RRaattiiffiieedd
bbyy tthhee rreessoolluuttiioonn ooff tthhee BBooaarrdd
ooff OOJJSSCC ““MMaaggnniitt”” ooff AApprriill 2255,, 22001111,,
mmiinnuutteess ooff AApprriill 2255,, 22001111
22001100 AANNNNUUAALL RREEPPOORRTT
OOPPEENN JJOOIINNTT--SSTTOOCCKK CCOOMMPPAANNYY
““MMAAGGNNIITT””
1188 KKoollkkhhoozznnaayyaa ssttrreeeett,, KKrraassnnooddaarr,, 335500004422,, RRuussssiiaann FFeeddeerraattiioonn
CChhiieeff EExxeeccuuttiivvee OOffffiicceerr
__________________________________________ SS.. GGaalliittsskkiiyy
CChhiieeff AAccccoouunnttaanntt
__________________________________________
II.. SSiivvaakkoovvaa
sseeaall
KKRRAASSNNOODDAARR 22001111
2
TABLE OF CONTENTS
TTAABBLLEE OOFF CCOONNTTEENNTTSS ..............................................................................................................................................................................................................................33
11.. KKEEYY OOPPEERRAATTIIOONNAALL AANNDD FFIINNAANNCCIIAALL HHIIGGHHLLIIGGHHTTSS ..................................................................................................55
22.. MMIISSSSIIOONN ........................................................................................................................................................................................................................................................................77
33.. CCHHIIEEFF EEXXEECCUUTTIIVVEE OOFFFFIICCEERR’’SS SSTTAATTEEMMEENNTT......................................................................................................................................88
44.. IINNFFOORRMMAATTIIOONN OONN TTHHEE PPEERRSSOONN IINN TTHHEE PPOOSSIITTIIOONN OOFF AA SSOOLLEE EEXXEECCUUTTIIVVEE
BBOODDYY ..........................................................................................................................................................................................................................................................................................99
55.. IINNFFOORRMMAATTIIOONN OONN TTHHEE CCOOLLLLEEGGIIAALL EEXXEECCUUTTIIVVEE BBOODDYY MMEEMMBBEERRSS........................................1111
66.. IINNFFOORRMMAATTIIOONN OONN TTHHEE BBOOAARRDD MMEEMMBBEERRSS ................................................................................................................................1155
77.. RREEPPOORRTT OOFF TTHHEE BBOOAARRDD OONN 22001100 OOPPEERRAATTIIOONNSS..................................................................................................................2222
88.. MMAAIINN 22001100 CCOORRPPOORRAATTEE EEVVEENNTTSS ........................................................................................................................................................................2299
99.. PPOOSSIITTIIOONN OOFF TTHHEE CCOOMMPPAANNYY IINN IINNDDUUSSTTRRYY..............................................................................................................................3311
1100.. PPRRIIOORRIITTYY DDIIRREECCTTIIOONNSS OOFF TTHHEE CCOOMMPPAANNYY’’SS OOPPEERRAATTIIOONN......................................................................4422
1111.. PPRRIIOORRIITTYY DDIIRREECCTTIIOONNSS OOFF TTHHEE CCOOMMPPAANNYY’’SS DDEEVVEELLOOPPMMEENNTT........................................................4444
1122.. IINNFFOORRMMAATTIIOONN OONN TTHHEE PPAAIIDD DDIIVVIIDDEENNDDSS ................................................................................................................................4466
1133.. SSEECCUURRIITTIIEESS ....................................................................................................................................................................................................................................................4477
1144.. TTRRAANNSSAACCTTIIOONNSS,, CCOONNSSIIDDEERREEDD MMAAJJOORR TTRRAANNSSAACCTTIIOONNSS AACCCCOORRDDIINNGG TTOO
TTHHEE FFEEDDEERRAALL LLAAWW ““OONN JJOOIINNTT--SSTTOOCCKK CCOOMMPPAANNIIEESS””,, MMAADDEE WWIITTHHIINN TTHHEE YYEEAARR
......................................................................................................................................................................................................................................................................................5566
22001100
1155.. LLIISSTT 00FF 22001100 TTRRAANNSSAACCTTIIOONNSS DDEECCLLAARREEDD AASS RREELLAATTEEDD--PPAARRTTYY IINN
AACCCCOORRDDAANNCCEE WWIITTHH TTHHEE FFEEDDEERRAALL LLAAWW OONN ““JJOOIINNTT--SSTTOOCCKK CCOOMMPPAANNIIEESS”” ............5577
1166.. MMAAIINN RRIISSKK FFAACCTTOORRSS RREELLAATTEEDD TTOO TTHHEE ССOOMMPPAANNYY OOPPEERRAATTIIOONN ..........................................7700
1177.. IINNFFOORRMMAATTIIOONN OONN TTHHEE CCOOMMPPLLIIAANNCCEE WWIITTHH TTHHEE FFFFMMSS CCOODDEE OOFF
CCOORRPPOORRAATTEE CCOONNDDUUCCTT OOFF RRUUSSSSIIAANN FFEEDDEERRAATTIIOONN ......................................................................................................9900
1188.. IINNFFOORRMMAATTIIOONN OONN TTHHEE AAUUDDIITTOORR AANNDD TTHHEE CCOONNSSUULLTTAANNTT OOFF TTHHEE
CCOOMMPPAANNYY ................................................................................................................................................................................................................................................................110055
1199..
IINNFFOORRMMAATTIIOONN OONN VVOOLLUUMMEESS OOFF EENNEERRGGYY RREESSOOUURRCCEESS UUTTIILLIIZZAATTIIOONN
WWIITTHHIINN TTHHEE YYEEAARR 22001100 ..............................................................................................................................................................................................................110077
AANNNNEEXX TTOO 22001100 AANNNNUUAALL RREEPPOORRTT OOFF OOJJSSCC ““MMAAGGNNIITT””........................................................................................110088
ANNEX № 1: Consolidated financial statements of OJSC “Magnit” for the year ended
December 31, 2010. ...............................................................................................................108
ANNEX № 2: RAS Accounting report of JSC “Tander” for the year 2010:..................108
ANNEX № 3: RAS Accounting report of OJSC “Magnit” for the year 2010: ..............108
4
11.. KKEEYY OOPPEERRAATTIIOONNAALL AANNDD FFIINNAANNCCIIAALL HHIIGGHHLLIIGGHHTTSS
Number of opened stores, NET
Total number of stores
Selling space, sq. m.
convenience stores*
hypermarkets
convenience stores*
hypermarkets
convenience stores*
hypermarkets
Number of customers, million
Net sales, million RUR
Net sales, million USD 1
convenience stores*
hypermarkets
convenience stores*
hypermarkets
wholesale
convenience stores*
hypermarkets
wholesale
1 Based on the average exchange rate for 2010 of 30.3692 RUR per 1 US$
* including cosmetics stores (drogerie)
2 Audited financial statements prepared in accordance with IFRS
5
827
800
27
4 055
4 004
51
1 422,38
1 257,30
165,08
1 301,90
1 256,67
45,24
236 193,55
212 313,02
23 824,88
55,65
7 777,402
6 991,06
784,51
1,83
Gross profit, million RUR
Gross profit, million USD3
Gross margin, %
EBITDAR5, million RUR
EBITDAR, million USD
EBITDAR margin, %
EBITDA, million RUR
EBITDA, million USD
EBITDA margin, %
EBIT, million RUR
EBIT, million USD
EBIT margin, %
Net profit, million RUR
Net profit, million USD3
Net profit margin, %
Capitalization as of 30.12.20106, million RUR 7
Capitalization as of 30.12.2010, million USD 8
52 858,39
1 740,534
22,38%
23 891,34
786,70
10,12%
19 179,96
631,56
8,12%
14 613,67
481,20
6,19%
10 134,11
333,704
4,29%
360 052,76
11 859,76
3 Based on the average exchange rate for 2010 of 30.3692 RUR per 1 US$
4 Audited financial statements prepared in accordance with IFRS
5 Management accounts
6 Based on the price as of 30.12.2010 since there was no trading on 31.12.2010
7 MICEX (88,975,073 ordinary shares, admitted to trading, × 4,046.67 rubles market price as of 30.12.2010)
8 Based on the average exchange rate as of 30.12.2010 of 30.3592 RUR per 1 US$
6
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;;
-- AAddeeqquuaattee ccoommppeennssaattiioonn ffoorr oouurr eemmppllooyyeeeess””
7
33.. CCHHIIEEFF EEXXEECCUUTTIIVVEE OOFFFFIICCEERR’’SS SSTTAATTEEMMEENNTT
“We consider 2010 results positive.
One of the key directions of our work last
year was improvement of stores attraction. We
managed to form quite efficient model of aggressive
pricing. The result of this work was strengthening of
our competitive advantages, which was reflected in
significant LFL growth.
In 2011 we will continue to actively invest in expansion. We will still focus on organic growth.
We will invest the amount of about 1.8 billion dollars in the development of transport-logistics part of the
business as well as in increase of the number of convenience stores, at that the emphasis will be on the
hypermarket format, the number of which should exceed 100 at the year end. Insignificant part of
investments will be directed at the development of the new format – “Magnit Kosmetik”.
Despite material changes in the cost structure of 2011 caused by outstripping growth rates of fuel
prices as well as significant increase of tax burden we are optimistic from the point of view of operating
efficiency. At that we expect more rapid rates of sales growth compared to the previous year.
This year together with active work on development of the Company’s logistics system and
improvement of purchase terms we will particularly focus on increase of labor productivity through
elaboration and implementation of new technologies, we will realize active renovations of operating stores
to improve the quality of service provided to our customers. These measures should help us to strengthen
our market position and increase our share in national retail turnover”.
Chief Executive Officer of OJSC “Magnit”
Sergey Galitskiy
8
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. On March 31, 2009 the Board of directors
(minutes of 31.03.2009) has adopted a decision on prolongation of the chief executive officer’s
authorities for the new period.
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: JSC “Tander”
Position: CEO;
2) Period: 28.06.2002 – 18.04.2006
Organization: JSC “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;
5) Period: 15.07.2010 – present day
Organization: OJSC “Magnit”
Position: Chairman of the Management board.
Stockholding of CEO in the Company’s share capital: 41.0935% (as of 31.12.2010).
Ordinary shares, owned by CEO: 41.0935% (as of 31.12.2010).
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:
№
1
Date of
operation
10.02.2010
Operation
Number of shares
Type of shares
Acquisition of
securities
488,771
Ordinary nominal
uncertified shares
9
CCEEOO RREEMMUUNNIIRRAATTIIOONN CCRRIITTEERRIIAA AANNDD AAMMOOUUNNTT OOFF CCEEOO RREEMMUUNNEERRAATTIIOONN
((RREEFFUUNNDD OOFF CCHHAARRGGEESS)) PPAAIIDD AACCCCOORRDDIINNGG TTOO TTHHEE RREESSUULLTTSS AACCHHIIEEVVEEDD IINN TTHHEE
FFIINNAANNCCIIAALL YYEEAARR
Under Clause 6 of Regulations “On the chief executive officer of OJSC “Magnit”, ratified
by the resolution of the annual general shareholders’ meeting of 24.06.2010 (minutes of meeting
of 28.06.2010 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 2010 amounted to 56,767,702.00 rubles.
10
IINNFFOORRMMAATTIIOONN OONN TTHHEE CCOOLLLLEEGGIIAALL EEXXEECCUUTTIIVVEE BBOODDYY
55..
MMEEMMBBEERRSS
Name: Sergey Galitskiy - Chairman of the Management board
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: JSC “Tander”
Position: CEO;
2) Period: 28.06.2002 – 18.04.2006
Organization: JSC “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;
5) Period: 15.07.2010 – present day
Organization: OJSC “Magnit”
Position: Chairman of the Management board.
Stockholding of CEO in the Company’s share capital: 41.0935% (as of 31.12.2010).
Ordinary shares, owned by CEO: 41.0935% (as of 31.12.2010).
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:
№
1
Date of
operation
10.02.2010
Operation
Number of shares
Type of shares
Acquisition of
securities
488,771
Ordinary nominal
uncertified shares
Name: Alexander Barsukov
Date of birth: 08.07.1977
Education: higher - graduated from Rostov Law Institute of Ministry of interior of
Russian Federation with a degree in law in 1998.
11
Positions occupied in the Company and other companies in the last five years including
plural offices:
1) Period: 06.11.2004 – 30.06.2006
Organization: JSC “Tander”
Position: supervisor;
2) Period: 01.07.2006 – 29.09.2006
Organization: JSC “Tander”
Position: head of department, sales department;
3) Period: 02.10.2006 – 15.07.2008
Organization: JSC “Tander”
Position: Naberezhnye Chelny Branch Manager;
4) Period: 16.07.2008 – present days
Organization: JSC “Tander”
Position: Hipermarkets sales director;
5) Period: 15.07.2010 – present days
Organization: OJSC “Magnit”
Position: Management board member.
Stockholding of the person in the Company’s share capital: 0.0005% (as of 31.12.2010).
Ordinary shares, owned by the person: 0.0005% (as of 31.12.2010).
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:
№
1
Date of
operation
27.12.2010
Operation
Number of shares
Type of shares
Acquisition of
securities
424
Ordinary nominal
uncertified shares
Name: Ekaterina Kister
Date of birth: 18.04.1978
Education: higher - graduated from Kuban State University with a degree in Law in
2000.
Positions occupied in the Company and other companies in the last five years including
plural offices:
1) Period: 01.10.2002 – 16.09.2005
Organization: State Unitary Enterprise of Krasnodar territory "Kuban Commodity
Fund"
Position: Chief specialist of claims work department;
12
2) Period: 19.12.2005 – 31.07.2007
Organization: JSC "Tander"
Position: Corporate lawyer;
3) Period: 29.11.2006 – 26.05.2009
Organization: CJSC "Digital Gallery"
Position: member of the Board;
4) Period: 01.08.2007 – 31.10.2007
Organization: JSC "Tander"
Position: Principal lawyer;
5) Period: 01.11.2007 – 03.05.2008
Organization: JSC "Tander"
Position: Head of corporate law department;
6) Period: 04.05.2008 – 31.09.2010
Organization: JSC "Tander"
Position: deputy chief of legal department;
7) Period: 01.10.2010 – present day
Organization: JSC "Tander"
Position: Deputy legal work director;
8) Period: 15.07.2010 – present day
Organization: OJSC “Magnit”
Position: Management board member.
Stockholding of the person in the Company’s share capital: 0.0001% (as of 31.12.2010).
Ordinary shares, owned by the person: 0.0001% (as of 31.12.2010).
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:
№
1
Date of
operation
27.12.2010
Operation
Number of shares
Type of shares
Acquisition of
securities
85
Ordinary nominal
uncertified shares
Name: Alexander Pisarenko
Date of birth: 11.04.196
Education: higher - graduated from Krasnodar Polytechnic Institute in 1986, mechanic
engineer of refrigeration and compressor equipment.
Positions occupied in the Company and other companies in the last five years including
plural offices:
1) Period: 25.02.2004 – 19.05.2006
13
Organization: JSC “Tander”
Position: Stavropol Branch Manager;
2) Period: 22.05.2006 – 05.08.2007
Organization: JSC “Tander”
Position: Povolzhsky area manager;
3) Period: 06.08.2007 – 30.11.2007
Organization: JSC “Tander”
Position: Area Manager, Area Directorate;
4) Period: 01.12.2007 – 20.04.2008
Organization: JSC “Tander”
Position: Area Manager, Staff;
5) Period: 21.04.2008 – present day
Organization: JSC “Tander”
Position: “Magnit” stores Sales Director;
6) Period: 15.07.2010 – present days
Organization: OJSC “Magnit"
Position: Management board member.
Stockholding of the person in the Company’s share capital: 0.0019% (as of 31.12.2010).
Ordinary shares, owned by the person: 0.0019% (as of 31.12.2010).
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:
№
1
Date of
operation
27.12.2010
Operation
Number of shares
Type of shares
Acquisition of
securities
1 696
Ordinary nominal
uncertified shares
RREEMMUUNNIIRRAATTIIOONN CCRRIITTEERRIIAA AANNDD AAMMOOUUNNTT OOFF RREEMMUUNNEERRAATTIIOONN ((RREEFFUUNNDD OOFF
CCHHAARRGGEESS)) OOFF MMEEMMBBEERRSS OOFF CCOOMMPPAANNYY’’SS MMAANNAAGGEEMMEENNTT
PPAAIIDD
FFOOLLLLOOWWIINNGG TTHHEE RREESSUULLTTSS OOFF TTHHEE RREEPPOORRTTIINNGG YYEEAARR
BBOOAARRDD
According to Regulations on collegial executive body (Management Board) of OJSC
“Magnit” the remuneration of a Management Board member consists of remuneration under
labor contract or additional agreement to it. The Management Board members can be
remunerated every year from the amount of net profit according year accounting report.
Payment terms and order shall be determined by the Board of directors. The salary for the work
within Management Board according to labor contract constitutes 50 000 rubles.
The remuneration to Management Board members of OJSC “Magnit” paid in 2010 amounted to
1,109,090.88 rubles (the amount does not include the remuneration received by S. Galitskiy as
chief executive officer).
14
66.. IINNFFOORRMMAATTIIOONN OONN TTHHEE BBOOAARRDD MMEEMMBBEERRSS
Khachatur Pombukhchan – the Chairman of the Board
Date of birth: 16.03.1974.
Education: a graduate of Kuban State University, applied mathematics, 1996; Russian
Corresponding finance and economics institute with a degree in Economics, 2000.
Positions occupied in the issuer and other companies in the last five years including
plural offices
1) Period: 26.07.2004 – 01.03.2006
Organization: OJSC “Mobile TeleSystems“
Position: Director, Office sales and service department;
2) Period: 05.12.2005 – 01.03.2006
Organization: JSC “Tander”
Position: Marketing director (part-time);
3) Period: 02.03.2006 – 03.05.2008
Organization: JSC “Tander”
Position: Marketing director;
4) Period: 29.11.2006 – 26.05.2009
Organization: JSC “Digital Gallery”
Position: member of the Board;
5) Period: 04.05.2008 – 30.06.2008
Organization: JSC “Tander”
Position: first Deputy CFO;
6) Period: 19.06.2008 – present day
Organization: LLC “Magnit Finance”
Position: CEO;
7) Period: 25.06.2008 – present day
Organization: OJSC “Magnit”
Position: member of the Board;
8) Period: 01.07.2008 – present day
Organization: JSC “Tander”
Position: CFO;
9) Period: 01.07.2008 – present day
Organization: OJSC “Magnit”
Position: CEO;
10) Period: 15.12.2008 – 01.04.2009
Organization: LLC “Magnit – Nizhniy Novgorod”
Position: member of the Board;
15
11) Period: 13.12.2008 –24.02.2009
Organization: LLC “Tandem”
Position: member of the Board.
Stockholding of the person in the Company’s share capital: 0.0024% (as of 31.12.2010).
