Ratified by the resolution
of the Board of Directors
of PJSC “Magnit” of April 28, 2017,
minutes w/o No. of April 28, 2017
Ratified by the resolution
of the annual shareholders meeting
of PJSC “Magnit” of June 8, 2017,
minutes w/o No. of June 8, 2017
2016 ANNUAL REPORT
PUBLIC JOINT STOCK COMPANY
“MAGNIT”
15/5 Solnechnaya street, Krasnodar, Russian Federation
Chief Executive Officer
_____________________ S. Galitskiy
seal
KRASNODAR 2017
TABLE OF CONTENTS
1. PERFORMANCE HIGHLIGHTS ......................................................................................... 3
2. MISSION .................................................................................................................................. 6
3. INFORMATION ON THE PERSON IN THE POSITION OF A SOLE EXECUTIVE
BODY ............................................................................................................................................. 7
4. INFORMATION ON THE COLLEGIAL EXECUTIVE BODY MEMBERS
(MANAGEMENT BOARD) ...................................................................................................... 9
5. INFORMATION ON THE BOARD OF DIRECTORS MEMBERS ............................. 14
6. REPORT OF THE BOARD OF DIRECTORS ON 2016 OPERATIONS ..................... 21
7. MAIN 2016 CORPORATE EVENTS .................................................................................. 29
8. POSITION OF THE COMPANY IN INDUSTRY ........................................................... 31
9. PRIORITY AREAS OF THE COMPANY’S OPERATIONS ......................................... 46
10. PRIORITIES OF THE COMPANY’S DEVELOPMENT .............................................. 48
11. INFORMATION ON THE PAID DIVIDENDS ............................................................ 51
12. SECURITIES ......................................................................................................................... 54
13. TRANSACTIONS EXECUTED WITHIN THE YEAR 2016 CONSIDERED MAJOR
TRANSACTIONS ACCORDING TO THE FEDERAL LAW “ON JOINT STOCK
COMPANIES” ............................................................................................................................ 79
14. TRANSACTIONS EXECUTED WITHIN THE YEAR 2016 CONSIDERED
RELATED PARTY TRANSACTIONS ACCORDING TO THE FEDERAL LAW “ON
JOINT STOCK COMPANIES” ............................................................................................... 82
15. MAIN RISK FACTORS INHERENT IN THE СOMPANY OPERATION ............... 83
16. KEY ASPECTS OF THE SOCIAL AND ENVIRONMENTAL POLICY ................. 111
17. CORPORATE GOVERNANCE ...................................................................................... 116
18. INFORMATION ON THE AUDITOR AND THE CONSULTANT OF THE
COMPANY ............................................................................................................................... 129
19.
INFORMATION ON THE VOLUMES OF THE UTILIZED ENERGY
RESOURCES WITHIN 2016 .................................................................................................. 131
20. MANAGEMENT RESPONSIBILITY STATEMENT ................................................. 132
ANNEXES TO FY 2016 ANNUAL REPORT OF PJSC “MAGNIT” ............................... 133
ANNEX No. 1: Consolidated financial statements of PJSC “Magnit” for the year ended on
December 31, 2016.
ANNEX No. 2: Consolidated financial statements of PJSC "Magnit" for the year 2016
prepared in accordance with the Federal law N 208-FZ "On consolidated financial
statements".
ANNEX No. 3: Accounting report of JSC “Tander” for the year 2016 prepared in accordance
with RAS.
ANNEX No. 4: Accounting report of PJSC “Magnit” for the year 2016 prepared in accordance
with RAS.
ANNEX No. 5: Transactions executed within the year 2016 considered related party
transactions according to the Federal law “Оn Joint Stock Companies”.
ANNEX No. 6: Report on the compliance with the principles and recommendations of the
corporate governance code for the year 2016.
2
1. PERFORMANCE HIGHLIGHTS
2016 Key Operational Results1:
Number of opened stores, NET
Total number of stores,
Selling space, thousand sq. m.
Number of customers, million
Convenience stores
Hypermarkets
Magnit Family
Drogerie stores
Convenience stores
Hypermarkets
Magnit Family
Drogerie stores
Convenience Stores
Hypermarkets
Magnit Family
Drogerie stores
Convenience stores
Hypermarkets
Magnit Family
Drogerie stores
1 "Magnit" group of companies
3
1,970
927
18
39
986
14,059
10,521
237
194
3,107
5,067.67
3,452.40
683.67
212.76
718.84
3,817.13
3,220.10
262.10
127.00
207.93
LFL Results:
Formats
Convenience Stores
Hypermarkets
Magnit Family
Cosmetics Stores
Total
12M 2016 – 12M 20152
# of Stores
Average Ticket
8,663
211
133
1,911
10,918
0.32%
(0.85)%
(1.08)%
7.55%
(0.90)%
Traffic
2.05%
(9.32)%
(6.04)%
(2.50)%
Sales
2.38%
(10.09)%
(7.05)%
4.87%
0.65%
(0.26)%
2 LFL calculation base includes stores (all formats), which have been opened 12 months prior to the last
month of the reporting period. i.e. by December 1, 2015.
4
2016 Key Financial Results:
Net sales, mn RUR
Net sales, mn US$3
Gross profit, mn RUR
Gross profit, mn US$
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$
Net profit margin, %
Market capitalization, mn RUR4
Market capitalization, mn USD5
Convenience stores
Hypermarkets
Magnit Family
Drogerie stores
Wholesale
Convenience stores
Hypermarkets
Magnit Family
Drogerie stores
Wholesale
1,074,811.55
790,157.07
157,688.53
56,910.82
64,449.43
5,605.71
16,033.61
11,787.25
2,352.34
848.97
961.43
83.62
295,759.01
4,412.02
27.52%
146,264.42
2,181.91
13.61%
107,793.02
1,608.01
10.03%
81,967.38
1,222.76
7.63%
54,408.99
811.65
5.06%
1,031,475.26
17,113.39
3 Based on the average exchange rate for 2016 of 67.0349 RUR per 1 USD
4 PJSC “Moscow Stock Exchange” (previously CJSC “MICEX Stock Exchange”) as of December 31, 2016
5 Based on the exchange rate for December 30, 2016 of 60,2730 RUR per USD
5
2. MISSION
“We work hard to increase the prosperity of our customers by minimizing
their expenditure on quality consumer goods through:
- Efficient use of the Company's resources;
- On-going improvements in technology;
- Adequate compensation for our employees”
6
3. INFORMATION ON THE PERSON IN THE POSITION OF A SOLE EXECUTIVE
BODY
On April 13, 2006 Sergey Galitskiy was elected as a Chief Executive Officer of PJSC
“Magnit” (hereinafter – the “Company” or the “Issuer”) by the resolution of the Board of
Directors of April 12, 2006.
On April 6, 2015 the Board of Directors (Minutes w/o № of 06.04.2015) decided to
reappoint the Chief Executive Officer.
Biographical information on the person in the position of a sole executive body:
Surname and first name: Sergey Galitskiy
Date of birth: 14.08.1967
Education: higher - in 1992 graduated from Kuban State University with a degree in
Economics.
Positions held in the Company and other companies over the last five years, including
secondary employment:
1) Period: 01.04.2004 – present day
Organization: PJSC “Magnit”
Position: member of the Board of Directors;
2) Period: 13.04.2006 – present day
Organization: PJSC “Magnit”
Position: CEO;
3) Period: 05.08.2009 – 03.10.2014
Organization: NP “FC “Krasnodar”
Position: President (secondary employment);
4) Period: 15.07.2010 – present day
Organization: PJSC “Magnit”
Position: Chairman of the Management Board;
5) Period: 09.10.2014 – present day
Organization: LLC “Football Club “Krasnodar”
Position: President (secondary employment);
6) Period: 25.06.2015 – present day
Organization: PJSC VTB Bank
Position: member of the Supervisory Board.
Stockholding of CEO in the Company’s charter capital: 35.10948% (as of 31.12.2016).
Ordinary shares, owned by CEO: 35.10948% (as of 31.12.2016).
Information on the transactions of acquisition/disposal of the Company’s shares, made by
the person in the position of the sole executive body within the reporting period:
№
Date of
transaction
1
31.03.2016
Type of
transaction
Disposal of
securities
Quantity of
securities
Description of securities
3,363,000
Ordinary registered uncertified shares
7
PRINCIPAL PROVISIONS OF COMPENSATION POLICY OF THE COMPANY
AND (OR) REIMBURSEMENT OF EXPENSES OF A PERSON IN THE POSITION OF THE
SOLE EXECUTIVE BODY OF THE COMPANY
Under the Clause 6 of the Regulations “On the Sole Executive Body of PJSC “Magnit”,
ratified by the resolution of the annual General Shareholders Meeting of 24.06.2010 (minutes of
28.06.2010 and in previous editions), the wage rate and other payments charged to the CEO
shall be determined by the labor contract executed with the CEO.
8
4. INFORMATION ON THE COLLEGIAL EXECUTIVE BODY MEMBERS
(MANAGEMENT BOARD)
as of December 31, 2016
Sergey Galitskiy - Chairman of the Management Board
Date of birth: 14.08.1967
Education: higher - in 1992 graduated from Kuban State University with a degree in
Economics.
Positions held in the Company and other companies over the last five years, including
secondary employment:
1) Period: 01.04.2004 – present day
Organization: PJSC “Magnit”
Position: member of the Board of Directors;
2) Period: 13.04.2006 – present day
Organization: PJSC “Magnit”
Position: CEO;
3) Period: 05.08.2009 – 03.10.2014
Organization: NP “FC “Krasnodar”
Position: President (secondary employment);
4) Period: 15.07.2010 – present day
Organization: PJSC “Magnit”
Position: Chairman of the Management Board;
5) Period: 09.10.2014 – present day
Organization: LLC “Football Club “Krasnodar”
Position: President (secondary employment);
6) Period: 25.06.2015 – present day
Organization: PJSC VTB Bank
Position: member of the Supervisory Board.
Stockholding of CEO in the Company’s charter capital: 35.10948% (as of 31.12.2016).
Ordinary shares owned by CEO: 35.10948% (as of 31.12.2016).
Information on the transactions of acquisition/disposal of the Company’s shares, made by
the person in the position of a sole executive body within the reporting period:
№
Date of
transaction
1
31.03.2016
Type of
transaction
Disposal of
securities
Alexander Barsukov
Quantity of
securities
Description of securities
3,363,000
Ordinary registered uncertified shares
Date of birth: 08.07.1977
Education: higher - in 1998 graduated from Rostov Law Institute of Ministry of Internal
Affairs of the Russian Federation with a degree in Law.
Positions held in the Company and other companies over the last five years, including
secondary employment:
9
1) Period: 16.07.2008 – 19.12.2012
Organization: JSC “Tander”
Position: Hypermarkets Sales Director;
2) Period: 15.07.2010 – present day
Organization: PJSC “Magnit”
Position: Member of the Management Board;
3) Period: 20.12.2012 – 31.08.2015
Organization: JSC “Tander”
Position: Director of Hypermarkets Sales Department;
4) Period: 01.09.2015 – 30.11.2015
Organization: JSC “Tander”
Position: Deputy General Director of Sales and Marketing;
5) Period: 01.12.2015 – 11.01.2016
Organization: JSC “Tander”
Position: Deputy General Director of Sales;
6) Period: 12.01.2016 – 17.10.2016
Organization: JSC “Tander”
Position: General Director.
Stockholding of the person in the issuer’s charter capital: no share.
Ordinary shares owned by the person: no share.
Information on the transactions of acquisition/disposal of the Company’s shares, made
by the person in the position of the member of the Management Board within the reporting
period:
№
1
2
Date of
transaction
03.02.2016
02.04.2016
Type of
transaction
Disposal of
securities
Disposal of
securities
Quantity of
securities
540
300
Description of securities
Ordinary registered uncertified
shares
Ordinary registered uncertified
shares
Marina Ivanova
Date of birth: 02.01.1964
Education: higher - in 1990 graduated from Tajik State University n.a. Lenin with a
degree in Chemistry and Biology Teaching.
Positions held in the Company and other companies over the last five years, including
secondary employment:
1) Period: 12.08.2008 – present day
Organization: JSC "Tander"
Position: Business Director (Head Office);
2) Period: 12.10.2012 – present day
Organization: PJSC "Magnit"
Position: Member of the Management Board;
Stockholding of the person in the issuer’s charter capital: no share.
10
Ordinary shares owned by the person: no share.
Information on the transactions of acquisition/disposal of the Company’s shares, made
by the person in the position of the member of the Management Board within the reporting
period:
№
Date of
transaction
1
15.04.2016
Type of
transaction
Disposal of
securities
Quantity of
securities
1,000
Description of securities
Ordinary registered uncertified
shares
Ilya Sattarov
Date of birth: 13.07.1976
Education: higher - in 1998 graduated from Kuban State University with a degree in
Economics.
Positions held in the Company and other companies over the last five years, including
secondary employment:
1) Period: 02.07.2007 – 07.12.2010
Organization: Commercial Joint-Stock Bank “Societe Generale Vostok Bank”, Closed
Joint-Stock Company
Position: CEO (JSC “SGVB” Krasnodar Branch);
2) Period: 08.12.2010 – 31.01.2011
Organization: JSC “Tander”
Position: Director of Assets Acquisition and Management (Head Office);
3) Period: 01.02.2011 – 31.07.2011
Organization: JSC “Tander”
Position: Director of Transport (Transport Department);
4) Period: 01.08.2011 – 14.06.2015
Organization: JSC “Tander”
Position: Deputy General Director of Logistics (Head Office);
5) Period: 12.10.2012 – 22.06.2016
Organization: PJSC “Magnit"
Position: Member of the Management Board;
6) Period: 15.06.2015 – 30.06.2016
Organization: JSC “Tander”
Position: Deputy General Director of Logistics and HR (Head Office);
7) Period: 01.07.2016 – present day
Organization: JSC “Tander”
Position: Deputy General Director of Sales and HR;
8) Period: 18.10.2016 – present day
Organization: PJSC “Magnit"
Position: Member of the Management Board.
Stockholding of the person in the Company’s charter capital: 0.000214% (as of
31.12.2016).
Ordinary shares, owned by the person: 0.000214% (as of 31.12.2016).
11
Information on the transactions of acquisition/disposal of the Company’s shares, made
by the person in the position of the member of the Management Board within the reporting
period:
№
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Date of
transaction
19.01.2016
20.01.2016
20.01.2016
21.01.2016
21.01.2016
22.01.2016
25.01.2016
28.01.2016
29.01.2016
29.01.2016
01.02.2016
01.02.2016
23.03.2016
24.03.2016
24.03.2016
25.03.2016
25.03.2016
18.05.2016
09.06.2016
10.08.2016
Type of
transaction
Disposal of
securities
Acquisition of
securities
Disposal of
securities
Acquisition of
securities
Disposal of
securities
Disposal of
securities
Disposal of
securities
Disposal of
securities
Acquisition of
securities
Disposal of
securities
Acquisition of
securities
Disposal of
securities
Disposal of
securities
Acquisition of
securities
Disposal of
securities
Acquisition of
securities
Disposal of
securities
Disposal of
securities
Disposal of
securities
Disposal of
securities
Quantity of
securities
Description of securities
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
Ordinary registered
uncertified shares
1
1
1
1
350
200
200
1
1
1
1
265
1
1
1
1
20
220
54
285
12
PRINCIPAL PROVISIONS OF COMPENSATION POLICY OF THE COMPANY
(OR) REIMBURSEMENT OF EXPENSES OF THE MEMBERS OF THE
AND
MANAGEMENT BOARD OF THE COMPANY AND THE AMOUNT OF REMUNERATION
(REINBERSEMENT OF EXPENSES) PAID DURING THE REPORTING YEAR
According to the Regulations “On the Collegial Executive Body (the Management
Board) of PJSC “Magnit” the remuneration of the Management Board’s member consists of the
remuneration under a labor contract or an additional agreement to it. The remuneration from
the net profit of the Company according to the data of the annual accounting report can be
annually paid to the members of the Management Board. The terms and procedure of payment
of remuneration to the Management Board’s members shall be determined by the Board of
Directors. According to a labor contract the wage rate for the participation in the operation of
the Management Board constitutes 50,000 rubles per month.
On June 2, 2016 the General Shareholders Meeting adopted a decision not to pay the
remuneration following the results of the year (Minutes w/o № of 03.06.2016).
The amount of the remuneration for the participation in the operation of the
Management Board paid in 2016 constitutes 129,491,272.16 rubles (including remuneration of
S. Galitskiy as the sole executive body).
The compensation policy of the Company shall not provide the reimbursement of the
expenses of the Management Board’s members related to the exercise of their functions.
Within the 2016 year the expenses to the Management Board’s members related to the
participation in the operation of the Management Board have not been reimbursed.
13
5. INFORMATION ON THE BOARD OF DIRECTORS MEMBERS
as of December 31, 2016
Khachatur Pombukhchan – the Chairman of the Board of Directors
Date of birth: 16.03.1974.
Education: higher - in 1996 graduated from Kuban State University with a degree in
Applied Mathematics; in 2000 from All-Russian Distance Institute of Finance and Economics
with a degree in Economics.
Positions held in the Company and other companies over the last five years, including
secondary employment:
1) Period: 19.06.2008 – 17.05.2012
Organization: LLC “Magnit Finance”
Position: General Director;
2) Period: 25.06.2008 – 23.06.2010
Organization: PJSC “Magnit”
Position: Member of the Board of Directors;
3) Period: 01.07.2008 – present day
Organization: JSC “Tander”
Position: Financial Director;
4) Period: 01.07.2008 – present day
Organization: PJSC “Magnit”
Position: Financial Executive Officer;
5) Period: 24.06.2010 – present day
Organization: PJSC “Magnit”
Position: Chairman of the Board of Directors.
Stockholding of the person in the issuer’s charter capital: no share.
Ordinary shares, owned by the person: no share.
Information on the transactions of acquisition/disposal of the Company’s shares, made
by the member of the Board of Directors within the reporting period: the person did not execute
transactions of acquisition/disposal of the Company’s shares within the reporting period.
Vladimir Gordeychuk
Date of birth: 15.08.1961.
Education: in 1988 graduated from Novorossiysk Higher Marine and Engineering
College, specialization of navigator.
Positions held in the Company and other companies over the last five years, including
secondary employment:
1) Period: 28.06.2006 – 11.01.2016.
Organization: JSC “Tander”.
Position: General Director;
2) Period: 12.04.2006 – 12.01.2016.
Organization: PJSC “Magnit”.
Position: Second Deputy CEO;
14
3) Period: 2016 – present day
Organization: PJSC “Magnit”.
Position: Member of the Board of Directors.
Shareholding of the person in the issuer’s charter capital: 1.0605% (as of 31.12.2016).
Ordinary shares owned by the person: 1.0605% (as of 31.12.2016).
Information on the transactions of acquisition/disposal of the Company’s shares, made
by the Board of Directors’ member during the reporting period:
№
Date of
transaction
1
09.11.2016
Type of
transaction
Disposal of
securities
Quantity of
securities
1,200,000
Description of securities
Ordinary registered uncertified
shares
Alexey Pshenichniy
Date of birth: 23.02.1967
Education: higher – in 1990 graduated from Krasnodar State Institute of Physical
Culture with a degree in Teaching and Organization of health and fitness activities and
tourism; additional (to higher) education – in 2004 graduated from Academy of National
Economy under the Government of the Russian Federation, Master of Business Administration
(MBA) degree.
Positions held in the Company and other companies over the last five years, including
secondary employment:
1)Period: 01.02.2010 - present day
Organization: Limited Liability Company “Bazis”
Position: Director (secondary employment);
2) Period: 01.02.2010 – 31.03.2012
Organization: Limited Liability Company “Yunior”
Position: Director (secondary employment);
3) Period: 01.01.2004 - present day
Organization: Limited Liability Company “Sports goods retail chain “Visshaya LIGA””
Position: Director (secondary employment);
4) Period: 13.12.2012 – present day
Organization: Limited Liability Company “Sport Plyus”
Position: Director (secondary employment);
5) Period: 29.05.2014 - present day
Organization: PJSC “Magnit”
Position: Member of the Board of Directors.
Shareholding of the person in the Company’s charter capital: no share.
Ordinary shares owned by the person: no share.
Information on the transactions of acquisition/disposal of the Company’s shares made
by the Board of Directors’ member within the reporting period: within the reporting period no
transactions on acquisition/disposal of the Company’s shares were made.
15
Sergey Galitskiy
Date of birth: 14.08.1967
Education: higher - in 1992 graduated from Kuban State University with a degree in
Economics.
Positions held in the Company and other companies over the last five years, including
secondary employment:
1) Period: 01.04.2004 – present day
Organization: PJSC “Magnit”
Position: member of the Board of Directors;
2) Period: 13.04.2006 – present day
Organization: PJSC “Magnit”
Position: CEO;
3) Period: 05.08.2009 – 03.10.2014
Organization: NP “FC “Krasnodar”
Position: President (secondary employment);
4) Period: 15.07.2010 – present day
Organization: PJSC “Magnit”
Position: Chairman of the Management Board;
5) Period: 09.10.2014 – present day
Organization: LLC “Football Club “Krasnodar”
Position: President (secondary employment);
6) Period: 25.06.2015 – present day
Organization: PJSC VTB Bank
Position: member of the Supervisory Board.
Stockholding of CEO in the Company’s share capital: 35.10948% (as of 31.12.2016).
Ordinary shares, owned by CEO: 35.10948% (as of 31.12.2016).
Information on the transactions of acquisition/disposal of the Company’s shares, made by
the person in the position of the sole executive body within the reporting period:
№
Date of
transaction
1
31.03.2016
Type of
transaction
Disposal of
securities
Alexander Zayonts
Quantity of
securities
Description of securities
3,363,000
Ordinary registered uncertified shares
Date of birth: 10.01.1967
Education: higher – graduated from Moscow Institute of Chemical Engineering n.a. D.I.
Mendeleev with a degree in Chemical process engineering.
Positions held in the Company and other companies over the last five years, including
secondary employment:
1) Period: 09.01.2008 – present day
Organization: LLC "Domashniy Interier"
Position: General Director;
16
2) Period: 01.12.2009 – September 2013
Organization: LLC "Obiedinennye resursy"
Position: Member of the Board of Directors;
3) Period: 24.06.2010 – present day
Organization: PJSC "Magnit"
Position: Member of the Board of Directors;
4) Period: 13.04.2012 – present day
Organization: LLC “EDELVEIS” (secondary employment)
Position: General Director.
5) Period: 2015 – present day
Organization: LLC “Galereya vkusa” (secondary employment)
Position: General Director.
Shareholding of the person in the Company’s charter capital: no share.
Ordinary shares owned by the person: no share.
Information on the transactions of acquisition/disposal of the Company’s shares made
by the Board of Directors’ member within the reporting period: within the reporting period no
transactions of acquisition/disposal of the Company’s shares were made.
Aleksandr Aleksandrov
Date of birth: 22.11.1975
Education: higher - graduated from Institute of International Law, Economics, Liberal
Arts and Management n.a. K.V. Rossinskigo with a degree in Law.
Positions held in the Company and other companies over the last five years, including
secondary employment:
1) Period: 09.04.2004– present day
Organization: Limited Liability Company “Yuzhnaya Torgovaya Companiya”
Position: General Director (secondary employment);
2) Period: 05.01.2005 – December 2016
Organization: Limited Liability Company “YUTKO-REGION”
Position: Director (secondary employment);
3) Period: 04.06.2015 – present day
Organization: PJSC "Magnit"
Position: Member of the Board of Directors;
4) Period: January 2017 – present day
Organization: Limited Liability Company “YUTKO-REGION”
Position: Head of liquidation commission.
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/disposal of the Company’s shares made by
the Board of Directors’ member within the reporting period: within the reporting period no
transactions of acquisition/disposal of the Company’s shares were made.
Aslan Shkhachemukov
17
Date of birth: 22.08.1962
Education: higher – in 1987 graduated from Krasnodar Polytechnic Institute of the Order
of the Red Banner of Labor with a degree in Industrial Engineering.
Positions held in the Company and other companies over the last five years, including
secondary employment:
1) Period: 01.10.2007 – 29.02.2012
Organization: JSC “Tander”
Position: Deputy General Director;
2) Period: 23.06.2011 – present day
Organization: PJSC ”Magnit”
Position: Member of the Board of Directors;
3) Period: 01.03.2012 – 31.05.2015
Organization: JSC “Tander”
Position: Deputy General Director of Economic Security and Organizational Issues.
4) Period: 01.06.2015– 10.01.2016
Organization: JSC “Tander”
Position: Deputy General Director of Economic Security and Organizational Issues, GR
and PR.
5) Period: 11.01.2016 – 18.12.2016
Organization: JSC “Tander”
Position: Deputy General Director of Security, Legal Assistance, GR and PR;
6) Period: 19.12.2016 – present day
Organization: JSC “Tander”
Position: Deputy General Director of Security, Legal Assistance, Audit Activities, GR and
PR.
Shareholding of the person in the issuer’s charter capital: 0.009401% (as of 31.12.2016).
Ordinary shares owned by the person: 0.009401% (as of 31.12.2016).
Information on the transactions of acquisition/disposal of the Company’s shares made
by the Board of Directors’ member within the reporting period:
№
1
2
Date of
transaction
06.04.2016
06.12.2016
Type of
transaction
Acquisition of
securities
Acquisition of
securities
Quantity of
securities
128
95
Description of securities
Ordinary registered uncertified
shares
Ordinary registered uncertified
shares
PRINCIPAL PROVISIONS OF COMPENSATION POLICY OF THE COMPANY
AND (OR) REIMBURSEMENT OF EXPENSES OF THE BOARD OF DIRECTORS’
MEMBERS OF THE COMPANY AND THE AMOUNT OF REMUNERATION
(REINBERSEMENT OF EXPENSES) PAID DURING THE REPORTING YEAR
According to the Regulations “On the Board of Directors of PJSC “Magnit”, ratified by
the resolution of the annual General Shareholders Meeting of 04.06.2015 (minutes of 05.06.2015),
remuneration of the Board of Directors’ members shall be paid upon the resolution of the
18
General Shareholders Meeting in the form of remuneration for participation in the operation of
the Board of Directors and remuneration for the achieved results.
The remuneration for the participation in the Board of Directors’ operation amounts to
120,000 (one hundred and twenty thousand) rubles per month.
The remuneration to the independent director for participation in the Board of Directors’
operation amounts to 30,000 (thirty thousand) US dollars per year, additionally
- 2,000 (two thousand) US dollars for participation by means of personal presence in
each meeting of the Board of Directors, held in the form of physical presence,
- 500 (five hundred) US dollars for participation, by means of directing the written
opinion, in each meeting of the Board of Directors held in the form of physical presence, or for
participation in each meeting of the Board of Directors held in absentia form.
Year-end bonus may be additionally paid to the remuneration of the Board of Directors’
members. The fixed amount of year-end bonus shall be paid to the members of the Board of
Directors after the approval of corresponding annual financial statements by the decision of the
General Shareholders Meeting of the Company.
In case of absence of net profit (profit for the distribution) in the Company the
remuneration to the members of the Board of Directors (remuneration for the participation in
the operation of the Board of Directors, year-end bonus) shall not be paid.
The members of the Board of Directors shall not be entitled to receive remuneration and
(or) reimbursement of expenses for the performance of their duties in any way and form, for the
adoption of decisions by the Board of Directors or by other authorities of the Company, as well
as for the exercise of their rights and duties as a member of the Board of Directors, for the
except of remuneration and (or) reimbursement of expenses, received upon the decision of the
General Shareholders Meeting.
On June 2, 2016 the General Shareholders Meeting made a decision not to pay year-end
bonus (minutes of 03.06.2016)
In 2016 the remuneration for the participation in the operation of the Board of Directors
within 2015 year in the amount of 13,405,102.68 rubles (upon the resolution of the General
Shareholders Meeting of 02.06.2016 (minutes w/o № of 03.06.2016) was paid to the members of
the Board of Directors and salary to the members of the Board of Directors, who are employed
in the Company, as well as who work in secondary employment, in the amount of 88,100.26
rubles (the amount doesn’t include the remuneration to Sergey Galitskiy as the CEO and the
Chairman of the Management Board of the Company).
According to the Regulations “On the Board of Directors of PJSC “Magnit”, ratified by
the resolution of the annual General Shareholders Meeting of 04.06.2015 (minutes w/o № of
05.06.2015), the Company shall reimburse the expenses of the members of the Board of
Directors which are directly related to the exercise of their duties, including:
- Expenses related to traveling to the place of the meeting of the Board of Directors;
- Expenses related to accommodation during the period of holding of the meeting of
the Board of Directors;
- Representational expenses;
- Expenses related to the expert consultation on the issues considered at the Board of
Directors’ meetings, as well as on translation of the documents/materials presented
to the members of the Board of Directors.
The amount of such expenses should be preliminarily agreed with the Chairman of the
Board of Directors, Chairman of the Revision Committee. The reimbursement of expenses shall
19
be made via cash register of the Company based on the application on reimbursement of
expenses made by the member of the Board of Directors. The original documents confirming
actual incurred expenses (tickets, bills, receipts, etc.) shall be necessarily attached to the
application. The Board of Directors may adopt a decision on refusal of reimbursement of
expenses incurred by the Board of Directors’ member at its meeting by majority of votes of
elected members, if it is established that this member of the Board of Directors acted against the
interests of the Company.
During 2016 year the expenses related to the exercise of duties of the members of the
Board of Directors of PJSC “Magnit” have not been reimbursed.
20
6. REPORT OF THE BOARD OF DIRECTORS ON 2016 OPERATIONS
The structure of the Board of Directors, elected by the annual General Shareholders
Meeting on June 4, 2015 (minutes of 05.06.2015):
№
Full name of a member of the Board of Directors
Date of birth
1
2
3
4
5
6
7
Andrey Arutyunyan
Alexey Pshenichnyi
Sergey Galitskiy
Alexander Zayonts
Aleksandr Aleksandrov
Khachatur Pombukhchan
Aslan Shkhachemukov
12.01.1969
23.02.1967
14.08.1967
10.01.1967
22.11.1975
16.03.1974
22.08.1962
The structure of the Board of Directors, elected by the annual General Shareholders
Meeting on June 2, 2016 (minutes of 03.06.2016):
№
Full name of a member of the Board of Directors
Date of birth
1
2
3
4
5
6
7
Vladimir Gordeychuk
Alexey Pshenichniy
Sergey Galitskiy
Alexander Zayonts
Aleksandr Aleksandrov
Khachatur Pombukhchan
Aslan Shkhachemukov
15.08.1961
23.02.1967
14.08.1967
10.01.1967
22.11.1975
16.03.1974
22.08.1962
The current structure of the Board of Directors includes three independent directors -
Alexey Pshenichniy, Alexander Zayonts, Aleksandr Aleksandrov.
Khachatur Pombukhchan was elected as a Chairman of the Board of Directors by the
unanimous resolution at the first Board of Directors’ meeting as of June 22, 2016, Aslan
Shkhachemukov as a Deputy Chairman and Vladimir Gordeychyk as a Secretary of the Board
of Directors.
The Board of Directors of the Company operated under the Federal Law “On Joint-Stock
Companies”, the Charter of the Company, the Regulations on the Board of Directors of PJSC
“Magnit” and the Regulations on the Committees of the Board of Directors of PJSC “Magnit”.
