nominal shares are issued by
JPMorgan Chase Bank, N. A.
Global depositary receipts of OJSC “Magnit” are admitted for trading on London
stock exchange.
The CEO report on the results of the exercise of pre-emptive rights on purchase of
OJSC “Magnit” ordinary nominal uncertified shares of additional issue is ratified.
The CJSC “Tander” representative office is established in Kurgan, Kurgan area.
Notification on the results of additional issue of the OJSC “Magnit” ordinary
nominal uncertified shares in the amount of 11,245,660 (eleven million two
hundred forty five thousand six hundred and sixty) shares is filed to Russian
FSFM.

June

The new membership of the OJSC “Magnit” Board of directors including two
independent directors is formed by the annual general shareholders’ meeting.

CJSC “Tander” branch is established in Volgodonsk, Rostov area.
Under the resolution of the Board of Directors to increase the charter capital of
OJSC “Magnit” by means of offering of additional shares and notification on the

results of additional shares’ issue the OJSC “Magnit” Charter in the new edition
is registered.
The Board of directors forms the committees of the Board, appoints the chairman,
deputy chairman and secretary of the Board of Directors.
Russian FFMS cancels the individual number (code) of additional issue of OJSC
“Magnit” securities: 004D.

September

November OJSC “Magnit” Charter in the new edition is ratified.

December

49% of “Magnit-Nizhniy Novgorod” LLC charter capital is acquired, thus, the
Company becomes 100% owner of the charter capital of the indicated company.
98% of “AgroTorg” LLC charter capital is acquired.
CJSC “Tander” regional branch
Nizhegorodskaay area.
CJSC “Tander” regional branch is established in Ekaterinburg, Sverdlovskaya
area.

in Nizhniy Novgorod,

is established

88.. PPOOSSIITTIIOONN OOFF TTHHEE CCOONNPPAANNYY IINN TTHHEE SSEECCTTOORR

RRUUSSSSIIAANN MMAARRKKEETT

In the context of economic crisis which caused decline of income and savings of Russian

citizens consumer preferences underwent major changes. The most important are as follows:

Change of basket of the most frequently bought goods particularly due to the reduction
of this list, exclusion of impulse products and retargeting to the products with a better quality-
price ratio (willingness to overpay for the brand reduced);

Reduction of expenses on durable goods (after Christmas sales and speculative demand
ahead of growing prices on imported products due to ruble devaluation), touristic services and
catering since February 2009.

According to Nielsen, as of December 2008 majority of Russians had to correct their
current consumption structure, at that more than 70% of consumers became more economical
when shopping for food and basic goods. As a result of decline of disposable income in 2009
this trend will increase, at that preferences of Russian consumers have already changed
significantly in Q4 2008.

The most important change in consumer pattern in terms of choosing a place to shop in
for food is retargeting from supermarkets to traditional stores, pavilions, discounters as well as
food markets. At that key factors of choosing a place to shop for food are price and comfort
(closeness to home or work). Thus in the context of economic crisis Russian consumers
gradually reorient to the cheaper goods, and that price factor matters more and more which
builds opportunities for discounters, non-chain stores and food markets offering lower prices to
strengthen their positions.

Fast growth pace of consumer demand in Russia on the background of diminution of

industry demand condition lower pace of import reduction rather then export and
correspondingly the reduction of export surplus. According to estimates of the Ministry of
Economic Development decrease of the share of domestic production in the structure of source
of satisfaction of domestic demand amounted to over 4% at the end of 2008.

Retail turnover in 2008 amounted to 13,853.2 billion rubles which is 13% higher

than 2007 level in terms of mass of commodities.

In December 2008 compared to December 2007 growth pace of retail turnover amounted
to 4.8% only! Such a major decline of growth pace was due to dramatic decline of disposable
income and conversion of population funds into the foreign currency.

Dynamics of the key market figures in 2005-2008 as a % to the corresponding period of the
preceding year

Source: IA Infoline

Thus reduction of staff and wages in Russian companies which decreased consumer
confidence was only partially compensated by activation of marketing activity of retailers and
withdrawal of ruble funds by population. Besides, in November retail turnover compared to the
previous month decreased for the first time over the past few years (excluding December-
January).

Dynamics of the retail turnover in 2005-2008, bn RUR

Source: IA Infoline
At the same time growth pace of retail turnover in Russia continue to remain positive

due to:

Withdrawal of considerable amounts of ruble funds out of the banking system by
natural persons and their spending on durable goods expecting price growth on imported
goods due to ruble devaluation and as a result of activation of advertising and marketing
activities of retailers (sales and discounts, etc.);

Redistribution of consumer expenses which means increase of the budget share spent on

food.

Dynamics of retail turnover in2006-2008

Period

Turnover, billion RUR

% to the corresponding period of
the pervious year

2006

2007

2008

8693.4

10757.8

13853.2

113.9

115.2

113

Source: Federal State Statistics Service

IINNFFLLAATTIIOONN OONN TTHHEE FFOOOODD MMAARRKKEETT

Inflation rates in 2008 were higher for the period since 2002, at that in 2009 growth rates

may exceed the level of 2002.

Consumer Price Index in 2000-2008 and 2009 estimate as a % to the previous year

Source: IA Infoline

Highest growth rates featured food: thus in 2008 food prices grew by 16.5% while non-
food – by 8.0%. In January 2009 – by 1.4% and 0.7% correspondingly. Main contributors to the
growth of consumer prices in January were fee schedules of natural monopolies which grew by
6.3% (housing and public utilities grew by 14.4%). Food prices grew by 1.4% and non-food
prices grew by 0.7% only due to cheaper by 4.2% petrol.

Inflation processes in Russian economy in 2008 feature the following dynamics:


first stage (Q1-Q3 2008) – high inflation rate due to the growth of global food
prices, increase of consumer demand as a result of population income growth and activation of
consumer lending, stagnation of production of the series of types as well as costs inflation in
agriculture and food production (growth of POL, electricity and gas prices);



second stage (Q4 2008) – decline of inflation rate in the context of economic crisis
and limited impact of ruble devaluation (most active devaluation was in December-January).
Key factors that featured the decline of price growth rates in the end of 2008 were diminution in
demand as a result of decreased population income and deterioration of consumer spirit as well
as retailers’ sales of goods in stock and pre-Christmas discounts.

SSTTRRUUCCTTUURREE OOFF RREETTAAIILL TTUURRNNOOVVEERR BBYY PPRROODDUUCCTT TTYYPPEESS

In 2008 the share of foods products in retail turnover in Russia grew due to advanced
growth of food prices in the context of economic crisis. At that in December 2008 the share of
food products amounted to 46.5% which is nearly by 1 percentage point above December 2007.

Index

Retail turnover

Food

Non-food

Share of food, %

Share of non-food, %

Structure of retail turnover in 2002-2008, billion RUR
2003

2002

2004

2005

2006

2007

2008

3765

1754

2011

46,6

53,4

4529

2092

2437

46,2

53,8

5642

2578

3064

45,7

54,3

7038

8690

10866,2 13853,2

3216

3945

4884,9 6270,8

3822

4745

5981,3 7582,4

45,7

45,4

45,0

45,26%

54,3

54,6

55,0
Source: Federal State Statistics Service

54,73%

Growth rates of non-food products in December 2008 exceeded the level of food
products 2.7 times which is well above the average level of Q2 and Q3 2008 (1.8-2). Thus the
decline of food expense within the structure of consumer spending ceased in December 2008
due to pre-Christmas sales growth of durable goods.

Dynamics of food products share in retail turnover in 2005-2008, %

In 2008 alcohol sales stabilized on 2007 level. At that there was a growth in the segment
of grape wines – by 7.5% to 101.9 million dcl, cognac – by 19% to 10.6 million dcl and
champagne and sparkling wines – by 8.8% to 26.3 million dcl. At the same time consumption of
vodka and spirits reduced by 1.8% and beer – by 1.5%.

Source: IA Infoline

Structure of retail sales of alcoholic beverages and beer in 2004-2008 as a % on an alcohol
basis

Source: IA Infoline

SSTTRRUUCCTTUURREE OOFF RREETTAAIILL TTUURRNNOOVVEERR BBYY TTYYPPEESS OOFF TTRRAADDIINNGG
OORRGGAANNIIZZAATTIIOONNSS

Trend of sales growth of trading organizations continued to increase in 2008, at that their
share in the structure of retail turnover grew to 86.7% and the share of retail markets reduced to
13.3%. Growth of turnover of trading organizations amounted to 5.8% in December 2008
compared to December 2007 and sales of the markets reduceed by 1.1%.

Turnover of trading organizations and markets in 2002-2008 billion RUR
2006
Index

2002

2003

2004

2005

Retail turnover

3765

4529

5642

7038

Turnover of trading organizations

2838.8

3451.1

4420.5

5558.2

8690

6987

2007

10866.2

9214.5

Sales of goods on clothes, mixed and
food markets

926.2

1077.9

1254.1

1479.8

1703

1651.7

Share of trading organizations, %

Share of markets, %

75.4

24.6

76.2

23.8

77.9

22.1

79.0

21.0

80.4

19.6

84.8

15.2

Source: Federal State Statistics Service

In 2008 sales growth of trading organizations amounted to 15.6% while sales of the
markets reduced by 1.4%. At that in 2008 more than 10% of food and 16% of non-food products
were bought on retail markets and fairs. In Q4 2008 markets demonstrated higher level of
stability to negative environment conditions then trading organizations. Crisis of Russian
economy, reduction of disposable income and nearly total cessation of banks’ crediting regional
retail chains significantly worsened their positions and as a result a series of retailers had to
close some of their stores while standalone stores and retail markets suffered less due to lack of
liabilities to bank structures.

Dynamics of the number of markets in Russia and their share in the retail turnover in 2004-
2008

Source: IA Infoline

Reduction of the share of markets in retail turnover was accompanied by the reduction
of their number (the most active reduction occurred in 2007 and Q1 2008, after that the situation
stabilized) due to liquidation or conversion into shopping malls: as of January 1, 2005 there
were 6.44 thousand markets in Russia, as of January 1, 2008 – about 4.7 thousand, as of April 1,
2008 – 3.8 thousand and as of November 1, 2008 – 3.74 thousand. Reduction of the number of
markets in H1 2008 was due to stiffening of rules of state regulation. Besides, in 2007-2008 there
was a trend of markets enlargement: as of January 1, 2007 average market consisted of 204
trading posts, as of July 1, – 228 posts, as of January 1, 2008 – 245 posts and as of November 1 –
275 posts.

RREEGGIIOONNAALL SSTTRRUUCCTTUURREE OOFF RREETTAAIILL TTUURRNNOOVVEERR

Regional structure of Russian retail turnover differs in significant heterogeinty: 49% of
retail turnover is made by 10 subjects of Russian Federation (Moscow, Moscow region, Saint-
Petersburg, Ekaterinburg region, Krasnodar region, Samara region, Republic of Tatarstan,
Tumen region, Chelyabinsk and Rostov region). At that the share of the largest subjects of
Russian Federation decreases (by 1.5-2% per year) featuring lower growth rates of retail
turnover in Moscow and Saint-Petersburg than in the other regions.

Structure of retail turnover by subjects of Russian Federation in 2008, %

Source: IA Infoline

Structure of retail turnover by federal districts of Russian Federation in 2008, %

Source: IA Infoline

In 2008 retail turnover increased in all federal districts and subjects of Russian
Federation, however, in December 2008 there was a completely different situation: thus, in 18
regions turnover reduced. At that the most dramatic decline occurred in Ulyanovsk and Tomsk
regions; Moscow was marked with the largest retail turnover among regions with the decline of
4.1%.

Regional structure of retail turnover of Russian Federation in 2002-2008, %

Region

2002

2003

Central Federal District

Moscow

Moscow region

North-West Federal District

Saint-Petersburg

Southern Federal District

Volga Federal District

Urals Federal District

Siberian Federal District

Far-East Federal District

40.2

27.3

4.0

9.3

3.7

10.6

16.6

7.9

11.5

4.2

39.2

26.1

4.3

9.2

3.9

10.5

16.6

8.4

11.6

4.2

2004

38.9

24.6

5.2

9.0

3.6

10.7

16.7

8.8

11.7

4.2

2005

37.4

22.9

5.3

8.9

3.5

11.5

17.1

9.3

11.7

4.1

2006

35.9

21.1

5.7

9.3

4.0

11.7

17.4

10.0

11.6

4.0

2007

34.7

19.0

6.1

9.4

4.1

12.3

17.9

10.4

11.5

3.9

2008

33.45

17.08

6.41

9.21

4.08

12.80

18.37

10.83

11.59

3.75

Source: Federal State Statistics Service

MMAAIINN CCOOMMPPEETTIITTOORRSS33

Concentration of the Russian food retail market is quite low – the share of 3 largest
players is about 6% of the market which considerably yields to analogous figures in Eastern and
Western European countries.

Such a low capital concentration creates the preconditions for competition intensification
among retail chains in the nearest future. Currently competition development is expressed in
capture of the extra markets due to the growth of the chain itself including the use of
franchising schemes as well as M&A deals. As a result, chains operating in the Russian market
actively increase their presence in Moscow and regions which leads to the record indices of the
business growth.

X5 Retail Group
X5 Retail Group N.V. (LSE: FIVE, Moody's - "B1", S&P - "BB-") is Russia’s largest food

retailer in terms of sales. It operates under two brands of “Pyaterochka” and “Perekrestok”.

The merger of “Pyaterochka” and “Perekrestok” companies took place on May 18, 2006

with the aim of creation of the largest company in the food retail market in Russia.

As of December 31, 2008 X5 Retail Group consisted of 1,101 stores: 848 “Pyaterochka”
stores in the format of a soft discounter, 207 “Perekrestok” supermarkets and 46 hypermarkets.
The number of franchised stores on the territory of Russia amounted to 607. In 2008 X5 Retail
Group increased the number of stores by 233 (total selling space increased by 265 thousand sq.
m.), including 24 "Karusel" hypermarkets with the selling space of 138 thousand sq. m.

In 2008 net sales of X5 Retail Group increased by 57% compared to the year 2007 and
amounted to 8.3 billion USD (192.4 billion RUR). Pro-forma net sales of X5 Retail Group
increased by 45% and amounted to 8.8 billion USD (219.8 billion RUR). Like-for-like sales
increased by 22%.

METRO Cash & Carry
In 2008 METRO Cash & Carry continued its successful development notwithstanding
the complicated economic situation. Total sales of the Group increased by 4.6% and amounted
to 33.1 billion EUR, EBIT increased by 6.8 % to 1.3 billion EUR.

Key figures of 2008: EBIT growth by 6.8 % to 1.3 billion EUR; increase of the number of
shopping centers to 655 small-scale wholesale centers; sales growth of METRO Cash & Carry,
Russia to 3.05 billion EUR.

Except for METRO Cash & Carry, METRO Group manages the following trading

companies: Real, Media Markt/Saturn and Galeria Kaufhof.

Auchan
Auchan operates in Russia since 2002. As of January 1, 2009 Auchan managed 21
"Auchan" hypermarkets in 10 regions, in 2008 the company opened 4 stores in Moscow, Rostov
region, Novosibirsk region and Krasnodar region. Moreover, Auchan manages 11 "Auchan-
city" mini-hypermarkets (opened in the result of rebranding of "Ramstor" hypermarkets) in
Moscow, Ekaterinburg, Moscow region and St. Petersburg. Total selling space of Auchan in
2008 increased by 91.5 thousand sq. m. to 356 thousand sq. m. Sales amounted to 18.7 billion
EUR (the first half of the year 2008), EBITDA — 822 million EUR, net profit — 174 million EUR.

Source: Infoline, Company’s

Dixy
As of December 29, 2008 “Dixy group” managed 493 stores, including 460 “Dixy”
discounters, 13 "Megamart" compact hypermarkets, 8 "Mimimart" economy supermarkets and
12 VMart convenience stores in three federal districts of Russia: Central, North-West and Urals.
In 2008 the Group opened 106 stores and closed 6 stores for the period from 1.01.2008 to
29.12.2008 because of the changed market conditions and competitive environment. Total
selling space of stores increased by 40 thousand sq. m. to 191 thousand sq. m. in 2008.

In 2008 total sales of OJSC “Dixy Group” in ruble terms amounted to 48.2 billion RUR
which is by 32% higher than in 2007 (36.6 billion RUR). In dollar terms total sales amounted to
1.94 billion USD which is by 36% higher than in 2007 (1.4 billion USD). Retail sales of "DIXY"
stores amounted to 40.6 billion RUR (1.6 billion USD) which is by 28% in ruble terms higher
than in 2007 (32% in dollar terms).

The Seventh Continent
In 2008 OJSC "The Seventh Continent" opened 14 stores including 3 hypermarkets. Due
to optimization of the Company structure in Kaliningrad, 1 "The Seventh Continent
Convenience store" with the selling space of 230 sq. m. was closed. As of the end of December,
2008 OJSC "The Seventh Continent" managed 140 stores including 131 supermarkets and 9
hypermarkets, in Moscow and Moscow region (119 supermarkets and 3 hypermarkets),
Kaliningrad and Kaliningrad region (10 supermarkets), St. Petersburg (1 hypermarket), Ryazan
(1 hypermarket), Chelyabinsk (1 hypermarket), Minsk, the Republic of Belarus (1 hypermarket),
Perm (1 supermarket and 1 hypermarket), and in Yaroslavl (1 supermarket and 1 hypermarket).
Net profit of OJSC "The Seventh Continent" in accordance with RAS over 9 months 2008
reduced by 22% to 1.15 billion RUR compared with the same period of 2007. Sales in January-
September increased by 21% and amounted to 23.5 billion RUR vs 19.4 billion RUR a year
earlier.

OJSC "The Seventh Continent" 2008 trade sales in ruble terms increased by 22.5% to 43.9
billion RUR compared to the year 2007. Trade sales growth in ruble terms in the hypermarket
format amounted to 51%. December 2008 trade sales in ruble terms increased by 10% and
amounted to 4.85 billion RUR. December 2008 trade sales growth in ruble terms in the
hypermarket format amounted to 43% compared with the same period of 2007. December 2008
growth in regional sales in ruble terms amounted to 36%. In 2008 the selling space increased by
17% (24.9 thousand sq. m. Including 16.6 thousand sq. m. of hypermarkets) and amounted to
171.8 thousand sq. m.

Lenta
The "Lenta" Company owing 34 hypermarkets located in 16 cities of Russia is the 5th
largest food retailer in the country. Currently in different regions of Russia there are 34
«LENTA» hypermarkets including 14 in St. Petersburg, 4 in Novosibirsk, 2 in Ninzhniy
Novgorod, 2 in Krasnodar, 1 shopping center in each of the following cities: Astrakhan,
Barnaul, Velikiy Novgorod, Volgograd, Petrozavodsk, Omsk, Togliatti, Tyumen, Ryazan,
Naberezhnye Chelny, Saratov and Penza. «LENTA» hypermarkets have more than 2.5 million
regular customers and this figure increases every day.

"Lenta" sales in 2008 increased by 54.4% compared to the year 2007. Sales amounted to
50.8 billion RUR (2.04 billion USD) vs 32.9 billion RUR (1.34 billion USD) in 2007. Like-for-like
sales growth in December 2008 amounted to 10%.

O'KEY
"O'KEY" Group is a multiformat retail chain consisting of "O'KEY" hypermarkets and
"O'KEY - Express" supermarkets. Currently "O'KEY" Group has 31 shopping complexes on the
territory of Russia: 13 hypermarkets, 10 supermarkets and 1 retail entertainment center in St.
Petersburg, 1 hypermarket in Murmansk, 2 hypermarkets in Krasnodar, 2 hypermarkets in
Rostov-on-Don, 1 hypermarket in Togliatti, 1 hypermarkets in Krasnoyarsk.

According to 2007 results the Group showed rapid growh: sales amounted to 1,178
billion USD which is twice as high as sales in 2006, the selling space amounted to 147,200 sq. m.
Currently the Group has 8,200 employees.

Dynamics of stores of retailers in 2005-2008

Legal name

Brand

Main formats

X5 Retail Group N.V.

Pyaterochka,
Perekrestok

Supermarket,
convenience store,
hypermarket

Number of stores

Growth rates, %
2006 2007 2008 2006 2007 2008

2005

446

619

868

1077

38.8 40.2 24.1

X5 Retail Group N.V.