Ordinary shares, owned by the person: 0.0024% (as of 31.12.2010).
Information on transactions of acquisition/alienation of the Company’s shares, made by
the person in the position of Chairman of the Board during the reporting period:
№
1
Date of
operation
27.12.2010
Operation
Number of shares
Type of shares
Acquisition of
securities
2 120
Ordinary nominal
uncertified shares
Andrey Arutyunyan
Date of birth: 12.01.1969.
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: 28.06.2002 – 18.04.2006.
Organization: JSC «Tander».
Position: member of the Board;
2) Period: 01.12.2003 – present day.
Organization: OJSC “Magnit”.
Position: first Deputy CEO;
3) Period: 01.04.2004 – 24.06.2008.
Organization: OJSC “Magnit”.
Position: Chairman of the Board;
4) Period: 01.10.2004 – 30.06.2009
Organization: JSC «Tander».
Position: Director of Development department;
5) Period: 30.01.2006 – 01.04.2009.
Organization: LLC “Magnit – Nizhniy Novgorod”.
Position: Chairman of the Board;
6) Period: 25.06.2008 – present day.
Organization: OJSC “Magnit”.
Position: member of the Board;
7) Period: 13.12.2008 – 24.02.2009.
Organization: LLC “Tandem”.
Position: member of the Board.
16
8) Period: 01.07.2009 – present day
Organization: JSC «Tander».
Position: Deputy chief executive officer in charge of development.
Shareholding of the person in the issuer’s charter capital: 0.2151% (as of 31.12.2010).
Ordinary shares owned by the person: 0.2151% (as of 31.12.2010).
Information on transactions of acquisition/alienation of the Company’s shares, made by
the person in the position of Board member during the reporting period:
№
1
Date of
operation
29.12.2010
Operation
Number of shares
Type of shares
Acquisition of
securities
4 665
Ordinary nominal
uncertified shares
Valeriy Butenko
Date of birth: 25.11.1965
Education: higher - in 1988 graduated from Novorossiysk higher engineering sea
school - navigator engineer.
Positions occupied in the issuer and other companies in the last five years including
plural offices:
1) Period: 01.03.2004- 31.07.2009
Organization: JSC «Tander»
Position: Director in charge of reviser and analytical job;
2) Period: 09.05.2004- 28.05.2005
Organization: JSC «Tander»
Position: Member of the Board of directors;
3) Period: 29.05.2005- 31.03.2009
Organization: JSC «Tander»
Position: Member of the Revision Committee;
4) Period: 01.04.2004- 24.06.2009
Organization: OJSC “Magnit”
Position: Chairman of the Revision Committee;
5) Period: 25.06.2009 – present days
Organization: OJSC “Magnit”
Position: Member of the Board of directors;
6) Period: 01.08.2009- present days
Organization: JSC «Tander»
Position: Deputy chief executive officer in charge of reviser and analytical job.
17
Shareholding of the person in the issuer’s charter capital: 0.0833% (as of 31.12.2010).
Ordinary shares owned by the person: 0.0833% (as of 31.12.2010).
Information on transactions of acquisition/alienation of the Company’s shares made by
the Board member during the reporting period:
№
1
Date of
operation
29.12.2010
Operation
Number of shares
Type of shares
Acquisition of
securities
2 120
Ordinary nominal
uncertified shares
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: JSC «Tander»
Position: CEO;
2) Period: 28.06.2002 – 18.04.2006
Organization: JSC «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;
5) Period: 15.07.2010 – present day
Organization: OJSC “Magnit”
Position: Chairman of the Management board.
Stockholding of CEO in the Company’s share capital: 41.0935% (as of 31.12.2010).
Ordinary shares, owned by CEO: 41.0935% (as of 31.12.2010).
Information on transactions of acquisition/alienation of the Company’s shares, made by
the person in the position of a Board member during the reporting period:
№
1
Date of
operation
10.02.2010
Operation
Number of shares
Type of shares
Acquisition of
securities
18
488,771
Ordinary nominal
uncertified shares
Alexander Zayonts
Date of birth: 10.01.1976
Education: higher, Moscow D. Mendeleev Institute of Chemical Technology – chemical-
process engineer.
Positions occupied in the Company and other companies in the last five years including
plural offices:
1) Period: 04.2003 - 12.2007
Organization: OJSC “M.Video Company”
Position: vice-president, BOB Member;
2) Period: 01.2008 – present days
Organization: LLC "Domashniy Interier"
Position: General Director;
3) Period: 01.12.2009 – present days
Organization: LLC "Obiedinennye resursy"
Position: BOD member;
4) Period: 24.06.2010 – present days
Organization: OJSC "Magnit"
Position: BOD member.
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.
Alexey Makhnev
Date of birth: 24.05.1976
Education: higher - in 1998 graduated from Saint Petersburg University of
economics and finance - Ph.D. in Economics
Positions occupied in the Company and other companies in the last five years including
plural offices:
1) Period: 07.2004– 11.2006
Organization: CJSC “United financial group”
Position: vice president, corporate finance department;
2) Period: 12.2006 – 08.2007
Organization: LLC “Deutsche Bank”
Position: director, corporate finance governance.
3) Period: 09.2007– 12.2008
19
Organization: LLC “Morgan Stanley Bank”
Position: vice president, investment banking Department;
4) Period: 12.2008 – 05.2009
Organization: LLC “Morgan Stanley Bank”
Position: executive director, investment banking Department;
5) Period: 05.2009– present days
Organization: CJSC “VTB Capital”
Position: managing director, Head of Consumer sector and Retail direction, investment
banking on global markets Department;
6) Period: 25.06.2009 – present days
Organization: OJSC "Magnit"
Position: member of the board of directors.
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.
Dmitriy Chenikov
Date of birth: 08.09.1965
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: JSC «Tander»
Position: Director, Discounter format development;
2) Period: 12.04.2006 – 24.06.2008
Organization: OJSC “Magnit”
Position: member of the Board;
3) Period: 01.09.2007 – 08.01.200.
Organization: JSC “Tander”
Position: Regional Director;
4) Period: 09.01.2008 – 02.11.2010
Organization: JSC “Tander”
Position: Director, Nonfood products acquisition;
5) Period: 18.09.2007 – 24.02.2009
Organization: LLC “Tandem”
20
Position: member of the Board;
6) Period: 25.06.2008 – 23.06.2010
Organization: OJSC “Magnit”
Position: Chairman of the Board;
7) Period: 15.12.2008 – 01.04.2009
Organization: LLC “Magnit – Nizhniy Novgorod”
Position: member of the Board;
8) Period: 24.06.2010 – present day
Organization: OJSC “Magnit”
Position: member of the Board.
Shareholding of the person in the issuer’s charter capital: 0.0899% (as of 31.12.2010).
Ordinary shares owned by the person: 0.0899% (as of 31.12.2010).
Information on transactions of acquisition/alienation of the Company’s shares made by
the person occupying the position of a Board member:
№
1
Date of
operation
31.05.2010
Operation
Number of shares
Type of shares
Alienation of
securities
60,000
Ordinary nominal
uncertified shares
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
According to Regulations “On OJSC “Magnit” Board of Directors”, ratified by the
resolution of the annual General Shareholders’ meeting of 24.06.2010 (minutes of meeting of
28.06.2010), 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.
On June 26, 2010 the General shareholders´ meeting made a decision not to pay year-end
bonus, based on the operation results (minutes of 28.06.2010)
21
In 2010 upon the resolution of shareholders’ meeting of 24.06.2010 (minutes of meeting
of 28.06.2010) the Board members were paid remuneration for participation in the board
operation in 2009 in the amount of 9,776,203.45 (nine million seven hundred seventy six
thousand two hundred three) rubles 45 kopecks.
77.. RREEPPOORRTT OOFF TTHHEE BBOOAARRDD OONN 22001100 OOPPEERRAATTIIOONNSS
22
Within 2010 the Board of directors of OJSC “Magnit” operated in two structures.
The structure of the Board of directors (elected by annual general shareholders’ meeting
on June 25, 2009, minutes of June 25, 2009):
№
Full name of a member of the board of directors
Date of birth
1.
2.
3.
4.
5.
6.
7.
Andrey Arutyunyan
Valeriy Butenko
Westmann Mattias Johan
Sergey Galitskiy
Alexey Makhnev
Khachatur Pombukhchan
Dmitry Chenikov
12.01.1969
25.11.1965
05.02.1966
14.08.1967
24.05.1976
16.03.1974
08.09.1965
The structure of the Board of directors (elected by annual general shareholders’ meeting
on June 24, 2010, minutes of June 28, 20010):
№
Full name of a member of the board of directors
Date of birth
1.
2.
3.
4.
5.
6.
7.
Andrey Arutyunyan
Valeriy Butenko
Sergey Galitskiy
Alexander Zayonts
Alexey Makhnev
Khachatur Pombukhchan
Dmitry Chenikov
12.01.1969
25.11.1965
14.08.1967
10.01.1976
24.05.1976
16.03.1974
08.09.1965
The current Board of directors includes four independent directors, they are Valeriy
Butenko, Alexander Zayonts, Alexey Makhnev, and Dmitry Chenikov.
Khachatur Pombukhchan was elected a Chairman of the Board of directors by the
unanimous resolution at the first Board meeting of 15.07.20010, Valeriy Butenko was appointed
a Deputy Chairman and Andrey Arutyunyan was elected a Secretary of the Board.
The Board of directors of the Company operated under the Law “On joint-stock
companies” and the Charter of the Company, Regulations of the Board of directors of OJSC
“Magnit”, and Regulations of the Committees of the Board of directors.
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:
23
№
1
2
3
№
1
2
3
Full name of a member of the board of
directors
Position in the committee
Alexey Makhnev
Valeriy Butenko
chairman of the committee
member of the committee
Khachatur Pombukhchan
member of the committee
Audit Committee of the Board of Directors:
Full name of a member of the board of
directors
Position in the committee
Alexander Zayonts
Alexey Makhnev
Dmitry Chenikov
chairman of the committee
member of the committee
member of the committee
During 2010 the Board of directors held 10 meetings and examined 60 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 2010:
Date of meeting
Considered issues
04.02.2010
04.02.2010
04.02.2010
31.03.2010
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 additional agreement to the contract with person in the position of sole
executive body of OJSC “Magnit” was ratified.
31.03.2010
The decision on approval of the interested party transaction was adopted.
26.04.2010
26.04.2010
26.04.2010
26.04.2010
26.04.2010
The decision on convocation of the annual shareholders’ meeting was
adopted.
The annual report over 2009 financial year was preliminarily approved and
was submitted for consideration of the general shareholders’ meeting.
The recommendations to the general shareholders’ meeting on the profit
distribution, including the dividend amount on OJSC “Magnit” shares and
procedure of it’s payment, and losses following the results of 2009 financial
year were approved.
The decision on the determination of the price of the transaction the
approval of which is included to the agenda of the general shareholders’
meeting was adopted.
The decisions on approval of the interested party transactions were
adopted.
26.04.2010
The amount of the auditor’s services payment was determined.
24
26.04.2010
15.07.2010
15.07.2010
15.07.2010
The nominees for election into the Revision Committee were considered
and put in the list at the annual shareholders’ meeting.
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
15.07.2010
The members of Management Board were elected.
15.07.2010
15.07.2010
15.07.2010
15.07.2010
The Regulations on information policy of OJSC “Magnit” in new edition
were ratified in new edition.
The Regulations on Committees of BOD of OJSC “Magnit” were ratified in
new edition.
The Regulations on Dividend policy of BOD of OJSC “Magnit” were
ratified in new edition.
The Regulations on Internal control of operation activities of OJSC
“Magnit” were ratified in new edition.
30.09.2010
The decision on approval of interested party transaction was adopted.
08.11.2010
29.11.2010
29.11.2010
The Regulations on bonus payment programme and the HR committee
attached to CEO of JSC “Tander” were ratified.
The decision on convocation of the extraordinary shareholders’ meeting
was adopted.
The decision on the determination of the price of the transaction the
approval of which is included to the agenda of the general shareholders’
meeting was adopted.
29.11.2010
The decisions on approval of interested party transactions were adopted.
24.12.2010
The decision on payment of bonus to the person in the position of CEO of
OJSC “Magnit” following 2010 results was adopted.
Besides, within the reporting period the issues relating to the determination position of
the OJSC “Magnit” on the realization of the voting rights on the Company’s stocks and shares
of 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 the voting rights on the Company’s owned shares of CJSC “Tander”, share in
LLC “Magnit Finance”, LLC “Magnit - Ninzhniy Novgorod”, and “AgroTorg”were held in
February, March, April, June, July, August, September, November, and December of the year
2010.
The Company’s management achieved the following results in 2010:
1. Revenue of the Company increased by 39.05% from 169,860.97 million rubles in 2009
to 236,193.55 million rubles in 2010. The top line growth was due to an increase in selling space
25
as well as to a 9.19% increase of like-for-like sales (excl. VAT). Revenue growth in dollar terms
amounted to 45.25%: from US$ 5,354.49 million to US$ 7,777.40 million9.
2. Number of the Company’s stores increased from 3,204 “convenience stores” and 24
hypermarkets in 2009 to 4,004 (including 2 cosmetics stores (drogerie)) and 51 correspondingly
in 2010, total selling space of the stores increased by 34.20% from 1,059.87 thousand sq. m. to
1,422.38 thousand sq. m.
3 228
4 055
4 004
1893
1500
2 197
2 194
2 582
3 204
2 568
4 200
3 600
3 000
2 400
1 800
1 200
600
0
1014
610
368
2002
2003
2004
2005
2006
2007
2008
2009
2010
Convenience Stores
Hypermarkets
3. Number of customers increased by 28.46% from 1,013.44 million in 2009 to 1,301.90
million in 2010.
4. Share of sales of private label products in 2010 increased insignificantly to 12.7% while
the number of private label SKUs increased from 530 in 2009 to 614 in 2010. The Company plans
to further increase the share of sales of the private label products firstly by expanding the offer
of these products in “Magnit” hypermarkets mainly in the non-food segment.
800
600
400
200
0
6,3%
265
12,1% 12,1% 12,3% 12,7%
10,9%
8,2%
508
551
700
700
530
614
15%
12%
9%
6%
3%
0%
2004
2005
2006
2007
2008
2009
2010
Number of Items
Share in Retail Sales
5. In 2010 the Company opened owned distribution centers in Veliky Novgorod and
Tambov. Launch of the new distribution centers improved the quality of service in the North-
Western and Central regions. Total space of 11 distribution centers as of December 31, 2010
amounted to 233,432 thousand sq. m.
9 Based on the average exchange rate for 2010 of 30.3692 RUR per 1 US$, 2009 – 31.7231 RUR per 1 US$.
26
6. During the reporting year the fleet of the Company’s vehicles increased by 1,189
trucks, total number of vehicles amounted to 2,642 which resulted in the considerable reduction
of transportation costs.
7. In 2010 the Company increased the share of products processed via its distribution
centers from 78% in 2009 to 79% 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 2010 average weighted number of the Company’s employees
amounted to 90,998 out of which 66,315 are in-store personnel; 16,447 people are engaged in
distribution; 5,744 people - in regional branches and 2,492 are employees of the head office.
Average salary in the Company in 2010 amounted to 16,503 rubles.
9. 9.2% LFL revenue growth of 2010 vs. 2009 in ruble terms was driven principally by
6.0% average ticket growth and traffic amounted to 3.0%.
Gross margin reduced from 23.48% in 2009 to 22.38% in 2010 due to continued large-
scale price investments. Gross profit in rubles increased by 32.53% from 39,884.61 million RUR
(US$ 1,257.27 million) to 52,858.39 million RUR (US$ 1,740.53 million).
EBITDA increased by 18.67% from 16,162.55 million RUR (US$ 509.49 million) in 2009
to 19,179.96 million RUR (US$ 631.56 million) in 2010. Net debt/EBITDA ratio (in ruble terms)
for 2010 amounted to 1.39.
2010 net income increased by 16.10% and amounted to 10,134.11 million RUR (US$
333.70 million) vs. 8,728.77 million RUR (US$ 275.15 million) in 2009.
7 000
5 000
3 000
1 000
21,7%
5 348
7,5%
3,5%
2008
Sales
Gross Margin
22,4%
7 777
8,1%
4,3%
2010
25%
20%
15%
10%
5%
0%
EBITDA Margin
NI Margin
US$ million
23,5%
5 354
9,5%
5,1%
2009
27
On the whole, the Board of Directors of the Company considers the achieved financial
and economic results positive and complying with 2010 target plans.
Following the results of the conducted work the Board of the Company’s directors
recommends the annual general shareholders’ meeting to approve the activity of the
Company’s management bodies during 2010 and to ratify 2010 annual report submitted for
the meeting agenda.
28
88.. MMAAIINN 22001100 CCOORRPPOORRAATTEE EEVVEENNTTSS
April
May
Magnit CEO Sergey Galitskiy has been recognized by Institutional Investor 1st
Place CEO – Buyside in the Consumer – Retailing/Food&Drug category in
Europe.
JSC “Tander” regional branch is established in Archangelsk of the Archangelsk
region.
The new membership of the OJSC “Magnit” Board of directors including four
independent directors is formed by the annual general shareholders’ meeting.
The decision to pay dividends following the results of 2009 financial year is
adopted by the annual general shareholders’ meeting.
The decision on ratification of the Charter of OJSC “Magnit” in new edition was
adopted by annual shareholder’s meeting.
The decision on ratification of the Regulations on collegial executive body
(Management Board) of OJSC “Magnit” was adopted by the annual shareholder’s
meeting.
The decision on ratification of the Regulations on Board of directors of OJSC
“Magnit” in new edition was adopted by the annual shareholder’s meeting.
The decision on ratification of the Regulations on sole executive body (chief
executive officer) of OJSC “Magnit” was adopted by the annual shareholder’s
meeting.
The decision on ratification of the Regulations on Revision Committee of OJSC
“Magnit” in new edition was adopted by the annual shareholder’s meeting.
The decision on ratification of the Regulations on Shareholders’ meeting of OJSC
“Magnit” in new edition was adopted by the annual shareholder’s meeting.
The decisions on approval of major related party transactions are adopted by the
annual shareholders’ meeting.
The membership of the OJSC “Magnit” Management Board was formed by the
Board of directors.
The Board of directors forms the committees of the Board appoints the chairman,
deputy chairman and secretary of the Board of Directors.
JSC “Tander” regional branch is established in Surgut of Khanty-Mansiisk
autonomous district.
JSC “Tander” regional branch is established in Omsk of the Omsk region.
JSC “Tander” regional branch is established in Syktyvkar of Komi Republic.
OJSC “Magnit” has placed within one day exchange-traded bonds of BO-01, BO-
02, BO-03, BO-04 series in full in the total amount of 5.5 billion rubles.
The contract of inclusion and maintenance of exchange-traded bonds of OJSC
“Magnit” in the quotation list of close joint-stock company “MICEX Stock
Exchange” was entered into. Exchange-traded bonds of BO-01, BO-02, BO -03,
BO-04 series were admitted to trading in the quotation list “A” level 1 of CJSC
“MICEX Stock Exchange”.
