Magnit
Annual Report 2011

Plain-text annual report

PPrreelliimmiinnaarriillyy rraattiiffiieedd bbyy tthhee rreessoolluuttiioonn ooff tthhee BBooaarrdd ooff OOJJSSCC ““MMaaggnniitt”” ooff AApprriill 2200,, 22001122,, mmiinnuutteess ooff AApprriill 2200,, 22001122 RRaattiiffiieedd bbyy tthhee rreessoolluuttiioonn ooff tthhee annual general shareholders' meeting of OJSC “Magnit” minutes w/№ of May 28, 2012 22001111 AANNNNUUAALL RREEPPOORRTT OOPPEENN JJOOIINNTT--SSTTOOCCKK CCOOMMPPAANNYY ““MMAAGGNNIITT”” 1188 KKoollkkhhoozznnaayyaa ssttrreeeett,, KKrraassnnooddaarr,, 335500004422,, RRuussssiiaann FFeeddeerraattiioonn CChhiieeff EExxeeccuuttiivvee OOffffiicceerr __________________________________________ SS.. GGaalliittsskkiiyy CChhiieeff AAccccoouunnttaanntt __________________________________________ II.. KKuullaakkoovvaa sseeaall KKRRAASSNNOODDAARR 22001122 2 TABLE OF CONTENTS 11.. KKEEYY FFIINNAANNCCIIAALL AANNDD OOPPEERRAATTIINNGG RREESSUULLTTSS ............................................................5 22.. MMIISSSSIIOONN ..................................................................................................................................7 33.. CCHHIIEEFF EEXXEECCUUTTIIVVEE OOFFFFIICCEERR’’SS SSTTAATTEEMMEENNTT................................................................8 44.. IINNFFOORRMMAATTIIOONN OONN TTHHEE PPEERRSSOONN IINN TTHHEE PPOOSSIITTIIOONN OOFF AA SSOOLLEE EEXXEECCUUTTIIVVEE BBOODDYY .............................................................................................................................................9 55.. IINNFFOORRMMAATTIIOONN OONN TTHHEE CCOOLLLLEEGGIIAALL EEXXEECCUUTTIIVVEE BBOODDYY MMEEMMBBEERRSS ((MMAANNAAGGEEMMEENNTT BBOOAARRDD)) aass ooff DDeecceemmbbeerr 3311,, 22001111 ........................................................10 66.. IINNFFOORRMMAATTIIOONN OONN TTHHEE BBOOAARRDD MMEEMMBBEERRSS aass ooff DDeecceemmbbeerr 3311,, 22001111 ................13 77.. RREEPPOORRTT OOFF TTHHEE BBOOAARRDD OONN 22001111 OOPPEERRAATTIIOONNSS .....................................................20 88.. MMAAIINN 22001111 CCOORRPPOORRAATTEE EEVVEENNTTSS..................................................................................26 99.. PPOOSSIITTIIOONN OOFF TTHHEE CCOOMMPPAANNYY IINN IINNDDUUSSTTRRYY...........................................................28 1100.. PPRRIIOORRIITTYY AARREEAASS OOFF TTHHEE CCOOMMPPAANNYY’’SS OOPPEERRAATTIIOONNSS .......................................41 1111.. PPRRIIOORRIITTYY DDIIRREECCTTIIOONNSS OOFF TTHHEE CCOOMMPPAANNYY’’SS DDEEVVEELLOOPPMMEENNTT.......................43 1122.. IINNFFOORRMMAATTIIOONN OONN TTHHEE PPAAIIDD DDIIVVIIDDEENNDDSS............................................................45 1133.. SSEECCUURRIITTIIEESS.........................................................................................................................46 1144.. TTRRAANNSSAACCTTIIOONNSS,, CCOONNSSIIDDEERREEDD MMAAJJOORR TTRRAANNSSAACCTTIIOONNSS AACCCCOORRDDIINNGG TTOO TTHHEE FFEEDDEERRAALL LLAAWW ““OONN JJOOIINNTT--SSTTOOCCKK CCOOMMPPAANNIIEESS””,, MMAADDEE WWIITTHHIINN TTHHEE YYEEAARR 22001111 ...................................................................................................................................58 1155.. LLIISSTT 00FF 22001111 TTRRAANNSSAACCTTIIOONNSS DDEECCLLAARREEDD AASS RREELLAATTEEDD--PPAARRTTYY IINN AACCCCOORRDDAANNCCEE WWIITTHH TTHHEE FFEEDDEERRAALL LLAAWW OONN ““JJOOIINNTT--SSTTOOCCKK CCOOMMPPAANNIIEESS”” .60 1166.. MMAAIINN RRIISSKK FFAACCTTOORRSS RREELLAATTEEDD TTOO TTHHEE ССOOMMPPAANNYY OOPPEERRAATTIIOONN ................83 1177.. IINNFFOORRMMAATTIIOONN OONN TTHHEE CCOOMMPPLLIIAANNCCEE WWIITTHH TTHHEE FFFFMMSS CCOODDEE OOFF CCOORRPPOORRAATTEE CCOONNDDUUCCTT OOFF RRUUSSSSIIAANN FFEEDDEERRAATTIIOONN .............................................110 1188.. IINNFFOORRMMAATTIIOONN OONN TTHHEE AAUUDDIITTOORR AANNDD TTHHEE CCOONNSSUULLTTAANNTT OOFF TTHHEE CCOOMMPPAANNYY ...............................................................................................................................125 19. INFORMATION ON VOLUMES OF ENERGY RESOURCES UTILIZATION WITHIN THE YEAR 2011 ......................................................................................................127 AANNNNEEXX TTOO 22001111 AANNNNUUAALL RREEPPOORRTT OOFF OOJJSSCC ““MMAAGGNNIITT”” ANNEX № 1: Consolidated financial statements of OJSC “Magnit” for the year ended December 31, 2011 ANNEX № 2: RAS Accounting report of JSC “Tander” for the year 2011 ANNEX № 3: RAS Accounting report of OJSC “Magnit” for the year 2011 3 4 11.. KKEEYY FFIINNAANNCCIIAALL AANNDD OOPPEERRAATTIINNGG RREESSUULLTTSS 201 key operating results: Number of opened stores, NET convenience stores hypermarkets cosmetics stores convenience stores hypermarkets cosmetics stores convenience stores hypermarkets cosmetics stores convenience stores hypermarkets cosmetics stores Total number of stores Selling space, th sq. m. Number of customers, mn LFL results: 1 254 1,004 42 208 5 309 5 006 93 210 1 970,16 1 637,83 282,24 50,09 1 644,43 1 550,27 90,17 3,98 LFL growth 12М 2011 – 12М 20101 Convenience stores Hypermarkets Total 9,67% Average ticket (excl. VAT), RUR 1,29% Traffic 11,09% Sales, RUR 10,17% 1,29% 11,59% 5,26% 1,32% 6,65% 1 Based on 1 956 convenience stores which were opened by July 1, 2009 and 14 hypermarkets which were opened by May 1, 2009, i.e. based on the result of the convenience stores that had been operating for not less than six months and hypermarkets that had been operating for not less than eight months and have achieved a mature level of sales. 5 convenience stores2 hypermarkets2 cosmetics stores2 wholesale2 convenience stores2 hypermarkets2 cosmetics stores2 wholesale2 2011 key financial results: Net sales, mn RUR Net sales, mn US$34 Gross profit, mn RUR Gross profit, mn US$3 Gross margin, % EBITDAR, mn RUR. EBITDAR, mn US$ EBITDAR margin, % EBITDA, mn RUR EBITDA, mn US$ EBITDA margin, % EBIT, mn RUR EBIT, mn US$ EBIT margin, % Net profit, mn RUR Net profit, mn US$3 Net profit margin, % Market capitalization, mn RUR5 Market capitalization, mn USD6 2 Management accounts 3 Audited financial statements prepared in accordance with IFRS 4 Based on the average exchange rate for 2011 of 29,3874 RUR per US$ 1 5 CJSC «MICEX Stock Exchange» 6 Based on the exchange rate for 30.12.2011 of 32,0197 RUR per US$ 1 6 335 699,95 287 731,79 46 982,79 892,82 92.55 11 423,26 9 790,99 1 598,74 30,38 3,15 81 663,45 2 778,86 24,33% 34 636,97 1 178,63 10,32% 27 604,14 939,32 8,22% 19 624,21 667,78 5,85% 12 303,84 418,68 3,67% 261 649,67 8 171,52 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 “In 2011 we strengthened our market positions and this is a very positive result for us. We overcame the negative EBITDA margin dynamics of the first half of the year and, in our opinion, we did a good job on the cost side. This year was the most successful for us in terms of store openings: and it is over the course of time that we will understand how interesting this year was to us. Because it is quite a hard work to open 1 000 stores, 42 hypermarkets and 200 cosmetics stores and we are satisfied with what we did. Besides we conducted share placement this year. It was not easy and we thank investors for trusting us so that this placement was completed. These are the main events and the results of the year 2011 – generally we are satisfied with its takeaways and are grateful to our investors for their support during this time.” . 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: 01.04.2004 – present day Organization: OJSC “Magnit” Position: member of the Board; 2) Period: 13.04.2006 – present day Organization: OJSC “Magnit” Position: CEO; 3) Period: 15.07.2010 – present day Organization: OJSC “Magnit” Position: Chairman of the Management board. Stockholding of CEO in the Company’s share capital: 38,6659% (as of 31.12.2011). Ordinary shares, owned by CEO: 38,6659% (as of 31.12.2011). 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: During the reporting period no transactions of acquisition/alienation of the Company’s shares were made. 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 2011 amounted to 72,017,011.00 rubles. 9 IINNFFOORRMMAATTIIOONN OONN TTHHEE CCOOLLLLEEGGIIAALL EEXXEECCUUTTIIVVEE BBOODDYY 55.. MMEEMMBBEERRSS ((MMAANNAAGGEEMMEENNTT BBOOAARRDD)) aass ooff DDeecceemmbbeerr 3311,, 22001111 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: 01.04.2004 – present day Organization: OJSC “Magnit” Position: member of the Board; 2) Period: 13.04.2006 – present day Organization: OJSC “Magnit” Position: CEO; 3) Period: 15.07.2010 – present day Organization: OJSC “Magnit” Position: Chairman of the Management board. Stockholding of CEO in the Company’s share capital: 38, 6659% (as of 31.12.2011). Ordinary shares, owned by CEO: 38, 6659% (as of 31.12.2011). 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: During the reporting period no transactions of acquisition/alienation of the Company’s shares were made. 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. Positions occupied in the Company and other companies in the last five years including plural offices: 1) Period: 02.10.2006 – 15.07.2008 Organization: JSC “Tander” Position: Naberezhnye Chelny Branch Manager; 2) Period: 16.07.2008 – present days Organization: JSC “Tander” Position: Hypermarkets sales director; 3) Period: 15.07.2010 – present days 10 Organization: OJSC “Magnit” Position: Management board member. Stockholding of the person in the Company’s share capital: 0.0004% (as of 31.12.2011). Ordinary shares, owned by the person: 0.0004% (as of 31.12.2011). 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: During the reporting period no transactions of acquisition/alienation of the Company’s shares were made. Name: Nikita Churikov Date of birth: 02.10.1982 Education: higher - graduated from Kuban State University with a degree in Law in 2004. Positions occupied in the Company and other companies in the last five years including plural offices: 1) Period: 02.10.2006 – 26.10.2007 Organization: JSC AUK “Status" Position: Chief specialist of law department with head of department duties; 2) Period: 29.10.2007 – 01.06.2008 Organization: JSC "Tander" Position: Leading lawyer of corporate governance department; 3) Period: 02.06.2008 – 03.05.2009 Organization: JSC "Tander" Position: deputy head of corporate governance department; 4) Period: 04.05.2009 – present days Organization: JSC "Tander" Position: head of corporate governance department; 5) Period: 13.07.2011– present days Organization: OJSC "Magnit" Position: Member of the Management Board; Stockholding of the person in the Company’s share capital: 0.00004% (as of 31.12.2011). Ordinary shares, owned by the person: 0.00004% (as of 31.12.2011). 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: During the reporting period no transactions of acquisition/alienation of the Company’s shares were made. Name: Alexander Pisarenko Date of birth: 11.04.1964 11 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: 22.05.2006 – 05.08.2007 Organization: JSC “Tander” Position: Povolzhsky area manager; 2) Period: 06.08.2007 – 30.11.2007 Organization: JSC “Tander” Position: Area Manager, Area Directorate; 3) Period: 01.12.2007 – 20.04.2008 Organization: JSC “Tander” Position: Area Manager, Staff; 4) Period: 21.04.2008 – present day Organization: JSC “Tander” Position: “Magnit” stores 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: 0.0018% (as of 31.12.2011). Ordinary shares, owned by the person: 0.0018% (as of 31.12.2011). 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: During the reporting period no transactions of acquisition/alienation of the Company’s shares were made. RREEMMUUNNIIRRAATTIIOONN CCRRIITTEERRIIAA AANNDD AAMMOOUUNNTT OOFF RREEMMUUNNEERRAATTIIOONN ((RREEFFUUNNDD OOFF CCHHAARRGGEESS)) OOFF 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 2011 amounted to 2,447,607.28 rubles (the amount does not include the remuneration received by S. Galitskiy as chief executive officer). 12 66.. IINNFFOORRMMAATTIIOONN OONN TTHHEE BBOOAARRDD MMEEMMBBEERRSS aass ooff DDeecceemmbbeerr 3311,, 22001111 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: 02.03.2006 – 03.05.2008 Organization: JSC “Tander” Position: Marketing director; 2) Period: 29.11.2006 – 26.05.2009 Organization: JSC “Digital Gallery” Position: member of the Board; 3) Period: 09.01.2008 – 03.05.2008 Organization: ЗАО «Тандер» Position: first Deputy CFO (joint appointment); 4) Period: 04.05.2008 – 30.06.2008 Organization: JSC “Tander” Position: first Deputy CFO; 5) Period: 19.06.2008 – present day Organization: LLC “Magnit Finance” Position: CEO; 6) Period: 25.06.2008 – present day Organization: OJSC “Magnit” Position: member of the Board; 7) Period: 01.07.2008 – present day Organization: JSC “Tander” Position: CFO; 8) Period: 01.07.2008 – present day Organization: OJSC “Magnit” Position: CEO; 9) Period: 15.12.2008 – 01.04.2009 Organization: LLC “Magnit – Nizhniy Novgorod” Position: member of the Board; 10) Period: 13.12.2008 –24.02.2009 Organization: LLC “Tandem” Position: member of the Board. 13 11) Period: 24.06.2010 – present day Organization: OJSC “Magnit” Position: Chairman of the BOD. Stockholding of the person in the Company’s share capital: 0.0046% (as of 31.12.2011). Ordinary shares, owned by the person: 0.0046% (as of 31.12.2011). 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: Operation Number of shares Type of shares Acquisition of Ordinary nominal securities Acquisition of securities 2 120 1 607 uncertified shares Ordinary nominal uncertified shares Acquisition of Ordinary nominal securities Acquisition of securities Acquisition of securities Acquisition of securities Acquisition of securities 75 83 75 80 90 95 uncertified shares Ordinary nominal uncertified shares Ordinary nominal uncertified shares Ordinary nominal uncertified shares Ordinary nominal uncertified shares Ordinary nominal 20.09.2011 Acquisition of № Date of operation 1 11.01.2011 2 18.04.2011 3 25.04.2011 4 18.05.2011 5 20.06.2011 6 20.07.2011 17.08.2011 7 8 14 securities uncertified shares 9 21.10.2011 105 Acquisition of Ordinary nominal securities 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: 01.12.2003 – present day. Organization: OJSC “Magnit”. Position: first Deputy CEO; 2) Period: 01.04.2004 – 24.06.2008. Organization: OJSC “Magnit”. Position: Chairman of the Board; 3) Period: 01.10.2004 – 30.06.2009 Organization: JSC «Tander». Position: Director of Development department; 4) Period: 30.01.2006 – 01.04.2009. Organization: LLC “Magnit – Nizhniy Novgorod”. Position: Chairman of the Board; 5) Period: 25.06.2008 – present day. Organization: OJSC “Magnit”. Position: member of the Board; 6) Period: 13.12.2008 – 24.02.2009. Organization: LLC “Tandem”. Position: member of the Board. 7) 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. 2024% (as of 31.12.2011). Ordinary shares owned by the person: 0.2024% (as of 31.12.2011). 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: During the reporting period no transactions of acquisition/alienation of the Company’s shares were made. 15 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: 29.05.2005- 31.03.2009 Organization: JSC «Tander» Position: Member of the Revision Committee; 3) Period: 01.04.2004- 24.06.2009 Organization: OJSC “Magnit” Position: Chairman of the Revision Committee; 4) Period: 25.06.2009 – present days Organization: OJSC “Magnit” Position: Member of the Board of directors; 5) Period: 01.08.2009- present days Organization: JSC «Tander» Position: Deputy chief executive officer in charge of reviser and analytical job. Shareholding of the person in the issuer’s charter capital: 0. 0784% (as of 31.12.2011). Ordinary shares owned by the person: 0. 0784% (as of 31.12.2011). Information on transactions of acquisition/alienation of the Company’s shares made by the Board member during the reporting period: During the reporting period no transactions of acquisition/alienation of the Company’s shares were made. Sergey Galitskiy Date of birth: 14.08.1967 Education: Mr. Galitskiy graduated from Kuban State University with a degree in Economics in 1992 1) Period: 01.04.2004 – present day Organization: OJSC “Magnit” Position: member of the Board; 2) Period: 13.04.2006 – present day Organization: OJSC “Magnit” Position: CEO; 16 3) Period: 15.07.2010 – present day Organization: OJSC “Magnit” Position: Chairman of the Management board. Stockholding of CEO in the Company’s share capital: 38, 6659% (as of 31.12.2011). Ordinary shares, owned by CEO: 38, 6659% (as of 31.12.2011). 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: During the reporting period no transactions of acquisition/alienation of the Company’s shares were made. Alexander Zayonts Date of birth: 10.01.1967 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 17 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: 12.2006 – 08.2007 Organization: LLC “Deutsche Bank” Position: director, corporate finance governance. 