Karusel

Hypermarket

216.7 15.8 9.1

”Magnit”,OJSC

Magnit

Convrnience store,
hypermarket

1501

1893 2197 2579

26.1 16.1 17.4

“METRO Cash and
Carry”, company
limited
“Auchan", company
limited

“Dixy-group”, OJSC

“The Seventh
Continent”, OJSC

“Lenta", company
limited

“O'key", company
limited

Metro C&C

Hypermarket

40.9 25.8 20.5

Auchan, Auchan-
City
Megamart,
Minimart, Dixy,
V-mart
The Seventh
Continent, Our
hypermarket

Hypermarket

100.0 28.6 77.8

Discounter,
supermarket,
hypermarket

Supermarket,
hypermarket

211

315

388

488

49.3 23.2 25.8

111

123

127

140

10.8 3.3 10.2

Lenta

Hypermarket

40.0 85.7 30.8

O'key, O'key-express

Hypermarket,
supermarket

100.0 116.7 38.5

Source: Infoline

Dynamics of selling space of Russia’s retailers in 2005-2008

Legal name

Brand

Main formats

X5 Retail Group N.V.

Pyaterochka,
Perekrestok

Supermarket, convenience
store, hypermarket

Total selling space,
thousand sq. m.

Growth rates,
%

2005 2006 2007 2008 2006 2007 2008

337 466.1 609.2 736.1 38.3 30.7 20.8

X5 Retail Group N.V.

Karusel

Hypermarket

34.4

109

126 137.95 216.9 15.6 9.5

”Magnit”,OJSC

Magnit

Convenience store,
hypermarket

381 522.9 651.7 823.5 37.2 24.6 26.4

“METRO Cash and
Carry”, company limited
“Auchan", company
limited

“Dixy-group”, OJSC

“The Seventh Continent”,
OJSC

Metro C&C

Hypermarket

199.4 263.8 358.2 429.4 32.3 35.8 19.9

Auchan, Auchan-
City
Megamart,
Minimart, Dixy,
V-mart
The Seventh
Continent, Our

Hypermarket

111.6 214.6 264.4 356 92.3 23.2 34.6

Convenience store,
hypermarket

75.4 128.14 151.0 191.0 69.9 17.8 26.5

Supermarket, hypermarket 110

137

147 171.9 24.5 7.3 16.9

Total selling space,
thousand sq. m.

Growth rates,
%

hypermarket

“Lenta", company limited

Lenta

Hypermarket

66.7 105.4 197.5 261.4 58.0 87.4 32.4

“O'key", company limited

O'key, O'key-
express

Hypermarket,
supermarket

53.6 92.9 147.6 191.3 73.3 58.9 29.6

Source: Infoline

Dynamics of net sales (excluding VAT) of the largest FMCG retailers in 2005-2008, billion RUR

Legal name

Brand

Main formats

X5 Retail Group N.V.

Pyaterochka, Perekrestok

Supermarket,
convenience store,
hypermarket
Hypermarket
Convenience store,
hypermarket

Karusel

Magnit

Net sales (excluding
VAT), billion RUR

Growth rates, %

2005 2006 2007 2008 2006 2007 2008

67.23 93.81 135.16 192.4 39.5 44.1 42.3

2.39 9.80 21.1 27.4 310.0 115.3 29.9

44.53 68.10 94.04 132.4 52.9 38.1 40.8

X5 Retail Group N.V.

”Magnit”,OJSC

“METRO Cash and
Carry”, company
limited
“Auchan", company
limited
“Dixy-group”, OJSC
(DISCOUNTcenter,
CJSC)
“The Seventh
Continent”, OJSC
“Lenta", company
limited

“O'key", company
limited

Metro C&C

Hypermarket

51.00 78.63 86.97

54.2 10.6

Auchan, Auchan-City

Hypermarket

42.37 54.36 81.86

28.3 50.6

Megamart, Minimart,
Dixy, V-mart

The Seventh Continent, Our
hypermarket

Convenience store,
supermarket,
hypermarket
Supermarket,
hypermarket

20.07 27.12 36.65 48.3 35.1 35.1 31.8

20.16 26.03 32.56 43.9 29.1 25.1 34.8

Lenta

Hypermarket

16.00 23.89 32.91 50.8 49.3 37.8 54.4

O'key, O'key-express

Hypermarket,
supermarket

10.90 16.63 25.98

52.6 56.2

Source: Infoline

CCOOMMPPEETTEETTIIVVEE AADDVVAANNTTAAGGEESS OOFF ““MMAAGGNNIITT”” CCHHAAIINN

Formation of the multi-format business
Realization of the strategic decision to develop the additional format of a hypermarket

will provide the Group with the deeper segmentation of the current markets and potential
customers with different income simultaneously achieving high efficiency of turnover per store
and of the average ticket as well as rapid paces of business growth. Moreover, the pricing policy
of “Magnit” allows it to compete with open-air markets taking into consideration the potential
customers with income below average.

Strong regional coverage
The group of “Magnit” companies has considerable experience of operation in the
regions: 2002 - 2007 impressive growth of the Group turnover was a result of expansion in the
cities with a population of less than 500 thousand people. In the nearest future it is the regions
where the Company will experience the biggest growth of the consumer demand which creates
the favorable conditions for medium-term dynamics of the Group’s business.

The largest chain in RF in terms of number of stores
In terms of number of stores “Magnit” chain occupies the first place in Russia which
favorably effects the cooperation with the largest producers of food and beverages promoting
their products on the regional markets. First of all it reflects in purchasing on the advantageous
conditions and corresponding increase of the business profitability.

Recognized brand
According to independent expert research, IGD in particular, Russian customers pay
considerable attention to the brand when shopping for food. Moreover, loyalty of Russian
customer to one or another brand is higher in comparison with European citizens, which makes
Russian customers less sensitive to the growth of product prices. Therefore, wide chain of stores
united under “Magnit” brand allows the Group to strengthen its positions in the occupied
market niche.

Effective logistics system
Developed logistics system, distribution centers and own fleet of vehicles allows the
Group to carry out strict control over overhead charges. The use of distribution centers favors to
reduce the purchasing prices as well as the load of the store when accepting the goods and, at
the end, contributes to more efficient business organization.

The Group employs highly efficient automated stock replenishment system which

furthers to achieve high turnover as well as to reduce the costs.

99.. PPRRIIOORRIITTYY DDIIRREECCTTIIOONNSS OOFF TTHHEE CCOOMMPPAANNYY’’SS OOPPEERRAATTIIOONN

Based in Krasnodar, in the Southern region of Russia, open joint-stock company “Magnit”
is a holding company for a group of entities that operate in the retail industry under the
“Magnit” name. The chain of “Magnit” stores is one of the leading operators in the Russian
food retail market. As of December 31, 2008 the chain consisted of 2,568 convenience stores and
14 hypermarkets in more than 856 locations in the Russian Federation.

About two-thirds of the Company’s stores are located in cities with a population of less
than 500 thousand. The Company operates in 5 out of 7 federal districts. Most of its stores are
located within the Southern, Central and Volga regions. The Company also operates stores in
the North-Western and Urals regions. By the end of 2008 stores located in the Southern Federal
district accounted for 1,013, in Volga region - 744, Central Region – 642, in the North-West and
Ural regions the number of stores amounted to 116 and 67 correspondingly.

Central: 642 stores
3 Distribution centers

North-West:
116 stores

Urals:
67 stores
1 Distribution center

Volga:
744 stores
2 Distribution centers

Southern:
1,013 stores
2 Distribution centers

The Company operates the in-house logistics system consisting of 9 modern distribution
centers: three of them are located in Kropotkin, Bataysk and Slavyansk-On-Kuban, Southern
Federal district, two are in Engels and Togliatti, Volga Federal district, another three
distribution centers are based in Tver, Oryol and Ivanovo, Central Federal district and one in
Chelyabinsk, Urals.

City

Federal District

Warehousing
space, sq. m.

Number of
serviced stores

Leased/Owned

Bataysk

Southern

16,138

Kropotkin

Southern

30,048

Slavyansk-On-
Kuban

Engels

Togliatti

Southern

20,448

Volga

19,495

8,379

Tver

Central

10,714

Oryol

Central

12,472

Ivanovo

Central

42,026

Chelyabinsk

Urals

16,152

307

518

367

276

206

389

321

156

Owned

Leased

Owned

Total

175,872

2,582

The Company operates automated stock replenishment system and a fleet of 1,165

vehicles.

1100..

PPRRIIOORRIITTYY DDIIRREECCTTIIOONNSS OOFF

TTHHEE CCOOMMPPAANNYY’’SS

DDEEVVEELLOOPPMMEENNTT

Within the medium-term development outlook the Company marks out the

following directions:

• Further expansion of the chain due to the growing coverage of the key

markets as well as organic expansion in the least developed regions

• Development of

the multi-format business-model

through active

implementation of the hypermarket format

• Forming the high level of the key audience loyalty to the brand

• Achievement and retention of the leading position in the industry in terms of

expenses level

Chain development

In the nearest 2-3 years the Company plans to keep high rates of business
growth, opening not less than 300 convenience stores per year in the cities with the
population up to 500,000 people.

The key territories for the Company are Southern, Volga and Central regions, it is
planned to increase the number of stores in Urals. In the long-term outlook the
management of the chain does not exclude the opportunity of entering the markets of
Siberia and the Far East.

Development of the multi-format model

Currently the Company is actively constructing the hypermarket format on the

developed territories.

Hypermarkets will be mainly opened in the cities with population from 50,000 to
500,000 citizens, at that the retail outlet will be located inside the city (within the city
boundaries).

As of 01.01.2009 the Company had 14 operating hypermarkets:

«Magnit» Hypermarkets

Location

Population

Total Space,
sq. m.

Magnit Selling
Space, sq. m.

Sub-leased
Space, sq. m.

1 Krasnodar
2 Kingisepp
3 Solnechnogorsk

4 Kamyshin
5 Bataysk
6 Anapa
7 Volgodonsk
8 Volgograd
9 Bryansk
10 Tambov
11 Saratov
12 Krasnodar
13 Novomoskovsk
14 Gelendzhik

Opened in 2007:

800,000
52,000
57,600

11,283
6,264
11,655

Opened in 2008:

131,000
107,000
63,000
178,900
987,000
420,000
293,658
900,000
800,000
138,100
89,700

11,200
11,200
8,270
10,200
4,787
11,200
11,200
11,200
21,000
11,088
4,745

4,200
2,790
4,600

4,200
4,200
4,550
4,200
2,400
4,200
4,200
4,200
6,900
3,225
2,500

3,000
445
2,650

2,800
2,800
90
2,662
-
2,800
2,800
2,800
5,690
2,350
-

Based on location (size of the location or of the area in a large city) there are 3 sub-

formats of the hypermarket:

«small» with the total space of 3,200 – 4,700 sq. m., selling space of 2,000 – 2,500 sq. m.;
«average» with the total space of 11,100 - 11700 sq. m., hypermarket selling space of

6,000 – 8,100 sq. m. (including lease space);

«large» with the total space of 21,000 sq. m., hypermarket selling space of up to 12,500

sq. m.; (including lease space).

Strategic development of the new format for the Company – a format of a hypermarket -
will enable to carry out more profound segmentation of the existing markets and consider
population with different income as potential customers, which results in high turnover per
store and average ticket as well as fast business growth rate.

Pricing policy of the Company allows it to compete with the open markets considering

customers with income below average as the target audience.

Brand recognition and customer loyalty

The Company management takes measures to adjust the traditional format to
changing customers’ preferences. In the regions with the highest purchasing power the
work is carried out with the traditional discounter assortment towards its expansion in
favor of more expensive products (for example, ready-made cookery and semi-
prepared meat).

Within the complex measures taken to increase the loyalty to the “Magnit” brand
the analysis will be carried out to study the customers’ preferences and to set out the
marketing program according to the peculiarities of different formats.

As an additional factor of the brand popularity the management of the Company
plans to improve the service in the chain stores through appropriate work with its
employees.

Minimization of expenses

The main means of successful development in the above direction lies in further
improvement of the logistics processes and investments in the IT system which will
provide the Company with maximum effective stock management and transport flows,
and will be conductive to its transformation into the leader in terms of expenses control.

Among the plans of the Company is active development of private label

products which enables the Company to increase its profitability.

The status of Russia’s leading chain in terms of number of stores and customers
makes the Company effectively co-operate with suppliers achieving maximum
favorable purchasing conditions.

1111.. IINNFFOORRMMAATTIIOONN OONN TTHHEE PPAAIIDD DDIIVVIIDDEENNDDSS

It was resolved by the annual general shareholders’ meeting of June 25, 2008
(minutes of meeting of 09.07.2008) not to pay any dividends on ordinary nominal shares
of OJSC “Magnit”.

1122.. SSEECCUURRIITTIIEESS

AAUUTTHHOORRIIZZEEDD CCAAPPIITTAALL SSTTOOCCKK

The authorized capital stock of the Company determines the minimum amount of assets

that guarantee its creditors’ interests.

As of December 31, 2008 authorized capital stock of the open joint-stock company
“Magnit” amounted to 832,456.60 rubles. It consists of 83,245,660 ordinary nominal uncertified
shares with par value of 0.01 rubles.

In 2008 upon the decision of the Board of directors of 12.02.2008 (minutes of meeting w/o

No. of 14.02.2008) authorized capital stock of OJSC “Magnit” was increased.

20.03.2008 FFMS of Russia registered additional issue of the ordinary nominal
uncertified shares with par value of 0.01 rubles in the amount of 11,300,000 shares. State number
1-01-60525-Р-004D was assigned to this additional issue of shares.

Notification of the results of the additional issue of ordinary nominal uncertified shares
with par value of 0.01 rubles in the amount of 11,245,660 shares was sent to FFMS of Russia on
04.06.2008.

Main parameters of the placed securities:
Type of securities: shares;
Category (type) of securities: ordinary (nominal);
Number of placed securities: 11,245,660 shares;
Nominal value of each security: 0.01 rubles;
Method of placement: public offering;
Date of actual start of placement of securities: 18.04.2008;
Date of actual finish of placement of securities: 12.05.2008;
Offering price of securities or procedure for its determining: 42.50 US dollars per one
share. In case of payment for shares in the currency of Russian Federation offering price is
calculated at the rate of 23.4450 rubles per one US dollar.

Information on OJSC “Magnit” shares listed outside Russian Federation by means of
circulation in accordance with the foreign law of securities of foreign issuers certifying rights
referring to the specified shares of the Company:

Category (type) of shares, listed outside Russian Federation: ordinary nominal shares;
Number of shares, listed outside Russian Federation as a % of the total number of shares

of the corresponding category (type): 13.841 %;

name, address of the foreign issuer, which securities certify the rights referring to the
shares of the Company of the corresponding category (type): JPMorgan Chase Bank, N. A., 4
New York Plaza, 13th Floor, New York, 10004 New York United States of America);

short description of program (type of program) of the issue of securities of the foreign
issuer certifying the rights referring to the shares of the corresponding category (type): in
accordance with foreign law JPMorgan Chase Bank, N. A. issued securities (global depositary
receipts, “GDRs”) certifying the rights referring to the ordinary nominal shares of OJSC
“Magnit”;

information on obtaining a permit of the federal executive body for the securities market
of listing of the issuer’s shares of the corresponding category (type) outside Russian Federation
(if applicable): In accordance with the order of FFMS of Russia of March 27, 2008 № 08-661/pz-i
offering and listing outside Russian Federation of ordinary nominal uncertified shares of OJSC

“Magnit”, state registration number of the securities issue 1-01-60525-P of 04.03.2004, state
registration number of the additional securities issue 1-01-60525-Р-004D of 20.03.2008 in the
amount of 11,522,000 (eleven million five hundred and twenty two thousand) ordinary nominal
uncertified shares is permitted;

name of the foreign trade organizer (trade organizers) through which securities of the
foreign issuer certifying the rights referring to the issuers’ shares are listed (if there is such a
listing):London Stock Exchange;

The Company has a right to offer in addition to the offered shares 117,604,340 ordinary

nominal shares with par value of 0.01 rubles (authorized shares).

Information on the listed shares of OJSC “Magnit” as of 31.12.2008:

Description of
security

Number of state
registration

Date of state
registration

Nominal,
RUR.

Total number
of securities

Ordinary nominal
uncertified shares

Total:

1-01-60525-Р

04.03.2004

0.01

83,245,660

Structure of OJSC “Magnit” share capital as of 31.12.2008:
Number of registered
persons

Name

Share in the charter
capital, %

Legal persons
including nominal holders
Natural persons
Total:

BBOONNDDSS

14
12
12
38

50.9347
50.9346
49.0656
100

Bond issue of LLC “Magnit Finance” of 01 series:

In 2005 The Company entered the stock market offering their investors the bond issue
issued by Limited Liability Company “Magnit – Finance”, the subsidiary of OJSC “Magnit”.
The bond issue allowed the Company to optimize its debt portfolio and work out the
technologies of cooperation with investors in order to move out further on the stock market
with the Company’s shares.

Bond included 2 million securities with nominal value of 1 thousand rubles guaranteed
by CJSC “Magnit” and CJSC “Tander”. Bonds were outstanding for three years. The primary
intent of the bond issue was the refinancing of short-term liabilities of the Group. For this
purposes the management invested not less than 75% of the raised funds, the rest was spent on
further development of “Magnit” chain.

The offering of the certified interest-bearing non-convertible bonds payable to bearer of
01 series with the obligatory centralized deposit of LLC “Magnit Finance” on the MICEX
Federal stock exchange started on November 23, 2005. The number of the virtually offered
securities amounted to 2,000 thousand securities which constitutes 100% of the total number of

securities liable to the offering. The bond issue was fully realized in the course of auction in the
first day of offering.

Parameters of the bond issue of LLC “Magnit Finance” of 01 series:

Date and the number of state registration
Issue volume
Number of securities
Nominal value of each security
Offering price
Offering date
Offering method

Due date

Number of coupons
Trading code
ISIN code
Coupon interest rate as of auctions’ results
First coupon interest rate
Second coupon interest rate
Third coupon interest rate
Fourth coupon interest rate
Fifth coupon interest rate
Sixth coupon interest rate

№ 4-01-36102-R of October 27, 2005
2,000,000,000 rubles
2,000,000 bonds
1,000 rubles
100% of par value
23.11.2005
Public offering
1092 days from the offering date
(19.11.2008)
6
RU000A0GJ0L9
RU000A0GJ0L9
9.34%
9.34%
9.34%
9.34%
9.34%
9.34%
9.34%

The first coupon profit of 01 series bond issue was paid out on May 24, 2006. The total
amount of profit paid out of the first coupon amounted to 93.14 million rubles, the amount of
profit on the first coupon paid out per one bond amounted to 46.57 rubles.

The second coupon profit of 01 series bond issue was paid out on November 22, 2006.
The total amount of profit paid out on the second coupon amounted to 93.14 million rubles, the
amount of profit of the second coupon paid out per one bond amounted to 46.57 rubles.

The third coupon profit of 01 series bond issue was paid out on May 23, 2007. The total
amount of profit paid out on the third coupon amounted to 93.14 million rubles, the amount of
profit of the third coupon paid out per one bond amounted to 46.57 rubles.

The fourth coupon profit of 01 series bond issue was paid out on November 21, 2007.
The total amount of profit paid out on the fourth coupon amounted to 93.14 million rubles, the
amount of profit of the fourth coupon paid out per one bond amounted to 46.57 rubles.

The fifth coupon profit of 01 series bond issue was paid out on May 21, 2008. The total
amount of profit paid out on the fifth coupon amounted to 93.14 million rubles, the amount of
profit of the fifth coupon paid out per one bond amounted to 46.57 rubles.

The sixth coupon profit of 01 series bond issue was paid out on November 19, 2008. The
total amount of profit paid out on the sixth coupon amounted to 93.14 million rubles, the
amount of profit of the sixth coupon paid out per one bond amounted to 46.57 rubles.

Redemption of the nominal value of bonds of the issue № 4-01-36102-R of October 27,
2005 was made on November 19, 2008. Total amount of the paid out profit amounted to
2,000,000,000 (two billion) rubles, the amount of profit paid out per one bond amounted to 1,000
(one thousand) rubles.

According to the trading sessions held from 01.01.2008 to 19.11.2008 (the date of
redemption of the nominal value) the weighted average price of dealings in bonds of 01 series
fluctuated from min 89.31% (13.10.2008) to max 100.7% (31.01.2008)of par value. Declared
quotation during this period fluctuated from min 89.31% (13.10.2008) to max 100.01 %
(31.07.2008).

102

100

88
01.01.2008

20.02.2008

10.04.2008

30.05.2008

19.07.2008

07.09.2008

27.10.2008

16.12.2008

weighted average

declared quotation

Bond issue of LLC “Magnit Finance” of 02 series:

In 2007 the Company offered its investors the second bond issue also issued by limited

liability company “Magnit Finance”, subsidiary of OJSC “Magnit”.

Issue included 5 million securities with the nominal of 1 thousand rubles guaranteed by
OJSC “Magnit” and CJSC “Tander”. Issue will be outstanding for 5 years. As it is of the first
issue, the second was conditioned by the necessity of refinancing short-term liabilities of the
group.