June
July
August
September
October
JSC “Tander” regional branch is established in Berezniki of the Perm region.
November
OJSC “Magnit” ordinary shares were transferred (included) into the quotation list
“A” level 1 of OJSC “RTS”.
29
December
OJSC “Magnit” ordinary shares were transferred (included) into the quotation list
“A” level 1 of CJSC “MICEX Stock Exchange”.
30
99.. PPOOSSIITTIIOONN OOFF TTHHEE CCOOMMPPAANNYY IINN IINNDDUUSSTTRRYY
RRUUSSSSIIAANN MMAARRKKEETT
The section was prepared with the use of materials of IA Infoline and public sources of
companies.
Retail turnover in 2010 amounted to 16,435.8 billion rubles which is 104.4% to the level
of 2009 in terms of mass of commodities. In December 2010 turnover amounted to 1,764.4 billion
rubles and increased by 3.4% to December of 2009. Consumption of food as well as non-food
products grew in December compared to November 2010 – turnover increased by 20.1% to the
November level (in 2009 turnover of December increased by 22.1% compared to November). At
that food retail turnover in 2010 amounted to 105.1% (8,004.8 billion rubles) compared to 2009,
non-food retail turnover – 103.8% (8,431.0 billion rubles). It should be noted that in 4Q retail
turnover growth rates decelerated compared to 2Q and 3Q of 2010. This trend is driven by
deceleration of personal income growth rates as well as sustainable propensity to save.
25
20
15
10
5
0
-5
-10
-15
Dynamics of key figures of consumer market in 2005-2010 as a % to the corresponding period
of the previous yeаr
17
16
14
13
11
11
8
13
10
15
14
12
17
13
13
11
9
10
18
18
15
15
12
12
15
14
12
15
13
20
19
16
16
16
17
13
11
11
22
21
19
14
14
9
7
11
8
5
0
0
0
5
0
Q
1
5
0
Q
2
5
0
Q
3
5
0
Q
4
6
0
Q
1
6
0
Q
2
6
0
Q
3
6
0
Q
4
7
0
Q
1
7
0
Q
2
7
0
Q
3
7
0
Q
4
8
0
Q
1
8
0
Q
2
8
0
Q
3
8
0
Q
4
9
0
Q
1
Growth of retail turnover
Growth of food retail turnover
Growth of non-food retail turnover
6
5
5
7
6
5
5
4
3
4
2
-1
0
1
Q
1
0
1
Q
2
0
1
Q
3
0
1
Q
4
-1
9
0
Q
2
-5
-1
9
0
Q
4
-6
9
0
Q
3
-4
-9
-9
-9
-12
Source: IA Infoline
According to estimates of the Ministry of Economic Development and Trade of Russia
published in December 2010 growth rate of retail turnover will arrive at 6% in 2013 (4.8% in
2011 and 5.6% in 2012). Monthly dynamics of retail turnover in Russia in 2005-2010 is presented
in the diagram.
Dynamics of retail turnover and money supply in 2005-2011, bn RUR
2000
1800
1600
1400
1200
1000
800
600
400
5
0
n
a
J
5
0
r
a
M
5
0
y
a
M
5
0
l
u
J
5
0
p
e
S
5
0
v
o
N
6
0
n
a
J
6
0
r
a
M
6
0
y
a
M
6
0
k
u
J
6
0
p
e
S
6
0
v
o
N
7
0
n
a
J
7
0
r
a
M
7
0
y
a
M
7
0
l
u
J
7
0
p
e
S
7
0
v
o
N
8
0
n
a
J
8
0
r
a
M
8
0
y
a
M
8
0
l
u
J
8
0
p
e
S
8
0
v
o
N
9
0
n
a
J
9
0
r
a
M
9
0
y
a
M
9
0
l
u
J
9
0
p
e
S
9
0
v
o
N
0
1
n
a
J
0
1
r
a
M
0
1
y
a
M
0
1
l
u
J
0
1
p
e
S
0
1
v
o
N
1
1
n
a
J
10 000
8 000
6 000
4 000
2 000
0
Retail turnover (in current prices), bn RUR
Monetary base (in broad definition), bn RUR
Source: IA Infoline
31
Dynamics of retail turnover in Russia in 2006-2010
Period
Turnover, bn RUR10As a %11 to the corresponding period of the previous year
2006
2007
2008
2009
I quarter
II quarter
I half
III quarter of 2010
October 2010
November 2010
December 2010
IV quarter of 2010
8693.4
10757.8
13853.2
14602.5
3624.5
3928.8
7553.3
4194.9
1459.8
1463.4
1764.4
4687.6
113.9
115.2
113.0
95.1
101.8
105.4
103.6
106.0
104.5
104.6
103.4
104.1
Source: data of Federal State Statistics Service and the Ministry of Economic Development and Trade
SSTTRRUUCCTTUURREE OOFF RREETTAAIILL TTUURRNNOOVVEERR BBYY TTYYPPEE OOFF MMEERRCCHHAANNDDIISSEE
In structure of retail turnover non-food demonstrated the highest annual average
growth rates in 2005-2011. Long-term dynamics and structure of retail turnover by type of
merchandise is presented in the diagram.
Dynamics of retail turnover by type of merchandise in 2005-2010, %
15,1
14,1
12,8
11
10,5
8,7
11
5,9
16,8
16,1
19,1
17,2
12,4
12,6
13,6
13,5
8,5
9,1
9,8
6
2005
2006
2007
2008
25
20
15
10
5
0
-5
-10
5,1
4,4
3,8
2009
-1,3
-1,6
-4,5
-3,6
-8,3
2010
-2,8
Retail turnover
Food products
Alcoholic beverages
Food
Non-food products
Source: IA Infoline
In 2010 there was positive dynamics of consumption, retail turnover in 2010 increased
by 4.4%, food consumption – by 5.1%, non-food – by 3.8%. Consumption of alcoholic beverages
still has negative dynamics "–2.8%" at the end of 2010. In conditions of economic crisis in Russia
consumer demand for non-food goods shrank more significantly and at the end of 2009 the
share of non-food goods in retail turnover in Russia amounted to 48.3%. It is important to note
that data of Federal State Statistics Service for 2009-2010 and of the previous years is not fully
comparable because in 2002-2008 data on food products including beverages were provided by
Federal State Statistics Service without tobacco products and starting from 2009 with tobacco
products. Therefore the graph provides adjusted data on the share of food products (excluding
tobacco products).
10 Data has been updated based on the results of Federal State Statistics Service research of small enterprises as of January 2011
11 Dynamics of retail turnover in terms of mass of commodities
32
Source: IA Infoline
After sharp decline in 2008 and in the beginning of 2009 the reduction of the share of
non-food products discontinued in the second half of 2009 and the share of food products
reduced from May to October 2009. In November-December 2009 this trend has been broken
and the share of food products started to grow again achieving the highest level in February
2010. In March – August 2010 the share of food products settled on the level of 49% which
corresponds to the level of 2000 and indicates that a number of trends in the consumption
structure formed during the economic crises remained unchanged. A decline was noted from
September – in September 2010 the share of food products reduced to 48.3%, in October 2010 to
48.14%, in November 2010 to 48.1% and by the year end – in December – the share of food
products started to grow again – 48.7%.
SSTTRRUUCCTTUURREE OOFF RREETTAAIILL TTUURRNNOOVVEERR BBYY TTYYPPEE OOFF OORRGGAANNIIZZAATTIIOONNSS
In December 2010 87.6% of retail turnover was formed by trading organizations and
private entrepreneurs trading outside the market, the share of retail markets and trade fairs
amounted to 12.4% (in December 2009 - 87.0% and 13.0% correspondingly). Totally for 2010
87.3% of retail turnover was formed by trading organizations and private entrepreneurs trading
outside the market, the share of retail markets and trade fairs amounted to 12.7% (in 2009 -
86.5% and 13.5% correspondingly). In December 2010 compared to December 2009 turnover of
trading organizations increased by 4.1%, sales on the markets decreased by 1.2%. Compared to
November 2010 trading organizations demonstrated growth of turnover (by 20%) and sales on
the markets increased by 12.4%. Totally for 2010 turnover of trading organizations increased by
5.4%, sales of goods on the markets reduced by 1.9%. By the end of 2010 the trend of customers
flow from stores to retail markets continued due to tightening of price competition. Since
January 2010 the share of trading organizations has been growing gradually, in July 2010 it
achieved a peak level of 87.7%, after that it declined to 87.0% in September 2010. In October
2010 turnover started to grow gradually again to 87.1%, but in November 2010 the share of
trading organizations decreased to 86.8% and in December it started to increase again nearly
achieving a peak level (of July 2010) of 87.6%.
Turnover of trading organizations and markets in 2002-2010, billion RUR
Index
Retail turnover
turnover of trading organizations
sales of markets
share of trading organizations, %
2003
4529
2004
5642
2002
2005 2006
7038 8690 10866.2 13853.2 14602.5 16453.8
3765
2838.8 3451.1 4420.5 5558.2 6987 9214.5 12015.9 12610.3 14364.2
926.2 1077.9 1254.1 1479.8 1703 1651.7 1837.3 1992.2 2089.6
75.4
2008
2010
2009
2007
80.4
87.3
77.9
84.8
86.4
86.7
76.2
79.0
33
share of markets, %
24.6
23.8
22.1
21.0
19.6
15.2
13.3
13.6
12.7
Source: data of Federal State Statistics Service
In structure of retail turnover by type of organizations in 2010 the share of markets
decreased by 0.9 percentage points, the share of small enterprises – by 0.6 percentage points and
the share of private entrepreneurs – by 0.2 percentage points. At that the share of large and
medium-sized enterprises (in fact of retail chains) increased by 1.7 percentage points. Dynamics
of retail structure in Russia by type of organizations is presented in the diagram.
Structure of retail turnover by type of organizations in 2006-2010, %
100%
80%
60%
40%
20%
0%
32,7
22,3
25,3
19,7
2006
37,3
22,2
25,2
15,3
2007
35,2
26,3
25,2
13,3
2008
34,5
25,8
26,1
13,6
2009
36,2
25,2
25,9
12,7
2010
Markets
Private enterpreneurs outside the market
Small enterprises
Large and medium-sized enterprises
Source: IA Infoline
In 2004-2009 decline of share of markets in retail turnover was accompanied by the
reduction of their number (the most active decline was in 2007 and in the 1st quarter of 2008,
after that the situation stabilized) due to liquidation or conversion in shopping complexes: as of
January 1, 2005 there were 6.44 thousand markets operating in Russia, as of January 1, 2008 – 4.7
thousand, as of January 1, 2009 – 3.73 thousand and as of January 1, 2010 – 3.5 thousand, as of
April 1, 2010 – 3.506 thousand. As of July 1, 2010 there were 3.505 thousand markets functioning
on the territory of the Russian Federation. As of October 2010 there were 3.483 thousand retail
markets functioning in Russia (including 227 agricultural markets and 159 specialized food
markets). During 3rd quarter of 2010 (compared to July 1, 2010) their number reduced by 22
markets, including the number of multipurpose markets – by 16 markets, specialized food and
merchandise markets – by 3 markets, DIY – by 2 markets.
RREEGGIIOONNAALL SSTTRRUUCCTTUURREE OOFF RREETTAAIILL TTUURRNNOOVVEERR
Regional structure of retail turnover in Russia is peculiar for its lack of uniformity:
52.57% of retail turnover in December 2010 accounts for 11 subjects (Moscow, Moscow region,
Saint-Petersburg, Sverdlovsk region, Krasnodar region, Samara region, Republics of Tatarstan,
and Bashkortostan, Tyumen region, Chelyabinsk and Rostov region). Note that at the end of
2009 the share of 11 largest regions amounted to 52.5%.
34
Structure of retail turnover by federal
district of the Russian Federation in 2010,
%
North-Caucasian
4,8%
Southern
9,1%
Volga
18,1%
North-Western
9,4%
Central
34,1%
Far-Eastern
4,0%
Urals
10,0%
Siberian
10,6%
Structure of retail turnover by subject of the
Russian Federation in 2010, %
Republic of
Bashkortostan
3,1%
Chelyabinsk
region
2,3%
Other
47,4%
Samara region
2,6%
Republic of
Tatarstan
2,8%
Rostov region
2,8%
Tyumen region
3,3%
Krasnodar region
3,9%
Sverdlovsk region
3,9%
Saint-Petersburg
4,2%
Moscow region
6,1%
Moscow
17,5%
Source: IA Infoline
The share of other regions (excluding 11 largest) in 2003-2009 continued to increase in
2010 and for the first time during last 10 years there was a decline due to more rapid than
average for Russia recovery of consumer demand in Moscow, Sverdlovsk region and Republics
of Bashkortostan and Tatarstan.
Dynamics of the share of 69 regions of Russia (excluding 11 largest) in
retail turnover in 2003-2010, %
47,8%
47,4%
47,1%
46,6%
45,1%
44,7%
45,4%
45,7%
49%
48%
47%
46%
45%
44%
43%
2003
2004
2005
2006
2007
2008
2009
2010
Source: IA Infoline
In 2010 the share of Central federal district (including Moscow and Moscow region),
North-Western federal district (including Saint-Petersburg), Southern and North-Caucasian
federal districts in total volume of retail turnover demonstrates the most dynamic growth rates
while retail turnover in Urals, Siberian and Far-Eastern federal districts continues to decline
which started in 2008.
Regional structure of retail turnover of the Russian Federation in 2003-2010, %
2010
34.10
6.15
17.54
2009
33.7
6.1
17.3
2008
33.5
6.4
17.1
2004
38.4
5.1
24.3
2007
34.7
6.1
19.0
2005
36.9
5.3
22.5
2006
35.8
5.7
20.9
2003
39.2
4.3
26.0
Region
Central federal district
Moscow region
Moscow
North-Western federal
district
Saint-Petersburg
Southern federal district
North-Caucasian federal
district
Volga federal district
Urals federal district
Siberian federal district
Far-Eastern federal
district
9.4
4.1
8.0
3.6
17.5
10.0
11.7
4.1
9.4
4.1
8.5
3.8
17.9
10.4
11.5
3.9
9.2
4.1
8.8
4.0
18.4
10.8
11.6
3.7
9.4
4.2
8.7
4.6
18.3
10.3
10.9
4.1
9.40
4.23
9.07
4.79
18.11
9.96
10.59
3.99
9.1
3.6
7.7
3.0
16.7
8.4
11.7
4.2
9.3
3.8
7.8
3.4
16.7
8.7
11.6
4.1
9.5
4.0
7.9
3.7
16.9
9.3
11.7
4.1
35
Source: data of Federal State Statistics Service
The only subject that demonstrated maximum decline (above 5%) of retail turnover
compared to 2009 among largest regions (with the share of retail turnover in Russia above 1%)
in 2010 was Tyumen region – by 5.3%, the reduction within 5% was in Perm region – by 1.6%
and Irkutsk region – by 2.6%. The highest growth for this period was demonstrated by
Stavropol region (12.6%), Volgograd region (10.2%), Krasnodar region (10.2%) and Sverdlovsk
region (by 10%).
Growth of retail turnover by districts in 2007 - 2010, as a% to the corresponding period of the
previous year, in comparable prices
111,7
110,8
114,5
110,3
106,3
105,4
109,4
109,4
105,2
95,2
92,8
94
117,7
115,2
120,1
118,1
104,9
94,9
2007
2008
2009
2010
113,9
111,5
110,3
109,5
102,5
102,4
104,7
100,2
92,3
89,3
125
120
115
110
105
100
95
90
85
80
Central
North-Western
Southern
North-Caucasian
Volga
Urals
Siberian
Far-East
Source: IA Infoline
In 2001-2008 dynamic growth of retail turnover expressed in physical terms was noted
in the majority of regions, afterwards during 10 months (from March to December 2009)
dynamics was negative. At that since November 2009 the number of regions with growing retail
turnover started to grow again achieving its maximum (76) in August 2010. However in
September there was a decline noted to 64 such regions in October 2010 (decreasing to the level
of March 2010, i.e. the period of crisis phenomena in economy), in November the number
insignificantly increased to 68 regions and at the end of December it sharply decreased to 60
regions. Thus a conclusion can be made that negative situation in Russian retail on the regional
level continues despite overall positive dynamics in 2010 compared to 2009 in Russia.
36
GGOOVVEERRNNMMEENNTT RREEGGUULLAATTIIOONN OOFF RREETTAAIILL TTRRAADDEE
According to the Federal Law № 381 – FL “On fundamental principles of government
regulation of trade activity in the Russian Federation” which came into effect on February 1,
2010, food retail chains (with the threshold of dominance on retail market within the boundaries
of one region, municipal area or urban district exceeding 25%) are prohibited from acquiring
and renting additional selling space within the boundaries of the corresponding administrative-
territorial entity. The law does not apply to agricultural consumer cooperatives and
organizations of consumer cooperation.
The law “On fundamental principles of government regulation of trade activity in the
Russian Federation” also aims to regulate cooperation of retail chains and suppliers. The law №
381 – FL introduced special legal regulation with regard to food supplies and formalized a list
of terms which cannot be imposed by food suppliers and their buyers (retail chains) upon each
other. In particular, these terms include: reduction of price by suppliers to the level which will
not exceed the minimum selling price of this product by economic entities performing
corresponding activity subject to the determination of the trade mark-up; payment for the
change in the product mix; responsibility for a failure to observe obligation on goods supply on
more favorable terms than for other economic entities; fee paid by suppliers for access to trade
objects within one retail chain. Wholesale trade under commission agreement is prohibited. It is
prohibited to set a ban on substitution of persons under the food supply agreement through
assignment of a claim and liability for noncompliance with this regulation. Credit term for some
food products was set. For example, products with up to 10-days expiry period should be paid
for within 10 working days from the date of acceptance of goods, for products with up to 30-
days expiry period the payment due period is up to 30 calendar days, and for the rest food
products including alcoholics drinks – up to 45 calendar days.
MMAAIINN CCOOMMPPEETTIITTOORRSS1122
The concentration level of the Russian food retail market is quite low – the share of 3
largest players makes up about 8% of the market, which considerably yields to comparable
figures in Eastern and Western European countries.
Such a low capital concentration creates conditions for competition intensification
among retail chains in the nearest future. Currently development of competition is expressed in
capturing extra markets due to growth of the chain itself including 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 record rates of 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.