According to the provisions of the corporate documents the committees of the Board of
Directors were formed to provide its operating efficiency and to prepare the most important
issues.
21
According to the resolution of the Board of Directors as of June 22, 2016 the membership
of the committees are formed as follows:
HR and Remuneration Committee of the Board of Directors:
Full name of a member of the Board of
Directors
Position in the committee
Aleksandr Aleksandrov
member of the committee
Alexey Pshenichniy
Alexander Zayonts
chairman 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
chairman of the committee
Aleksandr Aleksandrov
member of the committee
Alexey Pshenichniy
member of the committee
№
1
2
3
№
1
2
3
The meetings of the committees are held as and when required, but not less than 1 (One)
time per year.
All the members of the correspondent committees participated in all the meetings of the
Board of Directors’ committees, which had been held within the reporting period.
Within 2016 year the Board of Directors held 11 meetings and considered 84 issues. All
the meetings of the Board of Directors were held in the form of joint presence.
Information on the presence of directors in the meetings of the Board of Directors in
2016:
Full name of a member of
the Board of Directors
Andrey Arutyunyan
Alexey Pshenichniy
Sergey Galitskiy
Alexander Zayonts
Vladimir Gordeychuk
Khachatur
Pombukhchan
Aslan Shkhachemukov
Aleksandr Aleksandrov
Status
Participation in the meeting
Independent
Executive
-
+
-
+
-
-
-
+
+
-
+
-
-
+
-
-
22
Total
number*
5 of 5
11 of 11
11 of 11
11 of 11
6 of 6
11 of 11
11 of 11
11 of 11
Physical
presence
In
absentia
5
11
11
11
6
11
11
11
-
-
-
-
-
-
-
-
*in this context the indication (5 of 4) will signify that the director may participate (may adopt
decisions on the issues raised for voting) in 5 meetings and participated in 4 of them.
Main issues considered by the Board of Directors in 2016:
Date of the
meeting
04.02.2016
04.02.2016
04.02.2016
Considered issues
The nominees to the Board of Directors were considered and enrolled on a
voter list for election at the annual General Shareholders Meeting.
The nominees to the position of auditor were considered and enrolled on a
voter list for election at the annual General Shareholders Meeting.
Business priorities of PJSC “Magnit” for the year 2016 and the first quarter of
2016 were determined.
29.03.2016
Internal control and risk management policy of PJSC “Magnit” was ratified.
29.03.2016
The changes in the business plan of PJSC “Magnit” Internal audit department
for the year 2016 were approved.
29.03.2016
Related party transactions were approved.
29.03.2016
PJSC “Magnit” business priorities for the second quarter of 2016 were
determined.
07.04.2016
The decision on calling of the annual General Shareholders Meeting was made.
07.04.2016
07.04.2016
The recommendations to the General Shareholders Meeting on the profit
distribution, including the dividend amount on PJSC “Magnit” shares and
procedure of its payment, and loss of the Company following the results of
2015 financial year were approved.
The annual report of PJSC “Magnit” for 2015 financial year was preliminarily
approved and submitted for consideration of the General Shareholders
Meeting.
07.04.2016
The amount of remuneration for the auditor’s services was determined.
07.04.2016
07.04.2016
07.04.2016
27.05.2016
27.05.2016
The decision on determination of the price of the transactions the approval of
which as major related-party transactions is included to the agenda of the
General Shareholders Meeting of PJSC “Magnit” was adopted.
The list of candidates to be elected to the PJSC “Magnit” Board of Directors at
the annual General Shareholders Meeting of the Company was approved.
The list of candidates to be elected to the PJSC “Magnit” Revision commission
at the annual General Shareholders Meeting of the Company was approved.
The Regulations on the PJSC “Magnit” corporate governance department were
ratified.
The nominee for the position of the Director for corporate governance of PJSC
“Magnit” was approved.
27.05.2016
The Regulations on the dividend policy of PJSC “Magnit” were ratified.
27.05.2016
22.06.2016
The Regulations on the committees of the PJSC "Magnit" Board of Directors
were ratified.
The Chairman of the Board of Directors of PJSC “Magnit”, the Deputy
Chairman of the Board of Directors and the Secretary of the Board of Directors
of PJSC “Magnit” were elected.
23
22.06.2016
22.06.2016
The members of the Audit committee of the Board of Directors of PJSC
“Magnit” and its Chairman were elected.
The members of the HR and Remuneration Committee of the Board of
Directors of PJSC “Magnit” and its Chairman were elected.
22.06.2016
The members of the Management Board of PJSC “Magnit” were elected.
22.06.2016
22.06.2016
The Program and the Prospectus of PJSC “Magnit” exchange-traded bonds of
the 002P series were approved.
Business priorities of PJSC “Magnit” for the third quarter of 2016 were
determined.
22.06.2016
The auditor’s amount of remuneration was determined.
01.08.2016
01.08.2016
01.08.2016
29.09.2016
17.10.2016
31.10.2016
31.10.2016
31.10.2016
31.10.2016
The decision on calling of the extraordinary General Shareholders Meeting of
PJSC “Magnit” was made.
The recommendations to the General Shareholders Meeting on the dividend
amount on PJSC “Magnit” shares following the results of the 1H 2016, the
procedure of its payment and the dividend record date were approved.
The decision on determination of the price of the transactions the approval of
which as major related-party transactions is included to the agenda of the
General Shareholders Meeting of PJSC “Magnit” was made.
Business priorities of PJSC “Magnit” for the fourth quarter of 2016 were
determined.
The authorities of the member of the PJSC “Magnit” collective executive body
(Management Board) were early terminated.
The decision on calling of the extraordinary General Shareholders Meeting of
PJSC “Magnit” was made.
The recommendations to the General Shareholders Meeting on the dividend
amount on PJSC “Magnit” shares following the results of the 9 months of 2016
reporting year, the procedure of its payment and the dividend record date were
approved.
The list of candidates to be elected to the PJSC “Magnit” Revision commission
at the extraordinary General Shareholders Meeting of the Company was
approved.
The decision on determination of the price of the transactions the approval of
which as major related-party transactions is included to the agenda of the
General Shareholders Meeting of PJSC “Magnit” was made.
31.10.2016
The amount of remuneration for the auditor’s services was determined.
31.10.2016
The Code of Business Ethics of PJSC “Magnit” was ratified.
15.12.2016
The business plan of the Internal Audit Department of PJSC “Magnit” for 2017
was approved.
15.12.2016
Related party transactions were approved.
15.12.2016
The Regulations on the committees of the PJSC “Magnit” Board of Directors in
the new edition were approved.
Besides, within the reporting period the issues related to determination of the position of
PJSC “Magnit” representative on realization of the voting rights on the Company’s stocks and
24
shares in other companies were examined by the Board of Directors of PJSC “Magnit” in
accordance with the Clause 14.2 of the Charter. Thus, the meetings on the issues concerning
determination of the position of PJSC “Magnit” representative on realization of the voting
rights on the Company’s shares of JSC “Tander”, stock in Retail import LLC, LLC “Tandem”,
LLC “Alcotrading” were held in February, April, May, August, September, October, and
December of 2016 year.
The performance evaluation of the Board of Directors
Within the reporting period the HR and Remuneration Committee of the Board of
Directors in accordance with its competence evaluated the performance of the current
membership of the Board of Directors.
The Committee evaluated the following:
1. The Board of Directors performance: compliance of the Board of Directors structure
with the functions performed; qualitative composition of the Board of Directors; internal
dynamics (process) of the Board of Directors performance; performance of the Company’s
Secretary; performance of its main functions by the Board of Directors.
2. Performance of the Chairman of the Board of Directors: general management of the
Board of Directors; development of the Board of Directors as a management body of the
Company; management of the Board of Directors meetings; collaboration with the Company
Management Board; collaboration with the Company’s shareholders and investors; personal
attributes; management skills; communication skills; skills of performing the functions of the
Chairman of the Board of Directors; skills of performing the functions of a member of the
Board of Directors; professional skills.
3. Performance of the Committees of the Board of Directors: compliance of the structure of
the committees with the functions performed; qualitative composition of the committee;
internal dynamics (process) of the committee performance; performance of its functions by the
committee; holding of the committee meetings.
4. Compliance of the Board of Directors members, which are considered independent,
with the criteria of independence determined by the Corporate governance code and the Listing
rules of PJSC “Moscow Exchange” (previously – CJSC “MICEX Stock Exchange”).
The analysis of the current incentive program for the members of the Board of Directors.
The committee determined that operating efficiency of the current membership of the
Board of Directors corresponds to the nature and range of activity of the Company, needs of the
Company and interests of the shareholders.
The management of the Company achieved the following results in 2016:
1. Revenue of the Company increased by 13.07% from 950.61 billion rubles in 2015 to
1.07 trillion rubles in 2016.
In 2016 "Magnit" remained the leader of the Russian FMCG retail sector in terms of
revenue as well as number of stores, selling space and capitalization.
2. During 2016 the Company added 1,970 stores (927 convenience stores, 18
hypermarkets, 39 “Magnit Family” stores and 986 drogerie stores). The total store base as of
December 31, 2016 reached 14,059 stores (10,521 convenience stores, 237 hypermarkets, 194
“Magnit Family” stores and 3,107 drogerie stores). Total selling space of the stores increased by
14.82% from 4,413.72 thousand sq. m. to 5,067.67 thousand sq. m.
25
14059
12089
9711
8093
6884
5309
4055
4002
5006
6046
7200
8344
9594
10521
610
610
1014
1014
1500
1500
1893
2197
2582
3228
1893
2194
2568
3204
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Drogeries
Magnit Family
Hypermarkets
Convenience Stores
3. Number of customers increased by 13.04% from 3,376.86 million in 2015 to 3,817.13
million in 2016.
4. Sales of private label products as a % of sales in 2016 amounted to 11.02%, the number
of private label SKUs in 2016 amounted to 611. Magnit will continue to increase the sales of
private label products through their expansion in all formats.
800
700
600
500
400
300
200
100
0
12,1% 12,1% 12,3% 12,7%
14,0%
13,2% 13,0%
10,9% 11,0% 11,0%
700
700
530
614
637
613
681
605
596
611
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Number of items
Share in Revenue, %
16%
14%
12%
10%
8%
6%
4%
2%
0%
5. In 2016 the Company opened three distribution centers: Dmitrov, Orenburg,
Kemerovo. The launch of the new distribution centers improved the quality of service in the
Central, Volga and Siberian regions. Total space of 35 distribution centers as of December 31,
2016 stood at about 1,505 thousand sq. m.
6. Magnit continued to make efficiency improvements to its logistics network. The share
of products processed via the Company’s distribution centers (centralization ratio) stood at
87%. During the reporting year the fleet of the Company’s vehicles decreased by 169 trucks,
total number of vehicles was 5,713.
26
7. The Company was actively working with its employees increasing their loyalty and
developing corporate culture. As of December 31, 2016 the total number of the Company’s
employees exceeded 270 thousand, out of which 200,233 are in-store personnel; 35,651 people
engaged in distribution; 21,654 people in regional branches, 11,151 are employees of the head
office and 2,680 – other personnel. Average monthly salary in the Company in 2016 amounted
to 32 893 rubles.
In 2016 the average number of employees of the "Magnit" group of companies amounted
to 230,266 people. Based on the publicly available information the management of the Company
assumes that PJSC “Magnit” is the largest private employer in Russia.
8. LFL figures in 2016 vs. 2015 in ruble terms were the following: LFL revenue was
(0.26)%, LFL average ticket was (0.90)% and LFL traffic was 0.65%. The decrease of LFL figures
year on year was mainly driven by weak macroeconomic conditions and
internal
cannibalization.
9. Gross margin decreased from 28.49% in 2015 to 27.52% in 2016 due to price
investments and continued consumer trading down on the back of zero wage inflation. Gross
profit increased from 270.82 billion RUR to 295.76 billion RUR.
10. EBITDA increased from 103.97 billion RUR in 2015 to 107.79 billion RUR in 2016.
EBITDA margin in 2016 amounted to 10.03%. Net debt/EBITDA ratio (in ruble terms) at the end
of 2016 amounted to 1.03.
11. Net income in 2016 stood at 54.41 billion RUR. Net income margin in 2016 was
5.06%.
28,9%
764
11,3%
6,3%
2014
28,5%
951
10,9%
6,2%
2015
27,52%
1075
10,0%
5,1%
2016
Sales, RUR bn
EBITDA Margin, %
Gross Margin, %
NI Margin, %
12. Magnit paid 49% of its net income in dividends for the 9 months 2016. Dividend per
share amounted to 210.72 rubles (accumulatively, including 84.6 rubles for the first half of 2016
and 126.12 rubles for the third quarter 2016).
Overall, Magnit’s Board of Directors considers the achieved financial and economic
results positive and in line with 2016 internal targets.
27
Following the results of the conducted work the Board of Directors of Magnit
recommends the annual general shareholders meeting to approve the performance of the
Company’s management bodies during 2016 and to ratify 2016 annual report submitted for
the meeting agenda.
28
7. MAIN 2016 CORPORATE EVENTS
April
June
“National Rating Agency” has assigned the reliability rating “AAA” with
the stable outlook (maximum reliability) to PJSC “Magnit”.
Standard & Poor’s Rating Services affirmed the “BB+” long-term credit
rating of “Magnit” with the negative outlook.
The annual General Shareholders Meeting was held.
The membership of the Management Board of PJSC “Magnit” was formed
by the Board of Directors.
The Board of Directors formed the committees of the Board of Directors,
appointed the chairman, the deputy chairman and the secretary of the Board
of Directors.
August
“Magnit” was ranked 46th in the 100 World’s Most Innovative Companies
List by the American edition of the Forbes business magazine and became
the only Russian company in the list for the second consecutive year.
“Magnit” was ranked 3rd by sales in the Annual Ranking of the 200 Biggest
Russia’s Nongovernmental Companies by the Forbes business magazine.
September
October
executives, with
Magnit’s
support of Volgograd Regional
Administration, held a joint session for local producers. Over 70 regional
suppliers participated in the session.
the
The extraordinary General Shareholders Meeting of PJSC “Magnit” was
held.
Standard & Poor’s Rating Services has affirmed the credit rating of the Issuer
at “BB+” level and revised “Negative” outlook to «Stable».
"Magnit" CEO Sergey Galitskiy has been included in the list of top business
leaders of 17th "TOP-1000 Russian Managers" rating for 2016 prepared by
the Russian Managers Association and Kommersant. Moreover, three other
executives were included in top five in the industry.
“Magnit” retail chain topped the list of the largest Russia’s employers
among the companies included in the Annual Ranking of the 200 Biggest
Russia’s Nongovernmental Companies by the Forbes business magazine.
November
“Magnit” hired its 1000th physically-challenged employee and is currently
one of a few companies in Russia, which employs such a large number of
physically-challenged workers.
December
The Code of Business Ethics of PJSC “Magnit” was ratified by the Board of
Directors.
The extraordinary General Shareholders Meeting of PJSC “Magnit” was
29
held.
3 (Three) General Shareholders Meetings were held in 2016.
At the annual General Shareholders Meeting, held on June 2, 2016 in the form of joint
presence, the positive decisions on all the agenda items were made.
The annual report of PJSC “Magnit” following the 2015 year results; annual accounting
(financial) reports of PJSC “Magnit”, including statements on financial results; the procedure of
distribution of profit (including payment (declaration) of dividends) and loss of PJSC “Magnit”
following the 2015 reporting year results; the auditor of PJSC “Magnit” according to the Russian
Accounting Standards and the International Financial Reporting Standards were approved.
The members of the Board of Directors of PJSC “Magnit” and the Revision Commission
of PJSC “Magnit” were elected.
The major related party transactions were approved.
At the extraordinary General Shareholders Meeting of PJSC “Magnit” held on
September 8, 2016 in the form of absentee voting the positive decisions on the agenda items
were adopted.
The decision on the payment of dividends on the shares of PJSC “Magnit” following the
6 months of 2016 reporting year was made, the PJSC “Magnit” Charter in the new edition was
ratified.
The major related party transactions were approved.
At the extraordinary General Shareholders Meeting of PJSC “Magnit” held on December
8, 2016 in the form of the joint presence the positive decisions on the agenda items were
adopted.
The decision on the payment of dividends on the shares of PJSC “Magnit” following the
9 months of 2016 reporting year was made.
The new membership of the Revision Commission was elected.
The major related party transactions were approved.
30
8. POSITION OF THE COMPANY IN INDUSTRY
RUSSIAN MARKET
This section was prepared with the use of the following materials: IA Infoline, public
sources of companies.
Retail turnover amounted to 28,137.1 billion RUR in 2016 and decreased by 5.2% in
terms of mass of commodities compared to 2015 (in 2015 it decreased by 10%). In 2016 food
retail turnover decreased by 5.3%, non-food retail turnover decreased by 5.1% compared to 2015.
In December 2016 retail turnover amounted to 2,899.2 billion RUR and decreased by
5.9% in terms of mass of commodities compared to December 2015. Food retail turnover in
comparable prices in December 2016 decreased by 6.5% compared to December 2015, non-food
– by 5.3%. Food retail turnover in rubles in December 2016 decreased by 0.6% compared to
December 2015, non-food – increased by 0.7%.
In the fourth quarter of 2016 retail turnover amounted to 7,785.4 billion RUR and
decreased by 4.8% in terms of mass of commodities compared to the fourth quarter of 2015 (in
the fourth quarter of 2015 it decreased by 12.7%). Food retail turnover in the fourth quarter of
2016 decreased by 5.7%, non-food – by 3.9% compared to the fourth quarter of 2015. Quarterly
dynamics of the retail turnover in Russia in 2007-2016 and the guidance of the Ministry of
Economic development and Trade for 2017-2019 are provided in the diagram.
Dynamics of the key figures of the consumer market in 2007-2016 and guidance for 2017-
2019, % Y-o-Y
25
20
15
10
5
0
-5
-10
-15
-20
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
9
0
Q
2
9
0
Q
3
9
0
Q
4
0
1
Q
1
0
1
Q
2
0
1
Q
3
0
1
Q
4
1
1
Q
1
1
1
Q
2
1
1
Q
3
1
1
Q
4
2
1
Q
1
2
1
Q
2
2
1
Q
3
2
1
Q
4
3
1
Q
1
3
1
Q
2
3
1
Q
3
3
1
Q
4
4
1
Q
1
4
1
Q
2
4
1
Q
3
4
1
Q
4
5
1
Q
1
5
1
Q
2
5
1
Q
3
5
1
Q
4
5
1
0
2
6
1
Q
1
6
1
Q
2
Growth rate of retail turnover
Growth rate of food turnover
Growth rate of non-food turnover
*
6
8
1
1
H
0
1
2
*
7
1
0
2
6
1
M
9
6
1
Q
3
6
1
Q
4
6
1
0
2
6
1
c
e
D
6
1
v
o
N
v
o
N
-
n
a
J
*
9
1
0
2
The monetary base (broad definition) characterizing money supply by the monetary
regulation agencies increased for December 2016 by 698.3 bn RUR compared to November 2016
(growth for December 2015 amounted to 1,156.6 bn RUR).
Dynamics of retail turnover and monetary base in 2007-2016, bn RUR
Source: IA Infoline
31
Retail turnover (in current prices), bn RUR
Monetary base (in broad definition), bn RUR
3400
2900
2400
1900
1400
900
400
14 000
12 000
10 000
8 000
6 000
4 000
2 000
0
9
0
n
a
J
7
0
n
u
J
7
0
v
o
N
8
0
r
p
A
8
0
p
e
S
9
0
b
e
F
9
0
l
u
J
9
0
c
e
D
0
1
y
a
M
0
1
t
c
O
1
1
r
a
M
1
1
g
u
A
2
1
n
a
J
2
1
n
u
J
2
1
v
o
N
3
1
r
p
A
3
1
p
e
S
4
1
b
e
F
4
1
l
u
J
4
1
c
e
D
5
1
y
a
M
5
1
t
c
O
6
1
r
a
M
6
1
g
u
A
Source: IA Infoline
Dynamics of retail turnover in Russia in 2007-2016 and guidance for 2017-2019
Period
Turnover, bn RUR
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
1Q 2013
2Q 2013
1H 2013
3Q 2013
4Q 2013
FY 2013
1Q 2014
2Q 2014
1H 2014
3Q 2014
4Q 2014
FY 2014
January 2015
February 2015
March 2015
1Q 2015
April 2015
May 2015
June 2015
2Q 2015
1H 2015
July 2015
August 2015
September 2015
3Q 2015
9M 2015
October 2015
November 2015
December 2015
4Q 2015
FY 2015
January 2016
February 2016
March 2016
1Q 2016
April 2016
May 2016
June 2016
10869
13944,2
14599,2
16512
19104,3
21394,5
5241,3
5692,8
10934,1
6052,0
6699,8
23685,9
5793
6256,8
12049,8
6697,2
7609,3
26356,2
2050,5
2024,4
2196,6
6271,5
2158,9
2213,7
2223,3
6595,9
12867,4
2301,1
2376,7
2322,6
7000,4
19867,8
2385,2
2387,3
2898,1
7670,6
27538,4
2126,2
2098,6
2220,3
6445,1
2204,2
2232,9
2255,7
Dynamics, to the corresponding period
In comparable prices, %
115,2
113,0
94,9
106,4
107,0
106,3
104,0
103,8
103,9
104,0
103,6
103,9
103,9
102,1
103,0
101,6
103,1
102,7
95,6
92,6
91,1
93,0
90,2
90,6
90,4
90,4
91,6
90,5
90,6
89,3
90,1
91,1
88,7
87,8
85,9
87,3
90,0
93,6
95,3
93,8
94,2
94,9
93,6
93,8
32
In current prices, %
124,8
128,3
104,7
113,1
115,7
112,0
111,8
111,4
111,4
110,2
110,0
110,7
110,5
109,9
110,2
110,7
113,6
111,3
109,8
108,2
106,9
108,3
105,7
105,7
104,9
105,4
106,8
105,0
105,0
103,6
104,5
106,0
103,2
101,9
98,1
100,8
104,5
103,7
103,7
101,1
102,8
102,1
100,9
101,5
Period
Turnover, bn RUR
2Q 2016
1H 2016
July 2016
August 2016
September 2016
3Q 2016
9M 2016
October 2016
November 2016
December 2016
4Q 2016
FY 2016
FY 2017 (guidance)
FY 2018 (guidance)
FY 2019 (guidance)
6692,8
13137,9
2362,6
2439,8
2411,4
7213,8
20351,7
2446,9
2439,3
2899,2
7785,4
28137,1
29813
31471
33419
Dynamics, to the corresponding period
In comparable prices, %
94,1
94,1
94,9
95,0
96,6
95,5
94,6
95,8
95,9
94,1
95,2
94,8
100,6
101,1
101,8
In current prices, %
101,5
102,1
102,7
102,7
103,8
103,0
102,4
102,6
102,2
100,0
101,5
102,2
105,7
105,6
106,2
Source: data of the Federal State Statistics Service and the Ministry of Economic Development and Trade
STRUCTURE OF RETAIL TURNOVER BY TYPES OF PRODUCTS
Retail turnover in 2016 decreased by 5.2% in terms of mass of commodities compared to
2015 and amounted to 28,137.1 billion RUR, at that consumption of food products decreased by
5.3%, non-food – by 5.1%.
In 2016 consumption of alcohol products decreased by 2.4% compared to 2015 and
amounted to 96.8 mln dL., at that the growth of consumption was demonstrated only by the
other alcohol products (cider, mead, etc.) – 40.6%. Decrease of consumption in 2016 was
demonstrated by low-alcohol beverages – by 12.2%, champagne and sparkling wine – by 6.9%,
beer-based beverages – 5.6%, beer (excluding beer cocktails and malt beverages) – by 3.7%,
cognac and cognac beverages – by 2.4%, wine products excluding champagne and sparkling
wine – 2.3%, including wine – by 3.1%, vodka and distilled products – by 0.6%.
Dynamics of retail turnover by types of products in 2007-2016, %
25
20
15
10
5
0
-5
-10
-15
-20
19,1
15,1
10,7
8,6
7,6
5
5,1
-8,2
-7,2
-8,8
-9,3
-10,3
-10,3
-11
-15
-6,1
-7,1
-7,1 -6,8
-5,6
-6,6 -6,5 -6,2 -6,5
-4,9 -4,5
-2,5
-3,9
-3,1 -3,2
-5,6
-5,1 -5,3
-3,9
-5,1
Total retail turnover
Food products
Alcohol drinks
Non-food
Source: IA Infoline
Dynamics of share of food products in retail turnover in 2007-2016
33
50
49
48
47
46
45
44
7
0
n
a
J
7
0
n
u
J
7
0
v
o
N
8
0
r
p
A
8
0
p
e
S
9
0
b
e
F
9
0
l
u
J
Share of food products in retail turnover (excl.tobacco products), %
9
0
c
e
D
0
1
y
a
M
0
1
t
c
O
1
1
r
a
M
1
1
g
u
A
2
1
n
a
J
2
1
n
u
J
2
1
v
o
N
3
1
r
p
A
3
1
p
e
S
4
1
b
e
F
4
1
l
u
J
4
1
c
e
D
5
1
y
a
M
5
1
v
o
N
6
1
r
p
A
6
1
p
e
S
Share of food products in retail turnover (incl.tobacco products), %
Polynomial (Share of food products in retail turnover (excl.tobacco products), %)
Polynomial (Share of food products in retail turnover (incl.tobacco products), %)
Source: IA Infoline
In 2016 the share of food products in the structure of retail turnover did not change vs.
2015. In December 2016 the share of food products decreased by 0.3 pp vs. December 2015. In
the fourth quarter of 2016 the share of food products in the structure of retail turnover
decreased by 0.3 pp vs. the fourth quarter of 2015.
Dynamics of retail turnover by groups of products in 2011-2016 (monthly), bn RUR
3500
3000
2500
2000
1500
1000
500
0
II-11 V-11 VIII-11 XI-11 II-12 V-12 VIII-12 XI-12 II-13 V-13 VIII-13 XI-13 II-14 V-14 VIII-14 XI-14 II-15 V-15 VIII-15 XI-15 II-16 V-16 VIII-16 XI-16
food products
non-food products
Source: IA Infoline
1492,1
1407,1
Structure of retail turnover by groups of products in 2011-20166
2014
2011
2016
2015
2012
2013
Dec 2015 Dec 2016 4Q 2015
Figures
4Q 2016
Retail turnover
food products
non-food products
share of food products, %
share of non-food products, %
19104,3 21394,5 23685,9 26356,2 27538,4 28137,1
2898,1
2899,2
7670,6
7785,4
9104,3 9961,4 11143,0 12380,8 13419,3 13710,4
1415,1
1407,1
3725,9
3756,5
10000,0 11433,2 12542,9 13975,4 14119,1 14426,7
1483,0
1492,1
3944,7
4028,9
47,7
52,3
46,6
53,4
47,0
53,0
47,0
53,0
48,7
51,3
48,7
51,3
48,8
51,2
48,5
51,5
48,6
51,4
48,3
51,7
Source: data of the Federal State Statistics Service
Structure of retail turnover by groups of products in 2011-2016 (monthly), %
6 For comparison, from the year 2009 data on the turnover and the share of food products in 2002-2008 are adjusted for tobacco products
34
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
51,5%
48,5%
II-11 IV-
11
VI-
11
VIII-
11
X-11 XII-
11
II-12 IV-
12
VI-
12
VIII-
12
X-12 XII-
12
II-13 IV-
013
VI-
13
VIII-
13
X-13 XII-
13
II-14 IV-
14
VI-
14
VIII-
14
X-14 XII-
14
II-15 IV-
15
VI-
15
VIII-
15
X-15 XII-
15
II-16 IV-
16
VI-
16
VIII-
16
X-16 XII-
16
share of food products, %
share of non-food products, %
Source: IA Infoline
STRUCTURE OF RETAIL TURNOVER BY TYPES OF ORGANIZATIONS
Following the results of the nine months of 2016 in terms of structure of retail turnover
by types of organizations the trend of decrease of the share of marketplaces (by 0.8 pp
compared to the nine months of 2015) continued. The share of small enterprises also decreased
by 0.6 pp and individual entrepreneurs – by 0.7 pp. The share of large organizations (mostly
these are retail networks) increased by 1.6 pp compared to the nine months of 2015, medium-
sized enterprises – by 0.5 pp, and the share of micro-sized enterprises did not change.
Structure of formation of retail turnover in 2007-2016 by types of organizations, %
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
37,3
35,2
34,5
36,2
38,2
40,2
41,3
43,3
44,2
44,3
46,3
44,2
46,3
22,2
26,3
25,8
25,2
25,5
25,0
24,6
23,7
23,4
23,2
22,5
23,2
22,6
25,2
15,3
25,2
26,1
25,9
24,7
24,2
24,7
24,3
24,5
24,5
13,3
13,6
12,7
11,6
10,6
9,4
8,7
7,9
8,0
24,1
7,1
24,6
8,0
23,9
7,2
2008
2007
Open markets
2009
2010
2011
Individual entrepreneurs
2012
2013
Small enterprises
2014
1H2015 1H2016 9M2015 9M2016
2015
Large and mid enterprises (incl. chains)
Source: IA Infoline
In December 2016 92.9% of retail turnover was formed by trading organizations and
individual entrepreneurs operating outside of the marketplaces, the share of retail marketplaces
and fairs amounted to 7.1% (in December 2015 – 92.7% and 7.3% correspondingly).
Turnover of trading organizations and marketplaces in 2011-2016, bn RUR
Figure
2011
2012
2013
2014
2015
2016 Dec 2015 Dec 2016 4Q 2015 4Q 2016
Retail turnover
turnover of trading
organizations
sales of open markets
share of trading organizations,
%
share of open markets, %
19104,3 21394,5 23685,9 26356,2 27538,4 28137,1
2898,1
2899,2
7670,6
7785,4
16898,4 19126,3 21453,8 24057,2 25369,8 26139,4
2687,0
2693,4
7091,2
7230,2
2205,9 2268,2 2232,1 2299,0 2168,6 7354,9
211,1
205,8
579,4
555,2
88,5
89,4
90,6
91,3
92,1
92,9
92,7
92,9
92,4
92,9
11,5
10,6
9,4
8,7
7,9
7,1
7,3
7,1
7,6
7,1
Source: data of the Federal State Statistics Service
35
Compared to December 2015 the turnover of trading organizations decreased by 5.6%,
while sales of the marketplaces decreased by 8.8%. In 2016 the turnover of trading organizations
dropped off by 4.5% compared to 2015, sales of the marketplaces decreased by 14%.
Dynamics of turnover of trading organizations and marketplaces in 2011-2016 (monthly), trn
RUR
3
2,5
2
1,5
1
0,5
0
0,21
2,69
III-11 VI-11 IX-11 XII-11 III-12 VI-12 IX-12 XII-12 III-13 VI-13 IX-13 XII-13 III-14 VI-14 IX-14 XII-14 III-15 VI-15 IX-15 XII-15 III-16 VI-16 IX-16 XII-16
Turnover of trading organizations, trn RUR
Sales of market places, trn RUR
Source: IA Infoline
In December 2016 compared to November 2016 the turnover of trading organizations
increased by 18.5%, while the sales of the marketplaces grew by 15.5%.