2) Period: 09.2007– 12.2008 Organization: LLC “Morgan Stanley Bank” Position: vice president, investment banking Department; 3) Period: 12.2008 – 05.2009 Organization: LLC “Morgan Stanley Bank” Position: executive director, investment banking Department; 4) 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; 5) 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. Aslan Skhachemukov Date of birth: 22.08.1962 Education: higher – in 1987 graduated from of Krasnodar Order of the Red Banner of Labour Polytechnic Institute, industrial engineer. Positions occupied in the Company and other companies in the last five years including plural offices: 1) Period: 01.07.04 – 15.10.07 Organization: OJSC "Kubanskiy Standart" Position: Chairman of the BOD; 2) Period: 01.10.07 – present days Organization: JSC «Tander» Position: Deputy General Director; 3) Period: 23.06.2011 – present days 18 Organization: OJSC «Magnit» Position: member of the BOD; Shareholding of the person in the issuer’s charter capital: 0.0009% (as of 31.12.2011). Ordinary shares owned by the person: 0.0009% (as of 31.12.2011). Information on transactions of acquisition/alienation of the Company’s shares made by the person occupying the position of a Board member: During the reporting period no transactions of acquisition/alienation of the Company’s shares were made. RREEMMUUNNIIRRAATTIIOONN CCRRIITTEERRIIAA AANNDD AAMMOOUUNNTT OOFF RREEMMUUNNEERRAATTIIOONN ((RREEFFUUNNDD OOFF CCHHAARRGGEESS)) OOFF EEVVEERRYY MMEEMMBBEERR OOFF CCOOMMPPAANNYY’’SS BBOOAARRDD OOFF DDIIRREECCTTOORRSS PPAAIIDD AACCCCOORRDDIINNGG TTOO TTHHEE RREESSUULLTTSS AACCHHIIEEVVEEDD IINN TTHHEE RREEPPOORRTTIINNGG YYEEAARR 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 23, 2011 the General shareholders´ meeting made a decision not to pay year-end bonus, based on the operation results (minutes of 23.06.2011) In 2011 upon the resolution of shareholders’ meeting of 23.06.2011 (minutes of meeting of 23.06.2011) the Board members were paid remuneration for participation in the board operation in 2010 in the amount of 8,853,100.00 (eight million eight hundred fifty three thousand one hundred) rubles 00 kopecks. 19 77.. RREEPPOORRTT OOFF TTHHEE BBOOAARRDD OONN 22001111 OOPPEERRAATTIIOONNSS Within 2011 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 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 10.01.1967 24.05.1976 16.03.1974 08.09.1965 The structure of the Board of directors (elected by annual general shareholders’ meeting on June 23, 2011, minutes of June 23, 2011): № 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 Aslan Shkhachemukov 12.01.1969 25.11.1965 14.08.1967 10.01.1967 24.05.1976 16.03.1974 22.08.1962 The current Board of directors includes four independent directors; they are Valeriy Butenko, Alexander Zayonts, Alexey Makhnev, and Aslan Shkhachemukov. Khachatur Pombukhchan was elected a Chairman of the Board of directors by the unanimous resolution at the first Board meeting of 13.07.2011, 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: 20 HR and Remuneration Committee of the Board of Directors: Full name of a member of the board of directors Position in the committee Alexey Makhnev Valeriy Butenko Alexander Zayonts chairman of the committee member of the committee 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 chairman of the committee member of the committee Aslan Shkhachemukov member of the committee № 1 2 3 № 1 2 3 During 2011 the Board of directors held 19 meetings and examined 100 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 2011: Date of meeting Considered issues 04.02.2011 04.02.2011 04.02.2011 04.02.2011 04.02.2011 03.03.2011 23.03.2011 25.04.2011 25.04.2011 16.05.2011 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 decisions on securities issue (exchange-traded bonds to the bearer of BO-05, BO-06 series) were made. The decision on approval of the major transaction on placement of the exchange-traded bonds of BO-05, BO-06 series by open subscription was made. The decision on approval of transaction under the paragraph 33, point 14.2 of the article 14.2 of OJSC “Magnit”. The decision on calling of the extraordinary shareholders’ meeting was adopted. The decision on calling of the annual shareholders’ meeting was adopted. The annual report over 2010 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 2010 financial year were approved. 21 The recommendations to the general shareholders’ meeting on the dividend amount on OJSC “Magnit” shares and procedure of it’s payment following the results of the 1st quarter 2011 financial year were approved. The decision on approval of the related party transaction was adopted. The decision on disposal of the share in the charter capital of LLC “Magnit – Nizhniy Novgorod” owned by the Company was adopted. 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 The members of Management Board were elected. The decision on approval of the related party transaction was adopted. The decision on placement of securities (exchange-traded bonds to the bearer of BO-07, BO-08, BO-09 series) was adopted. The decision to approve the major transaction on placement of securities (exchange-traded bonds to the bearer of BO-07, BO-08, BO-09 series) was adopted. The decision on determination of OJSC “Magnit” business priorities was adopted. The decisions on approval of the related party transactions were adopted. The decision on calling of the extraordinary shareholders’ meeting was adopted. The decisions on approval of the related party transactions were adopted. The decision on augmentation of OJSC “Magnit” charter capital by public offering of additional shares was adopted. The Decision on additional securities issue and the Prospectus were ratified. The decision on the determination of the price of the transaction the approval of which is included to the agenda of the extraordinary general shareholders’ meeting was adopted. The decision on approval of the related party transaction was adopted. The decision on approval of related party transaction was adopted. The decision on determination of the price for major transaction (Placement Agreement) was adopted. The decision on approval of the major transaction was adopted. The price of securities placement (ordinary registered shares of OJSC “Magnit”) was determined. The decisions on approval of the related party transactions were adopted. The decisions on ratification of the Regulations on Bonus Programme and CEO’s HR and remunerations Committee of JSC “Tander” was adopted. The decision on payment of bonus to the person in the position of CEO of OJSC “Magnit” following 2011 results was adopted. The decision on approval of the additional agreement to the contract entered with a person executing the sole executive body powers of OJSC “Magnit” was adopted. 16.05.2011 20.06.2011 20.06.2011 13.07.2011 13.07.2011 13.07.2011 13.07.2011 13.07.2011 14.07.2011 14.07.2011 30.08.2011 30.08.2011 06.10.2011 06.10.2011 06.10.2011 06.10.2011 27.10.2011 09.11.2011 28.11.2011 30.11.2011 30.11.2011 02.12.2011 22.12.2012 22.12.2012 27.12.2011 27.12.2011 22 27.12.2011 The decision on approval of the additional agreement to the contract on sale and purchase of share in the charter capital of LLC “Magnit – Nizhniy Novgorod” 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”, LLC “Tandem” and “AgroTorg” were held in February, March, April, June, July, August, September, October, November, and December of the year 2011. The management of the Company achieved the following results in 2011: 1. Revenue of the Company increased by 42.13% from 236,193.55 million rubles in 2010 to 335,699.95 million rubles in 2011. Top line growth was due to an increase in selling space as well as to a 11.09% increase of like-for-like sales (excl. VAT). Revenue growth in dollar terms amounted to 46.88%: from US$ 7,777.40 million to US$ 11,423.26 million7. 2. During 2011 the Company added 1,254 stores (1,004 convenience stores, 42 hypermarkets and 208 cosmetics stores). The total store base as of December 31, 2011 reached 5,309 stores (5,006 convenience stores, 93 hypermarkets and 210 cosmetics stores). Total selling space of the stores increased by 38.51% from 1,422.38 thousand sq. m. to 1,970.16 thousand sq. m. 3. Number of customers increased by 26.31% from 1,301.90 million in 2010 to 1,644.43 million in 2011. 4. Share of sales of private label products in 2011 increased insignificantly to 14% while the number of private label SKUs increased from 614 in 2010 to 637 in 2011. 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. 7 Based on the average exchange rate for 2011 of 29.3874 RUR per 1 US$, 2010 – 30.3692 RUR per 1 US$. 23 Number of Items Share in Retail Sales 5. In 2011 the Company opened owned distribution centers in Erzovka village (Volgograd region), Dzerzhinsk (Nizhny Novgorod region) and Izhevsk. Launch of the new distribution centers improved the quality of service in the Volga and Central regions. Total space of 14 distribution centers as of December 31, 2011 amounted to 323,431 thousand sq. m. 6. During the reporting year the fleet of the Company’s vehicles increased by 1,264 trucks, total number of vehicles amounted to 3,906 which resulted in the considerable reduction of transportation costs. 7. In 2011 the Company increased the share of products processed via its distribution centers from 79% in 2010 to 82% which is also one of the gross margin drivers. 8. The Company was actively working with its employees increasing their loyalty and developing corporate culture. In 2011 average weighted number of the Company’s employees amounted to 123,506 out of which 87,088 are in-store personnel; 24,443 people are engaged in distribution; 8,217 people - in regional branches and 3,758 are employees of the head office. Average salary in the Company in 2011 amounted to 19,560 rubles. 9. 11.09% LFL revenue growth of 2011 vs. 2010 in ruble terms was driven by 9.67% average ticket growth and 1.29% traffic growth. 24 10. Gross margin increased from 22.38% in 2010 to 24.33% in 2011 due to continued improvement of purchasing terms. Gross profit in rubles increased by 54.49% from 52,858.39 million RUR (US$ 1,740.53 million) to 81,663.45 million RUR (US$ 2,778.86 million). 11. EBITDA increased by 43.92% from 19,179.96 million RUR (US$ 631.56 million) in 2010 to 27,604.14 million RUR (US$ 939.32 million) in 2011. Net debt/EBITDA ratio (in ruble terms) at the end of 2011 amounted to 1.26. 12. 2011 net income increased by 21.41% and amounted to 12,303.84 million RUR (US$ 418.68 million) vs. 10,134.11 million RUR (US$ 333.70 million) in 2010. 7 000 5 000 3 000 1 000 23,5 5 354 9,5 5,1 2009 22,4 7 777 8,1 4,3 2010 24,3 11 423 8,2 3,7 2011 25 20 15 10 5 0 Sales Gross Margin EBITDA Margin NI Margin US$ million On the whole, the Board of Directors of the Company considers the achieved financial and economic results positive and in line with 2011 targets. 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 2011 and to ratify 2011 annual report submitted for the meeting agenda. 25 88.. MMAAIINN 22001111 CCOORRPPOORRAATTEE EEVVEENNTTSS January February March April The decision on approval of OJSC “Magnit” Auditor is adopted at the extraordinary shareholders’ meeting. The decision on approval of related party transaction is adopted by the annual shareholders’ meeting. “National Rating Agency” rated reliability of OJSC “”Magnit” on “AA” level – very high reliability second level. Exchange-traded bonds of BO-05 series were admitted to trading in the process of circulation within listing procedure by inclusion into the quotation list “A” level 1 of CJSC “MICEX Stock Exchange”. OJSC “Magnit” exchange-traded bonds of BO-01, BO-02, BO-03, BO-04 series were transferred to the “A” level 1 quotation list at MICEX Stock Exchange. OJSC “Magnit” has placed within one day exchange-traded bonds of BO-05 series in full in the total amount of 5 billion rubles. OJSC “Magnit” has placed within one day exchange-traded bonds of BO-06 series in full in the total amount of 5 billion rubles. Exchange-traded bonds of BO-06 series were included into the quotation list “A” level 1 of CJSC “MICEX Stock Exchange”. May The decisions on approval of related party transactions are adopted by the annual shareholders’ meeting. The new membership of the OJSC “Magnit” Board of directors including four independent directors is formed by the annual general shareholders’ meeting. June The decision to pay dividends following the results of 2010 financial year and the 1st quarter 2011 financial year is adopted by the annual general shareholders’ 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. July The Board of directors forms the committees of the Board appoints the chairman, deputy chairman and secretary of the Board of Directors. The decision on securities issue (exchange-traded bonds to the bearer of BO-07, BO-08, BO-09 series) was adopted. October Board of directors made a decision to increase the charter capital of OJSC “Magnit” by means of offering of additional ordinary registered shares. The Board of directors approves the Placement agreement as a major transaction. The price of offering of OJSC “Magnit” ordinary registered shares of additional issue is determined. The decision on approval of the related party transaction and the major related- November December 26 party transaction are adopted by the extraordinary shareholders’ meeting. The Notification of the results of the additional issue of nominal registered shares of OJSC “Magnit” in the amount of 5,586,282 (five million five hundred eighty six thousand two hundred eighty two) is submitted to FSFM. Ordinary registered shares of the additional issue №1-01-60525-Р-006D of 10.11.2011 were admitted to trading at MICEX Stock Exchange in the process of circulation without listing procedure. 27 99.. PPOOSSIITTIIOONN OOFF TTHHEE CCOOMMPPAANNYY IINN IINNDDUUSSTTRRYY RRUUSSSSIIAANN MMAARRKKEETT This section was prepared with the use of the following materials: IA Infoline, public sources of companies. Retail turnover amounted to 19 075 billion RUR in 2011 which is 107.2% to the level of 2010 in terms of mass of commodities. In December 2011 turnover increased by 9.5% compared to December 2010 and amounted to 2 042.5 billion RUR. Dynamics of the key figures of the consumer market in 2005-2011, % Y-o-Y 25 20 15 10 5 0 -5 -10 -15 16,7 15,9 15 13,8 13,3 14,1 11,9 10,7 10,4 12,7 10,5 8,4 13,3 13,4 11,2 9 10,1 17,9 17,6 16,5 15,1 15,1 13,8 11,8 12,3 12,1 15,4 16,1 14,8 13,4 19,6 18,7 21,6 20,5 18,7 15,8 15,8 16,7 14,4 14,4 12,5 11,3 10,8 9,3 7,2 10,5 8,2 5,4 0,3 0,4 0,2 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 -0,7 9 0 Q 2 -1,2 9 0 Q 4 9 0 Q 3 Growth rate of retail turnover Growth rate of food turnover Growth rate of non-food turnover -5,1 -4,4 -5,5 -8,6 -9,1 -9,3 -12,3 8,1 6,9 5,7 9,5 8,4 7,3 11 7,4 3,7 3,7 2,2 0,9 11,8 11 10,9 10,7 7,6 5,1 6,3 9 6,1 5,2 1,4 1,3 7,9 3,8 9,1 7,1 7,2 3,6 0 1 Q 1 0 1 Q 2 0 1 Q 3 0 1 Q 4 0 1 0 2 Y F 1 1 Q 1 1 1 Q 2 1 1 Q 3 1 1 Q 4 1 1 0 2 Source: IA Infoline According to the moderately positive forecast of the Ministry of Economic Development and Trade of Russia, published on September 21, 2011, growth rate of retail turnover in 2011 was expected on the level of 5.3% (in 2012 – 5.5%, in 2012 – 5.3%, 2014 – 5.5%). However, according to the trend of 2011 it exceeded the forecasts and amounted to 7%. Monthly dynamics of the retail turnover in Russia in 2005-2011 is provided in the diagram. Dynamics of retail turnover and monetary base in 2005-2011, bn RUR Retail turnover (in current prices), bn RUR Monetary base (in broad definition), bn RUR 9 000 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 5 0 n a J 5 0 r p A 5 0 l u J 5 0 t c O 6 0 n a J 6 0 r p A 6 0 l u J 6 0 t c O 7 0 n a J 7 0 r p A 7 0 l u J 7 0 t c O 8 0 n a J 8 0 r p A 8 0 l u J 8 0 t c O 9 0 n a J 9 0 r p A 9 0 l u J 9 0 t c O 0 1 n a J 0 1 r p A 0 1 l u J 0 1 t c O 1 1 n a J 1 1 r p A 1 1 l u J 1 1 t c O Source: IA Infoline 2200 2000 1800 1600 1400 1200 1000 800 600 400 28 Dynamics of retail turnover in Russia in 2006-2011 гг. Period Turnover, bn RUR8As a %9 to the corresponding period of the preceding year FY 2006 FY 2007 FY 2008 FY 2009 1Q 2Q 1H 3Q 4Q FY 2010 1Q 2Q 1H 3Q 9M 2011 October 2011 November 2011 December 2011 4Q 2011 FY 2011 8 693.4 10 757.8 13 853.2 14 602.5 3 625.7 3 934.5 7 560.2 4 203.8 4 704.6 16 468.6 4 182.8 4 575.8 8 758.6 4 883.6 13 642.2 1 697.4 1 692.9 2 042.5 5 432.8 19 075 113.9 115.2 113.0 95.1 102.2 106.9 104.6 108.4 107.4 106.3 105.2 106.1 105.7 107.9 106.4 109.0 108.6 109.5 109.1 7.2 Source: date of the Federal State Statistics Service and the Ministry of Economic Development and Trade SSTTRRUUCCTTUURREE OOFF RREETTAAIILL TTUURRNNOOVVEERR BBYY TTYYPPEESS OOFF PPRROODDUUCCTTSS Within the structure of retail turnover non-food group of products demonstrated the highest average annual rate of growth in 2005-2008 and 2010-2011. Long-term dynamics and structure of retail turnover by types of products is presented in the diagram. Retail turnover in 2011 increased by 7.2% compared to 2010 and amounted to 19 075 billion RUR, at that consumption of food products increased by 3.6%, non-food – by 10.7%. Dynamics of retail turnover by types of products in 2005-2011, % 25 20 15 12,8 10 5 0 -5 -10 15,1 14,1 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 6,3 5,1 7,6 7,2 3,6 10,7 2005 2006 2007 2008 2009 -1,3 -1,6 -4,5 -3,6 -8,3 2010 -2,8 2011 Total retail turnover Food products Alcohol drinks Food Non-food Source: IA Infoline In December 2011 positive consumption dynamics was noted, retail turnover in December 2011 increased by 9.5%, consumption of food products increased by 7.8%, non-food – by 11.1%. Note that data of the Federal State Statistics Service for 2009-2011 and preceding years 8 Данные уточнены по итогам обследования Росстатом субъектов малого предпринимательства на апрель 2011 года 9 Dynamics of retail turnover in terms of mass of commodities 29 are not fully compatible as the data for 2002-2008 on food products including beverages was provided by the Federal State Statistics Service without tobacco products but starting from 2009 – with tobacco products. Therefore the graph below provides adjusted data on the share of food products (excluding tobacco products). Dynamics of share of food products in retail turnover in 2005-2011, % 50 49 48 47 46 45 44 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 l u J 6 0 p e S 6 0 v o N 7 0 n a J 7 0 r a 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 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 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 