As of January 1, 2010 X5 Retail Group was represented in 45 cities of European part of
Russia and Urals, also in Ukraine, and operated 2,469 stores with the selling space of 1555.079
thousand sq. m. The chain consists of 1,392 “Pyaterochka” discounters, 45 “Perekrestok-
express” convenience stores, 301 “Perekrestok” supermarkets, 69 "Karusel" hypermarkets, 2
“Pyaterochka-Maxi” hypermarkets and 660 ”Kopeyka” stores. During 2010 selling space of X5
Retail Group increased by 492.122 thousand sq. m., the number of stores increased by 1,097
12 Source: IA Infoline, public sources of companies.
37
which includes 353 “Pyaterochka” discounters, 45 “Perekrestok-express” convenience stores, 26
“Perekrestok” supermarkets, 11 "Karusel" hypermarkets, 2 “Pyaterochka-Maxi” hypermarkets
and 660 “Kopeyka” stores. As of January 1, 2011 the number of franchise stores amounted to
665 in Russia, including 618 “Pyaterochka” discounters, 27 “Perekrestok-Express” mini-
markets, 19 “Paterson” supermarkets and “Perekrestok” supermarket.
In 2010 net sales amounted to 341.596 billion RUR or 11.248 billion USD increasing by
24% in ruble terms and 30% in dollar terms vs. 2009.
Like-for-like sales for 2010 increased by 7%, traffic grew by 3%, ticket – by 4%.
METRO Cash & Carry
As of February 1, 2011 METRO Cash & Carry operated 57 shopping centers in 35
regions. Total selling space of the company as of February 1, 2011 amounted to 502 thousand sq.
m. In 2006-2008 METRO Cash & Carry used to open 8-9 stores per year, however since 2009
“Metro group” reduced its expansion rates not only in Russia but in the other countries too.
Four trading centers were opened in 2009 in Russia (Bryansk, Zheleznodorozhny, Kirov,
Novosibirsk).
In 2010 the company opened 5 trading centers in Tomsk, Ekaterinburg, Moscow region,
Stavropol region and Kaliningrad.
Sales of METRO Cash & Carry, Russia for 2010 amounted to 3.93 billion euro (which
represents growth of 13% compared to 2009), the number of employees exceeded 14 000 people.
Auchan
As of February 1, 2011 Auchan in Russia operated 44 trading objects. 28 “Auchan”
hypermarkets were opened in 11 regions (14 – in Moscow and Moscow region, 4 – in Saint-
Petersburg, 2 – in Rostov-on-Don, 1 in Adygeya, Samara, Krasnodar, Ekaterinburg, Nizhniy
Novgorod, Novosibirsk, Omsk and Voronezh). Also Auchan operates 12 “Auchan-city” mini-
hypermarkets (that were opened as a result of rebranding of hypermarkets of “Ramstore”
chain) in Moscow (8 stores), Ekaterinburg (1 store), Moscow region (2), Novosibirsk (1) and St.
Petersburg (1). Also the chain consists of 2 stores of new “Raduga” format in Kaluga and Penza
that were opened in December 2009. Total selling space of the stores as of February 1, 2011
amounted to 442.55 thousand sq. m. Also two “Auchan Sad” hypermarkets were opened in
2009. In April 2010 1 “Auchan” hypermarket was opened in Moscow. In July and August 2010
one “Auchan” hypermarket was opened in Moscow region and one – in Voronezh. In October
2010 2 “Auchan” hypermarkets were opened in Moscow and Novosibirsk. In November 2010
the number of chain objects remained unchanged.
Dixy
As of December 31, 2010 the total store base of OJSC “Dixy Group” reached 646 (623
"Minimart" economy
"Megamart" compact hypermarkets, 8
“Dixy” discounters, 15
supermarkets) and selling space amounted to 227.866 thousand sq. m.
In 2010 sales of “Dixy” Group of Companies amounted to 64.73 billion rubles (2.131
billion USD) which represents growth of 19.4% in ruble terms (24.7% in dollar terms) from
54.208 billion rubles (1.709 billion USD).
LFL growth amounted to 7.37% due to traffic growth by 3.75% and average ticket by
3.49%.
Lenta
As of February 1, 2011 "Lenta" operated 39 hypermarkets located in Saint-Petersburg,
Nizhny Novgorod, Novosibirsk, Tyumen, Krasnodar, Volgograd, Veliky Novgorod,
38
Petrozavodsk, Astrakhan, Togliatti, Naberezhnye Chelny, Barnaul, Penza and Saratov, Omsk,
Novorossiysk and Rostov region. Total selling space of the chain as of February 1, 2011
amounted to 268.25 thousand sq. m. In 2010 “Lenta” retail chain opened 3 hypermarkets instead
of planned 5.
Sales of “Lenta” retail chain at the end of 2010 amounted of 70.6 billion rubles increasing
by 27% compared to 55.6 billion rubles for 2009. Therefore, sales guidance of 69 billion rubles
(growth of 22-23%) was met. Like-for-like growth amounted to 24%.
О'KEY
"O'KEY" group of companies is a multi-format retail chain consisting of "O'KEY"
hypermarkets and "O'KEY - Express" supermarkets.
As of February 1, 2011 "O'KEY" chain operated 57 shopping objects in the territory of
Russia: 15 hypermarkets and 15 supermarkets in Saint-Petersburg and Leningrad region, 1
hypermarket in Moscow, 1 hypermarket and 1 supermarket in Moscow region, 2 hypermarkets
in Murmansk, 4 hypermarkets and 1 supermarket in Krasnodar, 2 hypermarkets in Rostov-on-
Don, 1 hypermarket and 3 supermarkets in Volgograd, 1 hypermarket in Togliatti, Stavropol,
Nizhniy Novgorod, Ufa, Lipetsk, Voronezh, Astrakhan, 2 hypermarkets and 1 supermarket in
Krasnoyarsk as well as 1 supermarket in Novocherkassk. As of February 1, 2011 total selling
space of "O'KEY" chain amounted to over 287 thousand sq. m. (according to investment
memorandum 64% of space is owned). In 2010 the company opened 7 "O'KEY" hypermarkets
and 4 "O'KEY - Express" supermarkets, total selling space increased by 23.6% to more than 287
thousand sq. m. for the year of 2010.
Unaudited sales of “О'KEY” in 2010 amounted to 81.688 billion rubles increasing by
21.9% compared to 67.031 billion rubles for 2009. Like-for-like sales for 2010 amounted to 7.7%
due to 3.3% average ticket growth and 4.3% traffic growth.
39
Number of stores of the largest FMCG retailers in 2007-2010, eop.
Legal name
Brand
X5 Retail Group N.V.
”Magnit”,OJSC
Pyaterochka
Perekrestok
Karusel
Perekrestok -Express, Pyaterochka -Express
Magnit
Magnit Hypermarket
Auchan, Auchan-City, Raduga
Metro C&C
“Auchan”, company limited
“МЕТРО Cash and Carry”,
company limited
“O'key”, company limited
“Torgovyi Dom Kopeyka”, OJSC Kopeyka, Kopeyka Super
“Lenta”, company limited
“Dixy-group”, OJSC
“The Seventh Continent”, JSC
O'key, O'key-express
Lenta
Megamart, Minimart, Dixy
The Seventh Continent, NASH Hypermarket
Main formats 13
D
S
H
CS
D
H
H
2007 2008 2009 2010
674 848 1039 1392
301
194 207 275
71
58
46
22
45
0
0
0
2194 2568 3204 4004
51
44
24
38
14
33
3
18
H
39
48
52
57
S, H
D, S
H
D, S, H
CS, S, H
24
46
37
438 517 587
36
34
26
388 493 537
127 140 142
57
657
39
646
146
Total selling space of FMCG retailers in Russia in 2007-2010, eop, thousand sq. m.
Legal name
Brand
X5 Retail Group N.V.
”Magnit”,OJSC
Pyaterochka
Perekrestok
Karusel
Perekrestok -Express, Pyaterochka -Express
Kopeyka
Magnit
Magnit Hypermarket
Auchan, Auchan-City, Raduga
Metro C&C
“Auchan”, company limited
“МЕТРО Cash and Carry”,
company limited
“O'key”, company limited
“Torgovyi Dom Kopeyka”, OJSC Kopeyka, Kopeyka Super
“Lenta”, company limited
“Dixy-group”, OJSC
“The Seventh Continent”, JSC
O'key, O'key-express
Lenta
Megamart, Minimart, Dixy
The Seventh Continent, NASH Hypermarket
Main formats
D
S
H
CS
CS, S
D
H
H
H
S, H
D, S
H
D, S, H
CS, S, H
2009
493
2010
2007
2008
586.31
357.5 419.2
251.7 222.4 284.4 313.02
232.5 285.6 351.75
126
9,22
-
-
295.95
-
-
640.1 767.1 978.5 1256.8
11.6
81.4 165.081
250.6 340.1 386.6 451.25
56.4
-
-
502
351.5 430.4 466.3
149.2 191.7 232.7 287.43
224
177
148.8
147
250
274.8
232.7 247.4 268.25
227.87
206
191
192.25
184
171.9
0
Dynamics of net sales (excluding VAT) of the largest FMCG retailers in 2007-2010, billion RUR
X5 Retail Group N.V.
Legal name
Brand
Pyaterochka
Perekrestok
Karusel
Perekrestok -Express
Kopeyka, Kopeyka Super
Magnit
”Magnit”,OJSC
“Auchan”, company limited Auchan, Auchan-City, Raduga
“МЕТРО Cash and Carry”,
company limited
“O'key”, company limited O'key, O'key-express
“Lenta”, company limited
Metro C&C
Lenta
Megamart, Minimart, Dixy
Dixy
Megamart
Minimart
V-mart
marketing
The Seventh Continent, NASH
Hypermarket
“Dixy-group”, OJSC
“The Seventh Continent”,
JSC
Main formats
D
S
H
CS
D, S
D, H
H
H
S, H
H
CS, D, S, H
D
H
S
CS
CS, S, H
Data
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
RAS
IFRS
IFRS
MA
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
IFRS
2008
2009
2007
2010
75.38 110.95 148.35 188.28
49.75 67.15 73.19 83.13
31.16 41.71 53.55 61.12
1.86
34.940 51.60 56.15 61.21
94.04 132.4 169.86 236.14
128.1 158.36
90.6
–
–
–
–
89.2
111.2 114.30
–
50,8
48.3
30.533 51.143 67.03 81.69
32.9
55.60 70.60
54.26 64.73
36.65
32.25 40.65 45.13 54.39
7.26
2.18
0.00
0.90
6.32
2.00
0.07
0.74
5
2
0.24
0.49
3.2
1.2
0
0
32.56
39.9
44.59
–
13 Key: D - Discounter, H - Hypermarket, S - Supermarket, CS - Convenience Store
40
CCOOMMPPEETTIITTIIVVEE AADDVVAANNTTAAGGEESS OOFF ““MMAAGGNNIITT””
Multi-format business
Implementation of the strategic decision to develop the additional format of
hypermarket allows the Group to conduct more profound segmentation of existing markets and
consider population with different income level as potential customers as well as to achieve
high results of turnover per store and average ticket and fast rates of business growth.
Moreover, pricing policy of the Group allows it to compete with open-air markets targeting
customers also with income below the average.
Strong regional coverage
“Magnit” group of companies has considerable experience of operation in regions: in
2002 – 2010 the impressive growth of the Group turnover was a result of its expansion into the
cities with a population of less than 500 thousand people. In the nearest future the regions are
expected to face the highest growth of consumer demand, what creates favorable conditions for
medium-term dynamics of the Group business.
Russia’s largest chain in terms of number of stores
In terms of number of stores “Magnit” chain takes the first place in Russia which has a
positive impact on cooperation with the largest food and beverage producers promoting their
products on the regional markets. First of all it is seen in favorable purchasing terms and
corresponding efficiency improvement.
Recognized brand
According to the independent expert research, IGD in particular, Russian customers pay
significant attention to the brand when purchasing non-food and food items. Moreover, loyalty
of Russian customer to one or another brand is higher vs. European citizens, which makes
Russian customers less price-sensitive. Therefore, large store chain under “Magnit” brand
allows the Group to strengthen its positions in the occupied market niche.
Efficient logistics system
Developed logistics system, distribution centers and own fleet of vehicles enable the
Group to strictly monitor its delivery costs. Operating distribution centers results in lower
purchase prices and less pressure on the store at goods acceptance which ultimately contributes
to more efficient business organization.
The Group employs highly efficient automated stock replenishment system, which gives
opportunity to achieve high turnover level as well as to reduce costs.
41
1100.. 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, 2010 the chain consisted of 4,055 stores: 4,022
convenience stores, 51 hypermarkets and 2 drogerie stores in 1,216 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. Most of its stores are located within the Southern, North-Caucasian, Central
and Volga regions. The Company also operates stores in the North-Western, Urals and Siberian
regions. By the end of 2010 stores located in the Southern Federal district accounted for 1,103, in
the Volga region – 1,245, North-Caucasian – 263, Central – 961, North-Western – 217, the
number of stores in the Urals and Siberian regions amounted to 245 and 21 correspondingly.
North-Western:
217 stores
1 distribution center
Central:
961 stores
4 distribution centers
Southern:
1,103 stores
3 distribution centers
North-Caucasian:
263 stores
Volga:
1,245 stores
2 distribution centers
Urals:
245 stores
1 distribution center
Siberian:
21 stores
As of December 31, 2010 the Company operates in-house logistics system consisting of
11 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 four distribution centers are based in Tver, Oryol, Ivanovo and Tambov, Central
Federal district, one in Chelyabinsk, Urals Federal district and one in Veliky Novgorod, North-
Western Federal district.
42
City
Federal District
Warehousing space,
sq. m.
Number of serviced
stores
Bataysk
Kropotkin
Southern
Southern
Slavyansk-on-Kuban
Southern
Engels
Togliatti
Tver
Oryol
Tambov
Ivanovo
Volga
Volga
Central
Central
Central
Central
Veliky Novgorod
North-Western
Chelyabinsk
Urals
16,314
30,048
20,496
19,495
18,724
10,714
12,197
24,867
43,365
21,060
16,152
399
467
290
409
599
215
295
357
353
248
423
Total
233,432
4 055
The Company operates automated stock replenishment system and a fleet of 2,642
vehicles.
43
1111..
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 500 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, North-Western and Siberia regions.
In the long-term outlook the management of the chain does not exclude the opportunity
of entering the markets of the Far East.
Development of the multi-format model
Currently the Company is actively expanding into two formats: traditional
format – “convenience store” – and a new one – “hypermarket” – on the developed
territories.
The Company opens its hypermarkets mainly in the cities with population from
50,000 to 500,000 citizens, at that the retail outlet is located inside the city (within the
city boundaries).
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 selling space of up to 3,000 sq. m. (excluding rental space);
“medium” with the selling space of 3,000 – 5,000 sq. m. (excluding rental space);
“large” with the selling space of over 5,000 sq. m.; (excluding rental 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
44
population with different income as potential customers, which results in high turnover per
store and average ticket as well as fast business growth rate.
The Group has also started to study a new segment of retail market and in the end of
2010 launched 2 trial stores of a new format – “drogerie”. Unlike “traditional” formats stores
under “Magnit Kosmetik” brand offer a mix of non-food group of products: personal care
products, household chemicals, cosmetics and perfumery goods.
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 convenience store 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.
Development of direct import firstly of fresh fruits and vegetables will also
contribute to minimization of logistics costs.
45
1122.. IINNFFOORRMMAATTIIOONN OONN TTHHEE PPAAIIDD DDIIVVIIDDEENNDDSS
It was resolved by the annual general shareholders’ meeting of June 24, 2010 (minutes of
28.06.2010) to pay dividends on ordinary nominal shares of OJSC “Magnit” following the
results of 2009 financial year.
Information on the paid dividends:
Dividend period
Year: 2009.
Amount of announced (accrued) dividends on shares of the category (type) per share,
RUB: 10.06.
Total amount of announced (accrued) dividends on all shares of the category, RUB:
895,089,234.38
Total amount of the dividends paid on all issuer’s shares of the category, RUB:
895,088,157.96.
The dividends payment was effected in money terms with the assistance of the Registrar
of the Company, OJSC “United registration Company” (15A, Kalanchevskaya street, Moscow)
as an entity providing services on dividends payment.
The announced dividends were not paid in full as the result of the mistakes in payment details
indicated by shareholders.
46
1133.. 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, 2010 authorized capital stock of the open joint-stock company
“Magnit” amounted to 889,750.73 rubles. It consists of 88,975,073 ordinary nominal uncertified
shares with par value of 0.01 rubles.
The Company has a right to offer in addition to the offered shares 111,874,927 ordinary
nominal shares with par value of 0.01 rubles (authorized shares).
Information on the listed shares of OJSC “Magnit” as of 31.12.2010:
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
88,975,073
88,975,073
Structure of OJSC “Magnit” share capital as of 31.12.2010:
Number of registered
persons
Name
Share in the charter
capital, %
Legal entities
including nominal holders
Natural persons
Total:
11
10
13
24
55.1009
55.1008
44. 8991
100
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): 29.96 %;
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):
47
- 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;
- in accordance with the order of FFMS of Russia of October 02, 2009 № 09-3132/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-005D of 02.10.2009 in the
amount of 16 792 946 (sixteen million seven hundred ninety two four thousand nine hundred
forty six) 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.
BBOONNDDSS
Bond issue of LLC “Magnit Finance” of 01 series:
In 2005 the Company entered stock market offering its investors bond issue by limited
liability company “Magnit Finance”, subsidiary of OJSC “Magnit”. The bond issue enabled the
Company to optimize its debt portfolio and work out methods of cooperation with investors for
the purpose of further introduction of the Company’s shares to the market.
Issue included 2 million securities with the nominal value of 1 thousand rubles
guaranteed by OJSC “Magnit” and JSC “Tander”. Issue was outstanding for 3 years. The main
objective of the bond issue was to refinance short-term debt of the group. Not less than 75% of
raised funds were channeled for these purposes, and the remaining funds were spent on
“Magnit” retail chain development.
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 stock
exchange commenced on November 23, 2005. The number of the placed securities amounted to
2,000 thousand securities which constitutes 100% of the total number of securities subject to
placement. The bond issue was realized in full in the course of auction in the fist day of
placement.
On November 19, 2008 LLC “Magnit Finance” fulfilled its obligations to bond holders on
time and in full and redeemed the nominal value of bonds of 01 series.
Bond issue of LLC “Magnit Finance” of 02 series:
In 2007 the Company offered its investors the second bond issue by limited liability
company “Magnit Finance”, subsidiary of OJSC “Magnit”.
Issue included 5 million securities with the nominal value of 1 thousand rubles
guaranteed by OJSC “Magnit” and JSC “Tander”. Issue will be outstanding for 5 years. The
second bond issue 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 stock
48
exchange commenced on March 30, 2007. The number of the placed securities amounted to
5,000 thousand securities which constitutes 100% of the total number of securities subject to
placement. The bond issue was realized in full in the course of auction in the fist day of
placement.