Structure of retail turnover in 2011-2016 (monthly), %
100%
98%
96%
94%
92%
90%
88%
86%
84%
82%
7,1
92,9
III-11V-11VII-11IX-11XI-11I-12III-12V-12VII-12IX-12XI-12I-13III кв.IV-13VI-13VIII-13X-13XII-13II-14IV-14VI-14VIII-14X-14XII-14II-15IV-15VI-15VIII-15X-15XII-12II-16IV-16VI-16VIII-16X-16XII-16
share of trading organizations, %
share of open markets, %
Source: IA Infoline
As of January 1, 2017 there were 1,158 retail markets with 311 thousand market slots
functioning on the territory of the Russian Federation. The breakdown of the retail markets by
types has changed in the fourth quarter of 2016 vs. the third quarter of 2016 towards the
increase of the share of specialized construction materials markets, agricultural and agricultural
cooperative markets on the back of decrease of the share of multipurpose markets and
specialized merchandise markets. As of January 1, 2017 the number of agricultural and
agricultural cooperative markets amounted to 275, including 165 markets (60.0% of the total
number) located in capital facilities. The level of actual use of the market slots as of January 1,
2017 amounted to 69.3% on average through the Russian Federation, which is lower compared
to October 1, 2016 and lower compared to January 1, 2016. Individual entrepreneurs still remain
36
the principal economic entities on the marketplaces. As of January 1, 2017 129.2 thousand
individual entrepreneurs operated at retail markets (as of October 1, 2016 – 138.1 thousand). In
the fourth quarter of 2016 9.3 thousand fairs were held. Individual entrepreneurs were the
principal economic entities on the fairs (66.7% from all market slots were allocated for them).
Dynamics of the number of open markets in the Russian Federation and their share in the retail
turnover in 2007-2016
6000
5000
4000
3000
2000
1000
0
15,3%
13,6%
13,3%
12,7%
11,6%
10,6%
9,5%
8,6%
8,5%
8,0%
8,0%
7,1%
7,3%
4771
3728
3497
3427
3159
2162
1589
1447
1308
1370
1223
1342
1194
2007
2008
2009
2010
2011
2012
2013
2014
2015
1H2015
1H2016
9M2015
9M2016
Number of markets in the russian Federation e-o-p
Share of markets in retail turnover in the Russian Federation (right scale),%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Source: IA Infoline
REGIONAL STRUCTURE OF RETAIL TURNOVER
Regional structure of retail turnover in Russia is uneven: 11 constituent territories
generated 49.69% of retail turnover in 2016 (Moscow, Moscow region, Saint-Petersburg,
Sverdlovsk region, Krasnodar region, Samara region, Republics of Tatarstan and Bashkortostan,
Tyumen region, Chelyabinsk region and Rostov region). Compared to 2015, the share of retail
turnover attributable to these 11 constituent territories of the Russian Federation decreased by
0.58 pp.
Dynamics of share of 69 regions of the Russian Federation (apart from 11 largest) in
retail turnover in 2007-2016, %
50,3%
50,2%
49,8%
50,8% 50,9%
50,2%
50,6%
50,3% 50,5%
49,7%
48,9% 48,9%
49,2%
47,7% 47,8%
48,3%
47,1%
46,6%
52%
50%
48%
46%
44%
42%
2007
2008 2009 2010 2011 2012 2013 2014 2015 1Q20151Q20162Q20152Q20161H20151H20169M20159M2016 2016
Source: IA Infoline
In 2016 the increase of the share in the retail turnover vs. 2015 was demonstrated by
Moscow region – by 0.5 pp, North-Western federal district – by 0.18 pp (including Saint-
Petersburg – by 0.18 pp), Far-Eastern federal district – by 0.11 pp, North-Caucasian federal
37
by 0.09 pp, while the decline in the retail turnover in 2016 was demonstrated by the
tail turnover in 2016 was demonstrated by the
district – by 0.09 pp, while the decline in the re
(by 0.74 pp), Urals federal district (by
Central federal district (by 0.2 pp, including Moscow – (by 0.74 pp), Urals federal district (by
Central federal district (by 0.2 pp, including Moscow
(by 0.09 pp). The share of
0.24 pp), Siberian federal district (by 0.1pp), Volga federal district – (by 0.09 pp). The share of
0.24 pp), Siberian federal district (by 0.1pp), Volga federal district
federal district together with the Crimean federal district (Republic of Crimea and
the Southern federal district together with the Crimean federal district (Republic of Crimea and
federal district together with the Crimean federal district (Republic of Crimea and
Sevastopol) increased by 0.26 pp.
Sevastopol) increased by 0.26 pp.
Structure of retail turnover by constituent entities
Structure of retail turnover by constituent entities
of the Russian Federation in 2015, %
of the Russian Federation in 2015, %
Samara region
2,1%
Sverdlovsk
region
3,8%
Tyumen region
3,0%
Structure of retail turnover by constituent entities
Structure of retail turnover by constituent
of the Russian Federation in 2016, %
of the Russian Federation in 2016, %
Tyumen region
2,9%
Samara region
Samara region
2,1%
Sverdlovsk
region
3,7%
Republic of
Tatarstan
2,8%
Republic of
Bashkortostan
2,8%
Republic of
Tatarstan
2,8%
Rostov region
3,0%
Krasnodar
region
4,2%
Chelyabinsk
region
1,9%
Republic of
Bashkortostan
2,9%
Other
50,3%
Rostov region
3,0%
Saint-
Petersburg
4,2%
Moscow
15,7%
Moscow region
6,3%
Krasnodar region
4,4%
Saint-Petersburgh
4,3%
Moscow
14,9%
Chelyabinsk
region
1,7%
Other
50,3%
Moscow region
6,8%
Source: IA Infoline
In 2016 the largest decrease (by more than 5%) of retail turnover vs. 2015 among the
In 2016 the largest decrease (by more than 5%) of retail turnover vs. 2015 among the
In 2016 the largest decrease (by more than 5%) of retail turnover vs. 2015 among the
largest constituent territories of the Russian Federation (share in retail turnover of the Russian
largest constituent territories of the Russian Federation (share in retail turnover of the Russian
largest constituent territories of the Russian Federation (share in retail turnover of the Russian
10.9%), Chelyabinsk region (-
Federation is above 1%) was demonstrated by Stavropol region (-10.9%), Chelyabinsk region (
Federation is above 1%) was demonstrated by Stavropol region (
Yugra (-9%), Perm region (-
10.5%), Moscow (-9.1%), Khanty
9.1%), Khanty-Mansiisk autonomous district-Yugra (
5.7%), Volgograd region (-5.7%), Saratov
7.5%), Kemerovo region (-7.5%), Irkutsk region (-5.7%), Volgograd region (
7.5%), Kemerovo region (
5.5%), Tyumen region excluding autonomous districts (-
5.6%), Sverdlovsk region (-5.5%), Tyumen region excluding autonomous districts (
region (-5.6%), Sverdlovsk region (
5.3%), Altai region (-5.2%), Samara region (
5.2%), Samara region (-5.1%).
Regional structure of retail turnover of the Russian Federation in 2007-2016, %
Regional structure of retail turnover of the Russian Federation in 2007
Regional structure of retail turnover of the Russian Federation in 2007
Region
Central federal district
Moscow region
Moscow
North-Western federal district
Saint-Petersburg
Southern federal district
Crimean federal district
North-Caucasian federal district
Volga federal district
Urals federal district
Siberian federal district
Far-Eastern federal district
6,4
6,12 6,16 6,32
2007 2008 2009 2010 2011 2012
34,4 33,4 33,83 34,18 34,52 34,06
6,1
5,89
18,8 17,0 17,31 17,46 17,39 17,01
9,4
9,20
4,1
3,95
8,5
8,97
0
0
3,8
5,10
17,9 18,4 18,27 18,18 18,16 18,29
10,4 10,8 10,14 9,76 9,63
9,65
11,7 11,6 10,95 10,71 10,80 10,89
3,9
3,83
9,35 9,36 9,13
4,15 4,15 3,88
8,73 8,98 8,91
0
4,66 4,85 4,96
9,3
4,2
8,8
0
4,0
4,07 3,98 3,88
3,8
0
0
5,74
2013 2014 2015 2016
33,93 34,21 33,69 33,49
6,76
16,96 16,83 15,65 14,91
9,66
4,32
6,00
6,26
9,07
3,89
9,01
0
5,11
9,04
3,86
9,13
0,70
5,09
9,48
4,16
9,43
0,92
5,46
5,55
18,48 18,41 17,73 17,64
8,78
9,85
4,43
9,02
10,79 10,23 9,95
4,32
9,24
3,96
3,90
9,72
10,617
The decline within 5% was demonstrated by Novosibirsk region (
The decline within 5% was demonstrated
by Novosibirsk region (-4.8%), Republic of
3.4%), Primorsky region (-
3.9%), Rostov region (-3.4%), Voronezh region (-3.4%), Primorsky region (
Bashkortostan (-3.9%), Rostov region (
Source: data of the Federal State Statistics Service
Source: data of the Federal State Statistics Service
7 From July 2016 Rosstat has included the Republic of Crimea and Sevastopol in the Southern federal district.
From July 2016 Rosstat has included the Republic of Crimea and Sevastopol in the Southern federal district.
From July 2016 Rosstat has included the Republic of Crimea and Sevastopol in the Southern federal district.
38
3.1%), Republic of Tatarstan (-2%), Saint-Petersburg (-1.5%), Nizhniy Novgorod region (
3.1%), Republic of Tatarstan (
Krasnoyarsk region (-1.4%),
1.4%), Khabarovsk region (-0.9%), Leningrad region (
0.9%), Leningrad region (-0.1%).
1.5%), Nizhniy Novgorod region (-1.4%),
Structure of retail turnover by federal districts of the
Structure of retail turnover by federal districts of the
Russian Federation in 2015, %
Russian Federation in 2015, %
Structure of retail turnover by federal districts of the
Structure of retail turnover by federal districts of the
Russian Federation in 2016, %
Russian Federation in 2016, %
Southern
9,4%
North-Caucasian
5,5%
Volga
17,7%
Urals
9,0%
Caucasian
North-Caucasian
5,5%
Southern
10,6%
Volga
17,6%
Urals
8,8%
North-Western
9,5%
Central
33,7%
Crimean
0,9%
Siberian
10,0%
Far-Eastern
4,3%
North-Western
9,7%
Central
33,5%
Siberian
9,9%
Far-Eastern
4,4%
increase among large regions was demonstrated by the Republic of Dagestan (1.9%),
The increase among large regions was demonstrated by the Republic of Dagestan (1.9%),
increase among large regions was demonstrated by the Republic of Dagestan (1.9%),
ion (1.7%), Moscow region (1%).
Belgorod region (1.7%), Moscow region (1%).
Source: IA Infoline
Dynamics of retail turnover by federal districts in 2011-2016, % Y
Dynamics of retail turnover by federal districts in 2011
2016, % Y-o-Y, in comparable
8,2
4,9
3,6
3,9
7,7
4,5
3,1
2,6
6,3
6,3
7,5
4,9
4,3
9,9
8,7
4,8
4,3
prices
7,8
6,6
5,8
3,4
2011
7,3
5,6
5,3
2012
8,3
7,1
3,3
2013
2014
2015
2016
5,34,8
5,7
5
0,7
-5,6
-11,9
-3,1
-7
-2,4
-7,6
-2,9
-4,1
-4,2
-12,7
-1
1,4
-1,4
-1,5
-2,5
-7,3
-11,7
-5,4
-11,4
Central
North-Western
Southern
North-Caucasian
Volga
Urals
Siberian
Siberian
Far-Eastern
Crimean
15
10
5
0
-5
-10
-15
Source: IA Infoline
In December 2016 the number of regions
2016 the number of regions8 which demonstrated the growth of retail
which demonstrated the growth of retail
turnover in physical terms decreased to 7 (in December 2015 – 9) vs. 13 in November 2016 (in
9) vs. 13 in November 2016 (in
turnover in physical terms decreased to 7 (in December 2015
9), and in 2016 their number did not change vs. 9 in January-November 2016
9), and in 2016 their number did not change vs. 9 in January
November 2015 – 9), and in 2016 their number did not change vs. 9 in January
(in 2015 – 5).
Number of regions with positive dynamics of retail turnover in physical terms, Y-o-Y
Number of regions with positive dynamics of retail turnover in physical terms, Y
Number of regions with positive dynamics of retail turnover in physical terms, Y
8 80 constituent entities of the Russian Feder
Yamal-Nenets and Nenets Autonomous Area
Nenets and Nenets Autonomous Area), which existed as of June 1, 2011.
entities of the Russian Federation were included in the analysis (excluding Khanty
excluding Khanty-Mansiisk Autonomous District,
39
80
70
60
50
40
30
20
10
0
7
0
r
a
M
7
0
y
a
M
7
0
l
u
J
7
0
p
e
S
7
0
v
o
N
8
0
n
a
J
8
0
r
a
M
8
0
y
a
M
8
0
l
u
J
8
0
p
e
S
8
0
v
o
N
9
0
n
a
J
9
0
r
a
M
9
0
y
a
M
9
0
l
u
J
9
0
p
e
S
9
0
v
o
N
0
1
n
a
J
0
1
r
a
M
0
1
y
a
M
0
1
l
u
J
0
1
p
e
S
0
1
v
o
N
1
1
n
a
J
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
2
1
n
a
J
2
1
r
a
M
2
1
y
a
M
2
1
l
u
J
2
1
p
e
S
2
1
v
o
N
3
1
n
a
J
3
1
r
a
M
3
1
y
a
M
3
1
l
u
J
3
1
p
e
S
3
1
v
o
N
4
1
n
a
J
4
1
r
a
M
4
1
y
a
M
4
1
l
u
J
4
1
p
e
S
4
1
v
o
N
5
1
n
a
J
5
1
r
a
M
5
1
y
a
M
5
1
l
u
J
5
1
p
e
S
5
1
v
o
N
6
1
n
a
J
6
1
r
a
M
6
1
y
a
M
6
1
l
u
J
6
1
p
e
S
6
1
v
o
N
Source: IA Infoline
GOVERNMENT REGULATION OF RETAIL
According to the Federal Law № 381 – FZ “On fundamental principles of government
regulation of trade activity in the Russian Federation” which came into effect on February 1,
2010, food retail chains (which threshold of dominance on retail market within the boundaries
of one region, municipality or urban district exceeds 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 regulating the cooperation of retail chains and suppliers. The
law № 381 – FZ introduced special legal regulation with regard to food supplies and set forth
the list of terms which cannot be imposed by food suppliers and their buyers (trading
networks) 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 failure to perform obligations on goods
supply on more favorable terms than for other economic entities; fee paid by suppliers for
access to trade objects within one trading network. 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. Payment due date for some food products was set forth.
On July 3, 2016 the Federal Law No. 273-FZ “On amendments to the Federal law “On
fundamental principles of government regulation of trade activity in the Russian Federation”
and to the Code of administrative offences of the Russian Federation” which came into effect on
July 15, 2016. The Federal law establishes that the total amount of all payments made by a food
products supplier to trade organizations shall not exceed 5% of the price of acquired food
products. This total amount shall include remuneration paid by the supplier in relation to the
acquisition of a certain number of food products, as well as payment for the products
promotion services, logistics services, services for preparing, processing, packaging of these
products, and other similar services. It is also specified that the calculation of the total amount
of all payments to trading organizations does not take into account the value-added tax amount
and the excise amount estimated in accordance with the legislation of the Russian Federation on
taxes and fees. The Federal Law decreases the payment due period for food products (for
products with up to 10-days expiry period the payment due period has been decreased from 10
40
to 8 working days, for products with up to 30-days expiry - from 30 to 25 calendar days, and for
the rest food products including alcoholics drinks - from 45 to 40 calendar days) and it
establishes that the payment due periods are calculated not from the date of acceptance of
goods but from the date of their actual receipt. The law also determines the obligation of
suppliers to submit documents for the delivered goods to trading organizations.
In accordance with the Resolution No. 1191 of November 3, 2015 of the Government of
the Russian Federation "On some issues related to charging of a fare against compensation for
damage caused to federal general purpose motorways by transport vehicles with the permitted
maximum weight of over 12 tons", since November 15, 2015 a fare for heavyweight cargo trucks
weighing over 12 tons on federal roads has been introduced in Russia. The fare per 1 km will
amount to 1.53 rubles until February 29, 2016. From March 1, 2016 to December 31, 2018 the fare
per 1 km will amount to 3.06 rubles, from January 1, 2019 – 3.73 rubles per 1 km. The fare per 1
km amounts to 1.53 rubles. From April 15, 2017 the fare per 1 km will amount to 1.91 rubles.
On June 30, 2015 the Federal Law No. 182-FZ of June 29, 2015 “On the amendments to
the Federal Law “On the state regulation of the production and circulation of ethyl alcohol,
alcoholic and alcohol-containing products and on the restriction of consumption (drinking) of
alcoholic products” came into effect. In accordance with the law, starting from January 1, 2016
all retailers selling alcohol products, including food service companies, shall provide the
information, confirming the fact of purchasing of alcohol products, to the USAIS (Unified State
Automated Information System for the government control over the volume of production and
circulation of ethyl alcohol, alcoholic and alcohol-containing products). By the middle of 2016
the majority of cash registers in stores selling alcohol (one-year deferral – until September 2017
– is specified for small locations) should have been be connected to the system. Starting from
July 1, 2016 retailers selling alcohol products in cities and towns shall record in the USAIS the
facts of retail sale of every bottle with a special federal stamp or excise stamp. Stores of retail
sale of alcohol products and food service companies located in towns with the population of
less than 3,000 people are released from the USAIS.
On July 3, 2016 the President of the Russian Federation signed the Federal Law No. 290-
FZ “On amendments to the Federal Law “On the application of cash registers for cash
transactions and (or) payments using credit cards” and certain legislative acts of the Russian
Federation”. The law provides for the phased transition to application of cash register
equipment which transfers information on payments made by cash or using electronic payment
means through the operator of fiscal data to tax authorities in the electronic form: for newly
registered cash register equipment – from January 1, 2017, for currently used cash register
equipment – from July 1, 2017, for individuals which previously were not obliged to apply cash
registers – from January 1, 2018. Introduction of new cash registered will be split into several
stages and will take two years.
MAIN COMPETITORS9
The concentration level of the Russian food retail market is rather low – the share of 7
largest players is little over 25.7% of the market, which is considerably inferior 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
9 Source: IA Infoline, public sources of companies.
41
as M&A deals. As a result, chains operating in the Russian market actively increase their
presence in Moscow and regions which leads to the record rates of business growth.
X5 Retail Group
X5 Retail Group N.V. is a leading Russian food retailer. The Company operates several
retail formats: the soft discounter chain under the Pyaterochka brand, the supermarket chain
under the Perekrestok brand, the hypermarket chain under the Karusel brand and Express
convenience stores under various brands.
As of December 31, 2016, X5 operates 9,187 stores. It has the leading market position in
both Moscow and St. Petersburg and a significant presence in the European part of Russia. Its
store base includes 8,363 Pyaterochka soft discounter stores, 539 Perekrestok supermarkets, 91
Karusel hypermarkets and 194 Express stores. As of December 31, 2016 the total selling space of
the company amounted to 4,301.75 thousand sq. m.
The Company operates 35 DCs and 2,318 Company-owned trucks across the Russian
Federation.
In 2016 sales of X5 Retail Group stood at 1,033,667 mln RUR.
METRO Cash & Carry
Metro Cash and Carry is the largest operating company of cash & carry international
business format (individual wholesale) of Metro Group.
As of December 31, 2016 "Metro Cash & Carry" LLC operates 87 trading centers in 46
regions of Russia (excluding the Republic of Crimea) with the total selling space of 661.8
thousand sq. m. The company also operates “Metro Punct” supermarket with the total selling
space of 1.587 thousand sq. m. which was opened in May 2012, a real,-, with the total space of
8.39 thousand sq. m. managed by "Metro Cash & Carry" as a result of the transaction with
“Real-Hypermarket” LLC (Metro Group), as well as 2 METRO trading centers in the Republic
of Crimea with the total space of 12.6 thousand sq. m. Moreover, in June 2012 the first two
franchised “Fasol” stores were opened in St. Petersburg, and in September 2012 – 5 “Fasol”
stores in Rostov-on-Don. As of October 1, 2016 the company operates more than 160 franchised
“Fasol” stores, out of which 133 are located in Moscow and Moscow region, 12 in Saint-
Petersburg, 7 in Rostov-on-Don, 3 in Kaluga and Kaluga region, 3 in Vladimir, 2 in Kazan.
Total selling space of the company as of December 31, 2016 amounted to 671.8 thousand
sq. m.
Sales of METRO Cash & Carry, Russia for 2015 amounted to 225.0 bn rubles (which
represents 7.4% growth vs. 2014).
Auchan
Auchan is a large hypermarket chain operating on the Russian market since 2002.
As of December 31, 2016 Auchan Group in Russia operates 129 trading outlets with the
total selling space of 918.1 thousand sq. m. 102 hypermarkets including: 65 “Auchan”
hypermarkets operate in 31 regions. Besides, Auchan operates 26 “Auchan-city” mini-
hypermarkets, 11 “Nasha Raduga” hypermarkets, 4 "Kazhdy Den" convenience stores.
The Group also includes 17 supermarkets under the “Auchan Supermarket” brand, 6 “Moy
Auchan” stores and 2 LillaPois Beauty drogeries.
Total selling space as of December 31, 2016 amounted to 916.4 thousand sq. m.
In 2015 Auchan Group net sales in accordance with the Russian Accounting Standards
amounted to 345.7 bn rubles.
42
Dixy
“Dixy” Group of Companies is one of Russia's leading retailers of food and everyday
products. The Company operates in Central, Northwestern, Volga and Urals federal districts of
Russia, and in Kaliningrad and Kaliningrad region.
As of December 31, 2016 the company operated 2,802 stores, including: 2,646 “Dixy”
neighbourhood stores, 116 “Victoria” stores, and 40 “MEGAMART” and “MINIMART”
compact hypermarkets in 778 cities and towns of the Russian Federation.
Net selling space of the Group as of December 31, 2016 amounted to 952,5 sq. m.
In 2016 total sales of “Dixy” Group of Companies increased by 14.3% in ruble terms
compared to the same period last year and stood at 311.24 billion rubles.
Lenta
“Lenta”, the company which operates the hypermarket chain under the same brand, was
founded in 1993. As of December 31, 2016 "Lenta" operates 191 hypermarkets located in 77 cities
across Russia and 49 supermarkets in Moscow, Saint-Petersburg and Central Russia.
Total selling space of the chain as of December 31, 2016 amounted to 1,146.15 thousand
sq. m.
The number of the company’s employees amounted to more than 38,400 employees. 8.4
million people throughout Russia are the active loyalty cards holders of the chain.
In 2016 net sales of “Lenta” retail chain increased by 21.2% compared to 2015 and
amounted to 306.4 billion rubles.
О'KEY
“O’KEY” is one of the largest retail chains in Russia. Its primary retail format is the
modern Western European hypermarket under the “O’KEY” brand, complemented by “O’KEY
- Express” supermarkets.
As of December 31, 2016 "O'KEY" operated 164 stores across Russia: 74 hypermarkets, 37
supermarkets and 54 discounters. As of December 31, 2016 total selling space of the Company
amounted to about 623 thousand sq. m.
In 2016 “О'KEY” sales amounted to 175.47 billion rubles, increasing by 8.0% compared
to 2015.
Legal name
X5 Retail Group N.V.
”Magnit”, PJSC
“Auchan”, LLC
Number of stores of the largest FMCG retailers in 2007-2016, eop.
Brand
Pyaterochka
Perekrestok
Karusel, Perekrestok
Hyper
Perekrestok Express
All formats
Magnit
Magnit Hypermarket
Magnit Kosmetik
Magnit Family
All formats
Auchan, Auchan-City,
Nasha Raduga, Kazhdy
Den, Moy Auchan, Auchan
Supermarket
Main formats1 2007
674
194
D
S
H
CS
22
0
all formats 890
2194
3
-
-
CS
H
МК
MF
all formats 2197
2008
848
207
2009
1039
275
2010
1392
301
2011 2012 2013 2014 2015
1918 3220 3882 4789 6265
321 370 390 403 478
2016
8363
539
46
58
71
77
78
83
82
90
91
0
1101
2568
14
-
-
2582
0
1372
3204
24
-
-
3228
45
1809
4004
51
-
2
4055
134 189 209 187
194
70
2386 3802 4544 5483 7020
9187
5006 6046 7200 8344 9594
10521
126 161 190 219
237
93
155
194
-
46
20
210 692 686 1080 2121
3107
5309 6884 8093 9711 12089 14059
97
H
18
33
38
44
49
57
79
85
96
129
1 Key: D - Discounter, H - Hypermarket, S - Supermarket, CS - Convenience Store, МК – Drogerie Store, MF – Magnit Family
43
Legal name
“МЕТRО Cash and
Carry”,
LLC
“O'key”, LLC
“Lenta”, LLC
“Dixy Group”, PJSC
Brand
Main formats1 2007
2008
2009
2010
2011 2012 2013 2014 2015
2016
METRO, METRO Punct,
real,-
О'Кей, О'Кей-экспресс,
DA!
Lenta
Megamart, Minimart, Dixy
Victoria, Cash, Deshevo,
Kvartal
All formats
S, H
39
48
52
57
62
68
72
80
87
89
S, H
24
37
46
57
71
83
94
108 146
164
H, S
D, S, H
26
388
34
481
36
537
39
646
56
132 172
87
42
894 1422 1712 2100 2599
240
2686
CS, S, H
194
215
208
257
225 77
87
95
109
116
all formats 388
493
537
646
1119 1499 1799 2195 2708
2802
Total selling space of FMCG retailers in Russia in 2007-2016, eop, thousand sq. m.
Legal name
Brans
X5 Retail Group
N.V.
”Magnit”, PJSC
“Auchan”, LLC
“МЕТRО Cash
and Carry”,
LLC
“O'key”, LLC
“Lenta”, LLC
“Dixy Group”,
PJSC
Pyaterochka
Perekrestok
Karusel, Perekrestok
Hyper
Perekrestok Express
All formats
Magnit
Magnit Hypermarket
Magnit Kosmetik
Magnit Family
All formats
Auchan, Auchan-City,
Nasha Raduga,
Kazhdy Den, Moy
Auchan, Auchan
Supermarket
METRO, METRO
Punct, real,-
О'Кей, О'Кей-
экспресс, DA!
Lenta
Megamart, Minimart,
Dixy
Victoria, Cash,
Deshevo, Kvartal,
Semeynaya Kopilka
All formats
Main
formats
D
S
2007 2008
2009
2010
2011
2012
2013
2014
2015
2016
357,5 419,2
251,7 222,4
493,0
284,4
586,3
313,0
735,2
333,9
1191,4
383,5
1414,1
397,8
1754,3
415,8
2422,6
484,0
3329,3
548,5
H
126,0 232,5
285,6
351,8
371,3
368,2
375,8
358,6
390,1
386,9
-
CS
-
all formats 735,2 874,1
640,1 767,1
11,6 56,4
-
-
all formats 651,7 823,5
CS
H
МК
MF
-
-
9,2
1260,3
1256,8
165,1
-
0,4
-
1063
978,5
81,4
-
-
1059,9 1422,3
26,7
12,7
1453,1 1969,7
1637,8 1977,5
387,6
282,2
24,4
-
50,1
159,8
1970,2 2549,3
35,2
2222,9
2312,2
482,9
53,3
163,0
3011,4
43,6
2572,2
2673,3
559,1
109,1
249,2
3590,6
36,4
3333,2
3119,6
639,1
170,2
484,8
4413,7
37,1
4301,8
3452,4
683,7
212,8
718,8
5067,7
H
250,6 340,1
386,6
452,3
493,8
565,4
731,3
779,9
835,6
916,4
S, H
326,3 394,5
427,4
464,5
499,5
538,1
566,5
619,2
660,3
671,8
S, H
149,2 191,7
232,7
287,4
346,0
428,0
489,0
522,0
593,0
622,9
H, S
186,7 244,7
260,9
281,7
306,0
413,1
508,0
701,2
882,4
1146,1
D, S, H
149,1 189,8
206,0
227,9
286,7
447,3
541,3
663,6
811,6
852,1
CS, S, H 99,7 109,6
104,6
123,5
118,4
67,6
75,9
82,9
96,1
100,4
all formats 149,1 191,0
206,0
227,9
405,1
514,9
617,2
746,5
907,6
952,5
Dynamics of net sales (excluding VAT) of the largest FMCG retailers in 2007-2016,
billion RUR
Main
formats
CS, D, S,
H
CS, H,
МК, MF
Legal name
Brand
X5 Retail
Group N.V.
”Magnit”,
PJSC
“Auchan”,
LLC
“МЕТRО
Cash and
Carry”, LLC
Pyaterochka,
Perekrestok,
Karusel,
Perekrestok
Express
Magnit
Auchan,
Auchan-
City, Nasha
Raduga
METRO,
METRO
Punct, real,-
Data
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
IFRS
136,1
207,2
275,0
8
342,5
8
452,4
8
490,0
9
532,7
633,8
7
804,1
3
1033,
67
IFRS
94,04
132,4
236,1
9
335,7
448,6
6
579,7
763,5
3
950,6
1
1074,
81
169,8
6
158,3
6
H
RAS
90,6
128,1
178,1
205,1
232,6
281,7
314,8
345,7
S, H
IFRS
89,2
111,2
114,3
117,9
9
139,9
6
164,6
183,2
209,5
225,0
44
-
-
“O'key”,
LLC
“Lenta”,
LLC
“Dixy
Group”,
PJSC
O'key,
O'key-
express
S, H
IFRS
30,53
51,14
67,88
82,67
92,21
115,9
2
139,5
151,9
8
162,5
1
175,4
7
Lenta
H, S
IFRS
32,9
50,8
55,6
70,6
89,8
109,9
144,3
194,0
252,7
6
306,3
5
All formats
CS, D, S,
H
IFRS
36,65
48,3
54,26
64,8
102,2
3
147,0
5
180,5
229,0
272,3
5
311,2
4
COMPETITIVE ADVANTAGES OF “MAGNIT”
Multi-format business
Implementation of the strategic decision to develop the formats of hypermarket,
“Magnit Family” store and drogerie store allows the Group to conduct more profound
segmentation of existing markets and consider population with the different level of income as
potential customers. Moreover, pricing policy of the Group allows it to compete with open-air
markets targeting customers with the level of income below the average.
Strong regional coverage
“Magnit” group of companies has considerable experience of operation in regions: in
2002 – 2016 the 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, which creates favorable conditions for medium-
term dynamics of the Group business.
Russia’s largest retailer in terms of the number of stores
In terms of the number of stores “Magnit” is the largest food retail chain in Russia,
which has a positive impact on cooperation with the largest food and beverage producers
promoting their products on the regional markets. First of all, it is reflected 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. The large store
chain under “Magnit” brand allows the Group to strengthen its positions in the occupied
market niche.
Efficient logistics system
Developed logistics system, distribution centers and own fleet of vehicles enable the
Group to strictly monitor its delivery costs. Operating distribution centers results in lower
purchasing 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.