The offering of the certified interest-bearing non-convertible bonds payable to bearer of
02 series with the obligatory centralized deposit of LLC “Magnit-Finance” on the MICEX
Federal stock exchange started on March 30, 2007. The number of the virtually offered securities
amounted to 5,000 thousand securities which constitutes 100% of the total number of securities
liable to the offering. The bond issue was fully realized in the course of auction in the first day
of offering.

Parameters of the bond issue of LLC “Magnit Finance” of 02 series:

Date and the number of state registration
Issue volume
Number of securities
Nominal value of each security
Offering price
Offering date

№ 4-02-36102-R of March 6, 2007
5,000,000,000 rubles
5 000 000 bonds
1,000 rubles
100% of par value
30.03.2007

Offering method

Due date

Number of coupons
Trading code
ISIN code
Interest rate of the auction results
1 coupon interest rate
2 coupon interest rate
3 coupon interest rate

Public offering
1,820 days from the offering date
(23.03.2012)
10
RU000A0JP4W7
RU000A0JP4W7
8.20 %
8.20 %
8.20 %
8.20 %

The first coupon profit of 02 series bond issue was paid out on September 28, 2007. The
total amount of profit paid out on the first coupon amounted to 204.45 million rubles, the
amount of profit of the first coupon paid out per one bond amounted to 40.89 rubles.

The second coupon profit of 02 series bond issue was paid out on March 28, 2007. The
total amount of profit paid out on the second coupon amounted to 204.45 million rubles, the
amount of profit of the second coupon paid out per one bond amounted to 40.89 rubles.

The third coupon profit of 02 series bond issue was paid out on September 26, 2008. The
total amount of profit paid out on the third coupon amounted to 204.45 million rubles, the
amount of profit of the third coupon paid out per one bond amounted to 40.89 rubles.

According to the trading sessions held from 01.01.2008 to 31.12.2008 weighted average
price of dealings in bonds of 02 series fluctuated from min 52.01 % (12.12.08) to max 98.05 %
(04.03.08) of par value. Declared quotation during this period fluctuated from min 55.07%
(23.12.08) to max 97.85 % (04.03.08).

105

01.01.2008

20.02.2008

10.04.2008

30.05.2008

19.07.2008

07.09.2008

27.10.2008

16.12.2008

weighted average

declared quotation

SSHHAARREESS TTRRAADDIINNGG SSEESSSSIIOONNSS

The shares of OJSC “Magnit” entered the Russian stock markets in April 2006.
On April 14, 2006 the shares of OJSC “Magnit” were admitted to tradings in the section
of the List “Listed securities but not included into the quotation lists” of Non-profit partnership
““Russian Trading System” Stock Exchange”.

On April 24, 2006 tradings of the shares of OJSC “Magnit” in the List of non-listed

securities of Close joint-stock company “MICEX Stock Exchange” commenced.

On April 28, 2006 the IPO of OJSC “Magnit” on the Russian Trading System (RTS) and

the Moscow Interbank Currency Exchange (MICEX) was completed.

The price of one share of OJSC “Magnit” in the course of offering on RTS and MICEX
was fixed on the level of 27 USD. Proceeds from the stock comprising 18.94% of the capital stock
amounted to 368.355 million USD. Deutsche UFG functioned as an IPO coordinator; foreign
investors were able to take part in the offering by purchasing the securities of “Magnit” in
accordance with the rule “S”.

Since December 11, 2007 the shares of OJSC “Magnit” have been included into the
Quotation list “B” of OJSC “Russian Trading System” stock exchange”, OJSC “Magnit” shares
have been admitted to tradings in the corresponding list on December 13, 2007.

On December 21, 2007 OJSC “Magnit” shares have been included in the quotation list

“B” of CJSC “MICEX SE” and admitted to tradings in the corresponding list.

On March 26, 2008 OJSC “Magnit” announced its intention to list global depositary
receipts (“GDRs”) representing its ordinary shares on the London Stock Exchange in connection
with an offering by the Company of 11,300,000 newly issued ordinary shares in the from of
GDRs and shares (including as part of the exercise of statutory pre-emption rights by the
existing shareholders of the Company and by a Company’s shareholder of ordinary shares in the
form of shares and GDRs.

The offer price was set at US$ 42.50 per share. The offer price in ruble terms was set

based on the rate of 23.4450 rubles per dollar.

A total of 9,719,638 shares including the shares in the form of GDRs were allocated to
international institutional investors. In connection with the offering the selling shareholder has
granted the joint bookrunners an over-allotment option to purchase up to an additional 506,586
shares in the form of GDRs at the offer price per GDR which was exercised in full.

Conditional dealings in the GDRs commenced on the London Stock Exchange on April
16, 2008 (5 GDRs representing an interest in one share). Admission of the GDRs to the Official
List of the UK Listing Authority occurred on April 22, 2008.

Total free float of OJSC “Magnit” after the secondary offering amounted to 31.8%
(35.48% по отчетности за 1П08). Proceeds from the offering amounted to (approximately) US$
480.25 million and were used to finance further expansion of the Company’s chain of
hypermarkets as well as to continue the expansion of its convenience store operations and
further development of its logistics capabilities. Deutsche Bank AG и Morgan Stanley & Co.
International plc acted as joint global coordinators, joint bookrunners and joint lead managers.

According to trading sessions held from 01.01.2008 to 31.12.2008 on OJSC “RTS SE”
weighted average price of the shares trading sessions fluctuated from min 435.75 rubles
(18.12.2008) to max 1,359 rubles (14.01.2008).

Weighted average price, RUR.

1359,00

1600

1400

1200

1000

800

600

400

200

435,75

8
0
0
2
.
1
0
.
0
1

8
0
0
2
.
2
0
.
0
1

8
0
0
2
.
3
0
.
0
1

8
0
0
2
.
4
0
.
0
1

8
0
0
2
.
5
0
.
0
1

8
0
0
2
.
6
0
.
0
1

8
0
0
2
.
7
0
.
0
1

8
0
0
2
.
8
0
.
0
1

8
0
0
2
.
9
0
.
0
1

8
0
0
2
.
0
1
.
0
1

8
0
0
2
.
1
1
.
0
1

8
0
0
2
.
2
1
.
0
1

Market capitalization of OJSC “Magnit” as of the last date of 2008 amounted to

96,461,938,273.81 rubles according to OJSC “RTS SE”.

1133.. TTRRAANNSSAACCTTIIOONNSS,, CCOONNSSIIDDEERREEDD MMAAJJOORR TTRRAANNSSAACCTTIIOONNSS
JJOOIINNTT--SSTTOOCCKK

AACCCCOORRDDIINNGG TTOO TTHHEE FFEEDDEERRAALL LLAAWW ““OONN
CCOOMMPPAANNIIEESS””,, MMAADDEE WWIITTHHIINN TTHHEE YYEEAARR 22000088..

1.
Date of transaction (date of the contract)
Type, subject, essentials of
including civil rights and obligations
determined, changed or
transaction

the

terminated by

transaction,
to be
the

parties and beneficiaries under transaction

term of obligations fulfillment under transaction

amount of transaction in money terms and per cent
of the balance sheet assets of the issuer

issuer’s assets value as of the date of termination of
accounting period (quarter, year), preceding the
date of transaction (date of the contract) and for
which the account is made according to the
legislation of Russian Federation
information on the approval of transaction is such
transaction is acknowledged as a major or a
related-party transaction
type of transaction (major transaction; related-
party transaction; major related-party transaction )
issuer’s authority which made a decision on
approval of transaction
date of decision on approval of transaction
date and number of the minutes of meeting of
issuer’s authority when the decision on approval of
the transaction was made
2.
Date of transaction (date of the contract)
Type, subject, essentials of
including civil rights and obligations
determined, changed or
transaction

transaction,
to be
the

terminated by

the

21.04.2008

Loan Agreement at the interest 3.5% per
year

The Lender: OJSC «Magnit»,
The Borrower: CJSC «Tander».
22.04.2013г
3,000,000,000.00 rubles which is 48.44 % of
the balance sheet assets of the Company
as of 01.04.2008.

Company’s assets value as of 01.04.2008
amounts to 6 193 205 thousand rubles.

The transaction is approved

Major related-party transaction.

General shareholders’ meeting.

25.06.2008

Minutes of proceedings of 09.07.2008 w/o
No.

29.04.2008

Loan Agreement at the interest 3.4% per

year

parties and beneficiaries under transaction

term of obligations fulfillment under transaction

amount of transaction in money terms and per cent
of the balance sheet assets of the issuer

issuer’s assets value as of the date of termination of
accounting period (quarter, year), preceding the
date of transaction (date of the contract) and for

The Lender: OJSC «Magnit»,
The Borrower: CJSC «Tander».
29.03.2013 г
3,000,000,000.00 rubles which is 48.44 % of
the balance sheet assets of the Company
as of 01.04.2008.

Company’s assets value as of 01.04.2008
amounts to 6,193,205 thousand rubles.

The transaction is approved

Major related-party transaction.

General shareholders’ meeting.

25.06.2008

Minutes of proceedings of 09.07.2008 w/o
No.

04.05.2008

Loan Agreement at the interest 3,6% per

year

The Lender: OJSC «Magnit»,
The Borrower: CJSC «Tander».
03.05.2014г
2,000,000,000.00 rubles that is 32.29 % of
the balance sheet assets of the Company
as of 01.04.2008.

Company’s assets value as of 01.04.2008
amounts to 6,193,205 thousand rubles.

The transaction is approved

Major related-party transaction.

General shareholders’ meeting.

25.06.2008

Minutes of meeting of 09.07.2008 w/o No.

which the account is made according to the
legislation of Russian Federation
information on the approval of transaction is such
transaction is acknowledged as a major or a
related-party transaction
type of transaction (major transaction; related-
party transaction; major related-party transaction )
issuer’s authority which made a decision on
approval of transaction
date of decision on approval of transaction
date and number of the minutes of meeting of
issuer’s authority when the decision on approval of
transaction was made
3.
Date of transaction (date of the contract)
Type, subject, essentials of
including civil rights and obligations
determined, changed or
transaction

transaction,
to be
the

terminated by

the

parties and beneficiaries under transaction

term of obligations fulfillment under transaction

amount of transaction in money terms and per cent
of the balance sheet assets of the issuer

1144.. LLIISSTT 00FF 22000088 TTRRAANNSSAACCTTIIOONNSS DDEECCLLAARREEDD AASS RREELLAATTEEDD--
PPAARRTTYY IINN AACCCCOORRDDAANNCCEE WWIITTHH TTHHEE FFEEDDEERRAALL LLAAWW ““JJOOIINNTT--
SSTTOOCCKK CCOOMMPPAANNIIEESS””
1.
Date of transaction

Subject and essentials of transaction

Parties of transaction

18.04.2008
Granting the guarantee by the Company for
CJSC “Tander” under the Leasing Agreement
№63/2007 of 22.02.2008
The Lessor: LLC «Cargobull Finance»
The Lessee: CJSC «Tander»
The Guarantor: OJSC «Magnit»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction

Vladimir Gordeychuk

Basis on which such entity is considered
related-party for transaction

Transaction amount in money terms, thousand
rubles.
Transaction amount in per cent of issuer’s
balance sheet assets as of the termination date
of the last accounting period preceding the date
of transaction, %
Term for fulfillment of obligations under
transaction
Information on
obligations
Issuer’s authority which made a decision on
approval of transaction, date of decision (date
and number of minutes of proceedings)
Other information on transaction indicated by
the issuer’s discretion
2.
Date of transaction

fulfillment of mentioned

1.8 %

None

Subject and essentials of transaction

Parties of transaction

V. Gordeychuk is a member of the Board of
Director of OJSC “Magnit” and CEO of CJSC
“Tander”
111,280 (the amount of obligations is valued
as of the date of the Leasing Agreement)

The contract is concluded for the period of 52
months

The obligations are outstanding

The transaction is approved by the Board of
directors on March 25, 2008, minutes of
proceedings as of 25.03.2008.

21.04.2008
Presenting by the Company the money loan at
interest
The Lender: OJSC «Magnit»
The Borrower: CJSC «Tander»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction

Vladimir Gordeychuk

Basis on which such entity is considered
related-party for transaction

V. Gordeychuk is a member of the Board of
Director of OJSC “Magnit” and CEO of CJSC
“Tander”

3,000,000

48.44 %

22.04.2013

fulfillment of mentioned

Subject and essentials of transaction

Parties of transaction

The Lender’s obligations are fulfilled in time.

The transaction is approved by the annual
general shareholders’ meeting on June 25, 2008,
minutes of proceedings as of 09.07.2008

None

29.04.2008
Presenting by the Company the money loan at
interest
The Lender: OJSC «Magnit»
The Borrower: CJSC «Tander»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction

Vladimir Gordeychuk

Basis on which such entity is considered
related-party for transaction

V. Gordeychuk is a member of the Board of
Director of OJSC “Magnit” and CEO of CJSC
“Tander”

fulfillment of mentioned

Subject and essentials of transaction

Parties of transaction

3,000,000

48.44 %

29.03.2013

None

The Lender’s obligations are fulfilled in time.

The transaction is approved by the annual
general shareholders’ meeting on June 25, 2008,
minutes of proceedings as of 09.07.2008

04.05.2008
Presenting by the Company the money loan at
interest
The Lender: OJSC «Magnit»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction

Vladimir Gordeychuk

The Borrower: CJSC «Tander»

Basis on which such entity is considered
related-party for transaction

V. Gordeychuk is a member of the Board of
Director of OJSC “Magnit” and CEO of CJSC
“Tander”

2,000,000

32.29 %

03.05.2014

fulfillment of mentioned

Subject and essentials of transaction

Parties of transaction

The Lender’s obligations are fulfilled in time.

The transaction is approved by the annual
general shareholders’ meeting on June 25, 2008,
minutes of proceedings as of 09.07.2008

None

11.07.2008
Granting the guarantee by the Company for
CJSC “Tander” under the Leasing Agreement
№LA83/2008 of 11.07.2008
The Lessor: LLC «Cargobull Finance»
The Lessee: CJSC «Tander»
The Guarantor: OJSC «Magnit»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction

Vladimir Gordeychuk

Basis on which such entity is considered
related-party for transaction

fulfillment of mentioned

10.42 %

V. Gordeychuk is a member of the Board of
Director of OJSC “Magnit” and CEO of CJSC
“Tander”
645,548 (the amount of obligations is valued
as of the date of the Leasing Agreement)

The contract is concluded for the period of 52
months

The obligations are outstanding

Issuer’s authority which made a decision on
approval of transaction, date of decision (date
and number of minutes of proceedings)
Other information on transaction indicated by
the issuer’s discretion
6.
Date of transaction
Subject and essentials of transaction

None

Parties of transaction

The transaction is approved by the Board of
directors on March 25, 2008, minutes of
proceedings as of 25.03.2008

18.07.2008
Granting the guarantee by the Company
The Lender: Commercial joint-stock bank
“Bank Societte Generalle Vostok”(closed
joint-stock company)
The Borrower: CJSC «Tander»
The Guarantor: OJSC «Magnit»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction

Vladimir Gordeychuk

Basis on which such entity is considered
related-party for transaction

V. Gordeychuk is a member of the Board of
Director of OJSC “Magnit” and CEO of CJSC
“Tander”

1,000,000

6.22%

18.03.2009

Transaction amount in money terms, thousand
rubles
Transaction amount in per cent of issuer’s
balance sheet assets as of the termination date
of the last accounting period preceding the date
of transaction, %
Term for fulfillment of obligations under
transaction
Information on
obligations
Issuer’s authority which made a decision on
approval of transaction, date of decision (date
and number of minutes of proceedings)
Other information on transaction indicated by
the issuer’s discretion
7.
Date of transaction

fulfillment of mentioned

Subject and essentials of transaction

Parties of transaction

The obligations are outstanding

The transaction is approved by the annual
general shareholders’ meeting on June 25, 2008,
minutes of proceedings as of 09.07.2008

None

30.07.2008
Granting the guarantee by the Company for
CJSC “Tander” under The Leasing Agreement
№ 63-2/2007-3 of 22.02.2008
The Lessor: LLC «Cargobull Finance»
The Lessee: CJSC «Tander»
The Borrower: OJSC «Magnit»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction
Basis on which such entity is considered V. Gordeychuk is a member of the Board of

Vladimir Gordeychuk

related-party for transaction

fulfillment of mentioned

6.4 %

None

Subject and essentials of transaction

Parties of transaction

Director of OJSC “Magnit” and CEO of CJSC
“Tander”
396 407 (the amount of obligations is valued
as of the date of the Leasing Agreement)

The contract is concluded for the period of 52
months

The obligations are outstanding

The transaction is approved by the annual
general shareholders’ meeting on June 25, 2008,
minutes of proceedings as of 09.07.2008

30.07.2008
Presenting by the Company the money loan at
interest
The Lender: OJSC «Magnit»
The Borrower: CJSC «Tander»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction

Vladimir Gordeychuk

Basis on which such entity is considered
related-party for transaction

V. Gordeychuk is a member of the Board of
Director of OJSC “Magnit” and CEO of CJSC
“Tander”

118,300

0.74 %

30.07.2014

fulfillment of mentioned

None

The Lender’s obligations are fulfilled in time.

The transaction is approved by the annual
general shareholders’ meeting on June 25, 2008,
minutes of proceedings as of 09.07.2008

12.08.2008
Presenting by the Company the money loan at

Parties of transaction

interest
The Lender: OJSC «Magnit»
The Borrower: CJSC «Tander»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction

Vladimir Gordeychuk

Basis on which such entity is considered
related-party for transaction

V. Gordeychuk is a member of the Board of
Director of OJSC “Magnit” and CEO of CJSC
“Tander”

180,000

1.12 %

30.07.2014

fulfillment of mentioned

Subject and essentials of transaction

Parties of transaction

The Lender’s obligations are fulfilled in time

The transaction is approved by the annual
general shareholders’ meeting on June 25, 2008,
minutes of proceedings as of 09.07.2008

None

19.08.2008
Presenting by the Company the money loan at
interest
The Lender: OJSC «Magnit»
The Borrower: CJSC «Tander»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction

Vladimir Gordeychuk

Basis on which such entity is considered
related-party for transaction

V. Gordeychuk is a member of the Board of
Director of OJSC “Magnit” and CEO of CJSC
“Tander”

fulfillment of mentioned

100,000

0.62 %

30.07.2014

The Lender’s obligations are fulfilled in time

None

Subject and essentials of transaction

Parties of transaction

The transaction is approved by the annual
general shareholders’ meeting on June 25, 2008,
minutes of proceedings as of 09.07.2008

21.08.2008
Presenting by the Company the money loan at
interest
The Lender: OJSC «Magnit»
The Borrower: CJSC «Tander»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction

Vladimir Gordeychuk

Basis on which such entity is considered
related-party for transaction

V. Gordeychuk is a member of the Board of
Director of OJSC “Magnit” and CEO of CJSC
“Tander”

300,000

1.86 %

30.07.2014

fulfillment of mentioned

Subject and essentials of transaction

Parties of transaction

The Lender’s obligations are fulfilled in time

The transaction is approved by the annual
general shareholders’ meeting on June 25, 2008,
minutes of proceedings as of 09.07.2008

None

01.10.2008
Granting the guarantee by the Company for
CJSC “Tander” under The Leasing Agreement
№ 854-of 11.09.2008
The Lessor: LLC «BSGV Leasing»
The Lessee: CJSC «Tander»
The Guarantor: OJSC «Magnit»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction

Vladimir Gordeychuk

Basis on which such entity is considered
related-party for transaction

V. Gordeychuk is a member of the Board of
Director of OJSC “Magnit” and CEO of CJSC
“Tander”; CJSC “Tander” is a shareholder of

jointly with

OJSC “Magnit”
it’s
that
affiliated persons owe more than 20% of
voting shares of the Company and beneficiary
under the transaction
13,986 (the amount of obligations is valued as
of the date of the Leasing Agreement)

fulfillment of mentioned

0.09 %

None

Subject and essentials of transaction

Parties of transaction

The guarantee is valid for the validity period
of leasing

The obligations are outstanding

The transaction was approved by the Board of
directors on September 18, 2008, minutes of
proceedings as of 18.09.2008

10.10.2008
Presenting by the Company the money loan at
interest
The Lender: OJSC «Magnit»
The Borrower: CJSC «Tander»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction

Vladimir Gordeychuk

Basis on which such entity is considered
related-party for transaction

V. Gordeychuk is a member of the Board of
Director of OJSC “Magnit” and CEO of CJSC
“Tander”

300,000

1.85 %

30.07.2014

fulfillment of mentioned

None

The Lender’s obligations are fulfilled in time

The transaction is approved by the annual
general shareholders’ meeting on June 25, 2008,
minutes of proceedings as of 09.07.2008

Date of transaction

Subject and essentials of transaction

Parties of transaction

13.10.2008
Granting the guarantee by the Company for
CJSC “Tander” under The Leasing Agreement
№ 918-of 13.10.2008
The Lessor: LLC «BSGV Leasing»
The Lessee: CJSC «Tander»
The Guarantor: OJSC «Magnit»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction

Vladimir Gordeychuk

Basis on which such entity is considered
related-party for transaction

fulfillment of mentioned

0.01%

None

Subject and essentials of transaction

Parties of transaction

V. Gordeychuk is a member of the Board of
Director of OJSC “Magnit” and CEO of CJSC
“Tander”; CJSC “Tander” is a shareholder of
it’s
that
OJSC “Magnit”
affiliated persons owe more than 20% of
voting shares of the Company and beneficiary
under the transaction
1 456 (the amount of obligations is valued as
of the date of the Leasing Agreement)

jointly with

The guarantee is valid for the validity period
of leasing

The obligations are outstanding

The transaction was approved by the Board of
directors on September 18, 2008, minutes of
proceedings as of 18.09.2008

03.12.2008
Security granting according to which the
Guarantor shall be fully responsible before the
Lender for nonfulfillment of the Borrower’s
obligations taken under the Credit Contract №
КС-714000/2008/00250 of 05.11.2008.
The Lender – Bank VTB (open joint-stock
company)
The Guarantor – OJSC «Magnit»
The Beneficiary
«Tander»

(the Borrower) – CJSC

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the

Vladimir Gordeychuk;
«Tander»

transaction

Basis on which such entity is considered
related-party for transaction

jointly with

200,000

1.24 %

30.07.2014

fulfillment of mentioned

Subject and essentials of transaction

Parties of transaction

The Lender’s obligations are fulfilled in time

The transaction was approved by the Board of
directors on November 23, 2008, minutes of
proceedings as of 23.11.2008

None

23.12.2008
Purchase and sale of the property located at
the address 11/4 Mashinostroitelnaya street,
region, Russian
Kropotkin, Krasnodar
Federation:
- nonresidential facility of the pavilion № 3,
building F, with total square of 7 130,6 square
meters;
- land lot, land category -
земельный участок, категория земель –
lands of localities with cadastral number
23:44:08 01 001:055, square 13 458 square
meters
The Seller: OJSC «Magnit»;
The Buyer: CJSC «Tander»

Full and short firm name (names) of the legal
entity or surname, name, patronymic name of a
person that is considered related-party for the
transaction

Vladimir Gordeychuk

Basis on which such entity is considered
related-party for transaction

V. Gordeychuk is a member of the Board of
Director of OJSC “Magnit” and CEO of CJSC
“Tander”; CJSC “Tander” is a shareholder of
OJSC “Magnit”
it’s
that
affiliated persons owe more than 20% of

jointly with

voting shares of the Company and beneficiary
under the transaction
Balance sheet value of property: 21 764,3
Price: 79 005,8 rubles

fulfillment of mentioned

0.13 %

26.01.2009 г.

The obligations are fulfilled in time

The transaction was approved by the Board of
directors on November 23, 2008, minutes of
proceedings as of 23.11.2008

None

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TTHHEE OOPPEERRAATTIIOONN OOFF TTHHEE CCOOMMPPAANNYY

Due to the fact that OJSC “Magnit” and its subsidiaries operate within one group of
companies of OJSC “Magnit” (hereinafter - “the Group”, retail chain “Magnit” or “The
Company”), the risks are described for the entire Group in general.

The description of risks provided herein is not full-scale or extensive, but expresses
Company’s viewpoint and its own assessment. Along with the risks specified, there exist other
risks not included in the report which may affect the amount of investments into OJSC
“Magnit” shares. Other risks, including those the Company is not aware of or which deem
insignificant at the present time, may lead to reduction of revenue, excess of expenses or other
events and (or) consequences, as a result of which the price of Company’s securities will
decline.

In case if one or several risks described below arise, OJSC “Magnit” will take all the
possible measures and apply best efforts to minimize the effect of negative changes. Today it is
impossible to define particular actions of the Company in any risk conditions, as the elaboration
of the adequate measures is impeded by the indeterminate character of the further situation
development. The character of undertaken measures will depend on the conditions of each
specific case. OJSC “Magnit” cannot guarantee that the measures taken to meet the negative
fluctuations will considerably change the situation, because the majority of the described risks
are beyond the control of the Company.

Risk Management Policy of the Company.
Generally the Company and the Group apply system approach of risk management. The

key constituent elements of the risk management policy in each focus area are:
Risk identification
Risk assessment methods
Elaboration and implementation of comprehensive risk management framework
Ongoing monitoring of risk status

Risk management is fulfilled and applied to the entire Group.
In regard to the industry risks, industry environment in the market for the intermediate-
term and long-term periods is estimated according to the macroeconomic forecasts of MED and
investment analysts. The prospective demand estimation is based on the forecasts on the
population income sector and consumption level. The industry trends are estimated and
defined in respect of diverse trade formats, breakdown of demand by formats and competitive
environment.

The conducted analysis underlies the development strategy aimed at consolidation of

competitive positions and increase of market share of the Company.

Regarding country and regional risks, we monitor political and economic situation, as
well as estimate the risk level of natural disasters, cease of transport communication in the
regions where “Magnit” chain stores are located. Territorial diversification of ‘Magnit’ company
groups’ operation adds up to risk reduction.

Regarding financial risks, the level of interest rate, currency exchange, credit and

liquidity risks is estimated.

Interest risks management is carried out through the most optimal ways of financing
and coordination of resource attraction terms with the terms of implementation of the projects
which are to be financed. To provide the opportunity for optimization of attracted resources,
the Group works out its credit profile, expands the data base of potential creditors and

diversifies means of their attraction. The reduction of resources’ costs is achieved through the
policy of information transparency. One of the tools of interest risk management is the
forecasting of the interest rate changes and the assessment of appropriate debt liability level of
the Company with consideration of such overall interest rate changes.

Regarding the currency risks, the analysts’ forecasts on the possible fluctuations of the
exchange rate are assessed, and the decisions on the amount and direction of currency position
are taken. Since “Magnit” receives all revenues in Russian rubles and does not possess assets
denominated in foreign currency, the Company does not take liabilities in foreign currency in
order to minimize currency risks.

Regarding liquidity risks, the Company and the Group in general maintain balanced

terms’ ratio of assets and liabilities.

Regarding credit risks, the Company applies analysis of financial state of counteragents

and the limit system.

Legal risk management is based on the strict observance of the present Russian
legislation. Legal department regulates all legislation fluctuations which refer to the company
activity and conducts legal inspection of all the contracts and agreements.

INDUSTRY RISKS

Risks related to customer demand and competition

Negative changes of macroeconomic conditions and the decrease of customer demand

in Russia may adversely affect sales of the Group and its profit

The Group operates in the retail sector of food and goods of primary necessity.
The development of the retail sector, where the Group operates, in many aspects
depends on macroeconomic factors because the demand for the consumer goods is determined
by the amount of disposable income of population.

Due to the change of economic climate in Russia within the global financial crisis the
Russian GDP growth and consequently the population income may decrease or even show
negative dynamics in the nearest year. In case of economic instability the reduction of the
actual disposable income of population may lead to deterioration of the growth dynamics and
sector profitability. It should be noted that the state of Russian economy is mainly determined
by the price for oil, other energy and mineral resources on the world market. Price decline for
mineral resources will negatively affect the economy of Russian Federation on the whole due to
the dominant share of raw materials in GDP. Deterioration of the economic situation will also
result in the reduction of the purchasing power in the country.

Consumer demand on the markets where the Group operates depends on a number of
factors which are beyond Group’s control, including demographic factors, consumer preferences
and their spending capacity. The reduction of the consumer demand or fluctuations of consumer
preferences may dramatically reduce the sales and the profit of the Group and substantially
affect business activity, financial state and results of the Group and the Company. Moreover,
the seasonality of the consumer demand may lead to considerable fluctuations of the Group
operation results in different periods of time.

High level of competition may lead to decline of the market share of the Group and

its profit.

The Group operates in 5 federal districts and in more than 856 locations of Russian
Federation with the highest concentration in the South, Central and Volga regions. In the

nearest future the retail store chain plans to expand in other regions of the country including
the Central and the Urals regions which are a priority. The retail market of the South Federal
District (hereinafter “SFD”) is quite a competitive regional market in Russia and is represented
by the majority of the big Russian players and a number of foreign peers.

Russian retail sector is characterized by a high level of competition. The Group competes
with a significant amount of Russian and international companies. In recent years consumer
demand growth in Russia attracted new market participants and led to the intensification of
competition. Retail chains compete with each other mainly for store locations, product quality,
service and price, variety of goods and store conditions. Appearance of the additional players
on the Russian market may intensify competition even more and reduce the operating efficiency
of the Group.

Some of the Group’s competitors which are on the market today, and also those
planning to enter the Russian market, are big international companies and apparently have
more opportunities to attract resources than the Group. Moreover, many other international
players, including those surpassing the Group in financial and other opportunities, will enter
the Russian market in the nearest years through acquisition of local players and setting up of
their own chains from the ground up.

If the above process is intensive, the competition may substantially grow, what will
negatively affect the market share of the Group and its competitive position. The ability of
“Magnit” retail chain to retain its competitive position depends on its opportunities to maintain
and remodel the existing stores and open new stores in advantageous locations, as well as to
offer competitive prices and services. There is no guarantee that the Group will be able to
successfully compete with the existing and new competitors in the future.

On the present stage of competitive activity the considerable risks for the Group are also
connected with the fact that the main competitors to the Group use more aggressive approach
such as gaining a foothold in the additional markets through the growth based on franchising
schemes. Such approach allows competitors to expand their presence in many regions of Russia
as well as considerably reduce the costs of new stores installations. The fact that the Group does
not use the franchising schemes may lead to serious reduction of mobility in fluctuation of
geographical coverage, and as a result to the loss of a considerable market share.

These factors as well as economic conditions and strategy of the discount pricing may

lead to further competition intensification and negatively affect business, financial position and
operational results of the Group and the Company.

Risks related to the intensive growth.

Failure of the Group’s strategy to intensively expand may hinder its further growth.
Today the stores operating under “Magnit” trade mark are located in Moscow (5), Saint-
Petersburg (7), Krasnodar region and 49 other constituent entities of Russian Federation. Within
its strategy the Group plans to considerably increase the number of its stores in the above
regions maintaining the same development rates as well as to further expand its chain in a
number of constituent entities of Russian Federation. The development plans of the Group
make it dependent on economic conditions and some other factors.

The successful roll-out of the Group development strategy depends on its ability to
identify and acquire suitable premises on commercially reasonable terms, to open new stores in
time, to employ, train and keep extra store and management personnel and to integrate new
stores into the Group’s existing operation on a profitable basis. It is impossible to guarantee that
the Group will achieve the target growth and that the new stores will profit.

There is a risk of target audience reduction in the course of time. Gradual
increase/decrease of population income may lead to the attrition of “Magnit” chain customers,
and as a result to the material adverse effect on the Group. The Russian food retail market is
subject to changing customer trends, demands and preferences The Group’s target customers
are mainly the consumers with medium or low income. If the level of disposable consumer
income continues to increase nationwide (either generally or in certain federal districts,
especially in the Southern Federal District where a larger portion of total revenue is derived),
the Group may not be able to adjust the assortment of products in the stores quickly enough to
reflect changes in the preferences of the consumers, and thus will lose a part of the target
audience. As a result of such changes, the number of customers shopping in “Magnit” stores
may decrease (or increase more slowly than in the past), or average ticket at convenience stores
may decrease (or increase more slowly than in the past), which could have a material adverse
effect on business, results of operation, financial position and prospects of the Group.

Failure to successfully launch and operate Group’s hypermarket chain may result in

material losses.

Expansion into the hypermarket business presents a particularly difficult challenge for
the Group. While it has a long track record of successful installations of large number of new
convenience stores, expanding the scope of activity, the Group has started its hypermarket
expansion only recently. The first hypermarket was opened in October 2007, therefore many
elements of the strategy applied to hypermarket operation have not yet found its practical use
or been applied.

In addition, the senior management has relatively limited experience in managing
hypermarkets, and there is no guarantee that specialists recently involved in the operation of
the hypermarkets will be able to control and to manage risks and duly exercise their authority.
Moreover, hypermarket construction requires large financial investments and takes a
significantly longer time. Based on the practice in hypermarket construction, on the average it
takes the Group from 2 up to 8,7 months from the date of decision to purchase a land plot to
receiving rights on it, additional 6 months go for obtaining of a construction license and 9
months for construction and obtaining of the rest necessary permissions and licenses. Since the
Group have made large capital investments in already opened hypermarkets and hypermarkets
under construction and in the nearest future intends to make additional large capital
expenditures on hypermarket chain expansion, the consequences of Croup’s inability to
effectively manage and achieve target levels of profitability would be highly negative to its
business, results of operation, financial position and prospects.

Expansion of the Group through acquisition of other companies or their assets may be

connected with different risks which may have serious adverse affect on the economic
activity of the Group and its financial position.

The Group plans to expand its operation through acquisition. Acquisition opportunities
presuppose certain risks, including failure to single out the objectives appropriate for
acquisition, and/or to carry out adequate complex examination of their operations and/or
financial position, financial risks and operation expenses which are considerably higher than
the assumed ones. Moreover, there is a risk of incapability to assimilate the operation and
personnel of the acquired companies, absence of the arrangement and integration of all the
required systems and control, the risk of customer loss, as well as the risk of entering the
markets, where the Group does not have any experience or has minor experience and/or
markets where the access to the necessary logistics provision and distribution chain is limited,
as well as the risk of business interruption and diffusion of the Group management resources. If

the Group is not able to integrate its acquisitions, such failures may have a material adverse
effect on its financial position and results of operation.

Failure to raise enough funds may prevent the Group from realization of its plans on

operation expansion.

Implementation of the Group’s growth strategy may require large capital expenditures.
There’s no guarantee that the operational cash flow of the Group and/or borrowings from
financial institutions or financial assets attracted from the stock market would be enough for
financing its scheduled expenses in the nearest future. If the Group fails to raise enough funds
to cover its scheduled expenses, there is risk of reduction or cease of expansion.

Expansive growth of the Group may lead to lack of administrative, industrial and

financial resources.

Group’s output is growing very fast. The growth is expected to continue in the projected
future. Such expansive growth as well as extra growth may lead to the serious lack of
administrative, operational and financial resources. As a result, “Magnit” retail chain will have
particularly to continue improvement of its operational and financial systems, administrative
management and techniques. The Group will also have to achieve strict coordination of
transportation, technical, account, legal, financial, marketing, warehouse and store personnel
operation. If the Group fails to manage the above tasks, its operation and financial position may
be adversely affected.

Moreover, due to the ongoing growth, the Group may experience difficulties in
application, expansion and improvement of its management information system. If the Group
fails to maintain its management information system, financial accounting and in-house audit
systems at a proper level, its economic operations and financial position may materially suffer.

Risks related to the investments in real estate.

Lack of reliable information about the real estate market in Russian Federation makes

it difficult to estimate the value of the real estate owned by the Group.

The amount of reliable public information and research concerning the real estate
market in Russia is limited. The volume of the available data is not that comprehensive and
complete as similar data on the real estate market in other industrially developed countries. The
lack of information makes it difficult to assess the market value and rent price of the real estate
in Russia. Therefore, there is no confidence that the price set to the real estate of the Group
reflects its market value.

The value of Group’s investments into real estate may decline.
The Group in whole and the Company in particular make substantial investments in
real estate used for the store premises. The market of any goods including commercial property
is subject to fluctuations. Market value of the real estate may decline or grow as a result of
different factors, i.e.:

a) changes in the competitive environment;
b) changes of the attractiveness level of the real estate on the market of Russian Federation
as a whole, as well as on the regional markets with the property objects of the Company
due to the changes of the country and regional risks;
c) fluctuations of the demand for commercial real estate.
As a result of any negative changes on the real estate market, the value of the real estate
acquired by the Company or its subsidiaries may decline and negatively affect the assets value

of the Group. Thus, in case of realization of such property the Group won’t be able to
compensate its acquisition costs, which may negatively affect the financial position of the Group
and the Company.

Inability to obtain rights on the suitable real estate object on commercially acceptable
terms, to protect the real estate rights of the Group or to build new stores on newly acquired
land plots may have a material adverse effect on economic operations of the Group and its
financial position.

Ability of the Group to open new stores is largely dependent on identifying and leasing
and/or acquisition of the premises suitable for its needs on commercially reasonable terms. The
market for property in metropolitan areas of Russia is highly competitive and, in conditions of
favorable economic environment the competition for and therefore the cost of high quality land
plots may increase. However, there’s no guarantee that the Group will manage to exercise it in
the future. If due to any reason, including competition from third parties seeking similar land
plots and premises, the Group is not able to identify and obtain the new objects in due time,
Group’s anticipated growth will be adversely affected. Even after the Group procures the rights
on the suitable land plots and premises, it may experience difficulties or delays when obtaining
permissions from various regional authorities, required for the exercise of the Group rights to
use, renovate or reequip the stores. Therefore, there’s no guarantee that the Group will
successfully identify, lease and/or purchase the suitable property objects on acceptable terms or
upon the necessity.

Failure to renew the lease contracts for the stores or prolong them on reasonable terms
may have materially adverse effect on economic activity of the Group and its financial
position.

There can be no guarantee that the Group will be able to extend the lease contracts on
reasonable terms, and even that there will be the opportunity itself to prolong the lease
contracts the share of which is plenty large enough as they expire. If the Group is not able to
prolong the lease contracts for its stores as they expire or lease another suitable objects on
acceptable terms, or if the actual lease contracts of the Group are terminated for any reason
(including those due to the loss of right on such objects by the lessor), or if their terms are
revised to the detriment of the Group, it may have material adverse effect on its financial
position and operation results.

Lack of professional building contractors may adversely affect the development

strategy of the Group.

The ability of the Group to construct and develop specially constructed new stores is
exclusively important for its strategy and commercial success. There is a shortage of highly-
skilled contractors able to build new stores in time and in compliance with standardized
requirements of the Group. There’s no guarantee that in future the Group will be able to find
the suitable skilled and qualified team of designers to enable the Group to build and launch
new stores in time. Inability of the Group to construct and develop new stores on the newly
acquired land plots may have material adverse effect on its potential to follow its strategy and
to achieve the required financial position and operation results.

Contestation of the Group’s rights for the real estate or cessation of the Group’s
projects for new stores construction may have materially adverse effect on economic activity
of the Group and its financial position.

The operation of the Group includes the obtaining of ownership and lease rights for the
land plots and premises for the purpose of its further use for the new stores. In addition, the
Group owns objects and premises where its offices are located. Russian land and property
legislation is complex and often ambiguous, and may contain contradictory provisions at the
federal and regional levels. In particular, it is not always clear which state bodies or agencies are
authorized to enter into land leases with respect to particular land plots, the procedures of
construction approval are complex and prone to challenge or complete abolition. Construction
and environmental regulations often contain the requirements which in practice are impossible
to meet in full. As a result, the ownership and lease rights of the Group for land plots and
buildings may be challenged by the governmental authorities and third parties, and thus, its
construction projects may be delayed or cancelled.

Under Russian law, property transactions may be challenged on many grounds,
including ineligibility of the property seller or right holder to dispose this property, breach of
internal corporate requirements by the counterparty and failure to register the transfer of rights
in the unified state register. As a result, defect in the real estate transactions may lead to
invalidation of such transactions with individual property objects, and thus, may affect the
rights of the Group to this property.

Moreover, Russian law does not require certain encumbrances over real estate
(including leases for less than one year period and uncompensated use agreements) to be
registered with the unified state register to legally validate the charge. In addition, the time
limits within which the charge liable to registration in the unified state register should be
entered into this register, are not stipulated in the law. Therefore, there is always a risk that the
third parties may register at any moment or claim the existence of encumbrances (of which the
Group had no prior knowledge) over real estate of the Group whether owned or leased.

Unionization of the Group employees may have material adverse effect on its

financial position and operation results.

At the present time the majority of Group employees do not league any labor unions. If
the considerable part of Group employees league labor unions, it may materially affect the
payroll costs of the Group and/or settlement of labor conflicts, and as a result may have a
material adverse effect on financial position and operation results of the Group.

The increase of the Group’s expenses may have material adverse effect on its

profitability.