Parameters of the bond issue of LLC “Magnit Finance” of 02 series:
Date and the number of state registration
Volume of the issue
Number of securities
Nominal value of each security
Offering price
Date of placement
Method of placement
Redemption date
Number of coupons
Trading code
ISIN code
Interest rate on the basis of the auction results
1 coupon interest rate
2 coupon interest rate
3 coupon interest rate
4 coupon interest rate
5 coupon interest rate
6 coupon interest rate
7 coupon interest rate
8 coupon interest rate
9 coupon interest rate
10 coupon interest rate
№ 4-02-36102-R of March 6, 2007
5,000,000,000 rubles
5,000,000 bonds
1,000 rubles
100% of nominal value
30.03.2007
open subscription
1,820 day from the date of placement
(23.03.2012)
10
RU000A0JP4W7
RU000A0JP4W7
8.20 %
8.20 %
8.20 %
8.20 %
8.20 %
8.20 %
8.20 %
8.20 %
8.20 %
8.20 %
8.20 %
The first coupon yield of 02 series bond issue was paid on September 28, 2007. The total
amount of yield paid on the second coupon amounted to 204.45 million rubles, the amount of
yield of the second coupon paid per one bond amounted to 40.89 rubles.
The second coupon yield of 02 series bond issue was paid on March 28, 2008. The total
amount of yield paid on the second coupon amounted to 204.45 million rubles, the amount of
yield of the second coupon paid per one bond amounted to 40.89 rubles.
The third coupon yield of 02 series bond issue was paid on September 26, 2008. The total
amount of yield paid on the third coupon amounted to 204.45 million rubles, the amount of
yield of the third coupon paid per one bond amounted to 40.89 rubles.
The forth coupon yield of 02 series bond issue was paid on March 27, 2009. The total
amount of yield paid on the forth coupon amounted to 204.45 million rubles, the amount of
yield of the forth coupon paid per one bond amounted to 40.89 rubles.
The fifth coupon yield of 02 series bond issue was paid on September 25, 2009. The total
amount of yield paid on the fifth coupon amounted to 204.45 million rubles, the amount of yield
of the forth coupon paid per one bond amounted to 40.89 rubles.
49
The sixth coupon yield of 02 series bond issue was paid on March 26, 2010. The total
amount of yield paid on the fifth coupon amounted to 204.45 million rubles, the amount of yield
of the forth coupon paid per one bond amounted to 40.89 rubles.
The seventh coupon yield of 02 series bond issue was paid on September 24, 2010. The
total amount of yield paid on the fifth coupon amounted to 204.45 million rubles, the amount of
yield of the forth coupon paid per one bond amounted to 40.89 rubles.
Based on trading for the period from 01.01.2010 to 31.12.2010 the weighted average price
of transactions with bonds of 02 series varied from min 94.71 % (14.01.10) to max 101.50 %
(26.11.10) of the nominal value. Recognized quotation within this period fluctuated from min
94.71% (11.01.10, 14.01.10 and 15.01.10) to max 100.84% (19.08.10 and 20.08.10).
Bond issue of OJSC “Magnit” of BO-01 series:
In 2010 the Company offered its investors the first Exchange-traded bond issue.
Issue included 1 million securities with the nominal value of 1 thousand rubles. Issue
will be outstanding for 3 years. The issue of the exchange-traded bonds of BO-01 series aims to
attract funds to finance operating activity and expansion of “Magnit” group of companies, to
decrease value of credit portfolio as well as to build public credit history.
The offering of the certified interest-bearing non-convertible Exchange-traded bonds
payable to bearer of BO-01 series with the obligatory centralized deposit of OJSC “Magnit” on
the MICEX stock exchange commenced on September 13, 2010. The number of the placed
securities amounted to 1 million securities which constitutes 100% of the total number of
securities subject to placement. The bond issue was realized in full in the course of auction in
the fist day of placement.
Parameters of the bond issue of OJSC “Magnit” of BO-01 series:
Date and the number of state registration
Volume of the issue
Number of securities
Nominal value of each security
Offering price
Date of placement
Method of placement
Redemption date
Number of coupons
Trading code
ISIN code
Interest rate on the basis of the auction results
1 coupon interest rate
2 coupon interest rate
3 coupon interest rate
4 coupon interest rate
5 coupon interest rate
6 coupon interest rate
№ 4B02-01-60525-P of February 02, 2010
1,000,000,000 rubles
1,000,000 bonds
1,000 rubles
100% of nominal value
13.09.2010
open subscription
1,092 day from the date of placement
(09.09.2013)
6
RU000A0JR118
RU000A0JR118
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
50
The first coupon yield of BO-01 series Exchange-traded bond issue was paid on March
14, 2011. The total amount of yield paid on the second coupon amounted to 41.14 million rubles,
the amount of yield of the second coupon paid per one bond amounted to 41.14 rubles.
Based on trading for the period from 14.09.2010 to 31.12.2010 the weighted average price
of transactions with Exchange-traded bonds of BO-01 series varied from min 99.92 % (20.12.10)
to max 107.58 % (30.09.10) of the nominal value. Recognized quotation within this period
fluctuated from min 100.02% (01.10.10) to max 100.70% (22.10.10 and 25.10.10).
Bond issue of OJSC “Magnit” of BO-02 series:
In 2010 the Company offered its investors the second Exchange-traded bond issue.
Issue included 1 million securities with the nominal value of 1 thousand rubles. Issue
will be outstanding for 3 years. The issue of the exchange-traded bonds of BO-02 series aims to
attract funds to finance operating activity and expansion of “Magnit” group of companies, to
decrease value of credit portfolio as well as to build public credit history.
The offering of the certified interest-bearing non-convertible Exchange-traded bonds
payable to bearer of BO-02 series with the obligatory centralized deposit of OJSC “Magnit” on
the MICEX stock exchange commenced on September 13, 2010. The number of the placed
securities amounted to 1 million securities which constitutes 100% of the total number of
securities subject to placement. The bond issue was realized in full in the course of auction in
the fist day of placement.
Parameters of the bond issue of OJSC “Magnit” of BO-02 series:
Date and the number of state registration
Volume of the issue
Number of securities
Nominal value of each security
Offering price
Date of placement
Method of placement
Redemption date
Number of coupons
Trading code
ISIN code
Interest rate on the basis of the auction results
1 coupon interest rate
2 coupon interest rate
3 coupon interest rate
4 coupon interest rate
5 coupon interest rate
6 coupon interest rate
№ 4B02-02-60525-P of February 02, 2010
1,000,000,000 rubles
1,000,000 bonds
1,000 rubles
100% of nominal value
13.09.2010
open subscription
1,092 day from the date of placement
(09.09.2013)
6
RU000A0JR126
RU000A0JR126
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
The first coupon yield of BO-02 series Exchange-traded bond issue was paid on March
14, 2011. The total amount of yield paid on the second coupon amounted to 41.14 million rubles,
the amount of yield of the second coupon paid per one bond amounted to 41.14 rubles.
51
Based on trading for the period from 14.09.2010 to 31.12.2010 the weighted average price
of transactions with Exchange-traded bonds of BO-02 series varied from min 100.00 % (17.09.10,
29.09.10, 01.10.10, 04.10.10) to max 107.58 % (30.09.10) of the nominal value. Recognized
quotation within this period fluctuated from min 100.01% (05.10.10) to max 100.31% (16.11.10 -
18.11.10).
Bond issue of OJSC “Magnit” of BO-03 series:
In 2010 the Company offered its investors the third Exchange-traded bond issue.
Issue included 1.5 million securities with the nominal value of 1 thousand rubles. Issue
will be outstanding for 3 years. The issue of the exchange-traded bonds of BO-03 series aims to
attract funds to finance operating activity and expansion of “Magnit” group of companies, to
decrease value of credit portfolio as well as to build public credit history.
The offering of the certified interest-bearing non-convertible Exchange-traded bonds
payable to bearer of BO-03 series with the obligatory centralized deposit of OJSC “Magnit” on
the MICEX stock exchange commenced on September 13, 2010. The number of the placed
securities amounted to 1.5 million securities which constitutes 100% of the total number of
securities subject to placement. The bond issue was realized in full in the course of auction in
the fist day of placement.
Parameters of the bond issue of OJSC “Magnit” of BO-03 series:
Date and the number of state registration
Volume of the issue
Number of securities
Nominal value of each security
Offering price
Date of placement
Method of placement
Redemption date
Number of coupons
Trading code
ISIN code
Interest rate on the basis of the auction results
1 coupon interest rate
2 coupon interest rate
3 coupon interest rate
4 coupon interest rate
5 coupon interest rate
6 coupon interest rate
№ 4B02-03-60525-P of February 02, 2010
1,500,000,000 rubles
1,500,000 bonds
1,000 rubles
100% of nominal value
13.09.2010
open subscription
1,092 day from the date of placement
(09.09.2013)
6
RU000A0JR142
RU000A0JR142
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
The first coupon yield of BO-03 series Exchange-traded bond issue was paid on March
14, 2011. The total amount of yield paid on the second coupon amounted to 61.71 million rubles,
the amount of yield of the second coupon paid per one bond amounted to 41.14 rubles.
Based on trading for the period from 14.09.2010 to 31.12.2010 the weighted average price
of transactions with Exchange-traded bonds of BO-03 series varied from min 99.50 % (30.11.10)
to max 101.26 % (29.10.10) of the nominal value. Recognized quotation within this period
fluctuated from min 99.99% (04.10.10 and 08.12.10) to max 100.35% (16.11.10 - 18.11.10).
52
Bond issue of OJSC “Magnit” of BO-04 series:
In 2010 the Company offered its investors the fourth Exchange-traded bond issue.
Issue included 2 million securities with the nominal value of 1 thousand rubles. Issue
will be outstanding for 3 years. The issue of the exchange-traded bonds of BO-04 series aims to
attract funds to finance operating activity and expansion of “Magnit” group of companies, to
decrease value of credit portfolio as well as to build public credit history.
The offering of the certified interest-bearing non-convertible Exchange-traded bonds
payable to bearer of BO-04 series with the obligatory centralized deposit of OJSC “Magnit” on
the MICEX stock exchange commenced on September 13, 2010. The number of the placed
securities amounted to 2 million securities which constitutes 100% of the total number of
securities subject to placement. The bond issue was realized in full in the course of auction in
the fist day of placement.
Parameters of the bond issue of OJSC “Magnit” of BO-04 series:
Date and the number of state registration
Volume of the issue
Number of securities
Nominal value of each security
Offering price
Date of placement
Method of placement
Redemption date
Number of coupons
Trading code
ISIN code
Interest rate on the basis of the auction results
1 coupon interest rate
2 coupon interest rate
3 coupon interest rate
4 coupon interest rate
5 coupon interest rate
6 coupon interest rate
№ 4B02-04-60525-P of February 02, 2010
2,000,000,000 rubles
2,000,000 bonds
1,000 rubles
100% of nominal value
13.09.2010
open subscription
1,092 day from the date of placement
(09.09.2013)
6
RU000A0JR159
RU000A0JR159
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
The first coupon yield of BO-04 series Exchange-traded bond issue was paid on March
14, 2011. The total amount of yield paid on the second coupon amounted to 82.28 million rubles,
the amount of yield of the second coupon paid per one bond amounted to 41.14 rubles.
Based on trading for the period from 14.09.2010 to 31.12.2010 the weighted average price
of transactions with Exchange-traded bonds of BO-04 series varied from min 98.00 % (22.11.10
and 03.12.10) to max 105.20 % (29.10.10) of the nominal value. Recognized quotation within this
period fluctuated from min 99.72% (26.11.10) to max 100.40% (09.11.10).
SSHHAARREESS TTRRAADDIINNGG
The shares of OJSC “Magnit” entered the Russian stock market in April 2006.
53
On April 14, 2006 the shares of OJSC “Magnit” were admitted to trading 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 trading of OJSC “Magnit” shares 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 determined on the level of 27 USD. Proceeds from the stock comprising 18.94% of the
charter capital amounted to 368,355 million USD. Deutsche UFG functioned as an IPO
coordinator; foreign investors could participate by purchasing the securities of “Magnit”
according to 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 trading in the corresponding list on December 13, 2007.
On December 21, 2007 OJSC “Magnit” shares were included in the quotation list “B” of
CJSC “MICEX SE” and admitted to trading in the corresponding list.
On February 13, 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 form of
GDRs and shares (including as part of the exercise of statutory pre-emptive 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 42.50 USD per share. The offer price in ruble terms was et
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 shareholders has
granted the joint bookrunners an over-allotment option to purchase up to an additional 506,585
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.
Free float of OJSC “Magnit” as of 30.06.2008 amounted to 35.48%. Proceeds from the
offering amounted to approximately 480.25 million USD 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.
In 2009 ordinary shares of the Company were included (transferred) into the Quotation
list “A” of the second level at the Moscow Interbank Currency Exchange and “Russian Trading
System” Stock Exchange”.
On September 2, 2009 OJSC “Magnit” announced its intention to offer additional shares
at 65 USD per ordinary share and 13 USD per GDR.
A total of 5,680,000 newly issued ordinary shares in the form of GDRs have been
allocated to international institutional investors, resulting in a total free float of 46.51% of the
Company’s issued share capital as of December 31, 2009.
Gross proceeds to the Company from the follow-on offering amounted to approximately
369.2 USD and used to finance further expansion of its chain of hypermarkets as well as to
54
continue the expansion of its convenience stores operations and further development of its
logistic capabilities.
Since November 14, 2010 shares of OJSC “Magnit” have been included (transferred) into
the Quotation list “A” of the first level at the “Russian Trading System” Stock Exchange”.
Shares of OJSC “Magnit” have been included (transferred) into the Quotation list “A” of
the first level at the MICEX Stock Exchange according to the Order of MICEX Stock Exchange
CJSC of 29.12.2010 № 1387-р.
According to trading held from 01.01.2010 to 31.12.2010 on MICEX Stock Exchange
weighted average price of the shares trading fluctuated from min 1,918.71 rubles (27.02.2010) to
max 4,125.29 rubles (13.12.2010).
Market capitalization of OJSC “Magnit” as of 30.12.201014 amounted to 360 052.76 million rubles
according to OJSC “MICEX SE”.
14 Based on the price as of 30.12.2010 since there was no trading on 31.12.2010
55
1144.. TTRRAANNSSAACCTTIIOONNSS,, CCOONNSSIIDDEERREEDD MMAAJJOORR TTRRAANNSSAACCTTIIOONNSS
JJOOIINNTT--SSTTOOCCKK
AACCCCOORRDDIINNGG TTOO TTHHEE FFEEDDEERRAALL LLAAWW ““OONN
CCOOMMPPAANNIIEESS””,, MMAADDEE WWIITTHHIINN TTHHEE YYEEAARR 22001100
04.08.10
Provision of guarantee by OJSC “Magnit”
under Agreement on crediting in Russian
rubles.
The Lender: Open joint-stock company
“ALFA-BANK”;
The Borrower: JSC “Tander”;
The Guarantor: OJSC “Magnit”.
The Borrower’s obligations shall mature
on 23.09.2014, the Guarantee shall mature
on 23.09.2015
to
rubles
7,403,835,616.44
Up
that
constitutes up to 26.1799% of balance
sheet assets determined on the basis of the
accounting report on the latest reporting
date.
28,280,597,000 rubles.
The transaction is approved.
The transaction is a major related party
one.
General shareholders’ meeting
24.06.2010
Minutes of 28.06.2010
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
56
1155.. LLIISSTT 00FF 22001100 TTRRAANNSSAACCTTIIOONNSS DDEECCLLAARREEDD AASS RREELLAATTEEDD--
PPAARRTTYY IINN AACCCCOORRDDAANNCCEE WWIITTHH TTHHEE FFEEDDEERRAALL LLAAWW OONN ““JJOOIINNTT--
SSTTOOCCKK CCOOMMPPAANNIIEESS””
1.
Date of transaction
Subject and essentials of transaction
Parties of transaction
19.07.2010
Provision of guarantee by OJSC “Magnit” under
the Revolving credit facility Agreement
The Lender: Commercial joint-stock bank of
Russian Federation (open joint-stock company)
The Borrower: JSC “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
”Magnit Finance” Limited liability company,
”Magnit Finance” LLC.
Reason for which such entity is considered
related-party for transaction
The entity is a shareholder of OJSC “Magnit”
jointly with its affiliates owning more than 20%
of voting shares of the company that is a party of
the 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, %
4 500 000
15.9798%
for
Term
transaction
fulfillment of obligations under
Information on
obligations
fulfillment of mentioned
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 at the
issuer’s discretion
None
The Borrower’s obligations shall mature on
09.07.2015, the Guarantee shall mature on
09.07.2018
JSC “Tander” is duly performing it’s obligations
before the Creditor. There was no situation when
the demand on fulfillment of JSC "Tander”'s
outstanding obligations could have been raised
before the Guarantor.
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
2
Date of transaction
Subject and essentials of transaction
Parties of transaction
04.08.2010
Provision of guarantee by OJSC “Magnit”
under Agreement on crediting in Russian rubles.
The Lender: Open joint-stock company “ALFA-
BANK”;
The Borrower: JSC “Tander”;
57
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
”Magnit Finance” Limited liability company,
”Magnit Finance”LLC.
The Guarantor: OJSC “Magnit”.
Reason for which such entity is considered related-
party for transaction
The entity is a shareholder of OJSC “Magnit”
jointly with its affiliates owning more than
20% of voting shares of the company that is a
party of the 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
the date of
accounting period preceding
transaction, %
7,403,835.62
26.1799%
Term
for
transaction
fulfillment of obligations under
Information
obligations
on
fulfillment
of mentioned
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 at the
issuer’s discretion
None
The Borrower’s obligations shall mature on
23.09.2014, the Guarantee shall mature on
23.09.2015
JSC “Tander” is duly performing it’s obligations
before the Creditor. There was no situation
fulfillment of JSC
when the demand on
"Tander"'s outstanding obligations could have
been raised before the Guarantor.
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
3
Date of transaction
Subject and essentials of transaction
Parties of transaction
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
05.08.2010
Provision of guarantee by OJSC ”Magnit” under
Additional Agreement № 1 to Credit Contract
joint-stock
The
close
Lender:
”Credit Europe Bank”;
The Borrower: JSC “Tander”;
The Guarantor: OJSC “Magnit”.
company
”Magnit Finance” Limited liability company,
”Magnit Finance” LLC.
Reason for which such entity is considered
related-party for transaction
The entity is a shareholder of OJSC “Magnit”
jointly with its affiliates owning more than 20%
of voting shares of the company that is a party of
the transaction.
58
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
the date of
accounting period preceding
transaction, %
Term
for
transaction
fulfillment of obligations under
1 120 000
3.9603%
20.05.2011
Information on
obligations
fulfillment of mentioned
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 at the
issuer’s discretion
None
JSC “Tander” is duly performing it’s obligations
before the Creditor. There was no situation when
the demand on fulfillment of JSC "Tander"'s
outstanding obligations could have been raised
before the Guarantor.
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
4.
Date of transaction
Subject and essentials of transaction
Parties of transaction
16.08.2010
Provision of guarantee by the Company under
the revolving credit facility agreement.
The Lender: ”Banque Societe Generale Vostok"
CJSC;
The Borrower: JSC “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
”Magnit Finance” Limited liability company,
”Magnit Finance” LLC.