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 1 1 r a M 1 1 y a M 1 1 l u J 1 1 p e S 1 1 v o N M M Share of food products in retail turnover (excl. tobacco products), % Share of food products in retail turnover (incl. tobacco products), % Polynominal (Share of food products in retail turnover (incl. tobacco products), %) M M Source: IA Infoline After the sharp decline in the end of 2008 and in the beginning of 2009 there was a slowdown of the decline of the non-food share in the 2H 2009. In November-December 2009 the trend was broken and the share of food started to grow again and achieved its peak in February 2010. By the beginning of 2011 there was a trend of growth of the share of food products (up to 49.2% in December and 48.7% average for the year), which continued in January and February 2011 (when the maximum was achieved throughout the entire monitoring of this figure – 50%). Since March 2011 due to outstripping growth rates of non food products the share of food products demonstrated the trend to decline approaching the pre-crises level. However, in December 2011 the share of food products amounted to 47.5% and the share of non-food products in the retail turnover in Russia amounted to 52.5% (in December 2010 – 48.8% and 51.2% correspondingly). At that overall in 2011 the share of food products amounted to 47.8% vs. 48.6% for 2010. Structure of retail turnover by groups of products in 2002-201110 Figures Retail turnover food products non-food products share of food products, % share of non-food products, % 2009 2008 2006 2003 2004 2005 2002 2011 2007 3 765 4 530 5 642 7 042 8 712 10 869 13 915 14 603 16 435,8 19 075 9 117.9 1 822 2 164 2 671 3 316 4 061 5 022 9 957.2 1 944 2 365 2 972 3 725 4 651 5 847 47.8 46.2 48.4 52.2 53.8 51.6 7 104 7 499 48.6 51.4 Source: data of the Federal State Statistics Service 8 004.2 8 431.6 48.7 51.3 6 510 7 405 46.8 53.2 47.8 52.2 47.3 52.7 47.1 52.9 46.6 53.4 2010 10 For comparison with 2009-2011 data on the turnover and the share of food products in 2002-2008 are adjusted for tobacco products 30 Structure of retail turnover by groups of products in 201111 Figure I 2011 II 2011 III 2011IV 2011V 2011 VI 2011VII 2011VIII 2011IX 2011X 2011 XI 2011XII 2011 1 362.11 356.0 1 464.7 1 490.6 1 532.4 1 552.8 1 594.2 1 648.2 1 641.2 1 697.4 1 692.9 2 042.5 Retail turnover 769.7 796.1 795.7 970.2 672.9 673.9 716.2 722.9 740.1 743.8 762.0 food products 871.5 901.3 897.2 1 072.3 689.2 682.1 748.5 767.7 792.3 809.0 832.2 non-food products 46.9 47.8 48.5 share of food products, % 49.4 49.7 53.1 52.2 51.5 share of non-food products, % 50.6 50.3 774.7 873.5 47.0 53.0 48.9 51.1 47.9 52.1 47.0 53.0 46.9 53.1 47.5 52.5 48.3 51.7 Source: data of the Federal State Statistics Service SSTTRRUUCCTTUURREE OOFF RREETTAAIILL TTUURRNNOOVVEERR BBYY TTYYPPEESS OOFF OORRGGAANNIIZZAATTIIOONNSS Within the structure of retail turnover by types of organizations in 2011 the trend of decline of the share of open markets (by 1 percentage point) and individual entrepreneurs (by 0.8 percentage point) continued. At the same time the share of large and mid organizations (mostly these are retail networks) increased by 1.4 percentage points and the share of small enterprises – by 0.4 p.p. Dynamics of the structure of retail turnover in Russia by types of organizations is presented in the diagram. Structure of formation of retail turnover in 2006-2011 by types of organizations, % 100% 80% 60% 40% 20% 0% 32,7 22,3 25,3 19,5 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 36,5 25,1 25,9 12,5 2010 37,9 25,5 25,1 11,5 2011 Open markets Individual entrepreneurs Small enterprises Large and mid enterprises Source: IA Infoline In December 2011 88.9% of retail turnover was formed by trading organizations and individual entrepreneurs operating not on the open markets, the share of retail markets and fairs amounted to 11.1% (in December 2011 – 87.8% and 12.2% correspondingly). In December 2011 compared to November 2010 turnover of trading organizations increased by 10.9% and sales of the open markets decreased by 0.8. Compared to November 2011 trading organizations demonstrated turnover growth by 21.0% while sales of the open markets grew by 12.9%. Overall in 2011 88.5% of retail turnover was formed by trading organizations and individual entrepreneurs operating not on the open markets and the share of retail markets and fairs amounted to 11.5% (in 2010 – 87.5% and 12.5% correspondingly). In 2011 vs. 2010 turnover of trading organizations increased by 8.4% while sales of the open markets declined by 1.1%. 11 For comparison with 2009-2011 data on the turnover and the share of food products in 2002-2008 are adjusted for tobacco products 31 Turnover of trading organizations and open markets in 2002-2010, bn RUR. 2010 Figure 2009 Retail turnover turnover of trading organizations sales of open markets share of trading organizations, % share of open markets, % 2008 2007 2006 2003 4 529 2004 5 642 2005 7 038 8 690 10 866.2 13 853.2 14 602.5 16 453.8 2011 2002 3 765 19 075 2 838.8 3 451.1 4 420.5 5 558.2 6 987 9 214.5 12 015.9 12 610.3 14 364.2 16 881.4 2 193.6 926.2 1 077.9 1 254.1 1 479.8 1 703 1 651.7 88.5 75.4 11.5 24.6 79.0 21.0 Source: data of the Federal State Statistics Service 1 992.2 86.4 13.6 2 089.6 87.3 12.7 1 837.3 86.7 13.3 80.4 19.6 77.9 22.1 76.2 23.8 84.8 15.2 Turnover of trading organizations and open markets in 2011, bn RUR Retail turnover Figure I 2011 II 2011 III 2011 IV 2011 V 2011 VI 2011 VII 2011 VIII 2011 IX 2011 X 2011 XI 2011 XII 2011 1 362.1 1 356.0 1 464.7 1 490.6 1 532.4 1 552.8 1 594.2 1 648.2 1 641.2 1 697.4 1 692.9 2 042.5 turnover of trading organizations 1 187.8 1 186.5 1 294.8 1 320.7 1 360.8 1 378.9 1 415.6 1 462.0 1 450.8 1 500.5 1 493.1 1 815.8 226.7 sales of open markets 88.9 share of trading organizations, % 11.1 share of open markets, % 174.3 169.5 169.9 169.9 171.6 173.9 88.8 87.2 11.2 12.8 190.4 196.9 199.8 88.2 88.4 88.4 11.8 11.6 11.6 88.8 11.2 Source: data of the Federal State Statistics Service 178.6 88.8 11.2 186.2 88.7 11.3 88.4 11.6 87.5 12.5 88.6 11.4 During 2011 citizens purchased 9% of food products on retail markets and fairs, their non-food sales form more than 14% of turnover. The role of open markets is still significant in provision of consumers with meat, fruits and vegetables, clothes, shoes, stockings, flooring, carpets. At that weight of open markets in the total sales of audio and video equipment, household electronics does not exceed 4%. Note that continuing decrease of the markets share in retail turnover is conditioned by the decline of their competitiveness and accompanied by the reduction of their number and the total number of market slots (at the same time the level of use of market slots is almost unchanged). Decline of competitiveness of retail markets is explained by the improvement of the product mix quality in the fresh category in retail chains as well as by the fact that the dynamics of prices on food sold on retail markets is generally repeating the trend of change of consumer prices on the peer food products sold in all retail formats overall while the level of prices on the most part of food products sold at open markets exceeded the level of retail chains. The main reason of the reduction of the number of the retail markets is their gradual transformation in the shopping centers (roofed shopping rows). Thus in 2004-2009 the decline of the share of open markets in the retail turnover was accompanied by the reduction of their number (the most active reduction was in 2007 and 1Q 2008 following which the situation stabilized) due to liquidation or conversion in shopping centers. As of January 1, 2012 there were 3,159 retail markets functioning on the territory of the Russian Federation During 2011 268 markets were closed or converted to shopping centers including 186 versatile markets, 21 specialized food markets, 38 merchandize markets, 1 agricultural market, 3 DIY markets and 10 markets of the other specialization. The number of market slots on the open markets as of January 1, 2012 amounted to 896.3 thousand. Compared to January 1, 2011 their number reduced by 64.8 thousand or 6.7%. At that as of January 1, 2012 there were 283.7 slots per 1 market on average. Versatile markets amount to 73.2% of the total number of markets (as of January 1, 2011 – 72.9%), merchandize markets – 8.8% (9.2%), agricultural and agricultural cooperative markets – 7.9% (7.3%), food markets – 4.2% (4.5%), DIY markets – 2.1% (2.0%), radio and electrical household appliances – 0.1% (0.1%), markets of the other specialization – 3.7% (4.0%). The level of actual use of the market slots as of January 1, 2012 amounted to 72.4% average for the Russian Federation vs. 73.7% y-o-y. Main economic entities are still individual entrepreneurs. As of January 1, 2012 entrepreneurs rented 696.7 thousand market slots or 77.8% of their total number. The level of their use amounted to 76.2% y-o-y (as of January 1, 2011 – 77.5%). 32 RREEGGIIOONNAALL SSTTRRUUCCTTUURREE OOFF RREETTAAIILL TTUURRNNOOVVEERR Regional structure of retail turnover in Russia is uneven: 11 territorial subjects generated 51.79% of retail turnover in 2011 (Moscow, Moscow region, Saint-Petersburg, Sverdlovsk region, Krasnodar region, Samara region, Republics of Tatarstan and Bashkortostan, Tyumen region, Chelyabinsk and Rostov regions). Structure of retail turnover by federal districts of the Russian Federation in 2011, % Southern 9,0% North-Caucasian 5,0% Volga 18,1% North-Western 9,3% Central 34,3% Far-Eastern 3,9% Urals 9,6% Siberian 10,8% Structure of retail turnover by subject of the Russian federation in 2011, % Krasnodar region 6,4% Tyumen region 6,0% Rebublic of Tatarstan 2,6% Rostov region 3,3% Sverdlovk region 6,2% Saint-Petersburg 7,2% Samara region 1,4% Rebublic of Bashkortostan 1,8% Chelyabinsk region 1,3% Other 28,8% Moscow region 12,1% Moscow 22,9% Source: IA Infoline The share of the other regions (apart from the largest 11) increased in 2003-2009 and in 2010 for the first time in 10 years there was a decline conditioned by faster than average in Russia recovery of consumer demand in Moscow, Sverdlovsk region and Republics of Bashkortostan and Tatarstan. In 2011 the share of the other regions resumed its grow and amounted to 48.21%. Dynamics of share of 69 regions of the Russian Federation (apart from 11 largest) in retail turnover in 2003-2011, % 47,1% 46,6% 47,8% 47,4% 48,2% 44,7% 45,1% 45,4% 45,7% 49% 48% 47% 46% 45% 44% 43% 42% 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: IA Infoline In 2011 Central federal district, Moscow region in particular, North-Caucasian and Siberian federal districts demonstrated the most dynamic growth rate of the share of retail turnover while retail turnover in the most of the regions in 2011 demonstrated decline – North- Western, Southern, Volga, Urals and Far-Eastern federal districts. Region Regional structure of retail turnover of the Russian Federation in 2003-2011, % 2010 34.10 6.15 17.54 9.40 4.23 9.07 4.79 18.11 9.96 10.59 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 2006 35.8 5.7 20.9 9.4 4.1 8.0 3.6 17.5 10.0 11.7 2007 34.7 6.1 19.0 9.4 4.1 8.5 3.8 17.9 10.4 11.5 2003 39.2 4.3 26.0 9.1 3.6 7.7 3.0 16.7 8.4 11.7 2004 38.4 5.1 24.3 9.3 3.8 7.8 3.4 16.7 8.7 11.6 2005 36.9 5.3 22.5 9.5 4.0 7.9 3.7 16.9 9.3 11.7 2008 33.5 6.4 17.1 9.2 4.1 8.8 4.0 18.4 10.8 11.6 2009 33.7 6.1 17.3 9.4 4.2 8.7 4.6 18.3 10.3 10.9 2011 34.33 6.22 17.42 9.30 4.01 9.00 5.01 18.09 9.63 10.78 33 Far-Eastern federal district Region 2003 4.2 2004 4.1 2005 4.1 2006 4.1 2007 3.9 2008 3.7 2009 4.1 2010 3.99 2011 3.86 Source: data of the Federal State Statistics Service In 2011 there were no regions to demonstrate the highest decline of the retail turnover volumes (more than 5%) compared to January- November 2011 among largest regions (the share of the retail turnover in the Russian Federation is above 1%) as well as the decline within the range of 5%. The highest growth (more than 12%) was demonstrated by Voronezh region (17.4%), Omsk region (15.5%), Altai Territory (13%) and Sverdlovsk region (12%). Growth of retail turnover by districts in 2007 - 2011, % Y-o-Y, in comparable prices 111,7 110,8 108 106,3 114,5 110,3 105,4 105,6 109,4 106,9 109,4 109,7 105,2 95,2 92,8 94 125 120 115 110 105 100 95 90 85 80 117,7 115,2 120,1 118,1 106,2 104,9 106,3 102,5 94,9 92,3 2007 2008 2009 2010 2011 113,9 111,5 110,3 109,5 107,9 102,4 104,7 104,4 100,2 89,3 Central North-Western Southern North-Caucasian Volga Urals Siberian Far-Eastern Source: IA Infoline In 2001-2008 in most of the regions there was dynamic growth of retail turnover expressed in physical terms after which dynamics appeared to be negative during 10 months (from March to December 2009). At that from November 2009 the number of regions, where retail turnover is growing, started to increase again and achieved its maximum (76) in August 2010. However there was a decline from September and it amounted to 64 in October 2010 (down to the level of March 2010, i.e. the crisis period in economy), it increased immaterially in November to 68 regions and sharply declined to 60 regions in December, in February 2011 it increased to 67 regions and then in March 2011 it reduced to 64, in April 2011 it increased to 67, in July 2011 - to 73, in August 2011 – to 71, in September – to 76, in October 2011 it reduced to 74 and in November and December 2011 – to 73. Overall in 2011 there was a y-o-y decline of turnover in 7 regions.12 Number of regions with positive dynamics of retail turnover in physical terms, Y-o-Y 80 70 60 50 40 30 20 10 0 Feb06 M ay06 A ug06 N ov06 Feb07 M ay07 A ug07 N ov07 Feb08 M ay08 A ug08 N ov08 Feb09 M ay09 A ug09 N ov09 Feb10 M ay10 A ug10 N ov10 Feb11 M ay11 A ug11 N ov11 Source: IA Infoline 12 80 subjects of the Russian Federation were included in the analysis (excluding Khanty-Mansiisk Autonomous District, Yamal- Nenets and Nenets Autonomous Area), which existed as of June 1, 2011 (data for 2006-2009 are adjusted for consolidation). 34 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 CCOOMMPPEETTIITTOORRSS1133 The concentration level of the Russian food retail market is quite low – the share of 3 largest players makes up about 10% 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 As at 31 December 2011, X5 had 3,002 company-operated stores. It has the leading market position in both Moscow and St. Petesrburg and a significant presence in the European part of Russia. Its store base includes 2,525 soft discounters, 330 supermarkets, 77 hypermarkets and 70 convenience stores. The company operates 29 distribution centers across the Russian Federation. As at 31 December 2011, X5’s franchisees operated 658 stores across Russia. 13 Source: IA Infoline, public sources of companies. 35 For the full year 2011, net sales totaled USD 15,455 mln, EBITDA reached USD 1,130 mln, and net profit amounted to USD 302 mln. METRO Cash & Carry Metro Cash and Carry is the largest operating company of cash & carry international business format (wholesale) of Metro Group. The holding is represented in 33 countries of the world with 2,200 stores. As of January 1, 2012 "Metro Cash & Carry" LLC operates 62 trading centers in 41 regions of Russia. Total selling space of the company as of December 1, 2011 amounted to 523.5 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 rate not only in Russia but in the other countries too. Four trading centers were opened in 2009 in Russia (Bryansk, Zheleznodorozhny, Kirov, Novosibirsk). In 2011 the company opened 7 Metro C&C hypermarkets in Kemerovo region, Chelyabinsk region, Altai territory, Republic of Udmurtia, Tatarstan and Chuvash Republic, as well as in Smolensk region. Sales of METRO Cash & Carry, Russia for 2011 amounted to 3.4 billion euro (which represents growth of 17% compared to 2010). Auchan Auchan is a large hypermarket chain operating on the Russian market since 2002. As of January 1, 2012 Auchan in Russia operated 49 trading objects (including 1 in reconstruction). 33 “Auchan” hypermarkets were opened in 14 regions (14 - in Moscow and Moscow region, 4 – in St. Petersburg, 2 – in Rostov-on-Don, Novosibirsk, Samara, 1 in Adygeya, Krasnodar, Ekaterinburg, Nizhniy Novgorod, Omsk, Voronezh, Ufa, Kazan and Chelyabinsk). Also Auchan operates 14 “Auchan-city” mini-hypermarkets (that were opened as a result of rebranding of hypermarkets of “Ramstore” chain) in Moscow (8 stores), Ekaterinburg (1), Moscow region (2), Novosibirsk (1) and St. Petersburg (2). 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 January 1, 2012 amounted to more than 497 thousand sq. m. In 2011 the number of trading objects of the chain increased by five hypermarkets in the Republics of Bashkortostan (Ufa) and Tatarstan (Kazan), Novosibirsk, Samara and Chelyabinsk regions. According to LLC “Auchan” management accounts, sales of the company for nine months of 2011 amounted to 142.69 billion rubles, net profit for the reporting period amounted to 5.7 billion rubles. The management of Auchan Group of Companies plans to achieve annual sales of 100 billion euro by 2018, at that, 2010 sales of Auchan chain in the world amounted to 42.5 billion euro. Dixy “Dixy” Group of Companies is one of Russia's leading retailers of foods and everyday products. The company specializes in developing neighborhood store supermarkets in Moscow, St. Petersburg and three federal districts of Russia: Central, Northwest and Urals and also in Kaliningrad region, which together account for more than half of the retail market for foods and everyday products in the Russian Federation. As of December 31, 2011 the company operated 1,119 stores, including: 868 “Dixy” neighborhood stores, 201 neighborhood stores under the “Kvartal”, “Deshevo”, “Semeynaya Kopilka” brands, 23 “Victoria” supermarkets, 18 “MEGAMART” compact hypermarkets, 8 “MINIMART” economic supermarkets and 1 36 “CASH” (“cash&carry”) store. The company is the third largest in terms of the amount of sales, selling space and the number of stores among the national retailers operating in the food segment. The total number of employees of the company exceeds 33 thousand. Net selling space of the Group as of December 31, 2011 amounted to 405,066 sq. m. In 2010 total sales of “Dixy” Group of Companies amounted to 64.7 billion rubles, “Victoria” Group of Companies - 34 billion rubles. Lenta “Lenta” company operating the hypermarket chain of the same name was founded in 1993. As of January 1, 2012 "Lenta" hypermarkets located in Saint-Petersburg, Nizhny Novgorod, Novosibirsk, Tyumen, Krasnodar, Volgograd, Veliky Novgorod, Petrozavodsk, Astrakhan, Togliatti, Naberezhnye Chelny, Barnaul, Penza and Saratov, Omsk, Novorossiysk, Tver and Rostov region. Total selling space of the chain as of January, 1 2012 amounted to 292.25 thousand sq. m. In 2011 three “Lenta” hypermarkets were opened in Volgograd, Novosibirsk and Tver regions. The company has about 14 thousand employees. More than 3.5 persons throughout Russia are holders of loyal customer cards of the chain. 