The operating efficiency of the Company and its subsidiaries largely depend on the
prices on the products purchased for retail sale, as well as on the prices on services used by
them in their operation and on the amount of rent payment for the used movable and real
property and construction costs, acquisition and opening of the new stores. Fluctuations of the
agreement and rights’ obtaining procedures to the land plots (including lease right),
fluctuations of the norms and regulations applicable to the Group activity, town-planning, tax
and environmental legislations in particular, may entail the increase of new stores opening costs
or costs for the use of the premises, as well as the increase of the payback period of the stores.

The growth of the purchase prices, the installation costs, the price for land plots (other
real estate) and amount of rent, as well as the growth of the employees’ wages may lead to the
substantial growth of the Group’s expenses, and thus, seriously affect the Company
profitability in case if the Group is not able to adequately increase the sale prices due to low
purchasing capacity of the population in particular. Since “Magnit” retail chain while working
with one of the most economical formats mainly targets at customers with the income below the
average, the Group is substantially subject to the above risk. Profitability rundown may affect

the ability of the Company’s relevant authority to decide on the payment of dividends on
securities, and the market value of the Company securities.

The decline of prices for “Magnit” stores’ products may lead to the profitability

rundown of the Group.

Changes of the prices for the products in “Magnit” stores are largely determined by the
changes of the purchase prices of the Group. The Group is doing their best not to increase the
mark up for the products. Product price changes may affect the rate of the purchasing capacity
of the population. The price growth is mainly forecasted under the inflation conditions, which
as well affects the decrease of the purchasing capacity of the population. The deterioration of
macroeconomic environment and fall of the purchasing capacity of the population may also
lead to the decline of selling prices. If the purchase prices are less reduced than the selling
prices, it will lead to the decline of Group profitability.

The sudden deterioration of macroeconomic situation and intensification of competition
may force “Magnit” chain to cut the prices for products in order to maintain the target turnover
growth and market share, which may also lead to the profitability decline.

The assumed actions of the Company in case of industrial fluctuations:

In case one or several risks arise the Company will undertake all the possible measures
to reduce the effect of the existing fluctuations. It deems impossible to determine the specific
measures of the Group regarding any risk hereof, as it is hard to work out adequate measures
due to uncertainty of further situation development. The character of the applied actions will
depend on the specific situation of every case. The Company cannot guarantee that the
activities taken to overcome negative fluctuations will lead to considerable change in the
situation, as most of the risks hereof are out of the Company’s control.

In case of situation deterioration in the industry sector the Company plans:

a) if possible, to further expand its operation in order to reduce the prime cost of goods

and diversify some risks;

b) to carry out the diversification between the most and the least perspective stores and to

cut the stores with no prospects;

c) to extend the territory of its operation by choosing the most profitable regions of

Russian Federation in terms of growth prospects;

d) to carry out adequate changes in pricing policy for maintaining the demand for goods

on the necessary level;
e) to optimize the expenses;
f)

to continue engaging of highly-skilled specialists as well as to enter into agreements
with reliable specialists only, counteragents, contractors, which makes it possible to
minimize risks and carry out the detailed analysis of the scheduled Company operation
in order to reduce the prime cost of the investments, minimize the expenses structure
and get more profit.

COUNTRY AND REGIONAL RISKS

The Company and CJSC “Tander” are registered as a tax-payer in the Southern Federal
district, Krasnodar. The Group operates in 5 federal districts in more than 856 locations of
Russian Federation. The Group does not operate outside Russian Federation.

As the Group operates in Russian Federation, the main country and regional risks
affecting the operation of the Group and the Company are the risks within Russian Federation.
However, due to the growth of globalization of the world economy, considerable deterioration
of the economic situation in the world may lead to the serious economic recession in Russia and
as a result to the reduction of the demand for consumer goods.

In spite of the fact that during the last few years all public spheres in Russia saw positive
changes, i.e. the economy grew, some positive political stability was achieved, Russia is still the
state with the rapidly developing and changing political, economic and financial system. The
risks of the industrial production decline, the increase of the national debt, negative dynamics
of the currency exchanges, increase of unemployment, etc., significantly increased under global
financial and economic crisis. All this may lead to the drop of the living standards in the
country and negatively affect the operation of the Group, as the main target consumers of the
“Magnit” chain are people with income below the average. Apart from risks of economic
character, Russia is subject to the political and regulatory risks to a greater extent than other
countries with the developed market economy.

Political risks:

Political instability in Russia may affect the investment value in the country as well

as the price for the Company’s shares.

Since 1991 Russia is moving from single-party state with the centralized planned
economy to democracy with the market economy. As a result of the large-scale reforms and
failures of some of these reforms, Russian political system remains vulnerable to the public
discontent and disorders among individual social and ethnic communities. Significant political
instability may have considerable negative effect on the value of foreign investments into
Russia including the price for the Company’s shares.

Changes in the government, major political changes and lack of consensus between
different branches of government and economic groups may also lead to disruption or converse
turn of economic, political and judicial reforms. Any significant contradiction on the course of
the future reforms, breakdown or resignation of reform policy, political instability and rise of
conflicts between powerful economic groups may negatively affect the operation of the Group,
its financial results and development prospects as well as the value of investments into Russia
and the price for the Company’s shares.

Reconsideration of reforms or state policy in respect of some individuals, may have

an adverse negative impact on Company business and on investment potential of Russia.

During the presidential term of Vladimir Putin the political and economic situation in
Russia has generally become more stable and favorable for investments. However any
significant struggle over the course of future reforms or countermand of the existing reforms by
Dmitriy Medvedev may lead to deterioration in Russian investment climate that might
constrain the ability of Group to receive financing on the international financial markets, cut

Company’s sales in Russia or otherwise negatively affect Group’s business, operation results,
financial position and potential.

In the recent past our law-enforcement authorities have prosecuted some Russian
companies, their officials and shareholders for tax evasion and related tax offences. In some
cases the result of such prosecutions was the imposition of prison sentences and repayment of
understated taxes. Reportedly, such companies were Yukos, TNK-BP and Vimpelcom. Some
analysts consider that such prosecutions demonstrate a willingness to reverse key political and
economic reforms of the 1990s. Other analysts, however, believe that these prosecutions are
isolated cases and do not signal any deviation from greater political or economic reforms.

Conflicts between federal and regional authorities and other conflicts may set an
unfavorable economic environment which may have an adverse effect on the operation and
financial position of the Group.

The distribution of powers between federal and regional authorities, as well as between
different authorities on the federal level in some cases remains obscure. Therefore, Russian
political system is subject to certain internal contradictions and conflicts between federal and
regional authorities regarding different issues, particularly, tax collection, property right for
land, powers to regulate individual industries and regional autonomy. Conflicts between
different authorities may have serious adverse effect on the price of the Company’s shares.

Besides, ethnical, religious and other segregations periodically arouse public tension and
sometimes result into conflicts including the armed ones. Thus, the continuous conflict in
Chechnya led to the cessation of normal economic activity in Chechnya as well as negatively
affected economic and political situation in the neighboring regions and in Russia on the whole.
Terrorist activity and counter measures aimed at the elimination of violence, particularly by
imposing emergency rule in certain territorial subjects of Russian Federation may have an
adverse negative effect on the potential of Russian business on the whole and Group
performance in particular, especially, taking into consideration the significant scale of the
Group’s operation in the Southern federal district.

Social instability may lead to popular frustration; induce the call for powers’ change,

nationalism or violence.

Failure of the Russian government to adequately address social problems has led in the
past and may lead in the future to popular frustration. Such frustration might have social,
economic and political consequences, e.g. call for the change of powers, growth of nationalism
enhanced by the call for property nationalization, expropriation and constraints on overseas
property in Russia, as well as the increase of violence. Any of the above may have an adverse
negative effect on confidence in Russia’s social environment and investment potential, restrict
our operations and lead to losses or may otherwise affect Group’s business, operation results,
financial position and prospects.

Economic risks:

Deterioration of the economic situation in the Southern Federal district may arise from
the considerable changes in the economic situation in Russia, including dramatic fluctuations of
the national currency exchange, which may result in the reduction of the number of the
roundabout industrial enterprises and agriculture of all forms of ownership, unemployment
growth, decrease of the purchasing power of population. Such a scenario may lead to the
interruption of the investment program of the Group, slowdown of Group development on the

territory of Southern Federal district and other regions of Russian Federation, as well as the
slowdown of the revenue base growth.

Economic instability in Russia may affect the consumer demand which may have a

serious adverse negative impact on the Company’s business.

Any of the risks provided herein, previously experienced by the Russian economy, may
seriously change the investment climate in Russia and the activity of the Company. In the past
Russian economy faced the following negative developments:

Significant declines in GDP;
Hyperinflation;
Currency instability;
High ratio level of state debt/GDP;
Weak banking system which provides Russian enterprises with the limited liquidity;
Large amount of unprofitable enterprises which continue to operate due to deficiency of
effective bankruptcy procedure;
Wide use of barter and non-liquid bills in settlements for commercial transactions;
Prevalent practice of tax evasion;
Growth of black economy;
Continuous capital outflow;
High level of corruption and penetration of the organized crime into the economy;
Serious growth of unemployment and underemployment level;
Low living standards of the substantial part of the Russian population

Russian economy has faced abrupt downturns. In particular, the period of rapidly
deteriorating economic situation after August 17, 1998 when government defaulted on its ruble-
denominated securities, the CBR stopped to support the ruble, and temporary restrictions were
imposed on certain foreign currency payments. These actions resulted in immediate and severe
ruble devaluation and sharp increase of inflation rate, dramatic decline of Russian share quotes
and bonds as well as failure of the Russian issuers to raise funds on the international capital
markets.

The problems were aggravated by almost a complete collapse of Russian banking sector
after the events of August 17, 1998, which is proved by revocation of banking licenses of a
number of Russian high profile banks. This even more reduced the opportunity of banking
sector to provide stable liquidity to Russian companies and resulted in the widespread loss of
bank deposits.

The ongoing global financial crisis will affect the Russian economy. The eventual crisis
repercussions are: crisis of bank liquidity and consequently the presumable appreciation of the
borrowed resources which will result in economy growth slowdown, rise of unemployment
and the significant increase of inflation rate. Moreover, fluctuations of the world prices for oil
and gas, ruble weakening versus US dollar in real terms, as well as consequences of monetary
policy regression or other factors may in future adversely affect Russian economy and Group’s
business, especially its expansion plans.

Physical infrastructure of Russia is in extremely poor condition which may lead to

interruptions in the effective financial and economic activity.

Physical infrastructure of Russia was mainly set up in the soviet times and has not been
adequately funded and maintained in the recent years. The rail and road networks, power
generation and transmission, communication system and building stock were particularly
affetced. Electricity and heat deficiency in some regions of Russia dramatically disrupted the
local economies. For instance, power-substation failures of May 2005 resulted in power cut in

Moscow and neighboring regions, and thus in heavy damage of economy of Moscow and
corresponding regions.

Road conditions throughout Russia are also poor, and in some areas roads do not meet

minimum requirements of safety standards.

The deterioration of Russian physical infrastructure damages the national economy,
disrupts goods and cargo transportation, adds costs to business activity in Russia and may lead
to interruptions in financial and economic activity thus negatively affecting the business of the
Group.

The fluctuations in global economy may negatively affect the economy of Russia,
limiting the access of the Company to the capital and negatively influencing the purchasing
power of the final consumers of the products sold by “Magnit” chain stores.

Russian economy is vulnerable to market downturns and economic slowdowns in the
world. According to former practice, financial problems or exacerbated perception of
investment risks in countries with developing economy might reduce the volume of foreign
investments in Russia, thus affecting Russian economy. As Russia produces and exports large
quantities of natural gas, oil and other energy and mineral resources, Russian economy is
especially vulnerable to commodity prices, and decline in such prices may slowdown or shake
economic development of Russia. These events may severely limit Group’s access to the capital
and have an adverse negative effect on the purchasing power of consumers to buy goods sold
by the Group.

Social risks:

Social instability may lead to the increased support of resumption of the statism,
nationalism and violation, having serious negative effect on the opportunities of the Group to
effectively operate its business. Inability of the government and many private companies to pay
out the salaries in time, and altogether arrears of salary and benefits, which were a result of
rapidly growing living costs, led in the past and may lead in the future to riot risk. For example,
in 2005 groups of Russian pensioners and some public organizations held protest actions all
over Russia against benefits monetization and temporary blocked the roads. Similar actions,
labor and social disorders may have negative political, social and economic consequences
including the nationalism growth, imposing limitations on the foreign share in Russian
economy and the violence growth. All of the events above may lead to the restrictions on
activity of the Group and loss of is profits.

Crime and corruption may have an adverse negative effect on the operation and

financial position of the Group.

According to the reports of the local and international press, the level of the organized
criminal activity has considerably grown, particularly in large metropolitan centers. The
amount of property-related crime increased in large cities as well. Russian business often
involves high level of corruption among officials. Additionally, diverse publications indicate
that some members of the Russian media regularly publish biased articles for remuneration.
The Group activities may be affected by the illegal actions, corruption and accusation of the
Group of illegal operation and therefore have negative impact on the Group operation and price
of Company’s shares.

Legal risks related to the Russian Federation:

Infirmity of the Russian legal system and imperfection of the Russian legislation

offer doubtful environment for investments and business activity.

Effective legal system required to support market economy functioning in Russia is still
developing. Many key laws have only recently become effective. Insufficient consensus on the
amount, contents and time limits of economic and political reforms, rapid development of the
Russian legal system which did not always coincide with the trend of the market relations
development, in a number of cases resulted in ambiguity, noncompliance and inconsistence of
the law regulatory and by-laws. Moreover, Russian legislation very often contemplates
implementing regulations that have not yet been promulgated, leaving substantial gaps in the
regular infrastructure. In some cases the new laws and regulations are ratified without all-
around consideration by the interested parties of the civil law circle and do not contain any
adequate transitional regulations, which lead to serious difficulties upon application.

Drawbacks of the Russian legal system may affect the ability of the Group to exercise its
legal rights under the agreements or to defend against claims from the third parties. There is no
guarantee that the state and judicial authorities as well as third parties will not challenge
against Group’s meeting the requirements of laws and by-laws.

Risks related to the fiscal policy of the Government of Russian Federation:

The Company pays taxes to the federal, regional and local budgets. Within the economy
transformation there is a risk of changes of the enterprise activity tax treatment. Tax legislation
and peculiarities of tax registration in Russia often change and bear ambiguous interpretation.
The process of tax legislation reforming has not been completed yet. In case of stiffening of the
tax legislation and increase of tax burden, the financial position of the Group may deteriorate.

Risks related to the possible military conflicts, state of emergency and strikes in the

country and regions where the Company is registered as a tax payer and/or operates:

The Company is a registered taxpayer and operates mainly in the Southern Federal
District. Political and social risks are of primary concern for the Southern Federal District due to
the hot spots on the frontiers of territories of the Northern Caucasian republics and proximity to
the Chechen republic. Major risks are connected with the fact that private capitals (investments)
may be nationalized in case of a sudden change of policy line or destroyed in case of the armed
conflict.

However the major area of the Southern Federal District is occupied by the subjects of
Russian Federation with favorable business development conditions and with the regional risk
level of not below the average throughout the country. It’s worth noting that the Company does
not operate on the territory of Chechen republic and Ingushetiya, social and political instability
of which substantially aggravate the integral index of the Southern Federal District risks.

Practically all Northern Caucasian Republics face substantial social-ethnical instability,
thus, economic and political risks remain high. Along with that, the South of Russia is
characterized by the rapid growth of industrial production, accommodation provision in high
gear, increase of the disposal income of population, and the financial market of the regions
playing a significant part in the picture.

Russian Federation is a multinational country consisting of the regions with different
social and economic development levels; thus, it is impossible to completely eliminate the

possibility of internal tension in Russia including the armed conflicts. The Company as well
cannot absolutely exclude the risks related to the emergency state.

Risks related to the geographical peculiarities of the country (countries) and
the region where the Company is registered as a tax payer and/or perform the main
activity, including increased danger of natural disasters, possible stop of transport
connection due to remoteness and/or inaccessibility, etc.

According to EMERCOM of Russia, factors of industrial, natural or terrorist character
represent one of the most real threats to the stable social-economic development of the country,
increase of the living standards of population, fortification of the national security of Russian
Federation.

The terrorism level recently escalated leads to the continuous threat of terrorism acts on

the whole territory of the Group’s operation.

The regions with the Group presence may face the drastic consequences of
conflagrations on the economic objects and in the public sector, accidents and failures of utility
systems and transport, natural fire, dangerous hydro-meteorological phenomena (strong winds,
frosts, heavy snowfalls and heavy rains), earthquakes, land subsidence and sinkhole collapse,
contagion outbreaks among people and animals. Exposure to natural and climatic risks,
including natural disasters (hurricane, floods, earthquakes, etc) is distinctive geographical
feature of the Southern Federal District.

The risk of possible stop of transport connection due to remoteness and/or
inaccessibility, etc, should not be eliminated regarding the geographical peculiarities of the
region.

Ecological risks:

Accidents at environmentally hazardous industrial facilities of Russian Federation

and environmental pollution may have an adverse negative effect on the Group activity.

In respect of all four components of the environment (air, water sources, soil and land
resources, wildlife) large industrial cities face the unfavorable ecological situation for
population. According to some reports, up to 15% of the Russian territory is zones of ecological
disaster. The above factors negatively affect the health of the nation. Moreover, nuclear and
other dangerous objects are located on the territory of Russia, while the system of control over
ecologically dangerous objects is not sufficiently effective. The rise of emergency state on these
objects and an unfavorable ecological situation in large Russian industrial cities may have an
adverse negative effect on the Group activity.

Prospective measures of the Company in case if changes of the situation in the

country and region will have an adverse negative effect on the Group operation:

The majority of the above risks of economic, political and legal character are out of the

Company’s control due to the global scale of the threat they present.

The Companies of the Group have reached the certain level of financial stability which
helps to overcome the short-term negative economic fluctuations in the country. In case if
significant political and economic instability which will negatively affect the operation and the
profit of the Group arises in Russia, the Company plans to undertake comprehensive measures
of Contingency Plan Administration aiming at mobilization of the business and maximum

reduction of the negative effect of political and economic situation in the country and region on
the business of the main companies of the Group.

It deems impossible to determine the specific measures of the Group regarding any risk
hereof, as it is hard to work out adequate measures due to uncertainty of further situation
development. The character of the applied actions will depend on the specific situation of every
case. Company cannot guarantee that the activities taken to overcome negative fluctuations will
lead to considerable change in the situation as most of the risks hereof are out of the Company’s
control.

However, in case of negative effect on the Group operation of the country and regional
fluctuations, the Company plans to carry out the following common arrangements to maintain
the Group’s profitability:

•
•

•

if possible, to save main assets until the situation improves;
to undertake measures focused on the life support of the Group employees and on its
productivity;
to carry out adequate pricing policy adjustments to keep up the demand on the products
on the proper level;
to optimize the expenses, including measures on purchasing prices reduction and wages
expenses limitation;
to revise the program of capital investment.

To minimize the risks related to the force majeure circumstances (military conflicts, riots,
natural disasters, state of emergency) the Company reflects the possibility of such events within
its contract activity.

The Company acts under paragraph 401 of the Civil Code of Russian Federation which
states that the person who does not exercise the obligations due to force majeure circumstances
provided herein does not bear responsibility to the counterparty.

To reduce the above risks the Group plans to further operate in different regions of

Russia to diversify the risks.

FINANCIAL RISKS

Exposure to risks of the changes of the interest rates, foreign currency
exchange rates related to the Company’s operation or hedging carried out by the
Company to reduce unfavorable consequences of the risks indicated above:

The Company is exposed to risks related to the changes of the interest rates. Loan funds
have become the main funding sources for the development of the Group companies and
expansion of its resource base. Changes of the interest rates may have substantial negative effect
on the operation results of LLC “Magnit Finance”, other companies of the Group and the
Company due to the loan of funds and provision of the debt financing on the repayable basis.

Exposure of the financial position of the Company, its liquidity, funding sources,

operation results, etc., to the foreign exchange movements (currency risks).

Over the last fifteen years Russia has faced considerable fluctuations of the exchange
rate of Russian ruble to the foreign currencies. Substantial ruble devaluation may result in the
reduction of the relative cost of ruble-denominated sales and assets of the Group, such as bank
deposits and accounts receivable. Additionally, drop in the exchange rate of ruble may lead to
the decline of the dollar cost tax deductions arising from the realization of capital investments,
since the balance sheet assets will reflect their mark-up in ruble terms at the moment of
acquisition.