Reason for which such entity is considered related-
party for transaction
The entity is a shareholder of OJSC “Magnit”
jointly with its affiliates owning more than
20% of voting shares of the company that is a
party of the 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
transaction
fulfillment of obligations under
2,480,657.53
8.7716%
13.08.2012
Information
obligations
on
fulfillment
of mentioned
JSC “Tander” is duly performing it’s obligations
before the Creditor. There was no situation
when the demand on
fulfillment of JSC
"Tander"'s outstanding obligations could have
59
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 at the
issuer’s discretion
None
been raised before the Guarantor.
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
5
Date of transaction
Subject and essentials of transaction
Parties of transaction
18.08.2010
Provision of interest-bearing loan by OJSC
“Magnit”
The Lender: OJSC “Magnit”,
The Borrower: LLC “Selta”.
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
”Magnit Finance” Limited liability company,
”Magnit Finance” LLC.
Reason for which such entity is considered related-
party for transaction
The entity is a shareholder of OJSC “Magnit”
jointly with its affiliates owning more than
20% of voting shares of the company that is a
party of the 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, %
for
Term
transaction
fulfillment of obligations under
500,000
1.77%
17.07.2015
Information
obligations
on
fulfillment
of mentioned
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 at the
issuer’s discretion
None
The Lender’s obligations are fulfilled,
The Borrower’s obligations have not been
matured.
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
6
Date of transaction
Subject and essentials of transaction
Parties of transaction
03.09.2010
Provision of interest-bearing loan by OJSC
“Magnit”
The Lender: OJSC “Magnit”,
The Borrower: JSC “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
”Magnit Finance” Limited liability company,
”Magnit Finance”LLC.
60
Reason for which such entity is considered related-
party for transaction
The entity is a shareholder of OJSC “Magnit”
jointly with its affiliates owning more than
20% of voting shares of the company that is a
party of the 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, %
for
Term
transaction
fulfillment of obligations under
500,000
1.77%
02.08.2015
Information
obligations
on
fulfillment
of mentioned
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 at the
issuer’s discretion
None
The Lender’s obligations are fulfilled,
The Borrower’s obligations have not been
matured.
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
7
Date of transaction
Subject and essentials of transaction
Parties of transaction
13.09.2010
Provision of interest-bearing loan by OJSC
“Magnit”
The Lender: OJSC “Magnit”,
The Borrower: JSC “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
”Magnit Finance” Limited liability company,
”Magnit Finance” LLC
Reason for which such entity
related-party for transaction
is considered
The entity is a shareholder of OJSC “Magnit”
jointly with its affiliates owning more than
20% of voting shares of the company that is a
party of the 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
the date of
accounting period preceding
transaction, %
Term
for
transaction
fulfillment of obligations under
5,500,000
19.45%
12.08.2015
Information
obligations
on
fulfillment
of mentioned
The Lender’s obligations are fulfilled,
The Borrower’s obligations have not been
matured.
61
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 at the
issuer’s discretion
None
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
8
Date of transaction
Subject and essentials of transaction
Parties of transaction
15.10.2010
Provision of interest-bearing loan by OJSC
“Magnit”
The Lender: OJSC “Magnit”,
The Borrower: LLC “Selta”.
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
”Magnit Finance” Limited liability company,
”Magnit Finance”LLC
Reason for which such entity is considered
related-party for transaction
The entity is a shareholder of OJSC “Magnit”
jointly with its affiliates owning more than
20% of voting shares of the company that is a
party of the 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, %
for
Term
transaction
fulfillment of obligations under
450,000
1.36%
14.09.2015
Information on
obligations
fulfillment of mentioned
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 at the
issuer’s discretion
None
The Lender’s obligations are fulfilled,
The Borrower’s obligations have not been
matured.
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
9
Date of transaction
Subject and essentials of transaction
Parties of transaction
15.11.2010
Provision of guarantee by the Company to the
credit agreement on “Revolving credit facility”
The Lender: ”AbsolutBank" CJSC
The Borrower: JSC “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
”Magnit Finance” Limited liability company,
”Magnit Finance” LLC
62
transaction
Reason for 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
transaction
fulfillment of obligations under
2.5917%
Information on
obligations
fulfillment of mentioned
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 at the
issuer’s discretion
None
The entity is a shareholder of OJSC “Magnit”
jointly with its affiliates owning more than
20% of voting shares of the company that is a
party of the transaction.
859,063.01
The Borrower’s obligations shall mature on
01.06.2011, The guarantee shall be valid till
01.06.2012
JSC “Tander” is duly performing it’s obligations
before the Creditor. There was no situation
when the demand on
fulfillment of JSC
"Tander"'s outstanding obligations could have
been raised before the Guarantor.
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
10
Date of transaction
Subject and essentials of transaction
Parties of transaction
23.11.2010
Provision of guarantee by the Company to the
credit agreement on opening of the Revolving
credit facility
company
The Lender:
Commercial joint-stock bank Petrocommerce
(open joint-stock company),
The Borrower: JSC “Tander”,
The guarantor: OJSC “Magnit”.
joint-stock
open
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
”Magnit Finance” Limited liability company,
”Magnit Finance” LLC.
Reason for 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 3.6186%
63
The entity is a shareholder of OJSC “Magnit”
jointly with its affiliates owning more than
20% of voting shares of the company that is a
party of the transaction.
1,199,452. 05
sheet assets as of the termination date of the last
the date of
accounting period preceding
transaction, %
Term
for
transaction
fulfillment of obligations under
Information on
obligations
fulfillment of mentioned
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 at the
issuer’s discretion
None
The Borrower’s obligations shall mature on
15.08.2011, the guarantee shall be valid till
16.08.2014
JSC “Tander” is duly performing it’s obligations
before the Creditor. There was no situation
fulfillment of JSC
when the demand on
"Tander"'s outstanding obligations could have
been raised before the Guarantor.
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
11
Date of transaction
Subject and essentials of transaction
Parties of transaction
30.11.2010
Novation agreement
The Contractor: LLC “Kuban EnergoKomplekt”,
The Customer – 1 : JSC “Tander”,
The Customer -2: 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
”Magnit Finance” Limited liability company,
”Magnit Finance” LLC.
Reason for which such entity is considered
related-party for transaction
The entity is a shareholder of OJSC “Magnit”
jointly with its affiliates owning more than
20% of voting shares of the company that is a
party of the transaction.
21,329.8
0.06%
14.01.2011
fulfillment of obligations under
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
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 at the
issuer’s discretion
fulfillment of mentioned
None
64
The obligations have been fulfilled.
The transaction was approved by the BOD
meeting on November 29, 2010, minutes of
meeting of 29.11.2010.
12
Date of transaction
Subject and essentials of transaction
Parties of transaction
30.11.2010
Novation agreement
The Contractor: LLC “Kuban EnergoKomplekt”,
The Customer – 1 : CJSC “Tander”,
The Customer -2: 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
”Magnit Finance” Limited liability company,
”Magnit Finance” LLC.
Reason for which such entity is considered
related-party for transaction
The entity is a shareholder of OJSC “Magnit”
jointly with its affiliates owning more than
20% of voting shares of the company that is a
party of the transaction.
1,500
0.01%
14.01.2011
fulfillment of obligations under
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, %
for
Term
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 at the
issuer’s discretion
fulfillment of mentioned
The obligations have been fulfilled.
The transaction was approved by the BOD
meeting on November 29, 2010, minutes of
meeting of 29.11.2010.
None
13
Date of transaction
Subject and essentials of transaction
Parties of transaction
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
Reason for which such entity is considered
related-party for transaction
65
joint-stock bank
16.12.2010
Provision of guarantee by the Company to the
credit agreement on “Revolving credit facility”
The Lender: Commercial
”AbsolutBank" CJSC,
The Borrower: JSC “Tander”,
The Guarantor: OJSC “Magnit”.
”Magnit Finance” Limited liability company,
”Magnit Finance” LLC (as of the moment of
approval and entering into the transaction);
Joint-Stock Company “Tander”, JSC “Tander”
(as of the moment of entering
into the
transaction)
”Magnit Finance” LLC is a shareholder of OJSC
“Magnit” jointly with it’s affiliates owning
more than 20% of voting shares of the company
that is a party of the transaction.
is a shareholder of OJSC
JSC «Tander»
“Magnit” jointly with its affiliates owning
more than 20% of voting shares of the company
that is a party of the transaction and the
beneficiary under 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, %
340,323.29
1.0267%
Term
for
transaction
fulfillment of obligations under
fulfillment of mentioned
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 at the
issuer’s discretion
None
The Borrower’s obligations shall mature on —
27.07.2011, The guarantee shall be valid till —
27.07.2012
The Lender’s obligations have been fulfilled; the
Borrower’s obligations have not been matured.
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
14
Date of transaction
Subject and essentials of transaction
Parties of transaction
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
Reason for which such entity is considered
related-party for transaction
Transaction amount in money terms, thousand
rubles.
66
16.12.2010
Provision of guarantee by the Company under
the revolving credit facility agreement.
The Lender: ”Banque Societe Generale Vostok"
CJSC,
The Borrower: JSC “Tander”,
The Guarantor: OJSC “Magnit”.
”Magnit Finance” Limited liability company,
”Magnit Finance”LLC (as of the moment of
approval and entering into the transaction);
Joint-Stock Company “Tander”, JSC “Tander”
(as of the moment of entering
into the
transaction)
”Magnit Finance” LLC is a shareholder of OJSC
“Magnit” jointly with it’s affiliates owning
more than 20% of voting shares of the company
that is a party of the transaction.
is a shareholder of OJSC
JSC «Tander»
“Magnit” jointly with its affiliates owning
more than 20% of voting shares of the company
that is a party of the transaction and the
beneficiary under transaction.
3,914,627.397
The transaction amount has been determined on
the basis of association of the above mentioned
transaction with transactions entered into
before, provision of guarantee for the purposes
of getting the credit of 16.08.2010 and change of
overdraft limit under additional agreement
№5/1 to Bank Account Agreement №
0249018/RUB of 25.10.2077. The amount of
transaction entered into on 16.12.2010 (without
association with previous ones) is
1,240,000 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, %
for
Term
transaction
fulfillment of obligations under
14.12.2012
11.8098 (in association with the previous
transactions),
3.7409 (without association).
Information on
obligations
fulfillment of mentioned
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 at the
issuer’s discretion
None
JSC “Tander” is duly performing it’s obligations
before the Creditor. There was no situation
fulfillment of JSC
when the demand on
"Tander"'s outstanding obligations could have
been raised before the Guarantor.
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
15
Date of transaction
Subject and essentials of transaction
Parties of transaction
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
Reason for which such entity is considered
related-party for transaction
24.12.2010
Provision of interest-bearing loan by OJSC
“Magnit”
The Lender: OJSC “Magnit”,
The Borrower: LLC “Selta”.
”Magnit Finance” Limited liability company,
”Magnit Finance” LLC (as of the moment of
approval and entering into the transaction);
Joint-Stock Company “Tander”, JSC “Tander”
into the
(as of the moment of entering
transaction)
”Magnit Finance” LLC is a shareholder of OJSC
“Magnit” jointly with it’s affiliates owning
more than 20% of voting shares of the company
that is a party of the transaction.
JSC «Tander»
is a shareholder of OJSC
“Magnit” jointly with its affiliates owning
more than 20% of voting shares of the company
that is a party of the transaction.
Transaction amount in money terms, thousand 50,000
67
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
transaction
fulfillment of obligations under
0.15%
22.12.2015
Information on
obligations
fulfillment of mentioned
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 at the
issuer’s discretion
None
The Lender’s obligations have been partially
fulfilled. The Borrower’s obligations have not
been matured.
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
16
Date of transaction
Subject and essentials of transaction
Parties of transaction
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
Reason for which such entity is considered
related-party for transaction
company
joint-stock
24.12.2010
Provision of guarantee by the Company under
the revolving credit facility agreement.
The Lender: open
“Sberbank of Russia”,
The Borrower: JSC “Tander”,
The Guarantor: OJSC “Magnit”.
”Magnit Finance” Limited liability company,
”Magnit Finance” LLC (as of the moment of
approval and entering into the transaction);
Joint-Stock Company “Tander”, JSC “Tander”
(as of the moment of entering into the
transaction)
”Magnit Finance” LLC is a shareholder of OJSC
“Magnit” jointly with it’s affiliates owning
more than 20% of voting shares of the company
that is a party of the transaction.
is a shareholder of OJSC
JSC «Tander»
“Magnit” jointly with its affiliates owning
more than 20% of voting shares of the company
that is a party of the transaction and the
beneficiary under 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, %
4,500,000
13.5758%
Term
for
transaction
fulfillment of obligations under
The Borrower’s obligations shall mature on —
23.12.2015, The guarantee shall be valid till
23.12.2018
68
Information
obligations
on
fulfillment
of mentioned
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 at the
issuer’s discretion
None
“Tander”
is duly performing
JSC
it’s
obligations before the Creditor. There was no
situation when the demand on fulfillment of
JSC "Tander"'s outstanding obligations could
have been raised before the Guarantor.
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
17
Date of transaction
Subject and essentials of transaction
Parties of transaction
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
Reason for which such entity is considered
related-party for transaction
29.12.2010
Provision of interest-bearing loan by OJSC
“Magnit”
The Lender: OJSC “Magnit”,
The Borrower: JSC “Tander”.
”Magnit Finance” Limited liability company,
”Magnit Finance” LLC (as of the moment of
approval and entering into the transaction);
Joint-Stock Company “Tander”, JSC “Tander”
into the
(as of the moment of entering
transaction)
”Magnit Finance”LLC is a shareholder of OJSC
“Magnit” jointly with it’s affiliates owning
more than 20% of voting shares of the company
that is a party of the transaction.
is a shareholder of OJSC
JSC «Tander»
“Magnit” jointly with it’s affiliates owning
more than 20% of voting shares of the company
that is a party of the transaction, and is a party
of the transaction.
500,000
1.51%
27.12.2015
fulfillment of obligations under
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
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 at the
issuer’s discretion
fulfillment of mentioned
None
69
The Lender’s obligations have been fulfilled. The
Borrower’s obligations have not been matured.
The transaction was approved by the annual
shareholders’ meeting on June 24, 2010, minutes
of meeting of 28.06.2010.
1166.. MMAAIINN RRIISSKK FFAACCTTOORRSS RREELLAATTEEDD TTOO TTHHEE ССOOMMPPAANNYY
OOPPEERRAATTIIOONN
Since OJSC “Magnit” and its subsidiaries operate within one group of companies of
OJSC “Magnit” (hereafter - “the Group”, retail chain “Magnit” or “the Company”), the risks are
mainly described for the entire Group in general.
The description of risks provided herein is not complete or limiting, but renders the
Company’s own viewpoint and assessment. Along with the risks specified, other risks not
included in the report may affect the investments into OJSC “Magnit” shares. Other risks,
including those the Company is not aware of or which seem insignificant at the present time,
may lead to reduction of earnings, increase of expenses or other events and (or) consequences,
due to which the price of Company’s securities may decline.
In case one or several risks hereof arise, OJSC “Magnit” will take all the possible
measures and apply the best efforts to minimize the effect from 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 situation in future. The character of measures to be taken
will depend on the situation conditions in each specific case. OJSC “Magnit” cannot
guarantee that the measures taken to overcome negative changes will considerably affect the
situation, as the majority of the described risks are beyond the Company’s control.
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 methodology
Elaboration and implementation of comprehensive risk management framework
Ongoing monitoring of risk status
Risk management is applied to the entire Group.
As for the industry risks, the market environment is estimated in the medium-term and
long-term perspective based on the macroeconomic forecasts of MEDT and sell-side analysts.
The estimation of the prospective demand is based on the forecasts on the population income
sector and consumption level. The industry trends in respect of diverse trade formats,
breakdown of demand by formats and competitive environment are also estimated.
The development strategy aimed at the consolidation of competitive positions and the
increase of market share of the Company is elaborated on the basis of the conducted analysis.
In terms of country and regional risks, the Company monitor political and economic
situation, as well as estimate the risk level of natural disasters, possible cease of transport
communication in the regions where “Magnit” stores are located. Territorial diversification of
the group operation of “Magnit” companies contributes to risk reduction.
As for financial risks, the level of interest rate, currency exchange, credit and liquidity
risks are estimated.
Interest risk management is carried out through seeking the most optimal ways of
financing and through coordination of fundraising terms with the terms of implementation of
the projects under financing. To provide for the optimization of the received funds the Group
works out its credit history, expands the data base of potential creditors and diversifies
instruments for their attraction.
70
The reduction of funding costs is achieved through the policy of information
transparency improvement. One of the tools of interest risk management is forecasting the
interest rate changes, and assessment of the appropriate leverage level of the Company with an
allowance for such overall interest rate changes.
Regarding the currency risks, the Company estimates the analysts’ forecasts on the
possible fluctuations of the exchange rate and takes decisions on the acceptable level of the
currency exposure and direction. Since “Magnit” receives all earnings in Russian rubles and do
not possess assets denominated in foreign currency, the Company does not take liabilities in
foreign currency in order to minimize currency risks.
In terms of 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 position of
counteragents and the limits’ system.
Legal risks management is based on the strict observance of the actual Russian
legislation. Legal department monitors all changes in legislation, which refer to the company’s
activity, and conducts legal inspection of all the contracts and agreements.
IINNDDUUSSTTRRYY RRIISSKKSS
Risks related to customer demand and competition
Negative changes of macroeconomic conditions and the decrease of customer demand
in Russia may adversely affect sales and income of the Group
The Group operates in the retail sector of food products 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 population disposable income.
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 and 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 sales and income 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 Group’s market share and its
revenue.
The Group operates in 7 federal districts and in more than 1,200 locations of
Russian Federation with the highest concentration in the Southern, Central and Volga
regions. In the nearest future the retail store chain plans to expand into other regions of
the country including the Central and the Urals regions which are a priority. Russian
71
retail market is quite competitive and is represented by the majority of 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 big number of Russian and international players. In recent years the consumer demand
growth in Russia has attracted new participants and led to the intensification of competition.
Retail chains compete with each other mainly for store locations, product quality, service and
price, assortment range and store conditions. Entrance of additional players to the Russian
market may intensify competition even more and reduce the operating efficiency of the Group.
Main competitors to the Group in “convenience” format are “Pyaterochka”, “Dixy” and
“Kopeika”, while in “hypermarket” format these are “Auchan”, “Perekrestok”,
“Karusel”, “Lenta”, “O’key”. The Group also competes with regional and local retail
chains, individual groceries and open markets.
Some of the Group’s competitors which are present 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 or establishing their
own chains from the ground up.
If the above process is intensive, the competition level may substantially increase, and
thus 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 adjust the existing stores and launch the new stores in favorable 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 competitors and the new ones in the future.
On the current stage of competitive activity the considerable risks for the Group are also
connected with more aggressive approach applied by the main competitors to the Group, such
as winning the additional target markets through the expansion based on franchising schemes.