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. 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 January 1, 2012 "O'KEY" chain operated 71 stores in Russia: 17 hypermarkets and 18 supermarkets in Saint-Petersburg and Leningrad region, 2 hypermarkets and 3 supermarkets 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 2 supermarkets in Volgograd, 1 hypermarket in Stavropol, Togliatti, Nizhniy Novgorod, Ufa, Lipetsk, Voronezh, Novosibirsk, Volzhsk, Omsk and Saratov, 2 hypermarkets and 1 supermarket in Astrakhan, 2 hypermarkets and 1 supermarket in Krasnoyarsk, as well as 1 supermarket in Novocherkassk. As of January 1, 2012 total selling space of "O'KEY" chain amounted to about 346 thousand sq. m. In 2011 one hypermarket in Saint-Petersburg was closed for reconstruction (after the collapse of the roof) and was reopened after it, the company opened 7 "O'KEY - Express" supermarkets in Saint-Petersburg, Kolpino, Leningrad region, Lyubertsy and 7 "O'KEY" hypermarkets in Novosibirsk, Saint-Petersburg, Omsk, Astrakhan, Saratov and Moscow region. Unaudited sales of “О'KEY” chain at the end of 2011 amounted to 92.212 billion rubles, having increased by 12.9% compared to 81.688 billion rubles for 2010. In 2011 like-for-like amounted to 5.3% compared to 7.7% for 2010. Average ticket amounted to 5.5% compared to 3.3% for 2010. Traffic for 2011 decreased to 0.2% compared to 4.3% for 2010. 37 Number of stores of the largest FMCG retailers in 2007-2011, eop. Legal name Brand X5 Retail Group N.V. ”Magnit”,OJSC Pyaterochka Perekrestok Karusel Perekrestok-Express, CityMag Kopeyka Magnit Magnit Hypermarket Magnit Cosmetic Auchan, Auchan-City, Nasha Raduga Metro C&C “Auchan”, company limited “МЕТRО Cash and Carry”, company limited “O'key”, company limited O'key, O'key-express “Lenta”, company limited Lenta “Dixy-group”, OJSC “Victoria” Group of Companies, OJSC Megamart, Minimart, Dixy Victoria, Cash, Deshevo, Kvartal, Semeynaya Kopilka Main formats14 D S H CS CS, S D H C H H S, H H D, S, H 2007 674 194 22 0 438 2194 3 0 18 39 24 26 388 2008 848 207 46 0 517 2568 14 0 33 48 37 34 493 2009 2010 2011 1039 1392 1918 301 321 275 71 58 77 70 45 0 587 657 616 3204 4004 5006 93 51 24 210 2 0 38 44 49 52 57 62 46 36 537 71 57 39 42 646 894 CS, S, H, D 194 215 208 258 225 Total selling space of FMCG retailers in Russia in 2007-2011, eop, thousand sq. m. Legal name Brand X5 Retail Group N.V. ”Magnit”,OJSC Pyaterochka Perekrestok Karusel Perekrestok-Express, CityMag Kopeyka, Kopeyka-Super Magnit Magnit Hypermarket Magnit Cosmetic Metro C&C Auchan, Auchan-City, Raduga “Auchan”, company limited “МЕТRО Cash and Carry”, company limited “O'key”, company limited Lenta “Lenta”, company limited Megamart, Minimart, Dixy “Dixy-group”, OJSC “Victoria” Group of Companies, OJSC Victoria, Cash, Deshevo, Kvartal, Semeynaya Kopilka Lenta Main formats D S H CS CS, S D H C 2007 357,5 251,7 126 - - 640,1 11,6 0 2008 419,2 222,4 232,5 - - 767,1 56,4 0 2009 493 284,4 285,6 - - 978,5 81,4 0 2011 2010 735,2 586,3 333,89 313,0 371,3 351,8 12,7 9,2 296,0 274,2 1256,8 1637,8 282,2 165,1 50,1 0,4 H H S, H H Д, S, H CS, S, H 250,6 340,1 386,6 451,3 497,0 351,5 430,4 466,3 502 538,5 149,2 177,0 191,7 232,7 232,7 247,4 287,4 268,3 346,0 292,3 148,8 191 206 227,9 286,7 99,8 109,7 104,6 121,3 118,4 Dynamics of net sales (excluding VAT) of the largest FMCG retailers in 2007-2011, billion RUR Legal name Brand Main formats Data Pyaterochka Perekrestok Karusel, Pyaterochka-Maxi Perekrestok-Express Kopeyka, Kopeyka-Super D S H CS D, S IFRS, 2011 – unaudited accounts X5 Retail Group N.V. 2008 2009 2010 2011 2007 75,38 110,95 148,35 188,28 230,42 98,69 49,75 67,15 73,19 66,63 31,16 41,71 53,55 2,99 – 53,52 – 34,940 51,60 56,15 83,13 61,12 1,86 61,21 – Pyaterochka, Perekrestok, Karusel, Pyaterochka-Maxi, Perekrestok- Express, Kopeyka CS, D, S, H ”Magnit”,OJSC “Auchan”, company limited “МЕТRО Cash and Carry”, company limited Magnit Auchan, Auchan-City, Nasha Raduga Metro C&C “O'key”, company limited O'key, O'key-express D, H H H S, H IFRS (2010 – incl. Kopeyka stores), 2011 – unaudited accounts IFRS 136,10 207,20 275,08 342,58 452,48 94,04 132,4 169,86 236,14 335,70 RAS 90,6 128,1 158,36 178,1 IFRS 89,2 111,2 114,30 117,99 - - IFRS, 2011 – unaudited accounts 30,533 51,14 67,88 82,67 92,21 14 Key: D - Discounter, H - Hypermarket, S - Supermarket, CS - Convenience Store, C – Cosmetics Store 38 Legal name Brand Main formats Data 2007 2008 2009 2010 32,9 50,8 55,60 70,60 2011 - “Lenta”, company limited Lenta H Megamart, Minimart, Dixy, Victoria, Cash, Deshevo, Kvartal CS, D, S, H “Dixy-group”, OJSC Dixy Megamart Minimart V-mart marketing D H S CS - Victoria, Cash, Deshevo, Kvartal CS, S, H MA IFRS, 2011 – consolidation with “Victoria” Group of Companies IFRS, 2011 – неаудированная отчетность RAS (“Victoria” Group of Companies) 2011 – pro forma “Dixy” Group of Companies 36,65 48,3 54,26 64,80 102,23 32,25 40,65 45,13 6,32 5 2,00 2 0,07 0,24 0,74 0,49 3,2 1,2 0 0 54,39 7,26 2,18 0,00 0,90 68,9 8,52 2,43 0,00 1,28 26,5 31,9 32,89 36,80 40,63 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 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 – 2011 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” is the largest retailer 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 reflects 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 39 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. 40 1100.. PPRRIIOORRIITTYY AARREEAASS OOFF TTHHEE CCOOMMPPAANNYY’’SS OOPPEERRAATTIIOONNSS 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, 2011 the chain consisted of 5,309 stores: 5,006 convenience stores, 93 hypermarkets and 210 cosmetics stores in 1,389 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 2011 stores located in the Southern Federal district accounted for 1,289, in the Volga region – 1,662, North-Caucasian – 302, Central – 1,270, North-Western – 348, the number of stores in the Urals and Siberian regions amounted to 372 and 57 correspondingly. North-Western: 320 convenience stores 5 hypermarkets 23 cosmetics stores 1 distribution center Central: 1,204 convenience stores 16 hypermarkets 50 cosmetics stores 4 distribution centers Southern: 1,198 convenience stores 38 hypermarkets 62 cosmetics stores 3 distribution centers Volga: 1,580 convenience stores 26 hypermarkets 56 cosmetics stores 5 distribution centers North-Caucasian: 289 convenience stores 6 hypermarkets 7 cosmetics stores Urals: 359 convenience stores 2 hypermarkets 11 cosmetics stores 1 distribution center Siberian: 56 convenience stores 1 cosmetics store As of December 31, 2011 the Company operates in-house logistics system consisting of 14 modern distribution centers (DCs): three of them are located in the Southern Federal district (Kropotkin, Bataysk and Slavyansk-On-Kuban), five are in the Volga Federal district (Engels, Togliatti, Erzovka, Dzerzhinsk, Izhevsk), another four DCs are based in the Central Federal district (Tver, Oryol, Ivanovo and Tambov), , one in the Urals Federal district (Chelyabinsk) and one in the North-Western Federal district (Veliky Novgorod). 41 City Federal District Warehousing space, sq. m. Number of serviced stores % of total DC turnover Bataysk Southern 17,407 Kropotkin Southern 30,048 Slavyansk-on- Kuban Engels Togliatti Erzovka (Volgograd) Dzerzhinsk Izhevsk Tver Oryol Tambov Ivanovo Southern 20,496 Volga Volga Volga Volga Volga 19,495 19,157 26,074 30,523 23,988 Central 13,136 Central 14,326 Central 26,733 Central 43,365 Veliky Novgorod North-Western 21,060 Chelyabinsk Urals 17,623 432 509 313 336 516 307 358 382 231 360 340 505 219 501 Total 323,431 5 309 8.42% 8.47% 8.78% 5.70% 8.65% 8.49% 6.60% 1.69% 4.82% 8.28% 6.79% 9.99% 4.82% 8.50% 100% The Company operates automated stock replenishment system and a fleet of 3,906 vehicles. 42 1111.. PPRRIIOORRIITTYY DDIIRREECCTTIIOONNSS OOFF TTHHEE CCOOMMPPAANNYY’’SS DDEEVVEELLOOPPMMEENNTT The Company marks out the following mid-term development trends: • Further expansion of the chain by increasing the density of coverage of the key markets as well as organic expansion in the least developed regions of Russia; • Development of through active the multi-format business-model implementation of the hypermarket format and continuing development of cosmetics stores; • Building of the high level loyalty of the key audience to the brand • Implementation of additional measures to minimize costs and improve profitability; Chain expansion In the nearest 2-3 years the Company plans to keep high pace of business growth with the annual number of openings of not less than 500 convenience stores and not less than 400 cosmetics stores in the cities with the population from 5,000 people and about 50 hypermarkets in the cities with the population from 50,000 people. The key territories of presence for the Company are Southern, Volga and Central regions, it is planned to increase the number of stores in Urals and Siberia regions. In the long-term outlook the management of the chain does not exclude the opportunity of entering the market of the Far East. Development of the multi-format model Currently the Company is actively expanding into three formats: “convenience store”, hypermarket and a new format – “cosmetics store” (drogerie). In contrast to “traditional” formats, stores under “Magnit Cosmetic” brand offer non-food assortment: hygiene items, household chemicals, cosmetics and perfumery. 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 in the city (within the city boundaries) and targets people living within the radius of 7 km. 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); 43 “large” with the selling space of over 5,000 sq. m.; (excluding rental space). Strategic development of the hypermarket format will enable to conduct deeper segmentation of the existing markets and consider population with different income as potential customers on the back of high turnover per store and average ticket as well as fast pace of business growth. The Group has also started to study a new segment of the etail 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. There were 208 cosmetics stores opened in 2011. Pricing policy of the Company allows it to compete with open markets considering customers with income below average as the target audience. Brand recognition and customer loyalty The Company management takes measures to adjust its formats to changing customers’ preferences. In the regions with the highest purchasing power the work is carried out with the traditional assortment of the convenience store 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 is carried out to study the customers’ preferences to adjust marketing program 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 its stores through corresponding work with its employees. Minimization of expenses The main drivers of successful development in the above direction are further improvement of the logistics processes and investments in the IT system which will provide the Company with maximum effective stock transport flow management systems, and will contribute to its transformation into the leader in terms of cost control. Active introduction of private label products to the assortment is in place to increase Company’s profitability. The status of Russia’s leading chain in terms of number of stores and customers supports the Company’s efficient cooperation with suppliers and achievement of most favorable purchasing terms. Development of direct import, first of all direct import of fresh fruits and vegetables, will also contribute to minimization of logistics costs. 44 1122.. IINNFFOORRMMAATTIIOONN OONN TTHHEE PPAAIIDD DDIIVVIIDDEENNDDSS It was resolved by the annual general shareholders’ meeting of June 23, 2011 (minutes of 23.06.2011) to pay dividends on ordinary nominal shares of OJSC “Magnit” following the results of 2010 financial year and the 1st quarter of 2011 financial year. Information on the paid dividends: Dividend period: 2010 year. Amount of announced (accrued) dividends on shares of the category (type) per share, RUB: - the dividend amount accrued on one ordinary registered share, following the results of 2010 financial year - 6.57 rubles. Total amount of announced (accrued) dividends on all shares of the category, RUB: - total amount of announced (accrued) dividends following the results of 2010 financial year on all shares of the category: 584,566,229.61 rubles. Dividend period: 1st quarter of 2011 year. Amount of announced (accrued) dividends on shares of the category (type) per share, RUB: - the dividend amount accrued on one ordinary registered share, following the results of the 1st quarter of 2011 financial year - 4.67 rubles. Total amount of announced (accrued) dividends on all shares of the category, RUB: - total amount of announced (accrued) dividends following the results of the 1st quarter of 2011 financial year on all shares of the category - 415,513,590.91 rubles. Total amount of the dividends paid on all issuer’s shares of the category, RUB: 999,549,168.88. The dividends payment was effected in money terms with the assistance of the Registrar of the Company, OJSC “United registration Company” (19 Leninskaya Sloboda 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. 45 1133.. SSEECCUURRIITTIIEESS AAUUTTHHOORRIIZZEEDD CCAAPPIITTAALL SSTTOOCCKK The authorized capital stock of the Company determines the minimum amount of assets that guarantees its creditors’ interests. As of December 31, 2011 authorized capital stock of the open joint-stock company “Magnit” amounts to 945,613.55 rubles. It consists of 94,561,355 ordinary registered uncertified shares with the nominal value of 0.01 rubles. The Company is entitled to offer additional ordinary registered shares in the amount of 106,288,645 with the nominal value of 0.01 rubles (authorized shares). Information on the listed shares of OJSC “Magnit” as of 31.12.2011: Description of security Number of state registration Date of state registration Nominal, RUR. Total number of securities Ordinary registered uncertified shares 1-01-60525-Р 04.03.2004 0.01 88,975,073 Ordinary registered uncertified shares 1-01-60525-Р- 006D 10.11.2011 0.01 5,586,282 Total: 94,561,355 Structure of OJSC “Magnit” share capital as of 31.12.2011: Number of registered persons Name Share in the charter capital, % Legal entities including nominal holders Individuals Total: 10 9 14 24 57.76 57.76 42.24 100 Information on OJSC “Magnit” outstanding shares listed outside the Russian Federation in accordance with the foreign law of securities of foreign issuers certifying rights in respect of the above shares of the Company: Category (type) of shares outstanding outside the Russian Federation: ordinary registered shares; Percentage of shares outstanding outside the Russian Federation as a % of the total number of shares of the corresponding category (type): 28.75%; name, address of the foreign issuer which securities certify the rights in respect of the shares of the Company of the corresponding category (type): JP Morgan Chase Bank, N. A., 4 New York Plaza, 13th Floor, New York, 10004 New York United States of America); short description of the program (type of the program) of the securities issue of the foreign issuer certifying the rights in respect of the shares of the corresponding category (type): in accordance with foreign law JPMorgan Chase Bank, N. A. issued securities (global depositary 46 receipts, “GDRs”) certifying the rights in respect of the ordinary registered shares of OJSC “Magnit”; information on obtaining a permit of the federal executive body for the securities market to list the issuer’s shares of the corresponding category (type) outside the Russian Federation (if applicable): - in accordance with the order of FFMS of Russia of March 27, 2008 № 08-661/pz-i offering and listing outside the Russian Federation of ordinary registered 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 registered 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 the Russian Federation of ordinary registered 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 registered uncertified shares is permitted; name of the foreign trade organizer (trade organizers) through which securities of the foreign issuer certifying the rights in respect of 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”. 47 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 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. 48 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. 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. The eighth coupon yield of 02 series bond issue was paid on March 25, 2011. 