45
9. PRIORITY AREAS OF THE COMPANY’S OPERATIONS
Headquartered in the southern Russia city of Krasnodar, public joint-stock company
“Magnit” is the holding company for a group of entities that operate in the retail trade under
the “Magnit” brand. “Magnit” is the largest FMCG retail chain in Russia. As of December 31,
2016 the chain consisted of 14,059 stores: 10,521 convenience stores, 237 hypermarkets, 194
“Magnit Family” stores and 3,107 drogerie stores in 2,494 cities and towns throughout the
Russian Federation.
Approximately two-thirds of the Magnit’s stores are located in cities with the population
of less than 500,000 inhabitants. Most of its stores are located in the Southern, Central and Volga
regions. The Company’s stores also operate in the North-Western, North-Caucasian, Urals and
Siberian regions.
As of the end of 2016 the number of stores located in the Southern Federal region
accounted for 2,414, in the Volga region – 4,118, North-Caucasian – 497, Central – 3,744, North-
Western – 1,389, the number of stores in the Urals and Siberian regions amounted to 1,311 and
586 correspondingly.
As of December 31, 2016 the Company operates an in-house logistics system consisting
of 35 modern distribution centers (DCs): nine of them are located in the Volga Federal region
(Dzerzhinsk, Engels, Izhevsk, Orenburg, Penza, Perm, Sterlitamak, Togliatti, Zelenodolsk), nine
are located in the Central Federal region (Dmitrov, Ivanovo, Kolomna, Oryol, Smolensk,
46
Tambov, Tula, Voronezh, Yaroslavl), another eight are based in the Southern Federal region
(Astrakhan, Bataysk, Erzovka, Krasnodar, Kropotkin, Novorossiysk, Shakhty and Slavyansk-
On-Kuban), three in the Urals (Chelyabinsk, Tyumen and Yekaterinburg) and the Siberian
(Kemerovo, Novosibirsk and Omsk) Federal regions, two in the North-Western Federal region
(Kolpino and Veliky Novgorod) and one in the North-Caucasian Federal region (Lermontov).
Federal Region
Central
Volga
Southern
Urals
Siberian
North-Western
North-Caucasian
Total
Warehousing space,
sq. m.
476,886
381,723
308,154
141,497
83,596
73,258
40,225
1,505,338
Number of serviced
stores
4,058
4,367
2,406
1,223
578
934
493
14,059
Number of DCs
9
9
8
3
3
2
1
35
The Company operates automated stock replenishment system and a fleet of 5,713
vehicles.
47
10. PRIORITIES OF THE COMPANY’S DEVELOPMENT
The Company’s management outlines the following priority development trends for the
next 18 months:
• To significantly ramp up the pace of expansion by opening profitable stores;
• To keep efficiency in the focus of the Company;
• To retain current customers and attract the new ones, to improve the overall brand
perception through, inter alia, store redesign;
• Additionally to low prices and attractive assortment, to improve the store atmosphere as
it is the basis for building the customer loyalty;
• To build efficient marketing that will meet the customer expectations;
• To organize and develop new sales channels.
Chain expansion
In the nearest 2-3 years the Company plans to keep high pace of business growth with a
purpose to open 1,700 convenience stores, over 15 hypermarkets and over 25 “Magnit Family”
stores and 1,000 drogeries in 2017. The Company’s accumulated experience and technologies
enable it to open profitable convenience and drogerie stores even in locations with the
population of as little as 5,000 people and 25,000 people for hypermarkets and “Magnit Family”
stores.
The Company’s stores are present in 7 out of 9 federal regions: Southern, Central, Volga,
North-Caucasian, North-Western, Urals and Siberian. The Company plans to increase the
density of its stores in these regions and continue to expand in the markets of Moscow, Saint-
Petersburg and Western Siberia.
Development of the multi-format model
Currently, the Company is actively expanding its four formats: “convenience store”,
hypermarket, “Magnit Family” and “drogerie store”.
The format of a convenience store is a neighborhood store oriented at all customers
living within 500 meters radius. The assortment of a convenience store consists of more than
3,800 food and non-food FMCG offered at reasonable prices. Average total space of a store is
459 sq. m., average selling space is 328 sq. m.
As of December 31, 2016 “Magnit” retail chain operates 10,521 convenience stores, out of
which 927 were opened in 2016.
Since 2007 the Company has been opening hypermarkets. As of December 31, 2016
“Magnit” retail chain operates 237 stores of this format, out of which 18 were opened in 2016.
The Company opens its hypermarkets mainly in the cities with population of 50,000 -
500,000 people; the stores are located in the city (within the city boundaries) and target people
living within the radius of 7 km.
Based on the 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 – 6,000 sq. m. (excluding rental space);
“large” with the selling space of over 6,000 sq. m.; (excluding rental space).
48
Strategic development of the hypermarket format enables to conduct deeper
segmentation of the existing markets and consider population with different income as
potential customers while achieving the high turnover per store and the average ticket as well
as the fast pace of business growth.
In 2010 the Group started to examine a new segment of the retail market and launched 2
trial stores of a new format – “a drogerie store”. Unlike convenience stores, stores under
“Magnit Kosmetik” brand offer a mix of non-food group of products: personal care, household
cleaning products, cosmetics and perfumery goods. As of December 31, 2016 the total number
of drogeries was 3,107, out of which 986 were opened in 2016.
In May 2012 a new format – “Magnit Family” was launched. One of the reasons to
expand into this format was to meet the needs of customers in wider assortment and aggressive
pricing in the premises not suitable for a standard hypermarket due to space limitations.
Key features of the format are:
- Selling space of up to 1,500 sq. m.;
- Expanded fresh zone;
- Limited non-food assortment;
- Own production facilities (ready meals);
- Main technologies of the hypermarket format;
- Pricing of the hypermarket format;
- Location primarily in the leased premises of the shopping and entertainment malls.
The number of the new format stores is growing through the opening of the new outlets
as well as the reformatting of the certain convenience stores with excessive selling space for this
format (about 1,500 sq.m.) and the upside sales potential.
In 2016 the Group opened 39 “Magnit Family” stores. As of December 31, 2016
“Magnit” retail chain operated 194 “Magnit Family” stores.
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 continues to expand its footprint into areas with the low penetration and
continues to adjust its assortment to meet the needs of consumers.
Within the complex of measures taken to increase the loyalty to the “Magnit” brand, the
Company analyses customers’ preferences in order to build its marketing program considering
the nature of different formats.
Other means of improving the Company's brand perception is to improve the level of
service and ambiance in the stores through corresponding work with its employees.
In 2016 in order to increase efficiency of the stores and improve the Magnit brand
perception, the Company launched the convenience stores redesign program. The changes
within the program included internal and external design of the stores, their planograms and
assortment balance in favor of the fresh categories.
The program will help increase the stores appeal, improve ambiance in the stores and
the customers shopping experience.
49
In 2016 Magnit redesigned 159 stores and plans to redesign another 2,000 stores in 2017.
Moreover, starting from September 2016 all new stores have been opened under the redesign
concept.
Minimization of expenses
The main drivers of successful development in the above direction are further
improvements of the logistics processes and investments in the IT system which provides the
Company with maximum effective stock and transport flow management systems, and
contributes to its leadership in terms of cost control.
Active introduction of private label products to the assortment is in place to increase the
Company’s profitability.
The status of Russia’s largest FMCG retail chain in terms of sales, 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 fruit and vegetables, also
contributes to the minimization of logistics costs.
50
11. INFORMATION ON THE PAID DIVIDENDS
The dividend policy of the Company oriented to the social welfare of the shareholders
and securing of growth of capitalization of the Company.
The Company considers the growth of capitalization as the primary way of serving of
financial interests of the shareholders on the deriving revenue from the shares of the Company.
The dividend policy consists in the optimization of ratios between the expendable and
capitalized parts of realized profit of the Company in order to increase the market value of the
shares.
The dividend policy of the Company is based on the following principles:
-
the principle of transparency implies the identification and disclosure of information
about the obligations and responsibilities of the parties, participating in the
implementation of dividend policy, including the procedure and terms and
conditions of making decisions on the dividends payment;
the principle of timeliness implies the establishment of time limits during the
payment of dividends;
the principle of reasonableness implies that the decisions on the payment and on the
amount of dividends can be adopted only in case of achievement of positive
financial result by the Company, taking into consideration the development plan
and its investment programs;
the principle of justice implies the guarantee of equal rights of the shareholders for
reception of information about made decisions on dividends payment, their amount
and the procedure of their payment;
the principle of sequence implies the strict performance of procedures and principles
of the dividend policy;
the principle of development implies continual amendment of dividend policy
within the framework of improvement of the procedures of corporative governance
and revision of its provisions due to the change of strategic aims of the Company;
the principle of stability implies the intention of the Company to the stable dividends
payment.
-
-
-
-
-
-
On June 2, 2016 (minutes of 03.06.2016) the annual General Shareholders Meeting made
a decision to pay dividends on ordinary registered shares of PJSC “Magnit” following the
results of 2015 reporting year.
On September 8, 2016 (minutes of 12.09.2016) the extraordinary General Shareholders
Meeting made a decision to pay dividends on ordinary registered shares of PJSC “Magnit”
following the results of the 6 months of 2016 reporting year.
On December 8, 2016 (minutes of 09.12.2016) the extraordinary General Shareholders
Meeting decided to pay dividends on ordinary registered shares of PJSC “Magnit” following
the results of the 9 months of 2016 reporting year.
Information on the paid dividends
Dividend period: the 9 months of 2015.
The amount of declared (accrued) dividends on shares of this category (type) per one
share, RUB:
- the amount of dividend accrued per one ordinary registered uncertified share following
the results of the 9 months of 2015 reporting year – 179.77 rubles.
51
The total amount of the declared (accrued) dividends on all shares of this category
(type), RUB:
- the total amount of dividends accrued on the ordinary registered uncertified shares
following the results of the 9 months of 2015 reporting year – 16,999,294,788.35 rubles.
The date of decision on the payment (declaration) of dividends: December 22, 2015.
The record date: January 8, 2016.
The total amount of dividends paid on all shares of the issuer of one category (type),
RUB: 16,999,294,788.35 rubles.
Dividend period: 2015 year.
The amount of declared (accrued) dividends on shares of this category (type) per one
share, RUB:
- the amount of dividend accrued per one ordinary registered uncertified share following
the results of 2015 reporting year – 42.30 rubles.
The total amount of the declared (accrued) dividends on all shares of this category
(type), RUB:
- the total amount of dividends accrued on the ordinary registered uncertified shares
following the results of 2015 reporting year – 3,999,945,316.50 rubles.
The date of decision on the payment (declaration) of dividends: June 2, 2016.
The record date: June 17, 2016.
The total amount of dividends paid on all shares of the issuer of one category (type),
RUB: 3,999,940,409.70 rubles.
Dividend period: the 6 months of 2016.
The amount of declared (accrued) dividends on shares of this category (type) per one
share, RUB:
-the amount of dividends accrued per one ordinary registered uncertified share following
the results of the 6 months of 2016 financial year – 84.60 rubles.
The total amount of the declared (accrued) dividends on all shares of this category
(type), RUB:
-the total amount of dividends accrued on the ordinary registered uncertified shares
following the results of the 6 months of 2016 financial year – 7,999,890,633.00 rubles.
The date of decision on the payment (declaration) of dividends: September 12, 2016.
The record date: September 23, 2016.
The total amount of dividends paid on all shares of the issuer of one category (type),
RUB: 7,999,849,771.20 rubles.
Dividend period: the 9 months of 2016.
The amount of declared (accrued) dividends on shares of this category (type) per one
share, RUB:
-the amount of dividends accrued per one ordinary registered uncertified share following
the results of the 9 months of 2016 financial year – 126.12 rubles.
The total amount of the declared (accrued) dividends on all shares of this category
(type), RUB:
-the total amount of dividends accrued on the ordinary registered uncertified shares
following the 9 months of 2016 financial year – 11,926,078,092.60 rubles.
The date of decision on the payment (declaration) of dividends: December 8, 2016.
The record date: December 23, 2016.
52
The total amount of dividends paid on all shares of the issuer of one category (type),
RUB: 11,926,063,462.68 rubles (as of the end date of the reporting period, the dividend payment
period has not come).
53
12. SECURITIES
AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company determines the minimum amount of assets
that guarantees its creditors’ interests.
As of December 31, 2016 authorized capital stock of the public joint-stock company
“Magnit” amounts to 945,613.55 rubles. It consists of 94,561,355 ordinary registered uncertified
shares with a nominal value per share 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 per share of 0.01 rubles (authorized shares).
Information on the listed shares of PJSC “Magnit” as of 31.12.2016:
Description of
security
Number of state
registration
Date of state
registration
Nominal,
RUR
Total number
of securities
Ordinary registered
uncertified shares
Total:
1-01-60525-Р
04.03.2004
0.01
94,561,355
94,561,355
Structure of PJSC “Magnit” share capital as of 31.12.2016:
Number of registered
entities
Name
Share in the charter
capital, %
Legal entities
including nominal holders
Individuals
Total:
4
2
23
27
63.34
63.34
36.66
100
Information on PJSC “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): 29.94%;
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, 12th 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
receipts, “GDRs”) certifying the rights in respect of the ordinary registered shares of PJSC
“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:
54
- in accordance with the order of FFMS of Russia of March 27, 2008 № 08-661/pz-i
placement and listing outside the Russian Federation of the ordinary registered uncertified
shares of PJSC “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
PJSC “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: London Stock
Exchange.
BONDS
Bond issue of PJSC “Magnit” of BO-01 series:
In 2010 the Company offered its investors the first Exchange-traded bond issue.
The issue comprised 1 million securities with the nominal value of 1 thousand rubles.
The maturity of the issue was 3 years. The purpose of the issue of the exchange-traded bonds of
BO-01 series was to attract funds to finance operating activity and expansion of “Magnit” group
of companies, to reduce the cost of credit portfolio as well as to build public credit history.
Placement of the certified interest-bearing non-convertible Exchange-traded bonds
payable to bearer of BO-01 series with the obligatory centralized custody of PJSC “Magnit” on
the MICEX stock exchange commenced on September 13, 2010. The number of the placed
securities amounted to 1 million bonds which constitutes 100% of the total number of securities
subject to placement. The entire bond issue was realized in full in the course of auction in the
first day of placement.
Parameters of the bond issue of PJSC “Magnit” of BO-01 series:
Identification number of the issue and the date
of its assignment
Volume of the issue
Number of securities
Nominal value of each security
Placement 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
№ 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
1,092nd day from the date of placement
(09.09.2013)
6
RU000A0JR118
RU000A0JR118
8.25 %
55
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 %
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 first coupon amounted to 41.14 million rubles,
the amount of yield of the first 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.
The third coupon yield of BO-01 series Exchange-traded bond issue was paid on March
12, 2012. The total amount of yield paid on the third coupon amounted to 41.14 million rubles,
the amount of yield of the third coupon paid per one bond amounted to 41.14 rubles.
The forth coupon yield of BO-01 series Exchange-traded bond issue was paid on
September 10, 2012. The total amount of yield paid on the forth coupon amounted to 41.14
million rubles, the amount of yield of the forth coupon paid per one bond amounted to 41.14
rubles.
The fifth coupon yield of BO-01 series Exchange-traded bond issue was paid on March
11, 2013. The total amount of yield paid on the fifth coupon amounted to 41.14 million rubles,
the amount of yield of the fifth coupon paid per one bond amounted to 41.14 rubles.
The sixth coupon yield of BO-01 series Exchange-traded bond issue was paid on
September 9, 2013. The total amount of yield paid on the sixth coupon amounted to 41.14
million rubles, the amount of yield of the sixth coupon paid per one bond amounted to 41.14
rubles.
On September 9, 2013 PJSC “Magnit” fulfilled its obligations to bond holders on time
and in full and redeemed the nominal value of bonds of BO-01 series.
Bond issue of PJSC “Magnit” of BO-02 series:
In 2010 the Company offered its investors the second Exchange-traded bond issue.
The issue comprised 1 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue was 3 years. The purpose of the issue of the exchange-traded bonds of BO-
02 series was to attract funds to finance operating activity and expansion of “Magnit” group of
companies, to reduce the cost of credit portfolio as well as to build public credit history.
Placement of the certified interest-bearing non-convertible Exchange-traded bonds
payable to bearer of BO-02 series with the obligatory centralized custody of PJSC “Magnit” on
the MICEX stock exchange commenced on September 13, 2010. The number of the placed
securities amounted to 1 million bonds which constitutes 100% of the total number of securities
subject to placement. The entire bond issue was realized in full in the course of auction in the
first day of placement.
56
Parameters of the bond issue of PJSC “Magnit” of BO-02 series:
Identification number of the issue and the date
of its assignment
Volume of the issue
Number of securities
Nominal value of each security
Placement price
Date of placement
Method of placement
Redemption date
Number of coupons
Trading code
ISIN code
Interest rate on the basis of the auction results
1 coupon interest rate
2 coupon interest rate
3 coupon interest rate
4 coupon interest rate
5 coupon interest rate
6 coupon interest rate
№ 4B02-02-60525-P of February 02, 2010
1,000,000,000 rubles
1,000,000 bonds
1,000 rubles
100% of nominal value
13.09.2010
open subscription
1,092nd day from the date of placement
(09.09.2013)
6
RU000A0JR126
RU000A0JR126
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
The first coupon yield of BO-02 series Exchange-traded bond issue was paid on March
14, 2011. The total amount of yield paid on the first coupon amounted to 41.14 million rubles,
the amount of yield of the first 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.
The third coupon yield of BO-02 series Exchange-traded bond issue was paid on March
12, 2012. The total amount of yield paid on the third coupon amounted to 41.14 million rubles,
the amount of yield of the third coupon paid per one bond amounted to 41.14 rubles.
The forth coupon yield of BO-02 series Exchange-traded bond issue was paid on
September 10, 2012. The total amount of yield paid on the forth coupon amounted to 41.14
million rubles, the amount of yield of the forth coupon paid per one bond amounted to 41.14
rubles.
The fifth coupon yield of BO-02 series Exchange-traded bond issue was paid on March
11, 2013. The total amount of yield paid on the fifth coupon amounted to 41.14 million rubles,
the amount of yield of the fifth coupon paid per one bond amounted to 41.14 rubles.
The sixth coupon yield of BO-02 series Exchange-traded bond issue was paid on
September 9, 2013. The total amount of yield paid on the sixth coupon amounted to 41.14
million rubles, the amount of yield of the sixth coupon paid per one bond amounted to 41.14
rubles.
On September 9, 2013 PJSC “Magnit” fulfilled its obligations to bond holders on time
and in full and redeemed the nominal value of bonds of BO-02 series.
57
Bond issue of PJSC “Magnit” of BO-03 series:
In 2010 the Company offered its investors the third Exchange-traded bond issue.
Issue comprised 1.5 million securities with the nominal value of 1 thousand rubles. The
maturity of the issue was 3 years. The purpose of the issue of the exchange-traded bonds of BO-
03 series was to attract funds to finance operating activity and expansion of “Magnit” group of
companies, to reduce the cost 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 custody of PJSC “Magnit” on
the MICEX stock exchange commenced on September 13, 2010. The number of the placed
securities amounted to 1.5 million bonds 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 first day of placement.
Parameters of the bond issue of PJSC “Magnit” of BO-03 series:
Identification number of the issue and the date
of its assignment
Volume of the issue
Number of securities
Nominal value of each security
Placement price
Date of placement
Method of placement
Redemption date
Number of coupons
Trading code
ISIN code
Interest rate on the basis of the auction results
1 coupon interest rate
2 coupon interest rate
3 coupon interest rate
4 coupon interest rate
5 coupon interest rate
6 coupon interest rate
№ 4B02-03-60525-P of February 02, 2010
1,500,000,000 rubles
1,500,000 bonds
1,000 rubles
100% of nominal value
13.09.2010
open subscription
1,092nd day from the date of placement
(09.09.2013)
6
RU000A0JR142
RU000A0JR142
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
The first coupon yield of BO-03 series Exchange-traded bond issue was paid on March
14, 2011. The total amount of yield paid on the first coupon amounted to 61.71 million rubles,
the amount of yield of the first 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.
The third coupon yield of BO-03 series Exchange-traded bond issue was paid on March
12, 2012. The total amount of yield paid on the third coupon amounted to 61.71 million rubles,
the amount of yield of the third coupon paid per one bond amounted to 41.14 rubles.
58
The fourth coupon yield of BO-03 series Exchange-traded bond issue was paid on
September 10, 2012. The total amount of yield paid on the fourth coupon amounted to 61.71
million rubles, the amount of yield of the fourth coupon paid per one bond amounted to 41.14
rubles.
The fifth coupon yield of BO-03 series Exchange-traded bond issue was paid on March
11, 2013. The total amount of yield paid on the fifth coupon amounted to 61.71 million rubles,
the amount of yield of the fifth coupon paid per one bond amounted to 41.14 rubles.
The sixth coupon yield of BO-03 series Exchange-traded bond issue was paid on
September 9, 2013. The total amount of yield paid on the sixth coupon amounted to 67.71
million rubles, the amount of yield of the sixth coupon paid per one bond amounted to 41.14
rubles.
On September 9, 2013 PJSC “Magnit” fulfilled its obligations to bond holders on time
and in full and redeemed the nominal value of bonds of BO-03 series.
Bond issue of PJSC “Magnit” of BO-04 series:
In 2010 the Company offered its investors the fourth Exchange-traded bond issue.
Issue comprised 2 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue was 3 years. The purpose of the issue of the exchange-traded bonds of BO-
04 series was to attract funds to finance operating activity and expansion of “Magnit” group of
companies, to reduce the cost of credit portfolio as well as to build public credit history.
Placement of the certified interest-bearing non-convertible Exchange-traded bonds
payable to bearer of BO-04 series with the obligatory centralized custody of PJSC “Magnit” on
the MICEX stock exchange commenced on September 13, 2010. The number of the placed
securities amounted to 2 million bonds 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 first day
of placement.
Parameters of the bond issue of PJSC “Magnit” of BO-04 series:
Identification number of the issue and the date
of its assignment
Volume of the issue
Number of securities
Nominal value of each security
Placement 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
№ 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
1,092nd day from the date of placement
(09.09.2013)
6
RU000A0JR159
RU000A0JR159
8.25 %
8.25 %
8.25 %
8.25 %
8.25 %
59
5 coupon interest rate
6 coupon interest rate
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 first coupon amounted to 82.28 million rubles,
the amount of yield of the first 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.
The third coupon yield of BO-04 series Exchange-traded bond issue was paid on March
12, 2012. The total amount of yield paid on the third coupon amounted to 82.28 million rubles,
the amount of yield of the third coupon paid per one bond amounted to 41.14 rubles.
The fourth coupon yield of BO-04 series Exchange-traded bond issue was paid on
September 10, 2012. The total amount of yield paid on the fourth coupon amounted to 82.28
million rubles, the amount of yield of the fourth coupon paid per one bond amounted to 41.14
rubles.
The fifth coupon yield of BO-04 series Exchange-traded bond issue was paid on March
11, 2013. The total amount of yield paid on the fifth coupon amounted to 82.28 million rubles,
the amount of yield of the fifth coupon paid per one bond amounted to 41.14 rubles.
The sixth coupon yield of BO-04 series Exchange-traded bond issue was paid on
September 9, 2013. The total amount of yield paid on the sixth coupon amounted to 82.28
million rubles, the amount of yield of the sixth coupon paid per one bond amounted to 41.14
rubles.
On September 9, 2013 PJSC “Magnit” fulfilled its obligations to bond holders on time
and in full and redeemed the nominal value of bonds of BO-04 series.
Bond issue of PJSC “Magnit” of BO-05 series:
In 2011 the Company offered its investors the fifth Exchange-traded bond issue.
Issue comprised 5 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue is 3 years. The purpose of the issue of the exchange-traded bonds of BO-05
series was to attract funds to finance operating activity and expansion of “Magnit” group of
companies, to reduce the cost of credit portfolio as well as to build public credit history.
Placement of the certified interest-bearing non-convertible Exchange-traded bonds
payable to bearer of BO-05 series with the obligatory centralized custody of PJSC “Magnit” on
the MICEX stock exchange commenced on March 4, 2011. The number of the placed securities
amounted to 5 million bonds 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 first day of
placement.
Parameters of the bond issue of PJSC “Magnit” of BO-05 series:
Identification number of the issue and the date
of its assignment
Volume of the issue
Number of securities
Nominal value of each security
60
№ 4B02-05-60525-P of February 16, 2011
5,000,000,000 rubles
5,000,000 bonds
1,000 rubles
Placement 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
100% of nominal value
04.03.2011
open subscription
1,092nd day from the date of placement
(28.02.2014)
6
RU000A0JR9N3
RU000A0JR9N3
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 first coupon amounted to 199.45
million rubles, the amount of yield of the first coupon paid per one bond amounted to 39.89
rubles.
The second coupon yield of BO-05 series Exchange-traded bond issue was paid on
March 2, 2012. 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.
The third coupon yield of BO-05 series Exchange-traded bond issue was paid on August
30, 2012. The total amount of yield paid on the third coupon amounted to 199.45 million rubles,
the amount of yield of the third coupon paid per one bond amounted to 39.89 rubles.
The fourth coupon yield of BO-05 series Exchange-traded bond issue was paid on March
1, 2013. The total amount of yield paid on the fourth coupon amounted to 199.45 million rubles,
the amount of yield of the fourth coupon paid per one bond amounted to 39.89 rubles.
The fifth coupon yield of BO-05 series Exchange-traded bond issue was paid on August
30, 2013. The total amount of yield paid on the fifth coupon amounted to 199.45 million rubles,
the amount of yield of the fifth coupon paid per one bond amounted to 39.89 rubles.
The sixth coupon yield of BO-05 series Exchange-traded bond issue was paid on
February 28, 2014. The total amount of yield paid on the sixth coupon amounted to 199.45
million rubles, the amount of yield of the sixth coupon paid per one bond amounted to 39.89
rubles.
On February 28, 2014 PJSC “Magnit” fulfilled its obligations to bond holders on time and
in full and redeemed the nominal value of bonds of BO-05 series.
Bond issue of PJSC “Magnit” of BO-06 series:
In 2011 the Company offered its investors the sixth Exchange-traded bond issue.
Issue comprised 5 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue is 3 years. The purpose of the issue of the exchange-traded bonds of BO-06
series was to attract funds to finance operating activity and expansion of “Magnit” group of
companies, to reduce the cost of credit portfolio as well as to build public credit history.
61
Placement of the certified interest-bearing non-convertible Exchange-traded bonds
payable to the bearer of BO-06 series with the obligatory centralized custody of PJSC “Magnit”
on the MICEX stock exchange commenced on April 26, 2011. The number of the placed
securities amounted to 5 million bonds 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 first day
of placement.
Parameters of the bond issue of PJSC “Magnit” of BO-06 series:
Identification number of the issue and the date
of its assignment
Volume of the issue
Number of securities
Nominal value of each security
Placement price
Date of placement
Method of placement
Redemption date
Number of coupons
Trading code
ISIN code
Interest rate on the basis of the auction results
1 coupon interest rate
2 coupon interest rate
3 coupon interest rate
4 coupon interest rate
5 coupon interest rate
6 coupon interest rate
№ 4B02-06-60525-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
1,092nd day from the date of placement
(22.04.2014)
6
RU000A0JRFQ4
RU000A0JRFQ4
7.75 %
7.75 %
7.75 %
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 first coupon amounted to 193.2 million rubles,
the amount of yield of the first coupon paid per one bond amounted to 38.64 rubles.
The second coupon yield of BO-06 series Exchange-traded bond issue was paid on April
24, 2012. 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.
The third coupon yield of BO-06 series Exchange-traded bond issue was paid on October
23, 2012. The total amount of yield paid on the third coupon amounted to 193.2 million rubles,
the amount of yield of the third coupon paid per one bond amounted to 38.64 rubles.
The fourth coupon yield of BO-06 series Exchange-traded bond issue was paid on April
23, 2013. The total amount of yield paid on the fourth coupon amounted to 193.2 million rubles,
the amount of yield of the fourth coupon paid per one bond amounted to 38.64 rubles.
The fifth coupon yield of BO-06 series Exchange-traded bond issue was paid on October
22, 2013. The total amount of yield paid on the fifth coupon amounted to 193.2 million rubles,
the amount of yield of the fifth coupon paid per one bond amounted to 38.64 rubles.
The sixth coupon yield of BO-05 series Exchange-traded bond issue was paid on April
22, 2014. The total amount of yield paid on the sixth coupon amounted to 193.2 million rubles,
the amount of yield of the sixth coupon paid per one bond amounted to 38.64 rubles.
62
On April 22, 2014 PJSC “Magnit” fulfilled its obligations to bond holders on time and in
full and redeemed the nominal value of bonds of BO-06 series.
Bond issue of PJSC “Magnit” of BO-07 series:
In 2012 the Company offered its investors the seventh Exchange-traded bond issue.
Issue comprised 5 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue is 3 years. The purpose of the issue of the exchange-traded bonds of BO-07
series was to attract funds to finance operating activity and expansion of “Magnit” group of
companies, to reduce the cost of credit portfolio as well as to build public credit history.
Placement of the certified interest-bearing non-convertible Exchange-traded bonds
payable to bearer of BO-07 series with the obligatory centralized custody of PJSC “Magnit” on
the MICEX stock exchange commenced on September 24, 2012. The number of the placed
securities amounted to 5 million bonds 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 first day
of placement.
Parameters of the bond issue of PJSC “Magnit” of BO-07 series:
Identification number of the issue and the date
of its assignment
Volume of the issue
Number of securities
Nominal value of each security
Placement price
Date of placement
Method of placement
Redemption date
Number of coupons
Trading code
ISIN code
Interest rate on the basis of the auction results
1 coupon interest rate
2 coupon interest rate
3 coupon interest rate
4 coupon interest rate
5 coupon interest rate
6 coupon interest rate
№ 4B02-07-60525-P of August 10, 2011
5,000,000,000 rubles
5,000,000 bonds
1,000 rubles
100% of nominal value
24.09.2012
open subscription
1,092nd day from the date of placement
(21.09.2015)
6
RU000A0JT171
RU000A0JT171
8.90 %
8.90 %
8.90 %
8.90 %
8.90 %
8.90 %
8.90 %
The first coupon yield of BO-07 series Exchange-traded bond issue was paid on March
25, 2013. The total amount of yield paid on the first coupon amounted to 221.9 million rubles,
the amount of yield of the first coupon paid per one bond amounted to 44.38 rubles.
The second coupon yield of BO-07 series Exchange-traded bond issue was paid on
September 23, 2013. The total amount of yield paid on the second coupon amounted to 221.9
million rubles, the amount of yield of the second coupon paid per one bond amounted to 44.38
rubles.
63
The third coupon yield of BO-07 series Exchange-traded bond issue was paid on March
24, 2014. The total amount of yield paid on the third coupon amounted to 221.9 million rubles,
the amount of yield of the third coupon paid per one bond amounted to 44.38 rubles.
The fourth coupon yield of BO-07 series Exchange-traded bond issue was paid on
September 22, 2014. The total amount of yield paid on the fourth coupon amounted to 221.9
million rubles, the amount of yield of the fourth coupon paid per one bond amounted to 44.38
rubles.