Such approach enables the competitors to expand their presence in many regions of Russia as
well as to considerably reduce costs of the new stores opening. The Group does not apply
franchising schemes which may lead to serious reduction of flexibility in geographical coverage,
and as a result to the loss of a considerable market share.
These factors together with the economic environment 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 of intensive expansion may hamper its further growth.
As of December 31, 2010 the stores operating under “Magnit” trade mark are located in
Moscow (10), Saint-Petersburg (18), Krasnodar region and other 49 subjects of Russian
Federation. “Magnit” stores are located in the Southern Federal district (1103), Central Federal
district (961), Volga Federal district (1245), North-Caucasian Federal district (263), North-
Western Federal district (217), Urals Federal district (245) and Siberian Federal district (21).
Following 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 subjects of Russian Federation. The development strategy of the Group
makes it dependent on the economic conditions and some other factors.
The successful roll-out of the Group’s development strategy depends on its ability to
72
identify and acquire the suitable premises or land plots for store construction on commercially
reasonable terms, to open new stores in due time in compliance with the Group standards, 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. Among other factors, the
development strategy plans also depend on the general economic situation, availability of
financing and no negative changes in legislation. There is no guarantee that operational,
administrative, financial and human resources will be sufficient for successful implementation
of the Group’s development strategy. Moreover, there is no guarantee that the expansion plans,
if carried out, will have no negative impact on the quality of service and sales profitability.
Expansion of the Group through acquisition of other companies or their assets may be
fraught with different risks which may have serious negative impact on the economic
activity of the Group and its financial position.
The Group does not rule out the possibility to expand its operation through acquisitions.
Acquisition opportunities presuppose certain risks, including failure to identify the objectives
for acquisition, and/or to carry out adequate complex inspection of their operation and/or
financial position, financial risks and operation expenses which may be considerably higher
than the estimated ones. Moreover, there is a risk of incapability to assimilate the operation and
employees of the acquired companies, deficiency of installation 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 has no or minor experience, and/or markets with the limited access
to the necessary logistic support and distribution network, as well as the risk of business
interruption and diffusion of the Group management resources. If the Group is not able to
successfully integrate its acquisitions, such failures may have a material negative effect on its
financial position and results of operation.
Failure to raise enough funds may prevent the Group from realization of its
expansion plans.
Implementation of the Group’s expansion 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 proceeds received from the stock market would be
enough to finance its scheduled expenses in the nearest future. If the Group fails to raise
enough funds to finance its capital expenditures, there is risk of reduction or cease of expansion.
Rapid growth of the Group may lead to deficiency of administrative, industrial and
financial resources.
Group’s output is growing by very fast rates. The growth is expected to continue in the
projected future. Such rapid growth as well as an extra growth may lead to the serious
deficiency of administrative, operational and financial resources. As a result, “Magnit” retail
chain will have particularly to continue the improvement of its operational and financial
systems, administrative management and techniques. The Group will also have to achieve strict
coordination of operation of transportation, technical, accounting, legal, financial, marketing,
warehouse and store personnel. If the Group fails to manage the above tasks, its operation and
financial position may seriously suffer.
Moreover, the Group may experience difficulties with application, expansion and
improvement of its management information system due to the ongoing growth. If the Group
fails to maintain its management information system, financial accounting and in-house audit
systems at a proper level, its economic activity and financial position may substantially suffer.
73
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 negative effect on the Group. The Russian food retail market is
subject to changing customers’ preferences, needs and trends. The Group’s target audience is
mainly the consumers with low or medium income level. If the level of disposable consumer
income continues to grow nationwide (either generally or in certain federal districts, especially
in the Southern Federal District where the Group collects a larger share of the total revenue), the
Group may not be able to adjust quickly enough the product assortment in the stores to the
changes in consumer trends, and thus will lose a part of its target audience. As a result of such
changes, the number of customers shopping at “Magnit” stores may decline (or increase more
slowly than previously), or the average ticket in “convenience” format may decline (or increase
more slowly than previously), which would have a material adverse effect on business, results
of operation, financial position and prospects of the Group.
Risks related to investments in and lease of 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 the 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 into
the real estate for store premises. The market of any goods including commercial property is
subject to fluctuations. Market value of the real estate may decline or grow due to different
factors, i.e.:
a) changes in the competitive environment;
b) changes of the attractiveness level of the real estate on the Russian market in general and
on the regional markets where the property objects of the Company are located 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 thus negatively affect the assets’
value of the Group. Thus, in case of disposal of such property the Group won’t be able to
compensate its acquisition costs, what may negatively affect the financial position of the Group
and the Company.
Inability to obtain rights on the suitable real estate object on commercially reasonable
terms, to protect rights of the Group for the real estate or to construct new stores on the
acquired land plots may have a material adverse effect on the economic operation and
financial position of the Group.
Ability of the Group to open new stores largely depends on identification and lease
and/or acquisition of the premises appropriate for its needs on commercially reasonable terms.
74
The property market in large cities 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 the third parties seeking similar
land plots and premises, the Group is not able to identify and obtain the new objects in due
time, the Group’s anticipated growth will be negatively affected. Even after the Group procures
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 lease contracts for the stores or extend them on reasonable terms may
have materially adverse effect on the economic activity and financial position of the Group.
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 extend the lease contracts
as they expire, the share of which is large enough. If the Group is not able to extend the lease
contracts for its stores as they expire or lease another suitable objects on reasonable terms, or if
the actual lease contracts of the Group are terminated for any reason (including loss of right on
such objects by the lessor), or if the contract terms are revised in the prejudice of the Group, it
may have a negative impact on its financial position and operation results.
Deficiency of professional building contractors may negatively affect
the
development strategy of the Group.
The ability of the Group to construct and update specially constructed new stores is
extremely important for its strategy and commercial success. The Group operates in the markets
which face the deficiency of highly-skilled contractors able to build new stores in due time and
in compliance with standardized requirements of the Group. There’s no guarantee that the
Group will be able to find the properly trained and experienced team of designers for building
and launching new stores in due time. Failure of the Group to construct and develop new stores
on the newly acquired land plots may have a substantial negative impact on its potential to
follow its strategy and to achieve the required financial position and operation results.
Dispute 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 the economic activity and
financial position of the Group.
Group’s activity includes obtaining ownership and lease rights for land plots and
premises for the new stores. In addition, the Group owns buildings and facilities 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 authority is entitled to lend particular land plots, besides the
procedures of construction approval are complex and subject to challenge or complete abolition.
Construction and environmental regulations often contain the requirements which are in
practice impossible to meet in full. As a result, ownership and lease rights of the Group for land
plots and premises may be challenged by governmental authorities and third parties, and thus,
its construction projects may be delayed or cancelled.
Under Russian law, real estate transactions may be disputed on many grounds,
including ineligibility of the property seller or right holder to dispose such property, breach of
internal corporate requirements of the counterparty and failure to register the transfer of rights
75
in the unified state register. As a result, violations in previous real estate transactions may lead
to invalidation of such transactions with individual property objects, and thus, may affect the
rights of the Group for this property.
Moreover, Russian law does not require certain encumbrances over real estate
(including leases for less than one year 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 for 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 not
been aware of) over the real estate of the Group whether owned or leased.
Risks related to the increase of costs
Unionization of the Group employees may have a 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 substantially affect the
payroll costs of the Group and/or settlement of labor conflicts, and as a result may have a
substantial negative impact on financial position and operation results of the Group.
Risks related to the possible fluctuations of the prices for raw materials, services
applied by the Group within its activity (separately on the internal and external markets),
and their influence on the Group’s activity and its fulfillment of obligations on the
securities:
The Company and the Group operate only on the Russian internal market. The
Company and the Group do not operate on or plan to expand into the external market. The
information about the risks described refers to the internal market.
The increase of the Group’s expenses may have a material adverse effect on its
profitability.
The operating efficiency of the Company and its subsidiaries largely depend on the
prices for the products purchased for the retail sale, as well as on the prices for the services used
by them in their operation and on the amount of rent payment for movable and real property
and construction, acquisition and opening costs. Changes in the agreement processes and
procedures of obtaining rights for 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 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 Group’s expenses may affect its profitability. The growth of the
purchase prices, the installation costs, the price for land plots (other real estate) and amount of
rent payment, as well as the growth of 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 the retail chain of the Group 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 reduction may affect the ability of the
Company’s relevant authority to decide on the payment of yield and the market value of the
Company securities.
Risks related to the possible fluctuations of the prices on products and/or services of
76
the Company (separately on the domestic and foreign markets), and their influence on the
Company’s activity and its fulfillment of obligations on the securities:
The Company and the Group operate only on the Russian local market. The Company
and the Group do not operate on or plan to expand into the foreign market. The information
about the risks described refers to the internal market.
The reduction of prices for products at “Magnit” stores may lead to the profitability
decrease of the Group.
Changes of product prices at “Magnit” stores are largely determined by changes of
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 level of purchasing capacity of the population.
The price growth is mainly forecasted within the inflation, which as well affects the decrease of
the purchasing capacity of the population. The deterioration of macroeconomic environment
and decrease 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 dramatic 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 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 changes 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 most unattractive stores;
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 will allow to minimize
risks and carry out the detailed analysis of the scheduled operation of the Company in
order to reduce the prime cost of the investments, minimize the expenses’ structure and
receive more profit.
77
CCOOUUNNTTRRYY AANNDD RREEGGIIOONNAALL RRIISSKKSS
The Company and JSC “Tander” (the main operating company of the Group which
controls trading assets and is the Group’s center of revenue consolidation) are registered as a
tax-payer in the Southern Federal district, Krasnodar. As of December 31, 2010 the Group
operates in 7 federal districts in 1,216 locations of the Russian Federation. The Group does not
operate outside the Russian Federation.
As the Group operates in the Russian Federation, the main country and regional risks
affecting the operation of the Group and the Company are the risks within the Russian
Federation. However, due to the 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 demand for consumer goods.
Despite 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 systems. The
risks of the industrial production decline, inflation, the increase of the national debt, negative
dynamics of the currency exchange rates, increase of unemployment, etc., have significantly
increased within the global financial and economic crisis. All this may lead to the drop in the
living standards in the country and negatively affect the operation of the Group, as the main
target customers of the “Magnit” chain are people with income below the average. Apart from
the 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 have a negative effect on the investments in the
country as well as on the price for the Company’s shares.
Since 1991 Russia has moved from one party state with the centralized planned
economy to democratic state with the market economy. Russian political system remains
vulnerable to the public discontent and disorders among individual social and ethnic
communities. Substantial political instability may have a 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 contradictions 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 effect on Company’s business and on the investment potential of Russia.
During the presidential term of Vladimir Putin and after the election of Dmitriy
Medvedev the political and economic situation in Russia has generally become more stable and
favorable for investors. However any political discussions over the course of future reforms or
reconsideration of the existing reforms may lead to deterioration of Russian investment climate
that may limit the ability of the Group to receive financing on the international financial
78
markets, reduce Company’s sales in Russia or otherwise negatively affect Group’s business,
operation results, financial position and prospects.
In the recent past our law-enforcement authorities have opened cases against some
Russian companies, their officials and shareholders for tax evasion and related tax violations.
Some cases resulted in the imprisonment and repayment of understated taxes. Reportedly, such
companies were Yukos, TNK-BP and Vimpelcom. Some analysts consider that such
prosecutions demonstrate a willingness to reconsider key political and economic reforms of
1990s. Other analysts, however, believe that these prosecutions are isolated cases and do not
signal any deviation from large-scale 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.
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 industry sectors 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 provoke public tension
and sometimes result into conflicts including the armed ones. For example, the continuous
conflict in Chechnya negatively affected economic and political situation in Chechnya, the
neighboring regions and 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 the 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 Group’s operation in the Southern federal district.
Social instability may lead to frustration among population, induce the call for
powers’ change, outbreaks of nationalism or violence.
Failure of the Russian government to adequately address social problems led in the past
and may lead in the future to frustration among population. Such frustration may 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 the losses or 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 substantial changes in the economic situation in Russia, including dramatic fluctuations of
the national currency exchange rate, 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 rates
79
on the territory of the Southern Federal district and other regions of the 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 negative impact on the Company’s business.
Any of the risks provided herein previously experienced by the Russian economy may
seriously influence the investment climate in Russia and the Company’s activity. Russian
economy suffered from the following negative events in the past:
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 of 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 faced abrupt downturns. In particular, the period of rapidly
deteriorating economic situation after August 17, 1998 when government defaulted on its ruble-
denominated bonds, the Central Bank of Russia 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 and bonds quotes 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 the recall of banking licenses of a
number of Russian top 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 global financial crisis has affected and may affect in the future the Russian economy.
The possible effects of crisis are: crisis of bank liquidity and consequently possible substantial
reduction of legally capable units of the credit and financial systems, substantial appreciation of
the borrowed resources which will result in economy growth slowdown, rise of unemployment
level and significant increase of the inflation rate. Moreover, fluctuations of the world prices for
oil and gas, ruble weakening to US dollar and other currencies, as well as consequences of
monetary policy regression or other factors may in future negatively 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
affected. Electricity and heat deficiency in some regions of Russia dramatically disrupted the
80
local economies. For instance, accidents on the electric substations in May 2005 resulted in
power cut in Moscow and neighboring regions, and thus in heavy damage of economy of
Moscow and corresponding regions. Roads’ condition throughout Russia is also improper, and
many of them do not meet the minimum requirements of safety standards.
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 and price of the Company’s shares.
The fluctuations of 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 other
countries of the world. According to former practice, financial problems or exacerbated
perception of investment risks in the countries with developing economy may reduce the
volume of foreign investments in Russia, thus affecting Russian economy. As Russia produces
and exports large volume 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 the economic development of Russia. These events may severely limit
Group’s access to the capital and have a negative effect on the purchasing power of the Group’s
consumers.
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.
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 Company
to effectively operate its business. Inability of the government and many private companies to
pay out the wages in time, and altogether deceleration of wages and benefits vs. rapidly
growing living costs, led in the past and may lead in the future to labor and social disorders. For
example, in 2005 groups of Russian pensioners and some public organizations arranged protest
campaigns throughout Russia against benefits monetization and temporary blocked some
roads. Similar actions, labor and social disorders may have negative political, social and
economic consequences including the nationalism growth, imposing limitations on the foreign
involvement 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 its 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 the officials. Additionally, diverse publications indicate
that some members of the Russian media regularly publish biased articles for remuneration.
The Group activity may be affected by illegal actions, corruption and accusation of the Group of
illegal operation and therefore have a negative impact on the Group’s operation and price of
Company’s shares.
81
Risks related to the fiscal policy of the Government of the 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 accounting 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.
Prospective measures of the Company in case if changes of the situation in the
country and region have negative effect on the Group’s 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 crisis management aiming at mobilization of 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 of the country and regional fluctuations on the
Group’s operation, 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 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 the 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 risks.
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 its
business:
82
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
among the factors of the regional investment risk due to the potential 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 course or destroyed in case of the armed
conflict. However the major area of the Southern Federal District is occupied by the subjects of
the Russian Federation with favorable conditions for business development and with the
regional risk level of not below average figures throughout the country. It’s worth noting that
the Company does not operate in the territory of the 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, increase
of the real income of population, and the financial market of the region playing a significant
part in the process.
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 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 performs the main activity,
including high threat 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 and fortification of the national security of
Russian Federation.
The terrorism level recently escalated leads to the continuous danger of terrorism acts on
the whole territory of the Group’s operation.
The regions with the Group’s 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 (hurricanes, floods, earthquakes, etc) is distinctive geographical
feature of the Southern Federal District.
The geographical peculiarities of the region do not eliminate the risk of possible stop of
transport connection due to remoteness and/or inaccessibility of the city.
Ecological risks:
Accidents at the environmentally hazardous industrial facilities of the Russian
Federation and environmental pollution may have a negative effect on the Group’s 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
83
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 in the territory of Russia, while the system of control over
ecologically dangerous objects is not sufficiently effective. Accidents on these objects and an
unfavorable ecological situation in large Russian industrial cities may have an adverse negative
effect on the Group’s activity.
RRIISSKKSS RREELLAATTEEDD TTOO TTHHEE CCOOMMPPAANNYY’’SS OOPPEERRAATTIIOONN
Risks peculiar for the Company
Risks related to the current legal proceedings in which the Company participates:
Within the last three years the Group’s companies have not participated in legal
proceedings which could have material negative effect on the Group’s financial and economic
activity.
Risks related to the inability to extend the Company’s license for a particular type of
activity or for the use of objects limited in the turnover (including natural resources):
The core business of the Company is coordination of Group companies’ operation, the
lease of property and retail business which is not subject to licensing. The Group sells a wide
range of product assortment, and today the retail sale of alcohol beverages and pharmaceuticals
are subject to licensing for all Group’s enterprises engaged in such activity.
The Group has licenses for retail sale of alcohol beverages consumed not on the spot of
purchase and pharmaceuticals without manufacturing rights. In case of changes in the
requirements for licensing, the Company will operate under the new requirements, including
the license re-issuance and new licenses’ obtaining.
In the last three years preceding the reviewed period no breaches and violations by the
Company of the requirements on licensing, which could result in refusal to extend the license,
were recorded.
Risks related to the possible liability of the Company for the third party’s debts
including the subsidiaries of OJSC “Magnit”:
The Company together with JSC “Tander” (the main operating company of the Group
which controls trading assets and is the Group’s center of revenue consolidation) stand 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 expansion of “hypermarket” format. The guarantee is
represented in the amount of the total nominal value of the bonds and aggregate coupon profit
on bonds. If LLC “Magnit Finance” is not able to fulfill the obligations on the bond loans in full,
this will have substantial unfavorable consequences for the Group’s 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 receivers 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 position of the Group.
84
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 dominant position
on the market. If any of the Group’s companies is declared the body occupying the dominant
position, its activity (including pricing policy) may be restricted. Such situation may have
negative effect on the economic activity of the Group and its regional expansion strategy.
Some legislation initiatives aimed at competition protection and regulation of trade
activity may have negative consequences for the Group’s business. Specifically, the Federal Law
№ 381 – FL “On the principles of state regulation of trade activity in the Russian Federation”
which came into effect on December 28, 2009, stipulates for the acquisition of additional selling
space only upon the corresponding authorization by the anti-monopoly authority if the share of
the entity (group of entities) performing the trading activity exceeds 25 percent of the total
volume of sold or purchased food products in money terms for the preceding year within the
boundaries of the urban district or municipal area. Realization of the Law may limit regional
expansion through organic growth or M&A deals, and the number of operating stores (due to
inability to extend the actual lease agreements) or new openings in other premises will
decrease.