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 ninth coupon yield of 02 series bond issue was paid on September 23, 2011. 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 11.01.2011 to 30.12.2011 the weighted average price of transactions with bonds of 02 series varied from min 96.80 % (05.10.11) to max 102.00 % (18.03.11) of the nominal value. Acknowledgeable quotation within this period fluctuated from min 96.80% (05.10.11) to max 101.86% (22.04.11). 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 № 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 49 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 RU000A0JR118 RU000A0JR118 8.25 % 8.25 % 8.25 % 8.25 % 8.25 % 8.25 % 8.25 % 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. The second coupon yield of BO-01 series Exchange-traded bond issue was paid on September 12, 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 11.01.2011 to 30.12.2011 the weighted average price of transactions with Exchange-traded bonds of BO-01 series varied from min 99.00 % (10.10.11) to max 102.65 % (04.08.11) of the nominal value. Acknowledgeable quotation within this period fluctuated from min 99.93% (22.11.11) to max 101.45% (01.04.11). 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 50 № 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 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 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. The second coupon yield of BO-02 series Exchange-traded bond issue was paid on September 12, 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 11.01.2011 to 30.12.2011 the weighted average price of transactions with Exchange-traded bonds of BO-02 series varied from min 99.30% (15.12.2011) to max 102.60% (04.08.2011) of the nominal value. Acknowledgeable quotation within this period fluctuated from min 100.34% (27.01.2011-03.02.2011) to max 101.32% (31.03.2011 - 13.04.2011). 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 № 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 51 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 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. The second coupon yield of BO-03 series Exchange-traded bond issue was paid on September 12, 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 11.01.2011 to 30.12.2011 the weighted average price of transactions with Exchange-traded bonds of BO-03 series varied from min 99.00 % (28.09.2011 and 10.10.2011) to max 102.60% (04.08.2011) of the nominal value. There was no acknowledgeable quotation within this period. 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 52 № 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 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 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. The second coupon yield of BO-04 series Exchange-traded bond issue was paid on September 12, 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 11.01.2011 to 30.12.2011 the weighted average price of transactions with Exchange-traded bonds of BO-04 series varied from min 97.00 % (30.12.11) to max 102.48 % (03.08.11) of the nominal value. Acknowledgeable quotation within this period fluctuated from min 99.68% (29.12.11 and 30.12.11) to max 102.26% (15.06.2011). Bond issue of OJSC “Magnit” of BO-05 series: In 2011 the Company offered its investors the fifth Exchange-traded bond issue. Issue included 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-05 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-05 series with the obligatory centralized deposit of OJSC “Magnit” on the MICEX stock exchange commenced on March 4, 2011. The number of the placed securities amounted to 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-05 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 № 4B02-05-60525-P of February 16, 2011 5,000,000,000 rubles 5,000,000 bonds 1,000 rubles 100% of nominal value 04.03.2011 open subscription 1,092 day from the date of placement (28.02.2014) 6 RU000A0JR9N3 RU000A0JR9N3 53 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 8.00 % 8.00 % 8.00 % 8.00 % 8.00 % 8.00 % 8.00 % The first coupon yield of BO-05 series Exchange-traded bond issue was paid on September 2, 2011. The total amount of yield paid on the second coupon amounted to 199.45 million rubles, the amount of yield of the second coupon paid per one bond amounted to 39.89 rubles. Based on trading for the period from 11.01.2011 to 30.12.2011 the weighted average price of transactions with Exchange-traded bonds of BO-05 series varied from min 94.38 % (30.12.11) to max 110.00 % (30.11.11) of the nominal value. Acknowledgeable quotation within this period fluctuated from min 98.48% (02.12.11) to max 101.7% (08.06.2011). Bond issue of OJSC “Magnit” of BO-06 series: In 2011 the Company offered its investors the fourth Exchange-traded bond issue. Issue included 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-06 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-06 series with the obligatory centralized deposit of OJSC “Magnit” on the MICEX stock exchange commenced on April 26, 2011. The number of the placed securities amounted to 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-06 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 № 4B02-06-60525-P of February 16, 2011 5,000,000,000 rubles 5,000,000 bonds 1,000 rubles 100% of nominal value 26.04.2011 open subscription 1,092 day from the date of placement (22.04.2014) 6 RU000A0JRFQ4 RU000A0JRFQ4 7.75 % 7.75 % 7.75 % 54 3 coupon interest rate 4 coupon interest rate 5 coupon interest rate 6 coupon interest rate 7.75 % 7.75 % 7.75 % 7.75 % The first coupon yield of BO-06 series Exchange-traded bond issue was paid on October 25, 2011. The total amount of yield paid on the second coupon amounted to 193.2 million rubles, the amount of yield of the second coupon paid per one bond amounted to 38.64 rubles. Based on trading for the period from 11.01.2011 to 30.12.2011 the weighted average price of transactions with Exchange-traded bonds of BO-06 series varied from min 94.98 % (25.10.11) to max 102.90 % (19.09.11) of the nominal value. Acknowledgeable quotation within this period fluctuated from min 94.98% (25.10.11) to max 100.75% (21.07.2011). SSHHAARREESS TTRRAADDIINNGG The shares of OJSC “Magnit” entered the Russian stock market in April 2006. 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. 55 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 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”. 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). According to the Instruction of CJSC “MICEX Stock Exchange ” № 1387-p of 29.12.2010 OJSC “Magnit” shares are included in (transferred to) the quotation list “A” of the first level of CJSC “MICEX Stock Exchange”. On November 30, 2011 OJSC “Magnit” announced its intention to offer newly issued ordinary shares via an accelerated bookbuild placing to Russian and international institutional investors. In connection with the placement the Company has registered with the Russian Federal Financial Market Service 10,813,516 new shares to be placed through an open subscription. The offer price in the Placement has been set at US$ 85 per new share. Payments for shares in rubles were made at an exchange rate of US$1 = RUB 30.8486. The Company placed 5,586,282 ordinary shares out of which 4,117,648 shares were allocated to investors resulting in a free float of 53.83% of the Company’s issued share capital as of December 31, 2011. Gross proceeds to the Company from the placement of additional shares amounted to approximately US$ 475 mn and used to finance its capital expenditure program aimed at further expansion of its chain of hypermarkets as well as the expansion of its convenience store operations and the further development of its logistics capabilities. On December 19, 2011 ordinary shares of OJSC “Magnit” were excluded from the Quotation list “A” of the first level of OJSC “RTS Stock Exchange” as a result of its reorganization through merger with CJSC MICEX. 56 According to trading held from 01.01.2011 to 31.12.2011 on MICEX Stock Exchange the average weighted price of shares transactions varied from min 2,648.8 rubles (13.10.2011) to max 4,346.96 (13.01.2011). Market capitalization of OJSC “Magnit” as of 30.12.2011 amounted to 261,649.67 million rubles according to OJSC “MICEX SE”. 57 1144.. TTRRAANNSSAACCTTIIOONNSS,, CCOONNSSIIDDEERREEDD MMAAJJOORR TTRRAANNSSAACCTTIIOONNSS JJOOIINNTT--SSTTOOCCKK AACCCCOORRDDIINNGG TTOO TTHHEE FFEEDDEERRAALL LLAAWW ““OONN CCOOMMPPAANNIIEESS””,, MMAADDEE WWIITTHHIINN TTHHEE YYEEAARR 22001111 1. Date of transaction (date of the contract) Type, subject, essentials of including civil rights and obligations determined, changed or transaction the transaction, to be the terminated by 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 – and Agreement (together – 30.11.2011 Placement Agreement related Instruction Letter governed by the laws of the «Placement England transactions, Agreement»), and other the contracts and documents under (together with Placement Agreement Placement the “Transaction”). (a) Morgan Stanley & Co. International plc, VTB Capital plc and/or their affiliates and other parties that may be indicated in the Placement Agreement as placement agents (hereinafter together referred to as “Placement Agents”), (b) the Company and (c) other parties, subject to regulation of the Indemnity under the Placement Agreement. Until the fulfillment of the obligations under the transaction by the parties. The price (amount of obligations) shall consist of the Company’s obligations under the Placement Agreement, including the Company’s obligations according to articles 7, 8, 12.3.5 and 12.3.6 of the Placement Agreement. The Price () of the property that may be directly or indirectly disposed by the Company (amount of the Company’s obligations) may amount to 25 (twenty five) or more per cent of the Company’s assets determined according to the accounting report for the latest reporting period, but shall not exceed 50 (fifty) per cent of the Company’s assets determined according to the accounting report for the latest reporting period. balance balance sheet sheet 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 The transaction was approved. The balance sheet assets value of the Company as of September 30, 2011 amounts to 42,548,057 thousand rubles. 58 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 Major transaction Board of directors of OJSC “Magnit” 30.11.2011 Minutes № w/n of 30.11.2011 59 1155.. LLIISSTT 00FF 22001111 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 06.04.2011 Provision of the Company’s guarantee to the Agreement on Crediting in Russian rubles №00GA3L of 08.11.2010. The Lender: Open «ALFA-BANK; The Guarantor: OJSC "Magnit" The Borrower: JSC "Tander" Joint-Stock Company 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); Joint-Stock Company “Tander” (JSC "Tander") Reason for which such entity is considered related-party for transaction is OJSC "Magnit” Magnit Finance LLC shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a beneficiary under 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, % 15.20 5,086,506.85 is duly performing Loan maturity date is 15.11.2013; the guarantee shall mature within one year after the loan repayment date. JSC it’s “Tander” obligations before the Lender. 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 extraordinary general shareholders’ meeting on January 20, 2011, minutes № w/n of January 20, 2011. 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 60 2 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 14.06.2011 Provision of the interest-bearing loan by the Company. The Lender: OJSC "Magnit" The Borrower: JSC "Tander" Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") Magnit Finance LLC is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a party under the transaction. “Tander” (JSC 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 obligations fulfillment of obligations under of mentioned fulfillment on 5,000,000 12.88 13.06.2014 The Lender´s obligations are fulfilled on time Issuer’s authority which made a decision on approval of transaction, date of decision (date and number of minutes of proceedings) The the transaction was approved by extraordinary general shareholders’ meeting on May 19, 2011, minutes № w/n of May 19, 2011. Other information on transaction indicated at the issuer’s discretion none 3 Date of transaction Subject and essentials of transaction Parties of transaction 06.07.2011 Provision of the Company’s guarantee to the Credit Agreement №КС-714000/2011/00051 of 25.04.2011 The Lender – VTB Bank (open joint-stock company) The Guarantor – Open Joint-Stock company "Magnit" The Beneficiary - JSC "Tander" (the Borrower) 61 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); Joint-Stock "Tander") Company “Tander” (JSC Reason for which such entity is considered related- party for transaction is OJSC "Magnit” Magnit Finance LLC shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a beneficiary under 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, % 5.26% 2,039,506.85 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 is 23.04.2014, is duly performing Loan maturity date the guarantee is provided for the term of 2,191 (two thousand one hundred ninety nine) days from the contract execution date. JSC “Tander” it’s obligations before the Lender. 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 general shareholders’ meeting on June 23, 2011, minutes № w/n of June 23, 2011. 4 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 62 12.07.2011 Provision of the interest-bearing loan by the Company. The Lender: OJSC "Magnit" The Borrower: JSC "Tander" Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") is OJSC "Magnit” Magnit Finance LLC shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. Company “Tander” (JSC JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a party under the transaction. 100,000 0.23 05.07.2014 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 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 of mentioned fulfillment on none The Lender’s obligations are fulfilled on time The transaction was approved by the annual general shareholders’ meeting on June 23, 2011, minutes № w/n of June 23, 2011. 5 Date of transaction Subject and essentials of transaction let Oktiabria, Krasniy 01.09.2011 Provision of the built-in store, located at 30, of 50 Krasnosulinskiy territory, Russia, for payment into the temporary possession and use to the Lessee by the Lessor. region, Rostov Sulin Parties of transaction The Lessor: OJSC "Magnit" The Lessee: 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 Reason for which such entity is considered related- party for transaction (JSC “Tander” Company Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") is OJSC "Magnit” Magnit Finance LLC shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a party under 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 24,000 0.02 63 31.08.2021 on fulfillment fulfillment of obligations under transaction, % for Term transaction Information 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 of mentioned none The Lessor’s obligations are fulfilled The transaction was approved by the Board of directors on August 30, 2011, minutes №w/n of August 30, 2011. 6 Date of transaction Subject and essentials of transaction Parties of transaction 01.09.2011 Provision of the non-living premises, located at 5, Obukhova street, Zverevo, Rostov territory, Russia, into the temporary possession and use to the Lessee by the Lessor. The Lessor: OJSC "Magnit" The Lessee: JSC "Tander" for payment 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 (JSC “Tander” Company Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") is OJSC "Magnit” Magnit Finance LLC shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a party under the transaction. 31,200 0.07 31.08.2021 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 the date of accounting period preceding transaction, % Term for transaction Information 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 of mentioned fulfillment on none The Lessor’s obligations are fulfilled The transaction was approved by the Board of directors on August 30, 2011, minutes №w/n of August 30, 2011. 64 7 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 01.09.2011 Provision of the non-living built-in premises № 7 and 9, located at38, Kosmonavtov street, Lipetsk, Lipetsk territory, Russia, for payment into the temporary possession and use to the Lessee by the Lessor. The Lessor: OJSC "Magnit" The Lessee: JSC "Tander" Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") Magnit Finance LLC is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a party under the transaction. Company “Tander” (JSC 28,200 0.02 31.08.2021 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 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 of mentioned fulfillment on none The Lessor’s obligations are fulfilled The transaction was approved by the Board of directors on August 30, 2011, minutes №w/n of August 30, 2011. 8 Date of transaction Subject and essentials of transaction Parties of transaction 02.09.2011 Provision of the non-living built-in premises № 1 located at 6 Lenina avenue, Liski, Voronezh territory, Russia, for payment into the temporary possession and use to the Lessee by the Lessor. The Lessor: OJSC "Magnit" The Lessee: JSC "Tander" 65 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 (JSC “Tander” Company Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") is OJSC "Magnit” Magnit Finance LLC shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a party under 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, % 49,200 0.11 Term for transaction fulfillment of obligations under 01.09.2021 on fulfillment of mentioned Information 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 Lessor’s obligations are fulfilled The transaction was approved by the Board of directors on August 30, 2011, minutes №w/n of August 30, 2011. 