The fifth coupon yield of BO-07 series Exchange-traded bond issue was paid on March
23, 2015. The total amount of yield paid on the fifth coupon amounted to 221.9 million rubles,
the amount of yield of the fifth coupon paid per one bond amounted to 44.38 rubles.
The sixth coupon yield of BO-07 series Exchange-traded bond issue was paid on
September 21, 2015. The total amount of yield paid on the fifth coupon amounted to 221.9
million rubles, the amount of yield of the fifth coupon paid per one bond amounted to 44.38
rubles.
On September 21, 2015 PJSC “Magnit” fulfilled its obligations to bond holders on time
and in full and redeemed the nominal value of bonds of BO-07 series.
Bond issue of PJSC “Magnit” of 01 series:
In 2013 the Company offered its investors the issue of non-convertible certified interest-
bearing bonds to the bearer with the obligatory centralized custody of 01 series.
Issue comprised 5 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue is 3 years. The purpose of the issue of the bonds of 01 series was to attract
funds to finance operating activity and expansion of “Magnit” group of companies, to reduce
the cost of credit portfolio as well as to build public credit history.
Placement of the certified interest-bearing non-convertible bonds payable to the bearer
of 01 series with the obligatory centralized custody of PJSC “Magnit” on the MICEX stock
exchange commenced on February 26, 2013. The number of the placed securities amounted to 5
million bonds 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 first day of placement.
Parameters of the bond issue of PJSC “Magnit” of 01 series:
Date and the number of state registration
Volume of the issue
Number of securities
Nominal value of each security
Placement 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
№ 4-01-60525-P of December 27, 2012
5,000,000,000 rubles
5,000,000 bonds
1,000 rubles
100% of nominal value
26.02.2013
open subscription
1,092nd day from the date of placement
(23.02.2016)
6
RU000A0JTP09
RU000A0JTP09
8.50 %
8.50 %
8.50 %
64
3 coupon interest rate
4 coupon interest rate
5 coupon interest rate
6 coupon interest rate
8.50 %
8.50 %
8.50 %
8.50 %
The first coupon yield of 01 series bond issue was paid on August 27, 2013. The total
amount of yield paid on the first coupon amounted to 221.9 million rubles, the amount of yield
of the first coupon paid per one bond amounted to 42.38 rubles.
The second coupon yield of 01 series bond issue was paid on February 27, 2014. The total
amount of yield paid on the second coupon amounted to 211.9 million rubles, the amount of
yield of the second coupon paid per one bond amounted to 42.38 rubles.
The third coupon yield of 01 series bond issue was paid on August 26, 2014. The total
amount of yield paid on the third coupon amounted to 211.9 million rubles, the amount of yield
of the third coupon paid per one bond amounted to 42.38 rubles.
The fourth coupon yield of 01 series bond issue was paid on February 24, 2015. The total
amount of yield paid on the fourth coupon amounted to 211.9 million rubles, the amount of
yield of the fourth coupon paid per one bond amounted to 42.38 rubles.
The fifth coupon yield of 01 series bond issue was paid on August 25, 2015. The total
amount of yield paid on the fifth coupon amounted to 211.9 million rubles, the amount of yield
of the fifth coupon paid per one bond amounted to 42.38 rubles.
The sixth coupon yield of 01 series bond issue was paid on February 23, 2016. The total
amount of yield paid on the sixth coupon amounted to 211.9 million rubles, the amount of yield
of the sixth coupon paid per one bond amounted to 42.38 rubles.
On February 23, 2016 PJSC “Magnit” fulfilled its obligations to bond holders on time and
in full and redeemed the nominal value of bonds of the 01 series.
Based on trading for the period from 04.01.2016 to 22.02.2016 the weighted average price
of transactions with bonds of 01 series varied from min 99.66% (15.01.2016) to max 99.96%
(20.02.2016) of the nominal value. Acknowledgeable quote within this period fluctuated from
min 99.66% (13.01.2016, 14.01.2016 and 15.01.2016) to max 99.96% (20.02.2016 and 22.02.2016).
Bond issue of PJSC “Magnit” of BO-08 series:
In 2013 the Company offered its investors the nineth Exchange-traded bond issue.
Issue comprised 5 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue is 3 years. The purpose of the issue of the exchange-traded bonds of BO-08
series was to attract funds to finance operating activity and expansion of “Magnit” group of
companies, to reduce the cost of credit portfolio as well as to build public credit history.
Placement of the certified interest-bearing non-convertible Exchange-traded bonds
payable to bearer of BO-08 series with the obligatory centralized custody of PJSC “Magnit” on
the MICEX stock exchange commenced on April 2, 2013. The number of the placed securities
amounted to 5 million bonds 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 first day of
placement.
Parameters of the bond issue of PJSC “Magnit” of BO-08 series:
Identification number of the issue and the date
of its assignment
№ 4B02-08-60525-P of August 10, 2011
65
Volume of the issue
Number of securities
Nominal value of each security
Placement 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
5,000,000,000 rubles
5,000,000 bonds
1,000 rubles
100% of nominal value
02.04.2013
open subscription
1,092nd day from the date of placement
(29.03.2016)
6
RU000A0JTT21
RU000A0JTT21
8.40 %
8.40 %
8.40 %
8.40 %
8.40 %
8.40 %
8.40 %
The first coupon yield of BO-08 series Exchange-traded bond issue was paid on October
1, 2013. The total amount of yield paid on the first coupon amounted to 209.4 million rubles, the
amount of yield of the first coupon paid per one bond amounted to 41.88 rubles.
The second coupon yield of BO-08 series Exchange-traded bond issue was paid on April
1, 2014. The total amount of yield paid on the second coupon amounted to 209.4 million rubles,
the amount of yield of the second coupon paid per one bond amounted to 41.88 rubles.
The third coupon yield of BO-08 series Exchange-traded bond issue was paid on
September 30, 2014. The total amount of yield paid on the third coupon amounted to 209.4
million rubles, the amount of yield of the third coupon paid per one bond amounted to 41.88
rubles.
The fourth coupon yield of BO-08 series Exchange-traded bond issue was paid on March
31, 2015. The total amount of yield paid on the fourth coupon amounted to 209.4 million rubles,
the amount of yield of the fourth coupon paid per one bond amounted to 41.88 rubles.
The fifth coupon yield of BO-08 series Exchange-traded bond issue was paid on
September 29, 2015. The total amount of yield paid on the fifth coupon amounted to 209.4
million rubles, the amount of yield of the fifth coupon paid per one bond amounted to 41.88
rubles.
The sixth coupon yield of BO-08 series Exchange-traded bond issue was paid on March
29, 2016. The total amount of yield paid on the sixth coupon amounted to 209.4 million rubles,
the amount of yield of the sixth coupon paid per one bond amounted to 41.88 rubles.
On March 29, 2016 PJSC “Magnit” fulfilled its obligations to bond holders on time and in
full and redeemed the nominal value of bonds of the BO-08 series.
Based on trading for the period from 04.01.2016 to 29.03.2016 the weighted average price
of transactions with Exchange-traded bonds of BO-08 series was not calculated because there
were no transactions within this period. Acknowledgeable quote within this period amounted
to 97.20%.
66
Bond issue of PJSC “Magnit” of BO-09 series:
In 2013 the Company offered its investors the ninth Exchange-traded bond issue.
Issue comprised 5 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue is 3 years. The purpose of the issue of the exchange-traded bonds of BO-09
series was to attract funds to finance operating activity and expansion of “Magnit” group of
companies, to reduce the cost of credit portfolio as well as to build public credit history.
Placement of the certified interest-bearing non-convertible Exchange-traded bonds
payable to bearer of BO-09 series with the obligatory centralized custody of PJSC “Magnit” on
the MICEX stock exchange commenced on April 4, 2013. The number of the placed securities
amounted to 5 million bonds 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 first day of
placement.
Parameters of the bond issue of PJSC “Magnit” of BO-09 series:
Identification number of the issue and the date
of its assignment
Volume of the issue
Number of securities
Nominal value of each security
Placement price
Date of placement
Method of placement
Redemption date
Number of coupons
Trading code
ISIN code
Interest rate on the basis of the auction results
1 coupon interest rate
2 coupon interest rate
3 coupon interest rate
4 coupon interest rate
5 coupon interest rate
6 coupon interest rate
№ 4B02-09-60525-P of August 10, 2011
5,000,000,000 rubles
5,000,000 bonds
1,000 rubles
100% of nominal value
02.04.2013
open subscription
1,092nd day from the date of placement
(29.03.2016)
6
RU000A0JTT39
RU000A0JTT39
8.40 %
8.40 %
8.40 %
8.40 %
8.40 %
8.40 %
8.40 %
The first coupon yield of BO-09 series Exchange-traded bond issue was paid on October
1, 2013. The total amount of yield paid on the first coupon amounted to 209.4 million rubles, the
amount of yield of the first coupon paid per one bond amounted to 41.88 rubles.
The second coupon yield of BO-09 series Exchange-traded bond issue was paid on April
1, 2014. The total amount of yield paid on the second coupon amounted to 209.4 million rubles,
the amount of yield of the second coupon paid per one bond amounted to 41.88 rubles.
The third coupon yield of BO-09 series Exchange-traded bond issue was paid on
September 30, 2014. The total amount of yield paid on the third coupon amounted to 209.4
million rubles, the amount of yield of the third coupon paid per one bond amounted to 41.88
rubles.
67
The fourth coupon yield of BO-09 series Exchange-traded bond issue was paid on March
31, 2015. The total amount of yield paid on the fourth coupon amounted to 209.4 million rubles,
the amount of yield of the fourth coupon paid per one bond amounted to 41.88 rubles.
The fifth coupon yield of BO-09 series Exchange-traded bond issue was paid on
September 29, 2015. The total amount of yield paid on the fifth coupon amounted to 209.4
million rubles, the amount of yield of the fifth coupon paid per one bond amounted to 41.88
rubles.
The sixth coupon yield of BO-09 series Exchange-traded bond issue was paid on March
29, 2016. The total amount of yield paid on the sixth coupon amounted to 209.4 million rubles,
the amount of yield of the sixth coupon paid per one bond amounted to 41.88 rubles.
On March 29, 2016 PJSC “Magnit” fulfilled its obligations to bond holders on time and in
full and redeemed the nominal value of bonds of the BO-09 series.
Based on trading for the period from 04.01.2016 to 29.03.2016 the weighted average price
of transactions with Exchange-traded bonds of BO-09 series was not calculated because there
were no transactions within this period. Acknowledgeable quote within this period amounted
to 97.31%.
Bond issue of PJSC “Magnit” of 02 series:
In 2015 the Company offered its investors the issue of non-convertible certified interest-
bearing bonds to the bearer with the obligatory centralized custody of 02 series.
Issue comprised 5 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue is 3 years. The purpose of the issue of the bonds of 02 series was to attract
funds to finance operating activity and expansion of “Magnit” group of companies, to reduce
the cost of credit portfolio as well as to build public credit history.
Placement of the non-convertible certified interest-bearing bonds payable to the bearer
of 02 series with the obligatory centralized custody of PJSC “Magnit” on the MICEX stock
exchange commenced on May 15, 2015. The number of the placed securities amounted to 5
million bonds 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 first day of placement.
Parameters of the bond issue of PJSC “Magnit” of 02 series:
Date and the number of state registration
Volume of the issue
Number of securities
Nominal value of each security
Placement 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
68
№ 4-02-60525-P of December 27, 2012
5,000,000,000 rubles
5,000,000 bonds
1,000 rubles
100% of nominal value
15.05.2015
open subscription
1,092nd day from the date of placement
(11.05.2018)
6
RU000A0JVE99
RU000A0JVE99
12.10 %
12.10 %
12.10 %
12.10 %
4 coupon interest rate
5 coupon interest rate
6 coupon interest rate
12.10 %
12.10 %
12.10 %
The first coupon yield of 02 series bond issue was paid on November 13, 2015. The total
amount of yield paid on the first coupon amounted to 301.65 million rubles, the amount of yield
of the first coupon paid per one bond amounted to 60.33 rubles.
The second coupon yield of 02 series bond issue was paid on May 13, 2016. The total
amount of yield paid on the second coupon amounted to 301.65 million rubles, the amount of
yield of the second coupon paid per one bond amounted to 60.33 rubles.
On May 13, 2016 PJSC “Magnit” fulfilled its obligations to bond holders on time and in
full and redeemed the nominal value of bonds of the 02 series.
Based on trading for the period from 04.01.2016 to 13.05.2016 the weighted average price
of transactions with bonds of 02 series varied from min 100.00% (18.03.2016) to max 103.00%
(22.04.2016) of the nominal value. Acknowledgeable quote within this period fluctuated from
min 99.91% (12.05.2016, 13.05.2016) to max 103.00% (22.04.2016, from 25.04.2016 to 28.04.2016).
Bond issue of PJSC “Magnit” of 03 series:
In 2015 the Company offered its investors the issue of non-convertible certified interest-
bearing bonds to the bearer with the obligatory centralized custody of 03 series.
Issue comprised 5 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue is 3 years. The purpose of the issue of the bonds of 03 series was to attract
funds to finance operating activity and expansion of “Magnit” group of companies, to reduce
the cost of credit portfolio as well as to build public credit history.
Placement of the non-convertible certified interest-bearing bonds payable to the bearer
of 03 series with the obligatory centralized custody of PJSC “Magnit” on the MICEX stock
exchange commenced on May 15, 2015. The number of the placed securities amounted to 5
million bonds 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 first day of placement.
Parameters of the bond issue of PJSC “Magnit” of 03 series:
Date and the number of state registration
Volume of the issue
Number of securities
Nominal value of each security
Placement 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
69
№ 4-03-60525-P of December 27, 2012
5,000,000,000 rubles
5,000,000 bonds
1,000 rubles
100% of nominal value
15.05.2015
open subscription
1,092nd day from the date of placement
(11.05.2018)
6
RU000A0JVE81
RU000A0JVE81
12.10 %
12.10 %
12.10 %
3 coupon interest rate
4 coupon interest rate
5 coupon interest rate
6 coupon interest rate
12.10 %
12.10 %
12.10 %
12.10 %
The first coupon yield of 03 series bond issue was paid on November 13, 2015. The total
amount of yield paid on the first coupon amounted to 301.65 million rubles, the amount of yield
of the first coupon paid per one bond amounted to 60.33 rubles.
The second coupon yield of 03 series bond issue was paid on May 13, 2016. The total
amount of yield paid on the second coupon amounted to 301.65 million rubles, the amount of
yield of the second coupon paid per one bond amounted to 60.33 rubles.
On May 13, 2016 PJSC “Magnit” fulfilled its obligations to bond holders on time and in
full and redeemed the nominal value of bonds of the 03 series.
Based on trading for the period from 04.01.2016 to 13.05.2016 the weighted average price
of transactions with bonds of 03 series varied from min 99.75% (12.05.2016) to max 102.13%
(28.04.2016) of the nominal value. Acknowledgeable quote within this period fluctuated from
min 99.50% (12.05.2016, 13.05.2016) to max 102.20% (28.04.2016, 29.04.2016, 04.05.2016,
05.05.2016, 06.05.2016, 10.05.2016, 11.05.2016).
Bond issue of PJSC “Magnit” of BO-10 series:
In 2015 the Company offered its investors the tenth Exchange-traded bond issue.
Issue comprised 10 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue is 1 year. The purpose of the issue of the exchange-traded bonds of BO-10
series was to attract funds to finance operating activity and expansion of “Magnit” group of
companies, to reduce the cost of credit portfolio as well as to build public credit history.
Placement of the certified interest-bearing non-convertible Exchange-traded bonds
payable to bearer of BO-10 series with the obligatory centralized custody of PJSC “Magnit” on
the MICEX stock exchange commenced on July 23, 2015. The number of the placed securities
amounted to 10 million bonds 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 first day of
placement.
Parameters of the bond issue of PJSC “Magnit” of BO-10 series:
Identification number of the issue and the date
of its assignment
Volume of the issue
Number of securities
Nominal value of each security
Placement price
Date of placement
Method of placement
Redemption date
Number of coupons
Trading code
ISIN code
№ 4B02-10-60525-P of July 30, 2013
10,000,000,000 rubles
10,000,000 bonds
1,000 rubles
100% of nominal value
23.07.2015
open subscription
364th day from the date of placement
(21.07.2016)
2
RU000A0JVMV2
RU000A0JVMV2
70
Interest rate on the basis of the auction results
1 coupon interest rate
2 coupon interest rate
11.60 %
11.60 %
11.60 %
The first coupon yield of BO-10 series Exchange-traded bond issue was paid on January
21, 2016. The total amount of yield paid on the first coupon amounted to 587.4 million rubles,
the amount of yield of the first coupon paid per one bond amounted to 57.84 rubles.
The second coupon yield of BO-10 series Exchange-traded bond issue was paid on July
21, 2016. The total amount of yield paid on the second coupon amounted to 587.4 million rubles,
the amount of yield of the second coupon paid per one bond amounted to 57.84 rubles.
On July 21, 2016 PJSC “Magnit” fulfilled its obligations to bond holders on time and in
full and redeemed the nominal value of bonds of the BO-10 series.
Based on trading for the period from 04.01.2016 to 21.07.2016 the weighted average price
of transactions with bonds of BO-10 series varied from min 99.90% (12.05.2016) to max 100.70%
(07.03.2016) of the nominal value. Acknowledgeable quote within this period fluctuated from
min 100.00% (08.02.2016, 20.06.2016, 22.06.2016, 27.06.2016, 07.07.2016, 18.07.2016, 20.07.2016,
21.07.2016) to max 100.70% (07.03.2016).
Bond issue of PJSC “Magnit” of BO-11 series:
In 2015 the Company offered its investors the eleventh Exchange-traded bond issue.
Issue comprised 10 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue is 1 year and a half. The purpose of the issue of the exchange-traded bonds
of BO-11 series was to attract funds to finance operating activity and expansion of “Magnit”
group of companies, to reduce the cost of credit portfolio as well as to build public credit
history.
Placement of the certified interest-bearing non-convertible Exchange-traded bonds
payable to bearer of BO-11 series with the obligatory centralized custody of PJSC “Magnit” on
the MICEX stock exchange commenced on October 20, 2015. The number of the placed
securities amounted to 10 million bonds 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 first day of placement.
Parameters of the bond issue of PJSC “Magnit” of BO-11 series:
Identification number of the issue and the date
of its assignment
Volume of the issue
Number of securities
Nominal value of each security
Placement price
Date of placement
Method of placement
Redemption date
Number of coupons
Trading code
ISIN code
№ 4B02-11-60525-P of July 30, 2013
10,000,000,000 rubles
10,000,000 bonds
1,000 rubles
100% of nominal value
20.10.2015
open subscription
546th day from the date of placement
(18.04.2017)
3
RU000A0JVUZ6
RU000A0JVUZ6
71
Interest rate on the basis of the auction results
1 coupon interest rate
2 coupon interest rate
3 coupon interest rate
11.70 %
11.70 %
11.70 %
11.70 %
The first coupon yield of BO-11 series Exchange-traded bond issue was paid on April 19,
2016. The total amount of yield paid on the first coupon amounted to 583.4 million rubles, the
amount of yield of the first coupon paid per one bond amounted to 58.34 rubles.
The second coupon yield of BO-11 series Exchange-traded bond issue was paid on
October 18, 2016. The total amount of yield paid on the second coupon amounted to 583.4
million rubles, the amount of yield of the second coupon paid per one bond amounted to 58.34
rubles.
Based on trading for the period from 04.01.2016 to 30.12.2016 the weighted average price
of transactions with bonds of BO-11 series varied from min 91.53% (15.06.2016) to max 101.75%
(05.08.2016) of the nominal value. Acknowledgeable quote within this period fluctuated from
min 91.53% (15.06.2016) to max 101.75% (05.08.2016, 08.08.2016, 09.08.2016, 10.08.2016,
11.08.2016).
Bond issue of PJSC “Magnit” of BO-001P-01 series:
In 2015 the Company offered its investors the Exchange-traded bond issue of BO-001P-
01 series.
Issue comprised 10 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue is 1 year and a half. The purpose of the issue of the exchange-traded bonds
of BO-001P-01 series was to attract funds to finance operating activity and expansion of
“Magnit” group of companies, to reduce the cost of credit portfolio as well as to build public
credit history.
Placement of the certified interest-bearing non-convertible Exchange-traded bonds
payable to bearer of BO-001P-01 series with the obligatory centralized custody of PJSC
“Magnit” on the MICEX stock exchange commenced on November 11, 2015. The number of the
placed securities amounted to 10 million bonds 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 first day of placement.
Parameters of the bond issue of PJSC “Magnit” of BO-001P-01 series:
Identification number of the issue and the date
of its assignment
Volume of the issue
Number of securities
Nominal value of each security
Placement price
Date of placement
Method of placement
Redemption date
Number of coupons
Trading code
№ 4B02-01-60525-P-001P of November 5,
2015
10,000,000,000 rubles
10,000,000 bonds
1,000 rubles
100% of nominal value
11.11.2015
open subscription
546th day from the date of placement
(10.05.2017)
3
RU000A0JVXM8
72
ISIN code
Interest rate on the basis of the auction results
1 coupon interest rate
2 coupon interest rate
3 coupon interest rate
RU000A0JVXM8
11.20 %
11.20 %
11.20 %
11.20 %
The first coupon yield of BO-001P-01 series Exchange-traded bond issue was paid on
May 11, 2016. The total amount of yield paid on the first coupon amounted to 558.5 million
rubles, the amount of yield of the first coupon paid per one bond amounted to 55.85 rubles.
The second coupon yield of BO-001P-01 series Exchange-traded bond issue was paid on
November 9, 2016. The total amount of yield paid on the second coupon amounted to 558.5
million rubles, the amount of yield of the second coupon paid per one bond amounted to 55.85
rubles.
Based on trading for the period from 04.01.2016 to 30.12.2016 the weighted average price
of transactions with Exchange-traded bonds of BO-001P-01 series varied from min 99.61%
(25.01.2016, 26.01.2016) to max 101.42% (29.08.2016) of the nominal value. Acknowledgeable
quote within this period fluctuated from min 99.54% (04.01.2016, 05.01.2016) to max 101.42%
(29.08.2016).
Bond issue of PJSC “Magnit” of BO-001P-02 series:
In 2016 the Company offered its investors the Exchange-traded bond issue of BO-001P-
02 series.
Issue comprised 10 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue is two years. The purpose of the issue of the Exchange-traded bonds of
BO-001P-02 series was to attract funds to finance operating activity and expansion of “Magnit”
group of companies, to reduce the cost of credit portfolio as well as to build public credit
history.
Placement of the non-convertible interest-bearing certified Exchange-traded bonds
payable to bearer of BO-001P-02 series with the obligatory centralized custody of PJSC
“Magnit” on the MICEX Stock Exchange commenced on February 29, 2016. The number of the
placed securities amounted to 10 million bonds 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 first day of placement.
Parameters of the bond issue of PJSC “Magnit” of BO-001P-02 series:
Identification number of the issue and the date
of its assignment
Volume of the issue
Number of securities
Nominal value of each security
Placement price
Date of placement
Method of placement
Redemption date
Number of coupons
№ 4B02-02-60525-P-001P of February 24,
2016
10,000,000,000 rubles
10,000,000 bonds
1,000 rubles
100% of nominal value
29.02.2016
open subscription
728th day from the date of placement
(26.02.2018)
4
73
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
RU000A0JW662
RU000A0JW662
11.20 %
11.20 %
11.20 %
11.20 %
11.20 %
The first coupon yield of BO-001P-02 series Exchange-traded bond issue was paid on
August 29, 2016. The total amount of yield paid on the first coupon amounted to 558.5 million
rubles, the amount of yield of the first coupon paid per one bond amounted to 55.85 rubles.
Based on trading for the period from 29.02.2016 to 30.12.2016 the weighted average price
of transactions with Exchange-traded bonds of BO-001P-02 series varied from min 100.15%
(29.02.2016) to max 102.75% (15.09.2016) of the nominal value. Acknowledgeable quote within
this period fluctuated from min 100.40% (01.03.2016) to max 102.75% (15.09.2016, 16.09.2016,
19.09.2016).
Bond issue of PJSC “Magnit” of BO-001P-03 series:
In 2016 the Company offered its investors the Exchange-traded bond issue of BO-001P-
03 series.
Issue comprised 10 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue is two years. The purpose of the issue of the Exchange-traded bonds of
BO-001P-03 series was to attract funds to finance operating activity and expansion of “Magnit”
group of companies, to reduce the cost of credit portfolio as well as to build public credit
history.
Placement of the non-convertible interest-bearing certified Exchange-traded bonds
payable to bearer of BO-001P-03 series with the obligatory centralized custody of PJSC
“Magnit” on the MICEX Stock Exchange commenced on April 12, 2016. The number of the
placed securities amounted to 10 million bonds 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 first day of placement.
Parameters of the bond issue of PJSC “Magnit” of BO-001P-03 series:
Identification number of the issue and the date
of its assignment
Volume of the issue
Number of securities
Nominal value of each security
Placement price
Date of placement
Method of placement
Redemption date
Number of coupons
Trading code
ISIN code
№ 4B02-03-60525-P-001P of April 4, 2016
10,000,000,000 rubles
10,000,000 bonds
1,000 rubles
100% of nominal value
12.04.2016
open subscription
728th day from the date of placement
(10.04.2018)
4
RU000A0JWCF4
RU000A0JWCF4
74
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
10.60 %
10.60 %
10.60 %
10.60 %
10.60 %
The first coupon yield of BO-001P-03 series Exchange-traded bond issue was paid on
October 11, 2016. The total amount of yield paid on the first coupon amounted to 528.5 million
rubles, the amount of yield of the first coupon paid per one bond amounted to 52.85 rubles.
Based on trading for the period from 12.04.2016 to 30.12.2016 the weighted average price
of transactions with Exchange-traded bonds of BO-001P-03 series varied from min 100.00%
(15.04.2016) to max 102.30% (04.10.2016) of the nominal value. Acknowledgeable quote within
this period fluctuated from min 100.00% (15.04.2016, from 18.04.2016 to 20.04.2016) to max
102.30% (from 04.10.2016 to 07.10.2016).
Bond issue of PJSC “Magnit” of BO-001P-04 series:
In 2016 the Company offered its investors the Exchange-traded bond issue of BO-001P-
04 series.
Issue comprised 10 million securities with the nominal value of 1 thousand rubles.
Maturity of the issue is two years. The purpose of the issue of the Exchange-traded bonds of
BO-001P-04 series was to attract funds to finance operating activity and expansion of “Magnit”
group of companies, to reduce the cost of credit portfolio as well as to build public credit
history.
Placement of the non-convertible interest-bearing certified Exchange-traded bonds
payable to bearer of BO-001P-04 series with the obligatory centralized custody of PJSC
“Magnit” on the MICEX Stock Exchange commenced on July 5, 2016. The number of the placed
securities amounted to 10 million bonds 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 first day of placement.
Parameters of the bond issue of PJSC “Magnit” of BO-001P-04 series:
Identification number of the issue and the date
of its assignment
Volume of the issue
Number of securities
Nominal value of each security
Placement 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
75
№ 4B02-04-60525-P-001P of June 30, 2016
10,000,000,000 rubles
10,000,000 bonds
1,000 rubles
100% of nominal value
05.07.2016
open subscription
541st day from the date of placement
(28.12.2017)
3
RU000A0JWML1
RU000A0JWML1
10.00 %
10.00 %
2 coupon interest rate
3 coupon interest rate
10.00 %
10.00 %
The first coupon yield of BO-001P-04 series Exchange-traded bond issue was paid on
December 29, 2016. The total amount of yield paid on the first coupon amounted to 484.9
million rubles, the amount of yield of the first coupon paid per one bond amounted to 48.49
rubles.
Based on trading for the period from 05.07.2016 to 30.12.2016 the weighted average price
of transactions with Exchange-traded bonds of BO-001P-04 series varied from min 100.00%
(08.07.2016, 02.08.2016) to max 100.65% (05.10.2016) of the nominal value. Acknowledgeable
quote within this period fluctuated from min 100.00% (29.07.2016, 01.08.2016, 02.08.2016) to max
100.65% (from 05.10.2016 to 07.10.2016, from 10.10.2016 to 13.10.2016).
SHARES TRADING
The shares of PJSC “Magnit” entered the Russian stock market in April 2006.
On April 14, 2006 the shares of PJSC “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 PJSC “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 PJSC “Magnit” on the Russian Trading System (RTS) and
the Moscow Interbank Currency Exchange (MICEX) was completed.
The price of one share of PJSC “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 PJSC “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 PJSC “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 set
based on the rate of 23.4450 rubles per dollar.
A total of 11,245,660 ordinary shares were offered including 9,719,638 shares allocated to
international institutional investors. In connection with the offering the selling shareholder has
granted the joint bookrunners an over-allotment option to purchase up to an additional 506,585
shares at the offer price which was exercised in full.
76
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.
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.
Since July 22, 2009 ordinary shares of the Company were included (transferred) into the
Quotation list “A” of the second level at the “Russian Trading System” Stock Exchange”.
On August 7, 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
admitted to trading in the corresponding list.
On September 2, 2009 PJSC “Magnit” announced its intention to offer additional
11,154,918 ordinary shares by public subscription.
The offer price amounted to 65 USD per ordinary share and 13 USD per GDR.
A total of 5,729,413 ordinary shares were offered. 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 were 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 PJSC “Magnit” have been included (transferred) into
the Quotation list “A” of the first level at the “Russian Trading System” Stock Exchange”.
According to the Instruction of CJSC “MICEX Stock Exchange ” № 1387-p of 29.12.2010
PJSC “Magnit” shares are included in (transferred to) the quotation list “A” of the first level of
CJSC “MICEX Stock Exchange”.
On November 30, 2011 PJSC “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 PJSC “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.
77
Since June 18, 2013 the shares of PJSC "Magnit" have been included into the Blue Chip
Since June 18, 2013 the shares of PJSC "Magnit" have been included into the Blue Chip
Since June 18, 2013 the shares of PJSC "Magnit" have been included into the Blue Chip
Index Constituents of MICEX. Moscow Exchange Blue Chip Index is an indicator of the market
Index Constituents of MICEX. Moscow Exchange Blue Chip Index is an indicator of the market
Index Constituents of MICEX. Moscow Exchange Blue Chip Index is an indicator of the market
of the most liquid stocks of t
he Russian companies. The index is calculated on the basis of the
of the most liquid stocks of the Russian companies. The index is calculated on the basis of the
most liquid stocks of the Russian stock market. The index is based on the share prices
most liquid stocks of the Russian stock market. The index is based on the share prices
most liquid stocks of the Russian stock market. The index is based on the share prices
denominated in rubles.