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 to the market of the new formats. Within 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. These factors include:
-Ability to raise enough funds for capital investments. If the Group fails to raise enough
funds for chain expansion at the scheduled scale, the Group may have to considerably limit the
scale of expansion and take disadvantageous position versus 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 on 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 efficiency within the 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 systems of purchasing, 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 negatively affect the business activity, operating results
and financial position;
-Success of the Group’s regional expansion will largely depend on its ability to identify
attractive opportunities on the markets of the potential growth, on the ability to successfully
implement assortment matrix for each region and establish the purchasing 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;
-Implementation of the effective marketing strategy which will provide not lower level
of the effectiveness of sales or insignificant decline of sales than the Group experienced in the
85
past. Due to the increase of the competition in retail sector, the effectiveness of the Group’s
marketing campaign may considerably decrease which will reduce the amount of its customers
and consequently reduce the sales turnover. The chain expansion in the territory of one urban
area may result in the cannibalization which will lead to the reduction of the sales turnover in
the average within the stores of the Group;
-The Group’s growth strategy foresees changes in the business activity model
concerning the ownership rights on the sales areas. Within 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 space 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 rates against the scheduled strategy and result in the loss of the
Group’s market share in favor of competitors;
-Competition level in the corresponding regions at the moment of the store openings by
the Group may prove to be extremely high for Group to penetrate, which will not allow to
achieve the required profitability level;
- Within the economic slowdown on the regional markets, geographical expansion may
turn out to be not as successful as expected by the Group, which may have negative effect on
the Company’s 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 managers: Vladimir
Gordeychuk, Andrey Arutyunyan, Khachatur Pombukhchan, Eduard Smetanin, Valeriy
Butenko. According to the labor contracts entered between the Group’s 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 by 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
negative effect on the business activity, operating results and financial position of the Group
Risks related to the accounting and control system:
The system of the Group’s financial and management reporting currently operating is
based on the volume of operations exercised 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:
Managing and processing of operational and financial information in the Group is
carried out via electronic devices of information transmission and processing including the
network of the personal computers, access to Internet and system of financial accounting and
86
automated system of stock management. As a result, operational effectiveness of the Group as
well as its ability to render adequate data to adopt accurate management decisions depend on
the correct and stable work of computer and information networks.
The systems and their functioning are subject to operation failures, which may be caused
by human factor, natural disasters, blackouts, computer viruses, willful acts of vandalism and
similar factors. There is no guarantee that there will be no 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 the loss of customers, the growth of operating
expenses and financial losses.
Risks related to the operations with the large cash flows:
The specific character of the Company’s business activity and the current level of the
bank sector development in Russia provide that the substantial part of the Group’s operations is
exercised with the cash funds. Thus, the risk of insufficient payments caused by unintentional
actions of the Group’s personnel as well as by deliberate thefts and robberies increases.
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, there exists the
probability of potential customer claims to the quality of the Group’s private label products.
High product quality is of the utmost importance for the private label, and chain operators are
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 products for sale:
There is a risk related to the Group’s responsibility for the quality of products sold at 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 entered into with the majority of suppliers, the producer takes the material
liability for the quality of sold products, provided that the Group observes the necessary storage
conditions.
Such claims may also be addressed to the seller of the products at the discretion of a
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 legal 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 claims for
the intellectual property from the third parties, 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 copyright, trade marks rights, legislation on commercial secret protection, on its user
policy, on the license agreements and the restrictions on the information disclosure. Despite the
above precautionary measures, third parties may illegally copy or otherwise receive or use
intellectual property of the Group. On the whole Russia does not provide enough protection of
87
the rights for the intellectual property as 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 negatively 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.
Conduct of premature policy on securing interests in terms of intellectual property of
the Group may seriously hinder its future business activity
The Group is on the stage of intensive development and expansion of all its business
spheres. Measures on 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 go ahead of
any commercial activity. Insufficient experience of Russian companies in elaborating policy
related to the objects of intellectual property produces the whole set of risks of 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, involved specialists and
organizations regarding determination of rights for jointly manufactured products and split of
the use rights on these products between the Group and other bodies.
The “Magnit” trade mark is used by other participants of the sales turnover as a
component of the company name, which may have material effect on the operation of the
Group.
The Group invested substantial funds in 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 for trademarks rights for
trading organizations, provided by the Russian law, is not completely clear. 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
negatively affect the operation results of the Group.
Moreover, due to the fact that Russian legislation provides 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 partially similar features to the operation of
the Group. The Group cannot prevent these organizations from using such names, and this may
result in negative effect 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 sales share of the
products under “Magnit” brand (“for “Magnit” stores”). As of December 31, 2010 this figure
amounted to 12.66%. However it should be noted that together with the increasing number of
hypermarkets, the sales share of “private label” represented by 614 items in both formats may
reduce as the total assortment of a hypermarket amounts 13,504 SKUs on average, while the
product mix of a convenience store amounts to 3,251.
88
The scheduled growth may prove to be unachievable if the commercial expenses for
popularization of such brand will considerably exceed the Group’s relevant budget. Alongside,
the creation of the new brands may weaken the existing brands and require additional
investments for maintaining their market position.
Risks related to 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 apply insurance for interruption of its business activity, bringing to
responsibility for products quality, fire (except for stocks and supplies) or changes in core
management, and does not enter into insurance agreements on real estate property, distribution
center, stores or stocks at the warehouses (with rare exception). Moreover, the Group does not
form special reserve or other funds to cover 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 negative effect on the business activity of the Group, its financial
position and prospects.
A major accident may result in substantial property losses and incapability to restore
it.
If in case of a major accident one or more objects of the Group (e.g. the headquarters in
Krasnodar, distribution center 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
negative effect on the Group’s business activity, its operation results, financial position and
prospects.
89
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№
Clause of the code of corporate conduct
Observed/
not observed
Note
General Shareholders’ Meeting
1.
2.
3.
4.
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.
in
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
to
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.
custody account
the
in
if
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 5.1.3, 5.1.4 article 5 of
the Regulation on
the OJSC
“Magnit” information policy.
Observed
Paragraph 13.11 of the OJSC
“Magnit” Charter.
Article 28 of the Regulation on
“Magnit” general
the OJSC
shareholders’ meeting.
Paragraph 5.4 article 5 of the
Regulation on OJSC “Magnit”
information policy.
Article 5 and paragraph 2, article
13 of the Regulation on the OJSC
“Magnit” general shareholders’
meeting.
Observed
15 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.
90
№
Clause of the code of corporate conduct
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
the board of directors, members of the
auditing committee and the auditor of the
joint - stock company.
by
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.
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
5.
6.
7.
8.
9.
Observed/
not observed
Observed
upon the fact
Not observed
Note
to provide
the
According to paragraph 2 article
29 of the Regulation on the OJSC
“Magnit” general shareholders’
meeting, the Company makes all
the
arrangements
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.
-
the
of
Observed
Article 42 of the Regulation on
the OJSC
“Magnit” general
shareholders’ meeting.
Board of directors
Observed
Paragraph 14.2. of
“Magnit” Charter
the OJSC
board
“Magnit”
to which
Article 5 of the Regulation on the
OJSC
of
directors.
Paragraphs 6.7, article 6 of the
Regulation on the Committees of
the board of OJSC “Magnit”,
according
the
assessment of efficiency and
internal control
procedures of
the
financial and
related
economic
the
of
activity
Company and arrangement of
recommendations
the
improvement of such system
refer to the competence of the
Audit Committee.
on
to
Paragraph 3.1. and 6 article 1,
paragraph 2.4., article 2 of the
Regulation on the internal control
91
Availability of
risk management
structure in the joint-stock company, ratified
by the board of directors.
the
Not observed
№
Clause of the code of corporate conduct
Observed/
not observed
Note
of financial and economic activity
of OJSC “Magnit”.
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
of
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
and management
members,
members, are not counted in ratifying the
agreement conditions with CEO (managing
company, manager) and management board
if CEO
Observed
Not applicable Under paragraph 14.2. of the
the
OJSC “Magnit” Charter,
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 and members of collegial
the
to
executive body refers
competence
the OJSC
“Magnit” board of directors.
of
According to article 7 of the
Regulation on the committees of
the OJSC “Magnit” board of
the
directors, elaboration of
eligibility criteria of candidates
for
the positions of CEO,
members of collegial executive
the main
body, directors of
structural departments of
the
Company, and work-out of the
remuneration procedure for CEO,
Management board members and
highly qualified employees of the
Company,
the
refer
to
the HR and
competence of
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 and
members of collegial executive
body (Management board) of the
the
refers
company
competence
the OJSC
of
“Magnit” board of directors.
-
to
Observed
Not observed
92
№
Clause of the code of corporate conduct
members.
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.
Observed/
not observed
Observed
Observed
Observed
Observed
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
members
enforced
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,
board
(manager), management
CEO
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
Observed
93
Note
guilty
found
According to paragraph 1 article
33 of the Regulation on the OJSC
“Magnit” board of directors, the
board must include not less than
one independent member.
Four independent directors were
elected to the Board of directors,
they are:
1) Valery Butenko.
2) Alexander Zayonts;
3) Alexey Makhnev;
4) Dmitry Chenikov.
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
members being
the members,
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.
Paragraph 7.4.10 article 7 of the
Regulation on the committees of
the OJSC “Magnit” board of
directors.
Article 7 of the Regulation on the
of
OJSC
directors.
“Magnit”
board
Article 7, paragraphs 11.6-11.7
№
Clause of the code of corporate conduct
the member of this company or of its
subsidiary (dependant) companies, and to
disclose the information on the transactions
with such securities as well.
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
22. Availability in the internal documents of the
joint-stock company of the board meetings
procedure.
Observed/
not observed
Note
article 11 of the Regulation on the
information policy of OJSC
“Magnit”.
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 2010 the OJSC “Magnit”
board meetings were held not
less than once a month, except for
January, May and October when
board meetings were not held.
The regulations on the Board of
directors of OJSC “Magnit”
Observed
23. Availability in the internal documents of the
joint-stock company of the Regulation on
the obligatory approval by the board of
company
directors of
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
of
of
the
Not observed According to paragraph 14.2. of
the OJSC “Magnit” Charter, the
transactions
approval
interrelated
(including several
transactions)
on acquisition,
alienation, directly or indirectly,
by the company and possibility of
assets,
alienation
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.
94
№
Clause of the code of corporate conduct
committee)
26. Presence of the board committee (audit
committee) which advises on the joint-stock
company auditor
the board, and
to
cooperates with the board and revision
committee of the joint-stock company.
27. Presence
in
committee of
the audit
independent and non-executive directors
only.
Observed/
not observed
Observed
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.
30. Establishment of the board committee (HR
and Remuneration
committee), which
function is to set the candidates criteria for
the board members and work out the
remuneration policy of
joint-stock
company.
the
Observed
Observed
95
Note
Alexander
committees
The Audit Committee of the
is
board
“Magnit”
OJSC
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 paragraph 6.4,
article 6 of the Regulation on the
of OJSC
board
“Magnit”, the audit committee
must have
independent
an
director.
the Audit
The members of
Committee of OJSC “Magnit” are
independent directors:
1)
(independent director);
2) Alexey Makhnev
executive director);
3) Dmitry Chenikov
(non-executive director).
According to the point 6.5 of the
article 6 of the Regulation on the
of OJSC
board
“Magnit”,
independent
director only can be in charge of
the Audit Committee.
The Chairman of the board Audit
Committee of OJSC “Magnit” is
Alexander
the
independent director.
Paragraph 4.8 of the article 4 of
the Regulation on
the board
committees of OJSC “Magnit”.
committees
the
Zayonts,
Zayonts
(non-
and
“Magnit”
Paragraphs 11.5, 11.8, 11.12 of the
article 11 of the Regulation on the
information
OJSC
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
№
Clause of the code of corporate conduct
31. Management of the HR and Remuneration
Committee is executed by the independent
director.
Observed/
not observed
Observed
32. Absence
in the HR and Remuneration
Committee of the officials of the joint-stock
company
Оbserved
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
in
and
the HR
Alexey Makhnev (independent
director) is the Chairman of the
HR
Remuneration
Committee of the OJSC “Magnit”
board.
There are no officials of the
and
company
Remuneration Committee (except
members of
the Board of
directors).
Members of the Committee are:
1) Alexey Makhnev,
2) Valeriy Butenko,
3) Khachatur Pombukhchan.
The committee establishment is
under consideration.
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
of
(managing
company.
Observed
-
96
№
Clause of the code of corporate conduct
40. Presence
in
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
in
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.
in
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
charter or
exercised
by
in
for
the
the
(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
Observed
Note
Paragraph 16.2 of the article 6 of
the Charter
Observed
Observed
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).
97
№
Clause of the code of corporate conduct
Observed/
not observed
Note
Observed
Paragraphs 18.1. – 18.2. of the
Charter of OJSC “Magnit”.
Article 5 of the Regulation on the
sole executive body of OJSC
“Magnit”.
Article 9 of the Regulations on
the
collegial executive body
(Management Board) of OJSC
“Magnit”.
Not observed
See clause 44
to
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
the board of
accountable
directors, therefore the right of
the management board members
to get the information about the
operation and activity of the
executive bodies is essential and
does not require any special
prescription.
-
Observed
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.
46. Presence
in
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
with CEO
(management organization,
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
special official
the
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
in
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.
Not observed
-
Not observed
-
98
№
Clause of the code of corporate conduct
51. Availability in the charter of the joint-stock
company of
the
candidates for the secretary position of the
company.
the requirements
to
Observed/
not observed
Not observed
-
Note
Substantial corporate actions
52. Presence
in
the
charter or
internal
documents of the joint-stock company of the
requirement on major transactions approval
before its settlement.
53. The
obligatory
the
independent appraiser for the assessment of
the subject of the major transaction.
involvement
of
the
share
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
shares or
securities
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
of
to
Not observed
-
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.
99
of
of
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
the
(types)
categories
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
№
Clause of the code of corporate conduct
Observed/
not observed
Note
acquisition by
the delivery of the corresponding
offer to the open company;
- approval of the related party
transactions;
-
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
cessation of
their authorities,
of
including
increase of the compensations
paid out to these persons in case
of cessation of their authorities.
-
determination
occupying
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
to
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
is
on
Regulation
ratified by
The
the
information policy of OJSC
“Magnit”
the
the board of
resolution of
directors of OJSC “Magnit” on
July 15, 2010, minutes of meeting
w/o N of July 15, 2010.
Information disclosure is carried
the
in accordance with
out
requirements
actual
of
legislation of Russian Federation.
the
Observed
Not observed
100
№
Clause of the code of corporate conduct
acquisition of the shares offered by the
company.
Observed/
not observed
Note
60. Availability
of
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
Paragraph 13.11 of the Charter of
OJSC “Magnit”.
Articles 26-28 of the Regulation
on
the general shareholders’
meeting of OJSC “Magnit”.
Paragraphs 5.4 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
the
63. Availability in the internal documents of the
joint-stock company of the requirement to
disclose
the
transactions which may affect the market
joint-stock
value of the shares of the
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
requirements
actual
of
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
July 15, 2010, minutes of meeting
w/o N of July 15, 2010.
(is ratified by
on
Observed
101
№
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
Observed
Observed
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
in
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
is
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 July 15,
2010, minutes w/o N as of July 15,
2010.
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 of the 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
in
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
-
102
№
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 4.9 article 3 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
on
the
Regulation
revision
commission of OJSC “Magnit” is
ratified by the annual general
shareholders’ meeting of OJSC
“Magnit” on
June 24, 2010,
minutes of meeting w/o N of
June 28, 2010.
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
to
in
it
Observed
Observed
the dividend
Regulation on
policy of OJSC “Magnit”
is
ratified by the resolution of the
board of OJSC “Magnit” on July
15, 2010, minutes w/o N as of July
15, 2010.
Paragraphs 2.4 and 2.5 of the
article 2 of the Regulation on
dividend
of OJSC
policy
“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.
103
№
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
104
1188.. IINNFFOORRMMAATTIIOONN OONN TTHHEE AAUUDDIITTOORR AANNDD TTHHEE CCOONNSSUULLTTAANNTT OOFF
TTHHEE CCOOMMPPAANNYY
Under the resolution of the annual general shareholders’ meeting of June 24, 2010
(minutes of 28.06.2010) the auditing firm LLC AF “Faber Lex” was appointed as the Company
auditor for RAS for the year 2010.
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 2010 according to the Russian Accounting standards:
In 2010 Limited Liability Company Auditing firm “Faber Lex” (LLC AF “Faber
Lex”)was the auditor of the Company, address: 144/2 Krasnykh Partizan street, Krasnodar,
Russian Federation.
LLC AF “Faber Lex” is a member of Moscow Audit chamber according to the Decision
of Management of June 27, 2007, ·№ 108. Number of certificate 1726 of July 09, 2007, Principal
Register Applicant Number 10203002910.
Telephone number: +7 (861) 220-03-20, 221-41-42, 226-41-41, 226-45-22, 226-38-15, 226-44-
54.
Information on the Company’s Auditor which conducted the audit of the Company
report over the year 2010 according to IFRS:
The audit of the Company´s report for the year 2010 according to International Financial
Reporting Standards was conducted by Limited
liability Company “Ernst&Young”
(Ernst&Young LLC) address: building 1, 77, Sadovnicheskaya naberezhnaya, Moscow, 115035,
Russian Federation.
Ernst&Young LLC is a member of Russian Audit Chamber according to the Decision of
the Board of Noncommercial partnership of Russian Audit Chamber of May 20, 2009, certificate
number 3028 of May 20, 2009, Principal Register Applicant Number 10201017420.
Telephone number: +7 (495) 755-97-00
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
www.fscorp.ru
105
disclosure by the issuer of securities, ratified
by FFMS
License for exercising the activity on securities
market
Date of issue
Validation period
Issuing authority
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
August 29, 2003
Non-expiry (for an indefinite term)
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
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.
106
19. INFORMATION ON VOLUMES OF ENERGY RESOURCES
UTILIZATION WITHIN THE YEAR 2010
Kind of energy resources
Electrical energy
Utilization
volume terms
3 154 588 kW
Thermal energy
543,23 Gcal
capacity
in
Utilization capacity in money
terms, thousand rubles
10 921,70
524,39
Gas
11 020,65 thousand cub.m.
60,72
107
AANNNNEEXX TTOO 22001100 AANNNNUUAALL RREEPPOORRTT OOFF OOJJSSCC ““MMAAGGNNIITT””
ANNEX № 1: Consolidated financial statements of OJSC “Magnit”
for the year ended December 31, 2010.
ANNEX № 2: RAS Accounting report of JSC “Tander” for the year
2010:
* JSC “Tander”. Balance sheet of December 31, 2010.
* JSC “Tander”. Profit and loss statement for the year 2010.
* JSC “Tander”. Statement of changes in equity for the year 2010.
* JSC “Tander”. Cash flow statement.
* JSC “Tander”. Appendix to the balance sheet for the year 2010.
ANNEX № 3: RAS Accounting report of OJSC “Magnit” for the
year 2010:
* OJSC “Magnit”. Balance sheet of December 31, 2010.
* OJSC “Magnit”. Profit and loss statement for the year 2010.
* OJSC “Magnit”. Statement of changes in equity for the year 2010.
* OJSC “Magnit”. Cash flow statement.
* OJSC “Magnit”. Appendix to the balance sheet for the year 2010.
108