9 Date of transaction Subject and essentials of transaction Parties of transaction 02.09.2011 Provision of the non-living built-in premises located at 124 Dachniy avenue, Voronezh, Voronezh territory, Russia, for payment into the temporary possession and use to the Lessee by the Lessor. The Lessor: OJSC "Magnit" The Lessee: 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 Reason for which such entity is considered related- party for transaction 66 “Tander” Company Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") Magnit Finance LLC is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder (JSC jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a party under the transaction. 15,600 0.04 01.09.2021 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 the date of accounting period preceding transaction, % Term for transaction Information 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 of mentioned fulfillment on none The Lessor’s obligations are fulfilled The transaction was approved by the Board of directors on August 30, 2011, minutes №w/n of August 30, 2011. 10 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 the property – 05.09.2011 Sale and purchase of transformer substation The Lessor: OJSC "Magnit" The Lessee: JSC "Tander" Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") Magnit Finance LLC is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a party under the transaction. “Tander” (JSC 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 fulfillment of obligations under fulfillment on 8,066.48 0.02 13.09.2011 of mentioned The obligations are fulfilled 67 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 transaction was approved by the Board of directors on August 30, 2011, minutes №w/n of August 30, 2011. 11 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 13.09.2011 Provision of the interest-bearing loan by the Company. The Lender: OJSC "Magnit" The Borrower: JSC "Tander" Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") is OJSC "Magnit” Magnit Finance LLC shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a party under the transaction. “Tander” (JSC 378,000 0.87 06.09.2016 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 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 of mentioned fulfillment on none The Lender’s obligations are fulfilled The transaction was approved by the Board of directors on August 30, 2011, minutes №w/n of August 30, 2011. 12 Date of transaction Subject and essentials of transaction Parties of transaction 68 12.10.2011 Sale and purchase of share in the charter capital of “Alkotrading” LLC The Seller: JSC “Tander” The Buyer: 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); Joint-Stock "Tander") Company “Tander” (JSC Reason for which such entity is considered related- party for transaction is OJSC "Magnit” Magnit Finance LLC shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a party under the transaction. 9,900 0.02 12.10.2011 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 the date of accounting period preceding transaction, % Term for transaction Information 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 of mentioned fulfillment on none The Seller’s and the Buyer’s obligations were fulfilled on time The transaction was approved by the Board of directors on October 6, 2011, minutes №w/n of October 6, 2011. 13 Date of transaction Subject and essentials of transaction Parties of transaction store of located 09.11.2011 the Provision Supermarket II Neighbourhood, Uvarovo, Tambov territory, for payment into the temporary possession and use to the Lessee by the Lessor. The Lessor: OJSC "Magnit" The Lessee: JSC "Tander" at 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 (JSC “Tander” Company Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") Magnit Finance LLC is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 69 20 per cent of voting shares of the Company that is a party in the transaction, and a party under the transaction. 128,947.2 0.3 10.10.2021 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 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 of mentioned fulfillment on The Lender’s obligations are fulfilled The transaction was approved by the Board of directors on October 6, 2011, minutes №w/n of October 6, 2011. none 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 “Tander” Company 09.11.2011 Contribution to the Assets of “AgroTorg” Shareholder: OJSC «Magnit» Beneficiary Company: to “AgroTorg” LLC Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") Magnit Finance LLC is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a party under the transaction. (JSC 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 Information obligations Issuer’s authority which made a decision on c fulfillment of obligations under of mentioned fulfillment on 133,824 0.31 16.11.2011 The Shareholder’s obligations are fulfilled 70 approval of transaction, date of decision (date and number of minutes of proceedings) Other information on transaction indicated at the issuer’s discretion none 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 15.11.2011 Provision of the Company’s guarantee to the Credit Agreement №КС-714000/2011/00117 of 12.09.2011 The Lender – VTB Bank (open joitn-stock company) The Guarantor – Open Joint-Stock company "Magnit" The Beneficiary - JSC "Tander" (the Borrower) Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") Magnit Finance LLC is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a beneficiary under the transaction. Company “Tander” (JSC 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, % 3.20 1,359,671. 23 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 is 23.04.2014, is duly performing the Loan maturity date guarantee is provided for the term of 2,191 (two thousand one hundred ninety nine) days from the contract execution date. JSC “Tander” it’s obligations before the Lender. 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 general shareholders’ meeting on June 23, 2011, minutes № w/n of June 23, 2011. 71 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 21.11.2011 Provision of the guarantee under which the Guarantor shall be responsible before the Lender for the fulfillment of the obligations assumed by the Borrower under the Credit Contract № 8619/452/20162 of 21.11.2011 The Lender – Sberbank of Russia (open joint- stock company) The Guarantor – Open Joint-Stock company "Magnit" The Beneficiary (the Borrower) - JSC "Tander" Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") Magnit Finance LLC is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a beneficiary under the transaction. Company “Tander” (JSC 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 1,250,000 2.94 19.11.2017 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 is duly performing it’s JSC “Tander” obligations before the Lender. 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 general shareholders’ meeting on June 23, 2011, minutes № w/n of June 23, 2011. 17 Date of transaction Subject and essentials of transaction 72 25.11.2011 Provision by the Company of the interest- Parties of transaction bearing loan 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 Joint-Stock "Tander") Company “Tander” (JSC Reason for which such entity is considered related- party for transaction JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. 76,000 0.18 23.11.2012 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 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 of mentioned fulfillment on none The Lender’s obligations are fulfilled The transaction was approved by the Board of directors on July 13,2011, minutes of July 13, 2011 18 Date of transaction Subject and essentials of transaction Parties of transaction 29.11.2011 Provision by the Company of the interest- bearing loan 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 Joint-Stock "Tander") Company “Tander” (JSC Reason for which such entity is considered related- party for transaction JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in 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 624,000 1.47 fulfillment of obligations under 27.11.2012 73 on fulfillment of mentioned transaction Information 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 Lender’s obligations are fulfilled The transaction was approved by the Board of directors on July 13,2011, minutes of July 13, 2011 19 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 06.12.2011 Provision of the non-living building located at34 Karla Marksa street, Prokhladniy, the Kabardino-Balkarian Republic, for payment into the temporary possession and use to the Lessee by the Lessor. The Lessor: OJSC "Magnit" The Lessee: JSC "Tander" Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") Magnit Finance LLC is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a party under the transaction. Company “Tander” (JSC 19,920 0.05 06.10.2021 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 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 of mentioned fulfillment on The Lender’s obligations are fulfilled The transaction was approved by the Board of directors on October 6, 2011, minutes №w/n of October 6, 2011. none 20 74 Date of transaction Subject and essentials of transaction Parties of transaction 07.12.2011 Provision by the Company of the interest- bearing loan 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 Joint-Stock "Tander") Company “Tander” (JSC Reason for which such entity is considered related- party for transaction JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction and a party under the transaction. 1,946,830 4.58 06.12.2014 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 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 of mentioned fulfillment on none The Lender’s obligations are fulfilled The transaction was approved by the annual general shareholders’ meeting on June 23, 2011, minutes № w/n of June 23, 2011. 21 Date of transaction Subject and essentials of transaction Parties of transaction 08.12.2011 Provision by the Company of the interest- bearing loan 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 Joint-Stock "Tander") Company “Tander” (JSC Reason for which such entity is considered related- party for transaction JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction and a party under the transaction.. Transaction amount in money terms, thousand rubles. Transaction amount in per cent of issuer’s balance 4.66 1,981,620.4 75 fulfillment of obligations under sheet assets as of the termination date of the last the date of accounting period preceding transaction, % Term for transaction Information 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 of mentioned fulfillment on none 07.12.2014 The Lender’s obligations are fulfilled The transaction was approved by the annual general shareholders’ meeting on June 23, 2011, minutes № w/n of June 23, 2011. 22 Date of transaction Subject and essentials of transaction Parties of transaction 12.12.2011 Provision by the Company of the interest- bearing loan 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 Joint-Stock "Tander") Company “Tander” (JSC Reason for which such entity is considered related- party for transaction JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. 2,000,000 4.7 10.12.2014 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 the date of accounting period preceding transaction, % Term for transaction Information 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 of mentioned fulfillment on none The Lender’s obligations are fulfilled The transaction was approved by the annual general shareholders’ meeting on June 23, 2011, minutes № w/n of June 23, 2011. 23 Date of transaction Subject and essentials of transaction 76 13.12.2011 Provision by the Company of the interest- bearing loan Parties of transaction 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 Joint-Stock "Tander") Company “Tander” (JSC Reason for which such entity is considered related- party for transaction JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction and a party under the transaction. 2,000,000 4.7 01.12.2014 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 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 of mentioned fulfillment on none The Lender’s obligations are fulfilled The transaction was approved by the annual general shareholders’ meeting on June 23, 2011, minutes № w/n of June 23, 2011. 24 Date of transaction Subject and essentials of transaction Parties of transaction 13.12.2011 Provision by the Company of the interest- bearing loan 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 Joint-Stock "Tander") Company “Tander” (JSC Reason for which such entity is considered related- party for transaction JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction and a party under 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, % 4.7 2,000,000 77 03.12.2014 on fulfillment of mentioned fulfillment of obligations under Term for transaction Information 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 Lender’s obligations are fulfilled The transaction was approved by the annual general shareholders’ meeting on June 23, 2011, minutes № w/n of June 23, 2011. 25 Date of transaction Subject and essentials of transaction Parties of transaction 13.12.2011 Provision by the Company of the interest- bearing loan 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 Joint-Stock "Tander") Company “Tander” (JSC Reason for which such entity is considered related- party for transaction JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction and a party under the transaction. 2,000,000 4.7 05.12.2014 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 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 of mentioned fulfillment on none The Lender’s obligations are fulfilled The transaction was approved by the annual general shareholders’ meeting on June 23, 2011, minutes № w/n of June 23, 2011. 26 Date of transaction Subject and essentials of transaction Parties of transaction 13.12.2011 Provision by the Company of the interest- bearing loan The Lender: OJSC "Magnit" The Borrower: JSC "Tander" Full and short firm name (names) of the legal Joint-Stock Company “Tander” (JSC 78 entity or surname, name, patronymic name of a person that is considered related-party for the transaction "Tander") Reason for which such entity is considered related- party for transaction JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction and a party under the transaction. 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 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 of mentioned fulfillment on 2,000,000 4.7 08.12.14 none The Lender’s obligations are fulfilled The transaction was approved by the annual general shareholders’ meeting on June 23, 2011, minutes № w/n of June 23, 2011. 27 Date of transaction Subject and essentials of transaction Parties of transaction 13.12.2011 Provision by the Company of the interest- bearing loan 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 Joint-Stock "Tander") Company “Tander” (JSC Reason for which such entity is considered related- party for transaction JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in 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 Information obligations fulfillment of obligations under of mentioned fulfillment on 2,108,700 4.90 10.12.2016 The Lender’s obligations are fulfilled 79 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 general shareholders’ meeting on June 23, 2011, minutes № w/n of June 23, 2011. 28 Date of transaction Subject and essentials of transaction Parties of transaction 13.12.2011 Provision by the Company of the interest- bearing loan 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 Joint-Stock "Tander") Company “Tander” (JSC Reason for which such entity is considered related- party for transaction JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction and a party in the transaction. 1,071,549.6 2.52 11.11.2014 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 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 of mentioned fulfillment on none The Lender’s obligations are fulfilled The transaction was approved by the annual general shareholders’ meeting on June 23, 2011, minutes № w/n of June 23, 2011. 29 Date of transaction Subject and essentials of transaction Parties of transaction of street, 14.12.2011 Provision the non-living premises of a store located at10 village, Pochtovaya Moscow territory, for payment into the temporary possession and use to the Lessee by the Lessor. The Lessor: OJSC "Magnit" The Lessee: JSC "Tander" Lotoshino Full and short firm name (names) of the legal Magnit Finance Limited Liability Company 80 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 (JSC “Tander” Company (Magnit Finance LLC); Joint-Stock "Tander") Magnit Finance LLC is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction, and a party under the transaction. 