On June 6, 2014 the ordinary registered shares of PJSC “Magnit” were in included in the
On June 6, 2014 the ordinary registered shares of PJSC “Magnit” were in include
On June 6, 2014 the ordinary registered shares of PJSC “Magnit” were in include
Petersburg Exchange”.
list of securities admitted to trading on the OJSC “Saint-Petersburg Exchange”.
list of securities admitted to trading on the OJSC “Saint
According to trading held from 04.01.2016 to 30.12.2016 on PJSC “Moscow Exchange”
PJSC “Moscow Exchange”
According to trading held from 0
the average weighted price of transactions with
MICEX Stock Exchange” the average weighted price of transactions with
(previously – CJSC “MICEX Stock Exchange
shares varied from min 8,310
310.00 rubles (27.06.2016) to max 11,609.00 (29.01.2016
According to the trading held from 04.01.2016 to 30.12.2016 on the London Stock
According to the trading held from 04.01.2016 to 30.12.2016 on the London Stock
According to the trading held from 04.01.2016 to 30.12.2016 on the London Stock
global depositary receipts as of closing varied from
Exchange the price of transactions with the global depositary receipts as of closing varied from
Exchange the price of transactions with the
min $29.18 (27.06.2016) to max $44.15 (30.12.2016).
min $29.18 (27.06.2016) to max $44.15 (30.12.2016).
29.01.2016).
Market capitalization of PJSC “Magnit” as of December 30
Market capitalization of PJSC “Magnit” as of December 3
1,031,475,260,340.00 rubles according to
SE”).
.00 rubles according to PJSC “Moscow Exchange” (previou
to
PJSC “Moscow Exchange” (previously – CJSC “MICEX
0, 2016 amounted
78
13. TRANSACTIONS EXECUTED WITHIN THE YEAR 2016 CONSIDERED MAJOR
TRANSACTIONS ACCORDING TO THE FEDERAL LAW “ON JOINT STOCK
COMPANIES”
1.
Date of Transaction
Subject and other essentials of transaction
Parties of transaction
01.06.2016
The provision of the guarantee by the
issuer under the General agreement No. 29-
15/1/691 of 28.09.2015 on opening of the
revolving framework credit line with
tiered interest rates concluded between
PJSC “Sberbank” and JSC “Tander”
The Creditor: PJSC “Sberbank”
The Borrower: JSC “Tander”
The Guarantor: PJSC “Magnit”
Transaction amount in money terms, thousand
rubles.
Transaction amount in percent of the issuer’s
balance sheet assets as of the termination date of
the last accounting period preceding the date of
transaction, %
Deadline for the fulfillment of the obligations
under the transaction
35,000,000
31.68
27.09.2022
Information
obligations
on
performance
of
specified
Issuer’s authority which made a decision on
approval of the transaction, date of decision (date
and number of minutes)
Other information on transaction indicated at the
issuer’s discretion
2.
Date of Transaction
Subject and other essentials of transaction
Parties of transaction
79
JSC “Tander” timely and in full fulfils its
obligation to the Creditor. There are no
cases when a Creditor makes demands to
the Guarantor to fulfill the unperformed
obligations of JSC “Tander”.
The transaction was approved by the
General Shareholders Meeting on
December 22, 2015 (Minutes w/o № of
24.12. 2015).
none
28.06.2016
The provision of the guarantee by the
issuer under the General agreement No. 42-
0-10/2-2015 of 25.08.2015 on the procedure
of execution of credit transactions
concluded between JSC “Russian
Agricultural Bank” and JSC “Tander” (as
amended by the additional agreement No.
3 of 28.06.2016)
The Creditor: JSC “Russian Agricultural
Bank”
The Borrower: JSC “Tander”
The Guarantor: PJSC “Magnit”
Transaction amount in money terms, thousand
rubles.
Transaction amount in percent of the issuer’s
balance sheet assets as of the termination date of
the last accounting period preceding the date of
transaction, %
40,000,000
36.21
Deadline for the fulfillment of the obligations
under the transaction
Information
obligations
on
performance
of
specified
Issuer’s authority which made a decision on
approval of the transaction, date of decision (date
and number of minutes)
Other information on transaction indicated at the
issuer’s discretion
3.
Date of Transaction
Subject and other essentials of transaction
Parties of transaction
The agreement shall be valid for the
whole amount of Credits which can be
provided to the Borrower by the Creditor
in accordance with the Credit agreement,
for the period of validation of the Credit
agreement extended by 180 (One hundred
and eighty) calendar days.
JSC “Tander” timely and in full fulfils its
obligation to the Creditor. There are no
cases when a Creditor makes demands to
the Guarantor to fulfill the unperformed
obligations of JSC “Tander”.
The transaction was approved by the
annual General Shareholders Meeting on
June 2, 2016 (Minutes w/o № of 03.06.
2016).
none
16.08.2016
The provision of the guarantee by the
issuer under the General agreement No. 29-
15/1/887 of 16.08.2016 on opening of the
revolving framework credit line with
tiered interest rates concluded between
PJSC “Sberbank” and JSC “Tander”
The Creditor: PJSC “Sberbank”
The Borrower: JSC “Tander”
The Guarantor: PJSC “Magnit”
Transaction amount in money terms, thousand
rubles.
Transaction amount in percent of the issuer’s
balance sheet assets as of the termination date of
the last accounting period preceding the date of
transaction, %
Deadline for the fulfillment of the obligations
under the transaction
53,000,000
41.55
14.08.2023
Information
obligations
on
performance
of
specified
JSC “Tander” timely and in full fulfils its
obligation to the Creditor. There are no
cases when a Creditor makes demands to
the Guarantor to fulfill the unperformed
80
Issuer’s authority which made a decision on
approval of the transaction, date of decision (date
and number of minutes)
obligations of JSC “Tander”.
The transaction was approved by the
annual General Shareholders Meeting on
June 2, 2016 (Minutes w/o № of 03.06.
2016).
Other information on transaction indicated at the
issuer’s discretion
none
81
14. TRANSACTIONS EXECUTED WITHIN THE YEAR 2016 CONSIDERED
RELATED PARTY TRANSACTIONS ACCORDING TO THE FEDERAL LAW “ON JOINT
STOCK COMPANIES”
Information on the transactions executed in 2016 year and considered as related party
transactions according to the Federal Law “On Joint Stock Companies” is represented in the
annex to the Annual Report (ref. Annex №5).
82
15. MAIN RISK FACTORS INHERENT IN THE СOMPANY OPERATION
The Company’s policy of the risk management
Since the Issuer and its subsidiaries operate within one group of companies, where PJSC
“Magnit” serves as the holding company (hereafter - “the Group”, “Magnit” retail chain”, “the
Company” or “the Issuer“), the description of risks to the greater extent is provided for the
entire Group.
The description of risk factors provided herein is not complete, it only reflects the view
of the Company and its individual assessment. Apart from the risks specified in this report,
other risks which are not included in this report may negatively affect the return on investments
in the securities of PJSC “Magnit”. Other risks, including those which the Company is not
aware of or which it considers immaterial at the present time, may lead to the decrease of
earnings, increase of expenses or other events and (or) consequences, in the result of which the
price of the Company’s securities may fall.
In case one or several risks hereof occur, PJSC “Magnit” will take all possible measures
to minimize the effect of negative changes. Today it is impossible to determine specific acts of
the Company if any out of the provided risks occur because the elaboration of measures
adequate to the corresponding events is complicated due to uncertainty of the situation in
future. Parameters of the taken measures will depend on the specific situation on a case-by-case
basis. PJSC “Magnit” cannot guarantee that the measures taken to overcome negative changes
will remedy the situation, as the majority of the described risks are beyond the Company’s
control.
The Company and the Group apply systematic approach to risk management in
accordance with the Internal control and risk management policy of PJSC “Magnit” (hereinafter
– “the Policy”). The key elements of the risk management policy in each area are:
• Risk identification
• Risk assessment
• Elaboration and implementation of risk management framework
• Ongoing monitoring of risks
Risk management is carried out in respect of the entire Group.
In respect of the industry risks the mid and long-term assessment of the industry is
made based on the macroeconomic forecasts of the Ministry of Economic Development and
Trade and investment analysts. The assessment covers the future demand based on the
forecasts of the population incomes and the level of consumption. The assessments includes
industry trends in respect of various channels, segmentation of demand by channels and
competitive environment.
Based on the analysis the strategy of development is worked out to strengthen the
competitive position and increase the market share of the Company.
In respect of the country and regional risks, the Company monitors political and
economic situation and estimates the level of risk of acts of elements, possible disruption of
transportation in the regions of “Magnit” stores’ presence. Territorial diversification of
operation of “Magnit” group of companies contributes to additional reduction of these risks.
In respect of the financial risks, the level of interest rate, currency, credit and liquidity
risks is estimated.
83
Interest risk is managed by means of choosing the most optimal financing methods and
matching of timing of mobilization of resources with the timing of the projects which are
financed by them. To optimize the resources the Company develops its credit history, expands
the data base of potential creditors and diversifies instruments to receive the funds.
The reduction of cost of the received resources is achieved due to the policy aiming at
improvement of the information transparency. One of the tools of interest risk management is
the forecasting the changes of interest rates and assessment of the appropriate leverage level of
the Group adjusted for this possible change of interest rates.
In respect of the currency risk, the Company estimates forecasts of the analysts on the
possible change of the exchange rates and makes decisions on the acceptable amount of assets
and liabilities in the foreign currency.
In respect of the liquidity risks, the Issuer and the Group in general maintain well-
balanced ratio of assets and liabilities in terms of timing.
In respect of credit risks, the Company analyzes financial position of counteragents and
applies the system of limits.
Legal risks management is based on the strict compliance with the applicable Russian
legislation. Legal department monitors all changes in legislation concerning the Company’s
activity, and conducts legal examination of all contracts and agreements.
INDUSTRY RISKS
Risks related to the consumer demand and competition
Unfavorable changes of macroeconomic conditions and decrease of consumer demand
in Russia may negatively affect sales and income of the Group
The Group operates in the FMCG retail sector.
The development of the retail sector, in which the Group operates, in many aspects
depends on macroeconomic factors because the demand for the consumer goods is conditioned
by the disposable income of population.
In case of economic instability the decrease of the real disposable income of population
may lead to weaker dynamics of growth and profitability of the industry. It should be noted
that the state of the Russian economy is conditioned a lot by the oil price and other energy and
mineral resources on the world market. Decrease of oil prices and prices on the other mineral
resources may have material negative impact on the economy of the Russian Federation.
Besides, introduction and further tightening of economic sanctions against the Russian
Federation by the United States of America, European Union and other countries due to the
developments in Ukraine was and continues to be detrimental to the state of the economy.
Consumer demand on the markets where the Group operates depends on the number of
factors which are beyond the Group’s control, including demographic factors, consumer
preferences and their purchasing power. The decline of the consumer demand or the change of
the consumer preferences may significantly reduce sales and income of the Group and
negatively influence the business activity, financial condition and operational results of the
Group and the Issuer. Besides, seasonality of the consumer demand may lead to considerable
fluctuations of the Group’s results in different periods of time.
High level of competition may lead to the decline of the Group’s market share and the
reduction of its revenue
84
The Group operates in the territory of the Russian Federation with the highest
concentration in the Southern, North-Caucasian, Central and Volga federal districts. The Group
plans to continue its expansion in the other regions of Russia: North-West, Urals and Siberia
federal districts. Retail market of the Southern federal region, where the Issuer is registered and
where its Head Office is located, as well as retail markets of the Central and Volga federal
districts, where most of the Group’s stores are located, are quite competitive regional markets in
Russia and are represented by most of the large Russian players as well as by a number of
foreign companies.
Russian retail is characterized by a high level of competition. The Group competes with
a the significant number of Russian and international companies. In recent years the growth of
consumer demand in Russia has attracted new market participants and resulted in the increase
of competition. Retail chains compete with each other primarily on the ground of the store
locations, product quality, service and price, product mix and store conditions. Entrance of
additional players to the Russian market may further intensify competition and reduce the
efficiency of the Group. Main competitors of the Group in the “convenience store” format are
“Pyaterochka” and “Dixy”, while in the “hypermarket” format these are “Auchan”,
“Perekrestok”, “Karusel”, “Lenta”, “O’key”. The Group also competes with regional and local
retail chains, individual groceries and food markets.
Some of the Group’s competitors which are present on the market today, and also those
planning to enter the Russian market, are large international companies and have better
opportunities to mobilize the resources than the Group. Moreover, many other international
players including those with better financial and other opportunities vs. the Group will enter
the Russian market in the nearest years through acquisition of local players or building up their
own greenfield networks.
If the above process is intensive, competition may substantially increase, which may
negatively influence 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 develop the existing stores and open new stores in good 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 or new competitors in future.
At the current stage of competitive activity considerable risks for the Group are also
linked to the fact that the main competitors of the Group use more aggressive methods, such as
winning the additional target markets through expansion of franchising schemes. Such
approach enables the competitors to expand their presence rapidly in many regions of Russia as
well as to considerably reduce the costs of the new store openings. Non-use of the franchising
schemes by the Group 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 delay its further growth
The stores operating under “Magnit” brand are located in the Southern, Central, Volga,
North-Caucasian, North-Western, Urals and Siberian federal region.
Following its strategy the Group plans to considerably increase the number of its stores
85
in the above regions maintaining the same development rates as well as to further expand its
chain in a number of subjects of the Russian Federation. The development strategy of the Group
makes it dependent on the economic conditions and some other factors.
The successful implementation 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 imply certain risks, including failure to carry out adequate due
diligence of the acquirees’ operations, their assets and/or financial position, and much higher
financial risks and operational expenses than expected before acquisition. At the same time,
there is a risk of impossibility of successful assimilation of operations and personnel of the
acquiree, lack of introduction and integration of all necessary systems and control, 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 operational disruptions and loss of the Group’s
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 operational results.
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 receive
sufficient cash flows or raise sufficient capital to finance its planned expenditures, it may have
to cut, slow down or cease expansion of its network.
Rapid growth of the Group may lead to deficiency of administrative, industrial and
financial resources
Historically range 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
86
improvement of
particularly to continue the
its operational and financial systems,
administrative management and management 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 meet the above challenges, it
may negatively influence the operations and financial position of the Group and the Issuer.
Due to the ongoing growth, the Group may experience difficulties with continuation of
usage, extension and improvement of its management and information system. If the Group
fails to maintain its management information system, financial accounting and in-house audit
systems at a proper level, its economic activity and financial position may substantially suffer.
Besides, there exist a risk of narrowing of the target audience in the course of time if the
population income grows significantly, which may lead to the outflow of customers from
“Magnit” stores. 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 disposable income will continue to grow, the Group may not be able to
adjust the product mix in its stores according to the changed consumer needs, and thus may
lose part of its target audience. As a result, the number of customers who shop at the Group’s
stores may reduce (or the growth rate of the number of customers may significantly reduce
compared to the previous periods), or the size of the average ticket in “convenience” format
may reduce (or its growth rate may reduce compared to the previous periods), which could
detrimental to on the business of the Group, its operational results, financial position and
prospects.
Risks related to real estate investments and lease of real estate
Lack of reliable information on the real estate market in the 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 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 real estate 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 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.
87
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 real estate appropriate for its needs on commercially reasonable terms.
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. If in the future due to any reason, including competition from the other
companies, which are interested in the similar objects, the Group is not able to identify and
lease and/or buy 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 be able to successfully identify, lease and/or purchase
the appropriate real estate objects on acceptable terms.
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
It is impossible to guarantee that the Group will be able to prolong its lease contracts on
acceptable terms, and even the possibility to prolong lease contracts itself upon their expiration.
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/or equip the new specially built 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. It is impossible to guarantee that
the Group will be able to find sufficient number of qualified projectors which could enable the
Group to construct and open new stores in due time. Failure of the Group to construct and
equip new stores on the newly acquired land plots in due time may be detrimental to its ability
to perform tasks, which are set in its plans of strategic development and to achieve planned
operational 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
88
Group’s operations include obtaining of ownership rights on land plots and buildings
for the purposes of the construction and/or equipping new stores. Besides, 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, the
decisions made in compliance with these procedures can be contested or cancelled.
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.
According to the Russian legislation, 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 in the unified state register of rights to real estate and transactions therewith. As a
result, breaches in the past real estate transactions may lead to invalidation of such transactions
with certain real estate objects, which may negatively influence the rights of the Group on this
real estate.
It is also worth noting that, 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 of rights to real estate and transactions therewith to
legally validate the charge. Besides, the time limits within which the charge liable for
registration in the unified state register of rights to real estate and transactions therewith should
be entered into this register, are not stipulated in the law. Therefore, there is always a risk that
the third parties at any time may register or claim the existence of encumbrances (of which the
Group had not been aware of) on the real estate owned or leased by the Group.
Risks related to the increase of costs
Unionization of the Group employees may have a material adverse effect on its
financial position and operational 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, which in its turn may have a
substantial negative impact on financial position and operational results of the Group.
Risks related to the possible fluctuations of the prices for raw materials, services used
by the Issuer in its operations (separately on the internal and external markets), and their
influence on the Issuer’s operations 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
89
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 growth of the store opening costs or costs for the use of
the premises for stores as well as the increase of the payback period for the Issuer and its
subsidiaries. The growth of the purchasing prices, the growth of the store opening costs, growth
of the price of the land plots (or any other real estate) and the amount of rent payment for their
use, as well as the growth of employees’ wages may lead to the substantial growth of the
Group’s expenses, and thus, seriously affect the profitability of the Issuer if the Group is not
able to adequately increase the sale prices due to low purchasing power 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.
Risks related to the possible fluctuations of the prices on products and/or services of
the Issuer (separately on the domestic and foreign markets), and their influence on the
Company’s activity and its fulfillment of obligations on the securities
The Issuer and the Group operate only on the Russian domestic market. The Issuer 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 product prices at “Magnit” stores may lead to the profitability decrease
of the Group. Changes of the 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 on the products. The growth of the product prices may negatively affect the purchasing
power of the population. Amidst inflation the growth of the product prices is more likely to
happen, which causes the erosion of purchasing power of the population. Deterioration of the
macroeconomic environment and the subsequent erosion of purchasing power 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 Issuer 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 is impossible to determine particular
actions of the Issuer in case any of the events listed in the risk factors and described in
this paragraph occur in future, because elaboration of the adequate is complicated due
to uncertainties of the developments in future. 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
90
the situation, as most of the above risks are out of the Issuer’s control. In case of
deterioration of the situation in the sector, the Company plans:
• To continue, if possible, to expanding its operations in order to reduce the cost of goods
and diversify some risks through the ongoing growth of scale;
• To continue monitoring the least prospective stores and, if the measures to raise
profitability of these stores are not rewarding, to close such stores expeditiously;
• To extend the territory of its operation by choosing the most profitable regions of
Russian Federation in terms of growth prospects;
• To carry out adequate changes in pricing policy for maintaining the demand for goods
on the necessary level;
• To take additional measures to cut the costs;
•
to continue attracting highly-skilled specialists as well as entering into agreements with
reliable partners, counteragents and contractors, which enables
further risk
minimization, and to conduct the detailed analysis of the planned operations of the
Issuer in order to reduce the cost of investments, reduce the expenses and receive higher
profits.
COUNTRY AND REGIONAL RISKS
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 region, Krasnodar.
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 decrease of demand for consumer goods.
Despite the fact that during the last few years there were positive changes in many
public spheres in Russia - the economy was growing, certain political stability was achieved,
Russia is still the state with the rapidly developing and changing political, economic and
financial systems. Apart from economic risks, Russia is more exposed to the political and
regulatory risks than the other countries with the developed market economy.
POLITICAL RISKS
Political instability in Russia may have a negative effect on the cost of investments in
Russia as well as on share the price of the Issuer
Since 1991 Russia is undergoing the transformation from the single-party government
with the centralized planned economy to the federal republic with democratic institutions and
market-oriented economy.
The progress of political and other reforms from 1991 was uneven. The composition of
the Government of the Russian Federation, including the prime minister, was unstable on a
periodic basis. For example, from March 1998 to May 2008 there were six prime-minister shifts.
Vladimir Putin was elected the President of Russia in March 2000. Since that the composition of
the Government in Russia has been highly stable. In March 2008 Dmitry Medvedev was elected
the President of Russia, during his administration Vladimir Putin was the Prime Minister. In
March 2012 Vladimir Putin was again elected the President and came to office on the 7th of
91
May, 2012 for the six-year term. Currently Dmitry Medvedev is the Prime Minister. Although it
ensured state stability, oppositional organizations were very active from the end of 2011 to the
middle of 2013, mainly due to the results of the parliament and president elections.
Political instability may lead to deterioration of the macroeconomic situation, including
flight of capital, decrease of investments and business activity.
Accession of Crimea to Russia caused strong negative reaction of the western countries.
In particular, the United States of America and the European Union countries as well as
Ukraine strongly reject to acknowledge the referendum held in Crimea and further accession of
Crimea to the Russian Federation legitimate. Beginning from March 2014 the United States of
America, the European Union countries and some other countries started to introduce various
sanctions against a number of the Russian administrative officials, politicians, businessmen,
companies and banks.
The beginning and further escalation of the Ukrainian conflict between the army and the
other armed groups of Ukraine on one hand, and advocates of independency from Ukraine on
the other hand, caused significant expansion and toughening of sanctions against Russia on the
part of western countries starting from July 2014. In particular, the United States of America
introduced the so-called sectoral sanctions against Russian state banks as well as a number of
companies operating in the power generating and military sectors of economy. The most
meaningful part of the sectoral sanctions for the Russian economy and financial system is the
prohibition on purchase, sale, investment services and assistance in issuance or any other
transactions with the securities and money market instruments with the circulation period of
over 30 days if the issuer is (i) one of the five Russian state banks (Sberbank, VTB Bank,
Gazprombank, Vnesheconombank or Russian Agricultural Bank), one of their subsidiaries or a
person, acting on behalf of or on the instructions of these Russian state banks and their
subsidiaries; (ii) one of a number of the Russian companies, which operations are primarily
related to and is mainly about invention, production, sales and export of military equipment or
services related to the military sector, or one of its subsidiaries or a person, acting on behalf of
and on the instructions of these military companies or their subsidiaries; (iii) one of a number of
the Russian companies controlled by the government or with the government stake of over 50%
and the value of assets exceeding 1 trillion rubles and with the expected profit of over 50%
coming from sale and transportation of crude oil and oil products (such as Gazprom Neft,
Transneft and Rosneft), or one of their subsidiaries or a person, acting on behalf of and on the
instructions of these companies or their subsidiaries. Similar sanctions blocking access to the
western capital markets were also introduced by the European Union countries nearly against
the same Russian state banks, power generating and military companies. Besides, there were
sanctions introduced to prohibit export of products and technologies for military purposes,
dual-use products and technologies (which may be used for both civil and military purposes),
as well as products and technologies necessary for oilfield development in deep water areas,
Arctic shelf and shale stratum, to Russia.
Significant escalation of geopolitical situation due to the development in the Eastern
Ukraine and the introduction of the above sanctions not only restricted access to the western
capital markets for banks and companies under sanctions, but also extremely complicated
access to the international debt and equity capital markets for the other Russian companies and
banks, which may now turn to be unable to refinance its current debt in the foreign currencies
by new debt on the international capital markets. Very limited access to the international capital
markets creates a threat that at least some of those companies and banks with significant debt in
the foreign currencies may be unable to settle their existing loans in the foreign currency in
time, which may result in their bankruptcy and negatively impact the entire Russian economy.
92
Besides, significant part of funds, earlier raised by the Russian banks on the international capital
markets, was channeled for crediting of the Russian companies and population. The restriction
of access to such relatively cheap source of financing may negatively cut volumes of crediting of
the Russian companies and population by the Russian banks and significantly increase the
credit rates, which may negatively impact the state of the Russian economy.
It is impossible to rule out further escalation of sanctions against Russian business and
individuals in future, which may have even more negative impact on the Russian economy,
financial and banking markets, and result in the increase of the capital outflow from Russia and
significantly deteriorate the investment climate and business environment in Russia.
Reconsideration of reforms and the government policy with regard to certain
individuals may negatively impact the business of the Group and the investment
attractiveness of Russia.
In the past, including the recent past, the Russian law enforcement agencies opened
criminal cases against a number of Russian companies, their officials and shareholders on a
charge of tax evasion, other tax crimes and absolutely different illegal actions. On some of such
investigations the accused people were sentenced to be confined and pay the understated taxes.
According to the statements in the Russian press, such companies included Yukos, TNK and
VimpelCom. In Autumn 2014 by the decision of the Moscow Court of Arbitration the
controlling interest in Bashneft, earlier owned by AFK “Sistema”, was returned in state
ownership in grounds of law violation in the course of privatization of Bashneft. AFK “Sistema”
acquired Bashneft, privatized earlier, for US$ 2 billion in 2009. In the course of judicial
proceedings the chairman of the Board of Directors and the largest shareholder of AFK
“Sistema” Vladimir Evtushenkov was accused of money laundering and he was temporarily
placed under house arrest. Some analysts think that such actions of government agencies speak
of the intention to reconsider political and economic reforms of the last two decades. However,
other analysts are confident that these were one-off cases and do speak of any backtracking on
major political and economic reforms.
Conflicts between federal and regional authorities and other domestic political
conflicts may create unfavorable economic conditions which may negatively impact the
operations 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 unclear and disputable. In this
connection, 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 may 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 the Group’s performance in particular, especially, taking into
93
consideration the significant scale of the Group’s operations in the Southern and North
Caucasian Federal Region.
Any instability in the social sphere may negatively impact the confidence in Russian
economy and its investment potential, and may also have negative impact on the operations of
the Group and result in losses or impact the business of the Group, results of its operations, its
financial position and prospects in a different way.
ECONOMIC RISKS
Economic instability in Russia may have negative impact on the consumer demand
which may significant negative influence the business of the Issuer
In the past the Russian economy was and continues to be exposed to:
• Significant decrease of its Gross Domestic Product and the growth rates of the Gross
Domestic Product;
• High inflation;
• High and rapidly growing interest rates;
• Unstable crediting conditions;
• Unstable ruble rate;
• Massive flight of capital;
• High level of government debt versus gross domestic product;
• Low diversification of economy which is relies heavily on global commodity prices;
• Sharp decline of oil prices, other energy materials and other commodities;
•
Inability of the banking system to provide Russian companies with sufficient liquidity;
• Continuation of work of unprofitable enterprises due to lack of efficient bankruptcy
procedures;
• High level of corruption and penetration of organized criminality in economics;
• Ubiquitous evasion of taxes;
• Significant growth of unemployment and subemployment;
•
Introduction and further escalation of various sanctions against a number of Russian
companies, banks, officials, politicians and businessmen;
and
• Low incomes of the majority of the Russian population.
Over the past few years the Russian economy has been marked by instability of debt and
equity capital markets (for example, the Russian equity market saw significant slowdown in the
second half of 2008). As a result, the market regulators suspended trades on the Russian stock
exchanges, MICEX and RTS (merged in 2011 into the MOEX) many times. The Russian
economy has been also marked by significant decline of foreign investments and sharp decrease
of the gross domestic product in certain years. For example, in 2009 the Russian gross domestic
product decreased by 7.8% in real terms.
As Russia produces and exports significant volumes of crude oil, natural gas, oil
products and other mineral resources, the Russian economy is very vulnerable to the
fluctuations of oil and gas prices and the other commodities, the prices on which significantly
decreased in the course of the global financial crisis, started in the second half of 2008. Decrease
of oil prices and prices on the other mineral resources may have material negative impact on the
94
economy of the Russian Federation. Besides, introduction and further tightening of economic
sanctions against the Russian Federation by the United States of America, European Union and
other countries due to the developments in Ukraine was and continues to be detrimental to the
state of the economy.
Introduction and further escalation of sanctions against a number of Russian companies,
banks, officials, politicians and businessmen on the part of western countries and escalation of
geopolitical tensions between Russia and Ukraine, as well as a number of western countries,
were among key reasons which caused downgrades of long-term credit ratings of Russia by the
leading international rating agencies.
Russia being the country with the developing economy is highly exposed to further
external shocks. Developments in economy and in the financial market of one of the large
countries of the region, sometimes lead to the situation when the international investors lose
their interest to the entire region or the class of investments – this is called “chain reaction”. In
the past Russia already suffered from similar chain reaction, and it is possible that the Russian
investment market, including the share price of the Issuer, will correspondingly suffer in future
due to negative economic and financial developments in the other countries. Economic
instability or the future economic crisis may explode the confidence of investors in the Russian
markets and in the ability of the Russian companies to attract capital on the global markets,
which in its turn, may have significant negative impact on the Russian economy. Deterioration
of the economic situation may, in its turn, result in the significant decrease of the consumer
demand in the country, which may negatively impact the operating results, financial position
and development prospects of the Group and the Issuer.
Russian physical infrastructure is in poor condition, which may cause damage to the
regular operating activity, while the efforts of the Government of the Russian Federation on
improvement of the national infrastructure may result in the additional costs for the Group.
Most of the Russian physical infrastructure was established in the soviet period and
during many years it was not duly financed and maintained. In certain regions roads,
manufacturing, electric power delivery, communication systems and stock of buildings are in
the very poor condition.
Roads in Russia are of the poor quality, some of them do not meet the minimal
requirements in usability and safety, which complicates the in-time delivery of products to the
Group’s stores, taken into account the distance of deliveries. Further deterioration of the
Russian physical infrastructure may cause damage to the national economy, disrupt the
product deliveries, increase business costs and disrupt the operations.
SOCIAL RISKS
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. If any of these results of the growth of social instability materialize, the
operations of the Issuer may be limited and the profitability of the Group may decrease.
Crime and corruption may have an adverse negative effect on the operation and
financial position of the Group
95
According to the reports of the local and international press, organized crime and
corruption remain significant problems for the companies operating in Russia. Besides, 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.
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 political, economic and social risks are out of the Issuer’s
control due to their global scale. The companies which are included in 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 in Russia or in
the certain region, which will negatively impact the operations and the revenues of the Group,
the Issuer assumes that the Group will undertake a number of measures in order to mobilize
business and minimize negative impact of the unfavorable political and economic situation in
the country and/or region on the business of the main companies of the Group.
It is impossible to determine the specific measures of the Group in case some of the
above events occur in future, as the elaboration of the adequate and relevant measures is
complicated by the uncertainty of the future developments. The parameters of the applied
measure will depend on the specific situation in each case. The Issuer cannot guarantee that the
activities taken to overcome negative fluctuations will lead to considerable change in the
situation as most of the above risks hereof are out of the Issuer’s control.
However, in case of negative impact of the country and regional changes on the Group’s
operations, the Issuer plans to take the following measures to maintain the profitability of the
Group’s operations:
•
•
•
if possible, to save fixed assets until the situation improves;
to undertake measures aimed at sustainment of the Group’s employees and on their
productivity;
to introduce adequate changes to the pricing policy to maintain the demand on the
products on the proper level;
to take additional measures on cost saving, including measures to reduce purchasing
prices and to limit wage expense;
to revise the capital expenditure program. .
In order to minimize the risks related to the force majeure circumstances (military
conflicts, riots, natural disasters, state of emergency) the Issuer 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 expand its operations in different
regions of Russia in order to diversify risks.
Risks related to the possible military conflicts, state of emergency and strikes in the
country and regions where the Issuer is registered as a tax payer and (or) operates its
business.
96
The 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.
According to the Ministry of Emerging Situations of Russia, terrorism is one of the most
real threats to the stable social and economic development of the country as well as to an
improvement of the living standards of population and strengthening of the national security of
the Russian Federation. The danger of the acts of terror still exists on the entire territory of the
Group’s operations, especially in the North Caucasus and the Southern Federal Regions, as well
as in the larger cities of Russia.