Group does not export its production; all its primary obligations are denominated in
rubles. Import products amount to about 10% of proceeds, which makes the Company
dependent on the possible foreign exchange movements. In case of such fluctuations, the Group
is able to modify the structure of goods sales in favor of Russian counterparts, which may
potentially reduce the sales growth rate. Thus, the incurrence of such risk may have an adverse
negative effect on the Group’s revenue and profitability.

The Group purchases and plans to continue purchasing the import equipment and
vehicles for foreign currency, thus, considerable decline of the ruble exchange rate may lead to
the increase of the Group expenses in ruble terms and negatively affect the results of its
operation.

Dramatic changes of the exchange rate may have an adverse negative effect on the

country economy on the whole and lead to the decline of the purchasing power.

Prospective measures of the Company in case if currency fluctuations and interest

rates have an adverse negative effect on the Group operation.

In case if movements of exchange rates and interest rates are negative for the Company,
it is expected to carry out tough policy of cost saving. However, it should be taken into
consideration, that the risk cannot be completely neutralized, since the indicated risks mainly lie
beyond Company’s control but depend on the general economic situation in the country.

Inflation effect on the payment on securities. Inflation indices which the Company
considers to be crucial, and potential measures which may be undertaken by the Company to
reduce risks specified herein.

The Company faces inflation risks which may have an adverse negative effect on its
business activity. The purchasing prices on the products depend on the overall price level in
Russia. The acceleration of inflation growth rates may affect the financial performance of the
Group. The growth of the purchasing prices may lead to the further increase of retail prices on
the products and goods sold by the OJSC “Magnit” and its subsidiaries, and as a result
exacerbate the competitive environment of the Group.

If the exchange rate of ruble to the US dollar increases simultaneously with inflation, the
Group may face costs increase in dollar terms on certain budget items, for instance, payroll
expenses which is vulnerable to the growth of the overall price level in Russia. In such a
situation in light of competitive pressure the Company may not be able to raise prices on its
products reasonably in order to retain the operation margin. Accordingly, high inflation rate in
Russia may result in the increase of the Group expenses and decline of the operation margin.
Inflation growth in Russian Federation will entail the overall growth of the interest rates
including rates on the ruble bonds of LLC “Magnit Finance” which may oblige the Group to
adequately increase the coupon rates.

Inflation indices crucial for the Company:
The 30-35% level of inflation is considered critical by the Company. The serious
acceleration of the price increase rate may lead to the growth of Company’s expenses, loan
funds costs, and result in the profitability downturn. Therefore, in case of dramatic excess of
actual inflation indices over the forecasts of the Russian Federation Government, the Company
plans to take all required measures to limit the other expenses growth (not related to the
purchase of the products for disposal), to reduce the accounts receivable and its average term.

Risks arising from bank operations:

Russian bank system is underdeveloped, a new bank crisis may have an adverse

effect on the operation of the Group and its financial position

Russian bank and other financial systems are not properly developed and regulated, and
Russian legislation related to banks and bank accounts is interpreted ambiguously and applied
not homogenously. Financial crisis of August 1998 led to the bankruptcy and liquidation of
many Russian banks and almost destroyed the developing market of the commercial bank
credits functioning at that time. Moreover, many Russian banks do not meet the international
banking standards, and the transparency of the Russian bank sector to a certain extent falls
behind the generally accepted international standards of bank transactions. Due to the lack of
close supervision from the regulatory authorities individual banks do not follow the
requirements and regulations set by the Central Bank, concerning the governing criteria for
credit accommodation, credit quality, reserve balances in case of losses on loans or
diversification of the borrowers’ structure. As a rule, bank deposits made by legal bodies are not
insured in Russia. Introduction of tougher regulations or stricter interpretation of the actual
rules may result in capital risk and insolvency of individual banks.

Recently we’ve faced a rapid growth of the aggregate credit facilities provided by the
Russian banks, which is considered by many to be accompanied by the deterioration of the
borrower’s credit quality. Moreover, the stable growth of the internal market of corporate debts
leads to the accumulation of increasingly more ruble bonds issued by the Russian companies in

the investment portfolio of Russian banks, which even more aggravates the risk characteristics
of Russian banks’ assets.

Grave faults of the Russian bank sector together with the deterioration of the credit
portfolio quality of the Russian banks may lead to the exposition of the bank sector to the
negative influence of the market trends recession, economy growth retardation, including
defaults of Russian companies, which may arise from such any market trends recession or
economy growth retardation. Furthermore, in 2004 the Central bank revoked licenses of a
number of Russian banks, which aroused rumors on the market about closing of another
number of banks. As a result many depositors rushed to withdraw their savings. In case of bank
crisis Russian companies will face severe deficit of liquid funds due to the limited savings
inflow to the domestic banks and loss of opportunity to use foreign financing sources which
might occur in the time of a such-like crisis.

At the moment the majority out of a limited number of reliable creditworthy Russian
banks are located in Moscow. To reduce risks the Group receives and keeps its ruble cash assets
with several Russian banks, including Sberbank (Krasnodar branch 8619), VTB Bank (open
joint-stock company), CJSC UniCredit Bank Krasnodar, and with subsidiaries of foreign banks,
including CJSC BSGV, however insolvency of at least one of the banks may have a substantial
adverse effect on the business activity of the Group. In case of a bank crisis or if the banks
holding Group’s funds become insolvent or declare bankrupt, it may entail inaccessibility to the
cash assets or inability to exercise bank transactions in Russia, which in turn may have a
material adverse effect on the business activity , financial position and operational results of the
Group.

Risks related to the transfer pricing:

Ambiguity of law on transfer pricing regulations alongside with deficiency of
accurate and authentic information about the market prices may have an adverse effect on
the financial performance of the Group business.

Russian law on transfer pricing regulations which came into effect in 1999 stipulates that
taxation authorities and administration have the right to make allowance for transfer pricing
and to levy additional taxes in case of divergence between the final price and market price for
more than 20%. Since Russian law on transfer pricing regulations is not precise enough, taxation
authorities and arbitration courts have freedom in interpretation of applicable regulations. Due
to the ambiguity of transfer pricing regulations taxation authorities may challenge the prices of
transactions of the Company and its subsidiaries and adjust the assigned taxes.

Financial report statements of the Company mostly subject to changes under

the foregoing financial risks. Risks, possibility and nature of changes in reporting.

Expenses and profit are mostly exposed to the influence of the foregoing financial
risks. In case of adverse change of the situation, the expenses will be the first to grow and
will entail profit reduction correspondingly.

In case of inflation growth and/or currency rate growth and therefore the expenses

growth, the Group may increase the prices on the products for sale.

In case of negative effect of fluctuations of the exchange rate, inflation and interest

rates on the operation of the Group, the following measures are assumed:

•

revision of the financing structure;

• optimization of the cost-based items of the operation;
•
•

revision of the programs of capital investments and loans;
increase the receivables turnover.
At the moment hedging of the foregoing risks is not carried out.

Liquidity risks:

The risks provided herein create the liquidity risk, i.e. the risk of losses due to lack of
funds within the established terms and as a result, risk of inability of the Group to fulfill its
obligations. Such risk event may entail penalties, fines, injury to the goodwill of the Group, etc.
The Group manages liquidity risk through analysis of the scheduled cash flows.

Exposure of the financial report statements to the foregoing financial risks:

Risks

Probability

Nature of changes in the report

Interest rates
growth

high

Inflation rates
growth

high

increase the cost of
Interest rates growth will
borrowings for the Group, thus it may have an
adverse effect on the Group’s financial position,
particularly, will increase the operating expenditures
of the Group and reduce its profit.

Inflation rates growth will lead to the increase of the
prime cost expenses (raw commodities costs, payroll
expenses, etc.). At the same time the acceleration of
the inflation rate growth will result in the growth of
the consumer prices for the Group products and
correspondingly increase the sales of the Group, so
that
the Group expenses will be
compensated by the increase of the product prices.
Such inflation will also lead to devaluation of the real
price on the ruble obligation.

the part of

Movements of the
exchange rate of
US dollar to ruble

high

It does not produce strong effect, as the main profits
and losses of the Company are ruble denominated.

Liquidity risk

medium

Failure of the Group to fulfill its obligations in due
time may entail penalties, fines, etc., which will result
in unscheduled expenses and reduce the Group’s
profit. In connection herewith, the Group carries out
the policy of the cash flows planning.

LLEEGGAALL RRIISSKKSS

Risks related to the applicable standards of corporate governance:

Certain transactions with participation of Group companies may be declared related
party transactions. Similar transactions may, in particular, include final products sales and
purchase agreements, purchase of shares, service provision. If challenging of such transactions
and actual ratifications to such transactions are approved in favor of the claimant, or otherwise
the Group companies will be prevented in the future from getting the approval to the
transactions which require special approval under legislation of Russian Federation, it may
limit the flexibility of Group companies in operating and have an adverse effect on the Group’s
operational results.

In practice, corporate governance standards remain underdeveloped in many Russian
companies, the minority shareholders of which may have difficulties in exercising their legal
rights and bear losses. Though the Federal Law “On Joint-Stock Companies” enables the
shareholder owning not less than 1% of the company’s offered shares has the right to file a
claim against the management which caused damages/losses to the company, Russian courts
have poor experience in dealing with such claims. Thus, the real opportunities of the investor to
get the compensation from the issuer are limited. As a result the protection of minority
shareholders rights is limited.

Civil code and Federal Law “On Joint-Stock Companies” provide that the joint-stock
company’s shareholders do not bear responsibility for its obligations and are only exposed to
risks of investment loss. However, in case if the legal entity becomes bankrupt due to the
actions of the shareholders (participants), the owner of the legal entity property or other bodies
which are entitled to duly instruct or otherwise rule the legal entity, these bodies may be subject
to holding subsidiary liability for obligations of the legal entity in case of insufficiency of legal
entity property. Consequently, the Company being a parent company to its subsidiaries with
more than 50% of the charter capital directly or indirectly owned by the Company, it may be
entitled to the responsibility for the obligations in the foregoing cases. Responsibility for
subsidiaries’ obligations may have a material adverse effect on the Company.

Securing shareholders rights under the Russian legislation may entail additional
expenses and may result in the downturn of the Company financial statements. According to
the Russian legislation, shareholders voted against or not participated in voting on certain
issues have the right to demand from the Company the redemption of their shares at the market
price under the Russian legislation. Such right is provided to the shareholders voted against or
not participated in voting on the following issues:

reorganization;

major transaction which is to be approved by the general shareholders meeting;

incorporation of amendments restricting the shareholders rights in the Charter or

ratification of Charter as amended;

Company liabilities on redemption of shares may have an adverse material effect on the

cash flows of the Company and its ability to maintain Group’s debts.

Risks related to the currency regulation and control:

Russian legislation related to the investors’ rights protection is less favorable and
developed than the legislation of other countries with developed market economy. Moreover,

the investors may face in future the risk of adverse changes in legislation. The returns of the
foreign investors received from investments into the Company’s shares may be taxed in
accordance with the Russian legislation. Degradation of the whole economic and political
situation in the country may lead to the toughening of the currency regulation and control
norms and limitations on the transactions with the Company’s shares.

Risks related to the changes in currency regulation:
Foreign Exchange legislation of Russia is exposed to quite frequent changes. In
connection herewith risks of regulation procedure changes in execution of a number of
exchange operations may occur. Considerable fluctuations in currency regulation and currency
control legislation may impede Company’s performance of obligations under the agreements
with counterparties. The risks herein are considered by the Company management to have the
same effect on the Group as on all other parties of the market.

Risks related to the changes in tax legislation:
Tax legislation of the Russian Federation is subject to the relatively frequent changes.
The risks herein are considered by the Company management to have the same effect on the
Group as on all other subjects of the market

The following changes may have an adverse effect on the Group’s operation:
Incorporations of amendments on the tax rates increase in law acts on taxes and charges;
Imposing of new types of taxes.

•
•

The foregoing substantial and other changes in tax legislation may result in the increase
of the tax payments and consequently in the reduction of the Company net profit. Changes in
the Russian tax legislation may have an adverse material effect on the investment attractiveness
of the Company’s shares.

Russian companies are making substantial payments on a great amount of taxes. These

taxes include, in particular:
•
Income tax
• Value added tax;
• Excise taxes;
• Consolidated social tax;
• Land tax;
• Property tax.

Legislation regulations and by-laws governing the foregoing taxes do not have a vast
application practice compared to the other countries; thus, the law enforcement practice is often
ambiguous or has not been formed yet. At the moment we have only a limited number of
commonly accepted interpretations and explanations of tax legislation. Different ministries and
authorities often have different opinions on the interpretation of the tax legislation, thus
creating ambiguity and grounds for the conflict. According to legislation, tax declarations and
some other legal papers, e.g. customs documents, may be checked and examined by different
inspectors who are entitled to charge penalties, fines and interests for the arrears of payments.

Generally the completeness and accuracy of the tax payment may be verified within

three years upon the tax year expiration. The fact of tax verification for any year leaves open the
possibility of verification of the same declaration again within a three year period. These factors
create the Russian tax risks which are considerably higher than the usual risks in the countries
with a more developed taxation system.

The tax system in Russia changes on a frequent basis, and the tax legislation is
inconsistently applied on the federal, regional and local levels. In some cases new tax rules
cause the retroactive effect. In addition to the material tax burden these circumstances
complicate the tax planning and making the correspondent decisions. In spite of the ambition of
the Group to comply with the legislation, inaccuracy of the legislation puts the Group at the risk
of payment of considerable penalties and fines and may lead to the tax burden increase. Today
the tax collection system is relatively ineffective, and the government may have to introduce
new taxes to increase its profits. Thus, the Company may have to pay considerably higher taxes
which may negatively affect the business activity of the Company. In recent years the taxation
system of Russian Federation met significant fluctuations under the tax reform. New laws
reduced the number of taxes and the general business tax burden, as well as simplified tax
legislation. However, new tax legislation still gives freedom to the local tax authorities and
creates a number of undecided questions, which complicates the tax planning and making the
correspondent decisions.

Financial statements of the Russian companies for the purpose of tax accounting are not
consolidated. Thus, every Russian legal entity pays Russian taxes separately and cannot use the
losses of other companies within one group to reduce the tax burden.

Risk related to the inability of foreign investors to take out return on shares
Today Russian legislation on dividends payment provides that dividends on shares in
ruble terms may be distributed among the shareholders without limitations. The ability of
foreign investors to convert rubles into any freely convertible currency (FCC) depends on the
availability of such currency on the Russian exchange markets. Though the market for
conversion of rubles in FCC exists in Russia, including interbank currency exchange, after-
markets and currency futures markets, the future development of this market remains obscure.
At the present time there exists no market for conversion of rubles into the foreign currencies
outside Russia or any viable market outside Russia for hedging investments in rubles and
investments denominated in rubles.

Risks related to the changes of the rules of customs clearance and duties
Changes of the rules of customs clearance and duties may entail the increase of the

purchasing prices on the import goods and as a result the reduction of the Group’s profit

Risks related to the changes of licensing requirements to the primary activity of the
Company or to the licensing of the use rights for objects the turnover of which is limited
(including natural resources).

The core activity of the Company – the coordination of Group companies’ operation, the
lease of property and retail business - is not subject to licenses. The companies of the Group
have licenses for retail of alcohol beverages consumed not on the spot of purchase and
pharmaceuticals without manufacturing rights. In case of changes of license requirements, the
Company will operate under the new requirements including the license conversion and new
licenses’ receipt.

In the last three years no breaches and violations of requirements on licensing by the

Company, which could result in refusal to extend the license term, were fixed.

Risks related to the changes of judicial practice on the issues of the Company activity
(including licensing issues), which may have an adverse effect on the results of the Company
operation as well as on the results of the current legal proceedings to which the Company is a
party.

OJSC “Magnit” and other companies of the Group do not participate in legal
proceedings which could have a substantial material effect on the financial and economic
activity of the Group. However, the changes of the judicial practice on the issues of licensing,
consumer protection, property rights protection, taxation and other issues of vital importance
for the Group operation may adversely affect the results of its operation if the corresponding
judicial disputes arise.

RRIISSKKSS RREELLAATTEEDD TTOO TTHHEE CCOOMMPPAANNYY’’SS OOPPEERRAATTIIOONN

Risks attributable only to the Company

Risks related to the current legal proceedings to which the company is a party.
Within recent years the Group has not participated in legal proceedings which could

have an adverse material effect on the Group’s financial and economic activity.

Risks related to the inability to extend the Company’s license for performance of a
particular type of activity or for the use of objects the turnover of which is limited (including
natural resources).

The core business of the Company – the coordination of Group companies’ operation,
the lease of property and retail business - is not subject to licenses. The Group sells a large
product assortment, and today the retail of alcohol beverages and pharmaceuticals are subject
to licensing for all the Group enterprises engaged in such activity. The Group has licenses for
retail of alcohol beverages consumed not on the spot of purchase and pharmaceuticals without
manufacturing rights. In case of changes of requirements for license, the Company will operate
under the new requirements including the license conversion and new licenses’ receipt.

In the last three years no breaches and violations of requirements on licensing by the

Company, which could result in refusal to extend the license term, were fixed.

Risks related to the possible liability of the Company for the third party’s debts

including the subsidiaries of the OJSC “Magnit”.

The Company together with CJSC “Tander” (the main operating company of the Group
regulating the trade block and the centre for Group profit consolidation) perform as a guarantor
on the bond loans of LLC “Magnit Finance” in the amount of 5 billion rubles, the issue aim of
which is refinancing of short-term debt of the Group and implementation of the Group’s
investment program on “hypermarket” format expansion. The guarantee represents the amount
of the total nominal value of the bonds and aggregate coupon profit on bonds. If LLC “Magnit
Finance” is not able to perform the obligations on the bond loans in full, this will have negative
unfavorable consequences for the Group operation.

Risks related to the possible customer loss the turnover of which amounts to not less

than 10 percent of the total sales of products (works, services) of the Company:

The users of the OJSC “Magnit” services are its subsidiaries. Therefore, the operation of
the Company and the risk of loss of its main consumers are determined by the financial
condition and the position of the Group.

Other risks related to the Company’s operation

Risks related to the possible restriction of competition.
Russian legislation limits the activity of the bodies which occupy the dominating
position on the market. If any of the Group companies is declared the body occupying the
dominating position, its activity (including pricing policy) may be restricted. Such situation
may have an adverse effect on the economic activity of the Group and its regional expansion
strategy.

Risks related to the implementation of the long-term strategy of the Group.
One of the main components of the long-term strategy of the Group is the expansion of
existing store chain. The expansion of the chain will have the following directions: within the
existing formats and the introduction of the new formats to the market. From the geographical
position the chain will expand within the traditional framework of the Southern region as well
as in the other regions of Russia.

The strategy success will depend on a number of factors within and out of Company’s

control. The factors include:

-Ability to raise enough funds for the capital investments. If the Group fails to raise
enough funds for trading chain expansion at the scheduled scale, the Group may have to
considerably limit the scale of expansion and stay in disadvantageous position against the
competitors who will develop their business activity faster, which may lead to the loss of the
market share and deterioration of the operation results;

-Ability of the operating professional team to carry out the projects of business
expansion and subsequently to manage it. The abilities of the operating management team may
turn out to be insufficient for maintenance of the operation productivity in conditions of
dynamic expansion. Business expansion makes it more complicated to manage the Group in
terms of operation and increases the workload upon employees. Therefore, the improvement of
operational and financial systems together with control measures and procedures will be
required. Furthermore, the purchasing system, logistics, information technologies, accounting,
financing, marketing and sales will need to be revised. If the Group fails to update the
management system in time, it may adversely affect the business activity, operating results and
financial position;

-Success of the Group regional expansion will largely depend on its ability to identify
attractive opportunities on the markets with the expected growth, on the ability to successfully
implement product mix matrix for each region and establish the purchase system as well as on
ability to manage the operation on the new local markets. Thus, the Group may not achieve the
expected profit and/or lose the part of the funds invested in the new projects;

-Carrying out of the effective marketing strategy which will provide the same
effectiveness of sales or insignificant decline of sales than the Group faced in the past. Due to
the increase of the competition in retail sector, the effectiveness of the Group marketing
measures may considerably decrease which will reduce the amount of its customers and
consequently reduce the sales turnover. The chain expansion on the territory of one urban area
may result in the internal competition which will lead to the reduction of the sales turnover in
the average among the stores of the Group;

-The Group growth strategy provides the changes in the business activity model
concerning the ownership rights on the sales areas. With the development of the operating
formats the Group will carry out the independent construction/acquisition of premises and
purchase the equipment for the stores, which will mainly affect the structure of its assets and
operating results and, therefore, the performance indicators;

-Availability of the necessary areas and land plots for the new stores. The market may
not have the sufficient number of areas suitable for store constructions, which may slowdown
the expansion strategy against the expected tempo and result in the loss of the Group market
share in favor of competitors;

-Competition level at the moment of the Group store openings in the corresponding
regions may appear to be too high for Group to penetrate, which will not allow to achieve the
required profitability level;

-Geographical expansion may turn out to be not as successful as expected, which may

have an adverse effect on the Company business and profitability.