76,800 0.18 01.11.2021 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 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 of mentioned fulfillment on The Lender’s obligations are fulfilled The transaction was approved by the Board of directors on October 6, 2011, minutes №w/n of October 6, 2011. none 30 Date of transaction Subject and essentials of transaction Parties of transaction of 20.12.2011 Provision the non-living premises located at199 Gorkogo street, Kanevskaya stanitsa, Krasnodar territory, for payment into the temporary possession and use to the Lessee by the Lessor. The Lessor: OJSC "Magnit" The Lessee: 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 Reason for which such entity is considered related- party for transaction (JSC “Tander” Company Magnit Finance Limited Liability Company (Magnit Finance LLC); Joint-Stock "Tander") Magnit Finance LLC is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company that is a party in the transaction. JSC "Tander" is OJSC "Magnit” shareholder jointly with its affiliates owning more than 20 per cent of voting shares of the Company 81 that is a party in the transaction, and a party under the transaction. 46,800 0.11 07.11.2021 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 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 of mentioned fulfillment on The Lender’s obligations are fulfilled The transaction was approved by the Board of directors on October 6, 2011, minutes №w/n of October 6, 2011. none 82 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 83 works out its credit history, expands the data base of potential creditors and diversifies instruments for their attraction. 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. As of December 31, 2011 the Group operates in 7 federal districts and in more than 1,389 locations of the Russian Federation with the highest concentration in the 84 Southern, North-Caucasian, Central and Volga regions. Magnit stores also operate in the Central, Urals and Siberian regions. Russian retail market of the Southern Federal district 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, 2011 the stores operating under “Magnit” trade mark are located in the Southern Federal district (1,298), Central Federal district (1,270), Volga Federal district (1,662), North-Caucasian Federal district (302), North-Western Federal district (348), Urals Federal district (372) and Siberian Federal district (57). 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. 85 The successful roll-out of the Group’s development strategy depends on its ability to 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. Historically volume of the Group’s operations has been growing fast. The growth is expected to continue in the projected future which may lead to the significant lack of administrative, operational and financial resources. As a result, “Magnit” retail chain will have particularly to continue the 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. improvement of 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. 86 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. 87 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 88 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. Decrease of profitability may negatively affect the ability of the Company’s relevant authority to decide on the payment of yield on the securities and the market value of the Company’s securities as well as affect the fulfillment of obligations on the placed bonds in full. 89 Risks related to the possible fluctuations of the prices on products and/or services of 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. 90 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, 2011 the Group operates in 7 federal districts in 1,389 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 average income and income below 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 91 that may limit the ability of the Group to receive financing on the international financial 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 the recent decade. 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 92 interruption of the investment program of the Group, slowdown of Group development rates 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. 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 are possible effects of crisis situations in the global and European economy. 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 93 affected. Electricity and heat deficiency in some regions of Russia dramatically disrupted their economies. Condition of roads 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. 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. 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. 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. 94 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: 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. 95 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 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 96 unfavorable ecological situation in large Russian industrial cities may have an adverse negative effect on the Group’s activity. FINANCIAL RISKS Exposure to risks of changes of the interest rates, foreign currency exchange rates related to the Company’s operation or hedging carried out by the Company to reduce unfavorable consequences of the risks indicated above: The Company is exposed to risks related to the changes of interest rates. The Group’s companies raise borrowed funds to finance business development of the Group and to expand its resource base. Changes of the interest rates may have substantial negative effect on the operation results of the companies of the Group. The Group does not export its production, and all its main obligations are ruble denominated. Import products comprise a certain share of revenue, which makes the Company dependent on the possible fluctuations of exchange rates. The Company does not hedge its risks. Exposure of the financial position of the Company, its liquidity, funding sources, operation results, etc., to the foreign exchange movements (currency risks). Over the last fifteen years Russia faced considerable fluctuations of the exchange rate of Russian ruble to the foreign currencies. Substantial ruble devaluation may result in the reduction of the relative cost of ruble-denominated sales and assets of the Group, such as bank deposits and accounts receivable. Additionally, decrease of the ruble exchange rate may lead to the decline of the dollar cost of tax deductions arising from the realization of capital investments, since the balance sheet assets will reflect their mark-up in ruble terms at the moment of acquisition. The Group does not export its production, and all its main obligations are ruble denominated. Import products comprise a certain share of revenue, which makes the Company dependent on the possible foreign exchange fluctuations. In case of such fluctuations, the Group is able to modify the structure of goods sales in favor of Russian counterparts, which may potentially reduce the sales growth rate. Thus, the rise of such risk may have an adverse negative effect on the Group’s revenue and profitability. The Group purchases and plans to purchase in future the import equipment and vehicles for foreign currency, thus, considerable decline of the ruble exchange rate may lead to the increase of the Group’s expenses in ruble terms and negatively affect the results of its operation. Dramatic changes of the exchange rate may have an adverse negative effect on the country economy on the whole and lead to the decline of the purchasing power. Prospective measures of the Company in case if currency fluctuations and interest rates have negative effect on the Group operation. In case if movements of exchange rates and interest rates are negative for the Company, it plans to carry out tough policy of cost saving. However, it should be taken into consideration, that part of the risk cannot be completely neutralized, since the indicated risks mainly lie beyond Company’s control but depend on the general economic situation in the country. Inflation influence on the payment on securities. Inflation indices which the Company considers to be critical, and potential actions which may be taken by the Company to reduce risks specified herein. 97 The Company faces inflation risks which may have an adverse negative effect on its business activity. The purchasing prices on the products depend on the overall price level in Russia. The acceleration of inflation growth rates may affect the financial performance of the Group. The growth of the purchasing prices may lead to further increase of retail prices on the products and goods sold by the Company and its subsidiaries, and as a result negatively influence the competitive environment of the Group. If the exchange rate of ruble to US dollar increases simultaneously with inflation, the Group may face expenses increase in dollar terms on certain cost items. Some expense items of the Group, such as payroll, expenses on construction, rent and utilities are sensitive to the overall growth of the price level in Russia. Within competitive pressure or legal restrictions the Group may not be able to properly increase its prices in order to retain our profit rate. Consequently, high inflation growth rate may increase the Group’s expenses, and there’s no guarantee that the Group will be able to maintain or increase its profit rate. Inflation growth in the Russian Federation may also entail the overall growth of the interest rates. Inflation indices critical for the Company: Today the 30-35% level of inflation is considered critical by the Company. Serious acceleration of the price increase rate may lead to the growth of Company’s expenses, loan funds costs, and result in the profitability downturn. Therefore, in case of dramatic excess of actual inflation indices over the forecasts of the Russian Federation Government, the Company plans to take all required measures to limit the other expenses’ growth (not related to the purchase of the products for disposal), to reduce the account receivables and its average term. Risks arising from bank operations: Russian bank system is yet underdeveloped, a new bank crisis may have a negative effect on the operation of the Group and its financial position Russian bank and other financial systems are not properly developed and regulated, and Russian legislation related to banks and bank accounts may be interpreted ambiguously and applied inconsistently. Financial crisis of 1998 led to the bankruptcy and liquidation of many Russian banks and almost completely destroyed the developing market of crediting of commercial banks. Within the period from April to July 2004 Russian bank sector experienced one more serious disruption. As a result of rumors spread over the market as well as certain problems with legislative regulation and liquidity, several banks faced difficulties with liquidity and were not able to attract capital on the inter-bank market or with clients. Simultaneously, many individuals and corporations withdrew their deposits from these banks. Some of these private Russian banks turned bankrupt, were liquidated or substantially reduced their scope of activity. Generally, this situation did not have an adverse effect on foreign banks and Russian banks owned by or under the management of the government Additionally, many Russian banks do not meet international banking standards, and the transparency of the Russian bank sector to a certain extent falls behind the international level. Supervision of bank activity is also often insufficient, whereby many Russian banks do not observe the actual instructions of the Central Bank of the Russian Federation regarding loan criteria, credit quality, loan loss provision, risks’ diversification and other requirements. Application of more severe regulations or interpretations may result into undercapitalization or insolvency of some banks. 98 Before global financial crises Russian banks were increasing credit financing rapidly, which, as considered by many, was accompanied by deterioration of level of refund guarantee from the borrowers. Moreover, stability of the local corporate security market led to the accumulation of ruble bonds issued by the Russian companies in the investment portfolio of Russian banks, which even more aggravated the level of risks attributable to the Russian banks’ assets. The global financial crisis led to collapse and buyout of some Russian banks and serious liquidity decline of others. Return level of the majority of Russian banks was also seriously affected. Indeed, due to financial crisis and on the background of reports on difficulties faced by Russian bank and financial organizations, the government had to make substantial investments into the bank system. As a rule the Group supports relations and keeps its accounts only with a limited number of reliable creditworthy Russian banks, including open joint-stock company “Sberbank of Russia” (OJSC “Sberbank of Russia”), OPEN JOINT-STOCK COMPANY “ALFA- BANK” (OJSC “ALFA-BANK”), VTB Bank (open joint-stock company (OJSC “VTB Bank”), “Gazprombank” (open joint-stock company), (GPB (OJSC), OJSC “Joint-stock commercial bank “Rosbank” (OJSC AKB “ROSBANK”). Bankruptcy or insolvency of one or several specified banks may negatively affect our business. Continuing or aggravation of bank crisis, bankruptcy or insolvency of banks with which we keep our funds may lead to inaccessibility to the cash assets for several days and influence our opportunity to complete bank operations in Russia or to the loss of all our deposits, which may have substantial negative effect on our business activity, operation results, financial position and prospects. Risks related to the transfer pricing: Ambiguity of law on transfer pricing regulations alongside with deficiency of accurate and authentic information about the market prices may have negative effect on the financial performance of the Group. Russian law on transfer pricing regulations which came into effect in 1999 stipulates that taxation authorities have are entitled to make amendments to the transfer pricing and to levy additional taxes in case of 20% dispersion between the price and market price. Since Russian law on transfer pricing regulations is not precise enough, taxation authorities and arbitration courts are free to interpret the applicable regulations. Due to the ambiguity of transfer pricing regulations taxation authorities may dispute the prices of transactions of the Company and its subsidiaries and adjust the accrued taxes. Financial report statements of the Company mostly subject to changes under the foregoing financial risks. Risks, probability of risks and nature of changes in reporting. Expenses and profit are mostly exposed to the influence of the foregoing financial risks. In case of unfavorable change of the situation, the expenses will be the first to grow and will entail profit reduction correspondingly. In case of inflation growth and/or currency rate growth and therefore the expenses growth, the Group may increase the prices on the products for sale. In case of negative effect of fluctuations of the exchange rate, inflation and interest rates on the operation of the Group, the following measures are to be taken: • revision of the financing structure; 99 • optimization of the cost-based items of the operation; • • revision of the programs of capital investments and loans; increase the receivables turnover. At the moment hedging of the foregoing risks is not carried out. Liquidity risks: The risks provided herein create the liquidity risk, i.e. the risk of losses due to deficiency of funds within the established terms and as a result, risk of inability of the Group to fulfill its obligations. Such risk event may entail penalties, fines, injury to the goodwill of the Group, etc. The Group manages liquidity risk through analysis of the scheduled cash flows. Exposure of the financial report statements to the foregoing financial risks: Risks Probability Nature of changes in the report Interest rates growth high Inflation rates growth high increase the cost of Interest rates growth will borrowings for the Group, thus it may have negative effect on the Group’s financial position, particularly, will increase the operational expenditures of the Group and reduce its profit. Inflation rates growth will lead to the increase of the prime cost expenses (raw commodities costs, payroll expenses, etc.). At the same time the acceleration of the inflation rate growth will result in the growth of the consumer prices for the Group products and correspondingly increase the sales of the Group, so that the Group expenses will be compensated by the increase of the product prices. Such inflation will also lead to devaluation of the real price on the ruble obligation. the part of Change of the exchange rate of US dollar to ruble Risk of due obligation fulfillment high It does not produce strong effect, as the main profits and losses of the Company are ruble denominated. medium Failure of the Group to fulfill its obligations in due time may entail penalties, fines, etc., which will result in unscheduled expenses and reduce the Group’s profit. In connection herewith, the Group carries out the policy of the cash flows’ planning. 