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.
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. For example, exposure to natural and climatic
is distinctive
risks,
geographical feature of the Southern Federal District.
including natural disasters (hurricanes, floods, earthquakes, etc)
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 or any other location.
ECOLOGICAL RISKS
Accidents at the environmentally hazardous industrial facilities of the Russian
Federation and environmental pollution may negatively impact the Group’s operations
In respect of all components of the environment (air, water sources, soil and land
resources, wildlife) large industrial cities face the unfavorable ecological situation for
population. The above factors negatively affect the health of the nation. Moreover, nuclear and
other dangerous objects are located in the territory of Russia, while the system of control over
ecologically dangerous objects is not sufficiently effective. Accidents on these objects and an
unfavorable ecological situation in large Russian industrial cities may have an adverse negative
effect on the Group’s activity.
FINANCIAL RISKS
Risks related to the changes of the interest rates, foreign currency exchange rates
associated with the Company’s operation or hedging carried out by the Company to reduce
adverse impact 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
operational results of the companies of the Group.
97
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,
operational results, etc. to the foreign exchange movements (currency risks)
Over the last twenty years Russia faced considerable fluctuations of the exchange rate of
the Russian ruble to the foreign currencies. Substantial ruble devaluation may result in the
reduction of the relative cost of dollar-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 ruble value at the moment of
acquisition.
The Group does not export its products, 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 purchases in favor of the Russian counterparts. Thus,
the rise of such risk may have an adverse 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 ruble devaluation may have a negative effect on the country’s 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/or 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
The Company faces inflation risks which may have an adverse 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 negatively 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 other goods sold by the Company and its subsidiaries, and as a result negatively
influence the competitiveness of the Group.
If the exchange rate of the 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. Due to competitive pressure or legal restrictions the Group
may not be able to properly increase its prices in order to retain its profit rate and, moreover, to
increase its profit rate.
Inflation growth in the Russian Federation may also entail the overall growth of the
interest rates.
98
Inflation indices critical for the Company and prospective measures of the Company
to reduce the risk
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 related to the dependence on the Russian banks
The Russian bank and other financial systems are not properly developed and regulated,
and the Russian legislation related to banks and bank accounts may be interpreted ambiguously
and is applied inconsistently. Nowadays there are a limited number of creditworthy Russian
banks (most part of which have their headquarters in Moscow) that are able to provide services
to a company similar in size of the Issuer. 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
insufficient equity capital or insolvency of some banks.
As a rule the Group supports relations and keeps its accounts only with a limited
joint-stock company
number of reliable creditworthy Russian banks, including public
“Sberbank of Russia” (PJSC “Sberbank”), joint-stock company “ALFA-BANK” (JSC “ALFA-
BANK”), public joint-stock company VTB Bank (PJSC “VTB Bank”), “Gazprombank” (joint-
stock company) and public joint-stock company “ROSBANK”. Bankruptcy of one or several of
the specified banks may negatively affect the Group’s business. Moreover, the lingering and
severe bank crisis or bankruptcy of those banks with which the Group keeps its funds may lead
to inaccessibility to the cash assets for several days or even to the loss of all Group’s deposits in
such banks, which may have substantial negative effect on the Group’s business activity,
operational results, financial position and prospects.
Risks related to the transfer pricing
The Tax Code of the Russian Federation establishes special criteria for determination of
prices for the taxation purposes in transactions executed between related parties. The
established transfer pricing rules significantly increase the tax burden on a taxpayer due to the
necessity of identification and separate records of controlled transactions, “price testing” in
terms of compliance with the market level, preparation of documentation, as well as provision
of notifications of controlled transactions.
The legislation provided for the right of the Russian tax authorities to apply adjustments
to the tax base and to charge additional amounts of income tax with relation to all controlled
transactions, if the price applied to the transaction differs from the range of market prices. The
current law enforcement and judicial practice is contradictory due to different interpretation of
the applied criteria by the Russian tax authorities, arbitration courts and taxpayers. Therefore,
99
tax authorities can try to challenge prices for transactions of the Issuer and its subsidiaries and
adjust accrued taxes.
The law provides for large amounts of penalties for the non-payment or underpayment of
tax amounts as a result of applying in a controlled transaction the price not comparable with
financial terms of transactions between parties which are not related. The amount of these
penalties is 20% of the outstanding tax amount until 2017 and 40% of the outstanding tax
amount but not less than 30 thousand rubles from 2017.
Financial report statements of the Company mostly subject to changes under the
foregoing financial risks (including risks, probability of their occurrence and nature of
changes in reports)
The Group’s expenses and profit are mostly exposed to the influence of the foregoing
financial risks. In case of unfavorable change of the situation upon realization of one or several
risks, the expenses will be the first to grow and will entail profit reduction correspondingly
In case of substantial inflation growth and/or significant ruble devaluation and therefore
the expenses growth, the Group may increase the prices on the products for sale.
Moreover, in case of significant ruble devaluation and growth of inflation and/or interest
rates the Group plans to take the following measures:
revision of the programs of capital investments and loans;
•
• optimize the receivables turnover;
• additional measures to reduce costs;
•
revision of the financing structure.
At the moment hedging of the foregoing risks is not carried out.
The Group is also exposed to 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. Realization of such risk 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
Interest rates growth will
increase the cost of
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
Group’s 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. Thus,
the part of increase of the Group’s expenses will be
compensated by the increase of the product prices.
Such inflation will also lead to devaluation of the real
cost of the ruble obligation.
100
Change of the
exchange rate of
US dollar to ruble
Liquidity risk
(risk of undue
obligation
fulfillment)
LEGAL RISKS
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.
The Company and the Group operate only on the Russian domestic market. The
Company and the Group do not operate and do not plan to operate on the international
market. The description of the risks refers to the domestic market
If one or several of the below risks occur, the Company and the Group will undertake all
possible measures to reduce their negative impact on their operation. The Company does not
guarantee that the measures taken to overcome the negative changes would improve the
situation as the described factors are beyond control of the Company and the Group.
The Company and the Group are exposed to the following legal risks:
Common risks inherent to legal entities according to the legislation of the Russian
Federation:
Certain transactions with participation of the Group’s companies may be acknowledged
related party transactions. These transactions may include, inter alia, sales and purchase
agreements of manufactured goods, purchase of shares and service contracts. If such
transactions or their actual approvals are successfully contested, or if the approval of
transactions of the Group’s companies which require special approval according to the
legislation of the Russian Federation is prevented in future, it may limit the flexibility of the
Group’s companies in the operational issues and may have negative effect on its operating
activity.
In practice, standards of corporate governance remain underdeveloped in many Russian
companies, and minority shareholders of these companies may experience difficulties with the
exercise of their legal rights and may bear losses. Although the Federal Law “On Joint-Stock
Companies” and the Civil Code of the Russian Federation (in the wording of the Federal law
№315-FZ of October 22, 2014) entitle the shareholder (shareholders) to file a claim against (i) an
individual authorized to act on behalf of the joint-stock company under the law, other legal act
or constituent document of this joint-stock company, (ii) members of collective bodies of the
joint-stock company and (iii) individuals who are actually able to determine actions of the joint-
stock company, who caused damage to the joint-stock company by their activity (or inactivity)
and who acted unscrupulously and irrationally during the performance of their duties, Russian
courts do not have enough experience of handling with such claims. Therefore, the feasibility of
investors to get the compensation from the Company is limited. As a result, protection of
interests of minority shareholders is limited.
The Civil Code of the Russian Federation and the Federal Law “On Joint-Stock
101
Companies” provide that the shareholders of the joint-stock company are not liable for its
obligations and are only exposed to the risk of loss of the investments. However, if the
bankruptcy of the legal entity is caused by the shareholders, the owner of the property of the
legal entity or other persons who are entitled to give instructions, which are mandatory for this
legal entity, or otherwise determine its actions, subsidiary liability for the obligations of the
legal entity may rest on them in case of deficiency of the property of the legal entity. Thus,
being the parent company with regard to the subsidiaries in which PJSC “Magnit” directly or
indirectly owns more than 50% of the charter capital, the Company may bear responsibility for
the obligations in the above cases. Responsibility for obligations of the subsidiaries may have
significant negative effect on the financial position of the Company.
Ensuring the rights of shareholders according the Russian legislation may lead to
additional expenses, which may lead to the deterioration of the Company’s performance.
According to the Russian legislation, shareholders who voted against or abstained from voting
on certain issues have appraisal rights. Shareholders have the appraisal rights if they vote
against or abstain from voting on the following issues:
reorganization;
•
• major transaction which is subject to approval by the general shareholders
meeting;
• amendments restricting the shareholders’ rights to the charter of the Company or
ratification of the Charter in a new edition;
• decision to make the statement on delisting of the Company’s shares (exclusion
of securities from the list of securities admitted to trading at the stock exchange)
and (or) issued securities of the Company convertible into its shares.
• Obligation of the Company to buy the shares back may have significant negative
effect on the cash flows of the Company and its ability to manage the debt of the
Group.
Legal risks inherent in the Russian Federation
Weakness of the Russian legal system and imperfection of the Russian legislation
provide vague environment for investments and business activity
Efficient legal system essential for the functioning of the market economy in Russia is
still in the formation process. It is only in recent times that many crucial laws have come into
effect. Sometimes insufficient consensus on the scope, content and period of economic and
political reforms, rapid development of the Russian legal system, which is not always consistent
with the directions for the development of the market relations, are expressed in uncertainty,
inconformity and inconsistency of the provisions of the law and subordinate acts.
Additionally, the Russian legislation often refers to the statutory acts which are to be
adopted, leaving considerable loopholes in the mechanism of the legal regulation. Sometimes
new laws and regulatory acts are adopted without being comprehensively discussed with the
interested participants, whose activity is related to the legal system and/or with the law
enforcement practice, or in the society in general and do not contain any adequate transitional
provisions, which creates serious complexities in their application. Defects of the Russian legal
system may negatively influence the ability of the Group to exercise its rights in accordance
with contracts as well as the ability to defend against the claims of the third parties. Besides, the
Group cannot guarantee that the governmental and judicial agencies as well as the third parties
would not litigate the Group’s meeting of the requirements of the laws and subordinate acts.
102
Risks inherent in the currency regulation
There are risks of the regulation of a number of the currency operations. Significant
changes in the currency regulation and currency control may complicate fulfillment of
obligations under the agreements with the counterparties. In the opinion of the Company’s
management these risks influence the Group as is the case with the other market entities.
The Company conducts continuous monitoring of the regulatory environment of the
currency regulation and control and conforms to the established rules. During the reporting
period there were no amendments introduced to the Russian legislation on the currency
regulation and the currency control which may influence the operations of the Company and
the Group.
Risks inherent in the protection of investors
Russian investor protection legislation may be less favorable than the legislation of the
other countries with the developed market economy. Besides, there is a risk of changes of the
applicable legislation in future which may be unfavourable for investors. Income of the foreign
investors from the investments into the Company’s shares may be taxed in accordance with the
Russian legislation. Deterioration of the general economic and political situation in the country
may result in tightening of the currency regulation and control and in limitation of the
performance of transactions with the Company’s shares.
Risks inherent in the tax legislation
Tax legislation of the Russian Federation is exposed to frequent changes. In the
Company’s opinion these risks influence it as is the case with the other market participants. The
following amendments in the Russian tax system may negatively influence the operations of the
Group’s:
The following factors may negatively influence the operations of the Group:
• Amendments of the acts of the tax and levy legislation related to the increase of the tax
•
rates; and
Introduction of new taxes.
These amendments, if they are significant, as well as other significant amendments of
the tax legislation may result in the increase of tax payments and consequently in the reduction
of the net profit of the Company. Amendments of the Russian tax legislation may negatively
influence the attractiveness of investments in the Company’s shares.
Russian companies make considerable tax payments of the great number of taxes. These
taxes, inter alia, include:
•
Income tax;
• Value added tax;
• Excise taxes;
• Land tax; and
• Property tax.
Legislative and subordinate acts which regulate the above taxes lack sufficient history of
application compared to the other countries. Therefore, the law enforcement practice is often
ambiguous or is not yet established. Currently there are very few generally accepted
clarifications and interpretations of the tax legislation. Different ministries and authorities often
have different interpretations of the tax legislation, which creates uncertainty and grounds for
the conflict.
Tax system in Russia changes frequently, and the tax legislation is inconsistently applied
on the federal, regional and local levels. Due to vague legislation the Group is exposed to the
103
risk of material penalty fees despite the Group’s efforts to comply with the legislation, which
may lead to the increase of tax burden. The Company is aimed at complying with the applicable
tax legislation in full, which, nevertheless, does not eliminate the potential risk of division of
opinions with the relevant regulatory bodies on controversial issues. At present, tax
administration is relatively inefficient, and the government may have to introduce new taxes to
increase its income. Thus, the Company may have to pay considerably higher taxes, which may
negatively influence the business, operational results and financial position of the Company
and the Group. In the course of operations the Company conducts operational monitoring of
the tax legislation and enforcement of the applicable legal provisions. The Company estimates
and forecasts the extent of potential negative influence of amendments of the tax legislation
aiming efforts at minimization of risks related to such changes.
Generally, the tax risks inherent in the Company’s activity characterize most of the
businesses operating on the territory of the Russian Federation and may be regarded as
national.
Risk inherent in the impossibility of foreign investors to export the return on shares
of the Company
Today, the Russian legislation on dividend payment sets forth that dividends on shares
in rubles may be paid to the shareholders without limitations. Possibility of the foreign
investors to convert rubles into any freely convertible currency (“FCC”) depends on the
availability of such currency on the Russian exchange markets. Although in Russia there is the
market for conversion of rubles into FCC, including trading on the exchange market of the
Moscow Exchange as well as over-the-counter markets and currency futures markets, further
development prospects of this market remain vague.
Risks inherent in the customs control and duties
Changes of customs control and duties may entail the increase of the purchasing prices
on the imported goods, which may result in the decrease of the Group’s income.
The Company and the Group are exposed to certain risks inherent in amendments to the
customs legislation regulating the setting of the procedure of movement of goods across the
customs border of the Russian Federation, setting and application of the customs regimes and
introduction and levying of customs payments.
The Company is aimed at complying with the requirements of the customs control,
processing of all documentation necessary for import transactions in time and has sufficient
financial and personnel resources to follow the regulations of the customs legislation.
Risks inherent in the requirements of licensing of the primary activity of the
Company or licensing of the rights of use of objects which are limited in the turnover
(including natural resources)
The primary activity of the Company is coordination of operations of the companies of
the Group, lease of property and retail which is not subject to licensing. The companies of the
Group have the license for the retail sale of alcohol consumed not in the point of sale. If the
licensing requirements change, the Company will operate under the new requirements
including re-issuance and obtaining of the new licenses. The Company does not use the objects
with the limited presence in the turnover (including natural resources). The Company assesses
risks inherent in the licensing requirements minimal.
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Risks related to the change of the judicial practice on issues related to the Issuer’s operation
(including licensing issues) which adversely affect the results of its operation, as well as the
results of the current legal proceedings in which the Issuer is involved
While carrying out commercial activity and making business decisions, the Issuer takes into
consideration the law enforcement practice in order to estimate and forecast possible scenarios and to foresee
the risks.
The Issuer regularly monitors decisions made by the high courts and estimates the trends
of the law enforcement practice, formed at the level of district arbitration courts, actively
implementing and using it not only for the protection of its rights and legitimate interests
through legal proceedings but also for the resolution of legal issues arising in the course of the
Company’s operation. Therefore, the risks related to the change of the judicial practice are
considered to be insignificant.
Risk of loss of business reputation (reputational risk)
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.
The “Magnit” word 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, including 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. 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.
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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.
Strategy risk
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 in regions with the maximum concentration of existing stores (in
the Southern, North-Caucasian, Central and Volga federal districts) and 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 the chain 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 operational results;
-Ability of the operating professional team to carry out the projects on business
expansion and subsequently to manage it. The abilities of the operating management team may
turn out to be insufficient for maintenance of the operation efficiency within the conditions of
dynamic expansion. Business expansion makes it more complicated to manage the Group in
terms of operation and increases the workload upon employees. Therefore, the improvement of
operational and financial systems together with control measures and procedures will be
required. Furthermore, the systems of purchasing, logistics, information technologies,
accounting, financing, marketing and sales will need to be revised. If the Group fails to update
the management system in time, it may negatively affect the business activity, operating results
and financial position;
-Success of the Group’s expansion in new regions 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 appropriate for each region and establish the
effective 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 managed to achieve
in the past. Due to the increase of the competition in retail sector, the effectiveness of the
Group’s marketing campaign may considerably decrease in the future which will reduce the
amount of its customers and consequently reduce the sales turnover. Moreover, 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
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formats the Group plans to carry out the independent construction/acquisition of premises and
purchase the equipment for the stores more actively than before, 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 retail chain expansion rates against the scheduled strategy and result in the loss
of the Group’s market share in favor of competitors;
-Competition level in some regions at the moment of the store openings by the Group
may prove to be extremely high for Group to enter the markets of these regions, which will not
allow to achieve the expected profitability level; and
- Within the economic slowdown on the regional markets, the retail chain expansion on
new territories 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.
Risks related to the Company’s operation
The Issuer is involved in a number of legal proceedings which arise in the ordinary course
of business and do not pose any material risk to the financial and operating performance of the
Issuer.
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 drinks is subject to licensing
which relates to 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 parties’ debts
including the subsidiaries of PJSC “Magnit”
The Issuer provided the security in the form of the guarantee for the purpose of
obtaining of credits by JSC “Tander” (the main operating company of the Group which controls
the trading division and is the center of profit consolidation of the Group). The Issuer is liable to
creditors for the fulfillment by JSC “Tander” of its obligations in full, including repayment of
credit amounts, payment of interest in credit, fees and penalties.
At the moment the Issuer considers that JSC “Tander” is able to fulfill its obligations
properly. However, as the majority of the risks are out of the Issuer’s control, the Issuer cannot
entirely exclude their occurrence in future, which may negatively affect the ability of JSC
“Tander” to fulfill its obligations properly, which in turn may cause material adverse effects to
the operation of the Group.
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 PJSC “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.
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Other risks related to the Company’s operation
As the Company exercises 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
The 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 operational 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, dominant 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.
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, Aslan Shkhachemukov, Denis
Fedotov, Ilya Sattarov and Marina Ivanova. According to the labor contracts entered between
the Group’s companies and the some bodies indicated above, they have the right to resign office
by filing the notification 1 month prior to the dismissal. The Group is not insured from the harm
which can be caused to the Group by the loss (discharge) of its leading specialists and top
managers.
The Company strives to hire the most qualified and experienced personnel, and adjust
its compensation policy to the changing standards of the Russian labor market.
The loss of one or more managers or failure to attract and motivate extra highly skilled
employees required for effective management of a large-scale business may have material
negative effect on the business activity, operating results and financial position of the Group.
Risks related to the accounting and control system
The system of the Group’s financial and management reporting currently operating is
based on the volume of operations exercised by the Group within the certain period of time. In
case of substantial business expansion of the Group, the technical level of the accounting and
control system may fail to meet the requirements of the information processing efficiency and
lead to the delays in receiving the adequate data for making tactic and strategic management
decisions and thus damage the effective operation of the Group.
The risks related to the computer network failure
Managing and processing of operational and financial information in the Group is
carried out via electronic devices of information transmission and processing including the
network of the personal computers, access to Internet and system of financial accounting and
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automated system of stock management. As a result, effectiveness of operational performance
of the Group as well as its ability to collect, process and provide in time adequate data to adopt
accurate management decisions depend on the efficient 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 in the future there will be no serious systemic failures
resulting in interruption of functioning of the network or significantly slowing its functioning.
The blackout in computer network or system failures resulting in interruption of functioning of
the network or significantly slowing its functioning may lead to the sudden interruptions of
customers service, failures in the stock registration system, degradation of the customer service
quality and damage to the goodwill of the Company and the Group, 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 protection of intellectual property
If the Group fails to successfully protect its rights for the intellectual property or
successfully prove that it shall not be liable for it or forfeit any rights for the intellectual
property due to claims from the third parties for the intellectual property, supposedly caused
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, trademarks 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
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effect, including the problems of using 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.
Risks related to the Company’s plans to increase the sales of the private label
products and the development of new brands
The expansion strategy of the Group presupposes the growth of sales of private label
products (“for “Magnit” stores”). 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
forced interruption of activity, damages to the Group’s property or responsibility to the third
parties
The Group does not apply insurance for the forced 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 centers, 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, in case of occurrence of any of such uninsured risks they 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 operational results, financial position and
prospects.
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16. KEY ASPECTS OF THE SOCIAL AND ENVIRONMENTAL POLICY
SOCIAL RESPONSIBILITY
“Magnit” retail chain is Russia’s largest non-governmental employer. As of December
31, 2016 the company’s total headcount comprised 271,369 employees, out of which:
200,233 – in-store personnel,
35,651 – people engaged in distribution,
21,654 – people in regional branches,
11,151 – Head Office employees,
2,680 – other personnel (own production, LLC “Magnit Energo”, LLC “Green Line”
greenhouse complex).
Each week Magnit opens several hundred job vacancies. The company offers a decent
salary and the extended number of the employee benefits including seniority bonuses,
corporate pension programs in the company’s own pension fund, corporate mobile
communications plans, corporate taxi services, corporate educational programs, discount tours
and tours, 60% of cost of which are paid by the company, for the company’s employees and
their children, special offers on the services of the company’s partners, gym for the Head Office
employees etc.
The company operates in accordance with the Labor Code of the Russian Federation
and the company’s internal regulations on staff relations.
Magnit is strongly committed to the principle of equal opportunities, fairness and
tactful attitude towards its employees. In accordance with the “Code of business ethics of PJSC
“Magnit” the company’s high level of business culture is based on the transparency of all
personnel-related procedures, accounting and payment policies, incentives and social measures
taken to ensure the comfortable working conditions of the employees across the company. The
staff business relations are based on the principles of justice, trust, honesty and ethics.
New employees are selected on a competitive basis if their professional knowledge,
skills and experience correspond to the required skills and company’s values.
The company’s hiring process is effectuated in accordance with the “Recruitment
regulations”, which reflect overall rules of the hiring procedure, determination of the hiring
needs, steps to be taken through the recruitment process, procedure of collaboration with the
divisions participating in the hiring process, vacancies closing dates.
All Magnit’s vacancies are publicly available on its official website www.magnit-
info.ru as well as on other job search websites.
Magnit collaborates with the leading universities in the regions with the demand for
students or graduates.
The company regularly participates in career fairs, career and faculty days, organizes
specific courses and provides the students with the opportunity to do internships. In spring of
2016 the company launched a new program “Magnit: new generation”, which includes
provision information about the company, practical training and pre-graduation internship in
the retail chain. Internship is paid by the company at all stages. Over 250 applications from
students were considered for the period of existence of the program, 110 of them were
approved following the results of the competitive selection. More than 70 future specialists have
already taken paid practical trainings in different specializations and continue to get knowledge
of the retail chain. A part of the students has been employed. Within this program the company
cooperates with the leading higher education institutes of Krasnodar region: Kuban State
University, Kuban State Agrarian University and Kuban State Technological University. The
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program “Magnit: new generation” will be implemented on the regular basis. It gives students
an opportunity to get a stable and well-paid job even at the stage of education or immediately
after graduation from the institute. In its turn the company forms a necessary candidates pool
and attracts young specialists.
According to the “Code of business ethics”, all preferences including nationality,
gender, age, religion etc. are prohibited in the company. If an employee experiences any aspects
of biased attitude or discrimination, they may address the special complaints processing
commission, which has an obligation to thoroughly examine the issue.
The salary and incentives of all employees are determined for the specific positions and
do not depend on gender, nationality or age of an employee but only on their performance.
The company’s turnover is one of the lowest in the Russian food retail sector. One of
the company’s priorities is to take consistent steps in order to decrease the turnover rates. That
is why their level has been constantly slowing down and for the last several years almost
halved.
The company’s labor relations fully conform to the provisions of the Russian Labor
Code. Moreover, the company has internal Standards and Regulations based on the legislation,
which stipulate all HR management procedures, payroll calculation, benefits and compensation
schemes, internal labor policies and procedures etc.
All workplaces comply with the legislation and the company’s standards. According to
the latter all workplaces shall be ergonomic, safe and aesthetic.
The company’s Health and safety department closely monitors and assesses the
existing working conditions, elaborates and implements the procedures of their enhancement.
Magnit conducts projects related to health and safety culture development, labor
protection and the development of the occupational risk management system and practice.
Under these projects Magnit implements the following priorities of its labor protection policy:
• health and safety protection of the company’s employees,
• compliance with the requirements of the applicable Russian legislation and other labor
protection regulations;
• employees’ engagement in active participation in all labor protection measures and
events;
• constant improvement of the company’s labor protection management system.
The measures taken to ensure that employees are provided with the decent working conditions
are the following:
• All equipment and raw materials are tested and thoroughly examined before their actual
use by the employees;
• Workplaces come under close scrutiny and assessment;
• Organization of health and safety courses, trainings and tests of the employees’
knowledge and understanding of the topic;
• Purchases of the safety clothing, footwear and equipment;
• Mandatory medical examination of the employees;
• Compliance of all buildings, construction and production sites, facilities etc. with the
applicable Russian legislation.
The company keeps the statistics of accidents. As a result of measures taken to reduce
the number of occupational injuries, the total accident frequency rate of the company (number
of accidents per 1,000 employees) in 2016 compared to 2015 decreased by 4.3%, the number of
injuries fell by 3.6%.
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In 2016 the company worked hard and took the following steps to reduce the number
of accidents:
•
safety culture campaign. Information on the labor protection measures taken by
the company is systematically published in "Nash Magnit" corporate newspaper;
•
•
improvement of provision of the personal protection equipment;
planned introduction of the new labor safety practices in all business divisions in
compliance with the employment legislation and work safety regulations;
•
regular notification of employees of the occupational safety rules: allocation of
visual materials, such as instruction sheets and occupational safety stands, demonstration of
videos about safe working methods in all business divisions of the company;
•
development of the "Regulations on the safety management system" in the
company including the procedure of the special assessment of the working conditions in
accordance with the legislation;
•
development and introduction of labor protection regulations by professions and
types or work;
•
holding of regular daily briefings together with the heads of the structural
divisions of the company concerning the safety provision, labor protection and reduction of the
accident frequency rate.
The company has developed and implemented the "Standard on the financial
assistance to employees in difficult straits", according to which in case of a serious disease or
injury the company provides financial help to the employee.
If an employee gets a serious occupational injury, the company takes care of this
person by organizing a special commission in order to monitor the condition of the injured and
to provide a timely financial assistance.
The company has the “Employees and applicants claims commission” which is
authorized to conduct official investigations of claims related to labor and social disputes. The
commission considers objectively each claim from employees and applicants received by the
company’s hotline.
Following the results of claims consideration, the Commission makes decisions on
administrative actions against those responsible, as well as on the change of the company’s
technologies, rules and work standards to settle conflicts, reduce social strain of the personnel
and develop the culture of respect for employees.
As a result of work of the “Employees claims commission” the company can see a
significant decrease in the number of claims to the external labor inspections.
In order to provide employees with additional social guarantees the company
implements a number of social programs, which can be used by any employee regardless of the
length of employment, professional achievements and position occupied.
The company carries out the following social programs:
•
financial assistance of employees in difficult straits;
•
health resort tours partly (up to 60% of cost) paid by the company for employees
who have the need of health resort treatment including the company’s assistance in payment of
transfer to the health resort and back for those employees who work far from the location of a
resort;
•
financial assistance of employees who raise children in one-parent or multiple
children families, as well as disabled children, in payment of recreation, rehabilitation and
treatment;
•
provision of employees with an opportunity to buy tours to health resorts, hotels,
and children’s camps at corporate discount prices;
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•
provision of employees with an opportunity to buy products and use services of
organizations of different business areas on special favorable terms and/or at discounts
provided only to the company’s employees;
corporate pension programs of the company’s own pension fund;
bus service, corporate taxi service;
blood donor assistance for seriously ill employees and their close family
•
•
•
members;
•
•
In 2016 more than 170 thousand employees used the above mentioned social programs.
Apart from various social programs, the company holds different regular corporate
events and motivation programs which are an important and essential part of the corporate
culture of the company and are aimed at:
New Year gifts for children of employees;
free corporate gym to the Head Office employees.
development of corporate culture and team spirit,
recognition of personal and professional achievements,
promotion of sport and attracting employees to a healthy lifestyle.
•
• motivation of employees and increase of loyalty to the company,
•
•
These measures develop, unite and engage employees into participation in the
company’s life. They are aimed at encouragement and recognition of employees and give them
the opportunity of self-fulfillment at and outside work (sport, teambuilding, professional,
creativity competitions).
The company attaches great importance to provision of its employees with the timely
and correct information about its mission, values, culture, development priorities, innovations,
etc.
For these purposes the company uses different tools, such as: portal of internal
communications, corporate newspaper, weekly electronic digest of retail market news, internal
newsletters to the company’s employees, informational stands in different divisions of the
company, various training programs for new employees, holding of regular meetings and daily
briefings, as well as corporate events and teambuildings.
ENVIRONMENTAL RESPONSIBILITY
Environmental policy of the Company is based on the balanced and socially acceptable
combination of economic growth and maintenance of a favorable environment for future
generations. Maintenance of a favorable environment is the Company’s liability and it provides
significant opportunities to increase the efficiency of its development and to reduce costs, and
in some cases to get additional income.
Environmental policy of the Company is based on the Constitution of the Russian
Federation, federal laws and other regulatory legal acts of the Russian Federation, international
legal documents related to the protection of the environment and sustainable use of natural
resources.
The Company has the following liabilities that are fulfilled by it and it requires their
fulfillment by its partners and contractors:
1. To ensure the compliance with all environmental regulations and requirements
established by the legislation of the Russian Federation, international legal documents related to
the protection of the environment.
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2. To ensure a reduction of a negative impact on the environment, efficient use of
resources.
3. To ensure compensation of a possible damage to the environment.
4. To take preventive acts to avoid a negative impact on the environment which means
the priority of preventive measures to avoid a negative impact over the measures to relieve the
consequences of such impact.
5. To increase the energy efficiency of operation processes.
6. To ensure involvement of the Company’s employees in activity related to the reduction
of environmental risks, continuous improvement of the environmental management system,
performance in terms of protection of the environment.
7. To increase the level of awareness and competence of the Company’s employees in
terms of solving the issues of environment protection.
8. To participate in environmental programs and in projects aimed at maintenance of a
favorable environment in the regions of presence.
Mechanisms for implementation of environmental policy liabilities
The main mechanisms for implementation of the Company’s environmental policy
liabilities are:
1. Industrial environmental control and monitor, evaluation of impact of the Company’s
business activity on the environment.
2. Compulsory record-keeping of environmental aspects and evaluation of risks while
planning the activity, developing and implementing projects.
3. Implementation of innovative projects aimed at the increase of energy efficiency, use of
renewable energy resources and nonconventional energy resources.
4. Maximum use of waste as secondary raw materials and energy resources.
5. Application of the best available technologies at different stages of operational
procedures, including purchases of technologies, materials and equipment.
6. Involvement of all employees of the Company in the activity related to the
environmental management system.