The risk related to management members’ loss and failure to engage qualified

employees in the future.

The future success of the Group will largely depend on the ongoing cooperation with
the top management of the Group, particularly with the following directors: Vladimir
Gordeychuk, Andrey Arutyunyan, Khachatur Pombukhchan, Eduard Smetanin, Valeriy
Butenko. Under the labor contracts between the Group companies and the bodies indicated
above, they have the right to resign office by filing the notification 1 month prior to the
dismissal. The Group is not insured from the harm which can be caused to the Group with the
loss (discharge) of its leading specialists and top managers.

The Company strives to hire the most qualified and experienced personnel, and adjust

its compensation policy to the changing standards of the Russian labor market.

The loss of one or more managers or failure to attract and motivate extra highly skilled
employees required for effective management of a large-scale business may have material
adverse effect on the business activity, the operating results and financial position of the Group

Risks related to the accounting and control system.
The system of Group financial and management reporting currently operating is based
on the volume of operations carried out by the Group within the certain period of time. In case
of substantial business expansion of the Group, the technical level of the accounting and control
system may fail to meet the requirements of the information processing efficiency and lead to
the delays in receiving the adequate data for making tactic and strategic management decisions
and, thus damage the effective operation of the Group.

The risks related to the computer network failure.
The management and processing of operational and financial information in the Group
is carried out with the use of electronic devices of information transmission and processing
including the network of the personal computers, access to Internet and the system of financial
accounting and automated system of stock management. As a result operational effectiveness of
the Group as well as its ability to render adequate data for the right management decisions
depend on the correct and stable work of computer and information networks.

The systems and their functioning may fail to operate, which may be caused by the
human factor, natural disasters, blackouts, computer viruses, willful acts of vandalism and
similar factors. There is no guarantee from serious breakdowns and delays in the future. Any
blackout in computer network or system breakdowns and delays may lead to the sudden
service interruptions, failures in the stock registration system, degradation of the customer
service quality and damage to the goodwill of the Company, mistakes in the management
decisions which may result in loss of customers, the growth of operating expenses and financial
losses.

Risks related to the operations with the big cash flows.
The specific character of the Company business activity and the present level of the bank
sector development in Russia suggest that the substantial part of the group operations is
executed with the cash funds. Thus, the risk of short payments caused by the unintentional
actions of the Group personnel as well as by deliberate larcenies and robberies increases.

Risks related to the electronic payments.
Today operations with credit and debit cards of individuals are not widely spread in

Russian Federation.

Risks related to the sale of private label products.
As a way of attracting customers and strengthening the consumer loyalty for private
label, the Group plans to continue the sale of private label products. Therefore, probability of
potential customer claims to the quality of the Group private label products arises. High
product quality is of the utmost importance for the private label, and the chain operators will be
exposed to serious risks while promoting poor quality products under private label. Claims to
the quality or other characteristics of such products may dramatically damage the image of the
Company on the whole, the brand attractiveness for the Company customers and lead to
considerable financial losses.

Risks related to the quality of the products:
There is a risk related to the Group responsibility for the quality of products sold in the
Group’s stores as well as the risk of filing a claim due to the harm to life and health. According
to the agreements with the majority of the suppliers, the producer takes the material liability for
the quality of sold products, providing that the Group follows the necessary storage conditions.
Such claims may also be addressed to the seller of the products at the choice of complainant.
Any similar situation may damage the Company’s image and reputation, reduce the market
share of the Group and negatively affect its financial position. Moreover, there is a risk related
to the careless attitude of the Group personnel to the storage conditions of the products, which
may lead to material liability of the Group under such claims

Risks related to the protection of intellectual property:
If the Group fails to protect its rights for the intellectual property or withstand the claims of the
third parties for the intellectual property connected with the violation of their rights, the Group may lose
its rights or bear serious responsibility for damages

For execution and protection of its rights for intellectual property, the Group firstly
relies on the author’s rights, trade marks rights, legislation on the commercial secret
information protection, on its users policy, on the license agreements and the restrictions on the
information disclosure. Despite the above precautionary measures, the third parties may
illegally copy or otherwise receive or use the intellectual property of the group. On the whole
Russia does not provide enough protection of the rights for the intellectual property compared
to many other countries with the developed economy. Failure of the Group to protect the rights
for the intellectual property from violation and misappropriation may adversely affect its
financial position and the ability of the Group to develop its business activity. Moreover, the
Group may be involved in the legal proceedings on protection of its rights for intellectual
property or on establishing the validity and the scope of rights of other parties. Any lawsuit
may lead to substantial expenses, distraction of the management and of the Group resources,
which may negatively affect the operation and financial position of the Group.

Carrying out of the premature policy on securing of interests in the intellectual property of the

Group may seriously complicate future business activity

The Group is on the stage of intensive development and expansion of all its business
spheres. Measures of securing the rights of the Group for certain objects of intellectual property
have to be taken on the basis of the existing plans of commercial development and be in
advance of any commercial activity. Insufficient experience of the Russian companies in
elaborating the policy related to the objects of intellectual property produces the whole group of
risks with unfavorable effect, including the inability of the Group to use the promoted trade
marks for individual products (services) in a number of countries, conflicts with employees,
specialists and organizations invited regarding determination of rights for jointly manufactured
products and separation of the use rights on these products by the Group and other persons.

The “Magnit” trade mark is used by other participants of the sales turnover as a
component of the company name, which may have an adverse effect on the operation of the
Group

The Group invested considerable funds in the promotion of its “Magnit” brand on the
Russian market, which is also the part of the company name for the private label products of the
Group. Due to “Magnit” brand the Group achieved great success in its operation.

Meanwhile, the trademark “Magnet” in Latin letters in the certain classes is registered in
the name of the third party. Today, the scope of legal protection to trademarks rights for trading
organizations, provided by the Russian law, is not clarified. A certain risk of interests conflict
between the owners of the trademark “Magnit” (or ‘’Magnet”) definitely exists, the Group
might be forced to re-brand its stores. The expenses for such re-branding may adversely affect
the operation results of the Group.

Moreover, due to the fact that Russian legislation provides the limited protection for the
company names on the market, there exist a number of other organizations using “Magnit” in
their names. Business activity of some of them has the partially similar features to the operation
of the Group. The Group cannot stop these organizations from using such names, and this may
lead to the negative affect of these companies’ activity on the business activity and reputation of
the Group.

Risks related to the development of a new brand:
The expansion strategy of the Group presupposes the growth of the sales share of the
products under “Magnit” brand (“for “Magnit” stores”). At the end of the year 2007 this figure
amounted to 12.1% of the turnover. The scheduled growth may turn out to be unachievable if
the commercial expenses for popularization of such brand will considerably exceed relevant
budget of the Group. Alongside, the creation of the new brands may shake the existing brands
and require additional investments for maintaining their market position.

Risks related to the insufficiency of insurance coverage for damages arising from the
interruption of activity, damages to the Group’s property or responsibility to the third
parties:

Insurance may turn out to be ineffective
The Group does not exercise insurance for interruption of its business activity, bringing
to responsibility for products quality, fire (except for stocks and supplies) or changes of key
management, and does not enter into insurance agreements on real estate property, wholesale
depot, stores or stocks at the warehouses (with rare exception). Moreover, the Group does not
form special reserve or other funds to cover the possible losses or settle claims with the third

parties. Thus, such events may drastically disrupt the Group’s operation, cause considerable
damage and/or require expenses which will not be compensated. All the foregoing
circumstances may have an adverse effect on the business activity of the Group, its financial
position and prospects.

A severe accident may result in substantial property losses and incapability to restore it
If in case of severe accident one or more objects of the Group (e.g. the headquarters in
Krasnodar, wholesale depot or hypermarket) are seriously damaged, the Company may not be
able to resume its activity within the established time period. The Group does not exercise the
insurance or form special funds to cover such accidents. Any such accident may have an
adverse effect on the Group business activity, its operation results, financial position and
prospects.

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CCOODDEE OOFF CCOORRPPOORRAATTEE CCOONNDDUUCCTT OOFF RRUUSSSSIIAANN FFEEDDEERRAATTIIOONN 44

№

Clause of the code of corporate conduct

Observed/
not observed

Note

General Shareholders’ Meeting

Notification of shareholders on holding the
general shareholders’ meeting not later than
30 days prior to the date of a meeting
irrespective the questions of the agenda, if
otherwise is not provided by the legislation.

the

Shareholders’ ability to study the list of
persons entitled to participate in the general
shareholders’ meeting, starting from the
date of notification on holding of the
general meeting up to the closing of the
general meeting
joint
presence, and in case if the general meeting
is held in absentee form – up to the closing
date of acceptance of voting ballots.
the
Shareholders’
information (materials) which
is to be
submitted within the preparation for the
general shareholders’ meeting via electronic
communication facilities, including Internet.

form of

ability

study

extract,

Shareholder’s ability to introduce a question
to the general meeting agenda or to call the
general meeting without submitting the
the
shareholders’
register
registration of his/her share rights
is
recorded in the system of shareholders’
register, and in case if his/her rights are
registered
-
sufficiency of the custody account extract to
exercise the above rights.
Availability in the company Charter or
internal documents of the requirement on
the obligatory attendance of the general
CEO,
meeting
shareholders’
management board members, members of

custody account

the

Observed

Paragraph 13.10 of the OJSC
“Magnit” Charter.

Observed

Article 24 of the Regulation on
the OJSC
“Magnit” general
shareholders’ meeting.

Paragraph 4.14 article 4 of the
Regulation on OJSC “Magnit”
information policy.
Article 22 of the Regulation on
the OJSC
“Magnit” general
shareholders’ meeting.

Paragraph 5.2 article 5 of the
Regulation on the OJSC “Magnit”
information policy.

Observed

Paragraph 13.10 of the OJSC
“Magnit” Charter.

Observed

Paragraph 4.4 article 4 of the
Regulation on OJSC “Magnit”
information policy.
Paragraph
and
paragraph 2 article 11 of the
Regulation on the OJSC “Magnit”
general shareholders’ meeting.

article

Observed
upon the fact

According to paragraph 2 article
29 of the Regulation on the OJSC
“Magnit” general shareholders’
meeting, the Company makes all
the
arrangements

to provide

4 The information is disclosed according to the “Methodical recommendations on the content and form of information
disclosure in compliance with the corporate code of conduct in the annual reports of joint-stock companies”, ratified by the
FFMS of 30.04.2003 № 03-849/р.

№

Clause of the code of corporate conduct

the board of directors, members of the
auditing committee and the auditor of the
joint - stock company.

The obligatory attendance by the candidates
of the general shareholders meetings with
agenda items on the election of the members
of the board, CEO, management bodies,
members of the auditing committee, and
items on the appointment of the auditor of
the joint-stock company.
Availability in the internal documents of the
joint-stock company of
the registration
procedure of
the general shareholders
meeting participants.

Observed/
not observed

Note

the

general
attendance
of
the
shareholders’ meeting by
members of
the board of
directors, sole executive body,
members
auditing
committee and other bodies of
the company. They are liable for
providing qualified answers to
the questions of the meeting
participants.
-

Not observed

Observed

Article 42 of the Regulation on
the OJSC
“Magnit” general
shareholders’ meeting.

Availability in the Charter of the joint-stock
company of the right of the board members
to annually
financial and
economic plan of the joint-stock company.

ratify

the

Board of directors

Observed

Paragraph 14.2. of
“Magnit” Charter

the OJSC

Availability of
risk management
structure in the joint-stock company, ratified
by the board of directors.

the

Not observed

board

“Magnit”

Article 5 of the Regulation on the
of
OJSC
directors.
Paragraphs 6.11. and 6.15. article
the
the Regulation on
6 of
Committees of the board of OJSC
“Magnit”, according to which the
analysis of
the management
system of risks related to the
financial and economic activity of
the Company and arrangement of
recommendations
the
improvement of such system
refer to the competence of the
Audit Committee.

Paragraph 3.1. and 6 article 1,
paragraph 2.4. article 2 of the
Regulation on the internal control
of financial and economic activity
of OJSC “Magnit”.

Note

Observed/
not observed
Not applicable Under paragraph 14.2. of the
OJSC “Magnit” Charter,
the
election of the sole executive
body of the company refers to the
competence of the Company’s
board of directors.
Under paragraph 14.2. of the
OJSC “Magnit” Charter,
the
ratification of the agreement with
the person exercising the rights of
the company’s sole executive
body refers to the competence of
the OJSC “Magnit” board of
directors.

Observed

the positions

According to article 7 of the
Regulation on the committees of
the OJSC “Magnit” board of
directors, elaboration of
the
eligibility criteria of candidates
for
of CEO
(managing company), directors of
the main structural departments
of the Company, and work-out of
the remuneration procedure for
CEO (managing company) and
highly qualified employees of the
Company,
the
refer
to
competence of
the HR and
Remuneration Committee.
According to paragraph 14.2. of
the OJSC “Magnit” Charter,
ratification of the agreement with
the person exercising the right of
the sole executive body of the
refers
company
the
the OJSC
of
competence
“Magnit” board of directors.
-

Observed

Not observed

№

Clause of the code of corporate conduct

10. Availability

in the

joint-stock company
charter of the right of the board to decide on
suspension of authority of CEO, appointed
by the general shareholders’ meeting.

11. Availability

in the

joint-stock company
charter of the right of the board to set the
requirements for the qualification and the
amount
of CEO,
management board members, directors of
the main structural departments of the joint-
stock company.

remuneration

12. Availability

in the

joint-stock company
charter of the right of the board to ratify the
conditions of the agreements with CEO and
management board members.

in the
internal documents of

joint-stock company
13. Availability
charter or
the
requirement that the votes of the board
members,
and management
members, are not counted in ratifying the
agreement conditions with CEO (managing
company, manager) and management board
members.

if CEO

14. Presence in the board of directors of the
joint-stock company of not less than 3
independent directors eligible for the Code
of corporate conduct.

Not Observed According to paragraph 2 article
33 of the Regulation on the OJSC
“Magnit” board of directors, the
board must include not less than
one independent member.

№

Clause of the code of corporate conduct

Observed/
not observed

Note

guilty

found

1) Westman Mattias Johan;
2) Bouchout Pierre Bruno Charles
were elected as
independent
directors to the Company’s board
of directors.
The company does not hold
information about any members
of the OJSC “Magnit” board of
directors
of
committing economic crimes and
crimes against the government,
interests of public service and
local authorities, or members
enforced
who
for
administrative
entrepreneurial
financial
crimes, crimes related to taxes
and fees, securities market.
The company does not hold
information about any OJSC
“Magnit” board of directors
the members,
members being
CEO
(manager), management
board member or the employee
of the legal entity which is a
competitor to OJSC “Magnit”.
Paragraph 14.7. of
“Magnit” Charter.

penalty
or

the OJSC

were

Article 7 and 32 of the Regulation
on the OJSC “Magnit” board of
directors.

Paragraphs 16.1. - 16.2. of the
OJSC “Magnit” Charter.

Paragraph 3.10. article 7 of the
Regulation on the committees of
the OJSC “Magnit” board of
directors.
Article 7 of the Regulation on the
OJSC
of
directors.

“Magnit”

board

Article 7, paragraphs 11.6-11.7
article 10 of the Regulation on the
OJSC
information
policy.

“Magnit”

Observed

15. Absence in the joint-stock company board of
directors of members who were found
guilty of committing economic crimes and
crimes against the government, interests of
public service and local authorities, or
enforced
members
administrative penalty for entrepreneurial
or financial crimes, crimes related to taxes
and fees, securities market.

which

were

16. Absence in the joint-stock company board of
directors of members who are the member,
CEO
board
(manager), management
member or the employee of the legal entity
which is a competitor to the joint-stock
company.

in the

17. Availability

joint-stock company
Charter of the requirement on the election to
the board of directors by cumulative voting.
18. Availability in the internal documents of the
joint-stock company of the duty of the board
members to avoid any actions that will lead
or potentially may lead to the conflict
between their interests and interests of the
joint-stock company, and in case such a
conflict arises - the duty to disclose the
information about this conflict to the board
of directors.

19. Availability in the internal documents of the
joint-stock company of the duty of the board
members to notify the board in writing on
the intention to make a transaction with
securities of the joint-stock company, being
the member of this company or of its
subsidiary (dependant) companies, and to
disclose the information on the transactions
with such securities as well.

№

Clause of the code of corporate conduct

20. Availability in the internal documents of the
joint-stock company of the requirement to
hold the meetings of the board not less than
once in six weeks.

21. Holding of the joint-stock company board
meeting within
year
the
periodically but not less than once in six
weeks.

reported

Note

Observed/
not observed
Not observed According to paragraph 1 article
22 of the Regulation on the OJSC
“Magnit” board of directors,
board meetings are held upon
necessity but not less than once in
three months.

Not observed During 2008 the OJSC “Magnit”
board meetings were held not
less than once in two months,
except for July and August when
board meetings were not held.

22. Availability in the internal documents of the
joint-stock company of the board meetings
procedure.

Not observed

23. Availability in the internal documents of the
joint-stock company of the Regulation on
the obligatory approval by the board of
directors of
company
transactions at the amount of 10 and more
percent of the assets value of the company
excluding transactions entered into on a
regular economic activity basis.

joint-stock

the

24. Availability in the internal documents of the
joint-stock company of the right of the
board of directors to get from the joint-stock
company executive bodies and directors of
the
the main
information which is essential for them to
exercise functions, and the responsibility for
failure to submit such information

structural departments

25. Presence of the board committee of strategic
planning or assignment of the functions
hereof to the other committee (except for the
audit committee and HR and remuneration
committee)

26. Presence of the board committee (audit
committee) which advises on the joint-stock

the

Not observed According to paragraph 14.2. of
the OJSC “Magnit” Charter, the
transactions
approval
(including several
interrelated
transactions)
on acquisition,
alienation, directly or indirectly,
by the company and possibility of
alienation
assets,
amounting to 5 or more percent
of the balance sheet assets of the
its subsidiaries
company and
(“the Group”), defined on the
basis of the
last consolidated
report of the Group, prepared in
IFRS,
accordance with
excluding
the
offering of the common shares of
the company and transactions in
the usual economic activity,
refers to the competence of the
board of directors.
Article 6 and 9 of the Regulation
on the OJSC “Magnit” board of
directors.

transactions on

Observed

the

Article 6 of the Regulation on the
OJSC
information
policy.

“Magnit

Not observed

The possibility of establishing the
committee is considered.

Observed

The Audit Committee of the
is
OJSC

“Magnit”

board

№

Clause of the code of corporate conduct

company auditor
the board, and
to
cooperates with the board and revision
committee of the joint-stock company.

Observed/
not observed

Note

the

established in the Company.
The document assigning
the
functions to the audit committee
is the Regulation on the board
committees of OJSC “Magnit”.
According to the article 6 of the
board
on
Regulation
committees of OJSC “Magnit”,
the audit committee must have
an independent director.
the Audit
The members of
Committee of OJSC “Magnit” are:
1) Westman
Johan Mattias
(independent director);
2) Andrey Arutyunyan
executive director);
3) Khachatur Pombikhchan
(non-executive director).
According to the article 6 of the
Regulation
board
on
committees of OJSC “Magnit”,
the independent director only can
be
the Audit
Committee.
The Chairman of the board Audit
Committee of OJSC “Magnit” is
Westman
the
independent director.
Paragraph 2 article 36 of the
Regulation on the OJSC “Magnit”
board.

Johan Mattias,

in charge of

(non-

the

Paragraph 10 article 4 of the
Regulation
board
on
committees of OJSC “Magnit”.

the

and

Paragraph 11.5, 11.8, 11.12 article
11 of the Regulation on the OJSC
“Magnit” information policy.
HR
Remuneration
Committee of the board of OJSC
“Magnit” is established in the
Company.
the
The document assigning
functions
and
to
Remuneration committee is the
Regulation
board
on
committees of OJSC “Magnit”.

the HR

the

27. Presence

committee of
the audit
independent and non-executive directors
only.

Observed

28. Management of the audit committee is
executed by the independent director.

Observed

29. Availability in the internal documents of the
joint-stock company of the right of all the
audit committee members to access any
documents and information of the joint-
stock company, provided that the do not
disclose the confidential information.

Observed

30. Establishment of the board committee (HR
committee), which
and Remuneration
function is to set the candidates criteria for
the board members and work out the
joint-stock
remuneration policy of
company.

the

Observed

№

Clause of the code of corporate conduct

31. Management of the HR and Remuneration
Committee is executed by the independent
director.

Observed/
not observed
Not observed

32. Absence

in the HR and Remuneration
Committee of the officials of the joint-stock
company

Observed

33. Establishment of the risks committee of the
board or assignment of the functions hereof
to the other committee (except for the audit
committee and the HR and Remuneration
committee).