100 LLEEGGAALL RRIISSKKSS 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. Certain transactions with participation of the Group’s companies may be declared related party transactions. Similar transactions may, in particular, include sales and purchase agreements on final products, purchase of shares, render of services. If disputes on such transactions and actual approvals to such transactions are successfully contested in favor of the complainant party, or otherwise the Group’s companies will be prevented in the future from getting the approval to the transactions which require special approval under legislation of the Russian Federation, it may limit the flexibility of the Group’s companies in operating and have negative effect on the Group’s operational results. In practice, corporate governance standards remain underdeveloped in many Russian companies, the minority shareholders of which may have difficulties in exercising their legal rights and bear losses. Though the Federal Law “On Joint-Stock Companies” enables the shareholder owning not less than 1% of the company’s offered shares has the right to file a claim against the management which caused damages/losses to the company, Russian courts have poor experience in dealing with such claims. Thus, the real opportunities of the investor to get the compensation from the Company are limited. As a result the protection of minority shareholders rights is limited. Civil code and Federal Law “On Joint-Stock Companies” provide that the joint-stock company’s shareholders do not bear responsibility for its obligations and are only exposed to risks of investment loss. However, in case if the legal entity becomes bankrupt due to the actions of the owners (participants), the owner of the legal entity property or other bodies which are entitled to duly instruct or otherwise regulate the legal entity, these bodies may be subject to holding subsidiary liability for obligations of the legal entity in case of insufficiency of legal entity property. Consequently, the Company being a parent company to its subsidiaries with more than 50% of the charter capital directly or indirectly owned by the Company, it may be entitled to the responsibility for the obligations in the foregoing cases. Responsibility for subsidiaries’ obligations may have a material negative effect on the Company. Securing shareholders rights under the Russian legislation may entail additional expenses and may result in the downturn of the Company’s financial results. According to the Russian legislation, shareholders voted against or not participated in voting on certain issues have the right to claim from the Company the redemption of their shares at the market price under the Russian legislation. Such right is provided to the shareholders voted against or not participated in voting on the following issues: reorganization; major transaction which is to be approved by the general shareholders meeting; incorporation of amendments restricting the shareholders rights to the Charter or ratification of Charter in new edition; Company’s liabilities on redemption of shares may have material negative effect on the cash flows of the Company and its ability to support Group’s debt. 101 Legal risks related to the Russian Federation: Weakness of the Russian legal system and imperfection of the Russian legislation provide vague environment for investments and business activity. Effective legal system required to support market economy functioning in Russia is still developing. Many key laws have only recently become effective. Insufficient consensus on the volume, contents and time limits of economic and political reforms, rapid development of the Russian legal system which did not always coincide with the trend of the market interrelations development in a number of cases resulted in ambiguity, noncompliance and inconsistence of the law provisions and by-laws. Moreover, Russian legislation very often contemplates implementing regulations that have not yet been promulgated, leaving substantial gaps in the law regulatory infrastructure. In some cases the new laws and regulations are ratified without all-around consideration by the interested parties of the civil law circle and do not contain any adequate transitional regulations, which lead to serious difficulties upon application. Drawbacks of the Russian legal system may affect the ability of the Group to exercise its legal rights under the agreements or to defend against claims from the third parties. There is no guarantee that the state and judicial authorities as well as third parties will not challenge against Group’s meeting the requirements of laws and by-laws. Risks related to the changes in currency regulation: Currency legislation of the Russia Federation is exposed to quite frequent changes. In connection herewith risks of regulation procedure changes in execution of a number of exchange operations may occur. Considerable fluctuations in currency regulation and currency control legislation may impede Company’s performance of obligations under the agreements with counterparties. The risks herein are considered by the Company management to have the same effect on the Group as on all other parties of the market. Risks related to the protection of investors’ rights: Russian legislation related to the investors’ rights protection might be less favorable and developed than the legislation of other countries with the developed market economy. Moreover, the investors may face in future the risk of adverse changes in legislation. The returns of the foreign investors received from investments into the Company’s shares may be taxed in accordance with the Russian legislation. Degradation of the overall economic and political situation in the country may lead to the toughening of the currency regulation and control norms and limitations on the transactions with the Company’s shares. Risks related to the changes in tax legislation: Tax legislation of the Russian Federation is subject to the relatively frequent changes. The risks herein are considered by the Company management to have the same effect on the Group as on all other parties of the market Changes in Russian legislation system may have negative effect on the Group’s activity. The following changes may have negative effect on the Group’s operation: Incorporation of amendments to the legal acts on taxes and charges on the tax rates increase; Imposing of new types of taxes. • • 102 The foregoing substantial and other changes in tax legislation may result in the increase of the tax payments and consequently in the reduction of the Company’s net profit. Changes in the Russian tax legislation may have material negative effect on the investment attractiveness of the Company’s shares. Russian companies are making substantial payments on a great amount of taxes. These taxes include, in particular: • Income tax • Value added tax; • Excise taxes; • Land tax; • Property tax. Legislation regulations and by-laws governing the foregoing taxes do not have a vast application history as compared to other countries; thus, the law enforcement practice is often ambiguous or has not been formed yet. At the moment we have only a limited number of commonly accepted interpretations and explanations of tax legislation. Different ministries and authorities often have different opinions on the interpretation of the tax legislation, thus creating ambiguity and grounds for the conflict. According to legislation, tax declarations and some other legal papers, e.g. customs documents, may be checked and examined by different inspectors who are entitled to charge penalties, fines and interests for the arrears of payments. Usually the completeness and accuracy of the tax payment may be verified within three years upon the tax year expiration. The fact of tax verification for any year creates the grounds for verification of the same declaration for several times within a three year period. These factors provide for the Russian tax risks which are considerably higher than the usual risks in the countries with a more developed taxation system. The tax system in Russia changes on a frequent basis, and the tax legislation is inconsistently applied on the federal, regional and local levels. In some cases new tax rules cause the retroactive effect. In addition to the material tax burden these circumstances complicate the tax planning and adoption of the correspondent decisions. In spite of the Group’s willingness to comply with the legislation, inaccuracy of the legislation puts the Group at the risk of payment of considerable penalties and fines and may lead to the increase of tax burden. Today the tax collection system is relatively ineffective, and the government may have to introduce new taxes to increase its earnings. Thus, the Company may have to pay considerably higher taxes which may negatively affect the business activity of the Company. In recent years the taxation system of the Russian Federation met significant fluctuations under the tax reform. However, new tax legislation still gives freedom to the local tax authorities and creates a number of undecided questions, which complicates the tax planning and adoption of the correspondent decisions. Financial reporting of Russian companies for the purpose of tax accounting is not consolidated. Thus, every Russian legal entity pays Russian taxes separately and cannot use the losses of other companies within one group to reduce the tax burden. Risk related to the inability of foreign investors to take out return on shares Today Russian legislation on dividends payment provides that dividends on shares in ruble terms may be distributed among the shareholders without limitations. The ability of foreign investors to convert rubles into any freely convertible currency (FCC) depends on the availability of such currency on the Russian exchange markets. Though the market for conversion of rubles into FCC exists in Russia, including interbank currency exchange, after- markets and currency futures markets, the future development of this market remains vague. 103 Risks related to the changes of the rules of customs clearance and duties Changes of the rules of customs clearance and duties may entail the increase of the purchasing prices on the import goods and thus the reduction of the Group’s profit. Risks related to the changes of licensing requirements to the primary activity of the Company or licensing of the use rights for 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 companies of the Group have licenses for retail sale of alcohol beverages consumed not on the spot of purchase. In case of changes of licensing requirements, the Company will operate under the new requirements including license re-issuance and new licenses’ obtaining. Risks related to the changes in judicial practice on the issues of the Company’s business (including licensing issues), which may have negative effect on the results of the Company’s operation as well as on the results of the current legal proceedings in which the Company participates. OJSC “Magnit” and other companies of the Group do not participate in legal proceedings which could have a substantial material effect on the financial and economic activity of the Group. However, the changes in the judicial practice on the issues of licensing, consumer protection, property rights protection, taxation and other issues of substantial significance for the Group’s operation may negatively affect the results of its operation if the corresponding judicial disputes arise. RRIISSKKSS RREELLAATTEEDD TTOO TTHHEE CCOOMMPPAANNYY’’SS OOPPEERRAATTIIOONN Risks peculiar for the Company 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 is subject to licensing for all Group’s enterprises engaged in such activity. The Group has licenses for retail sale of alcohol consumed not at the point of sale. 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. 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. 104 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 entire Group. Other risks related to the Company’s operation As the Company exercise functions of the holding company of the Group the Company significantly depends on the operations of its subsidiaries. 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, in accordance with the Federal Law № 381 – FL “On the principles of state regulation of trade activity in the Russian Federation” effective from February 1, 2010 food chains (which threshold of dominance on the retail market within the boundaries of the region, municipal area or urban district exceeds 25%) are prohibited from purchasing and renting additional selling space within the boundaries of the relevant administrative-territorial entity. Agricultural consumer cooperatives and organizations of consumer cooperation are not subject to this prohibition. 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; 105 -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 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 106 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 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: 107 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 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. 108 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, 2011 this figure amounted to 14%. However it should be noted that together with the increasing number of hypermarkets, the sales share of “private label” represented by 640 items in both formats may reduce as the total assortment of a hypermarket amounts 14,300 SKUs on average, while the product mix of a convenience store amounts to 3,100. 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. 109 1177.. IINNFFOORRMMAATTIIOONN OONN TTHHEE CCOOMMPPLLIIAANNCCEE WWIITTHH TTHHEE FFFFMMSS CCOODDEE OOFF CCOORRPPOORRAATTEE CCOONNDDUUCCTT OOFF RRUUSSSSIIAANN FFEEDDEERRAATTIIOONN 1155 № 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. 110 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 № 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. Availability of risk management structure in the joint-stock company, ratified by the board of directors. the Not observed 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 111 № Clause of the code of corporate conduct Observed/ not observed Note of financial and economic activity of OJSC “Magnit”. 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 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 112 № 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 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) Aslan Shakhachemukov. 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 11.6-11.7 113 № 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 2011 the OJSC “Magnit” board meetings were held not less than once a month, except for January 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 114 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. № 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 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 (independent director); 3) Aslan Shkhachemukov (independent 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 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 115 № 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) Alexander Zayonts. 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 - 116 № 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 exercised by in for the the charter or (the manager) the in internal documents of the joint-stock company of the management prohibition to exercise organization similar competing company, and to be involved in any other joint-stock property relations with company, except for providing services to the (the management organization manager). functions the Observed/ not observed 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). 117 № 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 - 118 № 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. 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 119 № 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 120 Observed Not observed 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 № 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 Observed 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 121 № 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 Observed - Not observed - 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. 122 № 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. 123 № 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 124 1188.. IINNFFOORRMMAATTIIOONN OONN TTHHEE AAUUDDIITTOORR AANNDD TTHHEE CCOONNSSUULLTTAANNTT OOFF TTHHEE CCOOMMPPAANNYY Under the resolution of the annual general shareholders’ meeting of June 23, 2011 (minutes of 23.06.2011) the auditing firm LLC AF “Faber Lex” was appointed as the Company auditor for RAS for the year 2011. 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 2011 according to the Russian Accounting standards: In 2011 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 2011 according to IFRS: The audit of the Company´s report for the year 2011 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 December 28, 2009, certificate number 3028 of December 28, 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 125 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. 126 19. INFORMATION ON VOLUMES OF ENERGY RESOURCES UTILIZATION WITHIN THE YEAR 2011 Kind of energy resources Electrical energy Utilization volume terms 2,530,678 kW Thermal energy 714.2 Gcal Gas 27,316.1 thousand cub.m. capacity in Utilization capacity in money terms, thousand rubles 11879.5 699.9 158.4 127 AANNNNEEXX TTOO 22001111 AANNNNUUAALL RREEPPOORRTT OOFF OOJJSSCC ““MMAAGGNNIITT”” ANNEX № 1: Consolidated financial statements of OJSC “Magnit” for the year ended December 31, 2011. ANNEX № 2: RAS Accounting report of JSC “Tander” for the year 2011: (cid:1) Auditor’s report of “Faber Leks” Audit Limited Liability Company of the annual accounting report of JSC “Tander” for the financial year 2011 (cid:1) Accounting reports of JSC “Tander” for the year 2011 (cid:1) Explanations to the balance sheet and profit and loss statement of JSC "Tander" for the year 2011 (cid:1) Explanatory note to the accounting report of JSC "Tander" for the year 2011 ANNEX № 3: RAS Accounting report of OJSC “Magnit” for the year 2011: (cid:1) Auditor’s report of “Faber Leks” Audit Limited Liability Company of the annual accounting report of OJSC “Magnit” for the financial year 2011 (cid:1) Accounting reports of CJSC “Magnit” for the year 2011 (cid:1) Explanations to the balance sheet and profit and loss statement of OJSC "Magnit" for the year 2011 (cid:1) Explanatory note to the accounting report of OJSC "Magnit" for the year 2011 128 

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