7. Improvement of the system of environmental training of the Company’s employees.
8. Interaction with organizations and parties interested in the increase of the
environmental safety of the Company;
9. Communication of the Environmental policy liabilities to all persons working for the
Company or on its behalf, including contractors working at the Company’s facilities.
10. Participation in environmental programs and projects aimed at maintenance of a
favorable environment.
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17. CORPORATE GOVERNANCE
To enhance the attractiveness of the Company for existing and potential investors, PJSC
“Magnit” strives to a full compliance with the best practices and standards of the corporate
governance.
The Company works consistently on maintaining an effective system of corporate
governance by its sustainable development and improvement.
PJSC “Magnit” fully meets the requirements of securities laws, company laws and other
statutory enactments.
Adherence of the Company to the main and most significant principles of the Corporate
Governance Code recommended for application by the Bank of Russia is aimed at the
achievement of a reasonable balance of the Company’s interests as a business entity and as a
joint stock company and at the efficient interaction between shareholders and management of
the Company .
Board of Directors of PJSC “Magnit”
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PJSC “MAGNIT” CORPORATE GOVERNANCE AND CONTROL STRUCTURE
The General Shareholders Meeting is the supreme management body of the Company.
The Board of Directors, elected by the shareholders and accountable to them, provides strategic
management and oversight of the work of the executive bodies, namely the Chief Executive
Officer, the Chairman of the Management Board and the Management Board.
The executive bodies effect the current management of the Company and carry out the
tasks entrusted to them by the shareholders and the Board of Directors.
The Company has built an effective system of the corporate governance and internal
control over financial and economic activity to protect the shareholders’ rights and legitimate
interests.
The Board of Directors oversees the Audit Committee, which in conjunction with the
Internal Audit Department helps the management bodies to ensure the Company’s effective
operation. The Revision Commission monitors the Company’s compliance with the regulations
and the legality of its operations.
The Internal Control and Risk Management Department of the Company was formed for
the purpose of effective organization and functioning of the internal control and risk
management system.
To inspect and verify the Company’s financial statements PJSC “Magnit” invites the
external auditor with no property interest related to the Company or its shareholders.
The HR and Remuneration Committee, which is a part of the Board of Directors,
provides the recommendations on the key appointments and incentives of the members of the
Board of Directors, executive and controlling bodies.
The Corporate governance department which performs functions of the Corporate
secretary was formed in the Company for the purposes of efficient interaction with
shareholders, coordination of the company’s activities in terms of protection of shareholders’
rights and interests, and maintenance of the efficient performance of the Board of Directors.
The Company timely and in full discloses reliable information, including details of its
financial position, economic performance and ownership structure, thereby giving shareholders
and investors the opportunity to make valid decisions.
The information is disclosed in compliance with the Russian legislation and the
requirements of the UK financial regulator, the Federal Conduct Authority (FCA). The
Company also has its own Regulations on the access to insider information, the PJSC “Magnit”
Rules of protection of confidential and insider information and control over compliance with
the legislative requirements against the misuse of insider information and market abuse.
GENERAL SHAREHOLDERS MEETING
The Company’s shareholders participate in the management of the Company by making
decisions at the General Shareholders Meeting. Shareholders may considerably influence the
business by means of voting, specifically, the powers of the General Shareholders Meeting
include approval of the annual report and accounting statements, profit allocation, including
the dividend payment, election of the Company’s core management and control bodies,
approval of major and related-party transactions, and some other important issues.
The procedure of holding of the General Shareholders Meeting is aimed at observance of
the shareholders’ rights and meets all requirements of the Russian legislation, as well as the UK
financial regulator, the Federal Conduct Authority (FCA).
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BOARD OF DIRECTORS
The Company’s Board of Directors is a core element of the PJSC “Magnit” corporate
governance system.
The Board of Directors represents the shareholders’ interests and is responsible for the
increase of the business value by organizing the efficient management.
The Board of Directors of the Company carries out overall management of the
Company’s activities in compliance with the provisions of the Company’s Charter, Regulations
on the Board of Directors of PJSC “Magnit” and the requirements of the legislation of the
Russian Federation.
The main goals of the Board of Directors are the following:
•
•
•
•
to achieve the maximum profit amount and increase the Company’s assets;
to protect the rights and legitimate interests of the Company’s shareholders;
to monitor the executive bodies’ activity;
to ensure that the Company’s public information is complete, accurate and
objective.
Members of the Company’s Board of Directors are elected by the General Shareholders
Meeting for a term lasting until the next annual General Shareholders Meeting. The members of
the Board of Directors are elected by the cumulative voting.
Decisions of the Company’s Board of Directors are approved by the majority of the
Board of Directors’ members participating in the meeting, unless otherwise is stipulated by the
Charter or the Company’s internal documents and the legislation.
Every member of the Board of Directors has one vote while making the decisions at the
Board of Directors meeting.
Meetings of the Board of Directors are held when necessary but at least once in two
months.
The Chairman of the Board of Directors calls a meeting on his own initiative or at the
request of the Board of Directors’ member, the Revision Commission or the Auditor of the
Company, the Chief Executive Officer of the Company and at the request of other persons
specified by the Federal Law “On Joint Stock Companies” and the Company’s Charter.
The Chairman of the Company’s Board of Directors organizes and manages the Board of
Directors work.
In accordance with the best corporate governance practices, in compliance with the
recommendations of the Corporate Governance Code and requirements of the Listing Rules of
the Moscow Exchange, the Board of Directors comprises 3 (Three) independent directors. The
Company uses recommendations of the Corporate Governance Code and other acknowledged
native and foreign criteria for specification of the Board of Directors’ member independence
criteria.
The Board of Directors has two specialized committees:
• Audit Committee;
• HR and Remuneration Committee.
The committees work in compliance with the Regulations on Committees of the Board of
Directors of PJSC “Magnit”.
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The members of PJSC “Magnit” Board of Directors, information on the meetings of the
Board of Directors in 2016 year, report on the operation of the Board of Directors and other
information are represented in the previous sections of the present Annual Report.
MANAGEMENT BOARD
The Management Board is the collective executive body of PJSC “Magnit” which
together with the Chief Executive Officer (Chairman of the Management Board) manage current
operations. The Management Board reports to the General Shareholders Meeting and the Board
of Directors.
The Management Board acts in compliance with the Russian legislation, the Charter and
the Regulations on the Management Board, which has been approved by the General
Shareholders Meeting.
The Board of Directors determines the personal composition of the Management Board,
elects and early terminates the powers of its members every year at the first Board of Directors’
meeting held after the annual General Shareholders Meeting.
The Chief Executive Officer forms a part of the Management Board and performs
functions of the Chairman of the Management Board. The powers of the Chairman of the
Management Board terminate with the powers of a Chief Executive Officer of the Company.
The Management Board is responsible for the Company’s current operations except for
the issues referred to the competence of the General Shareholders Meeting and the Board of
Directors, and implements the decisions adopted by these bodies. More detailed information on
the powers of the Management Board is provided in the Charter of the Company and in the
Regulations on the Management Board of PJSC “Magnit”.
THE CHIEF EXECUTIVE OFFICER – THE CHAIRMAN OF THE MANAGEMENT
BOARD
In accordance with the PJSC “Magnit” Charter, the Chief Executive Officer of the
Company has the full authority to manage the Company’s current operations and resolve the
relevant issues not referred to the competence of the General Shareholders Meeting, Board of
Directors and Management Board of the Company.
The Chief Executive Officer of the Company manages the Company’s operations in
accordance with the provisions of the Company’s Charter, the requirements of the legislation of
the Russian Federation and with the internal documents of the Company.
THE CORPORATE SECRETARY
A special structural division which performs the functions of the corporate secretary –
Corporate governance department – was formed in the Company for the purpose of efficient
interaction with shareholders, coordination of the company’s actions in terms of protection of
rights and interests of shareholders, maintenance of the efficient performance of the Board of
Directors in accordance with the recommendations of the Corporate Governance Code and
requirements of the Listing Rules of the Moscow Exchange. The head of this division is the
Corporate governance director who is the Company’s official.
The Corporate governance department reports to the Board of Directors of the Company.
The main functions performed by the Corporate governance department are:
119
•
•
Involvement in improvement of the system and practice of the company’s
corporate governance;
Involvement in preparation and holding of general shareholders meetings of the
company;
• Maintenance of work of the Board of Directors and its committees;
•
Involvement
implementation of the company’s policy on
disclosure, ensuring storage of corporate documents of the company;
in
information
• Ensuring the interaction of the company with its shareholders and involvement in
prevention of corporate conflicts;
• Ensuring the interaction of the company with regulatory authorities, market
operators, registrar, and other professional securities market players within the
authorities assigned to the Corporate governance department;
Immediate informing the Company’s Board of Directors of all identified law
violations, as well as provisions of the company’s internal documents securing the
compliance of which is a function of the Corporate governance department;
•
• Ensuring of implementation of procedures established by the legislation and the
company’s internal documents, which ensure execution of rights and realization of
legitimate interests of shareholders, and control over their fulfillment.
The Regulations on the corporate governance department of PJSC “Magnit” were
approved by the Decision of the PJSC “Magnit” Board of Directors on May 27, 2016, and
Ekaterina Kister was approved for the position of the Director for corporate governance.
Biographical information:
Name: Ekaterina Kister.
Year of birth: 1978.
Education: higher - in 2000 graduated from the Kuban State University – a law degree.
Information on the primary employment:
- Director for corporate governance of JSC “Tander”;
- Director for corporate governance of PJSC “Magnit” (secondary employment).
BODIES SUPERVISING FINANCIAL AND ECONOMIC ACTIVITY OF PJSC
“MAGNIT”
Internal control and audit of the Group is an essential part of the corporate governance
and one of the most important factors of effective work of the Company. The internal control
and audit bodies ensure the sustainability of PJSC “Magnit” development and protect the
shareholders and investors’ interests, thus increasing the investment attractiveness of the
Company.
Internal control and audit comply with the best world practices and meet the
requirements of the Russian legislation.
The bodies supervising financial and economic activity of PJSC “Magnit” have the
following structure:
• Revision Commission of PJSC “Magnit”;
• Audit Committee of the Board of Directors of PJSC “Magnit”;
•
Internal Audit Department;
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Internal Control and Risk Management Department
•
• External Auditor.
Revision commission of PJSC “Magnit”
The Revision Commission of the Company verifies the Company’s compliance with the
applicable legislation and other statutory acts that regulate its activity and the legality of the
Company’s operations. The Revision Commission is elected at the annual General Shareholders
Meeting of PJSC “Magnit” and consists of 3 (Thee) members. The General Shareholders Meeting
determines its personal composition for the period until the next annual General Shareholders
Meeting.
On June 2, 2016 at the annual General Shareholders Meeting the following candidates were
elected to the Revision Commission:
1. Roman Efimenko;
2. Anzhela Udovichenko;
3. Denis Fedotov.
On December 8, 2016 at the extraordinary General Shareholders Meeting the decision to
early terminate the authorities of the members of PJSC “Magnit” Revision commission was
made and the following candidates were elected to the Revision Commission:
1. Roman Efimenko;
2. Anzhela Udovichenko;
3. Lyubov Shaguch.
Audit committee of PJSC “Magnit” Board of Directors
The Audit Committee was established in accordance with the Regulations on the
committees of PJSC “Magnit” Board of Directors.
The committee is established by the decision of the Board of Directors which determines
its quantitative and personal composition and elects the Chairman of the Committee.
The Committee consists of 3 (Three) members.
The Committee members are elected for the term until the termination of the Board of
Directors’ powers.
The audit committee performs the following functions:
1) In terms of accounting (financial) statements:
to ensure that the company’s financial statements are complete, accurate and credible;
•
• analysis of the material aspects of the accounting policy of the company;
• participation in consideration of material issues and judgments related to the accounting
(financial) statements of the company;
• analysis of significant changes to the legislation which may influence the accounting
(financial) statements of the company and of the results of inspections of the company
by any regulatory authorities;
cooperation with the Revision Commission and auditors of the company;
•
2) In terms of risk management, internal control and corporate governance:
121
• determination of the operational principles of the system of internal control and risk
•
management;
to ensure that the system of risk management and internal control and the corporate
governance system are efficient and reliable, including assessment of efficiency of
procedures of risk management and internal control of the company, of the corporate
governance practice, and suggestions for their improvement;
• analysis and evaluation of compliance with the company’s policy for the risk
•
management and internal control;
control over procedures ensuring the compliance of the company with the legal
requirements, as well as ethical standards, rules and procedures of the company,
requirements of stock exchanges;
• analysis and evaluation of compliance with the company’s policy for management of the
conflict of interests;
• analysis and evaluation of compliance with the company’s Policy for the risk
•
•
management and internal control;
evaluation of efficiency of the system of risk management and internal control of the
Company and preparation of suggestions for their improvement;
analysis and evaluation of performance of the system of risk management and internal
control, including preparation of suggestions for the system improvement;
3) In terms of performance of the internal and external audit:
•
•
•
•
•
•
•
•
•
•
to ensure that the internal and external audit functions are performed in an independent
and objective way;
consideration of the Regulations on the internal audit;
consideration of the business plan of the Internal audit department;
receipt of the information on the performance of the business plan and of the internal
audit;
consideration and preliminary approval of the decisions on appointment, termination of
appointment and determination of remuneration of the head of the Internal audit
department;
consideration of the existing limitations of authorities or budget for the performance of
the internal audit which can negatively affect the efficient performance of the internal
audit;
evaluation of the efficiency of performance of the internal audit, including the
assessment of the efficiency of the internal and external audit process;
evaluation of independence, objectivity and absence of the conflict of interests of
external auditors of the company, including assessment of candidates for the position of
the company’s auditor, generation of proposals on appointment, reelection and removal
of external auditors of the company, on payment for their services and terms of their
involvement;
supervision over the external audit and assessment of quality of the audit and the
auditors’ conclusions, including the assessment of the company’s external auditors’
conclusions provided for the future provision to shareholders by the company as
materials for the annual General shareholders meeting;
to secure the efficient interaction between the Internal audit department and external
auditor of the company;
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• development and control over company’s compliance with the policy determining the
principles of rendering and combining auditing and non-auditing services by the
auditor to the company;
• preliminary consideration of reports on the results of performance of the Internal audit
•
department;
consideration of any material disagreements between auditors, Revision Commission
and the company’s management related to the accounting (financial) statements;
4) In terms of countermeasures against unfair acts of the company’s employees and third
parties:
•
•
•
to ensure the efficiency of the system of notification of the possible fraud by the
company’s employees and third parties as well as other disorders in the company;
control over the conduct of special investigations on issues of the possible fraud,
dishonest use of the inside or confidential information;
control over the implementation of measures adopted by the executive management of
the company on informing on the possible unfair acts of employees and other breaches,
including the analysis and evaluation of execution of the provisions of the company’s
Code of business ethics;
5) preparation of recommendations for major transactions, related party transactions and
transactions subject to the approval in accordance with the company’s charter, which the
company plans to execute;
6) consideration of issues related to the company’s compliance with its information policy;
7) making decisions on other issues related to the financial activity, risk management,
internal audit, corporate governance in cases when, according the chairman of the Audit
committee, such issue relates to the Committee’s functions.
On June 17, 2015 at the meeting of the Board of Directors the decision to elect the following
3 (three) candidates to the audit committee of the PJSC “Magnit” Board of Directors was made:
Alexander Zayonts, Aleksandr Aleksandrov and Alexey Pshenichniy.
On June 22, 2016 at the meeting of the Board of Directors the decision to elect the following
3 (three) candidates to the audit committee of the PJSC “Magnit” Board of Directors was made:
Alexander Zayonts, Aleksandr Aleksandrov and Alexey Pshenichniy.
Internal audit department of PJSC “Magnit”
According to the PJSC “Magnit” Regulations on the internal audit for the achievement
of the stated objectives the Internal Audit Department performs the tasks on the following main
directions:
1) assistance to the executive bodies of the Company and employees of the Company
in the development and monitoring of performance of procedures and actions on
the improvement of the systems of risk management and internal control and
corporate governance of the Company;
2) coordination of activities with the external auditor of the Company as well as with
the persons providing consulting services in the sphere of risk management,
internal control and corporate governance;
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3) the conduction of the internal audit of subsidiaries of the Company under the
established procedure;
4) preparation and provision to the Company’s Board of Directors and executive
bodies of reports on the Internal Audit Department’s operation results (including
information on existing risks, problems, results and effectiveness of corrective
actions of revealed problems, the results of performance of operating plan of
internal audit, results of evaluation of actual condition, reliability and effectiveness
of the risk management, internal control and corporate governance system);
5) check of compliance with the legislation and policies of the Company, concerning
inside information and anticorruption efforts, by the members of executive bodies
of the Company and its employees.
For the purpose of solution of stated problems and achievement of objectives the Internal Audit
Department performs the following functions:
1. evaluation of adequacy and effectiveness of the internal control system;
2. evaluation of the effectiveness of risk management system;
3. evaluation of corporate governance;
4. auditing in accordance with the approved performance plan of internal audit;
5.
conduction of other verifications, performance of other tasks on request/ by order of
the Board of Directors (Audit Committee of the Board of Directors and/or executive
bodies of the Company) within their competence;
consultation of executive bodies of the Company on the issues of risk management,
internal control and corporate governance (under the condition of securing of
independence and objectiveness of internal audit activity);
6.
7. development of internal control operation plan;
8. preparation and provision to the Board of Directors (Audit Committee of the Board
of Directors) and the sole executive body of the Company the report following the
operating results of internal audit;
cooperation with the divisions of the Company regarding to the internal audit
activity;
9.
10. control of rectification of violations detected following the verifications and
employee investigations;
11. analyses of audit results of
the Company, control of development and
implementation of plans and procedures of rectification of violations detected
during the auditing;
12. preparation of proposals on the improvement of internal control procedures;
13. development of documents regulating the activities of Internal Audit Department.
Based on the principles of the Corporate governance code and the corresponding
international policies and standards, the Internal audit department evaluated the level of
organization and performance of the system of internal control and risk management of PJSC
“Magnit” for the year 2016.
Evaluation of the level of organization and performance of the system of internal
control and risk management of PJSC “Magnit” for the year 2016 was conducted in accordance
with the Information of the Ministry of Finance of Russia No. PZ-11/2013 "Organization and
implementation of economic entity's internal control performed facts of economic life,
accounting and accounting (financial) statements", COSO framework “Internal Control -
Integrated Framework” (2013), COSO framework “Enterprise Risk Management - Integrated
Framework” (2004).
124
The evaluation was conducted in terms of components of the process of internal
control and risk management: internal (control) environment, targets setting, event definition,
risk assessment, risk response, means of control, information and communications, monitor.
Parameters were identified for the components of the process of internal control and risk
management, and the current state of the parameters characterizing the level of organization
and performance of the system of internal control and risk management according to COSO
was determined.
According to the results of evaluation of the Internal audit department, the current
level of organization and performance of the system of internal control and risk management
was recognized as well-established and meeting the requirements of the Company.
The report of the Internal audit department on organization, performance and
efficiency of the system of internal control and risk management of PJSC “Magnit” for the year
2016, containing the evaluation results, was reviewed by the Company’s Board of Directors at
the meeting on March 28, 2017. Following the results of the report consideration the findings of
evaluation of the system efficiency and suggested measures for its improvement were
approved.
In December 2016 the Board of Directors approved the business plan of the Internal
audit department for the year 2017.
Internal control and risk management department of PJSC “Magnit
The Internal Control and Risk Management Department was formed for the purpose of
effective organization and functioning of internal control and risk management system in the
Company.
For the achievement of specified goals the Internal Control and Risk Management
Department performs the following tasks:
- building of corporate system of internal control and risk management of the
Company;
- general coordination of internal control and risk management processes;
- development of methodological documents in the field of securing of the internal
control and risk management process;
- organization of procedures regarding to the identification, classification, analysis,
-
managing and monitoring of risks in the sphere of Company’s activities;
assuring of the process of development and realization of risk management
activities;
- preparation of recommendations on the determination of the risk appetite of the
Company and estimation of the level of acceptable risk of the Company (the level of
risk tolerance of the Company);
analysis of risk portfolio of the Company and generation of proposals on the order of
response to the correspondent risks;
-
- monitoring and control of risk management procedures of the Company, as well as
satisfying the requirements of internal regulations in the sphere of internal control
and risk management;
- making recommendations focused on improvement of effectiveness of control
procedures, reduction of influence of realized and potential risks of realization of
business processes;
formation of consolidated reporting on the risks of the Company;
-
125
-
efficient verification of internal control and risk management process by the
divisions of the Company and in the established procedure by subsidiary companies;
- organization of consulting of Company’s employees in the sphere of internal control
-
and risk management;
informing of the Company’s Board of Directors and executive bodies of the
organization of internal control and risk management processes, as well as of other
issues, required by the Policy.
Independent auditor
Ernst & Young LLC (Taxpayer Id. Number 7709383532), registered in the Russian
Federation at 77 Sadovnicheskaya embankment, building 1, Moscow, was approved as the
auditor of the consolidated financial reports of the Company prepared in accordance with the
International Financial Reporting Standards by the annual General Shareholders Meeting on
June 2, 2016. Ernst & Young LLC is a member of the Self-regulatory organization of auditors
“Russian union of auditors” (Association) (SRO RUA) (Certificate of October 20, 2016, decision
No. 274 of 20.10.2016, Principal Number of Registration Entry 11603050648) and is one of the
global leaders in the audit services.
Ernst & Young LLC is part of Ernst & Young Global Limited.
Ernst & Young Global Limited received worldwide recognition and was awarded
many times for the high quality of services and unique corporate culture.
In the reporting year the auditor conducted the audit of the consolidated financial
statements of PJSC “Magnit” and its subsidiaries in accordance with the IFRS for the year 2016.
Following the results of the conducted audit, the auditor of PJSC “Magnit” expressed
an opinion on the fair presentation of the consolidated financial statements prepared in
accordance with the IFRS.
Audit Firm “Faber Lex” LLC, located at 144/2 Krasnykh Partisan Street, Krasnodar,
was approved as the auditor of the accounting (financial) statement of the Company for 2016
year prepared in accordance with the Russian Accounting Standards by the annual General
Shareholders Meetings on June 2, 2016.
AF “Faber Lex” LLC is a member of the Self-regulatory organization of auditors
“Russian union of auditors” (Association) (SRO RUA) with the main registration number
(Principal Number of Registration Entry) of 10203002910, Certificate of membership in SRO
RUA of 03.08.2016.
Following the results of the conducted audit, the auditor of PJSC “Magnit” expressed
an opinion on the fair presentation of the financial position of the Company in all respects in the
accounting (financial) statements.
INFORMATION ON THE COMPLIANCE WITH THE PRINCIPLES AND
RECOMMENDATIONS OF THE CORPORATE GOVERNANCE CODE
Within the preparation of the report on the compliance of PJSC “Magnit” with the
principles and recommendations of the Corporate Governance Code the evaluation method and
prospective form of the report recommended by the Letter of the Bank of Russia №ИН-06-52/8
as of 17.02.2016 were used.
The report is an integral part of the present Annual Report and contains in the annex
hereto (ref. Annex №6).
126
ENHANCEMENT OF MODEL AND PRACTICE OF CORPORATE GOVERNANCE
The corporate governance of PJSC “Magnit” is performed in accordance with the current
legislation of the Russian Federation and the Charter of the Company in compliance with the
rules and traditions of the corporate governance, which correspond to the basic Russian and
international standards and contribute to the creation of a positive image of the Company in the
eyes of investors, clients and employees. PJSC “Magnit” constantly masters new methods and
approaches and rejects from the practice, which doesn’t meet current requirements.
In 2016 the Company extensively introduced the standards recommended by the
Corporate Governance Code, in particular:
1. On March 29, 2016 the PJSC “Magnit” Board of Directors approved the Internal control
and risk management policy for the purpose of establishing the rules of organization of activity
in terms of forming the system of internal control and risk management and securing the
performance of the efficient system of internal control and risk management, consistent with the
values and the Company’s areas of activity.
The key issues set out in this document are:
- establishment of targets, tasks, principles and components of the process of the internal
control and risk management;
- determination of the levels of the system of internal control and risk management bodies
and distribution of obligations and authorities between them;
- determination of the procedure of interaction of management bodies, divisions and
executives performing functions within the system of internal control and risk management.
2. On May 27, 2016 in accordance with the recommendations of the Corporate Governance
Code, the Board of Directors ratified the Regulations on the Public Joint Stock Company
“Magnit" Corporate governance department which performs the functions of the Corporate
secretary in the Company, and approved the nominee for the position of the Director for
corporate governance.
The department provides efficient current interaction with shareholders, coordination of
the Company’s actions in terms of protection of rights and interests of the shareholders,
maintenance of the efficient performance of the Company’s Board of Directors, as well as
compliance of the Company with the applicable legislation securing exercise of rights and
legitimate interests of shareholders.
3. On May 27, 2016 the Board of Directors approved the Regulations on the dividend
policy in the new edition.
The Regulations on the dividend policy of PJSC “Magnit” have been brought into
conformity with requirements of the applicable legislations and recommendations of the
Corporate Governance Code.
4. On December 15, 2016 the Board of Directors of PJSC “Magnit” ratified the Regulations
on the committees of the PJSC “Magnit” Board of Directors in the new edition.
The Regulations on the committees of the PJSC “Magnit” Board of Directors have been
brought into conformity with requirements of the applicable legislations, Listing Rules of CJSC
“MICEX Stock Exchange” (presently – PJSC “Moscow Exchange”) and recommendations of the
Corporate Governance Code.
127
Among material amendments to the legislation of the Russian Federation for 2016 there is
reorganization of corporate actions, namely, entry into force of the provisions of the federal
laws “On Joint Stock Companies”, “On Securities Market” and “On the Central Depositary,
introduced by the Federal law No. 210-FZ of 29.06.2015 and establishing, but not limited to, the
following provisions of the reform:
the approach to the listing of securities holders has been changed;
•
• a new procedure of exercise of rights has been introduced for the conduction of
•
corporate operations centrally through accounting system institutions;
the central depositary has been entitled to establish the form of electronic
interaction at the exercise of rights for securities;
• new ways of participation of securities holders in general shareholders meetings
have been introduced — in particular, voting in an electronic form using the
services of the depositary and voting in an electronic form in the Internet.
By the end of 2017 it is planned to bring some internal documents of the Company,
particularly Regulations on the information policy, into compliance with the recommendations
of the Corporate Governance Code.
128
18. INFORMATION ON THE AUDITOR AND THE CONSULTANT OF THE
COMPANY
Under the resolution of the annual General Shareholders Meeting of June 2, 2016
(minutes of 03.06.2016) the auditing firm AF “Faber Lex” LLC was appointed as the Company’s
auditor in accordance with Russian Accounting Standards for the year 2016.
Among the factors which were taken into account to choose the auditing firm are:
duration of auditing company, the cost of auditing services, the number of employees and their
qualification.
Information on the auditor of the Company which conducted the audit of the
statements of the Company for the year 2016 in accordance with the Russian Accounting
Standards:
The auditor of the Company in 2016 was Limited Liability Company Auditing Firm
“Faber Lex”, address: 144/2 Krasnykh Partizan Street, Krasnodar.
AF “Faber Lex” LLC is a member of the Self-regulatory organization of auditors
“Russian union of auditors” (Association) (SRO RUA) with the main registration number
(Principal Number of Registration Entry) of 10203002910, Certificate of membership in SRO
RUA of 03.08.2016.
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 auditor of the Company which conducted the audit of the
statements of the Company for the year 2016 in accordance with the International Financial
Reporting Standards:
The 2015 year statements in accordance with the International Financial Reporting
, address: 77
Standards were audited by Limited Liability Company ”Ernst&Young”
Sadovnicheskaya embankment, bldg. 1, Moscow, 115035, Russian Federation.
“Ernst&Young” LLC is the member of the Self-regulatory organization of auditors
“Russian union of auditors” (Association) (SRO RUA) (Certificate of October 20, 2016, decision
No. 274 of 20.10.2016, Principle Number of Registration Entry 11603050648).
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 street, 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 according to
www.fscorp.ru
129
the requirements of the Regulation on the
information disclosure by the issuer of
securities, approved by FFMS
The number of license of the professional on
the securities market
Date of issue
Period of validity
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
Without restriction on the period of validity
Federal Commission for Securities Market
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 for the part, verified by the auditor
and/or appraiser;
- Expertise of the documents filed to the registration authority for the prospectus
registration;
-
Signing of documentation, which might be required from the Company for
organization of stock trading with the trade organizers;
- Consulting on securities issue, including information disclosure on the securities
market according to the requirements of the legislation.
130
19. INFORMATION ON THE VOLUMES OF THE UTILIZED ENERGY RESOURCES
WITHIN 2016
Type of energy
resources
Nuclear energy
Heating energy
Electrical energy
Electromagnetic
energy
Oil
Petrol
Diesel oil
Furnace oil
Natural gas
Coal
Shale oil
Peat
Other:
Unite of measure
Utilization capacity in
volume terms
Utilization capacity in
money terms,
thousand rubles
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The quantitative
accounting is not
maintained
The quantitative
accounting is not
maintained
-
-
-
-
-
The quantitative
accounting is not
maintained
-
-
-
-
-
861.7
2,187.1
-
-
-
-
-
419.9
-
-
-
-
Other types of energy resources, except for those specified in the table, were not consumed and
used in the reporting year.
131
20. MANAGEMENT RESPONSIBILITY STATEMENT
I confirm that:
-
-
the financial statements prepared in accordance with International Financial
Reporting Standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and its consolidated subsidiaries
taken as a whole; and
the management report includes a fair review of the development and
performance of the business and the position of the Company and its
consolidated subsidiaries taken as a whole, together with a description of the
principal risks and uncertainties that they face.
On behalf of the Management Board,
Sergey Galitskiy
CEO, Chairman of the Management Board
132
ANNEXES TO FY 2016 ANNUAL REPORT OF PJSC “MAGNIT”
ANNEX No. 1: Consolidated financial statements of PJSC “Magnit” for the year ended on
December 31, 2016.
ANNEX No. 2: Consolidated financial statements of PJSC "Magnit" for the year 2016
prepared in accordance with the Federal law N 208-FZ "On consolidated financial
statements".
ANNEX No. 3: Accounting report of JSC “Tander” for the year 2016 prepared in accordance
with RAS:
Auditor’s report of “Faber Leks” Audit Limited Liability Company of the annual accounting
report of JSC “Tander” for the financial year 2016
Accounting reports of JSC “Tander” for the year 2016
Explanations to the accounting reports of JSC "Tander" for the year 2016
ANNEX No. 4: Accounting report of PJSC “Magnit” for the year 2016 prepared in accordance
with RAS:
Auditor’s report of “Faber Leks” Audit Limited Liability Company of the annual accounting
report of PJSC “Magnit” for the financial year 2016
Accounting reports of PJSC “Magnit” for the year 2016
Explanations to the balance sheet and income statement of PJSC "Magnit" for the year 2016
ANNEX No. 5: Transactions executed within the year 2016 considered related party
transactions according to the Federal law “Оn Joint Stock Companies”.
ANNEX No. 6: Report on the compliance with the principles and recommendations of the
corporate governance code for the year 2016.
133