Not observed

Note

the HR

Pierre Bouchut Bruno Charles
the
(independent director)
Chairman of
and
Remuneration Committee of the
OJSC “Magnit” board.
Members
Remuneration Committee are:
1) Vladimir Gordeychuk;
2) Pierre Bouchut Bruno Charles;
3) Dmitriy Chenikov.
The committee establishment is
under consideration.

the HR

and

conflict management

34. Establishment of the board committee of
corporate
or
assignment of the functions hereof to the
other committee
the audit
committee and the HR and Remuneration
committee).

(except

for

35. Absence in the committee of the corporate
joint-stock

the

conflict management of
company officials.
36. Management of

the corporate conflict
management committee is executed by the
independent director.

37. Availability of the internal documents of the
joint-stock company ratified by the board,
which
of
the
establishment and operation of the board
committees.

procedure

provide

Not observed

The committee establishment is
under consideration.

Not observed

See clause 34

Not observed

See clause 34

Observed

The Regulation on the board
committees of OJSC “Magnit” is
ratified by the board of OJSC
“Magnit”.

38. Availability in the charter of the joint-stock
company of the procedure of the board
quorum determination, which provides the
obligatory participation of the independent
directors in the board meetings.

Not observed

Executive bodies

39. Presence of the collegial executive body
joint-stock

body)

the

(managing
company.

Not observed According to the Charter of OJSC
“Magnit”, CEO is the executive
body of the Company.
There is no collegial executive
body (managing body) in the
Company.

№

Clause of the code of corporate conduct

40. Presence

the

charter or

internal
documents of the joint-stock company of the
regulation on the obligatory managing body
approval of the transactions with real estate,
receipt of credit by the joint-stock company,
if the transactions herein do not refer to the
major transactions and do not relate to the
regular economic activity of the joint-stock
company.

41. Availability in the internal documents of the
joint-stock company of the coordination
procedure of operations which are outside
the framework of financial and economic
activity of the joint-stock company.

42. Absence

the

joint-stock

company
executive bodies of members who are the
member, CEO
(manager), management
board member or the employee of the legal
entity which is a competitor to the joint-
stock company.

the

penalty

joint-stock

43. Absence

administrative

crimes against

company
executive bodies of members who were
found guilty of committing economic crimes
the government,
and
local
interests of public service and
authorities, or members which were
enforced
for
entrepreneurial or financial crimes, crimes
related to taxes and fees, securities market.
If the functions of the sole executive body
are
the management
organization or the manager – compliance
of CEO and management members of the
management organization or the manager
with the requirements set to CEO and
management members of the joint-stock
company.
44. Presence

exercised

for

the

charter or

(the manager)
the
in

internal
documents of the joint-stock company of the
management
prohibition
to exercise
organization
similar
competing
company, and to be involved in any other
joint-stock
property relations with
company, except for providing services to
the
(the
management organization
manager).

functions

the

Observed/
not observed
Not observed

Note

See clause 39

Observed

the board
The procedure of
the Company
resolutions of
within its competence is provided
by the internal documents of
OJSC “Magnit” – the Charter of
the Company, the Regulation on
the board of OJSC “Magnit”.
The OJSC “Magnit” executive
bodies do not have among its
is a
members a person who
member,
(manager),
CEO
management board member or
the employee of the legal entity
which is a competitor to the joint-
stock company.
The company does not hold
information about any members
of the OJSC “Magnit” executive
bodies
of
committing economic crimes and
crimes against the government,
interests of public service and
local authorities, or members
administrative
were
penalty for entrepreneurial or
financial crimes, crimes related to
taxes and fees, securities market.

enforced

found

guilty

Not observed No management organization

(manager).

№

Clause of the code of corporate conduct

Observed/
not observed

Note

45. Availability in the internal documents of the
joint-stock company of the duty of the
executive bodies to avoid any actions that
will lead or potentially may lead to the
conflict between their interests and interests
of the joint-stock company, and in case such
a conflict arises - the duty to disclose the
information about this conflict to the board
of directors.

Observed

Paragraphs 16.1. – 16.2. of the
Charter of OJSC “Magnit”.

Article 6 of the Regulation on the
sole executive body of OJSC
“Magnit”.

Not observed

See clause 44

Not observed According to the article 69 of the
Federal Law “On the joint-stock
companies”, the executive bodies
of the joint-stock company are
accountable
the board of
directors, therefore the right of
the management board members
to get the information about the
operation and activity of the
executive bodies is eesential and
does not require any special
prescription.
-

Observed

46. Presence

the

charter or

internal
documents of the joint-stock company of the
selection criteria
the management
for
organization (manager).

47. Reporting by the executive bodies on their
activity to the board on a monthly basis.

48. Determination in contracts and agreements
entered into by the joint-stock company
(management organization,
with CEO
manager) and management board members
of the responsibility for breach and violation
of regulations on confidentiality and insider
information.

The secretary of the company

(the

secretary of

49. Presence in the joint-stock company of the
the
special official
company), whose duty is to provide the
compliance of the bodies and officials of the
joint-stock company with the procedural
requirements which ensure the exercise of
rights and legal interests of the joint-stock
company.

50. Availability

the charter or

internal
documents of the joint-stock company of the
procedure of appointment (election) of the
company’s secretary and assignment duties
to the secretary of the company.

51. Availability in the charter of the joint-stock
company of
the
candidates for the secretary position of the
company.

the requirements

Not observed

Not Observed

100

№

Clause of the code of corporate conduct

Observed/
not observed

Note

Substantial corporate actions

52. Presence

the

charter or

internal
documents of the joint-stock company of the
requirement on
major transactions
approval.

53. The

obligatory

the
independent appraiser for the assessment of
the subject of the major transaction.

involvement

the

stake of

54. Presence in the charter of the joint-stock
company of the prohibition on any actions
within the acquisitions (mergers) of the
major
joint-stock
company, aimed at the interests protection
of the executive bodies (members of such
joint-stock
bodies) and members of the
and
company
board
deteriorating
the
shareholders as compared to the present
(particularly, prohibition on the decision of
issue additional shares,
the board
securities
shares or
securities providing the right for acquisition
of company’s shares, before the end of the
presumptive date of shares acquisition,
even if the right to make such a decision is
provided by the Charter).

directors,
of

convertible

position

into

the

Not observed

Since 01.07.2006
the prohibition on
realization of any
of such actions by
the company
management
authorities is
determined by the
article 84.6 of the
Federal Law “On
joint-stock
companies”,
which makes the
inclusion of such
regulations in the
Charter
unreasonable.

101

the offering by
the

According to the article 84.6 of
the Federal Law “On joint-stock
companies”, after receipt by the
open company of optional or
obligatory offer, the decisions on
the following issues are taken
only by the general shareholders’
meeting of the open company:
- increase of the charter capital of
the open company through the
offering of the additional shares
within the limits of number and
categories
the
(types)
announced shares;
the open
-
company
securities,
convertible into shares, including
the options of the open company;
- approval of the transaction or
several interrelated transactions
on acquisition, alienation or
possibility of alienation by the
open company of assets, directly
or indirectly, with the value of 10
or more percents of the balance
sheet value of the open company,
determined on the basis of its
accounting report for the last
reporting date,
if only such
transactions are not made in the
process of the ordinary economic
activity of the open company or
were not made before the open
company receives optional or
obligatory offer, and if the open
company receives the optional or
obligatory offer to acquire the
publicly traded securities, prior
to the information disclosure on
the delivery of the corresponding
offer to the open company;
- approval of the related party
transactions;

№

Clause of the code of corporate conduct

Observed/
not observed

Note

occupying

acquisition by

-
the open
company of the allocated shares
in cases provided by the present
Federal Law;
- increase of the remuneration to
the persons
the
the management
in
positions
bodies of the open company,
determination of conditions of
their authorities,
cessation of
of
including
increase of the compensations
paid out to these persons in case
of cessation of their authorities.
-

determination

Not observed

Observed

Paragraph 8.7 of the Charter of
OJSC “Magnit”.

Not observed

55. Availability in the charter of the joint-stock
company of the requirement on obligatory
involvement of the independent appraiser
for the assessment of the current market
price of the shares and possible changes of
their market price in the result of a merger.

56. Absence in the joint-stock company charter
of the acquirer’s release from the obligation
to offer
the
ordinary shares of the company, owned by
them, (securities convertible into ordinary
shares) within a merger.

the shareholders selling

57. Presence in the joint-stock company charter
or internal documents of the requirement on
obligatory involvement of the independent
appraiser for the assessment of shares’
conversion ratio within reorganization.

Information disclosure

58. Availability of

the

internal document
ratified by the board of directors, stipulating
the rules and approaches of the joint-stock
disclosure
company
(Regulations on information policy).

information

59. Availability in the internal documents of the
joint-stock company of the requirement to
disclose the
information on the shares
offering, on persons who intend to acquire
the offered shares, including the major share
stake, and on whether the senior officials of
the joint-stock company will take part in
acquisition of the shares offered by the
company.

Regulation

ratified by

The
the
information policy of OJSC
“Magnit”
the
the board of
resolution of
directors of OJSC “Magnit” on
March 31, 2009, minutes of
meeting w/o N of March 31, 2009.
Information disclosure is carried
the
in accordance with
out
requirements
actual
of
legislation of Russian Federation.

the

Observed

Not observed

102

№

Clause of the code of corporate conduct

60. Availability

list

the

joint-stock company
in the
internal documents
of
information, documents and materials
the
should be provided
which
the
shareholders
questions
general
submitted
shareholders’ meeting.

to
for consideration of
to

the

Observed/
not observed
Observed

Note

Paragraph 13.11 of the Charter of
OJSC “Magnit”.

Articles 26-27 of the Regulation
on
the general shareholders’
meeting of OJSC “Magnit”.

Paragraphs 5.6-5.12 article 5 of
Regulation on the OJSC “Magnit”
information policy.

61. Availability of the website of the joint-stock
company and regular disclosure of the
information about the joint-stock company
on its website.

Observed

http://www.magnit-info.ru

62. Availability in the internal documents of the
joint-stock company of the requirement to
disclose information about the transactions
of the joint-stock company with persons
referred to the top officials of the joint-stock
company by
, and about
the charter
transactions of joint-stock company with
organizations in which 20 or more percents
of the charter capital of the joint-stock
company directly or indirectly are owned
joint-stock
by
company, or organizations, which can be
otherwise considerably influenced by the
persons hereof.

top officials of

the

63. Availability in the internal documents of the
joint-stock company of the requirement to
disclose
the
transactions which may affect the market
value of the shares of the
joint-stock
company

information about all

the

64. Availability of

the

internal document
ratified by the board of directors on the use
of material information on the activity of the
joint-stock company, shares and other
securities of the company and transactions
with them, which is not public and the
disclosure of which can considerably affect
the market value of shares and other
securities of the joint-stock company.

Not observed

Information disclosure is carried
the
in accordance with
out
actual
of
requirements
legislation of Russian Federation.

the

Observed

Information disclosure is carried
the
in accordance with
out
requirements
actual
of
legislation of Russian Federation

the

article

Paragraphs
3,
3.3
paragraphs 4.8-4.9 article 4 of the
Regulation on the OJSC “Magnit”
information policy.
The
the
Regulation
information policy of OJSC
the
“Magnit”
resolution of
the board of
directors of OJSC “Magnit” on
March 31, 2009, minutes of
meeting w/o N of March 31,
2009).

(is ratified by

Observed

103

№

Clause of the code of corporate conduct

Observed/
not observed

Note

Control over financial and economic activity

65. Availability of procedures of the internal
control over the financial and economic
activity of the joint-stock company, ratified
by the board of directors.

Observed

66. Presence of a special department of the
the
joint-stock
company
compliance with the procedures of the
internal control (supervision and auditing
department)

regulating

67. Availability in the internal documents of the
joint-stock company of the requirement for
the board to determine the structure and
members of supervision and auditing
department of the joint-stock company

68. Absence

the revision and auditing
department of members who were found
guilty of committing economic crimes and
crimes against the government, interests of
public service and local authorities, or
members
enforced
administrative penalty for entrepreneurial
or financial crimes, crimes related to taxes
and fees, securities market

which

were

ratified by

Regulation on the internal control
financial and economic
over
activity of OJSC “Magnit” as
amended
the
resolution of the OJSC “Magnit”
board of directors on December
24, 2007, minutes w/o N as of
December 24, 2007.
Internal audit department
is
established in the Company. The
document assigning the functions
to the service – Regulation on the
internal control over financial
and any economic activity of
OJSC “Magnit”.
Paragraph 3 article 3 of the
Regulation on the internal control
over
financial and economic
activity of OJSC “Magnit”.

The company does not hold
information about any members
of the OJSC “Magnit” revision
and auditing department found
guilty of committing economic
crimes and crimes against the
government, interests of public
service and local authorities, or
enforced
members
were
for
administrative
entrepreneurial
financial
crimes, crimes related to taxes
and fees, securities market.

penalty
or

69. Absence

the revision and auditing
department of members who are
the
member of the executive body of the joint-
stock company or who are the members,
CEO (manager), management member or
the employee of the legal entity which is a
competitor to the joint-stock company.

70. Availability in the internal documents of the
joint-stock
the date of
company of
submitting the documents and materials for
assessment of the realized financial and
the revision and
to
economic activity
auditing department, and responsibility of
the officials and employees of the joint-stock
company for not submitting them in time.

Observed

Not observed

104

№

Clause of the code of corporate conduct

71. Availability

in the

joint-stock company
internal documents of the obligation of the
revision and auditing department to inform
the detected
the audit committee of
breaches, and in case of absence of the audit
committee – to inform the board of directors
of the joint-stock company.

Observed/
not observed
Observed

Note

Paragraph 3 article 2 of the
Regulation on the internal control
over
financial and economic
activity of OJSC “Magnit”.

Not observed

72. Presence in the internal documents of the
joint-stock company of the requirement on
preliminary assessment by the revision and
auditing department of operations not
provided by the economic and financial
plan of the joint-stock company (irregular
operations).

73. Availability

in the

joint-stock company
internal documents of
approval
procedure for irregular operation with the
board.

the

Not observed

74. Availability of

the

internal document
ratified by the board, which determines the
procedure of the revision commission’s
inspection of the financial and economic
activity of the joint-stock company.

Observed

the

Regulation
revision
commission of OJSC “Magnit” is
ratified by the annual general
shareholders’ meeting of OJSC
“Magnit” on April 8, 2006,
minutes of meeting w/o N of 12
April, 2006.

75. The assessment by the audit committee of
its
the

before
the shareholders at

auditors’
the
submission
to
general shareholders’ meeting.

conclusion

Observed

Paragraph 6.7. article 6 of the
Regulation on the committees of
the board of OJSC “Magnit”.

Dividends

76. Availability of

the

internal document
ratified by the board of directors, which
in adoption of
regulates
the board
the amount of
recommendations on
dividends (Regulations on dividend policy).

77. Availability in the Regulation on dividend
policy of the procedure of determination of
the minimum share of net profit of the joint-
stock company for dividend payment, and
conditions under which the dividends on
privileged shares are not paid out or paid
out partially, the dividend amount on
which is set in the charter of the joint-stock
company.

78. Release of the information on dividend
joint-stock company and
policy of the
amendments
the periodical,
provided by the charter of the joint-stock

Observed

the dividend
Regulation on
policy of OJSC “Magnit”
is
ratified by the resolution of the
board of OJSC “Magnit” on April
12, 2006, minutes w/o N as of
April 12, 2006.
Paragraphs 4-5 article 2 of the
Regulation on dividend policy of
OJSC “Magnit”.

There are no privileged shares in
the Company.

Observed

The Regulation on dividend
policy of OJSC “Magnit”
is
posted on the OJSC “Magnit”
website.

105

№

Clause of the code of corporate conduct

Observed/
not observed

Note

company for release of the announcements
on holding of the general shareholders’
meeting
above
the
joint-stock company
information on the
website.

and placing of

106

1177..

IINNFFOORRMMAATTIIOONN OONN TTHHEE AAUUDDIITTOORR AANNDD TTHHEE

CCOONNSSUULLTTAANNTT OOFF TTHHEE CCOOMMPPAANNYY

Under the resolution of the annual general shareholders’ meeting of June 25, 2008
(minutes of 09.07.2008) the auditing firm LLC AF “Faber Lex” was appointed as the Company
auditor for RAS for the year 2008.

Choosing the auditing firm the following factors were considered: operation period of

the firm, the price of services provided, staff and their qualification.

Information on the Company’s Auditor which conducted audit of the

Company for the year 2008 according to the Russian Accounting standards:
Limited Liability Company Auditing
Full name of the audit organization
firm “Faber Lex”
LLC AF “Faber Lex”

Short name of the audit organization

Address

Phone number (including city code)

Fax number (including city code)

121/1 Dzerzhinskogo str., Krasnodar,
Russia
7(861) 220-03-20, 221-41-42, 226-41-41,
226-45-22, 226-38-15, 226-44-54
7(861) 220-03-20

E-mail

faberlex@mail.ru

License number
activity
Date of issue

Validation period

certifying auditing

E 003080

27.12.2002

until 27.12.2012

Issuing authority

Ministry of Finance of Russian Federation

Information on the Company’s Auditor which conducted the audit of the

Company report over the year 2008 according to IFRS:

Full name of the audit organization

Short name of the audit organization

Close Joint-Stock Company «Deloitte
and Touche CIS»
CJSC «Deloitte and Touche CIS»

Address

Phone number (including city code)

building 2, 4/7 Vozdvizhenka str.,
Moscow, Russia
+ 7 (495) 787-06-00

Fax number (including city code)

+ 7 (495) 787-06-01

Website

www.deloitte.ru

License number certifying auditing

Е 002417

107

activity

Date of issue

06.11.2002

Validation period

until 06.11.2012

Issuing authority

Ministry of Finance of Russian Federation

Information on the financial consultant of the Company on the securities

market, which signed the securities prospectus registered on 06.03.2006:

Full name of organization

Short name of organization

Open Joint-Stock Company «Federal
Fund Corporation»
OJSC «FFC»

Address

25 Ostozhenka str., Moscow, Russia

Phone number (including city code)

+7 (495) 737-86-30

Fax number (including city code)

+7 (495) 737-86-32

Website of the financial consultant to
disclose the information about the
Issuer under the requirements of the
Regulation on information disclosure by
the issuer of securities, ratified by FFMS
License for exercising the activity on
securities market

www.fscorp.ru

License of the professional participant
of the securities market for brokerage
activity № 077-06174-100000, License of
the professional participant of the
securities market for dealer activity №
077-06178-010000

Date of issue

August 29, 2003

Validation period

Non-expiry (for an indefinite term)

Issuing authority

Federal Financial Markets Service

Services provided by the financial consultant:
- Preparation of the draft prospectus according to the information provided by the

Company;

Signing of the prospectus approved by the Company, after adequate verification
based on all the documents provided by the Company, according to the written inquiries of the
Financial consultant and receipt of the proper written certifications of the Company on
reliability, adequacy and completeness of the information contained in the above indicated

108

document and to be included in the prospectus, except the part, verified by the auditor and/or
appraiser;

- Expertise of the documents filed to the registration authority for prospectus

registration;

Signing of documentation, which might be required from the Company for

organization of securities floatation with the trade institutors;

- Advice services on securities issue, including information disclosure on the

securities market under the regulations of legislation.

109

ANNEX TO 2008 ANNUAL REPORT OF OJSC “MAGNIT”

ANNEX № 1. Open Joint-Stock Company “Magnit” and its
subsidiaries. Independent Auditors’ Report. Year ended December 31,
2008.

ANNEX № 2. RAS Accounting report of CJSC “Tander” for the

year 2008

CJSC “Tander”. Consolidated balance sheet of January 1, 2009
CJSC “Tander”. Consolidated profit and loss statement for the year 2008
CJSC “Tander”. Consolidated statement of changes in equity for the year 2008
CJSC “Tander”. Consolidated cash flow statement
CJSC “Tander”. Appendix to the consolidated balance sheet for the year 2008

ANNEX № 3. RAS Accounting report of OJSC “Magnit” for the

year 2008

OJSC “Magnit”. Consolidated balance sheet of January 1, 2009
OJSC “Magnit”. Consolidated profit and loss statement for the year 2008
OJSC “Magnit”. Consolidated statement of changes in equity for the year 2008
OJSC “Magnit”. Consolidated cash flow statement
OJSC “Magnit”. Appendix to the consolidated balance sheet for the year 2008

110